New research from Cerulli Associates finds that more than 60% of institutions’ asset flows were consultant-intermediated in 2012 with the rest coming from direct sales, according to their recent survey of institutional asset managers.
“Given the significance of investment consultants, just over half of the asset managers we polled plan on placing an even greater emphasis on fostering consultant relationships,” states Michele Giuditta, associate director at Cerulli. “This percentage initially appeared low to us, but our discussions with institutional distribution leaders confirmed that many firms are already devoting substantial resources to these efforts and plan on continuing to do so. This explains the high percentage of firms that plan on dedicating the same level of emphasis on the consultant relations effort in the future.”
In the fourth quarter issue of The Cerulli Edge – Institutional Edition, Cerulli analyzes distribution trends, including the changing consultant landscape and growth of outsourced chief investment officers, retirement distribution dynamics, and passive investing.
“Capital markets have become increasingly more complex, and the investment opportunity set has broadened to include more complicated investment products and vehicles,” Giuditta continues. “Given institutions’ growing needs, they seek more support and advice for their portfolios, which has led to an increase in the use of investment consultants.”
Cerulli reports that many investment committees are redefining their roles, delegating more of the day-to-day investment-related responsibilities to their gatekeepers, and focusing more on overall policy matters.
“Consultant relations professionals shoulder significant responsibility as investment consultants request more from their asset managers,” Giuditta explains.
Wikimedia CommonsPhoto: Katrina.Tuliao. Horizons ETFs Group Will Launch First Andean ETF in Colombia
S&P Dow Jones Indiceshas licensedthe S&P MILA 40 Index to Horizons ETFs Group to serve as the basis for an exchange traded fund. The ETF will be listed on the Bolsa de Valores de Colombia (BVC) and will be the first Andean equity focused ETF available in Colombia.
The S&P MILA 40 Index, launched in 2011, was the first in a series of indices for Latin America’s second-largest market. The Index gauges the returns of the largest and most liquid stocks trading on the Mercado Integrado Latinoamericano (MILA) platform, an integrated trading venture formed by the Chile, Colombia and Peru stock exchanges.
Alka Banerjee, Managing Director of Global Equity Indices at S&P Dow Jones Indices, said: “We are pleased to license the S&P MILA 40 Index to Horizons ETFs. As growth and development of the Andean equity markets continue, the S&P MILA 40 Index provides a transparent and relevant benchmark for this important region of the world.”
Howard Atkinson, Managing Director of Horizons ETFs Management (LATAM) LLC and Global Head of Sales and Marketing for the Horizons ETFs Group said: “We’re very pleased to expand our global partnership with S&P Dow Jones Indices. This is the second international market we’ve entered where the first ETF we launched has replicated an S&P index. The S&P MILA 40 Index offers a way for investors to follow the tremendous growth potential of the MILA region.”
Wikimedia CommonsEd Cowart, CFA, Manafing Director at Eagle AM. VARG Better than GARP as an Investment Philosophy which Focuses More on Value Than on Growth
As part of Nordea’s strategy of signing exclusive agreements with boutique asset management companies specializing in asset classes that are outside its normal range, the Nordic management company agreed to launch a UCITS US AllCap Equity strategy in 2012, sub-advised by US’ Eagle Asset Management.
At the event held in Miami by Citywire, Funds Society had the opportunity to talk with Ed Cowart, CFA, portfolio co-manager of this US AllCap Equity strategy, as well as of the strategies Large Cap Value and Equity Income which are also managed by the company, although these last two are only available to the U.S. domestic investor.
“Our investment strategy follows the VARG (Value and Reasonable Growth) philosophy which comes before the traditional GARP (Growth at a Reasonable Price) model, because valuation is paramount,” says Cowart. The main idea behind the VARG investment philosophy is that it protects against paying too much for a company, while the reasonable growth vector provides protection from falling into value traps and unlocks the shares’ future valuation.
Thus, the strategy, which maintains between 30 and 50 stocks in its portfolio, brings together the best ideas of each of the four co-portfolio managers who make up this team and who have worked together for many years. “Whenever we see an idea in which we have a greater conviction, we will make room for it, ensuring at all times that we have our favorite stocks in the portfolio.”
This team of four co-managers has over 100 years of combined investment experience in a variety of market environments, with an excellent track record in terms of the capture ratio in both bull and bear markets.
Cowart, who is also Managing Director of Eagle Asset Management, explains that the team usually talks for months or even years before making the final decision to invest in a company where it is always fundamental to combine the two essential themes of the strategy : fundamentals + valuation. “Great companies can be terrible investments if the price is not adequate” he says.
