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Cartica Capital Urges CorpBanca to Reconsider its Approval of the Merger with Itaú

Corpbanca e Itaú se topan con una piedra en el camino de su fusión — Photo: Felipe Burgos Álvarez. Cartica Capital Urges CorpBanca to Reconsider its Approval of the Merger with Itaú

In response to inquiries following news reports, Cartica Capital confirmed today that it has delivered a letter to the Board of Directors of CorpBanca S.A. In the letter, Cartica urges the Board to immediately reconsider its approval of the proposed merger with Itaú Unibanco Holding and take appropriate steps to commence an auction process that maximizes value for all shareholders, consistent with the Board’s fiduciary duties.

Cartica believes that the proposed transaction with Itaú as currently structured greatly undercompensates the Bank’s minority shareholders, while securing valuable benefits exclusively for CorpBanca’s controlling shareholder, the Alvaro Saieh-controlled CorpGroup Holding. Cartica previously advised Mr. Saieh privately of its concerns.

With in excess of US$2 billion under management, Cartica Capital manages a concentrated long-only portfolio of publicly-traded equities in Emerging Markets. Cartica engages with companies in a constructive and cooperative manner to influence the direction of each company to improve performance, unlock value, and increase market valuations.

The full text of the letter to CorpBanca’s Board follows: March 3, 2014

Re: Fairness of proposed CorpBanca / Itaú transaction

Dear Members of the Board:

We are writing to inform the Board of our conviction, previously communicated to the Bank’s controlling shareholder, Mr. Álvaro Saieh, that the proposed transaction between CorpBanca SA (the “Bank”) and Itaú greatly undercompensates the Bank’s minority shareholders and extends disproportionate consideration to Mr. Saieh and his affiliates. As one of the Bank’s largest minority shareholders, we believe that the decision to approve the transaction as currently structured constitutes a failure of the Board to discharge its fiduciary duties to all shareholders. Accordingly, we request that you reconsider moving forward with the transaction and instead take immediate steps to oversee a fully transparent process for the sale of the Bank that maximizes value for all shareholders, as your fiduciary duties require.

As you are aware, the Bank confirmed its intention to seek a “combination” with a larger regional institution in a disclosure (hecho esencial) issued on November 29, 2013. Soon thereafter, the financial media reported that Mr. Saieh intended to select the eventual partner based on which suitor offered the greatest degree of influence in the post- merger institution to him and CorpGroup, the holding company through which the Saieh family exercises control over the Bank. In a letter to Mr. Saieh dated December 20, 2013, we insisted that price should be the sole criteria for selecting among the Bank’s suitors and that any arrangement that avoided a tender offer would amount to inequitable treatment of minority shareholders. We also spoke by telephone and met in person with Mr. Saieh in December 2013 to impress on him the fiduciary duty of the Board and its controlling shareholder not to compromise on the value of the deal for all shareholders in exchange for securing special benefits for Mr. Saieh and CorpGroup.

Disregarding the best interests of minority shareholders, Mr. Saieh and the Bank nonetheless agreed to a transaction that will, if completed as currently structured, provide Itaú with effective control of the Bank while conferring numerous valuable benefits to Mr. Saieh and CorpGroup. The market swiftly repudiated the deal: the Bank’s shares dropped precipitously in the days following the announcement, erasing more than US$700 million in shareholder value.1

While the full details of the transaction agreement and the shareholders agreement to which the Bank, Itaú and CorpGroup are parties have not been disclosed, the incomplete and inadequate disclosures that have been made so far clearly reveal that Mr. Saieh and CorpGroup will receive an array of special benefits not shared with other shareholders, including at least the following:

