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RiskMetrics primed to buy KLD
October 13, 2009-RiskMetrics Group, the New York-listed US risk management and corporate governance group is readying itself to make its second major acquisition this year in the ESG (environmental, social and governance) research space by buying Boston-based KLD Research & Analytics. Final discussions between the two companies are understood to be taking place and an announcement on a deal is expected shortly.
Spokespersons for both RiskMetrics and KLD declined to comment. However, neither firm would deny that a deal was on the table. Responsible Investor.com has learnt that negotiations have reached a late stage and are likely to be formalised.
A report by corporate governance newsletter, Global Proxy Watch, predicted that a deal could be announced within the next two weeks, if not sooner. KLD, which celebrated 20 years of business in 2008, is one of the oldest global research houses in the environmental, social and governance area.
Hedge funds misrepresent facts, says research
October 13, 2009--One in five hedge fund managers misrepresents their fund or its performance to investors during formal due diligence investigations, research from New York University’s Stern School of Business suggests.
The research is likely to be a further blow to the reputation of a battered industry, which has faced increasing demands for transparency from investors in the wake of the credit crisis.
ETF Landscape Industry Preview - End of Q3 2009
October 13, 2009--Highlights:
Global ETF and ETP Industry 2009:
• Global Exchange Traded Products "ETP" AUM breaks through US$1 trillion - all time high.
• Global ETF assets have hit an all time high of US$933 Bn at the end of Q3 2009 - 4.8% above the previous all time high of US$891 Bn set in August 2009.
• At the end of Q3 2009 the global ETF industry had 1,819 ETFs with 3,247 listings, assets of $933.49 Bn, from 96 providers on 40 exchanges around the world.
• YTD assets have risen by 31.3% which is more than the 22.5% rise in the MSCI World index in US dollar terms.
• YTD the number of ETFs increased by 14.3% with 295 new ETFs launched, while 72 ETFs were closed.
• In Q2 the number of ETFs listed in Europe surpassed the US with 751 ETFs listed in Europe, compared to 710 in the US.
• There are currently plans to launch 811 new ETFs.
• YTD the number of exchanges with official listings decreased by three to 40.
• YTD the average daily trading volume in US dollars decreased by 21.8% to US$63.0 Bn.
• Standard & Poors (S&P) ranks first in terms of ETF AUM tied to their benchmarks with assets of US$220.83 Bn and 227 ETFs, while MSCI ranks second with US$214.80 Bn and 262 ETFs, followed by Barclays Capital in third with US$77.64 Bn and 62 ETFs.
• Globally, iShares is the largest ETF provider in terms of both number of products, 403 ETFs, and assets of US$451.87 Bn, reflecting 48.4% market share; State Street Global Advisors is second with 106 products and US$138.32 Bn, 14.8% market share; followed by Vanguard with 40 products and assets of US$77.15 Bn and 8.3% market share at the end of Q3 2009.
• Globally, net sales of mutual funds (excluding ETFs) were US$97.5 Bn, while net sales of ETFs were US$65.7 Bn during the first seven months of 2009 according to Strategic Insight.
• Additionally, there were 568 other Exchange Traded Products (ETPs) with assets of US$105.87 Bn from 39 providers on 19 exchanges.
• Combined, there were 2,387 products with 4,083 listings, assets of US$1,039.35 Bn from 122 providers on 43 exchanges around the world.
• FINRA, the Financial Industry Regulatory Authority which regulates all securities firms doing business in the US, issued a regulatory notice in June 2009 to provide guidance on leveraged and inverse ETFs. The notice states that "...inverse and leveraged ETFs that are reset daily typically are unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets..."
• The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) issued an Investor Alert on Tuesday 18 August 2009 entitled :Leveraged and Inverse ETFs: Specialized Products with Extra Risks for Buy-and-Hold Investors. The following is taken from the Alert: The SEC staff and FINRA are issuing this Alert because we believe individual investors may be confused about the performance objectives of leveraged and inverse exchange-traded funds (ETFs). Leveraged and inverse ETFs typically are designed to achieve their stated performance objectives on a daily basis. Some investors might invest in these ETFs with the expectation that the ETFs may meet their stated daily performance objectives over the long term as well. Investors should be aware that performance of these ETFs over a period longer than one day can differ significantly from their stated daily performance objectives.
