U.S. money manager VanEck eyes China mutual fund license: sources By Reuters


© Reuters.

SHANGHAI/HONG KONG (Reuters) – New York-based money manager VanEck is eyeing a mutual fund license in China, two sources told Reuters, which will allow it tap the country’s $2.6 trillion retail fund market that Beijing fully opened up for foreigners this year.

The company is also considering launching products under the so-called Qualified Domestic Limited Partnership (QDLP), an outbound investment scheme, to help mainland Chinese invest offshore, said the people with direct knowledge of the plans.

China fully opened its fast-growing mutual fund sector to foreign companies by removing ownership restrictions on April 1 as part of an interim trade deal with the United States signed in January.

BlackRock (N:), Neuberger Berman and Fidelity International have applied to set up fully-owned mutual fund subsidiaries in China, while Vanguard Group and Schroders (LON:) will follow suit.

VanEck, whose strategies include emerging market equity and fixed income, gold and exchange-traded funds (ETFs), started planning for China entry late last year, when Beijing vowed to fully open its financial sector in 2020, a source said.

The coronavirus outbreak slowed VanEck’s China strategy, but in recent months the company had been in active contact with Chinese regulators. It hasn’t yet submitted an application though, the sources said.

Representatives at VanEck’s Shanghai unit declined to comment. The sources declined to be named as the company’s plans are not public yet.

VanEck, which runs both actively- and passively-managed funds, has not finalized its China product strategy yet, and its mutual fund plans are also subject to change, the sources said.

Separately, VanEck, whose founder John van Eck was a well-known pioneer in gold investments, is also exploring businesses under China’s QDLP scheme, the sources said, tapping into Chinese investors’ penchant for gold.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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The fund managers, the sleuths and the mystery of the missing ESG By Reuters


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© Reuters. Sasja Beslik is seen in an unnamed village near Viskhapatnam

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By Tommy Wilkes, Sujata Rao and Simon Jessop

LONDON (Reuters) – If fund managers are serious about clean investments, they need to get their hands dirty.

That’s the view of Sasja Beslik, head of sustainable finance at Swiss bank J. Safra Sarasin, as demand surges for companies that perform well on environmental, social and governance (ESG) issues.

He himself has turned ESG detective in the past, flying to southern India after reading studies that found high water pollution levels around some factories mass-producing medicines.

Accompanied by a cameraman, Beslik spent 10 days meeting villagers and taking samples from streams close to the plants supplying companies that his then-firm had invested in.

He said his samples were confiscated by airport authorities, but that he sent his video evidence of foaming scum in streams to 27 international and local companies with operations there.

“We got a response in a week from all of them,” he said, adding that most were keen to fix the problem. Returning to India a year later, he found many of the factories had “improved the capacity of the water-treatment plants”.

Beslik’s visits were in late 2017 and 2018, but he says it’s now more important than ever to probe ESG credentials, rather than relying on ratings assigned by data providers that are often based on self-reporting by companies.

Investor demand for companies deemed to have high ESG standards has never been higher. ESG-focused funds manage $1.1 trillion, more than double 2016 levels, according to industry tracker Morningstar.

As much as anything, such investments are a way to mitigate risk; Bank of America (NYSE:) estimates more than $600 billion of S&P 500 company market capitalisation alone was lost to “ESG controversies” in the last seven years.

Recent high-profile examples include German payments firm Wirecard (DE:) and British fashion retailer Boohoo (L:), where allegations of accounting fraud and factory labour abuses, respectively, erased years – and in Boohoo’s case, months – of returns in a matter of days.

Wirecard collapsed into insolvency in June after disclosing a 1.9-billion-euro hole in its accounts. Boohoo launched an independent review of its supply chain in July and defended its business practices https://uk.reuters.com/article/uk-health-coronavirus-boohoo-group-leice/boohoo-defends-supply-chain-practices-after-leicester-report-idUKKBN2430Y2, following newspaper allegations about low pay and poor conditions at suppliers’ factories in the city of Leicester.

Beslik, who heads a team of eight ESG specialists at J. Safra Sarasin, is now focusing on Democratic Republic of Congo to assess mining of cobalt, a key component of batteries used by tech firms and carmakers. The cobalt industry has been dogged by allegations of child labour and environmental damage.

He is by no means the only player turning ESG sleuth, reflecting the shifting demands of the investment industry.

