Foto: Presidencia de la Nación Argentina. Argentina a través de los ojos de los bonos
Argentina’s long-running legal battle with a group of holdout bondholders is now in its penultimate stages. The US Supreme Court’s decision to deny its appeal, closes one of the key doors that could have led to a neat, market-friendly solution to the holdout problem.The outcome remains uncertain and much will depend on the pragmatism of the government. Price action is likely to remain poor while uncertainty prevails.
Accroding to Vivienne Taberer, portfolio manager at Investec Asset Management, it is a harsh ruling which neither the government nor the market expected, given the negative price action of the past few days. In an address to the nation, President Cristina Fernandez de Kirchner called the ruling, which could result in claims against Argentina of up to US$15 billion, “extortive”. There is support for this view in the country, with the opposition backing the government position to some extent but making it clear that a negotiated settlement would be the best outcome.
What are Argentina’s options from here? There are essentially four possibilities. The first and least likely option would be to default and restructure all outstanding debt. We believe that this has effectively been ruled out as the president has pledged to meet Argentina’s debt obligations, which arose during the Kirchners’ respective terms in office. This option would have the biggest impact on prices, resulting in sizeable further falls in bond prices from here. Despite the government’s recent statement that it would not pay the 30 June coupon to the holdouts, the asset manager do not expect a default on all outstanding debt. However, the likelihood of a technical default has risen, given the limited time between now and the end of the grace period for the coupon payment to be made.
The second option would be to pay the holdouts their US$1.5 billion claim in full. In our opinion this is also unlikely. The government, not unreasonably, believes that this could pave the way for more claims, from other holdouts and from holders of the restructured debt that could amount to as much as US$15 billion.
The third and fourth alternatives open to Argentina remain the most likelyand the ones which we believe the government will pursue concurrently. This is likely to result in volatile price action that will ultimately lead to further underperformance of Argentine bonds, and particularly those issued under New York law.
The third option would entail negotiating with the holdouts through the court of Judge Griesa. Argentina has based its opinion on Griesa’s statement that his ratable payment order does not force the country to default. The judge, however, is not in a position to force a settlement on the parties. Serious questions remain as to the holdouts’ willingness to accept a lesser settlement and Argentina’s willingness and ability to offer better terms than those received by the restructured bondholders.A deal that settles somewhere between meeting the holdouts’ demand for full payment and a price that reflected the same terms as received by the restructured bondholders would no doubt be significant and ultimately lead to a material rally in bond prices.
The last option would entail the government attempting to facilitate a local law swap and seek a way to continue paying the restructured bondholders. It is not at all clear how this would work in practice, and there are not insignificant risks that such a move could challenge Judge Griesa’s order. Given that Argentina is sending lawyers to negotiate with the holdouts, a swap of this nature will likely only happen once a default, even if it is only technical, has already occurred. If this happened, we would expect to see continued pressure on bond prices.
In summary, the direction of bond prices from here remains very uncertain, with risks skewed to the downside. Investec believe the Argentine administration is a lot more pragmatic than it has been in the past and that ultimately the long-term outlook for Argentina is improving. However, they also believe that yields can widen further from here, and that until the situation becomes clearer the asset manager will maintain their underweight.
Fhoto: Innovation Tower. Venture Partners Mexico Launches Its Second Fund
Venture Partners Mexico announces the first closing of its second fund, Venture Innovation Fund II. The firm will focus on service innovation in health care, financial services, mobility and consumer internet; while its investment criteria will weight scalability, superior management, sustained traction and exit potential.
Mexico is among the most promising countries of the emerging economies. In a year, the Federal Government sponsored over 20 reforms that will foster economic competition, foreign investment and boost credit to SMEs. Additionally, its middle-income population is expected to double by 2025. Moreover, its evolving market structures will bring more scalable models to traditional industries. The combination of this larger potential customer base with an innovative business model or the application of technology will create outstanding investment opportunities.
