Parametric: Don’t Give Up On Emerging Markets Yet

Between low valuations, currency movements, and diversification benefits, now is the time to be invested in emerging markets, Parametric has argued.

“Be greedy, instead of fearful, when it comes to emerging market equities.”There is already “compelling evidence” for the long-term benefits of emerging market equities, according to a research paper by the asset manager’s Head of Investment Strategy Tim Atwill. However, even short-term investors should not be dismayed by recent negative returns, he said.

“Recent performance in the emerging markets class has caused such a degree of fear, that for many investors the strategic reasons for owning the asset class no longer seem quite so compelling,” Atwill wrote.

While Atwill said the strongest arguments for investing in emerging markets are based on a “strategic, long-term perspective,” there are also more immediate reasons for why the asset class is attractive.

For more stories like this, sign up for the CIO Alert newsletter. 

For example, emerging market equities are “much cheaper” than developed market stocks, he argued. The MSCI Emerging Markets index suffered three straight years of losses in dollar terms in 2013, 2014, and 2015, according to FE Analytics data. The S&P 500 posted double-digit returns in 2013 and 2014, and was broadly flat last year.

“Based on generally used valuation metrics, the asset class is cheap versus its historical average, and versus other asset classes,” Atwill wrote.

Additionally, Atwill argued that recent losses in the sector could be partially explained away by the “sharp rally in the US dollar”—a rally unlikely to repeat itself over the next three years.

“The very nature of diversification is for an asset class to be down when other asset classes are up, despite our human tendency to want assets which both diversify and only go up,” Atwill wrote.

Finally, given that investors on average hold a 9.6% allocation to emerging markets, to abandon the asset class entirely would represent a “tremendous underweight from a neutral position,” Atwill said.

“An elimination of the asset class would represent a bet which is larger than the conviction of many making the bet,” Atwill concluded. “Be greedy, instead of fearful, when it comes to emerging market equities.”

Andrew CaspersenA Park Hill Group private equity executive has been charged with scheming to defraud institutional investors of more than $95 million.

Andrew Caspersen—a managing principal at the Park Hill Group until his dismissal earlier this month—allegedly stole money through fake private equity funds from at least July 2015 to March 2016, US prosecutors said.

Park Hill is a secondaries advisory firm and placement agent unit of PJT Partners.

Caspersen took a $25 million investment from a charitable foundation affiliated with a New York-based hedge fund for his personal use, according to the US Attorney’s Office for the Southern District of New York. He also took a $400,000 investment from an employee at the hedge fund.

For more stories like this, sign up for the CIO Alert newsletter. 

Caspersen used a portion of the stolen $25 million to trade securities in his personal account, the prosecutors continued, “funds he largely lost as a result of aggressive options trading.”

The 39-year-old attempted to solicit another $70 million from the foundation and a private equity firm before the prosecutor arrested and charged him with securities and wire fraud late this month.

“To advance his $95 million fraud scheme, Caspersen allegedly put on a shameful charade—creating fake email addresses, setting up misleading domain names, and inventing fictional financiers,” US Attorney Preet Bharara said in a statement.

The US Securities and Exchange Commission (SEC) also charged Caspersen with fraud.

“As alleged, Caspersen engaged in a brazen fraud by raising money under false pretenses and simply stealing the funds,” said Andrew Calamari, director of the SEC’s New York regional office. “This action amply demonstrates that even sophisticated institutional investors are not immune to financial scams.”

“This action amply demonstrates that even sophisticated institutional investors are not immune to financial scams.”PJT Partners—a spin-off of Blackstone—told CIO that it has terminated Caspersen since discovering his alleged illegal activities.

“We were stunned and outraged to learn of the fraudulent circumvention and violation of the firm’s compliance policies and ethical standards,” the spokesperson said. “Our firm’s reputation for ethical behavior is fundamental to our business.”

After learning of Caspersen’s “improper behavior,” PJT said it launched an internal investigation and brought it to the attention of the US Attorney’s Office.

Park Hill has assisted with private equity sales for multiple public pension plans over the last few years. The California Public Employees’ Retirement System hired Park Hill to offload its $3 billion real estate portfolio in June 2015. The Florida pension plan and the Illinois Teachers’ Retirement System also tapped the placement agent to sell their private equity portfolios.

Prior to his three-year tenure at Park Hill, Caspersen spent nine years as a principal at secondaries firm Coller Capital, according to his LinkedIn profile. He is also a Harvard Law School and Princeton University graduate.