Hedge fund inflows reach $20bn

BY Richard Summerfield

Following five consecutive quarters of net outflows, Q1 2017 saw hedge funds attract net capital inflows of $19.7bn, according to a new report from Preqin. This pushed total assets held by hedge funds up 3.2 percent, and took assets under management (AUM)  to a record $3.35 trillion.

Further, all leading hedge fund strategies experienced a percentage increase in total assets during Q1. Further, macro strategies funds attracted $11.1bn of net inflows to expand beyond $1 trillion in AUM for the first time.

“Five successive quarters of net outflows have been reversed in Q1 2017, as the industry recorded the largest quarterly influx of capital since Q2 2015. Along with the continued run of positive returns being made by most leading strategies, this has helped propel the industry to a record size,” said Amy Bensted, head of hedge fund products for Preqin

She continued:  “2016 was undeniably a difficult year for the hedge fund industry, with net outflows reflecting a reduced appetite for the asset class from institutions following a sustained period of low returns to investors since 2014. However, following an extended run of improved performance since March 2016 – the 12-month return of hedge funds is 10.67 percent – investor sentiment seems to be improving in 2017, which is reflected by inflows over the start of the year.”

North America-based hedge fund managers attracted the greatest amount of capital over Q1 2017, with net inflows of $19.9bn. Europe was the only region to lose assets over Q1 with net outflows of $8.5bn. Asia-Pacific had inflows of $2.2bn

Q1 was a successful period for all fund sizes, which were able to attract new capital . Fifty-three percent of funds between $500m and $999m saw inflows, however smaller funds were also successful. Forty-seven percent of funds with less than $100m saw inflows, while just 36 percent of funds endured outflows.

Forty-six percent of outflows in 2016 were from equity strategies, a trend that continued in Q1 2017 due to $10bn worth of investor redemptions.

Report: Q1 2017 Hedge fund asset flows

Industry leaders agree $3.1bn deal to accelerate 5G deployment

BY Fraser Tennant

In a deal designed to scale and accelerate the deployment of next-generation broadband services throughout the US, Verizon Communications Inc. has announced it has signed an agreement to acquire Straight Path Communications Inc., a holder of millimeter wave spectrum configured for 5G wireless services.

The definitive agreement will see Verizon purchase Straight Path for $184 per share, or a total consideration of $3.1bn, in an all-stock transaction. The deal has been approved by the boards of directors of both Straight Path and Verizon.

Concurrently, Verizon is to pay (on behalf of Straight Path) a termination fee of $38m to the US multinational telecommunications conglomerate AT&T. Announced in April 2017, the previous definitive agreement between AT&T and Straight Path was cancelled after the Straight Path board of directors determined, following consultation with its financial advisers and outside legal advisers, that the transaction with Verizon constituted a superior proposal.

Based in Virginia, US, Straight Path holds millimeter wave spectrum licences configured for 5G services, including 39 GHz licences that serve the entire country and 28 GHz assets in major markets. A proposed telecom standard that will succeed the current 4G standards, 5G is expected to provide wireless internet speeds 40 times faster than at present.

Once complete, Verizon’s acquisition of Straight Path will give the wireless giant a significant nationwide portfolio of millimeter-wave spectrum, which is viewed as being particularly important for the deployment of the next generation of wireless services.

"Verizon now has all of the pieces in place to quickly accelerate the deployment of 5G," said Hans Vestberg, executive vice president and president of global network and technology at Verizon. "Combined with our recent transactions with Corning Incorporated, XO Communications, and Prysmian Group, this is another step to build the next-generation network for our customers."

Acting as legal counsel to Verizon in connection with the transaction is Debevoise & Plimpton LLP. For Straight Path, Evercore served as exclusive financial adviser while Weil, Gotshal & Manges LLP served as company counsel.

The Verizon/Straight Path transaction is anticipated to close within nine months and is subject to review by the Federal Communication Commission (FCC).

News: Verizon beats AT&T to buy spectrum holder Straight Path

Perspectives on the future of risk highlighted in new report

BY Fraser Tennant

Displacement by technology is among the potential threats to the future of risk management, according to a new report by the Institute of Risk Management (IRM).

In ‘Risk Agenda 2025: Perspectives on the future of risk’, the IRM sets out two future scenarios for risk management. The first, which involves risk managers working closely with their boards, sees a future in which risk controls are fully embedded in the frontline which, in turn, frees risk functions to focus on strategic risk, mitigate emerging threats and optimising opportunities.

The second scenario, a much bleaker vision, has risk management merely as a back office, compliance function, remote from the board and possessing no discernible leadership role, with displacement by technology the ultimate worst-case scenario.

That said, the IRM report is quick to reconcile these potential scenarios by observing that it is largely within the power of risk managers to choose and shape the future of their profession.

“The publication of ‘Perspectives on the Future of Risk’ marks the beginning of IRM’s Risk Agenda 2025 project,” said Clive Thompson, IRM board member and chair of the Risk Agenda 2025 project group. “The purpose of this initiative is to stimulate debate within the risk community by examining how enterprise risk management (ERM) might be delivered in 2025 and by then proposing different ways that the risk management profession might prepare itself for the possible future scenarios.”

