Morgan Stanley IM
The pick of private equity: Single-asset secondaries
Taking an active approach to commodities markets
Infrastructure’s inflation hedge and income support
Private real estate:
Built on a solid foundation
Building on a solid foundation of demand
The bricks-and-mortar approach
A push to improve private fund reporting
in the gloom
Alternative routes to profits and protection
Hear from the experts
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As stock and bond markets drop in tandem and high inflation acts as a catalyst for tighter monetary policy, alternatives offer an attractive strategy for the investor. Effective at dampening volatility, hedging against inflation and producing returns, they appear like a godsend – but due diligence takes a look up close to examine them through the microscope.
Whether seeking returns or looking to mitigate the many risks present in today’s market, alternatives such as real estate, infrastructure and commodities hold great appeal. At Citywire’s fifth Due Diligence Report virtual event of 2022, five experts discuss alternatives' place in portfolios today.
Click here to view the full replay of the panel
Alternative routes to profits and protection
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice. The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as of May 2022 and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market.
Your clients should carefully consider a fund's investment goals, risks, charges and expenses before investing. Download a prospectus, which contains this and other information. Your clients should carefully read a prospectus before they invest or send money.
What Are the Risks?
Equity securities are subject to price fluctuation and possible loss of principal. Small and mid-cap stocks involve greater risks and volatility than large cap stocks. Companies in the infrastructure industry may be subject to a variety of factors that could adversely affect their business or operations, including high interest costs in connection with capital construction programs, high degrees of leverage, costs associated with governmental, environmental and other regulations, the effects of economic slowdowns, increased competition from other providers of services, uncertainties concerning costs, the level of government spending on infrastructure projects, and other factors. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Because this fund expects to hold a concentrated portfolio of securities, and invests in certain regions or industries, it has increased vulnerability to market volatility. The fund may invest in real estate investment trusts (REITs), which are closely linked to the performance of the real estate markets. REITs are subject to illiquidity, credit and interest rate risks, as well as risks associated with small and mid-cap investments. Investments in master limited partnerships (MLPs) include the risks of declines in energy and commodity prices, decreases in energy demand, adverse weather conditions, natural or other disasters, changes in government regulation, and changes in tax laws, and other risks of the MLP and energy sector. Derivatives, such as options and futures, can be illiquid, may disproportionately increase losses and have a potentially large impact on fund performance. Income and dividends are not guaranteed, and a company may reduce or eliminate its dividend at any time. As a non-diversified fund, it is permitted to invest a higher percentage of its assets in any one issuer than a diversified fund, which may magnify the fund’s losses from events affecting a particular issuer.
1. Global Listed Infrastructure represented by Income-Universe – Yield_Universe, FactSet Research Systems, Global Equities represented by MSCI World Index Forward Dividend Yield, Global REITS represented by FTSE EPRA/NAREIT Forward Dividend Yield. Indexes are unmanaged and one cannot invest directly in an index. They do not reflect any fees, expenses or sales charges.
©2022 Franklin Distributors, LLC. Member FINRA/SIPC. ClearBridge Investments, LLC, and Franklin Distributors, LLC, are Franklin Templeton affiliated companies.
The first raises in federal funds rates in three years are now in the books and others are slated to come, though there is a good argument that it is bond yields that investors should focus on. That tightening cycle began in August last year.
As expectations of terminal yields and inflation views have firmed up, infrastructure’s resilience has come to the fore in 2022. Its role as an inflation hedge should make it an especially attractive part of any portfolio as bond yields continue to rise, while its strong income component may help to provide stability amid volatile equity markets.
While inflation and rising rates roil equities, over the medium term they have little effect on infrastructure projects. This is because infrastructure assets have typically acted as an inflation hedge due to the largely pre-programmed way – through regulation and contracts – that infrastructure can adjust to inflationary environments. This applies to both utilities and to user-pays assets such as toll roads or rail, as both generate inflation-linked revenues.
For regulated assets such as utilities, revenues are normally determined by a return on an underlying asset base, which is in turn determined by the level of investment. Though regimes can differ by country, the requirement for a regulator to offer reasonable returns is usually established in the legal framework supporting the operation of the utility or other asset owner. This means that investors can expect that changes in interest rates will be reflected in future cash flows over the medium and longer term. As a result, the underlying asset value at an assumed investment exit date in the medium term is likely to be relatively independent of interest rates. This is because any changes to the rate used to discount future cash flows will be offset by changes in cash flows set by the regulator.
User-pays assets behave very differently from regulated utilities, though their revenue lines will have similar inflation pass-through mechanisms. They typically have greater exposure to GDP growth: cash flows increase if there is a cyclical upswing in growth and interest rates, with increasing valuations more than offsetting the impact of a rising cost of capital. Their behavior as inflation drives up bond yields depends crucially on whether assets have returns linked to an inflation index.
Control of prices for transport assets, for example, is usually set out in a contract agreed at the time of grant of the concession, with volume risk (traffic, passenger, container) borne by the operator. A toll road or airport, for example, can increase tariffs or tolls with inflation. Other infrastructure such as communications often has long-term contracts that include price escalation.
Labor inflation and higher energy prices will have their effects as well, of course, but with inflation largely a pass-through at the revenue line, the result is that the net cash flow position tends to be neutral to positive for both utilities and user-pays infrastructure. Thus, lasting inflation generally has had little impact on the fundamental valuation of infrastructure stocks, and they can act as defensive positions in a portfolio.
Against the current backdrop, strong outperformance of infrastructure is not surprising. A generalist investor is now faced with a backdrop of rising rates, contraction of balance sheets, a fiscal response which is limited at this point in the cycle, and at the same time, considerable geopolitical risk and potentially slowing global growth.
In that environment, which has proven to be unforgiving for longer-duration equities, there is clearly a desire for more defensive positioning, and the exceptional characteristics of infrastructure – resilient cash flows, a strong dividend growing well above inflation, and the pass-through of inflation – really come to the fore.
At the same time, we think the value of listed infrastructure – which offers a broad, deep, and, importantly, liquid range of infrastructure investment opportunities – is also clear. While a recession is not our base case, the ability to transition to more defensive regulated utilities in a stagflationary environment – where global growth slows but inflation remains high – would be just as important as the ability to pivot to GDP-sensitive areas as growth resumes.
Meanwhile, infrastructure’s strong and consistent income component should be attractive as equity markets turn volatile. The universe we prefer has a strong yield premium to global equities (Exhibit 1), driven by companies with stable long-term cash flows which are regulated or under long-term contracts as opposed to those driven by more cyclical factors.
Listed Infrastructure’s Consistent Income Over Time¹
Portfolio Manager, ClearBridge Infrastructure Strategies
This chart is for illustrative purposes only and does not reflect the performance of any ClearBridge or Franklin Templeton strategy. Past performance does not guarantee future results.
As of March 31, 2022. Source: ClearBridge Investments, FactSet, Bloomberg Finance.
The essential service nature of infrastructure, and its ties to secular trends such as decarbonization, electrification and the growth of 5G, offers a long runway for growth, in our view. All the more reason to value its inflation-linked returns and steady income as prices rise and equities come under pressure.
To learn about ClearBridge Global Infrastructure Income Fund (RGIVX), visit us here.
A Specialist Investment Manager of Franklin Templeton
Bright sparks in the gloom
With geopolitical uncertainty, volatile markets and rising inflation at large, Jennifer Hill turns the spotlight on alternatives which stand to benefit
It is no secret that commodities have been one of the few shining lights in the stock and bond market selloff that was kickstarted by the Russia-Ukraine conflict. In the eyes of Schultze Asset Management founder George Schultze, they could continue their momentum when high inflation endures. But good judgment is required.
‘Careful investors will take the time to do a fundamental analysis on the different types of commodities,’ Schultze says from his base in Westchester County, New York.
‘For instance, steam coal, burned to make electricity, is in short supply with high demand but most countries are moving away from steam coal. It could rally, but longer-term, there will be less and less demand for steam coal.
‘On the other hand, metallurgical coal used to make steel looks very interesting. Global economies need to spend more money on infrastructure, which will increase the demand for steel.’
Companies that have the lowest cost for producing commodities will usually be the winners, he says.
‘The underlying futures or options contracts on the commodities can move up and down a serious amount in any given day, so it’s important to find producers with clean balance sheets, little leverage and a conservative approach to hedging.’
The same prudence applies to using exchange-traded funds (ETFs) for commodities exposure. ‘Not all ETFs are equal,’ he adds. ‘Some use derivatives or lots of leverage and can blow up. Take the time to do the research before you pull the trigger.’
