Wharton Research Data Services (WRDS), the data research platform and business intelligence tool for corporate, academic and government institutions worldwide, has announced the winners of the Southern Finance Association (SFA) Best Paper Award for Empirical Research. Andy Naranjo, Bank of America Associate Professor; Jongsub Lee, Assistant Professor; and Stace Sirmans, Ph.D. student, all from the Department of Finance, Insurance & Real Estate in the Warrington College of Business at the University of Florida, were recognized for their research paper, The Exodus from Sovereign Risk: Sovereign Ceiling Violations in Credit Default Swap Markets. The paper examines how private sector firms can delink from sovereign risk. WRDS presented the award to the researchers at the Southern Finance Association conference on November 22, 2013.
In the aftermath of the global financial meltdown, firms’ abilities to raise capital have been impacted dramatically by sovereign risk. In credit default swap (CDS) markets, Naranjo, Lee and Sirmans found that geographic location of holdings and cross stock listings impacted a firm’s ability to delink from sovereign risk and maintain better credit ratings than those more closely linked to sovereign risk. Their findings can help investors determine actual risk in CDS markets, especially in this post-crisis stage. In addition, credit agencies could utilize CDS data – including sovereign linkage, firm location and location of assets – to determine credit ratings faster and more accurately than by relying purely on sovereign ceiling violations data.
“WRDS has a long and strong commitment to the research community, and we are constantly adding datasets and resources to support researchers and serve academic, corporate and government users better,” said Robert Zarazowski, Senior Director of WRDS. “For WRDS, advancing the field of academic research is a win for everyone.”
The researchers relied on Markit CDS Datasets, which are available through WRDS. Their research adds significantly to existing explorations of sovereign ceiling violations; international linkages and the impact of cross listings; and the role of local market characteristics and country-specific rules on credit risk. The scope of data collection necessary to conduct research for the paper was complex, including micro-details on country-specific rules for over 2,300 firms in 54 countries.
Wikimedia CommonsPhoto: Yorick Petey. Carmignac Gestion Group Appoints European Equities Team in London
Carmignac Gestion Group has appointed a new four-man European equities team, headed by Muhammed Yesilhark. The team is based in the London branch of the Group and will assume management of EUR1.6 billion of European funds: Carmignac Grande Europe, Carmignac Euro-Patrimoine and Carmignac Euro-Entrepreneurs. Muhammed and his team previously managed a large European equity portfolio for four years at SAC Global Investors’ London office, with a strong track record.
“We’re bringing on board a talented team under Muhammed Yesilhark’s leadership to underscore our commitment to generate strong investment performance in European equities. The objective is to raise our European funds to first quartile. Their experience in long-short management will help us to perform in all market conditions and will complement our risk management. Muhammed Yesilhark and his team will also contribute to the firm by originating investment ideas for use across the Carmignac Gestion Group funds range”, says Carmignac Gestion Group’s Founder and Chairman, Edouard Carmignac.
Muhammed Yesilhark started as an analyst at Lazard in Frankfurt. He then helped to build York Capital’s hedge fund business for five years before joining SAC in 2009. He studied Finance and Management at the European School of Business in Reutlingen. Muhammed will run the Carmignac Grande Europe fund and the long-short Carmignac Euro-Patrimoine fund.
Muhammed will co-manage the small and mid-caps Carmignac EuroEntrepreneurs fund with Malte Heininger who has been working with him for more than three years and is a former investment banker at Morgan Stanley. Malte graduated from ESCP-EAP in Paris.
The team also includes two analysts: Huseyin Yasar joined Muhammed’steam in 2011 from Goldman Sachs’ M&A division, and graduated from the European School of Business in Reutlingen and from Dublin City University. Saiyid Hamid worked for three years at Private Equity firm TA Associates, and graduated from Harvard Business School before joining Muhammed’s team at SAC in 2013.
Wikimedia CommonsJosé Darío Uribe. Photo: Bank of the Republic, Colombia. José Darío Uribe appointed Chair of the BIS Consultative Council for the Americas
The Board of Directors of the Bank for International Settlements (BIS) has appointed José Darío Uribe as Chair of the BIS Consultative Council for the Americas (CCA). Mr Uribe is Governor of the Bank of the Republic, Colombia.
