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Europe falls behind, as alternative investments grow worldwide
June 22, 2010-- Institutional investment in alternative assets is set to grow by more than a third, according to a recent survey by Russell Investment
Responses to the group's 2010 Global Survey on Alternative Investing showed institutional investors worldwide planned to increase their stakes in assets such as real estate and hedge funds by 5 percentage points by 2012.
In Europe, private equity was expected to make up just 3.7% of all assets, far from the nearly 7% share predicted for North America, while hedge funds were not expected to return to pre-crisis levels until after 2012.
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Source: IP&E
New online forum Eurex Innovate launched -Ideas and discussion platform for all market participants went live in mid-June
June 21, 2010--The international derivatives exchange Eurex has been launched Eurex Innovate recently, its new ideas and discussion forum for customers and people interested in financial markets and derivatives. The aim of the online forum – https://innovate.eurexchange.com – is to initiate and promote a web-based network to exchange information about product innovations on Eurex and to discuss events of financial and derivatives markets.
“We want to the use the internet as a means of further increasing the exchange of information with our customers and people interested in our company. Eurex Innovate will allow us to involve these people more closely in the product development process," said Peter Reitz, member of the Eurex Executive Board. “The experience and ideas of our participants are key factors driving the expansion of our product and service range.”
Eurex Innovate consists of two areas: the “Ideas Board” and the “Discussion Board”. Via the Ideas Board, participants can simply submit suggestions, which are then evaluated by Eurex product specialists and further analyzed together with the contributors. The status of the idea can be traced online. The Discussion Board serves as a means of exchanging information about products, trading strategies and financial market trends. At present, the product-specific forums “Fixed Income”, “Equities”, “Equity Index Derivatives” and “Other Asset Classes” have been set up for this purpose. A simple and one-time registration process is all that is required to use Eurex Innovate.
Source: Eurex
Ireland reforms as it rebuilds
June 21, 2010--One of the most striking signs of the scale of Ireland’s banking crash was a graph that Jonathan McMahon, head of banking supervision at the Irish financial regulator, deployed in a presentation at a conference organised by Mazars, the accountancy group.
It showed the cumulative profits of the Irish banks from 2000-08 were wiped out in just one year of losses in 2009. It is almost as if, in Ireland at least, the noughties never happened.
Restoring banks to profitability is the ultimate goal of the reforms now under way. But regulators acknowledge in the short run that profits may be under renewed pressure as banks look at more conservative sources of funding, higher capital requirements and thus, lower returns.
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Source: FT.com
New EDHEC study calls into question the suitability of the calibration of private equity in the Solvency II standard formula
June 21, 2010--In the study, entitled “On the Suitability of the Calibration of Private Equity Risk in the Solvency II Standard Formula,” EDHEC calls into question the method and the data used by the European regulator to measure the risk of private equity investments, in particular the correlation coefficient of performance of private equity and that of listed equities.
The drawing-up of Solvency II prudential rules has become a matter of major concern for the private equity sector since the current measure for private equity risk, used by the European regulator, is likely to dissuade insurers from investing in this asset class. As an example, in the French market, in 2007, the total investments in private equity represented €22bn in the balance sheet of insurance companies (FFSA 2008). They finance 21% of the funds raised (AFIC); thus becoming the leading national investors in unlisted stocks.
In addition to casting doubt over the use of VaR (Value at Risk), which requires the implementation of correlation matrices that have been very controversial to date, the EDHEC Financial Analysis and Accounting Research Centre study questions the representativeness of the LPX50 index selected by the regulator to measure the capital required for private equity investment risk. This index, which is defined on the basis of the stock prices of the fifty largest listed private equity firms in the world (i) is not representative of investments of European insurance companies, either on a geographical level or as a representation of the weight of investments in venture and buy-out, (ii) does not reflect the non-liquid contractual nature of investments in private equity, and (iii) as a result of the underlying investments, the LPX50 poses an idiosyncratic risk that is added to the risk of investment in private equity.
