Photo: JLPC. Sun Life Financial Introduces Roland Driscoll as Head of International Sales
Sun Life Financial has appointed Roland Driscoll as the new Global Head of International Sales (Investments) for its Bermuda-based SLF International business unit (SLF International).
Through our SLF International business unit, Sun Life Financial provides offshore financial solutions specifically designed to meet the objectives and concerns of affluent and high-net-worth individuals residing outside of the United States, Canada or Bermuda. The SLF International investments sales teams and field offices in Dubai, Panama and Singapore will report to Roland.
“Under Roland’s leadership, the sales team will continue to represent and position our investment solutions for affluent and high-net-worth clients to the international financial advisor community with commitment, enthusiasm and certainty,” said Mark Rogers, Vice-President, International Investments Distribution, SLF International.
Andrew Darfoor, Senior Vice-President and General Manager, SLF International added: “We believe our integrated customer proposition, encompassing investment and intergenerational wealth transfer solutions, has huge potential for growth in all our markets. Roland brings a vast array of experience with him and will form an important part of the senior distribution team responsible for seeking out new growth opportunities and ensuring we are delivering a first class proposition to advisers and customers.”
With over 25 years of sales, distribution and offshore experience, Roland joins Sun Life from Old Mutual (Bermuda) Ltd., where he spent the last six years as Senior Vice-President, Global Distribution. Prior to Old Mutual, Roland was at JP Morgan Chase & Co. for over 20 years where he was involved in international sales management in a number of senior roles. Roland holds a Bachelor of Business Administration in Finance from Hofstra University and an MBA from Pace University.
Ben Pakenham, portfolio manager of Aberdeen's Select Euro High Yield strategy. New Issuance Trends in the European High Yield Market
Aberdeen’s European high yield portfolio manager Ben Pakenham gives a brief overview of the high yield market with interesting insight over the quality of new issues.
How do you feel about the progress of the recovery in Europe?
Looking at the Purchasing Manager Index (PMI) measures, Europe is beginning to recover quite strongly, and importantly, we are seeing a convergence between the core and the periphery. Not only that, we have also seen a number of sovereigns that were previously barred from corporate or sovereign bond markets coming back to market, such as Greece. We are also seeing an increasing number of peripheral corporate bonds come to market which we think improves the solvency of those countries and companies overall.
How do you think this will translate into bond market returns?
We don’t think that growth is going to be so strong that we see inflation rebound nor government bond yields spike dramatically. Unemployment remains rather high, and if anything, the ECB seems to be more concerned about deflation than inflation at present. So from that perspective, we think the government bond risk remains far more muted than in perhaps the US. Looking at spreads, today the European high yield market is still discounting that more than a fifth of the market will default over the next five years. However the very positive story driving high yield at the moment is that default rates are low and the outlook remains relatively benign. Moody’s forecast and outlook for default rates remains relatively muted; the best case scenario remains that less than 15% to the market will default over the next five years so we think that we are being well compensated for default risk.
Have improving economic conditions opened up the Euro-new issue market?
We believe The European high-yield market continues to grow and outstrip other high yield markets. We saw nearly 20 billion Euros of new issuance in the 1st quarter of 2014 and 25 new names added to the Merrill Lynch Index. New issuances for the first quarter ran at about 12% above the previous year and remember that 2013 was a record year in terms of issuance for the European high yield market.
How do you feel about the quality of the new issues in the European market?
Year-to-date we believe the quality of issuance continues to be reasonably positive. In fact, the average rating is higher. When looking at last year, we have had more BB rated issuance and leverage levels (which is a function of the fact that we are seeing higher average ratings)have come down from about 4 turns on average in the new issue market in 2013.
Anything to be cautious on with this strong new issuance trend?
