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Julius Baer Launches “Fifth Wealth Report: Asia” Showing Big Opportunity for the Wealth Management Industry

Julius Baer has released its fifth annual Wealth Report: Asia, which monitors the cost of living in luxury and wealth creation in Asia. It finds that in Asia, Julius Baer’s second home market, the pool of investable assets held by High Net Worth Individuals (HNWI) could reach USD 14.5 trillion by 2020, or a growth of 160% in the current decade.

In addition to the Julius Baer Lifestyle Index, which was launched in 2011 tracking the costs of goods and services for HNWI in 11 Asian cities, this year’s report includes forecasts of HNWI wealth creation trends in ten Asian markets for the next five years until 2020. Despite its maturing economy, China’s HNWI wealth is expected to increase to USD 8,249.6 billion in 2020, trebling the 2010 figure and making it one of the biggest wealth creation engines in the region. The Philippines and India are also ranked in the top three in terms of HNWI wealth creation.

Boris F.J. Collardi, Chief Executive Officer of Bank Julius Baer, said: “For the first time since 2011, we revisit the growth of millionaires in Asia. Whilst we have tempered our optimism as to the rate of growth, there is still much reason to look to Asia as the greatest garden to grow millionaires. These findings also support our belief that wealth management is clearly a growth industry, with wealth set to continue its upward trajectory in Asia.”

China and India, in good shape

HNWI wealth is projected at USD 5.1 trillion in 2016, rising to USD 8.25 trillion billion by 2020. The projections of HNWI wealth are based on the assumptions of nominal GDP growth of around 10% between 2017 and 2020, boosted by expected appreciation of the Chinese currency versus the USD throughout the forecasting horizon. While the Renminbi (RMB) declines in 2015, the longer term outlook points to an appreciation trend.

Hong Kong’s HNWI wealth is expected to rise steadily to USD 1 trillion by the end of the decade. In recent years, Hong Kong’s stock index performance has been considerably better than that of Singapore’s stock market index. Further, Hong Kong benefits from strong trade and economic linkages with China. Hence, it comes as no surprise that, even as its nominal GDP rises 42% from USD 228.6 billion in 2010 to USD 325.3 billion by 2016, the HNWI wealth rises 56% from USD 484 billion to USD 756.3 billion in the same period.

About India, HNWI wealth is forecasted at USD 1.425 trillion in 2016, rising to USD 2.3 trillion by 2020. India’s nominal GDP growth is projected to rise only by 3.2% this year due to the depreciation of the local currency versus the USD. However, the Indian economy has now found its footing and is in a period of positive development. Thus, India’s HNWI wealth in USD is projected to rise by 94% between 2014 and 2020 (versus 74% for China). If this trend persists for a decade or more, India will narrow the wealth and economic gap with China.

Thomas R. Meier, Region Head Asia Pacific of Julius Baer, said: “Notwithstanding slowing global conditions, we remain positive on the trajectory of Asian HNWI wealth led by China where we estimate a tripling of HNWI wealth this decade to more than USD 8 trillion. Our forecasts reflect the belief and confidence that China has ample room to ease monetary and fiscal policy to both stabilize and boost the economy. We also see great catch-up potential in India where we expect economic expansion to strengthen from next year. India has the potential to narrow the wealth and economic gap with China over the next decade.”

Julius Baer Lifestyle Index 2015

The Julius Baer Lifestyle Index compares 20 goods and services items in 11 cities, covering Hong Kong, Singapore, Shanghai, Mumbai, Taipei, Jakarta, Manila, Seoul, Kuala Lumpur, Bangkok and Tokyo. In 2015, the most expensive and best bargain cities as determined by the index are identified clearly for the first time.Shanghai is the overall most expensive city in the 2015 study, topping the tables for services and goods and the overall category. Shanghai was within the top four most expensive cities in 13 out of the 17 compared categories (excluding wine, university and boarding school). With possible devaluation of the RMB, interest rates cut to stimulate the market after a volatile summer in 2015, we expect some strong price movements next year.

Hong Kong and Singapore take a respectable second and third overall. Hong Kong’s expensive cost for services and Singapore’s relatively expensive pricing for all goods and services, firmly establish these three cities as the most expensive cities to purchase the items in the Julius Baer Lifestyle Index.

