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Kyle Bass cautions about mounting bad debts In China
Hedge Funds
<p>Kyle Bass, Hayman Capital Management founder and managing partner, sounded alarm bells on Tuesday, saying that Chinese banks will likely experience losses that may impact the country's economy as a whole.</p> <p>In his interview on CNBC’s “Squawk on the Street” on Tuesday, Bass said other Asian countries like Malaysia were also facing the same issue.</p> <p>&nbsp;<br /> Kyle Bass: China’s bank assets $31 trillion vs GDP of $10 trillion<br /> During his interview on CNBC, Kyle Bass said Chinese bank assets are up close to 400% since 2007, and now represent about $31 trillion against an economy with a gross domestic product of $10 trillion.</p> <p>Striking a cautionary tone, Bass said: “When you run a bank expansion that aggressively, that quickly, you’re going to have some losses”. He added: “the scary thing about that is a likely 10% asset loss in the banking sector would amount to $3 trillion."</p> <p>Elaborating further on the impact of such huge losses, Bass indicated that such huge losses would force China to use much of its foreign exchange reserves (which stand at about $3.6 trillion) and sell bonds to recapitalize the banking system.</p> <p>Bass indicated that when banks expand so aggressively, they’re entering the non-performing loans cycle in Asia. Touching upon the impact on other Asian countries, he said Malaysia is also facing the same issue, and as a result investors in emerging markets should carefully monitor the size of emerging market countries’ banking systems.<br /> Emerging markets account for 42% of global GDP<br /> Bass said the huge asset losses in the banking sectors are mirrored in many emerging markets, especially those in Asia, and could hence ultimately impact global GDP. He argues the ripples of an emerging market downturn could draw U.S. GDP lower than estimated, but countries like South Africa could be seriously impacted.</p> <p>He noted his investment group is closely watching nations that run twin deficits, and those that may have to devalue their currency "in order to come back to some level of competitiveness with the rest of the world."</p> <p>Striking a cautionary tone for the next two years, Bass said as the loan cycle forces emerging market banks to see steep losses, “the next two years are going to be tough”.</p> <p>Bass highlighted that Asian banks are experiencing a sustained period of increased loan losses, and that global gross domestic product growth would slow more than expected as a result.</p> <p>Underscoring the importance of emerging markets, Bass said emerging markets comprise 42% of global GDP. He reckons global GDP will slow more than people anticipate.</p> <p>Highlighting the forex outflow from emerging markets, Bass said that while money has flowed into emerging markets over the past decade, there was currently a “huge FX reserve drain”. Earlier, David Tepper of </p>
Opportunity with emerging Asia ETFs
Asset Management
<p>With the MSCI Emerging Markets Index down about 14 percent this year, positioning the widely followed emerging markets benchmark for its third consecutive annual loss and fourth in five years, getting excited about developing world equities and exchange traded funds is increasingly difficult.</p> <p>Focusing on various regions of the developing world can cloud investors' mood even more. For example, the iShares S&amp;P Latin America 40 Index (ETF) (NYSE: ILF), thanks in large part to struggling Brazilian stocks, has tumbled about 25 percent year-to-date.<br /> Emerging Asian Markets<br /> ILF's Asia equivalent, the iShares MSCI Emerging Markets Asia ETF (iShares Inc. (NYSE:EEMA)), has been less bad with a year-to-date loss of 13 percent. No investor should be excited by a 13 percent slide in less than nine months, but Emerging Asia could be the one corner of ...</p> <p>Full story available on Benzinga.com</p> <p>Photo:<br /> Photo: AK Rockefeller<br /> &nbsp;</p>
Gundlach on Donald Trump, China and Fed Policy
Asset Management
<p>&nbsp;</p> <p>Despite grabbing most of the headlines and leading in many of the polls, Donald Trump is not expected to win the Republican nomination. But Jeffrey Gundlach said that Trump has done the electorate a “big favor by bringing up issues that have been conveniently buried for quite some time.”</p> <p>Gundlach is the founder and chief investment officer of Los Angeles-based DoubleLine Capital. He spoke to investors via a conference call on September 8. Slides from that presentation are available here . The focus of his talk was DoubleLine’s flagship Total Return Fund (DBLTX) and its related exchange-traded fund.</p> <p>According to Gundlach, Trump is right when he asserts that China’s infrastructure is better than that of the U.S. Quoting Trump, Gundlach said that China’s “130 shiny new airports” and “cities with glistening buildings” outclass the “collapsing bridges” and “airports that are a joke” here in the U.S. And, ironically, according to Trump, the U.S. owes China more than $1.4 trillion.