News > Financial Services

Hong Kong ETFs lack appeal
Asset Management
<p>Exchange-traded funds are struggling to find traction in Hong Kong. Several managers, such as HSBC and Lyxor, have de-listed funds in recent years because of low asset sizes or poor trading volumes.</p> <p>The departure of Mirae Asset Management’s Hong Kong head of ETFs last week highlights the problem. Eight of Mirae AM’s 10 Hong Kong-listed ETFs (under the Horizon brand) are far too small to be profitable, notes AsianInvestor. (paywall)</p> <p>Too much sectoral diversity in Asia is one reason. Different tax regimes and accounting treatments in individual countries means it’s tough to assemble a representative list to fill a regional chemical, energy or financial ETF, for instance.</p> <p>There is another reason too. As this year’s gyrations in local bourses have demonstrated, Asian retail investors like to trade rather than park their cash in a passive fund. They prefer some action.<br /> Photo: Roberto Trombetta<br /> &nbsp;</p> <p>&nbsp;</p>
The state-backed VC fund shaping the future of Japanese tech
Venture Capital
<p>If you have never heard of the Innovation Network Corporation of Japan (INCJ) then you really haven't been paying attention to Japan’s tech industry.</p> <p>INCJ made headlines again last week when shares in Sharp Corp. soared on the news that the state-backed fund was mulling a 200 billion yen ($1.7 billion) bailout for the ailing electronics giant. </p> <p>Such deals are par for the course for INCJ which has spent the last six years spearheading the government’s efforts to restore Japan’s status as a leader in technology and innovation. </p> <p>It has mostly made a name for itself through its private equity and venture capital investment activity. Backed by the biggest names in Japanese tech - including Canon, Panasonic, Hitachi, Sony, Sharp, and Toshiba - and with about 2 trillion yen of investable capital, it has some serious firepower. </p> <p>Sharp is the most recent example of INCJ supporting the country’s embattled electronics giants. It is the largest shareholder of Japan Display, a firm it created  out of the LCD divisions of Hitachi, Toshiba, and Sony. The fund also famously gazumped  U.S. private equity major KKR in 2012 through its acquisition of chipmaker Renesas. </p> <p>Unsurprisingly, INCJ has come in for a lot of flak from its critics for propping up, rather than revitalising, its distressed targets. That said, rescuing giants is only part of INCJ’s strategy. The fund is also a major player when it come to early stage investments. Around three-quarters of the 90 investments made by INCJ since its inception have involved early stage companies. </p> <p>This is likely to be the real area of focus for Toshiyuki Shiga, Nissan’s former COO who took over as chair of INCJ in June, as the Japanese government looks to replicate some of Silicon Valley’s success in Japan rather just revive some of Japan's own past glories.<br /> Photo: Curt Smith</p>
The love affair between VCs and the media is unraveling
Venture Capital
<p>It's tough going from hero to zero. But as the startup craze ages and cracks in the facade of many startups (or at least their valuations) are beginning to appear. Most recently, The Wall Street Journal published a searing story on startup sweetheart Theranos, the lab that takes "nanotainers" of blood from the phlebotimically-challenged.</p> <p>Venture capitalists didn't take too well to the challenge to the private company, valued at $9 billion. Business Insider says this is becoming a bit of a pattern these days: The fawning is mostly over.<br /> Nobody likes to be questioned.</p> <p>But lately, some of Silicon Valley's big tech investors seem to be particularly upset that journalists are questioning some of the valley's hottest startups.</p> <p>There's a fundamental difference in point of view here. The funders see first-hand how hard it is to build something and sympathize with the struggle. The journalists are supposed to be as objective and careful as possible and report what they find — even if some people don't like it.<br /> That's an incredibly nice way of saying that some journalists aren't swallowing startup news releases without questions. Seems like a backhand compliment: The press corps that largely missed both the financial crisis and Bernie Madoff can hardly be called fierce or clairvoyant.</p> <p>And BI also notes that for every upset VC there are also some pretty experienced investors who are also ringing the alarm -- including Marc Andreessen and Mike Mortiz of Sequoia. Not bad company to be in.<br /> Photo: Owlana</p>
The darlings of active managers: most crowded trades
Asset Management
<p>The “darlings” of mutual funds and institutional funds is a popularity contest tracked by Credit Suisse that might be almost used as a contrarian indicator, in a note titled The Darlings of Active Managers The Most Crowded Names in US Small, Mid &amp; Large Cap Funds. As a general rule, the report authors note, “owning too many darlings given less opportunity for differentiation.”</p> <p>Crowded Trades<br /> Large cap darlings underperformed while “Cherished Cousins” delivered<br /> Following darlings in large caps has not been a profitable strategy, the report noted, as twenty five of the most popular stocks are trading below the S&amp;P 500 total return index benchmark. The current darlings of large caps reads like a who’s who of Wall Street’s most discussed names, seven of which are in tech, including Apple Inc., owned by 398 funds, Microsoft owned by 347 funds. Banks on the list include JPMorgan Chase, which is set to report earnings on Tuesday, is owned by 291 funds, Wells Fargo, owned by 268 funds and Citigroup, owned by 209 funds, are expected to report later this week. Bank of America was a notable off the darlings list.