Income investors generally look at reliable yield stocks or firms with the ability to grow their dividend over time, or some combination of the two. By definition, according to Stephen Thornber, fund manager at Threadneedle, this either means investing in businesses that can generate plenty of cash to return to shareholders over time or in companies that can become decent and dependable dividend payers in the future. Neither of those, he highlights, are a bad place to be. “It does require a long-term perspective, however, and consequently you won’t usually find income investors following the latest investment fads.” Thornber lists the following ten reasons to invest in global equity income:
1. Equity income investors take a long-term perspective.
3. Income strategies have outperformed strong-performing equity markets in the last few years. But remember that dividends (and dividend growth) drive total real returns from equities – and could become even more important in a low growth/low return world.
4. Income stands up as an investment approach in its own right.
Burns Supper organized by Aberdeen in Miami. Aberdeen Commemorates the Scottish Tradition by Holding a "Burns Supper" in Miami
For the third consecutive year, Aberdeen Asset Management organized its characteristic “Burns’ Supper” in Miami last week. The firm’s clients who attended the event enjoyed an evening in which the whiskey and the bagpipes were followed by the toasts to the eighteenth century Scottish poet Robert Burns, which was the aim of the occasion.
Gary Marshall, who until this year headed Aberdeen Asset Management for the Americas, acted as “master of ceremonies” in the purest Scottish tradition. Marshall will soon return to the UK to continue to develop management tasks for the firm, while David Steyntakes overtakes as managing director of the Aberdeen Asset Management team in the Americas region, as was reported by the company in late 2013.
Aberdeen Asset Management has its corporate headquarters in the city of Aberdeen in northeastern Scotland, where its roots date back to 1875, although the current asset management company was established in 1983.
“I am delighted to witness how Aberdeen’s presence in Miami is reinforced year after year, thanks to the support of an excellent team and of course, thanks to your support as clients,” explained Gary Marshall to his guests. “Once again we gather on a date close to January 25th, the birthday of Scottish poet Robert Burns, to resume this tradition which is an important part of Scottish culture, and essential to our overall corporate identity.”
“Aberdeen has closed 2013, by, amongst other achievements, becoming the first European independent asset manager in terms of assets under management listed on the stock exchange, following SWIP’s acquisition, with over half a trillion dollars in assets under management, of which more than 75 billion are in the Americas region.”
During the dinner, which included the traditional Scottish “haggis”, the guests enjoyed a Whiskey Tasting commented by Nicholas M. Pollacchi, Whisky Master, who has worked as Public Relations’ Director at The MacAllan and The Glenrothes, two prestigious Scottish distilleries. Since 2010 he has his own company, The Whisky Dog, which organizes whiskey tasting events in the U.S.
Several members of Aberdeen’s team in the U.S, London, and Scotland, both of the commercial division and of its investment team accompanied the guests during the cocktail and dinner, which was enlivened by Piper Robert Ritchie, Canadian born piper of Scottish origin and a resident of South Florida since 1956.
Rodrigo Nuñez Aguilar. Natixis Global AM nombra nuevo director de Cuentas Globales para Latam y EE.UU. Offshore
Natixis Global Asset Management (NGAM) has announced the appointment of Rodrigo Nunez Aguilar as Director of Global Key Accounts, Latin America and U.S. Offshore.
Nunez Aguilar, based in New York, will manage U.S. Offshore and Latin America fund distribution sales teams and focus on strengthening NGAM’s relationships with cross-border fund distributors in the United States and in Latin America. He will report to Sophie del Campo, head of Latin America for NGAM International, and Ed Farrington, head of U.S. Offshore Sales.
“Rodrigo will play a critical role in linking our existing U.S. Offshore business to our growing presence in Latin America,” said Hervé Guinamant, President and Chief Executive Officer of Natixis Global Asset Management – International Distribution. “Latin America is one of the fastest growing fund markets in the world, and we know that our unique approach to portfolio construction will strongly resonate.”
Nunez Aguilar has over 17 years of asset management industry experience, most recently as head of funds and advisory sales for Latin America and U.S. Offshore at Barclays. He previously served as New York-based executive director for Latin America and U.S. Offshore Distribution at Morgan Stanley Investment Management and in roles at ING Barings and Bank Boston.
