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North America Drives Private Equity Fundraising in Q2 2016

The private equity fundraising market accelerated in Q2, as 180 funds closed securing a combined $101bn. Given that these numbers are expected to rise 10-15% as more information becomes available, the aggregate capital secured by funds closed in the quarter looks set to approach the record $112bn seen in Q4 2013. However, while the number of funds closed almost matches the 186 funds closed in the previous quarter, it falls some way short of the 261 funds that closed in the same period last year.

The majority (54%) of private equity funds closed in H1 2016 have closed above their target size, a record high. Just 21% of funds have closed below their target size, down from 28% of funds that did so in 2015.  

The level of uncalled capital available to fund managers of core private equity strategies hit new record highs, rising from $745bn at the end of 2015 to $818bn as of the end of June 2016.

As of the start of July, there are 1,720 private equity funds in market worldwide, targeting an aggregate $447bn, compared to 1,630 funds that were seeking $488bn at the start of the year. This is the first reduction in aggregate target capital since the start of 2014.  

North America-focused funds were the key driver of growth in the quarter; 96 funds focused on the region raised $60bn, accounting for 59% of the aggregate capital raised globally. By contrast, Europe saw 44 private equity funds raise just $33bn in Q2, of which the Ardian Secondary Fund VII accounts for $10.8bn. Only 11 buyout funds focused on the region closed, securing an aggregate $13bn. Elsewhere, 33 Asia-focused funds raised $6bn through the quarter, while seven funds focused on Rest of World raised $1.3bn.

“The second quarter of the year has seen robust fundraising activity, with over $100bn raised globally, despite the relatively low number of funds closed. This highlights the continuing trend seen of increased amounts of capital being allocated to a smaller number of experienced fund managers.

Global uncertainties surrounding the US presidential election and the British EU referendum have continued to cast a shadow over the industry, and while North America- focused fundraising has been robust, Europe seems to be experiencing a more cautious environment. With volatility persisting in the wake of Britain’s EU referendum result, we can expect further uncertainty to affect the European fundraising market.”Said Christopher Elvin, Head of Private Equity Products.

Generali Investments Among the Most Committed SRI Asset Managers in France

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Generali Investments has been included in the ‘High-impact Socially Responsible Investments’ category in the 2015 report of the responsible investments in France compiled by Novethic, the Paris-based SRI certification agency, auditor and research center and the creator of the first European SRI certification. For the first time ever, Novethic has split the group of assessed companies into three categories, on the basis of how impactful their SRI approach is on the investment choices. Generali Investments has been nominated in the category with the strongest impact.

“The Novethic recognition is testament to Generali Investments’ continuous effort on SRI”, has commented Franca Perin, Head of SRI of Generali Investments. “Being included among the 29 most committed SRI asset managers certifies that Generali Investments is at the forefront of responsible investing thanks to a stringent, proprietary and innovative methodology and top- notch ESG analysis capabilities”.

Novethic has assessed 55 asset management companies operating in France and integrating Environmental, Social and Governance (ESG) criteria in their investment choices (barring mere exclusion principles). In the ‘High-impact SRI’ category, Novethic has included those managers applying either a best-in-class approach (i.e. excluding more than half of the investment universe, such as Generali Investments) or a best-in-universe approach (i.e. more than 25%) or offering thematic investments. The ‘High-impact SRI’ category accounted for €54 billion of assets in 2015, out of €746 billion of total responsible investments in France (+29% vs. 2014).

Headed by Franca Perin and composed of five analysts based in Paris, Generali Investments’ SRI team screens approximately 520 European listed companies in 26 different sectors on the basis of 34 ESG criteria. The criteria are applied in a way that rewards those companies making the ‘best efforts’ to reach the ‘best practice’. The initial universe is therefore halved, and the selected companies are included in the proprietary database S.A.R.A. (Sustainability Analysis of Responsible Asset Management). Generali Investments applies its SRI methodology to a portfolio of €30 billion in total. Generali Investments is also the appointed investment manager of two SRI funds – GIS SRI European Equity and GIS SRI Ageing Population.

