News > Financial Services

Bill Gross calls out Michael Novogratz
Asset Management
<p>With the closure of Michael Novogratz’s Fortress Macro Fund splattered all over the news, Bill Gross, the former bond king and renowned ruminator of all things doo-dooey, had some pretty interesting things to say on his twitter feed:</p> <p>Gross: Story of The Day - Deep out of the money hedge funds shut down if 20% of profits out of reach. Start over later with clean slate!<br /> — Janus Capital (@JanusCapital) October 13, 2015</p> <p>Interestingly, here’s how PIMCO’s Total Return Bond Fund did prior to his jump to Janus.</p> <p>Pot, meet kettle.</p> <p>To be completely fair though Total Return’s performance really wasn’t the disaster people were making it out be, although it definitely was a far, far cry from its former glory.</p> <p>Still, with all the Mills and Boonery following his departure from PIMCO, his new fund's constant outflows, and the lack of uncomfortable, personal musings in his monthly outlook, somebody should really go check on him. These antics of his are starting to get a little out of hand.<br /> Photo: Janus</p>
How to use leveraged ETFs to beat the Fed
Asset Management
<p>Ten-year Treasury yields have declined 4.1 percent over the past month as market participants have continued adjusting to the Federal Reserve not raising interest rates following its September meeting.</p> <p>Perhaps that explains why inflows to fixed income exchange traded funds have been so strong this month. Heading into Monday, three of October's top four asset-gathering ETFswere bond funds while just one bond fund was found among the month's 10 worst ETFs for outflows.</p> <p>When it comes to how traders are viewing what that decision will be, Fed funds futures recently indicated that fewer than a third of fixed income traders are wagering the Fed will boost borrowing costs. However, there also is not a dearth of market observers that believe it is foregone conclusion the U.S. central bank will pass on raising rates.</p> <p>Read more at Benzinga. <br /> Photo: Brookings Institute </p>
Don’t tell my mother I’m in finance– she thinks I work in a brothel
Asset Management
<p>October 12, 2015<br /> London, England</p> <p>[Editor’s note: This letter was written by Tim Price, London-based wealth manager and editor of Price Value International.]</p> <p>Those whom the gods wish to destroy they first pay too much.</p> <p>How else to account for the astonishing $200 million lawsuit filed last week by billionaire bond investor Bill Gross against his former employers, Pimco?</p> <p>Like so many legal actions, this is one case where you wish both sides could lose.</p> <p>Then we had the comparably remarkable public defenestration of Daniel Godfrey, head of the UK fund management trade body the Investment Association, apparently for campaigning for greater transparency on fund fees and charges.</p> <p>It’s as if the Investment Association were an offshoot of the Volkswagen management board. (Please don’t tell my mother I work in fund management– she thinks I’m a piano player in a brothel.)</p> <p>In medicine, they have something called the Hippocratic Oath. It requires physicians to swear to uphold certain ethical standards.</p> <p>In modern fund management, there is no Hippocratic Oath. Whereas doctors are expected to “First, do no harm”, in modern fund management, iatrogenic illnesses hold sway.</p> <p>An iatrogenic illness is one that is caused by the physician himself. Fund management doctors seem to be doing the best they can to kill their own patients. Science has a word for this, too. It’s called parasite.</p> <p>There is a solution to all this insanity.</p> <p>The chief investment officer of the Yale Endowment, David Swensen, has written an excellent book entitled ‘Unconventional Success’.</p> <p>The title is an allusion to Keynes’ famous observation that fund managers, courtesy of endemic groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional success. Swensen himself has steered the Yale Endowment through many years of impressive investment returns.</p> <p>Swensen pulls few punches.</p> <p>The fund management industry involves the “interaction between sophisticated, profit-seeking providers of financial services [Keynes would have called them rentiers] and naïve, return-seeking consumers of investment products.</p> <p>“The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential number of cases where individuals succeed through unusual skill or unreliable luck, the powerful financial services industry exploits vulnerable individual investors.”</p> <p>The nature of ownership is crucial. To Swensen, the more mouths standing between you and your money that need to be fed, the poorer the ultimate investment return outcome is likely to be.</p> <p>In a rational world, investors would be well advised to favour smaller, entrepreneurial boutiques, or private partnerships, over larger, publicly listed full service investment operations – especially subsidiaries of banks or insurance companies – with all kinds of intermediary layers craving their share of your pie.</p> <p>The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the financial media is just one example of a large fund management organisation that appears to have entirely forgotten what its core purpose is, or should be.</p> <p>This past week, and the conjunction of the Bill Gross lawsuit and the Investment Association’s Daniel Godfrey debacle, is likely to go down as one of the biggest fund management public relations disasters in history.</p> <p>Before buying any fund, a</p>