Nunez Aguilar holds an MBA from the Leonard N. Stern School of Business at New York University and a B.A. in economics from the Universidad Catolica Argentina. He holds FINRA Series 7 and 63 licenses and is a CFA charterholder.
Giordano Lombardo, Group Chief Investment Officer at Pioneer Investments, opens this month’s CIO Letter quoting Marcus Aurelius: “Look beneath the surface; let not the several quality of a thing nor its worth escape thee”. The subject of this letter is risk. An extract of the main risks that may break the support for risky assets, according to Lombardo, follow. You may access the complete document through the attached pdf file or through this link.
Walking on a Tightrope (Amid the Credibility of Central Banks and the Risk of Crisis)
The first month of the year has confirmed the main scenario presented in our latest Outlook: developed countries’ economies are gathering momentum and Central Banks retain accommodative monetary policies, extending support for risky assets. However, there is no shortage of reasons for being careful going forward.
Emerging Markets stand out as the weakest spot, as most investors refrain from entering countries with high current- account deficits (Argentina, Turkey and other Asian countries are again under the spotlight) or with political uncertainties putting the skids on overdue economic reforms.
None of the sources of volatility spotted recently has dramatically changed our constructive view on risky assets, especially equities. However, in this letter, I believe it is worth focusing on the main risks that may undermine our investment strategy, notably a change in investors’ expectations on monetary policies and the deflation, particularly in Europe:
– The main risks to an investment strategy favoring risky assets are a change in investors’ expectations on monetary policies and deflation in Europe. Playing with market expectations is not an easy task. In our view, the FED is walking on a tightrope and the risk of disappointing the markets is not negligible.
– The second main risk to our base scenario is deflation. Deflation is hardly a healthy condition for the economy: it tends to defer consumption and investments, to aggravate the debt burden and dampens economic growth as a result. Being in a low inflation/disinflation scenario or in outright deflation can make a significant difference for financial markets. Equities tend to anticipate the deflation, thus proving how important is the role of expectations and the credibility of the Central Bank.
The place where the deflation risk appears to be more tangible is Euroland. In the Eurozone, the drop of inflation below 1% hides a high dispersion in individual data.
The ECB needs to decide what is the lesser evil: avoiding deflation in the periphery, while allowing for some inflation in the core, or sticking to an “anti- inflationary” orthodoxy, which is going to kill the hopes of an economic recovery. We believe that the market has not fully realized nor priced the risk that the ECB has no plan to counter deflation and that political disagreement will lead to a prolonged standoff on the course of action.
Another source of risk to our global scenario is a marked slowdown in the world economy, coming from increasing turmoil in Emerging Markets, as we briefly mentioned. As we have seen, the risk is that they become “victims” of a change in the US monetary policy.
You may access Pioneer Investment’s full CIO Letter through this link or by accessing the pdf attached at the top left corner of this page.
Alfred Slager, profesor de Pension Fund Management en TiasNimbas Business School de la Universidad de Tilburg, Holanda. Factor Investing y su implementación: ‘Todos los caminos llevan a Roma’
Robeco recently interviewed Alfred Slager, professor in Pension Fund Management at the TiasNimbas Business School at the University of Tilburg, the Netherlands. Alfred Slager wrote the research paper “Factor Investing in Practice: A trustees’ Guide to Implementation” together with Professors Kees Koedijk and Philip Stork. This paper concludes that factor investing can take several forms: “But eventually – all roads lead to Rome.”
What is the background to this second research paper?
Factor investing has been much talked about, but so far we have little information on how it can be implemented. A follow-up paper was therefore needed to assemble the knowledge and experience of funds that have already started using factor investing in order to help other funds find their own way of implementing this investment strategy.
When we started our first study, it soon became clear that we were dealing with two separate questions. The first of these focuses on how factor investing is developing. This is the theoretical angle, which we dealt with in our first paper. The second asks how exactly institutional investors apply factor investing, and this is the subject of our second paper.
What surprised you most in this paper?
That there are different ways of implementing factor investing. Little was known about the practical aspects before we started our study (e.g. about incorporating factor investing into your investment process – managing it – the role of the regulator).
Why is factor investing in the limelight now?