Alongside the report, the IRM is conducting a survey to gauge the views of risk management professionals as to the future of the profession and how it is likely to evolve in the future. Mr Thompson continued: “The contribution of IRM members and other stakeholders will be critical for the quality and inclusiveness of the project’s output.”

Working alongside the IRM is the ERM solution provider Sword Active Risk, which is acting as technology partner on the Risk Agenda 2025 project, as well as helping to gather opinions and suggestions that will feed into the conversation on the future direction of our industry and inform the IRM’s thinking and strategy in the years to come.

"Such research provides an important long-run perspective on the issues and opportunities facing the risk landscape," said Keith Ricketts, vice president of marketing at Sword Active Risk. "As a company, we believe in innovation and that the way you attain this is you fund research and you learn the facts. Ultimately the IRM research is creating new knowledge for us all.”

Report: Risk Agenda 2025: Perspectives on the future of risk

Coach and Kate Spade agree $2.4bn deal

BY Richard Summerfield

Following months of speculation, handbag manufacturer Coach Inc has agreed to acquire rival Kate Spade & Co in a deal worth $2.4bn.

The deal, announced on Monday, will see Kate Spade shareholders receive $18.50 per share in cash, a 27.5 percent premium to the closing price of Kate Spade's shares as of 27 December 2016, the last trading day prior to media reporting of a potential transaction. According to Coach, the deal will be half funded by a combination of senior notes, bank term loans and approximately $1.2bn of excess cash, a portion of which will be used to repay an expected $800m six-month term loan.

By acquiring its smaller rival, Coach is making a concerted effort to appeal to a younger demographic. Kate Spade’s consumers generally skew younger than Coach’s, thanks to the company’s quirkier product line and lower price point. The company has also recently introduced other products, which have appealed to consumers, including kitchen utensils.

Victor Luis, chief executive of Coach, Inc. said, "Kate Spade has a truly unique and differentiated brand positioning with a broad lifestyle assortment and strong awareness among consumers, especially millennials. Through this acquisition, we will create the first New York-based house of modern luxury lifestyle brands, defined by authentic, distinctive products and fashion innovation. In addition, we believe Coach's extensive experience in opening and operating specialty retail stores globally, and brand building in international markets, can unlock Kate Spade's largely untapped global growth potential. We are confident that this combination will strengthen our overall platform and provide an additional vehicle for driving long-term, sustainable growth."

Craig A. Leavitt, chief executive of Kate Spade & Company, said, "Following a thorough review of strategic alternatives, reaching an agreement to join Coach's portfolio of global brands will maximise value for our shareholders and positions Kate Spade for long-term success as we continue our evolution into a powerful, global, multi-channel lifestyle brand. We look forward to working with Coach's leadership team to leverage their expertise across the business as we continue to innovate and build long-term loyalty with consumers and expand across our product category and geographic axes of growth."

The deal, expected to close in the third quarter of 2017, is a strong result for Kate Spade activist investor Caerus Investors, which had pushed the company to put itself up for sale for some time. The investment firm said that though Kate Spade was generating solid growth, it is in need of better management to help boost its profit margins.

News: With eye on millennials, Coach buys Kate Spade

The ‘Brexodus’ begins

BY Richard Summerfield

To date, the UK economy has been surprisingly resistant to Brexit. While in the run up to the referendum some prognosticators forecast that the economy would collapse, and others that the vote would usher in a new era of economic prosperity, with the exception of the fall in the value of sterling, and a recent decline in consumer confidence, nearly a year on from the vote the UK’s economic outlook has remained relatively calm.

One post-Brexit forecast from the pre-election days, however, is coming to pass, with the announcement this week that US financial services mega-power JP Morgan Chase is to move 1000 jobs out of the City of London, relocating them to Dublin, Frankfurt and Luxembourg as part of the firm’s Brexit contingency plans. The UK’s decision to recant from the European Union (EU) was always like to have an impact on the City, given that is the heart of the continent’s financial services sector. By withdrawing from the EU and potentially losing the all-important passporting rights, triggering Article 50 was always going to be transformative. It seems as if several different European cities will now benefit.

“We are going to use the three banks we already have in Europe as the anchors for our operations,” Daniel Pinto, JP Morgan’s head of investment banking, told Bloomberg on Wednesday. “We will have to move hundreds of people in the short term to be ready for day one, when negotiations finish, and then we will look at the longer-term numbers.”

Though JP Morgan is the first firm to solidify its plans, it will not be the only financial services firm fleeing the City. Last week, Richard Gnodde, head of European operations at Goldman Sachs, said his firm would need more people in Madrid, Milan, Paris and other EU centres. Equally, José Viñals, Standard Chartered’s new chairman, told his bank’s AGM that it would be pursuing expansion opportunities in the German city of Frankfurt. “We are looking at setting up a subsidiary in the EU to ensure we’re prepared.”

Deutsche Bank, too, has suggested it could move up to 4000 jobs out of the UK – nearly half its workforce in the country – despite previously maintaining its commitment to the City.

While there is still a great deal of confusion over the Brexit process and the UK’s future relationship with the EU, one thing is becoming very clear – financial services in a post-EU UK will never quite be the same again.

News: J.P. Morgan to Shift Up to 1,000 Jobs Out of London Ahead of Brexit