The only slight negative I would say when looking at new issuance trends is that the use of proceeds is starting to be used for things other than refinancing. About half of the proceeds year-to-date have been used to refinance existing debts. However, compared to the previous year, a significant amount is being used for general corporate purposes. This would generally be cash on balance sheets to be deployed for either capital expansion programs or for selective M&A. This is something we are keeping a very close eye on. It is also worth pointing out that covenant quality is beginning to decline. Nevertheless we still think that the quality of new issuance remains good when compared against pre-2008 types of issuance. And when you look at the maturity profile, the amounts of debt coming due over the next two to three years remains very manageable. The trigger for default really doesn’t exist in the short to medium term in our opinion.
Photo: "National Grand Theatre detail" by Aurelio Asiain from HIrakata-shi, Osaka, Japan . China will Advance Ahead of Both the UK and Japan to Become the Second Largest Equity Market by 2030
For the most part, emerging nation capital markets remain underdeveloped relative to the size of their economies, despite rapid growth in capital-raising over the past two decades. Emerging markets have a 39% share of global output (or 51% on a purchasing power parity basis) and yet account for only 22% of global equity market capitalization and a 14% share of both corporate and sovereign bond market value, respectively.
Credit Suisse believes this gap will close, driven by a disproportionately large contribution from emerging equity and corporate bond supply (as company capital structures benefit increasingly from lower financing costs via disintermediation of bank loans) and demand (driven by growth in domestic mutual, pension and insurance funds), given relatively high savings ratios prevalent among emerging economies.
In 2030, the United States will retain its ranking as the largest global equity market with a (nominal dollar) capitalization of USD 98 trillion, with a weight of 34.6% (representing a USD 74 trillion gain since 2014), while China advances ahead of both the UK and Japan to become the second largest equity market with a USD 54 trillion capitalization and a weight of 18.9% (representing a USD 50 trillion nominal gain from 2014).
In the proprietary study of Credit Suisse Research Institute “Emerging Capital Markets: The Road to 2030”, the firm extrapolates established historical patterns of growth in emerging and developed capital markets to assist in projecting their absolute and relative dimension and composition of market value by the year 2030.
And Credit Suisse finds a strong relationship between the historical expansion of developed nation aggregate equity and corporate bond market value relative to GDP and gains in economic productivity, and thus using long-term projections of per capita GDP, they are able to make projections for both emerging and developed market equity and fixed income issuance over the 17 years to 2030. And they go on to calculate implied underwriting fees and commissions from primary and secondary capital market activity and then apportion future emerging market equity and fixed income deal revenue between emerging and developed market-domiciled financial services companies employing the evolving observed trends in allocation.
As a result, Credit Suisse estimates that the market value for emerging equities, corporate and sovereign bonds will increase by USD 98 trillion, USD 47 trillion and USD 17 trillion, respectively, in nominal dollar terms between 2014 and 2030, versus gains of USD 125 trillion, USD 52 trillion and USD 24 trillion, respectively, for these asset classes in the developed world.
Hence, the company projects that, by 2030, the emerging market share of global equities will increase to 39%, for corporate bonds to 36% and for sovereign bonds to 27%. Emerging markets may understandably retain their aggregate equity skew toward resources, given their collective characteristic as a net commodity exporter; however, over the duration out to 2030, there will likely be a normalization toward more under-represented industry sectors relative to the developed world, particularly healthcare, industrials and consumer discretionary.
They examine the capacity for growth in assets under management of emerging market domestic mutual, pension and insurance funds to 2030 to absorb incremental equity, corporate and sovereign bond issuance. In total, they forecast this to be USD 6 trillion for equities, USD 16 trillion for corporate bonds, and USD 17 trillion for sovereign bonds.
For the most part, they do not foresee the required development of domestic institutional investment assets under management acting as a hurdle to our forecasts for equity and new bond issuance to 2030. Additionally, sustained foreign portfolio inflows will maintain a further source of demand for emerging market equities and bonds. Should the pace of gross portfolio flows into emerging markets continue to average 1.2% of GDP until 2030, then the cumulative inflows into emerging markets over the duration would amount to USD 10 trillion.
