Tuesday 13th October 2015
NEWS TICKER, OCTOBER 13TH 2015: NEWS TICKER: The Lyxor Hedge Fund Index was down -1.4% in September. 3 out of 11 Lyxor Indices ended the month in positive territory. The Lyxor CTA Long Term Index (+4.0%), the Lyxor CTA Long Term Index (+2.3%), and the Lyxor L/S Equity Market Neutral Index (+0.4%) were the best performers. In contrast with the sell-off by last fall, the current recovery process is proving more laborious, says Lyxor. Continued soft macro releases, several micro turbulences (VW, GLEN, the US Healthcare) and signs that the Fed might be more concerned about global growth, drove markets to re-test the end-of-August lows. L/S Equity Long bias funds and Event Driven funds were yet again the main victims. Conversely, CTAs, Global Macro and L/S Equity funds with lower or variable bias, successfully navigated challenging times - British payments processor Worldpay Group Ltd priced its listing on the London Stock Exchange (LSE) today at 240 pence per share, valuing the business at £4.8bn in the largest IPO of this year on the LSE. Payments processing giant Worldpay (WPG) managed to list this morning at 240p, right in the sweet spot of an initial 225p-260p marketing rage which was subsequently narrowed to 235-250p. It currently trades +4% at 250p equating to a positive market debut in light of a slower pace of listings The UK company, which qualifies for FTSE 100 inclusion, processes £370bn in payments from 400,000 merchants every year and handles around 40pc of web-based transactions in Europe. Worldpay earlier this year rejected an offer of up to 6.6 billion pounds, including debt, from French rival Ingenico Group SA. Last year Worldpay made an underlying profit of £765m on revenues of £3.6bn. In the first six months of this year, sales rose 13pc to £465.7m, pushing profits up by the same amount to £182.6m. As of the end of September, the London stock market had welcomed 93 flotations raising £5.3bn this year, a significant drop from the £11bn generated from 136 listings in the same period last year - This week’s major London IPOs have had mixed fortunes. and a cooling in appetite for new paper over the last two years. However, motor insurer Hastings Direct (HSTG), which came to market yesterday, could only manage to get its IPO away at 170p which was well below its 180-185p indicated range. Worldpay’s IPO success most likely reflects the global preference for digital and consumer focused firms - The gross return of the SS&C GlobeOp Hedge Fund Performance Index for September 2015 measured -1.56%. Hedge fund flows as measured by the SS&C GlobeOp Capital Movement Index declined 1.13% in October. “SS&C GlobeOp's Capital Movement Index for October 2015 was -1.13%, down from the previous month's 0.62%, reflecting primarily seasonal factors,” said Bill Stone, Chairman and Chief Executive Officer, SS&C Technologies. “Comparing year-over-year flows, the -1.13% for October 2015 was virtually identical to the October 2014 reading of -1.12%, with both inflows and outflows closely in line for the comparative periods. We have been analysing our Capital Movement Index and Forward Redemption Indicator carefully in the wake of recent market volatility. October's results are certainly indicative of overall stability in hedge fund allocations.” - Zurich UK is in talks with its staff over cutting 29 jobs across the administrative and support teams for retail sales as part of a restructuring process. Zurich UK has entered a period of consultation with its support and administrative staff and it is expected 29 jobs will be cut as a result. The decision has been made to realign all Zurich UK's resources to focus on key areas of protection and wealth, and is expected to help the company deliver increased efficiency and co-ordination of services to advisers and their clients. The company has also re-aligned its platform offices in Leeds and Bristol to become the North and South offices, focusing on the two regions instead of two cities – South Africa’s National Union of Mineworkers (NUM) has signalled that there won’t be any agreement signed between