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67% of US Executives Plan Higher-Risk Organic Growth

Low growth and competitive disruption have prompted companies to pursue higher-risk approaches to growth than in the past, according to the tenth edition of the EY Global Capital Confidence Barometer. Although only 29% of companies are planning to pursue an acquisition in the next twelve months, down from 41% six months ago, executives’ broader confidence in the US economy and their strong deal pipelines suggest they are setting the stage for inorganic growth.

Findings from the study indicate an improving level of economic confidence. Two-thirds (66%) of executives believe the US economy is improving, up from 48% six months ago. Moreover, 29% of companies expect their deal pipelines to increase in the next 12 months, and 53% expect US deal volumes to improve. Most notably, 70% of executives cite increased confidence in corporate earnings, up from 38% six months ago and the highest level in five years.

“Companies have weathered a prolonged period of uncertainty and their primary focus was on deleveraging, and cutting costs,” said Richard Jeanneret, EY Americas Vice Chair, Transaction Advisory Services. “However, we are now finding that more companies are shifting their focus to raising capital and optimizing performance to prepare for future growth.”

Forty-nine percent of companies are now focused on optimizing capital, suggesting that executives are cleaning house and getting ready to grow in a low-growth environment. “Companies are ‘kicking the tires’ on potential acquisitions, and they have concluded that the inorganic growth they require will demand more preparatory work,” said Jeanneret. “While debt-to-capital ratios have remained stable over the last year, 31% of companies’ debt-to-capital ratios are expected to increase as companies take advantage of favorable debt markets to optimize their balance sheets for the future. With stabilized capital structures, companies are preparing for the next wave of investment.”

US companies have long indicated in the Barometer that credit is broadly available to them, and global credit is currently at an all-time high, but executives now report a growing willingness to add leverage to their balance sheets, which could imply growth in deal activity over the medium to long term.

Shareholder Activism Shaping Boardroom Agenda

In the US, shareholder activism has become nearly ubiquitous. This trend and pressure to reduce costs and put companies’ stockpiles of cash to work could trigger the next wave of M&A. “Companies are facing pressure to grow and create value – and true valuation models are returning. To be strategic, there needs to be more capital deployment and activists are watching this,” said Jeanneret. “Even companies that have not yet been subject to shareholder activism are preparing now for any future activity.”

In the survey, 96% of executives say issues have been elevated due to shareholder activism. Fifty- one percent of US boardrooms elevated cost reduction, 31% share buybacks, and 26% dividend payments. In addition, some executives have elevated more transformational tactics for consideration including 21% who selected divestments, 11% selected acquisitions and 10% selected spinoffs or IPOs.

Growing in a Slow Growth Environment

Companies and boards are pursuing parallel priorities, working to find the right balance between growth strategies and cost reduction. In striking this balance, US executives also report closer scrutiny on cost structures and operational efficiency is now the norm. The result of this is a model that could help drive M&A activity and cost synergies as companies seek out new growth opportunities.

“Divestments may be on the upswing as there is a particular interest from companies in shaking up product and service offerings, focusing less on core offerings and more on updating the product mix or finding the gaps in offerings,” said Jeanneret. “This focus on higher-risk organic growth strategies may indicate increased interest in inorganic growth as internal opportunities are fully exploited.”

Twenty-eight percent of executives also cite that looking ahead over the next 6 to 12 months; emerging markets continue to present some of the greatest risks to their business as they contract due to both political instability and slowing growth. However, plans to grow in emerging markets are not thwarted, as the survey shows 75% of US investment capital over the next year is expected to go to BRIC and non-BRIC emerging markets with the greater proportion of that total earmarked for India, China and Brazil.

The Future of Work

In the US specifically, there are several trends that are converging to shape business and acquisition strategies. When asked which trend could have the greatest impact over the next year, executives cited a trend they are calling “the future of work.” Sixty-four percent said that lack of skill, competition for talent, and changing employer–employee obligations will greatly affect business strategies. This trend is largely brought on by digital transformation – for example big data and cloud technologies — as well as global rebalancing due to the growing middle class.

In C-suites across the US, memories are long and dealmakers have been wary to pursue deals until they see evidence of a full-blown economic recovery. Executives are setting the stage for growth, driven by the uptick in economic confidence, the tapering of equity markets preparing interest rates to rise and bring valuations in, a moderating stock market, and relative stability in Washington DC.