Two simultaneous signals triggered this interest. First, the big financial crisis of 2008/2009; diversification turned out to be more of a problem than expected, which caused this and other basic investment principles to become important items on everyone’s agenda. How can we fix things to ensure we emerge stronger from the next financial shock?
Second, pension funds have become more critical about the role of active management. Pension funds, while willing to pay for the skills of a portfolio manager, are not prepared to do so to achieve factor-based returns that they could also generate in their portfolio by other means. Factor investing contributes to the discussion of the role of active management.
What is your own experience of the way pension funds look at factor investing?
There are funds that implement factor investing and feel that it contributes positively to their portfolio composition. They may use factor-based benchmarks, for instance. Other funds are still watching from the sidelines. They see factor investing as a kind of black box. But they, too, would like to strengthen their portfolio and diversify more effectively.
Why are Dutch and Scandinavian investors ahead of the pack in this area?
They have large amounts of institutional capital and a long-term investment horizon. But they also want to control the risks of negative shocks more effectively in the short term. In addition, Dutch and Scandinavianfunds emphasize transparency, cost control and well thought-out investment processes. Finally, they focus strongly on investing scientifically.
Will all institutional investors apply factor investing in future?
We will see this increasingly in many different variants. Something for everybody. What all these investors have in common is their desire to combine stable and enhanced diversification with new opportunities for returns.
Which other professional investors will decide to use factor investing?
I wouldn’t be surprised to see foundations, associations and private wealth funds applying factor investing.
There is a barrier to this, however. We are turning away from our familiar equities and bonds. Term spread and liquidity premium are concepts that are more abstract, and also harder to explain. On the other hand, a factor portfolio can be seen to ensure more stable returns.
What different methods of implementing factor investing are there?
In our research paper we discuss different variants. Institutional investors often implement factor investing in stages.
They may initially decide to use the first variant, the so-called ‘risk due-diligence’ method. Without immediately adjusting the portfolio, they consider exposure to different factors. You can use asset allocation to increase or decrease your exposure. An analogy would be a health scan.
The second variant entails making a more conscious choice to use factors for strategic asset allocation. In this case, you adapt your investment style and benchmark to these factors. Factors that are not used in your traditional investments can be applied to alternatives. The third variant is the most logical one. For this, you base your entire portfolio on factor premiums. However, there are only a few parties that currently do this.
What are the three biggest obstacles to implementation for institutional investors?
Firstly, the language of factor investing is an obstacle. It is less concrete, and the terms are less well known.
Secondly, there is the implementation issue of re-balancing; incorporating this effectively into investment processes requires a major effort by investors. And a third obstacle is that these are new and complex investments for many managers. It’s not really in the spirit of our times to try out new and challenging things.
What are the main differences between these approaches?
The difference lies in how rigorously you wish to implement factor investing. You can apply different variants. But whatever option you choose, you will be fully aware of what is happening in your portfolio.
What do the regulators think about factor investing?
There are positive and negative aspects. A robust portfolio is a positive aspect. Increased transparency of costs is another. Factor investing gives pension funds a better idea of what they do and don’t pay for.
There is also a clear negative aspect from the regulator’s point of view. The notion of being in control produces potential conflicts between the regulator on the one hand and the manager or pension fund on the other. There is much to regulate. In operating terms, this raises the bar somewhat for those who wish to start factor investing. However, practical experience has already demonstrated that there are many feasible ways to implement this strategy. Professional investors will therefore increasingly be allocating to factors in future.
Photo: Taxiarchos228. Edyficar, A Subsidiary of The Credicorp Group, Acquires Mibanco
Credicorp has announced to its shareholders and the market that its indirectly held subsidiary Edyficar has reached an agreement with Grupo ACP Corp (“ACP”) to buy the shares they hold in Mibanco, the country’s largest micro-lending operation, which represent 60.68% of total shares.
Credicorp’s Executive Committee of the Board of Directors approved the transaction in its session of February 5th, 2014, and agreed to pay US$ 179,484,000.00 for the 60.68% stake, which represents a multiple of 1.3 times book value of Mibanco as of December 31st, 2013.
