Author: World Finance

Are managed futures the way forward?

Posted on by World Finance

Notz Stucki’s Paolo Faraone and CM Capital Markets’ Tomas Saldaña and Manel Sarabia discuss bringing real-time transparency to the managed futures industry.

Demand for managed futures has grown in recent years. Here to tell us about some of these trends: Paolo Faraone, Tomas Saldaña, and Manel Sarabia.

World Finance: Paolo: let’s start with you. Tell me about some of the asset managers you attract.

Paulo Faraone: Well, Notz Stucki was founded in 1964, and is one of the largest independent and most respected wealth management companies in Europe.

We have pioneered the concept of choosing the best asset managers to deliver the best returns, developing tailored solutions for both our private and institutional investors.

To work with us, these managers must satisfy our strict due diligence criteria, including operational risk assessment, on-site visits, and an ongoing monitoring process.

All of this, independently from portfolio management and reporting directly to our chief risk officer.

World Finance: OK; so how important is international expansion to your company?

Paulo Faraone: International expansion is extremely important to us. We are fully equipped for pan-European distribution.

For instance, Notz Stucki Europe was the first management company in Luxembourg to be granted both the UCITS and the IFM Extended licences, enabling us to offer specific bespoke services to our private and institutional investors.

For instance, being a one-stop shop for fund engineering, EU distribution, and a robust risk management framework.

World Finance: And so what new products have you introduced since 2010?

Paulo Faraone: We have collaborated with talented asset managers to create several innovative new products – systematic CTAs and long-short funds – as well as expanding the selection of our UCITS IV funds. All these products are really important to us.

We are trying to develop our business beyond our own boundaries, in order to better respond to our clients’ needs. All these innovative new products are helping us to achieve this.

World Finance: So Manel, tell me about how the demand for managed futures has grown in recent years.

Manel Sarabia: Well, professional asset managers know that the most efficient way to improve the profit-risk ratio of a portfolio is through diversification. That is, by carefully introducing new assets with strong fundamentals; but at the same time (and this is the most important factor), with a good correlation with the rest of the portfolio.

Managed futures offer exactly that. And using them allows investors to reduce their exposure to risk, increasing returns, and therefore improving their efficiency.

In these well-diversified portfolios, managed futures offer an attractive, consistent, and well-correlated return over time, and I think probably that’s the main reason why they have grown significantly over the last decade.

World Finance: So how do you rate your CTA?

Manel Sarabia: Well: as for the results, we are reasonably pleased, because in relative terms, Capitrade is always among the best funds in its class. And in absolute terms, since our inception in May 2008, we have achieved an annualised return of over 12.5 percent.

On the other hand, it’s also important to highlight that our worst year during that period was only -2.17 percent. And I think that it shows the ability of the fund to preserve capital, even in adverse times.

World Finance: So Tomas, what is the difference between the Capitrade CTA and other solutions available?

Tomas Saldaña: It’s difficult to answer this question without analysing what our competitors are doing, as we don’t have enough data to do that.

But the key factor is to have a team – and we have it – with the talent to find the right combination of strategies, to control simultaneously the risk and correlation between the assets in real time, and to continuously improve the model. But maintaining a very sceptical attitude to any possible improvement.

However, if we speak about the main difference, it is transparency. We offer in a website to investors, in real time, all the information about the fund. And this is something our competitors are not doing at the moment.

World Finance: So Manel, generally speaking, what is the management model for your CTA?

Manel Sarabia: We are trend followers; the model has a systematic approach. It is 100 percent automated, and offers daily liquidity.

Diversification is an important factor for us, and the model is designed to invest in the most important sectors of the economy: global stocks, interest rates, energies, currencies, metals, softs, grains, and meats.

The fund only invests in futures markets – electronic-organised futures markets – with high liquidity levels.

Regarding strategies, we use short, medium and long-term strategies; and the fund takes and changes positions gradually, from long to short and vice versa, depending on the current trends.

Finally, risk control is an essential part of the model. We want to keep the volatility of the fund within a very narrow range – between 13 and 17, and our goal is 15. And for that reason, all the processes that we previously mentioned are subject to that target.

World Finance: So tell me more about your investment process.

Manel Sarabia: As for the investment process, the key word is neutral.

It is neutral because we all know that markets will provide us with trends; but we don’t know when, and we don’t know where.

Therefore, our asset allocation in terms of risk should be as neutral as possible. And for that reason, when we have to determine a position in a specific market, we need to consider three very important factors.