Vontobel Asset Management’s head of ESG, Sudhir Roc-Sennet, employs three ex-investigative journalists to bolster his traditional team of analysts. A central element of their job is kicking the tires on ESG scores.

One example concerned Nestle. Despite the firm’s AA ESG score from one provider, Vontobel became concerned in 2018 about media and NGO reports of excessive water use at Nestle’s U.S. bottled water subsidiary.

Roc-Sennet remains invested in Nestle, praising its overall environmental track record. But after consulting water rights lawyers, hydrogeologists, and environmental inspectors, Vontobel pushed Nestle to reduce water intensity – the amount of freshwater used per million dollars of sales.

It’s unclear whether Vontobel’s efforts led to Nestle reducing its water intensity, which had been falling for years across its businesses.

Nestle said the amount of freshwater used per bottle at the U.S. subsidiary was one of the lowest among beverages and its “team of engineers, hydrologists, biologists and geologists consistently monitors and cares for the springs and local environment in California”.

Headline ESG scores can miss such issues, Roc-Sennet said.

“The water division is small and Nestle’s other business is sustainable,” he said.

When data isn’t available, basic detective work is the answer, he says.

To assess diversity among senior management at companies, for example, he has scoured the web to check “thousands of photos and names, doing Google (NASDAQ:) and LinkedIn (NYSE:) searches on people’s backgrounds”.

(Graphic: ESG funds assets under management, https://fingfx.thomsonreuters.com/gfx/mkt/yzdpxxkaqpx/TOMMYESG.PNG)

‘IN THE FIRST INNINGS’

Providers of ESG scores, including Sustainalytics, MSCI and Refinitiv, which is part-owned by Reuters News’ parent company, say that alongside company disclosures they use external sources including media and NGO reports. Some, like Truevalue Labs, say they eschew company data altogether.

But the system has flaws.

Small companies with limited disclosure can earn lower scores than multinationals, meaning relatively new renewable energy outfits might rank below tobacco giants.

Scores can also vary wildly across providers. In contrast to credit-ratings agencies, whose assessments vary significantly in just 0.1% of cases, one in four ESG ratings differ between providers, according to Nathan Cockrell, Lazard (NYSE:) Asset Management’s co-director of global research.

Take Tesla (NASDAQ:) – its environmental scores range from 10% to 65%, where 100% is the best possible score, according to a 2019 study by Anthony Renshaw at financial intelligence firm Qontigo. Tesla can rank both above and below rivals Ford and General Motors (NYSE:).

Another example is Saudi oil firm Aramco (SE:). It is rated an average BB by MSCI but carries an ESG risk rating of “severe” from Sustainalytics.

Boohoo scored highly across some providers when the newspaper investigation lopped nearly 50% off its share price in three days. That was despite long-standing media allegations of issues in its supply chain.

Simon MacMahon, head of research at Sustainalytics, acknowledged ESG scoring relied on information that was “quite incomplete, sometimes inconsistent and sometimes of low quality”, but said methodology had improved.

“ESG as an industry is still maturing … We are in the first innings of a nine-innings game,” he said.

An MSCI spokesperson said ESG ratings should be one of many factors investors use while conducting due diligence, and are not investment recommendations.

Many managers subscribe not just for headline scores but to access underlying research and data, ESG data providers say.

CHALLENGING ASSUMPTIONS

But gaps and inconsistencies are spurring some fund managers to determine ESG credentials for themselves. This may involve investigating basic assumptions.

Railways usually rank highly on ESG metrics because of low carbon emissions, but Hans Stegemann at Triodos Investment Management found out his fund was invested in a Canadian rail firm that transported shale gas and oil.

They sold their stake, Stegeman said, adding: “There was no positive (ESG) impact.”

A company’s culture can be crucial, yet is difficult for scoring systems to evaluate.

Sharon Bentley-Hamlyn, investment director at Aubrey Capital Management, said a little digging can help verify management claims. Impressed by British concrete paving firm Marshalls (L:), Aubrey visited their quarry in the Scottish town of Falkirk.

“We found great attention to detail, talked to employees and found them very proud to be working for the company. They had invested heavily in systems for health-and-safety training,” she said.

Yet ESG screening can, in the short-run at least, conflict with maximising returns – Boohoo shares are still up 120% from 2017. Managers who ditched tech stocks after 2015 on concerns about data privacy and cobalt supplies missed a huge rally.

