Currencies

Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

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Banks

Basel Committe fail to sign off on latest bank reform measures

Banking regulators have failed to sign off the latest package of global industry reforms, leaving a question mark hanging over bankers who complain they have faced endlessly evolving regulation since the financial crisis. Policymakers had hoped to agree the contentious new measures at a crunch meeting held in Chile this week, but a senior official […]

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Financial

Travis Perkins and Polymetal to lose out in FTSE 100 reshuffle

Builders’ merchant Travis Perkins and mining company Polymetal face relegation from the FTSE 100 after their recent performances were hit by political events. The share price of Travis Perkins has dropped 29 per cent since the UK voted to leave the EU in June, as economic uncertainty has sparked concerns among some investors about the […]

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Economy

Eurozone inflation climbs to highest since April 2014

A welcome dose of good news before next week’s big European Central Bank meeting. Year on year inflation in the eurozone has climbed to its best rate since April 2014 this month, accelerating to 0.6 per cent from 0.5 per cent on the back of the rising cost of services and the fading effect of […]

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Financial

Wealth manager Brewin Dolphin hit by restructuring costs

Profits at wealth manager Brewin Dolphin were hit by restructuring costs as the company continued to shift its focus towards portfolio management. The FTSE 250 company reported pre-tax profits of £50.1m in the year to September 30, down 17.9 per cent from £61m the previous year. Finance director Andrew Westenberger said its 2015 figure was […]

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Archive | November, 2016

Measuring the failure of funds is flawed

Posted on 31 July 2016 by

Market Reaction To The U.K. General Election At Panmure Gordon...A trader monitors financial information on computer screens on the trading floor at Panmure Gordon & Co., as results continue to be announced in the 2015 general election in London, U.K., on Friday, May 8, 2015. David Cameron is on course to remain prime minister at the head of a minority government after the U.K. general election, an exit poll and early results indicated. The pound jumped. Photographer: Chris Ratcliffe/Bloomberg©Bloomberg

The solutions era needs research into performance comparison and benchmarking

Asset management companies are putting their faith in new “solutions” business lines. Little wonder, given clients’ disillusionment with perennially underperforming active funds and brutal price competition in passive products.

Bundled solutions extend from multi-asset products, through asset allocation and risk management services, all the way to outsourced chief investment officer functions. They offer asset managers the chance to combine funds that, as standalone products, are rapidly becoming a commodity product. They also offer the chance to boost revenue, do a bit of upselling and add real value for clients. But a problem is looming for the pension funds and other institutions who hired asset managers to provide them with these solutions: knowing when to fire them.

    In traditional fund management, that is a relatively easy task. An active manager who lags behind her asset class benchmark will get called in to explain; fall too far behind for too long and she will get the boot. Alpha, or the lack of it, is readily identifiable against market beta as captured in the S&P 500, say, or the Barclays Aggregate bond indices.

    But how do we identify below-average performance when it comes to asset allocation? Clients and managers together can set targets, for example a 7 per cent return for a needy public pension plan, within agreed risk limits. But is realising that 7 per cent all that counts, if other managers in similar circumstances might all have brought in 8 per cent?

    The confusion could be quite lucrative to an industry trying to protect chunky margins that still tally in the high-30s per cent for traditional asset management.

    Without market benchmarks for returns, or the ability to do like-for-like price comparisons on bespoke service offerings, clients are likely to fall back on more impressionistic measures, such as service levels or educational support. Boston Consulting says managers have always been judged partially on the “emotional jobs to be done” for a client; in the solutions era, good sales and good personal support will be paramount in winning and keeping business. It could be like the early years of fund management, before rigorous, comparative measurement revealed the failure of most managers to justify their fees.

    The expansion of asset management beyond funds and simple asset class-based mandates is proceeding apace, and occupying chief executives across the industry. BlackRock’s Larry Fink predicted at its annual investor day that bundled multi-asset products would grow at twice the rate of the asset management sector as a whole, and his company’s breadth — spanning geographies, active and passive investing, and most asset classes — is the reason the market values BlackRock more highly than many other managers.