The purchase by the post-merger bank of CorpGroup’s 12.38% interest in CorpBanca Colombia for US$329 million and of CorpGroup’s co-investors’ interest in such unlisted and illiquid entity for an additional US$565 million at a price significantly higher than fair market value or the value that would be received in an arm’s-length transaction. This purchase of the minority interest in CorpBanca Colombia represents a transfer of value from the Bank’s shareholders to CorpGroup and its co-investors in CorpBanca Colombia.
A US$950mm credit line to be provided by Itaú to CorpGroup, which provides no benefit to the Bank’s minority shareholders.
CorpGroup’s rights under the proposed shareholder agreement to appoint the Chairman of the post-merger bank (reported to be the Bank’s current Chairman, Mr. Jorge Saieh) and members of its Board (reported to include Mr. Fernando Massú, the Bank’s current CEO), to veto senior management appointments, and to otherwise influence the structure and composition of the senior management team.
Tag-along rights and rights of first offer.
A share liquidity mechanism for the sole benefit of CorpGroup.
An agreement to give CorpGroup the option to co-invest with Itaú in a regional alliance of banking businesses outside the geographic range of the merged bank.

The paucity of detail on the transaction provided by the Bank’s management thus far means we may not even know the full extent of the disproportionate consideration to be accorded Mr. Saieh and CorpGroup, or that the particulars of these benefits have been accurately reported. Given the special benefits received by Mr. Saieh and his affiliates, we reject the Bank’s assertion that the structure of the transaction as a share-for-share merger means that all shareholders will receive the same treatment. To the contrary, we believe that it is patently evident that the tortured legal structure adopted by Mr. Saieh for the transaction was selected precisely to deprive minority shareholders of the opportunity to have their shares acquired in a tender offer for fair value. And, of course, CorpGroup and its co- investors will be receiving cash, not shares, for their interests in CorpBanca Colombia.

In a letter to Mr. Saieh dated January 31, 2014, we rejected the characterization of the transaction as fair to minority shareholders and asserted our belief that Mr. Saieh and the Bank’s management had negotiated merger terms disadvantageous to the Bank’s minority shareholders in return for special benefits accruing to Mr. Saieh and CorpGroup. We expressed our hope for a constructive dialogue with Mr. Saieh to seek equal treatment for all shareholders. Instead, we were referred to the Bank’s counsel, who dismissed our concerns and asserted that the Bank would provide shareholders with no further information about the transaction.

Faced with the refusal of Mr. Saieh and CorpGroup to engage with us over our objections to the proposed transaction, we now call upon you, the Board of Directors of the Bank, to rectify this situation consistent with your fiduciary duties. We know you understand that your fiduciary duties require you to act in the best interests of all shareholders rather than simply endorsing and implementing the will of the Bank’s controlling shareholder. We believe the best way to maximize value for all shareholders is to conduct an open auction for the Bank without regard to the continuing benefits Mr. Saieh stated would be a key element of any transaction. In addition, the Bank should immediately disclose all the terms, contracts, agreements, understandings and plans for the proposed transaction so that all shareholders may assess for themselves its merits.

As members of the Board of Directors of CorpBanca you are stewards of the Bank and fiduciaries of all shareholders. The affiliated private investment funds managed by Cartica Management, LLC (collectively, the “Cartica Funds”)2 have been shareholders of CorpBanca SA since October 2012 and currently collectively own 10,971,557,595 shares including both common shares and ADRs. These holdings represent approximately 3.22% of the Bank’s outstanding shares. We urge you to take immediate steps to do what is right for all shareholders and run a full and transparent process to maximize shareholder value. We believe that an open and constructive dialogue between the Board and shareholders can contribute to a resolution of the issues raised in this letter and we remain open to such dialogue. However, consistent with our duties as fiduciaries for the investors who have entrusted their capital to Cartica, we are prepared to pursue any and all avenues and remedies available to us to protect the interests of the Cartica Funds as CorpBanca shareholders.

Sincerely, Teresa Barger

Senior Managing Director
Cartica Capital

¹ In fact, between November 29, 2013 (the day after CorpBanca announced that it had retained Goldman Sachs and Bank of America) and January 28, 2014 (the day before the announcement of the Itaú transaction), CorpBanca shares traded at a Volume Weighted Average Price (“VWAP”) of CLP 7.163. On January 29, 2014, the day of the announcement, the shares closed at CLP 6.067, a drop of more than 15% from the VWAP .

