Photo: Dave Dougdale. Misaligned Incentives and Information Asymmetry, Potential Conflicts in the Principal-Agent Relationship
The CFA Institute Research Foundation has published a white paper authored by Sunit N. Shah, Strategist at Pine River Capital Management addressing the principal–agent relationships, and the associated potential problems, in finance.
“The relationship between a principal and the agent who acts on the principal’s behalf contains the potential for conflicts of interest. The principal–agent problem arises when this relationship involves both misaligned incentives and information asymmetry. In asset management, factors contributing to the principal–agent problem include managers’ compensation structures and investors’ tendency to focus on short-term performance. In the banking industry, myriad principal–agent relationships and complex instruments provide a fertile breeding ground for incentive conflicts, many of which were highlighted by the recent financial crisis.”
Mumbai Stock Exchange; Foto de BSEINDIA. La caída de los mercados emergentes, a examen
The emerging market sell-off last year has understandably attracted a lot of attention. It was different to the sell-offs seen in 2011 and 2008, as bond returns had more of an impact.
Investec AM believes that the core positives for emerging markets i.e. higher growth potential, better demographics, lower debt-to-GDP and higher productivity potential are still in place. However, some things have worsened. The market has been concerned about the current account deterioration in some emerging markets and the varying speed at which policy makers are taking action. According to Investec the right action has been taken to address the imbalances and hopefully stop the hemorrhaging of capital.
Investec believes that the world has globalized and emerging market data will most likely follow developed market data albeit with a lag, and hence emerging market capital flows should more than fund any current account deficits. Additionally, they expect strong reform momentum in coming years and for emerging markets to outperform developed markets over the longer term.
To read Werner Gey van Pittius’s (Co-Head of, Fixed Income Emerging Markets at Investec AM) viewpoint in full click here.
In summary, the main conclusions of the report regarding emerging markets are:
Broadly we have seen a re-pricing from expensive to cheap levels in currencies and local bond markets. In most countries the levels we have reached are not causing major concern to policy-makers and have been getting buy-in from the markets.
Inflation is not a worry for most countries due to below trend growth, moderating commodities and decent margins.
External debt is modest, especially for governments and banks. Some corporates have risk, although many have dollar revenue streams which hedge those out. Turkey stands out on this but officials are aware and taking action.
In some countries tightening of monetary conditions is healthy to reduce reliance on credit growth and improve savings rates; particularly in Indonesia, Brazil, Turkey, and India.
Combined with fiscal consolidation, growth drivers will be more sparse, with reliance on net exports increasing, as well as structural reforms.
Finally, we are already seeing trade balance improvements as exports benefit from currency weakness and imports moderate.
Hence, Investec AM thinks current levels of yield at 7% for local currency EMD are attractive from a nominal perspective given the global low yield environment they envisage for a foreseeable time. Also with inflation at 4% emerging markets are generating attractive real yields of 3%, compared to negative real rates in the developed world.
Chinese policy makers expected to take appropriate action to ensure a soft landing whilst a restructuring takes place across the Chinese economy. Investec expects growth to remain about 7%
Andorra. Foto: StephenDownes, Flickr, Creative Commons.. Crèdit Andorrà abre una gestora de fondos en Luxemburgo, en donde está presente desde 2004
The Crèdit Andorrà Financial Group has made further progress in its internationalization process with the creation of Crèdit Andorrà Asset Management Luxembourg, SA. The launch of the investment fund management company increases the Group’s competences in Luxembourg, one of the main international financial centres, where the Group has two SICAVs, created in 2004 and 2008 and where it has also been operating through Banque de Patrimoines Privés since 2011.
The new company will provide portfolio management and central administration services and will act as a distribution, domiciliary, paying and register agent of investment vehicles. Crèdit Andorrà Asset Management Luxembourg, SA will also manage the Crediinvest SICAV business, which has 12 sub mutual funds.
Luxembourg is a key location for the Group’s European wealth management project. The wide range of international investments and the multibooking platform constitutes a value added proposal for the customer. Crèdit Andorrà Asset Management Luxembourg, SA is part of the internationalisation strategy of the Group, which is present in 10 countries: Andorra, Spain, Luxembourg, Switzerland, the United States, Mexico, Panama, Paraguay, Peru and Uruguay.
The Managing Director of Crèdit Andorrà, Xavier Cornella, stated that the new management company will further consolidate the Group’s European private banking project taking into account the importance of Luxembourg as a financial centre, and added that “Luxembourg is a top level platform for structuring and distributing investment products and offers more than 45% of all the investment funds of the European Union. Being aware of this, Crèdit Andorrà has been present there since 2004 with two SICAVs and in 2011 we acquired Banque de Patrimoines Privés. The Group is now complementing its presence by launching a new management company that offers a broader range of investment services to the Group’s customers.”