the union and the Chamber of Mines (COM), at least until tomorrow morning. As the majority union, representing 72% of employees represented in the coal wage negotiations, the NUM must agree to the latest offer from the mining companies – Anglo American Coal, Delmas, Exxaro, Kangra, Koornfontein, Msobo and Glencore – represented by the COM, if the coal sector strike is to come to an end - APEC’s Energy Ministers from the 21 APEC member economies concluded their meeting on Tuesday in Cebu, the Philippines, by adopting the Cebu Declaration and Instructions, a joint statement on the the region’s energy priorities. Ministers instruct the region’s energy stakeholders to promote and collaborate on initiatives under the theme: “Towards an Energy Resilient APEC Community,” as well as create a task force on energy resilience to implement disaster-proofing of energy infrastructure, introducing energy efficiency technologies, promoting the use of clean energy and improving energy trade and investment in APEC. - Singapore property firm Perennial Real Estate Holdings (PREH) is launching a maiden issue of three-year bonds to the retail market with an annual payout of 4.65 %. Up to SGD150m of the bonds will be offered to the public although some may be re-allocated to institutional and other investors if applicable, PREH said in a statement. DBS is the sole manager and book-runner. The total issue size can be raised to SGD300m if the public offer is oversubscribed. The maiden bond offering further diversifies the firm’s sources of funding, though they have one of the shortest tenures among retail bonds issued by Singaporean companies in recent years. PREH's offer comes after jewellery firm Aspial Corporation's issuance in August, which offered a coupon rate of 5.25% over a five-year tenure - Major Asian bourses edged lower in trading today and major European equity indices fell in early trading, with energy-related shares leading the losses on profit-taking after a fall in crude oil prices yesterday. Continued concerns over China’s economic outlook and the prolonged rout in the commodities markets is beginning to take on more characteristics of a crisis, than simply market corrections. Most Asian markets fell after Chinese trade data signalled weakening global and domestic demand. Japan's Nikkei Stock Average fell 1.1%, Australia's S&P/ASX 200 lost 0.6% and Hong Kong's Hang Seng Index was down 0.5%. Indonesia's JSX fell 2.6% and South Korea's Kospi shed 0.1%. In brighter mode, the Shanghai Composite Index finished up 0.2%, while the Straits Times Index (STI) ended 33.61 points or 1.12% higher to 3032.11, taking the year-to-date performance to -9.90%. The top active stocks today were SingTel, which gained 1.56%, DBS, which gained 0.45, UOB, which gained0.91%, Noble, which gained 9.57%and Keppel Corp, with a 0.13%advance. The FTSE ST Mid Cap Index gained 1.18%, while the FTSE ST Small Cap Index rose 0.90 - The US Federal Reserve staving off a rate rise last month has given the markets breathing space and market focus will hone in on Federal Reserve Bank’s James Bullard, who will give a speech at the annual meeting of the National Association for Business Economics in Washington - According to Eurobank, the Greek government submitted to Parliament yesterday a bill containing the first set of fiscal and structural measures that will permit the disbursement of ca €2bn from the first instalment of €26bn of the €86bn loan agreed in August under the Third Economic Adjustment Programme for Greece. The bill is expected to be voted on late on Friday this week - InvestCloud, Inc, a provider of cloud-based front and middle-office solutions focused on digitizing customer experiences and internal operations for global investment advisors, today announced it has raised $45 million in growth equity funding. The round was led by FTV Capital and will be used to further invest in the company’s state-of-the-art platform and functionality, enhance customer service, and expand the company’s global footprint. Richard Garman, FTV Capital managing partner, has joined InvestCloud’s board of directors -

