Photo and video from Youtube. When Recognizing Your Faults is the Right Way to Go
Action: The textile industry uses huge quantities of clean, drinking-quality water to dye and finish fabrics. Dyeing and finishing are wet processes, which means they use water to transfer dyes and other chemicals evenly onto fabric. To achieve consistent, even application, the water must be pure and clean. When the process is complete, the water contains residual chemicals and colorants that do not stay on the fabric. Unfit for reuse, this wastewater is discharged after some level of treatment, into waterways and public water systems.
As a result, there is a great deal of dirty water behind all the exciting new fashions and colors, and a growing number of consumers are becoming aware of it.
Reaction: Although it is almost impossible for shoppers today to know whether or not the clothes they buy come from polluting factories, their awareness of the issue is prompting outdoor clothing companies, fashion brands, retailers, fabric manufacturers, textile dyehouses and chemical suppliers to work together towards change. Patagonia is a perfect example of a great brand that has decided to be totally transparent. Its founder, Yvon Chouinard, states “you shouldn’t be worried of telling everybody about the bad things you are doing, as long as long as you say, that we’re working on these things”. A couple of years ago, Patagonia created “The Footprint Chronicles”, where they stated in their website the story of the products they were selling. They told the consumer how their products were made and, when you looked at it from an environmental point of view, it was not good news. As a matter of fact, the outlook, for one of the most environmental friendly textile brands in the world, was plain bad. Nevertheless, since The Footprint Chronicles saw the light Patagonia has posted record profits. The consumers praise transparency and the fact that Patagonia decided to be honest and to work to solve these environmental issues.
Solution: Patagonia doesn’t make their own fabrics or sew their own products. They design styles, choose or develop materials and contract with factories to produce the things they sell. Realizing this complexity, Patagonia began working with bluesign technologies in 2000. Today, bluesign technologies is their most important partner in minimizing water use and the environmental harm done in Patagonia’s name from textile manufacturing.
Patagonia states that they are “well on our way toward meeting a goal we set in 2011 to be using only bluesign-approved materials by 2015”.
Now in its sixth year, the LAVCA Colombia Forum is the country’s premier event for Colombian and international investors to evaluate the opportunities and challenges for PE/VC investments in the region. Sessions will focus on GP/LP relations, as well as issues impacting local investor groups and pension funds. The 2013 program includes the participation of the region’s top CEOs and covers the progress of Colombian private equity, what to expect with major deals closing in the Oil & Gas and Energy sectors, as well as details on local regulation and reporting requirements.
The 2013 LAVCA Colombia Forum will take plece on November 13 in Bogota, Colombia, hosting 175 high-level executives for a full day of discussion and debate. Participants include global investment firms, Colombian private equity managers, global funds of funds, investment officers from local pension funds and insurance companies, family offices, corporate heads, local regulatory officials, representatives from development finance institutions, and other relevant industry players.
Evercore announced that Fernando Soriano will join its Investment Banking business as a Senior Managing Director to lead the firm’s cross-border advisory services in Latin America. Mr. Soriano, who is based in New York, will work closely with Evercore’s industry, product and geographic teams, and with the more than fifty bankers currently working in Mexico and Brazil.
Mr. Soriano was most recently a Managing Director and head of Corporate Finance Mexico at BNP Paribas and head of Latin America and Spain Investment Banking at Hill Street Capital LLC. With over 18 years of investment banking experience at firms including Salomon Smith Barney and Lehman Brothers, Mr. Soriano has extensive experience advising a broad array of companies and funds in M&A, debt restructuring and capital raising in Latin American transactions.
Pedro Aspe, Evercore’s Co-Chairman and Head of Mexico, said, “We are extremely pleased that Fernando is joining Evercore. We have great momentum in our Latin American business and Fernando will play an important role in helping us to extend that momentum, particularly in our cross-border activity.” Corrado Varoli, Chief Executive Officer of G5 Evercore in Brazil, said, “We are delighted to have Fernando join Evercore. We continue to see Latin America as a region of great interest to our global clients and we look forward to adding to our already significant advisory capabilities.”