“If we examine each of the three elements necessary for an active M&A environment – credit, cash and confidence – credit and cash have been prevalent for a while now, but it’s the confidence we’ve been lacking. There is no one single factor underpinning deal flow. Rather, dealmaking will be determined by the convergence of valuation gaps contracting, improved fundamentals, and economic confidence that will intensify the drive towards M&A. In our new post-crisis environment, a comeback in the deal markets may be protracted. But whenever it arrives, US corporates will be ready for it,” concluded Jeanneret.

UBS Private Banking Dismantles its Operations in Bahamas

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UBS desmantela sus operaciones de banca privada en Bahamas — Photo: Jerrye and Roy Klotz MD . UBS Private Banking Dismantles its Operations in Bahamas

As confirmed to Funds Society by UBS Private Banking sources, the bank plans to gradually close its private banking operations in the Bahamas, where it employs about 70 people, between now and the end of 2014. Part of this workforce has already been relocated to other positions within the bank.

According to the Bahamian press, which was the first to break the news last March, UBS will reduce its private banking activity in the Bahamas but will continue to focus on its Trust Department, which it plans to strengthen.

The decision to reduce its presence in Nassau, where it provided trust and wealth management services, comes after undertaking a thorough evaluation of the bank’s international destinations. “Based on economic feasibility considerations, the UBS group has decided to dismantle its subsidiary in the Bahamas, UBS (Bahamas) Limited,” the bank declared in a statement to The Bahama Journal.

The bank wished to clarify that “the decision will not affect UBS Trustees (Bahamas). The shutdown process shall be completed in late 2014 and will proceed in close collaboration with the Ministry of Financial Services of The Bahamas.”

It also confirms that UBS shall offer its clients the ability to transfer their assets to other UBS booking centers or to a service provider of the client’s choice.

“A scheme to assist affected employees has been set in motion, and a considerable number of them will be offered other positions and jobs within the UBS group,” UBS confirmed.

Asia’s E-Commerce Trends

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Tendencias del “E-Commerce” en Asia — Wikimedia CommonsPhoto: PD Photo.org. Asia's E-Commerce Trends

On a recent research trip, I went to Beijing, Hong Kong, Tokyo and Melbourne and spoke with Internet companies in industries as diverse as automotives, travel and real estate. I also met with several e-commerce companies with varying Internet penetration rates. As growth rates for new Internet users across parts of Asia level off, comparing these firms offered me an interesting glimpse into the potential opportunities and challenges facing the region’s newer Internet firms.

Most of Asia’s Internet companies still rely primarily on advertising revenue to make money. Frequently, such firms can also tap into subscription services whose pricing structure is usually a simple fixed payment regimen. Given the relatively low penetration rate of online channels in most everyday businesses, this is not a surprise. In this growing market, companies compete for online customers by expanding their sales forces to promote their brands. The productivity gain that their customers get from conducting their businesses online creates sufficient return on investment (ROI) to justify investment in IT capital like software and hardware. This trend has benefited Internet businesses in their early development.

But nowadays, we are seeing younger Internet companies modeling their businesses on performance-based methods, producing revenue only when a sale or a lead is generated. We are also seeing the use of new technologies that set them apart from conventional Internet players and could potentially become a disruptive force in the market as the technologies lower the cost of using Internet services and cater to smaller merchants, which may not be the core market segment for existing Internet firms.

In more developed markets, such as Japan and Australia, the focus of monetization has shifted from growing the volume of Internet users to increasing average pricing per user. This shift brings challenges to many incumbents’ business models. To achieve growth, firms in these markets need to raise prices. They need to know which customers are willing to pay for their products and services. Another challenge arises as increasingly sophisticated stakeholders, including advertising agencies and business owners, demand that Internet vendors demonstrate that page views or users’ time spent on the website actually translate to higher ROI. In real estate or automotive listing websites, for example, a higher conversion rate from online traffic to lead generation reduces costs incurred by real estate agents or auto dealers to sell a property or a car. Internet companies can add more value with differentiating services like market intelligence that help attract new users and increase the “stickiness” of existing users.

With more than 1 billion Internet users, Asia is already the world’s largest Internet market. But Internet penetration rates for Asia’s most developing countries are still over a decade behind the region’s more advanced economies. It will probably take many years for Internet markets in developing Asia to mature. Regional leaders need to continue investing in R&D capabilities because they will likely face challenges to their existing business models as markets evolve. In addition, the business environment they face will be different because of disruptive technologies like smartphones and 4G that were limited or non-existent a decade ago. Now is not the time for them to be complacent. Only the Internet companies that can adapt to new technologies and continue to demonstrate value should be able to survive this intensely competitive landscape over the long run.

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.