Wikimedia CommonsUna votante en las elecciones generales de India de 2014 - Foto de Press Bureau of India. Elecciones en Asia - Depositando esperanzas en "el elegido"
On a recent trip to Jakarta, I detected a palpable sense of excitement and support for the city’s current governor, Joko Widodo, who is vying for president in the upcoming election—and who has already proven to be a capable leader in many respects. A few days later, in India, I felt a similar vibe among Indian voters who were gearing up for their own impending national elections. Many in the business community seem to have their hopes pinned on Narendra Modi, the current Chief Minister of Gujarat, to become India’s next Prime Minister. What surprised me in both countries was the general public view that economic prospects hinge entirely on their respective victories.
I see these high expectations, particularly among the business community, as a sign of hunger for good leadership and better governance. The crux of the issue, as I see it, is that both candidates symbolize an end to the lackluster policymaking and slow implementation of important reforms of the past few years—such as land acquisition in the case of India. But, unfortunately, much less attention is being paid to the underlying fundamentals in these economies.
While the renewed hopes for fresh change in each election are understandable, excessive anticipation risks overstating the importance of such an event. It can also understate the process through which economic policies and reforms are initiated and implemented.
In Indonesia, the current administration has made some tough decisions on fuel subsidies, and the Bank of Indonesia seems resolute in striking the right balance between growth and inflation. In recent conversations with ministry officials, we detected a quiet sense of confidence despite the recent challenges that have faced the Indonesian economy. They reminded us that many senior officials and technocrats have lived through much worse during the Asian Financial Crisis of 1997—98, and are now battle-ready should issues arise.
In India’s case, its outgoing government has been trying to clear a logjam in approvals of investment projects. The newly created Cabinet Committee on Investment has been active in facilitating approvals for a variety of projects in the energy and infrastructure sectors. Furthermore, the political dialogue in the run-up to the current elections has been focused on issues like governance and economic development instead of social identity and welfare systems. The incoming government will find it hard to ignore the pressing need for stimulating growth through a more coherent and consistent set of economic policies.
So, this is all to say that, as voters queue up at the polls, I would caution against expectations of a quick fix or a fixation over the short term. As in much of the rest of Asia, India and Indonesia are attempting to tackle their issues and this makes us optimistic for the future. We look forward to an environment of better governance that is critical for both social and economic progress.
Opinion column by Sharat Shroff, CFA. Portfolio Manager at Matthews Asia
The views and information discussed represent opinion and an assessment of market conditions at a specific point in time that are subject to change. It should not be relied upon as a recommendation to buy and sell particular securities or markets in general. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Matthews International Capital Management, LLC does not accept any liability for losses either direct or consequential caused by the use of this information. Investing in international and emerging markets may involve additional risks, such as social and political instability, market illiquidity, exchange-rate fluctuations, a high level of volatility and limited regulation. In addition, single-country funds may be subject to a higher degree of market risk than diversified funds because of concentration in a specific geographic location. Investing in small- and mid-size companies is more risky than investing in large companies, as they may be more volatile and less liquid than large companies. This document has not been reviewed or approved by any regulatory body.
ING Investment Management International (ING IM) has announced two senior appointments to its High Dividend strategies. Moudy El Khodr has been appointed Senior Portfolio Manager for the US High Dividend strategy and Kris Hermie, Senior Portfolio Manager for the Global High Dividend strategy.
Moudy and Kris, both of whom previously worked as part of ING IM’s Equity Value boutique, join a Brussels-based team of eight investors with an average of 19 years of experience. They will report to Nicolas Simar, Head of the Equity Value boutique.
Nicolas Simar, Head of the Equity Value boutique: “We’re very pleased to welcome these talented investors back to ING IM. Both Moudy and Kris have excellent track records and these appointments give us the opportunity to further strengthen this quality team.”
Moudy, who started in mid-April, has 16 years of experience in the industry, including 10 years at ING IM where he assisted in the development of the company’s High Dividend strategies. He re-joins ING IM after two and a half years with Petercam, where he managed the North America Equity Dividend strategy and co-managed the Global Equity Dividend strategy.
Previously at ING IM, Moudy was lead Portfolio Manager on ING (L) Invest Global High Dividend from 2006 till 2011 and on ING (L) Invest US High Dividend from 2006 to 2009.
