Seven Capital Management has obtained the approval of the CSSF (Luxembourg financial regulator) to launch its BlackSnake fund, an AIFM-regulated alternative investment fund (AIF). Using the same investment strategy as the Seven Absolute Return fund managed according to the Commodity Trading Advisors (CTA) strategy, the new BlackSnake fund will cover a broader range of asset classes, including commodities and foreign exchange. Its CTA Global Trend Following strategy will invest in fixed income, equity, forex and commodity futures markets, with a volatility target of 20%.
“We’re stripping back to the bare-bones of who we are”, said Johann Schwimann, CEO of Seven Capital Management. “By launching the BlackSnake alternative investment fund, Seven Capital is returning to the select club of high yield CTA managers.”
“Furthermore, the new AIFM regulations enable us to manage a Luxembourg fund from Paris and to apply our investment process to it”, added Johann Nouveau, CIO and Partner of Seven Capital. “It is the first European cross-border passport between France and Luxembourg for direct alternative investment and it represents a real breakthrough for French fund managers in a highly competitive international environment.”
The AIFM regulations are currently the highest level of regulation in Europe. Seven Capital Management, which obtained this approval in August 2013, worked closely with the firm Reinhold & Partners to set up and create the specialised investment fund (SIF) in Luxembourg.
“Seven Capital Management was the first French management company to submit its European AIFM application. That enabled us to collaborate effectively with the supervisory authorities in France and Luxembourg and to secure the necessary approval to launch the SICAV”, stated Bertrand Gibeau, a partner at Reinhold & Partners. Seven Capital Management also chose to team up with Caceis for custodian and valuation services because of its in-depth knowledge of the French and Luxembourg markets as well as issues related to the AIFMD.
Photo: Toby Oxborrow from Kowloon, Hong Kong. Watching One Tea Leaf: The Relative Price of Credit
The price of riskier corporate bonds such as high-yield and emerging market debt is measured in terms of extra yield. This is the price of credit, which is measured relative to the highest-quality bond issuers, like the US government. Credit-sensitive bonds are backed by companies with uncertain financial strength and accordingly have lower credit ratings. Because these bonds represent a category of risk higher than other markets, they often signal distress or economic deterioration before other markets decline. These markets can be good “tea leaf” indicators about the path ahead. Also, when these markets show strength (less excess yield), they often signal better times for stocks and other assets.
Credit markets can be good indicators of the broader market’s path ahead
But right now the biggest economy in the world is showing signs of stress. The economic numbers from the United States have noticeably weakened. This is a bit surprising because in late 2013, in November and December to be exact, US economic data were showing increasing speed and strength. Factories were humming, exports were rising and housing starts were improving. Now, two months into 2014, it almost seems as though the US economy has hit the brakes.
The reasons for this slowdown are hard to pinpoint. An easy explanation is weather. US weather patterns have been disruptive, marked by storms and way-below-average temperatures. This could explain fewer trips to the mall by consumers and fewer homes being started on frozen home sites. But the data are also slow in California, not just Wisconsin, and the weather in California has been fine. Further, factory orders and exports —factors of production not usually associated with weather fluctuations — have fallen.
The US is currently experiencing a mini-cycle slowing point within the longer economic cycle
So something else must be going on. My explanation is that in this, and in other cycles we have seen, there exist “cycles within cycles,” patterns of spending and growth that ebb and flow within the broader economic cycle. We saw this in a pronounced way in 2012 and again, on a smaller scale, in 2013. These cycles seem to occur naturally and are driven by consumer trends, news worries, inventory “overhangs” and other reasons, including weather.
What the investor needs to assess is the risk of recession. Recessions bring the biggest avalanches in stock prices, create government bond spikes, disrupt government spending and also trigger huge increases in company defaults. Recessions are not connected to weather or mini-cycles. Recessions have distinct causes. We know that they don’t occur because people feel like staying home or companies just feel like pulling back; they happen because of the appearance of real constraints on spending. The main culprits in recessions are interest rate increases on a scale that chokes off spending. The second cause of recessions is a notable deterioration in profits, companies making less and less money on sales. Profit erosion means less money to spend and sparks a loss of confidence. Usually these two causes are conflated: Higher interest rates often hurt spending but also cut into corporate profit statements by raising financing costs. Both usually occur simultaneously.
