Complete marketplace transparency, which is expected by about 2015, will force the majority of financial intermediaries to adapt to change, ...

Complete marketplace transparency, which is expected by about 2015, will force the majority of financial intermediaries to adapt to change, according to research by consultants IBM. Traders, analysts, fund managers and all who stand between investors and their money will come under withering pressure to deliver or depart, said IBM. Suzanne Dence, senior financial consultant at IBM in London, told WealthBriefing: “We probed extensively and there are winners and losers. We found that traditional long only asset managers will be extremely pressured in the future.” Over 70 per cent of assets under management worldwide are in long only funds, according to IBM. IBM predicts there will be an enormous shift to extremes, with some assets moving towards so-called “esoteric” investment vehicles, including private equity and hedge funds. At the other extreme we will see a move towards beta or passive type investments such as exchange traded funds, said the IBM research. IBM also predicts fees will come down from the current 2 per cent and 20 per cent performance fees currently charged by hedge funds, as these become more mainstream. Ms Dence said: “Those that are stuck in the middle will be squeezed and have to adapt. As time goes on people will not be willing to pay alpha fees for beta performance.” By 2015 global capital markets will have reached a state of complete marketplace transparency, which will be moulded by instantaneous and uniform global networks. These are the underlying forces emerging to shape the new single market for the world’s capital, predicts IBM. IBM surveyed 402 business leaders from 296 financial markets firms in 61 countries. This was broken down into 37 per cent from the Americas, 32 per cent from Europe and 31 per cent from Asia. Luxembourg funds experienced their third year of double digit growth in total net assets - both Euro and dollar-denominated - for all domiciled collective investment funds, according to the latest analysis from Lipper Fitzrovia. Luxembourg-domiciled funds grew by 20 per cent to $1,797.2 billion at year-end 2005, up from $1,500.3 billion at the end of 2004. The total number of funds and sub funds rose from 7,777 to 8,434. The number of equity funds increased to 2,997 from 2,909 – reversing the trend of the previous two years when numbers declined. Assets invested in equity funds rose for the third year running, increasing 36 per cent to $ 683.2 billion. All the other main asset classes saw a similar growth in assets, apart from cash funds which experienced a slight reduction in assets. Alternative investment funds continue to thrive with assets of $ 27.8 billion, up from $18.7 billion last year, excluding funds of hedge funds. The most popular type of fund to be launched in 2005 was global funds of funds, with 221 launches. They also attracted the largest share of investment into newly-launched funds, taking $ 23.1 billion during the year. JPMorgan retained its position as the largest administrator in Luxembourg by total net assets ($211.8 billion), ahead of UBS ($ 154.9 billion). Among the advisors, Arendt & Medernach and PricewaterhouseCoopers dominated the rankings. “The global, not just European, appetite for Luxembourg funds is fuelling this success against a background of increasingly complex investment strategies and product structures,” said Geoffrey Cook, managing director of Brown Brothers Harriman Luxembourg. Sales of equities in Europe over the first two months of this year have far exceeded 2005's half-year figures, which could cause greater volitility, according to research from Feri Fund Research, a London-based consultancy. “The return of equities to the centre of portfolio activity ironically helped to unsettle European bourses as aggressive trading and profit-taking combined to add a heightened level of volatility to the markets," said Feri. Investors remain undeterred despite the fact that equity fund sales in the region fell from January's record high of €61 billion ($75 billion) to €45 billion a month later. Subscriptions levelled off at €26 billion for the month which means that the equity sectors have already achieved half the flows seen in 2005, after just two months. “Nonetheless, most stock markets staggered into a fourth consecutive month of positive performance encouraging investors to continue their new-found commitment to stock funds,” said Feri. Feri said the days of investors sticking rigidly to their European-focused funds are over. In February they cast their eyes outward, with an increased weighting in funds offering global strategies. In the enlarged fringe arena was emerging markets and even greater China. European equities remained strong but they lost some muscular definition and showed signs of giving a little ground away to their Mid/Small Cap cousins, said Feri. Bonds fell sharply compared with last year's growth, grinding to a halt in February, and accounting for around €4 billion in total sales. Brown Shipley, the private bank, has appointed Ian Sackfield as managing director of its £320 million ($571 million) collective funds subsidiary KBL Investment Funds, which trades under the name Solus. Mr Sackfield also takes up the role of chairman of Brown Shipley's investment policy committee, thereby filling the two positions previously held by Tony Hurley, Brown Shipley's head of private banking. Mr Hurley will now concentrate on wider group strategic issues, the bank said in a statement. These appointments are in addition to Mr Sackfield’s position as head of investment management at the company. Mr Sackfield joined stockbroker and investment manager Henry Cooke, which was subsequently acquired by Brown Shipley, in 1987. He was appointed a director of Brown Shipley in September 2001. Brown Shipley's Solus range consists of six funds: UK Flagship; UK Special Situations; Sterling Bond; MultiManager Growth; MultiManager International and MultiManager Balanced. The Solus funds team includes Brown Shipley's chairman David Rough, and investment consultant Paul Harwood, previously managing director of Merrill Lynch Asset Management. The North American arm of Schroders has outsourced investment operations for $3 billion in assets to the Bank of New York to support its private client and fund business. Financial terms of the deal, which includes responsibility for trade support, data management, investment accounting, third party custodian reconciliation, performance measurement and end-client appraisals, were not disclosed. "We want to continue to focus on building our business and providing superior investment performance. “The bank's outsourcing