Jupiter, one of the UK’s largest retail investment fund
managers with around 84 percent of assets invested in equities,
said on Friday that first-half net inflows to its funds fell to
676 million pounds ($1.1 million) from 814 million a year
earlier.

Investor confidence had taken a knock and “significant
uncertainty remains,” it said.

“Sentiment is definitively more nervous, it would be
surprising if it wasn’t. I would be quite amazed,” Chief
Executive Edward Bonham Carter told Reuters in an interview.

Rival fund house Henderson forecast a near-term
decline in investment from retail clients, when it published
results earlier this week.

Jupiter is pushing ahead with medium-term plans to diversify
its client base, seeking more wealthy investors and expanding
into Europe.

The moves “over the course of this year and into next year,”
will start with a new office in Switzerland, Bonham Carter said.

Continental investors, who traditionally favour investment
in bonds, are becoming more open to putting their money in
stocks, he added, a trend Jupiter hopes to harness with its core
offering of equity-focused mutual funds.

“I think we are at relatively early stages in the European
investment habit where people are moving from cash and a bond
culture to increase their weighting to equity over time… we
have seen it in Germany in the last few years.”

In the UK, Jupiter is looking to increase its private client
business.

“It could range from the private client and wealth
management fit of a big bank … we see it as a growth area in
the UK and in Europe as well,” he said.

Bonham Carter also identified long-term trends likely to
favour the business, such as pension reforms in the UK that will
make workers save more, including a move to automatically enroll
workers over 22 in a pension plan.

“I think savings are structurally picking up and that is a
very strong positive in our business in the longer term. The UK
is behind the U.S. by about at least five or 10 years where
people have a greater tendency to invest in mutual funds,”
Bonham Carter said.

Jupiter pledged its first interim dividend since floating on
the stock market last year after pretax profit more than doubled
in the half-year to end-June.

The fund manager will pay a 2.5 pence interim dividend, in
line with expectations of analysts at Numis Securities.

Jupiter shares were down 2.8 percent at 1040 GMT, trading at
190.7 pence, underperforming the FTSE 250 index down 1.8
percent.

Analysts at Peel Hunt gave Jupiter a ‘buy’ rating saying
“the longer-term attractions of Jupiter’s model remain – strong
brand, consistent flows and high margins.”

Market conditions, however, “have clearly changed” since the
end of June, Peel Hunt said. Global stock markets have tumbled
in recent weeks on fears of another recession and fresh concern
over the euro zone debt crisis.

Jupiter’s first-half pre-tax profit rose to 37.3 million
pounds from 14.6 million pounds a year earlier.

The company is diversifying its product range, having
launched at the end of last year funds in convertible bonds and
total return strategies, although Bonham Carter said it will
remain focused mainly on equity, long-only funds.

Conditions for new products launches are “particularly
hostile,” he said.

Jupiter said its private equity team running 90 million
pounds of assets has left to join another company. Jupiter will
earn one-off management fees of 3.2 million pounds in the second
half of the year as a result of the move.

Assets under management remained at 24.8 million pounds –
the figure for the five months to end-May announced in June.
Jupiter had 19.8 billion pounds at June-end 2010.
($1 = 0.607 British Pounds)

(Reporting by Cecilia Valente, Editing by Sinead Cruise and
Erica Billingham)

Chief Executive Andrew Formica said the dramatic stock falls
seen in recent weeks had spooked investors, and its effects
would not be forgotten in a hurry.

“Even if markets return to the highs of the year, we think
the psychological effects of market movements seen in the last
few weeks will likely deter retail investors in particular from
investing at a similar pace (to that) we have seen over the past
few years,” Formica told a conference call.

Henderson reported 86.4 million pounds ($141.8 million)
underlying profits before tax for the first six months of the
year on Wednesday, in line with its own estimates published last
month, and said it would pay interim dividends of 1.95 pence per
share, compared with 1.85 pence paid last year.

Previously reported assets under management were confirmed
at 74.4 billion pounds.

Analysts at Numis expected interim dividends to amount to 2
pence, while their counterparts at Peel Hunt have forecast
dividends to remain unchanged.

