Brian Bollen's Blog

Citi Hails UK China Cash Service

Citi reports the launch of a full Renminbi (RMB) cash management and trade solutions in the UK. It says it will offer RMB accounts domiciled in the UK, including payments and collections capabilities, trade services and financing, along with FX transactions and hedging solutions.

The news underlines the internationalisation of China's currency and the increasing importance of the city of London as a key offshore centre for RMB business. Citi says it will help clients capitalise on the opportunity by making efficiency gains in liquidity management, and improving their supply chain relationships in China.

Back To The 60s

Mark Barnett, UK equity income manager at Invesco Perpetual, explains why he thinks the stock market currently offers exciting opportunities for investors seeking income

Q: How have recent political developments in the Eurozone impacted on your portfolio strategy?

A: There has not been much impact on the way I have been managing portfolios because I had expected more turmoil in the Eurozone - if not necessarily as soon as we are seeing it. The portfolios have been positioned to cope with this for a year or more now, which is why I am not now doing much adjustment.

Q: Could you discuss your core strategy for producing income? How much emphasis do you put on current yield as opposed to dividend growth?

A: To my mind, the most important element of the income strategy is dividend growth, because it is dividend growth that ultimately drives capital values.  As an equity investor, we want to see companies paying dividends and growing those dividends over the long run.  If you just target a static yield and that yield does not grow then you end up with a stock price which is likely to go nowhere. I have always said that I am really much more interested in finding companies that can grow dividends sustainably over the long term, even if from today that might be from a very low base. Over the long run, those are the companies that the market values the most highly. It is important to note that yield is actually not under a company’s control. What companies do control is their pay-outs and their pay-out ratios. Yield is simply the dividend pay-out over the price. That is why it is much more important to focus on the growth of the pay-out, because companies control that growth, rather than just looking for yield in the market.

Q: How likely it is that the companies which are paying out dividends will be able to generate total returns similar to companies, often smaller and midsize, that reinvest in their business?

Phoenix Awards Citi Fund Admin Mandate

From Tel Aviv Citi reports that it has been awarded a mandate to provide fund administration services for Phoenix Pension & Provident Funds to support its new personal provident fund offering, a form of retirement savings through defined contribution schemes.

Rents Lift US Inflation: AllianceBernstein

Brief details of the latest AllianceBernstein economic weekly reports:-

·         BLOG: Darren Williams, senior European economist - Global Economic Research:

Euro-area Leaders Need to Focus on More Pressing Issue

http://blog.alliancebernstein.com/index.php/2012/05/28/euroleadersneedfocus/

·         Japanese Perspective by Guy Bruten, senior Asia economist - Global Economic Research Japan’s Trade Deficit Likely to Persist.

·         US Perspective by Joseph G. Carson, US economist and director - Global Economic Research: Fed to Face Dilemma as Rising Rents Lift Core Inflation Rate.

·         Latin Perspective by Lara Pederson, senior economist - Global Economic Research: A String of Policy Missteps in Argentina.

 

Be An Angel, Says UK Government (And Save Some Tax, For Now)

The British Business Angels Association is launching its new Be An Angel portal and campaign aimed at encouraging more individuals to put their spare finance and business experience to work behind Britain’s entrepreneurs.

The news comes in the wake of the latest Report launched this week - Make Business Your Business - and the new Start-up loans initiative, led by Lord Young, the Government’s Enterprise Tsar (stop laughing at the back!). 

The Be an Angel site can be found at www.bbaa.org.uk/be-an-angel.

Spanish Investment To Change Dramatically: RBC Dexia, Accenture

The shape of Spain’s asset management industry is set to change dramatically according to a report by RBC Dexia and Accenture.

The report predicts further concentration of the industry into fewer, more specialised managers and a stronger focus on improving efficiency and performance. Improvements in technology will also be key to success, with outsourcing high on the agenda.

José Maria Alonso-Gama, managing director of RBC Dexia in Spain, said: “Spanish fund firms are concentrating on bottom-line indicators such as fund performance and increased assets under management. They recognise the need to restore credibility and investor confidence by showing they are delivering on their performance promises.”

Rating Agencies Go Under IOSCO Microscope

The Technical Committee of the International Organisation of Securities Commissions (IOSCO) has published a consultation report, snappily entitled Credit Rating Agencies: Internal Controls Designed to Ensure the Integrity of the Credit Rating Process and Procedures to Manage Conflicts of Interest.

It says this report describes certain internal controls and procedures that credit rating agencies (CRAs) use to promote the integrity of the credit rating process and address conflicts of interest, with a view to promoting a better understanding of these practices. It adds that the views of stakeholders and CRAs on these questions will assist it with further analysis of their internal controls and procedures.

Ashmore Lifts FT EM Prize

Ashmore Investment Management, an investment manager dedicated to emerging markets, modestly reports that this week it won the ‘Emerging market debt’ award within the Investment Provider category at the FT Business Pension and Investment Provider 2012 Awards.