• U.S. Commodity Futures Trading Commission (CFTC) held hearings on Energy Position Limits and Hedge Exemptions on July 28, July 29 and August 5, on whether federal position limits should be set on the energy markets. The hearings provided critical input from a wide range of industry participants and academics to the Commissions efforts to examine different approaches to regulate energy markets. The Commodity Exchange Act states that the Commission shall impose limits on trading and positions as necessary to eliminate, diminish or prevent the undue burdens on interstate commerce that may result from excessive speculation. The CFTC's hearings examined the role of position limits in energy markets in fulfilling the CFTC's mission to ensure the fair, open and efficient functioning of futures markets. Goldman Sachs, JPMorgan Chase and other leading banks are exempt from most commodity-trading limits in order to manage risks as they serve as market makers. The Commodity Futures Trading Commission is looking into whether those exemptions should stand, as it considers blanket limits on a variety of commodity markets. A number of ETPs/ ETFs providing exposure to commodities have recently issued notices that they have suspended their creation process.
European ETF and ETP Industry 2009:
• European ETF assets have hit an all time high of US$204 Bn at the end of Q3 2009 which is 6.3% above the previous all time high of US$192 Bn set in August 2009 and 27.8% above the high of US$160 Bn recorded in July 2008.
• At the end of Q3 2009 the European ETF industry had 783 ETFs with 1,946 listings, assets of $204.22 Bn, from 32 providers on 18 exchanges.
• 11 April 2009 marked the ninth anniversary of ETFs in Europe.
• YTD assets have risen by 43.2%, which is greater than the 27.4% rise in the MSCI Europe index in US dollar terms.
• YTD the number of ETFs increased by 23.9% with 174 new ETFs launched.
• YTD the number of exchanges with official listings decreased by three to 18.
• YTD the average daily trading volume in US dollars has increased by 18.8% to US$2.7 Bn. Most ETF trades are not required to be reported in Europe as ETFs are not covered by the European Union directive on markets in financial instruments (MiFID).
• iShares is the largest ETF provider in terms of both number of products, 167 ETFs, and assets of US$80.03 Bn, reflecting 39.2% market share; Lyxor Asset Management is second with 100 products and US$42.06 Bn, 20.6% market share; followed by db x-trackers with 113 ETFs and assets of US$33.71 Bn and 16.5% market share at the end of Q3 2009.
• In Europe net sales of mutual funds (excluding ETFs) were US$122.2 Bn while net sales of ETFs domiciled in Europe were US$19.2 Bn during the first seven months of 2009 according to Lipper FMI.
• Additionally, there were 148 other Exchange Traded Products (ETPs) with assets of US$16.35 Bn from four providers on six exchanges.
• Combined, there were 931 products with assets of US$220.57 Bn from 34 providers on 18 exchanges in Europe.
US ETF and ETP Industry 2009:
• US ETF assets have hit an all time high of US$631 Bn at the end of Q3 2009 which tops the previous all time high of US$607 Bn set in August 2009.
• At the end of Q3 2009 the US ETF industry had 721 ETFs, assets of $631.35 Bn, from 24 providers on three exchanges.
• 29 January 2009 marked the 16th anniversary of ETFs in the US.
• YTD assets have risen by 27.0%, which is more than the 17.7% rise in the MSCI US index in US dollar terms.
• YTD the number of ETFs increased by 3.3% with 65 new ETFs launched, while 42 ETFs were delisted.
• YTD the average daily trading volume in US dollars has decreased by 24.9% to US$57.8 Bn.
• iShares is the largest ETF provider in terms of both number of products, 182 ETFs, and assets of US$337.25 Bn, reflecting 53.4% market share; State Street Global Advisors is second with 87 products and US$127.34 Bn, a 20.2% market share; followed by Vanguard with 39 products, assets of US$77.10 Bn and 12.2% market share at the end of Q3 2009.
• In the US, net sales of mutual funds (excluding ETFs) were minus US$50.8 Bn, while net sales of ETFs domiciled in the US were positive US$47.4 Bn in the first seven months of 2009 according to Strategic Insight.