Kris has 16 years of investment experience, four of these with ING IM as manager of the Global High Dividend strategy. He re-joins from Petercam, where for the past three years he was responsible for the Europe Equity Dividend strategy and co-managed the Global Equity Dividend strategy. Kris joins on 1 May.
Silk Invest has just reached a new major milestone: The launch of Emerging Africa Bond Fund in collaboration with Bramer Asset Management in Mauritius.This is an exiting new chapter in its story because the firm has increasingly been working with Africa-based institutional investors as they continue to expand their investment activities across the African continent.
As a result of this effort comes a strategic partnership with Bramer Asset Management which provides Silk Invest with a deeper reach into the Mauritius and East African investor markets while Bramer taps into Silk Invest’s specialist capabilities of managing local currency fixed income.
Both firms believe that 2014 will be the year of Africa’s bond markets and expect to see significant flows into this maturing asset class. “Investors are now also considering African fixed income investments to diversify their equity portfolios. The Emerging Africa Bond Fund has also been domiciled in Mauritius, which is globally known for its financial hub. This product has been designed to meet the requirements of both retail and institutional clients and we remain confident of the African potential which this new initiative brings”, says Jaya Allock, President & CEO of Bramer Asset Management.
The Fund will be domiciled in Mauritius and will be targeting mainly African and international institutional investors. “African institutional investors have seen a remarkable growth in assets but, until now, due to lack of compelling bond offerings, have invested most of their assets within their regions”, comments Malick Badjie, Head of Investment Solutions, Silk Invest. “Africa markets have seen tremendous interest recently from investors worldwide because of their increased share of the global economy and capital markets, along with their growth potential”, adds Muhammad Rawat, CIO of Bramer Asset Management. “African capital markets have significantly matured over the last few years with high positive real yields, solvent balance sheets and improving governance and institutional frameworks all providing an attractive investor entry point”, says Chandi Jethu, Managing Partner Silk Invest.
The fund will employ an active, benchmark-agnostic investment style, based on fundamental, country-by-country macroeconomic research that incorporates quantitative analysis, macro-analytic models, local market insight and rigorous risk management to achieve the target.
Bramer Asset Management Ltd is a leading financial Services provider in East Africa. The firm is headquartered in Mauritius and has presence in Kenya, Mozambique, Madagascar, Botswana and Malta. It is part of the British American Investment group, one of the fastest growing conglomerates in the Indian Ocean region. Bramer is also a major shareholder of Equity Bank, one of Africa’s most innovative financial institutions.
Cantor Fitzgerald Wealth Partners, LLC, an affiliate of Cantor Fitzgerald & Co. serving the private wealth management market, has named industry veteran Bob Serhus as its Chief Investment Officer.
Mr. Serhus will focus on delivering Cantor Fitzgerald’s world-class investment offering to Cantor Fitzgerald Wealth Partners’ private clients, and be responsible for monitoring investment portfolios, directing investment policies and leading a team responsible for market research, manager selection and portfolio management strategies.
“Cantor Fitzgerald Wealth Partners is committed to quickly expanding its presence in the wealth management marketplace, and to achieve that, we are bringing in the most experienced, talented and respected individuals and teams. Bob exemplifies all of these qualities, and we expect that he will help accelerate our growth, expand our investment management capabilities and strengthen our existing client relationships,” said Stan Gregor, CEO of Cantor Fitzgerald Wealth Partners. “Our goal is to deliver a top-tier experience to clients by providing a highly tailored offering of services, to help advisors and their clients reach their unique financial objectives.”
Most recently, Mr. Serhus served as founder and Chief Investment Officer of Serhus Capital Management, where he provided customized client solutions through comprehensive and in-depth analysis, risk management and thorough due diligence. Before that, he served as Director of Research and Head Portfolio Manager at Attalus Capital, and Chief Investment Officer of Alternatives at Julius Baer. In addition, he also held senior positions at Alpha Investment Management and at J.P. Morgan, where he began his investment career in risk management. Mr. Serhus holds a Master of Business Administration in Finance from the University of Florida’s Warrington College of Business.
“Cantor Fitzgerald is well-known for its client-centric culture and track record of service, which provides advisors with a launching pad for further growth. We’re committed to delivering institutional-level investment management to clients and I am excited to be a part of a team that shares a common investment approach and goal of providing exceptional service,” said Mr. Serhus.
Cantor Fitzgerald Wealth Partners, an affiliate of Cantor Fitzgerald & Co., serves the private wealth market. In addition to its partnership structure, Cantor Fitzgerald Wealth Partners provides its advisors with an expansive suite of products and services, as well as access to Cantor Fitzgerald’s services reserved for Cantor’s large institutional clients.
