The equity risk premium, or ERP, can be defined as the return paid to equity investors in excess of the long-term risk-free rate. It is a key metric for investors looking to set portfolio return expectations and take strategic asset allocation decisions.
It also happens to be one of the most widely discussed issues in portfolio management, filling academic literature with lively debate on whether the ERP is positive, negative, or non- existent.
To complicate matters further, there are multiple ways to calculate the equity risk premium, and each methodology provides a different answer to the fundamental question: what level of excess returns should investors expect from their equity holdings in the future?
In this piece, AXA Investment Managers examines three ways to determine the equity risk premium (ERP), namely the ex- post ERP, the required ERP and the expected ERP, assessing their strengths and flaws.
That these approaches, which rely on different sets of measures, do not produce the same result should not come as a surprise. Yet, in a steady state environment it would be reasonable to expect these values to converge within a narrow range, if not on a single figure.
The average expected ERP over the past decade is roughly 3.5% for US equities as well as for other developed market equities, and 4% for emerging market equities.
The asset manager proposes a synthetic approach, reconciling the three measures by focusing on the long-term equilibrium.
An ERP of 3.5% is consistent with the decomposition of what a steady-state equity return should be.
NASA. RBC WM nombra a Juan Pablo Cortés director del equipo de las Américas
RBC Wealth Management, part of Royal Bank of Canada, has appointed Juan Pablo Cortes as a director, Americas in its London-based UK private client wealth management team.
In this role, Cortes will collaborate with internal teams and work with external advisers to provide wealth management services to Latin American and Iberian high net worth and ultra high net worth clients resident in the UK or overseas. He will report to Martin Heale, head of Americas, private client wealth management.
Cortes has over 16 years of international experience in wealth management, retail and commercial banking in Colombia, Panama, the US and the UK. Prior to joining RBC Wealth Management, he spent two years with UBS Wealth Management where he worked as a client advisor in the Latin America & Caribbean team. He previously spent over three years at Barclays Wealth, first as a business manager and then private banker for the Iberian team, as reported Wealth Adviser.
Philip Harris, head, private client wealth management, UK, says: “As the Latin American market continues to grow and wealth is created, there is increasingly demand among high net worth individuals to partner with wealth managers that understand and can cater to their needs. Juan Pablo’s local knowledge and professional experience make him a valuable asset to our London team as we continue to expand our footprint.
Foto cedidaJohn Bowman. La "crisis de confianza" en el sector financiero lleva a CFA Institute a crear Claritas
Just as the Claritas® Investment Certificate pilot’s results are published John Bowman, CFA, managing director and co-lead of Education at CFA Institute, talks with Funds Society about why they decided to launch the program, their expectations and lessons learned.
Mr. Bowman comments that they had two main reasons for launching the Claritas program; the first came about after a 2-3 year journey talking with industry participants. Realizing organizations were increasingly concerned about their raising risk profiles given inconsistent levels of knowledge between divisions, that “cost them more and more anxiety,” they decided to create a benchmark to establish a basic level of industry knowledge. On the other hand, the fallout of the financial crisis as well the public’s poor perception of the financial industry “which is in a current crisis of trust” made them decide to launch the program. CFA Institute, an organization focused on raising ethical standards, levels of integrity and education for the industry, believe “The Claritas Investment Certificate is one tool that will contribute to restoring trust to the industry.”
The idea behind the Claritas program is to have a single, two-hour, multiple-choice examination where successful participants will understand how the financial industry works, how to navigate it, and will be able to communicate better with the investment professionals they work with.
One week away from the first official examination, Bowman mentions that the pilot had a 82% pass rate but considering its demographics -with average age of 35 and considerable work and education experience– “”the pass rate shouldn’t be considered as completely representative of the future given the average age and experience is likely to decline””.
He comments that from the pilot they learned –and are very proud of- that 85% of candidates would recommend the program to their colleagues, that 76% believed the number one benefit was increased knowledge of the industry, helping them understand how themselves, and their company, fits in the environment, and that 64% said that the program helped them to better understand their ethical obligations within the financial services industry.