Regulations are killing Chinese quant funds
Hedge Funds
<p>Regulations are killing Chinese quant funds</p> <p>Hoping to shine post-Black Monday, mainland quant funds find out that they have nothing have dark days ahead of them.</p> <p>In an effort to curb “excessive speculation” post market rout, the China Financial Futures Exchange clamped on a series of regulations back in August, including raising margin requirements on stock index futures from 30% to 40%, and restricting the opening of positions from 600 contracts to just 10 per product a day, defining anything over that as “irregular.”</p> <p>Well, according to the SCMP, that didn’t work so well for the nation’s burgeoning hedge fund industry – especially for its futures-oriented quants.<br /> “We thought a bear market would help us stand out, and actually we did, but things were turned upside down by the new regulations on stock index futures trading.”<br /> Faced with higher expenses and limited ways in which to seek alpha – or even hedge, for that matter – hundreds of mainland quant funds have been forced to close up shop this year, while some of those still in operation have simply shifted to survival mode.</p> <p>Further complicating matters is the fact that these guys are typically smaller operations, making it difficult for them to branch into different asset classes as their bread and butter dries up, as Reorient chief Brett McGonegal related to the SCMP:<br /> “If you have only three employees in your firm, how can you manage to achieve a well-rounded asset class allocation and develop effective risk management platforms?”<br /> With regulators desperately clinging to whatever shred of credibility they have left, there just seems to be no way for the industry to get back to its feet.</p> <p>After every hardship comes ease though, so whoever’s cutting his teeth in this twilight of the quants is sure to be a monster. Let’s see who does.<br /> Photo credit: JERRYANG</p>
China Huarong faces tough IPO competition
Asset Management
<p>China’s biggest player in the distressed-asset space might need some de-stressing on the road to its long-awaited Hong Kong IPO.</p> <p>The Nikkei Asian Review reports that China Huarong’s upcoming $2.5 billion offering might not be the blockbuster it was cracked up to be, largely thanks to a slew of behemoths IPOs scheduled around the same time:<br /> “Alvin Cheung Chi-wan, associate director at Prudential Brokerage, expressed doubt that investors can digest a multibillion Huarong IPO. He said that there would be competition for investors' money as there is a swollen pipeline of big IPOs due to come in October, including that of Chinese International Capital Corp, an investment bank looking to raise about $1 billion.”<br /> Aside from the CICC, China Re – the region’s largest reinsurer – is also set to sell 5.77 billion of its shares this month.</p> <p>Further complicating matters for Huarong is its valuation. Analysts currently peg the asset manager’s shares at around 1.2 times book value, a decent estimate whichever way you look at it, save for the fact that Cinda – its closest rival – currently trades below book value.</p> <p>And that’s not all, state-owned enterprises apparently aren’t allowed to sell below book, giving its advisers – Goldman, CICC, HSBC, just to name a few – with very few options left to fulfill their duties.</p> <p>Still, it isn’t all bad news. Being a state-owned enterprise still brings the cache of being backed by Beijing, not to mention a rep that these shares are off-limits to short-term speculation. And that alone should help it attract more than a few investors.<br /> Photo: See-ming Lee</p>
Strength in numbers: Hong Kong's burgeoning crowdfunding industry
Venture Capital
<p>Crowdfunding is lowering the entry barriers for would-be venture capitalists worldwide. As one of Asia's bigggest financial centers, Hong Kong is quickly becoming a breeding ground for equity crowdfunding platform -- but regulators need to keep pace.</p> <p>To date, the crowdfunding ecosystem has been populated by reward-based platforms -- think Kickstarter and Indigogo in the U.S. - this is because offering material rewards instead of equity allows crowdfunding to avoid regulatory headaches while accessing a wider of pool of unaccrediated investors. Hong Kong's latest addition to this ecosystem is rewards-based platform SparkRaise. Its founder Yeone Moser Fok tells NexChange:</p> <p>“Crowdfunding platforms have the potential to turn traditional fundraising on its head.  It is becoming easier to invest in startups and more people now have the chance to back the projects they love.”</p> <p>She adds that these platforms offer startups two things: customer acquisition and product validation. Raising capital to complete the first run of a product is not only difficult, it's a big risk.  Crowdfunding plaftorm help startups raise capital while ensuring there is demand for a product. However, Fok notes that future  advances in regulation could see equity-based platforms being more widelyt adopted. She adds:</p> <p>“The JOBS Act in the U.S. has been a big leap forward for equity crowdfunding but it’s still early days.  In Asia, particularly in Hong Kong, there are still more regulatory hurdles to jump through before we see more equity-based platforms here.”<br /> That is not to suggest equity-based platforms do not exist in Hong Kong. There already platforms like BigColors, Colony88, and Investable that offer some form of equity crowdfunding, though exisiting regulations mean that investments are restricted to professional investors, meaning the minimum ticket size excludes mom and pop backers. Investable founder Jennifer Carver explains:</p> <p>"Right now the minumm investment is $10,000 on Investable and as an  angel investor you always have to be prepared to just say goodbye to that money. That said, we have a broad range of services so that our startups stand a better chance of survival than most, but it's still a high risk investment that's not suitable for all types of investors"<br />  Photo: James Cridland</p>