    If I were not a multidimensional firm, I would be very nervous, because you can become pretty irrelevant pretty quickly

    – Joe Sullivan

    Gavin O’Connor, chief operating officer at Goldman Sachs Asset Management, likes to show a slide comparing flows at publicly listed asset managers and the fund arms of listed banks. GSAM, JPMorgan and BlackRock are at the top and narrower companies such as Franklin Templeton, Janus and Pimco are at the bottom of a three-year league table.

    And Joe Sullivan, chief executive of Legg Mason, told me recently: “Client demand is truly moving to a solutions-based relationship. If I were not a multidimensional firm, I would be very nervous, because you can become pretty irrelevant pretty quickly, no matter what your performance is.”

    There are good-faith efforts to benchmark bundled solutions, but the measures seem crude at best.

    Lee Kranefuss, who created the iShares exchange traded fund business inside Barclays, is running a sophisticated new venture called 55 Capital. It uses ETFs in an actively managed macro portfolio that can contain global equities, bonds, commodities and alternatives, complete with tax minimisation strategies to improve returns — yet it is benchmarked to a simple 60/40 portfolio of equities and bonds.

    Morningstar, the data provider, faces analogous difficulties in rating the target-date funds that are used inside pension plans. Their allocations to different asset classes vary widely as they progress along different “glide paths” towards a target retirement date. The returns of different funds also therefore vary widely through market cycles, even if their savers ultimately end up in the same place. Comparisons along the way are fraught, but we are not going to want to wait 40 years to count up the number of pensioners who die in penury before we pass judgment.

    All of which is to say that the solutions era needs to unleash a round of research into performance comparison and benchmarking, and quickly. Solutions come with problems.

    Stephen Foley is the FT’s US investment correspondent

    Fosun takes stake in Portugal’s BCP bank

    Posted on 31 July 2016 by

    ©AFP

    China’s Fosun has offered to buy almost 17 per cent of Millennium BCP, Portugal’s largest listed bank, and potentially lift its stake to 30 per cent, following a halving in its share price in the year to date.

    BCP said in a regulatory filing late on Saturday that Fosun Industrial Holdings had offered to pay €0.02 a share, equal to Friday’s closing price, in a private placement of 16.7 per cent of the bank’s share capital. According to the filing, Fosun was also considering increasing its shareholding to “20-30 per cent”.

      Fosun, one of China’s most acquisitive companies, made its Millennium BCP offer a week after it agreed to pay $1.1bn for 86 per cent of Indian drugmaker Gland Pharma. In recent years, it has also snapped up France’s Club Med and the top Portuguese insurer in Europe.

      Analysts deem BCP to be in need of capital and vulnerable to a takeover after its share price fell from €0.05 earlier this year, pushing its market value to a little over €1.1bn.

      In a recent report on Portugal’s undercapitalised banks, which are heavily burdened by bad debts, Barclays said BCP could need a capital increase of about €2bn.

      On Friday, the bank posted a €197.3m loss for the first half of 2016, down from a profit of €240.7m for the same period last year. But it said that stress tests by the European Banking Authority had shown it had sufficient capital to withstand a financial crisis. Under the tests, BCP had a common equity tier one ratio — a key measure of capital strength — of 6.1 per cent under stressed conditions, above the 5.5 per cent threshold seen as the minimum adequate level.

      Fosun has now offered to subscribe to a private placement, reserved solely for the Chinese group, that would give it a 16.7 per cent stake in BCP. It said it was “also considering increasing its stake through secondary market acquisitions or in the context of future capital increases” to up to 30 per cent.

      This offer, which is subject to regulatory approval by Portuguese and EU authorities, is conditional on Fosun being able to appoint at least two of the 20 BCP board members, and up to five members in the event of increasing its stake.

      BCP said it recognised “the strategic potential” of Fosun’s offer, saying it would swiftly proceed with an analysis of its “many positive aspects” before making a recommendation to its board of directors.

      Its biggest single shareholder is currently Sonangol, the Angolan state oil company, which owned just under 18 per cent at the end of 2015. Other leading shareholders include Spain’s Sabadell Bank and BlackRock, with 5 per cent and 2.2 per cent respectively in December.

      BCP said the “significant presence” of Fosun in the Portuguese market was one of the advantages of the offer.

      Fosun has already acquired Fidelidade, the country’s largest insurer, in a €1bn deal, as well as a leading private hospital group.