CONVERTIBLE AND MERGER ARBITRAGE
Fiduciary Trust International likes convertible and merger arbitrage strategies, which benefit from volatility and higher interest rates, as the interest they earn on their shorting strategy rises alongside short-term interest rates.
Merger arbitrage captures the spread that occurs after an announced acquisition. This reflects the time value of money as well as the market view of how likely the acquisition is to close; wider spreads imply greater uncertainty and vice versa.
Announced merger deals in the first quarter of 2022 reached $1tn – down 30% from a year ago but still robust in terms of history. Elevated levels of corporate cash on balance sheets and ample cash available from private equity funds support this healthy environment, says Kate Huntington, Fiduciary Trust’s head of advisory solutions in Lincoln, Massachusetts.
‘Merger spreads are currently relatively attractive, reflecting market volatility and overall trepidation around regulatory scrutiny and deal extension risk,’ she says.
Convertible arbitrage looks to capture a mispricing between a company’s convertible bond and its equity. A typical trade involves being long a company’s convertible bond and short an appropriate amount of its equity.
‘With many arbitrage-focused investment firms closed since 2008, convertible arbitrage remains a relatively inefficient market,’ says Huntington.
‘Convertible bonds offer better valuations relative to recent history and are trading more like credit instruments despite the generally benign credit environment with low defaults.
‘Elevated volatility in the equity market and commensurate volatility in the convertible bond market has created a better opportunity for arbitrage managers to capture mispricing.’
PNC Asset Management has been adding aggressively to private market strategies – mostly private equity (PE). Brad Ackerman, its head of alternative investments based in Princeton, New Jersey, says: ‘We have high conviction in the illiquidity premium associated with these strategies.’
Given the current environment of increased volatility in public markets, high inflation and rising interest rates, one area of PE that has particularly piqued his interest is growth equity.
‘Growth equity managers invest in cashflow positive businesses that utilize investment capital to grow an already proven business model,’ says Ackerman. ‘During a period of economic uncertainty with significant headwinds, there’s great value in companies that are self-sustaining and not burning cash. This strategy should not be confused with late-stage venture capital as the target companies here are generally already profitable.’
Jason Staley, CIO at Schneider Downs Wealth Management Advisors in Pittsburgh, Pennsylvania, particularly likes PE secondaries. The secondary market has grown rapidly as both limited partners (LPs) and general partners look for flexibility and liquidity in managing their investments.
However, the past five to 10 years of outstanding returns for venture capital and traditional private equity buyouts have driven capital in that direction, leaving less competition in the PE secondaries space.
‘It’s creating a nice opportunity set to generate attractive returns,’ says Staley. ‘When you look at the amount of unrealized gains in LPs’ PE allocations, you could see a reasonable amount of monetization via secondary transactions as LPs lock in some of the gains.’
Staley is sanguine on infrastructure, particularly core-plus – where there is significant need for upgrades across the infrastructure landscape. Governments – the traditional suppliers of infrastructure capital – are unable to maintain their role due to debt being piled onto sovereigns balance sheets from the Covid-19 pandemic.
‘Private capital will have a large role to play,’ he says. ‘Despite significant fundraising in the space, the need for infrastructure upgrades far outstrips the amount of money raised to date.’
Innovest Portfolio Solutions in Denver, Colorado, also likes infrastructure alongside other real assets such as farmland and timber.
Timberland assets include pulpwood (for paper and packaging materials), softwood, (for building materials) and precious hardwood (for furniture and remodeling).
‘The key return drivers for this asset class include income from harvesting, inflation from the value of the timberland and biological tree growth,’ says Innovest principal and director Sloan Smith.
‘Timberland has historically provided a hedge against inflation, and the correlations of the NCREIF Timberland Index between the S&P 500 and the Barclays Aggregative Bond Index are quite low.’
Farmland assets encompass row crops (corn, soybeans, cotton, rice, vegetables, wheat and potatoes) and permanent crops (almonds, walnuts, pistachios, apples, wine grapes, cranberries and macadamia nuts). Returns come from the income received from selling crops, crop price growth, productivity growth (typically 2% per year) and inflation of land value.
‘Farmland is a highly fragmented market with minimal institutional ownership, which creates numerous opportunities for investors,’ says Smith. ‘Population growth and a reduction in arable land are strong secular trends.’
“Farmland is a highly fragmented market with minimal institutional ownership, which creates numerous opportunities for investors”
Principal and director at Innovest
“Most countries are moving away from steam coal. It could rally, but longer-term, there will be less and less demand for steam coal”
Founder of Schultze Asset Management
We explore our extensive buy list data to reveal
the favourite ESG funds among selectors
Client Portfolio Manager
1. Source: Bloomberg, 12/2021.
2. Source: FactSet.
3 .Source: Moody’s, Barclays Research, 12/2021.
4. Source: Bloomberg.
5. Source: Bloomberg, Morningstar.
6. Source: Bloomberg, 12/2021.
All investments are subject to market risk, including possible loss of principal.
Municipal bond risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers, and the possibility of future tax and legislative changes, which could affect the market for and value of municipal securities. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated securities.
Past performance is no guarantee of future results, which will vary. All investments are subject to market risk and will fluctuate in value. Diversification does not assure a profit or protect against loss in a declining market. It is not possible to invest directly in an index.
Active management is the use of a human element, such as a single manager, co-managers or a team of managers, to actively manage a fund’s portfolio. Active management strategies typically have higher fees than passive management.
Alpha measures a fund’s risk adjusted performance and is expressed as an annualized percentage.
Bloomberg High Yield Municipal Index covers the high yield portion of the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, insured bonds, and pre-refunded bonds.
Bloomberg U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities.
The de minimis rule states that if a discount is less than 0.25% of the face value for each full year from the date of purchase to maturity, then it is too small (that is, de minimis) to be considered a market discount for tax purposes. Instead, the accretion should be treated as a capital gain.
This material contains the opinions of the MacKay Municipal Managers™ team of MacKay Shields LLC but not necessarily those of MacKay Shields LLC. The opinions expressed herein are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and opinions contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Any forward-looking statements speak only as of the date they are made and MacKay Shields assumes no duty and does not undertake to update forward-looking statements. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of MacKay Shields LLC. ©2022, MacKay Shields LLC. All rights reserved.
Not a Deposit - Not FDIC Insured - Not Guaranteed by the Bank - May Lose Value - Not Insured by any Federal Government Agency
Diversification does not guarantee a profit or eliminate the risk of loss.
Commodities may subject an investor to greater volatility than traditional securities such as stocks and bonds and can fluctuate significantly based on weather, political, tax, and other regulatory and market developments.
Commodity-linked notes may involve substantial risks, including risk of loss of a significant portion of principal and risks resulting from lack of a secondary trading market, temporary price distortions, and counterparty risk.
Changes in the value of two investments or asset classes may not track or offset each other in the manner anticipated by the portfolio managers, which may inhibit their risk allocation process from achieving its investment objective.
Derivatives may be more volatile and less liquid than traditional investments and are subject to market, interest rate, credit, leverage, counterparty and management risks. An investment in a derivative could lose more than the cash amount invested.
An investment in exchange-traded funds (ETFs) may trade at a discount to net asset value, fail to develop an active trading market, halt trading on the listing exchange, fail to track the referenced index, or hold troubled securities. ETFs may involve duplication of management fees and certain other expenses. Certain of the ETFs the fund invests in are leveraged, which can magnify any losses on those investments.
Exchange-traded notes (ETNs) are subject to credit risk of the issuer, and the value of the ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying market benchmark or strategy remaining unchanged.
Short sales may cause an investor to repurchase a security at a higher price, causing a loss. As there is no limit on how much the price of the security can increase, exposure to potential loss is unlimited.
By investing in the subsidiary, the fund is indirectly exposed to risks associated with the subsidiary's investments, including derivatives and commodities. Because the subsidiary is not registered under the Investment Company Act of 1940, the fund will not have the protections offered to investors in US registered investment companies.
The fund is subject to certain other risks. Please see the prospectus for more information regarding the risks associated with an investment in the fund.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The opinions referenced above are those of the author as of May 2, 2022. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations.
Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their financial professional for a prospectus/summary prospectus or visit invesco.com/fundprospectus.
Invesco Distributors, Inc. 05/22 NA2183521
Managing a multi-asset portfolio involves navigating the effects of growth and inflation. When slowing growth is the market’s primary concern, high-quality government bonds are a key source of portfolio diversification potential. But when concerns shift to inflation, both stocks and bonds tend to suffer, and real assets such as commodities become an essential source of diversification potential as well as a total return opportunity as commodity prices rise.
