Fund management: The rise of smart beta

Fund management: The rise of smart beta

Terrible name, interesting trend

Jul 6th 2013 |From the print edition

INVESTORS face a quandary. Cash offers a return of virtually zero in many developed countries; government-bond yields may have risen in recent weeks but they are still unattractive. Equities have suffered two big bear markets since 2000 and are wobbling again. It is hardly surprising that pension funds, insurers and endowments are searching for new sources of return. Step forward “smart beta”, the latest bit of jargon from the fund-management industry. “Alpha” is the skill required to choose individual assets that will outperform the market; “beta” is the return achieved from exposure to the overall market, for example via an index fund. “Smart beta” is an approach that tries to enhance the return from tracking an asset class by deviating from the traditional “cap-weighted” approach, in which investors simply buy shares or bonds in proportion to their market value. The sector is still small: there is just $142 billion in smart-beta funds, compared with more than $2 trillion stashed in hedge funds. But the concept is catching on. According to State Street Global Advisors, smart-beta funds received inflows of $15 billion in the first quarter of 2013, up by 45% on the same period a year earlier. Read more of this post

Three years ago, Andreas Vgenopoulos, a Greek lawyer-turned-tycoon, was riding high. His investment fund had just snapped up Olympic Air. Today, however, he has become a symbol of Greece’s travails

July 5, 2013, 7:22 p.m. ET

Tycoon’s Rise and Fall: A Modern Greek Drama

By DEBORAH BALL and ALKMAN GRANITSAS

Andreas Vgenopoulos in 2009 as he discussed plans to save Olympic Air. The carrier has suffered along with the rest of Greece’s economy.

ATHENS—Three years ago, Andreas Vgenopoulos, a Greek lawyer-turned-tycoon, was riding high. His investment fund, which had €15 billion ($19.4 billion) to spend following one of the biggest private-equity fundraisings ever, had just snapped up Olympic Air. Mr. Vgenopoulos was hailed as a national hero for saving Greece’s long-suffering flag carrier—an event he celebrated with a grand soiree in an Athens airport hangar with Cirque du Soleil acrobats performing for the assembled guests. Read more of this post

A cruel, cruel summer for U.S. credit funds

A cruel, cruel summer for U.S. credit funds

7:36pm EDT

By Katya Wachtel and Sam Forgione

NEW YORK (Reuters) – It’s shaping up to be a brutal summer for bond investors as the bloodbath in the U.S. credit market shows no signs of letting up, even as nearly $80 billion has already been wiped from funds. The past six weeks have been humbling for well-known fund managers including Bill Gross of PIMCO, Jeffrey Gundlach of DoubleLine Capital and Ray Dalio of Bridgewater Associates – all victims of a violent sell-off in U.S. Treasuries, mortgage-backed securities or inflation-protected bonds.

On Friday, the yield on the benchmark 10-year Treasury note touched 2.73 percent, gaining more than a full percentage point since early May, as better-than-expected U.S. jobs data fanned speculation that the Federal Reserve could begin to scale back its $85 billion-a-month bond-buying stimulus this fall. Read more of this post

Plight of the sea turtles: Students coming back home helped build modern China. So why are they now faring so poorly in the labour market?

Plight of the sea turtles: Students coming back home helped build modern China. So why are they now faring so poorly in the labour market?

Jul 6th 2013 | SHANGHAI |From the print edition

“I LEFT in 1980 with only three dollars in my pocket,” recalls Li Sanqi. He was one of the first allowed to study overseas after the dark days of the Cultural Revolution. Like most in that elite group, he excelled, rising to a coveted position at the University of Texas, while launching several technology firms. Now he is a senior executive at Huawei, a Chinese telecoms giant, enticed back by the chance to help build a world-class multinational.

Mr Li seems the perfect example of a sea turtle, or hai gui (in Mandarin, the phrase “return across the sea” sounds similar to that animal’s name), long applauded in China for bringing back advanced skills. In the past such folk reliably reaped handsome premiums in the local job market, but no longer. Sea turtles are not universally praised, the wage differential is shrinking and some are even unable to find jobs. Wags say they should now be called hai dai, or seaweed. This is a startling turn, given their past contributions. Read more of this post

China’s watchdogs show they have teeth in probing infant milk, drugs and Tetra Pak

July 5, 2013 5:55 pm

China’s watchdogs show they have teeth

By Kathrin Hille and Leslie Hook in Beijing and Patti Waldmeir in Shanghai

Tetra Pak became the latest multinational to be targeted by Chinese regulators on Friday, with the launch of an antitrust investigation against the European food packaging group.The announcement followed a probe into the pricing practices of 60 drugmakers by the National Development and Reform Commission, China’s main economic planning agency, and another pricing investigation against baby formula makers. The unveiling of three probes involving foreign companies within the space of one week has led to concerns that multinationals are being targeted by the Chinese authorities – and that their high hopes of the vast Chinese market could be disappointed. Read more of this post