Mr Uribe’s appointment is for a term of two years as from 9 January 2014. He succeeds Agustín Carstens, Governor of the Bank of Mexico, who has chaired the Council for the last two years.
The CCA comprises the Governors of the BIS member central banks in the Americas.It was established in 2008 to facilitate communication between these central banks and the BIS Board and Management on matters of interest to the central banking community in the region.
The BIS Representative Office for the Americas, located in Mexico City, provides the Secretariat for the CCA.
Giorgio Pradelli . EFG Internacional nombra a Giorgio Pradelli co-CEO
In order to allow John Williamson, CEO of EFG International, to devote more of his time to the development of the five regional private banking businesses, as well as investment and wealth solutions, Giorgio Pradelli, Chief Financial Officer, will in future focus on EFGI’s operational and risk platform and additionally take on the role of Deputy CEO. This applies with immediate effect.
The composition of EFGI’s Executive Committee remains unchanged, although the reporting lines of the Chief Operating Officer, Chief Risk Officer and Group General Counsel transfer from John Williams on to Giorgio Pradelli.
“Since joining us in June 2012, Giorgio has made a significant contribution to the conclusion of our busiess review, in particular the strengthening of our capital position and overall risk profile. His promotion to Deputy CEO is well deserved and allows for a clear focus of responsibilities within the executive team to support our objective of controlled, profitable growth”, says John Williamson, Chief Executive.
Photo: Mailer. Falcon Private Bank to Sell Hong Kong Branch to EFG Bank
Swiss wealth management boutique Falcon Private Bank announced that it has reached an agreement to introduce its clients and certain employees of its Hong Kong branch to EFG Bank, the Asia business of the international private banking group EFG International.
Following a strategic review, Falcon Private Bank has decided to exit its Hong Kong private banking business and sharpen its emerging markets focus on the Middle East, Africa and Eastern Europe. The Hong Kong branch will be liquidated upon completion of this process. Falcon Private Bank’s Singapore branch will continue serving as a private banking hub in Asia.
“Our strategic ambition is to become a leading emerging markets private bank focusing our business exclusively on markets where we have a sharp competitive edge”, according to Eduardo Leemann, Chief Executive Officer of Falcon Private Bank.
Photo: Brocken Inaglory. OppenheimerFunds' Michelle Borré Joins Global Multi-Asset Group
OppenheimerFunds has announced that portfolio manager Michelle Borré and her team of analysts have joined the Global Multi-Asset Group (GMAG) led by Mark Hamilton, CIO Asset Allocation, effective January 1, 2014.
Ms. Borré joined OppenheimerFunds in 2003 as a senior research analyst on the Value Investment team. She is currently the portfolio manager of Oppenheimer Capital Income Fund and Oppenheimer Flexible Strategies Fund. The fundamental processes of both funds will remain the same. Ms. Borré’s team of three analysts will continue to report directly to her and she will report directly to Mr. Hamilton.
“Ms. Borré and her team will significantly enhance GMAG’s research and portfolio management capabilities with their fundamentally driven investment approach,” said Mr. Hamilton. “In turn, her team will benefit from access to resources and personnel as a part of GMAG. Together, the combination will foster continued investment success on behalf of our clients across all of the firm’s multi-asset products and solutions.”
The Global Multi-Asset Group works closely with portfolio managers and research analysts across OppenheimerFunds’ equity, fixed income and alternatives teams to develop and manage innovative portfolio solutions for clients.
Mobius leads the Templeton Emerging Markets Group.. Mark Mobius Expects Appealing Long-Term Investment Opportunities in Central and South America
As we embark upon a new year, the Templeton Emerging Markets Group headed by Mark Mobius believes 2014 could be an important year for many emerging markets, possibly establishing trends that could play out through much of the remainder of the decade. In particular, Chinese government reform initiatives announced in late 2013 could have far-reaching significance. And major elections in a number of countries in 2014 could bring dramatic (or not-so-dramatic) changes.
These are some of the thoughts about Latin America highlighted in Mark Mobius’ blog, Investment Adventures in Emerging Markets. According to Mobius, Central and South America also could continue to provide investors appealing long-term investment opportunities across a range of sectors and countries.
