With a large part of this price action relating to a widespread closing of trades across hedge funds and CTA accounts, there is a sense that positioning is much cleaner now than it was a couple of weeks ago.

In this context, the turn in the yen has seen a material reduction in popular carry trades. Consequently, overall risk being taken stands at lower levels than was the case a few weeks ago.

In this way, markets feel a bit battered and bruised, but are probably now in better shape than was previously the case.

As a result, we expect to see some further recovery in risk assets over the course of the next couple of weeks before supply returns to credit markets once we move into September.

Meanwhile, macro data have appeared broadly consistent with the soft-landing thesis.

The Atlanta Fed Nowcast GDP forecast for Q3 remains relatively robust at 2.9% and July retail sales data remains supportive of solid activity.

Worries about a sudden slowdown in the labour market have been assuaged by the last two weekly jobless claims releases, which have shown a marked drop since recording an increase at the end of last month on hurricane-related disruption.

Elsewhere, this week’s CPI release showed some further moderation in underlying price pressure. Core prices gained just under 0.2% in July, having increased by only 0.1% in June.

Inflation remains above the Fed’s 2% target, and we are still inclined to believe that prices will be sticky going forward, noting that the past couple of months have been flattered by some one-off effects such as a drop in used car prices.

However, the path appears clear for the FOMC to cut rates by 25bp next month, notwithstanding data points still ahead of us.

Markets have been inclined to front-run Fed easing, discounting 100bp of monetary easing by December, with a further 100bp to follow by this time next year. We continue to believe that this is too aggressive.

Substantial Fed easing will occur if growth slows materially and, of course, this is a plausible scenario. However, in the short term, we are more inclined to believe that the economy can retain momentum, and this will mean that rates decline on a much more modest trajectory.

In addition, we continue to look for fiscal policy to remain easy. Current Fed projections are obliged to adhere to the baseline assessment, which assumes that prior tax cuts won’t be rolled, as seems very likely to us.

Consequently, Fed projections are assuming that 2025 will witness fiscal policy tightening, when we feel that the opposite is much more likely the case.

In assessing value in US fixed income, it is also instructive to look at the prevailing levels of swap rates. Here, swaps have materially outperformed Treasuries in past months, such that 10-year swaps trade at a yield of 3.4%, some 40 basis points below Treasuries with 30-year rates down at just 3.3%, a discount of 80 basis points versus the 30-year T-note.

These are eye-catching levels and you might be forgiven to characterise these as looking ‘weird’ in many respects. In part, we can explain negative swap spreads as reflecting structural over-supply of government bonds and endemically indicative of a deterioration in the credit quality of US government debt in the eyes of market participants.

However, if this were just a credit story, then this would also show up in US CDS spreads and these remain subdued. Therefore, this differential as it stands, appears extreme in our eyes and we are eyeing opportunities to look for a reversal, though this may not be on the cards just yet, unless the fiscal narrative can change.

Another relevant point here is to highlight that longer-dated swap rates already appear to fully discount cash rates declining to levels consistent with the 2.75% terminal rate, recorded in the FOMC dot plot.

We believe that this is too low, as inflation is more likely to exceed the 2% target in years to come, rather than undershoot it, in contrast to what we witnessed in the decade of the 2010s.

Moreover, with markets already embedding such a benign forward-looking path on inflation and interest rates, we see plenty of scope for disappointment if inflation does prove a bit more stubborn and rates are slower to fall.

In this way, valuations across the fixed income curve do not appear attractive and we remain happy to retain a short-duration bias.

European markets have been relatively quiet over the summer and little news flow is anticipated in the next couple of weeks, with much of Continental Europe on the beach for the summer.

UK data contained some much-needed good news for the new Labour government, with growth surprising to the high side of expectations and inflation slightly lower than expected. We still see UK inflation trending materially higher over the next few months after base effects, which have been suppressing data over recent months, are reversed.

From this point of view, we doubt that the Bank of England will be in a position to reduce rates further before the end of the year. However, this week’s data reduces the risk that July’s rate cut will be viewed as a policy error in months to come.

Elsewhere, we have seen the Reserve Bank of New Zealand cutting rates in the first move of the cycle. Weakness in the Kiwi economy means further cuts are projected to follow.

Meanwhile, the economic backdrop across the Tasman Sea remains a lot brighter with the Australian economy materially outperforming on a relative basis. This has seen the A$ outperform NZ$.

Elsewhere in currency markets, firmer US data saw the dollar recouping losses, with the euro dipping, having breached $1.10 earlier in the week.

