. Liquidity Management Top Priority for Fund Managers and Institutional Investors in New Market Environment
State Street Corporation in partnership with the Alternative Investment Management Association (AIMA), the global representative of alternative investment managers, released a new research report that found that nearly half (48 percent) of survey respondents say that decreased market liquidity is a secular shift that is here to stay. Regulations stemming from the 2008 financial crisis, coupled with historically low interest rates and slow rates of growth in the global economy, have constrained the ability of many banks to perform their traditional roles as market makers, which in turn has impacted broader market liquidity conditions.
More than three-fifths of the survey respondents say current market liquidity conditions have impacted their investment management strategy, with nearly a third rating this impact as significant, and are reassessing how they manage risk in their investment portfolios. More broadly, they are adjusting to an environment of less liquidity in which trading roles have been transformed, new market entrants are emerging, and electronic platforms and peer-to-peer lending are changing the way firms transact their business.
“Increased regulation and the pressure to manage costs have significantly changed market liquidity conditions,” says Lou Maiuri, executive vice president and head of State Street’s Global Exchange and Global Markets businesses. “The new liquidity paradigm is causing many players in the investment industry to think again about the fundamentals: what roles they play, where they invest, and how they transact their business.”
While there is no one-size-fits all strategy for balancing risk and return in the current market environment, investors and managers are adapting to the new environment by focusing their efforts in three areas:
Rationalizing the risk
Optimizing the portfolio
New rules, new tools
49% say the role of non-bank institutions as liquidity providers will grow and 42% say that this growth will come from hedge funds Nearly half (47%) say hedge funds may play an important role in providing liquidity in more volatile markets. “With liquidity likely to remain top of mind for years to come, now is the time to find the strategies, tools, and solutions that will make a sustainable difference in the new investment climate,” continued Maiuri.
“Hedge funds and other asset managers are responding to more challenging market liquidity conditions by increasingly seeking out new opportunities, including taking on a more prominent role as market-makers, providing new sources of finance to the real economy, and lending their support and expertise to improving liquidity risk management,” added AIMA CEO Jack Inglis.
Gustavo Lozano, courtesy photo. Pioneer Investments Wins a Mandate for Mexican Afore XXI-Banorte
Global Asset Manager, Pioneer Investments, announced on Monday the appointment of an Asian Equity Mandate with Mexican pension fund manager, Afore XXI Banorte. The mandate, totaling close to USD 150 million, will be actively managed by the specialist Asian Equities investment team at Pioneer Investments’ London hub. Pioneer Investments, which currently has USD 246 billion of Assets Under Management globally, has been managing Asian Equity assets since April 2008 based on a consistently applied philosophy and process. This approach has provided a strong track record over the medium to long term through all market cycles.
Afore XXI Banorte, the pension fund manager in Mexico, awarded Pioneer Investments the mandate as it diversifies its investment strategy and seeks to provide its customers with access to investment opportunities across the international markets. To date, Afore XXI Banorte has funded one previous mandate on European Equity Markets with Schroders and BlackRock and this is the second project that they are awarding. The funding period is expected to be quicker than previous industry experiences on the back of regulation flexibility and experience acquired.
The Asian Equity mandate, a segregated account close to USD 150 million, follows an original pan Asiatic approach that includes Japan. This allows the investor to benefit from emerging Asia potential while investing in developed market companies based in Japan and Australia.
Gustavo Lozano, Country Head of Pioneer Investments Mexico, commented: ‘’We are delighted to be able to partner with Afore XXI Banorte. We have been working with them and other pension funds to develop of long-term institutional relationships in an integral relationship where knowledge transfer and investment capabilities are key. We believe that our fundamental, proprietary research-driven approach to investment in Asian Equities stood out through the selection process, and we look forward to building a rewarding relationship with the Afore going forward.’’
