Asian Retail Investors Are Not Ready for Liquid Alternative Products

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There is an emerging trend among distributors of pairing multi-asset strategies, for regular income, with liquid alternatives to achieve additional returns.

For instance, banks are advising liquid alternatives to retail investors, which was once targeted at high-net-worth individuals (HNWIs) by certain banks. At a small-to-mid-sized Asian private bank, the advised allocation to liquid alternatives was 20%, while another global/regional bank’s recommendation was 40% for mass affluent clients.

Wealth managers are upbeat on liquid alternative products that are based on long-short or global macro strategies as they believe these strategies can provide investors returns that are uncorrelated to traditional asset classes. Structured products with option strategies as an income-generating idea are also often advised by wealth managers to investors with higher risk appetites.

However, according to a survey conducted for The Cerulli Report – Wealth Management in Asia 2016, retail investors in Asia may not be ready for liquid alternatives just yet.

The survey reveals that the appetite for such products remains low, as investment preference lies in cash and deposits, even as investors wish for 3% to 5% higher returns than their respective country’s one-year deposit rates and cite portfolio diversification as their top priority.

While Asian investors seem to adopt a cautious approach to their investments, Cerulli notes that a lot of convincing needs to be done by asset managers and distributors.
 

AIMA Announces New Chair and Board of Directors

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The Alternative Investment Management Association (AIMA), the global representative for alternative asset managers, has announced a new Chairman and the formation of a new AIMA Council, the Association’s global board of directors.

Taking over as AIMA Chair is Simon Lorne, Vice Chairman and Chief Legal Officer, Millennium Management LLC. He replaces the former SEC Commissioner Kathleen Casey, who served as Chair of AIMA from September 2012 to September 2016.

There are four new additions to the AIMA Council – Robyn Grew, Chief Administrative Officer and GC, Man Group Plc; Han Ming Ho, Partner, Sidley Austin; Ryan Taylor, Partner and Global Head of Compliance, Brevan Howard Asset Management LLP; and Michael Weinberg, Senior Managing Director, Chief Investment Strategist, Protégé Partners.

The Council, who will serve from September 2016 to September 2018, is as follows:

  • Simon Lorne, Millennium Management LLC (Chair)
  • Jack Inglis, AIMA
  • Olwyn Alexander, PwC
  • Andrew Bastow, AQR Capital Managements (Europe) LLP
  • Fiona Carpenter, EY
  • Stuart Fiertz, Cheyne Capital Management (UK) LLP
  • Robyn Grew, Man Group Plc
  • Han Ming Ho, Sidley Austin
  • Tim O’Brien, Pine River Capital Management LP
  • Martin Pabari, CQS (UK) LLP
  • Christopher Pearce, Marshall Wace Asia Ltd
  • Henry Smith, Maples and Calder
  • Ryan Taylor, Brevan Howard Asset Management LLP
  • Philip Tye, HFL Advisors Limited
  • Karl Wachter, Magnetar Capital LLC
  • Michael Weinberg, Chief Investment Strategist, Protégé Partners

As well as Casey, Eva Sanchez of Citadel Europe and Choo San Yeoh of Albourne Partners are also stepping down from the Council.

AIMA Chairman Simon Lorne said: “I’m honored to be named as AIMA’s Chair at this important time in our industry’s evolution. I look forward to working with the outstanding firms and individuals who are the global face of our industry as we work together to best serve the interests of our individual and institutional investors around the world.”

AIMA CEO Jack Inglis said: “I am excited to have such a strong board to guide our work at AIMA, and I am very much looking forward to working closely with Simon Lorne, our new Chair, as we address the big issues facing alternative investment fund managers around the world. We are fortunate to welcome to the Council individuals with the skills and experience of Robyn Grew of Man, Ryan Taylor of Brevan Howard, Michael Weinberg of Protégé Partners and Han Ming Ho of Sidley Austin. On behalf of AIMA and all the membership, I also would like to pay tribute to our out-going Chair Kathleen Casey, who served the Association with such distinction these last four years, and Eva Sanchez and Choo San Yeoh, who have made such an important contribution to AIMA and the global industry over a number of years.”