This year’s report also features dedicated sections on India and Japan. A positive outlook for HNWI wealth is projected in India in the years ahead, in contrast to the relative stagnation in HNWI wealth between 2011 and 2013. Therefore, it retains promise and attractiveness for wealth management institutions over the next half decade, if not longer.

A positive evaluation is held of Japan’s economy and outlook – despite the fact that the overall growth of the market should not be expected to increase much beyond 1.5% per year anymore. Overall growth will be slowed down by demographic decline and underperformance of entire regions outside the city centres. Within its urban growth centres, however, new services are thriving, already strong social infrastructure is being upgraded and restructured corporations have returned to profitability. This will also be the basis for Japan claiming a greater economic role in Asia again.

Citi and the Wharton School Will Launch a Three Year Program

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Citi and The Wharton School of the University of Pennsylvania announced the formation of the Citi Wharton Global Wealth Institute to provide Citi’s global advisor community with world-class business and executive training.

The new Institute, part of a new, three-year executive education initiative that will reach the Citigold, Citigold Private Client and Banamex global advisory network, will launch in December on the University of Pennsylvania’s campuses in Philadelphia and Beijing. The participants will comprise Citi’s top-performing Relationship Managers and Financial Advisors. Beginning in 2016, additional sessions will be taught in Latin America and Europe with further locations to be announced. Over the next three years, Citi expects to enroll as many as 500 Relationship Managers and Financial Advisors worldwide through the Institute.

“We are delighted to partner with Citi to create a custom executive education program that is a true investment in Citi’s vision for the future,” said Wharton School Dean Geoffrey Garrett. “The global nature of this program exemplifies our goal to be the best business school for the world.”

“Our collaboration with Wharton reflects an extraordinary learning commitment by Citi that we believe will serve our Relationship Managers, and ultimately our clients, well into the future,” said Jonathan Larsen, Citi Global Head of Retail Banking and Mortgage. “Citigold Private Client and Citigold globally have some of the most talented financial advisors in the industry, and by leveraging the remarkable expertise of one of the finest business schools in the world, we will cultivate and deepen that talent pool for many years to come.”

Led by Christopher Geczy, academic director of the Wharton Wealth Management Initiative, the Citi Wharton Global Wealth Institute’s curriculum will feature world-class instruction and experiential learning to enhance participants’ business acumen and leadership skills.

“Citi is refining what advisors will look like in the future and expanding the horizon of their role with customers,” said Geczy. “This program will impart supportive knowledge and skills in areas ranging from client service to the deep expertise of technical wealth management and on to leadership, ethics and personal effectiveness, all of which are critical for serving clients broadly at a world-class level.”

Seedrs to Launch Its Crowdfunding Operation in the United Estates in early 2016

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Seedrs announced that it will commence a beta test of its platform in the United States within weeks, following Friday’s vote by the U.S. Securities and Exchange Commission (SEC) to implement Title III of the JOBS Act.

The beta test will offer US accredited investors the opportunity to invest in selected campaigns listed on the platform, with an official launch expected in early 2016.

In late 2014, the largest crowdfunding platform in Europe to focus solely on equity investments acquired California-based crowdfunding platform Junction Investments in preparation for its push into the United States. It has been working tirelessly in 2015 developing the right approach to commence operation in the United States, as compliance with applicable law has always been a non-negotiable element of the company´s approach to business.

The firm has been active in supporting the JOBS Act equity crowdfunding regime with Jeff Lynn, Seedrs CEO, having provided expert testimony to subcommittees of the U.S. House Oversight & Government Reform Committee in September 2011 and the U.S. House Financial Services Committee in May 2014.

The firm believes Friday’s SEC vote on Title III of the JOBS Act represents a significant step forward for early-stage and growth-focused businesses that wish to use equity crowdfunding as a platform to raise capital for their businesses.