</p> <p>What has generated performance is the “Cherished Cousins,” Credit Suisse notes. These are the most popular names in large cap funds, when managers move down cap to the Russell 2500. Relative to the S&amp;P 500 total return index these stocks outperformed by nearly 12 percent since December of 2012. In particular, this stock grouping has rocketed since December of 2014.  Notable names include Lear Corporation, owned by 63 large cap funds, Alaska Air Group, owned by 48 funds and Jones Lang LaSalle, owned by 44 funds.</p> <p>Crowded Trades<br /> Crowded Trades – Large cap rising stars have good then less than stellar performance<br /> Large cap rising stars got off to an early start in the Credit Suisse report, but have had difficulty out-performing more recently. The 25 stocks with largest increase in large cap fund ownership topped out with 15 percent outperformance in March 2014, but are now outperforming by near 5 percent relative to S&amp;P 500 Total Returns Index. The study also revealed that Fading Star stocks generally lagged in the quarter after names were sold, while highly owned Fading Stars have tended to rebound and outperform.</p> <p>Each quarter Credit Suisse c</p>
Al Gore’s 'sustainable' generation investment beats most hedge funds
Hedge Funds
<p>Former Democratic vice president and almost-president Al Gore is known as a visionary and a thinker on a grand scale. Gore has remained politically and socially active since the turn of the century, and has spent his time writing several books and championing important environmental issues.<br /> Although not a lot of people are aware, Gore has also been focused on making money since he retired from politics. He and several colleagues founded a firm called Generation Investment Management a little over a decade ago. The asset management firm is focused on, and limits its investments to, businesses that operate on the principles of environmental sustainability.<br /> Gore and his colleagues at Generation describe their goal as the demonstration of a new version of capitalism that will create incentives for financial and business operations to reduce the environmental, social and political damage caused by unsustainable capitalistic excesses. In practical terms, Gore and his Generation partners have made more money using an environmentally conscious model of “sustainable” investing than most fund managers who were seeking profits at almost any environmental or social price.<br /> Keep in mind that this is just the track record of one firm, which has managed assets of relatively modest size for just over a decade. Generation has an AUM of close to $12 billion as of early October, with pension funds and other institutional investors the largest sources of capital, around half based in the U.S and half overseas.<br /> The MSCI World Index reports an overall average growth rate of 7% over the last 12 months. Based on data from Mercer, a UK analytics firm, the average pre-fee return for the global-equity managers it surveys was 7.7%. This meant that after fees (averaging about 70 basis points), the returns brought in by the average professional money manager barely kept up with low-cost passive index funds.<br /> However, Mercer’s data shows that the average return for Generation’s global-equity fund was 12.1 percent a year, which is more than 5% greater than the MSCI index’s growth rate. Among the over200 global-equity managers in Mercer’s survey, Generation’s 10-year average ranked as second.</p> <p>Gore is not shy about discussing his firm’s success. “I wanted us to start talking when the five-year returns were in, but cooler heads persuaded me that we should wait until now,” he noted</p> <p>The Generation team is not, however, bragging to try and drum up new business. Gore and the Generation team are rather aiming at a relatively small audience within the financial world that controls the flow of capital, and at the politicians that set the rules for the financial system. “It turns out that in capitalism, the people with the real influence are the ones with capital!,” Gore said in an interview with The Atlantic earlier this year. They hope that Generation’s success will bring attention to the fact that they can make more money if they change their practices to largely avoid the environmental and social damage modern capitalism can do.</p> <p>This article was originally published by </p>
Career Insights: Shaped by the financial crisis, millennial bond manager readies for rate hike
Asset Management
Andrew Szczurowski is the new breed of bond manager: For the bulk of his career, interest rates have hovered near zero. Szczurowski is one of many millennials who came charging onto Wall Street just as the markets crested, joining Eaton Vance in 2007 after two years at BNY Mellon.  Mortgages, of course, were ground zero for the crisis. Szczurowski, who
Opportunities for Asia's private bankers
Asset Management