When holdings are added to the portfolio, it is with the view of maintaining them for 2-3 years, so that on average, portfolio managers are adding a new name each month, usually to replace another one in the portfolio. “The catalyst which helps us decide to enter into a company which we like and which is cheap, varies. For example now, with the shale gas revolution in the U.S., the triggers required for manufacturing companies, not necessarily related to exploration, to be added to our portfolio are all in place. “
Eagle Asset Management’s US AllCap Equity strategy was launched in its U.S. domestic version in the last quarter of 1999, but it was not until June 2012, with its launch on Nordea’s SICAV, that it achieved greater successes, growing from an initial seed capital of $2 million at its launch to the $1.2 billion under management today.
“Together, in these three strategies we manage about $4 billion, and we find no problem seeing the AllCap strategy grow beyond $10 billion because our portfolio is more mid-cap than small-cap,” says Cowart.
Generali Investments Europe has appointed Wilfrid Pham as Head of Equity department and Vivek Tawadey as Head of Credit Research. Both will focus on supporting the company’s investment team, that globally manages more than €320 billion, and ensuring a strong alignment between analyst and portfolio managers.
In his position Pham will strengthen the current Equity team organization based on more than 20 people in Paris and in other European locations of Generali Investments Europe. Vivek Tawadey will consolidate the strong credit research capability of Generali Investments Europe, that globally manages in excess of €300 billion of fixed-income assets, with a specialist team dedicated to credit (more than €100 billion in this asset class).
“Wilfrid and Vivek are outstanding asset management professionals, enabling us to strengthen our team significantly”, said Santo Borsellino, CEO of Generali Investments Europe. “Our aim is to make Generali Investments Europe a more international and pure play asset management Company, increasingly focused on new product development to meet the needs of our insurance and third-party clients”.
Pershing released a white paper on the pending regulatory changes for fiduciaries and the potential impact on how advisors manage IRA rollovers. The white paper, “Pursuing Rollovers in an Evolving Regulatory Landscape” provides insight into the anticipated regulatory changes that will modify the definition of a fiduciary. Pershing has released this white paper to help guide advisors on how they can accommodate these rules as it pertains to IRA rollovers and continue to deliver services to their clients.
IRA Rollovers are a critical client need as well as an important part of the advisory business. As the “Baby Boomer” generation retires, advisors will need to help manage the transition of billions of dollars from retirement plans into rollover IRAs. At the same time, retirement plan distributions and IRA rollovers are becoming more regulated by the Department of Labor (DOL) which will require advisors to be knowledgeable about the regulatory changes to come.
“It is important for advisors to understand the complexities of the regulatory environment,” says Robert Cirrotti, director of retirement solutions at Pershing. “Being knowledgeable of the current and pending regulations that will affect the definition of a fiduciary is essential for advisors. These new definitions require advisors to understand when they are considered a fiduciary and when they are not.”
As the DOL works on regulation to expand the definition of fiduciary advice, more advisors could be subject to regulation by the Employee Retirement Income Security Act (ERISA). According to the paper, advisors who are not fiduciaries can help participants with distributions and rollovers. For those who are fiduciaries, or who become fiduciaries under the expanded definition, the DOL interpretations mean that advisors should consider a prudent approach for assisting clients with rollovers, including:
Clearly defining the fiduciary services provided to a plan so as not to include rollovers
Ensuring that the decision to take a distribution and to rollover an IRA is the participant’s decision
Offering clients unbiased educational materials regarding distribution alternatives and rollover services
Providing written disclosure of fees and expenses for the IRA and its investments, as well as the advisor’s compensation
If regulations change to expand the fiduciary definition, it will focus more attention on an advisor’s fiduciary status with regard to a plan or participant. Because it is not possible to predict what the rules will be once they are finalized, advisors should always consider their current practices based on the current regulatory environment until pending changes are clear.
Pershing partnered with Fred Reish, a nationally recognized ERISA attorney and retirement plan expert, to develop the white paper. To obtain a copy of the white paper, “Pursuing Rollovers in an Evolving Regulatory Landscape”, you may visit www.pershing.com.
Fred Reish and Bruce Ashton also authored a White Paper for J.P. Morgan Asset Management titled“Fiduciary implications: Using re-enrollment to improve target date fund adoption”to provide advice and to give an opinion regarding the ERISA fiduciary implications of using a re-enrollment strategy when adding target date funds to an investment line up, which is accesible in pdf file through this link.
JP Morgan Chase announced today that Michael Boardman will join the firm as CEO of Chase Wealth Management. Chase Wealth Management (CWM) today manages $179 billion of assets and has more than 3,000 advisors. In this role, he will help grow Chase Private Client and Chase Investments across CWM, working very closely with the firm’s partners in the Private Bank at J.P. Morgan. He will report to Barry Sommers, CEO of the Consumer Bank, and be based in New York.