Steel: An inferno of unprofitability; The world’s overcapacity in steelmaking is getting worse, and profits are evaporating

Steel: An inferno of unprofitability; The world’s overcapacity in steelmaking is getting worse, and profits are evaporating

Jul 6th 2013 |From the print edition

THE importance of steel is in no doubt. It is the material from which much of the modern world is made, from skyscrapers to washing machines. Governments everywhere regard a strong steelmaking business as a sign of economic virility, and thus hover anxiously over their domestic producers. A French minister recently threatened to nationalise ArcelorMittal’s Florange plant if it pursued plans to cut jobs and close two blast furnaces. Despite a weak world economy, global production of steel rose by 1.2% last year to a record 1.55 billion tonnes. Read more of this post

Many wonder about Yingluck’s ‘ice-cream gang’ and its power, a so-called gang of four who allegedly influenced Thailand’s prime minister’s decisions.

Many wonder about Yingluck’s ‘ice-cream gang’ and its power

He alleged that former PM Thaksin Shinawatra was unable to control Samak because of this gang. -The Nation/ANN
Sat, Jul 06, 2013
The Nation/Asia News Network

BANGKOK – Labour Minister Chalerm Yoobamrung dropped a bombshell on Thursday when he declared that Prime Minister Yingluck Shinawatra’s “ice-cream gang” would end up dragging her down a ravine. This declaration gave rise to one simple question: Who is in this ice-cream gang and what influence do they have on her decisions? This is not the first time that Chalerm has spoken about an influential gang. During the tenure of the late ex-PM Samak Sundarvej, he talked about a so-called gang of four who allegedly influenced the prime minister’s decisions. The members of this gang were Newin Chidchob, former leader of the Northeast faction in the then-ruling People Power Party; then-deputy PM and finance minister Surapong Suebwonglee; then-deputy PM Sahas Banthitkul; and then-PM’s secretary-general Thirapol Noplampha. He alleged that former PM Thaksin Shinawatra was unable to control Samak because of this gang. During Abhisit Vejjajiva’s tenure, a so-called ice-cream gang 1 was allegedly present. Its members reportedly included then-PM’s Office minister Satit Wongnongtoey; former Democrat spokesman Thepthai Senpong; Democrat MP Sirichok Sopha; then-PM’s secretary-general Korbsak Sabhavasu; then-deputy PM’s secretary-general Issara Sunthornvut; and then-finance minister Korn Chatikavanij. Read more of this post

Singapore property market: In 2006, 15 groups of people would view a condominium unit for rent. Now it’s 15 landlords looking for that one elusive tenant. And those who are less stubborn will even slash prices to secure a tenant

Property market: Dark clouds ahead?

Thursday, Jul 04, 2013

Linette Heng

The New Paper

SINGAPORE – Stick a hand out anywhere in Singapore and you’re likely to touch a millionaire. A paper millionaire, at least. The Republic has the highest concentration of millionaires in the world. Try 17 per cent of all households here, according to a 2012 report by The Boston Consulting Group. But so much of it is tied down to property. Spoils from property account for 58 per cent of their overall wealth, according to a 2013 Barclays report. Things have been good after the global financial crisis in 2008 with money pouring in. But market watchers say things are set to change with forecasts of higher interest rates and more units coming into the market. More than 30,000 units, including HDB flats, will be completed by the end of the year. And those relying on rents to pay off their investment properties may have no idea the water is slowly coming to a boil. Real estate agents The New Paper contacted have seen the signs. In 2006, property agent Harold Teo would regularly have about 15 groups of people viewing a condominium unit for rent. Now the game has changed. He said: “Now it’s 15 landlords looking for that one elusive tenant. And those who are less stubborn will even slash prices to secure a tenant.” They are even willing to reduce rent by up to $500, said Mr Teo, for an apartment originally demanding $4,000 a month. What has changed? Mr Teo calls it the perfect storm – fewer foreigners, less money and more units. Read more of this post

Making money from private equity in China has become as challenging as “trying to catch a fish in a tree“*.

Private Equity in China 2013: the Opportunity & The Crisis — China First Capital Research Report

2013-07-04 15:36:29

Peter Fuhrman, Chairman and CEO China First Capital

Making money from private equity in China has become as challenging as “trying to catch a fish in a tree“*. The IPO exit channel is basically shut. Fundraising has never been harder. One hundred billion dollars in capital is locked up inside unexited deals. LPs are getting very anxious. Private companies are suffocating from a lack of new equity financing. PE firms are splintering as partners depart the many struggling firms. Read more of this post

Could poor planning turn China’s city centers into slums?

