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Imagine! Impact Investing Can Make a Positive Difference for Society and Shareholders Alike

As the song goes, “You may say I’m a dreamer, but I’m not the only one.” For those who invest in projects with the potential to make a positive difference in society – so-called “impact investing” – there is an opportunity both to change the world and to achieve positive returns on investment.

Impact investing has been expanding throughout the Latin American region, including in markets whose governments encourage such investments. In many Latin countries, investment capital for small- to mid-size businesses is limited and not easy to access, requiring owners to seek non-traditional sources of capital.

Here is where the opportunity lies. Identifying well managed but under-capitalized businesses, without the ability to fully realize their potential, can create positive change and can provide positive returns for investors who choose correctly.

One such opportunity comes in the form of renewable power projects that promise to transform Latin America’s energy markets in the coming decades. With dramatic declines in technology costs in this industry, investors can participate in explosive growth in a sustainable sector. In particular, both wind and solar power are poised to grow rapidly, given the region’s great, untapped natural resources.

The $425 million Penonome wind energy project in Panama, backed by InterEnergy and financed by the International Finance Corporation (IFC) and other lenders, is expected to begin to produce power in early 2015. In Panama, the price of power is extremely high, and blackouts and brownouts are endemic. The power market is currently driven by hydroelectric energy, but during the so-called “El Niño” dry seasons – such as the one we are currently in – this becomes problematic. The Penonome wind project, which is expected to be the largest in Central America, provides great opportunity: for the Panamanian people, by re-balancing sources of electricity and reducing power prices; and for InterEnergy and its investors, who expect to achieve above-average returns on their investment.

Wind power is increasing prevalent in the Latin America markets. From 2010 to 2012, Brazil, Chile and Mexico added 3.7 GW of wind projects, collectively. Solar power is heating up as well, and the ceiling for growth is high, considering that Latin America only constitutes just 2 percent of the global demand for solar power.

Another opportunity is in businesses that provide non-traditional forms of financing, targeting people at the base of the pyramid, the “brotherhood of man” in Latin America that traditional banks don’t serve. And the knowledge of how these businesses work comes not from developed countries but from other emerging markets, whose people have the same needs. Bayport Finance, which has microfinance businesses across Southern Africa, sees a great opportunity to serve the large unbanked population in Colombia, which has the fewest bank branches per person of any country in Latin America.

Development Financial Institutions play a key role in supporting businesses that provide non-traditional sources financing. For example, the Inter-American Development Bank (IDB) has a specialist division, Opportunities for the Majority (OMJ), is leading what will be a $50 million financing for Bayport in Colombia, designed to spur just this kind of impact investment. The OMJ’s goal is helping to “promote and finance market-based, sustainable business models that… develop and deliver quality products and services for the Base of the Pyramid in Latin America and the Caribbean. ”[1]

And time is on the side of the impact investor. Timelines are more forgiving, and, given the stature and clout of supporting institutions such as IFC and IDB, impact investments often have protections against competitive constraints on their success. Developers of renewable energy projects, protected by guaranteed revenue contracts, can offer very long tenured financing, in order to provide adequate returns to their investors. Impact investors working with these international organizations can afford to give businesses that make a positive difference the time to mature.

Impact investing can yield above-average returns, including (but not only) in the renewable energy and non-traditional finance sectors, and leading global investors are beginning to see the light. Each of these areas of investment can make the Latin American and Caribbean region a better place, while also providing a still untapped opportunity for impact investors.

Article by Ben Moody, President and CEO of Miami-based Pan American Finance, a specialized investment banking advisory firm providing world-class advisory services in Latin America, the Caribbean and the U.S. markets, including for renewable energy and financial services.

[1]IDB Opportunities for the Majority – Serving the Base of the Pyramid in Latin America – Inter-American Development Bank. (n.d.). Retrieved December 4, 2014, from http://www.iadb.org/en/topics/opportunities-for-the-majority/idb-opportunities-for-the-majority-serving-the-base-of-the-pyramid-in-latin-america,1377.html

Eaton Vance Appoints Portfolio Manager and Global High Yield Analyst

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Eaton Vance Management International (EVMI) announced the appointment of Jeffrey D. Mueller as Vice President, Portfolio Manager and Global High Yield Analyst.