In this article, we will discuss:
• The state of the commodities markets
• The Invesco Balanced-Risk Commodity Strategy investment approach
The state of the commodities markets
Historically, commodity bull markets start with some type of supply shock – which by definition is something you can’t foresee. Today’s bull market started with a pandemic that was followed by a war.
However, the risk that commodity prices were going to rise didn’t just start with the pandemic. The seeds were planted last decade, when we experienced the worst bear market for commodities in modern times. In order for commodity producers to survive in a bear market, they have to cut their investment in finding new reserves, which only increases the risk of future supply/demand imbalances. So, the cuts that happened last decade contributed to the current supply shock. As market observers like to say, “Low prices are the cure for low prices.” And for many years, producers have been reducing both production and capital investment as lower prices have persisted.
At the same time, monetary policy was also becoming extremely pro-inflationary. In May 2019, Federal Reserve Chair Jay Powell called low inflation “one of the major challenges of our time.”¹ Stubbornly low inflation and low commodity prices gave policymakers license to implement policies that they wouldn’t be able to in an inflationary environment. So the Fed went from being an inflation fighter in the 1980s, to an inflation targeter that implemented its 2% target in 2012, to an inflation enabler that ushered in extremely easy monetary policy. And fiscal policy was easy too. Fiscal support ramped up in a major way during Covid-19, but don’t forget that was preceded by the Tax Cuts and Jobs Act of 2018.
In short, today’s rise in inflation and commodity prices is being amplified by the Russia-Ukraine war and economic sanctions, but it was a risk that existed even before Covid-19 thanks to producers cutting their investments in new supply and policymakers enabling inflation with easy policy. The risk was simply underappreciated by investors because commodity markets essentially bottomed in 2018.
Given the underlying role of fiscal and monetary policy in creating today’s inflationary environment, we do not believe this is transitory. After all, the more you use policy to stimulate an economy, the harder it becomes to remove it. History has shown that managing a “soft landing” has been exceptionally hard, with recession being the outcome more often than not. Central banks will be trying to thread that needle in a very dynamic environment.
So at what level will inflation settle? The 8.5% mark we saw in March won’t be the new normal, in our view, but it will probably remain elevated as new supplies will take some time to get on line. In addition, environmental, social and governance (ESG) considerations are diverting capital from certain commodities projects, particularly in the oil and gas space, and pushing demand into areas where supply isn’t yet able to keep up — such as the copper needed for green energy projects and electric vehicles.
Regulation poses another risk to maintaining supply/demand balance. Depending on location, the administrative and environmental permits required for operation often result in a gap of seven to 20 years before new production can come online after initial discovery. Additionally, because shutting down production and waiting for higher prices is not an economically viable option, producers engage in a technique called high grading, which involves producing only from the highest quality, lowest cost extraction sources. However, after years of engaging in this practice, many producers have depleted their high grades, leaving only lower quality, higher cost sources of production.
Further supply-side vulnerabilities arise from the trend toward deglobalization, which has been accelerated by Covid-19, as many nations look to relocate or even onshore supply chains. A world with reduced global trade and weaker trade interdependence increases both production costs and geopolitical risks. Given that many commodities are produced in politically unstable parts of the world, the risk of further supply shocks and higher prices cannot be discounted.
The Invesco Balanced-Risk Commodity Strategy investment approach
The Invesco Balanced-Risk Commodity Strategy Fund invests in four sectors of the commodities markets: agriculture, energy, industrial metals, and precious metals. The fund is actively managed, allowing it to emphasize sources of returns that typical benchmarks de-emphasize or ignore. What do we mean by that? Commodity benchmarks primarily weight their exposures based on production and market liquidity. This means they focus on supply with no cross reference to demand. So instead of emphasizing scarce commodities, passive benchmarks may allocate significant exposure to potentially oversupplied commodities. In practice, that often means the benchmarks have a large weight in energy. But while energy has high sensitivity to inflation and to growth, it also has high volatility.
As active commodity managers, we favor scarce assets over abundant assets as we believe they have more return potential over the long term. We want to explicitly measure and allocate toward commodities where the market evidence indicates there’s more scarity. We look for that evidence through the term structure of the commodity futures.
Term structure weighting suggests that certain commodities have particular properties, such as the difficulty of storage, that may provide attractive expected returns. Difficult-to-store commodities tend to trade in backwardation – longer maturity futures trade lower than the spot price for the commodity. The chart below highlights the difference in average annualized excess return relative to Treasury bills for a broad mix of commodities by their average annualized term structure. Assets that have tended to trade in backwardation have had a much more attractive return profile than the easier-to-store commodities that have tended to trade in contango (spot prices trade lower than longer maturity futures). Take a look at soymeal versus corn, for example. Soymeal is a protein source that degrades quickly, limiting its supply. In contrast, corn can remain in a grain silo for an extended timeframe.
Sources: Invesco analysis and Bloomberg, L.P. Time period represented: Sept. 30, 1990, through Dec. 31, 2021. Individual commodities based on their respective S&P GSCI sub-indicies. Backwardation refers to a status in which prices of futures contracts with a longer maturity are lower than the spot price of the commodity. Contango refers to a status in which prices of futures contracts with a longer maturity are higher than the spot price of the commodity. Excess return is measured relative to cash. Cash represented by the US 3-Month Treasury Bill. For illustrative purposes only. Past performance cannot guarantee future results.
Commodities that are difficult to store have delivered higher returns over time
Focus on term structure
(Hover over the dots to see info)
We also seek to take advantage of the differences in volatility across commodity sectors by equal risk weighting. More volatile commodity sectors will have a lower weight in our strategy than less volatile ones. We rebalance our risk weights on a monthly basis to maintain diversification and to systematically sell assets with high prices and buy assets with low prices.
Finally, we have the tactical flexibility to alter our exposure to individual commodities based on our assessment of absolute and relative attractiveness.
The Invesco Balanced-Risk Commodity Strategy combines potentially attractive, structural sources of return found in the commodity markets with more dynamic tactical sources of return. By taking these together, our approach to commodity investing seeks to deliver potential protection against unexpected inflation and the opportunity for a more attractive long-term risk premium from the asset class than is found in the typical commodity benchmarks.
¹ Source: The New York Times, “The Economy Is Strong and Inflation Is Low. That’s What Worries the Fed,” May 21, 2019.
About the author
David Gluch has served as a Client Portfolio Manager for the Invesco Global Asset Allocation team since 2012. He works with clients across global institutional and retail channels, and he is a frequent speaker at industry conferences discussing the topics of asset allocation, commodities and risk management. Mr. Gluch joined the firm in 1995. From 2005 to 2012, he served as head of US Product Management, where he oversaw product positioning, strategy and servicing for the retail and institutional channels. While in this role, he co-authored Invesco’s educational and value-add program, "Rethinking Risk." Mr. Gluch received his BBA in finance from the University of Texas. He is a Chartered Financial Analyst® (CFA) charterholder.
A push to improve private fund reporting
A slate of proposed new rules, if approved in their totality, would mark a significant shift in how alternative investment funds are regulated. Published in February and currently under consultation, the Securities and Exchange Commission (SEC) proposals are aimed at increasing regulatory requirements for alternative fund managers.
They would require registered private fund advisers to provide investors with quarterly statements detailing particular information regarding fund fees, expenses and performance. Additionally, they would prohibit private fund advisers – including those that are not registered with the SEC – from providing preferential treatment to investors in their funds unless it is disclosed to current and prospective investors.
Unsurprisingly, the new rules have been met with swift resistance from fund managers and trade groups. Investor reactions, on the other hand, have been mixed but largely positive: investor groups have been pushing asset managers for better disclosure and terms for years. Having the SEC mandate standardized reporting would codify that effort. But critics of the proposal warn that there could be unintended consequences.
So how did we get here? Fund managers argue that institutions and other investors in alternative funds are sophisticated enough to understand a limited partnership agreement and uniform quarterly disclosures aren’t necessary. But that may not be true.
‘There’s an enormous amount of obfuscation in the private funds industry,’ says Howard Fischer, partner at law firm Moses & Singer and former senior trial counsel at the SEC. ‘Even if we’re talking about institutions or wealthy investors, they don’t always know what to ask of managers and they aren’t totally clear on what they’re paying for. While many people can say they should know, the reality is they don’t.’
Certain incentives may also keep potential investors from asking questions or pushing back on terms that seem unfair.
