Friday 19th January 2018
January 18th 2018: Mike van Dulken, head of research at Accendo Markets commented to clients this afternoon: “Equities are mixed around break-even as investors weigh up the first acceleration in China GDP since 2010, solid Industrial Production growth but poor Retail Sales. A mixed picture begs questions about, 1) Chinese data, and, 2) measures in place to carefully deflate a credit bubble. The FTSE underperforms, but Miners and Energy are positive, shrugging off GBP strength, suggesting appetite for risk over defensives, as commodity prices are buoyed by corresponding USD weakness. Data and corporate results remain in the driving seat driving ahead of month-end central bank updates (ECB/Fed). The UK FTSE underperforms, dragged lower by HSBC (profit taking, Carillion exposure), ABF (results), SHP (broker preference for Roche), a plethora of defensives (GBP strength, preference for risk) and a handful of ex-dividends. Limited help from Miners (metals up on USD weakness), Energy (Oil prices stable) and HL. Germany’s DAX if just offside, with losses for Utilities (hawkish ECB, exposed to higher rates) offsetting outsized gains for Tech, Autos and Insurance. The FTSE100 has broken below 7715. The DAX30 remains in 13140-13345 range. Dow Jones Futures continue to push for fresh highs above 26150. Gold is off its lows, nearing a test of yesterday's $1332 breakdown -

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Alternatives

Optima Fund Management, a fund of hedge funds and hedge fund allocation firms, is launching its Optima STAR Long Strategy in Europe.  The strategy offers investors Optima’s pick of leading American hedge funds without, says the firm, facing the high-charges and low liquidity that direct participation in such funds inevitably involves.

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S&P Global Market Intelligence’s latest Hedge Fund Tracker analysis shows top funds managed approximately $150nn in equity holdings, up from the $141bn under management in Q1. Even so, these funds also decreased the number of positions to 399 in Q2 from 408 in Q1, breaking last quarter’s record as the fewest stock positions held since the firm began tracking this data in 2014.  Information technology and healthcare sectors were the biggest net sells for the top ten hedge funds. “Like other market participants, hedge funds were at the whim of the broader market and economy these last few months,” explains Pavle Sabic, head of market development, S&P Global Market Intelligence.

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“The venture capital industry continues to go from strength to strength in Asia with the region attracting record levels of investment from fund managers, overtaking North America for the first time ever. Greater China remains the driving force behind this growth, accounting for more than four-fifths of the aggregate deal value and as such it was unsurprising that the region also registered its highest ever aggregate value of venture capital financings,” says Felice Egidio, head of venture capital products at Preqin.  

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Voters are out of love with politicians and investors are falling out of traditional assets and piling into real estate, hedge funds and private equity. Total assets managed by the top 100 alternative investment managers globally reached $3.6 trillion up 3% on the prior year, according to research produced by Willis Towers Watson. The Global Alternatives Survey, which covers ten asset classes and seven investor types, shows that of the top 100 alternative investment managers, real estate managers have the largest share of assets (34% and over $1.2 trillion), followed by hedge funds (21% and $755bn), private equity fund managers (18% and $640bn), private equity funds of funds (PEFoFs) (12% and $420bn), funds of hedge funds (FoHFs) (6% and $222bn), infrastructure (5%) and illiquid credit (5%).

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Investors with over $1bn committed represent just 5% of hedge fund investors, but account for 24% of total industry assets. The so called $1bn Club, a group of institutional investors which have committed more than $1bn to hedge funds, has seen a net growth of 11 participants since 2015, and now includes 238 members. Forty institutions have joined this group of the largest hedge fund investors, according to data maven Preqin. However, 29 have fallen out of the $1bn Club after reducing their exposure to the industry.

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New research data from Mercer suggests that institutional investors across Europe are reviewing their bond portfolios as negative yields reduce income and have an impact on their ability to meet and hedge their liabilities.  According to Mercer’s 2016 Asset Allocation Survey pension schemes are also seeking to manage volatility (especially in the more mature markets): average equity allocations across the region have reduced since the 2015 survey, with a corresponding increase in allocations to alternative assets.

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It seems there is a buzz in the tax and private equity communities about the rise in audits of private equity firms by the UK’s Internal Revenue Service, fuelled by the restructuring of the IRS’ Large Business & International group; a report by the Government Accountability Office analysing IRS audits of “large” partnerships; and public statements by IRS officials of the revenue services’ intent to apply more resources to audits of partnerships, “mid-market” companies and high net worth individuals, rather than large corporations. In a newsflash from Dechert’s international tax group, the firm says that practitioners report an uptick in audits of private equity firms and rumors that the IRS has selected, or will be selecting, 100 private equity firms for audit.

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Aurium Capital Markets says it has raised £270m, including over £100m from institutional pension schemes - to fund renewable energy projects, where it sees opportunity given that the UK government plans phase out all coal fired stations within ten years. It will a place an increased reliance on renewable energy projects. Reliance on non-bank/private capital will increase as the government is also phasing out investment subsidies. It will be interesting to see how asset management firms construct workable project finance packages that will provide substantial returns to investors, without making it too expensive for consumers.

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