Lombard International abre oficina en Miami

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Lombard International Opens New Office in Miami
CC-BY-SA-2.0, FlickrHelmer Arizmendy, foto cedida. Lombard International abre oficina en Miami

Lombard International anunció recientemente la apertura de su oficina en Miami, FL, ubicada en el 801 de Brickell Avenue. La nueva oficina será un centro para el equipo de ventas de Lombard Internacional que les permitirá alcanzar a los altos patrimonios de individuos, familias e instituciones en América Latina.

Según Helmer Arizmendy, quien encabeza la práctica en América Latina de Lombard International, la oficina de Miami servirá para acercarse a los asesores y altos patrimonios en Latam «Con esta nueva expansión, esperamos poder dar a conocer nuestras soluciones disponibles para ayudar a proteger y preservar la riqueza».

Esta apertura se lleva a cabo poco después de la expansión de Lombard Internacional en las Bermudas con el nombramiento de Phil Trussell como director administrativo senior para dirigir el crecimiento de sus operaciones de seguros de vida en la región. Además, a principios de este año Lombard Internacional abrió una oficina de representación en París y dos oficinas de corretaje en Asia.

«A medida que el número de individuos y familias de alto patrimonio sigue creciendo, América Latina es, cada vez más, un mercado clave para Lombard internacional», dijo Ken Kilbane, vicepresidente ejecutivo y jefe de Distribución Global en Lombard Internacional. «La apertura de esta nueva oficina consolida -aún más- nuestra posición como líder mundial en soluciones de ingeniería patrimonial para el mercado de alto patrimonio».

In Clinton vs. Trump Race, Bet on Infrastructure

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Yesterday night Hillary Clinton and Donald Trump faced each other in their first Presidential Debate at Hofstra University in Hempstead, New York. The apparent winner was Hillary Clinton. While she calmly and eloquently touched many policy areas in detail, Trump’s lack of preparation had him ranting in a sloppy pattern of interruption after the first half hour, and the markets noticed. For example the Mexican peso – dollar parity went from 19.89 pesos per dollar at the beginning of the debate, to 19.54 towards the end.

Amongst the more memorable quotes are:

From Hillary:

  • «I think Donald just criticized me for preparing for this debate. And, yes, I did. You know what else I prepared for? I prepared to be president. And I think that’s a good thing.»
  • «Well, Donald, I know you live in your own reality,» Clinton responding to Trump’s trade attack.

From Donald:

  • That makes me smart,» Trump said in response to Clinton saying he might not pay federal income taxes.
  • «I was going to say something extremely rough to Hillary, to her family, and I said to myself, ‘I can’t do it. I just can’t do it.’ It’s inappropriate. It’s not nice,’ » Trump told CNN after the debate.

 During the debate they engaged in an occasionally raw series of clashes on topics from trade policy to the Iran deal to Trump’s taxes. It is clear the presidential candidates don’t often see eye to eye, but they both agree that the US needs to fix its crumbling infrastructure. Allianz Global Investors created an infographic that shows how infrastructure spending could pay off for the economy – and how investors could take advantage.

According to Kristina Hooper, US Investment Strategist at Allianz Global Investors “The US presidential election has the potential to negatively affect markets in the short term. Depending on the outcome of the Congressional races, the new president may not be able to see much of his or her platform come to fruition. However, both candidates are likely to increase fiscal spending, which should be positive for the US economy – particularly since it’s unclear how effective monetary policy still is. Investors may want to take a ‘wait-and-see‘ approach to making sector bets – except for infrastructure, which is likely to benefit regardless of who wins in November. Either way, investors should also expect greater volatility as we get closer to the election.”