‘There’s a massive principal agent issue across the industry today,’ says Andrew Beer, managing member at Dynamic Beta Investments. ‘Their job is to invest in the hottest, most interesting funds. If they want to get into those funds, pushing back on terms isn’t going to help their case. Once they get in, plan beneficiaries end up paying the higher fees to be in those funds whether they know it or not.’
Investors who have the resources and are willing to write big tickets when they invest in a fund can push back on terms, and have done so with some success. That also embeds a certain level of information asymmetry into the private funds market – something the SEC is trying to correct.
The proposals do not limit the ability of investors to negotiate special terms but they do require asset managers to disclose those deals so that other investors are aware they exist.
Robert Sutton, a partner in the private funds group at law firm Proskauer, traces the roots back to the financial crisis. ‘There have been some instances where certain investors knew more about what was going on within a fund and opted to redeem earlier than other investors who had less information. I don’t think the SEC is necessarily comfortable with that as an ongoing practice because it raises questions of fairness,’ he says.
Systemic risk concerns
The reforms also touch on the growing influence of private funds as an industry. ‘Private fund advisers, through the funds they manage, touch so much of our economy,’ says SEC chairman Gary Gensler. ‘Thus, it’s worth asking whether we can promote more efficiency, competition and transparency in this field.’
Trillions of dollars are invested in funds that offer significantly less information about their activities than listed funds, raising concerns about systemic risks in the event of a significant downturn.
According to Fischer, without additional information about how private funds operate it could be difficult for regulators to react in a timely manner.
‘Part of what we’re seeing here is a recognition on the part of the SEC that the basic disclosures don’t provide enough detail about how these funds are invested,’ he says. ‘Some of that has to do with certain asset classes. There’s much less data on private equity for example, so if there’s a drawdown, regulators are going to be challenged when they try to assess the impact. More frequent and uniform reporting can solve some of those problems.’
At present, fund managers can be held responsible in cases of gross negligence – making decisions that run counter to the interests of investors. The new rules would raise the bar to include any type of negligence – a mathematical error, for example.
That shift would require asset managers to increase their operational protection. Having more comprehensive professional liability insurance costs money, as does producing quarterly reports on operations, fees and other expenses.
‘For a large asset manager, many of these new administrative requirements can likely be absorbed, but medium and small firms are going to see the cost of doing business increase,’ says Sutton. ‘Smaller firms may have to bring on new people or rethink the models they use for figuring operating costs. There will be questions about how that gets handled.’
Asset managers argue that the new requirements could end up limiting competition instead of increasing it. In his comment letter to the SEC, Andrew Weiss, CEO of Weiss Asset Management and a professor emeritus of economics at Boston University, says smaller firms could exit the industry or make themselves targets for acquisition, leading to consolidation.
If that turns out to be true, the private funds industry of the future could end up looking like the mutual funds industry, where the market is dominated by a handful of large players that can manage the costs and reporting requirements that come with running listed funds.
‘There’s a recognition within the SEC that there are more investors with more money in private funds than there has been in the past,’ adds Sutton. ‘That growth has led the SEC, particularly under the current administration, to be more specific and more insistent in terms of what they expect from private fund managers.
‘That’s perhaps not surprising in a growing and maturing industry like private funds, just as occurred decades ago in the mutual fund industry. So at least directionally, we’re seeing the SEC start to approach disclosure and conduct in private funds similarly, in at least a few respects, to how they approach it with listed funds. There is a bigger focus on standardization as a result.’
Investors’ pleas for better transparency have finally been answered with a proposal that aims to open up private fund reporting. But how will it apply in practice? Bailey McCann investigates
“Smaller firms may have to bring on new people or rethink the models they use for figuring operating costs. There will be questions about how that gets handled”
Robert Sutton, Partner at Proskauer
“There’s much less data on private equity, so if there’s a drawdown, regulators are going to be challenged when they try to assess the impact. More frequent and uniform reporting can solve some of those problems”
Howard Fischer, Partner at law firm Moses & Singer
The pick of private equity:
Head of AIP Private Markets Secondaries, Morgan Stanley Investment Management
The GP-led secondary market has witnessed a brisk pace of growth in the past two decades with a flurry of transactions in recent years. In 2021, GP-led secondaries represented 51% of the $135bn overall secondaries market, a record year in deal volume.¹ Forecasts suggest another banner year in 2022, with deal volume expected to rise as much as 20% year on year.² In this Q&A, Nash Waterman, portfolio manager and head of private markets secondaries, discusses the growing opportunity set for General Partner (GP) led deals, spelling out why we believe the sector and the single-asset segment, in particular, are attracting growing investor interest.
Where did GP-led secondaries start?
In the early 2000s, financial groups needed to spin out of banks and GP-led secondaries became an efficient way to lift out these assets and teams. From there, the market evolved quickly, as the suitability of GP-led deals for use in other situations became apparent.
Today, single-asset transactions are the fastest growing area of the secondaries segment. The deals are gaining favor, as they provide existing GPs the ability to double down on their best portfolio assets or for Limited Partners (LP) to take liquidity, while opening up access to outside investors without the need for highly competitive bidding processes.
When did you notice a divergence from the LP-led secondaries market?
In the early 2010s, GP-led secondaries experienced exponential growth driven by post-crisis fund restructurings. With the deals evolving into highly bespoke solutions, we became skilled in the more customized and surgical approach these type of transactions require.
We began structuring deals to lift out the specific assets that we found to be the most compelling. Unlike traditional LP-led or multi-asset GP-led deals, where secondaries investments involve exposure to multiple assets at the portfolio level, this new approach allowed us to mitigate unwanted broader portfolio risk. Today, the single-asset model now stands as a functionally distinct segment of the secondaries market. Oftentimes, single-asset deals can unlock potential value that would otherwise be sacrificed due to a lack of funds or premature exit, which is a key reason we coined the term 'transformational secondaries' back before a standard nomenclature existed for these transactions.
Why are GP-led secondaries so attractive to investors?
In our view, the sector offers the best access to top-quality assets in the middle market. Consider, too, that within private equity the penetration of secondaries activity is relatively low. In practice, this has tilted purchasing power toward buyers as primary deal activity has outstripped secondaries demand, creating a growing universe of investable assets. As a result, managers can be highly selective and intentional about adding positions.
Relative to other segments of the secondaries market, single-asset deals stand out for their return potential. According to recent research, nearly 62% of secondaries investors are targeting net IRRs of 20% or more in the single-asset segment. In comparison, return thresholds for the multi-asset GP and LP-led segments are much lower, with only 40% and 16% of investors targeting returns as high as 20% or more, respectively.
How does an allocation typically fit into an investor’s portfolio?
In our experience, investors typically see these deals fitting in a few different ways. First, they view single-asset secondaries as a definitive alpha source within private equity. They see the value of the prize assets being sold, which, when combined with their shorter duration and lower volatility characteristics, make for highly compelling investments.
Second, to the extent that assets are sold out of portfolios into continuation funds, allocating to a focused single-asset secondaries fund can capture value that an investor might otherwise have lost as a result of the gap in their existing portfolio.
More generally, we feel the divergence that we’ve highlighted between LP and GP-led deals should be reflected in investors’ planning as distinct segments. The two segments exhibit different risk and return characteristics, and the fact that the GP-led market is now larger than the traditional LP-led segment suggests that a dedicated allocation to the sector warrants consideration.
These are complex investments. What skills are involved?
As with other differences discussed above, investment skillset is an area where LP and GP-led single-asset deals starkly diverge. The intricacies involved in sourcing, due diligence and executing on single-asset deals explain precisely why investors can earn a complexity premium in the space. Our dedicated sourcing group has focused on building relationships, resulting in our most recent portfolio consisting of all exclusively sourced or proprietary transactions. We have been building a team since the advent of this market and transacted on 50 deals in this space. From our perspective, this experience enables us to drive negotiations and become a preferred buyer for GPs.
In summary, the resource-intensive nature of this space creates barriers to entry that preclude 'investor tourism'. Without a dedicated and expert team experienced in single-asset deal craft, investors will likely find success very difficult to achieve.
The statements above reflect the opinions and views of the Morgan Stanley Alternative Investment Partners Private Markets (“AIP Private Markets Team”) as of the date hereof and not as of any future date and will not be updated or supplemented. All forecasts are speculative, subject to change at any time and may not come to pass due to economic and market conditions.
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¹ PJT Park Hill. “Secondary Roadmap Series.” Q1 2022.