Overall Sentiment Stagnates, but Vast Differences Remain between Men and Women

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After a significant increase in positivity toward personal finances last year, sentiments have stagnated, according to the latest Country Financial Security Index, a semiannual score measuring the overall sense of financial security in the United States.

In mid-2015, the Index score jumped 2.1 points to 66.9, the highest score reported since the financial crisis hit the U.S. in 2008. However, following the uptick, the score has moved at a fraction of that rate in the past year, settling in slightly lower at 66.7 in its latest reading.

On an individual level, many are accepting their current financial situation as a new normal. More than half of Americans – just over 51 percent – say their level of financial security is staying about the same. However, in general, men are more likely to believe their circumstances are improving than women.

“Americans seem to be settling into a new normal and accepting their less than ideal financial picture,” says Joe Buhrmann, manager of financial security at the company who run the research. “Yet, as the Country Financial Security Index score settles into its latest groove, women’s sentiments remain closer to record lows in the face of various societal issues that act as headwinds to achieving financial security.”

Meeting short-term goals reveals gender gap

In the aftermath of The Great Recession, Americans’ financial sentiments reached an all-time low of 63.7. Since reaching the bottom of the trough, the Index score amongst men has rebounded to 68.2, past the national average and near the all-time high of 69.3 set in June 2008.

However, the Index score amongst women remains stuck closer to the all-time low at 65.1 – and more than three in four women (76 percent) don’t see things getting better. At the same time, women are more likely to feel their overall financial situation is staying the same in comparison to men.

Men are making strides to improve their financial security on a short-term basis, making it easier to see their overall level of financial security improving:In the past three months, men are more likely than women to have set aside money for savings and investments; Men are also more likely to feel confident compared to women in their ability to pay debts – such as mortgages, car loans, credit cards and other debts – as they come due.

“When your day-to-day finances are out of order, it’s easy to feel overwhelmed – and the lack of confidence women are feeling overall is likely due to their inability to save, invest and pay off debts,” Buhrmann says. “Taking steps to adjust your expenses and spending habits can help establish a base for meeting both short-term and long-term financial goals.”

Large money matters weigh more on women

Beyond the basic short-term financial goals such as saving, investing and paying off debts, women have a more negative outlook when it comes to meeting longer-term financial goals.

“One tricky decision in particular is the choice between setting aside money for the college education of your children versus saving money for retirement,” Buhrmann says. “All parents struggle with this decision, but for women – single moms, especially – who are less likely to set aside money at all, this decision fuels some of their biggest financial worries.”

With the cost of a college education rising and longevity extending in the U.S., women are unsure about their ability to cover the costs: Women are significantly less confident they will have resources to send children to college than men and also feel significantly less likely they will have enough money and resources to enjoy a comfortable retirement.

“In order to meet long-term financial goals, everyone needs to have a plan and actively update it as their circumstances and desires change,” Buhrmann says. “A financial advisor can help address what seem like overwhelming financial burdens to ease the anxiety many women – and Americans in general – are feeling.”

A Fork in the Road for Europe: Investing Post-Brexit

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“Every new beginning comes from some other beginning’s end” – Seneca

A few days after the Brexit vote, which caught most people by surprise, us included, we believe that there are two questions which really matter for investors:

Will policymakers succeed in stabilizing a violent, negative market reaction in the short-term?
What will happen to the process of European integration and to the European Union, as we got to know it, in the medium to long-term?

There is no doubt that the vote opens a new period of uncertainty for the future of the European Union’s original design, but it is extremely difficult at this stage to make any prediction on the likely path that European leaders will take in order to repair the damage done to the EU (ie, the new idea, after the vote, that European integration project could become reversible).

So let’s start with the first question. The consensus view – that a long Brexit process could result in two or more years of difficult negotiations between a new UK political leadership and Brussels – may increase the probability of recession in both Europe and the UK. In fact, uncertainty around the UK’s future trading relationships could affect economic activity, reduce investment and hurt consumer confidence. The sterling devaluation could continue as uncertainty could lead to an interruption of the flow of capital to the UK and eventually lead to lower growth.