Based in London, Mr. Mueller will be responsible for spearheading continued growth in Eaton Vance’s global corporate credit capabilities. He will lead investment management and credit research for all non-U.S. high yield opportunities.

Mr. Mueller will join Eaton Vance in March 2015 from Threadneedle Asset Management, where he has been a High Yield Portfolio Manager and Investment Analyst since 2009. He managed European high yield credit portfolios, with focused research coverage of the automobile, industrials and services sectors. Mr. Mueller previously spent six years working as a European sub-investment-grade Research Analyst and Trader for Centaurus Capital and Amaranth Advisors, both in London. Mr. Mueller graduated from University of Wisconsin School of Business with a bachelor of business administration degree.

“Jeff’s skills and experience will enable us to further develop the scope and scale of our London-based global corporate credit capabilities,” said Michael W. Weilheimer, CFA, Eaton Vance’s Director of high yield, based in Boston. “Our team’s research analysts have long maintained significant coverage of non-U.S. credits. Jeff’s addition to the team allows us to leverage existing investment capabilities while enhancing the depth of our research and the reach of our global presence. We plan to hire additional global credit analysts later this year who will report to Jeff.”

Eaton Vance Corp., is one of the oldest investment management firms in the United States, with a history dating back to 1924. Eaton Vance and its affiliates managed $296.0 billion (USD) in assets as of 31 December 2014, offering individuals and institutions a broad array of investment strategies and wealth management solutions. EVMI, based in London since 2001, is a subsidiary of Eaton Vance Management, and provides investment services to financial institutions, banks, and asset management firms globally.

Less than 30% of New Funds Ever Reach Optimal Asset Size of over €100m

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New research highlights the generally low success rate of fund groups in their product launches. Analysis by specialist research house, MackayWilliams, reveals that just 3% of funds launched between 2006 and 2011 reached more than €1bn of assets under management by 2014 (1) and less than 30% ever achieve assets of more than €100m.

“Most groups set the success bar for new products much higher, at around €500m, and with this target they have less than a one in 10 chance of hitting the mark” says Diana Mackay, CEO of MackayWilliams.

In the heavily regulated arena of asset management, the success of new funds has become a critical measure of a group’s asset building achievement. In the course of a year fund groups will launch 2,000 funds, on average, and yet the overwhelming majority will fail to gather meaningful assets. With a product choice of around 35,000 in Europe, why do investors need more?

“New funds are the revenue generators of the future and, like it or not, they are responsible for significant net sales inflow, regardless of whether they are launched by a group with captive clients or are reliant on third party distribution”, explains Diana Mackay. “Of the €2.5trn of asset growth that has occurred over the last five years, nearly half (€1.1trn) has come from  funds that were launched during the period. Innovation has always been the lifeblood of the fund management business but with regulatory pressures growing it is taking longer and getting harder to introduce new ideas. Nowadays, product developers and strategists must make every fund work for its space on distributors’ shelves and this means culling the dead wood as well as launching funds that really have appeal with changing investor appetite.”

Increasingly success will be linked to independent evaluation of feedback from fund selectors about where the product gaps exist. An extensive interview process conducted by Fund Buyer Focus provides the voice of clients, and represents a vital additional source of information for product developers. The latest product innovation report highlights rising interest amongst distributors for ESG products, some niche appetite for frontier funds and other thematics, as well as more ‘solutions’.

Montevideo Will Host FIAP’s Traditional International Seminar to be Held in September

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La FIAP celebrará en septiembre su tradicional Seminario Internacional, con Montevideo como sede — Radisson Victoria Plaza Hotel, Montevideo. Montevideo Will Host FIAP’s Traditional International Seminar to be Held in September

The International Federation of Pension Funds, FIAP, changes the traditional date for the celebration of its International Seminar to September. As reported by the organization, the venue for the 13^th FIAP International Seminar, to be held on the 24^th and 25^th of September 2015, is the Radisson Victoria Plaza Hotel in Montevideo, Uruguay.

As in previous occasions, the event will feature international experts who will discuss their experience and knowledge in different areas of interest, and participants from different global latitudes (FIAP members and others), including government officials, parliamentarians, officials from international organizations, representatives from pension fund management, mutual funds, and insurance companies, and other personalities related to the financial sector and social security.