² The Cartica Funds are: Cartica Corporate Governance Fund, LP; Cartica Investors, LP; Cartica Capital Partners Master, LP; and Cartica Investors II, LP.

Legg Mason Acquieres QS Investors

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Legg Mason has announced a definitive agreement to acquire QS Investors, a leading customized solutions and global quantitative equities provider based in New York, with $4.1 billion in assets under management and nearly $100 billion in assets under advisory.

Legg Mason’s existing quantitative equity platform, Batterymarch Financial Management, and Legg Mason Global Asset Allocation, its existing solutions platform, will be integrated over time into QS Investors as a result of this transaction. The combined platform will be a world-class retail and institutional solutions and global quantitative equity provider with compelling investment strategies and strong consultant relationships.

The expanded platform will be branded under the QS Investors name, and headed by Janet Campagna as Chief Executive Officer and Rosemary Macedo as Chief Investment Officer. Key investment professionals from Batterymarch and LMGAA will join the existing QS team as senior members.

The acquisition is expected to close in the first fiscal quarter of FY 2015. The acquisition and combination transaction is expected, excluding restructuring and transition costs, to be modestly accretive to Legg Mason’s earnings in the first year. In connection with the combination of the businesses, Legg Mason expects to incur restructuring and transition costs of approximately $35 million, including $3 million in the March 2014 quarter and $30 million in fiscal year 2015. Terms of the transaction were not disclosed.

The combined business will remain committed to delivering alpha for clients. This transaction strongly positions Legg Mason within the rapidly growing global client demand for customized solutions, liquid alternatives and smart beta strategies with: a scalable and distinct investment process and key capabilities in Custom Solutions, Liquid Alternatives, Global Quantitative Equities (including a 12-year track record in Smart Beta), and Multi-Manager Asset Allocation; a research-driven process with a strong track record in combining fundamental research, quantitative models and insights from behavioral finance to dynamically shift investment exposure based on changing market conditions and opportunities. Also, with significantly enhanced capabilities and operational efficiencies to deliver outcome-oriented products and strategies, compelling investment performance, a world-class technology platform and strong relationships across the consultant community and a broad institutional client base of public and private pension funds, endowments, sovereign wealth funds and financial institutions.

Post transaction, Legg Mason will leverage this enhanced solutions platform together with Legg Mason’s other investment affiliates and global distribution network for future growth in the institutional marketplace as well as with retail clients, where demand for customized solutions is increasing.

 Joseph A. Sullivan, President and CEO of Legg Mason, said: “Optimizing and expanding our portfolio of investment products has been a top priority for our senior management team. The combination of QS Investors’ highly regarded investment capabilities and thought leadership with our existing investment teams creates a powerful offering in an area of the market that is expected to experience significant growth in the coming decade. When we marry that with our global distribution platform, we believe we will be well positioned to bring compelling products to retail and institutional investors in markets around the world.“

 Janet Campagna, CEO of QS Investors, said: “QS Investors and Legg Mason share a ‘client first’ culture committed to transparency that will allow us to focus on investment strategies and serving our clients, and this unique combination will allow us to leverage Legg Mason’s global retail distribution platform, build and further strengthen our talented research and portfolio management teams, and continue to be at the forefront of innovative product development. Our objective over the next year is to integrate Batterymarch and LMGAA with our platform to leverage the best ideas from each group much like we’ve successfully adapted and efficiently integrated ideas both within and across asset classes for clients for over 14 years. We are confident in our ability to execute against this plan and especially pleased that our entire team continues to be focused on the long term success of our clients and business.”

 Legg Mason was advised by Dechert, LLP and QS Investors was advised by RBC Capital Markets and Paul, Weiss, Rifkind, Wharton & Garrison LLP.