Beslik of J. Safra Sarasin said inconsistencies between ESG scores and reality could ultimately leave investors exposed.

“There is a huge gap in the world of ESG investing,” he added. “A gap between what ESG investments stipulate that they do and what is really going on on the ground. One day it will boomerang back and it will hurt the entire industry.”





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New York hedge fund founder charged with fraud over Neiman Marcus bankruptcy By Reuters


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© Reuters. The signages outside the Neiman Marcus store are seen in New York

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By Jonathan Stempel and Lawrence Delevingne

NEW YORK (Reuters) – The founder of a New York hedge fund was criminally charged on Thursday with pressuring a rival not to bid for assets related to Neiman Marcus’ bankruptcy so he could buy them at a lower price, the U.S. Department of Justice said on Thursday.

Daniel Kamensky, whose Marble Ridge Capital LP specialized in “distressed” investing and is liquidating its assets, was charged with securities fraud, wire fraud, extortion and bribery related to bankruptcy, and obstruction of justice.

Kamensky appeared briefly in Manhattan federal court, where bail was set at $250,000. His lawyers did not immediately respond to requests for comment.

Prosecutors said Kamensky’s scheme began on July 31, when he learned an investment bank bid around 30 cents per share for securities tied to Neiman’s bankruptcy, above the 20 cents he hoped to pay.

Kamensky, 47, of Roslyn, New York, allegedly threatened to use his role as co-chair of the retailer’s official committee of unsecured creditors to block the higher bid, and stop doing business with the bank unless it backed off.

Prosecutors said after the bank withdrew its bid, Kamensky tried to cover his tracks by asking an employee there in a recorded call to tell the committee and law enforcement he suggested the bank bid only if it were serious.

“Do you understand … I can go to jail,” Kamensky was quoted as saying.

“I honestly … don’t want anything to do with this,” the employee responded.

“My position … is going to be look, this was a huge misunderstanding,” Kamensky said. “They’re going to say that I abused my position as a fiduciary, which I probably did, right?”

In a voluntary interview taken later under oath, Kamensky called his conversations with the employee a “terrible mistake” and “profound errors in lapses of judgment,” prosecutors said.

The U.S. Securities and Exchange Commission filed related civil charges.

Marble Ridge had $1.2 billion of assets as of Dec. 31. It announced the liquidation on Aug. 20 after Kamensky’s conduct began falling under scrutiny.

Kamensky founded Marble Ridge in 2015 after working as a bankruptcy lawyer for the hedge fund firm Paulson & Co.

Neiman filed for Chapter 11 protection in May.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Aberdeen Income Credit Strategies  – Hardly A ‘Senior Loan’ Fund (NYSE:ACP)


Aberdeen Income Credit Strategies Fund (NYSE:ACP) has a high distribution yield of 14.36%, sells at a discount to its net asset value (NAV) of 3.37%, and has managed to come back from a 50% drop in price back in March to a current total return loss on the year of only about 3%. That’s a pretty attractive story.

It stacks up especially well to other funds in the senior secured loan category, where ACP has been listed for many years. Typical senior loan closed-end funds, of which we own several in our “Widow & Orphan” and “Hunker Down” Income Factory model portfolios, tend to pay lower distributions in the 7% to 10% yield range, reflecting where they operate on the credit spectrum.

While virtually all secured, syndicated corporate senior loans are non-investment grade, there is a big difference in default rates between the upper end of the non-investment-grade spectrum (double-B credits) and the lower end (single-Bs and triple-Cs). Since all the loans are secured and tend to recover substantial amounts (75-80%) of their principal when they default, it is the rate of default that differentiates the single-B and CCC cohort from the double-Bs; with double-Bs defaulting only about one-third as often as single-B and CCCs. In fact, now that rating agencies evaluate and rate the risk of default and the likelihood of recovery in the event of default as separate and distinct elements of the rating process, it is not surprising to see some well-secured loans “notched up” to investment-grade rating levels.

Here is the senior loan category as reported by CEF Connect. I have eliminated several funds that are included because they hold structured vehicles, like CLOs, that are ultimately carry loan exposure, but are completely different structures and credit risk profiles.