Jose Castellano, Head of Iberia, North America Offshore & Latin American Markets at Pioneer Investments, noted: ‘’ Pioneer Investments opened a Mexico Office in 2012 and being able to work with Afore XXI Banorte is the culmination of efforts from a variety of areas of our business. Afore XXI-Banorte is the largest pension fund in Mexico and key for our consolidation as a top international active manager in the country and the region. We believe that our best-in-class service proposition together with our investment expertise is key to developing long-term relationships. We are honored to be awarded this mandate by Afore XXI Banorte, and we will continue to work closely with them to secure both a high quality of service and strong long-term performance.’’
Sergio Mendez, CIO for Afore XXI Banorte noted: “We selected Pioneer Investments for the strength of their process, their performance record, original investment proposition and the stability of the investment team. We are excited to be moving forward with Pioneer Investments, giving the Mexican pension fund market access to international expertise. Afore XXI-Banorte continues its diversification in international markets building strong and beneficial partnerships with the global Asset management community that will benefit Mexican pensioners in the long run.”
CC-BY-SA-2.0, Flickr. Standard Life Investments Extends Ryder Cup Deal
Following the 41st Ryder Cup at Hazeltine National Golf Club in Minnesota last Fall, where the US regained the trophy, the global asset manager, Standard Life Investments, confirmed that it has extended its ground-breaking sponsorship of The Ryder Cup to include the 2018 contest, which will be played at Le Golf National, Paris, France, from September 28-30 2018.
Commenting on the extension, Nuala Walsh, Global Head of Marketing & Client Relations at Standard Life Investments, said: “The Ryder Cup continues to reflect and complement our commitment to fostering team spirit in order to deliver performance excellence. Following the 2016 contest at Hazeltine National in Minnesota, and our close partnership with the European Tour, we are thrilled to announce an extended commercial agreement for The 2018 Ryder Cup.”
Keith Pelley, Chief Executive of The European Tour, the Managing Partner of Ryder Cup Europe, welcomed the extended partnership: “The Ryder Cup is one of the most prestigious events in sport and Standard Life Investments both share and exemplify our values of integrity and the pursuit of potential. We are delighted that they have chosen to extend their partnership with The Ryder Cup and we look forward to working together to deliver another world-class contest in Paris in 2018.”
Standard Life Investments became the first Worldwide Partner of The Ryder Cup in February 2013, sponsorship which included both Europe’s victory at Gleneagles in 2014 and the recent US triumph at Hazeltine National in 2016.
Foto: AedoPulltrone, Flickr, Creative Commons. Aviva to Lift UK Property Fund Suspension On December 15th
Aviva Investors has announced it will resume trading of its £1.5bn Property Trust on 15 December, having suspended the fund on 4 July to implement a “sustainable sales programme” in order to raise liquidity.
In a note sent to investors seen by InvestmentEurope, the asset manager said the trust has sold 11 properties totalling £212m between the EU referendum vote and 17 November 2016. The temporary suspension has allowed the company to be selective with its orderly sales programme, and ensure the retained portfolio remains “robust and well diversified.”
“There have been no forced sales, and we have focused on taking the right time to obtain the best value on sales, whilst retaining core assets and maintaining a balanced UK commercial property portfolio. Prices achieved have been broadly in line with market valuation changes since the EU referendum vote,” the note reads.
“The sales have been selected in line with our wider real estate strategy to focus on fewer centres, and values achieved have been broadly in line with market valuation changes since the EU referendum vote. We are confident that the trust holds a robust and diverse portfolio of properties; providing significant potential for growth, a strong income stream and the opportunity for further income growth,” Ed Casal, CEO of Aviva Investors Real Estate, said.
“Despite the recent uncertainty in the market, yields on property remain relatively attractive in a low interest rate environment. We believe there is a convincing place for the asset class within a balanced portfolio for long-term investors,” he added.
Fund co-manager retires
Aviva has also announced that Mike Luscombe, co-manager of the fund, will retire at the end of January. Following his departure, Andrew Hook, co-manager of the fund since March 2015, will assume the role of lead manager.
