AMC Intelligence - October 2014

  • Gross, liquidity and flows: opportunities and challenges in global fixed income.
  • People Moves - September 2014.
  • One Final Thought…

Gross, liquidity and flows: opportunities and challenges in global fixed income

The bond king has left the building. Bill Gross has quit PIMCO and competitors are hoping to mop up some of the billions expected to flow out of the fixed income house he co-founded.

Mr Gross, the bond market’s most renowned investor, left at the end of September for Janus Capital, where he will run the Janus Global Unconstrained Bond fund.

Meanwhile, PIMCO named Daniel Ivascyn as its new chief investment officer, as well as making a number of other internal promotions.

Mr Gross’ decision to leave after 43 years came amid reports of tensions at the Newport Beach-based firm and just months after chief executive Mohamed El-Erian also left.

Morningstar has placed the firm’s funds under review, while Mr Gross’ flagship Total Return product has seen its rating downgraded from gold to bronze.

Total Return has suffered performance issues and outflows over the last 18 months, but it remains one of the largest funds in the world, with assets of around $200bn under management.

However, analysts have predicted further outflows on the back of Mr Gross’ surprise departure.

PIMCO figures show that the Total Return product lost $23.5bn in September alone, with the greatest outflows on the day of Mr Gross’ departure.

However, it is not just Mr Gross’ funds that are expected to suffer. Analysts at Bernstein Research predict outflows across PIMCO’s entire product range on the back of “reputational loss and clients simply revisiting their relationship with PIMCO”.

It expects outflows of up to 20 per cent from the firm’s $2 trillion pool of assets.
Some of the assets are expected to follow Mr Gross to Janus, but rival fund houses are also hoping to benefit. Janus plans to offer Mr Gross’ fund in Europe in the future, but it has not said when, potentially leaving other asset managers to fill the gap in the meantime.

European platforms and wealth managers are reporting huge interest from asset managers hoping to pick up the PIMCO outflows.

Fund houses have been in contact with distributors to find out how their funds compare to PIMCO’s, as well as asking how they can promote and market their products in the wake of Mr Gross’ departure.

“This is a seismic event for the fund management industry globally,” says Darius McDermott, managing director of FundCalibre, an independent rating business.

“This shock development is interesting for fixed income teams around the globe as groups will attempt to capture some of the outflows from PIMCO.”

A number of bond funds have already been recommended as replacements by distributors, including products from Kames, Fidelity, M&G and Invesco.

The sales opportunity comes amid growing interest in bond funds in Europe. After muted sales in 2013, inflows have picked up this year. According to Lipper figures, bond funds were the best-selling asset class in July, with estimated net inflows of €18.6bn in Europe. Provisional figures suggest bonds continued their strong run in August.

However, while flows have been good, bond funds are increasingly coming under the scrutiny of regulators.

The UK’s Financial Conduct Authority issued a warning about investing in corporate bond funds during the summer, advising investors that they should consider various risk factors associated with the products, including the ability of funds to meet redemption requests.

Then last month, a joint committee of European supervisory authorities, made up of the European Securities and Markets Authority, the European Banking Authority and the European Insurance and Occupational Pensions Authority, warned about the potential dangers posed to the euro-area financial system by bond funds.

“Even though fund investors are supposed to be conscious of any risks involved, concerns around liquidity risks in the sector are rising,” the authorities said in their report.

“As the vast majority of bond funds in the euro area are open ended, those funds could be exposed to risks in the event of sudden asset price shocks.”

The report suggested the heightened liquidity risk is due to the majority of bond funds in Europe being invested in assets with longer maturities.

More recently, Mr Gross’ departure sparked further concerns about the expected outflows and the potential implications for bond market liquidity and volatility.

However, Rob Harley, senior research analyst at Tilney Bestinvest, a UK-based investment and financial planning firm, says: “On balance we believe those looking for a larger market reaction to [Mr Gross’ departure] alone might be disappointed.

“However, this is not to say that investors should remain complacent to the risk of price volatility in this market.

“Liquidity risk is now a greater and more permanent feature of the corporate credit markets – something investors will have to learn to live with going forward.”

Mr Harley says Mr Gross’ departure – and liquidity risk – is a potential opportunity for investors.

“Risks present opportunities, so any deterioration in technicals, in the absence of poorer fundamentals, could provide a buying opportunity,” he says.

Asset managers should be gearing up for the opportunity.

People Moves – September

Investment

Bill Gross has joined Janus Capital after leaving PIMCO. He will manage the firm’s recently launched Global Unconstrained Bond Fund.

Valentina Chen has joined Vontobel as a Portfolio Manager within its emerging markets fixed-income. She joins from Aviva Investors where she served as Head of Local Currency Debt.

Michael Clements has joined SYZ Asset Management as Head of European Equities. He joins from Franklin Templeton. Claire Manson has also joined SYZ, replacing William Sharp, to run the Oyster European Mid and Small-Cap fund. She joins from Franklin Templeton.

Joshua Crabb will join Old Mutual Global Investors in October as Head of Asian equities, from BlackRock in Hong Kong.