The current pension system in Uruguay is a “mixed retirement system” where there are two subsystems, one called intergenerational solidarity and another based on individual savings. The covered employee makes contributions to both systems according to their income level. Contributions to the first are administered by the Social Security Bank, while the contributions to individual accounts make up the “Fondo de Ahorro Previsional” an independent Pension Savings Fund, which is the property of members and indefeasible, and which is under the administration of the Pension Savings Fund Administrators (AFAP).

For more information about the event, please contact FIAP through the following email: fiap@fiap.

Praxis and IFM Announce Merger Creating an Independent Giant in The Channel Islands

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Guernsey-based Praxis Group and Jersey-based IFM Group have announced plans to merge and create one of the largest independent and owner-managed financial services groups headquartered in the Channel Islands.

With combined revenues of over £23 million, assets under administration of more than $30bn, nine offices around the world and over 200 people, PraxisIFM will offer private and corporate clients an increased range of services and a global footprint. Subject to regulatory approval, the new group will be known as PraxisIFM to reflect the merger of two existing businesses of a similar size with strong performance, proud histories and solid reputations.

‘As long-standing, independently-owned and managed businesses, Praxis and IFM share similar values and culture. Both businesses strive to offer excellent client service, added value and continuity of teams. These will remain at the heart of the PraxisIFM Group,’ said Brian Morris, who will become the merged group’s executive chairman.

PraxisIFM will continue to focus on delivering outstanding private client services, fund administration, corporate and trade services including cross-border trade facilitation, asset finance, pensions and treasury operations. PraxisIFM’s offices will be located in Guernsey, Jersey, Switzerland, Malta, Luxembourg, South Africa, New Zealand, Mauritius and Dubai, with representation in the UK.

Wyvern Partners have assisted with the transaction.

Colombia’s ASOFONDOS Celebrates the Eight Edition of its Annual Congress

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ASOFONDOS celebra su Octavo Congreso en asociación con FIAP en Cartagena de Indias — Photo: Ted McGrath. Colombia's ASOFONDOS Celebrates the Eight Edition of its Annual Congress

The eighth version of the FIAP-ASOFONDOS Congress is to be held at the Hilton Hotel in Cartagena de Indias, Colombia, on the 16^th and 17^thof April 2015.

Last year’s event, attended by 489 participants from 16 countries, presentations by 14 international and 15 national speakers, allowed experts and attendees to debate on issues such as pension systems and their influence on the economic environment, the recovery of the world economy, with special reference to financial markets in Latin America, and successful international experiences in those sectors currently posing Colombia’s greatest challenges, such as education, infrastructure, and agriculture.

The FIAP ASOFONDOS Congress has established itself as an event of academic excellence in which knowledge on the most relevant topics for the region and the country is promoted through the opinions of a select group of international and national speakers, and the perspective of key government agents.

To register for this event or to obtain further information, please follow this link.

Irish Domiciled Mutual Funds Continue to be Repositioned in Chilean AFPs’ Portfolios

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Los fondos domiciliados en Irlanda continúan reposicionándose en las carteras de las AFPs chilenas — Photo: Giuseppe Milo. Irish Domiciled Mutual Funds Continue to be Repositioned in Chilean AFPs’ Portfolios

2014 ended with about US$52.5 billion invested in international funds (excluding ETFs) by the Chilean AFPs. The year was marked by the return of funds registered in Ireland to pension funds’ investment portfolios, since Chile’s Risk Classification Committee Risk (CCR), decided in September 2011 to remove all mutual funds domiciled in Ireland from its list of approved funds, due to Ireland’s perceived risk at that time in the context of the euro crisis.

This situation was reverted during 2014, normalizing steadily as the CCR gradually re-approved funds domiciled in Ireland. In total, at the end of December there were US$2.2 billion invested by Chilean pension funds in funds registered in Ireland. We continue to see new additions to this list monthly. In December, one of the three funds which premiered among Chilean AFPs was domiciled in Ireland; this was the Muzinich Short Duration High Yield Fund, which becomes part of the list of international funds in the hands of Chilean AFPs with US$40 million in assets. Nicolás Lasarte, head for Latin America at Capital Strategies, a company which is the exclusive distributor of Muzinich funds in Latin America, expressed his “great satisfaction” to Funds Society with this change which provides the opportunity to increase the availability of niche products for Chilean pension funds. “Although since 2011 we have been increasing Muzinich assets very steadily in the Chilean market, we could not be completely satisfied without access to pension funds and other institutions in the scope of influence of the CCR” added Lasarte. This is the first Muzinich fund which has obtained assets from Chilean pension fund management companies.

