AllianceBernstein L.P. announced that Christopher Thompson has joined the firm as Senior Managing Director-Head of US Retail Client Group. Thompson will lead all aspects of AllianceBernstein’s US retail business, reporting to Robert Keith, Global Head of the firm’s Client Group.
Thompson will play an integral role in leveraging robust product development in executing the firm’s long-term strategy to reposition and grow a retail franchise that is flexible, innovative and responsive to the evolving needs of its clientele.
“Chris’ expertise and leadership will be invaluable as we continue to innovate with our offerings and expand our retail footprint,” Keith said. “We’re seeing strong retail momentum, and we remain highly focused on providing a more comprehensive product array that helps investors navigate today’s more volatile capital markets and achieve better investment outcomes.”
Thompson has more than 20 years of experience in leading distribution efforts for highly competitive investment-management firms. He joins AllianceBernstein from Columbia Management, where he was most recently Head of Intermediary Distribution, Product and Marketing, and was responsible for the firm’s retail business. Prior to that, Thompson was at Putnam Investments for 13 years in various senior roles, including Managing Director, Head of Investment Product Management and Managing Director, Director of Defined Contribution Business. Thompson holds a bachelor’s degree from Dartmouth College and a Master’s of Business Administration from New York University.
Wikimedia Commons. Encontrar el próximo Google es cuestión de talento, no de situación
“Great companies that turn an industry upside down can come from anywhere, and the next Microsoft or Google is just waiting to be found. To find them, you need to be more aware of talent than of location”, says entrepreneur Niklas Zennström.
Zennström now runs investment firm Atomico trying to find and develop the high-tech winners of tomorrow. He was speaking to a knowledge-sharing session with the RobecoSAMPrivate Equity team, which was one of the first institutions to invest in Atomico.
And Zennström certainly knows a thing or two about nurturing young companies into a global giant worth billions. He is best known for co-founding Skype, which he and business partner Janus Friis sold to eBay in 2005 for USD 2.5 billion, reacquired it in 2009, and sold it to Microsoft for USD 8.5 billion in 2011. The two men had previous co-founded the file-sharing internet service Kazaa which became the most downloaded software in 2003.
Zennström, a 48-year-old Swede, is now trying to find the next Skype, searching for young tech companies that have strong business models but need venture capital and/or expertise to expand. The companies must be internet orientated and have a proven business model.
But his most important rule is that the companies should generally be based outside Silicon Valley, challenging the hegemony of the US high-tech epicenter that has produced companies such as Google and Facebook. He specializes in developing companies with ‘disruptive’ products – those which are capable of challenging, and beating, leaders in established industries.
Big disruption from small places
“Great companies can come from everywhere – it is one of the biggest investment opportunities in the world today,” says Zennström, who retains his entrepreneurial zeal despite never having to work again. “This is the core reason why we started Atomico. We have a clear purpose and focus to enable high-growth companies from outside Silicon Valley to develop disruptive products.”
Skype was the ultimate disruptive product. Developed from small offices in small countries – Estonia, Sweden and the Netherlands – it took on the entire international telecoms market by offering the ability to make free phone calls over the internet. Skype now accounts for 40% of the international calls market.
“We look for growth companies, based outside Silicon Valley, for a global market. That’s how Skype started, and it can happen again,” he says.
“When we were building Skype 10 years ago, it was quite unusual for a couple of Swedes, a Dane and an Estonian guy to try to disrupt the global telecommunications industry. Very few people believed in us – we were seen as crazy.” He was rejected by 25 investors, including a prominent firm which demanded that the fledgling firm move to Silicon Valley, which he declined to do.
“All this negative feedback didn’t stop us from trying to build a successful international business – which we did,” he says. “It was a big competitive advantage for us coming from a small country like Sweden, where the home market is too small. It forced us to think of the global market.”
Finding global talent is the challenge
Since Skype was founded, 30 technology companies which now have market values above USD 1 billion have been created within Silicon Valley and another 10 in China, but 40 were created elsewhere.