With its second fund, Venture Partners consolidates its position in the Venture Capital industry. Northgate Capital, the premier American Venture Capital fund of funds participates as anchor investor. Among other private investors, Mexico Ventures, the Mexican development bank’s fund of funds, will also participate. The Multilateral Investment Fund, an arm of IDB, and the National Institute for the Entrepreneur, INADEM, are both expected to invest in a second closure.
“We are very excited to have such renowned investors on board. Their combined experience is very knowledgeable both local and globally”, said Fernando Lelo de Larrea, Managing Partner of Venture Partners.
“Venture Partners is uniquely positioned in the Venture Capital industry to take advantage of the resulting opportunities. I believe it is the most active and solid fund and trust that it will be a great investment”, said Eduardo Mapes, Principal in Northgate Capital Mexico.
Federico Antoni, Managing Partner of Venture Partners, mentioned: “Mexico presents a great investment opportunity. Through Series-A investing we will enable entrepreneurs to create new markets”.
Wikimedia CommonsFoto: BNP Paribas Paris. Foto cedida por el banco francés. BNP Paribas se declara culpable y acuerda pagar 8.900 millones de multa a EE.UU.
BNP Paribas announced a comprehensive settlement of the pending investigation relating to US dollar transactions involving parties subject to US sanctions, including agreements with the U.S. Department of Justice, U.S. Attorney’s Office for the Southern District of New York, the New York County District Attorney’s Office, the Board of Governors of the U.S. Federal Reserve System (FED), the New York State Department of Financial Services (DFS), and the US Department of the Treasury’s Office of Foreign Assets Control (OFAC), said the french bank in a statement.
The settlement includes guilty pleas entered into by BNP Paribas in relation to violations of certain US laws and regulations regarding economic sanctions against certain countries and related recordkeeping. BNP Paribas also agrees to pay a total of USD 8.97 billion (Euros 6.6 billion). Beyond what has already been provisioned, this will result in an exceptional charge of Euros 5.8 billion to be booked in the second quarter of 2014. BNP Paribas also accepts a temporary suspension of one year starting 1st January 2015 of the USD direct clearing focused mainly on the Oil & Gas Energy & Commodity Finance business line in certain locations.
BNP Paribas has worked with the US authorities to resolve these issues and the resolution of these matters was coordinated by its home regulator (Autorité de Contrôle Prudentiel et de Résolution – ACPR) with its lead regulators. BNP Paribas will maintain its licenses as part of the settlements, and expects no impact on its operational or business capabilities to serve the vast majority of its clients. During 2015, the activities of the perimeter concerned will clear US dollars through a third party bank instead of clearing through BNP Paribas New York and all necessary measures are being taken to ensure smooth transition and no material impact for the clients concerned. BNP Paribas notes that part of the Group’s USD clearing is already done today through third party banks.
Based on its estimates, BNP Paribas expects its fully loaded Basel III CET1 ratio as at 30 June 2014 to be at around 10%, consistent with the Group’s targets announced within its 2014-2016 business development plan. This estimate takes into account in particular solid underlying second quarter net results and pro rata temporis the current intention of the bank to adapt its dividend for 2014 to a level equal to that of 2013 (1.50 euros per share).
In advance of the settlement, the bank designed new robust compliance and control procedures. Many of these are already in force and are working effectively, and involve important changes to the Group’s procedures. Specifically:
A new department called Group Financial Security US, part of the Group Compliance function, will be headquartered in New York and will ensure that BNP Paribas complies globally with US regulation related to international sanctions and embargoes.
All USD flows for the entire BNP Paribas Group will be ultimately processed and controlled via the branch in New York.
As a result of BNP Paribas’ internal review, a number of managers and employees from relevant business areas have been sanctioned, a number of whom have left the Group.
Jean-Laurent Bonnafe, CEO of BNP Paribas, said: “We deeply regret the past misconduct that led to this settlement. The failures that have come to light in the course of this investigation run contrary to the principles on which BNP Paribas has always sought to operate. We have announced today a comprehensive plan to strengthen our internal controls and processes, in ongoing close coordination with the US authorities and our home regulator to ensure that we do not fall below the high standards of responsible conduct we expect from everyone associated with BNP Paribas”.