Ralph Schlosstein, Evercore’s President and Chief Executive Officer, said, “Cross-border activity, both among Latin American countries and between them and the rest of the world, represents a strategic growth opportunity for Evercore. Fernando will augment our high quality coverage across all key sectors of this fast-growing region.”
“I look forward to joining Evercore’s highly regarded team of professionals and to being part of Evercore’s global growth, particularly in the Latin American region,” said Mr. Soriano.
Mr. Soriano received his B.Sc. in Industrial Engineering from Universidad Panamericana in Mexico City and his MBA degree from the Massachusetts Institute of Technology’s Sloan School of Management.
New research from Cerulli Associates finds that 47% of asset managers expect to hire dedicated marketing personnel and 41% expect to hire dedicated sales personnel in the next 12 months to support alternative investments.
“We’ve seen an increase in asset managers capitalizing on investor interest in alternatives by broadening their product lines,” explains Pamela DeBolt, senior analyst at Cerulli. “To be successful, managers must deepen their staff of dedicated professionals to support these efforts.”
The November 2013 issue of The Cerulli Edge-U.S. Asset Management Editionexamines product management teams, alternative investment staffing needs, and asset managers’ use of resources to target third party intermediaries.
“Alternative products can be complex and hard to understand for both advisors and end clients,” DeBolt continues. “Firms will be most successful when marketing and sales efforts include a significant educational component.”
According to Cerulli, firms have hired more dedicated sales professionals than any other alternatives-related position in the past year. The number of sales personnel dedicated to alternative products increased 54% from 2012 to 2013 among managers that distributed alternatives to both retail and institutional clients.
“Looking ahead, we are seeing the hiring shift slightly from sales toward increasing marketing staff,” DeBolt states. “Larger firms tend to create more collateral and educational tools, and appropriate levels of staff are required to maintain and update these tools.”
As alternative investments are becoming an increased focus and a larger business line for some firms, Cerulli recommends continued evaluation of support levels to ensure that the appropriate resources are committed to alternative product lines on an ongoing basis.
Goldman Sachs announced the sale of a majority stake in its UKpensions insurance business Rothesay Life. Funds managed by Blackstone and GIC each acquire 28.5% of the shares, with MassMutual acquiring a 7% holding. Goldman Sachs retains a 36% stake. The transaction is subject to regulatory approval.
Michael Sherwood, Vice Chairman of Goldman Sachs, said: “Rothesay Life’s success has now brought it to a size at which it is more capital-efficient for Goldman Sachs to share its ownership with other investors. As a market leader in a dynamic industry, Rothesay Life can continue its growth as a standalone business with the benefit of diversified ownership. We are pleased to remain the largest shareholder alongside three world class investors.”
The opening of the Shanghai Free Trade Zone marks one of the milestones of what will become “the new China” – with new opportunities for investors.
The zone is a testing ground for reform as the country seeks to move from the heavily state controlled and export-led “old China” to a modern economy, says Victoria Mio, Robeco’s portfolio manager for Chinese equities.
China aims to move towards a more consumer-led economy, with greater emphasis on developing the nascent service industry, and less state control over private enterprise.
“China has been undergoing a period of transition ever since the financial crisis and the recessions that hit the west, as it can no longer rely on exports for growth. The new China is related to the growth that these structural reforms will bring about,” says Mio.
“The new China is related to the growth that these structural reforms will bring about”
A busy few months for legislators Politically, the wheels are already in motion. Since the new Chinese government took office in March, it has been actively formulating further reform that will begin in earnest in 2014. The 3rd Plenary Session of the ruling Communist Party is due to meet in November to authorize extensive financial and economic restructuring.
Opening the Shanghai zone in September is a precursor to China’s application to join the Trans-Pacific Partnership, a powerful trade zone that includes Japan, the US, and 10 other Pacific Rim nations representing about 40% of global trade. Membership requires complete freedom of capital, which has thus far been controlled by the Chinese government.
“China is trying to reduce the role of government in the economy. The Shanghai zone will enable companies engaged in key growth areas to do conduct their business without government approval,” says Mio, who is based in Hong Kong.