Looking ahead

Generally, this week has felt a lot quieter, notwithstanding a few notable economic data releases. The next couple of weeks look quieter on the data front and it is tempting to think that we may get something of the summer lull, which we had thought we could see at the start of the summer break.

Investors will be interested in the regular Jackson Hole monetary policy meetings, which take place at the end of August every year. However, we think that it is unlikely that we will see explicit policy guidance at this time, with the upcoming September FOMC providing the main event in terms of policy focus.

Politics could provide more volatility and in this respect it has been interesting to observe how the Harris bounce has continued to gain momentum, such that betting sites have her now the favourite to win the US election in November.

However, it may be that we are still in something of a honeymoon period for Harris and her allure could start to fade in the weeks ahead.

In all reality, the race as it stands, is probably too close to call. Yet in the short term, it seems that Trump has been floundering to lay a glove on his new opponent and seems inclined to become increasingly irritable and rambling in his comments.

Whereas markets may be rather battered and bruised after a challenging couple of weeks, and may now be in better shape because of it, the same may not apply to the former President.

By Mark Dowding, BlueBay CIO, RBC BlueBay Asset Management

Fixed income strategies Aegon High Yield Bond and BlueBay Emerging Market Unconstrained Bond were among the funds to receive the rating, which recognises strategies the FundCalibre research team believes to be the best among their asset class peers.

FundCalibre research director Juliet Schooling Latter noted the £611m Aegon fund’s “excellent” track record in recent years, which has seen it placed among the top quartile of performers in the IA Sterling High Yield sector over one, three, and five years, according to FE Fundinfo data.

Elsewhere, Ashoka India Equity Investment Trust was also commended by Schooling Latter.

She said: “Launched in 2018, this trust invests in Indian companies of all sizes. The trust adopts a stock-picking approach to target scalable businesses with sustainable superior returns on capital. Aided by a huge bank of experienced research analysts, the trust has comfortably been the best performer in its sector since inception.

“We like the trust’s unique approach to stock selection and its ability to go deeper into both the mid and small-cap markets. A highly unconstrained vehicle, we also like its approach to ESG, specifically governance, which can be a critical issue in India.”

See also: Lindsell Train, Invesco and Schroders managers join 2024 FE Alpha Manager list

Fidelity Asian Smaller Companies fund manager Nitin Bajaj was commended by FundCalibre for his clear philosophy and wealth of experience investing in the region.

“This is a genuine stockpicking fund with an emphasis on buying good businesses at prices discounted by the market. The fund has a contrarian ‘value’ bias and high active share. Risk is considered in absolute terms rather than relative to any benchmark or peer group,” Schooling Latter noted.

Comgest Growth America was commended for its “clear process” and “experienced management team”. The $990m strategy has achieved top quartile returns in the IA North America sector over one, three and five years.

Meanwhile, the £257m Martin Currie Global Portfolio Trust was also highlighted for its long term performance.

“The trust’s manager, Zehrid Osmani, has proven himself to be an excellent manager of high conviction strategies. The highly-driven research approach has proven to be extremely successful over the longer term across a range of portfolios and we see no reason why this cannot continue on this trust,” Schooling Latter said.

See also: Investors increasingly eyeing alternatives as volatility fears rise

Ninety One Diversified Income, which launched in 2012, is designed to either replace or complement bonds in a portfolio. The majority of the fund is held in fixed income assets, while it also incorporates strategic equity positions.

“We also like the team’s use of future options and swaps to hedge equity, duration and credit risk,” the FundCalibre research director added.

Four funds were also handed the ‘Elite Radar’ badge, which is awarded to strategies that are on the research team’s shortlist and could receive an Elite rating in the future.

The strategies receiving the rating were Artemis Leading Consumer Brands, GQG Partners US Equity, Man GLG Dynamic Income, and Redwheel Biodiversity.

This article was written for our sister title Portfolio Adviser

While this is a global phenomenon, the UK market, in particular, has been attracting a lot of overseas interest given how attractively priced it is. It is also highly fragmented with an abundance of opportunity.

A report from corporate finance boutique Dyer Baade & Company, M&A 2022 – Outlook for the UK Wealth Management Industry, found that there are circa 5,000 firms in the UK target pool for would-be acquirers.

In addition to the domestic players looking to buy their peers, there are a record 31 private equity-backed consolidators operating in the UK that also want to add to their respective stables.

Of these, 22 are at the beginning of their acquisition cycle, the report found, meaning they still have big appetites.

