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The shadow rate casts gloom
Capital Markets
Nearly 92% of economists surveyed this week by the Wall Street Journal expect that our eight-year experiment with unprecedented monetary easing from the Federal Reserve will come to an end at the next Fed meeting in December. Since we have had the monetary wind at our back for so many years, at least a few have begun to question our…
Video: Hedgeable's Mike Kane tells us what he would do differently
FinTech
<p>&nbsp;</p> <p>Everyone makes mistakes when launching a new company. In this interview with NexChange, Hedgeable's founder Mike Kane shares what he would do differently when prepping to go overseas.</p> <p>Kane will be part of a New York City panel on November 18 discussing startups seeking to raise funds and go global in Asia. For more information and registration, follow this link here.</p>
Ageing Japan nurtures Indonesia’s youthful startup scene
Venture Capital
<p>As Japan’s economy struggles with the realities of an ageing demographic at home, its venture capital investors are looking for fresh blood in nearby emerging markets, namely Indonesia.</p> <p>The topic of Japan’s powerful influence in Indonesia’s startup scene was a central topic of discussion at Tech In Asia’s Jakarta event last week, the site reports. Telecoms giant SoftBank, internet firm CyberAgent, and e-commerce companies Rakuten and Beenos have all been hungrily snapping up stakes in Indonesian startups in recent years. </p> <p>The poster child of this Asian alliance is Tokopedia, the Indonesian e-commerce startup that has scooped up investments from SoftBank, Beenos, and CyberAgent at different stages. The influence is such that it is has moulded Tokopedia’s business culture, with the company using the Japanese word for friend – Nakama – to refer to its employees.</p> <p>So why is Japan into Indonesia? Well, part of the reason is that some of the earlier investors in China's internet space are trying to replicate their success in Indonesia. SoftBank, for example, struck it big by backing Alibaba and is now trying to repeat this in Indonesia with Tokopedia. The country is also attractive to those who missed out on the China opportunity altogether. Steven Venada of CyberAgent said:<br /> “Taobao [a market place owned by Alibaba] in China worked, and we went looking for something similar in Indonesia. Tokopedia had a great team, it was still early and there was a lot of opportunity.”<br /> But Japan’s mature economy and ageing demographics is also a big factor, Venada said, with a market like Indonesia offering Japanese VCs more low hanging fruit. He added:<br /> “In Japan, opportunities are more in replacing existing services, whereas in Indonesia there is still wide open space. No need to go for the niche.”<br /> Photo: Niko Knigge</p>
Number of German hedge funds ‘can be counted on two hands’
Hedge Funds
<p>Dismissed by the nation’s financial institutions for their lack of transparency and stung by a 2004 directive that allowed asset managers to use derivates, German hedge funds are slowly going the way of the dodo, according to the Financial News (paywall):<br /> “In 2010, there were eight registered funds of hedge funds in Germany, collectively managing €700 million, data from the association showed, and 34 registered single hedge funds managing €800 million.</p> <p>Today, the association said the number of hedge funds “can be counted on two hands” and said it was not aware of any substantial hedge funds that would meet the Anglo-Saxon definition of a hedge fund – lightly regulated, located offshore and managed with little transparency.</p> <p>The allocation of German institutional investors to hedge funds declined steadily from 0.3% in 2010 to 0.19% in 2014, the latest for which data was available, according to the association.”<br /> The death blow however seems to be the group’s losses during the global financial crisis. Held back by their conservativeness, German investors joined the hedge fund party a little too late, and most of them are still reeling from the hangover.</p> <p>Still though, Europe’s current climate should have opened more than a few opportunities for hedge funds, so for all you know, these guys just might end up flourishing once again. Stay tuned.<br /> Photo: David Rosen</p>
Paris attack: Victims' stories emerge
Lifestyle
As the magnitude of Friday’s terror attacks in Paris sinks in, the victims' stories are starting to emerge. The attacks, claimed by extremist group Daesh, or Islamic State, killed 129 and wounded 352 across seven attacks. The French authorities have almost finished the task of identifying the victims. Of the dead, at least 25 were foreign nationals from Spain, Belgium,&hellip;
Japan’s Amazon ups its fintech game with new fund
FinTech
Japan’s leading e-commerce player Rakuten is already a prolific venture capital investor, backing tech and e-commerce startups across Asia and North America. Its latest $100 million fund now puts the fintech space in its crosshairs. The firm reports that its new fund will focus on mid-stage fintech startups in the U.S. and Europe. The idea is that the fund is&hellip;
Why active management failed in 2014