Retail investors accounted for the only inflows the group
recorded in the first half of the year. It attracted 285 million
pounds net inflows from clients such as retirement savers and
private individuals, while institutional investors and insurer
Phoenix withdrew around 3.1 billion pounds.

Formica said it would be “prudent” in these brittle markets
to keep an eye on costs but added Henderson was not looking at
staff redundancies. Instead, the company was making sure its
spending habits were “consistent with a maybe more difficult
outlook”.

“Travelling and entertainment, marketing, any operating
costs such as what you are spending in your IT area, new
recruitment in areas where if you do not see growth you would
expect, you could hold back on,” he told reporters.

The company’s shares were trading down 1 percent at 140.6
pence at 0923 GMT, roughly in line with a 0.71 percent dip in
the FTSE 250 index . Analysts at Numis gave the stock a
‘reduce’ rating, but said Henderson shares had held up much
better than rivals from July to date. Analysts at Peel Hunt
retained their ‘hold’ rating.

Concerns about the euro zone’s and the United States’ debt
burdens have rocked the markets in the last two weeks, hitting
global markets and leaving fund managers nursing heavy losses
and scrambling to soothe nervy clients.

Formica said some investors were exploiting the volatile
markets to buy equities at bargain prices, but they remained a
minority.

ACQUISITIONS ON ICE

Formica also said Henderson was not looking for further
acquisitions until 2013 and was instead concentrating on
extracting “the full benefits” of the Gartmore takeover.

“I would dampen down any enthusiasm that we would do
anything in the short to medium term … Medium term would
include 2012,” Formica said.

He said Henderson was using its spare cash for the
integration and to pay 142 million pounds debt maturing next
May. He said there was no plan for share buybacks either.
($1 = 0.609 British Pounds)

(Editing by Sinead Cruise and Will Waterman)

The 10 biggest European equity funds, running an indicative 23.1 billion euros ($33.3billion) in assets at end-July, had lost a total of 1.6 billion euros by August 12, Lipper data showed, reflecting a loss of confidence in the health of the region’s banks and the ability of policymakers to heal them.

Managers presiding over asset falls are now trying to avert the threat of client withdrawals, as tumbling share prices slash the value of the assets they run.

“I am just like every other long-only fund manager. No money is going into Europe,” said John Arnold, who manages the AGF European Equity Class Fund, which was down about 10 percent in the week to August 5 after hits on key holdings like Societe Generale and BNP Paribas.

The fund posted a 1.59 percent gain in the week to Aug 12.

“You are dealing in a void where most fund managers, apart from their dividend income, are facing redemption. The long-only managers are in a sense trending out not by intention but because simply that is what the clients are doing,” he said.

Fidelity’s European Growth fund, the largest of the 10 with 7.38 billion euros in assets, shed 10.8 percent of its assets in the first week of August, before rebounding 4.96 percent in the following week.

The fund closed the fortnight with 433.4 million euros in losses.

Having shed between 5.41 and 11.6 percent of their assets in the first week of August, all but two of the 10 funds managed to recoup some of the losses in the second week of the month, according to Lipper data.

Several European countries Friday imposed a ban on short-selling of financial stocks in an effort to reduce speculation and calm markets.

Contrary to popular opinion, prime brokers and traders say it has been fund managers selling their holdings rather than short-selling by hedge funds that has led to heavy falls in banking stocks seen in recent weeks.

Equity funds were bleeding assets even before August’s market rout, however.

According to Lipper data, released separately last Friday, long-term fund sales in Europe excluding money market flows fell 40 percent in the first half of 2011 versus a year earlier.

In June, investors redeemed more than 25 billion euros from the European funds industry, mostly from money market funds, the data showed.

One of the reasons banks were so heavily sold last week is that investors are still unsure they have the full picture of their financial position, said Geoffroy Goenen, co-head of the European Equity team at Dexia Asset Management.

“Two to three years ago, it was more an issue of liquidity, it was a question of toxic assets gaps and balance sheets; today it more a question of confidence,” he said.

Goenen has steered his fund, the Dexia Equities B European Finance, underweight in banks. The fund last week saw the value of its total assets fall 1.11 percent.