The FT Business Pension and Investment Provider Awards recognises providers who have delivered excellent service to UK pension schemes over the previous 12 months. The four key criteria used to adjudicate the awards are performance, innovation, service standards and competitive edge.

It's like asking a bicycle repairman to fix a jet engine...

Bill Blain’s Morning Porridge – May 25 2012

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

It's like asking a bicycle repairman to fix a jet engine...

Last thing I asked before I went traveling was 'try not to break anything' while I’m away. I get back this morning and it looks like a bunch of teenagers have had a particularly messy drug-fuelled rave in the market’s front room. The day-on-day charts hide the roller-coaster ride we've seen on the back of the Euro. Bond markets are in lock-down awaiting what-ever-next ‘liquidity bomb’ the authorities can find to drop. Aside from some minor bond crosses, there has been zip activity outside zero-coupon bunds, gilts and treasuries. There is more liquidity in the Atacama desert.

And the mood has changed. I’m concerned at Draghi’s increasingly open direction – his expousal of radical ideas and his suggestion Eurobonds are closer than we think looks like a head on collision between the ECB and Germany is on the tracks.

On the investment side, it’s not about trying to lighten up positions that might widen if the Euro crisis deepens. Now investors are looking to sell whole portfolios on redenomination risk. You might be confident that block of Cedulas pays back at par. You just don’t know what currency you might get 100 in. Two excellent notes by David Oakley and Gillian Tett in the FT are well worth a read on the scale and form of  investor fears.

Go For Discount Quality: GAMAX

In a market commentary issued today, GAMAX Management AG stresses the importance of investing in a collection of high quality companies trading at a discount to their estimate of their intrinsic value, given the current low growth environment.

It goes on to say that GAMAX Funds Junior (ISIN LU0073103748) managed by partner DJE Kapital AG, invests in companies which have competitive advantages in revenue growth from targeting young global consumers.

An example of such a company is Apple Inc., a significant stock holding within GAMAX Funds Junior. Fund managers Jan Ehrhardt and Moritz Rehmann, we are told, remain unruffled by the recent price declines of Apple as they believe the firm’s financials remain solid and the growth prospects attractive. The Fund has not participated in the Facebook IPO as concerns remain on the firm’s valuation.

ING IM Appoints Mark den Hollander Chief Risk Officer

ING Investment Management (ING IM) has promoted Mark den Hollander, head of ICS Investment Solutions, to chief risk officer (CRO), effective from June 1 2012.

He has close to 20 years of experience in the investment management industry and joined ING IM in 2009 as managing director, head of investment solutions. The appointment, which is subject to regulatory approval, sees den Hollander take over CRO responsibilities from Satish Bapat, chief financial officer, ING IM, who had been carrying out CRO responsibilities on an interim basis next to his CFO role. Bapat will remain CFO of ING IM.

Prior to ING IM, den Hollander was the chief investment officer structured solutions at Fortis Investments. He joins the ING IM International Management Committee (IMC) and will report to Gilbert Van Hassel, CEO, ING IM, and functionally to Jeroen Potjes, Deputy Chief Risk Officer, ING Insurance/IM EurAsia.

 

 

New Broom For Euroclear Boards

From Brussels comes the report that Euroclear has appointed Marc Antoine Autheman to succeed Sir Nigel Wicks upon his retirement as chairman of both Euroclear plc and Euroclear SA/NV on January 1 2013. Sir Nigel became chairman in August 2006 after serving as deputy chairman from 2002. Both chairman positions are non-executive.

Autheman will become Deputy Chairman of both Euroclear Boards immediately, a position that he shares with Jean-Jacques Verdickt.

 

Banks’ Involvement In Private Equity Declines: Preqin

Legislation, such as Basel III and the Volcker Rule – part of the Dodd-Frank Act in the US - coupled with liquidity concerns and a fall in client appetite, has resulted in a decline in banks’ involvement in the private equity asset class, according to a new Preqin study.

Banks accounted for 11% of all private equity capital in 2008 but this figure fell to 8% in 2011. Despite this, 74% of banks interviewed by Preqin stated that their private equity investment programs had not been affected by regulatory changes, and 55% felt it unlikely that such changes would impact their level of private equity investment in the future.

Of the 26% of banks that have ceased or reduced investment activities in the asset class, 90% are based in either North America or Europe, the regions in which investors are directly impacted by regulatory changes. Some of these institutions have already sold fund interests and 40% would consider selling. However, over the longer term, 75% of banks stated that they will seek to either maintain or increase their private equity allocations.

Other findings:

Grexit or Full Fiscal Union: The Eurozone's Only Options

John Greenwood, Chief Economist at Invesco Ltd provides his latest views on the Eurozone

Last September I argued there were only three possible outcomes for the Eurozone crisis: (1) unilateral default and exit by Greece and possibly one or more additional economies, (2) prolonged austerity for most of the crisis economies lasting as much as a decade under conditions set by the troika (the EU, the ECB and the IMF), and (3) a rapid shift to full fiscal union.