</p> <p>“There seems to be something really weird about this picture,” Gundlach said. “I’m glad to see Mr. Trump is talking about these things simply because these are facts that have been there for all to see but getting very little reporting.”</p> <p>But Gundlach also criticized Trump, calling him a “full-on protectionist.”</p> <p>“We all learned in high school that it was a bad idea in the wake of flagging global growth to go to protectionist steps,” Gundlach said. Gundlach called out Trump’s plans to “build walls to keep people out and put tariffs and taxes on other countries.” Those steps might help our country’s competitiveness, but they would not increase global economic growth, Gundlach said.</p> <p>Gundlach’s comments about Trump were a sidelight to his main message – the assertion that the Fed should not raise rates and his prediction that it will not. I’ll discuss the reasoning behind that thesis along with Gundlach’s assessment of relative valuations in the bond market.</p> <p>What the Fed should – and will – do</p> <p>Economic weakness, market vulnerabilities and a lack of inflation argue against an increase in interest rates, and Gundlach cited numerous examples of each.</p> <p>“I don’t think the Fed will be able to raise interest rates this month, and I don’t really think they’re going to raise them this year,” he said. “And if they do, I think it will be a real problem.”</p> <p>Gundlach harkened to the 1970 cult-movie classic, The Rock Horror Picture Show, which included the song “Dammit Janet.” The data, Gundlach said, is “screaming ‘Dammit Janet’ don’t raise rates.”</p> <p>According to Gundlach, the World Bank and the IMF also advised the Fed against raising rates, which could risk global turmoil in the financial markets and in the emerging markets in particular.</p> <p>Indeed, the odds of a rate increase in September are only 30%, Gundlach said, based on pricing in the Treasury market.</p> <p>One key reason, according to Gundlach, is lack of growth in nominal GDP, which is growing at only 4.1% annually. That’s less than the rate of 3.7% in September 2012 when the Fed began its third quantitative easing program (QE3). Gundlach said his team at DoubleLine has shifted its focus to nominal (instead of real) GDP because “we don’t live in an inflation-adjusted world.”</p> <p>This article is an excerpt from a piece originally published by Advisor Perspectives. <br /> Photo: </p>
Colleges opt for independent investment companies in-house
Asset Management
<p>The University of Washington has joined the growing trend of U.S. universities creating investment management companies.</p> <p>Many university endowments hold enough assets to manage some, or all, investments in-house, but competition for staff is fierce. UW's $3 billion endowment says it wants better access to "best-in-class" money managers, reports the Seattle Times. Right now UW has a staff of 19 led by Keith Ferguson, formerly of Fidelity Investments.</p> <p>The University of Texas and the University of Virginia have also created more formal investment companies from their in-house investment teams, giving them more power and putting up barriers between the investments and campus politics. Harvard University established an early management company in 1974. Allowing the companies more control over compensation separate from the university can make them more attractive to skilled portfolio managers and analysts.</p> <p>&nbsp;<br /> “It’s partly to signal that we’re a mature, sophisticated operation and we function like any other investment company,” said UW spokesman Norm Arkans.<br /> UW earned 6.8% returns for the year ending June 30, a bit above the median of 3.6% for endowments over $500 million. UW's annual rate of return for the last decade is 7.5%.</p> <p>&nbsp;</p> <p>&nbsp;</p> <p>&nbsp;<br /> Photo: Ming-yen Hsu</p>
Well, we know one thing. Maybe. Hedge funds had a lousy month in August
Hedge Funds
<p>Yes, it's time for another measurement of hedge fund performance. Preliminary data shows the Barclay Hedge Fund Index fell 2.09% in August, its worst month since May 2012.</p> <p>But Hedge Fund Research reports a 1.87% drop for its HFRI Fund Weighted Composite Index in August, also HFRI's worst since May 2012.</p> <p>Unless it wasn't all that bad, as SS&amp;C GlobalOp suggests in its August report, in which hedge funds edged down 1.02%.</p> <p>Everyone agrees the S&amp;P 500 has slipped year-to-date 4.75%; hedge funds are up more. We'll leave it at that. (BarclayHedge says they're up 0.62%.)</p> <p>Everyone also agrees that Greece and China were not good for performance -- although we always thought volatility was good for traders. The biggest winner still appears to be Biotech finds. The Barclay's Healthcare &amp; Biotechnology Index climbed 12.6%.