investor Review January 2017

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Preserves Focus, Specialisation and Integrity We speak to Synchrony Capital, winner of the Best Delaware Fund, a boutique investment management firm that has been recognised as a top-performing manager and industry innovator. Page 10

Investing in Central and Eastern Europe We got in touch with CEE Equity Partners Ltd's Bill Fawkner-Corbett, awarded CEE Fund Manager of the Year, to ascertain the nature of the firm’s impressive investment work in Central and Eastern Europe. Page 12

Results, Process, and Relationship

Sloan Group International, winner of 2016 Executive Excellence, takes part in an interview about their leadership development consultancy. They work with senior level executives to be their most effective, most influential, and most resilient as the firm’s Karlin Sloan reveals.

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Editor's Letter Welcome to the first 2017 edition of Investor Review, packed with an insightful array of news, opinion and features on long-term investments, pensions and alternative investments to name a few.

In recent news, we learn that young entrepreneurs are more than twice as ambitious about their company’s growth prospects, but far more negative towards Brexit than older generations of business owners.

The spot light is turned on to Synchrony Capital, a boutique investment management firm that has been recognised as a top-performing manager and industry innovator.

On alternative investments, hedge funds out-performed equities and bonds on a risk-adjusted basis in 2016, producing net gains for their investors worth around $120 billion, according to the Alternative Investment Management Association (AIMA).

I hope you enjoy reading this edition.

Jonathan Miles, Editor Jonathan.Miles@ai-globalmedia.com

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Contents News pages 6-9.

Preserves Focus, Specialisation and Integrity page 10.

Investing in Central and Eastern Europe page 12.

Romania's Energy Consumption page 14.

Results, Process, and Relationship page 16.

Considering New Asset Opportunities page 18.

Hedge Funds Beat Stocks and Bonds on Risk -Adjusted Basis in 2016 page 20.

Seven Key Challenges Facing Private Markets in 2017 page 22.

Emerging Markets Are Becoming the World's Environmental Pioneers page 26.

1 in 7 Businesses Miss Their Workplace Pension Start Date page 28.

Final Salary Pensions at Risk Due to 'New Normal' of Sluggish Economy and Low Returns page 30.

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Europe's Fastest Growing Peer-To-Peer Lender TWINO Funds €100m in Loans TWINO, Europe’s fastest-growing peer-to-peer lending marketplace, on 24th January announced that it has funded €100m of peer-to-peer consumer loans across nine European markets. The platform, which has an investor return rate to date of 12.31%, has seen investment from more than 6,300 active investors from over 30 different countries, with 26% from Germany, 12% from the UK and 11% from the EE and Latvia.

TWINO has seen a significant uptick in UK investors over the past 12 months, with December 2016 seeing a six-time year-onyear increase in British investor numbers. UK investors funded the highest value of loans in December, representing 11.5% of the total portfolio and UK investors’ average portfolio size is the largest of all European investors.

The impact of the EU referendum vote weighed negatively on UK investor activity in the months before and after the decision, but interest has since rebounded, reflecting a renewed optimism from UK peer-to-peer investors. British investors are also able to invest in GBP, meaning they are shielded from currency risk. The average age of TWINO’s UK investors is 38.

The €100m milestone comes shortly after TWINO’s expansion into Russia in December 2016, which marks the first time that a peer-topeer lender has listed Russian consumer loans for investors.

Jevgenijs Kazanins, CEO of TWINO said that, “funding €100m of loans from our peer-topeer platform in such a short space of time is a major milestone for TWINO. It demonstrates that in a volatile investment environment, investors are increasingly looking to diversify their portfolios and boost returns.

“We continue to grow quickly and we expect to double our platform volumes to €200m over the course of 2017. We also expect to see increasing numbers of UK investors, particularly as UK interest rates remain low and currency volatility remains high.”

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TWINO’s industry-leading buyback guarantee means that investors are protected against default, and the short-term nature of its loans means that funds can be withdrawn at short notice. Its advanced risk model means that it only lends to carefully-vetted, approved borrowers. Over 99% of its investors have chosen the buyback guarantee.

As of 31 December 2016, TWINO increased its equity capital to €7.7m, primarily due to consolidation of Group assets under the TWINO Group umbrella.

For more information please visit https:// www.twino.eu/

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Young Entrepreneurs' Growth Ambitions Undeterred

by Brexit Hostility Young entrepreneurs are more than twice as ambitious about their company’s growth prospects but far more negative towards Brexit than older generations of business owners, according to a new report launched by Albion Ventures, one of the largest independent venture capital investors in the UK (1).

The fourth annual Albion Growth Report, designed to shed light on the factors that both create and impede growth among over 1,000 SMEs, reveals that two-thirds of business owners aged under 35 (66%) predict their business will grow over the year ahead of which 18% are predicting dramatic growth compared to 61% and 7% respectively among older generations.

As a result, over half (52%) of younger CEOs are planning to hire more staff compared to a much lower all-age average of 35%.

The biggest generational gap revealed by the report relates to equity finance; nearly threequarters (71%) of under-35s said they will consider equity finance compared to under half (44%) of other age groups, underlining the cultural sea-change among young business owners towards a Dragon’s Den style approach and away from traditional bank debt.

Despite their bullishness, Brexit leaves the majority of younger entrepreneurs cold; over half (54%) think it will hinder their ability to access new markets compared to 41% of older business owners. Brexit has failed to dampen millennials’ enthusiasm for exploring new business avenues with almost six – in – ten (59%) planning to expand into new markets in 2017 compared to 37% of their older peers.

accessing capital: a quarter (24%) has turned to their credit card compared to 12% of older CEOs and 13% have had to mortgage their property.

Millennials’ appetite for finance shows they are significantly more ambitious for change than older CEOs: they are three times more likely to use new capital to hire more staff and bring about a change of ownership (36% versus 12% and 20% versus 7% respectively).

One of the biggest obstacles to growth among millennial small business leaders is a lack of knowledge. Nearly a third (29%) said that a lack of mentoring is hindering their chance of making it, almost six times as many older businesses (5%).

Patrick Reeve, Managing Partner at Albion Ventures, said: “Long-term economic outperformance relies on ensuring the next generation of business owners has a strong pro-growth mind set and this is clearly borne out from this year’s report findings.

Notwithstanding their concerns about Brexit, most young entrepreneurs have ambitious growth objectives and if successful, this means

Reflecting their growth agenda, millennials have been over twice as likely as older and more established business owners to raise external finance in the past year (40% versus 19%) but with inexperience and lack of a track record meant they were three times as likely to see their applications rejected (18% vs 5%).

Not surprisingly, this has led to young entrepreneurs resorting to other means of

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they will hire more people and enter new markets. They are also far hungrier to fuel their growth through equity finance than the older generations, which underlines the shift towards a more entrepreneurial culture.

“Younger entrepreneurs are also honest about their skills shortages and are in most need of mentoring. It is in our collective interests to encourage their long-term success and we need to take suitable steps to provide the structure needed to meet this demand. As the UK looks to find its new place in a post-Brexit world, it will be millennials that will be setting the course.”