To correct the identified drawbacks of the CEIOPS (Committee of European Insurance and Occupational Pensions Supervisors) approach, EDHEC’s proposal involves replacing the LPX50 index with a benchmark that is more representative of insurance portfolios invested in private equity. The analysis is based on the performance of private equity funds for various investment classes and geographical zones, taken from the Thomson One database. In accordance with the practices of the private equity industry and academic approaches, the EDHEC Financial Analysis and Accounting Research Centre calculated the internal rates of return (IRR) of private equity funds by vintage year, and then measured the return of an equivalent investment in the MSCI indices, with the same portfolio structure as the private equity benchmark (vintage year, incoming and outgoing cash flows, geographic zone). This index is known as the Public Market Equivalent Plus (PME +).
The correlation between private equity and listed market performance is measured using four families of private equity investments (two geographical zones combined with two types of investment: buy-out and venture). In order to provide an optimal reflection of European insurance companies’ investments, these four families were then aggregated into a single portfolio. The results (both by family and for the aggregated portfolio) show that private equity performance is significantly less correlated to that of listed equity markets than assumed in the 0.75 correlation coefficient selected by the CEIOPS.
Finally, the study shows through simulations the impact of the level of the correlation coefficient (representing diversification in investments) not only on the capital requirement for equity risk but also on the marginal cost of the capital requirement as a consequence of asset reallocation between listed equities and private equity.
This study was sponsored by the Association Française des Investisseurs en Capital (AFIC).
Source: EDHEC
GDP per inhabitant in the Member States varied between 41% and 268% of the EU27 average
June 21, 2010--Based on first preliminary estimates for 2009, Gross Domestic Product (GDP) per inhabitant expressed in Purchasing Power Standards2 (PPS) varied from 41% to 268% of the EU27 average across the Member States.
In Finland, France, Spain, Italy, Cyprus and Greece, GDP per inhabitant was within 10% of the EU27 average. Ireland, the Netherlands, Austria, Sweden, Denmark, the United Kingdom, Germany and Belgium were between 15% and 35% above the average, while the highest level of GDP per inhabitant in the EU27 was recorded in Luxembourg3.
average. Hungary, Estonia, Poland and Lithuania were between 30% and 50% lower, while Latvia, Romania and Bulgaria were between 50% and 60% below the EU27 average.
These figures for GDP per inhabitant, expressed in PPS, are published by Eurostat, the statistical Office of the European Union. They cover the 27 EU Member States, the three candidate countries, three EFTA Member States and four Western Balkan countries.
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Source: Eurostat
Banks granted another year over derivatives
june 18, 2010--Banks engaged in trading some of the complex derivatives that were at the heart of the financial crisis were on Friday given almost a year of extra time to adjust to new capital charges that are expected to make it more expensive to use them.
Banks have been waiting to see how much capital they will be required to hold on their balance sheets to guard against losses on their trading book since the Basel Committee on Banking Supervision, the standard-setter for banking regulation, came out with initial proposals last July
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Source: FT.com
CESR publishes the 2009 Annual Report
June 18, 2010--As reflected by CESR’s 2009 Annual Report, the regulatory follow-up of the financial crisis has greatly dominated our agenda, in particular, evidenced by CESR’s work on financial reporting in times of crises, follow-up work on Lehman’s default and on short selling.
Elements of learning from the financial crisis have also greatly influenced other work streams in CESR’s Work Programme, such as the review of MiFID, and these work streams lead to work on a significant number of advisory statements addressed to the European Commission, covering all pillars of the EU financial regulatory framework in the field of securities. In addition, new fields of regulation are now at the core of our work, for example, the implementation of the new Regulation on Credit Rating Agencies.
CESR’s 2009 Annual Report
Source: CESR
EasyETF S&P 100 Becomes EasyETF S&P 500 As Leading US Market Index Becomes Available On NYSE Euronext (Paris)
June 18, 2010--EasyETF is launching an ETF on the S&P 500 listed on NYSE Euronext in Paris. EasyETF S&P 100 will change its underlying index and become EasyETF S&P 500. The tracker is capitalising on the recent opening of the S&P 500 licence to European ETF issuers and broadening its coverage of the North American equity market.
From now on, EasyETF S&P 500 will offer the opportunity to invest in the key index of the US equity market. As with all trackers in the EasyETF range, it combines simplicity and transparency in giving investors access to the best of the US market at the lowest cost.