“This tells us you don’t have to be there to create a great company,” he says. “It’s actually more likely that the next USD 1 billion company will come from outside it. The challenge is to find them.”
“Geography is becoming less and less relevant, and the reason for this is fundamentally about talent,” he says. “Talent is everywhere – just like in sports and music, entrepreneurs are all over the world. But to enable them to blossom and build great businesses, they need ecosystems around them.”
“Historically there have been significant barriers to creating large technology companies. You needed to have access to computing power, bandwidth hubs, and information, along with capital of course. This has changed completely over the past decade.”
“Thanks to the internet, entrepreneurs from all over the world have access to the same type of information, whether they are in Rotterdam or São Paolo. It’s a level playing field now you have open-source software, and thanks to cloud computing, you no longer need access to data centers.”
Access to capital is still a barrier
However, access to capital is still a significant barrier to growth for new companies, he says. The acquisition of ‘non-native’ skills is also important as most tech companies tend to be started by engineers who lack wider business acumen. There are often also differences in national markets, cultural issues and problems with making the right contacts in larger markets where a small company would not know where to start.
“For us, this creates a huge opportunity, as we found with our own journey with Skype, where we had to build partnerships and develop knowledge to get into foreign markets such as Japan,” he says. “This is now something we bring as an asset manager to the companies that we invest in. We don’t just provide capital: we provide real, practical help to enable these companies to reach their full potential.”
Finding the right exit strategy for a company – a mainstay of any private equity firm’s business – is also important. Atomico was able to introduce one of its investees, the Finnish games maker Supercell to Gung-ho in China to crack the Chinese gaming market. It led to the Japanese investor Softbank buying a 50% stake in Supercell, valuing it at USD 3 billion and making instant multi-millionaires of the founders.
In another example, investee company Climate Corporation, which sells weather insurance to farmers, was sold for USD 1.1 billion to Monsanto, an agricultural giant not previously known for buying technology companies.
“Neither side could have predicted that something like this would happen when the business was started,” he says. “It proves that a great company can come from anywhere and also that a great exit can come from anywhere.”
“It’s hard to predict where the next ‘big thing’ will come from. But what’s really interesting is the coming together of offline and online. In the future it will no longer be relevant, because consumers will buy products and decide whether it is cheaper to buy the same thing offline or online. It will be the same showroom but in different environments.”
Ignacio Sosa, previously Executive Vice President for Global Bond Product Management at PIMCO, will join DoubleLine Capital LP next month as Director of the firm’s newly formed Product Solutions Group.
Mr. Sosa will lead the Product Solutions Group in three key areas. The group will contribute to the development of new investment products, engage in discussions with clients and their advisors on existing DoubleLine offerings, and assist in building new business, particularly outside the United States.
“I’m delighted to welcome Ignacio Sosa aboard,” DoubleLine CEO Jeffrey Gundlach said. “Throughout his career, Ignacio has conceived new asset-management businesses as well as specific products, and managed them to success. His talents, I’m sure, will strengthen DoubleLine’s efforts to build our business and extend new, innovative product offerings to our valued clients and their advisors.”
Mr. Sosa, who will join DoubleLine on May 12, will report to Mr. Gundlach. His group will collaborate closely with the firm’s investment, operations, marketing and investor-relations teams. DoubleLine is based in downtown Los Angeles.
“Start-ups of equity boutiques happen all the time, but for decades, fixed income assets have remained largely concentrated among a few investment firms because launches of new bond managers are rare events,” Mr. Sosa said. “DoubleLine has proven the happy exception since its founding a little more than four years ago. Jeffrey and his team have built a growing, nimble, client-focused company, with diversified strategies in fixed income and equities. Their track record of risk-adjusted returns speaks for itself. So joining DoubleLine at this early stage in its development is especially compelling.”
