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Fed leaves interest rates unchanged: Four insights from Loomis Sayles
Asset Management
<p>Editor's note:  Loomis Sayles asked members of its staff to explain how they interpret the recent Federal Reserve decision to let interest rates stay near zero percent. Here is what they said:</p> <p>Plans for normalization deferred, not derailed</p> <p>"Today the FOMC signaled that plans for interest rate normalization are deferred but not yet derailed. It's difficult to categorize this outcome as a genuine surprise. While the rate decision and accompanying policy statement were no doubt dovish relative to expectations, the so called "dot plot" reveals that the median Fed member sees that interest rate normalization, once begun, is expected to proceed at the same pace as was expected in June. The expected medium-term path for rates beyond lift-off is little changed. While recent international developments and associated market volatility have increased near-term uncertainty, these developments have not altered the Fed's fundamental outlook."</p> <p>- Michael Gladchun, Fixed Income Trader</p> <p>The Fed is right not to add fuel to the fire</p> <p>"The Fed pointed to "recent global and financial developments" as key reasons for maintaining the status quo. They have been flagging the risks associated with a slowing China and the turmoil in other emerging markets. We believe the Fed is right to not add fuel to that fire, especially since a wait-and-see approach does not present risks to the US economy, which shows no inflationary pressures.</p> <p>China is the main external concern. The good news: the market seems to be pricing in a hard landing for China based upon price actions witnessed in the commodity and emerging markets sectors. Downside from here would require an even worse case economic scenario, which seems less likely. The bad news: we have not yet observed an inflection point in the economic deceleration taking place in China and other emerging markets. Both the financial markets and the Fed will be sifting through the tea leaves in coming months to see if these trouble spots start to show signs of improving. It should show up in trade and credit data first. Until then, expect the markets to be jittery and volatile."</p> <p>- Matt Eagan, Portfolio Manager</p> <p>Stocks poised for further recovery</p> <p>"In my view, whether the Fed raised rates at this meeting or not, stocks are poised for further recovery later this year and have the potential to reach new highs in 2016.</p> <p>S&amp;P 500 earnings have been tamped down by weakness in the energy and commodity sectors. Multinationals could see less adverse currency impact in the first half of next year depending on the extent to which the Fed holds rates steady, leading to less upward pressure on the dollar."</p> <p>- Richard Skaggs, Senior Equity Strategist</p> <p>Company performance will matter most</p> <p>"Equity valuations are much more sensitive to long-term interest rates than to short-term Federal Reserve rate actions. If inflation remains relatively low and long-term rates remain supportive, company performance will matter most to equities.</p> <p>Global equities have been more volatile in recent weeks with emerging markets being one source of heightened concern. The Federal Reserve cited global developments in today's statement; we will continue to watch developments offshore just as intently as developments within the US for direction during the balance of the year."</p> <p>- Craig Burelle, Macro Strategies Research Analyst</p> <p>MALR013940</p> <p>This blog post is provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herei</p>
The 3 best (and worst) things about being a fund manager this year
Hedge Funds
<p>With the PBOC loosening its grip on the yuan, the Shanghai Composite collapsing like a wet taco, and the Fed prolonging its guessing game, 2015 has been anything but boring so far.</p> <p>That said, not a lot of people have been encouraged by the myriad equity surprises and monetary plot twists this year, so here’s a little somethin somethin to keep things in perspective.</p> <p>Here are the three best, and worst, things about being a fund manager in 2015.</p> <p>Best:</p> <p>Hedge fund inflows continue to break records. You don’t even need to be a fund manager to know this one. Inflows to the hedge fund industry have been soaring to new highs of late, and traders have been enjoying the most money they’ve ever had to play with in years.</p> <p>These markets actually aren’t too bad. They may not be as smooth and trending as those in the 80's and the 90's, but today’s markets have been posting swings meaty enough for agile traders. Meanwhile, a tumble in cash returns and a climb in small cap and international stock competitiveness has created a veritable stock-picker’s market -- especially in contrast to 2014.</p> <p>It’s a wonderful time to be in the markets. No matter how bad you’re doing, the world is in an interesting juncture right with commodities hitting rock bottom, China rising, Europe struggling to grow, and the Fed flip-flopping on rates. It may sound bad but it’s one hell of a time to cut your teeth in.</p> <p>Worst:</p> <p>“Hedge fund” is still a bad word. With 2016 being an election year, hedge fund managers might as well tattoo “greed is good” on their foreheads right now. Elizabeth Warren, Donald Trump, and a whole host of presidentiables and senatoriables are still taking sight on the industry. And let’s not forget the witch hunts currently raging in China.</p> <p>The markets are good for your competitors too. Competition within the hedge fund arena is absolutely fierce right now, and industry performance has taken a massive hit because of it. The rise of the liquid alts space isn’t helping hedge funds post higher returns either.</p> <p>No one really knows what really going to happen. It may be a great time to cut your teeth in but that’s only if you get to survive it. No one really knows what’s going to happen if the Fed decides to lift rates, for all we know Fedmageddon might ensue and volatility will reign. As it is, uncertainty has already reared its ugly head.<br /> Photo: Shaun Wong</p>