Evercore Wealth Management Expands to Florida and Names Three New Partners

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Evercore Wealth Management LLC has announced the opening of an office in Florida, to serve high net worth individuals, families and related institutions with integrated financial planning and investment management. In a related move, the firm named three new partners.

The new office, based in Tampa, will serve clients in Florida and the southeast United States. The three partners, Julio Castro, Michael Cozene and Arthur Noderer, join Evercore Wealth Management from GenSpring Family Offices and its affiliate, SunTrust Bank.

“The establishment of our first office in Florida is an important step in our continued growth as a national firm,” said Evercore Wealth Management Chief Executive Officer Jeff Maurer. “Our new colleagues have deep relationships in the region, and they share our commitment to integrated financial planning and investment management that is in each client’s best interests,” Mr. Maurer said. “We welcome them to our team.”

Julio Castro, a Partner and Wealth Advisor at the firm, said, “We are delighted to join Evercore Wealth Management. The firm puts its clients first, delivering independent advice and customized investment solutions, and is free from many of the conflicts inherent in other financial services companies. That’s important to private investors in Florida and the Southeast.”

Julio Castro is a Wealth Advisor, providing comprehensive, goals-based wealth planning advice. Mr. Castro joins Evercore Wealth Management from GenSpring, where he led new business development and the integration of new clients in Florida, and was a member of the national leadership committee. Additionally, he has practiced as both an attorney and an accountant, specializing in estate and tax planning. He has 25 years of experience in wealth management.

Michael Cozene is a Wealth Advisor, serving clients throughout the Southeast with comprehensive, goals-based wealth planning. He is a member of the Evercore Wealth Management Strategic Planning Committee. Mr. Cozene also joins Evercore Wealth Management from GenSpring, where he led business development and spearheaded wealth planning and family office services for the firm’s ultra-high net worth clients in Florida. He has 25 years of experience in wealth management.

Arthur Noderer is a Portfolio Manager, with 34 years of experience in managing investment strategies for high net worth individuals, families and related institutions. Mr. Noderer joins Evercore Wealth Management from SunTrust Bank, where he worked for 18 years as an investment strategist. He is a Chartered Financial Analyst.

More Uncertainty in Future Fed Policy

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The first press conference of the new Fed Chairwoman Yellen surprised markets, which started to price more future rate hikes. US 2-year bond yields spiked; the 10-year yield rose initially but fully retraced afterwards. Credit spreads hardly moved while surprisingly, emerging market (EM) debt and EM currencies were very resilient and even strengthened.

ING Investment Management still expect the first rate hike of the Fed to take place in the fourth quarter of 2015, but the possibility of an earlier hike has increased.

EM currencies surprisingly resilient since Fed meeting

No significant impact on credit spreads

The impact of Yellen’s statements was primarily visible in the Treasury market, while spread products were hardly impacted. US High Yield spreads rose on Wednesday and Thursday, but found their way back down again afterwards. On Friday spreads were at a lower level than the day before the FOMC meeting. Interestingly, spreads of emerging market debt (EMD) in hard currency did not rise at all, and even moved slightly lower.

One should expect downward pressure on EM

Besides the impact on EMD Hard Currency spreads, the latest developments in emerging market currencies are also striking. Since May last year, the two main worries for EM investors have been the prospect of less easy monetary policy by the Fed and the economic slowdown in China. The fears of Fed tapering were dominant in the May-September period last year. Early this year, worries about China took centre stage after the January HSBC flash PMI index came in weaker than expected at 49.5.

With this is mind, one should have expected that the pressure on EM currencies would increase again after the FOMC meeting. Next to that, Chinese data continued to disappoint, with the HSBC flash PMI again coming in weaker than expected, at 48.1 in March. Finally the ongoing uncertainty about the situation in Ukraine still plays a role. All in all, a depreciation of EM currencies seemed likely in this environment. The opposite happened.

You can read the full report on the attached document.

Macquarie Mexican REIT Appoints Jaime del Río Castillo as Head of Investor Relations

| For Alicia Miguel | 0 Comentarios

Macquarie Mexican REIT has announced the appointment of Mr. Jaime del Río Castillo as Head of Investor Relations for MMREIT, effective immediately. Mr. Jay Davis will continue to oversee the Americas investor relations function for Macquarie Infrastructure and Real Assets and will work closely with Mr. del Río Castillo to help transition the role.

“Jaime brings a wealth of relevant experience to MMREIT in both the housing and broader financial services sectors,” said Jaime Lara, Chief Executive Officer for MMREIT. His expertise will be extremely valuable in helping us develop our relationships with existing and prospective investors. I am delighted to have him join our team and look forward to his contributions.”