The clouds of recession are absent, and credit spreads reflect this lower stress over risk
Neither of these two negative conditions is happening now. Profits in privately held and publicly held companies are rising. Also, the Fed keeps telling everyone who will listen that short-term rates won’t rise for at least a year. In addition, consumers and most corporations have not taken on a lot of debt in this cycle, and both camps have better cash flow to pay principal and interest than they did in the last two business cycles. There is no credit cycle underscoring this business cycle, pushing growth above the speed limit.
My conclusion — no recession in 2014, because the clouds of recession are not present.
Now, back to the credit spreads of riskier company bonds. What is this measure telling us? Interestingly, this indicator of trouble is going in reverse: Spreads above the AAA bond yield are shrinking, not rising. Complacency, even confidence, exists in the hyper-vigilant world of corporate bonds. The stress of recession would show up there first, in the extra yields that companies pay to finance riskier corporate strategies. Instead, the cost of debt for companies now is falling. Further, when credit spreads reduce or tighten, history suggests that the stock market moves up, not down. High-yield bonds have been a rather good indicator of both future weakness and future strength. The economic news is troubling, but the credit markets suggest that investors can relax.
By James Swanson, CFA; MFS Chief Investment Strategist
Deutsche Asset & Wealth Management (DeAWM) has announced that Simon Mendelson has joined as a Managing Director and Head of Product Management and Development in the Americas. Based in New York, Mendelson reports to Jerry Miller, Head of Deutsche Asset & Wealth Management, Americas.
In this newly created position, Mendelson will be responsible for overseeing the development, implementation and positioning of DeAWM’s investment products and solutions in the Americas. He will play a key role in aligning DeAWM’s investment and distribution channels, not only to develop and deliver new products, but also to manage and optimize existing product capabilities.
“Simon brings extensive experience and a deep understanding across our broad investment capabilities,” said Miller. “His appointment will help to accelerate DeAWM’s growth strategy by aligning our product offerings with the needs of investors.”
Mendelson is the latest high-profile strategic senior hire by DeAWM as it pushes to further expand its product offerings, increase outreach to current and future investors, and continue to build its market share in the Americas. Over the last six months, DeAWM has added more than a dozen leading asset and wealth management executives to its Americas team while investing in new technology and launching innovative fund offerings. In November 2013, DeAWM Americas launched the first ETF to provide access to China A-shares with AUM doubling in size since the launch.
Mendelson has more than two decades of leadership and operating experience having spent nine years at BlackRock and 14 years at McKinsey & Co. He was most recently Global Head of Product Development at BlackRock, which he joined in 2005. From 1990 to 2005, he was a Senior Partner in the financial institutions practice at McKinsey & Co., where he focused on insurance, brokerage, and asset management.
Mendelson is a graduate of Harvard Law School and Yale University.
Photo: Thomas Wolf. Nuveen Investments Extends Global Reach with Expanded Platform in Chile
Nuveen Investments, has announced the Chilean Comisión Clasificadora de Riesgo has approved 15 Nuveen mutual funds for investment by Chilean pension funds. Nuveen Investments will partner with Raymond James, through their subsidiary RJ Delta Capital, to make these strategies readily available to pension funds in Chile.
This latest effort builds upon Nuveen’s growing presence in Latin America, and meaningfully advances the firm’s goal of broadening its global reach through offering world-class investment expertise to institutional and individual investors as well as the advisors and consultants who serve them.
“Chile is a very important part of our overall regional strategy,” said Oscar Isoba, Nuveen Investments’ Senior Vice President and Head of Business Development for Latin America. “The Chilean asset management industry has been a regional pioneer and a great advocate for investors throughout the area. This focus aligns with our own commitment to helping our growing base of global clients meet their financial goals.”