Are We Facing a New “Lehman Event”?
We do not believe so, for a simple reason: leverage. By 2008, a massive amount of leverage had been accumulated in the private sector, based on the assumption (subsequently proven false) of risk spreading in a myriad of structured products. Post-Lehman it was the subsequent chaotic unwinding of the positions that lead the global financial system to a sudden stop.

Nothing like this has ever happened with reference to the European integration project, and if anything, any major exposure to European assets has been based on the assumption that the Euro, as a common currency, will always have the backing of the ECB, especially after the famous “whatever it takes” speech from ECB president, Mario Draghi.

Therefore the real question is whether financial markets, in risk-off mood, will continue to have the backing and support of Central Banks’ action and whether this will continue to be considered credible by investors. We believe that Central Banks (like the ECB) currently engaged in Quantitative Easing could make adjustments to their purchasing programs, while others (like the Fed) which have started a path of policy normalization could delay expected rates hikes, and so on.

In other words, the activity of supporting financial assets through massive injections of cash and with zero/negative interest rates could be prolonged.

However, markets may question the efficacy of additional monetary policy, putting the credibility of Central Banks’ action under scrutiny. Meanwhile the political impasse could still impede the articulation and implementation of effective fiscal policies and long-needed incentives to private investments in the “real” sector.

What is important to note is that the policies implemented in the years after the Great Financial Crisis, while absolutely necessary to save the sound functioning of the financial system in the immediate aftermath of the crisis, have ended up contributing to the current problems distorting liquidity and valuations on major segments of financial markets (government bonds, credit). They have added further divisions to the long-term trends of wealth and income inequality and sluggish growth with disappointing progress in employment, which have been in place for many years, and which electorates are starting to rebel against, not only in the UK, but also in the rest of Europe and the US.

A Vote against Exclusion
The vote for a Brexit is better interpreted as a vote against exclusion (from the benefits of globalization, financialization of the economy, and so on) than a vote against Europe per se.

Seen in this light, the second question, about the long-term future of the European integration project, is not a question around the institutional mechanisms of “in” or “out” of Europe. It is a more existential question about the benefits, in terms of economic and social welfare, for European citizens, stemming from a more (or less, depending on the views) united Europe. It is the real question that European leaders and citizens will have to solve in the next few years, radically rethinking the “raison d’etre” of a European integration, and the consequent economic, social and security (both internal and external) policies.

A Historical Crossroads
We do not have any ambition to answer this question in these pages. We just observe that Europe currently stands at a historical turning point and we believe there (logically) are two possible, but opposite, outcomes:

The first is a move towards a broader fragmentation of the EU, resulting in the break-up of the free trade market and also in the failure of the long-term project of a political Union.
The second is to see a renewed effort towards a higher political integration, beyond the pure monetary and economic integration. Only in the next several months we will understand which of the two roads Europe will take.

Turning to the investment implications, in the immediate future political leaders (not just in Europe) have to face the growing discontent of their electorates, which underpins not only the increase of anti-EU sentiment, but of a more general rise of populism, anti-immigrant sentiment and so on.

As such, it is possible that part of the political agenda of “moderate” leaders will have to include a portion of the populist agenda such as: an increase in taxation of corporations and higher earners, protectionism (i.e. import tariffs), and an increase of welfare benefits for low earners (i.e. minimum wages). All this means less growth and downward pressure on corporate profitability, which is a negative factor for equity exposure.

On the other side, we believe that monetary policies engaged in negative rates and QE for a longer period mean that a larger part of the bond universe will remain in negative (or close to zero) yield territory.

Finally, it is quite likely the adjustment mechanisms during the phase of transition will take place through the exchange rate mechanism, especially if monetary policies of different areas remain, at least partially, divergent.

Opportunities for Active Managers
Consequently, the investment landscape is less than exciting. But it does not mean that long-term opportunities, that can be exploited though active management, will not exist. Actually, we think that active management will have an edge over passive in a world of zero or low beta , where most, if not all, total returns should come from alpha.