This agreement represents an important step to expand Edyficar’s micro-lending business, joining the efforts of the two most successful micro and PYME lending operations in the Peruvian market, which will provide ample access to credit with high standards of risk management to a growing sector of the population. As a result of this transaction, the new entity will become the largest micro lending entity in the country with a 19.5% share of the micro-lending and PYME market or 3.7% share of the total loan portfolio of the financial system, 886 thousand clients, S/. 9,343 million in assets and S/. 7,098 million in outstanding loans; and will hold a platform for future growth.
The acquisition is expected to be completed, subject to the necessary approvals, in the course of the next month. Subsequent to the acquisition of ACP’s share of Mibanco, and according to regulatory requirements, a public offer (OPA) will take place in order to tender the purchase offer to the minority shareholders of Mibanco.
This operation will create significant value for Edyficar’s shareholders, and consequently Credicorp’s shareholders, through important economies of scale, rationalization of organizational structures, savings through more appropriate funding structures, less client acquisition costs and broad efficiencies once the extensive synergies identified are effectively captured. The new micro-lending operation will be the strongest in the market, with the largest branch network almost exclusively dedicated to micro-lending and PYME, both being the fastest growing sectors, with the lowest level of penetration of the financial system, high levels of informality, but at the same time, highest rate of entrepreneurship and therefore, highest potential for future growth.
The closing of the acquisition is subject to compliance with certain conditions precedent and approvals, mainly the regulatory approval by the Peruvian Superintendency of Banks, Insurance and Pension Funds (SBS).
With this transaction, Credicorp reinforces its commitment to generate long-term shareholder value through the growth opportunities our market offers. Following this transaction, and true to the nature of its business, Edyficar will lead the development of the micro-lending and PYME businesses, which are considered the engine of future growth and development of the Peruvian economy for the future years.
Greenhill & Co., Inc., an independent investment bank, has announced that Rodrigo Mello will join the Firm in Sao Paulo as a Managing Director.
Mr. Mello has more than 16 years of transaction experience, most recently as a Managing Director at Goldman Sachs, where he worked for 13 years. At Goldman Sachs, he was responsible for the investment banking coverage of financial institutions and consumer & retail clients, and during his career worked on complex mergers and acquisitions for clients across a variety of industry sectors, including financial services, consumer products, retail, media, industrials, telecom and natural resources.
Mr. Mello started his career in Goldman Sachs in 1999. He left Goldman Sachs in 2005 and worked for two years at Monte Cristalina, a holding company that controls Hypermarcas, a leading Brazilian consumer goods company, where he was responsible for Corporate Strategy and Finance. He rejoined Goldman Sachs as a Vice President in 2007.
Scott L. Bok, Chief Executive Officer of Greenhill, said, “We are pleased to strengthen our Brazilian team with the broad expertise and deep relationships that Rodrigo brings. We are very excited about our prospects in Brazil and are pleased to be able to quickly strengthen the team with a key hire at a time when we see the potential for significantly increased M&A activity in Brazil.”
Daniel Wainstein, Head of Greenhill Brazil, said, “It is great to have the opportunity to work with Rodrigo again. We worked in close partnership for almost fifteen years. Rodrigo is widely recognized as one of the most important senior bankers in Brazil, particularly in sectors like financial services and consumer and retail, and we look forward to leveraging his success and breadth of experience as we focus on building a leading M&A franchise for Greenhill in Brazil.”
Urs Beck. EFG AM Hires Award Winning Swiss Equity Fund Manager Urs Beck
EFG Asset Management, an international provider of actively managed investment products and services, has recruited top Swiss equity fund manager Urs Beck, as part of its on-going development of Swiss investment strategies.
Based in Zurich, Urs will be responsible for Swiss equities and will manage a dedicated Swiss equity fund to complement the firm’s New Capital UCITS IV fund range.
Prior to his move to EFG Asset Management, Urs was Head of Swiss Equities at Zurich Cantonal Bank (ZKB) where he ran both institutional and retail Swiss mandates for seven years. During his tenure at ZKB, Urs received the FERI award for best fund in the Swiss equities category in 2013 and 2014 respectively.
Urs has over 18 years of investment experience and has previously held positions with Julius Baer, Bank Leu and UBS. He is a CFA charter holder and has a Masters in Economics from the University of St. Gallen (HSG).