Mr. Sosa has more than 30 years of experience in asset management. From October 2011 to April 16, 2014, he worked at Newport Beach-headquartered PIMCO. He joined PIMCO as Executive Vice President/Lead Emerging Markets Product Manager, later becoming the firm’s Executive Vice President for Global Bond Product Management.
Before PIMCO, Mr. Sosa served as a Managing Director at Voras Capital Management LP, joining the New York-based firm shortly after its founding by Zoe Cruz, former co-president of Morgan Stanley and Company. At Voras, he managed 25%-30% of the firm’s global macro fund, focusing on global fixed income, equities and precious metals.
In March 1999, Mr. Sosa co-founded and co-managed OneWorld Investments, LP and its successor firm Globalis Investments, LLC, both investment advisors focused on long/short macro investing in emerging markets and G-7 sovereign bonds and equities. Macquairie Group of Australia acquired Globalis in September 2008. Mr. Sosa subsequently joined Voras in the fourth quarter of 2009 after expiration of a one-year non-compete clause in his buyout agreement.
Before OneWorld Investments, Mr. Sosa served at BankBoston Corporation where he founded and managed a 45-person emerging markets investment banking operation with offices in Boston, London and Singapore. Previously, he was a Managing Director and co-founder of the emerging markets debt and derivatives trading team at Bankers Trust in New York and Tokyo. He began his career as an Assistant Vice President at Bank Boston, working in Boston and Buenos Aires.
Foto: Nepenthes. Arabia Saudita – Arenas de cambio
Tom Nelson, portfolio manager for the Global Energy Equity strategy at Investec AM, took a research trip took to Oman, Dubai, Abu Dhabi and Saudi Arabia last March comprising fifteen company meetings and four visits to production facilities. His main goal was to learn more about the reservoir performance and supply outlook in the world’s dominant petroleum province, as well as the social and political climate within the region. Some of the notes of his journey follow:
“In this note I intend to focus on Saudi Arabia, as the major OPEC oil producer (9.5 million barrels/day), but also as a country undergoing profound socio-economic change.
The Kingdom of Saudi Arabia has the 20th largest economy in the world by GDP, larger than South Africa or Taiwan, making it by far the biggest economy in the MENA region (excluding Turkey). It has the largest proven oil reserves of any country (260 billion barrels), and is rightly considered the central bank of crude oil, as the only producing country with significant (1 million barrels/day+) spare capacity. Saudi Aramco is by my calculations the most profitable enterprise on the planet: 9.5 million barrels/day of production of crude oil, which trades for $100 and costs them $4-8 to extract. This translates into $350 billion revenue per year, with a 90%+ profit margin. Not surprisingly, the Saudi Arabian Monetary Authority (SAMA) has $550-600 billion in net foreign assets, making it the fourth largest sovereign wealth fund. These numbers will be familiar to many readers, who associate the Kingdom most immediately with oil wealth.
More striking is the social and demographic picture: 28 million people living in the 13th largest country in the world. 51% of the population are under the age of 25, and there is a 30% unemployment rate in the 20-25 year old bracket. The exciting perspective of Saudi Arabia is not the legacy wealth under the desert, but the implications for the young population living above it.
Local employment targets have been ratcheted significantly higher since the Arab Spring – not just in Saudi Arabia but across the region – and this was clear from all of our meetings with major Western oil companies. BP, Total, Occidental, Schlumberger, and Halliburton all talked about elevated targets for local employment and training. The most striking comment came from Schlumberger’s country manager for Saudi Arabia, a Lebanese national trained in 12 countries and 4 continents over a 28-year career at Schlumberger (including a Mechanical Engineering degree, an MBA at Insead, and a year at MIT). He assured us that Schlumberger in Saudi Arabia would soon be 60% staffed by local people and that in the event of turmoil in the Kingdom and an exodus of expats the company could continue to function effectively. Similarly, Occidental Petroleum in Oman is now the country’s third largest employer, with 82% of employees being Omani nationals.