“A lot of retail clients were asking what to do and my answer on that was ‘I won’t be in the sector’ … I can go in financials that are not banks,” he said.

Societe Generale, whose share price dropped by as much as 15 percent Wednesday, however, has proved an exception.

“Sometimes you have to think of risk/reward, and we definitely think that at 20 euro there is value in the bank,” he said.

Manu Vandenbulck, senior portfolio manager at ING’s Europe High Dividend fund, echoed Goenen’s feelings.

The fund, with about 600 million euros under management, outperformed its peers returning 2.78 percent in the second week of August and returning -7.23 percent the previous week, according to Lipper.

“We are underweight now in financials, but we have been active on selected opportunities,” he told Reuters in an e-mail. ($1 = 0.692 eros)

(Editing by Sinead Cruise and Hans-Juergen Peters)

Even without a formal fiscal union in place, investors say
they are starting to see all euro zone states as financially
accountable for one another’s solvency, sparking a stampede to
economies with greater freedom to plot their way out of the
crisis, like Switzerland, Britain, the United States and
Scandinavia.

“We have colossal debt burdens in some jurisdictions,
colossal budget deficits and an inability to forge political
unity at an early stage to short-circuit fears,” Stephen
Snowden, fixed income manager at 48 billion pound funds firm
AEGON Asset Management, said.

French banks already reeling from writedowns on troubled
sovereign debt suffered a dramatic sell-off on Wednesday amid
fears the country could be called on again to bankroll rescue
packages for the likes of Italy and Spain.

Those falls came a day after spreads on German credit
default swaps widened beyond their UK equivalent for the first
time, reflecting worry that Europe’s largest economy was being
dragged down by its efforts to support the euro zone laggards.

Sales of French bank paper and stock — as well as those of
other major lenders seen to be infected by exposure to the Euro
zone — look likely to accelerate as long-only investors hurry
to offload risk, fund managers said.

Snowden said AEGON had slashed exposure to banks in its
Investment Grade Bond fund by more than a quarter in the past
four weeks. He cited BNP Paribas , Unicredit ,
Credit Agricole and Belgium’s KBC among its
recent disposals.

“The credit market is substantially broken as we speak,”
Snowden said.

Another fund manager at a different global investment house
running around $100 billion in assets blamed the current
volatility on “undue complexity” in the balance sheets of
financial institutions — making it hard for investors to track
exposure to troubled credit. This is a popular criticism that
the recent round of European bank stress-tests has failed to
quell.

“(Price volatility) will spread across a broader set of
institutions. I do not see why they picked on the French banks,
you could name just about any bank …and I think you can name
any of the international insurers,” the manager said.

“What you have got is an enormous set of assets, an enormous
set of liabilities and very thin margins in the middle. If you
are not exactly clear where you are in those enormous books, you
have a high level of risk in the business.”

POLITICAL RUNES

Fund managers are stretching investment mandates and
guidelines on hedging tools to their limits in an effort to
protect their clients and avert a wave of redemptions that could
hurt battered stock markets even more.

But making those unplanned bets pay requires canny reading
of political runes as well as economic ones: a gamble most
investment managers are unwilling to take.

Jean-Louis Nakamura, Chief Investment Officer in the asset
allocation group at Lombard Odier Investment Managers said only
a “thorough and rapid institutional revolution” in the euro zone
would be sufficient to soothe market panic and boost demand for
stocks and bonds of its banks and governments.

“While the U.S. suffered a one-off political problem, it
doesn’t have a deeper institutional issue. In contrast, the
eurozone’s structures for coping with its debt problems at the
relevant monetary union level aren’t even in place, let alone
operational,” Nakamura said.

Managers said a reversal in European Central Bank policies
on quantitative easing and a rapid launch of euro bonds could
slow a sell-off and even coax bargain-hunters back to the
markets, but most are planning a long stay on the sidelines.

“There’s a few of us out there who got badly burned in 2008
and don’t think it is something we want to revisit,” said
Snowden.

“Clients rightly want answers when we get it wrong — if you
buy more while all this is going on, you have signed your own
resignation letter.”

