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Updated: 8 weeks 4 hours ago

SEC grants 30-month reprieve from MiFID II research rules

Thu, 10/26/2017 - 09:37

The US Securities and Exchange Commission has announced a 30-month period of ‘temporary relief’ from new European Union investment research rules due to be introduced under MiFID II on 3 January 2018.

The move, which comes following consultation with European authorities, is in response to concerns that the under new EU regulations, US investors could lose access to valuable research. Under MiFID II, brokers will have to charge separately for research services which, traditionally, have been bundled with trading fees. The EU’s aim is to provide investors with greater transparency and encourage brokers to produce better quality research.

The SEC has now issued three related no-action letters, which are designed to provide market participants with greater certainty regarding their US regulated activities as they engage in efforts to comply with MiFID II.

The SEC says that the no-action relief provides a path for market participants to comply with the research requirements of MiFID II in a manner that is consistent with the US federal securities laws. More specifically, and subject to various terms and conditions, broker-dealers, on a temporary basis, may continue to receive research payments from money managers in hard dollars or from advisory clients' research payment accounts, and money managers may continue to aggregate orders for mutual funds and other clients. Money managers may also continue to rely on an existing safe harbour when paying broker-dealers for research and brokerage.

"Today's no-action relief was designed with input from a range of market participants to reduce confusion and operational difficulties that might arise in the transition to MiFID II's research provisions," says SEC Chairman Jay Clayton (pictured). "Staff's letters take a measured approach in an area where the EU has mandated a change in the scope of accepted practice, and accommodate that change without substantially altering the US regulatory approach. These steps should preserve investor access to research in the near term, during which the Commission can assess the need for any further action. Cooperation with European authorities, including the European Commission, has been instrumental to the SEC's efforts, and I welcome the additional guidance the EC published today. We look forward to continued dialogue on this and other important issues."

inhouse contentMiFID IINorth America

New York Attorney General agrees USD220m interest rate manipulation settlement with Deutsche Bank

Thu, 10/26/2017 - 02:45

New York Attorney General Eric T Schneiderman has announced a USD220 million, 45-state settlement with Deutsche Bank for fraudulent conduct involving the manipulation of US Dollar (USD) LIBOR (the London Interbank Offered Rate) and other benchmark interest rates.

Benchmark interest rates affect financial instruments worth trillions of dollars and have a widespread impact on global markets and consumers because LIBOR may determine how much they will be paid on their investments. New York and California led the working group of State Attorneys General investigating Deutsche Bank.  
“We will not tolerate fraudulent, manipulative or collusive conduct that interferes with or undermines confidence in our financial markets. Large financial institutions, like all other market participants, have to abide by the rules,” says Schneiderman. “As a result of Deutsche Bank’s misconduct, government entities and not-for-profits were defrauded of funds that otherwise could have been used to benefit New Yorkers.”
From 2005-2010, a panel of 16 banks made USD LIBOR submissions that were supposed to reflect borrowing rates in the interbank market. A daily LIBOR rate was calculated by averaging the middle eight submissions. The investigation found that from as early as 2005 and continuing through the financial crisis, Deutsche Bank acted unlawfully. Specifically, the investigation found that Deutsche Bank defrauded counterparties by failing to disclose that: (a) Deutsche Bank made false or misleading LIBOR submissions; (b) Deutsche Bank’s traders attempted to influence other banks’ LIBOR submissions to benefit Deutsche Bank’s trading positions; and (c) Deutsche Bank was aware that other banks were manipulating their LIBOR submissions and that LIBOR was a false rate. As a result of this misconduct, Deutsche Bank employees and management knew or had strong reason to believe that Deutsche Bank’s and other panel banks’ LIBOR submissions did not reflect their true borrowing rates and that published LIBOR rates did not reflect the actual borrowing costs of Deutsche Bank and other panel banks.
Deutsche Bank employees did not disclose these facts to the affected governmental and not-for profit counterparties, even though these rates were material terms of the transactions. Government entities and not-for-profit organizations in New York and throughout the US, among others, were defrauded of millions of dollars when they entered into swaps and other financial contracts with Deutsche Bank without knowing that Deutsche Bank and other banks on the USD-LIBOR-setting panel were manipulating LIBOR.
According to the terms of the settlement, those entities with LIBOR-linked swaps and other investment contracts with Deutsche Bank will be notified if they are eligible to receive a distribution from a settlement fund of USD213,350,000. The balance of the settlement payment will be used for the expenses of the investigation and for other uses consistent with state laws.
Deutsche Bank is the second of several USD-LIBOR-setting panel banks under investigation by the State Attorneys General to resolve the claims against it, and Deutsche Bank has cooperated with the investigation. The Attorney General’s Office benefits from the information and evidence provided by corporations that timely cooperate with the Attorney General’s investigations. Such cooperation can facilitate civil enforcement efforts, including restitution for victims of the offence.