ACP stands out because of its high distribution (which it has maintained so far; cross your fingers!) and its relatively modest loss so far this year (in other words, it bounced back faster than most other loans funds). The higher-yielding Nuveen Credit Strategies Income Fund (NYSE:JQC) is a special case because the fund is deliberately paying out an unusually high distribution yield as part of a three-year “capital return” plan intended to make the fund more competitive in the future.

ACP’s distribution yield is very attractive, both in absolute terms and in comparison to other funds in the loan sector. Investors, however, should understand what they are buying and what risks they are taking in order to earn that 14% distribution. First of all, ACP definitely swims in the deeper end of the pool in terms of credit risk. According to its latest investor fact sheet, 85% of ACP’s portfolio is in single-B, triple-C and unrated credits.

In addition, the latest semi-annual report shows that bank loans only make up about 2% of the entire portfolio. The rest of it comprises bonds, which are virtually all unsecured and therefore carry credit losses about twice as much as a comparable amount of similarly rated senior loans.

In other words, there is a reason ACP carries a distribution yield significantly higher than “real” senior loan funds. Investors who opt for the extra yield probably end up earning it in terms of the additional portfolio risk they are carrying.

Comparing ACP to other high yield funds

This is not to say ACP is not an attractive investment for those willing to buy it with eyes wide open to the risks involved. To understand its relative attractiveness, we should compare it with other funds in the high yield space, rather than in the loan space, since that is where ACP’s real peers seem to be.

When we do that, we see that ACP doesn’t appear quite so unusual, although it still shows up as one of the higher distribution yields.

One other feature to notice about ACP is that its discount is rather low compared to other funds with high yields in both the senior-loan and high-yield categories, with an exception like Guggenheim Credit Allocation (NYSE:GGM). Having a smaller-than-typical discount means a fund has less of a cushion to absorb shocks like credit losses, and it also means it has to take more risk per dollar of return than a fund with a larger discount. That’s because when you are priced at a discount to your net asset value, your investors have more assets working for them than they actually had to pay for.

ACP, for example, is getting a 14.36% return, but it is only taking a 13.87% risk in the sense that the actual assets it owns (that it bought at a discount) only have to earn 13.87% per annum in order to pay ACP’s shareholders at a 14.36% rate. Compare it to Brookfield Real Assets (NYSE:RA), whose shareholders got such a large discount that the underlying assets that they paid for with their whopping 13.22% discount only have to earn at a rate of 12.24% in order to pay their shareholders 14.11%. The lower the rate your fund actually has to earn, the less credit risk it has to take. So the bigger the discount, the lower the relative risk an investor has to take to earn a given cash distribution yield.

Bottom Line

When we compare ACP to other high-yield bond funds, rather than to senior loan funds, its distribution yield is still at the high end, but is not so extreme as it seemed when categorized with the loan sector.

Investors should bear in mind that high-yield bonds, because they are unsecured, will suffer more damage overall if the economy tanks again for reasons that could stem from pandemic, economic, or political causes, or all three. So loans, being at the top of the capital structure, should offer more protection than bonds if markets go south over the next few months or in 2021.

ACP, however, pays investors well who are willing to take that risk, hopefully in a well-diversified portfolio. Managed on a global basis with teams in London, Philadelphia and Boston, ACP also does a good job of spreading the risk internationally, with 70% of it in developed countries outside the United States.

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Thanks,

Steve Bavaria

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ACP over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Citi receives China fund custody licence By Reuters


© Reuters. The Citigroup Inc logo is seen at the SIBOS banking and financial conference in Toronto

HONG KONG (Reuters) – A Citigroup (N:) China unit has received a domestic fund custody licence from the China Securities Regulatory Commission, the bank said on Wednesday, the latest foreign financial firm to expand its presence in mainland China.

Citi is the first U.S. bank to receive such a licence, which will allow it to hold securities for safekeeping on behalf of mutual funds and private funds domiciled in China, once it has passed an onsite inspection.

Despite Sino-U.S. political tensions, several U.S. asset managers are expanding their presence in China, after foreign ownership restrictions were scrapped earlier this year.

BlackRock (N:) last week became the first global asset manager to win regulatory approval to set up a mutual fund unit in China, and Vanguard Group announced it would shift its Asian headquarters to Shanghai and close its Hong Kong and Japan operations.

“As international fund managers, securities firms, and insurance companies set up in China, we believe they will want a trusted service provider to help them mitigate risks and reduce costs,” David Russell, Citi’s APAC Head of Securities Services, said in a statement.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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