(Editing by Sophie Walker)

Volatile equity markets coupled with the growing risk of sovereign bond default are sparking a rush to defensive assets, fund managers and investment strategists said, with little sign of sanctuary seen in any major global economy.

In an environment where people are “simply looking for the least ugly investment,” gold offers a way to preserve purchasing power in the face of market stress and high inflation, said Neil Dwane, chief investment officer at RCM, a unit of Allianz Global Investors.

“It feels like Europe is firmly in the line of fire but it could quite easily be usurped by worries over the U.S. by the end of the week,” he said, flagging doubts about the optimism underpinning Asian investment as a hedge on Western woe.

European shares were hit on Monday by news that 24 European lenders either failed or nearly failed stress tests aimed at identifying those too weak to survive prolonged recession or a new financial market shock.

Data published by EPFR Global, which tracks flows in and out of funds running $15 trillion of assets, showed enthusiasm for gold helped drive the biggest inflows into commodities funds for 14 weeks in the week to July 15, when all other 17 major equity and sector fund groups saw outflows.

For those who can’t afford gold as prices soar to record new heights, cash is another option for investors unwilling to ride out equity markets or unable to achieve returns from high-quality debt.

Money market funds tracked by EPFR Global pulled in $9.72 billion last week, three times the volume of cash headed for equities or bond funds.

Roger Gray, chief investment officer at the Universities Superannuation Scheme — Britain’s second largest pension fund — said his 31 billion pound ($50 billion) fund was now “neutrally to slightly cautiously positioned” having shifted money from equity and fixed income to cash, with the size of the USS’s cash re-allocation “in the low single digits.”

“The truth is that inflation at the moment would make longer dated bond yields pretty unattractive as well…You could buy a UK indexed gilt and you would have inflation protection and still get a small amount of real yield by doing that, but those real yields are as low as they have ever been,” said Gray.

Henrik Drusebjerg, senior strategist at Scandinavian financial group Nordea, has recommended clients move a further 5 percent of their portfolios into cash to reach a maximum position of 10 percent.

Drusebjerg, who advises both retail clients and fund managers at 192 billion euro fund firm Nordea Asset Management, has turned more cautious since the spring and wants to see U.S. economic improvement and signs euro-zone debt woes are being effectively addressed before changing his mind.

HEDGE FUND FOG

It is not just long-only investors who are moving away from risky investments. Hedge funds have sharply cut back their bets recently, prime brokers say, with both gross exposure (their total bets on the market), and net exposure (their bets on market direction), lower.

“At times of uncertainty it is better to de-risk the portfolio and preserve our investors’ capital, than to accept inadequate remuneration for the amount of risk one is taking,” said Pedro de Noronha, managing partner at Noster Capital.

Noster, which is up 7.5 percent so far this year compared with an average hedge fund gain of 0.76 percent according to Hedge Fund Research, has bought credit default swaps on emerging markets and “five different European investment grade companies,” and has no positions in banks.

Mike Nicol, manager of the Merrion European Absolute Return Fund said he regretted closing a short on a undisclosed UK bank and had no exposure on the long side to financial stocks, citing poor visibility against the unstable macro-economic backdrop.

“You have to make so many good decisions for not much gain. With problems in Europe and growing concerns in the U.S., it’s been a very difficult environment and it’s very difficult to make positive returns,” he said.

Others, however, feel turbulent equity markets are ripe for a buying spree.

Jim McCaughan, chief executive at Principal Global Investors, the investment arm of U.S. insurer Principal Financial Group with $235 billion under management, still sees “unsettled” U.S. equities as a “buying opportunity,” based on expectations of a positive second quarter.

Bernhard Langer, Chief Investment Officer Global Quantitative Equity at Invesco, echoed this opinion and said that equity in well-managed, multinational companies would prove a better inflation shield than gold.

RCM’s Dwane also made a case for “under-owned, unloved European equities” but warned stock markets were only for the brave in the near-term.