The first one is the signal strength – that is, the position of the strategies. The second one is the volatility of the market when we’re going to change our position. And the third one is the correlation of that market, relative with other markets.

Whenever one of the more than 700 strategies that we have implemented in our platform changes its positions, immediately the platform calculates these three factors, and launches orders to the market, adapting to the current market situation.

World Finance: So, tell me about your ambitions for the future of your companies. Tomas, let’s start with you.

Tomas Saldaña: At CM Capital Markets, we wish to continue growing in assets under management, and developing new quantitative, 100 percent automated models, using the technology and knowledge we’ve developed in the Capitrade CTA.

In fact, in the next few months we will launch a new fund that is currently in managed account format. It is a smart beta that invests in European equities, adding a hedge with derivatives that will reduce the risk in case of adverse events. We hope it will be as successful as the Capitrade CTA.

World Finance: And Paolo?

Paulo Faraone: Well: globally, Notz Stucki will continue to allocate itself as an asset allocator, with an eye for selecting talented asset managers who share our values.

Besides increasing our presence in Europe and in Switzerland, we will keep on exploring for new opportunities in growing markets. We can take advantage from our size, international presence, and our fully regulated organisation, in order to support our strategy.

Our European private client base remains the key focus for Notz Stucki. Being the first management company in Luxembourg to be granted the dual UCITS and IFM extended licences, and also being EFAMA regulated asset managers, puts us in a commanding position in order to better respond to our client needs.

World Finance: Paolo, Tomas, Manel: thank you.

Paolo Faraone, Tomas Saldaña, and Manel Sarabia: Thank you very much. Thank you.

Sarasohn-Kahn: We don’t believe in healthcare for everyone

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World Finance speaks with health economist Jane Sarasohn-Kahn on how affordable the Affordable Care Act really is.

Obamacare: the Affordable Care Act implemented in 2010 is now in full swing. But is it the success the president of the US would like us to believe? Joining me down the line is health economist Jane Sarasohn-Kahn.

World Finance: Well Jane, the Affordable Care Act. Is it affordable?

Jane Sarasohn-Kahn: Well, it’s in the eye of the beholder, affordability! The one big thing the Affordable Care Act did was to cover people who had been refused insurance before, with pre-existing conditions. And if you live in the US, and you have a pre-existing condition, you would likely have fallen into financial ruin if you got sicker. Health costs are the number one cause of bankruptcy in the US.

If you’re young, however, and don’t perceive any health risks, it seems quite unaffordable; and you might take the risk of not being insured, or being self-insured and take the penalty.

World Finance: Where’s the money coming from to cover the extra people?

Jane Sarasohn-Kahn: Right: so, it’s $934bn. Almost half of that comes from cuts, or moving Medicare moneys from one pot to the Affordable Care Act. Some of that is moving money from our Medicaid plan – that’s care for lower income American health citizens. Also the penalties for employers and individuals who do not get insured. And finally, revenues from health plans, medical device companies, and pharmaceutical companies.

World Finance: It’s estimated that around 30 million people still don’t have coverage at all; what happens to them, and wouldn’t it just be cheaper if something does go wrong for the government to cover them from the beginning?

Jane Sarasohn-Kahn: It is a political will question. We have not had the conversation in the US that Beveridge had in your country in the 40s, when the NHS was established.

We really don’t believe in healthcare for everyone in the US! If you look at our congress, there is not consensus about that.

As a health economist, my arithmetic tells me that it would be cheaper absolutely to cover people with a basic health plan, and that conversation I think will happen in the next year, two, or three, as more Americans are paying more out of pocket, and understand the true cost of healthcare.

World Finance: So what problems has Obamacare alleviated?

Jane Sarasohn-Kahn: There’s more prevention covered now; there’s more mental health benefits covered, which typically have not been covered. The ACA also mandates that prices are not different for men versus women, and for the sick versus the not sick.

Finally, it’s starting to drive down the big problem we have in the US, which are racial and other health disparities: between rich and poor; black, white and hispanic.

World Finance: People are still opposed to it; is that purely politically motivated then, and what alternatives are they calling for?

Jane Sarasohn-Kahn: President Obama has really created a whole new level of vitriol between people who don’t like him, and people who do like him.

However, the ACA naysayers haven’t offered a really comprehensive solution; except for, maybe, health tax vouchers: premiums, as they’ve done for schools. But that really doesn’t solve our problem of high cost healthcare.

World Finance: A big concern when it came out was that it would cost a lot of jobs; has this been the case?