Jeff Lynn, CEO, said:“I have had the privilege of being involved in the lawmaking process for U.S. crowdfunding ever since the JOBS Act was introduced in 2011, and I am very pleased to see that the SEC has finally adopted rules implementing Title III. We believe this heralds the emergence of equity crowdfunding as a vibrant form of finance in the United States – just as it has become in the UK and Europe – and Seedrs is perfectly positioned to take advantage of the sector’s growth. The beta testing will be the first foray into the market, and we look forward to growing our presence there significantly in 2016.”

Lloyd Jones Capital Acquires Two Texas Apartment Communities

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Lloyd Jones Capital, a Miami-based multifamily investment firm, has acquired the Carol Oaks and the Villa Oaks apartment communities in Fort Worth and Houston, respectively. Both are considered exceptional value -add opportunities which the company anticipates improving and rebranding in order to enhance the asset value.

Says Chris Finlay, Chairman/CEO, “These properties are a great fit for our value-add portfolio. They are both currently producing cash flow, and with selective renovations and exciting rebranding they will prove to be fabulous opportunities for our investors.”

The Carol Oaks is a gated community consisting of 224 units on 18 acres. It is undergoing rebranding to the company’s proprietary ‘Vibe” concept that offers high tech opportunities for its residents with Wi-Fi and collaborative work areas. It is now called The Vibe at Landry Way.

The Houston property, Villa Oaks, with 212 units of affordable housing will be rebranded as TownParc at Sherwood. This townhouse community offers large units with numerous floor plans.

According to Finlay, two additional properties – in St. Petersburg, FL and Houston – are scheduled for closing in the next few weeks. These will add an additional 610 units to the company’s growing investment portfolio. Finlay says “One of the things that gives us great confidence in the ability to turn these C and B properties into C+ and B+ assets is Finlay Management, Inc., our property management arm.” He explains that the company is an Accredited Management Organization (AMO) In fact the company was named “AMO of the Year” of North FL for 2013 by IREM (Institute of Real Estate Management.)

The company specializes in multifamily investment in FL, TX and the Southeast. The company acquires well located, cash-flowing assets with value-add potential. It was founded by real estate veteran, Chris Finlay, who has over 35 years in the multifamily industry.

Insight Investment Expands Global Fixed Income Team

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Insight Investment, a BNY Mellon Investment Management boutique—announced that its global fixed income coverage now includes domestic US credit and loans expertise. The addition of a domestic US fixed income business, a deal completed at the start of the year, has enhanced Insight’s research resources and increased capacity in the strategies most widely owned by our international clients: Absolute Return Bonds, Global Active Credit and Buy and Maintain.

The global fixed income team at Insight now includes 97 investment professionals and the team manages $208 billion. The investment teams based in the US and the UK now share the same global investment process and research methodology. This is deployed within one investment-systems architecture and governance framework.

Adrian Grey, Head of Fixed Income at Insight, said: “The integration of a strong US domestic investment team has deepened our research capability. This means that our globally-focused portfolios can now better reflect the opportunities available in the world’s biggest and most diverse credit market. By aligning our research resources, processes and systems across London and New York we believe we have made a material step forward that should enhance the quality and foundations of our portfolios, and support us in seeking superior investment results.”

The 29-member strong US domestic fixed income investment team has an average of 11 years’ tenure and 18 years’ total investment experience. Key strategies managed include core, core plus, US credit and long duration bonds. They are part of a team of more than 80 staff now located at Insight’s expanded offices at 200 Park Avenue, New York. The North American business has been operating locally as Insight Investment since July 1.

Cliff Corso, Chief Executive Officer at Insight in North America, said: “We now have the structure to grow and fulfil our ambitions, operating from within an autonomous investment boutique that provides a supportive philosophy and culture. US investors have historically prioritized domestic strategies and the team in New York has a long and competitive track record. The influence of global investment markets on the US market continues to increase, so the fact that our North American investment professionals are now part of a formidable 100-member strong global fixed income team ultimately strengthens our proposition.”

Will the End of China’s One Child Policy Spark a Demographic Boom?

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According to Craig Botham, Emerging Markets Economist at Schroders, “The end of the one child policy is an announcement with great political significance but little immediate effect.” Given the high cost of raising children in China, his team does not see a demographic boom resulting from the end of the government’s one child policy.