“Having this matter resolved is an important step forward for us. Apart from the impact of the fine, BNP Paribas will once again post solid results this quarter and we want to thank our clients, employees, shareholders and investors for their support throughout this difficult time”.
”The Group remains focused on implementing its 2014-2016 business development plan. We confirm our ambition to meet the targets of this plan announced in March this year. In particular, North America remains a strategic market for the Group where we plan to further develop our retail, investment solutions and corporate & investment banking franchise over the coming years”.
“BNP Paribas is a client-centric bank and we will continue to work every single day to earn the trust and respect of all our stakeholders in service of our clients and the economy”.
The inflow of liquidity continues to play a major role on the financial markets: risky assets such as equities and spread products continue to perform well, while the upward pressure on bond yields remains very slight.
Peripheral Eurozone equity and bond markets can continue to rely on the support of the central bank and consequently on persisting interest from investors.
Peripheral Eurozone bond yields substantially lower
ECB and economic data boost financial markets
Investor risk appetite has received several major boosts over the past few weeks. The announcement of fresh monetary steps by the European Central Bank was of course the main one.
Although expectations had been very high since May, the package of measures announced on 6 June proved to be even more comprehensive than anticipated. It demonstrated once more that ECB President Draghi is highly capable of managing market expectations. The positive confidence effect which resulted from the ECB’s actions was perhaps the most significant factor in the market’s response; more liquidity and a further decrease in the risk of a Eurozone break-up boosted equity and bond markets in the peripheral Eurozone countries in particular. These peripheral countries can continue to rely on the support of the central bank and consequently on persisting interest from investors.
Moreover, stronger evidence emerged that the slowdown in economic growth in the first quarter was probably a temporary dip. Global economic activity (measured by the global PMI) was up sharply in May, while economic figures in the US, Japan, China and the Eurozone were also positive.
Added to the fact that investor positions in specific asset classes are significantly less concentrated than they were at the start of this year and that the mood among investors is less euphoric, and we see sufficient arguments to retain our diversified risk-on positioning. This translates into significant overweights in equities and real estate and slight overweights in spread products and commodities.
To view the complete story, click the attached document.
Wikimedia CommonsFoto: Atoma. Henderson Strengthens North American Business With Acquisition of Geneva Capital Management
Henderson Global Investorshas entered into an agreement to acquire the entire issued share capital of Geneva Capital Management. Founded in 1987, Geneva has assets under management of US$6.3bn (As at 31 May 2014) in Mid- and Small-Cap US growth equities.
An important strategic milestone in the development of Henderson’s North American business
Geneva will add US equity investment capabilities and extend US institutional client base
Initial consideration of US$130m; deferred consideration linked to revenue retention of up to US$45m; and growth-related earn-out of up to US$25m
Expected to be underlying earnings accretive in the first full year post acquisition.
North American business update
Henderson’s North American business continues to grow rapidly, doubling its AUM since 2011
In May 2014, the US Mutual fund range reached US$10bn for the first time, with net inflows of US$1.4bn in the year to date
A US based institution awarded a significant new mandate to the Henderson Global Equity team in May 2014
Having joined in 2013, the US high yield team has achieved 2nd percentile investment performance in its first full year of operation. Investment grade expertise has been added to the team to expand Henderson’s US and global credit platform
The acquisition of Geneva will enable Henderson to continue to build its North American business.
Acquisition of Geneva Capital Management
Accelerates delivery of Henderson’s strategy to grow and globalize its business
– Post acquisition, the North American business will have approximately US$18.3bnof AUM, representing nearly 15% of the Group on a pro forma basis
Geneva’s investment expertise in US growth equities fills an important capability gap for Henderson
– Geneva has a long track record in managing Mid- and Small-Cap growth equities, underpinned by a disciplined and consistent investment process
– The addition of Geneva will double Henderson’s number of US-based investment professionals
The acquisition will transform Henderson’s North American presence, bringing proven institutional distribution capabilities to complement Henderson’s successful retail franchise
– The acquisition will quadruple Henderson’s US institutional AUM
– It will create a well-balanced client base, split broadly equally between retail and institutional
Geneva’s principals have signed long-term employment contracts and have agreed to reinvest at least 30% of net sale proceeds into Geneva products
There is a strong cultural fit between the two firms and Geneva principals will become valued members of Henderson’s equity and North American management teams
Over time, the transaction creates opportunities to build new products with US content (e.g. Global Small-Cap and US All-Cap); launch new US equity retail products; and market Henderson capabilities more actively to US institutions.