Hook joined Aviva in 2007 and has over 15 years’ industry experience.
“He has played a key role in the repositioning of the trust’s portfolio over the past year, and will be supported by a dedicated and experienced asset management team along with the newly-established UK transaction team, who between them help source, develop and manage the properties in the portfolio,” the note reads.
Photo: Keitikee, Flickr, Creative Commons.. Growth in Global Wealth Remains Limited in 2016
According to the Credit Suisse Research Institute’s (CSRI) seventh annual Global Wealth Report, the overall growth in global wealth remained limited in 2016, continuing the trend that emerged in 2013 and contrasting sharply with the double-digit growth rates witnessed before the global financial crisis of 2008.
In the mid-term, only moderate acceleration is expected. Switzerland once again ranked as the global leader in terms of average wealth per adult in 2016.
As the latest edition of the CSRI Global Wealth Report shows, total global wealth in 2016 edged upwards by USD 3.5 trillion to a total of USD 256 trillion (or 1.4%), a rise very much in line with the increase in the world’s adult population. Accordingly, average wealth per adult of USD 52,800 remains in line with last year’s figures.
Brexit vote hits wealth
The UK suffered a significant drop in wealth in 2016, with USD 1.5 trillion being wiped off household wealth in response to the Brexit vote, which triggered a sharp decline in exchange rates and the stock market.
Michael O’Sullivan, Chief Investment Officer of International Wealth Management at Credit Suisse, stated: “The impact of the Brexit vote is widely thought of in terms of GDP but the impact on household wealth bears watching. Since the Brexit vote, UK household wealth has fallen by USD 1.5 trillion. Wealth per adult has already dropped by USD 33,000 to USD 289,000 since the end of June. In fact, in US dollar terms, 406,000 people in the UK are no longer millionaires.”
Japan rises, distribution of Chinese wealth growth more unequal
The Global Wealth Report also highlights the impact of adverse currency movements, which caused wealth to fall in every region except Asia-Pacific. The highest rise in wealth amongst individual countries was achieved by Japan with a total increase of USD 3.9 trillion, followed by a USD 1.7 trillion rise in the US. Switzerland once again topped the rankings in terms of average wealth per adult. Despite a decline in average adult wealth, its leading position remains unchallenged.
Loris Centola, Global Head of Research of International Wealth Management, said: “The consequences of the 2008-2009 recession will continue to have a material impact on growth, which is pointing more and more towards a long-term stagnation. The emergence of a multi-polar world, confirmed by the impact of the Brexit vote in the UK and by the US Presidential election, is likely to exacerbate such a trend, which could possibly lead to a new normal lower rate of wealth growth.”
Key themes addressed in the Global Wealth Report include:
Wealth outlook
Trends in the number of millionaires
The wealth pyramid
Bottom billion
Inequality
For a copy of the Global Wealth Report 2016, follow this link.
CC-BY-SA-2.0, FlickrFoto: audvloid
. La noche es más oscura justo antes del amanecer
The victory of Donald Trump in the U.S. presidential election has led to widespread market movements. After initial adverse movements, equities rallied and bond yields jumped as Trump’s initial statements reassured markets, calling for unity and pledging that he will be the “president of all Americans”.
In Lyxor AM‘s weekly commentary, the team notes that cyclical sectors have done better than defensive sectors (except health care stocks which have done well) as looser fiscal policy is expected to support economic activity. Coupled with the possibility that the Trump administration will implement protectionist trade policies, expectations of fiscal stimulus are leading to a sharp repricing of bond yields.
Philippe Ferreira, Director, Senior Cross-Asset Strategist at Lyxor Asset Management, points out that although they do not yet have comprehensive data on hedge fund performance covering the period since the U.S. election, their initial estimates suggest that:
Long term CTAs were down as losses on their long fixed income positions were only partially offset by gains on long equities, long USD and long energy in commodities.