Yellen flinches
Asset Management
<p>It is long past time for the Federal Reserve to start raising short-term rates. The unemployment rate is already very close to the Fed’s (new, lower) long-term projection of 4.9% and set to fall further in the next year, even if the Fed had already started lifting rates. Nominal GDP growth – real GDP growth plus inflation – is up at a 4.1% annual rate in the past two years, slightly exceeding the Fed’s long-run projection of 4% growth.<br /> Regardless, the Fed left short-term rates unchanged at today’s meeting and issued, on net, a more dovish statement than after the last meeting in July. Although the Fed acknowledged better business investment, it also provided three reasons for keeping rates unchanged, including (1) lower market-based measures of inflation, (2) global economic developments (which means China-related issues) and (3) financial developments (the recent correction in equity prices).<br /> We don’t think any of these factors warranted a longer wait for rate hikes. There’s always going to be some excuse to postpone rate hikes. The longer the Fed waits the more likely it is that the US economy eventually requires the kind of aggressive rate hikes that can cause a future recession. Raising rates by 25 basis points today wasn’t going to stop anyone from fracking a well or inventing a new App.<br /> In addition to the dovish statement, the Fed slightly marked down its estimates for the long-run average unemployment rate as well as inflation for the next few years. Both of these changes give the Fed more room to temporarily justify keeping rates unchanged.<br /> Consistent with the changes in the economic outlook, the median forecast from the Fed’s key decision-makers is that the Fed will only raise rates by 25 basis points this year, versus a prior median forecast of 50 basis points. In addition, the median estimate of the long run average federal funds rate fell to 3.5% from a prior estimate of 3.75%.</p> <p>The one bright spot in today’s statement was that Richmond Fed Bank President Jeffrey Lacker dissented. He would have raised rates by 25 basis points today.<br /> So where does that leave the likely course of monetary policy over the next several months? We believe a rate hike by the end of this year is still likely, but not a slam dunk. The next Fed meeting is in late October. But we see third quarter real GDP growth coming in at about a 2% annual rate. And it’s hard to see a Fed so skittish that it didn’t raise rates today willing to raise rates in that environment. Instead, December is more likely than October. By that time we should have some indications that real GDP is accelerating in the fourth quarter. However, we also can’t completely dismiss the possibility of the Fed waiting until 2016.<br /> The smartest investors know that the starting time for rate hikes is much less important than how high rates will ultimately go. In that sense, today’s news was a sideshow and we expect more aggressive rate hikes in 2016 than the Fed and markets now anticipate.<br /> This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but n</p>
VC exit activity remains strong despite rising valuations
Venture Capital
<p>U.S. VC exit activity has slowed this year. 2014 exits harkened back to the dot-com days, though last year’s total was partially skewed by the massive $22 billion sale of WhatsApp. Absent that deal, 2014 was still a post-2000 record by both count and value, so a slowdown isn’t surprising. What has changed over the past five years is the sheer number of exits happening, topping out at 986 last year. Through 1H, 2015 totals aren’t too far behind at 427, and capital exited levels should compare favorably to prior years, as well.</p> <p>IPO activity, on the other hand, is well off last year’s pace. 121 VC-backed companies went public in 2014 versus only 42 companies through June of this year. Market volatility will likely dictate IPO activity through the rest of the year, though the number of still-private unicorns hints at stronger IPO numbers—at some point. Until then, acquisitions remain the exit of choice for VC, with another 385 sales finalized in 1H totaling $23 billion in value. M&amp;A made up 90% and 85% of VC exit counts and value, respectively, through the first half.</p> <p>Large exits ($500M+) accounted for the lion’s share (58%) of total capital exited in 1H, down slightly from 63% in 2014. Most years going back to 2006 saw $500M+ exits account for 40% or less of total exit value, and sometimes as little as 21% (in 2009).</p> <p>This article is an excerpt originally posted on ValueWalk. </p> <p>&nbsp;</p>
Jim Chanos reading list
Hedge Funds