(1) Across the third quarter of 2016 Albion Ventures commissioned YouGov to interview a representative sample of 1,014 British SMEs on the challenges and opportunities they face in growing their business.

(2) Across the third quarter of 2015 Albion Ventures commissioned YouGov to interview a representative sample of 1,018 British SMEs on the challenges and opportunities they face in growing their business.

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Special Purpose Vehicle' Mortgage Market The buy-to-let mortgage market could blossom in 2017 if greater lending support is provided to Special Purpose Vehicles (SPVs), according to State Bank of India UK, a customer-focused bank that values fairness and transparency.

The bank is hoping to support professional landlords over the year through the provision of SPVs, which carry significant tax benefits relative to standard buy-to-let (BTL) mortgages for some customers.

SPVs’ increasing popularity1 follows what many landlords have regarded as heavy regulation of the BTL mortgage market in 20152 and earlier in 2016.3 As a result, UK landlords have increasingly turned to SPVs to mitigate the rise in BTL costs. Yet only 16% of all BTL mortgages are currently available to investors through SPVs.4 Only a small proportion of providers offer SPV mortgages as other lenders are likely to shun the SPV market due to a perceived higher risk of lending, increased complexity and cost of underwriting SPV applications.

Many mortgage providers charge a higher rate for SPV mortgages than their standard BTL mortgages: the average BTL mortgage rate on the market is 3.3%,5 1% less than the average rate of 4.3% for SPVs. However, SBI UK’s average SPV rate is 3.22%,6 only 0.50% higher than its BTL rates.

Mr. Sanjiv Chadha, Regional Head for SBI UK said, “we believe landlords will increasingly use a limited company structure for their property portfolios and this trend cannot be ignored. As such we are keen to support those investing through SPVs and the mortgage brokers serving them.

“SBI UK is willing to work with any professional landlord that is interested in an SPV, whether they are opening one for the first time or remortgaging an existing SPV. However, if they are considering borrowing through an SPV

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for the first time, they must be a professional landlord with a proven track record. After all, an SPV doesn’t have experience, but a landlord does and that is what we will assess as a part of our underwriting process.”

There are several benefits to landlords investing through an SPV or limited company structure; for example, income taken as dividends is taxed at 10%, which is much more efficient than income tax, especially for higher rate earners.

Multiple shareholders can appear on an SPV’s title deeds, which makes it easier to manage share of profits and proportions of ownership.

SBI UK has effective but not overly onerous underwriting requirements: it requests that investors have a required minimum income from their properties of £25,000.

For more information, visit: www.sbiuk.com

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LoveFromMe, the Personal and Tangible Way to Gift Money, Launches Equity Crowdfunding Campaign on Seedrs A £350,000 equity crowdfunding round has been launched on Seedrs by LoveFromMe, a personalised gift card scheme which can be redeemed anywhere.

Available to spend online and in-store at over 30 million locations around the world that accept MasterCard, LoveFromMe is changing the face of the gift card market, currently estimated to be worth over £5 billion, according to The UK Gift Card and Voucher Association, 2013.

LoveFromMe achieved revenues of £1.175m in 2016, with over 3,600 orders fulfilled and sales deriving from 36 different countries.

The business has to date demonstrated through organic growth alone, that there is a huge market potential to launch a product successfully in under two years.

Thish De Zoysa, Co-founder and Director, LoveFromMe stated, “store-specific gift cards that can’t be spent online can be such a burden to the recipient, as can just a gift of cash because it is so easy to spend on something other than a gift. LoveFromMe has changed the way gift cards are both used and purchased and has completely re-energised a stagnant and oldfashioned market.”

Alan McLaren, Co-founder of BREAL Capital and previously CEO of GMAC Commercial Finance and CEO of Landsbanki Commercial

Key facts: • 20,000 gift cards are purchased every hour in the UK. That’s on average three gift cards per person per year • The average gift card purchase is £25 and these cards usually tie people to a specific retailer or retailing group • The vast majority of these cards sit in an unregulated arena and are legally null and void if the retailer goes out of business • The average card load value for corporate LoveFromMe customers is £118 and the average card load value for consumer gift purchases is £99. Furthermore, funds are securely held by a MasterCard licensed user • The UK gift market is worth over £5 billion a year and growing • 50% is estimated to be consumer, 50% corporate gifting • The vast majority are single user or multiretailer • Corporate clients include Goodyear, Travelodge and T.M. Lewin 9 investorReview January 2017

Finance added, “I am delighted to be an investor and board advisor to LoveFromMe. Through my previous experience, I understand how important it is to develop a brand that connects with consumers and wins their loyalty. There is a rapidly growing consumer and corporate need for flexibility and security of gift cards that LoveFromMe gives.

“I was an original seed investor in the business and have been so impressed with what the business has built with very limited resources that I have invested in the Crowd Fund.”

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Preserves Focus, Specialisation and Integrity Synchrony Capital, winner of the Best Delaware Fund, is a boutique investment management firm that has been recognised as a top-performing manager and industry innovator. The firm has received over 12 industry awards and recognitions within the past 4 years and we celebrate their recent success in this profile of their excellent work.

teachers.

They invest on behalf of their clients, from institutional investors, high net-worth individuals to parents, grandparents, doctors and

Synchrony Capital is a boutique investment management firm with a discretionary multistrategy investment focus. Synchrony Capital’s commitment to this strategy has generated returns of 153% within the last 4 years, while at the same time reducing risk due to the uncorrelated nature among asset classes within the portfolio.

This approach, within the context of a boutique firm, preserves focus, specialisation and integrity. They aim to deliver superior, long-term results for their clients by seeking to filter out market noise and focusing on what matters most.

Philosophy In terms of the firm’s philosophy, they set out to find the most compelling investment opportunities, placing their wealth right next to yours. Synchrony Capital focuses on sourcing opportunities in which the managers have highly specialised knowledge. As specialists, their managers are able to identify early markers of financial opportunity.

Many of their investments are based on the presence of a catalyst for the partial or

complete realisations of underlying value.

Under this philosophy, they seek to take advantage of changing market conditions to gain exposure to the most attractive investment opportunities across asset-classes and markets.

Historically, the overall stock market doubles every 10 years. It is the firm’s objective to double their investors’ capital every 5 years.

There is overwhelming evidence that show small hedge fund managers outperform their larger counterparts.

Strategy On strategy, Synchrony Capital believe the best protection of principle and consistent growth across a broad time horizon is achieved by a multi-strategy investment approach. Their successful investment strategy draws upon the synergistic backgrounds of their founders. In addition, they take advantage of their tractable size, which affords them the agility to capture unique opportunities not always available to over-sized investment firms.

Profile of Eric D. Lyons Eric is a Founder, Managing Partner and Portfolio Manager at Synchrony Capital.

Eric oversees all investments of the Fund.

He is responsible for portfolio management, research and trading execution. In addition to his role as portfolio manager, Eric oversees the risk-management and hedging practices both at the investment-specific level and portfolio level. In 2014, under Eric’s lead, Synchrony Capital was awarded ‘Best for Absolute Returns Derivative Based Solutions’ and ‘Best Newcomer in Managed Futures’ by Wealth & Finance International magazine.