Could poor planning turn China’s city centers into slums?

Thursday, July 4, 2013

Series: Unstable foundations (Part 3)

China has built glittering metropolises in the span of roughly three decades of reform and opening. But in an equal span of time, shiny urban centers risk losing their shining façades or even descending into slums thanks to poor construction quality and unclear property rights.

One study released in January points to exactly that scenario. Authored by an international team of scholars, the report shows that ambiguity in the country’s land laws is pushing investment out of the center of the city and toward the outskirts.  Read more of this post

Investors have fled bonds of all kinds since mid-June—and even one of the fixed-income market’s safest corners – short-term investment-grade bond funds – hasn’t been immune.

July 5, 2013, 6:09 p.m. ET

‘Safer’ Short-Term Bond Funds See Outflows

DAISY MAXEY

Investors have fled bonds of all kinds since mid-June—and even one of the fixed-income market’s safest corners hasn’t been immune. According to preliminary data from mutual-fund tracker Lipper, in the week ended June 26 investors pulled a net $126 million out of the short-term investment-grade bond funds that have reported so far. That brings those funds’ assets to $77 billion. Unless that number changes, the week would be the first time the category saw more money leave than come in since November 2011. Until the end of May, short-term investment-grade bond funds were the bond market’s defensive darlings. This year through May, according to Lipper, investors poured $12.7 billion into the funds, which buy bonds with a relatively low risk of default that mature within one to three years. Because they mature soon, short-term bonds are less vulnerable to interest-rate increases, which drive down bond prices. For that reason, many investors had moved assets from intermediate- and long-duration funds to short-duration funds. But when Federal Reserve officials signaled in mid-June that the central bank might taper its bond buying later this year, investors pulled billions of dollars out of bond funds—and even short-term bond funds were hit. Read more of this post

Banks’ Capital Estimates Seen Overstated; Regulators’ Report Is Liable to Support Push Toward Tighter Rules for Lenders

July 5, 2013, 12:50 p.m. ET

Banks’ Capital Estimates Seen Overstated

Regulators’ Report Is Liable to Support Push Toward Tighter Rules for Lenders

GEOFFREY T. SMITH

The discretion banks use in judging the riskiness of their long-term assets can overstate their capital ratios by up to 20%, global regulators said in a final report on the subject Friday. The long-awaited report, by the Basel Committee on Banking Supervision, appeared to confirm what many outside the banking industry had long suspected: that banks have a structural bias to understate the risk embedded in the vast majority of their investments, so as to make them look better-capitalized and protected against possible shocks than they actually are. Read more of this post

Real Returns: Are Private-Equity Gains Built to Last?

July 5, 2013, 6:05 p.m. ET

Real Returns: Are Private-Equity Gains Built to Last?

MARK HULBERT

A new study shows that one of the chief benefits of private-equity firms is largely an illusion. The study comes as Dell DELL -2.10% shareholders prepare for a July 18 vote on whether to accept a bid from founder Michael Dell and private-equity firm Silver Lake Partners to take the company private at $13.65 a share.

To be sure, many private-equity buyout funds have in the past produced superior returns. But their fees are steep—typically 2% of assets plus 20% of any profits. And many of their advantages are either ephemeral or can be replicated at a much lower cost. Read more of this post

China: Private Banks Possible in Sweeping Reform

China: Private Banks Possible in Sweeping Reform

Friday, 05 Jul 2013 07:32 AM

China on Friday promised sweeping changes to its state-run banking industry — including allowing the creation of private lenders — to support its credit-starved entrepreneurs and curb what regulators worry are growing financial risks.

Analysts including the World Bank say an overhaul of a Chinese banking system that lends little to private businesses is urgently needed to keep economic growth strong. Communist leaders who took power last year have promised to support entrepreneurs who generate China’s new jobs and wealth, but have yet to make significant changes. Read more of this post

Mortgage REITs Slide Most Since 2011 on Fed Tapering Concern

Mortgage REITs Slide Most Since 2011 on Fed Tapering Concern

Real estate investment trusts that buy mortgage debt slumped after a better-than-forecast employment report stoked speculation the Federal Reserve will begin to reduce the size of its asset purchases.

A Bloomberg index of shares in the REITs tumbled 3.9 percent as of 4:40 p.m. in New York, the largest drop since October 2011. Annaly Capital Management Inc. (NLY), the largest of the companies, and American Capital Agency Corp. (AGNC), the second biggest, each plunged more than 5 percent. Read more of this post