</p> <p>So why the discrepancy in performance numbers? The biggest issue hedge fund data has is that it's all self-reported. Not that hedge funds aren't totally on the up-and-up, but they may leave some data open to interpretation when they report it. Services like HFR, Barclay, and SS&amp;C only share about 60% to 70% of the same firms and data. "While we all draw from a similar universe of hedge funds, we don't draw from the same universe of hedge funds," says Sol Waksman, founder of BarclayHedge.</p> <p>Even assets that look the same may be quite different. Equity long short is a popular category for hedge funds. Barclays breaks up this category into equity long short and equity long bias, depending on what percentage exposure the funds have. Other trackers likely don't break it up this way, making Barclays measures for equity long short smaller than other firms, says Waksman.</p> <p>"There is no best [index]," says Waksman. "If you want a better estimate, take two, three, or four of them."</p> <p>"We're not there to say, 'hey this is the best'," he adds. "We're more there to save the time of managers," by offering a filtered look at hedge funds and their performance.</p> <p>This discrepancy between funds is really unique to the alternative world that is more gray, and relies on self-reporting. Mutual funds, for instance, are required to report their holdings and performance, says Michelle Swartzentruber, senior research analyst at Morningstar. Morningstar data may differ a tiny bit from, say, Lipper, but it's going to be much more similar data across the board than with hedge funds.<br /> Photo:Moni Sertel<br /> &nbsp;</p>
The myth of active hedge fund management
Hedge Funds
<p>A new academic study adds yet further proof to the growing mountain of evidence that "active management" is largely a myth, at least among hedge fund managers. Mikhail Tupitsyn and Paul Lajbcygier of Monash University in Australia highlight that not only are two out of three hedge fund managers actually "passive" in their investing approach, even those that are active managers at first tend to become passive over time.</p> <p>The authors also point out that passive managers tend to outperform active managers, especially over the long run.</p> <p>Read the details at ValueWalk.</p> <p>Photo: yuki55</p>
Transferring wealth to the next generation
Asset Management
<p>Succession planning and achieving a smooth transition of wealth from one generation to the next can be a messy process. Feuding siblings in the shadow of a controlling (usually) father make for fun soap opera but can quickly dissipate hard-earned riches and forge lasting enmities.</p> <p>HSBC Private Bank is one of several wealth managers who recognize that their role extends beyond portfolio management or simply finding the best investment returns.</p> <p>The UK-based bank recently hosted events entitled “Exploring the Future of Wealth as part of its Next Generation Programme” in London and Miami where opportunities and obstacles faced by the children of family business owners were discussed.</p> <p>Topics on the agenda included the latest entrepreneurial trends, leadership best-practices, sophisticated investment strategies, philanthropy and social awareness, explained Gerry Joyce, US head of private wealth solutions at HSBC Private Bank in an interview.</p> <p>“Equally important, they were a chance for young people to share their experiences with their peers,” he said.</p> <p>Managing inevitable conflicts, especially when business and family interest overlap, and creating and communicating a clear framework for succession that is then committed to by all parties is critical, he added.</p> <p>“The transference of control is the acid-test for a wealthy business family,” he stressed.</p> <p>But, the big challenge for HSBC and other banks will surely be Asia. Here, maneuvering and scheming for position as an octogenarian patriarch’s powers decline is as much a staple of tabloid coverage as are the daily dramas of the Kardashian clan in the US.<br /> Photo: Tom Brandt</p>
Delayed birth of Asia Region Funds Passport Scheme
Asset Management
<p>The Asia Region Funds Passport scheme has been gestating for about five years. Workshops among the thirteen APEC economies (excluding China) were followed by a statement of intent in 2013. Four days ago, finance ministers from seven of the region’s leading nations met at Cebu in the Philippines to announce that its birth was on schedule for early next year.</p> <p>Except, they didn’t. Singapore declined to add its signature because the statement of understanding failed to address the crucial issue of equal taxation, a Monetary Authority of Singapore spokesperson told AsianInvestor today.</p> <p>The passport scheme would allow asset managers from countries within the region access to each other’s retail investor markets through the distribution of their products. According to the APEC Policy Support Unit, it could save the investors $20 billion a year annually in fund management costs, offer higher investment returns at the same or lower degree of risk, and encourage the establishment of locally domiciled funds which could create 170,000 jobs in APEC economies within five years.</p> <p>But, clearly the scheme will be still-born if the tax issue is unresolved. South Korea and Australia, especially, have unequal tax regimes for domestic and overseas fund providers – and basically shut foreign interlopers out.</p> <p>Singapore, with its highly sophisticated fund management industry, would be a likely winner if taxation is neutralized across the region. It’s just as likely that the rest of APEC know this – and are fearful.<br /> Photo: Chris Guillebeau</p>
