Capital markets are, at times, so arcane that even experienced participants struggle to understand the implications of particular moves, let alone your humble Spy. In the last few weeks, the US repo market for interbank lending has pushed overnight rates through the roof to levels not seen since before the global financial crisis. The Fed has stepped in to try and calm the markets, and all sorts of explanations have been offered as to why banks have refused to lend each other money cheaply. Most have been unconvincing. One highly experienced banker, several Hendrick’s and Fever-Tree tonics to the good said to Spy, rather colourfully: “This is that first whiff of fart before the poo hits the fan.” Spy hesitates to be alarmist, especially after such juniper-inspired enthusiasm and especially about things that are beyond his pay-grade, but the level of fear shown by banks recently implies something nasty may be around the corner. Gold has never looked a more appealing insurance policy.
BNY Mellon Investment Management’s British unit, Newton, has made a strong statement about its sustainability ambitions, thinks Spy. It has emerged that Newton has hired Andrew Parry, who was head of sustainable investments at Hermes Investment Management, to head up its own sustainable investments team. Andrew will be based in London. Spy is convinced that embedding ESG into the core business of asset management is going to be a high priority for most global asset managers over the next few years. BNY Mellon has had success with its Emerging Markets Corporate Debt Fund, managed by subsidiary, Insight. The fund is up just under 20% in the past year.
Did you hear about the distributor that wants higher fund fees, not lower ones? Of course you did, thinks Spy. Once again this week, Spy was reminded that insurance companies seldom have their clients’ best interest at heart. Spy was told, by a very reliable source, that a large insurance company in Singapore ‘selected’ a top decile-performing fund but refused to complete the onboarding process. Why? Oh, just the small matter that the fund group refused to create a special share class that charged higher fees so the insurer could receive a larger trail. Apparently, a worse performing fund, with much higher fees was eventually chosen. Spy should be shocked, but he isn’t.
How is the unrest in Hong Kong affecting fund and asset manager registrations? Spy was privy to a conversation between two lawyers at one of Asia’s largest firms specialising in asset management and it was enlightening. Prior to this flair up of discontent, Hong Kong received about 65% of the new fund registrations compared with Singapore’s 35%. Since the unrest, that position has reversed. Of course, Singapore is playing a shrewd diplomatic game, but there is no doubt in Spy’s mind that Singapore is literally gaining daily from Hong Kong’s paralysis.
With Purple Asset Management’s launch this week of its Outsourced CIO service in Singapore, Spy wonders whether a new era of wealth management is arriving in Asia? This idea, common in America, encourages smaller wealth managers to outsource one of their most distinctive functions to a ruthlessly focussed and impartial team. Gary Dugan, CEO of Purple, reckons the market in Asia for this service may be as large as $2trn in assets. The number of wealth management and IFA firms in the UK and Europe who have accepted the need for a third-party to manage their assets has soured during the past 20 years. Admittedly, there has been regulatory support for that trend. Will this be repeated in Asia for outsourced CIOs?
The direct lending boom has gathered pace; Spy does not even raise an eyelid. Banks have run a mile since the financial crisis from lending to businesses – and asset managers have sensibly stepped into the void. This week Prestige Funds listed its second direct lending fund, Prime Alternative Finance, which is focused on the agricultural sector, on Euronext in Dublin. Prestige Funds’ strategies are distributed in Asia and have been gaining traction within wealth management firms as investors hunt uncorrelated fixed income opportunities. Spy expects no let-up in this area for years to come.
In October, M&G will finally split from its parent company, Prudential Plc. Prudential keeps its giant Asian insurance business and asset manager Eastspring, while M&G keeps the UK insurance arm and its eponymous asset manager. Over the next few years, investors will have a ring side seat on which areas of the world offer the best growth. Call it Europe vs Asia, if you like. Slightly mudding the water is M&G’s obvious ambition to move beyond it purely British roots and become a global asset manager. Nonetheless, Spy thinks the Europe vs Asia comparison is apt. Get out the popcorn.
Spy’s photographers have spotted a new campaign by Pimco in Raffles Place in Singapore. Right on the money, Pimco is highlighting that volatility brings opportunity.
SocGen is a sponsor of the Rugby World Cup and letting everyone in Hong Kong know about it.
Until next week…
P.S. Spy’s call for Wales to win the RWC meets its first real test this afternoon as the Dragons take on the Wallabies in Tokyo after their convincing win over Georgia.