“Most European investors are massively underweight equities so in theory, if we get some clarity even if that is painful clarity, I think we could get some natural buying of European equities than almost every other equity asset class,” he said. ($1 = 0.620 British Pounds)

(Additional reporting by Laurence Fletcher; Editing by Elaine Hardcastle)

Fund firms running more than 1 trillion euros in fixed income assets are wrestling with fears for the security of their exposure to Italian sovereign bonds amid fears Europe’s third largest economy could succumb to contagion from the debt woes of Greece, Portugal and Ireland.

These investors, who are major buyers of European sovereign debt, told Reuters they have few doubts about Italy’s solvency but the slow progress of Greek bailout talks was eroding confidence in the economic stability of almost any Euro zone member.

“I don’t think we are really looking at Italy and Spain and maybe Belgium in isolation any more. We’re really looking more at the EU area as a whole because I think we are fighting for the survival of the euro,” Sylvain de Ruijter, head of core fixed income investments at ING Investment Management said.

“We have only sold down a very small percentage of our Italian and Spanish debt exposure but it is fair to say that we are reviewing the level of ownership of these credits for all our clients,” de Ruijter said.

Yields on 10-year Italian government debt jumped 30 basis points to break 6 percent for the first time since 1997 on Tuesday, edging closer to a 7 percent threshold after which Italy is broadly seen to lose the ability to finance itself, analysts reckon.

The jittery marketplace for Euro zone sovereign bonds has provided the perfect incubator for hedge fund bets on ballooning spreads and subsequent currency movements, the fund managers said, forcing the cost of insuring Italian debt against default to record heights.

Olivier Larouziere, fund manager of the EURO Sovereign bond fund at Natixis Asset Management, said the spike showed short-sellers had the power to infect much larger and stronger economies as well as more indebted peripherals.

“The contagion strategy has been implemented by many hedge funds, first on Portugal, which has seen spreads move out very violently; as is the case with Spain. But Italy is coming as a shock to everyone because it was not on the list,” he said.

“We have a neutral view on Italy because we think that fundamentals are solid. To my mind there are some very opportunistic trades out there… but believe me, I would not hesitate in having no Italian bonds if I truly thought a default was inevitable,” Larouziere said.

Eric Brard, head of fixed income at Amundi, the asset management unit of French banks Societe General and Credit Agricole, said his decision to cut allocation to Italian debt was motivated by a desire to sidestep market turbulence than fears for an Italian bond default.

“This is a very marginal part of our investments and has nothing to do with our view on its solvency or liquidity, it is rather a view linked to market volatility,” he said.

One executive of a multi-billion dollar hedge fund firm, however rejected the theory that his sector was responsible for the dramatic moves, saying hedge funds appeared to be focusing their activity on Greece, Spain and Portugal, rather than Italy — at present.

The managers agreed the structure of the Euro zone had rendered individual member states powerless to confront fiscal and economic weaknesses that were often unique to them.

Andrew Bosomworth, head of fixed income portfolio management in Germany at Pimco, a unit of Europe’s biggest insurer Allianz, said his house was underweight in Italian debt because it didn’t have the necessary freedoms, such as currency depreciation, that might help it manage its swollen debt pile.

The country carries national debt of 119 percent to gross domestic product (GDP).

“Italy is solvent, it needs to get back to a primary surplus to remain solvent. I am confident it can do that. There is just one problem; notice the structure of the monetary union where countries cannot devalue their currency,” he said.

Bosomworth said the implementation of reforms that promote business growth could be the best signal Italy could send to a market concerned about its sluggish economy, echoing suggestions it should follow Spain’s example and be more transparent about its austerity plan.

The traditional argument that Italy can count on a pool of domestic savings large enough to fall back on in a crisis, is no longer enough to reassure fickle investors, de Ruijter said.

“If they get nervous and stop buying who knows what the future brings? Even Italian investors are wondering whether it is very rational for them to take out their money and put it into a German or French bank,” he said.

(Additional reporting by Laurence Fletcher; Editing by Mike Nesbit)

Charlemagne, which manages mutual funds as well as hedge
funds investing in Africa, Asia and Latin America, booked net
outflows of $94 million from its investments range, following
withdrawals from its mutual funds, institutional mandates and
advisory ranges.

