Fitch Ratings projects that the U.S. high yield default rate will remain in a range of 1.5%-2.0% in 2014. The key pillars of a low default rate environment -credit availability and good corporate fundamentals- remain steady, according to the rating agency.
Building on the momentum of recent quarters, Fitch expects improved U.S. GDP growth of 2.6% in 2014, up from 1.7% this year.
Many of the recognized default candidates of the past several years have already restructured, and a stronger economy combined with favorable funding conditions is sure to give some strapped companies a new lifeline, says Fitch. “In this the fifth year of an uneven and often unpredictable recovery from the financial crisis of 2008-2009, the more important metric will be new issuance credit quality and the extent to which a soaring stock market and low borrowing costs will fuel more aggressive, debt-accretive transactions”, according to the rating agency.
The funding environment remains highly accommodative. Issuance has been exceptional and now includes a fully revived loan market. Scheduled bond and loan maturities are quite low over the near term. There is $117.6 billion maturing in 2014 and 2015, representing 5.4% of market volume and a just fraction of bonds and loans sold in 2013.
Importantly, top-line and EBITDA growth showed renewed vigor in the most recent two quarters, reversing lackluster results recorded over the prior years, says the report.
“In 2013, defaults closely followed our expectations. We projected a repeat of 2012 activity. Through late December, there have been 35 issuer defaults on $18.5 billion in bonds versus 32 issuers and $20.5 billion in 2012. The market grew 10% in size over the course of the year, which put some modest downward pressure on the default rate, but the issuer count and par value of defaults was nearly identical year over year”.
As with 2012, Fitch continue to follow developments related to Energy Future Holdings, which, due to its large size and precarious state, remains the well-recognized variable that could propel the default rate to a multi-year high. But its base forecast excludes an EFH bankruptcy. “Such an event would add 1.5% to the default rate”, says.
CC-BY-SA-2.0, FlickrFoto: Igvir Ramirez. Bricapital invierte en el primer hotel Hyatt Regency de Colombia, en Cartagena
Bricapital has acquired interest in the first Hyatt Regency branded hotel in Colombia, in the coastal city of Cartagena. Bricapital is a subsidiary of Brilla Capital, the Miami-based real estate private equity firm with operations throughout the region. This transaction is part of a strategic partnership between the firm and Ospinas & Cia., a leading regional developer with more than 80 years of history in Colombia.
“This transaction represents a milestone for the growth of the hospitality sector in the country, and a solid anchor for our local Bricapital Private Equity Fund,” said David Brillembourg, President & CEO of Brilla Capital. “The Fund will continue to invest in hospitality assets in Colombia as part of our plans for regional growth in Latin America.”
The hotel, which will be managed by Hyatt Hotels & Resorts, will be part of a new mixed-use development project in Cartagena’s seaside Bocagrande district, one of the most high-end retail areas of the city and close to the Convention Center. The Hyatt Regency Cartagena will offer 261 rooms, including 28 suites, four floors for the Regency Club Lounge and 74 Hyatt Regency branded residential condominiums. It will feature two upscale restaurants, a cocktail lounge and bar, a 600 square meter ballroom, spa and fitness center, multi-level swimming pool, and a modern business center. In addition, the development also includes the Plaza Bocagrande shopping mall; a five-level structure with 13,000 square meters of high-end retail space, anchored by five VIP movie theaters as well as many national and international brands among its 91 stores.
“Having Bricapital join us as strategic partner for the first Hyatt Regency Hotel in Colombia confirms the will and fundamental purpose of Ospinas & Cia., which is to build long term relationships with investors, landowners and clients through iconic and profitable projects like the Plaza Bocagrande complex, which will include a hotel, residences and commercial areas, and will position us as leaders in the development of mixed-use projects in Colombia, always meeting the highest international standards,” said Andrés Arango, President of Ospinas & Cia.
The Hyatt Regency Cartagena, expected to open in the second half of 2015, will be the first Hyatt Regency-branded hotel in Colombia and will seek to attract business and leisure travelers, as well as featuring retail, cultural and entertainment venues for both tourists and locals alike to complement Cartagena’s vibrant and historical scene.
