By Keith Danko
It is our strong view that hedge funds can add significant benefits in terms of risk/return profile, volatility and diversification to any institutional portfolio or to the portfolios of very high net worth individuals. However, it’s no secret that poor performance currently plagues the industry, which has too many funds and strategies that ultimately disappoint.
Recent news of a significant drop in new fund launches and a slowdown in overall net allocations is a welcome sign. But will these be enough to solve the current predicament? Is hedge fund oversupply truly the main issue?
It is one of them. However, there are two other issues that are equally to blame for the current hedge fund malaise: the lack of unique and differentiated product, and the relentless focus on liquidity.
The UK has voted to leave the EU without a plan about how to do so. This increases uncertainty and economic risk, enough that we no longer expect the Fed to hike this year. Systemic risk measures, however, remain well-behaved.
Market Playbook – More Cyclical, Less Systemic
We see further downside to GBP and EU equities, but we think the ECB will work hard to contain systemic risk in corporate and sovereign credit. There is no change to credit as our preferred asset class, the US as our preferred equity region, or JPY as our preferred currency, but we do moderate our preference to own volatility, and note our new Fed call means yields are more likely to stay lower for longer.
New Trades and Views
Relative to our last Playbook, we have broadly moderated our volatility views to neutral, now recommend buying UK inflation (given GBP weakness) and are less negative on EUR (but see more downside to GBP). We like risk/reward in receiving Brazil rates, given the Fed is on hold. The $8bn Countrywide settlement
China's growing high-net-worth population is taking an increasing interest in the non-investment services family offices provide, according to experts from Asia Pacific, such as estate and tax planning, as well as education.
According to the RBC World Wealth Report 2015, China's population of high net worth individuals (HNW individuals) grew 18% in the last year, and now sits at 758,000. The total wealth of this group grew 20.5% to $3.8 trillion.
Kenny Lam, president of wealth management firm Noah Holdings, which caters to Chinese families and enterprises, said the firm established a family office division earlier this year, having previously been much more focused on discretionary investment services.
For some time, single-family offices have been co-investing with other single-family offices, mostly in private companies. With more and more single-family offices controlling ever-greater wealth, some of them are expanding this trend. Aside from other single-family offices and ultra-wealthy individuals, a small but growing number of them are teaming up with private equity funds, hedge funds, and a few have even co-investing with sovereign wealth funds.
The first clue that this is no ordinary crowd of sulky teenagers comes when the instructor asks those who've invested in the market to raise their hands. Most hands go up. As a financial planner explains the benefits of investing, one boy interrupts. "What do you suggest investing in right now?" asks Liam Whitfield, 18, a senior at a private Seattle high school, with swooping bangs and a shaggy sweater. The speaker, from a local investment firm, suggests a standard mix of 60 percent stocks and 40 percent bonds. Whitfield looks disappointed. He already owns shares of Apple, Facebook, and Starbucks. "I was kind of looking for an actual stock tip," he says.
As children mature into adults and show interest in helping oversee their family's wealth, they need to be prepared to participate in family office governance.
There are many roles members of a rising generation may fill in a family office, as board members, investment committee members or trustees. Each role requires an in-depth understanding of the family office's goals, structure and investments. Even if a young family member is a client without any governance responsibilities, he or she should have a clear understanding and appreciation of the family office.
Families can be dysfunctional at the best of times. Throw untold wealth into the mix and you have the basis for a prime-time reality TV show.
Typically, the first generation of wealth-creators have the view that they know best and their children don't understand business or how they had to struggle to build from nothing.
Family office adviser Bonny Landers, of Bay Street Consultants, noted that professional advisers know this is not a true reflection of the younger generation's business acumen. But this conflict between the generations is one of the key challenges facing family-office advisers in helping to transition a family business from one generation to another.
There needs to be more gender diveristy in the management of family offices, said panellists at AsianInvestor's Family Office Forum in Singapore.
While delegates heard how women involved at board management level made a positive contribution, the extent of their involvement in family offices across the region was still limited.
Speaking at the forum in Singapore, Ivo Bartoletti, chief executive officer of Oclaner Asset Management, said: "Women, when they are more hands-on and are very clear in communicating ideas."
However, Soumya Rajan, chief executive of Indian multi-family office Waterfield Advisors, said women's influence on family office activities had been felt more on the philanthropic side. "The investment idea is still dominated by men," she said.
Korea and Japan have the lowest female representation at a corporate level, with Singapore also low on the list, according to Steve Diggle, managing director of the Hrothgar family office.
In India, Rajan said that regulations introduced in 2014 mandated that at least one woman representative be present on each company's board. However, India is a long way from acheiving proper gender diversity, as many firms have failed to comply with the new ruling.