All of this interest is driving up competition and, therefore, prices. So, what does this mean in an era where cheap money is becoming scarce, and the costs of borrowing and servicing debt are only going to rise?

Could this be the beginning of the long-expected slowdown in M&A activity?

What are companies paying?

“Prices have been skyrocketing,” says Louise Jeffreys, managing director of M&A broker Gunner & Co. “The size of our market is extensive and we’re getting more and more competition for every vendor that we see come to market.

“Companies with profits in excess of £500,000, particularly those in excess of £1m ($1.18m, €1.18m), are highly competed over and, as a result, the multiples of adjusted Ebitda and income are really going up.”

On average, Jeffreys says her team has seen multiples go up one point this year. The average multiple was 6.5x over the past two years, according to Gunner & Co analysis. “Now, we’re seeing a lot more at 7.5x,” Jeffreys says.

While she dismisses recent rumours of offerings in the realm of 12x, Jeffreys says “there are some buyers going up to 10x, and that just wasn’t happening two to three years ago”.

“What we’re seeing at the moment, is lenders are not significantly changing the cost of debt. But we are seeing a real tightening on the criteria to qualify for debt.

“When it comes to an acquisition, typically, a lender will want to look at the combined Ebitda of the buyer with the target business integrated in. They will then lend a multiple against that. What I’m hearing is that lenders are being more prudent in how much they will lend against potential consolidated Ebitda.

“Banks are also slashing their investment growth expectations following the acquisition, leading them to be a lot more cautious in terms of what they are willing to lend,” Jeffreys adds.

Paid in instalments

Dyer Baade & Company chief executive Daniel Baade says: “The reality is that most of the larger acquirers have significant dry powder. So, the interest rate change that we have seen over the last three to six months hasn’t affected their willingness to pay, or their financing costs.

“The other important factor, in this context, is that the majority of deals – not the mega ones, but the smaller-to-medium-sized ones – are not paid 100% on completion, usually there is a portion paid up front and the remainder is deferred.”

He added that the third consideration is, factoring in the cash generated by the business, the need for financing is not as high as might be expected.

Baade has not seen deals in the past three-to-six months undergo any significant changes, in terms of how they are structured, but he does expect that might start to appear in the next 12-24 months.

While the PE firms are sitting on sufficient cash and they are driven to acquire businesses “to get their balance sheets to grow”, Baade thinks little will change. But, when the market starts running out of steam in the next year or two, he expects there will be a “price correction”.

‘We don’t like debt’

One of the most prolific acquirers recently has been Martin Gilbert’s Assetco, which bought six firms in around 16 months. But the latest deal, which saw Edinburgh-based SVM Asset Management join its stable, took on a slightly different format.

As previously reported by our sister title Portfolio Adviser, the acquisition will be satisfied by the issuance of up to £9m worth of 1% fixed rate unsecured convertible loan notes in Assetco. A further £1.7m in cash will be paid on completion.

All of the previous acquisitions were funded using cash and the issuance of new shares.

Assetco chief executive Campbell Fleming says the structure of the deal was specific to that particular acquisition and it was done because it was “the most beneficial for the owners of SVM”.

“In terms of us going forward, we prefer to do things by way of issuance or with equity. One of the reasons we decided to go the listed route was so we would have currency and we could use the shares. And that has proven to be pretty attractive to many people where our sweet spot is at the moment. Namely investment-led, active management companies that have gotten to a certain point that need help to go further.

“They want a capital event, we can give them liquidity and listed shares, along with capital backing.”

Fleming acknowledges that debt is used “effectively in the private market space to gear returns”, but adds the Assetco team “will almost definitely avoid [using it]”.

“We don’t like it. We will predominately do things using our equity and will always use a small component of cash because we need to buy the cash that’s in the company for regulatory and working capital,” he adds.

But where would-be buyers don’t have the luxury of the Assetco approach, Fleming does expect there to be a lot more focus on the acquisition price.

“Before, people may have been prepared to be less vigilant on the overall price, I think now you’ll get a tightening of the spread.”

Writing on the wall but we’re not there yet

The factors driving the almost gravity-defying UK wealth market M&A have not yet run their course, meaning that a substantive change is unlikely in 2022 and, if Baade is correct, not before H2 2023 – at the earliest.

The UK is still cheap, there is an abundance of acquisition targets and access to reasonably-priced money has not yet evaporated.

Before too long, however, the industry could look remarkably different, as more and more players are scooped up by rivals. Given its fragmented nature, this is arguably not bad for the wealth management sector.

But, as Gunner & Co’s Jeffreys points out, the part of the conversation that is not being put front and centre – as it ought to be – is what happens once the deal is done.

