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People Moves: BNY overhauls global distribution; JPMorgan loses top portfolio manager; Robeco names new CEO
Asset Management
<p>BNY Mellon revamps distribution team. John Herlihy has been named global head of institutional at BNY Mellon Investment Management. Herlihy, based in Boston, previously worked as global chief operating officer and head of global partnered solutions at the firm. Paul Sari has also been named co-head of global strategic accounts in the Americas. Cheryl Pipia is now co-head of global strategic accounts, based in London. Michael Gordon was named global head of insurance solutions. Joe Gennaco is now global head of boutique relations and consultant coordination. Jake Walker was appointed COO, global distribution. The firm is still hiring for co-head of global client engagement, based in London. Pensions &amp; Investments</p> <p>JPMorgan bond manager taking leave. Douglas Swanson is taking a leave of absence beginning October 1. He currently runs almost $52 billion in mutual fund assets, and serves as head of the U.S. value driven fixed income team. He is leaving to spend time wit family. InvestmentNews</p> <p>Robeco names new CEO. Former Aberdeen Asset Management chief strategist David Steyn will replace Roderick Munsters as CEO, effective November 1. Munsters announced earlier this month that it was a "natural moment" for him to leave the Dutch asset manager. Reuters</p> <p>Old Mutual loses COO. Paul Hanratty is leaving the financial services group after more than 30 years. He will stay on the board until March 2016, and will be available for the company until September 2016. MarketWatch</p> <p>Old Mutual grabs Investec sales lead. Gary Dale is joining Old Mutual Wealth as head of advisory sales, effective November 30. He previously worked as head of intermediary sales of derivatives and structured products at Investec. Dale has also worked for Santander, Prudential, Norwich Union, and AXA. CityWire</p> <p>BlackRock appoints head of U.S. wealth advisory business. Salim Ramji is replacing Frank Porcelli in the role. Porcelli is transitioning to become the unit chairman, with a focus on new offerings. Ramji'ss current role of global head of corporate strategy will be filled by Geraldine Buckingham. Salt Lake Tribune</p> <p>&nbsp;<br /> Photo: ©<br /> &nbsp;</p>
Regional bank ETF flows didn't predict ZIRP continuation
Asset Management
<p>The Federal Reserve's decision Thursday to maintain its zero interest rate policy (ZIRP), not surprisingly, dealt a blow to regional bank stocks and the corresponding exchange traded funds.</p> <p>However, recent flows data for ETFs such as the SPDR KBW Regional Banking (ETF)(NYSE: KRE), the largest regional bank ETF, and the SPDR KBW Bank (ETF) (NYSE: KBE) indicate many investors in these ETFs were expecting the Fed to cooperate and raise rates.<br /> Two Weeks And Substantial Losses<br /> Since the start of September through Wednesday, September 16, KRE and KBE lost $43.8 million and $11.2 million, respectively, in assets. One could say, “Hey, some investors were pulling out of these in advance of the Fed meeting.” Literally, that is true, but a combined $55 million in departures from these rate-sensitive ETFs is a blip on the radar when acknowledging KBE came into Thursday with $2.83 ...</p> <p>Full story available on</p> <p>Photo: Got Credit</p>
Uh Oh! Looks like Tesla might have a Chinese rival
Venture Capital
<p>Well it was bound to happen wasn't it? Just as taxi app Uber must now contend with Didi Kuaidi, or the way Xiaomi has shaken up the smartphone space, a lean new Chinese electric car start-up - NextEV - is trying to muscle in on Tesla's turf.</p> <p>Not only that, it just raised a round led by Silicon Valley venture capital giant Sequoia Capital, according to Fortune. Other investors include Uber-backers Hillhouse Capital. Ok, but it's in China, right? It's not like the start-up is moving into Tesla's backyard or anything? Well, actually, it just opened a new 85,000-square-foot R&amp;D center in north San Jose, California.</p> <p>Its not the first rival Tesla has had to deal with. The US incumbent, which was backed early on by Draper Fisher Jurvetson, DBL Investors, and Technology Partners - among others,  has already inspired a slew of copycats. That said, it looks like the electric car space has just got a little bit more crowded.<br /> Photo: Thomas Hawk</p>
Massive net buying by foreigners in APAC
Asset Management