Asian family offices turn cautious
Asset Management
<p>Family offices in Asia Pacific are shifting towards a more conservative investment approach, according to a recent survey. Rather than pursuing growth as their main focus, they are getting cautious, moving towards balanced and preservation strategies.</p> <p>The recently released Global Family Office Report 2015 by UBS and Campden also found that the region’s family offices are an uncomplacent lot. </p> <p>Despite posting an average dollar return of 6.7% last year, the second best among their peers in Europe, North America, and emerging markets, they were less happy with their performance than the average in the study. </p> <p>The research questioned principals and executives in over 224 family offices across 37 countries. In Asia Pacific, 35 family offices participated with average assets under management of $431 million. </p> <p>A family office manages key areas of a rich family’s assets, including real estate holdings and direct or indirect investments, tax consolidation, and estate management as well as serving as the central hub for a family’s legacy, governance, and succession communication.</p> <p>It is becoming an attractive alternative to farming out cash and decision-making to private banks. But costs are also rising as offices compete for talent. </p> <p>Oh, the best regional performer last year? Europe, because of big bets on real estate and private equity.<br /> Photo: greg<br /> &nbsp;</p>
Video: Jim Chanos on Tesla
Hedge Funds
<p>Is Tesla a great company? Billionaire short-seller Jim Chanos seems to think so, though he’s not quite convinced that it could take on the likes of BMW and GM yet, and apparently, that's where its stock is priced at right now.</p> <p>Photo: Fatima</p>
Video: Richard Thaler: The less attention you pay, the more money you’ll have
Asset Management
<p>&nbsp;</p> <p>Merryn Somerset Webb talks to author, academic and ‘father of behavioral economics’ Richard Thaler about pensions freedom, central bankers and fund management fees.</p> <p>This video first appeared in ValueWalk.<br /> Photo: Chatham House</p>
Goldman touts Iran investment opportunity
Asset Management
<p>On the day last week when Israeli Prime Minister Benjamin Netanyahu was delivering a speech at the United Nations bemoaning the Iranian nuclear arms deal and those around the world “rushing to embrace and do business with a regime openly committed to our destruction,” a report from Goldman Sachs Group Inc (NYSE:GS) points to “The Awakening of Another Oil Giant” in Iran.</p> <p>Iran has "huge potential" but it is an investment wrapped in "significant uncertainty"<br /> The October 1 report asked the question, “Why focus on Iran,” then proceeded to answer: “Huge potential” that can be tapped but one that requires investors to do so in an environment of “significant uncertainty.”</p> <p>Iran possesses the 4th largest oil reserves in the world and largest gas reserves which has potential to be a key driver of global supply growth. Significant uncertainty remains, however, around the lifting of sanctions, the investment required in fields and infrastructure, and the framework to be put in place by the Iranian regime for international investment, the report noted.<br /> If sanctions are lifted, Iran could grow to fulfill nearly 25 percent of the expected global demand growth in 2016. Currently Iran accounts for 4.1 percent of global oil production and 5 percent of global natural case production.</p> <p>Unlocking Iran and its investment potential may take time and money<br /> However, don’t expect an investment in Iran to be an overnight success. “Growth may take time,” the report said, echoing a common investment pitch phrase that is most often followed by a call for cash. Such an investments is “requiring attractive contract terms and significant investment,” which Goldman estimates at $30 billion over 5 years. “There is potential for production growth far in excess of our base case, with the limiting factors ultimately being above ground issues, primarily around the level of investment that is incentivized. This potential growth could maintain pressure on oil prices, and delay the re-balancing of oil markets,” they wrote.</p> <p>The dropping price of oil is a concern for U.S.-based production, but those laws of gravity don’t necessarily apply to Iran, which has a much lower price of production. The report estimated that the average break even could be near $20 to $35 per barrel. With the price of oil hovering near $45, that appears as an attractive return on investment.</p> <p>This article was originally published by ValueWalk.<br /> Photo: </p>