Building on a solid foundation of demand
Real estate had a solid 2021 as Covid-19 accelerated pre-existing trends. But investors shouldn't be fooled by this apparent bullishness: identifying sectors with the strongest foundations requires prudence, and this will be critical to building future returns as inflation stays higher for longer.
‘It’s easy to get burned in a red-hot real estate market,’ says Bernie Wasserman, president of real estate investment firm Participant Capital in Miami, Florida. ‘Whether buying a home or investing in a real estate investment vehicle, rising inflation and the potential for an economic slowdown can impact property types and geographies differently.’
Inflation and migration
A dearth of housing stock in markets experiencing strong population and job growth coupled with real wage growth across industries has boded well for residential real estate. As a result, property values and rental prices are still expected to rise, delivering attractive returns to investors.
‘There are several favorable dynamics supporting strong defensive earnings growth, including supply and demand imbalances and higher construction costs that are slowing attractively priced new homes,’ says Stuart Katz, CIO of wealth management firm Robertson Stephens in New York City.
‘According to the US Census, 12.3 million American households were formed between January 2012 and June of 2021, yet only seven million new single-family homes were built.
‘Various organizations state that the nation’s housing shortage is between 5.2 and 6.0 million units. Let’s stop and let that sink in for a moment.’
For both Katz and Wasserman, family properties in the Sun Belt – comprising 15 southern states extending from Virginia and Florida in the southeast to Nevada and southern California in the southwest – are well-positioned to grow cashflow faster than capitalization rates, as well as to hedge against inflation.
‘Even before the pandemic, real estate was booming across tax-friendly Sun Belt states and territories,’ says Wasserman.
According to the 2020 Cencus, the South grew the fastest of any region during the previous decade, with a 10.2% increase in population. ‘The onset of Covid-19 simply accelerated migration as a new mobile workforce had the freedom and flexibility to relocate,’ he says.
‘During the past two years, young professionals and retirees from the Northeast have flocked to states such as Florida that offer greater affordability, more space, warmer climates and a good quality of life.’
At a time when Covid and technological innovation have made working from home acceptable, millennials are flocking to the Sun Belt in search of more space and better schools for their children, says Katz.
Moreover, the rising cost of living is attracting people to the lowest-tax states like Florida. Wasserman rates it as one of the – if not the – most attractive real estate markets across the country.
But the frothy market and rising interest rates pose risks – namely that investors will overpay for value-added properties or turn to distressed opportunities, buying up properties that are on the brink of foreclosure or are already bank-owned.
‘Though distressed investing has a similar timeframe as ground-up development, it lacks the high return potential of a brand-new property with the latest features and amenities,’ says Wasserman.
‘We believe that ground-up multifamily and mixed-use development that creates a high quality live, work and play environment represents a significant opportunity for investors who want to capitalize on large-scale migration and the dearth of high-end housing suited to affluent buyers’ distinct needs.’
Requirements are exacting in pockets of commercial real estate, too. Bluerock, the alternative asset manager, is particularly bullish on the industrial and life sciences sectors.
Miguel Sosa, a research strategist based in San Diego, California, points to explosive growth in e-commerce driving significant demand for warehouse and distribution centers.
‘By one estimate, every additional $1bn of e-commerce sales requires 1.2 million square feet of warehouse space and a projected one billion total square feet of additional industrial space will be needed by 2026,’ he says.
‘To put into context, that is three times the warehouse space required by traditional retail. Not only is more industrial space needed, but the assets need to be closer to population centers because consumers demand shorter delivery times, requiring companies to augment with last-mile facilities in addition to the traditional approach of utilizing large, centrally located distribution hubs.’
With warehouse costs running at just 4-6% of a company’s total supply chain and distribution costs, there is plenty of room for rental growth. ‘This results in new development properties that are effectively preleased going into the ground, high occupancy rates nationally and large rent growth forecasts,’ adds Sosa.
Bluerock’s flagship fund has a large overweight allocation to industrial real estate at almost 40% as of 31 March. The asset manager is separately creating a dedicated private industrial real estate strategy on a property-by-property basis.
Significant demand also exists for life sciences real estate sector, driven by employment growth in biotechnology research and the development of novel therapeutics. The specialized nature of buildings and limited geographic footprint of these companies should drive significant appreciation in rents and values.
‘Firstly, life science real estate tenants have many specific requirements which make building conversions of other building types, such as traditional office buildings, to life sciences buildings particularly challenging or prohibitively expensive,’ says Sosa.
‘One of the many examples is the higher load capacity required for reducing vibration. Biotech companies often have DNA sequencers and other bio equipment on site, which are extremely sensitive instruments that are extremely difficult to move. This structural requirement doesn’t exist in traditional office or warehouse buildings.
‘The second factor is geographic concentration. Life sciences talent is concentrated in just a handful of hubs, including Cambridge, Massachusetts, San Diego and the Bay Area. Given the significant regional clustering, limited supply of viable real estate exists to meet the growing demand for dedicated life science space.’
Lastly, tenant characteristics underpin ongoing high demand. ‘The multi-year drug development cycle makes companies more reluctant to interrupt research for a real estate move, and thus life sciences companies have higher retention rates than other sectors.’
Bluerock allocates to several life sciences real estate developers and the Bluerock Total Income+ Real Estate fund has the largest exposure to life sciences real estate among interval funds.
Real estate has been largely unaffected by the fallout of the pandemic, but investors are encouraged not to get complacent as the sector has its cracks. And yet, there are alternatives, writes Jennifer Hill
“There are several favorable dynamics supporting strong defensive earnings growth, including supply and demand imbalances and higher construction costs that are slowing attractively priced new homes”
“During the past two years, young professionals and retirees from the Northeast have flocked to states such as Florida that offer greater affordability, more space, warmer climates and a good quality of life”
Stuart Katz, CIO of Robertson Stephens
Bluerock’s flagship fund has a large overweight allocation to industrial real estate at almost 40% as of 31 March. The asset manager is separately creating a dedicated private industrial real estate strategy on a property-by-property basis.
Private Real Estate:
Built on a solid foundation
The Fed’s recent moves to raise rates have triggered market volatility in both the stock and bond markets – which may persist given uncertainty about future inflation and growth. These conditions underscore the importance of alternative investments as a means to enhance portfolio diversification amid volatility.
The importance of rental income
Many alternatives involve intangible assets that may deter individual investors. However, direct investment in private commercial real estate – the third largest asset class in the US – offers a relatively straightforward opportunity whose yield and return are rooted in the stability provided by ongoing rental income.
That income is primarily derived from long-term contractual leases – a payment stream that tends to be durable, given the substantial costs a business may incur by cancelling a lease and relocating business operations.
In addition, many leases have annual increases and expense recoveries, which provide a natural hedge against inflation. Indeed, a recent analysis by Clarion Partners of CBRE market data found that commercial real estate rents outpaced inflation in 19 of the 27 years between 1994 and 2020, and over the entire period, rent growth and inflation averaged an annual growth rate of roughly 2.1%.¹
Supported by rental income, yields for private commercial real estate have been relatively stable over time. Between 2011 and 2021, the annual average income return for the NFI-ODCE Index ranged between 3.85% and 5.49%.
Direct investment in private commercial real estate has also historically generated attractive yields relative to other major asset classes. Consider the 4.5% average one-year income return generated by privately held real estate between Q2 2012 and Q1 2022. This is well above the 2.3% and 1.9% averaged by US fixed income and equities respectively, as well as the 3.7% yield from REITs.
10-year annual yield average (%)
That yield did not come at the expense of substandard returns. The 8.7% annualized total return achieved by commercial real estate for the 20-year period ending March 30, 2022 exceeded what the bond market has delivered and was close behind the 9.3% that stocks delivered over that same period.
Diversity of opportunity
Commercial real estate includes a broad range of property types and sub-types. That diversity helps to support consistency of return for the asset class overall, while allowing active managers to seek to outperform the broad market through selective choices.
Of course, demand for commercial real estate is always evolving, and tends to reflect the leading edge of new innovations and structural shifts in the broad US economy. Clarion Partners currently sees heightened opportunity within several segments of the market. Both the Industrial and Multifamily segments merit particular attention now; both have some of the strongest fundamentals on record, as well as strong pricing power.
The Industrial sector has benefited tremendously from the rapid expansion of e-commerce activity, which accelerated during the Covid-19 pandemic. Omni-channel consumption had rapidly accelerated the trend toward greater demand for large-scale fulfillment centers located near major metros, capable of meeting increased demand for goods ordered online. In 2021, the market absorbed 432 million square feet of Industrial Warehouse properties, compared to 268 million square feet of new supply, with vacancy dropping to an historic low of 3.2%.