Research firm Morningstar revealed unpublished analysis during AsianInvestor's 2nd Women in Asset Management forum in Hong Kong last month, confirming that women enjoyed higher rates of gender equality in Asian financial centres than their US counterparts.
Looking at the number of women running Asian equities versus women managing US equities, Morningstar found that female managers were considerably more common in the key Asian markets of Singapore and Hong Kong.
Of funds managed in Asia, some 20% of managers running regional and single Asian equities and fixed income portfolios for sale in Hong Kong and Singapore were women, compared with less than 10%^ managing US open-ended funds.
Wing Chan, director of manager research for Asia at Morningstar, said: "The key takeaways from the data are that strategy and not ghender is more of a factor determining investment performance and certain portfolio characteristics such as turnover."
Antitrust authorities around the world are stepping up their merger-monitoring activities amid a boom in cross-border M&A. They're increasingly requiring merging companies to divest assets to win approval for their deals. In some cases, complex requirements are causing corporates to abandon proposed combinations.
General Electric said in May that it was willing to consider concessions in order to win a European Commission go-ahead to acquire the power-equipment business of France's Alstom. GE added, however, that it would accept only "remedies that preserve the economics of the deal and the strategic value."
Proposed laws to clamp down on illicit activities of organised crime groups such as drug trafficking, money laundering and loansharking were introduced in Parliament today (July 13). Aimed at preventing organised crime from establishing a foothold here, the Organised Crime Bill seeks to confer wide-ranging powers on authorities to take to task those involved in such crimes at all levels, even without a conviction.
Under the Bill, the court would be empowered to issue orders - called Organised Crime Prevention Orders - to constrain criminal activities. For example, it could disqualify involved individuals from acting as a director of a company, require them to submit financial reports and restrict their travel and work arrangements.
Companies, meanwhile, could face prohibitions on their business dealings, provision of goods and services and employment. And these orders can be imposed on individuals who are not criminally convicted through civil proceedings.
The Securities and Futures Commission (SFC) and the China Securities Regulatory Commission (CSRC) have signed a Memorandum of Regulatory Cooperation on Mainland-Hong Kong Mutual Recognition of Funds, which will allow eligible Mainland and Hong Kong funds to be distributed in each other's market through a streamlined vetting process. The scheme will be implemented on 1 July 2015.
The Memorandum also established a framework for exchange of information, regular dialogue as well as regulatory cooperation in relation to the cross-border offering of funds.
"The Mutual Recognition of Funds initiative is a major breakthrough in the opening up of the Mainland's funds market to offshore funds. It will also open up a new frontier for the Mainland and Hong Kong asset management industries and make available a wider selection of fund products to investors in both markets," the SFC's Chairman, Mr Carlson Tong said.
"More importantly, this initiative will lay the foundation for the CSRC and SFC to jointly develop a fund regulatory standard, promoting the integration and development of the Asian asset management industry," Mr Tong added.
From New York to Hong Kong and everywhere in between, the recent levying of fines worth many million or even billions of dollars against some of the world's largest financial institutions has put compliance squarely in the spotlight.
But compliance creates something of a conundrum these days. When done properly, there is no problem, but as the regulatory burden grows, so does the risk of running afoul of new rules. Compliance departments in large multinationals have limited annual budgets and must cope with a constantly evolving regulatory environment in each country where they have operations.
Compliance issues may have initially gained prominence in the financial sector, but non-financial organizations from Wal- Mart to FIFA – the scandal-laden international football organisation – are finding themselves under increasing regulatory scrutiny and subject to major fines, or worse.
Far from declining, family firms will remain an important feature of global capitalism for the foreseeable future, argues Adrian Wooldridge
FAMILIES HAVE ALWAYS been at the heart of business. Family companies are among the world's oldest. The Hoshi Ryokan, an inn in Japan, has been in the same family since 718. Kongo Gumi, a Japanese family construction firm, was founded even earlier, in 578, but went bust in 2006.
The saying "shirtsleeves to shirtsleeves in three generations" remains as true today as it was a century ago. Kids, taxes, bad investing and the debauching effects of wealth over the generations have not changed.
An observant wealth expert sent us a data analysis combining the new Forbes richest family list and the Forbes billionaire's lists to figure out how many of today's billionaires are first generation, second, third and so on. The results prove the "shirtsleeves" adage—that family wealth seems to hit a cliff at the third generation.
The study is not scientific—there is some subjective analysis in defining "first generation" or "second generation" wealth (Donald Trump's dad was rich, for instance). And it's difficult to know which generation controls the wealth.