Performance Synchrony Capital’s returns have been in the top 1% of all hedge funds since inception. They have also created a strategy that reduces risk due to the uncorrelated nature among asset classes within their portfolio.

Bloomberg ranks Synchrony Capital within the top 1% performing hedge for 2014, 2015 and 2016. While Barron’s named Synchrony Capital as a ‘Top Performing Hedge Fund’. In 2015 and 2016 Wealth & Finance International magazine awarded Synchrony Capital ‘Best Multi-Strategy Firm, USA’ and ‘Best Investment Management Firm of the Year, for a Consecutive Year.’

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Additionally, Bloomberg and BarclaysHedge recognised Synchrony Capital as the top 1% performing hedge fund of 2014, 2015 and YTD 2016. Prior to his role at Synchrony Capital, Eric worked for Fidelity Investments on the Firms Global Asset Management team.

Additionally, Eric worked as an Analyst for State Street Corporation, where he focused on the valuations of derivatives, equities, ETFs and private equity investments.

Eric earned his B.S. from Suffolk University in Government and Economics and he attended

investorReview E-Commerce Boston University’s graduate program for Economics and Mathematical Finance. He is a member of the Boston Hedge Fund Group and International Association of Financial Engineers.

Company: Synchrony Capital LLC Name: Eric D. Lyons Managing Partner and Portfolio Manager Email: elyons@synchronycapital.com Web Address: synchronycapital.com Address: 5 Gildersleevewood, Charlottesville, VA 99205 Telephone: + 1 (857) 265 6753

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Investing in Central and Eastern Europe Winner of the recent 2016 Fund Awards, CEE Equity Partners Ltd is the investment advisor for the China-CEE Fund, with committed funds of $435 million. We got in touch with the firm’s Bill Fawkner-Corbett, awarded CEE Fund Manager of the Year, to ascertain the nature of the firm’s impressive investment work in Central and Eastern Europe.

The Fund was established

by China Exim Bank in partnership with other institutional investors from the CEE region to capitalise on investment opportunities in CEE countries.

The objective of the Fund is to identify and partner with dynamic businesses and together contribute to the vibrant growth of the CEE economies whilst providing good returns to the investors.

“We specialise in Central and Eastern Europe, covering 16 countries included ones from the former Soviet bloc, Estonia, Poland, The Czech Republic, Slovakia and Hungary and Bulgaria to name a few.

“CEE Equity Partners Ltd invests in infrastructure in a very broadly defined way and manufacturing, and we are looking for growing business. Our business model is to invest and support the business in its growth, and then 5-7 years later we aim to make an exit.”

When asked about what factors make the firm successful, Fawkner-Corbett says there are three. “First of all, experience, because we have a team that is very experienced in doing this work, and many of us have been working in Central Europe for over 20 years. Secondly, our approach is entrepreneurial. Thirdly, we have a wide geographical coverage with our headquarters in Warsaw, but we also have offices in Hungary, Romania and Croatia.”

“When we first set up the first Fund ($450 million), the aspiration was always to have a second Fund and everything is now proceeding in this respect and we expect the value of the aforementioned Fund to be $1 billion.”

“The major trends that impact our business are macro and political in the countries we operate in, but I do think that every country is different. In Poland, we are seeing some shift in the political landscape will potentially impact us. Countries such as Serbia are veering towards EU membership, and every time there is an election and the politicians change, so it is hard to be specific in this respect.”

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In terms of innovation, it is very important according to Fawkner-Corbett because CEE Equity Partners Ltd are always looking for two things. “We are looking for new and better ways to do deals and in terms of the companies we invest in, we are looking for them to be innovative.” One such example is a municipal company who work with LED lighting, and in Bulgaria we invest in the leading manufacturer of climbing walls (indoor rock climbing) and they use electronics to make this indoor activity more interesting.”

Regarding the firm’s staff, they are vital Fawkner-Corbett says. “We are a people business, so each person has a specific responsibility to undertake and we give that to them, as well as incentives.”

Looking to the future, the primary challenge is the firm’s second Fund during the second quarter of 2017 to help fund the next opportunity to invest in. We will be starting to think about exiting some of our early investments, as some have been operational for three years now.”

Company: CEE Equity Partners Ltd Name: Bill Fawkner-Corbett Email: w.corbett@cee-equity.com Web Address: www.cee-equity.com Address: ul. Grzybowska 5A, Warsaw 00-132 Poland Telephone: +48 22 564 5510

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Romania's Energy Consumption SN Nuclearelectrica SA, winner of the Investing in Excellence Awards, is Romania's only nucleargenerated electricity and thermal power producer and manufacturer of CANDU 6 type nuclear fuel, the company being set up in 1998.

The Romanian state is the major shareholder holding 82.49%; 9,09% of the shares are held by the Property Fund, while the rest of 8,41%% are held by both natural persons and institutional investors in the aftermath of the company’s 10% share listing on the stock exchange market in September 2013.

The company has their head office in Bucharest, which consists of two branches: • Cernavoda Nuclear Power Plant Branch which safely operates Units 1 and 2, produces electricity and provides heating to Cernavoda community. Units 1 and 2 have a capacity of 700 MWe each and use natural uranium and heavy water as moderator, which are also produced in Romania.

• Pitesti Nuclear Fuel Plant Branch which is the qualified manufacturer for CANDU 6 type nuclear fuel, fully covers the operational needs of the Cernavoda NPP Units 1 and 2.

With its two operating Units, SN Nuclearelectrica SA covers approximately 20% of Romania’s energy consumption.

Standing out in this competitive industry Maintaining high nuclear safety standards in all the phases of completion and operation of nuclear facilities is of vital importance and constitutes the first priority of SN Nuclearelectrica SA. Nuclear safety represents the assembly of technical and organisational measures aimed at: ensuring operation of the nuclear facilities under safety conditions and ensuring personnel, population and environment protection against radiation.

According to data analysed and published by “Nuclear Engineering International” (August 2016 issue), the total installed capacity factor indicator of Cernavoda Units 1 and 2, since in service, places the two units among the first 20 nuclear units out of a total of approximately 440 nuclear units worldwide, as follows: Unit 2 of Cernavoda NPP with a total installed capacity factor of 93,33%, since in service, ranks 2nd worldwide; Unit 1 of Cernavoda NPP with a total installed capacity factor of 89,77%, since in service, ranks 9th worldwide.

The total installed capacity factor of the two operating Cernavoda NPP Units since in service, (91,6%) places Romania on the highest position worldwide.

Nuclearelectrica has successfully completed the stress tests required by the European Commission after the Fukushima accident.

The results proved that Cernavoda NPP’s safety margins are above average.

These results prove that SN Nuclearelectrica SA operates safely and efficiently Cernavoda NPP as one of the most proficient nuclear power, this performance being acknowledged by international institutions.

Another contributing factor is the high quality of the fuel manufactured at Pitesti Fuel Manufacturing Plant, whose failure rate is well below the minimum limit approved by the CANDU System Design Authority.

Within the context of corporate governance and listing on the stock exchange market, the company has become a modern, strong, reliable, competitive one, which operates according to the best international corporate governance standards on long-term strategic objectives and inherent implementation

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plans, within a solid vertical and horizontal structure, based on responsibility, integrity and transparency.