EasyETF S&P 500 is available in EUR and USD on the NYSE Euronext (Paris), Deutsche Boërse (Frankfurt), and Borsa Italiana (Milan). It is eligible for personal equity plans and conforms to the European UCITS III directive.
The S&P 500 index comprises equities of the 500 largest US companies, covering nearly 75% of US equities.
“For this reason, it is an ideal gateway to the US market for European investors. The S&P 500 Index is regarded as THE benchmark for the US equity market, as proven by the number of funds using it as their benchmark in the world: more than USD 3.5 trillion AUM combined!” says Danièle Tohmé-Adet, Head of ETF and Indexed Funds Development.
“We are delighted by the recent opening of the S&P 500 licence to European ETF issuers, which gives investors the opportunity to participate in the evolution of US securities throughout a well-renowned index,” adds Scott Ebner, Senior Vice President, Global Exchange Traded Products at NYSE Euronext. “The offer of ETFs listed on the NYSE Euronext in Paris facilitates access to an ever more diversified range of securities, asset classes, and strategies.”
The market maker on EasyETF S&P 500 is BNP Paribas.
Technical details regarding the funds:
EasyETF S&P 500 EUR
Legal structure: Mutual fund under Luxembourg law (UCITS III)
ISIN code: FR 0010616300
Management company: BNP Paribas Asset Management
Currency: EUR
Dividend: none, accumulation
Replication: synthetic
Annual management fees: 0.20%
Stock market: Euronext Paris
Bloomberg code: SPTR 500 N
EasyETF S&P 500 USD
Legal structure: Mutual fund under Luxembourg law (UCITS III)
ISIN code: FR 0010218843
Management company: BNP Paribas Asset Management
Currency: EUR
Dividend: none, accumulation
Replication: synthetic
Annual management fees: 0.20%
Stock market: Euronext Paris
Bloomberg code: SPTR 500 N
Source: NYSE Euronext
Banking reforms are "not without consequences"
June 18, 2010--Failure to consider the impact of banking reforms on the wider economy could hold back global recovery according to an international meeting of bankers and regulators held in London today.
The Fifth City of London - Swiss Financial Round Table discussed key topics common to both countries' financial services sectors.
The topics and conclusions drawn were:
Financial stability:
Tackling restoration of global financial stability presents considerable challenges for regulators and is a key task for all stakeholders. The primary objectives should be to minimise the risk of a bank failing; minimise the immediate and ultimate cost to the taxpayer of a bank's failure; and minimise market disruption and further contagion caused by the failure of a bank. Additional capital should not be the automatic answer to gaps in regulation. Macro-prudential supervision, greater shareholder and board engagement, and greater in-house risk control are just as important. It is crucial that regulatory bodies use the right mix of tools and react in a measured way.
Capital and liquidity:
The banking industry is facing higher capital charges designed to discourage excessive risk-taking and new liquidity requirements to make banks less dependent on short-term funding. Politicians and the public want banks to lend more, but want to limit the returns to lenders, which makes it more difficult for banks to raise the capital that the authorities want. In addition, the higher costs of capital and liquidity for the industry will result in dearer borrowing, lower returns to depositors and a rationing of credit.
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Source: British Bankers' Association
Speculators do not drive commodity prices: OECD study reinforces previous EDHEC-Risk research results
June 17, 2010--In a comprehensive research report entitled 'Speculation and Financial Fund Activity', the Organisation for Economic Co-operation and Development (OECD) has reinforced the conclusion of previous EDHEC-Risk position papers, notably "Oil Prices: the True Role of Speculation", November 2008, and "Has There Been Excessive Speculation in the US Oil Futures Markets?", November 2009, that there is no link between the increase in financial investment in commodities and the volatility of the prices of the physical commodities themselves.
At a time when numerous politicians are attempting to pin the blame on participants in the financial industry for all the current ills, this contribution is welcome. As an academic research centre, EDHEC-Risk Institute has long maintained that the questions of regulation should be based not on emotion or populism but on facts.
view the Speculation and Financial Fund Activity report-OECD
view the Oil Prices: the True Role of Speculation EDHEC report
view the Has There Been Excessive Speculation in the US Oil Futures Markets? EDHEC-Risk paper
Source: EDHEC
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