I found myself rapidly becoming optimistic for the future of this young, primarily urban population as the extensive social program became clear. Increased diversification away from the core oil wealth (still 80% of budget revenues and 90% of export earnings) into banking, construction, and chemicals, should be facilitated by a huge free education program, unlimited free healthcare, and rising infrastructure spending.
Naturally, challenges persist: labor productivity ranks towards the bottom of the range, with the Arab Labor Organization estimating worker productivity in Saudi Arabia to be only 17% of the US industrial worker. Women have only been empowered to vote since 2011, and make up only 15% of the workforce. And despite the build- out of new roads, the safety on them is very poor. By deaths per 100,000 of population it is the most dangerous country in the world for drivers.”
Interested in Saudi Arabia? You can read the full report through this link.
Chris Edge liderará el negocio en el Ducado para impulsar el crecimiento internacional de la entidad. Allfunds elige a Chris Edge para dirigir su negocio en Luxemburgo e impulsar su expansión internacional
Allfunds Bank has appointed former JP Morgan Luxembourg managing director Chris Edge to head its business in the Grand Duchy to help drive the firm’s international expansion.
Chris is a highly respected and well-known industry figure in the European Investment Fund sector and has a wealth of experience in running a regulated bank in Luxembourg and in growing businesses. He is a twenty-year veteran of JP Morgan, covering a wide variety of senior roles for the bank across the UK, South Africa and Luxembourg during two stints, in between which he built a financial service distribution business in the UK and a mobile transactions business in East Africa.
Allfunds Bank’s Chief Executive Juan Alcaraz, said: “I am delighted to welcome Chris to Allfunds at a time when we are extending our European operations. We are strongly committed with Luxembourg, as one of the most important financial centre at the heart of Europe, is a natural and logical evolution as Allfunds becomes ever more successful in following and supporting our clients and providers in their international expansion.
Chris said: “I am really excited to have this opportunity to build upon my long career in European Investment Funds and apply that experience in a major fund distribution business. Regulatory change and advisor remuneration rules are creating the catalyst to transform channels and investor access over the next decade and Allfunds is very well positioned to support its clients through this transformation. I look forward to ensuring the investment in the Luxembourg hub will realize the growth potential this offers to Allfunds and its clients and partners”.
Allfunds Bank is a leading European Mutual Fund platform aimed exclusively towards institutional clients, offering integrated fund solutions (operational, analysis and information). Created in 2000 and owned in equal parts by the Santander and Intesa Sanpaolo groups, today Allfunds Bank has more than €121bn assets under administration and offers close to 40,000 funds from 450 fund managers. Allfunds Bank has a local presence in Spain, Italy, UK, Chile, UAE, Switzerland and Luxembourg and has more than 400 institutional clients, including major commercial banks, private banks, insurance companies, fund managers, financial supermarkets, international brokers, and specialist firms from 28 different countries.
Foto: Markchdwickart, Flickr, Creative Commons.. Acceder a todos los universos: inversiones multiestrategia
New research from ING Investment Management (ING IM) amongst pension funds reveals that 42% believe institutional investors have increased their exposure to senior bank loans over the past six months, whilst only 2% felt it had fallen. Indeed, ING IM is announcing that it has seen assets under management in its senior bank loan strategies increase by 46% over the past 12 months, from $13 billion to $19 billion.
Growing demand for this asset class is expected to continue as the research reveals that four out of ten (40%) pension funds expect institutional investors to increase their exposure over the next 12 months, compared to 8% who think it will fall ‘slightly’.
Senior bank loans are extensions of credit made to non-investment grade corporations. They are private issues traded directly among banks and institutional investors in a private secondary market and not on a public exchange. They are generally secured by a borrower’s assets pursuant to a first priority or “senior” lien, and they are first in priority in receiving payments when a borrower is servicing its debts. They can also be called “floating rate loans” because the interest paid on such loans changes as certain market interest rates change.