“We are delighted that Bricapital, SAS has decided to invest in the Hyatt Regency Cartagena and we are hopeful to work with them on other hotel projects in Colombia and throughout the region,” said Pat McCudden, Senior Vice President Real Estate And Development – Latin America and Caribbean for Hyatt. “Colombia is an important market for Hyatt and we continue to work aggressively to expand our presence here. We look forward to providing both leisure and business travelers a great new hotel option when Hyatt Regency Cartagena opens.”
Foto: Kai Schreiber. Investec Asset Management lanza tres nuevas estrategias UCITS
Investec Asset Management announced the launch of a series of new strategies as part of the expanding range of options within its specialist fund suite to further support Investec Asset Management’s global footprint in both the institutional and advisor channel.
The Luxembourg-domiciled funds will add to the growing Global Strategy Fund range, Investec Asset Management’s internationally distributed fund range, registered in Luxembourg and 22 further countries. They will be aimed at international investors, discretionary buyers, fund of funds and institutional buyers on a global basis and will be distributed via selected networks. The three strategies are:
Investec GSF Emerging Market Debt Total Return Strategy
The Investec GSF Emerging Market Debt Total Return Strategy is a total-return, benchmark-agnostic strategy which further extends Investec Asset Management’s range of EM fixed income strategies. The strategy is managed by Antoon de Klerk and Andre Roux, backed by Investec Asset Management’s experienced team of investment specialists led by co-heads Peter Eerdmans and Werner Gey van Pittius. The strategy aims to provide benchmark-unconstrained exposure to a wide opportunity set within emerging market fixed income. It will focus on opportunities in local EMD, but also make allocations to hard and corporate EMD at times. The strategy aims to offer a lower volatility than the typical universe, taking an investment approach, which combines strong fundamental bottom-up analysis with top-down positioning.
Investec GSF Asia Local Currency Bond Strategy
Managed by Wilfred Wee and Peter Eerdmans, the Investec GSF AsiaLocal Currency Bond Strategy invests in a regionally diversified portfolio of Asialocal currency sovereign and corporate bonds. Asia is home to the world’s largest developing bond markets, underpinned by robust regional economic growth and strong credit quality. This Strategy aims to capture a significant yield premium over developed market bonds with a typically shorter interest rate duration risk, and uses an investment process specifically designed for local currency emerging market debt.
Investec GSF Global Diversified Growth Fund
According to the asset manager, whilst investors need real returns in order to grow their wealth over the long term, current markets are making this search increasingly difficult given interest rates at historic lows, elevated inflation and short-term volatility in markets. The Investec GSF Global Diversified Growth Strategy aims to provide investors with attractive real returns, seeking to achieve US CPI +5% per annum over a long-term horizon with half the volatility of equities over a rolling five-year period. The Strategy launches following demand for a US-dollar centric version of the existing UK domiciled Investec Diversified Growth strategy and will also be managed by Philip Saunders and Michael Spinks, co-Heads of Investec Asset Management’s Multi-Asset team, backed by Investec’s expert in-house investment capabilities. The Strategy makes dynamic allocations across a globally diverse range of asset classes grouped together into three baskets: Growth, Defensive and Uncorrelated.
Photo: MagnusL3D. KKR Announces the Close of REPA, its First Real Estate Fund
KKR announced last week the completion of fundraising for KKR Real Estate Partners Americas LP (REPA), a $1.2 billion real estate fund that invests in North America and western Europe. Together with commitments from KKR personnel and KKR Financial Holdings, KKR’s real estate platform has over $1.5 billion of committed capital for its strategy.
Ralph Rosenberg, Global Head of Real Estate, said: “We believe the current market opportunity has the potential to create strong value-driven investment opportunities where we at KKR can leverage our sourcing channels, insights through our industry groups and portfolio companies and operating capabilities to create differentiated investment opportunities for our limited partners.”
KKR began soliciting third party capital for REPA, its first dedicated real estate fund, in the second quarter of 2013.