The Shanghai Free Trade Zone Is Now a Focal Point for Financial and Economic Reforms

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La zona de libre comercio de Shanghai llevará a China a una nueva fase de liberalización económica — Photo: Mstyslav Chernov. The Shanghai Free Trade Zone Is Now a Focal Point for Financial and Economic Reforms

Victoria Mio – CIO China, Co-head Asia Pacific Equities and Fund Manager of Robeco Chinese Equities – came back from her last macro research trip to China with more confidence on cyclical recovery and reform momentum.

Different from Japan or Korea, which are small in comparison and urbanized very quickly, China remains relatively poor after 30 years of unprecedented growth. Although the coastal regions have reached an advanced stage in their development, the central/western regions are still underdeveloped. That provides a lot of room for growth. China is still an ‘adolescent’, yet to reach ‘adulthood’.

The Shanghai free-trade-zone pilot scheme was approved by the State Council on 22 August 2013. The most innovative part of the plan lies in promoting renewal in the financial sector and allowing market forces to work. Investors, points out Victoria Mio, are getting very excited by these new initiatives.

It is anticipated that the FTZ government may abolish many approval procedures and replace them with a registration process, and will allow foreign companies located in the FTZ to conduct currency conversion more freely. The FTZ may also be an important step for China to move towards joining the negotiation for a Trans Pacific Partnership (TPP), which requires all member countries to provide the same policy environment for companies, regardless of ownership. In this sense, the FTZ will lead China’s next phase of economic liberalization to drive economic growth for many years to come. Once proven successful, it will be rolled out on a nationwide basis.

Figure 1 shows the Shanghai Free Trade Zone, which includes A) Waigaoqiao Free Trade Zone, B) Pudong Airport Free Trade Zone and C) Yangshan Free Trade Port Area (land/harbor). The total area combined is 28.8 sq km, or 2.6% of Hong Kong (1,103 sq km) and 0.45% of Shanghai (6,340 sq km).

Pudong area in Shanghai

Enlarge

Given the new leadership’s reform initiatives, Robeco therefore focuses on the following major themes in the China portfolio:

1) Urbanization (intra-city transportation and property);

2) Alternative energy (natural-gas distribution and wind power);

3) Health-care reform (pharmaceutical);

4) Income growth and distribution (auto and household appliances);

5) Environmental protection (waste and air-pollution management);

6) Technology and innovation (Internet and social media);

7) Manufacturing upgrade (high-end-equipment manufacturers).

Conchita Calderon is Appointed Executive Director for JP Morgan in Mexico

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Conchita Calderón ficha como directora ejecutiva para JP Morgan en México — Conchita Calderón. Photo: Linkedin. Conchita Calderon is Appointed Executive Director for JP Morgan in Mexico

Conchita Calderon has been appointed by JP Morgan as executive director of New Business Development for Mexico, according to information supplied to Funds Society by sources familiar with the appointment.

Calderon has worked to date as the partner responsible for the Mexican market at Canepa Management, a company which participates in Azora’s capital.

With over 14 years experience in the financial and wealth management sectors, Calderon has spent most of her career between Miami and Mexico specializing in ultra-high-net worth (UHNW) clients of the Private Banking division of Banco Santander.

Henderson Reaffirms its Commitment to Building a Global Credit Franchise

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Henderson reafirma su apuesta por la construcción de una franquicia global de crédito — Stephen Thariyan, Corporative Debt Responsable at Henderson.. Henderson Reaffirms its Commitment to Building a Global Credit Franchise

Henderson is investing resources in building a global credit franchise, led by Stephen Thariyan. In February 2013, Henderson announced the appointment of Kevin Loome as manager of U.S. corporate bonds, and his team of five specialists. With these engagements Henderson built a U.S. credit team based in Philadelphia that complements its European fixed income franchise. As confirmed by Thariyan during an interview with Funds Society, the next step will be the hiring of a specialist emerging fixed income team. “That way we will have all the resources to position ourselves in the credit subclass, which offers the best prospects for profitability,” says Henderson Global Investors’ global head of corporate debt.