As consumption patterns in Brazil continue to evolve as per capita income increases, Franklin Templeton expects the country to become a leading consumer of products (both non-durable and durable) not only produced in Brazil but also those imported from regional and global markets. Moreover, Brazil will be hosting the World Cup in 2014 and the Olympics in 2016. “As a result, we have already seen and expect to continue to see the country investing significantly in infrastructure. This should help drive economic growth in the coming years as well as improve the basis for stronger sustainable growth in the long-term, in our view”.
Mobius highlights that the Mexican market has been benefiting from significant investor interest recently, especially as the outlook for the US, which is Mexico’s largest trading partner, has been improving. Mexico’s competitiveness to supply the US has also significantly improved over the last few years. Many companies have continued to grow their operations in Mexico to produce high value-added products such as automobiles, planes and medical devices.
“We expect this trend to continue developing in the medium and long term. A long period of increased economic and political stability has also allowed the government to concentrate its efforts on long-awaited reforms. We expect the implementation of important reforms to continue in the near future, which should have a more immediate impact on government finances and could improve GDP growth in the long run”.
Foto: Mexico. Slaeger, Flickr, Creative Commons.. La lista de sorpresas para 2014 de Byron incluye una positiva para México
Byron R. Wien, Vice Chairman, Blackstone Advisory Partners, issued his list of surprises for 2014. This is the 29th year Byron has given his views on a number of economic, financial market and political surprises for the coming year.
Byron’s Ten Surprises of 2014 are as follows:
1. We experience a Dickensian market with the best of times and the worst of times. The worst comes first as geopolitical problems coupled with euphoric extremes lead to a sharp correction of more than 10%. The best then follows with a move to new highs as the Standard & Poor’s 500 approaches a 20% total return by year end.
2. The U.S. economy finally breaks out of its doldrums. Growth exceeds 3% and the unemployment rate moves toward 6%. Fed tapering proves to be a non-event.
3. The strength of the U.S. economy relative to Europe and Japan allows the dollar to strengthen. It trades below $1.25 against the euro and buys 120 yen.
4. Shinzo Abe is the only world leader who understands that Dick Cheney was right when he said that deficits don’t matter. He continues his aggressive fiscal and monetary expansion and the Nikkei 225 rises to 18,000 early in the year, but the increase in the sales tax, the aging population and declining work force finally begin to take their toll and the market suffers a sharp (20%) correction in the second half.
5. China’s Third Plenum policies to rebalance the economy toward the consumer and away from a dependence on investment spending slow the growth rate to 6% in 2014. Chinese mainland traded equities have another disappointing year. The new leaders emphasize that their program is best for the country in the long run.
6. Emerging market investing continues to prove treacherous. Strong leadership and growth policies in Mexico and South Korea result in significant appreciation in their equities, but other emerging markets fail to follow their performance.
7. In spite of increased U.S. production the price of West Texas Intermediate crude exceeds $110. Demand from developing economies continues to outweigh conservation and reduced consumption in the developed world.
8. The rising standard of living and the shift to more consumer-oriented economies in the emerging markets result in a reversal of the decline in agricultural commodity prices. Corn goes to $5.25 a bushel, wheat to $7.50 and soybeans to $16.00.
9. The strength in the U.S. economy coupled with somewhat higher inflation causes the yield on the 10-year U.S. Treasury to rise to 4%. Short-term rates stay near zero, but the increase in intermediate-term yields has a negative impact on housing and a positive effect on the dollar.
The computer access problems are significantly diminished and younger people begin signing up. Obama’s approval rating rises and in the November elections the Democrats not only retain control of the Senate but even gain seats in the House.
Photo: Glucosa, Flickr, Creative Commons.. The Latin American Pension Fund Market Opens Up to Global Players
The Latin American pension fund market continues to grow amongst economic and financial challenges. In this environment, local players work to open up to international managers, insofar as the pursuit of profitability and risk diversification intensifies. Therefore, the cross-border distribution towards the pension fund industry in this region represents the largest opportunity for global asset managers and ETF providers, says a recent report by Cerulli.
According to Cerulli, in 2012 both have reached the milestone of 100 billion dollars in exposure by Latin American investors, including the Chilean and Peruvian AFPs, the Afores in Mexico and the closed pension funds in Brazil; 75% of that figure (82 billion) was channeled through cross border funds and ETF, and the rest in venture capital investment, structured products, bonds and stocks. The number of Latin investors in cross-border funds and ETF is more than triple that of 2008, when only 25 billion dollars were earmarked for those investments.