The interest rate reset period varies from loan to loan, but a large, diversified portfolio of senior loans can be expected to have a weighted average interest rate reset period of 60 days or less. As a result, the income earned from a senior loan portfolio is generally very responsive to changes in short-term interest rates. Because the price of senior loans is less sensitive to market interest rates than bonds, they provide a high degree of diversification to a fixed income portfolio. The asset class saw huge inflows in 2013 because of its strong performance – they currently provide typical yields of up to 5% – in a difficult market. ING IM’s Senior Loans strategy portfolio has delivered an annualised return of 5.28% over the past three years (0.47% above the S&P/LSTA Leveraged Loan Index Hedged to Euro).
When asked what the main benefit of investing in senior bank loans is, 29% of pension funds said diversification of a fixed income portfolio, followed by 19% who said attractive risk adjusted returns. One in seven (14%) said it was because the default risk is low.
Most attractive benefit of investing in Senior Bank Loans
Percentage of pension funds who think this
Diversification of fixed income portfolio
29%
Attractive risk adjusted returns
19%
Default risk is low
14%
Protection against a rise in interest rates
10%
Correlation with other asset classes is comparatively low
3%
Transparent and easy to analyse performance
2%
Secured by collateral
2%
Don’t know
21%
Dan Norman, Managing Director and Group Head of ING IM’s Senior Bank Loan’s team said: “In today’s environment, investors are on the hunt for attractive sources of yield. Senior bank loans offer an excellent balance of income and security, and these characteristics have fuelled strong demand for this asset class over the last couple of years. We believe that this will continue. The potential for the fund management industry here is strong because there are still institutional investors who want and need a better understanding of the benefits of senior loans and what they offer to a diversified fixed income portfolio.”
Foto: Copley, Flickr, Creative Commons. Gestionando con el nuevo oro de la inversión: ¿criptodivisas?
The Startup Stock Exchange (SSX), a regulated global marketplace for startup investing and funding, has become the first investment platform to allow investors of any size to purchase publicly trading shares in Startups using Bitcoins.
Owners of Bitcoins can fund their SSX Investor Account using the GoCoin payment processor and then buy shares in Startups offered through the Startup Stock Exchange. Recent investment opportunities include a Latin American online insurance company, an ecommerce site for beauty products, and the NXTP Labs portfolio of companies.
“SSX provides investors of all levels access to investment opportunities in global Startups. The addition of Bitcoin as a funding method makes it easier for these investors to participate on our global market and invest in our public Startups,” said Ian Haet, CEO and Co‐Founder of the Startup Stock Exchange. “Starting today investors can take their Bitcoins, convert them to US Dollars, fund their Trading Account and invest in the listed Startups, all on the SSX website.”
Funding by Bitcoin was adopted due to the crypto‐currency’s tremendous growth and international interest. SSX is focused on global Startup investments and adding Bitcoin as a funding option supports SSX’s mission. SSX has clients in over 100 countries and Bitcoin provides a secure and cost effective mechanism for transferring funds internationally, including countries such as Argentina, Singapore, Venezuela, South Africa and Morocco.
“We are thrilled that the Startup Stock Exchange has selected GoCoin as their solution for accepting digital currency. It further validates that disruptive technologies like Bitcoin and crypto‐currency is reverberating more and more with corporations, small businesses and consumers” said Steve Beauregard, Founder and CEO at GoCoin.
All Bitcoin transfers completed by SSX Investors are reviewed according to strict Anti‐Money Laundering (AML/CTF) procedures. As a regulated global marketplace for Startup investing and funding, this review process is an important factor in adhering to global best practices regarding the prevention of Money Laundering and maintaining the security of investing via SSX.
Emmanuel Geiser, managing director and branch manager at Oppenheimer in Geneva. . Oppenheimer Europe Opens a Branch Office in Geneva, Switzerland
Oppenheimer Europe Ltd., a subsidiary of Oppenheimer Holdings Inc., a financial entity offering global investment banking services has opened a new office in Geneva as part of the firm’s continued international expansion. The Geneva office will be led by Emmanuel Geiser, who, along with a team of seasoned professionals, has a long and established track record serving institutional clients in Switzerland, France and Benelux markets.