The Multifamily segment, on the other hand, has benefited from the ongoing US housing shortage. The already-strong rebound in household formation, bolstered by Covid-19, has caused home prices to spike almost 30% since the start of the pandemic. Affordability challenges for single family homes have fed demand for apartments, already heightened by pent-up demand. While the Office segment remains challenged by the slow pace of return from work-from-home, properties suitable for the specialized needs of Life Sciences companies are a bright spot; this is an industry where employment is rising, reflecting an aging US population and rising healthcare spending.
SVP, Director of Municipal Bonds
Rental income provides a solid foundation for private commercial property investment and helps to explain why this asset class can supplement current income and act as a diversifier for equities and fixed income in volatile times.
Richard H. Schaupp
Managing Director and Portfolio Manager at Clarion Partners (a Specialist Investment Manager of Franklin Templeton)
Source: Bloomberg. Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment. Stocks, bonds, publicly traded REITs and private real estate are respectively represented by the S&P 500 Index, Bloomberg U.S. Aggregate Bond Index, FTSE NAREIT All Equity REITs Index and NFI-ODCE. 10-year yield averages are based on trailing 12-month observations for dividend yield for stocks and publicly traded REITs, yield-to-worst for bonds and 12-month income for private real estate, covering the period June 30, 2012 – March 31, 2022.
¹ Analysis based on CBRE rent growth and CPI data. Starting year for analysis period (1994-2020) reflects inception date for CBRE index.
CBRE is an independent firm providing a spectrum of real estate services and investments.
The Consumer Price Index (CPI) measures the average change in US consumer prices over time in a fixed market basket of goods and services as determined by the US Bureau of Labor Statistics.
The S&P 500 Index is an unmanaged index of 500 stocks designed to measure the performance of larger companies in the US.
The Bloomberg US Aggregate Bond Index is an unmanaged index designed to measure the performance of investment-grade bonds issued in the US, including US Treasury, government-sponsored, mortgage and corporate securities.
The FTSE Nareit All Equity REITs Index is a free-float adjusted, market capitalization-weighted index of US equity REITs. Constituents of the index include all tax-qualified REITs with more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property.
The NCREIF Fund Index – Open End Diversified Core Equity (NFI-ODCE) is a quarterly, capitalization-weighted, gross of-fee, time-weighted return index includes open-end commingled funds pursuing a core investment strategy, primarily investing in private equity real estate.
Yield to worst (YTW) is the lowest potential yield that can be received on a bond without the issuer actually defaulting.
Omni-channel consumption refers to purchasing activity based on exposure to brand messages from a variety of channels, including traditional media, social media and webpages.
All investments involve risks, including possible loss of principal. Investments in real estate are subject to risks including but not limited to local, state, national or international economic conditions, including market disruptions caused by regional concerns, political upheaval, sovereign debt crises and other factors. Equity securities are subject to price fluctuation and possible loss of principal. Fixed income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls.
This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. It does not constitute legal or tax advice.
The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. Past performance is not necessarily indicative nor a guarantee of future performance.
©2022 Franklin Distributors, LLC. Member FINRA/SIPC. Clarion Partners and Franklin Distributors, LLC are Franklin Templeton affiliated companies. All rights reserved.
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5.4 You must create a functional link back to the Citywire story(ies) summarised by the Feed Content. If you are displaying the Feed Content where a functional link back to Citywire is not possible, you must display on-screen the URL from which the Feed Content can be obtained. You may not directly or indirectly change, edit, add to or produce summaries of or derivative works from Feed Content or any content on the Citywire website nor place any full-story Citywire content in an HTML (or any other markup language) frame-set.
5.5 You may not directly or indirectly suggest any endorsement or approval by Citywire of your website or any non-Citywire entity, product or content or any views expressed within your website or service.
5.6 You acknowledge that Citywire has absolute editorial control over all Content and you accept that Citywire is editorially independent and that the editorial integrity of Content is the sole responsibility of Citywire.
5.7 Should you receive any enquiries which relate to Citywire or the Citywire Content you shall promptly refer such enquiries to Citywire.
5.8 You acknowledge and agree that we own all rights of whatever nature in and to the App. Citywire grants you a non-transferable, non-sublicensable, royalty-free, non-exclusive limited licence to (i) download the App to your device from the app store where it is lawfully held; and (ii) use the App for the purpose of accessing our Site on these Terms. You are granted no other rights in relation to the App and all rights not expressly granted are reserved by us. You acknowledge and agree that Citywire has no responsibility for or in relation to the app store from which you downloaded the App and has no obligation to maintain the App. The App is supplied ‘as is’ and neither Citywire nor any anyone else makes any representation, warranty, condition or other commitment (whether express or implied, by statute, common law, collaterally or otherwise) of any kind in relation to the App. Neither Citywire nor anyone else will have any liability of whatever nature (whether in contract, negligence or other tort or otherwise) in relation to the App. You will not reverse engineer, decompile or otherwise endeavour to obtain the source code to the App (save to the extent that you cannot be prohibited from so doing under applicable law).
6.1 Whenever you make any Contribution you must comply with the Content Standards.
6.3 You grant Citywire a perpetual, royalty-free, non-exclusive, perpetual (which for the avoidance of doubt means continuing after this Agreement), irrevocable, transferable, world-wide licence to use, copy, distribute, display, disclose and sell to third parties any Contribution (in whole or in part) for any purpose. These activities include but are not limited to editing or creating derivative works of any Contribution.
6.4 To the maximum extent permitted by applicable law, you irrevocably and unconditionally waive all moral rights to any Contribution.
6.5 You acknowledge and agree that (i) we have the right to remove or edit any Contribution you make on our services, including modifying and adapting it for operational and editorial reasons, with or without showing or marking that the Contribution has been removed or edited; and (ii) we have the right to disclose your identity to any third party who is claiming that any Contribution constitutes a violation of their intellectual property rights, or of their right to privacy.
6.6 Citywire does not moderate or actively review Contributions. Therefore all Members and visitors to the Site should treat any Contributions with caution. You accept (i) that we are not responsible for content of Contributions; (ii) that we do not endorse any of the material contained in them; and (iii) Citywire does not check the accuracy of information supplied by Members in their profiles.
6.7 It is the policy of Citywire to respond to alleged infringement notices that comply with the Digital Millennium Copyright Act (“DMCA”). If you believe that your copyrighted work has been copied in a way that constitutes copyright infringement and is accessible via the Solution, please notify the Citywire copyright agent as set forth below. For your complaint to be valid under the DMCA, you must provide the following information in writing:
a. An electronic or physical signature of a person authorized to act on behalf of the copyright owner;
b. Identification of the copyrighted work that you claim has been infringed;
c. Identification of the material that is claimed to be infringing and provide a link (where available) to where it is located on the Solution;
d. Information reasonably sufficient to permit Citywire to contact you, such as your address, telephone number, and, email address;
e. A statement that you have a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or law; and
f. A statement, made under penalty of perjury, that the above information is accurate, and that you are the copyright owner or are authorized to act on behalf of the owner.
The above information must be submitted to the following Citywire copyright agent:
+44 (0)20 7840 5125
3 Spring Mews, London, SE11 5AN, United Kingdom
UNDER FEDERAL LAW, IF YOU KNOWINGLY MISREPRESENT YOUR CLAIM, YOU MAY BE SUBJECT TO CRIMINAL PROSECUTION FOR PERJURY AND CIVIL PENALTIES, INCLUDING MONETARY DAMAGES, COURT COSTS, AND ATTORNEYS’ FEES.
In accordance with the DMCA and other applicable law, Citywire has adopted a policy of terminating, in appropriate circumstances, the accounts of users who are deemed to be infringers. Citywire may also, at its sole discretion, limit access to the Site and/or terminate the accounts of any users who infringe any intellectual property rights of others, whether or not there is any repeat infringement.