Global Macro experienced a wide dispersion in returns. Some strategies that were long EM currencies (MXN in particular) experienced losses in the range of 2-3% over the recent days. Meanwhile, managers that were short duration in fixed income were up and some managers investing in equities were flat as gains on longs on European and Japanese indices were offset by losses on shorts on U.S. indices.
Within the L/S equity space the long biased managers benefitted from the market rally as well as from positions on health care stocks. EM L/S specialists are down in the order of 2% on the day of the election and are deleveraging quite aggressively.
Event Driven strategies marginally benefitted from their exposure to health care stocks but overall their lower net exposure ahead of the election prevented them from joining the market rally. Implications for the strategy are rather long term and could be positive to the extent that the march towards tougher regulations might be stopped.
L/S Credit and Fixed Income Arbitrage were resilient in front of higher bond yields. We estimate L/S Credit funds were down 8 to 15 bps on the day of the election.
CC-BY-SA-2.0, FlickrPhoto: Carlos ZGZ
. Why Brexit Offers Opportunities for Private Equity
According to Christopher Moxon, Antoon Schneider, and Philippe Morel from BCG, the UK’s vote to exit the European Union is already leaving a mark on the country’s economic landscape. They believe that while the full timing and extent of the break are uncertain and may not be known for several months, many British companies are starting to reassess aspects of their business. Therefore, private equity firms will have to step up their due diligence and accept additional risk in UK investments. But the breakup also offers an opportunity for PE firms that have honed their capabilities in helping companies deal with change.
The company is certain PE firms have notable advantages over corporate acquirers and IPOs during periods of change since they combine abundant capital with a sense of urgency, yet their longer investment horizons allow them to acquire companies in uncertain times. “Whether the goal is operational efficiency, investment for growth, bolt-on acquisitions, or spinoffs, companies can generally move more aggressively under private equity than under corporate or independent ownership.”
Among sectors likely to be hit by Brexit, they identified four of particular interest to PE firms, as well as several secondary sectors. They chose them mostly because they think they present the greatest opportunities, but also because they illustrate the advantages that PE firms have in competing for these assets, especially in the short term. Most promising are companies that depend heavily on EU trade, workforces, or regulations.
For the BCG team Industrial Distribution, Private Medical Clinics and Laboratories, Aerospace Manufacturing, and Employment and Recruitment Services, will face substantial risks at this time of uncertainty and volatility. But PE firms, especially those focused on adding value to opera- tions, are well placed to help them succeed.
Other sectors of interest include Nonfood Retail, Agricultural Suppliers, Specialty Chemicals and Asset Management.
Regarding AM they mention that like other areas of financial services, “this sector could be hit hard by companies shifting activity from London to elsewhere in Europe. It was already slowing down before Brexit, and now many banks are withdrawing from the market. But with the Bank of England keeping interest rates around zero, investors will continue to seek asset managers that can offer higher returns. PE’s best opportunity here may be with niche asset management companies.”
You can read their complete article following this link.
CC-BY-SA-2.0, FlickrPhoto: Ana Patricia Botín, World Travel & Tourism Council
. Santander Buys Back its AM Unit From Warburg Pincus and General Atlantic
After Santander and Unicredit decided not to merge its Asset Management branch with Pioneer Investments –which would have given them over 400 billion in assets under management, Santander has reached an agreement to buy back the 50% stake Warbug Pincus and General Atlantic bought back in 2013.
The deal, for an undisclosed amount, will give Santander full control of Santander Asset Management, which in 2013 was valued at 2.05 billion.
In a statement to Spain’s financial regulator, the CNMV, the spanish bank mentioned that, as part of the deal, the parties are considering a sale of Allfunds bank, confirming previous rumors. Santander, Warbug Pincus and General Atlantic, currently own 50% of the business, while Italian Intesa Sanpaolo holds the other 50% stake of Allfunds. Santander created Allfunds in 2000 to help financial institutions get access to so-called open architecture funds. Italian lender Intesa acquired a stake in 2004 as part of Allfunds’s international expansion. The company has offices in Spain, Italy, the U.K., Chile, Colombia, Dubai, Luxembourg and Switzerland andcould be valued at about 2 billion euros ($2.2 billion) and attract interest from private equity firms.