      It also bid unsuccessfully last year to buy Novo Banco, the “good bank” salvaged from the collapse of Banco Espírito Santo. On Friday, Nuno Amado, BCP’s chief executive, had said BCP was interested in buying Novo Banco “under determined conditions”.

      BoE reassures EU banks on restructuring

      Posted on 31 July 2016 by

      ©EPA

      The Bank of England

      British regulators have told at least one major EU bank that it will not be forced to establish a separately capitalised UK subsidiary as a result of the Brexit vote, a person with direct knowledge of the situation told the Financial Times.

      Several large EU banks — including Commerzbank, Deutsche Bank, Société Générale and BNP Paribas — carry out business in the UK through branches of their EU parent companies.

        Experts had warned this set-up could be threatened by the UK’s planned exit from the EU, with the Boston Consulting Group claiming European banks could have to put as much as €40bn of capital into new UK subsidiaries.

        A senior executive at one of the large EU banks, however, said the Bank of England had reassured him there would be no demand for a subsidiary — in the near future, or after Brexit.

        The banker would not speak publicly as discussions with regulators are private. The other large European banks would not discuss the details of their conversations with the BoE, but some said it was too early to say what the resolution would be.

        The BoE declined to comment. A person briefed on the matter said the BoE’s Prudential Regulation Authority (PRA) had been approached by several banks based in the rest of the EU asking what Brexit means for their UK operations.

        The regulator has responded by saying its policy and risk appetite on foreign banks’ operations in the UK has not changed because of Brexit, the person said, adding “this doesn’t mean there is a blanket commitment to never change the supervisory approach to an individual bank”.

        If the UK leaves the EU, any banks based in the single market will almost certainly have to reapply to maintain activities in the country. Under the EU’s passporting agreement, banks based in the bloc can automatically operate in the UK through lightly regulated branches, rather than more heavily supervised subsidiaries.

        The PRA’s record showed 78 banks based in the European Economic Area — which comprises of all EU members plus Iceland, Liechtenstein and Norway — who make use of these passports to access the UK market through branches. The banks range from the German and French industry giants to smaller institutions such as Norddeutsche Landesbank Girozentrale and Alpha Bank.

        Some non-EEA banks also use branches so subsidiaries based in other EEA countries can access the UK. Examples include Bank of New York Mellon SA/NV, the Belgian-based offshoot of the US-based group and Banco Bradesco Europa, the Luxembourg-based subsidiary of the Brazilian banking giant.

        The PRA has said it will continue to allow banks to operate via branches if they do not take retail deposits, if their parent supervisory regime is considered equivalent to the UK’s and if they have a robust resolution plan to wind down in a crisis.

        Nigerians squeezed by economic ills

        Posted on 31 July 2016 by

        Nigeria's economy is expected to contract this year for the first time in more than two decades©Bloomberg

        Nigeria’s economy is expected to contract this year for the first time in more than two decades

        Sani Garba, a Nigerian artisan, has not had an order to build a metal gate or door, the mainstay of his one-man business, for six months.

        He still turns up at his small, tin-roofed workshop each morning, hoping for the best. But with Nigeria in the grip of its worst economic crisis in decades, he understands the reality of the market.

          “No one is building anything these days,” he says, sitting waiting for business with friends outside his shop in the northern town of Daura, birthplace of Muhammadu Buhari, Nigeria’s president.

          His bleak comments are backed up at a steel rolling mill in the nearby city of Katsina, which is operating at about a quarter of its capacity because of low demand, says a manager who did not want to be named. “The government has not released funds from the budget and no one is spending money,” he says.

          As oil-dependent Nigeria slides towards recession for the first time in more than two decades, the effects of the downturn are being felt across the country — in local markets, factories, government offices and among informal traders.

          The International Monetary Fund last month sharply slashed its growth forecast for Africa’s largest economy, saying it would contract by 1.8 per cent this year, down from its estimate in April of 2.3 per cent growth for the year.

          The slowdown was triggered by tumbling crude prices and is heaping pressure on the government of Mr Buhari, who took office 15 months ago amid huge expectations following the first democratic transition of power to an opposition candidate in Nigeria’s history.

          Finance officials told his cabinet late last month that revenue for the first half of the year in Africa’s top oil producer had come in at about half the government’s projection. The shortfall suggests the government’s plan to boost the economy through increased spending on infrastructure will struggle to take off this year.