The company focuses on increasing financial indicators by means of diversification as part of a progressive financial growth strategy, invest wisely as to maintain its optimum operation results and ensure nuclear security, develop new strategic energy projects.

SN Nuclearelectrica SA is an active member of international organisations in the nuclear field and receives frequent international evaluations missions aimed at verifying the compliance with the national and international safety standards for operation, radioprotection, human performance management and management system.

Nuclearelectrica, in its quality of energy producer, sells its production entirely on the Romanian energy market, in compliance with the Romanian legislation, therefore its clients are in fact a wide array of market participants, as the energy is sold based on bids.

The state of the wider industry today Globally, nuclear industry will play a significant role since more and more states, especially at the European Union level, focus on the decarbonisation targets, that is a significant reduction of the CO2 emissions by means of clean energy mixes. Given the fact that nuclear energy is a clean energy, coupled with the need of the energy systems for stable sources, nuclear energy is very likely to play an important role in this upcoming eco-friendly paradigm. This is already eloquent since more conventional-based source states shift towards the development of nuclear industry, while states that already have a strong nuclear industry think of expending this industry.

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Challenges in 2017 and beyond The main challenge comes from the energy market in terms of prices, while the biggest opportunity may come from diversification of activities. Our company is exploring the possibility to became an energy supplier at the national level and a significant player in the regional context. At the same time, we are focusing on our current investment projects such as the refurbishment of Cernavoda NPP Unit 1 which extends the life time with an additional 25 years.

Company: SN Nuclearelectrica SA Name: Daniela Lulache Email: office@nuclearelectrica.ro Web Address: www.nuclearelectrica.ro Address: Bucuresti 010494 Sector 1 Str. Polona nr.65 CP 22-102 Telephone: + 40 21 203 8200

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Results, Process, and Relationship Sloan Group International, winner of Executive Excellence, takes part in an interview about their leadership development consultancy. They work with senior level executives to be their most effective, most influential, and most resilient as the firm’s Karlin Sloan reveals.

Please give us a brief, overall description of your firm does?

We assist leaders to excel during times of change, challenge, and ambiguity, and to enable change readiness and capacity in their teams and organisations.

What areas does your firm specialise in, and what are your overall aims?

We are experts in resilience in the face of change. For the past ten years, we’ve conducted original research into Resilience at Work, and we’ve created some incredible programming based on that research. We’ve designed and published books, assessment tools, as well as training and coaching programs based on what we know about what enables positive change in what we see as a ‘new normal’.

It used to be that change management meant a nine-step process, and that we could plan the arc of a change, from seeding the message to finding change-agents and training them – now it’s a whole new world, where change is constant, rapid, and unending. We need a whole new set of skills and attributes that allow for flexibility and adaptation, not just strategically, but psychologically. If your strategy relies on human beings, you have to make sure those people have the skills and tools to make things happen even during the most challenging circumstances.

What factors make your firm successful?

We made the decision ten years ago, to specialise in what we felt would be the leadership skills and attributes of the future. I think because of that decision we are so completely relevant right now – with enormous upheaval from Brexit to the new US Presidency to an unprecedented level of global connectivity, we are looking at a time of great

change and enormous uncertainty. As trusted advisors to leaders in positions of power we are able to provide a confidential sounding board to think, explore, and respond.

Can you please provide us with a summary of your experience in your career up until your current position, touching base on your education, first position and progression and so on?

I consider myself very lucky to have been in Silicon Valley during the dawn of the internet; a time of incredible innovation and growth.

I started one of the first executive coaching specialty consultancies in California in 1994 when I was in my early 20s. Luckily, I was not the only 20-something founding a firm in a completely new discipline! I studied clinical psychology in graduate school, and my deep interest in leadership and human behaviour has helped me throughout my career.

When the internet bubble burst in 2000 I moved to New York City and re-started the company as it exists right now and began working in large multinationals including the financial services sector which has become our largest vertical. My aim was to cultivate a team of top-tier consultants and industry specialists who could provide executive leadership development at the very top level of organisations. We’ve grown over the last 16 years to be an extensive practitioner community in 19 countries, with deep expertise in executive coaching and leadership development programming in organisations that rely on technical expertise.

Even at the beginning of my career I was fascinated by resilience – the ability to grow and adapt through challenges and to flex and adapt to change is something that’s not only necessary for leadership - it’s often a driving

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need for people at the top of organisations. We aren’t in those roles because we like things too easy – we often choose leadership because we enjoy being challenged - learning new things and stretching ourselves. It’s exciting to work with people with that mindset and to help them enhance their work and their lives.

How does your firm stand out from the crowd in this competitive industry?

The reason we continue to win awards for our work is twofold. Firstly, the quality of our practitioners. Powerful long-term relationships and depth of knowledge attest to the capabilities of our consulting team.

Secondly, we truly make an impact on people’s lives, not just their workplace success. When an executive has a trusted coach whose only agenda is to make them more effective, more enduring, and more fulfilled on the job, that is a powerful relationship. We also follow our own advice: I’ve personally worked with executive coaches since founding the company and it’s both a perk and a privilege to have someone who’s a confidante and thinking partner as I tackle my own leadership challenges and opportunities.

What kind of clients do you serve and how do you approach them?

We work with multinational corporations and small boutique firms in finance, hi-tech, pharmaceuticals and other organisations with highly specialised experts who lead people. We tend to work with people who are enormously talented in their field, from engineers to physicians to analysts and fund managers whose technical achievements pave the way for greater levels of responsibility. Those people when they become leaders can have a challenging transition, particularly when they have to let go of being the best at what they do and empower others.

investorReview E-Commerce Speaking as an executive, what can you tell us about the qualities that it takes to be successful in your industry?

In our industry, management consulting, it takes three things to be successful: Results, Process, and Relationship. The first is obvious, we need to get measurable results for our clients.

The second is not so obvious, and that’s process. Firms like ours also need a rigorous process orientation in order to manage resources and time in a way that makes our work stand out for its impact and efficiency.

The third is relationship. We teach leaders to cultivate positive long-term working relationships, and we consciously cultivate those ourselves. We often find ourselves called into new companies by people we’ve worked with in the past because we develop real partnerships with our clients, and we make them look good.

Company: Sloan Group International Name: Karlin Sloan Email: inquiries@sloanleaders.com Web Address: www.sloangroupinternational.com Address: UNITED STATES 1608 S. Ashland Ave #96285 Chicago, IL 60608-2013 Telephone: +1-312 242-1801 INDIA A-203 Mantri Flora Sarjapur Road, Outer Ring Road Bangalore, 560 034 AUSTRALIA Level 17, 31 Queen Street Melbourne, VIC, 3000 Phone: +61 03 9674 3608 Client testimonial “On behalf of the U.S. Nuclear Regulatory Commission (NRC), I’d like to thank SGI for joining us to share their insights with our senior agency leaders. From the start, SGI demonstrated a desire to understand our agency and to translate that understanding into an Executive Leadership Seminar (ELS) that was both timely and relevant to our audience. SGI’s programme was much needed during these times of sequestration, organisational changes, and challenges to do more with less.