Mr. del Río Castillo joins MMREIT from Consorcio ARA, a Mexico-based homebuilding company, where he served as their Director of Investor Relations from 2005 to present. Prior to that, he spent seven years at the Instituto del Fondo Nacional de la Vivienda para los Trabajadores (INFONAVIT), Mexico’s Institute of the National Housing Fund for workers in the private sector, and held various roles including Head of Institutional Relations and Head of Risk Management. He began his career at the Instituto Tecnológico Autónomo de México where he was a Professor and Researcher in the Department of Mathematics.

Mr. del Río Castillo holds a degree in Physics from the Mexican Autonomous National University, a Master of Science in Physics from Southern Illinois University at Carbondale and a Master of Fine Arts from the Southern Illinois University Carbondale. He also participated in a Doctoral Program in Financial Science at the Instituto Tecnológico de Estudios Superiores de Monterrey.

Are Stocks Getting Stretched?

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¿Está sobrevalorada la bolsa? — Photo: Jacob Garcia. Are Stocks Getting Stretched?

Last month we observed the fifth anniversary of the US equity bull market, which started after the S&P 500 Index troughed at 676 on 9 March 2009. With events in Ukraine and other geopolitical hotspots to distract us, we may not have celebrated with cake and candles, but we’ve reached an important milestone.

Are we on track for another year of stock gains, or have we reached the market top? Let’s take a look at some equity valuation measures to see where we stand.

Stock market fairly valued?

Valuations continue to be front-page news. Certainly commentators are saying that valuations are stretched, especially in a fragile macro world. But if we compare valuation metrics today with the two previous market peaks, we can see that the private sector is in much better shape this time around:

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I would like to point out that earnings per share (EPS) are notably higher, while the trailing price-to-earnings or P/E ratio of the market is not yet at the levels we saw at the tech bubble’s peak in March 2000 or even in the not-so-bubbly October 2007. Other trailing measures also suggest that valuations are not overextended.

What about indicators that look ahead, rather than behind us? If we consider the forward P/E based on analysts’ estimates of earnings over the next 12 months, we find the market in roughly fair value territory:

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To account for the ups and downs in the business cycle, we can adjust earnings by looking at the Shiller P/E, which uses the 10-year moving average of earnings adjusted for inflation. By this measure, the market looks a little expensive:

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But if we look at some other measures, such as the inflation-adjusted dividend yield or the free cash flow yield that many analysts follow, the market looks cheap. So on balance, I would say that the market’s at fair value.

Evidence from credit markets

I also look to the credit markets for forward indications of where stocks may be going. As I’ve discussed before, spreads in the bond market are the price that corporations have to pay for credit. We’ve seen those spreads stay steady or even narrow. My colleagues at MFS are experts in the credit sector, and our high-grade and high-yield bond analysts and portfolio managers are telling me that these markets are signaling better times ahead.

So to those who claim that the easy money from the US Federal Reserve is propelling equities beyond reasonable pricing, I would respond that the market at this point is not overvalued due to excess liquidity — especially good news now that the Fed’s communications have become a bit more hawkish than we might have expected. And narrower credit spreads, as we’re seeing now, have tended to be pretty good indicators when other risky assets — like stocks — aren’t under pressure.

Article by James Swanson, Chief Investment Strategist, MFS

Michael Zeuner Warns Investors About Their Advisors’ Sales Agendas

| For Alicia Miguel | 0 Comentarios

Michael Zeuner, managing partner of WE Family Offices, a family office advisory firm that caters to ultra high net worth (UHNW) clients, was featured in the Wall Street Journal discussing one of the least understood problems in the financial service industry. Clients seeking advice from their advisors are often unaware of potential conflicts of interest stemming from their advisor’s compensation model, which incentivizes the advisor to sell them certain products and services.

“This problem doesn’t just apply to UHNW families – lack of transparency and conflicts of interest are widespread issues in the financial industry as a whole. When clients seeking advice are instead sold products or services, it can be difficult to tell the difference. They trust their advisors but typically are unaware of how their advisor is compensated,” said Michael Zeuner.

Zeuner identifies three different types of advisors:

Manufacturers: These firms create financial products such as mutual funds, or private equity or hedge fund interests. They are typically compensated by a percentage of assets under management (AUM) from investors who buy their product.
Distributors: Brokers, dealers, or other advisors who sell their customers and clients investment products and services created by Manufacturers. Distributors often are affiliated with, or have agreements in place with Manufacturers, and may receive both commissions to sell their products and management fees from clients.
Independent, Fee-Only Fiduciary: These advisors are independent, registered with the SEC and have a legal obligation to put their clients’ interests ahead of their own. They do not receive sales-based compensation and are not affiliated with manufacturers or distributors. This business model allows them to provide unconflicted advice focused on helping a client make smart buys, instead of trying to sell the client something.