El Foro FOX Otoño 2016 se centrará en “reforzar la colaboración»

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2016 FOX Fall Forum to Focus on “Strengthening the Partnership”
Foto: Roman Boed . El Foro FOX Otoño 2016 se centrará en “reforzar la colaboración"

Family Office Exchange (FOX) ha dado a conocer el programa de su 2016 FOX Fall Forum, que se celebra entre el 2 y el 4 de noviembre en Chicago. El foro de otoño de este año, titulado «Fortaleciendo la colaboración«, pondrá de relieve cuestiones que afectan a las relaciones entre los líderes de las familias, los ejecutivos de las oficinas y los asesores de confianza y ofrecerá técnicas para reforzarlas.
Cabe destacar la participación en el evento de:

  • Mellody Hobson, presidenta de Ariel Investments y presidenta del Consejo de Administración de DreamWorks Animation, que se unirá a la fundadora y CEO de FOX, Sara Hamilton, en una charla informal para hablar de su filosofía de inversión y las muchas formas en que las familias pueden colaborar para hacer del mundo un sitio mejor en las próximas décadas.
  • Michael Hayden, general retirado de las fuerzas aéreas norteamericanas, principal en Chertoff Group y ex director de la Agencia Nacional de Seguridad y la Agencia Central de Inteligencia, que explorará los dinámicos acontecimientos geopolíticos de hoy en día y los riesgos, con especial atención a la inteligencia y ciberseguridad en todo el mundo.
  • Julia Balandina Jacquier, fundadora y managing director de JBJ Consult, que hablará sobre por qué y cómo las familias líderes en riqueza utilizan la inversión de impacto, y compartirá ideas tomadas de su nuevo estudio «Catalizar la riqueza para el cambio, una guía para la inversión de impacto».
  • Mark Hatch, autor de «The Maker Movement Manifesto», que compartirán cómo la fabriación avanzada, el crowdfunding, la economía colaborativa y los mercados online están allanando el camino para que las personas puedan crear, innovar y generar riqueza para ellos y sus inversores.

«FOX Fall Forum es el evento más señalado de la familia de la gestión del patrimonio, con ideas y contactos que no se encuentran en ningún otro lugar», declara el presidente de FOX, Alexandre Monnier. «Estamos especialmente ilusionados con el programa de este año, que cuenta con ponentes reconocidos mundialmente para tratar una amplia gama de relevantes temas para nuestros socios».

La agenda del Foro de otoño incluye sesiones en las que analizará el tema de los acuerdos y las colaboraciones tanto dentro como fuera de las familias. También explorará temas como la inversión en un entorno post electoral, el diseño de un plan de estudios que informe y solidifique las asociaciones, comprender y abordar la brecha de riqueza, o valorar el papel de la narración familiar para mantener la continuidad de la familia y su visión.

Y al igual que en todos los foros como FOX, los asistentes tendrán la oportunidad de ampliar sus redes con otros propietarios de negocios y ejecutivos con amplia experiencia en varios eventos sociales de acoplamiento.

Puede encontrar más información sobre el foro utilizando este link.

Japan Wheels Out Its Helicopters

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The BoJ sends an invitation to government, a challenge to markets.

The engines aren’t running yet, and the fuel is still on its way. But in last week’s announcements from the Bank of Japan there was the unmistakable sound of helicopters being wheeled out of their hangars.

Wednesday’s central bank doubleheader saw the Federal Reserve deliver the usual mix of hawkish tones and no action that we’ve come to expect, having already been upstaged by Bank of Japan Governor Haruhiko Kuroda’s headline-grabbing innovations.

‘Yield Curve Control’: A Step towards Helicopter Money

Markets had expected a commitment to negative rates combined with a tweak to the bonds purchasing program to steepen Japan’s yield curve. Instead, Kuroda announced a more aggressive commitment to a 2%-plus inflation target and a target for the 10-year yield: Bonds will be purchased to keep the latter “around the current level” of zero percent.

This is a commitment to negative deposit rates: Holding the 10-year yield at zero stops negative short rates from spreading out along the curve, and that upward slope should help banks and insurance companies survive as long as those negative rates are required.