Mr. Bowman added that for every investment professional there are 9 individuals working in financial organizations that are not, “so if we, as leaders of the industry, are able to reach and raise standards within this 90 % of the industry we can look at our mission and feel really proud about the progress we are making.”
The Claritas Investment Certificate is for all professional disciplines in the financial services industry outside of investment roles, from client services to compliance; from human resources to IT and operations; from marketing and sales to legal. It is designed for the many different people in the financial services industry who are not directly involved in analysing or making investment decisions.
Mike Valdes-Fauli. Foto cedida por BBVA Compass. BBVA Compass incorpora a Mike Valdés-Fauli a su Junta Asesora del Sur de Florida
Marketing expert Mike Valdes-Faulihas joined BBVA Compass’ South Florida advisory board, adding a fifth voice to the panel as the bank builds its presence in the area, said the bank in a press release.
A Tulane University graduate, Valdes-Fauli is president of Miami-based JeffreyGroup, an independent marketing agency with six offices in the Americas that focuses on Hispanic audiences. His comments on Hispanic issues have appeared in various national news outlets, including the Wall Street Journal and the Miami Herald.
Valdes-Fauli is the fifth member of the board formed last year after BBVA Compass opened a loan production office in Miami. He joins Jeb Bush Jr., managing partner of Jeb Bush & Associates LLC and president of Bush Realty LLC; Alberto I. de Cardenas, executive vice president, general counsel and secretary of Mastec Inc.; Hank Klein, vice chairman of Blanca Commercial Real Estate; and Raoul R. Thomas, group chief executive officer of CGI Merchant Group.
“As we continue to build our presence in South Florida, our board is growing,” said BBVA Compass South Florida Market President Roberto R. Munoz. “We’re pleased to have Mike join the board because he has more than a decade of Latino marketing and public relations experience and he knows the Miami market well.”
Foto: Myrabella . WE Family Offices Celebrates its Six-Month Anniversary as it Passes the USD 2 Billion Mark
WE Family Offices celebrates its six-month anniversary as it passes the $2 billion mark in assets under advisement. The firm, operating since 2000 through predecessor companies, recently reclaimed its independence in January 2013 as Maria Elena Lagomasino, Santiago Ulloa and Michael Zeuner came together to form the executive leadership team. On a mission to serve families, the three have set out to once again change the face of the wealth management industry, said the firm in a press release.
“We founded WE Family Offices because we believe in independent advice uncolored by an interest in sales-based fees and commissions,” says Chief Executive Maria Elena Lagomasino. “We believe families have a right to expect their financial adviser to be focused solely on their best interests at all times. We believe in serving client families the way that benefits them the most. And we believe that, at this point in time, that kind of adviser is hard for clients to find.”
The global firm, with offices in New York and Miami, currently serves more than 60 clients from the US and other countries. “Why WE?” Managing PartnerSantiago Ulloaasks. “WE stands for Wealth Enterprise – family members managing their wealth as they would a business. A successful business has a mission statement, financial statements, a clear decision-making framework, reporting capabilities… why shouldn’t a family operate their wealth in the same way?”
“We believe clients should stay in control – always engaged, making critical decisions around their wealth,” says Michael Zeuner, managing partner at WE. “We respect the service provider relationships clients have, but as an independent adviser, we try to make sure clients know what they need to know to keep their costs down and make sure the providers are focused on the client’s best interests.”
With offices in New York and Miami, “WE Family Offices is a different kind of family office for the ultra-high net worth client”. Working with clients to help them enhance their wealth enterprises, WE Family Offices believes families should stay in control of their wealth, constantly learning and always engaged so that they are able to make the critical decisions necessary to manage their wealth. WE is not affiliated with any financial service company and is compensated only with client fees. As a result, WE’s advisors are free to offer their clients only independent advice and to work as the clients’ advocate, focused on their best interests. WE was most recently ranked by Investment News as the number one RIA in Florida, by assets under advisement.