<p>In emerging Asia ex. China and Malaysia, yesterday’s [September 16] net foreign buying of $0.8 billion turned out to be the single biggest day for net foreign buying since April 2014, notes Credit Suisse Group AG (ADR) (NYSE:CS). Sakthi Siva and King Nang Chik said in their “APAC Equity Strategy” report that they continue to be Overweight the cheapest four markets: MSCI China, Korea, Taiwan and Singapore.<br /> Yesterday’s relief buying in APAC after substantial selling by foreigners<br /> Siva and Chik term it “a pleasant surprise” when net foreign buying of $789 million was logged in Emerging Asia ex. China and Malaysia on Sept. 16, after the net foreign selling over the past four months. The analysts point out that yesterday logged net foreign buying of $470 million in India, followed by $184 million in Korea and $158 million in Taiwan:</p> <p>However, Siva and Chik note the $789 million of net foreign buying comes after net foreign selling of $21 billion out of Emerging Asia ex. China and Malaysia. As can be deduced from the following table, net foreign selling over the past three to four months out of Emerging Asia ex. China and Japan is $36.3 billion:</p> <p>The CS analysts point out that on a rolling 12-month basis, net foreign buying has dropped to 0% of market cap on a rolling 12-month basis for Emerging Asia ex. China and Malaysia:</p> <p>Foreign investor capitulation in a few APAC markets<br /> Highlighting the markets which have witnessed foreign investor capitulation, Siva and Chik point out that Korea (-0.1%), the Philippines (-0.4%), Indonesia (-0.7%), Thailand (-1%) and Malaysia (-1.5%) witnessed foreign investors turning net sellers over the past year:</p> <p>However, in a few markets, including India, foreigners are still net buyers over the past 12 months:</p>
For the Fed, it's a small world after all
Asset Management
<p>The Federal Reserve looked at the data in the U.S. And China. And Europe. And decided: Now is not the time to lift rates, even symbolically, from their historically low levels.</p> <p>The world is getting smaller by the minute.</p> <p>The Fed's mandate to manage employment rates in the U.S. has become greatly tied to the health of global economies.</p> <p>"It's hard to think about jobs without thinking about where you sit around the planet," says says Jeff Moore, portfolio manager at Fidelity. The U.S. job market has been steadily if slowly improving over the past few years. Unemployment stands at 5.1%. Not good enough to lift rates, the Fed basically said in its statement. Weakness overseas threatens the recovery in the U.S. Higher rates will keep the dollar strong, which will make our goods pricey for our trading partners and hurt business. "It's all connected to the jobs piece," says Moore (who says he is not speaking on behalf of Fidelity).</p> <p>China and the global market volatility in August played a large role in the Fed's decision, says Lee Ferridge, head of North American macro strategy at State Street Global Markets. The strong dollar has tied the Fed's hands. It's "the doorway" between the global and domestic economies, says Ferridge. He's not convinced that a rate rise is in the cards this year.</p> <p>Caution comes naturally to a central banker. The Fed would rather err on the side of raising rates too slowly than too quickly, says Moore. The delay in a rate rise "give(s) some breathing room to emerging market countries," he says. "Even the Chinese story; it gives it more time."</p> <p>The hesitation can backfire. "(It) is bound to prompt uncertainty,” says Nigel Green, founder of deVere Group. "By not raising interest rates, the Fed is, in effect, sending out a clear message that it is nervous about China, and the impact a potential hard landing could have on U.S. and global growth," he says.</p> <p>Legg Mason agrees. "Until it actually moves on rates, lingering uncertainty about the timing of a increase could be a source of volatility in the markets – and perpetuate concerns about distortions in market pricing that result from years of zero-rate policy," the firm wrote in a statement.</p> <p>Photo: charamelody </p> <p>&nbsp;</p> <p>&nbsp;</p>
Vanguard says the Fed risks 'being held captive to the markets' by inaction
Asset Management