Commenting on the Fund, Suzanne Donohoe, Head of KKR’s Client and Partner Group, stated: “We believe the strong support from the market for the fundraise was due to the compelling nature of the opportunity and the power of the team. We are very excited that we were able to attract new and existing KKR investors from leading public and private pension funds, sovereign wealth funds, insurance companies and family offices.”
Formed in 2011 and led by Ralph Rosenberg, KKR’s Global Real Estate team has 15 people in New York, London and Hong Kong. Starting with the first investment in April of 2012, KKR has been actively investing and had warehoused a sizable portfolio of transactions on its balance sheet prior to forming REPA. Since launching the dedicated real estate platform in 2011, KKR has committed over $850 million of equity to 14 real estate transactionsin the U.S. and Europe.
The Fund will continue to target real estate opportunities—including property-level equity, debt, special situations transactions and businesses with significant real estate holdings—that can benefit from KKR’s deep, longstanding global relationships, access to information, financial structuring and capital markets capabilities and real estate operational expertise.
Equity markets have been enjoying a strong year so far. Performance was primarily driven by valuations as investors were anticipating a rebound in earnings. In 2014, earnings will have to deliver and take over as key market driver. INg IM expects this to happen and foresee returns in line with earnings growth.
The biggest risk resides in emerging markets (EM). Since the taper-talk some adverse dynamics have started to develop in EM.
Earnings growth estimates and index targets
Strong year for equities
Barring a nasty unexpected event, 2013 will be a banner year for developed market equities. Year-to-date developed market equities rose by almost 20%. Despite many event risks (Cyprus, Syria, debt ceiling, US government shutdown, political scandals, German elections…) we had only one meaningful correction this year, caused by the ‘taper-talk’ of Fed Chairman Bernanke in May. However, the reversal was swift and all other hurdles represented merely wrinkles in market performance. In fact, the hurdles represented an excellent buying opportunity.
An interesting observation is that the performance was primarily driven by higher valuations. Global earnings rose a mere 2.5%. This pattern is not strange in turning points of the business cycle as investors anticipate a rebound in earnings even when trailing earnings still decline.
As the equity cycle progresses, earnings will have to deliver and eventually take over as the main driver of market performance. We have good hopes this will happen in 2014.
You can read the full report on the attached document.
Foto: Dori. Multi-asset views: Five Income Investment Themes for 2014
John Stopford, portfolio manager of the Investec Diversified Income Fund and across the Investec Managed Solutions Range, gives five themes on investing for income in 2014.
· The consensus looks wrong on the pricing of US growth and Federal Reserve policy
To us, the consensus looks most wrong on the pricing of US growth and Federal Reserve policy. The FOMC are certainly dovish, but they are also data dependent. Markets do not currently appear to believe in the scope for a significant acceleration in US growth. Economists have forecast this before, but growth has disappointed, and so they are once bitten, twice shy. We think this ignores the impact of fiscal policy which has been substantial. In some ways growth in 2013 of between 1.5-2% is quite impressive given the severe impact of sequestration on government spending.
In 2014 the swing away from fiscal tightening will be bigger than the tightening seen in 2013. This alongside improving capital expenditure and consumer spending helped by lower gasoline prices should allow the US economy to grow much more strongly than for a number of years. This should cause markets to rethink the speed of policy normalisation pursued by the Fed. It will still be very gradual, but perhaps not quite as gradual as suggested by forward market pricing. The dollar, which has been held back by QE, should receive a strong shot in the arm as a result.
We also expect JGB yields to rise sharply at some point, with yields increasingly out of line with rising inflation expectations and aggressive reflation by the BoJ. Clearly, the BoJ buying is suppressing yields, but ultimately fair value is much higher.
· Developed market government bond yields are still too low
Yields on 10 year government bonds in the US and the UK rose to almost 3% and in Germany rose to nearly 2% but have since backed off. Real yields are close to zero, assuming that inflation remains low. This remains unattractive; as economic growth picks up, we expect real yields to rise at the longer end of the yield curve, even if inflation remains subdued. The time to return to a full weighting in government bonds will be when central banks are tightening monetary policy, which is unlikely anywhere before the end of 2014. Bond yields in Japan remain well below 1%, suggesting that domestic investors do not expect the government’s strategyof raising inflation to a sustained 2% to succeed.