It has now become clear, as I argued at the time, that the ‘solution’ proposed by the Euro-area authorities – namely (2), maintenance of the existing membership of the monetary union while imposing tough budgetary constraints and recessions on the crisis economies – was unstable and would not succeed because it would not be accepted for long by Euro-area voters. Either austerity fatigue would develop among southern European voters, or bail-out fatigue would be expressed by the voters of the core. 

In recent weeks the collapse of the Dutch government, the results of the French Presidential and German state elections, as well as the outcome of the Greek parliamentary elections have all reflected predictable shifts in voter sentiment away from middle-of-the-road parties towards more extreme parties, both on the left and on the right. The Dutch, German and French results demonstrate differing frustrations in the core, while the Greek results are symptomatic of sentiment across most of the peripherals. In effect the voters are saying solution (2) is no longer viable. In the next few weeks, probably soon after the Greek election scheduled for June 17, the Eurozone leaders will be compelled to choose between (1) and (3).

Never Mind The Width, Feel The Quality

How to change one's investment approach in a climate of zero rates is the subject of a new PIMCO European Perspectives by Luke Spajic: Goodbye 'Planet Rates', Hello 'Planet Quantity': Credit Markets in a Zero Rate World. He identifies a number of key points.

·         Centrals banks today prefer to intervene in markets using quantitative measures rather than effect change via short-term policy rates. This is having far reaching implications for growth expectations, attitudes to credit risk and most importantly, investor behaviour.

·         There is a sense that developed market economies are somehow undergoing a reversed metamorphosis reverting from butterfly back to caterpillar where growth is crawling as opposed to flying.

·         The fear of credit destruction, perhaps triggered by deflationary scares, becomes a bigger obsession for central banks.

·         The culture of credit risk-taking changes as rates go lower and approach zero with a perennial risk of the economy tipping into deflation.

·         The danger becomes pronounced if there is then a tilt towards less risk-taking, running high cash balances and a lot of waiting on the sidelines.

 

IOSCO Speaks

IOSCO Speaks

From Beijing comes the final communiqué on IOSCO’s 37th Annual Conference which, the organisation says, further progressed its contribution to the international regulatory reform agenda. 

The meeting also marked important changes to IOSCO's structure intended to streamline its organisation and decision-making, and bring about greater effectiveness and inclusiveness.

Increased need for IOSCO’s role

The current  economic turmoil highlights the need for securities regulators to work together to identify emerging risks, coordinate regulatory reform across jurisdictions, enhance regulatory and supervisory cooperation, and thereby seek ways to provide a stable and efficient securities market environment, which is a necessary foundation for economic growth. This is particularly so given the increasing importance, highlighted during the Conference, of securities markets as an alternative source of funding to support economic growth and development.

The Conference Sessions and Meetings underscored the importance of IOSCO as both a standard setter and a platform for regulators from both emerging and developed economies to meet the challenges ahead.

Soderberg Mandates J.P. Morgan WSS

J.P. Morgan’s Worldwide Securities Services (WSS) business says it has been selected by Söderberg & Partners, a Swedish asset manager with funds domiciled in Luxembourg. It is to provide a range of securities services including custody, fund accounting and transfer agency for Söderberg’s recently launched SICAV fund. The SICAV consists of three sub-funds. 

Söderberg & Partners is an adviser and distributor of insurance and financial products in Sweden. It was founded in 2004 and now has more than 900 employees in 50 offices in Sweden.

 

The Strategic Case For Momentum

By Jonathan Smith, UK Strategic Solutions, Schroders

As the global economy continues to de-leverage, the next decade looks likely to be a period of weak growth and low interest rates, punctuated by bouts of heightened instability and crisis.

In this environment many investors will be looking for strategies that can smooth investment returns, whilst allowing them to benefit from whatever growth there may be.

Alceda Appoints SGSS

Societe Generale Securities Services in Italy (SGSS S.p.A.) has been appointed by Alceda Fund Management S.A. (Alceda) to act as its local Transfer Agent in Italy, providing it with paying agent and investor relations management services for its fund AC and its Sicav AC Quant. 

 

State Street Announces Omnibus Trading Capabilities for Mutual Fund Clients

State Street Global Markets, the investment research and trading arm of State Street Corporation, today announced that broker dealer omnibus trading capabilities have been added to its Fund Connect money market fund trading platform, providing clients with a single contract, allowing for multiple funds to trade simultaneously.

Fund Connect is part of eExchange, State Street Global Markets’ suite of integrated electronic trading solutions for institutional investors. We are assured that it allows clients to invest in a wide range of institutional money market funds from leading providers through a single, secure interface.