<p>Editor's note: This is a statement from Vanguard's senior economist, Roger Aliaga-Diaz on the decision by the Federal Reserve to keep interest rates at zero.<br /> The Fed's decision to hold off on a rate increase is a clear indication to the markets that this rate cycle will be different, with international conditions and US dollar strength weighing more on the decision than in the past. We are concerned with the Fed's acknowledgement of recent market volatility in its decision. The Fed runs the risk of being held captive to the markets, as, paradoxically, much of that volatility is due to the anticipation and uncertainty around when the Fed will move.</p> <p>Vanguard believes that focus should remain on how the Fed proceeds after the initial increase in rates. Given current conditions, we believe a take-off in 2015 is warranted and continue to stress our view of low and slow. The US economy remains strong relative to global peers, and we expect that resiliency to remain.<br /> Photo: Brookings Institute</p>
Don’t sweat the Fed
Asset Management
<p>This should be short. There are a lot of good reasons not to worry about the FOMC raising Fed funds or not. If they raise Fed funds:</p> <p> First, savers deserve a return. Economies work better when savers get rewarded.<br /> Second, investors do better on the whole when there is a risk free asset earning something to allocate money to, because otherwise investors take too much risk in an effort to generate income.<br /> Third, the FOMC should never have let Fed funds rates go below 1% anyway — the marginal stimulus is limited once the yield curve gets slope enough for the banks to lend. They don't really need more than that.<br /> Fourth, it's not as if monetary policy has been doing that much. Outside of the government and corporations, most entities have not shown a lot of desire to lever up after the financial crisis.<br /> Fifth, long Treasury yields will do what they want to do — they won't necessarily go up… it all depends on how strong the economy is.</p> <p>But if the the Fed doesn't raise Fed funds, no big deal. We wait a little longer. What's the difference between having zero interest rates for 6.5 years and 7.5 years? Either one would build up enough leverage if the economy had the oomph to absorb it.</p> <p>As it is, corporate borrowing has been the major place of debt expansion through both loans and bonds. Watch the debt of energy firms that are allergic to low crude oil prices. Honorable mention goes to auto, student, and agricultural lending. May as well mention that underwriting standards are slipping in some areas for consumers, but things aren't nuts yet.<br /> I've often said that the FOMC stops tightening rates when something big blows up. Can't see what it will be this time — the energy sector will be hurt, but it isn't big enough to impair financials as a group. Subprime lending is light at present outside of autos.<br /> Watch and see, but in my opinion, it is a sideshow. Watch how the long end behaves, and see if the market reflates. We need more confusion and less concern over what the next crisis is, before any significant crisis comes.</p> <p>This story originally appeared on ValueWalk.<br /> Photo: Maritime Haftek</p>
Oil, China pulls Kynikos deep into the black
Hedge Funds
<p>The past few years have been nothing short of brutal for the short-only hedge fund space. QE3 was launched in September 2012, equities went through the roof, and the market has never looked back since. HFR data shows that from 2012 to 2014, short-only funds lost an average of 35%, a stark contrast to the S&amp;P’s over 75% gain in the same period.</p> <p>Thankfully however, 2015’s a little different – especially for Jim Chanos’ crew at 22 West 55th Street.</p> <p>After losing money since 2012, Jim Chanos’ Kynikos Associates is now firmly in the black according to the Wall Street Journal, and it didn’t just creep there either, no, it actually posted some respectable gains in August alone:<br /> The Ursus and Kriticos funds, which bet only against stocks, gained 6.2% and 8.2% in August, according to the document.<br /> The fund’s returns were mostly driven by bets against energy prices and – you guessed it – China, though the former did drive most of the gains, according to someone familiar with the matter.</p> <p>Still, the returns are tiny compared to Kynikos’ glory years. In 2008, when vaunted hedge funds such as Tudor and SAC chalked up their first ever losses, the firm’s Ursus fund surged 62%. And let’s not forget Chanos’ epic Enron short back in 2001.</p> <p>They still have more than enough reason to cheer up though. Recent Preqin analysis shows that hedge funds overall slipped 1.88% in August, exacerbating a 0.45% fall in July, and took the industry’s returns down to 1.96% year to date. And besides, as Chanos said two months ago regarding China, “The story has yet to play out…As long as China adds credit faster than its growth, the real story is months and years ahead.” I’m sure he’ll be there when that happens.<br /> Photo: Insider Monkey</p>