With the yen likely to remain weak, we are avoiding this market also. For investors, we would look at this as a time to avoid strategic positions in government bonds in developed markets, but consider buying into weakness.
· Steady commodity prices and rising employment could lead to some inflation disappointment
Consensus opinion about commodity prices has been a lot more volatile than actual prices. With demand for energy and metals growing steadily but supply also, we expect them to continue to trade sideways. This means that commodity prices will cease to put downward pressure on inflation.
Employment growth continues to be strong in developed and most emerging markets; before long, this will feed through into higher earnings. This should sustain economic growth but limit the potential for higher profit margins and may result in moderately negative inflation surprises.
The suggested implication for bond investors is not to take current low inflation rates for granted.
· The dollar is cheap
Last year, our view was that the dollar bull market would continue to be postponed. Although growth in the US economy is picking up, the Federal Reserve is determined that it should not be threatened by tighter monetary policy. Very loose monetary policy means a weak dollar, which has provided support to emerging economies and their markets. However, dollar pessimism is extreme, the currency is cheap and growth is likely to surprise on the upside. This means that the surprise is likely to be in the direction of tighter monetary policy. The dollar may not be ready to rally yet but further weakness looks unlikely and it is likely to strengthen in the year overall. The suggested investment implication for investors is to position with a moderate overweight in dollars initially with the probability of raising exposure during the year.
· Opportunities in credit and emerging market debt
While yields on government bonds remain unattractive, those on investment grade corporate bonds offer a modest pick-up in yield and those on high yield a more significant one. However, the additional yield offered by credit is unlikely to be sufficient to compensate for a rise in government bond yields.
Issuance of both investment grade and high yield bonds has been significant, implying no shortage of supply. The opportunity for credit upgrades is diminishing as companies with the potential to improve balance sheets have mostly done so.
Credit may be a disappointing investment until government bonds have adjusted. The opportunity in EMD looks better, with many currencies having weakened significantly, yield spreads over developed market bonds reasonable and opportunities for adding value more extensive, though emerging market currencies may need to weaken further in the short term.
In our view, 2014 looks like being a difficult year for corporate credit and a modest one for emerging market debt, but there may be an attractive long term buying opportunity later in the year
Foto cedida. Riding the Waves: From Long-Term Trends to Investment Decisions
What can we learn from long-term trends when planning for the future? The next Robeco World Investment Forum focuses on the role played by long-term trends and their effects on investing.
Historically, the main drivers of long-term trends are threefold: demographics, globalization and technology. Take, for example, the growing middle classes in emerging markets. People there are increasingly buying smart phones, driving new cars and wanting IKEA furniture in their homes. Or take the example of a Polish doctor commuting to the UK as a result of cheap flight tickets now available worldwide. And finally, technology can create new industries and destroy others.
These drivers also have problems attached, however: managing demographic expansion, globalization and technological innovation requires a more sustainable approach to production, consumption and waste management. What are the main trends? Where in the economic cycle are we currently? What will be the next fluctuation or wave oscillation? And how will this affect our long-term growth path? These are key questions that demand an answer. And more importantly, how do these trends and cycles influence your asset-allocation questions? We will explore how these long-term trends relate to the shorter term business cycles and to decisions on your investment portfolio.
The Robeco World Investment Forum will bring together the world’s leading thinkers, who will speak on the most pressing economic issues of our times.
Photo: Guisepitt. Aberdeen Asset Management Names New Head of Americas
Aberdeen Asset Management announced that, after four successful years of running and developing Aberdeen’s business in the Americas, Gary Marshall will return to the United Kingdom, where he will continue to play a key role in the development of the business of the Group. David Steyn will join Aberdeen in January as Head of Americas to lead the business on to the next level.
David has more than 30 years of experience in the investment industry, based in both the UK and U.S. He served as Global Head of Distribution at AllianceBernstein Holding L.P., which he joined in 1999, from April 2007, and served as its Chief Operating Officer from July 31, 2009 to 2012. He ran both fixed income and equity investment teams in the UK and the U.S. with organizations like Quaestor (from 1989 to 1999), Lazard (from 1986 to 1989) and Montagu (from 1979 to 1986). He spent his formative years as a Fixed Income Portfolio Manager at Montagu. David is the author of “Market Neutral: Engineering Return and Risk,” which was published in 1998 by the C.F.A. Institute and has been part of the C.F.A. syllabus ever since. He earned a law degree from the University of Aberdeen in 1979.