7. Acceptable Use Policy
7.1 You may use our Site only for lawful purposes. You may not:
(i) use our Site in any way that breaches any applicable local, national or international law or regulation;
(ii) use any materials, data or information which you have obtained from the Site in any manner which, in Citywire’s reasonable opinion, is derogatory, damages Citywire’s reputation or takes advantage of it in any way;
(iii) use our Site in any way that is unlawful or fraudulent, or has any unlawful or fraudulent purpose or effect;
(iv) use our Site to send, knowingly receive, upload, download, use or re-use any material which does not comply with the Content Standards;
(v) subject to Clause 5, deep-link to any portion of our Site for any purposes without the prior written permission of Citywire;
(vi) perform any automated use of our Site, such as, but not limited to, using robots, spiders, scripts to create Contributions, to extract any of the content of our Site through such means as ‘screen scraping’, ‘database scraping’ or otherwise;
(vii) violate the restrictions in any robot exclusion headers on this website or bypass or circumvent other measures employed to prevent or limit access to our Site;
(viii) use this service as research or support for, or to inform your own or your company’s or employer’s subscription based service, or any subscription based service without obtaining a licence from Citywire in writing, such licence to be on commercial terms agreed by the parties;
(ix) use our Site (or any of the Content) for the purpose of building a database or to use this for your own commercial exploitation by its inclusion in your own activities and/or services without obtaining the written approval of Citywire in advance of its publication;
(x) access, use, or distribute the Site, App (or any Content) to develop (or assist any third party in developing) a product or service (including events) that competes with any product, service, or event of Citywire, or for any other competitive purposes.
(xi) interfere with, disrupt, or create an undue burden on our services or the network or services connected to our Site;
(xii) engage in, either directly or indirectly, or encourage others to engage in, click-throughs generated through any manner that could be reasonably interpreted as coercive, incentivised, misleading, malicious, or otherwise fraudulent;
(xiii) collect information from our Site and incorporate it into your own database or products; or
(xiv) use our services to knowingly transmit any data, send or upload any material that contains viruses, Trojan horses, worms, time-bombs, keystroke loggers, spyware, adware or any other harmful programs or similar computer code designed to adversely affect the operation of any computer software or hardware.
7.2 Use of the Printable Version facility is for private purposes only EXCEPT ONLY In the case of financial intermediaries, wealth managers or other entities or individuals providing investment advice to clients the printable version can be used to aid such services.
8. Content standards
8.1 These content standards apply when you make a Contribution to the Site. These content standards apply to each part of any Contribution as well as to its whole.
8.2 Contributions must:
(i) be accurate (where they state facts);
(ii) be genuinely held (where they state opinions); and
(iii) comply with applicable law, rules and regulations, in the U.S. and in any country from which they are posted.
8.3 Contributions must not:
(i) infringe or promote infringement of any copyright, database right, trade mark or other intellectual property right of any other person (including, promoting or offering pirated computer programs or links to such programs, information used to circumvent manufacturer-installed copy-protect devices, including serial registration numbers for software programs, rights management information or any type of cracker utilities);
(ii) contain intentionally made false or misleading statements;
(iii) offer to buy, sell or broker an investment;
(iv) violate applicable laws, rules or regulations, including without limitation, rules or regulations of any applicable stock exchange or breach insider dealing regulations or confidentiality agreements;
(v) involve commercial activities and/or sales without prior written consent from us such as contests, sweepstakes, group-buying, advertising, or pyramid schemes;
(vi) be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence;
(vii) contain any material or link to material which:
a. is defamatory of any person;
b. is obscene, vulgar offensive, hateful or inflammatory;
c. is likely to harass, upset, embarrass, alarm or annoy any other person;
d. is threatening, abusive or invade another’s privacy, or likely to cause annoyance, inconvenience or needless anxiety;
e. contains or promotes sexually explicit material or violence;
f. promote discrimination based on race, sex, religion, nationality, disability, sexual orientation or age; or
g. is likely to deceive any person;
(viii) use invalid or forged headers to disguise the origin of any Contribution, or otherwise misrepresenting yourself or the source of any Contribution;
(ix) use our Site to transmit, or procure the sending of, any unsolicited or unauthorised advertising or promotional material or any other form of similar solicitation (spam);
(x) be used to impersonate any person, or to misrepresent your identity or affiliation with any person;
(xi) give the impression that they emanate from Citywire or a Citywire employee, administrator or moderator, or another user of our Site; or
(xii) advocate, promote or assist any illegal activity.
9.1 You agree that you are responsible for your own investment decisions and that you are responsible for assessing the suitability and accuracy of all information and for obtaining your own advice thereon. You recognise that any information given on our Site is not related to your particular circumstances. Circumstances vary and you should seek your own advice on the suitability to them of any investment or investment technique that may be mentioned.
(a) We do not provide, and no Content constitutes, investment advice;
(b) You will not treat or represent Content as investment advice;
(c) We do not recommend or endorse any product;
(d) Content is not intended to address your particular requirements. We are not aware of circumstances specific to you and which could influence which financial products are more or less suitable for you and do not represent that we are aware of any such circumstances. We do not recommend that any particular product is suitable for you;
(e) No Content constitutes or should be interpreted as a solicitation to engage in any investment activity;
(f) Any investment decision made by you is entirely at your own risk;
(g) Subject to paragraph 11, we shall not be liable for any losses, cost or expenses which may be incurred by you as a result of any investment made;
(h) You may not use the Content in, or generate based on the Content, any advice, recommendations, guidance, publications or alerts made available to your clients or other third parties;
(i) Whilst we try to ensure the Content is accurate and up to date, we cannot be responsible for any inaccuracies in Content. We are under no responsibility to provide you with access to any additional information or to update the Site, even if inaccuracies become apparent.
9.2 The fund manager performance analyses and ratings provided on this website are the opinions of Citywire as at the date they are expressed and are not recommendations to purchase, hold or sell any investment or to make any investment decisions. Citywire’s opinions and analyses do not address the suitability of any investment for any specific purposes or requirements and should not be relied upon as the basis for any investment decision.
9.3 Persons who do not have professional experience in participating in unregulated collective investment schemes should not rely on material relating to such schemes.
9.4 Past performance of investments is not necessarily a guide to future performance. Prices of investments may fall as well as rise.
9.5 Persons associated with or employed by Citywire may hold positions or take positions in investments referred to in this publication.
9.6 Citywire operates a policy of independence in relation to matters where the operators may have a material interest or conflict of interest.
10. Limited Warranty
10.1 Citywire will use reasonable endeavours to maintain the Site. You will not be eligible for any compensation because you cannot use any part of the Site or for any failure of the Site as a result of an event beyond Citywire’s reasonable control.
10.2 Neither Citywire nor its employees assume any responsibility or liability for the accuracy, completeness or availability of the information contained on our Site.
10.3 Neither Citywire nor anyone else makes any representation, warranty, condition or other commitment of whatever nature in relation to any information obtained by you through use of this Site. You acknowledge and agree that any information that you receive through use of the Site is provided “as is” and “as available” basis without representation or endorsement of any kind and is obtained at your own risk.
10.4 You agree that you are solely responsible for any damage to your computer system and/or loss or damage to your data files through use of this Site or by the use of links on the Site to external information.
10.5 To the maximum extent permitted by law, Citywire excludes all representations, warranties, conditions or other terms, whether express or implied (by statute, common law, collaterally or otherwise) in relation to the Site or otherwise in relation to any Content or Feed, including without limitation as to satisfactory quality, fitness for particular purpose, non-infringement, compatibility, accuracy, or completeness.
To the maximum extent permitted by law, Citywire will not be liable in contract, tort (including negligence) or otherwise for any liability, damage or loss (whether indirect, consequential, special or otherwise) incurred or suffered by you or any third party in connection with our Site, or in connection with the use, inability to use, or results of the use of our Site or App, any websites linked to it or any materials posted on it or otherwise in relation to any Content or Feed. Citywire does not limit liability for fraudulent misrepresentation or for death or personal injury arising from Citywire’s gross negligence or willful misconduct. HOWEVER, YOUR EXCLUSIVE REMEDY FOR ANY CLAIM ARISING FROM A BREACH BY CITYWIRE OF THESE TERMS IS CESSATION OF USE OF THE SITE, APP, OR CONTENT. FURTHER, TO THE GREATEST EXTENT PERMITTED BY LAW, THE TOTAL LIABILITY OF CITYWIRE IS LIMITED TO THE GREATER OF $50 OR AN AMOUNT NOT EXCEEDING THE TOTAL AMOUNT ACTUALLY PAID BY YOU TO CITYWIRE DURING THE PRIOR SIX (6) MONTHS IN CONNECTION WITH YOUR INDIVIDUAL USE OF THE SITE OR THE APP. In addition, you may bring a claim only on your own behalf. You will not participate in a class action or class-wide arbitration for any claims covered by these terms.
12. Changes to our Terms
Citywire may change the Terms from time to time. Any such changes will be incorporated on our Site. Changes will take effect 30 days after notification. Your continued use of any part of the Site following such change shall be deemed to be your acceptance of such amended Terms. You acknowledge that you are solely responsible for checking these Terms from time to time to see the changes which have been made to these Terms. If you do not accept any such changes you should stop using our Site.
