Global Investing

from Summit Notebook:

Tax evaders on the run

  By Neil Chatterjee
    The U.S. has promised it will hunt down tax evaders.
    And it seems tax evaders are on the run.
    DBS bank, based in the growing offshore financial centre of
Singapore, told Reuters it had been approached by U.S. citizens
asking for its private banking services. But when told they would
have to sign U.S. tax declaration forms, the potential clients
disappeared.  
    Swiss banks also approached DBS on the hope they could
offload troublesome U.S. clients to a location that so far has
not been reached by the strong arms of Washington or Brussels.
    DBS said no thanks. In fact many private banks and boutique
advisors now seem to be avoiding U.S. clients.
    Will this spread to other nationalities, as governments
invest in tax spies and tax havens invest in white paint?
    Is this the end of offshore private private banking?

from Summit Notebook:

Geneva is for wealth management

Even for an American who's not wealthy, Geneva has a reputation as a global centre for wealth management - the place the world's rich come to stash their money and (they hope) make it grow.

    But you don't necessarily expect it to be so aggressive -- after all, the rich tend to be demure when it comes to their banking.

    Imagine one reporter's surprise, then, on arriving in the airport in Geneva and seeing bank ads everywhere. Think of the casino adds in Las Vegas's McCarron Airport or the technology ads in San Jose's Mineta Airport: it's the exactly the same in Geneva, only with wealth managers.

Lambs to the slaughter

The mood was not so much one of indignant fury but quiet disappointment in Founders Hall for the Candover AGM yesterday. 

A contrite and clearly uncomfortable chairman Gerry Grimstone took the stand – looking like a schoolboy caught with his hand in the biscuit tin, wishing he could be anywhere else. 

 

He said he had lain awake at night re-examining the decisions that have devastated the share price and brought the company to the brink of sale. And it was easy to believe him. 

Terminal problems

If Nigerian banks appear to have suffered disproportionately in the global financial crisis, maybe they have Heathrow Terminal 5 to blame.

Nigerian banks were advertising their services on billboards in Terminal 5 last year, and travelling investors felt it showed the banks were rashly trying to keep up with international investment banks in aiming for a global profile, causing many to sell, a banker specialising in Africa told journalists this morning over breakfast.

“Those adverts were a sign to sell Nigerian banks,” Luca del Conte, executive director in treasury and capital markets at Medicapital Bank said.

Ignoring the drumbeat?

Reuters released its February asset allocation polls today, showing an ever so slight increase in average holdings of stocks. The signficiance, however, was not in the small increase but in the fact that there was no decrease. February has not been kind to riskier investments, with a drumbeat of poor economic news combining with new fears about banks to send global stocks to fresh six-year lows.

Dig inside the various polls — they come from the United States, Britain, Japan and continental Europe — and you find different moods. Three-quarters of U.S. managers polled, for example, made no change at all in their allocations over the month. Europeans, meanwhile, are so gun shy that they are holding more than twice as much cash as their long-term average. Japanese investors were a bit more optimistic than a month earlier, apparently because fears of deep trouble in China are easing.

What it all says is that investors are generally sticking to the sidelines, but are not being particulary spooked by continuing bad news. So is that the bottom? Or maybe familiarity breeds contempt?

Desperately seeking yield

Equities may be having a stop-start kind of month, but investors do seem to be more willing to take on risk than before. The latest numbers from EPFR Global, a tracker of investment flows, show high-yield bond funds raking in the money in the second week of January. A net $766 million flowed into the HY funds tracked by the firm. At the same time, a net $578 million flowed into U.S. municipal bond funds.

The drive behind these flows is a mix of a desperate search for yield and a belief that the risk might well be worth taking. Investment grade corporate debt is considered to be priced at Armageddon levels. That is, the price assumes too much trouble ahead than is likely. This has led, for example, to a monthly record in new bond issuance in January in Europe.

High yield is not pricing in quite as extreme a default rate from a historial perspective. But it is still evidently attractive, hence $3.38 billion in global net inflows over the past seven weeks.

The Wrong Lesson

 

Investors learned the wrong lesson from the dotcom bubble, and ended up blowing another. 

 

That’s the view put forward at the CFA Institute’s conference in Amsterdam by Ben Inker, head of asset allocation at GMO. He believes investors became so enamoured of diversification – which seemed to work like a charm for the large US university endowment schemes – that they ran headlong into risk asset classes and blew a giant risk bubble. 

 

Inker argues that because investors rushed into risk asset classes indiscriminately, they ended up paying for the privilege of taking risk.

How low will hedge funds go?

How bad will hedge funds’ year-end performance figures look?

According to Credit Suisse/Tremont, funds fell 6.30 percent in October after a 6.55 percent drop in September, taking losses for the first ten months to 15.54 percent.

Seven strategies are now nursing double-digit losses, with only two — managed futures and dedicated short bias — in positive territory.

Even global macro, which bets on the likes of global equity markets, world currencies, sovereign debt and commodities, is now back in the red. These funds are down 7.10 percent after substantial losses in September and October.

A riot of a recession

Every month, the financial services company State Street studies the trillions of dollars in institutional investor money it looks after as custodian and tries to gauge where things stand. Over the years, it has come up with a map consisting of five different regimes, or moods, to reflect this. They range from the bullish “Liquidity Abounds” in which investors buy equities and focus on growth, to the uber-risk averse “Riot Point”.

Guess what? Investors moved into “Riot Point” last month after flipping about for four months in the slightly less bearish but still risk averse “Safety First” regime. This essentially means that they gave up in October – which is not a particularly stunning finding given that many stock markets had their worst performance in decades.

So now comes the bad news. In the 11 years State Street has been drawing its map, the longest period of risk aversion as measured by investors being in “Riot Point” or “Safety First” was the nine months between February and October 2001. This almost exactly coincided with the then-U.S. recession.

Star Coffey decides not to go it alone

So star hedge fund manager Greg Coffey has opted to join established firm Moore Capital.

In April, when high-performing, high-earning Coffey resigned from GLG, the market was awash with rumours that he wanted to start up his own firm, pulling in billions from investors.

However, times have changed in the hedge fund industry.

The average fund is down nearly 20 percent so far this year, according to Hedge Fund Research’s HFRX index, while emerging markets funds have taken a particular battering as markets such as Russia and China have fallen.