Over the next few months, Gary will transfer his current responsibilities to David to ensure a smooth transition.
CC-BY-SA-2.0, FlickrMarco Ruijer, portfolio manager líder de portafolios de deuda de mercados frontera hard currency, ING IM. ING IM lanza un fondo de deuda de mercados frontera que completa su gama de deuda emergente
ING Investment Management launched the Frontier Markets Debt Hard Currency fund on December 9. This fund will invest in the Frontier Markets universe and will target outperformance of the JP Morgan Next Generation Markets (NEXGEM) Index by active management.
The firm highlights that “the fund is an attractive addition to the current offering from the Emerging Markets Debt (EMD) boutique enabling clients to receive broader EMD strategy selection and experienced EMD investors to implement their EMD views more specifically. This fund further strengthens ING Investment Management’s reputation as a pioneer EMD manager”.
The fund was launched with a USD 100 million contribution in kind from the Emerging Markets Debt Hard Currency fund, partially replacing its direct existing frontier markets debt exposure.
ING is a pioneer in the EMD strategies with one of the longest track records in the industry dating back to 1993 (for EMD Hard Currency) and 1998 (for EMD Local Currency). The firm has been investing in Frontier Markets since 1993. Jeremy Brewin, head of the team, has relevant investment experience since 1974. Jeremy has also been named as a ‘’Top Performing EMD Manager’’ by Citiwire. Both Marco Ruijer and Daniel Eustaquio; Portfolio Managers have 15 years’ experience respectively. Furthermore, many of the team members have deep roots in emerging/frontier countries, providing valuable perspective and understanding of the dynamics of these economies.
ING IM has a historically strong commitment to emerging markets. Its key strength in Frontier Markets is ING IM’s global multi-site team, organized to correspond with the three core time zones that span Asia, Europe, the Middle East, Africa and the Americas. EMEA region is covered from The Hague, Latin America is covered from Atlanta and Asia is covered from Singapore. According to the firm, the multi-site approach is also instrumental to trade the portfolios around the clock maximizing regional information access and better liquidity conditions found in major markets such as Hong Kong and Singapore, London and New York during local peak hours.
Photo: Averette. Olivier Livenais Appointed CEO of Crédit Agricole Private Banking in Miami
Olivier Livenais replaces Mathieu Ferragut, who has been appointed Head of Americas Region, Crédit Agricole Private Banking.
Olivier Livenais began his career with Société Générale in 1998 as Organizational Project Manager. He joined the Crédit Agricole Group in 2000 at the General Inspectorate, where he held the positions of Inspector then Head of Mission. In 2007, he moved to Crédit Agricole Private Banking as Finance, Risk and Strategy Manager. Since the holding company was set up in November 2011, he has been Finance and Supervision Director.
Olivier Livenais is a graduate of Ecole Supérieure de Commerce business school, Grenoble (1998).
Last July, Mathieu Ferragut was appointed new Head of the Americas Region at Crédit Agricole Private Banking, based in Miami. Mathieu Ferragut is in charge of managing and coordinating the Crédit Agricole Private Banking business in South America and developing customer and service synergies across the countries in the region.
Mathieu Ferragut began his career with Crédit Lyonnais Singapore in 1996 as Information Systems Project Leader. In 1998, he was appointed Chief Operating Officer of Crédit Lyonnais Private Banking Asia. In 2000, he joined the Miami branch of Crédit Lyonnais, where he held the positions of Chief Operating Officer and Chief Compliance Officer for seven years. He was appointed Deputy CEO of Crédit Agricole Miami Private Banking in 2007, then CEO in 2008.
Mathieu Ferragut graduated from Institut Supérieur de Commerce business school in 1993. He holds a Bachelor’s degree in Accounting and Finance (1994) and a Master’s degree in Finance (1995).