And that amount could continue to grow parallel to the expansion of the size of these private pension systems and the inability of local markets to absorb such capital, a trend which is also supported by the regulatory changes that affect risk diversification. “The assets of mandatory pension funds in Mexico and Chile double every five or six years and these will need to channel increasing percentages of their assets outside their borders.” Cerulli expects local pension managers to derive a large part of those assets to external managers rather than investing in their local markets, as was usual in the past.
A different beat
The study shows that pension markets in Latin America have shown similar patterns regarding their openness to global markets, the only difference is that each country is at a different stage of development: while Chile is the most open, followed by Peru (where the AFP have recently expanded their international investment limit to 40%), Mexico and Colombia, Brazil is the market with less international investment, despite being the largest and despite its intentions which also seem to point in that direction, as was commented by José Carlos H. Doherty, CEO of the Brazilian Association of Financial and Capital Markets (ANBIMA), in a recent interview with Funds Society.
According to expectations, the recent regulatory changes in Chile (after the Superintendence and the Finance Ministry allowed the lower risk pension funds, those identified by the letter E, to invest in international instruments as an escape valve for local debt) offer great opportunity and will limit the volatility generated in the input and output flows towards products of foreign managers (because, depending on the risk assumed in each fund, which ranges from the letter A, with higher risk, to E, with less risk, the limits of international investment are descending).
Hopes in Mexico, Brazil and Colombia
But there really are countries which have great potential for foreign managers, and according to Cerulli, Mexico is among them, since Chilean AFPs are very close to their maximum allowed in international investment. It’s the same with the Afores in Mexico, but the limits of international investment are still very low (20%) and their mandatory pension system expands rapidly. “With the new administration, it is likely that the legal limit is increased to at least 40% and potentially to 50% of total assets, with sub-limits for each specific fund within the system” Cerulli predicts. But there will be opportunity for all: The report says that, due to regulatory and tax disincentives, this market will remain a major opportunity for managed accounts or ETF, while active funds will remain “off the menu” for the Afore.
In Brazil, the pension fund industry can position 10% in international assets, although there are other restrictions on the positions in a single fund. But Cerulli believes this could change, and that the industry will open up to international capital markets in the medium term. He believes that in Colombia, after years of investment in local markets, pension managers are “committed” to make allocations globally, driven by a government that wants to curb the peso’s appreciation. “In 2012 the international positions were 15% and a sharp rise is not expected because there are no regulations which encourage it, but we believe that the government’s blessing to invest outside national borders is always welcome.”
The long-running guessing game over the tapering of the Fed’s asset purchases, that has dominated markets since May, has come to an end. Tapering will start in January. ING IM thinks that the lasting impact on markets will be subdued and that the ongoing global recovery continues to support investor risk appetite.
“With less of a lasting impact expected of Fed tapering, a sustainable recovery in sight and a gradual increase in equity allocations anticipated, we are heading into 2014 with a clear preference for equities in our overall asset allocation stance”.
US short-term yields now more stable than earlier 2013
Fed starts tapering in January 2014
Last Wednesday, the Federal Reserve announced that it will start tapering the size of its asset purchases as from January. It will lower its monthly purchases to USD 75 billion from USD 85 billion currently – USD 35 billion in mortgage backed securities (from USD 40 billion) and USD 40 billion in Treasury debt (from USD 45 billion).
Forward guidance likely to be tested by markets in 2014
ING IM’s base case for the Fed is now additional tapering of USD 10 billion at each of the following meetings, while we maintain our view that the first rate hike will come in the fourth quarter of 2015. “Furthermore, we do not expect a further enhancement of the forward guidance language beyond the qualification that rates will be on hold “well past” the time that the unemployment rate drops below 6.5%”.
However, the risks to this view are tilted towards hiking at a later date. “Also, we see a distinct possibility that the forward guidance will be enhanced further, possibly with something that contains more of a commitment than the December innovation which was mostly qualitative. The reason for the latter is that the above-potential growth rates that we expect in 2014 may well cause the market to start pricing a more aggressive hiking path for the Fed Funds rate than currently”. If that happens, the Fed will need to take action to re-anchor these expectations.
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