• Additionally, there were 137 other Exchange Traded Products (ETPs) with assets of US$75.35 Bn from 18 providers on one exchange.
• Combined, there were 858 products with assets of US$706.70 Bn from 38 providers on three exchanges in the US.
Visit Barclays Global for more information.
Switzerland replaces United States at top of competitiveness rankings
October 8, 2009-– Switzerland tops the overall ranking in The Global Competitiveness Report 2009-2010, released today by the World Economic Forum ahead of its Annual Meeting of the New Champions 2009 in Dalian. The United States falls one place to second position, with weakening in its financial markets and macroeconomic stability.
Singapore, Sweden and Denmark round out the top five. European economies continue to prevail in the top 10 with Finland, Germany and the Netherlands following suit. The United Kingdom, while remaining very competitive, has continued its fall from last year, moving down one more place this year to 13th, mainly attributable to continuing weakening of its financial markets. The People’s Republic of China continues to lead the way among large developing economies, improving by one place this year, solidifying its position among the top 30. Among the three other large BRIC economies, Brazil and India also improve, while Russia falls by 12 places. Several Asian economies perform strongly with Japan, Hong Kong SAR, Republic of Korea and Taiwan, China also in the top 20. In Latin America, Chile is the highest ranked country, followed by Costa Rica and Brazil.
A number of countries in the Middle East and North Africa region are in the upper half of the rankings, led by Qatar, United Arab Emirates, Israel, Saudi Arabia, Bahrain, Kuwait and Tunisia, with particular improvements noted in the Gulf States, which continue their upward trend of recent years. In sub-Saharan Africa, South Africa, Mauritius and Botswana feature in the top half of the rankings, with a number of other countries from the region measurably improving their competitiveness
The strong interdependence among the world’s economies makes this a truly global economic crisis in every sense. Policy-makers are presently struggling with ways of managing these new economic challenges, while preparing their economies to perform well in a future economic landscape characterized by growing uncertainty. In a difficult global economic environment, it is more important than ever for countries to put into place strong fundamentals underpinning economic growth and development,” said Klaus Schwab, Founder and Executive Chairman of the World Economic Forum.
Xavier Sala-i-Martin, Professor of Economics, Columbia University, USA, and co-author of the Report added, “Amid the present crisis, it is critical that policy-makers not lose sight of long-term competitiveness fundamentals amid short-term urgencies. Competitive economies are those that have in place factors driving the productivity enhancements on which their present and future prosperity is built. A competitiveness-supporting economic environment can help national economies to weather business cycle downturns and ensure that the mechanisms enabling solid economic performance going into the future are in place.”
The rankings are calculated from both publicly available data and the Executive Opinion Survey, a comprehensive annual survey conducted by the World Economic Forum together with its network of Partner Institutes (leading research institutes and business organizations) in the countries covered by the Report. This year, over 13,000 business leaders were polled in 133 economies. The survey is designed to capture a broad range of factors affecting an economy’s business climate. The Report also includes comprehensive listings of the main strengths and weaknesses of countries, making it possible to identify key priorities for policy reform.
The Global Competitiveness Report’s competitiveness ranking is based on the Global Competitiveness Index (GCI), developed for the World Economic Forum by Sala-i-Martin and introduced in 2004. The GCI is based on 12 pillars of competitiveness, providing a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. The pillars include Institutions, Infrastructure, Macroeconomic Stability, Health and Primary Education, Higher Education and Training, Goods Market Efficiency, Labour Market Efficiency, Financial Market Sophistication, Technological Readiness, Market Size, Business Sophistication, and Innovation.
The Report contains a detailed profile for each of the 133 economies featured in the study, providing a comprehensive summary of the overall position in the rankings as well as the most prominent competitive advantages and disadvantages of each country/economy based on the analysis used in computing the rankings. Also included is an extensive section of data tables with global rankings for over 110 indicators.
This year’s Report also includes a number of discussions of selected countries and regions including the United States, the large emerging BRIC economies and the 12 recent accession members of the European Union, providing an in-depth analysis of the issues affecting national competitiveness.