To see the report “Emerging capital markets: the Road to 2030,” use this link.
Mark Carney World Economic Forum 2013. Photo: World Economic Forum from Cologny, Switzerland . Bank of England May Take Away the Punch Bowl as Party Begins
Bank of England (BoE) Governor Mark Carney has already hinted in his annual speech at the Mansion House – at which important economic policies are aired to the City of London audience – that a hike may come sooner than investors expect. Most do not predict one until at least 2015 – possibly before the next UK general election which is due to be held in May of next year.
British rates have been frozen at 0.5% for more than five years. The UK economy has since emerged from the financial crisis and recession, with a growth rate that may reach 4% this year. However, the central bank dare not raise rates too high, says Cornelissen. Aside from threatening a strong economic recovery, it would also prove risky to the highly indebted UK private sector, he says.
Surprising strength of the UK economy
“The UK economy has shown surprising strength in 2014 and is now firing on almost all cylinders,” says Robeco‘s Chief Economist Léon Cornelissen in his monthly outlook. “Jobs are growing at a record pace, average house prices have risen strongly, and all UK regions have experienced growth.”
“It was therefore no surprise that Carney explicitly stated that the first rate hike could happen sooner than markets expect. This comment didn’t fall on deaf ears, so Carney found himself almost immediately forced to weaken the impact of his remarks by stressing that the ultimate decision would be data-driven.”
“Of course, central banks no longer consider it their primary task to take away the punch bowl just as the party gets going. They’ll now do their utmost to err on the side of caution and not hinder the recovery.”
The UK economy in numbers
House prices prompt bubble fears
House prices – the subject closest to most British hearts, due to high levels of home ownership – are approaching bubble territory, particularly in London. The average UK house price rose 12% in the year to June 2014, passing the 2007 peak. The BoE has been pressing for mortgage lending controls and could use a rate rise as a further bubble-bursting weapon.
“Bubble fears are understandable,” says Cornelissen. “Asset price inflation is clearly being used by central banks as a means to stimulate the wider economy into a self-sustaining recovery. But, of course, things can get out of hand.”
“The first line of defense for the BoE concerning the housing market is to introduce limits on the degree to which banks can operate in the risky sections of the mortgage market (so-called macro prudential measures). The BoE has now reintroduced a ‘corset’ for banks, but as the Economist magazine wittily remarked: “As corsets go, this is not unduly tight”.”
Cornelissen says the Taylor rule of economics – used to calculate the level of rates that will stabilize the economy in the short term but still maintain long-term growth – suggests a longer-term UK base rate of as much as 3.0%. “That’s 2.5% higher than the current rate – but then the Taylor rule is, of course, only a rule of thumb, and conditions in the world economy are far from normal.” He cited recent remarks by the BoE’s chief economist, Andy Haldane, who said: “Lots of nutty things are still happening,” justifying the bank’s extremely loose policy stance.
Cornelissen predicts that the BoE will also remain cautious on future rate hikes due to the high indebtedness of the private sector, whose debt pile is currently a hefty 163% of GDP. A rate rise would also increase the government’s own borrowing costs. He believes that 10-year yields on British gilts should rise from their present 2.75% above 3.0% before the year-end, and sterling should show continued strength versus the euro, which is damaging for UK exporters.
Scottish independence and Brexit threats
In the political sphere, Cornelissen believes a Scottish vote for independence due in September could prove damaging for the economy if Scots vote to secede from the UK. There may also be a referendum on the UK – or what remains of it – leaving the EU. British Prime Minister David Cameron has promised one in 2017 if his ruling Tory party is re-elected next May, largely to head off the growing electoral threat of the anti-EU United Kingdom Independence Party (UKIP).
“Though the going seems good in the shorter term for the UK economy, a more long-term worry is the risk of the economic impact of Scottish independence and/or of the UK leaving the EU in the coming years in the so-called Brexit,” says Cornelissen.