“One of the things we talk about as dealmakers is, with a transaction, there is a constant magnifying glass on the deal, the details and the legal contracts. While forgetting the really important discussions about client integration, office locations, the client experience, and so on.

“All of the focus is on the wedding and not on the marriage. What happens after the deal is the most important parts,” she adds.

For more insight on UK wealth management, please click on www.portfolio-adviser.com

Abacus (Gibraltar), which opened an office in Hong Kong in July 2017, has named Ian Godfrey to lead its subsidiary Abacus Horizons.

Abacus Horizons will initially focus on UK Tier 1 Investor and Entrepreneur visas, in addition to attracting business within the crypto space to Gibraltar.

Chief executive Christopher Pitaluga said: “Ian brings both technical and local knowledge to the Abacus brand and allows us to expand into a developing region.”

A Mandarin language graduate of Beijing Normal University, Godfrey is a former insurance broker who most recently consulted on Gibraltar’s relations with China’s government and nationals.

Abacus Gibraltar offers wealth management, structuring, tax, legal and accounting services for private and corporate clients.

Sanne

Trust and fiduciary provider Sanne has named Jonathan Ferrara as managing director of its Jersey client services business.

Prior to joining Sanna, Ferrara held a range of senior positions in Jersey, Switzerland and the UK, at Bank of America and UBS.

Ferrara will be responsible for providing expert guidance and support to the local client service leadership teams based on the island.

Pensionsync

Former pensions minister Ros Altman has become chair of Pensionsync, a fintech firm that focuses on auto enrolment administration.

She will work with chief executive and co-founder Will Lovegrove, with an aim to reduce costs, improve data accuracy and upgrade efficiency of data input.

Altmann was raised to the peerage of Baroness in May 2015.

Ogier

Senior litigator advocate Rebecca McNulty has joined Ogier from Bedell Cristin.

She specialises in commercial litigation, contentious trust, regulatory work, property related disputes and insurance litigation including high value personal injury and professional indemnity claims in particular.

McNulty joins Ogier’s dispute resolution team which is headed by partner Nick Williams.

Bluebay

Fixed income manager BlueBay Asset Management has appointed Gautam Kalani to the newly created role of emerging market FX Strategist.

Based in London, Kalani will join the five-strong EM strategist team, reporting to senior sovereign strategists Timothy Ash and Graham Stock, and will be responsible for analysing and shaping global FX positioning across BlueBay’s emerging markets investment strategies.

Kalani was most recently a strategist in the emerging markets research team at Deutsche Bank.

HANetf

Hanetf has hired Alistair Currie as manager, product research & strategy, from Invesco where he managed market analysis, investor reporting and forecasting for its range of ETF products.

Reporting to Nik Bienkowski, co-chief executive of Hanetf, Currie will oversee fund research, financial market analysis and strategy as part of the company’s comprehensive ETF product development, distribution and marketing solution.

Withers

International law firm Withers has promoted 14 new partners across its Asian, European and US offices.  The appointees’ new roles take effect from 1 July 2018.

• Joy Chang, based in San Francisco, advises on estate and gift planning, probate and trust administration, and charitable giving.  Chang frequently advises on cross-border matters.
• Chua Yee Hoong, based in Singapore, advises on tax matters, including litigation, as well as matters involving wills and succession, probate, estate administration, immigration and charities.
• Stefano Cignozzi, based in Milan, advises on M&A and corporate finance transactions, representing private equity, multinationals and privately held companies.
• Lara Crompton, based in London, advises on tax and succession planning, including trust structuring. Crompton frequently advises international families on multi-jurisdictional planning.
• Billy Ko, based in Hong Kong, advises on family law, civil litigation and media law matters. His family cases often involve complex asset holding structures and trusts, and his experience in media and reputation management complements this work.
• Leong Chuo Ming, based in Singapore, advises on corporate transactions, with a particular focus on equity capital markets work and M&A. Leong’s experience includes regulatory and compliance work for clients.
• Xanthe Lok, based in London, advises on banking and finance matters, working with borrowers and lenders on bilateral and syndicated secured and unsecured corporate borrowing/lending and real estate finance transactions.
• Joseph Morales, based in Connecticut, advises on M&A, commercial real estate and corporate finance transactions. His clients include private clients, family offices, privately held companies, emerging companies and entrepreneurs.
• Alessia Paoletto, based in London, is a dual qualified Italian lawyer and English solicitor, advising on international succession and trust planning, and cross-border UK-European inheritance disputes.
• Alana Petraske, based in London, advises charities and donors on issues including tax-efficient, the structuring of philanthropic giving vehicles, the terms of direct funding, venture philanthropy and social investment.
• Matilde Rota, based in Milan, advises on commercial and banking litigation matters. She also regularly advises on issues such as product liability, contract and credit recovery.
• Lesley Timms, based in London, has a broad commercial litigation and arbitration practice with a focus on complex contractual disputes, and frequently works on disputes with Italian elements.
• Jocelyn Tsao, based in Hong Kong, advises on all aspects of matrimonial law including divorce, prenuptial agreements, child care and custody and financial disputes, and acts as an advocate.
• Sharon Whitehouse, based in Milan, advises on a range of corporate and commercial matters, including M&A for private companies, international joint ventures and equity investments. She additionally advises on equity and debt private placements and real estate financing.