Liquid alts actually did pretty well last month
Asset Management
<p>Of the asset management industry’s many subsectors, none have been as reviled lately as the burgeoning liquid alts space.</p> <p>They’ve been called “watered down hedge funds” at a time when hedge funds themselves weren’t even doing well, and their promise of daily liquidity seems to stymie any effort to deliver out of the park returns. Even their managers seem to have taken flak as well, with critics asking why would they do it if they were successful hedge fund managers in the first place.</p> <p>Goldman Sachs however, would like to point out how awesome the space did this rocky August:<br /> As Exhibit 1 shows, three of five GSAM Liquid Alternative Investments Peer Groups lost less than 1% over the most volatile stretch of the month, as measured by the S&amp;P 500’s closing price high (Aug. 10) and low (Aug. 25). While the S&amp;P 500 fell a total 11% over this period, the GSAM LAI Relative Value Peer Group, Tactical Trading/Macro Peer Group, and Event Driven Peer Group, lost 0.6%, 0.6% and 1.0%, respectively.</p> <p>Given the steep losses in equity markets, it came as no surprise to us that equity long/short funds were down as well, since, historically, these strategies have been more closely correlated with equity markets than certain other strategies.1 Still, the Equity Long/Short Peer Group lost less than half the S&amp;P 500’s decline (5.2%) – and also beat almost every individual S&amp;P 500 Index sector. (See Exhibit 2). The GSAM LAI Multistrategy Peer Group, meanwhile, comprised of funds incorporating several different alternative investment approaches, fell by less than a quarter the S&amp;P 500’s loss (2.5%).<br /> All five peer groups meanwhile thrashed the traditional “balanced” portfolio’s performance in the same time frame, with the worst-performing group – Equity Long/Short – declining 5.2% in August compared to the 6.59% drop suffered by an “illustrative” 60-40 portfolio.</p> <p>Does this make the case for Liquid Alts then? Goldman seems to think so, especially as drivers in well-diversified investment portfolios. It would’ve been great to see which funds they tracked for the study though.<br /> Photo: Kristian Niemi</p>
BlackRock is setting up a social impact fund. But why Japan?
Asset Management
<p>US asset manager BlackRock is setting up a new social impact fund and has decided to base it in Japan. It will be first fund of its kind in the country.</p> <p>An appetite for social impact funds has been steadily on the rise since the global financial crisis. Investors are seeing the value in seeking long term returns in investments that are based on both social and monetary returns.</p> <p>Many also realize that adopting ESG (environmental, social and governance) standards does not only keep some investors happy, but can also drive value.  </p> <p>In Asia much of this investment activity has, rather unsurprisingly, been focused on emerging economies that stand to benefit the most from ethical investing. Think of microfinance in India, or in agriculture in Indonesia. So it is interesting that BlackRock has decided to set something up in Japan. </p> <p>The so-called Big Impact fund will be offered to retail investors from September 30, reports the Asian Nikkei Review, and BlackRock will use a range of criteria to select 200-800 issues from 3,700 companies in developed economies. </p> <p>When you look at two of the fund’s target industries, pharmaceuticals and energy, the rationale for Japan comes clearer. The country's ageing population, and its ongoing struggle with energy security - born out its unstable dependence on nuclear energy - means the country’s is driving innovation and growth in industries that hold several environmental and social benefits.</p> <p>But its not just that. Corporate Japan's progress on governance and social responsibility is also big factor for BlackRock. The new corporate governance code adopted by the Tokyo Stock Exchange in June aims to strengthen management through outside director appointments and  urges companies to be more pro-active towards ESG value.</p> <p>It's early days, but BlackRock is not alone. Private Equity firm KKR has also eyed ESG opportunities in Japan. This year is inducted its recent healthcare acquisition Panasonic Healthcare Holdings in its Green Portfolio Program (GPP), an operational improvement platform that uses ESG  benchmarks for KKR’s portfolio management activities.<br /> Photo: Mr Hicks46</p>