The reforms are described as China’s ‘Big Bang’ whose impact will be similar to the way western financial markets were reformed in the 1980s. They also aim to help the country’s achieve its ambition of establishing the renminbi as a global reserve currency in future years.
“China is trying to reduce the role of government in the economy”
Investment opportunities are plentiful It means many opportunities for investors, says Mio. Her fund has outperformed the benchmark ever since it was set up in 2004, thanks to its blend of fundamental and quantitative stock-picking techniques combined with a thematic macroeconomic overlay analysis*.
Investors had been spooked this year by fears of a hard landing for Chinese growth following a weaker-than-expected first half, but GDP has accelerated in the second half, and the annual target of 7.5% is now seen as being easily met.
“We think that improving the quality of growth, to be driven by consumption, domestic demand and services-orientated business, and less driven by exports and government, is how the new China will move forward,” she says.
Services-based refocusing China – long the factory of the world, with a heavy emphasis on manufacturing – wants to move to a more services- based economy. In the Shanghai Free Trade Zone, the government has established a ‘negative list’ of ‘old China’ industries that saw heavy state control, and a ‘positive list’ of ‘new China’ businesses that will be promoted.
Negative industries include state monopolies in mining and transport; ‘ideological industries’ such as media; and strategic manufacturing such as railways. The positive industries include financial and professional services, technology, healthcare, education and culture. Those companies on the positive list will not need to obtain government approval for their activities.
Reforms that will be tested within the Shanghai Free Trade Zone include a relaxation of controls on foreign banks and fewer restrictions on foreign shipping at the world’s largest port. The government aims to reduce the barriers to entry for progressive, positive list companies.
The new themes will also focus on cutting China’s notorious pollution levels, offering opportunities for investors in companies engaged in the key growth areas of alternative energy and environmental protection. In technological development, mobile phone penetration is about 90% and internet use even lower at 45%, compared to more than 100% in the west (including smartphones and tablets).
The Chinese economy in numbers
Stock picking strategy Mio’s fund looks to pick the strongest players in each sector. The fund invests in Chinese stocks quoted in Hong Kong and Shanghai, currently representing the old and new Chinas. “It’s a good time to invest – valuations are low right now,” she says.
“Chinese stocks are trading on 9.2 times forward earnings when the long-term average is 12.2 times. It’s been lower than average because of lower GDP growth, but the slowdown has bottomed out.”
“Now China is in a period of cyclical recovery, and that’s very good for the stock market. This has been confirmed by the number of Chinese companies giving more positive guidance for the second half.”
The consensus for earnings growth for MSCI China companies is 10.1% for 2013 and 9.6% for 2014. In the first half, the earnings of index members rose 12% before slowing in the third quarter and recovering in the fourth.
Some risks remain So what are the risks? China remains heavily indebted, with total borrowing equivalent to 209% of GDP, although most of this debt is held by domestic households and corporates rather than foreigners. Debt levels are still much lower than western competitors such as Japan (392%), the UK (292%) and the US (253%).
Property bubble risks have emerged, though this has tended to be concentrated in the four ‘Tier-1’ cities of Shanghai, Beijing, Shenzen and Guangzhou where housing demand has considerably outstripped supply. Mio says other Chinese cities from Tier 2 and below where the majority of people live have similar house value-to-mortgage levels as in the west.
And China will remain a net exporter, partly still reliant on the austerity-hit west, as the steady appreciation of the renminbi hampers the price competitiveness of Chinese exports. The currency has already appreciated by 19% against the US dollar over the past five years, but is still considered “moderately undervalued” by the IMF.
Although the Eurozone recovery remains on track, slowing inflation and euro appreciation is putting pressure on the ECB to loosen monetary policy further this week. However, ING Investment Management does not expect a rate cut (yet). Also the euro does not seem to be much overvalued. Meanwhile, markets are again more driven by liquidity.
The output gap in the Eurozone has steadily widened since 2008 which implies consistent downward pressure on domestically generated inflation. As the graph shows, inflation in the euro region is on a clear downward trend since the end of 2011.