The newly registered funds draw upon the deep expertise of several Nuveen affiliates, and include the following:
• Nuveen Core Bond Fund • Nuveen Core Plus Bond Fund • Nuveen Dividend Value Fund • Nuveen Global Infrastructure Fund • Nuveen High Income Bond Fund • Nuveen Inflation Protected Securities Fund • Nuveen Large Cap Growth Opportunities Fund • Nuveen Mid Cap Growth Opportunities Fund • Nuveen Strategic Income Fund • Nuveen Tactical Market Opportunities Fund • Nuveen Santa Barbara Dividend Growth Fund • Nuveen Tradewinds Global All-Cap Fund • Nuveen Winslow Large Cap Growth Fund • Nuveen Symphony Credit Opportunities Fund • Nuveen Preferred Securities Fund
Photo: Work by Harry Wilson Watrous (1857–1940). Americans Find Discussing Personal Finances as Difficult as Talking About Religion and Politics
A new survey from Wells Fargo revealed that Americans find discussing personal finances as difficult as talking about other thorny discussion topics like religion and politics. Nearly half of Americans say the most challenging topic to discuss with others is personal finances (44%), whereas death (38%), politics (35%), religion (32%), taxes (21%), and personal health (20%) rank as less difficult. These results come from Wells Fargo’s Financial Health study, a national online survey conducted by Market Probe, Inc., of 1,004 adults between the ages of 25 and 75, designed to take the pulse of Americans’ perceptions of their own financial health.
“It’s not surprising people don’t want to talk about money, investments, tax strategies, or even how much to put aside for a child’s education,” said Karen Wimbish, director of Retail Retirement at Wells Fargo. “But not spending time today to think about the future can be costly in the long-run. I think of personal finance in the same vein as my health—I wouldn’t keep concerns about my physical health private. I’d consult a doctor or talk to a friend or family member about it.”
Although people find it easier to talk about politics and religion over money, that doesn’t mean financial concerns are not top-of-mind. Two in five (39%) Americans report that money is the biggest stress in their life, 39% say they are more stressed about finances now than they were last year, and a third of Americans (33%) report losing sleep worrying about money. When asked what they would do differently if they could go back five years, more adults cite regrets about saving and spending (49%) than about shortcomings in all other areas of their life, including taking better care of their physical health, diet and fitness (42%), pursuing different personal relationships (21%), and working more to improve their career (16%).
Knowing what to do also appears to be a major barrier to a healthier financial life. In terms of getting in physical shape and exercising, respondents said the hardest part is “motivating themselves to get started” (40%) and “sticking to a plan” (36%). But for financial health and saving money, the hardest part is “knowing the best approach” (35%) and “sticking to a plan” (35%). Only 9% of respondents said motivation was the biggest barrier for improving financial health. In addition, about a third report they are more worried about their financial health than their physical health.
“When someone is physically out of shape, they typically understand that eating well and exercising more will help get them back on track,” said Wimbish. “With money, however, there’s a lack of understanding about the importance of designing a plan. Only a third of adults have some type of financial plan or a simple household budget in place, which means most Americans don’t have the roadmap needed to improve their financial health.”
According to the study, a majority of Americans feel financially healthy when addressing their basic needs, but feel less so when trying to control spending and saving for retirement and emergencies. Two thirds (67%) feel in financially good or great shape with regards to paying their monthly bills, and over half (56%) feel financially good or great in their ability to live within their means. However, only 40% feel financially good or great about their amount of discretionary spending and about their “rainy day” savings. Only a third (33%) described feeling good or great shape in their ability to retire comfortably.
Conversations about money
Seventy-one percent of adults surveyed learned the importance of saving from their own parents. Despite this, only a third (36%) of today’s parents report discussing the importance of saving money with their children on a frequent basis, with 64% indicating they talk about savings with their kids less than weekly or never.
For a quarter of married or partnered adults (25%), financial concerns have had an impact on these relationships. About a third (33%) have difficulty discussing money with their spouse or partner, and a quarter (25%) often have heated discussions with their significant other about money and household finances.
Gender differences
The study revealed some distinct differences between women and men when it comes to money matters. Half of women (50%) find it difficult talking with others about personal finances, versus 38% of men. Women are also less confident about their investment knowledge. Only 29% of women said they know where to invest in today’s market (compared to 42% of men).