“As the size of the Scottish economy is relatively small compared to the rest of the UK, the economic impact of the undoubtedly messy divorce will be relatively small. But the increase in political risk could hit sterling, at least for a while.”
“If Scottish independence does materialize, it would increase the risk of the remainder of the UK leaving the EU if only because Scotland is a Labour Party stronghold.” At present, the pro-EU Labour opposition has 41 members of Parliament compared to only one for the more anti-EU Tories who lead the current British government coalition. This would leave relatively more anti-EU MPs in a future rump Parliament that excluded Scotland.
However, opinion polls suggest a majority of Scots want to remain inside the UK, while a majority of voters across the UK want to remain part of the EU, in both cases for economic reasons. “Enlightened self-interest would suggest a majority of UK voters rejecting a Brexit. We therefore attach a low probability of a Brexit in the coming years of about 20%,” Cornelissen says.
Photo: Tamás Mészöly. Santander Sells 51% of Irish Based Insurance Companies to CNP
Banco Santander and CNP have reached a definitive agreement by which the French insurance company will acquire a 51% stake in the three companies that service Santander’s consumer finance unit (SCF) and which are based in Ireland. Under the terms of the agreement, SCF will distribute on an exclusive basis the whole range of products sold to SCF customers in several countries where it operates, including Germany, Spain and the Nordic countries.
The agreement, which is subject to the relevant regulatory authorizations, values the insurance companies, which distribute life and non-life products through SCF, at EUR 568 million. The transaction, which is expected to close before the end of the year, will generate a net capital gain for Grupo Santander of EUR 250 million, which will be fully used to strengthen the balance sheet.
CNP is a major European life insurer, with around EUR 28 billion of premiums. It is the leader in France while also having a growing international business, with operations in Brazil, Italy and Spain among other countries. The partnership will enable SCF to boost its future insurance business and will deliver better products and quality of service for customers, thanks to CNP’s long track record and expertise in the insurance business, particularly in credit insurance and payment protection.
According to the company, he price of the operation is 395 million dollars (EUR 290 million).
Evercore Wealth Management has announced the appointment of Helena Jonassen as a Managing Director and Wealth Advisor.
Ms. Jonassen joins Evercore Wealth Management from U.S. Trust, where she managed investment accounts as a Senior Trust and Fiduciary Officer. Prior to joining U.S. Trust in 1997, she worked as financial planner and portfolio manager for Train, Smith Counsel in New York. She has 30 years of experience in wealth management.
“We are pleased to welcome Helena to our growing national practice,” said Evercore Wealth Management Chief Executive Officer Jeff Maurer. “She shares our values and will further strengthen our strategic wealth planning team, delivering independent advice and solutions to serve each client’s interests.”
Ms. Jonassen reports to Chris Zander, Chief Wealth Advisory Officer at Evercore Wealth Management. She is based in New York City. She is a graduate of the State University of New York at Albany and holds the Certified Financial Planner designation.
Evercore Wealth Management, a subsidiary of Evercore, serves high net worth individuals, families and related institutions, delivering customized investment management, financial planning, and trust and custody services. Evercore Wealth Management is a registered investment advisor with offices in New York, Minneapolis, San Francisco, Los Angeles and Tampa. The firm manages client assets totaling $5.2 billion as of March 31, 2014. Additionally, Evercore Wealth Management offers personal trust services to its clients through Evercore Trust Company N.A., a national trust bank with $42.3 billion in assets under administration as of March 31, 2014.
ACE Limited announced on Thursday that it has reached a definitive agreement to acquire the large corporate property and casualty (P&C) business of Itaú Seguros, S.A. from Itaú Unibanco S.A. for approximately $685 million. Upon completion of the transaction, ACE, which has a longstanding presence in Brazil, will be the largest commercial P&C insurer in the largest market in Latin America.