You should take pride in the knowledge that your programme has had an immediate impact on our organisation from the top down, beginning with the 183 leaders who participated locally or remotely. In fact, our Deputy Executive Director for Corporate Management noted that he used your problem statement exercise following the training … and … our Acting Assistant for Operations has already integrated the “takeaways” into her team meetings. The feedback from this programme has been among the best we’ve received.”

Awards and Recognitions •

Leadership Top 10, 2015 (TrainingIndustry. com’s Watch List for Leadership Training Companies);

•

Leadership 500 Excellence, 2014 (Leadership 500 Excellence Awards);

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Thought Leader of Distinction in Executive Coaching, 2014 (Association for Corporate Executive Coaching);

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Top 5 Midsize Leadership Partner / Provider, 2015 (Leadership 500 Excellence Awards);

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2016 Excellence Award: Most Outstanding for Executive Coaching Leadership Development Programmes (Acquisition International) and;

•

Best Coaching Leaders Award, 2016 (World HRD Congress).

Ben Ficks, Chief Learning Officer, OCHCO, US NRC

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1611IR07

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Considering New Asset Opportunities AABC AG, winner of European Elite, specialises in structuring risk-optimised assets in the area of real estate, private equity and insurance-linked securities and some other asset classes. In a revealing interview, Dr. Georg Fallegger tells us more about the firm’s support for marketing and tailoring such products towards the need of investors.

Can you tell us about what your company does?

AABC AG also acts as intermediary of interests between asset manager, investor and risk taker. In addition, we organise the necessary risk reduction (structuring, insurance etc.) for the portfolio that will be placed.

How long has the firm been going for and where are your offices based?

Our offices are based near the airport of Zurich and the city of Zurich. We started in 2001 as a spin-off of Swiss Re directors. AABC AG is a specialised structuring and intermediate company in this exciting area. We are still small, as we are part in the overall setup and managing of such products and usually serve for the asset manager and/or the investors.

Could you focus in on perhaps one or two areas your company specialises in?

The major issue is to know the risk reducing technics of the financial market as well as those in the insurance market. In non-liquid markets this leads to very attractive risk/ return ratios also in times of very low interest rates. At first sight it seems impossible to be able to get products for investors that still have a return higher than the risk involved in the product – due to the fact that usual interest rates have lost such chance.

What are the firm’s major selling points?

To know and to customise risk reducing techniques and the needs of the asset manager and the investor.

Do you have any client testimonials you would like to share?

Our work is more in the background, such products are managed and places by asset managers, but history of success of AABC AG includes companies like Partners Group, Alpha Associates and some specialised insurance companies.

In this vein, what kind of clients do you serve and how do you approach them?

We serve all sides who are searching to get additional value by the risk reducing technics, so asset managers, investors etc.

What role do your staff play in the successes of your firm?

We are fully dependent on the knowledge of our people in this niche of providing additional value by structuring and risk reducing.

What are the major challenges and opportunities that lie ahead for your company and the industry you work in?

In the current situation, we face a period of very low interest. The interest levels do not even reflect the necessary level of risk in the

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assets. This is due to political decision to hide the outcome of ongoing state deficits. On one hand, this should force investors to search investments with more realistic return for risk, but at the same time they fear to go new ways.

The structuring and reducing risk in new or less known asset classes provides them with new opportunities – in case they are willing to go new ways and look at it at all.

Do you have any further remarks to make?

All we are doing is tailoring new asset classes or new structures in investments to the need of investors in a way it is still transparent and logic. We would be happy if more investors in the area of pension funds, family offices, insurance companies, state social security systems etc. would be willing to provide more value to their clients – by considering such new asset opportunities.

Company: AABC AG Name: Dr. Georg Fallegger Email: georg.fallegger@aabc.ch Address: Klotenerstrasse 76, 8303 Bassersdorf, Switzerland Telephone: +41 79 563 11 22

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Hedge Funds Beat Stocks and Bonds on Risk -Adjusted Basis in 2016 Hedge funds out-performed equities and bonds on a risk-adjusted basis in 2016, producing net gains for their investors worth around $120 billion, according to the Alternative Investment Management Association (AIMA), the global representative of alternative investment managers, and data provider Preqin.

Hedge funds’ risk-adjusted return, as measured by the Sharpe ratio, was 1.45 for the year, ahead of the S&P 500 (1.1), MSCI World (0.68) and Barclays Global Aggregate (0.20) indices, according to AIMA and Preqin. [1] The analysis, based on a database of more than 3,000 funds, found that hedge funds also outperformed stocks and bonds on a riskadjusted basis over three years and five years.

Risk-adjusted outperformance is highly valued by institutional investors such as pension funds since it reflects volatility as well as net returns.

On an absolute basis, hedge funds returned 7.4% last year, according to the Preqin AllStrategies Hedge Fund index. [2] At the same time, AIMA and Preqin estimated that the net gain in the value of hedge fund assets in 2016 represented $120 billion. That would be the value of investment profits net of all fees, were investors to withdraw their investments and crystallise those gains.

The research also addressed the performance of hedge funds that are open to outside investors and those that are closed to investors.

On a five-year annualised basis, closed funds returned 6.42% per annum on average, while open funds earned 6.75% per annum on average.

AIMA Chief Executive Jack Inglis said, “we already know from the various indices such as Preqin that have reported their flash numbers this month that 2016 was one of the better years for hedge funds since the financial crisis. Even though the headline numbers may not have met all investors’ expectations, our analysis highlights the importance of explaining various strategies and timeframes for yielding returns to clients. Significantly, on average hedge funds outperform on the key metric of risk-adjusted returns over one year, three years and five years.”

Jack Inglis added, “all told, the value of hedge fund portfolios managed by pension funds and other investors grew by some $120bn last year – further evidence of the benefits that hedge funds can bring to investor portfolios.”

their best returns for three years. Investors, however, are looking for hedge funds to produce more than high returns; as this study shows hedge funds have delivered solid riskadjusted returns over the short and longer terms, a facet of hedge funds that is highly prized among the institutional investors that Preqin works with.”

(1) The risk adjusted return as measured by the Sharpe ratio is calculated by subtracting the risk-free rate (typically the return on US treasury securities) from the fund or index performance (returns, net of fees) and dividing this by the fund or index’s volatility. The higher the ratio, the better the risk-adjusted return.

For further information, please visit AIMA’s website, www.aima.org and www.preqin.com

Amy Bensted, Head of Hedge Fund Products, Preqin commented, “2016 could be characterised as a year of a series of unpredicted events. As markets responded to the unexpected events of 2016 hedge funds were able to show their worth and generate (2) Risk-adjusted returns Hedge Funds S&P 500

(Sharpe Ratio) Total Return

MSCI World US Dollar Total Return

1 Year 1.45 3 Year 0.97 5 Year 1.49

0.20 - 0.23 - 0.23

1.10 0.74 1.29

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0.68 0.31 0.87

Barclays Global Aggregate

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Seven Key Challenges Facing Private Markets in 2017 2016 produced another strong year of returns, but there are a number of challenges facing investors in 2017 according to Pavilion Alternatives Group™.