The new office, which will focus on Institutional Sales across Europe, will strengthen Oppenheimer Europe’s institutional client coverage, access to middle market clients across Continental Europe, and ability to place securities into European institutional buyers. This will be the Firm’s second European office in addition to its London headquarters. In March 2012, Oppenheimer Europe opened an office in Jersey, Channel Islands.
Max Lami, Chief Executive Officer of Oppenheimer Europe, said: “Despite difficult market conditions the Company has performed exceptionally well and our expansion into Switzerland offers a tremendous opportunity for us to continue to build our presence in the European market. While many other firms are scaling back, we believe now is the time to grow.”
Emmanuel Geiser joins Oppenheimer Europe as a Managing Director and Branch Manager from National Bank of Canada, where he was the General Manager of their Swiss subsidiary, NBF International SA. Emmanuel worked for National Bank of Canada for 23 years.
Julie Chirouze joins Oppenheimer Europe as an Executive Director from National Bank of Canada, where she was a Vice President of Institutional Sales.
Florian Parvulesco joins Oppenheimer Europe as an Executive Director from National Bank of Canada, where he was a Director of Institutional Sales for 13 years.
Luisa Puglia Giongo joins Oppenheimer Europe as an Executive Director from National Bank of Canada, where she was Middle Office Manager.
Philippa Parisi, Co-Head of Institutional Equities in Europe commented: “Emmanuel and the team have an incredible network of relationships across institutional clients in Europe, both in the tier 1 and middle market segments, and will be a terrific complement to our Firm.”
John Hellier, Head of Global Equities at Oppenheimer & Co. Inc., added: “We are very pleased to have Emmanuel, Julie, Florian and Luisa join the Oppenheimer platform in Europe. Our already strong presence in Europe is significantly bolstered by this capability to service the needs of institutional clients throughout Switzerland, France and the Benelux countries.”
“We see competitors scaling back in Europe, including those that have been very successful in the past, so what we are doing may be seen as standing apart and moving in a different direction. Larger international banks do have a similar global footprint to us, but they really only mobilise that infrastructure and resource for the very largest institutional clients,” added Max Lami.
Foto: Affisch. GenSpring sigue creciendo en EE.UU. con nuevas contrataciones en la región sur
GenSpring Family Offices, a leading wealth management firm for ultra-high net worth families, is pleased to announce the addition of two Managing Directors of Client Development in the firm’s South Region. John Frazer joins GenSpring to lead client development efforts in Georgia, Tennessee, and the Carolinas. Dale Sands joins to lead client development efforts focused on business owners and executives.
These key additions follow recent announcements GenSpring has made of expansions in the firm’s Western Region, with a family office establishment in Los Angeles and a significant expansion in San Francisco.
In addition, GenSpring has named Chris Trokey as Managing Director of Client Service for the South Region. Trokey, a 10-year GenSpring veteran who previously served as Family Investment Officer, leads a team of more than 30 family office professionals and is responsible for overseeing all aspects of the client experience across the firm’s Atlanta, Charlotte and Nashville family offices.
“I am thrilled to promote Chris to lead our client service efforts in the South Region,” said Chief Executive Officer Thomas M. Carroll. “Over the last 10 years, he has contributed greatly to our firm and to the lives of the families that he advises. Chris’ leadership coupled with the experience and insight of John and Dale give me great confidence that we will continue to deliver on our purpose of sustaining and enhancing family wealth and helping to ensure it has a positive impact on those who receive it.”
Mr. Frazer brings extensive wealth management experience to his new position at GenSpring. Prior to joining the firm, he spent 25 years with SunTrust Bank, most recently as Executive Vice President, Private Wealth Management Division for all of Georgia and North Florida. During his tenure, Mr. Frazer served as President and Chief Executive Officer of SunTrust Bank, Memphis Region and as Executive Vice President and head of the Memphis Region’s Private Wealth Management Line of Business. He is a graduate of The Citadel and The Graduate School of Banking of the South at Louisiana State University.