The Itaú Seguros large corporate P&C insurance business was established in 2006 and has been 100% owned by Itaú Unibanco, Brazil’s largest non-government bank, since 2009. In 2013, the business had approximately $950 million in gross premiums written and an 18% market share, making it Brazil’s leading commercial P&C carrier for the large corporate market. The business, which focuses on a broad array of property and marine coverages for large corporate accounts, has approximately 320 employees, a national distribution footprint and relationships with more than 600 brokers.
“Brazil is a large and important market to ACE’s strategy in Latin America. The addition of Itaú Seguros’s large corporate P&C insurance business will complement and deepen our longstanding presence in Brazil in a significant way,” said Evan G. Greenberg, Chairman and Chief Executive Officer, ACE Limited. “This is a great opportunity to acquire from one of the region’s largest and most highly regarded banks an insurance market leader that has complementary business lines, national reach, extensive distribution, a diversified portfolio and, importantly, an experienced, professional and talented management team with an underwriting culture similar to ours. We are delighted that they will be joining ACE.”
ACE’s operations in Brazil currently include an established commercial and personal P&C business, a significant accident and health insurance business, as well as life insurance and reinsurance. The transaction, which is subject to regulatory approval, is expected to be completed in the first quarter of 2015 and be accretive to earnings immediately.
ACE Group is one of the world’s largest multiline property and casualty insurers. With operations in 54 countries, ACE provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients. ACE Limited, the parent company of ACE Group, is listed on the New York Stock Exchange and is a component of the S&P 500 index.
Napier Park Global Capital has announced that Dan Kittredge has joined the firm’s private equity group, Napier Park Financial Partners, as a managing director.
“We have known Dan for over fifteen years and have had the privilege of co-investing with him in HealthEquity, one of our current portfolio companies,” said Manu Rana, managing director and co-head of Napier Park Financial Partners. “Dan has an outstanding track record of identifying innovative high-growth companies in financial services and building their value. We look forward to Dan contributing greatly to the Napier Park franchise as we continue to grow.”
“Dan is an excellent addition to our team, bringing broad investment experience in the financial services industry including businesses across many of our target growth sectors, such as payments technology solutions, outsourced administrative technologies, financial product distributors, specialty finance alternative providers, asset management solutions, banking products and insurance related solutions,” added Steve Piaker, managing director and co-head of Napier Park Financial Partners.
Prior to joining Napier Park, Kittredge was vice president of investments at Security Benefit Corporation, a Guggenheim Partners affiliate, where he focused on leading private investments. Before that, he was a principal at Berkley Capital, a subsidiary of W.R. Berkley, where he focused on financial services and financial technology private equity and mezzanine debt investments for over ten years. Kittredge began his investing career at J.H. Whitney, prior to which he was an investment banker initially at Lazard, focusing on financial institutions, and subsequently at Banc of America Securities, focusing on insurance. Kittredge received a BA from Bowdoin College where he majored in mathematics and graduated summa cum laude.
Foto: John Morgan, Flickr, Creative Commons. Seguimos siendo positivos con los activos de riesgo
Global investors have regained a strongly bullish stance on the outlook for equity markets in the second half of 2014, according to the BofA Merrill Lynch Fund Manager Survey for July. An overall total of 228 panelists with US$674 billion of assets under management participated in the survey from 3 July to 10 July 2014. A total of 179 managers, managing US$524 billion, participated in the global survey.
A net 61 percent of global asset allocators are now overweight equities. This ranks as the survey’s highest reading on this measure since early 2011 and represents the panel’s second-strongest response ever.
This aggressivepositioning for recovery in H2 reflects a significant increase in investors’ inflation expectations. A net 71 percent expect global core CPI to be higher in 12 months, up 13 percentage points since last month. This marks a cyclical high for the survey. Exposure to commodities, an asset class especially sensitive to inflation, has risen to its strongest in more than a year.
A growing number of investors now see inflation moving above trend levels while global growth remains below-trend. Confidence in macroeconomic performance still remains fairly high, though. A net 69 percent forecast that the world economy will strengthen over the next year.
