By Ivan Anderzhanov

A senior shake-up at Credit Suisse has left the investment bank without a Moscow-based head to cover the Russia, the CIS and Turkey region.

The current incumbent Fawzi Kyriakos-Saad is moving to London to replace Eric Varvel as head of Europe, Middle East and Africa region. Varvel has been named as chief executive officer of the bank to replace Paul Calello who is suffering from a serious illness.

Kyriakos-Saad joined Credit Suisse in 2006 from JP Morgan Chase, where he worked in a variety of senior fixed income and emerging market management roles. Before joining JP Morgan, he spent eight years at Goldman Sachs in New York and London.

He will retain his role as co-head of the global emerging markets council. His replacement in Moscow is expected to be made by an internal promotion.

By Andrei Skvarsky

Investors in the Gulf countries are looking to significantly increase their exposure to emerging markets, according to a survey by UK investment company Invesco Perpetual.

Some 82% of  respondents forecast they would invest in emerging markets over the next three to five years. This compared to just 30% for North America, 14% for Europe and 8% for Japan.

Invesco said Gulf investors were shunning developed markets because they expected emerging markets to yield higher returns.

Nick Tolchard, head of Invesco Middle East, said the region was characterised by diversity in acces to products. He said:  “Certain markets, such as Saudi Arabia, have restricted access to international investments whereas others, such as the UAE, are dominated by offshore life wrappers with large international fund ranges.”

On the institutional side, Tolchard said sovereign funds prefer private equity and hedge funds while wholsale investor usually go for mainstream equities and bonds.

By Marcus Williams

BofA Merrill Lynch  has beefed up its EMEA research platform with three hires as part of a new EMEA economics and fixed income strategy group.

Arko Sen joins the group with seven years of experience in emerging EMEA fixed income strategy, most recently at Barclays Capital, along with Jean-Michel  Saliba who has five years of experience in covering the Middle East and North Africa, including at JP Morgan and Pantera Capital Management.

As previously reported by Emergingmarkets.me, Ivan Tchakarov, joins as chief Russia economist from Nomura.

The trio form part of a seven-member  EMEA and fixed income group, led by David Hauner, currently head of emerging EMEA Economics at BofA Merrill Lynch.

By Chris Weafer, Chief Strategist at UralSib Capital

Investors still favour emerging markets. Global market uncertainties, such as the Greek debt restructuring, have not yet dissuaded investors from continuing to raise exposure to the emerging market asset class. Having put around $75bn into EM funds in 2009, most of which was a switch from US equity exposure, investors are still building on that with new allocations.

In the week to last Wednesday, the data from EPFR Global shows that a total of $1.9bnwas placed in all EM funds. Of that, $602 m went into GEM Balanced funds and brought the total for April to $3,898m. That was the best month since last October. BRIC themed funds took in a modest $39m last week and $85m for the month. Emerging Europe funds also remain consistently positive and last week’s $115 mln was the seventh straight week of new money flows. Year to date the total for that category is $431 mln.

Russia funds steadily attracting new money. China funds reported the highest volume of inflow for April but Russia funds have been the most consistent in attracting positive flows this year. Last week, Russia funds reported new money of $347m. That was the eleventh straight week of inflows for these funds and brings the total so far in 2010 to $2,167m, including $729m in April. China funds reported new money flows of $1,239m through April and that brings the total for the year to $1,284m.

China funds attracted very little new money in the 1^st Qtr due to fears over lending curbs. Brazil funds continue to suffer redemptions, albeit last week the loss was only $4m. That was the third straight week of outflows from Brazil and brings the year to date flow total to a negative $50m. India funds took in $88m, bringing the total this year to $574m.

Russia neutral within GEM funds. The comprehensive end March fund structure report was also published last week by EPFR. It shows that Russia’s weight within an average EM fund is 7.26%. That is up slightly on the 7.20% at end February but down on the 7.66% at end January. That is roughly neutral relative to the weight of Russia within the MSCI EM Index. Investors are wary of increasing Russia risk until they see hard evidence of domestic economic recovery that does not depend on exports to China.

The weighting of Brazil in EM funds is sliding and, at end March, was 15.77%. That compares with 16.6% at the start of the year and 17.2% at the end of November last. That drift within the BRIC theme from Brazil to Russia is expected to continue so long as oil stays above mid $70’s p/bbl. Brazil is facing a difficult election period, is raising interest rates and assets are, on average, a lot more expensive than Russian peers when viewed with 2011 forecasts.  Russia’s weighting in the Emerging Europe category was 48.92% at the end of March. It has been consistent around that level since last October. Turkey’s weight has increased very slightly to 12.85% of the category.

By Marcus Williamsa

IPM Informed Portfolio Management, a Swedish fund manager, is launching a new emerging markets fund and has already raised €50m.

IPM, which has $8bn in funds under management, said its new vehicle is part of a Luxembourg based UCITS III Fund (SICAV) and is open to institutional and retailer investors.