Mr. Sands, an Atlanta native, joins GenSpring with more than 17 years of Investment Banking experience specializing in advising ultra-high net worth families, young entrepreneurs, closely-held businesses and corporations in a variety of corporate finance capacities. In this new role, he will work in close partnership with SunTrust Robinson Humphrey, the full service corporate and investment banking arm of SunTrust Banks, Inc. with more than 1000 public and private clients across the country ranging from emerging growth companies to the Fortune 500. Mr. Sands, who started his career with Salmon Smith Barney in New York, has advised clients on numerous public equity, private equity, merger and acquisition and corporate divestiture transactions totaling billions of dollars. Most recently, Mr. Sands served as a senior member of SunTrust Robinson Humphrey’s Merger and Acquisition Group. He holds an MBA from the University of North Carolina, Chapel Hill, and an undergraduate degree from Vanderbilt University.
Mr. Trokey joined GenSpring in 2004 as a Family Investment Officer in the Atlanta family office. Previously, he served as vice president of Tower Hill LLC. He also served in the Private Wealth Management division of Goldman, Sachs & Co., and began his career at KPMG LLP where he managed audit and consulting service teams. Mr. Trokey earned a Bachelor of Science degree in Accounting from Indiana University and a Masters of Business Administration in Finance from Washington University in St. Louis. He is a Chartered Financial Analyst, holds the Chartered Alternative Investment Analyst designation, and has also passed the Certified Public Accountancy examination.
Wikimedia CommonsPhoto: Rabensteiner - Bearbeitet von Rainer Z. Asset Growth vs Alpha Generation: the Capacity Management Conundrum
Success in asset management leads to a well-known conundrum: how to best manage increases in assets under management (AUM) while continuing to generate value-added alpha for clients.
A growth in AUM may make it more difficult to implement a strategy by imposing certain costs and impediments, such as liquidity constraints, potentially higher transaction costs and client-servicing requirements, as well as the need to ensure adherence to the strategy. Business diversification across multiple strategies and investment teams is another important consideration when evaluating the capacity of individual investment strategies. According to a new research published by MFS, this is key to ensuring a sustainable business model, which in turn impacts individual product performance.
Capacity can be managed in various ways, including with the implementation of product closures, which are designed to protect the interests of existing clients by limiting further inflows. In this case, MFS refers to both clients in the strategy of interest as well as clients more broadly in strategies that may overlap with the product in question. Preserving alpha-generating capability for existing clients is paramount in their view, and is at the heart of capacity management. It is in this context that capacity management is viewed as an integral component of risk management at MFS.
While there is general agreement among asset managers and their clients that products need to be closed for capacity reasons, there is little consensus on how capacity should be measured. Various academic and industry studies have offered a number of quantitative tools to help determine product capacity; however, these approaches are sensitive to the underlying assumptions made and none is definitive. Not only is capacity hard to measure, it is also a function of current market conditions and the characteristics of a given strategy.
Certain asset classes are inherently more capacity constrained than others. Portfolios invested in large-cap US equities have significantly more capacity than portfolios invested in either small-cap or emerging market equities. Highly concentrated portfolios (e.g., 20-stock portfolios) generally have less capacity than more diversified portfolios, depending on the liquidity of stocks included in the portfolio. Portfolios with high turnover require greater market liquidity and therefore have less capacity than portfolios with lower turnover that can patiently trade over longer holding periods. According to the whitepaper, one should bear in mind that all these parameters interact with one another and market conditions change over time, so portfolio characteristics must be fully examined before applying generalizations about capacity.
In this white paper, MFS outlines its approach to managing capacity in equity portfolios in some detail to illustrate the firm’s philosophy and considered methodology. They also provide information on the product restriction decisions made with regards to the Global Equity strategy as a case study. The way capacity is considered from a fixed-income portfolio perspective is also addressed.