Inside the brain of an investing genius – Peter Lynch
Asset Management
<p>Those readers who have frequented my Investing Caffeine site are familiar with the numerous profiles on professional investors of both current and prior periods (See Profiles). Many of the individuals described have a tremendous track record of success, while others have a tremendous ability of making outrageous forecasts. I have covered both. Regardless, much can be learned from the successes and failures by mirroring the behavior of the greats – like modeling your golf swing after Tiger Woods (O.K., since Tiger is out of favor right now, let’s say Phil Mickelson). My investment swing borrows techniques and tips from many great investors, but Peter Lynch (ex-Fidelity fund manager), probably more than any icon, has had the most influence on my investing philosophy and career as any investor. His breadth of knowledge and versatility across styles has allowed him to compile a record that few, if any, could match – outside perhaps the great Warren Buffett.</p> <p>Consider that Lynch’s Magellan fund averaged +29% per year from 1977 – 1990 (almost doubling the return of the S&amp;P 500 index for that period). In 1977, the obscure Magellan Fund started with about $20 million, and by his retirement the fund grew to approximately $14 billion (700x’s larger). Cynics believed that Magellan was too big to adequately perform at $1, $2, $3, $5 and then $10 billion, but Lynch ultimately silenced the critics. Despite the fund’s gargantuan size, over the final five years of Lynch’s tenure, Magellan  outperformed 99.5% of all other funds, according to Barron’s. How did Magellan investors fare in the period under Lynch’s watch? A $10,000 investment initiated when he took the helm would have grown to roughly $280,000 (+2,700%) by the day he retired. Not too shabby.</p> <p>Background </p> <p>Lynch graduated from Boston College in 1965 and earned a Master of Business Administration from the Wharton School of the University of Pennsylvania in 1968.  Like the previously mentioned Warren Buffett, Peter Lynch shared his knowledge with the investing masses through his writings, including his two seminal books One Up on Wall Street and Beating the Street. Subsequently, Lynch authored Learn to Earn, a book targeted at younger, novice investors. Regardless, the ideas and lessons from his writings, including contributing author to Worth magazine, are still transferrable to investors across a broad spectrum of skill levels, even today.</p> <p>The Lessons of Lynch</p> <p>Although Lynch has left me with enough financially rich content to write a full-blown textbook, I will limit the meat of this article to lessons and quotations coming directly from the horse’s mouth. Here is a selective list of gems Lynch has shared with investors over the years:</p> <p>Buy within Your Comfort Zone: Lynch simply urges investors to “Buy what you know.” In similar fashion to Warren Buffett, who stuck to investing in stocks within his “circle of competence,” Lynch focused on investments he understood or on industries he felt he had an edge over others. Perhaps if investors would have heeded this advice, the leveraged, toxic derivative debacle occurring over previous years could have been avoided.</p> <p>Do Your Homework</p>
UK Pimco execs, CEO got 30% pay cut in 2014
Asset Management
<p>Pimco's U.K. directors had their pay slashed by 30% in 2014 in the wake of Bill Gross' departure last fall, reports the Financial Times.</p> <p>Pimco has been bleeding assets since before Gross left for Janus Capital last September. Its London unit had a 11% decrease in assets under management last year, falling to £120.8 billion, after the flagship Total Return bond fund failed to produce strong returns and the firm lost both its CEO and founder within a year.</p> <p>In 2014, Pimco's nine U.K. directors were paid £36.5 million, compared to £48.6 million total in 2013. The highest paid director saw his pay cut 57% from £22 million to £15.7 million. Pimco's U.K. directors include William Benz, managing director in London, and Douglas Hodge, CEO since Mohamed El-Erian's sudden resignation in early 2014.<br /> Photo: Images Money<br /> &nbsp;</p>