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Buffett’s asset allocation advice: take it … with a twist
Asset Management
<p>Abstract: </p> <p>One of the most important decisions retirees need to make is the asset allocation of their portfolios. They can have a static or a dynamic allocation, and simplicity usually favors the former. Warren Buffett recently added another vote for static allocations by revealing that he had advised a trustee to split the bequest his wife will receive 90% in stocks and 10% in short-term bonds. The evidence discussed here shows that, relative to other static allocations, a 90/10 split has a very low failure rate and provides investors with very good upside potential and downside protection. The evidence also shows that two minor twists to the 90/10 split result in two very simple dynamic strategies with even better upside potential and downside protection.<br /> Buffett's Asset Allocation Advice: Take It ... With A Twist - Introduction<br /> Retirees need to carefully balance the risk of spending too much and outliving their savings with the risk of spending too little and lowering their lifestyle unnecessarily. The two main tools they can use to avoid falling on either side of the cliff are the portfolio’s withdrawal rate and asset allocation. Regarding the latter, in his 2013 letter to Berkshire Hathaway shareholders, Warren Buffett discussed the simple advice he gave to the trustee that will manage the bequest his wife will receive:<br /> “What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit … My advice to the trustee could not be more simple: Put 10% of the cash in short?term government bonds and 90% in a very low?cost S&amp;P 500 index fund. (I  suggest Vanguard’s.) I believe the trust’s long?term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high?fee managers.”<br /> Buffett does suggest in his letter that investors should follow a simple approach, passively investing in a broadly?diversified, low?cost portfolio; he does not suggest or imply, however, that investors should have a 90/10 stock/bond allocation. And yet his comment begs the question: Is the asset allocation Buffett advised for his wife appropriate for other investors? If yes, why? If not, why not?</p> <p>An obvious distinction between Buffett’s wife and the average investor quickly comes to mind. The average investor needs to implement an asset allocation that carefully balances the two risks already mentioned, overspending and underspending. Buffett’s wife, however, is likely to receive a nest egg large enough so that she will not have to worry about either risk. Put differently, just about any asset allocation will enable Buffett’s wife to live comfortably and still outlive her portfolio, which is not the case for most investors.</p> <p>That said, this article evaluates the merits of the 90/10 allocation that Buffett advised for his wife, relative to other static allocations with different stock/bond proportions, for investors at large. Furthermore, it explores two minor twists to the 90/10 allocation, one that accounts for the behavior of the stock market, and the other that accounts for the relative behavior of the stock and bond markets.</p> <p>In a nutshell, the evidence discussed here suggests that, besides having a very low failure rate, the 90/10 allocation results in an interesting middle ground between the upside potential of more aggressive static allocations and the downside protection of more </p>
Q3 wipes $700B from top fund managers
Asset Management
<p>Seven of the largest asset managers in the world lost a whopping $700 billion total during the third quarter. BlackRock alone lost $215 billion during those three months, reports the Financial Times.</p> <p>With end of year bonuses coming soon, everyone must be hoping for a much, much better fourth quarter.<br /> Photo: Purple Slog</p>
Why are so many key hedge funds closing down?
Hedge Funds
<p>&nbsp;</p> <p> This year has been the worst year for hedge fund shutdowns since 2008.</p> <p> More than 400 funds shut down in the first half of the year.<br /> Of the remaining funds, average 2015 returns are nearly flat.</p> <p>&nbsp;</p> <p>There’s no doubt about it: 2015 has been a rough year for hedge funds. New data from Bloomberg indicates that more funds have shut down this year than in any other year since the Financial Crisis. Here’s a look at just how bad it’s gotten.<br /> The Numbers<br /> According to Bloomberg, the total combined assets of the hedge funds that have shut down so far this year is about $16 billion. A whopping 417 hedge funds closed ...</p> <p>Full story available on Benzinga.com<br /> Photo: Jason<br /> &nbsp;</p>
FT: Aberdeen Asset Management is searching for a buyer
Asset Management