Jane Sarasohn-Kahn: We’ve had consistent job growth over the last couple of years, since the ACA has kicked in. In fact, last week a Bloomberg review came out on Bloomberg News, and they looked at a poll of employers in the US asking that very question. And it was kind of a big corporate shrug! So far, it’s not made a material difference.

World Finance: So, the goal was to get six million uninsured to be insured. But the cost to businesses has definitely increased to accommodate the rise in costs for those uninsured; so has the incremental cost in mid-to-large size businesses thwarted growth a bit, or at least delayed economic recovery or growth in the US?

Jane Sarasohn-Kahn: It’s really had to parse out the direct effects of the ACA on economic growth.

For now, we’re seeing the lower cost of energy improving consumer spending, we’re seeing home sales going up; we have a lot of positive indicators now.

But again, hard to parse out the impact of these insureds, newly-covered, and the ACA impact on economic growth. So Ill say the jury is out on that so far.

World Finance: Up until Obamacare begin its enrolment, American healthcare was run by multi-million dollar private companies, which sold health insurance policies for the most amount of profit they could make. What’s happened to the insurance industry now, and the knock-on tax effect?

Jane Sarasohn-Kahn: If you look at the insurance industry, the big players, the big national players: United, Aetna, Cigna-Humana; many of the blue cross plans like Anthem; the profits are quite healthy.

From 2014 they’ve been living large based on the ACA new enrolees volume going up, with these newly insureds. And it’s good to remember that the ACA was written heavily in parts by our insurance industry lobby AHIP, and the pharma industry lobby, PHRMA.

Now, the pharma industry isn’t faring so well – not necessarily due to the ACA – but the insurance industry has benefited from new volumes of people coming in.

World Finance: So overall, Obamcare: has it cost the US, or saved it money?

Jane Sarasohn-Kahn: Hard to say. Early days right now, and we are spending upwards of $900bn on it.

We do have to solve the problem which the ACA does not solve, or lowering the cost of care, and changing workflow, and how we deliver care in America. That’s not in the ACA.

However, the private sector, and the way we’re starting to pay more on the basis of outcomes versus volume – that is, paying for everything we do – is going to shift that.

So I’d say, call me in a couple more years and I’ll answer that question.

As China booms, do you need renminbi insurance?

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Hong Kong’s renminbi insurance market is rich with potential: and with the right knowledge, investors can reap its rewards.

Hong Kong’s renminbi insurance market is rich with potential: and with the right knowledge, investors can reap its rewards. I’m with Terry Lo of leading insurance provider BOC Group Life Assurance.

World Finance: Terry, why should international investors be looking into renminbi insurance? And what resources are available?

Terry Lo: Renminbi is backed by the strong economic performance of China. Our trading and investment activities across the border are increasing. Renminbi insurance has been and will remain a reliable vehicle for risk protection and liability matching.

Hong Kong has well-established financial and regulatory systems for international investors. We have extensive experience to fully take care of their insurance needs, as well as wealth management solutions.

World Finance: So how have China’s reforms been affecting the local industry?

Terry Lo: Like most other business space in Hong Kong, we have been benefited by our close tie to China both economically and geographically. The popularity of renminbi has an increasing impact on global economy, and Hong Kong has become the main offshore market to facilitate its globalisation.

By seizing these opportunities BOC Group Life has quickly built up its insurance portfolio in renminbi and has taken up a major share of the life insurance market.

World Finance: So what are your main product offerings today?

Terry Lo: We offer a full range insurance products to meet the needs of our customers at their different life stages. Home life protection, wealth growth, annuity income, to health insurance plans. Also, these products are available in all three of the most popular currencies – that is – Hong Kong Dollars, US Dollar and renminbi.

Innovation in products is very important to us: universal life insurance plan in renminbi, limited pay annuity plan, and critical illness plan, are just some of the very good examples of our innovation efforts that have delivered great value to our customers – and the sales of the company.

World Finance: And what is your current position in the Hong Kong life insurance market?

Terry Lo: BOC Group Life has been one of the top life insurers in the market led by our success in renminbi business.

When the renminbi insurance market opened in 2009, we were the first insurer moving into this space. We then launched a series of products tapping into the growing demand of our customers. Currently our market share of renminbi insurance business is over 50 percent. We are ahead of our competitors: this gives us a clear edge to lead the market.

 

Is Sheryl Sandberg’s ‘Lean In’ advancing the cause for women?

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World Finance speaks to the chair of a female executive’s organisation as to whether tangible change has been achieved since Sandberg’s book, which has been a lightning rod for the gender conversation.