Developments of EUR/USD and inflation since 2007
Pressure on ECB to loosen policy further The slowing inflation highlights how sluggish the region’s recovery is. In October, inflation fell from 1.1% in September to a lower than expected 0.7%, the lowest rate since late 2009. Core inflation (ex food and energy) also fell and is now just 0.8%.
The ongoing decline in inflation, combined with the rise in the euro, is therefore set to increase the pressure on the ECB to loosen monetary policy further. The possibility of a further cut in the policy rate, or new liquidity measures in the form of an LTRO (long-term refinancing operation), is however not a forgone conclusion as the central bank’s governing council seems to be quite deeply divided. Slowing inflation and the appreciation of the euro are arguments in favour of a rate cut, while the improvement – while still fragile – in the real economy and the expectation that inflation will pick up next year (the ECB’s inflation forecast for 2014 is 1.3%) are the main reasons cited by those favouring no change in policy.
Despite the pressure to loosen policy further, the central bank may yet wait until its December meeting when the new quarterly ECB staff macroeconomic projections will provide more insight. This week President Draghi might state that the risks to inflation have shifted to the downside and that an interest rate cut is a possibility, in a bid to – at least temporarily – halt the euro’s rise and keep interest rate expectations low.
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Chris Bullock, co-manager of the Henderson Horizon Euro High Yield Bond Fund. European High Yield Takes on Greater Prominence
Once the preserve of the US, the high yield bond market has followed the trend towards a more globalised world and this is evident in the increasing share of European high yield bonds within the global high yield market.
The chart below shows the market value of the US, European and emerging market high yield bond markets. From a standing start in the mid to late 1990s, the high yield bond market in Europe has grown to represent more than 20% of the global market.
Source: Bloomberg, August 1986 to September 2013. Market Value in USD using BofA ML regional indices (H0A0, HP00, EMHB).
Growth in the European high yield bond market has been particularly rapid since the eruption of the financial crisis. Starved of capital from the banks, which are shrinking their bloated balance sheets, companies are increasingly forced to look towards high yield bonds as a source of financing. The proceeds were deployed primarily to refinance and for general corporate purposes, rather than more aggressive activities such as merger and acquisitions, although there has been greater evidence of the latter this year as corporate executives regain confidence.
The fact that the European high yield market has grown so strongly since the financial crisis has had an interesting structural influence on the market. The last five years has been characterised by a more conservative atmosphere prevailing among ratings agencies. The general drop in sovereign and corporate ratings means that the European high yield market is very diverse in types of issuers and therefore more of a mainstream, liquid market. In addition, alongside companies that would ordinarily be classed as high yield are fallen angels (former investment grade companies), that are likely to recover their higher rating as their prospects improve. A good example would be Continental, the global tyre manufacturer, which recently regained its BBB rating.
The relatively young, but fast-growing European high yield market means there are lots of new names so it is a market that rewards intelligent research and good stock-picking. There remains considerable dispersion in spreads (yield premium over government bonds) across the different ratings in high yield, again creating opportunities for additional gains from astute stock selection.
We expect the European high yield market to follow the US experience, so the coming decades are likely to see significant growth ahead, not just in terms of the size and depth of the market, but also in terms of the experience and confidence of the participants on both the borrowing and lending sides. Market growth, therefore, becomes self-reinforcing as the European high yield bond market matures.
Chris Bullock, co-manager of the Henderson Horizon Euro High Yield Bond Fund
The Carlyle Group announced that Kewsong Lee will join the firm as Deputy Chief Investment Officer for Corporate Private Equity. Mr. Lee comes to this newly-created position at Carlyle from Warburg Pincus where he was Managing Director and Member of the Executive Management Group. Mr. Lee begins his duties in late December and will be based in New York and Washington, DC.
Carlyle Co-Chief Executive Officer and Chief Investment Officer William E. Conway, Jr. said, “Carlyle’s greatest strength is the depth, continuity and collegiality of our global investment professionals. Kew will be a great addition to this team and will play a critical role in helping us ensure the platform we have created continues to make superb investments and create value for our investors.”