This transaction is expected to close on 1 October 2014, subject to customary consents.
Wikimedia CommonsJames Swanson, Chief Investment Strategist at MFS. Tenets of Investing For The Long Run
James Swanson, Chief Investment Strategist at MFS Investment Management, highlights a few of the rules of thumb that he relies on to help him determine where we are in the business cycle and which markets are too rich, too cheap or fairly valued. Read his blog at this link or click on the video.
Monica Defend, responsable de Análisis de Asignación de Activos Global en Pioneer Investments. Sin más subidas de tipos en Brasil y con una política monetaria demasiado laxa en México
In the last Pioneer Investments’ EM Update about Central Banks & Monetary Policies, Head of Global Asset Allocation Research at Pioneer Investments, Monica Defend, shares her view on Emerging Markets monetary policies.
In Asia, and regarding to China, she considers that the implementation of fiscal reform is proceeding as ten local governments will be allowed to issue bonds with full responsibility of repayment. “Even though the economic slowdown would suggest a stronger monetary easing, in the ongoing process of liberating interest rates and increasing efficiency in credit allocation, monetary policy must remain prudent to prevent a return to the old model of allocation and growth. The latest reserve requirement ratio cut for some qualified banks supports this attitude of the People’s Bank of China”.
In India, in early June, the Reserve Bank of India (RBI) kept policy rates on hold at 8% and eased the access to liquidity (via the statutory liquidity ratio reduction and a special term repo facility). “In our opinion, the RBI’s tone has been more dovish than in April, with the aim of supporting the next actions of the new government. The well-known inflation risks to the upside are broadly balanced by the possibility of stronger government action on food”.
In Europe, some interest rate cuts could arrive in countries like Hungary. “It is clear that a certain degree of “imported” (from Eurozone) weak price dynamics, plus stable commodity prices are favoring this weak trend. The distance between the central bank’s inflation rate forecast (0.7% in Q2 2014, rising to 3% to the end of 2015) and actual data prompted a 10 basis point (bp) rate cut on May 27. The central bank also stated that “…however, achieving price stability in the medium term, points in the direction of monetary easing” and is an important piece of information for making monetary policy choices. If forecasted inflation remains similar, it is possible that a further cut will arrive soon”.
Similar in Poland: “In its statement after the last meeting (June 3), the National Bank of Poland acknowledged that April inflation is not only widely below the medium-term target (2.5%) but also below the forecasts formulated in March. The bank maintained its forward guidance of unchanged rates until at least Q3. But as in Hungary, the central bank suggested that the next inflation report round of forecasts will be key to determining the possible evolution of rates”.
Defend doesn’t see more hikes in Brazil’s rates. As the market expectated, the central bank left the benchmark Selic interest rate unchanged on May 28 at 11%, pausing a hiking cycle initiated in April 2013. The announcement reinforced the idea that the central bank’s monetary policy committee members (COPOM) are comfortable with the current rate levels, given that inflation has subsided. “Assessing the evolution of the macroeconomic scenario and the perspectives for inflation, the COPOM decided, unanimously, at this moment, to keep the Selic rate at 11.00%.” The growth slowdown is increasingly worrying economic authorities and, it is now likely that Brazil’s central bank reaction function will give greater weight to growth dynamics.
In Mexico, the police could be too loose. “The Bank of Mexico (Banxico) cut the overnight rate from 3.5% to 3% on June 6, surprising us and the market. In its statement, Banxico mentioned that this one-off rate cut was motivated by the notably weaker-than-expected economic performance in the first quarter and by the downside risks to growth that remain on the horizon. The current central bank outlook is for moderating inflation and annual growth, which implies considerable acceleration in the coming quarters. We believe that the current monetary policy stance might be too loose in a framework of a closing output gap and inflation, which is well-behaved yet above the target (especially considering the delay at which monetary policy works)”.
