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The signs don’t lie. An economic recovery is underway, but we aren’t out of the woods yet, say economists at Desjardins Group.

With confidence returning to consumers and entrepreneurs, the upturn in the stock markets and the overall easing of worldwide financial tensions, there is no doubt that the global economic climate is improving.

Desjardins believes that the recent increase in the Canadian dollar should continue and predicting a return to parity with the greenback by mid-2010. By then, oil prices should reach about US$90 a barrel, a necessary condition to maintain parity.

Due to the upcoming Winter Olympic Games, it is predicted that B.C. will post the strongest growth in Canada with gains of 3%. The rebound in oil prices will allow Alberta to follow close behind with 2.5%.

Ontario is expected to benefit from the recovery in the automobile industry, posting growth similar to the Canadian average. Quebec will lag behind somewhat, recording an estimated real GDP growth of about1.6%.

All the elements are aligning to convince the central banks not to tighten their monetary policy, and this is true for the Federal Reserve, Bank of Canada, European Central Bank, Bank of England and the Bank of Japan. However, the economic and financial environment is far too fragile for them to act any earlier than in mid-2010.

Francois Dupuis, vice-president and chief economist with the Desjardins Group, says, “Interest rates will therefore remain weak for the next few quarters. Those who are calling for the curb to flatten out substantially in the short term could be in for a surprise.”

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Dimensional announces fund mergers

Dimensional Fund Advisors Canada ULC will be merging the DFA U.S. Small Cap Fund into the DFA U.S. Value Fund and the DFA International Small Cap Fund into the DFA International Value Fund. Pending the regulatory and unit holder approvals, the mergers will take place on Nov.17, 2009..

If the mergers are approved, holders of Class A, F, and I units of the DFA U.S. Small Cap Fund will receive Class A, F, and I units of the DFA U.S. Value Fund. Holders of Class A, F, and I units of the DFA International Small Cap Fund will receive Class A, F, and I units of the DFA International Value Fund.

According to Brad Steiman, head of Dimensional’s business in Canada, “The mergers are designed to create more efficient portfolios that can benefit from increased economies of scale in operating costs.”

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Changes at Gluskin Sheff

Gluskin Sheff is shuffling its executive suite.

The wealth management firm has announced that Gerald Sheff, the chair and CEO, and Ira Gluskin, the president and chief investment officer [CIO], will be relinquishing their C-suite roles.

Bill Webb will become the company’s executive vice-president and CIO, while Jeremy Freedman (currently the deputy CEO) will become the president and CEO.

Sheff will continue to serve as the co-founder, chair of the board and as director. Gluskin will remain as co-founder, vice-chair of the board and director.

Valerie Barker, the chief financial officer, will also be leaving the company to pursue other opportunities.

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SEC, FSA to share data

When it comes to hedge funds, the U.S. and U.K. are joining forces.

In the first step towards working together and streamlining processes, regulators in both countries have instructed hedge fund managers to share their data.

The Financial Services Authority is already working with the Commodity Futures Trading Commission to keep a close watch on cross-border clearing houses.

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IOSCO publishes standards for funds of hedge funds

The International Organization of Securities Commissions (IOSCO) has published standards for funds of hedge funds (FoHFs) regarding liquidity risk and due diligence.

IOSCO says FoHF managers should “make reasonable enquiries” to consider whether the FoHF’s liquidity was consistent with underlying funds. It also says managers should take into account the liquidity of various financial instruments held by the underlying funds as well as whether any limited redemption arrangements were consistent with the FoHF’s own redemption terms. Managers also need to address any potential conflicts of interest.

Due diligence processes should be carried out both before and during an investment, according to IOSCO. FoHFs should also regularly review their due diligence processes and have a “documented and traceable” procedure for selection of hedge funds, together with the necessary resources for implementing a procedure.

If a FoHF plans to outsource due diligence, it should make sure any conflicts of interest are adequately addressed.

(09/18/09)