Mr. Boardman joins the firm from U.S. Bancorp where he was President of the Private Client Reserve. He has held a distinguished 25-year career in wealth management. He previously worked at US Trust where he was most recently Head of the Midwest Region, and earlier at Charles Schwab as Vice President in Business Strategy. Michael originally began his career at Chemical Bank in the credit training program. He worked at JPMorgan Chase and its predecessor firms 14 years across Global Asset Management, Private Wealth Management and Corporate Strategy.
“We couldn’t be more excited to have someone of Michael’s caliber join our team,” said Barry Sommers, CEO of the Consumer Bank. “Michael is an A-player and can build on the terrific success we’ve had at Chase Wealth Management.”
Mr. Boardman joins Chase Wealth Management at a time of strong growth. Client investment assets grew 16% in the third quarter 2013 over a year earlier to an all-time high, and investment sales were up 30% YOY. Chase Private Client offices are now in more than 2,000 branches, touching every market in the Chase footprint.
Mr. Boardman graduated from Middlebury College and received his M.B.A. from Columbia University.
CC-BY-SA-2.0, FlickrFoto: Zeusandhera. Los activos cíclicos cuentan con el apoyo del crecimiento empresarial
The growth of corporate earnings has been slower than in past recoveries but has been more stable than macroeconomic variables and financial markets. This resilience looks all the more remarkable, when set against the backdrop of recurrent crises, mostly regional but with possible global implications.
Cost savings still accounting for most corporate earnings
Cost-cutting has accounted for much of earningsgrowth deep into this moderate recovery, as most companies still refrain from bold expansion plans and see cash flows as the main defense against any downturn. In an uncertain environment, sales revenues have only at times replaced cost-cutting as the main source of profits.
Based upon a very long period of observations, when above-trend operating earnings come along with below-trend inflation expectations, growth-sensitive assets (equities and corporate bonds alike) have provided the best returns over a 12-month horizon. Risk factors may lead to a more defensive allocation, implying less exposure to risky assets for tactical purposes. The downgrade of corporate bonds was a case in point of late.
Alternative Case
The headwinds to global earnings growth include: a disorderly exit from quantitative easing due to mounting inflation expectations and the elusive political solution to the euro debt crisis. Pioneer Investments is mindful of these risks but not overly concerned for their base case.
Photo: Daniel Ahlqvist. What Returns can Investors Expect Over the Next Five Years?
The world economy will strengthen over the next five years, but the average investment returns won’t.
“Nevertheless financial markets still offer investors enough opportunities to make money”, Robeco’s Artino Janssen says.
Returning to normality
These are the key predictions in Robeco’s latest five-year outlook, which aims to advise institutional investors on what to expect from now until 2018.
It is now five years since the financial crisis brought turbulent markets, bank bailouts, recession and austerity. The next five years should not be as dramatic – but what should investors expect?
First, the good news. “In our baseline scenario for the next five years, we expect a generally strengthening of the world economy,” says Janssen, Executive Vice President for Investment Solutions & Research.
“We see inflationary risks, but we doubt whether they will come through significantly, and whether that would be within five years.” Inflation was not significantly impacted by trillion-dollar quantitative easing (QE) programs, and is expected to remain below 2% once they begin to unravel.
“We expect a strengthening of the world economy”
The end of easy money
The end of QE will also signal the end of easy money, as market interest rates – and eventually, official base rates – begin to rise from their currently historically low levels.
“We expect 10-year bonds yields to rise gradually in the years ahead, with a 10-year German bund yield of around 3% at the end of 2018, a bit ahead of the forward curve,” says Janssen, co-author of Expected Returns, 2014-2018.
As yields rise however, bond values (which move inversely to yields) will fall, reducing overall returns for fixed income investors. The five-year outlook predicts an overall average annual return of about 0.5% for high-quality government bonds, below the expected rates of inflation, which would imply negative real returns for the first time since the financial crisis.
Corporate and high-yield bonds, along with emerging market debt, are more attractive because of their risk premium over government bonds, as the table below shows.
Stocks also impacted by higher rates
The picture is different for stocks, where Robeco sees higher average returns of 6.75% over the next five years. Global equities have had a good run so far this year and are currently slightly overvalued by 13-15% depending on which indicator you use, Janssen says. As with fixed income, higher returns are available in emerging markets, but with higher risk.
“Over the last 30 years all asset classes, including equities, have benefited from the strong tailwind of declining bond yields. This year we have seen this tailwind turn into a mild headwind,” he says.
