Category: Funds

EM local currency bond funds were responsible for all of the $267m inflow to the broad EM bond fund group last week, according to EPFR Global. EM hard currency bond funds had net outflows. “Investors appear to prefer the local currency funds as dollar weakness provides an incentive to increase exposure to non-USD currencies,” says EPFR. The inflow to EM bond funds was the largest since the second week of June, while in performance terms it was the second best week of the year. By contrast, global bond funds saw $286m pulled out by investors, even though their year-to-date portfolio performance is better than that of EM, says EPFR.

Investors continue to commit money to LatAm equity funds, according to EPFR Global. The buyside class posted a collective portfolio gain last week of 4.32%, taking the total for the past seven weeks and year-to-date up to 25.51% and 58.4% respectively. However, this may be the rise preceding a fall. “Recent performance and flow numbers look like they are outstripping fundamentals,” says EPFR global analyst Cameron Brandt. “During the last big run, between October 2006 and February 2007, it took 20 weeks for the funds we track to gain around 23%. That run ended with $9.5bn flowing out over two weeks and 7% being shaved off year-to-date performance.” Brazil equity funds had their best week in percentage terms since Q2 2002, with the net $976m they took in more than offsetting modest outflows from LatAm regional equity funds, EPFR data shows.

Private equity investment firm Conduit Capital Partners has sold an 82% stake in the 155 megawatt Termotasajero pulverized coal plant in Cúcuta, Colombia for $173m, it said in a statement. A Chilean investment fund and several Colombian pension funds bought the stake following a bidding process led by BNP Paribas. Scott Swensen, managing partner, declined to identify the buyers, but told LatinFinance that through the same process one other asset is subject to a binding SPA and other sales are being negotiated. He says four assets from Latin Power I and II remain to be sold. Latin Power I and II bought the Termotasajero stake in 1998 from the Colombian government.

Brazil’s main large cap stocks still have plenty of room for higher valuations, in the view of William Landers, manager of asset manager BlackRock’s $732m LatAm fund. “We don’t think there’s a valuation bubble here,” said Landers, speaking Tuesday at a luncheon. Over 60% of the fund is dedicated to Brazil, where Landers sees the most growth opportunity versus the rest of the region. “Many large cap names are trading in line or at a discount to their EM peers,” notes Landers, pointing to CVRD which trades at 16.40x its earnings, a discount to BHP Billiton’s 17.12x, according to Reuters. Unlike their Brazil counterparts, Chilean stocks have the most to lose in the region, says Landers, who points to an average PE ratio of 20.4 for Chilean stocks, compared to 10.5 for Brazil and 15.2 in Mexico.

EM equity funds took in $5.21bn in the week ended October 5, bringing their net intake over the past six weeks to $18.9bn, according to EPFR Global. During the 6-week period, EM equity gained 19.69%, says the fund tracker, which notes that the gain for EM was at the expense of Japan and Europe equity funds, which have lost a combined $26bn so far this year. “Flows into Latin America equity funds slowed but remained positive, with Mexico country funds taking over from their Brazil counterparts as a driver of inflows,” says EPFR. In EM, Brazil has been the biggest gainer, with $2.36bn in inflows so far YTD, much better than the other BRICs equity funds. India and China have lost $1.9bn and $2.8bn respectively. And overall, the outlook is bright for EM inflows. “Despite the hints of higher risk aversion, this year’s story is clearly the accelerating shift by investors out of funds geared to the major developed markets – the US, Japan and the Eurozone – and into those focusing on emerging markets,” says EPFR analyst Cameron Brandt.

Banco do Brasil received approval from two of its biggest shareholders for a secondary offering, it said in a statement. Previ, the pension fund for the state-controlled bank’s employees, and BNDESPar, a unit of development bank BNDES, had said in July they planned to sell a stake equivalent to 3%-5% of the bank’s total capital before the end of the year. At current prices, such a sale would reach nearly BRL4bn. The bank did not state the use of proceeds.

Flows into EM hit an 85-week high, netting $5.53bn in the 7 days ended September 28, according to EPFR Global. More than half went into non-Japan Asia. LatAm funds were the third largest category of recipients, with $788m in inflows, or 2% of total assets under management. In the past five weeks, EM equity funds have gained 162% of the $8.15bn they lost between July 26 and August 22, according to the service. In LatAm, Brazil accounted for 83% of the flow.

Banco de Crédito del Peru will next week launch a roadshow for a $160m offering of worth of global notes denominated in PES. The 15-year NC10 subordinated bond would be the first of its kind from Peru in recent memory. Morgan Stanley is the lead on the Baa3/BB+.

Despite a strong performance in the week ended September 19, LatAm equity funds suffered a net outflow of 0.20%, or $73.173m, according to EPFR Global. LatAm markets returned 6.93% in the week, strongly aided by the post Fed-cut surge, according to EPFR. Lipper, the fund performance tracker, says the LatAm equity funds it follows gained 4.01% through September 20, to take them to a 30.88% YTD rise. Good news for LatAm is the fact that money flows continue to favor EM over developed regions, with GEM funds posting their biggest weekly inflows as a percentage of assets under management since the first quarter of 2006, according to EPFR. European and Japanese equity funds and US high-yield funds all saw redemptions during the period.

LatAm private equity (PE) funds raised $1.35bn in the first six months of 2007, according to the Emerging Markets Private Equity Association. With the close of $1.3bn and $1.03bn funds from Advent International and GP Investimentos, respectively, in July, the region is well on its way to beating last year’s $2.66bn total, and hitting levels not seen since the late 1990s. Globally, 107 PE funds raised $21.5bn in capital commitments in the first half of 2007, compared to $33.2bn raised by 162 funds in all of 2006.