offLegal & Regulation

FCA fines Merrill Lynch GBP34.5 million for failing to report transactions

Tue, 10/24/2017 - 02:54

Merrill Lynch International (MLI) has been fined GBP34,524,000 by the Financial Conduct Authority (FCA) for failing to report 68.5 million exchange traded derivative transactions between 12 February 2014 and 6 February 2016.

This is the first enforcement action against a firm for failing to report details of trading in exchange traded derivatives, under the European Markets Infrastructure Regulation (EMIR), and reflects the importance the FCA puts on this type of reporting.
Reporting exchange traded derivative transactions helps authorities assess and address the risk inherent in financial systems caused by a lack of transparency. The reporting requirement was one of the key reforms introduced following the financial crisis in 2008 to improve transparency within financial markets. 
While MLI were open and co-operative in assisting in the FCA’s investigation and quickly took steps to remediate the breach, MLI were the subject of two earlier and related transaction reporting cases.
Mark Steward (pictured), FCA Executive Director of Enforcement and Market Oversight, says: "Effective market oversight depends on accurate and timely reporting of transactions. The obligations under EMIR, as with MiFID, are key aspects of such oversight.  
“It is vital that reporting firms ensure their transaction reporting systems are tested as fit for purpose, adequately resourced and perform properly. There needs to be a line in the sand. We will continue to take appropriate action against any firm that fails to meet requirements.”
MLI agreed to settle at an early stage of the investigation and received a 30 per cent reduction in their overall fine. Without this discount the fine would have been GBP49,320,000.

offLegal & Regulation

Hedge fund assets hit all-time high at end of Q3, despite USD2.5bn in redemptions in September

Fri, 10/20/2017 - 10:18

Despite redemptions of USD2.5 billion from hedge funds in September, Q3 ended with USD12.5 billion of inflows and the industry sitting at an all-time peak AUM, according to the latest Hedge Fund Industry Asset Flow Report from eVestment.

The proportion of funds losing assets in September was the highest of the year, and highest since December 2016. However, the proportion of managers who lost greater than 2 per cent, or greater than 5 per cent of their total AUM due to outflows was nowhere near the level seen in December. The proportion of all funds that lost greater than 2 per cent of assets from redemptions was almost right on the annual average, while the proportion of large funds losing a meaningful amount of AUM was well below their 2017 average.
Macro funds have been, and still remain, investors’ primary allocation target of 2017, but losses among some larger funds appear to have taken their toll. 61 per cent of macro strategies had redemptions in September, compared to only 48 per cent facing net outflows for the year. Each of the largest asset losers in September have produced performance losses YTD in 2017. Despite the elevated redemptions in September, several funds still received meaningful new allocations during the month.
Managed futures fund flows were negative for a third consecutive month as revised August data ultimately showed a slight outflow that month. Outflows in September were elevated, and nearly 70 per cent of reporting managers faced redemption pressures during the month. Performance has undoubtedly been the culprit, and while that part of the picture had improved in July and August, losses returned in September. The outlook to year-end for managed futures fund flows does not have many supporting factors at the moment.
The revival of long/short equity strategies accelerated into the end of Q3 with the strategy’s largest monthly inflow since February 2014. While the story on the strategy for 2017 had been of large, but targeted allocations to large funds, and to those with an emphasis on quantitative approaches, inflows in September were much more widespread. More than half of reporting managers saw net new money come in during September, and those with net inflows for the year improved to near 40 per cent.
Three months after four consecutive months of performance losses ended in June 2017, commodity managers faced their largest redemptions since November 2012 to end Q3. Net inflows for the quarter, and for the year, remained positive after September’s outflow, however with performance losses again in September, the future is less rosy.
After two months of light outflows, September’s EM inflow was the largest in twelve months. It appeared that, after redemptions in July and August, the resurgence of flows into EM hedge funds which had only started in May, had fizzled. September’s allocation, however, more than offset the prior two months’ redemptions. But a closer look at the numbers shows that inflows were very much isolated within a small handful of funds as the majority of products still faced redemption pressures. Allocations were greatest to products focused on EM credit markets.
About 50 per cent of reporting China-focused funds had inflows in September, which is slightly better than the overall hedge fund industry. Flows from reporting managers were net positive during the month, but only a small proportion had meaningful new allocations. 

offResults and performanceFundsFlag: alphaq

Apex Fund Services to acquire Deutsche Bank’s Alternative Fund Services business

Fri, 10/20/2017 - 05:03

Apex Group’s Apex Fund Services is to acquire Deutsche Bank’s Alternative Fund Services (AFS) business, a deal that will add USD170 billion in AUA and make Apex the eighth largest fund administrator in the world, and the largest independent administrator.