AllianceBernstein L.P. announced that Christopher Thompson has joined the firm as Senior Managing Director-Head of US Retail Client Group. Thompson will lead all aspects of AllianceBernstein’s US retail business, reporting to Robert Keith, Global Head of the firm’s Client Group.
Thompson will play an integral role in leveraging robust product development in executing the firm’s long-term strategy to reposition and grow a retail franchise that is flexible, innovative and responsive to the evolving needs of its clientele.
“Chris’ expertise and leadership will be invaluable as we continue to innovate with our offerings and expand our retail footprint,” Keith said. “We’re seeing strong retail momentum, and we remain highly focused on providing a more comprehensive product array that helps investors navigate today’s more volatile capital markets and achieve better investment outcomes.”
Thompson has more than 20 years of experience in leading distribution efforts for highly competitive investment-management firms. He joins AllianceBernstein from Columbia Management, where he was most recently Head of Intermediary Distribution, Product and Marketing, and was responsible for the firm’s retail business. Prior to that, Thompson was at Putnam Investments for 13 years in various senior roles, including Managing Director, Head of Investment Product Management and Managing Director, Director of Defined Contribution Business. Thompson holds a bachelor’s degree from Dartmouth College and a Master’s of Business Administration from New York University.
Wikimedia Commons. Encontrar el próximo Google es cuestión de talento, no de situación
“Great companies that turn an industry upside down can come from anywhere, and the next Microsoft or Google is just waiting to be found. To find them, you need to be more aware of talent than of location”, says entrepreneur Niklas Zennström.
Zennström now runs investment firm Atomico trying to find and develop the high-tech winners of tomorrow. He was speaking to a knowledge-sharing session with the RobecoSAMPrivate Equity team, which was one of the first institutions to invest in Atomico.
And Zennström certainly knows a thing or two about nurturing young companies into a global giant worth billions. He is best known for co-founding Skype, which he and business partner Janus Friis sold to eBay in 2005 for USD 2.5 billion, reacquired it in 2009, and sold it to Microsoft for USD 8.5 billion in 2011. The two men had previous co-founded the file-sharing internet service Kazaa which became the most downloaded software in 2003.
Zennström, a 48-year-old Swede, is now trying to find the next Skype, searching for young tech companies that have strong business models but need venture capital and/or expertise to expand. The companies must be internet orientated and have a proven business model.
But his most important rule is that the companies should generally be based outside Silicon Valley, challenging the hegemony of the US high-tech epicenter that has produced companies such as Google and Facebook. He specializes in developing companies with ‘disruptive’ products – those which are capable of challenging, and beating, leaders in established industries.
Big disruption from small places
“Great companies can come from everywhere – it is one of the biggest investment opportunities in the world today,” says Zennström, who retains his entrepreneurial zeal despite never having to work again. “This is the core reason why we started Atomico. We have a clear purpose and focus to enable high-growth companies from outside Silicon Valley to develop disruptive products.”
Skype was the ultimate disruptive product. Developed from small offices in small countries – Estonia, Sweden and the Netherlands – it took on the entire international telecoms market by offering the ability to make free phone calls over the internet. Skype now accounts for 40% of the international calls market.
“We look for growth companies, based outside Silicon Valley, for a global market. That’s how Skype started, and it can happen again,” he says.
“When we were building Skype 10 years ago, it was quite unusual for a couple of Swedes, a Dane and an Estonian guy to try to disrupt the global telecommunications industry. Very few people believed in us – we were seen as crazy.” He was rejected by 25 investors, including a prominent firm which demanded that the fledgling firm move to Silicon Valley, which he declined to do.
“All this negative feedback didn’t stop us from trying to build a successful international business – which we did,” he says. “It was a big competitive advantage for us coming from a small country like Sweden, where the home market is too small. It forced us to think of the global market.”
Finding global talent is the challenge
Since Skype was founded, 30 technology companies which now have market values above USD 1 billion have been created within Silicon Valley and another 10 in China, but 40 were created elsewhere.
“This tells us you don’t have to be there to create a great company,” he says. “It’s actually more likely that the next USD 1 billion company will come from outside it. The challenge is to find them.”
“Geography is becoming less and less relevant, and the reason for this is fundamentally about talent,” he says. “Talent is everywhere – just like in sports and music, entrepreneurs are all over the world. But to enable them to blossom and build great businesses, they need ecosystems around them.”
“Historically there have been significant barriers to creating large technology companies. You needed to have access to computing power, bandwidth hubs, and information, along with capital of course. This has changed completely over the past decade.”