<p>Aberdeen Asset Management – after years of countless hurts from its love affair with the emerging markets – is reportedly shopping around for a buyer:<br /> “Aberdeen Asset Management has begun to sound out potential buyers for the group as Europe’s second-largest fund house struggles to put an end to a slump in its profitability, share price and assets under management.</p> <p>People familiar with the process said Martin Gilbert, Aberdeen’s 60-year-old founder and chief executive, had made informal approaches to a number of rivals in recent months.”<br /> According to the Financial Times, word on the strasse is that Credit Suisse – which at one time owned 25% of the firm – may actually be interested in purchasing the asset manager, though analysts do cite Deutsche Bank, K.K.R., and Blackstone as potential suitors as well.</p> <p>As The Press and Journal wisely point out however, Japan’s largest bank – Mitsubishi UFJ (MUFJ) – would probably be Aberdeen’s best bet if it was really looking for a buyer.</p> <p>Not only does MUFJ already own a large chunk of Aberdeen, but as we’ve previously reported, the Japanese behemoth had previously planned to “have closer ties” with the fund manager as it tries to expand its global asset management business.</p> <p>Aberdeen absolutely denies that Gilbert’s been shopping around though, so it should be interesting to see how it plays out over the next few days. We’ll keep you in the loop.<br /> Photo: David Jones</p>
Cash hungry Uber raising another $1 billion for its war chest
Venture Capital
<p>You would be forgiven for thinking that you have stumbled upon a post from August, you haven't. Uber has a thirst for cash that cannot be quenched and is now allegedly scrapping together another billion a mere three months after pumping the same amount into its China business.</p> <p>The New York Times reports that the investment will value Uber at $60-70 billion making it the most valuable private startup by a country mile.</p> <p>In short, this is war money and Uber is now fighting a battle on many fronts. In China, Uber is struggling to snatch market share from giant incumbent Didi Kuaidi, while in India its up against an equally entrenched Ola.</p> <p>The same heavyweight backers behind Didi and Ola – which include Softbank, Alibaba, and Temasek Holdings – have also thrown their weight behind GrabTaxi in Malaysia, and Lyft in the U.S. Uber is also fighting legal battles in its three biggest markets: the U.S.,China and India. </p> <p>Despite the odds being stacked against them, the company is now on the cusp of reaching a valuation that soars well above Facebook's $50 billion market value when it listed in 2012. According to Business Insider, Facebook's Mark Zuckerburg has even had a word in Uber CEO Travis  Kalanick's ear, advising him to take his firm public. But Kalanick recently said:<br /> "We're maturing as a company, but we're still like eighth graders. [...] We're in junior high. And someone's telling us we need to go to the prom. But it's a little early. Give us a few years. Give us a little time."<br /> At this rate one wonders whether public market investors will ever have an appetite for Uber's insane valuations. When prom night comes, Uber may struggle to get a date.  <br /> Photo: Moyan Brenn </p> <p>&nbsp;</p>
Singapore's Vertex beats $200M target for third China fund
Venture Capital
<p>Vertex Ventures — the venture investing arm of  Singapore's Temasek — has reportedly smashed its $200 million target for its third China fund.</p> <p>This is not really surprising as Temasek pumped $600 million into the firm earlier this month. But raising this latest fund was still no mean feat. Vertex CEO Chua Kee Lock told Deal Street Asia that around $850 million of the total raised came from outside investors.</p> <p>Its a first for Vertex's China vehicle which was a 100% captive fund in its last two incarnations. Vertex's U.S., Israel, and China funds all have external investors, among them are pensions funds, endowments, and corporate investors.   However,  Vertex is far from courting success independently of its powerful parent. Kee Lock added:<br /> "We are owned by a very strong shareholder – so we can be selective on the type of investors we can pick for our funds.”<br /> Photo: Shubhika Bharathwaj</p>
Small hedge fund rocks Citigroup big-time
Hedge Funds
<p>This week in unsupervised trading, a small British hedge fund – LNG Capital – plunged Citigroup into a panic after risk-control issues tied to the fund’s trades left the banking giant exposed to as much as $400 million in write-downs.</p> <p>As the Wall Street Journal reports:<br /> “LNG is a small fund, with about $150 million in assets. Most of its trades went through automated systems with infrequent human interaction on Citigroup’s part, the people said. On the dates LNG entered trades, Citigroup’s systems erroneously assigned higher than intended values to the bonds LNG held in its account, the people said.</p> <p>According to the people, the systems got tripped up by expecting buy and sell orders to settle together, effectively canceling each other out. Instead, with some of the trades, which went on through May and June, one leg actually didn’t settle for weeks. As a result, Citigroup inadvertently kept extending credit to LNG, allowing it to buy about five times the value of securities as would have been allowed under normal risk limits, even as risks mounted for the bank.”<br /> When the bank finally caught on to the problem, it was forced to demand around $400 million from LNG, an amount the tiny fund simply could not afford.</p> <p>It has since recouped all the cash though, and has added several more controls to prevent something similar from occurring.<br /> Photo: Herve Boinay</p>
‘Hedge fund bro’ may be out of business soon
Hedge Funds