One of the biggest facing limited partners (LPs) will be drawing a distinction between private equity fund managers that are genuine value creators versus market beneficiaries. Investors will face the complex task of selecting which general partners (GPs) to back in what is likely to be a more challenging investment environment.

According to Pavilion Alternatives Group™ (Pavilion), this, together with weighing the risks and opportunities of investing in GPs raising larger funds, and dynamic political environments represent some of the concerns identified in its annual review: ‘Key Challenges Facing Private Markets in 2017’.

Commenting on the outlook for the private equity market in 2017, Donn Cox, ‎President & Managing Director of Pavilion Alternatives Group™ said: “the challenges for 2017 are those relating to the sector’s ongoing success.

Our biggest concern for the year ahead is the continued increase in valuations as capital has flowed into the private equity sector. At some point, the economy will slow, and it will be interesting to see if certain investments can meet their return expectations. We attempt to manage this by advising clients to invest steadily across vintage years to ensure balanced exposure over time.”

Determining whether the manager or the market made the difference While the last few years have been the best exit years in the history of private equity markets leading to record levels of distributions, there remains a problem for LPs: the reinvestment decision. How much of the attractive returns can be attributed to the market and how much to the manager? According to Pavilion, making the distinction between market

beneficiaries vs. value creators requires extensive experience in the various private equity markets as well as deep knowledge of the individual fund managers including their team dynamics, their strategy and their value creation capabilities.

Positives and negatives to larger fund sizes Private equity investors increasingly face the decision of whether to continue to back a successful GP that is raising a larger fund than their previous fund. Larger fund sizes can be a double-edged sword for LPs. While investors often rely on larger fund sizes to gain access, there are concerns about how more capital can impact the firm and strategy, potentially diluting those characteristics that made it successful in the past. Pavilion advises that assessing the impacts of a larger fund size, such as strategic consistency, investment process, investment size and post-investment execution should be part of any due diligence process in order to understand the merits and potential risks.

Brexit and investing in the UK In assessing the impact of Brexit on the private equity market in the UK, Pavilion contends that even if there is some decline in activity at certain points in time, it is hard to envisage the UK moving from being the biggest force in European private equity to a minor player.

For LPs looking to have exposure to European private equity, it remains important to continue to invest in the best GPs in the UK and to remember that private equity as an asset class tends to outperform in periods of uncertainty as buying opportunities may emerge.

Solving the Asian investment conundrum Turning to Asia, Pavilion highlights the 22 investorReview January 2017

conundrum facing large institutional investors. Since they are increasingly focused on reducing the number of fund manager relationships globally, they make larger investments into the biggest pan-Asian funds and end up with concentrated exposure to this end of the market. But it is often the niche strategies and smaller, country-focused funds providing exposure to the smaller end of the market that offer the potential for outsized returns. Therefore, to enhance their overall returns, investors should consider the benefits of supplementing their core exposure to certain Pan-Asian funds with a satellite portfolio of select country-specific funds.

Impact of Trump on U.S. direct lending Looking at private credit strategies, Pavilion explores the impact of the new Trump administration on direct lending activity in the United States. Far from having a negative impact, the expected rise in GPD growth should benefit the mid-market segment in particular, which is expected to increase its demand for flexible lending solutions. Private credit fund managers are better equipped to offer these solutions than traditional bank lenders. On the regulatory front, Pavilion notes that there is a limit to what Trump can do to change the status quo. To maintain an attractive premium in this growing and competitive area however, Pavilion believes it is critical to understand how private credit managers differ in their offerings.

Direct investments done the family office way Pavilion charts the growing enthusiasm among family offices for direct investing as they seek to diversify their assets in order to prepare for family succession. Families’ interest in pursuing direct deals stems, in part, from their own entrepreneurial backgrounds

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investorReview E-Commerce and many have direct investments comprising between 25% and 50% of their overall alternatives allocation. While family offices often end up ‘doing it themselves’ since the investment office is viewed as a cost centre instead of a wealth creator, as their direct investing exposure increases, Pavilion suggests getting quality advice to avoid resourcing challenges.

Managing allocations and the pressure to invest According to Pavilion, the current up-market will present a major challenge to institutional private equity teams in 2017 as it leads to an increasing gap between target private equity allocation numbers and actual allocations.

The cause is twofold: there are lags in private equity valuation moves in comparison to public market valuations, and the private market asset class self-liquidates (as companies are sold, cash is returned to the investor, and NAV is reduced). This may result in pressure to deploy capital at a velocity matching the trajectory of the public markets and private equity fund distributions. Current public market performance, along with increasing LP allocations to private equity, has made prudent investing that much more difficult.

Dr. William Charlton, Managing Director, Pavilion Alternatives Group, LLC commented, “over the last several years, private equity markets have performed very well. Despite a low growth economy, private equity fund managers have enjoyed a unique environment in which they have access to abundant low cost debt, have seen very high levels of deal flow, and, most importantly, have enjoyed a fantastic exit market.

“Due to the nature of the assets and the holding periods in private equity, market timing is less of an issue than in some other asset classes. However, private equity managers can still benefit (or suffer) from market conditions. … It is much more difficult for LPs to delineate clearly the market’s contribution to performance from that of the manager. This is especially important as it is unlikely that the current, beneficial conditions will last through the next full private equity fund lifecycle.”

Positives and negatives to larger fund sizes Richard Pugmire, Managing Director Pavilion Alternatives Group, LLC commented that, “successful private equity managers often seek larger funds for a number of reasons.

On the investment side, larger funds provide more capital to invest and allow the firm to build resources. Growth also provides more management fees and more incentive compensation, which helps retain and attract talented investment professionals.

There may also be the desire to expand the investment platform from one strategy to multiple strategies, which can build a stronger

presence and brand name in the marketplace and provide ancillary benefits to the fund. A larger fund can attract more LPs and increase interest in investing across the platform.

“Larger fund sizes can be a double-edged sword for LPs. Many LPs seek new or increased commitments to successful managers and rely on larger fund sizes to get access. However, there are concerns about how more capital can impact the firm and strategy, potentially diluting those characteristics that made it successful in the past. There are a number of areas that can be reviewed by LPs to understand the impact of a larger fund size.”

Brexit and investing in UK Private Equity Rhonda Ryan, ‎Managing Director, Head of Europe, Middle East & Africa at Pavilion Alternatives Group Limited comments, “what is imperative in these times of uncertainty is that investors exercise discipline. The basis of a sound long-term PE programme is to maintain a relatively even investment pace without trying to time the market. The UK PE market remains deep providing significant GP choice.

Investors should not shy away from the UK market but, as ever, we note that selectivity is key to achieving results.

“The best managers are those that have a track record of being able to make money for their LPs in all market conditions, as the economic road ahead will be uncertain. There will also be GPs that have an angle or a way to make money through operational improvements that create value.”

Solving the Asian investment conundrum Peter Pfister, Managing Director, Head Asia-Pacific at Pavilion Alternatives Group (Singapore) Pte. Ltd. Said, “more often than not, it is the smaller, country-focused funds, often with niche strategies, that can offer greater potential for outsized returns. The smaller end of the market is more local in nature, and access to the fund managers in this space often requires on-the-ground private equity resources and established relationships. “…as investors increase their allocation to Asia, a portfolio construction based on a coresatellite approach may enhance returns. This approach may also help investors improve diversification across markets and sectors, including both the larger and smaller end of the market.”