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Investors remain keen even as pfandbrief issue volumes fall

Friday, 09 December 2011
Investors remain keen even as pfandbrief issue volumes fall German covered bonds (pfandbriefe) largely maintained their safe-haven status with investors through the deteriorating financial environment in the second half of 2011, despite an inevitable dramatic slump in primary issuance as markets took fright at developments—or lack of them—in the eurozone. What now? Andrew Cavenagh reports. http://www.ftseglobalmarkets.com/

German covered bonds (pfandbriefe) largely maintained their safe-haven status with investors through the deteriorating financial environment in the second half of 2011, despite an inevitable dramatic slump in primary issuance as markets took fright at developments—or lack of them—in the eurozone. What now? Andrew Cavenagh reports.

With just €1.5bn of jumbo pfandbrief issues since the end of June, and none since Eurohypo’s €1bn deal at the end of August, the primary market this year will fall way short of the €87bn recorded in 2010. Verband Deutsche Pfandbriefbanken (VDP), the association of German pfandbrief banks, now reckons the final figure for this year will come out at around €65bn, against its earlier forecast of €90bn, on the back of the €47bn of bonds that were sold in the first six months, including €19.8bn of jumbo transactions.

Pfandbrief spreads have nevertheless remained relatively stable, compared with most other classes of capital market debt and covered bonds elsewhere. While the differential between pfandbriefe and German sovereign debt (bunds) may be approaching historical highs at around 120 basis points (bps), average spreads are still only about 30bps over the mid-swaps benchmark as those on most other covered bonds are well into three figures. “Flight to quality has prevailed, and the pfandbrief has confirmed its benchmark position in the covered-bond market,” maintains a VDP spokesman.

This spread stability looks set to endure through next year. For even if EU authorities take the measures necessary for the bond markets to resume normal functioning, the overall pfandbrief market will continue to shrink, which will tend to support the current spread levels. In the jumbo sector of the market, for instance, most banks are forecasting that primary issuance will be around €26bn while redemptions, although lower than the €44bn this year, will still total €38bn.

Investor confidence in the market received a further boost on November 23rd, when the Moody’s rating agency raised its base-case timely payment indicator for mortgage-backed (hypotheken) bonds issued under the Pfandbrief Act from  “probable high” to “high”. The agency cited the strong legislative and regulatory support for the pfandbrief regime as the reason for its decision, including recent amendments to the act. These require issuers to maintain a so-called liquidity buffer of at least 180 days in respect of their pfandbrief commitments and enhance the powers of a cover-pool administrator in the event of an issuer insolvency. The pfandbrief market is nevertheless facing significant challenges over the next 12 months and beyond, which could yet alter the historical perception—which German banks and financial authorities are keen to maintain—that the instruments trade almost as an homogenous asset class.  

The increasing emphasis that both the rating agencies and investors are placing on the link between issuers and their covered bonds is certainly threatening to create a great deal more discrimination in the market, particularly in the present environment where individual banks’ sovereign exposures are under the microscope.

Moody’s decision to place UniCredit’s covered bonds on review for downgrade a week after it announced it was reviewing the bank’s senior debt rating was a recent example of such linkage. Moreover, the trend could clearly see the spread spectrum in the asset class widen significantly from historical norms. Timo Böhm, portfolio manager and member of the covered bond team at Allianz Pimco in Munich, says the mounting concern over banks’ exposure to the sovereign debt crisis has led to a more pronounced linkage between the spreads on an institution’s covered bonds and those on its senior unsecured debt. “That link to the seniors and the sovereigns is much tighter now, and therefore everybody is looking at what could be the worst case here,” Böhm explained. “Even if the covered bond is rated triple-A, its spreads will widen on these concerns.”

“From our point of view, covered pools should be split,” says Böhm. He points out that banks now price their commercial property loans to reflect the different degrees of risk involved, and that it was not unreasonable for bond investors to require the same consideration. However, issuers continue to oppose the need for such a move. They say the pfandbrief legal framework offers investors adequate protection while the transparency of the cover pools allows them to choose the type of investment that most closely meets their requirements.

“They can decide themselves what kind of strategy suits them best,” says the VDP spokesman. He points to mortgage pfandbriefe backed 100% by residential mortgages: “If you like to take entirely residential mortgage risk, you find such bonds, too,” he says. While that is clearly the case, it is equally evident that issuing banks that have high concentrations of commercial loans in their cover pools are going to have to pay progressively more for the privilege.

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