Foto: ESO/Y. Beletsky . Morgan Stanley lanza un fondo UCITS con exposición long/short a Asia
Morgan Stanley announced the launch of a new fund, the MS Dalton Asia Pacific UCITS Fund, under its FundLogic Alternatives umbrella. The Fund provides exposure to Dalton’s Asian equity capabilities and will invest across the Asia Pacific region in a long/short format. The FundLogic platform currently has more than $1bn in assets under management and, with this latest addition, now offers UCITS investors a diversified range of 20 funds. Longchamp Asset Management has been appointed as the sole distributor of the Fund.
“We are excited to provide UCITS investors access to Dalton’s expertise in Asian equities. Dalton complements our existing offering by extending our coverage of the Asia Pacific Region”, said Stephane Berthet, Head of the FundLogic Alternatives Platform, at Morgan Stanley. Dalton Investments LLC was established by James Rosenwald and is a recognised authority in Pacific Rim investing, with over 30 years of investment experience. It currently has over $1.2bn in assets under management within Asia.
James Rosenwald commented: “The FundLogic Platform aligns with Dalton’s interests – providing a first class service with its stringent risk management and operational expertise. We are delighted by this opportunity to partner with Morgan Stanley, in launching the MS Dalton Asia Pacific UCITS Fund.”
FundLogic is the brand name for Morgan Stanley’s fund solutions platform launched in 2006. It offers both UCITS and non-UCITS funds. The platform delivers fund solutions to clients by combining the financial expertise, innovation and resources of Morgan Stanley, and offers a range of products including passive index funds, structured funds and the more recently launched third party manager- UCITS funds.
Boris F.J. Collardi, Chief Executive Officer of Julius Baer Group, said: “On the back of a recovery in client activity and better cost efficiency, our Group markedly improved its operational performance in the first half of 2013. At the same time, we made tremendous progress in the integration of IWM, which makes us confident that we will achieve our goal of having 80% of targeted IWM client assets reported at Julius Baer by the end of this year.”
Total client assets amounted to CHF 304 billion, an increase of 10% since the end of 2012. Assets under management grew by 15%, or CHF 28 billion (USD 30 billion) , to CHF 218 billion (USD 233 billion). This included approximately CHF 24 billion (USD 25.65 billion) of AuM reported from IWM, of which CHF 12 billion (USD 12.82 billion) were booked on the Julius Baer platforms and paid for. A further update on IWM, including on AuM transferred after the end of June, is located towards the end of this media release.
Outside the contribution from IWM, the increase in AuM was the result of net new money of CHF 3.4 billion, a positive currency impact of CHF 2 billion as well as CHF 0.2 billion from the acquisition of a 60% equity participation in TFM Asset Management, partly offset by the disposal on 31 May 2013 of our former Italian onshore subsidiary Julius Baer SIM SpA, with CHF 1 billion in AuM, as well as by a marginally negative market performance of CHF 1 billion. The market performance was impacted by several clients’ exposure to underperforming asset classes such as emerging market securities and gold as well as by the global market corrections in June 2013, and occurred despite the fact that Julius Baer again achieved a clearly positive performance across practically all discretionary mandates it manages. Due to the Group’s strong focus on the successful transfer and integration of the IWM businesses, the pace of stand-alone net hirings of RMs decelerated somewhat, which was one of the factors behind the year-on-year slowdown in the net new money rate to 3.6% (annualised). Net new money was driven by continued net inflows from the growth markets and from the local business in Germany, while the inflows in the cross-border European business were offset by tax-driven outflows. Assets under custody came to CHF 86 billion, compared to CHF 88 billion at the end of 2012.
Adjusted profit before taxes went up by 28% to CHF 319 million (USD 341 million) from a restated level of CHF 249 million (USD 266 million) a year ago. The related income taxes increased from a restated level of CHF 41 million to CHF 57 million, representing a tax rate of 18%, up from a restated rate of 16.6%. Adjustednet profit consequently increased by 26% to CHF 261 million from a restated level of CHF 208 million, and, following the higher share count after the capital increases in October 2012 and January 2013, adjusted earnings per share came to CHF 1.23, up by 17% from a restated level of CHF 1.04.