Allfunds Bank UK has recruited former Morningstar OBSR researcher Chetan Modi as a senior fund analyst. The move by AFB represents not only a further investment into Allfunds UK operations but also a refocusing of the investment research capability in London, particularly in light of the changing UK market following RDR.
Modi has been at Morningstar OBSR since 2006 where he has been developing his role as Fund Analyst covering US, UK and Global Emerging Markets Equity funds. He has also been active in promoting the business to advisor groups and advising consulting on client model portfolios. Modi now joins Mark Hinton, Anais Gfeller, and Will Jackson who were recruited over the past 24 months from Kleinwort Benson, Lombard Odier and Last Word Media respectively. He also joins Manuel Yutaro Rubio who transferred from Madrid office. Their recruitment brings the AFB Investment Research Team worldwide up to 14, with 5 researchers in London and a further 9 in Madrid.
A year ago, Allfunds recruited Stephen Mohan from Cofunds to lead and expand its UK operations. Since that time Mohan has built a senior sales and development team to promote AFB’s funds administration capability in the UK and the firm recently announced its first major new client in BWCI, the Guernsey based actuarial consultancy.
Now Mohan’s attention is turning to Allfunds global research capability which has traditionally been focused on Madrid, providing research, as part of its funds administration offering, to AFB clients worldwide. With increasing emphasis in the UK on funds research in the post RDR world Mohan is now looking to refocus AFB’s efforts on providing a superior research service to clients in the UK.
In parallel, the demand for AFB UK based fund research has also grown because Mohan has significantly increased the number of British fund management groups on the Allfunds platform, adding more funds to an already world beating funds list of over 40,000 funds worldwide.
Stephen Mohan said, “Funds research is playing an increasingly important role in our offer in the UK particularly given the increasing desire by wealth managers to seek out the best funds for their clients. I’m therefore delighted that we have been able to bring in Chetan to join our investment research team in London, to provide what we believe is market leading capability to our wealth management clients.”
Photo: Mattbuck. Compass Group Appoints Ivan Ramil as its New Institutional Clients’ Director in Mexico
As was confirmed by the firm itself to Funds Society, Compass Group in Mexico has appointed Ivan Ramil as the new director for the group’s Institutional Clients in Mexico. Ramil replaced Luis Palacio, who after nearly six years in that position has joined BNP Paribas Investment Partners as commercial director, also in Mexico.
Prior to assuming his new post, Ramil worked during the past three years as Compass Group’s Strategy Director for Mexico. Ramil has extensive knowledge of international strategies and the institutional investors industry in Mexico. Before joining Compass Group, he was senior financial advisor for Corporate Banking at IXE Financial Group, and prior to that worked for over four years at Motion International Corporation.
Ramil has a degree in International Relations from the Universidad Iberoamericana in Mexico City, and has diplomas in Corporate Finance and in Economics and International Trade from the Chamber of Commerce and Industry in Madrid. He is currently a candidate for the Cross Continent MBA from the Fuqua School of Business at Duke University in North Carolina (USA).
Ramón Hache, Head of Business Development for Latin America at Permal Group. Photo: Linkedin.. Ramón Hache Joins Permal as Head of Business Development for Latin America
According to information available to Funds Society through sources familiar with the appointment, Ramón Hache has joined Permal Group’s ranks in order to develop the firm’s business in Latin America. He will report to Shane Clifford, Head of Business Development for the Americas. Funds Society also contacted Permal directly, but the firm declined to comment on news of the appointment.
With over 16 years’ industry experience, Hache comes from Barclays Wealth, where he was managing director. He previously worked for over a decade at Deutsche Bank Private Wealth Management, serving U.S. and Latin American HNWI.
Permal is a global alternative asset manager offering investment solutions through funds and customized portfolios. Founded in 1973 and with over 23 billion dollars under management globally, the group is defined as “product engineers.” From a “top-down” perspective, the firm focuses on the selection of managers, asset allocation, risk management and alternative investments.