The deal reveals the rapid expansion of Apex since the company was recapitalised by Genstar Capital and simultaneously acquired Equinoxe Alternative Investment Services. The purchase of the AFS business is the most recent significant step in Apex’s movement towards its stated goal of being a top five global fund services business.
Apex’s global reach and connected operating model opens up an additional 18 investment jurisdictions to AFS clients, with local expertise available through the Apex network of offices. The combination of AFS and Apex will also enable a broader range of products and services to be offered to clients. Apex’s local service delivery model, coupled with AFS’ management, staff and platform, will ensure client service continues at the highest level. It is this service model and the global network of offices that has enabled Apex to achieve one of the fastest organic growth rates in the sector. Terms of the agreement are not being disclosed. The transaction is expected to close in the second quarter 2018.
“This is another significant step in the evolution of the Apex Group. This transaction complements the existing Apex business and further strengthens our position as the leading independent provider of fund services globally,” says Peter Hughes (pictured), Founder and CEO at Apex. “This acquisition is consistent with Apex’s ongoing commitment to continued strategic investments and to developing our product offering to become the most complete partner in the sector.”
“The Apex team is working closely with Deutsche Bank to ensure a seamless transition and we are committed to providing our new customers with the same high level of service our current Apex customers have come to expect and delivering additional and tailored services to the AFS clients. Apex’s philosophy for delivering tailored and client-centric service on a local level remains the same. We are delighted to welcome the AFS management and staff to Apex and look forward to continuing to develop our global team as we step closer to our target of becoming one of the world’s top five largest fund administrators,” adds Hughes.
Tony Salewski, Managing Director of Genstar Capital, says: “We are excited to continue supporting Apex’s growth trajectory through the acquisition of this high-quality business. AFS expands Apex’s sophisticated private equity and real estate servicing offering, and adds complementary banking products to Apex’s global client base. The combination yields benefits to the clients of both Apex and AFS.”
“A key goal with this transaction was to find a partner that will continue to deliver high quality services to our Alternative Fund Services clients. We feel we have achieved our objective with Apex, with whom Deutsche Bank is looking forward to working closely over the coming months,” says Satvinder Singh, Global Head of Securities Services at Deutsche Bank.
Macquarie Capital acted as exclusive financial advisor and Willkie Farr & Gallagher provided legal counsel to Genstar and Apex. Deutsche Bank acted as financial advisor and Freshfields, Bruckhaus Deringer provided legal counsel to Deutsche Bank.

offDeals and TransactionsAcquisitionsServicesFund administration

JonesTrading appoints head of capital introduction

Fri, 10/20/2017 - 02:00

JonesTrading Institutional Services has appointed Bob Becker as a Managing Director, Head of Capital Introduction based in New York.

In this role, Becker (pictured), will be responsible for building the firm’s Capital Introduction offering – the focus will be on alternative investment managers, institutional investors, and family offices. Becker has held similar senior roles at other firms including Jefferies. He has also previously worked in the outsourced COO/CFO industry and on the buyside including launching and managing his own hedge fund.
JonesTrading is a relatively new but rapidly growing player in the Outsourced Trading and Prime Services businesses after recruiting industry veterans Jeff LeVeen (KCG/CITI) and Andrew Volz (Wells Fargo/Merlin Securities) to lead the offerings. 
Alan Hill, CEO of JonesTrading, says: “Bob’s appointment is the next key step in our strategic plan to build our leading institutional brokerage platform offerings in prime services and global outsourced trading. Bob’s extensive network and experience in capital introductions adds tremendous value to our existing services. His experience will complement our approach in prime and outsourced trading for our emerging and mid-sized manager client base.”