IWM update
After the end of June 2013, a further CHF 22 billion (USD 23.5 billion) of IWM AuM were transferred to Julius Baer, taking total IWM AuM reported to CHF 47 billion, of which CHF 19 billion were booked on the Julius Baer platforms and paid for. Since the start of the IWM integration process on 1 February 2013, and including the additional transfer milestones reached in July 2013, a total of twelve IWM locations have now entered the transfer process. This encompasses the largest IWM locations in Switzerland, Uruguay, Singapore, Hong Kong and the UK, as well as two locations that are new to the Group, namely Luxembourg and Spain. Including the July transfers, the total number of IWM staff at Julius Baer has increased to 1,005 FTEs, of which 272 are relationship managers. As a result of the strong progress made to date, the Group reaffirms its target to acquire between CHF 57 billion and CHF 72 billion of IWM AuM by January 2015. Of this targeted range, 80% are expected to be reported and 70% to be booked on the Julius Baer platforms and paid for by the end of 2013. The estimate for the total IWM-related transaction, restructuring and integration costs to be borne by Julius Baer has been increased from approximately CHF 400 million to approximately CHF 455 million. This is mainly the result of higher estimated costs related to the client onboarding process. All other IWM-related targets are reaffirmed.
Foto: Luca Barni . UBS WM atrae 10.790 millones de dólares nuevos, más de 2.885 millones en las Américas
UBS estimates that for the second quarter of 2013 its operating profit before tax was approximately USD 1.09 billion and its net profit attributable to shareholders was approximately CHF 690 million (USD 737 million). “Our Basel III common equity tier 1 ratio is expected to improve significantly to approximately 11.2% on a fully applied basis and 16.2% on a phase-in basis”, said the bank in a press release.
The bank reports strong net new money in our wealth management businesses with net inflows of approximately CHF 10.1 billion (USD 10.8 billion) in Wealth Management and net inflows of CHF 2.7 billion (USD 2.9 billion)in Wealth Management Americas, with net outflows of CHF 2.0 billion (USD 2.1 billion) in Global Asset Management.
UBS has reached an agreement in principle with the Federal Housing Finance Agency (FHFA) to settle claims relating to US residential mortgage-backed securities (RMBS) offerings between 2004 and 2007. This case, which we have highlighted in our litigation note since the third quarter of 2011, is one of a group of cases related to RMBS offerings filed by the FHFA against 18 financial institutions. The settlement, which is subject to documentation and final approvals by the parties, would encompass pending RMBS-related litigation brought by the FHFA against UBS on behalf of Fannie Mae and Freddie Mac as well as certain unasserted claims. The full cost of the settlement is covered by litigation provisions established by UBS during the second quarter of 2013 and in prior periods.
Finally the bank says that their full financial report for the second quarter of 2013 will be issued as scheduled on 30 July 2013.
By Krzykol . JP Morgan Chase anuncia la salida de dos de sus consejeros
JPMorgan Chase & Co. announced today that two of its directors, David Cote and Ellen Futter, have retired from its Board of Directors. The company also said that it intends to appoint new directors to the Board later this year.
Ms. Futter is retiring after 16 years of service to the company, having served on several Board committees and helping steer the company through a number of mergers as well as the recent financial crisis. “Ellen has been an outstanding director and leader – helping guide our firm successfully during a critical time in our history. I will miss her greatly,” said Jamie Dimon, Chairman and CEO.
Mr. Cote is stepping down after more than five years of service. Jamie Dimon said, “As Chairman and CEO of Honeywell, Dave brought exceptional experience to JPMorgan Chase across a broad spectrum of issues. He is a highly talented executive, and we were all fortunate to benefit from his knowledge and leadership.”