“We are very pleased to have an experienced portfolio manager of Urs’ calibre and proven track record join EFG Asset Management. The development of Swiss equities as one of our core competencies further underlines our commitment to investment management in Switzerland”, says Patrick Zbinden, CEO, EFG Asset Management Switzerland.
Barry Benjamin, responsible at PwC's Global Asset Management, commenting the report. Global AuM To Exceed $100 Trillion by 2020 with Nearly 50% Residing in North America
According to Asset Management 2020: A brave new world, a new report from PwC released on Monday, global assets under management (AuM) will rise to roughly $102 trillion by 2020 from a 2012 total of $64 trillion, representing a compound annual growth rate (CAGR) of nearly 6 percent. This forecasted expansion aligns with the findings of the firm’s recently released Global CEO Survey where growth projections among asset management CEOs eclipsed CEOs from numerous other sectors.
AuM in North America is predicted to grow at a CAGR of 5.1 percent to reach over $49 trillion by 2020 (from a 2012 total of $33.2 trillion), exceeding expected AuM for Europe, Asia Pacific and Middle East & Africa combined.
The game changers
As the global asset management industry progresses towards a significant moment in its evolution, PwC has identified six dynamics that should be analyzed and addressed to capitalize on emerging opportunities:
Asset management moves center stage:The changing focus of banks and insurance companies and shifting demographics/markets could propel asset management from the shadows to the forefront. However, rising assets and prominence are typically accompanied by rising costs. As the asset management industry expands and becomes more visible, new investments in data, technology and talent may be needed to respond to heightened regulatory and competitive pressures. These expenses could continue to burden profits, which, according to industry analysis, are still 15-20 percent below their pre-crisis levels.
Distribution is redrawn – regional and global platforms dominate: By 2020, four distinct regional fund distribution blocks in North Asia, South Asia, Latin America and Europe are expected to develop regulatory and trade linkages with each other, reshaping the way that asset managers view distribution channels. North American asset managers may need to evaluate their strategy to consider the impact of these linkages.
Fee models are transformed: By 2020, it is likely that major territories with distribution networks may look to introduce regulations to better align interests for the end-customer, which may place more transparency pressure on asset managers and have a substantial impact on the cost structure of the industry. In the US, asset managers are facing the unique confluence of imminent mass retirement and growing healthcare costs which is likely to shift investment strategy towards longer term wealth accumulation with more emphasis on fixed income and income generating assets.
Alternatives become more mainstream, passives are core and ETFs proliferate: Traditional active management should continue to be the core of the industry as the rising tide of assets lifts all strategies and styles of management. However, traditional active management could grow at a less rapid pace than passive and alternative strategies, and the overall proportion of actively managed traditional assets under management is likely to shrink. PwC estimates that alternative assets will grow by some 9.3 percent a year between now and 2020, reaching $13 trillion.
A new breed of global managers: By 2020, the industry is likely to see the emergence of a new breed of global managers, one with highly streamlined platforms, targeted solutions for the customer, and a stronger and more trusted brand. These managers will not only emerge from the traditional fund complexes, but from among the ranks of large alternative firms as well.
Asset management enters the 21st century: Today, asset management operates within a relatively low-tech infrastructure, but by 2020 technology may become mission critical to customer engagement, data mining for information on clients and potential clients, operational efficiency and regulatory and tax reporting. Moreover, cyber risk will intensify, ranking as a top priority alongside operational, market and performance risk.
“Amid unprecedented economic turmoil and regulatory change, most asset managers have not had time to bring the future into focus,” said Barry Benjamin, global asset management leader, PwC. “However, as the industry stands on the precipice of a number of fundamental shifts and the potential for significant volumes of assets, there is more responsibility on firms than ever to manage these assets to the best of their collective ability. Strong branding and investor trust in 2020 will only be achieved by those firms that place a premium on transparency, a concrete value proposition to customers, and a firm commitment to avoiding practices that could prompt concerns among investors, regulators and policymakers.”
Overarching trends fueling growth
According to the report, the asset management environment is being reshaped by the convergence of several significant global megatrends including demographic changes, accelerating urbanization, technological breakthroughs and shifts in economic power. At the client level, PwC predicts that global growth in assets will be driven by three key factors:
The increasing use of defined contribution (DC) plans partly driven by government-incentivized or government-mandated shift to individual retirement plans.