During the month of December, there have been only two other international funds, excluding ETFs, that have become part of this select group of funds. These are the Luxembourg domiciled Aberdeen Global Japanese Equity Fund, which has obtained assets of US$30 million from pension funds, and the Henderson UK Equity Income and Growth Fund, a fund domiciled in the UK which has obtained inflows of US$3.5 million.

For the time being, Luxembourg continues to be the quintessential home of international funds in which Chilean AFPs invest, with US$40.6 billion in assets at the end of December. Following is a list of the 10 international funds with most assets invested by the AFPs:

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Fitch Ratings: Large Private Equity Managers Flex Remediation Muscles

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Large private equity firms are increasingly flexing their scale, balance sheets, restructuring experience and connections with creditors and limited partners to tighten control and enhance return potential on investments, says Fitch Ratings. Recent examples include Apollo’s and TPG’s decision on Jan. 15 to voluntarily place the largest operating subsidiary of Caesars Entertainment Corp. into a Chapter 11 bankruptcy and KKR’s follow-on private placement investment in First Data Corporation last June.

While such activities can bring creditors’ competing interests to the forefront, they also underscore the fiduciary responsibility of alternative investment managers to maximize returns for their limited partners through all available means. To the extent that managers are able to translate these activities into enhanced returns (or minimized losses) it can serve to support future fundraising and the overall franchise, both of which are important rating considerations when assessing investment managers.

In the Caesars case, Apollo has deployed aggressive tactics in an effort to retain control despite minimal recovery prospects for the most junior creditors. Maneuvers have included the sale of assets to affiliates at attractive multiples, repaying junior intercompany debt at par and the release of parent company guarantees of the debt at the weakest subsidiary. Apollo’s reputation and long track record of achieving outsized returns on distressed-for-control situations has helped drive the managers’ efforts and built some consensus among creditors. However, others among Caesars’ creditors have aggressively pushed back, so further legal and court action is possible.

Fitch believes that the largest private equity firms have also become more willing to use their balance sheets as a strategic advantage. This was demonstrated with First Data last year, when KKR itself committed part of the funding for a follow-on $3.5 billion investment in the portfolio company it originally bought in a 2007 LBO. KKR made its investment through a combination of $500 million from its 2006 Fund, $700 million from its own balance sheet, and $2 billion in co-investments from third-party investors. Such maneuvers, while demonstrating flexibility, create the type of balance sheet concentration that can constrain a private equity firm’s rating, or, in a scenario where the investment becomes degraded, potentially pressure the rating.

The Caesars and First Data examples show that as large private equity firms have grown their balance sheets and connections with large limited partners that are increasingly interested in co-investment opportunities, there is greater access to investment capital to weather downturns and improve capital structure positioning for IPOs.

In both the Caesars and First Data examples, private equity’s long investment cycle is providing the time to work through challenges, wait out market declines and achieve the debt reductions necessary to improve the prospect of achieving targeted returns on invested capital.

Wunderlich Completes Acquisition of Dominick & Dominick Wealth Management

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Wunderlich Securities has completed its acquisition of the wealth management assets of Dominick & Dominick, a privately-held investment firm based in New York. Wunderlich, a leading full-service investment firm headquartered in Memphis, Tennessee, now has more than $10 billion in client assets under administration and 600 associates in 33 offices across 18 states. Approximately 150 Wunderlich associates are based in the New York area, the largest concentration in the firm’s footprint.

“We are pleased to have successfully completed our largest acquisition to date, both in terms of client assets and associates,” said Gary Wunderlich, Wunderlich CEO. “Through this combination, our firm has grown by approximately 20%, adding 43 financial advisors and more than $2 billion in client assets. Looking forward, we are excited about the opportunity to further expand our presence in New York, Miami and Atlanta.”

“After working together to prepare for this acquisition, we are even more confident that our similar cultures and shared focus on client relationships will ensure a smooth transition for Dominick & Dominick clients,” added Wunderlich. “Dominick & Dominick financial advisors are now able to offer their clients additional resources and expertise available through Wunderlich.”