The current market dislocation may create opportunities for active managers to identify undervalued companies and sectors that may be unjustifiably penalized in this phase of market turmoil.

In the meantime, we remain committed to manage the risk side of the equation in order to preserve, as much as possible, the stability of our client portfolios and to take all the decisions needed to mitigate the current volatility.

Column by Giordano Lombardo.

Tax Efficiency Drives Less than a Quarter of High Net Worth Offshore Investment

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Despite the commonly-held belief that tax considerations primarily drive offshore investment, only 23.2% of global high net worth (HNW) wealth is invested offshore for tax reasons, while 24.1% derives from HNW individuals seeking access to a greater range of investment options, according to financial services research and insight firm Verdict Financial.

The company’s latest report states that wealth managers need to gain a deeper understanding of the drivers that are prompting HNW investors to look for new places to store their fortunes. Indeed, HNWI invest offshore for a multitude of reasons, which often depend on geographic and demographic factors, as well as political, economic or monetary conditions in their country of residence.

Verdict Financial’s senior analyst Heike van den Hoevel notes that, fueled by recent scandals and increased media attention, the word “offshore” is overwhelmingly associated with tax avoidance or even evasion. However, while reducing one’s tax bill is certainly a consideration for many HNW individuals looking at offshore investment – especially among those in countries with high tax rates or a complex tax system – it is not necessarily the primary consideration.

Heike explains: “Wealth managers need to understand that there is no single reason driving HNW offshore investment, and that providers have to factor in pronounced regional differences when designing their offshore propositions. For example, German HNW investors, who traditionally only invest a small proportion abroad, have been increasing their offshore holdings, mainly due to the lack of returns that can be earned at home, while HNW individuals in South Africa have been eager to channel wealth offshore to escape currency volatility in their own country, which suggests that offering hedging tools is essential.

The firm believes that local wealth managers would do well to offer a wider range of investment funds providing exposure to international markets to avoid losing funds to offshore providers. On the flipside, providers looking to attract offshore wealth should highlight more beneficial investment conditions in their country.

Only 23% of 10m+ Clients Would Recommend Their Current Wealth Manager

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Only 39% of clients are likely to recommend their current wealth manager, falling to 23% among US$10m+ clients, according to the report ‘Sink or swim: why wealth management can’t afford to miss the digital wave’, published by PwC, based on a survey in Europe, North America and Asia.

Wealth management is one of the least tech-literate sectors of the financial services industry, and what is currently on offer is sharply at odds with what their clients, high net worth individuals, expect. When HNWIs were asked what they value most about their current advisor/wealth manager, their technical capabilities and digital offering ranked just eighth out of 11 options.

The work also finds that two-thirds (69%) of HNWIs use online/mobile banking, more than 40% use online means to review their portfolio or investment markets and over one in three are already using online services for portfolio management.

Demand among HNWIs for finance-related technology is, surprisingly, similar across both younger and older HNWIs, the exception being portfolio management, where under-45s are markedly more interested in managing investments online. Moreover, 47% of those who do not currently use robo services would consider using them in the future.

Over half of HNWIs surveyed believe it is important for their financial advisor or wealth manager to have a strong digital offering– a proportion that rises to almost two-thirds among HNWIs under 45 and in Asia. Where HNWIs are digitally confident, expectations that wealth managers should be technologically proficient are higher still.

On the other hand, two-thirds of wealth relationship managers do not consider robo-advisors a threat to their business. Moreover, they repeatedly insist clients do not want digital functionality, directly contradicting the importance their clients place on it.

“This conflict within wealth management firms, combined with a client-base that feels only weak affiliation to its chosen providers, is creating a sector that is now acutely vulnerable, to digital innovation from FinTech incomers, including robo-advice services,” says Barry Benjamin, Global Asset and Wealth Management leader at PwC.

In PwC’s view, to survive, wealth management firms must accelerate efforts to adopt a comprehensive digital infrastructure, harness the potential of digital, and be willing to partner strategically with FinTech innovators.