Potential impact of the 2016 U.S. Presidential election on mid-market direct lending activity Elvire Perrin, Managing Director of Pavilion Alternatives Group Limited comments, “… non-bank financial institutions have been dominating the market for some time now.

This trend would be hard to reverse. Indeed, if banks wanted to make a come-back, this would require rebuilding a costly infrastructure and recruiting new teams to retarget lending to 24 investorReview January 2017

SMEs. Talent would be very hard to attract given most of them are now working for private credit funds…

“There is a limit to what President Trump can do to change regulations. He could reform Dodd-Frank, but Basel III is an international regulatory framework. The U.S. could relax certain thresholds which were set higher than the minimum required, but the new administration is not going to take the risk to overhaul this regulatory framework dramatically given the general consensus that Basel III capital requirements have strengthened U.S. banks.”

Direct investments done the family office way Raelan Lambert, Managing Director of Pavilion Alternatives Group, LLC said, “it should come as no surprise that high net-worth families’ interest in pursuing direct deals stems, in part, from their own entrepreneurial backgrounds as owners/ operators. Families continue to allocate a significant portion of their alternative investments to direct investing. “…families have indicated that it’s absolutely critical to stick to what they know when pursuing direct deals, as this typically provides the best chance to create a new opportunity or advantage” Managing allocations and the pressure to invest Brad Young, Managing Director and Head of Private Market Advisory, ‎Pavilion Alternatives Group, LLC commented: “…a repeating challenge is the management of private equity allocations in the face of dramatic positive and negative swings in the public markets. Since the year 2000 this challenge has presented itself alongside the post tech bubble, post 911, during the GFC, and throughout the recovery.

“The most publicised issue from a private markets allocation perspective is what is called the “denominator effect”, when total investment portfolio value (the denominator) declines in relation to the private markets allocation due to overall declines in the public markets. Many portfolios have seen their current private market allocations placed in an over-allocated position on more than one occasion. These are often temporary situations, but nonetheless cause stress for investment staff and their boards.”

For more information, visit www.pavilioncorp.com/alternatives

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Emerging Markets Are Becoming the World's Environmental Pioneers For those of us who invest in emerging markets, the speed of economic change can be intoxicating.

It offers huge opportunities, but also presents significant challenges; we can’t ignore these social and cultural issues because only by overcoming them can we hope to sustain the growth we want to see.

There is no greater challenge than the impact of global warming. More than seven million people die prematurely every year from environmental pollution; more than one in four premature child deaths are linked to broad environmental causes. Global temperatures in 2016 were the hottest on record for the third year in a row, with global surface temperatures nearly 1C warmer than in the mid-twentieth century.

But global warming is not only the single biggest threat to human health, it also has the potential to become the single biggest driver of economic transformation in human history.

The decarbonisation of our economies affects every aspect of our world, encompassing not just the way we generate power, but how we grow our food, travel and live our everyday lives.

It is often said that the sins of developed economies, whose factories belched out fossil fuels throughout the twentieth century, are being visited on emerging markets at the very point they are experiencing stellar economic growth for the first time. They are being required to decarbonise just as demand from a nascent, voracious middle-class is taking off.

But, as an entrepreneur and investor, I look at every problem as a potential opportunity.

The Emerging Markets Symposium, which is sponsored by C & C Alpha Group, brings together great minds from around the world to debate the challenges faced by developing societies. This year’s symposium, the eighth since it first met at Green Templeton College in Oxford in 2008, considered the issue of health and environment in emerging markets.

What struck me during the opening session was the sense of optimism despite the scale of the challenge. The symposium’s chairman, Shaukat Aziz, the former Prime Minister of Pakistan, hailed the Paris Accord as a historic, watershed moment, presaging a new era of global collaboration and an acknowledgement that environmental health is an issue that doesn’t have borders. Not only is the right to breathe clean air a basic human right, but it is also essential to increase productivity and thus prosperity.

Interestingly, the innovation curve is moving east to west and north to south, with the most dramatic shifts in approach coming from emerging markets themselves, according to Achim Steiner, former Executive Director of the United Nations Environment Programme, who gave the opening address. Thailand advertises itself as a ‘sufficiency economy’, Bhutan talks of ‘gross national happiness’ – but these are not merely theoretical concepts, they are national branding strategies which feed through to political implementation.

In China, a new narrative of ‘ecological happiness’ is embedded in public policy and has formally entered the language of its Five-Year Plan. It is recalibrating every aspect of the country’s infrastructure and will play a role in shaping the next stage of China’s economic development. It is also shaping the political debate; the environment minister recently issued a public apology to the Chinese people for unacceptable pollution levels, an event that would have been unimaginable not so long ago.

Mr Steiner believes emerging markets are now at the forefront of innovation – eight years 26 investorReview January 2017

ago, Kenya decided that it would generate at least 75% of its electricity from renewables – but only if treasuries do not define their investment choices too narrowly. The debate about renewables cannot focus solely on the cost per kilowatt hour, it must also include the cost to human health. This is the circular economy: the cost of reducing air pollution is outweighed by the benefits to human health.

As an investor, it is obvious that an explosion in green finance will be needed to fund the transformation of infrastructure. Hundreds of billions of pounds will have to be committed to overhauling transport systems and digitising energy networks. That too is an opportunity, provided we have the imagination to embrace it.

Once, we thought we could use our wealth and technology to make ourselves independent of nature. Now, we are more dependent on it than ever and we recognise that we need to protect nature in order to survive.

I look forward to seeing the outcome of the Emerging Markets Symposium’s deliberations when they publish their report later this year; I am sure it will be a valuable contribution to this urgent and necessary debate.

Bhanu Choudhrie is Executive director of C & C Alpha Group, a private equity business headquartered in London.

Company: Bhanu Choudhrie Name: Bhanu Choudhrie Email: info@ccalphagroup.co.uk Web Address: www.ccalphagroup.co.uk Address: 1 Vincent Square, London SW1P 2PN Telephone: +44 (0)207 630 0808

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1 in 7 Businesses Miss Their Workplace Pension Start Date New figures from Aviva have revealed that a growing number of companies are risking a fine by failing to set up their workplace pension in time.

Around 500,000 UK businesses are due to set up a pension scheme during 2017 under auto-enrolment legislation.

However, Aviva’s own client data, from its second auto-enrolment application tracker, shows that during Q4 of 2016, 1 in 7 companies that applied to set up their pension with Aviva had missed their staging date – the date by which they should have had a workplace pension scheme in place, which is set by The Pension Regulator (TPR).

In a worrying trend, the proportion of firms applying with Aviva that missed their staging date has increased rapidly during the course of 2016, from just 1% in Q1 to 14% in Q4. However, during this time the volume of companies setting up workplace pensions has also increased offering some explanation for the rapid growth of ‘late stagers’.

Figures from The Pensions Regulator show that the number of employers failing to fulfil their auto-enrolment duties is rising. In Q3 2016, 3,728 fixed penalty notices for £400 each were issued***. This is up from just 861 in Q2, 2016****.