Dominick & Dominick (D &D) will operate as a division of Wunderlich Wealth Management, the firm’s private client group. Robert X. Reilly, who was chief operating officer of D &D, joins Wunderlich as a Senior Managing Director. Reilly will serve as regional manager over D &D offices in New York, Atlanta and Miami, as well as two existing Wunderlich Wealth Management offices in the New York area.

Kevin McKay, previously D &D CEO, has been named General Counsel of Wunderlich Securities. Michael J. Campbell, former D &D chairman, will join the Wunderlich Securities board of directors. Both will continue to be located in the D &D New York office at 150 East 52nd Street.

Terms of the transaction were not disclosed. Keefe, Bruyette & Woods, Inc. served as Wunderlich’s exclusive financial advisor in the transaction. Baker Donelson served as counsel.

The 9th ALFI Real Estate Investment Fund Survey: Growth Continues for Luxembourg Domiciled REIFs

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The Association of the Luxembourg Fund Industry (ALFI) has released the 2014 version of its annual real estate investment fund (REIF) survey, showing the development of the Luxembourg-domiciled REIF market as at the end of 2013.

According to the survey, 2013 was a good year for Luxembourg domiciled REIFs. 15 new Direct REIFs were launched, slightly down compared with 25 launches in 2012. Early signs for 2014 are very positive, with an additional 15 Direct REIFs launched in the first six months, bringing the total of Direct REIFs surveyed to 237, with an additional 40 Funds of Real Estate Funds completing the total survey population of 277 funds.

Marc Saluzzi, Chairman of ALFI, observes: “The sector has grown 276% since 2006, a compound annual growth rate of 21%. The continued growth in the number of REIFs in Luxembourg demonstrates that Luxembourg remains a favoured location to establish and maintain multi-national and multi-sectoral regulated real estate investment funds which continue to appeal to institutional investors and fund managers around the world.”

He continued: “The introduction of the AIFMD has impacted REIFs and the slight slowdown followed by an acceleration were expected. We believe Luxembourg continues to appeal to the global REIF industry as a domicile, as it combines investor protection with well-established industry practices at a reasonable cost.”

Key findings of the survey include:

Almost all of the new REIF launches were initiated by initiators in Europe with Benelux, German, and Swiss initiators again being the most active;
The most common target sector is still‘multi-sector’, with, 57% of the surveyed REIFs investing in a variety of sectors, with a preference for ‘office’ at 27% and for ‘residential’ at 21% in 2013. 30% of early 2014 launches, meanwhile, were in the more traditionally preferred ‘retail’ sector.
A single country investment focus still represents only 41% of the geographic investment strategies. This is a rise compared with 27% and 35% in the 2012 and 2013 ALFI REIF Surveys and supports a move toward simplification, but nevertheless underlines the suitability of Luxembourg investment vehicles for multi-national investments. The vast majority of the Direct REIFs surveyed invest in Europe, whereas eight funds invest in the Americas only and eleven in the Asia/Pacific region;
Although umbrella fund structures remain popular due to practical and cost considerations, the trend over the last few years has been towards a simplification of structures and strategies; as indicated by 64% of the funds surveyed having a single compartment structure.
In total 70% of Direct REIFs are closed-ended, reflecting the inherent illiquidity of real estate as an asset class and the difficulties of achieving investor liquidity on demand;
Similar to the findings of the previous two ALFI REIF surveys, average fund sizes continue to decrease, with the most common net asset value range between EUR 100 and 200 million and with the most common gross asset value range between EUR 400 and 800 million. Funds are becoming smaller, which reflects the more cautious capital raising forecasts of 2014 and preceding years.While target gearing is down in most of the ranges, the results are mixed, indicating some optimism in relation to the ability to borrow.
Investors are predominantly European, but a significant number also come from the Americas, Asia and the Middle East. Direct REIFs are widely distributed (but with a focus on specific geographical areas), with only 27% limited to a single country, and 24% being sold in more than six countries. The growing trend toward wider distribution confirms the global appeal of the Luxembourg real estate investment vehicles, especially those set up under the Specialised Investment Fund (SIF) regime, which has accounted for all new launches over the last 30 months;
Luxembourg domiciled Direct REIFs and funds of REIFs are mainly used for small groups of institutional investors, with 84% having less than 25 investors. Only 2% reported having more than 100 investors.

Luxemburg Real Estate Investment Fund (REIF) Survey can be downloaded here.