The next few years will be quite different to what we have seen in the credit markets during the last five years; a period in which “everyone did well without doing anything special, other than being in the asset class,” says Thariyan. The outlook is more complicated now, mainly because investors are “accustomed to double-digit returns.”

A reduction in returns which ultimately did not happen had been expected for 2013. In fact, most experts predicted that the high yield credit market would see a year in which the investor would earn “the coupon” rate, about 5.5%, for the European high yield market. However, as Thariyan points out, the reality was different and the high yield market favorably surprised investors by giving them returns of 11%.

Looking to 2014, the expert points out two focal areas in the credit market. “First, there are still some interesting returns in some sub-asset classes such as high yield and emerging market debt. Moreover, unlike what happened in recent years, this period will not be dominated by the actions of central banks, so this is a year in which the selection of securities becomes important once again.”

Given this much more complicated scenario, Thariyan emphasized that “more than a great rotation from debt into stock, it is internal rotation which is occurring within the credit market”, both geographically, favoring regions where monetary stimuli remain, and in absolute return management products, “which offer protection against duration risk.”

Thariyan explains that, his team’s goal is to provide an additional market return exceeding 50 bp for the entire credit range by selecting appropriate strategies and emissions. “Now is the time to have a good credit analyst team generating the most value,” he added that for performanceit is very important to access the largest possible universe of securities and “to be willing to leave the index if it is suitable for the portfolio.”

Since the year 2009, Henderson has applied four levers in order to obtain alpha in their fixed income portfolios: a good selection of securities, ignoring the index, using credit derivatives and performing active duration management.

Ampliar

Thus, Henderson has already achieved great success in European IG Credit where it has a strategy which leads the market with 1,700 million dollars in assets under management, as well as in its absolute return strategy, Credit Alpha, which has had a soft close in November to approach the figure of 1,000 million pounds, an amount which the credit team considers the limit in order to optimize fund performance considering the operational costs involved in the strategy. Just over a year ago they launched their strategy for European high yield, which is ranked among the most profitable in its category, and three months ago, relying on Kevin Loome’s team in Philadelphia, Henderson launched a global high yield strategy. Overall, Henderson manages 20,000 million dollars in fixed income strategies.

“We hope to be ready to complete this deal with emerging fixed income strategies soon so that in two or three years we will have a truly global deal on credit, and have accumulated a significant track record for investors,” he concludes.

BNY Mellon Names CEO of Alternative Investment Services Business

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BNY Mellon, a global leader in investment management and investment services, has appointed Frank La Salla as Chief Executive Officer of its Alternative Investment Services (AIS) business.

La Salla will report to Samir Pandiri, BNY Mellon Executive Vice President and CEO of Asset Servicing. He was most recently Managing Director at Pershing LLC, a BNY Mellon company, where he was responsible for all of Pershing’s business outside of the U.S. and led its global growth strategy.

La Salla assumes a role Pandiri has held the past two years. He will be based in New York and oversee a team of more than 2,000 AIS professionals worldwide.

“Client demand for alternative investments is growing, as institutions and individuals seek to enhance returns and manage risk in a low-interest rate environment. At the same time, we’re helping hedge fund managers deal with the host of new regulations and reporting requirements around those assets,” said Pandiri.

“This is a strategic growth initiative for us,” said Tim Keaney, BNY Mellon vice chairman and CEO of Investment Services. “We’ve seen a marked expansion in serving our alternative investment manager clients in recent years and continue to see tremendous upside potential in this business.”

Alongside his new role, La Salla will remain on the board of Pershing Limited in the UK and continue to represent BNY Mellon on the Board of Directors of Euroclear PLC and Euroclear SA.