The Occo hedge funds range and specialist business attracted
inflows of $126 million. Charlemagne had posted larger net
outflows in the first quarter of 2011 than the whole of last
year.

Negative markets contributed $55 million to the first-half
fall in net assets, meaning the company had $3.29 billion under
management at end-June, down 5.5 percent since end-2010 but up
19.2 percent year-on-year.

Assets under management levels fell “slightly short of …
expectations”, analysts at Singer Capital Markets said, noting
flows had been negative across the emerging markets industry.

Charlemagne shares were unchanged at 0740 GMT.

The MSCI emerging market equity index was volatile
over the six months to end-June, hitting a low in February.

Emerging markets nudged towards a five-week highs earlier
this week on the back of encouraging Chinese services sector
data.

Net first-half management fees at Charlemagne rose 16.3
percent compared with the same period last year and by 2.7
percent on the second half of 2010.

Charlemagne, looking for a new co-chief investment officer,
said it will pay an interim dividend whose value will be
announced in September.

It said inflows to emerging markets in general have been
scanty and channelled into exchange traded funds (ETFs).

“This has, in turn, resulted in significant
under-performance in smaller companies, where we typically find
many of our best ideas. We remain confident that these valuation
anomalies will not persist in the medium to longer term.”

Its first-half results will be announced on Sept. 13.

(Editing by Sinead Cruise and Dan Lalor)

James Charrington, BlackRock’s chairman for the EMEA region, told Reuters in an interview the company was planning to invest in buying buildings when the time came for expansion.

“We have a very strong … team in UK real estate. We do not have a global product and we do not have a pan-European real estate product. Do we have a mission to do it? Absolutely.”

“We need to build the infrastructure that can support that product,” he said, noting BlackRock had appointed LaSalle’s (JLL.N: Quote, Profile, Research) Asia Pacific head Jack Chandler to drive the unit’s development. Charrington declined to give BlackRock’s fund-raising target for the new funds.

As part of the real estate unit’s expansion, Blackrock — which manages $3.65 trillion in overall assets — may also make a foray into real estate debt.

In the two years to 2013, the global commercial real estate funding gap — the difference between debt needed for refinancing and the money available — fell to $202 billion. But there is a growing appetite for funds specialising in senior or junior property debt.

“As a big fund manager in debt markets, we would potentially be interested in it (real estate debt). It could easily be both senior and junior, I would not rule out (either)… the first step was to bring in a head of real estate,” Charrington said, referring to Chandler.

(Additional reporting by Andrew Macdonald; Editing by David Hulmes and Dan Lalor)

(This story has been corrected in paragraph 5 to show assets under management is $3.65 trillion, not $3.65 billion)

James Charrington, BlackRock’s chairman for the EMEA region, told Reuters in an interview the company was planning to invest in buying buildings when the time came for expansion.

“We have a very strong … team in UK real estate. We do not have a global product and we do not have a pan-European real estate product. Do we have a mission to do it? Absolutely.”

“We need to build the infrastructure that can support that product,” he said, noting BlackRock had appointed LaSalle’s (JLL.N: Quote, Profile, Research) Asia Pacific head Jack Chandler to drive the unit’s development. Charrington declined to give BlackRock’s fund-raising target for the new funds.

As part of the real estate unit’s expansion, Blackrock — which manages $3.65 billion (2.27 billion pounds) in overall assets — may also make a foray into real estate debt.

In the two years to 2013, the global commercial real estate funding gap — the difference between debt needed for refinancing and the money available — fell to $202 billion. But there is a growing appetite for funds specialising in senior or junior property debt.

“As a big fund manager in debt markets, we would potentially be interested in it (real estate debt). It could easily be both senior and junior, I would not rule out (either)… the first step was to bring in a head of real estate,” Charrington said, referring to Chandler.

(Additional reporting by Andrew Macdonald; Editing by David Hulmes and Dan Lalor)

Chinese stock shortsellers eye Hong Kong- Reuters

Chinese small caps hit funds H1 performance – Reuters

LSE open to Nasdaq merger – FT

Hong Kong hedge funds, banks up salaries to avert exodus- South China Morning Post