By the year 2030, the UN expects to see a 3% decline in China’s working age and a very small impact on growth, detracting between 0.1 and 0.3 percentage points per annum from growth over that period. With that, there will be a very important fiscal cost for China, “as its dependency ratio worsens to developed market levels even as incomes remain in emerging market territory. This will result in a painful fiscal burden for China, and it is not clear how it will be tackled,” says Botham.

He believes that boosting the fertility rate would help, but it is not certain that ending the one child policy will be effective. For example in 2014, 11 million couples were eligible for a second child, but only 1 million applied to do so. Adding that, “it may be that after so long, the one child norm will take time to reverse. In addition, anecdotally, many young Chinese cite the cost of children, particularly education, as a major barrier to considering large families.”

And thus, “the cost of raising children needs to be reduced. Task that will require the provision of high quality and affordable – preferably free – education and childcare, and likely also an overhaul of the welfare system altogether.” Nowadays the “hukou” registration system limits people’s ability to claim social welfare outside of their registered area. This means many migrants to the cities have to go home to access education, healthcare, and so on. “Which adds immensely to the cost of raising children and settling down, and will be a contributing factor in delaying household formation. Until these issues are addressed, we do not see a demographic boom resulting from this policy change,” Botham concludes.

What the UK Might Want / What the EU Might Offer

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Prior to the referendum on EU membership due in 2016 or 2017, the UK government will pursue negotiations to redefine its relationship with the Union. David Page and Maxime Alimi from Axa IM review the themes that are likely to form the basis of these negotiations and assess the margin for compromise between the UK and its European partners. On balance, they expect such negotiations to be constructive enough for the UK government to campaign in favour of the “Yes” at the subsequent referendum.

In their opinion, the UK has yet to define, specifically, what it desires from such negotiations. This month, the UK is supposed to offer more information on what they are looking for, as promised by David Cameron at the EU leaders’ Summit, but the Axa experts believe the main topics will include:

Trade and promotion of the Single Market– Where, according to the analysts, there is no clear disagreement between the UK and the EU
Competitiveness and over-regulatory burden– With no clear disagreement between the UK and the EU
Decision-making and institutional fairness– Where they believe exists much room for agreement between the UK and the EU
Progressing towards an ever closer union– Which needs clarifying since according to them constructive ambiguity has reached its limits
EU budget control– where, given their large deficit, the UK looks set to drive for greater cost control across the EU, while it seems like there is little room to further expand special treatment of the UK given many euro-area countries having experienced significant austerity in recent years.
Migration, social rights and access to benefits– The most contentious issues given the UK looks for immigration restrictions while for the EU free movement of people and labor is a fundamental principle

According to Alimi and Page, “overall, many of the areas where the UK is likely to pursue change are not contrary to EU ambition. This suggests significant room for agreement between the UK and its partners on most issues.” What will happen given the few, but key, areas the UK and the EU do not agree upon? Only time will tell…

You can read the full report in the following link

FINRA Chairman and CEO Rick Ketchum to Retire in 2016

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The Financial Industry Regulatory Authority (FINRA) said on Friday that Chairman and CEO Richard Ketchum, 64, has announced his plan to retire in the second half of 2016. The Board of Governors will conduct a search for his successor that will take into consideration internal and external candidates.

Mr. Ketchum has been one of the foremost industry regulators for more than three decades. He came to FINRA from the NYSE where he was CEO of NYSE Regulation. He also spent 12 years at NASD and The Nasdaq Stock Market, Inc., where he served as president of both organizations. Prior to that, he was the director of the SEC’s division of Market Regulation.

“I’m proud of FINRA’s achievements over the past six years,” said Mr. Ketchum. “We have been at the forefront of investor protection in our aggressive efforts to help enforce the rules that are so crucial to fair financial markets. Our accomplishments are founded on a commitment to excellence in our core competencies: examinations, enforcement, rulemaking, market transparency and market surveillance. Investor protection is our principal reason for being, and I have been honored to work with an incredibly dedicated and talented group of professionals who take this vital mission seriously. FINRA is well-placed to continue to play an important role in educating and protecting investors in the years ahead.”