Application made after staging month had passed

Andy Beswick, Managing Director of Business Solutions at Aviva said, “We’re seeing more and more firms applying to Aviva for a workplace pension after their staging date has passed. It’s something we need to keep a close watch on, but, it is understandable. Autoenrolment is now becoming a reality for very small companies which have many priorities and not necessarily the resources to deal with them all.

“We understand this and we’re doing all we can to help these companies. We can help those companies that have missed their deadline and we’ve set up a simple online process to get a workplace pension in place.

“The last thing anybody wants is to see small business owners getting fined because they haven’t got their workplace pension set up in time.”

2016 in numbers The table below details the proportion of workplace pension applicants to Aviva who applied in Q1, Q2, Q3 and Q4 2016 in comparison to their staging month.

While the number of companies missing their staging date has been increasing, the number of firms preparing for auto-enrolment two months or more in advance is staying relatively stable (47% - 57%).

Application made in the month of staging date

Application made in the month prior to staging date

“It is good to see that around half of all companies we are dealing with are preparing for auto-enrolment well in advance,” said Andy Beswick. “The decision of which provider to use for a workplace pension shouldn’t be rushed so dealing with it well in advance of the staging date can be an advantage.

“The message to businesses for 2017 is clear.

If you haven’t been through auto-enrolment yet, this is likely to be your year. Don’t stick your head in the sand. Embrace it, find a way to use it as an advantage to your business and get your employees enthused about saving for their future.” *Takes into account businesses who made their application with Aviva during Q4 2016 in the month of their staging date (14%) or the month prior to their staging date (24%) ** Takes into account those who made an application with Aviva during Q4 2016 two months (14%) or more (34%) before their staging date *** http://www.thepensionsregulator.gov.uk/ docs/automatic-enrolment-use-of-powerssept-2016.pdf **** http://www.thepensionsregulator.gov.uk/ docs/automatic-enrolment-use-of-powersjune-2016.pdf For more information, please click here http://www.aviva.com/about-us/aviva/

Application made 2 months prior to staging date

Application made more than 2 months prior to staging date

Q1 2016 1% 17% 35% 12% 35% Q2 2016 10% 12% 21% 17% 40% Q3 2016 12% 13% 23% 14% 39% Q4 2016 14% 14% 24% 14% 34%

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Final Salary Pensions at Risk Due to 'New Normal' of Sluggish Economy and Low Returns A new report launched on 18th January by the International Longevity Centre – UK (ILC-UK) claims that the weak growth and low returns on ‘safe’ assets such as government bonds experienced since the financial crisis may represent the ‘new economic normal’, meaning that DB pension deficits will remain high with potentially negative consequences for wages, firm profitability and retirement income.

• In the last decade, the asset allocation of DB schemes has dramatically shifted, from fixed interest bonds representing 28.3% of investments in 2006, to 51.3% in 2016 [1] • Between 1989 - 2007 average real returns on UK government bonds were 4.1%.

Between 2008 – 2016 the average was only 0.45% [2] • While some commentators maintain bond returns will increase, bond yields at home and abroad have been consistently falling since the 1990s, way before the financial crisis of 2008 [3] • As of October 2016, 80.6% of DB schemes were in deficit [4]. Between 10-17% of these schemes are at serious risk of default [5].

• New analysis finds that if the money used to plug private DB pension deficits between 2000 and 2015 had been redirected towards wages, average salaries could be £1473 higher ‘The End of the Beginning? Private defined benefit pensions and the new normal’, claims that the ‘new normal’ economic conditions of lower productivity and lower returns on fixed interest bonds means we cannot simply wait for returns to improve in order to solve the DB deficit crisis.

The ILC-UK’s report argues that weak growth and low returns on bonds have been highly

persistent since the financial crisis. Up until now this has been portrayed as a temporary problem which will eventually be reversed.

But the authors argue that current economic weaknesses could be structural and that we may be in the midst of a ‘new normal’ where the trajectory of growth is permanently lower.

Such a view is underpinned by analysis of three centuries of data showing a dramatic slowdown in productivity since the turn of the century. Ultimately the high growth, high returns world of the middle to late period of the twentieth century may turn out to be the true anomaly.

The report argues that the private sector DB world faces a very real problem whereby persistent deficits will continue to pose challenges for all stakeholders: • Firms will have to continue plugging pension deficits, • Pensioners may have to take haircuts on the level of pension income they were originally promised.

• Employees may have to forgo wage rises and larger employer contributions to DC pension schemes.

New analysis conducted for the report also finds that if between 2000 and 2015, the money that was used to plug private defined benefit pension deficits had instead been redirected towards wages, average salaries could have been £1473 higher by 2015.

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investorReview E-Commerce The report concludes that the regulatory regime should better take account of both member’s interests as well as the long-term interests of the firm and its employees. In addition, the report argues for consolidating schemes to allow for sponsors and scheme members to enjoy better value, which may alleviate some of the financial pressures associated in running a DB scheme.

Ben Franklin, Head of Economics of Ageing, ILC-UK said, “adverse economic conditions and an unprecedented demographic shift towards an ageing society has put the sustainability of private sector DB schemes in doubt. Despite schemes being closed to new members, increased life spans and the persistence of a low interest rate environment means the issues surrounding private DB will not abate any time soon. We hope this report can kick-start a debate that leads a set of socially and economically acceptable solutions to the challenge. None of this will be easy, but simply hoping for interest rates to return to normal is futile.”

Jennifer Donohue, Head of Global Corporate and Transactional Insurance, Ince and Co LLP said, "the problem has been growing in seriousness for over a decade and we have assisted some of our clients to avert difficulties in the face the increasing pension deficit scourge. However, the issue is exponentially growing as the call on the funds of defined benefits schemes tightens and the yield on investment continues to fail. The effect of this pincer like movement will affect numerous companies and financial institutions.

Behind the mathematics ‎is a UK population continuing to rely upon funds that may run out often well before the promise of a "retirement pot" can be kept.

For Ince this report is crucial to raising factual awareness the hope that it will result in intervention, whether by governments, companies, scientists or other stakeholders. A Nelsonian approach is no longer appropriate!

We commend this report as a ground-breaking analysis of the significant challenge ahead for the UK population and economy” [1] Pension Protection Fund/ Pensions Regulator [2] 10-year government bonds using Bank of England for nominal interest rates, ONS for CPI all items inflation and author’s calculations [3] Author’s analysis of OECD data on long term government bonds [4] Pension Protection Fund/ Pensions Regulator [5] Harrison and Blake (2015) “The greatest good for the greatest number”, A Pensions Institute discussion paper ‘The End of the Beginning? Private defined benefit pensions and the new normal’ is available to download from the ILC-UK website at www.ilcuk.org.uk.

Source: ILC-UK calculations and Bank of England, Three Centuries of Macroeconomic Data.

Notes: 50-year annual average apart from 2001-2015.

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33 investorReview January 2017

Displaying at all times a commitment to demonstrating and promoting ethical, efficient and effective practice, investor Review is the institutional investor’s go-to platform and publication.

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From industry insight on new funds and investment opportunities to the latest updates in regulation and legal changes, investor Review offers everything an investment manager could possibly need.

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