View The Global Competitiveness Report 2009-2010
View Country Highlights from the Global Competitiveness Report 2009-2010
The Financial Development Report
Signs of weakness emerge among many global financial centres following crisis
• Developing countries show comparative financial stability, but also potential for improvement in other areas
• Report analyses 55 financial systems and capital markets around the world
• Report benchmarks financial system development to support economic growth in emerging markets
October 9, 2009-The world’s largest economies took the biggest hit in the World Economic Forum’s second annual Financial Development Report released today. Global financial centres still lead in the report’s Index, but the effects of financial instability have pulled down their scores compared to last year.
The United Kingdom, buoyed by the relative strength of its banking and non-banking financial activities, claimed the Index’s top spot from the United States, which slipped to third position behind Australia largely due to poorer financial stability scores and a weakened banking sector.
The Financial Development Report ranks 55 of the world’s leading financial systems and capital markets. It analyses the drivers of financial system development and economic growth in developed and developing countries to serve as a tool for countries to benchmark themselves and establish priorities for reform.
The rankings are based on over 120 variables spanning institutional and business environments, financial stability, and size and depth of capital markets, among other factors.
The financial crisis was acutely felt in most global financial systems and caused most countries’ scores to drop significantly compared to 2008.
“The change in scores does demonstrate the implications of the downturn on our assessment of the long-term development of financial systems,” said Nouriel Roubini of New York University and Chairman, RGE Monitor who is the lead academic on the report.
Germany and France suffered a heavy fall in overall scores that pulled them out of the top 10. They dropped in the rankings but demonstrated financial stability scores that were significantly higher than the United Kingdom and US. Australia showed particular strength this year, a trend that is echoed in many Asia Pacific economies.
View the Financial Development Report
New Date To Be Set For Publication Of 2010 Weights For Dow Jones-UBS Commodity Index
October 9, 2009-Dow Jones Indexes, a leading global index provider, and UBS Investment Bank today announced that the publication of the 2010 target weightings for the Dow Jones-UBS Commodity Index has been delayed pending publication of the 2006 Industrial Commodity Statistics Yearbook by the United Nations.
The 2006 Industrial Commodity Statistics Yearbook is used to determine the commodity production weights for Crude Oil, Natural Gas, Lean Hogs and Live Cattle. The Dow Jones-UBS Commodity Index Supervisory Committee will continue to monitor the status of the United Nations yearbook and will consider alternative sources of production data or use data from the previous yearbook if the latest version is not available in time to publish the 2010 Commodity Index Percentages (CIPs) in advance of their implementation in January 2010.
The target weightings are used to determine the Dow Jones-UBS Commodity Index Multipliers for 2010 in January 2010. These multipliers, computed once a year, are factors used to express the percentage weights in U.S. dollar-denominated terms when calculating the Index.
The Dow Jones-UBS Commodity Index is composed of 19 futures contracts on physical commodities. The DJ-UBSCI family of indexes includes nine sector sub-indexes, multiple forward month indexes; sub-indexes for each individual commodity in the original DJ-UBSCI as well as for cocoa, lead, platinum and tin.
Also available are Euro-, Yen-, Swiss Franc-, and British Pound-denominated versions of the Dow Jones-UBS Commodity Index; Dow Jones-UBS Commodity Spot IndexSM; and total return versions of each of the excess return indexes and sub-indexes.
As of the end of the second quarter of 2009, an estimated $36 billion tracked the DJ-UBSCI group of indexes.
More information can be found at http://www.djindexes.com.
US Geological Survey finds global rare earth metals reserves currently sufficient to meet needs
October 9, 2009--The U.S. Geological survey says the long term outlook for rare earth elements "appears to be for an increasingly competitive and diverse group of rare-earth suppliers."
In the advance release of a USGS minerals yearbook article, USGS scientists advised, "As research and technology continue to advance the knowledge of rare earths and their interactions with other elements, the economic base of the rare-earth industry is expected to continue to grow."
New applications are expected to continue to be discovered and developed, especially in areas that are considered essential, such as energy and defense," the agency said.
Rare earth elements are critical to information and communication, and are an important component of clean and potentially green energy. They are used in magnets in electric motors for electric cars, and allow companies to refine oil.