          Kemi Adeosun, Nigeria’s finance minister, said that infrastructure projects would go ahead in the fourth quarter of 2016, once the country secured funding from abroad to plug the $11bn budget deficit.

          The west African nation, which had been one of the continent’s star performers during the oil boom, depends on petrodollars for about 70 per cent of revenue and 90 per cent of export earnings.

          “We need to put more money in the system and it needs to flow round to the critical sectors in order for things to start stabilising,” said one minister.

          But he added that recent policy changes — including easing the naira’s peg to the dollar — would not yield results for at least six months.

          A former government official from Katsina says that in the northern state civil servants’ salaries had consistently been paid on time since the country made the transition from military to civilian rule in 1999. But this year, in Katsina and many of the country’s other 35 states, local administrations have been delaying monthly wages.

          “These are uncertain times,” the former official adds.

          Foreign investors steadily lost confidence in the government’s ability to manage the declining economy during Mr Buhari’s first year in office, partly because the president backed the central bank’s insistence on maintaining the currency peg and its decision to implement foreign exchange controls that exacerbated a dollar shortage.

          The central bank finally decided to allow for a more flexible exchange rate in June as it bowed to pressure from markets and investors.

          But analysts and bankers continue to question the functioning of the market. The exchange rate hovered at just below N280 to the dollar for the first four weeks of the new system, but it then fell in late July and sat at N322 at the end of last week.

          Analysts say that a truly free float would involve the exchange rate weakening even further for a time as the market clears pent-up demand for several billion dollars.

          For now, liquidity remains thin, and manufacturers are complaining about dollar access for imports of raw materials.

          Yvonne Mhango, Africa economist at Renaissance Capital, sees the apparent reluctance by the monetary authorities to move to full liberalisation as a big reason for a poor macroeconomic outlook.

          “Even if they allowed the exchange rate to float, it will be a while before the sectors that are attractive for investors become appealing once again,” she adds.

          Chart: Nigerian Naira

          A senior Nigerian banker who accompanied central bank governor Godwin Emefiele to meetings in Britain and the US to convince investors to return to the country, said: “Investors are still smarting and were not shy to say so.”

          Mr Buhari has urged citizens to be patient, but that message offers little comfort to most people.

          Official unemployment increased 70 per cent in the first quarter of 2016 compared with the same period the previous year, reaching 12.1 per cent.

          At the same time, prices of food and other goods are soaring, with inflation reaching 16.5 per cent in June, its highest level in more than a decade.

          “The difficulty is that income has dropped,” says Abdullahi, 25, who manages his family’s perfume shop in Daura. “People have less spending money. Their concern is getting food, and prices are rising.”

          Purplebricks aims to build on Brexit blues

          Posted on 31 July 2016 by

          Purple Bricks. Housing Website.

          Home movers who love to hate estate agents have another option: cut-price online agents which over the past three years have proliferated and raised millions of pounds from high-profile investors.

          But the UK’s vote to leave the EU means upstarts such as Purplebricks will seek to gain market share in a gloomier environment, where housing transactions are expected to fall, testing the appeal of the digital model.

            Inquiries by homebuyers declined significantly across the UK after the EU referendum, according to the Royal Institution of Chartered Surveyors, and most estate agents say house prices will fall over the next three months.

            Countrywide
            and Foxtons, traditional bricks-and-mortar estate agents,
            have reported declines in first-half profits and warned of tough times to come. Foxtons said its first-half profits had dropped 42 per cent from a year earlier, while rival LSL has also warned on full-year profits.

            But such conditions presented a “real opportunity for us to continue to put pressure on other people in the market”, said Michael Bruce, chief executive of Purplebricks. “We’re seeing customers being very conscious about costs.”

            When Purplebricks floated on Aim, London’s junior market, in December, it helped bring online and “hybrid” agents into the spotlight. Since its £240m initial public offering their influence has spread. Countrywide, the £530m listed estate agency, has launched an online service and admitted that pressure from digital rivals had forced it to lower its fees.

            Purplebricks is backed by Neil Woodford, while other equity investors continue to commit millions to start-ups in the sector. Yopa, a fixed-fee agency, raised £16m in June, partly from the traditional agency Savills, while a £13m funding round by HouseSimple the same month was led by Sir Charles Dunstone, founder of Carphone Warehouse. Emoov, one of the sector’s older operators, is fundraising.