“Further multiples expansion for equities will be difficult in an environment where central banks firstly reduce QE, followed by the gradual disappearance of artificially low interest rates. Earnings growth will be the key driver but further expansion of profit margins will be difficult.”
“Further multiples expansion for equities will be difficult”
Real estate and shale gas overblown
Other assets popular with investors include real estate and commodities, with huge interest in the consequences of the US shale gas revolution – but Janssen feels both sectors are currently overblown.
“We believe global real estate to be overvalued compared to stocks. The current valuation is likely to generate a headwind in the next couple of years as real estate tends to be more interest rate-sensitive than equities,” he says.
“And although the impact of the shale gas revolution will eventually be felt across regions and energy markets, we hold the view that for the next five years, shale gas will remain a largely US phenomenon.”
Lower portfolio returns on balance
While we expect lower average investment returns for 2014 -2018, financial markets still offer investors enough opportunities to make money, Janssen says. This can be achieved by deviating from the traditional market portfolio in which government bonds have a high weight, by allocating to asset classes that offer attractive risk premiums, such as equities or high yield.
“On balance, we expect returns that are below our prior long-term estimates for 2013-2017, though we believe risk premiums relative to safer assets remain very attractive over the next five years,” he says.
The table below shows how Robeco’s Expected Returns this year compare with the forecasts of the previous year’s report.
BNY Mellon has added the Liquidity Aggregator to its risk and collateral management-related services. The tool is available through the company’s Liquidity DIRECT portal.
“As Markets expand globally, the need to analyze and quantify your portfolio return and liquidity risk is paramount. The Liquidity Aggregator offers clients a deeper view of exposure and risk, which is essential to managing their investments,” saidKurt Woetzel, CEO of BNY Mellon’s Global Collateral Services (GCS) business.
“Nearly all financial transactions and commitments have liquidity implications,” said Jonathan Spirgel, EVP and head of GCS sales and relationship management at BNY Mellon. “To be highly effective, liquidity risk management requires insights, tools, products and services that support a client’s ability to both maximize liquidity and analyze investment exposure.”
The Liquidity Aggregator was created to help clients gain a new level of insight into their investments, across all US and Non-US Domiciled Funds in their portfolios. The system is designed to help clients actively monitor and help to control liquidity risk exposures and manage funding needs, taking into account security types; country and region of exposure; country and region of risk; weighted average yields and maturities. Clients can leverage the new dashboard across their entire investment portfolio to view:
Exposure across all funds with positions;
Money market mutual fund full holdings in a single place;
Largest holdings in the portfolio by security type and issuer across multiple funds, with the ability to determine shared securities; and
Trends and reporting for month-end and at 6-month intervals for money market mutual funds daily yields, WAM and holdings.
Wikimedia CommonsBanco Sabadell's Branch in London. Moor Park Capital Sells Banco Sabadell's Branch Portfolio to Mexican Group Backed by Moises El-Mann
Moor Park Capital, a London based specialist in European corporate finance led net lease real estate transactions for institutional and retail investors, today announced that a group of Mexican investors led by Moisés El-Mann through the Mexican investment vehicle Branch Management, have acquired 100% of the share capital of the Spanish company ISC Fresh Water Investment, S.L.U., owner of 253 bank branches in Spain, for a consideration of approx. EUR 290 million.
These bank branches, located throughout Spain with particular presence in Madrid and Barcelona, are let to Banco de Sabadell and represent one of the largest investments in the Spanish real estate market ever conducted by Mexican investors.
The bank branches have the benefit of a long term lease agreement with Banco Sabadell for an initial term of 25 years, put in place at the time the initial acquisition was closed by Moor Park Capital in April 2010, when 378 bank branches were acquired from Banco Sabadell. Since that time 125 bank branches have been successfully sold by Moor Park Capital to individual investors and the sale of the shares in ISC Freshwater completes the disposal process. Moor Park Capital have been retained by Branch Management as exclusive asset managers for the acquired bank branch portfolio. Clifford Chance (real estate and corporate/M&A), Garrigues (tax) and CBRE Spain advised Moor Park Capital on the sale and Banco Santander acted as financial advisors to the investors and Uría Menéndez advised the investors in relation to taxation and legal issues.
This transaction represents the first investment of a major acquisition plan for real estate investments to be undertaken by the Mexican group in Europe.
The investors plan to continue their real estate investments in Spain and Europe to convert Branch Management into a SOCIMI, the Spanish legal entity equivalent to a REIT (Real Estate Investment Trust) in the near future.
In March 2011, the Mexican developer Mosies El-Mann, his brother André and other partners, launched the first real estate investment fund quoted in the Mexican Stock Market, Fibra Uno.