Jonas Rinne, chief executive of IPM, said in a statement: “The fund is the result of overwhelming demand for an emerging markets platform employing the RAFI strategy.”

IPM “RAFI funds” are screened for compliance with international conventions and guidelines on environment, human rights and business ethics.

By Ivan Anderzhanov

Investors are set to accelerate commitments to emerging markets private equity in a bid to find new high growth markets, according to a report by the Emerging Markets Private Equity Association.

Institutional investors believe that emerging markets are attractive for private equity investment, both on a standalone basis and relative to more developed markets, according to the survey.

The report said over half (57%) of limited partners (LPs) currently invested in EM PE plan to accelerate their new commitments over the next two years.

Total commitments to emerging market funds are expected to rise from 6-10% today to 11-15% in two years time.

Over three-quarters (77%) of LPs expect annual net returns greater than 16% from their emerging markets portfolio.

“Investors are clearly drawn to markets with strong underlying growth rates, which trumps leverage in driving returns,” said Sarah Alexander, president and chief executive of EMPEA, said in a statement.

By Marcus Williams
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Emerging markets investment house Ashmore Group said half-year net profit jumped 40% to $172 million after markets bounced back.

The London-listed company had previously reported that assets under management increased $500 million to $31.6 billion in the three months to Dec. 31, due to $300 million of new cash and $200 million of positive performance.

Mark Coombs, chief executive of Ashmore, said in the statement: “Ashmore remains well-positioned to benefit from the opportunity presented by the increased importance of the emerging markets; role within the global order, and increased investor allocations into, and between, emerging markets.”

By James Ladue from Emerging Manager Focus

The New York State Common Retirement Fund (CRF) made 10 investments on behalf of the pension totaling more than $446 million in value and closed four transactions in its private equity portfolio totaling $160 million throughout December 2009, according to Hedge Fund.net’s Marc Raybin.  For its private equity portfolio, the pension made a $25 million investment in a fund managed by Bunker Hill Capital.

The CRF also made a $30 million allocation into a fund managed by Relativity Capital as part of the CRF’s emerging manager program and it is a new relationship for the plan. SAIF Partners took in a $100 million commitment by the CRF on Dec. 18. The pension has worked with SAIF previously. The last private equity investment made by the CRF in December took place on the 18th, when the plan committed $5 million to a fund managed by Clearlake Capital Group, in addition to the $15 million promised by the CRF as part of its emerging manager program.

The CRF also invested $125 million to its hedge fund strategy to an equity long-short fund managed by Pennant Capital Management. This investment closed on Dec. 1. Other investments include a $100 million in a fund managed by Invesco on Dec. 10 and $50 million committed to a fund managed by Oaktree on Dec. 18 as part of the CRF’s public-private investment program.

By Marcus Williams in London

The £21bn USS pension scheme in the UK has hired an emerging markets team charged with leading a push into the asset class.

The fund, which is the second largest private sector pension fund in the UK, has hired Carmel Peters, Danila Gallarato and Chris Shale to boost its emerging markets expertise.

Peters will lead a combined GEMS/Asia unit, incorporating the fund’s existing four-person Asia Pacific ex-Japan team. She, along with Chris Shale,  join from from RWC Partners Limited, while Gallarato was previously at the Abu Dhabi Investment Authority.

Peters has been investing in Asia and Emerging Markets for 25 years.  At RWC, she was a partner and head of Asia Pacific and global emerging markets. She previously spent four years at Sofaer Capital Research, as a partner and the portfolio manager on the Sofaer Asia, Sofaer Pacific and Sofaer emerging markets hedge funds. She also had stints at Putnam and Rothschild Asset Management.

Gallarato joins the USS with over 15 years’ experience in the financial sector, including over 10 years managing emerging market portfolios., including stretches at Allianz in Italy and Hermes in the UK.

Before joining USS, Shale worked with Peters at RWC on the Asia Pacific ex Japan markets. He also worked with Peters as an analyst at Sofaer Capital, covering both Asia Pacific ex-Japan and GEM markets. From 2002 to 2005 he worked as an analyst in Collins Stewart UK, where he was responsible for the Japan/ Asia CFROI product. He joined the industry in 1994, working as a dealer and analyst at Rothschild Asset Management in Hong Kong.

By Emerging Manager Focus

Morgan Stanley Investment Management (MSIM) has launched its Emerging Manager Program (EM Program). Seeking to provide capital, strategic advice and infrastructure solutions to emerging asset managers, “EM Program” will partner with long-only (equity and fixed income) and alternative minority and women-owned asset managers.

The program has a specific emphasis on minority and women-owned asset managers, the program will be headed by Clara Harris. The new program will focus on increasing the number of emerging managers of scale; make available more avenues for growth and success to the managers; and introduce sponsors and institutional investors to a more diversified pool of managers and their emerging talent.

The EM Program will be a part of Alternative Investment Partners (AIP) division of MSIM, which manages portfolios of private equity, hedge fund and real estate investments on behalf of institutional and high net worth clients. The manager participants in the EM Program will be overseen by an Investment Committee comprising representatives and senior management from across Morgan Stanley and MSIM.