But of the 483 billionaires analyzed, 321—or about two thirds—are first generation. Only 20 percent were second generation. Less than 10 percent were third generation, while only 13 families made it to the fourth generation, seven made it to the fifth generation and two made it to the sixth generation (Congratulations Whittiers and Yuenglings!).
Of course, the success rate depends mainly on the size and nature of the fortune. The Whittiers wisely set up their own family office-wealth management firm that has invested well. And the Yuenglings have the enduring allure of beer to thank.
The 2015 Billionaires Report said data analysis of 1,300 billionaires from the last 19 years showed most US and European self-made billionaires choose to keep their businesses that built their wealth (60%), with one-third (30%) selling pieces of their business via an IPO or trade sale, while 10% cash out.
Family businesses owned by multi-generational billionaire families, especially in Europe, were a key pillar of economic development, the UBS/PwC report said.
"The analysis of the underlying granular multi-generational billionaire data reveal the critical role that a legacy built on a successful family business plays in the economy," it said.
"After a phase where this model had been out of fashion and often pronounced as doomed, it currently shows a strong comeback and is used as a possible role model of long-term sustainable business performance."
It quoted a global survey of large family firms that found 57% of European billionaire families and 56% of Asian succeed to manage the business after the patriarch retires. By contrast, only 36% of US families do, instead handing over to an external manager.
The report highlighted that as almost two thirds of billionaires are over 60 years old and have more than one child they are being forced to transfer their wealth effectively. Transfer either to future family generations via a family business, family office, foundation, philanthropic causes or some combination were the main transfer mechanisms.
The effects of 'generational algebra' were also flagged in the study. It created a hypothetical case study of a billionaire family where each member of a family had three children, by the second generation there were nine family members and by the fifth there were 243. Correspondingly, a sum of $1 billion diluted to $333 million for each child when it's passed on to the second generation. By the fifth generation, each child inherited $12 million.
The report suggested that the bulk of billionaires who were cashing out of their businesses became financial investors. Of these, many were setting up sophisticated family offices that have professional managers and governance structures that will span the generations.
Some family offices, which formerly focused on wills, trusts, bill paying, and tax strategies, are beginning to take a more comprehensive role in managing family companies which make up the family's wealth, it reported.
The 2015 Billionaires Report also forecast that both the 'Giving Pledge' and individual contributions will drive an upsurge in philanthropy in its many nuances – endowment, socially-focused investing, the arts and education – over the next 10-20 years.
The survey of 1,300 billionaires analysed data from the last 19 years (1995-2014) across the 14 largest billionaire markets, accounting for 75% of global billionaire wealth. It included face-to-face interviews with more than 30 billionaires.
Over the last six months the Asian HY market has experienced a level of volatility not experienced since 2012. A large factor in this volatility has been uncertainty over the Chinese property sector.
A man who conned a family office investment adviser out of $11 million of client money for Facebook shares has been convicted of wire fraud and money laundering in a California court.
The central government is eyeing $100 billion in public-private assistance for infrastructure development in Asian countries over the next five years, Jiji Press learned Monday.
Prime Minister Shinzo Abe will announce the plan to increase infrastructure investments and loans for Asian countries on Thursday, sources said.
Premier Li Keqiang began a three-day visit to Brazil on Monday armed with a promise of some US$50 billion in infrastructure investments as his hosts finalise preparations for next year's Rio Olympics.
Li will hold talks on Tuesday with President Dilma Rousseff, for whom the investment bonanza will be a major boon as Brazil battles a fifth straight year of poor growth and spiraling inflation.
The number of family offices in Asia and the Middle East will more than double to about 400 over the next eight years as the ranks of wealthy individuals swell, Michael Prahl of Insead business school said.
I had the pleasure of meeting Mr Lee Kuan Yew and his wife as they were Guests of Honor years ago at my old school MGS (Methodist Girls' School as Mrs Lee had also attended the school) Founders Day Dinner gala that was held at the Shangrila Hotel. I was asked to play for this event and choose a piece by Elgar aptly named Salut D¹amour which means hello with love and dedicated my performance to both Mr and Mrs Lee with love. After my performance, LKY walked across the entire Ballroom just to shake my hand and thank me for my dedication. I will always treasure this moment in my performance career.
LKY's strong influence on government-linked organisations helped shape Singapore's DNA and brand equity to turn it into a successful economic hub. My first job was with the Economic Development Board (EDB) in the 80's. It is a testament to this organisation's significant role in building Singapore that DBS Bank, JTC (the government agency responsible for industrial land), SPRING (development of local enterprises, setting industrial standards) parts of ITE (vocational training) and a few Polytechnics all emerged out of EDB, a success credited to the forward-thinking, iconoclastic vision of LKY and Dr Goh Keng Swee.