Before BNY Mellon’s acquisition of Pershing in 2003, La Salla was President and Chief Operating Officer of BNY Clearing Services LLC. Prior to that, he served as Managing Director and Chief Operating Officer at Societe Generale Securities Corp. in the U.S.

Hispania Announces its Intention to Float on the Spanish Stock Exchange

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Hispania Activos Inmobiliarios, a recently incorporated Spanish limited liability company, has announced its intention to seek a primary listing for its ordinary shares on the Madrid, Barcelona, Bilbao and Valencia stock exchanges. Listing is expected to commence before 31 March 2014.

The Company is seeking to raise gross proceeds of €500 million (plus a 10% overallotment option) through an institutional placing. Hispania has already received commitments of €314 million from a number of cornerstone investors and other investors including Quantum Strategic Partners (George Soros), Paulson and Co (John Paulson), Moore Capital Management, APG, Cohen & Steers and the Canepa group.

Hispania intends to deliver capital growth by taking advantage of investment opportunities that may arise in the Spanish real estate market. In particular, the Company is aiming to create a high quality portfolio that generates both recurring income as well as capital gains from asset appreciation.

Hispania intends to invest primarily in multi-family residential properties, offices and hotels in Spain. This means quality assets that are well located and with yield potential, that require either some repositioning, capex investment or active asset management.

The Company’s initial investment strategy is to invest over three years and then to liquidate the portfolio and to return value to shareholders over the following three years. Where the Investment Manager proposes a different course of action, for example if there are merits for Hispania to become a permanent capital vehicle in full or in part, the Company would submit such proposal to the shareholders for approval.

Hispania will be externally managed by Azora Gestión SGIIC, S.A.U. and will benefit from Azora’s long-term expertise and successful track record of real estate investment and its extensive and long-standing relationships with key decision makers in the Spanish real estate market.

In line with best corporate governance practices, Hispania will have an experienced Board, with a majority of independent directors -4 out of 6- and which is chaired by Mr. Rafael Miranda Robredo, the former CEO of Endesa. Board members include Mr. Joaquin Ayuso, former CEO of Ferrovial, Mr. Jose Pedro Pérez-Llorca, founder of Pérez-Llorca Abogados and Mr. Luis Mañas, Board Member of Aviva, as well as Concha Osácar and Fernando Gumuzio from Azora. To ensure close alignment with the interests of all shareholders, the management team has agreed to invest capital in Hispania representing 2.28% of the expected initial offering proceeds.

Hispania has appointed Goldman Sachs International and UBS Limited as Joint Global Coordinators and Joint Bookruners in the offering. The Company has appointed Freshfields Bruckhaus Deringer as its legal advisor.

Commenting on the announcement, Mr Fernando Gumuzio of Hispania said: “The Spanish real estate sector currently presents an interesting opportunity for those investors with the expertise to navigate this complex environment in order to select the right assets. We have established Hispania Activos Inmobiliarios to take advantage of these opportunities by leveraging Azora’s strong track record and expertise in the market to build a high quality portfolio that creates value for shareholders.”

IEB and WSBI Launch an International Initiative to Build a More Responsible Financial System

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IEB y WSBI ponen en marcha una iniciativa en busca de un sistema financiero más responsable — Photo: JLPC. IEB and WSBI Launch an International Initiative to Build a More Responsible Financial System

IEB, centre focused on financial training, and WSBI (World Saving Banks Institute), in collaboration with the London School of Economics (LSE), launched the first international initiative aimed at building a more responsible financial system: the ‘Responsible Banking Challenge’.

The main objective is to encourage financial professionals to send their proposals to contribute to the development of a financial system that is more responsible society, the environment and the world economy. This is an opportunity to build a more ethical system worldwide, in which banking professionals are committed to social development.

Some of the fields where these proposals can be developed are, for example; financial integration (according to the World Bank, universal access to financial services contributes to poverty reduction); CSR activities; improvements in a bank’s good governance strategy; financial entities’ good practices manual; or the creation of indicators capable to of evaluating the ethical and responsibility level of financial institutions.