solution enables us to focus on our core competency while effectively managing costs," said Mark Hemenetz, Schroders chief operating officer. Investec Asset Management has launched an onshore Japan Fund which seeks to take advantage of the opportunity for outperformance that Japan now represents, given the strong economic recovery in the country. The UCITS III fund will be managed from London by Philip Whittome, who has one of the City’s longest successful records managing Japanese equities, having run Investec’s offshore Japan fund since September 1996. “The fundamentals for Japan remain very positive. Forecasts for Japanese economic growth are being revised up again and are now above 3 per cent for calendar 2006. The recovery continues; Japanese banks are starting to lend again for the first time in many years, as private sector firms regain the confidence to borrow - the credit cycle has normalised,” according to Mr Whittome. Separately, Investec Asset Management has launched an onshore version of its Guernsey-domiciled Global Gold fund. The fund, which is managed from South Africa, seeks to take advantage of the changing demand and supply dynamics that currently exist in world gold markets. The fund will be one of just three onshore gold funds in the UK. David Aird, managing director, Investec Fund Managers, told WealthBriefing: “Gold as an investment is relatively non-core so I would guess most of the investors are quite savvy. When the price goes up there is not the same drop off in demand you would get with, say, copper.” “Unlike other commodities, such as other metals, gold demand stays high when the price goes up. It is used to hedge when people are not sure what they are hedging against.” Investec does not actually buy gold bullion but rather stock in gold mining firms. This provides an addition of three times leverage. Back when gold traded at lower values there was a shortage of exploration for new supplies, explained Mr Aird. Investec also invests around 12 per cent of the fund’s total assets in platinum firms. Geographically, about 40 per cent of the portfolio is invested in South Africa, a further 37 per cent in North America and the remainder spread across Australia, Russia and China. Williams de Broë, the UK-based broker has added dollar and euro share classes for two of the four funds in its Assetmaster range of multi-manager funds, the Cautious Portfolio Fund and the International Portfolio Fund. The Assetmaster range of funds was launched in February 2004 and is domiciled in Dublin. Providing Euro and Dollar denominated share classes for these funds offers international investors the opportunity to secure returns in their chosen currency, said the broker. Administrators BNP Paribas will conduct passive currency hedging of the sterling share price to create Euro or Dollar denominated returns. Laurence Boyle, investment director for Assetmaster, said: “We have launched these share classes following investor demand from our international clients. Rather than launching Euro and Dollar share classes for all four of the Assetmaster funds we have selected the two that have the strongest international appeal.” Williams de Broë said it will offer these share classes to investors via offshore life companies. Investors are beginning to push hedge funds away from absolute returns – one of their defining characteristics – and towards the anathema of benchmarking, according to speakers at last week’s Reuters Hedge Funds and Private Equity Summit in London. The use of relative rather than absolute measures of performance could also put pressure on returns, according to the speakers. "Hedge funds hate benchmarks. They try to demonstrate that what they're trying to achieve is alpha, not beta. "(But) investors' habit is to push towards relative performance. Unfortunately, it's the way of the world; people love to have something to compare performance with," Nicholas Roe, managing director for European equity finance at Citigroup, was quoted by Reuters. US-based pension funds are leading the way, according to Nils Tuchschmid, head of multi-manager portfolios at Credit Suisse. "With pension funds, the natural tendency is to think about benchmarks. Hedge funds are starting to compete with classic long-only benchmarks. This is potentially a danger for the industry," he told Reuters. Bill Maldonado, head of alternative investments at HSBC Halbis Partners, told the conference that hedge fund strategies employing beta rather than alpha were easier to replicate. "I think the hedge fund space is going to segment ... Some hedge fund strategies are easier to operate in than others, and you'll get fee pressure in these," he said. Mr Maldonado said this pressure is most likely to happen in long-biased long/short funds. Jupiter Asset Management, the UK fund management group, has launched a new environmental investment trust called the Green Century Investment Trust. The new trust will invest in a global portfolio of companies operating in one of six areas – water management, clean energy, green transport, waste management, sustainable living and environmental services. The new trust will be managed by a team of 17 environmental investment experts in London and Boston, said Jupiter. Charlie Thomas, manager of the Jupiter Ecology Fund and the Jupiter Global Green Investment Trust, will be lead manager of the new trust, working with Jupiter’s eight-strong SRI research team to select stocks in all regions. The US research will be sub-contracted to Boston-based Winslow, which has a team of eight environmental investment professionals, led by Matthew Patsky. Prospectuses for the Jupiter Green Century Investment Trust, will be available from early May. The trust will be launched in June. Eclectica Asset Management, the UK-based fund manager, has launched two new long only funds focused on European equities. The Eclectica European fund, a fund of Pan-European equities, will be promoted predominantly to a European client base, while the Eclectica Continental European fund, a portfolio of Europe ex-UK equities, will be aimed at the UK retail market. Eclectica, which was launched last year, said the new portfolios will be populated with ideas that eschew market and index risk by allocating capital where it can buy something at the same price as prevailed 25 or 30 years ago. The two new funds will be run by Simon Batten and Hugh Hendry, previously of Odey Asset Management. Simon Batten, chief executive officer, Eclectica Asset Management, told WealthBriefing: “We have been running a global hedge fund that uses leverage for a long time, which is not everyone’s cup of tea. So we are offering alternatives in the form of funds with similar disciplines – with an absolute-return feel about it."