Artemis has announced that ex-JP Morgan Asset Management UK head Jasper Berens is to take over from head of distribution Dick Turpin who is set to retire after a 30-year career.

Berens is slated to join Artemis in October at which point he will take over from Turpin before his retirement at the end of the year.

He announced he was leaving JP Morgan AM back in March after over 20 years at the firm, most recently serving as head of its UK division.

Turpin has looked after sale and distribution for Artemis since 2002. He is also a partner and member of the fund group’s management and executive committees.

He began his career over 25 years ago working for Merrill Lynch, followed by posts at Aetna and Barings.

Turpin then moved to ABN Amro Asset Management in 1998 where he became managing director of ABN Amro Fund Managers, which was subsumed by Artemis in September 2002.

St James’s Place

St. James’s Place, the wealth management group, has made several changes to its range of funds.

The changes, which take effect from 30 July 2018, include:

• Boston-based Steve Gorman of Wellington Management will be appointed lead manager for the Alternative Assets fund.
• Ken Hsia from Investec Asset Management will manage the Continental European fund and will co-manage the Greater European Progressive fund.
• The AXA Framlington Managed fund will be renamed the Balanced Managed fund. A blended management team of Ben Inker of GMO and Mark Baribeau of Jennison Associates will assume responsibility for this strategy.
• The team at Majedie Asset Management, managers of the UK & General Progressive and UK Growth funds, will be given additional flexibility to invest up to 20% of its strategy in overseas equities.
• The Schroder Managed fund will be renamed the Managed Growth fund for life, pension and international products.

Martin Currie

Martin Currie has poached from Blackrock as it confirms equities jack of all trades Tom Walker will retire from the business.

Walker, who leads the global long-term unconstrained team, will hand over responsibilities to Zehrid Osmani.

The team is responsible for $500m of assets under management.

Martin Currie told Portfolio Adviser the handover would take several months, but they said a date for Walker’s retirement had not been set.

AJ Bell head of active portfolios Ryan Hughes said Walker is experienced both in tenure and range of strategies he managed.

Walker has been responsible for Asian, US and global funds.

BlueBay

Global specialist fixed income manager, BlueBay Asset Management, has hired Stephen Thariyan to the newly created role of co-head of Developed Markets.

Based in London and reporting to Raphael Robelin, chief investment officer, Thariyan will work alongside Mark Dowding, also co-head of Developed Markets.

He will assume responsibility for the Developed Markets’ corporate credit investment process and help develop and grow BlueBay’s corporate credit strategies across investment grade, leveraged finance and convertible bonds.

Thariyan has more than 25 years’ experience as a credit investor, most recently at Henderson Global Investors where he was global head of Credit for the last ten years. Prior to this he spent 8 years as a senior portfolio manager at Rogge Global Partners and has also held roles at Natwest Markets and Chevron Corporation.

VanEck

VanEck is expanding its European ETF business with the appointment of Dominik Schmaus as product manager.

Schmaus will work with the team to develop innovative products and help to expand the range of products for European clients.

He is joining VanEck from Deka Investment GmbH, where he gained numerous years of experience in developing and implementing exchanged-listed index funds as a member of the ETF product management team.

Deloitte

Isobel Clift has joined Deloitte’s UK tax investigations team as a senior manager. Clift began her career in tax more than 18 years ago at the Inland Revenue where she qualified as a Inspector.

Her experience in the private sector has spanned more than a decade in both the Big four and a smaller tax advisory firm.

Clift provides specialist advice and assistance on all matters relating to dispute resolution with HMRC including enquiries into the tax affairs of individuals, corporates and owner managed businesses.

She has several years’ experience in assisting clients with voluntary disclosures to HMRC, particularly those relating to offshore assets.