Benjamin concludes:

“Wealth relationship managers enjoy high levels of trust among their client base. They are already recipients of a depth and breadth of data and insight spanning both financial and non-financial aspects. Any future wealth management model needs, without question, to retain this human aspect.

“However, in an increasingly complex world where the investment office may, for example, have to evaluate more than 200 different investment products for a client, and where clients are also aware of what automated technology can do in the investment advisory space, technology will be vital to keep the job both do-able and scalable for a growing audience.

Argentina-based Online LatAm Real Estate Platform Properati Raises 2 Million Dollars

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Argentina-based Properati, the Latin American online and mobile solution for the real estate market, announced it has received a US$ 2 million investments from Neveq II, NXTP Labs, and Telor International Limited. With this new round the company has raised a total investment of US$ 4.2 million since it was founded in February 2013 and plans to consolidate its regional presence in Mexico and Brazil.

The company will use these funds to expand and consolidate its regional presence in key markets like Mexico and Brazil, and to continue developing innovative solutions to help the Real Estate industry become more efficient in their sales processes.

Properati already has over 1 million properties published in Brazil and almost 2 million in LatAm, covering a significant area of the real estate market in those countries and the region, with an innovative business model where clients only pay for the qualified leads they receive, and users may browse an ad-free site.

Regarding the fund’s investment in Properati, Ariel Arrieta, NXTP Labs co-founder and CEO, stated that: “Properati’s product is the most efficient way for brokers and developers to generate qualified leads and convert them into sold inventory. Over the last 12 months the company has made a significant progress in markets like Brazil and Argentina, with a clear value proposition for its clients, and we are happy to support their next wave of expansion into Mexico and other Latin American markets”.

In addition, Properati has announced that Ariel Muslera will join the board of the company. Muslera is a specialist in fundraising and business strategy, and has extensive experience as advisor in different startups.

The American Dream: Happiness and Security Are Valued Considerably More Than Wealth

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According to a research recently released by Northwestern Mutual, two-thirds (66%) of U.S. adults believe that they can attain ‘The American Dream’, and only 16% feel it is out of reach. That said, the study also revealed some interesting nuances about how perceptions of The American Dream have changed, and not just generation over generation. A third (31%) of Americans say their definition of The American Dream has changed in just the last five years; and more than half (57%) say their view of The American Dream is different than how their parents viewed it.

In today’s view of The American Dream, happiness and security are valued considerably more than wealth, opportunity and moving up in social class. When asked about the most defining characteristics of The American Dream today, the top two answers were: “Having a happy family life” (59%); and “Being financially secure” (58%).

This far outweighed some of the more traditional notions of The American Dream, including: “Having more opportunities than my parents’ generation” (18%); “Having wealth/making a lot of money” (11%); and “Moving up in social class” (3%).

Interestingly, a full three-quarters of Americans (74%) say they would not swap the lifestyle and financial situation they have today for what their parents had when they were the same age.

“The goal today seems to be more about outcomes – happiness, security and peace of mind rather than material wealth or the opportunity to advance,” said Rebekah Barsch, vice president of planning and sales at the firm.

Financial Insecurity
While long-term optimism in the attainability of The American Dream is positive, there is also considerable evidence showing that many people do not feel financially secure in the present, and are not bringing high levels of discipline to their financial planning. The study found that nearly a third of U.S. adults (29%) said they do not feel financially secure; Only one in five (21%) Americans consider themselves to be “highly disciplined” financial planners; A third (34%) consider themselves “disciplined” planners; Another third (33%) consider themselves “informal”; And more than one in ten (12%) “do not plan at all” and “have not set any financial goals”.

New FOX Private Investor Council for Sophisticated Investors

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Family Office Exchange (FOX), a global membership organization of enterprise families and their key advisors, recently announced the formation of the FOX Private Investor Council, a new Council-level membership specifically for sophisticated investors who make their own investment decisions and consider different risk and reward dynamics than most other investors. This membership allows them to collaborate with other independent investors to share ideas and take advantage of the latest thinking brought to the table by selected industry experts.