“FINRA has thrived under Rick’s leadership, and we look forward to his continued guidance over the next many months,” said Lead Governor Jack Brennan, former CEO of Vanguard Group. “His stewardship began in the aftermath of the financial crisis when public trust in the financial system was at an historic low. As a champion of initiatives such as the High Risk Broker program, improvements in BrokerCheck, the expansion of TRACE reporting of asset-backed securities, and the expansion of FINRA’s responsibilities across stock and options trading, Rick has put FINRA on the front line of the movement for stronger investor protections and greater market integrity. Under Rick’s management, FINRA has emerged as a leader in the reshaping of American financial regulation and helped to restore the faith in the capital markets that forms the bedrock of our financial system.”

Happy Halloween. Five Scary Charts That Freddy Krueger Would Be Proud of

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M&G and bondvigilantes.com proudly present the scariest charts on the global economy. Some will make you laugh, some will make you cry. You will be amazed, you will be enchanted, you will be mystified, you will be amused. Of course, the following is not for the faint of heart. You have been warned.

1.- Companies are scared of risk

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There has been a glut of corporate bond issuance since the financial crisis, as companies have issued debt at low interest rates. What have companies done with all that cash that capital markets have leant them? Overwhelmingly, US companies have embarked upon equity buy backs and M&A activity, which has helped shift the equity market higher. Only a small amount of proceeds raised by US companies in bond markets have been used for capital expenditure. This suggests that corporations remain hesitant to take risk, even in an environment where many perceive that the US economy is ready to withstand higher interest rates.

2.- Nowhere to hide for investors

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In the old days, an investor could expect the bonds in their investment portfolio to do well when equities sold off and vice versa. Not anymore. Analysis by the IMF shows that asset classes are increasingly moving in the same direction, meaning that the famous rule of investing – diversification – no longer applies to the same degree that it once did. Worryingly, the tendency for global asset prices to move in unison is now at a record high level and correlations have remained elevated even during periods of low volatility. A large scare in investment markets could really test the fragility of the financial system should asset values deteriorate across the board.

3.- Terrible forecasts

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Commodity prices are highly volatile and unpredictable as evidenced by futures market pricing for crude oil. This poses a significant challenge for policymakers in resource-rich countries. In the majority of commodity-exporting nations, a large share of government revenue is provided by the resource sector. The current shock to commodity prices could put severe pressure on government balances, particularly in geopolitical hotspots like the Middle East, Russia, Nigeria and Venezuela. Those forecasting (hoping) that commodity prices rebound may be disappointed.

4.- Monstrous derivatives exposure

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The notional value of derivatives in the global financial system is around $630 trillion. To put this in comparison, the value of global GDP is $77.3 trillion. Whilst $630 trillion is a huge number, it does overstate the dangers lurking in the global derivatives market. The notional amount does not reflect the assets at risk in a derivatives contract trade. According to the BIS (Bank for International Settlements), the gross market value of the global OTC derivatives market is $20.9 trillion (close to a third of global GDP).

5.- Not enough is being done to prevent global warming

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And finally, the scariest chart of the lot. Global greenhouse gas emissions continue to increase, putting further pressure on the environment. The OECD estimate that greenhouse gas emissions will increase by more than 50% by 2050, driven by a 70% increase in carbon dioxide emissions from energy use. Energy demand is expected to rise by 80% by 2050. Should this forecast prove accurate, global temperatures are expected to increase by between 3-6 degrees Celsius. This is expected to alter precipitation patterns, melt glaciers, cause the sea-level to rise and intensify extreme weather events to unprecedented. It could cause dramatic natural changes that could have catastrophic or irreversible outcomes for the environment and society.

From an economic perspective, the main problem with attempting to reduce carbon emissions is that the developed world must find a way to subsidise developing nations to adopt (more expensive) renewable energy technologies. This could cost hundreds of billions of dollars. Developing countries argue that the developed world should bear the brunt of any emission cuts, as emissions per capita in richer nations are higher.