How can clients tell what kind of advisor they are dealing with? It can be as simple as asking their advisor these two questions:

1- Are you affiliated with any company that sells financial products or services?

2- Do you receive any compensation based on the products and services you are recommending to me?

To help investors and families understand the difference between advisors, Zeuner also authored an article titled “Cut Through The Clutter” that provides investors with information to help them understand the role or roles their advisor plays and figure out if they are getting unbiased advice to help them buy smart, or being sold products and services that the advisor or its affiliates have a stake in.

TIAA-CREF Closes Real Estate Joint Venture with Henderson

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TIAA-CREF, a leading financial services provider, completed on April 1st the successful launch of its previously announced real estate joint venture with Henderson Global Investors, one of Europe’s largest investment managers.

The new real estate investment management company, TIAA Henderson Real Estate, will pursue core and value-add investment opportunities in all major sectors of global commercial real estate. It launches with a combined $22.6 billion of assets under management across 50 funds and mandates, overseen by a network of offices in Asia, Europe and North America. Headquartered in London, the joint venture is 60 percent owned by TIAA-CREF and 40 percent owned by Henderson.

“TIAA-CREF continues to evolve and expand its asset management business, and today’s launch is a major step forward in our strategy to build a truly global investment organization,” said Rob Leary, president, TIAA-CREF Asset Management. “Expanding the scale and scope of our global real estate business, already one of the largest and most diverse real estate investing platforms in the world, strengthens the franchise and helps us continue to meet the needs of sophisticated institutional clients.”

TIAA-CREF will continue to operate its existing $48.2 billion global real estate platform, which invests in directly owned property, real estate securities and private commercial mortgages through an innovative platform built on over six decades of real estate investing experience. The combination of TIAA-CREF’s real estate platform and TH Real Estate represents one of the largest real estate investment management enterprises in the world with approximately $71 billion in AUM, as of Dec. 31, 2013.

“TH Real Estate will drive the growth of our real estate platform globally by expanding our footprint, service capabilities and access to new investment opportunities,” said Tom Garbutt, head of TIAA-CREF global real estate and chairman of the new venture. “We will harness local knowledge and deep experience in the global real estate markets to deliver distinctive real estate investment solutions to our clients.”

Concurrent with today’s launch, TIAA-CREF completed the acquisition of Henderson’s $2.6 billion North American property business. The business is being managed as a distinct, yet complementary operation within the existing TIAA-CREF real estate organization. It will continue to operate out of Hartford, Conn. and Chicago with its current team of investment and client service professionals. The platform offers commingled funds and separate accounts for institutional clients, and invests across the four primary real estate sectors in U.S. core and value-add strategies with a current market emphasis on the apartment, student housing and medical office sectors.

DLJ Merchant Banking Partners Spins Off from Credit Suisse

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Credit Suisse has announced that DLJ Merchant Banking Partners, the bank’s mid-market leveraged buyout business, has spun off into an independent advisory firm, aPriori Capital Partners L.P. established by the existing DLJ MBP management team led by Colin Taylor and Susan Schnabel.

aPriori Capital will manage the DLJ Merchant Banking Partners III, L.P. and DLJ Merchant Banking Partners IV, L.P. private equity funds, collectively representing approximately $2 billion of value across 22 portfolio companies as of December 31, 2013. Colin Taylor and Susan Schnabel, Co-Heads of DLJ MBP, will continue to manage the MBP Funds and lead aPriori Capital.

All other investment professionals comprising the DLJ MBP management team are joining aPriori. As the new general partner and investment manager of the MBP Funds, aPriori, is expected to be a strong platform for the DLJ MBP team to manage and maximize the value of the MBP Funds as well as raise capital in the future. The new firm will continue to operate from offices in New York, Los Angeles and London.

Nicole Arnaboldi, Vice Chairman of Credit Suisse’s Asset Management business, said, “We are pleased to have completed this spin-off and are grateful for the efforts and performance of the team over many years at DLJ and Credit Suisse. We wish aPriori Capital much success in the future.”

“The team is excited by the opportunity to establish an independent fund advisory business and a new platform for the future. We appreciate the strong support we have received from our investors throughout this transition and in particular would like to thank Credit Suisse for their partnership and support over the past 14 years,” said Colin Taylor and Susan Schnabel, Co-Heads of aPriori Capital.

This spin-off is part of Credit Suisse‘s previously announced divestment plans.