The best initiative will obtain a scholarship to study the Master in Responsible Banking from IEB and WSBI, an online programme in English, taught in collaboration with the London School of Economics Executive Education (LSE). The other selected candidates will be awarded a 30%-50% scholarship to study the programme.

Furthermore, the Master Programme alumni will receive during the course coaching sessions in order to put in practice the knowledge acquired during the lessons and to improve their personal development, and will be part of a mentoring course with professionals specialized in the field.

Financial professionals interested in taking part should submit their proposals to mrb@ieb.es by April 22th. Written formats should not exceed 1,500 words (4/5 pages) or 10 Power Point slides. An audiovisual should not last longer than 3 to 5 minutes. Further information can be obtained at twitter @IEB_Spain / @IEB_Alumnos

International Investors Rush to Spanish Real Estate Through SOCIMIs

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Los inversores internacionales se lanzan a por el ladrillo español a través de las socimis — Soros has committed to be anchor investor of Hispania socimi, by contributing 50 million euros. International Investors Rush to Spanish Real Estate Through SOCIMIs

The bursting of the housing bubble in Spain and the subsequent financial crisis have left Spanish real estate prices at levels which, for the first time in years, investors are beginning to consider attractive. Therefore, the asset’s positioning begins to pick up, either directly or through listed vehicles such as the SOCIMIs, the Spanish REITs.

“The question which investors were asking themselves in recent years, on whether the time was right to invest in Spanish real estate or not, is no longer relevant. The question now is the type of asset in which to invest, and in which market. The response will depend on investors’ risk profiles, their expectations on the return and the investment term,” as told to Funds Society by Juan José Zaragoza, managing partner of Exan Capital, a real estate advisory and management independent firm based in Miami. The expert believes that “property deals currently offered in Spain and investors’ return expectations finally fall together.” And, in his opinion, some of the clearest opportunities are “in some types of assets which offer investors attractive returns with adjustments in both asset prices and rents or leases in prime areas of Spain’s two main markets (Madrid and Barcelona).”

Bankinter also points out that the Spanish property market will be an attractive investment opportunity over 2014. The recovery will begin this year with a stabilization, followed by a significant recovery in demand and prices in 2015, and development reactivation in 2016. They particularly mention that there will be structural changes: the demand will not be the same as it was in the past and the prices of poorly located homes will continue to fall. They remind investors to consider a long-term vision. “It will be an attractive investment opportunity once again but taking a five to ten year timeframe into account.”

Gross and Soros, the Interested Gurus

This period of recovery is attractive to all investors. “It is not just international vulture funds or foreign real estate investors who wish to invest in the Spanish real estate market, but also the local investors,” Zaragoza pointed out. Nevertheless, the recovery is currently relying on large institutional investors and international fortunes.

Thus, over the past few weeks, we are seeing how the big international investors have put the Spanish real estate sector in the spotlight. Just days ago Bill Gross, guru of the largest fixed income manager in the world, Pimco, agreed to purchase five million shares in the new Grupo Lar SOCIMI, or REIT, which will begin trading on the Spanish market on March 6 in the hands of the Pereda family; representing an investment of 50 million Euros and a fund weight of 12.5%.

More recently, it was made known that George Soros, the U.S. investor who bought 3% of FCC some months ago, has committed with the Azora team, to be anchor investor of Hispania Activos Inmobiliarios, its 500 million Euro SOCIMI, by contributing 50 million euros, equivalent to 10% of the fund. Currently, and as explained by the institution, Hispania is undergoing talks with several major global financial investors in connection with their participation as anchor investors.

On Thursday, Hispania Activos Inmobiliarios, a newly established Spanish real estate company, announced its intention to launch an offer for subscription of shares to obtain a capital of 500 million Euros through global positioning for qualified and sophisticated investors, with Goldman Sachs International and UBS Limited as coordinators for the offer. The company intends to build a portfolio of quality real estate assets by investing primarily in residential properties, offices and hotels in Spain. The company, which prompted the listing of its shares in the Spanish stock market after having obtained the approval of the prospectus by the CNMV, will be managed and advised by a company of the Azora Group (over 2,000 million Euros in assets under management).