Almost half of women (45%) grade their financial literacy a ‘C’ or below, while 65% of men assess their level of financial literacy as a ‘B’ or higher. Men also express greater confidence in their ability to maintain their standard of living, with 57% feeling in good or great financial shape in this area versus 49% of women.
The study also revealed the following saving and spending-related behaviors:
Adults are far more likely to have their car serviced (82%) or take a vacation each year (69%) than review their finances (43%).
Those who feel to be in poor or average financial health are twice as likely to update their Facebook profile (47%) than they are to review their finances (25%).
Two-thirds (65%) of adults spend at least two hours watching television each day, while only one third (34%) spend at least 15 minutes thinking about their finances daily.
One in four (25%) adults would rather pay for a personal trainer than a financial advisor.
About a third (32%) of retirees feel more stressed financially now than they did before retiring—especially those who retired early (before age 60).
The Dreyfus Corporation (Dreyfus), a BNY Mellon company, has announced that it has launched the Dreyfus Global Emerging Markets Fund, an actively managed, equity mutual fund. The fund is designed to seek capital appreciation by investing in emerging market countries including those located in Africa, Asia, Europe, Latin America, and the Middle East. Dreyfus has engaged its affiliate, Newton Capital Management, Ltd., to serve as the fund’s sub-adviser. Dreyfus is the fund’s investment advisor.
“The current volatility in emerging markets worldwide has created noteworthy opportunities for those investment managers who have a history of emerging markets expertise,” said Dreyfus President Charles Cardona. “Newton has more than 20 years of experience investing in emerging markets and emerging market equities. Using Newton’s distinctive global thematic approach to investing, we are confident Newton will continue to locate emerging markets opportunities.”
Newton employs a fundamental bottom-up investment process that emphasizes quality, including stock fundamentals and balance sheet strength, return on capital employed through the market cycle, and governance prioritizing shareholder interests. The process of identifying investment ideas begins by using a dynamic framework of identifying a core list of investment themes. Newton has currently organized its themes into four main areas of change: debt, crisis and policy; innovation; energy, environment and infrastructure; and geopolitics and demographics. Newton’s themes are based primarily on observable global economic, industrial, or social trends that Newton believes will positively affect certain sectors or industries and cause stocks within these sectors or industries to outperform others.
“As emerging markets equities are currently experiencing increased volatility, we believe there are increased investment opportunities available there for the long-term,” said Helena Morrissey CBE, Chief Executive Officer of Newton. “Newton has a long history investing in emerging markets and is delighted to be subadvising the Dreyfus Global Emerging Markets Fund, building on its strong investment record running this strategy in the UK. The fund seeks to capture the growth available in emerging markets through a high-conviction actively-managed portfolio, which uses Newton’s investment themes to guide its long-term approach, together with strong fundamental stock-picking skills to not only find the best companies in which to invest, but also to identify those sectors and industries that are best avoided.”
Robert Marshall-Lee and Sophia Whitbread, CFA, are the fund’s primary portfolio managers. Mr. Marshall-Lee, the lead portfolio manager, is the investment leader of the emerging markets equities team at Newton, where he has been employed since 1999. Ms. Whitbread is an investment manager on the emerging markets equities team at Newton, where she was employed from 2005 to 2010 and rejoined in January 2011.
Newton’s dedicated Emerging Markets Core Team utilizes the global research team of 29 in identifying the best emerging markets ideas globally. To pursue its goal, the fund normally invests at least 80% of its net assets in common stocks and other equity securities or derivatives in emerging market countries represented in the Morgan Stanley Capital International Emerging Markets Index (MSCI® EM Index), the fund’s benchmark index.
Foto: joiseyshowaa. FT y Aberdeen Asset Management visitan Miami en su gira norteamericana sobre inversión global
The Financial Times and Aberdeen Asset Management are presenting, at the Four Seasons Miami, a discussion entitled “Home and Away – Why a Global Investment Approach Makes Sense”.