<p>Asia’s wealth management scene is competitive, fluid and expensive. Cost-to-income ratios in Hong Kong are more than 70%, almost double the proportion in Western Europe, as blue chip private banks fish for talent in a small pool of relationship managers with networks among China’s new rich.</p> <p>The bait is a big salary and juicy benefits; the reward for the banks are connections to the world’s fastest growing market of high net worth individuals, according to the latest Capgemini and RBC Wealth Report 2015.</p> <p>However, single- and multi-family offices are gaining traction within Asia, undermining the strategies of the leading banks who argue that scalability is essential to survive. Experienced staff see an opportunity to use their contacts to set up on their own or join a niche, more focussed firm with a realistic expectation of even higher compensation as well as greater independence.</p> <p>Kenneth Ho, the former head of Julius Baer’s investment solutions group in Asia Pacific is the latest high profile banker to make the move. At the beginning of this month, he joined US-based Carret Asset Management where he is tasked to set up an Asian multi-family office, reports AsianInvestor.</p> <p>He is looking to buy independent asset managers in Hong Kong and Singapore, and might also form a private equity fund.</p> <p>In September, another private banking veteran, Stephen Repkow quit Union Bancaire Privée to launch an independent platform in Singapore that will serve both as an external asset manager and a multi-family office.</p> <p>If more bankers strike out for independence then, of course, the talent pool for the big wealth managers will become even shallower. They will have to offer larger salaries and bonuses which will push the cost-to-income ratio higher so that eventually head office must wonder: why bother?<br /> Photo: Mart</p>
ETF industry needs major reform: SEC’s Aguilar
Asset Management
<p>It looks like the ETF industry is under the gun. Securities and Exchange Commission officials held a meeting of the Investor Advisory Committee in Washington, D.C. on Thursday, and began to lay out the case for reform in the ETF industry. In specific, SEC Commissioner Luis Aguilar outlined the kind of questions they’re asking in their inquiry regarding the rapidly-growing exchange-traded funds market.</p> <p>Questions about the ETF industry began to emerge after August 24th, an extremely volatile trading day and he worst session for U.S. stocks in four years. August 24th witnessed multiple halts in both stocks and ETFs, stoppages that short-circuited the arbitrage mechanism of ETFs and led to ETF prices plunging well below the indexes they’re designed to track for a short period of time. The major glitch in the system was a painful lesson for investors and has brought regulators attention to a number of problems with overlapping market rules implemented following the 2010 “flash crash”.</p> <p>Statement from SEC Commissioner Aguilar about ETFs<br /> Commissioner Aguilar did not beat around the bush in his speech at the SEC committee meeting. He made his agenda clear in his introduction: “Why ETFs proved so fragile that morning raises many questions, and suggests that it may be time to reexamine the entire ETF ecosystem.”</p> <p>In his remarks, Aguilar raised four general questions about the events of August 24th.</p> <p>1) Should ETFs have industry-specific volatility curbs? Do so-called limit up/limit down volatility bands need to be updated? Should market-wide circuit breakers factor in the number of securities that are currently halted?</p> <p>2) Should rules for “clearly erroneous” trades be reformed?</p> <p>3) What roles should exchanges have in ETF trading?<br /> 4) How can market makers be more incentivized to stay in the market during times of extreme volatility?</p> <p>Democratic SEC Commissioner Aguilar also went on to argue that the commission needed to ask bigger, even existential questions about the ETF industry and its very rapid growth, including the issue of whether the growth needed to be curtailed. Here, he outlined four general areas for consideration:</p> <p> How does the growth of ETFs and their gradual movement into less liquid asset classes challenge the effectiveness of the ETF arbitrage and pricing mechanisms?<br /> Are sophisticated traders able to exploit inefficiencies in the pricing mechanisms of less liquid ETFs and exploit retail investors?<br /> Should alternative pricing methods for less-liquid ETFs, such as so-called NAV-based trading, where ETFs are traded at a specific premium or discount to the ETF’s net asset value, be allowed?<br /> Should the growth of ETFs be limited to protect investors and the entir</p>
People Moves: Nuveen builds ETF business; Voya poaches JP Morgan exec
Asset Management
Nuveen building ETF business. Nuveen Investments has hired Martin Kremenstein for the newly created role of head of ETFs. Kremenstein will report to Greg Bottjer, head of product strategy. Kremenstein most recently worked as managing director for asset and wealth management at Deutsche Bank, helping establish the firm's US ETF business. Voya grabs JP Morgan exec. Karen Eisenbach has joined
Hedge funds are fleeing stocks: one chart tells the story
Hedge Funds
<p>&nbsp;</p> <p> Evercore ISI’s recent hedge fund survey indicated that funds have their lowest net-long exposure to stocks in two years.</p> <p> Net-long exposure to stocks peaked in September of 2014.<br /> Analyst James Walsh said that funds’ net exposure has been a good contrary indicator of stock market movement.</p> <p>&nbsp;</p> <p>In a new report, Evercore ISI analyst James Walsh looked at hedge fund exposure to stocks. According to Evercore’s most recent survey, funds have been consistently reducing exposure to stocks for quite a while.<br /> Method<br /> Evercore surveyed 31 hedge funds with net assets of about $86 billion and asked them to rate their long exposure to stocks on a scale of 0 to 100, where 50 indicates normal net exposure. “Over the years, we have noticed that our hedge fund survey has been a good contrary indicator for the market,” Walsh wrote.</p> <p>Read more and see the chart at Benzinga. <br /> Photo: Umberto Salvagnin</p>