            As they have raised money, online agencies have poured cash into marketing, competing fiercely to build brand awareness. An independent survey by UBS found that 45 per cent of consumers had heard of Purplebricks, and 80 per cent of respondents were keen to save money by using an online service.

            But the sector still has only small market share. UBS has estimated that Purplebricks commands about 2 per cent of the sales market, while digital agencies as a whole constitute 3 per cent.

            While online models vary, most agencies charge a fixed fee to vendors whether or not they achieve a sale. This is far lower than the percentage-based fees charged by traditional agents.

            Purplebricks’ hybrid model involves freelance “local property experts” who value homes and offer services such as viewings for an extra fee.

            A debate rages in the industry over how effective this system is for actually selling homes, and whether online agencies offer much more than a listing on property portal sites such as Rightmove and Zoopla.

            Purplebricks claims a “conversion rate” from instructions to sales of 77 per cent, higher than is typical for the industry. But Anthony Codling, analyst at Jefferies, carried out his own research in three Purplebricks markets — Birmingham, Bournemouth and Southampton — and after cross-referencing listings with Land Registry records, found a conversion rate of only 14 per cent.

            “The lucky 14 per cent who sold their homes waited on average four and half months between selling subject to contract and actually selling,” he said. “For us the arithmetic for Purplebricks still does not add up.”

            Purplebricks stands by its 77 per cent number, which was included in results audited by Grant Thornton.

            In June it reported that revenues had more than quadrupled to £18.6m in the year to April, with the aid of £12.9m of marketing spend. Purplebricks has announced plans to expand into Australia.

            Other questions have arisen since its listing. Analysts at UBS have doubts about whether its hiring model is scalable. A Purplebricks agent, they said, would need to sell about 12 times as many properties as a typical estate agent to meet the levels of pay the company claimed.

            Because it is listed, Purplebricks has faced more scrutiny than its numerous rivals, such as easyProperty, Tepilo and House Network. Mr Bruce expected that “a small number of dominant players” would emerge.

            The UBS analysts said the sector could take more than 20 per cent of the estate agency market in the next five years, up from about 3 per cent today.

            Ed Mead, executive director at the London estate agency Douglas & Gordon, said the industry should “have respect for the online sector” and recognise the changes its technology was introducing. “But I think what it has caused, or at least speeded up, is a race to the bottom in terms of fees.”

            Unlike traditional agencies, digital groups do not have physical branches to run. But Mr Mead said profitability would be their principal challenge, especially in a post-Brexit world of fewer homes changing hands.

            “The Achilles heel of a lot of these [online] offerings is going to be the ability to generate enough profit to run a sensible, quality company,” he said.

            Economic Outlook

            Posted on 31 July 2016 by

            (FILES) - A file picture taken on March...(FILES) - A file picture taken on March 28, 2013 shows a photo illustration shot with a perspective control lens of traffic traveling past the Chamber of Commerce building in Washington, DC. The US economy pumped out 288,000 jobs in April 2014, the highest pace in over two years, in a fresh confirmation that growth has resumed after a harsh winter freeze. Coupled with upward revisions for the previous two months, Labor Department data May 2, 2014 showed a firm rebound in hiring after a tepid winter pace that had spurred worries of a fundamental downshift in the economy. The unemployment rate meanwhile plunged to 6.3 percent, down from 6.7 percent, the lowest level since September 2008. But that figure was deceiving. AFP PHOTO/Paul J. RichardsPAUL J. RICHARDS/AFP/Getty Images©AFP

            The US will be in focus this week when the Institute of Supply Management activity indicators for July are released on Monday and Wednesday.

            An update to the US labour market becomes available on Friday with non-farm payrolls and the unemployment rate for July.

              The other big announcement of the week will come from the Bank of England on Thursday, when it will announce its decision on interest rates for August as well as an update to its quarterly inflation report.

              The BoE is widely expected to cut the benchmark rate on Thursday by 25 basis points. The slew of weak data that has surfaced since the BoE decided to keep rates on hold at last month’s meeting, especially the weak Purchasing Managers’ Indices, are likely to push policymakers to move.