The afternoon, which will take place the 26th of March, will gather investment and other professionals to help identify and evaluate investment opportunities at home and abroad. Attendees will hear about a variety of asset classes and risk management strategies to consider while learning about the pros and cons of the global economy’s most promising areas of opportunities. These discussions have been accepted by CFP board for 2 hours of credit.
Speakers Confirmed Thus Far Include:
Jeremy Whitley, Head of UK And European Equities, Aberdeen Asset Management
Keith Bachman, Head of US High Yield, Aberdeen Asset Management
CC-BY-SA-2.0, FlickrFoto: Jennicatpink. No todos los mercados emergentes son iguales: Palomas, halcones y búhos
It’s tough to keep your head at times when the financial markets are behaving like they are. It may be especially tough when you are the governor of the central bank of a country with a 4% current account deficit and 6% inflation. In emerging markets especially, this is exactly the kind of mix that speculators are targeting right now. And yet, amidst all the swings in sentiment and the “risk-on, risk-off” trading, Reserve Bank of India Governor Raghuram Rajan expressed concern over following “the flock,” saying: “We are neither hawks nor doves. We are actually owls.”
The most recent events to roil markets have been those in Turkey. With pressure on countries that rely on external funding, it was surely not going to be too long before Turkey attracted the attention of traders. After all, it runs a current account deficit of over 7% of GDP and its inflation rate is also above 7%. Its policymakers decided to try to head off currency speculation by dramatically hiking interest rates from 5% to 10% in an effort to make shorting the lira uncomfortably expensive. But such high interest rates do put a strain on the domestic economy. How long can they conceivably keep rates so high before they sacrifice domestic growth for the sake of protecting the currency?
Feathers have been flying in Latin America, too, where most major nations are in external deficit. Argentina—whose international credibility has never really recovered from the debt default at the end of 2001—is being treated as the canary in the coal mine for the whole of the emerging market universe, including Asia. One need not be a scavenger these days to find opportunities to short emerging markets. Traders have been casting around for other targets like Turkey and Argentina.
However, emerging markets are not a homogenous block, either culturally or economically, as many countries in Asia have proven by their ability to close the gap in living standards with the West over the past 30 years. Asian economies continue to enjoy high savings rates and robust productivity growth. Most of Asia remains unruffled as the region runs healthy current account surpluses. Only Australia, Thailand, Indonesia and the Indian subcontinent run external deficits and perhaps only the latter two are really prey to currency speculators. And even here, India has already been restraining credit growth for some time in an attempt to squeeze any short-term excesses out of the economy. In Indonesia, despite short-term migration of capital, the government has been taking steps to remove supply-side obstacles to more efficient growth; China too remains an interesting potential source of long-term foreign direct investment to keep the economy investing in new capacity.
Not that currency speculators are going to pay much attention to Governor Rajan—they love to “take on” central banks. However, whilst their options in other parts of the emerging market universe may keep the speculators circling, opportunities in Asia are less widespread. After all, in Asia, current account surpluses abound: Japan (1.0% of GDP), China/Hong Kong (2.0%), Philippines (4.2%), Malaysia (4.5%), Vietnam (5.5%), South Korea (6%), Taiwan (11.5%) and Singapore (17.5%). Private U.S. dollar debt is manageable as a percentage of GDP and, unlike Latin America, bond issuers have increasingly relied on domestic lenders rather than the international markets. Outside of the Indian subcontinent, inflation rates remain manageable too—averaging about 2% in North Asia and a little above 3% in Southeast Asia, excluding Indonesia. In addition, Asia’s largest economy, China, is also in a relatively strong position. Its nearly US$4 trillion foreign exchange reserves and closed capital account make an externally forced currency crisis extremely unlikely.
So, the current market sentiment is something of an albatross around Asian economic and market performance. Whilst it is never safe to assume the currency speculators have “gone away,” the region’s economies have put in enough hard work over the previous decades, it seems, to earn some goodwill. Not all emerging markets are created equal. We don’t want to count any chickens, but the fact that Indonesia (+4.6%) has outperformed the U.S. (-1.6%) thus far this year* does suggest that a bit of owlishness is creeping back into the markets.