Wike Groenenberg has joined BlueBay as Alternatives Strategy Director where he will head up strategy for the BlueBay Macro fund. She joins from Citi, where she was Head of Emerging Markets Strategy.

Joshua Anderson is transferring from PIMCO’s, headquarters in Newport Beach to London to lead its European Structured Product group. Adam Doran, previously at Deutsche Bank, Shrey Shah, previously Vice President - Global Banking & Markets at RBS and Steffen Kluners previously a Real Estate Private Equity Analyst at Blackstone join as Portfolio Managers.

Kerry Hugh-Jones has joined BlueBay as a Portfolio Manager in the Global Leveraged Finance team. She was previously Head of Business Development at Eclectica, the hedge fund.

Ashish Goyal will join as Head of Emerging Market Equity at ING Investment Management from Eastspring Investments. Robert Holmes has joined ING Investment Management’s Emerging Markets Equity team as a Senior Portfolio Manager. He joins from Griffin Capital as a Portfolio Manager.

Nick Davis has joined Polar Capital from Threadneedle, to launch a new European Equity Income fund.

David Lis at Aviva Investors has been promoted to CIO for Equities and Multi-Asset. He will also join the firm's executive committee.

Ilario di Bon has stepped down as Head of Equities at Alliance Trust, in order to pursue other opportunities.

Alexander Pelteshki has joined Kames Capital as an Investment Manager within the financials team. He joins from ING Bank in The Netherlands, Senior Credit Analyst covering EU banks.

Said Saffari has joined PIMCO as a Portfolio Manager for Emerging Markets Corporate Debt from GoldenTree Asset Management in New York where he was a Senior Money Manager.

Simon Brazier joins Investec Asset Management. He was previously Head of UK Equities at Threadneedle Investments.

Pictet has hired three Portfolio Managers in London. Percival Stanion and Andrew Cole, previously co-Heads of the Multi Asset Group, and Shaniel Ramjee, previously Investment Manager, all join from Baring Asset Management.

Maya Bhandari has joined Threadneedle as an Investment Strategist in the Multi-Asset Allocation team. She joins from Citi where she was a Director of Global Macro Strategy.

Guy Rushton has joined Polar Capital, to develop an Absolute Return fund. He was previously an Equity Analyst at Legal & General.

Sujay Shah has joined F&C Investments as a Director in its Global Rates team. He joined from Goldman Sachs in July, where he was in Interest Rate Products Trading.

Distribution

Mike Weston has been appointed CEO at National Association of Pension Funds as it continues to build its Pensions Infrastructure Platform. He joins from the DMGT plc Pensions as CIO.

Jon Dadswell has joined Nomura Asset Management as a Business Development Director. He was previously Head of UK Institutional Sales at Kames Capital.

Henriette Bergh is joining Schroders as Head of Europe Product and Manager Solutions (ex the UK) from Morgan Stanley where she was Head of Sales, Private Wealth Management for EMEA.

Dean Heaney has joined Pioneer Investments as Institutional Sales Director from Royal London Asset Management where he was Institutional Business Development Manager.

Alexander Friedman has joined GAM Holding as Group Chief Executive. He replaces David Solo, who is stepping down. He was previously Global Chief Investment Officer of UBS Wealth Management.

François Pirrello has moved to JPMorgan Asset Management as a Senior Client Adviser, based in Geneva. He joins from Pictet, where he was Regional Head of Sales, Switzerland.

Neal Kutner has joined Goldbridge Capital Partners, a subinvestment grade credit company, as Head of Business Development. He joins from BNY Mellon Asset Management in Zurich.

Lennaert Huijing has joined the Institutional Sales and Marketing team at Petercam Institutional Asset Management from BlackRock.

James Beddall has joined Liontrust Asset Management as Co-Head of International Sales based in Luxembourg. He joins from F&C Investments, where he was Head of International Wholesale Sales.

Martin Powis has joined AXA Investment Managers as Business Development Manager. He joins from Ignis Asset Management, where he was Head of Institutional Sales.

Lars Meisinger has joined BlackRock as regional COO, EMEA for BlackRock Alternative Investors (BAI) in a newly created role. He joins from Man Group, where he was most recently Head of Business Strategy at the Hedge Fund Solutions business.

Annabel Faulkner will join RWC in October as Head of Marketing. She was previously at Pioneer Investments.

Dónal Kinsella has joined Henderson Global Investors as an Investment Director to look after Institutional Clients in the Fixed Income team. He was most recently with Lane Clark & Peacock as an Associate Investment Consultant.

And one final thought...

Finance workers lack emotional intelligence

People working in the finance industry have lower levels of emotional intelligence than many other sectors, according to new research. The study of more than 35,000 people by JCA Global shows that those in the finance industry score lower than others when it comes to connecting with people, conflict handling, awareness of others and regard for others. However, the more senior a person is in the finance industry, the more likely they are to show higher levels of emotional intelligence, suggesting this is a key skill to climb up the ranks. Women also showed higher levels of emotional intelligence than men in finance.