              Ranko Berich, of Monex Europe, said: “The MPC goes into this week’s meeting facing overwhelming expectations that it will ease monetary policy. Despite previously suggesting it would wait for more data, the latest business and consumer surveys appear to have been bad enough to spur the MPC into action.”

              The BoE will also release its latest quarterly inflation report and revised economic forecasts on the same day.

              Growth figures are likely to be revised downward from the May inflation report in light of the UK’s decision to vote to leave the EU. Analysts at HSBC think this year’s estimate will be reduced to 1.7 per cent, from 2 per cent in May. Growth in 2017 will be cut to 0.5 per cent from the 2.3 per cent the BoE thought it would see in May.

              US labour market data, out on Friday, are expected to show a continuation of June’s strong growth in employment figures. A surprise 287,000 new non-farm jobs were added in June after disappointing data in the preceding two months; another 178,000 additions are likely in July.

              With the US economy at or approaching full employment there is little leeway for the unemployment rate to move much lower than the 4.8 per cent that we are likely to see this month.

              Activity indicators from the ISM for manufacturing and services in July are out on Monday and Wednesday respectively. Manufacturing activity is set to have remained firm in July with a reading of 53, slightly below the June reading of 53.2 but still well above the 50 mark that separates growth from contraction. ISM non-manufacturing activity will also remain strong at 56.1 in July, again a slight downward tick from the June reading.

              The Reserve Bank of Australia will meet on Tuesday to announce its decision on interest rates for August. Inflation in the second quarter of the year came in at 1.5 per cent year on year, well below the bank’s target of 2-3 per cent, prompting analysts to expect a 25 basis point cut in the bank’s cash rate to 1.5 per cent.

              Movers & shakers: August 1

              Posted on 31 July 2016 by

              Carrie McCabe has joined Paamco as a managing director. Ms McCabe has moved to the California-based fund of hedge funds company from McKinsey, the consultancy.

              Carrie McCabe

              Carrie McCabe

              First State Investments has appointed Kelley Foo as a portfolio manager in its multi-asset solutions team, a newly created role based in Singapore. Ms Foo joins from Nuvest Capital, the Singapore-based investment manager.

              Brian Nick has moved to TIAA Investments as chief investment strategist for the $854bn US asset manager. Mr Nick joins from UBS.

              Willis Towers Watson has hired Kemp Ross as global head of delegated investment solutions, based in Chicago. Mr Ross joins the world’s largest adviser to institutional investors from Aon Hewitt, the consultancy.

              Kelly Foo

              Kelly Foo

              Tim Rainsford is to join GAM as group head of distribution for the $119.8bn Swiss-listed asset manager in January. Mr Rainsford was previously global co-head of sales at Man Group, the world’s largest listed hedge fund. He replaces Craig Wallis, who will leave GAM in early 2017.

              Paul Vosper has moved to Pimco as a property strategist, based in New York. Mr Vosper joins the $1.5tn Newport Beach-based asset manager from Morgan Stanley, where he served as co-head of the US bank’s Alternative Investment Partners business.

              Brian Nick

              Brian Nick

              UBS Asset Management has hired Hayden Briscoe as head of fixed income for Asia Pacific. Mr Briscoe joins from AllianceBernstein, the US asset manager.

                Jupiter has hired Magnus Spence as head of alternative investments, a newly created role at the £37bn UK asset manager. Mr Spence joins from Fidante Partners, a London-based investment boutique.

                Waddell & Reed has appointed Daniel Scherman as chief risk officer, a new position at the $86bn Kansas-based asset manager. Mr Scherman previously worked for Janus Capital.

                BNP Paribas Investment Managers has hired Jean-Charles Sambor as deputy head of emerging markets fixed income. Mr Sambor, who will be based in London, has moved from the Institute of International Finance, the Washington-based finance industry association.

                Ron Bloom, a veteran Lazard banker, has joined Brookfield, the $240bn alternative investments manager, as vice-chairman and managing partner of its private equity group. Mr Bloom previously served as a key adviser in the Obama administration, helping to restructure General Motors and Chrysler.