Some call it a movement, others a divisive pitch. However you refer to Facebook Chief Operating Officer Sheryl Sandberg’s book ‘Lean In’, be prepared to get engaged in a fiery debate. But is encouraging more women to demand more in the office place really advancing the female cause? And are managers heeding the message? Rowena Ironside, Chair of Women on Boards UK, joins me with her thoughts.

World Finance: First Rowena, can you tell me what were the main takeaways for you in this book?

Rowena Ironside: What I liked was the fact that it was a really senior, really successful woman, talking about some of the challenges that women have, and some of the things that maybe individual women can do differently, and probably one of the most important is don’t check out before you leave, don’t start thinking that you need to step back because you’re planning a family in a few years time.

World Finance: Some critics have said that that actually places undue pressure on women who are maybe on the fence about having a family, maybe scaling back, is there really an issue in doing that?

Rowena Ironside: Well I think the point that Sheryl’s making is that if you take maternity leave when you’re senior, you’re probably going to have more choice than if you take it when you’re younger, and because you’re going to be so busy in those first three, six, nine months, juggling the two, that if you’ve got a job that really inspires you and maybe you’ve got a bit more support, you’re more likely to be able to stick it than if you’re still in a more junior role.

To see someone who’s been so successful exposing some vulnerabilities, exposing difficulties I think gives women hope, it encourages and inspires them, because they think “if she struggled, then I shouldn’t feel so bad with the fact that I’m actually having a hard time.”

World Finance: Beyond this conversation, all the noise that’s been created around her book, are we really seeing any tangible change? 

Rowena Ironside: I’m hopeful, because there is so much noise around it at the moment, I think there was the initial suffragette movement, there was a lot of progress, and then I think people started to take things for granted, they thought that we were on a roll and that things would happen naturally.

A lot of the problems that are faced by women are around how organisations are designed, and when they were originally designed it was mostly men, so you didn’t have to worry about flexible working. Organisations are slow to change, so the fact that they haven’t just changed just because more women are there, you look back and it’s not surprising.

So now we have recognised, ok, there are some sticking points, there are some things people need to be aware of to help people get through the organisation, and therefore I think the debate and the spotlight on it is really useful, because ultimately it is about talent, the hidden costs of the wasted talent, and the more visibility people have into that the better.

World Finance: So do you think that more men should be involved in this conversation as much as we have women engaged?

Rowena Ironside: I mean men are essential. I love Emma Watson’s He For She campaign, because it highlights the fact that we can’t do this without men, but I think it’s also very hard for men to imagine what it’s like to be a woman. We need them onside, we need them engaged, and the more everyone understands that they are very much a part of the solution, that will speed up the progress.

World Finance: European Commission, should it be involved in this conversation in a much more concerted manner?

Rowena Ironside: I think the role that it’s played so far, the threat of quotas, what that’s made happen in the UK has been very valuable, and clearly there are countries in Europe where having someone pointing out that something needs to be done is even more useful. So I’m glad they’re doing what they’re doing, it’s been a very useful stick to hold over the FTSE companies. We’ve achieved a lot just with the threat of quotas from the EU, so I’m happy with what they’ve done.

World Finance: Now of course the conversation never ends, there’s always things that can be done. Can you tell me, what else can corporates do to engage and promote women?

Rowena Ironside: There’s a huge amount still to be done. Going back to Sheryl’s book, one of the things that really struck me was her comment about, as a senior manager really, in the C Suite at Google, realising that as a pregnant mum, she needed to be able to park her car closer to the front door. That’s the difference that having a senior woman makes, because the guys weren’t opposed to that, they’d just never thought about it. Those sort of stories I think are just so telling about why we need more women, but also how much is still to be done.

 

Does society need a moral re-education?

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World Finance speaks to Brett Scott author of The Heretic’s guide to Global Finance on where responsibility lies.

World Finance: Now Brett: you’ve said that the financial industry is amoral, but wouldn’t you say it’s just society as a whole that lacks morals?

Brett Scott: Amoral means, in a sense, it doesn’t mean it’s immoral. It kind of, like… it tries divorce itself from the sphere of ethics.

You could argue that society itself is always complicit in forms of… lets, for example, say unsustainable investment. The average person maybe doesn’t understand or necessarily care about future issues like, for example, climate change; but we can argue that a large financial intermediary is in a much greater position of power to do something about that than, for example, a pensioner.

So that’s why in a sense you target financial… like, big banks; when you are trying to make changes in the system. In a sense you demand more of a fund manager than you do of a pensioner who is relying on the fund manager.