Mr. Lee said, “It is an honor to have the chance to join one of the industry’s most successful buyout platforms and to work with Bill and his team. This is an exciting time in Carlyle’s history and I am eager to learn and contribute. After 21 wonderful years at Warburg Pincus, I wish my colleagues all the best.”
As Deputy CIO, Mr. Lee will assist Mr. Conway in a range of activities related to investing and managing Carlyle’s Corporate Private Equity platform, which consists of 11 buyout and growth capital funds totaling $58 billion in assets under management. In addition to becoming a member of each fund’s investment committee, Mr. Lee will join the firm’s Management and Operating Committees, and also help with corporate development for the firm.
Mr. Lee joined Warburg Pincus in 1992, and was a Member of the Executive Management Group. Most recently, he led the firm’s Consumer, Industrial and Services group, and in the past, played an instrumental role in developing Warburg Pincus’s leveraged buyout and special situations efforts. He also led the firm’s financial services practice and helped drive the firm’s capital markets activities. Prior to Warburg Pincus he was a consultant at McKinsey & Company, Inc.
During his Warburg Pincus tenure, Kewsong Lee led numerous transactions, including The Neiman Marcus Group, Aramark, Transdigm, Polypore and Arch Capital Group.
In addition to serving on a variety of corporate boards, he is involved with several committees at Harvard University, and is a Trustee of Choate Rosemary Hall and a member of the Executive Committee of Lincoln Center Theater.
Mr. Lee, 48, earned his MBA from Harvard Business School and his AB in Applied Mathematics in Economics from Harvard College
Photo: Dominicus Johannes Bergsma. Grupo SURA Closes a Positive Quarter With a 28% Annual Growth in Revenues
Grupo SURA published its 3Q13 results, a period that highlights operating revenues amounting to COP 304,919 million (USD 160 million). The above represents, so far this year, a total sum of COP 702,313 million (USD 368 million) with a 28% annual growth.
Likewise, the accumulated net profit was COP 593,647 million (USD 311 million), with a 29.3% annual increase. Net contribution in the quarter was COP 244,217 million (USD 128 million), which represents a 293% increase compared to 2Q13, and 89% higher than the same period in 2012.
The sound performance in 3Q13 is based on the good operating results of subsidiaries Suramericana and SURA Asset Management, and on the recovery of global markets reflected on investment yields as well as the dividends registered on the income statement of Grupo SURA.
Figures backing the sound financial position
On the other hand, the Company’s assets reached COP 22.3 billion (USD 11.7 billion), a figure that displays an 8.2% increase compared with June, 2013, and a 3.15% increase at the end of 2012. With regards to Total Liabilities, a 15.8% decrease was achieved in the quarter, with closes at September with a historically low financial indebtedness coefficient of 2.2%. In addition, the result of the rating revision made by Standard & Poor’s is worth highlighting, which climbed from BBB- to BBB with stable outlook. This improved rating sheds light on the Company’s strengths in terms of the consolidation of its operations in Latin America, the performance of its businesses in different countries, the financial soundness of its investments. Indeed, S&P acknowledges, among others, the Company’s flexibility to access capital, sound investments portfolio, and stable flow of dividends.
Moreover, the financial results are supported by the Company’s inclusion, for the third year in a row, in the Dow Jones Sustainability Global Index, which assesses the social, economic and environmental performance of organizations. Grupo SURA obtained an important valuation in the economic setting, displaying one of the best scores.
It is also worth highlighting that the Company in Q3 successfully completed the merger process after acquiring 50% of AFP Horizonte in Peru, a process made by SURA Asset Management, subsidiary of Grupo SURA. The merger was completed within the terms set forth when the purchase was announced. The pension funds of subsidiaries rising from AFP Horizonte, assigned to AFP Integra, are already being managed by this pension fund manager of SURA, turning Integra into a largest pension fund of Peru.
“We are extremely satisfied with the Company’s results of the end of the quarter. Operations in different countries still display a good performance, our growth plans are still underway in accordance with the estimates made, and the market performance was favorable as well. Likewise, today we have a historically low debt indicator thanks to a rigorous plan implemented for this purpose since early 2012, which confirms the Company’s sound financial standing,” said David Bojanini, President of Grupo SURA.