                Brexit visa promises for City fund staff

                Posted on 31 July 2016 by

                Tens of thousands demonstrated in a 'March For Europe Event' on July 2, 2016 in London, England. The march is in protest at the result of the EU referendum. (Photo by Gail Orenstein/NurPhoto via Getty Images)©NurPhoto/Getty Images

                The post-Brexit mood has made some EU nationals feel less welcome in London

                UK asset managers have promised to pay for visas for EU employees based in London and have encouraged them to apply for citizenship in a bid to reduce staff anxiety following the Brexit vote.

                The chief executives of a number of fund companies told FTfm they have scheduled meetings to provide reassurance to their EU staff, who account for a 10th of the workforce at many UK asset managers.

                  The referendum has created huge uncertainty for EU nationals about whether they will be able to stay in the country, despite calls from Philip Hammond, Britain’s chancellor, for a quick resolution to the questions raised for EU workers.

                  Jupiter, one of the UK’s largest listed asset managers, has begun collecting data on the number of EU staff it employs before it assesses whether to seek legal advice on their ability to remain in the UK. Maarten Slendebroek, the Jupiter chief executive, said the issue was a “top priority” for the company.

                  Dan Mannix, chief executive of RWC, the £10bn fund house part-owned by Schroders, the UK’s largest listed asset manager, said he has promised to acquire visas for EU employees if necessary, and has held one-on-one conversations with those affected, in an attempt to alleviate fears.

                  He said: “We may need to apply for visas for [EU passport holders]. We will do everything we can to sort that out for them.

                  “At times like this when people feel uncertainty, it is important to walk around the office and reassure people. We have a truly multicultural organisation that we are proud of. It is very important for us that those people continue to be well supported and feel welcome in London.”

                  Mark Holman, chief executive of TwentyFour Asset Management, a London-based fixed income specialist that oversees £8bn, said nearly half of his company’s workforce comes from outside the UK.

                  He held a group meeting with staff following the Brexit vote to reassure them the company would do everything in its power to ensure EU nationals could stay in the UK. He said the company would also cover the legal costs of staff affected by the vote.

                  He added: “Ideally we would soon hear something from the government that puts this issue to rest, but we think a worst-case [scenario] would be similar to recruiting an American, where we have to [justify] the need for the role and apply for a visa. We have done this before, and will do it for everyone if we need to.”

                  AIG launches Brexit insurance

                  Pedestrians walk past the American International Group Inc. (AIG) headquarters in New York, U.S., on Thursday, Oct. 29, 2015. AIG is scheduled to announce third-quarter earnings figures on November 2. Photographer: Michael Nagle/Bloomberg

                  Add-on offers peace of mind to expat executives fearing border blues

                  The uncertainty around residency rights following the referendum has prompted AIG, the insurer, to offer “Brexit insurance” to European executives in the UK and to British staff on the continent.

                  The new liability coverage includes help for EU nationals wanting to become permanent residents in the UK. If their applications for residency are rejected, AIG will cover the costs of a legal challenge.

                  Steven Cochrane, partner at Pinsent Masons, the law firm, said some financial services companies, including banks and asset managers, have encouraged EU citizens working in the UK to apply for citizenship or residency.

                  Mr Slendebroek, a Dutch-Swedish national, attempted to reassure his staff who do not have an EU passport by explaining that he is in the same position. “I am 100 per cent convinced the future of [EU] staff [in the UK] will be OK,” he said.

                  Other asset management executives are concerned that EU employees will voluntarily seek to leave the UK, whatever the outcome of negotiations with Brussels over the free movement of people.

                  One asset management chief executive, speaking on condition of anonymity, said: “We found around the office after Brexit that odd things were happening. Non-white British colleagues were being racially abused in Fulham. Staff speaking French with their families in public were told by strangers to speak English. I find that terribly sad.”

                  Sean Tuffy, head of investor services at Brown Brothers Harriman, the financial services group, said he has come across a number of fund management employees in London who no longer want to remain in the city.

                  He said: “EU nationals have said to me they are reconsidering their long-term plans for London, as the post-Brexit mood has made them feel less welcome. A sizeable chunk of the industry are EU nationals — some have said more than half of their [workforce] are EU employees. This is definitely a challenge [for the fund industry].”

                  Franklin pays to dump pension liabilities

                  Posted on 31 July 2016 by

                  Franklin Templeton is expecting to take a $25m charge to rid itself of liabilities on its shuttered defined benefit pension plan in the UK.