Highlights of the International Energy Agency Oil Market Report
October 9, 2009--Global oil demand has been revised up by 200 kb/d for 2009 and by
350 kb/d for 2010, given more optimistic IMF economic prognoses
and stronger preliminary data from the Americas and Asia. Global oil
demand now averages 84.6 mb/d in 2009 and 86.1 mb/d in 2010,
implying yearly growth of ‐1.7 mb/d and +1.4 mb/d, respectively.
Crude oil prices in September continued to trade in a $65‐75/bbl
range, although high distillate stocks ahead of winter and worries
about the global economic recovery added a downward bias, with WTI
and Brent trading at around $68‐72/bbl in early October. Market
concerns over Iran’s nuclear programme have been muted, partly
because OPEC’s spare production capacity currently exceeds 5.4 mb/d.
• OECD industry stocks decreased by 3.9 mb in August to 2,750 mb, 2.8% above last year’s level. Crude draws in North America and the Pacific outweighed middle distillate increases in all three regions. End‐ August forward demand cover decreased to 60.7 days, 3.7 days higher than a year ago.
• Global oil supply rose by 310 kb/d in September to 84.9 mb/d, driven by non‐OPEC growth. Compared with September 2008, global supply was nearly flat, as a non‐OPEC recovery of 1.6 mb/d relative to last year’s hurricane‐hit base was offset by OPEC curbs. That said, OPEC supply has continued to rise from early 2009 lows.
• Non‐OPEC output projections are left largely unchanged, and production should continue to rise towards the end of 2009. Output is expected to average 51.0 mb/d this year, rising to 51.6 mb/d next year. Total annual growth stands at +380 kb/d in 2009 and +550 kb/d in 2010, augmented by OPEC NGL growth of 550 kb/d and 850 kb/d, respectively.
• Global refinery crude throughput in 4Q09 is reduced by 0.2 mb/d to 73.2 mb/d, as further weakness in refining margins undermines the outlook. Declines in OECD Europe and North America compound lower Latin American projections, only partially offset by higher Other Asian estimates resulting from stronger 3Q09 data.
Speech by SEC Chairman:
Remarks at IOSCO Technical Committee Conference
Chairman Mary L. Schapiro
U.S. Securities and Exchange Commission
October 8, 2009--If investors cannot obtain important and accurate information necessary for them to judge the financial soundness, management and prospects of an enterprise, they are more likely to make poor decisions — or perhaps choose not to invest at all. Indeed, during the crisis, investor confidence in the transparency of the markets, sufficiency and even the reliability of the information they were getting was shaken to the core.
In too many areas, investors could no longer be certain that they were getting clear, relevant, and reliable information about their investment options. Because investors could no longer discern a clear picture of the risks they were taking, many exited these markets.
Furthermore, we have seen that if markets are opaque and regulators are unable to monitor the positions taken by financial intermediaries, then regulators will be unable to do their jobs effectively. In such cases, we cannot fully enforce fraud and other business conduct standards vital for orderly markets, let alone assess the potential risks to the financial system or take effective action if the need arises.
Of course, the SEC’s philosophical emphasis on transparency is shared by securities regulators around the world, as well as by IOSCO as an organization. And, IOSCO has been instrumental in advocating and facilitating transparency throughout the world’s capital markets, through the creation of numerous standards and principles promoting transparency in key aspects of the securities markets. One highlight is the International Disclosure Standards for Cross-Border Offerings and Listings by Foreign Issuers, issued in 1998, which continue to form the basis for disclosure by issuers around the world.
Similarly, the IOSCO Multilateral Memorandum of Understanding is a powerful tool for promoting transparency by allowing us to see beyond our borders when it comes to misconduct in the securities markets.
Regulatory Priorities
My fellow SEC Commissioner, Kathy Casey, already has given an excellent overview of the work being done by IOSCO to increase market transparency. So, I thought I would focus my attention on some SEC regulatory priorities that are concurrently under consideration by IOSCO.
The SEC has taken significant steps to address issues relating to the financial crisis. In addition to our efforts to transform our own enforcement program and crack down on market abuse, the SEC has embarked on an aggressive rule reform agenda. Many of these reforms are aimed at enhancing disclosure in order to increase transparency. I cannot discuss all of the SEC’s initiatives, but I want to focus on three areas of particular interest.
Accounting The first area of critical importance is accounting.