It also doubles down on the QE “portfolio effect.” Should Japan one day succeed in generating growth and inflation, holding the 10-year at zero implies an increasingly negative real yield, and an ever-greater incentive to sell bonds and buy real assets.

But, most importantly, it is the clearest signal yet that the Bank of Japan wants the government of Japan to take on more debt and start spending aggressively. When you reach the outer bounds of what is possible with monetary policy alone, you need a fiscal policy that creates a genuine prospect of inflation, which in turn can provide the fuel for low rates to work through the portfolio rebalancing channel. Only then do the two arms of policy reinforce one another.

Back in July, we saw signs that the Japanese government was ready to contemplate new measures. By committing to buying 10-year bonds at a zero yield no matter what, the Bank of Japan has promised the “helicopter money” to finance those measures.

Some Market Players Will Fight This…

If this is an invitation to the government, it is also a challenge to financial markets. No good can come of such egregious market interventions and distortions, argue some very prominent investors; it’s unsustainable, and a lot of money can be made by those brave enough to try to break the policy. They point to failed interventions and policy targets of the past, from the Fed’s “Operation Twist” in the early 1960s, through various ill-fated currency pegs, to the unravelling of the European Exchange Rate Mechanism (ERM) after Black Wednesday in September 1992.

They may be right over the long term. Japan must hope it can rediscover modest growth and inflation with these policies before its enormous debt burden collapses the yen under its weight. That may prove impossible.

But would you bet on that failure now, when Japan has time and political commitment on its side? These are powerful forces. People have been shorting Japanese government bonds for 20 years already, and they keep getting carried off the field.

…But It Is Kuroda’s ‘Draghi Moment’

The world is very different than it was in 1992, when the ERM failed. The new era dates from 2012 and ECB President Mario Draghi’s defining pledge to do “whatever it takes” to preserve the integrity of the European single currency, the ERM’s successor. Before these words were uttered, the Greek debt crisis was dragging the euro to the edge of a very sheer cliff—and a lot of investors had been waiting years for the chance to push it over. Big, 100-year-old financial institutions had been shorted out of existence during the financial crisis, they reasoned. Surely it was a small step to do the same for the Eurozone?

They were denied their moment and we all learned the dangers of trying to short political entities out of existence when they have strong leadership and resolve.

If the ECB can hold its own while trying to satisfy 19 disagreeing masters, imagine what the Bank of Japan can do with the full backing of its government. It is already well on the way to buying up the second-biggest bond market in the world. Now its helicopters are out, and markets probably won’t have the ammunition to shoot them down.

Neuberger Berman’s CIO insight by Brad Tank

Despite Global Offshore Financial Market Growth Slowing in 2015, Unrest will Keep Industry Afloat

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While 2015 was a weak year for the global offshore financial market, with growth slowing to 1.6% over the previous year, there are notable differences between offshore centers and their propositions and performances, and wealth managers need to understand these differences to service customers more effectively, according to financial services research and insight firm Verdict Financial.

The company’s latest report found that safe havens, such as the US and Switzerland, are rising in prominence, while more traditional offshore destinations, such as the Bahamas, are experiencing declines in offshore assets.

Heike van den Hoevel, Senior Analyst at Verdict Financial, notes: “Understanding the unique selling points of each offshore center is key to determine not only their performance, but also future prospects, and the reasons why investors will want to invest there.”

For example, the Bahamas, which is mainly known as a tax haven, has struggled in recent years. In light of recent scandals, in particular the Panama Papers, as well as increased media attention on tax evasion, investors and wealth managers are turning away from traditional offshore centers to avoid being tainted by association.

Switzerland, one of the world’s largest safe havens, represents another interesting example. Traditionally known for banking secrecy and numbered accounts, the Alpine state felt the full brunt of the increased pressure on offshore centers after the 2008 crisis, and retail non-resident deposits declined by 24% between 2008 and 2013. However, the tide is turning, and the Swiss government has made efforts to increase transparency and end bank secrecy in recent years, most notably committing to the automatic exchange of tax information as part of the OECD’s Common Reporting Standard, which will begin in 2018.