                  The California-based asset manager, which has lost more than 10 per cent of its assets under management through outflows in the past year, revealed the discussions last week, alongside news that it was hunting for mergers or acquisitions in post-referendum Britain.

                    The pension plan, which stopped accepting new members a decade ago and has been closed to new contributions since 2012, is expected to pay out more than $22m over the next decade, according to regulatory filings in the US. Executives said on a conference call with analysts that they were considering transferring the plan to an insurer through a bulk annuity, which would mean the company taking a charge to resolve the outstanding liabilities.

                    Competition to take over defined benefit obligations is increasing among UK insurers following a lull in the first half of this year as a result of new solvency rules, according to Mercer, the consultancy. Around £80bn in obligations has been transferred to insurers using bulk annuities over the past 25 years, Mercer says.

                    About 400 of Franklin’s 9,000 global employees are based in the UK, and 20 per cent of those are members of the defined-benefit plan.

                    Chief executive Greg Johnson said that the company’s UK operations would not be affected by Brexit, because funds that are “passported” for sale across the EU are based in Luxembourg. UK-based funds are sold mainly to UK residents, he said.

                    The fall in the value of the British pound had made potential acquisition targets more appealing, however. “The currency shifts in Europe and sterling make M&A activity that much more attractive, and that is something we have had on our wishlist,” he said.

                    Mr Johnson added that the company was open to “any and all” deals, including large mergers, although he cautioned that the difficulty of integrating asset managers remained a barrier to deals.

                    MEPs plan revolt over retail fund rules

                    Posted on 31 July 2016 by

                    Syed Kamall, Pervenche Beres, Sven Geigold©EPA/Reuters/Getty

                    Syed Kamall (left) and Sven Giegold (middle) oppose the new rules; Pervenche Beres (right) led negotiations on Priips

                    MEPs are set to rebel against new rules aimed at protecting retail investors, showing rare defiance of the European Commission, the EU’s executive arm.

                    The rules, which were signed off by the commission last month and form part of a piece of regulation known as Priips, include changes to how asset managers calculate and display fund charges and investment performance.

                      MEPs on the European Parliament’s influential Economic and Monetary Affairs committee (Econ) plan to object to proposed changes to key documents for investors. They are concerned that ordinary consumers will be mislead rather than helped by the new rules.

                      A rebellion by MEPs would probably mean a delay to the introduction of Priips, which is due to come into force at the start of 2017.

                      Syed Kamall, a British MEP, said the European Conservatives and Reformists, an EU political party that includes the UK’s Conservative party, is supporting a revolt against the new rules, which are also known as regulatory technical standards or RTS.

                      “We think the RTS is not yet ready, [due to] unclear wording, and the [asset management and insurance] industry will need more time for the implementation than currently foreseen,” he said.

                      Sven Giegold, another MEP who sits on the Econ committee, said the Green party will also object to the new rules, despite being supportive of the overarching aims of Priips.

                      Mr Giegold had previously expressed concerns about the commission’s proposed formulas for predicting performance, arguing that the figures contained a “huge flaw” that would make performance look far better than it is likely to be.

                      Several sources close to matters also said the European People’s Party, the largest party in the parliament, and the Alliance of Liberals and Democrats for Europe party will also object to the rules during a vote at an Econ meeting, which is expected to take place in August or September.

                      The rules would then go before the entire parliament, where MEPs are again expected to reject them.

                      Mr Giegold said: “Parliament has never rejected an RTS in financial services [regulation]. It would be the first time. It is a pity this had to happen within a consumer measure.”

                      However, Pervenche Beres, the MEP who led negotiations on Priips in parliament, said she is hopeful that the commission will address MEPs’ concerns over the coming weeks, allowing the rules to pass through parliament.

                      “In this period of very low interest rates, it is vital that consumers are aware of what they are buying [when it comes to investment products].

                      “And I see this [legislation] as an opportunity to put in place tools for consumer projection, so I will do my utmost to avoid an objection [by parliament],” she said.

                      Asset managers, including BlackRock and Schroders, had lobbied for changes to the rules in recent months, highlighting the removal of past performance from investor documents as a big concern.

                      In a letter to the commission, which was seen by the FT, eight global fund houses said the rules are “not evidence based, will not help consumers, and will not command respect”.