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Money managers under the microscope

from Global Investing:

GUEST BLOG: The missing reform in the Kay Review

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Simon Wong is partner at investment firm Governance for Owners, adjunct professor of law at Northwestern University School of Law, and visiting fellow at the London School of Economics. He can be found on Twitter at @SimonCYWong. The opinions expressed reflect his personal views only.

There is much to commend in the Kay Review final report. It contains a rigorous analysis of the causes of short-termism in the UK equity markets and wide-ranging, thoughtful recommendations on the way forward.  Yet, it is surprising that John Kay omitted one crucial reform that would materially affect of the achievability of several of his key recommendations – shortening the chain of intermediaries, eliminating the use of short-term performance metrics for asset managers, and adopting more concentrated portfolios.  What’s missing?  Reconfiguring the structure and governance of pension funds.

A major challenge facing pension funds in the UK and elsewhere is the lack of relevant expertise and knowledge at board and management levels.  Consequently, many rely heavily – some would argue excessively – on external advisers.  I have been told by one UK pensions expert that inadequate knowledge and skills within retirement funds means that  investment consultants are effectively running most small- to medium-sized pension schemes in Britain. Another admits that trustees, many of whom are ordinary lay people with limited investment experience, are often intimidated by asset managers.

Because these funds cannot afford to build in-house investment capabilities, they outsource this function to external managers.  What’s more, some pension funds will utilize intermediary “funds of funds” to help them make investment decisions, thereby extending the equity ownership chain.

from Global Investing:

SocGen poll unearths more EM bulls in July

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These are not the best of times for emerging markets but some investors don't seem too perturbed. According to Societe Generale,  almost half the clients it surveys in its monthly snap poll of investors have turned bullish on emerging markets' near-term prospects. That is a big shift from June, when only 33 percent were optimistic on the sector. And less than a third of folk are bearish for the near-term outlook over the next couple of weeks, a drop of 20 percentage points over the past month.

These findings are perhaps not so surprising, given most risky assets have rallied off the lows of May.  And a bailout of Spain's banks seems to have averted, at least temporarily, an immediate debt and banking crunch in the euro zone. What is more interesting is that despite a cloudy growth picture in the developing world, especially in the four big BRIC economies,  almost two-thirds of the investors polled declared themselves bullish on emerging markets in the medium-term (the next 3 months) . That rose to almost 70 percent for real money investors. (the poll includes 46 real money accounts and 45 hedge funds from across the world).

from Global Investing:

What fund managers think

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Bank of America-Merrill Lynch's monthly poll of around 200 fund managers had a few nuggets in the June version, aside from the usual mood-taking.

Gold is too expensive.  A net 27 percent of respondent thought it overvalued, up from 13 percent in May. Then again, the respondents to this poll have reckoned gold is too pricey since September 2009.

Reuters reporters head for the engine room

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Reuters will be holding a European funds summit in Luxembourg this week, piggy-backing on the ALFI spring conference. It’s a useful opportunity to take stock of a startling couple of years for the industry, as well as looking ahead to the shape of the sector for the years to come.

We’ll be speaking to a host of senior industry players from both sides of the fence, from the top performing fund managers to the people that make the industry tick; Luxembourg got a jump on the rest of the fund market by being the first to leap on the UCITS train back in 1988 and now houses much of the sector’s administrative machinery as it becomes truly cross-border.

from Global Investing:

The art of being passive

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Hundreds or even thousands of  "active" fund managers are competing to add alpha to beat benchmark indexes, be it in stocks, bonds or alternatives.

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The market is so efficient, historical performance is no guide to the future. It's nearly impossible to find a reliable method to pick advisers who deliver the best industry returns year in and out. There are also costs, from visible ones such as management fees and custody and administration expenses to "below water" costs such as trading commissions (due to higher turnover), bid/ask spread (price to buy, another to sell) and market impact costs (larger buy/sell orders affecting price).

from Commentaries:

Don’t hold your breath for European flotations

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COLOMBIA/A web-based survey of more than 40 European institutional investors by investment bank Jefferies shows most -- 83 percent of those who responded -- are not expecting a re-opening of the IPO market in the UK and Continental Europe before the middle of 2010.

 

Only 23 percent of the analysts, portfolio managers and dealers surveyed reckon the IPO market will re-open by the end of this year.

Are there any positives in the EU’s new hedge fund rules? Watch GLN’s David Malamed

David Malamed, partner at international law firm Gide Loyrette Nouel, talks to Hedge Hub about the positives, as well as the negatives, of the EU’s draft law on Alternative Investment Fund Managers.

from Global Investing:

Falling on deaf ears

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The European private equity industry today published its response to the proposed Alternative Investment Fund Managers directive that seeks to place controls on the industry.

In what it must hope will be seen as a carefully considered and constructed response to the European Commission's hastily drafted and ill-thought-out proposed directive, the European Private Equity and Venture Capital Association -- the voice for private equity in Europe -- calls for the threshold for reporting on its companies' activities to be lifted to 1 billion euros assets under management from 500 million.

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