For some time, many financial services providers are extolling the virtues of state-of-the-art credit monitoring support. Recently, that phrase has all but vanished from the sector. The reason for the change is quite simple. As a solution for most Americans – and all ultra-high-net-worth families – credit monitoring is woefully inadequate. As hackers become more brazen, billionaires and other high-profile individuals are flocking to specialty providers and family offices for assistance.
Some of Europe's wealthiest families are investing chunks of their cash in technology companies, bringing the benefits of long-term horizons to start-ups and filling a funding hole for the continent's fledgling Facebooks.
First Warran Buffett. Then George Soros. Who's next?
America and its friends benefit from falling oil prices; its most strident critics don't
Global oil prices have fallen sharply over the past seven months, leading to significant revenue shortfalls in many energy exporting nations, while consumers in many importing countries are likely to have to pay less to heat their homes or drive their cars.
One way affluent families ensure their wealth is preserved for generations to come is to gather family members together and hammer out a strategy for making sure that happens.
By and large, the very wealthy establish single-family offices to ensure they receive the kind of services and personalized attention they want. Running a single-family office can be a costly endeavor, but if the organization is meeting its goals and fulfilling its intended function, expenses are usually not a concern.
A recent UBS study shows giving in Asia increased by 10 per cent in 2014 compared to 2013, with 77 per cent of family offices in Asia engaged in philanthropy.
Multiple jurisdictions, private equity, generational mathematics, soft services and professionalisation are some of the trends set to rock the family office sector in 2015, according to three family office experts.
Here's a question: what is a family office anyway? There was a time, long ago, when the answer was pretty straightforward: a group of people employed by a family to look after their day-to-day financial affairs.
The Chinese have found a new investment that sidesteps the scrutiny of the country’s authorities. And for now, it’s paying off big.
Wealthy families around the globe have started shifting assets into stocks from bonds, reflecting increasing optimism about the outlook, according to a survey by UBS AG (UBSN) and Campden Wealth Research.
The British Virgin Islands’ new office in Hong Kong will field a rising number of enquiries about BVI trust structures. But it may not find it easy to take funds business from the Cayman Islands.
A Hong Kong family office’s $350 million (€270.4 million) gift to the Harvard School of Public Health will help address pandemics like Ebola, the school’s dean says.
An island in Micronesia. A gold mine in Canada’s Yukon Territory. Tickets to the 2014 Victoria’s Secret fashion show in London. Those are just a few of the assets on offer at BitPremier, a website targeting bitcoin holders looking to unload some of their digital hoard.
The Monetary Authority of Singapore is said to be exploring options for implementing rules that would put family offices on a firmer legal footing. But the regulator denies it is working on proposals specifically related to family offices.
Increasing compliance costs are keeping Asian wealth managers up at night, according to a PwC survey. Wealthy women are also an important demographic to keep an eye on.
China has traditionally been a very cash based society with Chinese consumers preferring tangible goods and assets as opposed to virtual/non-tangible. However, in May 2013, China's main state-run broadcaster aired a documentary about a little known virtual currency called Bitcoin. Over the next six months, the value of Bitcoin rocketed as Chinese money poured in and China became the second largest active Bitcoin market globally. This has attracted new Bitcoin based businesses to China and what could be a massive market for the developing virtual currency. Unfortunately for many latecomers, the rapid rise in Bitcoin's price and popularity also attracted government scrutiny, causing an unforeseen and catastrophic plummet in value.
Finance professionals, business owners, family offices and other investors face an increasingly diverse choice when it comes to their investment options, common products include stocks and bonds, as well as other products offered through real estate, private equity and hedge funds. Increasingly the options offered include multi-jurisdictional elements, giving many of the products in today's market an international flavour. When engaging in cross border deals, investors must always consider the means available to mitigate their risk. One such risk is the possibility of disputes relating to the investment made. While most would agree it is crucial to anticipate and protect against this risk, often it is not well understood how best to do this. This begs the question, should investors be considering arbitration or litigation as their favoured dispute resolution mechanism?
A number of philanthropic organizations, including the Rockefeller Brothers Fund, are set to pull billions out of fossil fuels and invest in clean energy systems instead. It’s part of a growing trends.
Singapore’s listed developers and real-estate investment trusts face their heaviest burden of near-term maturities on record just as home prices drop.
When Aaron Chan heard that a liquor store in Athens might have a rare Hanyu Ichiro Malt Japanese whiskey, he phoned the shop from Hong Kong. Unable to make himself understood in English, he e-mailed photos of the distillery’s distinctive playing-card labels. The owner replied with a picture of his bottle. It was the Ace of Spades.