“Thanks to the internet, entrepreneurs from all over the world have access to the same type of information, whether they are in Rotterdam or São Paolo. It’s a level playing field now you have open-source software, and thanks to cloud computing, you no longer need access to data centers.”
Access to capital is still a barrier
However, access to capital is still a significant barrier to growth for new companies, he says. The acquisition of ‘non-native’ skills is also important as most tech companies tend to be started by engineers who lack wider business acumen. There are often also differences in national markets, cultural issues and problems with making the right contacts in larger markets where a small company would not know where to start.
“For us, this creates a huge opportunity, as we found with our own journey with Skype, where we had to build partnerships and develop knowledge to get into foreign markets such as Japan,” he says. “This is now something we bring as an asset manager to the companies that we invest in. We don’t just provide capital: we provide real, practical help to enable these companies to reach their full potential.”
Finding the right exit strategy for a company – a mainstay of any private equity firm’s business – is also important. Atomico was able to introduce one of its investees, the Finnish games maker Supercell to Gung-ho in China to crack the Chinese gaming market. It led to the Japanese investor Softbank buying a 50% stake in Supercell, valuing it at USD 3 billion and making instant multi-millionaires of the founders.
In another example, investee company Climate Corporation, which sells weather insurance to farmers, was sold for USD 1.1 billion to Monsanto, an agricultural giant not previously known for buying technology companies.
“Neither side could have predicted that something like this would happen when the business was started,” he says. “It proves that a great company can come from anywhere and also that a great exit can come from anywhere.”
“It’s hard to predict where the next ‘big thing’ will come from. But what’s really interesting is the coming together of offline and online. In the future it will no longer be relevant, because consumers will buy products and decide whether it is cheaper to buy the same thing offline or online. It will be the same showroom but in different environments.”
Ignacio Sosa, previously Executive Vice President for Global Bond Product Management at PIMCO, will join DoubleLine Capital LP next month as Director of the firm’s newly formed Product Solutions Group.
Mr. Sosa will lead the Product Solutions Group in three key areas. The group will contribute to the development of new investment products, engage in discussions with clients and their advisors on existing DoubleLine offerings, and assist in building new business, particularly outside the United States.
“I’m delighted to welcome Ignacio Sosa aboard,” DoubleLine CEO Jeffrey Gundlach said. “Throughout his career, Ignacio has conceived new asset-management businesses as well as specific products, and managed them to success. His talents, I’m sure, will strengthen DoubleLine’s efforts to build our business and extend new, innovative product offerings to our valued clients and their advisors.”
Mr. Sosa, who will join DoubleLine on May 12, will report to Mr. Gundlach. His group will collaborate closely with the firm’s investment, operations, marketing and investor-relations teams. DoubleLine is based in downtown Los Angeles.
“Start-ups of equity boutiques happen all the time, but for decades, fixed income assets have remained largely concentrated among a few investment firms because launches of new bond managers are rare events,” Mr. Sosa said. “DoubleLine has proven the happy exception since its founding a little more than four years ago. Jeffrey and his team have built a growing, nimble, client-focused company, with diversified strategies in fixed income and equities. Their track record of risk-adjusted returns speaks for itself. So joining DoubleLine at this early stage in its development is especially compelling.”
Mr. Sosa has more than 30 years of experience in asset management. From October 2011 to April 16, 2014, he worked at Newport Beach-headquartered PIMCO. He joined PIMCO as Executive Vice President/Lead Emerging Markets Product Manager, later becoming the firm’s Executive Vice President for Global Bond Product Management.
Before PIMCO, Mr. Sosa served as a Managing Director at Voras Capital Management LP, joining the New York-based firm shortly after its founding by Zoe Cruz, former co-president of Morgan Stanley and Company. At Voras, he managed 25%-30% of the firm’s global macro fund, focusing on global fixed income, equities and precious metals.
In March 1999, Mr. Sosa co-founded and co-managed OneWorld Investments, LP and its successor firm Globalis Investments, LLC, both investment advisors focused on long/short macro investing in emerging markets and G-7 sovereign bonds and equities. Macquairie Group of Australia acquired Globalis in September 2008. Mr. Sosa subsequently joined Voras in the fourth quarter of 2009 after expiration of a one-year non-compete clause in his buyout agreement.
Before OneWorld Investments, Mr. Sosa served at BankBoston Corporation where he founded and managed a 45-person emerging markets investment banking operation with offices in Boston, London and Singapore. Previously, he was a Managing Director and co-founder of the emerging markets debt and derivatives trading team at Bankers Trust in New York and Tokyo. He began his career as an Assistant Vice President at Bank Boston, working in Boston and Buenos Aires.