Neither valuation nor tail risks deter fund managers from their optimism. A net 21 percent regard stock markets as overvalued – the survey’s highest reading since 2000. Concerns over potential Chinese debt defaults, “asset manias” and eurozone deflation have all faded since last month. The prospect of geopolitical crises now stands out as the greatest tail risk and threat to financial market stability.
“Improving investor sentiment on global growth, inflation, equities and risk-taking are all testament to a potential macro normalization in the second half. This could eventually feed into a normalization of rates. If growth does pick up, volatility will rise too,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research. “As Europe’s recovery falters the region is becoming a global passenger as investors pin their hopes on growth elsewhere,” said Obe Ejikeme, European equity and quantitative strategist.
Qualms over core Europe
Regional investors now see global re-acceleration as the likeliest source of eurozone growth. Thirty-three percent of respondents point to this driver after a rise of eight percentage points month-on-month. It has overtaken a renewed stimulus program as the panel’s primary driver of regional recovery.
Global survey respondents have further postponed the timing of anticipated quantitative easing by the European Central Bank. Twenty-five percent now expect QE to take place in 2015, up from June’s 15 percent, while only 12 percent see it starting in Q3.
Against this background, the panel has lost conviction towards European equities. Only a net 10 percent would now most favor overweighting the region across the next year, down 11 percentage points from June’s reading.
German equities have lost favor in particular. Only a net 12 percent of regional fund managers would overweight this market over the next 12 months, compared to a net 31 percent last month.
Periphery appetite fading
Investors’ appetite for exposure to the eurozone periphery is also declining. U.S. high-yield has overtaken EU peripheral debt (down nine points month-on-month) as the investment trade that fund managers regard as most crowded.
Confidence in periphery equities has fallen, too. Most notably, only a net 3 percent of regional investors now see Italy as one of the European equity markets they will seek to overweight over the next year, down 16 percentage points from last month. Appetite for Spain has barely weakened, however.
Call for capex
For the seventh month in a row, investors’ call for companies to invest more in capital spending has again reached a record high. The reading now stands at an unprecedented 65 percent and is mirrored by a record net 71 percent judging that companies are under-investing – the highest reading since the survey began asking this question in 2005.
Conversely, those wanting companies to return surplus cash are at their lowest level in five years. Only 18 percent of fund managers are looking to companies to institute buybacks or dividend payments – or to make acquisitions for cash.
The Rothschild Group is pleased to announce the appointment of Paolo Scaroni as Deputy Chairman with effect from 1 July 2014. He will work particularly closely with the Group’s Global Financial Advisory business, bringing his wealth of experience in industry to the bank and its clients, especially in the energy and power sector.
Mr Scaroni was, most recently, CEO of Eni, one of the world’s major integrated energy companies, from May 2005 to May 2014.
Announcing the appointment, David de Rothschild said “I am delighted that Paolo Scaroni has agreed to join Rothschild. Having worked with Paolo for many years, I have no doubt that our clients and colleagues will benefit greatly from his deep knowledge of many industries, his experience in managing multinational organisations, and his energetic and entrepreneurial outlook. I look forward to working closely with him.”
Paolo Scaroni said “I am very much looking forward to working with David and the team at Rothschild. In particular, I am excited about the prospect of using the experience I have gained through my different business roles to help the firm’s clients address the strategic issues and opportunities available to them.
Paolo Scaroni obtained an economics degree from Milan’s Bocconi University in 1969 and an MBA from Columbia Business School in 1973. After business school, Mr. Scaroni was an associate at McKinsey and Company. From 1973 until 1985, he was with Saint Gobain, culminating with his appointment as President of the flat glass division. In 1985, Mr. Scaroni became CEO of Techint, and executive VP of SIV, a joint venture between Techint and Pilkington plc. He joined Pilkington plc in 1996 and was CEO until May 2002. Between 2002 and 2005 he was CEO of Enel, Italy’s leading electricity utility, and between 2005 and 2014 he was CEO of Eni, one of the world’s major integrated energy companies.