<p>Jim Chanos started Kynikos Associates in 1985 and the group has since become the world's largest exclusive short-selling investment firm. As of mid 2015, The hedge fund manages approximately $6 billion in assets.</p> <p>Throughout his investment career, Chanos has identified and sold short the shares of numerous well-known<br /> corporate financial disasters; among them Baldwin-United, Commodore International, Coleco, Integrated Resources, Boston Chicken, Sunbeam, Conseco and Tyco International. His celebrated short-sale of Enron shares was dubbed by Barron's as "the market call of the decade, if not the past fifty years."</p> <p>Chanos’ most famous short landed Chanos on the cover of Barron’s in 2002 as “The Guy Who Called Enron.” But the list of his targets stretches from Michael Milken’s junk bond empire through the real estate boom of the late 1980s, the telecom bubble of the late 1990s, Dennis Kozlowski’s Tyco and Bernie Ebbers’s WorldCom at the turn of the century, subprime mortgage lenders and home builders in 2007, and most recently China.</p> <p>For more on Jim Chanos, head over to ValueWalk’s Jim Chanos Resource Page, where you can find a detailed rundown of his background, bio and investment philosophy.<br /> Jim Chanos: Recommended books<br /> The Match King: Ivar Kreuger, The Financial Genius Behind a Century of Wall Street Scandals<br /> Frank Paternoy. The story of a 20th century Swedish businessman named Ivar Kreugar, who convinced everyone that he's a tycoon in the match business. Really, he just borrowed money in the U.S. and loaned it out in Europe in exchange for match companies.</p> <p>Bernard Baruch: The Adventures of a Wall Street Legend<br /> James Grant. This biography of Bernard Baruch considered to be renowned as the definitive story about the notorious financial wizard and presidential advisor.</p> <p>Waterloo: The History of Four Days, Three Armies, and Three Battles</p>
People Moves: Old Mutual snags investment director from Schroders; State Street names new sector sales chief
Asset Management
<p>OMGI appoints new Investment Director. Oliver Lee, a 15-year veteran of the asset management industry, has been appointed Investment Director for Asian Equities by Old Mutual Global Investors in Hong Kong. Josh Crabb, the firm’s head of Asian equities, had this to say regarding their new hire:<br /> “Oliver will be a valuable addition to our Hong Kong based team. He has extensive experience in Asian equities, spanning both long and long/short strategies. I look forward to working with him as we continue to enhance our Asian equities offering.”<br /> Lee joins OMGI from Schroders, where he held a post within the firm’s alternative strategies group. Prior to that, he worked at Sloane Robinson after spending two years in Goldman Sachs’ equities division. He began his career however in UBS, taking on roles in both its London and Zurich offices. He will be based in Hong Kong and work alongside Josh Crabb, Diamond Lee, Kris Whitlock and Dmitry Lapidus. Old Mutual Global Investors</p> <p>State Street names new head of sector sales. Mark England, an old hand in the asset management sales arena, has been named Senior Vice President and head of Asset Manager Sector Sales for Asia by the State Street Corporation. Kevin Wong, head of the firm’s Sector Solutions for Asia Pacific, seemed delighted by their new hire:<br /> “We are delighted to welcome Mark to the State Street team. Mark will identify and develop integrated product and service solutions for our asset management clients in Asia, a core market for us.”<br /> England brings over 17 years of experience to State Street, with his most recent feather being head of Asset Manager Sales for the Investor Services Group in Citibank. He will be filling in the void left by Paul Khoury, who was appointed head of State Street Global Services for Australia and New Zealand earlier this year. Asia Asset Management</p> <p>For Capital Markets moves, click here.<br /> Photo: Luke Ma</p>
How to break into the VC world
Venture Capital
<p>Venture capitalists are the cool kids of the finance high school world. But it's not easy to get to the top.</p> <p>As one VC said, people have this "wry notion that it [venture] means automatic fun, wealth and thrills, sorry...it's just not that way," writes Inc. If you're willing to put in the hours, the effort, and have a traditional finance background, here's what else VCs recommend you have to join their ranks:</p> <p> Be an entrepreneur. Success or failure, having experience building and selling companies can make you a VC's dream entrepreneur-in-residence. If you're not a business starter, work for a startup. Startup experience can give valuable insight for investing in new companies later.<br /> Invest. Make a track record by investing in an angel deal or two with your own money. Added bonus? Sit on a startup's advisory board.<br /> Network, network, network. It's vital to know and be known in the startup community. Attend events, blog, and utilize your current job's connections. Make your contact list irreplaceable.<br /> Be smart and analytical. Be able to critically look at companies, analyze their potential, and know their finances. Good old fashioned finance skills are essential here.<br /> Think about alternative career paths. Few people jump into their dream careers. It's unlikely you'll intern at a VC firm and work your way up the ladder. Consider gaining operating experience. Work in business development at a tech company. Join an angel group or family office in an investor role.</p> <p>Photo: Michael</p>
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: ©iStock.com/ooyoo<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 Benzinga.com</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>