Fortunately, there are actions underway to attempt to limit the increase in greenhouse gas emissions. Eighty one global companies signed a White House-sponsored pledge to take more aggressive action on climate change. Later this year, France will be hosting “COP21/CMP11”, a United Nations conference aimed at achieving a new international agreement on the climate in order to keep global warming below 2 degrees Celsius. And for the innovators, there is a $20m carbon X prize on the table for anyone who can develop technologies that will convert carbon dioxide emissions from power plants and industrial facilities into valuable products, like building materials, alternative fuels and other everyday items.

Opinion column by Anthony Doyle, M&G and bondvigilantes.com

Generali Unveils Two New Funds

| By Alicia Miguel | 0 Comentarios

The Generali Group has recently launched two new funds within its UCITS-compliant Generali Investments SICAV (GIS). Generali Investments – the Group’s main asset management company with approximately €375 billion of assets under management- has been appointed investment manager of the new funds.  

The GIS Absolute Return Convertible Bonds fund is designed for investors seeking consistent risk-adjusted returns. The strategy combines opportunities in a broad convertible bond universe with hedging/arbitrage techniques to improve downside protection. The GIS SRI Ageing Population fund is designed to benefit from the long-term ageing demographic trend by investing in companies that are exposed to this growing market and applying a screening based on Socially Responsible Investments criteria as well as on the theme.  

Andrea Favaloro, Head of Sales & Marketing at Generali Investments, said: “As part of Generali Investments’ ambition to become a world-class investment brand and the preferred choice for our clients, we have initiated a robust plan to develop our business dedicated to third- party investors, basing on our strongest expertise areas. The two new funds demonstrate our commitment to executing this plan taking advantage of some of our most outstanding capabilities, including our credit research, macro research, SRI analysis and stock-picking.”  

The GIS Absolute Return Convertible Bonds fund invests in a global convertible bond universe, albeit with a bias towards Europe. Convertible bonds, as an asset class, combine various alpha drivers – equities, credit, implied volatility, rates, currencies and ratchet/prospectus clause. These components do not always move together depending on the market conditions and cycles. The fund has the ability to hedge the unwanted features and isolate and better exploit the desired ones. In addition, the strategy is implemented in a transparent, rigorous and risk- managed UCITS-compliant structure.  The dedicated convertible bonds investment team manages over €950 million across open ended funds and segregated mandates. The team is headed by Brice Perin, lead portfolio manager, with over 16 years of experience in asset management and convertible bonds. Prior to joining Generali Investments, Brice was responsible for volatility funds at Acropole AM. Between 2007 and 2011 he was in charge of convertible and volatility arbitrage funds at La Française AM. From 1999 to 2007, he was head of convertible and volatility arbitrage at DWS Investments. The investment team is backed by a 18-strong in-house credit research team and a 13-strong macro research team.

 The GIS SRI Ageing Population fund invests in European companies with a business model positioned to benefit from the demographic trend of the ageing of the world’s population. Due to lower birth rate and longer life expectancy, it is estimated that the world’s population over 60 will reach 1.7 billion people in 2040 from 700 million in 2010. Moreover, this age group is expected to own an increasingly larger share of total income, especially in developed countries.  This fund is unique as it combines a long-term demographic trend and investment theme, a fundamental equity valuation process and a fully SRI-compliant portfolio. After an initial Environmental, Social and Governance (ESG) screening of the investment universe (MSCI Europe), the fund manager selects companies exposed to the ageing theme based on three key investment pillars: healthcare, pension & savings and consumer goods. The fund manager then uses proprietary fundamental valuation models to select companies and create a portfolio of around 50 stocks.

The fund is 100% SRI compliant, leveraging Generali Investments’ SRI resources and process to invest in companies with strong ESG credentials. Generali Investments’ SRI team of eight analysts applies a proprietary screening model based on 34 ESG criteria. The SRI overlay brings additional scrutiny and value when analysing companies, their business models and their management’s strategic decisions. As a result, the GIS SRI Ageing Population fund caters to investors who look for long-term and sustainable returns.

The fund is managed by Mattia Scabeni, with 11 years of experience in the asset management industry. Mattia joined Generali Investments in 2009 as a portfolio manager. Previously, he worked for Swiss financial institutions both as a portfolio manager and equity analyst. Mattia holds an MBA from HEC Paris and an Executive Master in Financial Markets from SDA Bocconi.