Bond funds have fallen under the IMF’s gaze, Jupiter has posted a record quarter of inflows and BNY Mellon has been fined by the FCA this week.
Aside from that, the FE Trustnet team went to the FE UK Growth event, which saw some of the best UK fund managers come together with a list of top fund buyers to discuss the issues surrounding UK equities. Thanks to all that attended.
Plenty else has been on going on in the wider market – here’s what’s been happening this week.
IMF warns on bond funds’ systemic risks
The International Monetary Fund (IMF) has warned that the asset management industry could pose risks to financial stability, with bond funds being singled out as being particularly worrisome.
In the latest Global Financial Stability report, the Washington-based organisation points out assets under management in bond funds has swelled in recent years, owing to the flight to safety following the financial crisis and the persistent search for income.
However, it also notes that low interest rates have pushed these portfolios into riskier assets in their search for yield and expresses concern that they have significant exposure to relatively illiquid assets, such as high yield corporate bonds and emerging market debt.
The IMF warns this could cause problems for financial markets if these funds were hit with large outflows. It said: “Large scale sales by funds may exert significant downward asset price pressures, which could affect the entire market and trigger adverse feedback loops.”
“The effects on asset prices could have broader macro-financial consequences, affecting the balance sheets of other actors in financial markets; reducing collateral values; and reducing credit financing for banks, firms, and sovereign.”
To combat this, the IMF recommends improved regulatory oversight of the asset management industry through a more hands-on supervisory model and better data indicators.
Jupiter posts record £872m Q1 inflows
Jupiter has benefited from net inflows of £872m in the opening three months of 2015, its latest trading update shows, which is the highest quarterly figure since the group’s 2010 initial public offering.
There were net £883m in net inflows into its mutual funds and £21m in investment trust flows, with net outflows of £32m being seen in its segregated mandates. After performance added another £2bn to assets, the group’s funds under management now stand at £34.8bn.
Inflows were again driven by FE Alpha Manager Ariel Bezalel’s Jupiter Strategic Bond and Jupiter Dynamic Bond funds, as well as the FE Alpha Manager Alexander Darwall's Jupiter European and Cedric de Fonclare's Jupiter European Special Situations funds.
Maarten Slendebroek, chief executive of Jupiter Fund Management, said: “Our core mutual fund franchise again delivered healthy organic growth this quarter, resulting from the continued delivery of our strategy to diversify by product, client type and geography.”
BNY Mellon fined £126m for custody failings
The Financial Conduct Authority (FCA) has fined BNY Mellon after the firm failed to comply with rules designed to ensure the safe custody of client assets.
The bank’s London and international operations were in breach of the FCA Client Assets Sourcebook, which aims to protect safe custody assets if a firm becomes insolvent and make sure they can be returned to clients as quickly and easily as possible.
At £126m, the fine is the eighth largest fine ever imposed by the watchdog. BNY Mellon has conducted an internal review to improve its practices following the FCA action.
The FCA says the bank failed to comply with rules between 1 November 2007 and 12 August 2013, when its safe custody asset balances made it systematically important to the market. The London office oversaw around £1.3trn with another £236bn in its international branches.
Georgina Philippou, acting director of enforcement and market oversight at the FCA, said: “[BNY Mellon’s] failure to comply with our rules was particularly serious given the systemically important nature of the firms, and the fact that safeguarding assets is core to their business.”
Alliance Trust mails shareholders over Elliott resolutions
Alliance Trust chair Karin Forseke has written to its 60,000 retail shareholders, urging them to “trust” the future of the investment company to its current board and reject proposals for an activist investor to put three directors on its board.
Hedge fund Elliott Advisors, which is the £2.4bn trust’s largest shareholder with a 12 per cent stake, has criticised it for having high internal costs, a lack of corporate governance and performance issues. It believes that Alliance Trust would “benefit from a fresh perspective at its board”.
In her letter, Forseke said: “We have previously described Elliott and their affiliates as a business that seeks to influence companies to change their strategic direction through public and disruptive campaigns. As a hedge fund manager they do this to create value for their own investors and we believe they have very different perspectives from other shareholders of Alliance Trust.”
“The board has concluded that the Elliott resolutions are not in the best interests of shareholders as a whole, and unanimously recommends that you should vote against the Elliott resolutions. Our recommendation is clear because we believe that this is a critical moment for the future of the company that you own.”
UK inflation remains at 0%
Inflation, as measured by the consumer prices index, remained at 0 per cent in March and kept the UK just out of deflationary territory. Core inflation fell from 1.2 per cent in February to 1 per cent last month, which is a nine-year low.
Vicky Redwood, chief UK economist at Capital Economics, said: “UK inflation held at zero in March, but it could yet dip into negative territory at some point in the coming months.”
“But regardless of whether inflation turns negative or not, the big picture is that a period of low inflation should help the economic recovery by boosting the spending power of firms and households.”
“It is possible that the UK now manages to avoid deflation entirely. After all, oil prices have recovered from their trough and the recent cuts in gas prices are now fully reflected in the inflation figures.”