Becker, Managing Director and Head of Capital Introduction, says: “JonesTrading is the perfect platform for my background and relationships. Given the long history of the firm and the quality and diversity of the current client base we can identify relevant managers and investors efficiently, while adding value to both.”

offMoves & Appointments

Man Numeric expands UCITS offering with launch of Man Numeric European Equity fund

Thu, 10/19/2017 - 03:25

Man Numeric, Man Group’s quantitative equity investment manager, has launched the Dublin-domiciled Man Numeric European Equity fund, its fifth UCITS-compliant vehicle for the European market.

The Man Numeric European Equity fund provides investors with access to Man Numeric’s European Core strategy, which launched in 2002. The investment strategy aims to outperform the MSCI Europe Index and provide consistent returns over time through quantitative, bottom-up stock-selection from a broad stock universe of about1,300 names, via a fundamental, systematically implemented, investment process.
Overseen by portfolio managers Greg Bunimovich, Ori Ben-Akiva and Mickael Nouvellon, the strategy utilises a combination of proprietary Valuation and Information Flow models to select stocks. The disciplined portfolio construction process is designed to capture alpha while managing sector, country and stock-specific risks.
Shanta Puchtler (pictured), President and CEO of Man Numeric, says: “The launch of the Man Numeric European Equity fund further expands our range of alpha-generating strategies available to European investors. The fund provides investors with access to our European Core strategy, one of Man Numeric’s longest running strategies. As Man Numeric continues to grow and develop as part of Man Group, the launch of UCITS-compliant vehicles is an important step in our increasingly global and diversified offering for clients.”

offFundsLaunches & Fundraising

September gain of 0.42 per cent takes hedge funds to +5.33 per cent YTD, says Eurekahedge

Wed, 10/18/2017 - 02:39

Hedge funds were up 0.42 per cent in September, with 2017 year-to-date gains coming in at 5.53 per cent, according to the October 2017 Eurekahege Report.

Total hedge fund assets grew by USD157.52 billion over the past nine months with USD83.1 billion attributed to investor inflows while managers posted performance-based gains of USD74.4 billion. The industry's total assets currently stands at USD2.38 trillion.
Long/short equities mandated hedge funds led the table for the month with gains of 1.46 per cent. On a year-to-date basis, long/short equities hedge fund managers also topped the tables gaining 9.00 per cent. Year-to-date investor allocations for long/short equities hedge funds currently stand at USD18.9 billion, the highest year-to-date net inflows among strategic mandates this year.
CTA/managed futures hedge funds declined 1.37 per cent this month and down 0.76 per cent year-to-date, the mandate's worst year-to-date returns on record with its sub-group of commodity focused strategies down 1.22 per cent while trend following strategies declined 3.10 per cent. CTA/managed futures managers posted performance-based losses totalling USD7.1 billion this year while net inflows totalling USD12.7 billion were recorded over the same period.
nsurance-linked securities (ILS) hedge funds registered losses of 5.08 per cent in September and down 3.29 per cent year-to-date as managers portfolio was affected by US hurricane exposure. While some funds have already posted losses in August and September, the full degree of damage from Harvey, Irma and Maria would only truly reveal itself in the coming months. For details see our latest Strategy Profile on ILS Hedge Funds.
New fund launches activity has been slowing down, with 421 launches over the first three quarters of 2017 which compares to 543 and 658 launches over the same period in 2016 and 2015 respectively. Meanwhile pressure on fees remains with the average new fund startup charging 16.9 per cent of performance fees, down from 18.2 per cent last year as increasing competition within the hedge fund industry continues.
The USD543.0 billion European hedge fund industry grew its AUM by USD37.1 billion as of September 2017 year-to-date, following a steep contraction in AUM of USD27.0 billion in 2016. Managers investing with a dedicated European mandate were up 5.89 per cent for the year following a flat gain of 0.25 per cent in 2016.
As of September 2017 year-to-date, Asian funds have recorded a growth in AUM of USD16.23 billion, with USD10.8 billion accounted for by performance-based gains while the remainder, roughly USD5.4 billion has come through net investor allocations. Asia ex-Japan managers are up 14.87 per cent for the year, leading the table among strategic mandates with underlying Greater China and Indian managers up 22.16 per cent and 19.36 per cent year-to-date respectively. Japan focused funds are up 8.83 per cent over the same period.
Strong investor inflows were recorded since the start of the year for the USD1.59 trillion North American hedge funds industry with total investors allocations for 2017 year-to-date stood at USD51.2 billion. A total of USD4.1 billion outflows were recorded on the same period last year ending September. For more details, please refer to the North American Hedge Funds report.

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