“The members of this Council are primarily focused on their investing activity, and they are the ultimate decision makers,” said Alexandre Monnier, president of FOX. “They operate with great independence but know that they would benefit from having a working group of other top-notch practitioners to test their ideas, stimulate their thinking, and benchmark their results. That is the need this Council serves.”

“The advantage of belonging to the FOX Private Investor Council is that there is a constant stream of new ideas flowing into the discussion,” added Karen Clark, managing director at the organization and leader of this Council. “The quality of the group is not limited to the experience of those in the room which is considerable in the first place. Cutting edge ideas are brought into the discussion by experts to elevate the discussion.”

The Council will meet twice a year. An April meeting will coincide with the FOX Spring Global Investor Forum in San Francisco and a September meeting with the FOX Autumn Global Investor Forum in New York City.

Councils are the highest level of engagement at FOX and approximately 30% of members belong to one of the 12 different Councils, which provide heightened interaction among closely matched peers who are working through a relevant curriculum designed by FOX to foster their personal and professional skills.

With the MIFID II Delay, Industry Now has More Breathing Room

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The European fund and asset management industry met on 16 and 17 of June in Malta, at the occasion of EFAMA’s Annual General Meeting. Hosted by the Maltese Funds Industry Association (MFIA), the AGM provided an opportunity for EFAMA members to discuss the investment and regulatory landscape and to exchange views with representatives from the European Commission and the Maltese Financial Services Authority.

The AGM marked the end of a first year under the mandate of EFAMA President Alexander Schindler, Member of the Executive Board of Union Asset Management Holding AG. During this time, the European asset management industry continued to grow, with 2015 being a record year and net sales of European investment funds rising to an all-time high of EUR 734 billion.

Schindler reported on the activity highlights during his first year, mentioning that the overarching EU initiative of the Capital Markets Union is a welcome, ambitious project which highlights the key role asset managers can play in providing alternative funding sources and channelling savings and investments into long-term projects. In the same vein, the European asset management industry, remains fully committed to the idea of developing a Pan-European Personal Pension product (PEPP). He commented: “Much has been done in recent years in the regulatory field. Much remains to be done in terms of implementing and applying these new regulations. With the MIFID II delay, industry now has more breathing room and is hands-on in preparing to apply the new rules.

According to EFAMA, the application of the new PRIIP KID rules remains a major issue, however, it should be done right for the sake of investors. “It serves no one’s purpose – and certainly not the investors’ interests – to rush through the Level-2 process.”

On the issue of personal pensions, they mentioned that “people need to start saving earlier, save more and save for longer, and the PEPP can address the current savings gap. Building on the excellent work done EIOPA, we hope the European Commission will concur that the creation of a PEPP would create invaluable benefits for EU citizens and the European economy”.

During the general assembly, EFAMA also welcomed two new National Associations as full members: the Cyprus Funds Association (CIFA) and the Croatian Association of Investment Fund Companies. Both have been members of EFAMA with observer status since June 2014.

Peter De Proft, Director General of EFAMA commented: “We are very pleased to see more full members joining our family. Dialogue, feedback, interactions and good governance are key elements in the smooth running of a European association. We are looking forward to working with the Cyprus and Croatian associations, and to continue to grow our membership and reach to feed into our increasingly constructive discussions with European institutions”. Adding that “in 2015, EFAMA and its members have had to begin adapting their modus operandi and will no doubt have to undertake further adjustments as the regulatory implementation stretches into the horizon. Some priorities, however, do not change: nine years after the start of the global financial crisis, we need to concentrate even more on performance in the interest of our investors.”

Kenneth Farrugia, Chairman, Malta Funds Industry Association (MFIA), commented: “The Malta Funds Industry Association is delighted to have been given the opportunity to host this prestigious event in Malta. The Association’s membership with EFAMA enables the MFIA to be an active participant in the multi-faceted developments shaping the European Funds Industry, with the end benefits being relayed to the members of the Association in Malta. Moreover, this provides an excellent platform for the Association to exchange views with other Associations on matters of common interest, share best practices and to analyse and monitor the impact of any significant new developments for the interest of the local industry.”