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Money managers under the microscope

from Global Investing:

Clearing a way to Russian bonds

Russian debt finally became Euroclearable today.

What that means is foreign investors buying Russian domestic rouble bonds will be able to process them through Belgian clearing house Euroclear, which transfers securities from the seller's securities account to the securities account of the buyer, while transferring cash from the account of the buyer to the account of the seller. Euroclear's links with correspondent banks in more than 40 countries means buying Russian bonds suddenly becomes easier.And safer too in theory because the title to the security receives asset protection under Belgian law. That should bring a massive torrent of cash into the OFZs, as Russian rouble government bonds are known.

In a wide-ranging note entitled "License to Clear" sent yesterday, Barclays reckons previous predictions of some $20 billion in inflows from overseas to OFZ could be understated -- it now estimates that $25 to $40 billion could flow into Russian OFZs during 2013-2o14. Around $9 billion already came last year ahead of the actual move, Barclays analysts say, but more conservative asset managers will have waited for the Euroclear signal before actually committing cash.

Foreigners'  increased interest will have several consequences.  Their share of Russian local bond markets, currently only 14 percent, should go up. The inflows are also likely to significantly drive down yields, cutting borrowing costs for the sovereign, and ultimately corporates. Already, falling OFZ yields have been driving local bank investment out of that market and into corporate bonds (Barclays estimates their share of the OFZ market has dropped more than 15 percentage points since early-2011).  And the increased foreign inflows should act as a catalyst for rouble appreciation.

Each of these points in a bit more detail:

a) Foreigners' share of the Russian bond market is among the lowest of major emerging markets.  Compare that to Hungary, where non-residents own over 40 percent, or South Africa and Mexico, where foreigners' share of local paper is over 30 percent.

Utilities vs banks: The evidence

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Alpesh Patel caused quite a stir on Britain’s Radio 4 this morning. The CEO of boutique investment house Praefinium Partners argued that Bob Diamond was on “a suicide mission to bring down capitalism”. No word yet from the Barclays CEO on that one.

Maybe that was just the line his PRs had promised to the BBC producers to get him on air, though, and there is more logic to Patel’s more substantial point about value creation in the banking sector in relation to bonuses and pay.

Morning Line-Up: Barclays private equity, F&C, shorted Gartmore

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News and views on the asset management industry from Reuters and elsewhere

Barclays to sell private equity arm to management - FT

F&C clients advised to vote against firm’s remuneration - Daily Telegraph

Hedge funds eye Gartmore short-selling – Reuters

Who dares wins

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Everyone is interested in reading about someone making billions of dollars in profit, and the Wall Street Journal’s story about the Appaloosa fund making $7 bln of profit so far this year is certainly eye-catching.

REUTERS/Shannon Stapleton

Rather like London’s Crispin Odey, who earned a handy 30 mln stg this year, the fund, run by David Tepper, made its money buying bargain basement bank shares.

from Summit Notebook:

Time private bankers got professional

It's hard to imagine that a banker who represents multimillionaires would be anything but professional - but a top executive at a leading global bank thinks that's precisely the wealth management industry's problem.

"There is so much mediocrity in the industry we have to raise the bar here," said Gerard Aquilina, vice chairman of Barclays Wealth, at the Reuters Global Wealth Management Summit in Geneva.

Enjoy the bubble, says Odey

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This year’s stock market rebound has turned into a bubble, or at least that’s the view of closely-followed hedge fund manager Crispin Odey.

rtr23liwOdey, who called a bull market back in April, reckons quantitative easing has fuelled investors’ desire to get out of cash and government bonds and into real assets, leading to a stampede.

Jabre upbeat (but not quite bullish) on stocks

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High-profile hedge fund manager Philippe Jabre has lent his voice to the view that equity investors have more to play for.

The former GLG trader, probably better known for a record FSA fine of 750,000 pounds for market abuse than for his strong track record, thinks there is “money to be made”in bombed-out stocks in sectors such as financials, energy and industrials.

Make hay while the sun shines

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More good news for equity bulls from Crispin Odey.

No correction until the autumn?Odey, who called the possible start of the bull market earlier this year, says technically there is “every reason to be hopeful that a major correction will not happen before September”.

And, having profited handsomely from his position in Barclays, which is now a 16.3 percent holding in his European fund, he sees the best opportunities in companies that were once unable to refinance but now can get credit, rather than safe-haven stocks.

Barc-ing up the right tree?

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As the credit crisis has unfolded, many banks have trimmed their prime brokerage units’ lists of hedge funds clients in an effort to reduce lending and risk as fast as possible.

rtr23h6lHowever, as often happens, caution by some becomes a business opportunity for others — many smaller hedge funds, for instance, complain about the difficulty in getting a prime broker these days.

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