*Year-to-date performance in local currency terms, as of February 11, 2014.
Opinion Column by Robert Horrocks, PhD, Chief Investment Officer – 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.
. Swiss Re Acquires a Majority Stake in Colombia's Insurer Confianza
Swiss Re Corporate Solutions and owners of Compañía Aseguradora de Fianzas S.A. Confianza (“Confianza“) have signed an agreement under which Corporate Solutions will acquire a 51% stake in Confianza. This arrangement will provide Colombian corporate clients local access to Swiss Re’s commercial insurance products and services.
Confianza, established in 1979 and based in Bogotá, offers a broad range of surety insurance products, third-party liability and all-risk construction insurance solutions.
This transaction supports Swiss Re Corporate Solutions’ growth strategy and will enable it to expand business in Latin America through local representation. Agostino Galvagni, CEO of Swiss Re Corporate Solutions and a member of Swiss Re Group’s Executive Committee, comments: “We are very pleased to join forces with Confianza, a firm with an excellent reputation and understanding of the local market. The combination of our capabilities and expertise will create a strong commercial insurer for corporate clients in Colombia.”
For Confianza, this transaction marks an important development in their history. Through this agreement, the company will broaden its range of products with an initial emphasis on solutions for clients in the country’s growing infrastructure sector.
Luis Alejandro Rueda Rodríguez, CEO of Confianza, says: “This investment, underpinned by Swiss Re Corporate Solutions’ financial strength and innovation capabilities, will reinforce our leading position in the market. Together we will be able to offer clients large capacity and technical expertise to support Colombia’s growing economy and the new government infrastructure projects.”
The transaction is subject to approval by the relevant authorities and is expected to close in the second half of 2014.
Photo: JLPC. Private Equity and Venture Capital Investments in Latin America Exceed Previous Record by US$1b
Private equity and venture capital firms committed US$8.9b through 233 investments in Latin America in 2013, representing a six-year high and a 13% increase over 2012, according to data released by the Latin American Private Equity and Venture Capital Association (LAVCA). Activity in the last six months has been accelerated by major buyout deals in Brazil, Chile, and Colombia.
In both Mexico and the Andean countries, local GPs were able to capitalize on growing investor interest by securing new commitments from international investors and local pension funds. More than US$1b of new capital was raised in Mexico through six funds while US$1.4b was raised via Andean region funds and Peru and Colombia country-specific funds.
Overall, fundraising in 2013 was again dominated by smaller funds with 49 managers reporting 52 partial or final closings, totaling US$5.5b (versus 42 partial or final closings from 40 firms in 2012). Exits in 2013 were consistent with 2012 figures (US$3.8b), generating US$3.7b in proceeds.
“The private equity and venture capital community in Latin America has been quietly building a foundation that is capable of withstanding existing and future market complexities,” said Cate Ambrose, President and Executive Director, LAVCA. “The region continues to experience regular milestones in the face of emerging market volatility, such as this year’s record in investments, however, it will be important to see how global LPs respond once some of the billion dollar plus funds reenter the market.”
Investments in the oil & gas sector dominated in 2013, including major deals in oil & gas infrastructure. Overall oil & gas captured 18% of the US$8.9b total. It was also the sector with the highest average ticket size. Twelve deals deployed roughly US$1.6b in new capital.
Additional findings include:
Private equity managers continued to market funds that reflect the mid-market opportunity (closings below US$600m).
Brazil again dominated in fundraising and investments for the region, capturing 43% of the total amount raised during the period and 68% of the total amount invested.
Capital raised by Mexican managers will allow them to target new opportunities generated by reforms.
In Colombia, managers invested US$1.1b through 20 deals, a record figure for that market. Activity in the country was driven by four oil & gas deals that contributed 72% of the capital deployed.
Continuing a 5-year growth trend, nearly half of all deals were in IT-related sectors, supported by VC activity in the region.
Consumer/retail continued to be a relevant theme among private equity investors, both in terms of dollars and deals.
There were eight PE-backed IPOs in three key markets (Brazil, Mexico, and Chile) via four different stock exchanges.
The full report will be made available free to LAVCA Members in March.