Allfunds reported profit of 69 million euros in 2015, up from 46.4 million euros a year earlier, according to the company’s financial report.
Santander Asset Management has over 170 billion euros in AUM and presence in 11 countries. Santander Asset Management has over 755 employees worldwide, of which around 220 are investment professionals. they expect that in 2018 this operation will give them a ROI above 20% and above 25% for 2019.
CC-BY-SA-2.0, FlickrPhoto: Joe Le Merou. Muzinich's New Hires Prepare Two Fund Launches
Corporate debt specialist Muzinich & Co is to launch two new funds to be managed by Torben Ronberg, Stuart Fuller, Sam McGairl and Alex Woolrich, the loans team who recently joined from ECM Asset Management Limited, a Wells Fargo Asset Management company.
Ronberg and his team, who took up their posts this week, will now prioritise the launch of a new European senior secured loans vehicle, the Muzinich European Loans Fund. They are also putting the foundations in place for the launch of a multi-asset vehicle, the Muzinich Senior Secured Fund, which will have a broader investment mandate. This vehicle will primarily invest in senior secured loans and senior secured high yield bonds, combining the core strengths of the joining team with that of the established team at Muzinich.
Both funds will sit under Muzinich’s Irish-domiciled ICAV, which has been established as a Qualified Alternative Investment Fund. They will be aimed primarily at pension funds, insurance companies and other institutional investors.
George Muzinich, founder and Chairman of Muzinich, said: “We’re thrilled to welcome Torben and his team, who have worked together for over a decade and established an outstanding reputation in the industry.”
Ronberg said: “We have built a 10-year benchmark-beating track record, delivering strong single-digit annualised returns through senior secured loan strategies. We’re confident that this asset class can continue to deliver attractive risk-adjusted returns. We believe there’s growing interest in senior secured loans from pension funds and other institutional investors. Senior secured loans offer attractive all-in floating rate returns, so they provide some protection against interest rate rises.”
CC-BY-SA-2.0, FlickrPhoto: Mark Morgan. Frenzied M&A Activity to Support Event Driven
October was a supportive month for Global Macro funds, which almost erased their year to date losses in a single month. According to LyxorAM’s Cross Asset Research team, the top contributors to their stellar performance last month included a short duration stance in fixed income and long positions on the USD vs. EUR and GBP in FX. Meanwhile, for Macro managers investing in equities, their preference for European and Japanese equities vs. US equities also paid off in October.
With regards to Event-Driven, Lyxor noted that the strategy underperformed on the last week of October (-0.3%) and is down almost 1% last month. “It is not surprising to see the strategy in the red when 10-year Treasury yields jump 25 bps in a month, as it has historically been negatively correlated to bond yields. But most managers were fairly resilient despite the adverse market conditions.” They state.
Going forward, the team maintains their slight overweight stance on Event-Driven, with a continued preference for merger arbitrage players. “We believe that the strategy can cope with higher bond yields as its net exposure to both equities and bonds has continued to decrease lately. Managers have thus ample room to deploy capital as opportunities arise. And in that regard, Bloomberg data suggests that October was one of busiest months ever for global M&A activity.”
Announced M&A deals represented more than USD 470bn (applies to deals with a transaction value above USD 400m). US M&A activity represented 60% of the total, and the media sector has been the most active thanks to deals such as the USD 107bn proposed merger between AT&T and Time Warner. Yet, ahead of US elections most Event Driven managers stayed cautious and waiting for greater political clarity before deploying their capital. “The strategy is thus likely to be resilient if equity volatility continues to rise, which would lead to wider deal spreads and open the door for cash deployment.” They conclude.