Van den Hoevel continues: “These efforts combined with the country’s safe haven status have seen non-resident deposits return in recent years. Various international developments – including Britain leaving the EU, the coup in Turkey, continuous unrest in the Middle East, slowing economic growth in China, and uncertainties surrounding Russia’s geopolitical ambitions – have all contributed to funds flowing back into Switzerland as investors seek a safe haven for their money.”

 

The Japanese Equity Market Remains Attractive

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On Wednesday both the Federal Reserve and the Bank of Japan decided upon leaving interest rates on hold. However, the BOJ shifted the focus of its monetary stimulus from expanding the money supply to controlling interest rates. Its policy announcement  had two main parts. First, it committed itself to continue expanding the monetary base until the inflation rate “exceeds the price stability target of 2 percent and stays above the target in a stable manner.” Second, it will start targeting the yield on ten-year Japanese government debt (JGBs), while continuing to buy about 80 trillion yen in JGBs annually.

A decision that former Fed Chairman, Ben Bernanke, found puzzling given the curent policy looks to both setting a price and buying a given amount at any price but he believes «that the BOJ was concerned that dropping the quantity target would lead market participants to infer (incorrectly) that the Bank was scaling back its program of monetary easing. Over time, assuming that the BOJ does adhere to its new rate peg, the redundant quantity target is likely to become softer and to recede in importance. The BOJ’s communication will accordingly begin to emphasize the yield on JGBs, rather than the quantity of bonds in the BOJ’s portfolio, as the better indicator of the degree of monetary policy ease.»

According to Tomoya Masanao, Head of Portfolio Management Japan at PIMCO, «the decision is in part a reflection of the BOJ’s recognition that base money expansion itself has little easing effect and that Japan’s neutral yield curve, which is neither expansionary nor contractionary for the economy, is steeper than the bank would have thought.  The actual yield curve should not be too flat relative to the neutral curve otherwise the economy will be negatively affected through weakening of financial intermediation.»

Paul Brain, Head of Fixed Income at Newton Investment Management commented: “This is no bazooka from the BoJ but it’s an interesting approach nonetheless. Targeting long term rates as well as short rates reminds us of the period in the 1940s and 1950s when the US fixed 10 year government borrowing rates. It opens the door for more government spending finance at very low rates without further undermining the banking system.” While Miyuki Kashima, Head of Japanese Equity Investments, BNY Mellon Asset Management Japan said he believes the mid to longer-term prospects for the Japanese equity market remain attractive «as the domestic economy is at a rare transitional phase, moving from a period of contraction to one of expansion. The market sell-off this year has been largely due to external factors, and while Japan will be affected by any global slowdown for a period, the country has a large domestic base and can weather such turbulence much better than most economies. Contrary to Japan’s image as export dependent, reliance in terms of GDP is only about 15%, much smaller than most countries in Asia or Europe. The lower oil price is positive for corporate profits overall.’

 

Wine Investments to Benefit From Brexit

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A survey of over 100 UK IFAs and wealth managers has found that over a quarter expect the demand for investments in wine to grow over the coming 12 months as investors look for more real assets and diversification in the wake of the decision of UK voters to leave the EU.

According to Cult Wines, a specialist in the acquisition and investment management of fine wines, the research into the views of 101 UK intermediaries in July this year found that 27% expect Brexit to drive investments in this area.

Industry benchmark the Liv-ex Fine Wine 100 index gained 3.6% in June alone in the wake of the Brexit vote. This was the largest positive monthly movement since November 2010, and the index’ monthly closing level of 269.07 was the highest since August 2013.

In the week after the Brexit vote, Cult Wines says its trade sales rose 106%. The trend of strong sales has continued since then, the company says, as US and Asian investors have benefitted from weaker sterling against the dollar and the Hong Kong dollar.