Lee Raymond, the Board’s Presiding Director, added, “Our Board wants to add its thanks to Ellen and Dave for their significant contributions to our company over the years and to our Board governance. We are always in search of great directors, and the Board expects to appoint additional directors as the year goes on.”
“I am proud to have served as a member of JPMorgan Chase’s Board during such a historic time in the life of the company,” said Ellen Futter, adding, “having been a director since the 1990s, I believe that this is the right time to make this transition. It’s a great company with outstanding leadership in Jamie Dimon, senior management and at the Board level.”
Dave Cote said, “I am grateful for the opportunity to have served on the JPMorgan Chase Board. Given the increasing demands on the Directors of companies in the financial services sector, I decided that now was the time to reallocate my limited personal time to other outside activities. My time on the JPMorgan Chase Board has been a terrific experience.”
JPMorgan Chase & Co is a leading global financial services firm with assets of $2.4 trillion and operations worldwide. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands.
Ignacio Pakciarz, BigSur's CEO. BigSur, a Model of Independent Portfolio Management
If not administered and managed correctly, family wealth is squandered in three generations. The success, happiness and peace of future generations depend on the ability of wealth managers, either of their own wealth or that of others. “The reality is that wealth is consumed in three generations. One of our functions is to eliminate or mitigate the possibility that the legacy is destroyed,” says Ignacio Pakciarz, CEO ofBigSur, in an interview with Funds Society.
Pakciarz is well aware of that fact because he has been managing wealth for many years, first from larger institutions and for the last six years at the helm of Big Sur, a “multi family office” which he founded with Rafael Iribarren in 2007, thanks to the support of six Latin American families who had faith on a group of professionals who were looking for a model capable of offering solutions tailored to clients’ needs, independently and without conflicts of interest.
In this respect, Pakciarz explained that previous experience of the BigSur team in large institutions, JP Morgan, Deutsche Bank and Goldman Sachs, to name just e a few, allowed them the opportunity to build a model without the shortcomings of the largest institutions and to give a bespoke service. “A business focused on avoiding many mistakes and conflicts of interest that occur in traditional private banking business.”
At BigSur, says the manager, “we align the objectives, so there is zero conflict of interest and we are one hundred percent independent. It is about trying to provide a solution tailored to the clients: in terms of investment, fiduciary structure and the client’s stage of life. “
The average net worth of each of their client families is at about $ 50 million and the smallest around $10 million. Most are of Latin American origin, although many of them are international families, in which members are spread across countries, subject to different jurisdictions.
An advisory committee
As for its investment universe, Pakciarz said the firm has an investment committee which not only aims to improve clients’ returns, but also to minimize the risks, when faced with the possibility of negative market movements.
They invest according to the models developed in the firm, not only in stocks and bonds, but also in alternative products such as “private equity”, commodities, real estate and a small percentage in hedge funds, an asset that is not among their favorites. They have a team of 14 people with extensive experience in various financial instruments. “My focus as CEO is to assemble the best team in the market,” said Pakciarz. BigSur has appointed two new professionals in the last year with over 23 years of experience in “research” and “trading”.
One of the features of BigSur is “always think of your clients as partners.” After the crisis in the U.S. housing market, together with their clients, they found that the bond market had significantly decreased its appeal, and, on the other hand, that the property market had become very attractive, “both for the value of the properties as for the income which their rental produces.”A group of professionals, together with the firm’s clients, detected the most efficient way to capture such an alternative, which benefits its Investors Club.
Pakciarz also explained that being independent; they associate with whoever may provide greater benefits to their clients-partners at any one time. These associations are based solely on the benefits to client-partners; since BigSur does not earn commissions on transactions or on products.
Finally, the executive said that BigSur wish to become the best alternative so that their clients do not suffer from one of the common characteristics of the financial market, “fear”. “This occurs when there is no transparency, the clients are uninformed, clients’ interests are not the same as those of the consultant, or a clear plan of investment is lacking. Families who come here are aware of what they want. They are concerned about their legacy and maintaining their wealth. “