The Appeal of the SOCIMI (REIT)

These last two are a couple of examples of the appeal which the SOCIMI have as a vehicle to channel investors’ interest for Spanish real estate beyond direct investment. “It can be a very interesting vehicle for families as well as for the international investor. Now is the time to have SOCIMIs within the product portfolio,” said Juan Antonio Gutiérrrez, CEO of the Wealth Management Company Mazabi Gestión de Patrimonios, at a recent conference organized by iiR. These vehicles are fit “for investors in Latin America and elsewhere.”

Experts believe they have already laid the legal and taxation foundations for their development and that they shall continue to grow in numbers. According to Mazabi, there are international investors with Spanish real estate who are considering entering or forming a SOCIMI; and he estimates that by the end of 2015 there could be between 15 and 20 companies of its kind in the Spanish market, both of domestic and international investors. “There are currently many families working on the establishment of SOCIMIs” confirms Enrique López de Ceballos Reyna, RHGR-ONTIER partner. One of the key advantages is the liquidity which they can provide in the future, when they go public, an activity for which there is a two year margin. Taxation wise they are very advantageous, although they are required to distribute 80% of rental earnings in dividends, which are taxable.

It is precisely those dividends which could be the attraction for investors. “A lot more money will flow in when SOCIMIs are clearly invested: pension plans and other institutional investors will want to access the coupon provided by the SOCIMI,” explains Gutierrez.

Two Types of SOCIMIs

In late November, the new segment trading SOCIMIs in the Alternative Stock Market (MAB) was launched in Spain, with the addition of Entrecampos Four SOCIMI S.A., and Promorent a few days later. Although at Mazabi they believe that there are two types of SOCIMI: those promoted mostly by families with low assets of less than 100 million euros and which seek tax status or liquidity for their real estate, and others promoted by institutional investors, with assets above 300 million, seeking tax breaks and as Soros does, seeking to benefit from the rules of a game which is well known to them to enter the asset. As the cost of the SOCIMI is around 100,000 euros, scalable depending on the volume, and they require great administrative work, Gutierrez relies more on the development of the latter, or SOCIMIs formed by integrating several family groups with higher volumes.

Senior Bank Loans Set to Benefit from Hunt for Yield in 2014

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Senior Bank Loans set to benefit from hunt for yield in 2014. Dan Norman, Group Head Senior Bank Loans’ team at ING IM said: “We expect the current year to look a lot like the one just passed. Market technical in terms of demand relative to new issue supply should remain strong given the natural desire on the part of both institutional and retail investors, for floating rate assets to balance out the rate risk in their portfolios. Moreover, unless economic conditions take an unexpected and material turn for the worse, concerns over a rogue spike in default activity should remain on the back burner”.

ING IM notes that, given the average Index bid is close to par with most good loan assets at or slightly above, potential price upside is, by definition, limited. As for credit spreads, the investment manager recognises that they could tighten a little more from here, but it remains hopeful that most of the activity has taken place in terms of how it impacts the average Index and portfolio yield.

Dan Norman continues: “In sum, we fully expect the global hunt for yield to continue, and the loan asset class is well positioned to deliver on that thesis. If 2013 was best categorized as a “coupon plus a little” year, then 2014 is likely to be one in which investors should expect, realistically, the coupon. As such, our total return expectation for 2014 falls within the 4%-5% band.”

ING IM continues to find this return rate attractive on both an absolute and relative basis, especially when factoring in the outlook for longer rates and the likely value destruction in duration-rich investments. Furthermore the team believes this is also attractive considering the moves towards a lift in short-term rates, an environment in which the floating rate loan asset class has historically risen to the top of the return rankings.