The diversification element of invesing in a real asset such as wine is cited by about half, 48% of those intermediaries who see increasing investments in fine wine. Some 42% cited “attractive medium to long term returns”. The compounded annual return on investable wines since 1988 has averaged 10.65%, Cult Wines says.

Intermediaries also noted that awareness of wine as an invesable area has been rising among high net worth retail investors – as it has for alternative physical investments generally.

Cult Wines estimates the fine wines sector to be worth over $4bn annually, adding that “fine wines tend to perform well when the pound is weaker and boasts a number of defensive characteristics. Holdings in wine are not normally linked to other asset prices, with the long term correlation between wine prices and the FTSE 100 at just 0.04.”

Tom Gearing, managing director at Cult Wines, said: “An allocation towards fine wine provides investors with a number of guarding characteristics, and has the advantage of not necessarily following the general trend of lagging behind the rest of the market during economic expansion because demand is consistently strong. Real assets remain an attractive option as they tend to change in value independently of the core financial markets.”

Globally, sales of fine wines to investors continue to grow. Cult Wines opened an office in Hong Kong earlier in 2016; the market estimates that half of Bordeaux’s fine wines went to Asia last year, while its share of the Bordeaux export market has more than doubled over the past decade. Cult Wines’ own sales to Hong Kong in the first half of 2016 were £1.6m, and it expects annuals sales over £5m. Compound annual growth experienced in the region in the past four years has been 235%, and it expects annuals sales of £20m by 2020.

Net Sales of UCITS See Strong Rebound in Q2 2016

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The European Fund and Asset Management Association (EFAMA) has recently published its latest Quarterly Statistical Release describing the trends in the European investment fund industry in the second quarter of 2016. 

The Highlights of the developments in Q2 2016 include:

  • Net sales of UCITS rebounded to EUR 71 billion, from net outflows of EUR 7 billion in Q1 2016.
  • Long-term UCITS, i.e. UCITS excluding money market funds, posted net inflows of EUR 44 billion, compared to net outflows of EUR 5 billion in Q1 2016.
    • Equity funds continued to record net outflows, i.e. EUR 18 billion compared to EUR 4 billion in Q1 2016. 
    • Net sales of multi-asset funds increased to EUR 14 billion, from EUR 6 billion in Q1 2016.
    • Net sales of bond funds rebounded to EUR 42 billion, from net outflows of EUR 9 billion in Q1 2016.
    • Net sales of other UCITS increased to EUR 5 billion, from EUR 2 billion in Q1 2016.
  •  UCITS money market funds experienced net inflows of EUR 28 billion, against net outflows of EUR 2 billion in Q1 2016.
  • AIF net sales increased to EUR 55 billion, from EUR 43 billion in Q1 2016.
    • Net sales of equity funds fell to EUR 3.7 billion, from EUR 6.7 billion in Q1 2016. 
    • Net sales of multi-asset funds fell to EUR 15.2 billion, from EUR 20.3 billion in Q1 2016.
    • Net sales of bond funds rebounded to EUR 7.3 billion, from net outflows of EUR 170 million in Q1 2016.
    • Net sales of real estate funds fell to EUR 3.3 billion, from EUR 8.0 billion in Q1 2016.
    • Net sales of other AIFs increased to EUR 22.5 billion, from EUR 11.5 billion in Q1 2016.
  • Total European investment fund net assets increased by 2.1% in Q2 2016 to EUR 13,290 billion. 

Net assets of UCITS went up by 1.7% to EUR 8,073 billion, and total net assets of AIFs increased by 2.8% to EUR 5,217 billion.

Bernard Delbecque, Senior director for Economics and Research at EFAMA commented: «Net sales of UCITS rebounded during the second quarter of 2016 thanks a signification increase in the demand for bond funds and money market funds, which can be partly explained by the low interest rate environment and renewed expectations of further falls in interest rates.”