The increase of mass affluent and high-net-worth-individuals in the SAAAME (South America, Asia, Africa, Middle East) regions where economies are set to grow faster than those in the developed world in the years leading up to 2020.
The expansion and emergence of new sovereign wealth funds (SWFs) with diverse agendas and investment goals.
In 2012, the AM industry managed 36.5 percent of assets held by pension funds, sovereign wealth funds, insurance companies, mass affluent and high-net-worth-individuals. If the AM industry is successful in penetrating these clients assets further, PwC believes that share of managed assets can increase by 10 percent to a level of 46.5 percent, which would represent $130 trillion in Global AuM.
Pension funds assets
Overall, assets held by mass affluent (wealth between $100,000 and $1 million) and HNWI investors (wealth of $1 million or more) are expected to rise to more than $100 trillion and $76 trillion, respectively by 2020, as compared to $59 trillion and $52 trillion, respectively, in 2012.
While emerging wealth economies in the SAAAME regions will likely serve as the dominant catalyst for growth, North America is projected to continue expanding at a solid pace and ahead of expectations for a similarly mature market like Europe. In 2020, North American mass affluent assets are expected to reach $21.7 trillion (from $13.7 trillion in 2012, a CAGR of 4.9 percent) while HNWI assets will likely top $30 trillion relative to $20.1 trillion in 2012 (CAGR of 4.4 percent).
The size of SWFs is rising fast and their presence in international capital markets is becoming more prominent. AuM for SWFs is currently above $5 trillion and PwC predicts this figure will surge to nearly $9 trillion by 2020. SWFs based in the Middle East and Africa will grow the fastest, with Asia Pacific also seeing a rapid rise in SWF assets. This is a significant opportunity for strategic expansion for North American asset management firms that invest in the resources and capabilities required to effectively meet the unique needs of SWFs.
“Responding to the impact of the global megatrends and the game changers we’ve identified will require considerable thought in order to create a great strategy – there is no silver bullet to building the successful asset manager of 2020 and beyond,” said John Siciliano, managing director and strategy lead, asset management advisory, PwC US. “Those that are proactive about developing coherent strategies and act with integrity towards clients are likely to build the brands that are not only successful in 2020, but that are still trusted in 2020.”
To access the whole report, please use the following link.
Piazza Duomo. H.I.G. Capital Opens Milan Office And Names Raffaele Legnani Managing Director
H.I.G. Capital, a global private equity firm with more than $13 billion of equity capital under management, has announced that it has opened a Milan office and appointed Raffaele Legnani as a Managing Director to lead its efforts in Italy.
H.I.G., through its H.I.G. Europe affiliate, currently has a team of over 50 investment professionals based in Europe, operating out of offices in London, Hamburg, Madrid and Paris. H.I.G. Europe is one of the most active private equity investors in Europe, having completed 28 investments since it began investing in 2008. In July 2013, H.I.G. Capital successfully closed H.I.G. European Capital Partners II at €825 million ($1.1 billion), significantly above its initial target. The fund will follow the strategy of its predecessor fund, focusing on buyout and growth capital investments in middle-market companies primarily in Western Europe.
Mr. Legnani was previously founding partner of Atlantis Partners in Milan, the leading independent institutional investment firm focused on Italian mid-size companies in Special Situations. Before that, Mr. Legnani has successfully invested in a significant number of buyout transactions, both directly and through specialized private equity funds (the London based Stellican and the US based Wexford Management) serving as operating board member for several portfolio companies. Previously, he worked in investment banking for Goldman Sachs in London.
In commenting on his appointment, Mr. Legnani stated, “I am very excited to join the H.I.G. team. H.I.G. is ideally positioned to successfully invest in Italy, given the significant amount of capital at its disposal and its experience in working with both growth companies and businesses facing operational and/or financial challenges. Focusing on midsize companies with a turnover above €50 million, H.I.G. targets the backbone of the Italian economy.” Mr. Legnani also added that he expects H.I.G. to be flexible in its approach in Italy, providing both debt and equity capital and investing in either majority or minority stakes in promising Italian businesses with a strong and sustainable competitive position. He also expects H.I.G. Capital to assist Italian companies to capitalize on international growth and expansion opportunities, given its global presence and its wide team of international experienced professionals.