13. Breaches; Term and Termination
13.1 The Terms will take (re-take) effect at the time you access and use the Site. You agree that Citywire may terminate your membership or the agreement constituted by these Terms (as Citywire may choose) and restrict your access to the Site (or part thereof) without prejudice to any other rights or remedies that Citywire may have if Citywire is of the reasonable opinion that you have breached these Terms or acted inconsistently with the spirit of these Terms. The provisions concerning Intellectual Property Rights, The Site, Contributions, Non-Reliance, Limited Warranty, Liability, Breaches; Term and Termination, Enforcing Security, Governing Law, Arbitration, Injunctive Relief, Waiver and Severability and Entire Agreement the Solution Feedback, Confidentiality, will survive the termination of these Terms and Conditions for any reason.
13.2 You agree to indemnify Citywire against any and all actions, claims, costs, proceedings, losses, damages or liabilities arising from your use of the Site or App (including without limitation Contributions or Content) and/or in relation to any information or data you use or access by means of the Site.
13.3 You acknowledge that a breach of these Terms may give rise to civil damages and criminal penalties. Citywire reserve the right to take action against you to uphold these Terms and its rights, which may involve pursuing injunctive proceedings, as further set forth below.
14. Enforcing Security
You may not use the Site, App, Content or any of Citywire’s data, systems, network, or services to engage in, foster, or promote illegal, abusive, or irresponsible behavior, including, without limitation, accessing or using data, systems, or networks in an unauthorized manner, attempting to probe, scan, or test the vulnerability of a Citywire system or network, circumventing any Citywire security or authentication measures, monitoring Citywire data or traffic, interfering with any Citywire services, collecting or using from the Site email addresses, screen names, or other identifiers, collecting or using from the Site information without the consent of the owner or licensor, using any false, misleading, or deceptive TCP-IP packet header information, using the Site to distribute software or tools that gather information, distributing advertisements, or engaging in conduct that it likely to result in retaliation against Citywire or its data, systems, or network. Actual or attempted unauthorized use of the Site may result in criminal and/or civil prosecution, including, without limitation, punishment under the Computer Fraud and Abuse Act of 1986 under U.S. federal law. Citywire reserves the right to view, monitor, and record activity through the Site without notice or permission from you. Any information obtained by monitoring, reviewing, or recording is subject to review by law enforcement organizations in connection with investigation or prosecution of possible criminal or unlawful activity through the Site as well as to disclosures required by or under applicable law or related government agency actions. Citywire will also comply with all court orders or subpoenas involving requests for such information. In addition to the foregoing, Citywire reserves the right to, at any time and without notice, modify, update, suspend, terminate, or interrupt operation of or access to the Site, or any portion of the Site in order to protect Citywire.
15. Governing Law; Void Where Prohibited
All offers for all functions, products or services, which are made on the Site, are void if they are prohibited by applicable law. You access the Site on your own volition and are responsible for compliance with all applicable laws with respect to your own access and use of the Site and its offerings. These Terms have been made in and will be construed and enforced in accordance with the laws of the State of New York, U.S.A. as applied to agreements entered into and completely performed in the State of New York (without effect to its conflicts of law provisions).
Subject to the right of Citywire to seek injunctive relief, disputes will be will be resolved by binding, individual arbitration under the American Arbitration Association pursuant to its Commercial Arbitration Rules or pursuant to its International Centre for Dispute Resolution (ICDR) Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having competent jurisdiction thereof. There is no judge or jury in arbitration, and court review of an arbitration award is limited. For any arbitration, the arbitrator(s) selected shall have a minimum of ten years of experience with and knowledge of the subject matter of the claim and dispute. The place of arbitration shall be in New York, New York. The arbitrator shall be bound by the provisions of these Terms and base the award on applicable law and judicial precedent. The arbitrator may award money or equitable relief in favor of only the individual party seeking relief and only to the extent necessary to provide relief warranted by that party’s individual claim. Similarly, an arbitration award and any judgment confirming it apply only to that specific case; it cannot be used in any other case except to enforce the award itself. However, the arbitrator(s) may award to the prevailing party all of its costs and fees.
“Costs and fees” mean all reasonable pre-award expenses of the arbitration, including the arbitrator’s fees, administrative fees, travel expenses, out-of-pocket expenses such as copying and telephone, court costs, witness fees, and attorneys’ fees. Upon rendering a decision, the arbitrator(s) shall state in writing the basis for the decision, including the findings of fact and conclusions of law upon which the decision is based. The decision of the arbitrator(s) shall be final and binding upon the parties, and shall not be subject to appeal. You and Citywire have agreed to execute this Agreement in the English language, and all dispute settlement proceedings and communications, written and oral, between you and Citywire shall be conducted in the English language.
17. Injunctive Relief
Notwithstanding the arbitration provision above, you acknowledge that any breach, threatened or actual, of these Terms, including, without limitation, with respect to unauthorized use of Citywire’s proprietary assets and especially, any Content, will cause irreparable injury to Citywire. Such injury would not be quantifiable in monetary damages and Citywire would not have an adequate remedy at law. You therefore agree that Citywire shall be entitled, in addition to other available remedies, to seek and be awarded an injunction or other appropriate equitable relief from a court of competent jurisdiction restraining any breach, threatened or actual, of your obligations under any provision of this Terms. Accordingly, you hereby waive any requirement that Citywire post any bond or other security in the event any injunctive or equitable relief is sought by or awarded to Citywire to enforce any provision of these Terms.
18. Waiver and Severability
Failure to insist on strict performance of any of the terms and conditions of these Terms will not operate as a waiver of any subsequent default or failure of performance. No waiver by Citywire of any right under these Terms will be deemed to be either a waiver of any other right or provision or a waiver of that same right or provision at any other time. If any part of these Terms are determined to be invalid or unenforceable pursuant to applicable law including, but not limited to, the warranty disclaimers and the liability limitations set forth above, then the invalid or unenforceable provision will be deemed superseded by a valid, enforceable provision that most clearly matches the intent of the original provision and the remainder of these Terms shall continue in effect.
19. Notice; Consent to Electronic Communications
When you visit this Site or send e-mails to us, you are communicating with us electronically. You consent to receive communications from us electronically. We will communicate with you by e-mail or by posting notices on this Site. You agree that all agreements, notices, disclosures and other communications that we provide to you electronically satisfy any legal requirement that such communications be in writing.
20. Entire Agreement
You and Citywire are independent contractors. No joint venture, partnership, employment, or agency relationship exists between you and Citywire as a result of these Terms or your utilization of the Site. These Terms represents the entire agreement between you and Citywire with respect to your individual use of the Site. These Terms may not be assigned, transferred, conveyed, delegated, or granted by you to another party or person without the prior written consent of Citywire.
This communication is by Citywire Financial Publishers Ltd (“Citywire”) and is provided in Citywire’s capacity as financial journalists for general information and news purposes only. It is not (and is not intended to be) an any form of advice, recommendation, representation, endorsement or arrangement by Citywire or an invitation to invest or an offer to buy, sell, underwrite or subscribe for any particular investment. In particular, the information provided will not address your particular circumstances, objectives and attitude towards risk.
Any opinions expressed by Citywire or its staff do not constitute a personal recommendation to you to buy, sell, underwrite or subscribe for any particular investment and should not be relied upon when making (or refraining from making) any investment decisions. In particular, the information and opinions provided by Citywire do not take into account your personal circumstances, objectives and attitude towards risk.
Citywire uses information obtained primarily from sources believed to be reliable (such as company reports and financial reporting services) however Citywire cannot guarantee the accuracy of information provided, or that the information will be up-to-date or free from errors. Investors and prospective investors should not rely on any information or data provided by Citywire but should satisfy themselves of the accuracy and timeliness of any information or data before engaging in any investment activity. If in doubt about a particular investment decision an investor should consult a regulated investment advisor who specialises in that particular sector.
Information includes but is not restricted to any video, article or guide content created or provided by Citywire.
For your information we would like to draw your attention to the following general investment warnings:
The price of shares and investments and the income associated with them can go down as well as up, and investors may not get back the amount they invested. The spread between the bid and offer prices of securities can be significant in volatile market conditions, especially for smaller companies. Realisation of small investments may be relatively costly. Some investments are not suitable for unsophisticated or non-professional investors. Appropriate independent advice should be obtained before making any such decision to buy, sell, underwrite or subscribe for any investment and should take into account your circumstances and attitude to risk.
Past performance is not necessarily a guide to future performance.
Citywire Investment Warning