<p>Remember Martin Shkreli? The Wu Tang-quoting former hedge fund manager who jacked up the price of Daraprim, a sole-source drug used to treat AIDS patients, from $13.50 to $750? He became known -- and hated -- around the world as “hedge fund bro” following his unrepentant behavior on Twitter.</p> <p>Well, here’s a little Brodenfreude for you, via Quartz:<br /> “Shkreli—who became known as “pharma bro” during the controversy—can attempt such stunts thanks in part to unregulated market forces. But those same forces might drive him out of business now that an analogous compound drug priced at $1 a pill could soon hit the market.</p> <p>Imprimis Pharmaceuticals announced it will offer a pill containing pyrimethamine, the ingredient in Daraprim that fights toxoplasmosis, a parasite-induced disease that threatens patients with weak immune systems. Imprimis’ medication isn’t identical to its competitor. But according to Ars Technica, it could serve as an effective and much cheaper alternative, given that Daraprim is the only other pyrimethamine-based drug on the market.”<br /> Photo: NEPA scene</p>
U.S. ETFs/ETPs gathered a record $145 billion in net new assets as of the end of 3Q15
Asset Management
<p>ETFs and ETPs listed in the United States have gathered a record 145 billion US dollars in net new assets as of the end of Q3 2015. Although September was another roller coaster ride for investors they allocated US$19.1 billion in net new assets to ETFs and ETPs listed in the United States during the month. This marks the 8th consecutive month of positive net inflows, according to ETFGI’s ETF and ETP United States insights report for September 2015.<br /> U.S. ETFs/ETPs net inflows reached US$145.4 Bn in Q3 2015<br /> In the first three quarters of 2015 record levels of net new assets have been gathered by ETFs/ETPs listed globally with net inflows of US$250.5 Bn marking a 26% increase over the prior record set at this time last year. In the United States net inflows reached US$145.4 Bn, which is 7.8% higher than the prior record set in 2012, while in Europe year to date (YTD) net inflows climbed to US$61.6 Bn, representing a 30% increase on the record set YTD through end of September 2014. In Japan, YTD net inflows were up 143% on the record set last year, standing at US$36.4 Bn at the end of September 2015.</p> <p>“Uncertainty on China and when the Fed will raise interest rates continues to weigh the markets and  investor sentiment.  The S&amp;P 500 decreased 2.6% in September, and is down 6.7% year to date.” according to Deborah Fuhr, managing partner at ETFGI.</p> <p>The US ETF and ETP industry had 1,787 ETFs/ETPs, assets of US$1.98 trillion, from 88 providers listed on 3 exchanges as of the end of September.</p> <p>In September 2015, ETFs/ETPs listed in the United States gathered net inflows of US$19 Bn. Fixed income ETFs/ETPs gathered the largest net inflows with US$9.5 Bn, followed by equity ETFs/ETPs with US$8.1 Bn, while commodity ETFs/ETPs experienced net outflows with US$472 Mn.</p> <p>YTD through the end of September 2015, ETFs/ETPs have gathered record net inflows of US$145.4 Bn. Equity ETFs/ETPs gathered the largest net inflows YTD with US$91.6 Bn, followed by fixed income ETFs/ETPs with US$38.9 Bn and commodity ETFs/ETPs with US$1.1 Bn.</p> <p>iShares gathered the largest net ETF/ETP inflows in September with US$12.2 Bn, followed by SPDR ETFs with US$4.1 Bn, Vanguard with US$3.9 Bn, ProShares with US$1.4 Bn and Schwab ETFs with US$1.1Bn in net inflows.<br /> iShares gathered the largest net ETF/ETP inflows YTD with US$58.2 Bn, followed by Vanguard with US$52.8 Bn, WisdomTree with US$19.6 Bn, Deutsche Bank with US$16.4 Bn, and Schwab ETFs with US$9.8 Bn in net inflows.</p> <p>This article was originally published by ValueWalk. </p>
People Moves: Nomura appoints new CIO; NPS chairman steps down
Asset Management
<p>Nomura appoints new wealth management CIO. Johnny Heng, a 20-year investment veteran, has recently been named chief investment officer, wealth management, Asia ex-Japan by Nomura.</p> <p>Prior to joining the Japanese firm, Heng was managing director and head of investment services, Asia for the British firm Coutts. Before that, he was head of investment consulting at Credit Suisse’s private bank, and held several positions at Singapore’s GIC, including membership on its management investment committee, as well as global head of equities trading. He will be based in Singapore and will report to Nobuhiro Sano, Head of Wealth Management, Asia ex-Japan. Nomura (pdf)</p> <p>National Pension Service chief steps down. Dr. Choi Kwang, chairman of Korea’s National Pension Service (NPS), has reportedly tendered his resignation from the mammoth sovereign wealth fund.</p> <p>Dr. Choi, who spent most of his career as an economist following his PhD from the University of Maryland, joined the NPS in 2013, and apparently had several months left on his three-year term. Asia Asset</p> <p>Rothschild names new North Asian head of wealth management. Audrey Zau, a 15-year veteran of HSBC, has been appointed head of wealth management for North Asia by Rothschild.</p> <p>Zau joins the firm from BHI Investment Advisors, where she held a similar role. Prior to that – and as previously mentioned – she spent 15 years at HSBC, holding several key roles in the British firm including senior director. She replaces Alois Mueller – who left the firm two years ago – and reports to Richard Martin, chief operating officer of Rothschild’s wealth management and trust business. She will continue to be based in Hong Kong. eFinancialNews</p> <p>&nbsp;<br /> Photo: Luke Ma</p>