According to Ms Harris, “We are excited about the prospects of partnering with Emerging Managers that we believe will benefit substantially from Morgan Stanley’s premier infrastructure partnerships, business strategy insights and accelerating capital, in order to allow them to focus on managing assets and achieving superior long-term performance.

“We believe that Emerging Managers will present attractive opportunities over the next few years, particularly as public and corporate pension plans seek to diversify their asset management providers and employees look for diverse asset managers among the choices on their employer defined contribution platforms. This program will increase the opportunity for plan sponsors and other institutional investors to get exposure to a larger pool of untapped talent and to place assets with a diverse group of managers.”

Morgan Stanley Investment Management and its affiliates, have nearly 1,000 investment professionals around the world and approximately $386 billion in assets under management or supervision as of September 30, 2009.

The firm provides a wide range of investment banking, securities, investment management and wealth management services serving clients worldwide from more than 1,200 offices in 36 countries.

Source – Emerging Manager Focus

By Marcus Williams in London

Stock markets in emerging economies of Brazil, Russia, China and India registered double or triple-digit gains in the noughties compared to the US equities market which shed almost 20%.

Emerging market rallied more strongly than their emerging market counterparts over  last year after being hit more severely by the 2008 international credit crisis. But data for the decade showed emerging markets outperformed most developed economies over the decade too.

Equity funds focused on emerging markets, which were hit by redemptions worth $49.5bn in 2008, attracted record inflows of $80.3bn in 2009, representing the highest influx since 1997, according to fund tracker EPFR.

Almost $60bn of this year’s inflows went to the four largest emerging market economies – Brazil, Russia, India and China. China funds attracted  $6.8bn, Brazil-specific funds $4.9bn, India $3.1bn and Russia $1.5bn.

Jerome Booth, Head of Research at Ashmore Investment Management comments on the global backdrop for emerging markets over the past year and forecasts an encouraging future for EM asset classes.

Reviewing some of the key themes in 2009:

· Whilst there was global disruption to cross-border finance, the main negative impact on selected emerging countries has been a fall in export demand from the US and Europe.  This is much more straightforward to deal with than the credit crunch and banking sector problems of the developed world.
· Emerging markets cut interest rates during the downturn, just as in the developed world – an indication of lack of perceived (or actual) increase in emerging sovereign credit risk.
· The nascent recovery in the US is highly fragile, and, in the absence of further fiscal resources, has depended on the Fed’s ability to convince markets that everything is recovering. Such sentiment has pushed up asset prices which in turn has helped banks recapitalise.  Keeping yield curves steep has also helped the banks.
· Towards the end of 2009 monetary policy in the US has probably reached the limit of what it can achieve to help the economy rebound. There is a dissonance between further deflationary pressures and market concerns over inflation. There is also a stress between the desire for more quantitative easing and dollar credibility.
· 2009 was the year the G20 rose to prominence, reflecting a new reality of global economic power.

Outlook for 2010:

· Global rebalancing requires the dollar, euro and sterling to fall relative to the currencies of large surplus countries in the emerging markets. This will allow a US/European export-led recovery, but needs a consumer boom in Asia and other emerging markets to fuel it”.
· US consumer confidence is very shaky and the risk of further hoarding by consumers, which could cause a major double dip and much higher unemployment than currently anticipated, is not expected by any of the main investment banks, all of which predict above par growth in the US next year.
· A US funding crisis, though unlikely, could occur – $1.7 trillion of Treasury issuance is planned next year.  Central banks are the dominant external buyers and already hold around 50% of Treasuries.

Outlook for emerging markets:

· Given the risk of a double dip and further sharp deleveraging, emerging market (multi-country) asset classes are arguably now safer than their equivalents in developed countries.
· Emerging countries have a wide range of policy tools to cope with further external shocks or other economic problems
· A number of East Asian economies in particular will have to move to a more domestic demand driven model of growth in future. The main prompt for Asian currency appreciation is likely to be inflationary pressure associated with their strong V-shaped recovery.

Further still, the credit crunch should be highly positive for emerging market asset classes insofar as it speeds changes in:

· Global perception (away from the core-periphery model which largely leads investors to ignore emerging markets);
· Risk perception and measurement: risk is everywhere, not just in far flung emerging markets – also closer to home;
· Asset allocation – moving from cap weight to GDP weight, from home bias, from equity bias, and from agency problems causing herding;
· The investment destination of existing emerging market savings pools, including central bank reserves – more to domestic investment and other emerging markets.

Looking ahead Jerome states that there are a number of scenarios, many of them involving further problems in the economies of the developed world, that may unfold:

“The main scenario is still one of gradual recovery in the US, no calamitous double dips, and gradual rebalancing of global exchange rates.  But one should think in terms of different scenarios not just a single forecast. One should insure against the worst case scenarios, even if they are not the most likely.  The best insurance is more exposure to emerging local currency debt”.