Asset Management
<p>Active management failed miserably in 2014. Was it because managers were less skillful or because there were fewer opportunities to outperform? Michael Mauboussin’s research provides the answer.</p> <p>During the last 40 years, an average of 60% of equity funds underperformed the S&amp;P 500. But, according to the SPIVA data, 86.4% of large-cap managers underperformed their benchmark in 2014. The percentages were not much better last year for mid-cap (66.2%) or small-cap (72.9%). Mauboussin says there are logical reasons for this – and there are metrics that will identify those periods that favor active managers.</p> <p>Mauboussin is managing director and head of Global Financial Strategies at Credit Suisse. He is the co-author (along with his colleague Dan Callahan) of a recent research paper, Min(d)ing the Opportunity: Excess Returns Require the Chance to Apply Skill. This article is based on that paper as well as an email exchange that I had with Mauboussin.</p> <p>Mauboussin’s central idea is that skill alone is not a predictor of success in active management; a second ingredient – opportunity – must be present. Last year’s failure was not because there were fewer active managers or because they lost their touch.</p> <p>The poor results in 2014 were due to a lack of opportunity. Performance was too tightly clustered, and it was too difficult for skillful active managers to separate themselves from the pack.</p> <p>According to Mauboussin, “In 2014, the opportunities were particularly limited, contributing to the relatively poor performance of active mutual fund and hedge fund managers.”</p> <p>I’ll discuss the implications for advisors of Mauboussin’s research, but first let’s look at the findings in his paper.</p> <p>Documenting the lack of opportunity</p> <p>Active managers can succeed in three disciplines: market timing, security selection and portfolio construction, according to Mauboussin. He looked at how those three tactics correlated with outperformance to provide an insight for the opportunity set that active managers faced in 2014.</p> <p>As readers of this publication would expect, there is little evidence that mutual funds can time the market. But documenting that difficulty is problematic, according to Mauboussin. He hypothesized that cash balances would inversely correlate with subsequent returns. Fund managers would load up on cash when they expected meager returns and would draw down cash if opportunities were ripe.</p> <p>But the empirical data showed the opposite; there is a positive correlation between cash balances and subsequent one-year returns. That could be partly explained by the influence of fund flows on cash balances. Managers may be increasing cash if they anticipate fund redemptions, which historically have correlated with down markets.</p> <p>The other way to measure the opportunity for market timing is through what Mauboussin called “trendiness.” If the market moves steadily in an upward or downward direction, it is easier to time the market than if it zigzags. Trendiness can be measured through the ADX index, which measures the strength (but not direction) of trends. The ADX was fairly strong in 2014, but there’s little evidence active managers were able to capitalize on that opportunity.</p> <p>To find evidence of security-selection skill, Mau</p>
The gig economy is the new normal
Capital Markets
<p>An already-confusing employment environment grew even more complicated this past week. Many readers responded to my “Crime in the Jobs Report” letter with their own stories. Some confirmed what I wrote, while others disputed it. Some of the stories I read from readers who are stuck far from where they want to be in this job market were very moving. I think everyone agrees the labor outlook is uncertain. I sense a lot of nervousness, even from those who have secure jobs that pay well. In today’s letter, I’m going to respond to some of the observations and data that came in this week on employment.</p> <p>Read more at Advisor Perspectives <br /> Photo: Quazle</p> <p>&nbsp;</p>
Ray Dalio rules for success
Hedge Funds
<p>Ray Dalio (born August 8, 1949) is an American businessman and founder of the investment firm Bridgewater Associates. In 2012, Dalio appeared on the annual Time 100 list of the 100 most influential people in the world. In 2011 and 2012 he was listed by Bloomberg Markets as one of the 50 Most Influential people. Institutional Investor’s Alpha ranked him No. 2 on their 2012 Rich List. According to Forbes, he was the 30th richest person in America and the 69th richest person in the world with a net worth of $15.2 billion as of October 2014.</p> <p>This story first appeared in ValueWalk.<br /> Photo: Damon Green</p>
Daily Scan: Asian shares fall; bond prices higher after terrorist acts in Paris
Capital Markets
Updated throughout the day November 16, 2015 Bonds edged higher in the Eurozone and most Asian stocks sank after the terrorist attacks in Paris Friday night.  News that Japan is in a recession for the second time in two years didn't help. The Hang Seng Index dropped 1.72%, the Hang Seng China Enterprises Index tanked 1.99%, and the Nikkei 225 fell 1.04%. China bucked the&hellip;