Increasing transparency in the market through a high-quality, global set of accounting standards has also long been high on IOSCO’s agenda. We know that the Technical Committee’s Standing Committee One works closely with the International Accounting Standards Board to provide useful input on standards, based on IOSCO members’ experiences.
Financial reports prepared in accordance with high-quality, consistent accounting standards are one of the most effective tools for providing transparency to the markets and instilling confidence in investors. Yet the financial crisis demonstrated that some standards must be improved to provide investors with the critical information they need. That is why there is a great deal of support around the world for improving accounting standards and public disclosures.
Accounting standard setters, including the International Accounting Standards Board and the US Financial Accounting Standards Board, are both in the process of addressing important issues raised by the crisis. And at the same time, those standard setters are continuing to cooperate on the convergence of accounting standards. I applaud the quick reaction and ambitious timeline that accounting standard setters have laid out to revise the standards in question.
We must not lose sight of the fact that the purpose of accounting standards is to provide a clear and accurate picture of a company’s financial condition, which is critical to providing investors a sound basis for relying on those disclosures, and making capital allocation decisions. We want to make sure accounting standards are “right” — and that those standards are the same when markets are going up, as when they are going down.
We all want confident investors, stable markets, and a sound financial system. And it is only by maintaining accounting standards whose overriding purpose is to provide accurate and transparent financial information to investors in public markets that we can expect investors to recover the confidence necessary to return to securities markets worldwide.
These objectives are true regardless of whether you are discussing accounting standards developed in Norwalk, London or anywhere else in the world.
read full speech by Chairman Schapiro
On horizon 2050 - billions needed for agriculture
October 8, 2009-Net investments of $83 billion a year must be made in agriculture in developing countries if there is to be enough food to feed 9.1 billion people in 2050, according to an FAO discussion paper published today.
Agricultural investment thus needs to increase by about 50 percent, according to the paper prepared for the High Level Experts’ Forum on How to Feed the World in 2050, Rome 12-13 October 2009. Some 300 top international specialists will attend the meeting.
Required investments include crops and livestock production as well as downstream support services such as cold chains, storage facilities, market facilities and first-stage processing.
Private investment essential
The projected investment needs to 2050 include some $20 billion going to crops production and $13 billion going to livestock production, the paper said. Mechanization would account for the single biggest investment area followed by expansion and improvement of irrigation.
A further $50 billion would be needed for downstream services to help achieve a global 70 percent expansion in agricultural production by 2050.
Most of this investment, in both primary agriculture and downstream services, will come from private investors, including farmers purchasing implements and machinery and businesses investing in processing facilities.
Public investment also necessary
In addition, public funds will also be needed to achieve a better functioning of the agricultural system and food security, the paper said. Priority areas for such public investments include: i) agricultural research and development; ii) large-scale infrastructure such as roads, ports and power, and agricultural institutions and extension services; and iii) education, particularly of women, sanitation, clean water supply and healthcare.
But in 2000 total global public spending on agricultural research and development totalled only some $23 billion and has been highly uneven. Official Development Assistance (ODA) to agriculture decreased by some 58 percent in real terms between 1980 and 2005, dropping from a 17 percent share of aid to 3.8 percent over the period. Presently it stands at around five percent.
Of the projected new net investments in agriculture, as much as $29 billion would need to be spent in the two countries with the largest populations – India and China. As far as regions are concerned, sub-Saharan Africa would need about $11 billion invested, Latin America and the Caribbean $20 billion, the Near East and North Africa $10 billion, South Asia $20 billion and East Asia $24 billion.
Regional differences
The projections point to wide regional differences in the impact of new investments when translated into per capita terms. Given different population growth rates, Latin America, for instance, is expected to almost halve its agricultural labour force while sub-Saharan Africa will double its own. This means that by 2050 an agricultural worker in Latin America would have 28 times the capital stock – or physical assets such as equipment, land and livestock – available as his or her colleague in sub-Saharan Africa.
Foreign direct investment in agriculture in developing countries could make a significant contribution to bridging the investment gap, the paper said.
But political and economic concerns have been raised about so-called “land grab” investments in poor, food-insecure countries. Such deals should be designed in such a way as to maximize benefits to host populations, effectively increasing their food security and reducing poverty.