Wealth & Finance September 2014

September 2014

www.wealthandfinance-intl.com

Wealth

& i

f i n a n c e

n

t

e

r

n

a

t

i

o

n

a

l

Make a Mint Gold bullion coins could

Fund Administrators

be a good investment

Why so many managers are turning to them

Fund Focus Brevet’s new Special

Opportunities Fund III

Islamic Finance

Inside a flourishing industry

Data Management Why it’s vital to maintain

Environmental Risks in M&A How to manage them

a strong system

IMMIGRATION: Plus...

See Iceland’s Northern Lights in Luxury

M&A’s Achilles Heel?

Companies ignore the rules at their peril...

Wealth & Finance | August 2014 |

September 2014 | Contents

3 4-9 News & Appointments Funds

Editor’s comment

10 Do I Really Need a Fund Administrator?

The answer is probably no, says Augentius Group’s David Bailey – but life is getting complicated, leading many fund managers to turn to them

12 A Peek into the Large Banks’ HFT Prop Desks Karim Taleb, is back with an overview of the intersection of banks’ HFT prop trading, particularly the impact on CTA and Global Macro strategies

14 Fund Focus This month we take a close look at Brevet Capital’s Brevet Special Opportunities Fund III – a short duration fund targeted at privately-held, non-sponsor backed companies

Markets Matters 16 Make a Mint VAT- and CGT-free in the UK, gold bullion coins are an increasingly attractive investment, says Shane Bissett from the Royal Mint

Risk Management 20

Data Management: There’s No Alternative Companies can guard against international brand hijacking by putting suitable protection in place early, says Alison Hague, partner at patent and trademark law firm Dehns

22 Immigration: The Achilles Heel of the M&A Boom?

Not paying attention to immigration issues can result in a major headache for companies, say Jackie Penlington and Kerry Garcia from Stevens & Bolton LLP

25 Mitigating Environmental Risks in M&A Hans Nieuwenhuis, from Tauw, offers us some advice on how companies seeking merger and acquisition opportunities can build an effective strategy to solve environmental risks

Finance Focus 26 Islamic Finance: Dominating Global Banking The Islamic financial industry is flourishing – and not just in the Middle East. Barry Cosgrave, senior associate in the finance group at Shearman & Sterling LLP, tells us why

Relax 30 Aurora-inspiring Luxury Lucky souls discovering Iceland’s luxuriously comfortable Hotel Rangá have just possibly found the best way to enjoy the truly astonishing phenomenon of the Northern Lights

| Wealth & Finance | August 2014

Hello, and welcome to another issue of Wealth & Finance.

In this month’s magazine, we talk to Augentius Group’s David Bailey about why, as life in business becomes increasingly complicated, many managers are turning to fund administrators to help them makes sense of it all (p.10).

Elsewhere, Karim Taleb is back with an overview of the intersection of banks’ HFT prop trading, particularly the impact on CTA and Global Macro strategies(p.12) and we’ll also be taking a closer look at Brevet Capital’s Brevet Special Opportunities Fund III – a short duration fund targeted at privately-held, non-sponsor backed companies (p.14).

In our Markets Matters section this month, the Royal Mint’s Shane Bissett is on hand to talk us through why gold bullion coins are becoming an increasingly attractive proposition for savvy investors (p.16).

Finally, we have an M&A-themed double bill as we examine why immigration could be the Achilles heel of the M&A Boom (p.22) and Hans Nieuwenhuis, from Tauw drops by to offers some advice on how companies seeking merger and acquisition opportunities can build an effective strategy to solve environmental risks (p.25).

And of course there’s our regular roundup of the news affecting the major regions and markets from around the world.

I hope you enjoy the issue.

Ollie John, Editor ollie.john@ai-globalmedia.com

Wealth & Finance | August 2014 |

September 2014 | News & Appointments

News & Appointments | September 2014

4

5

News in brief Financial Adviser Banned and Fined After Clients Lose £2.2m Peter Carron, formerly a senior partner at St James’s Place Wealth Management Plc, has been banned from performing any function related to regulated activities in financial services and fined £300,000 by the Financial Conduct Authority after his advice resulted in his clients losing around £2.2m.

Between 2004 and 2010, Carron advised 11 clients to invest a total of £2.4m in three companies of which he was director and majority shareholder without adequately disclosing this fact to them.

The clients later lost approximately £2.2m when the companies went into liquidation between May and August 2010. St James’s Place subsequently paid these 11 investors £1.9m in compensation.

Near-Retired Plan to Enjoy Funds While They Can Study finds that hat 70% of those aged 55-64 plan to spend retirement funds on holidays and travel in the first ten years of their retirement A new study by Investec Wealth & Investment looking at attitudes to spending in retirement by people aged 55-64 has found that this near-retired segment are planning to spend a larger amount of their retirement pot in the immediate years after they retire. Nearly three-fifths (59%) believe they will reduce spending further into retirement when they are less willing and able to undertake activities such as overseas travel.

The research found that 70% of those in the 55-64 age bracket plan to spend retirement funds on holidays and travel in the first ten years of their retirement. Nearly two-fifths (38%) plan to spend money on home improvements compared to a third (35%) who plan to eat out more and a quarter (26%) on a new car.

However, the study found there was little risk of retirees blowing funds on a new Lamborghini, with 82% saying that people who have saved regularly in order to build up a pension pot over their lifetime are likely to take a cautious approach to spending in retirement. It also found that just 13% of people aged 55-64 think that the changes to annuities announced in the March Budget will encourage them to spend more during the first few years of retirement.

Nick Gartland, Senior Financial Planning Director at Investec Wealth & Investment, said: “It is good to see that the majority of people are looking to

| Wealth & Finance | August 2014

take a sensible approach to retirement saving and spending given the profound changes announced in the March Budget. If you save regularly throughout your working life you are unlikely to blow your savings in one go or too quickly, which is good to hear.

“Notwithstanding, there remains a need to be very careful how you invest and spend, given the changes and the new freedoms people now have: for instance, investment underperformance could become a greater issue if people are not locked into an annuity while tax issues and making ill-advised product purchases at the point of retirement could also become more serious.”

The research by Investec Wealth & Investment found that over half (52%) of near-retirees are not planning to restrict how much they spend on non-essential luxuries in retirement in order to have sufficient funds to cover the cost of long-term care.

In contrast, it did find that a quarter (25%) expect to leave a larger inheritance for their family given the changes announced by the Chancellor in the Budget.

Gartland said: “The important things about retirement are to save as much as you can, and then enjoy yourself. Saving prudently in the right assets and for the long-term remain fundamental to a successful retirement investment strategy. People will actually have more not less choices going forward, so the need for professional advice has become even more crucial.”

Tracey McDermott, director of enforcement and financial crime at the Financial Conduct Authority, said: “People go to advisers because they want expert help on how to make the most of their money. They are entitled to expect that their adviser will act in their best interests, not his own. Advisers should think very carefully and make clear and full disclosure if they are intending to advise clients to invest in ventures in which they have an interest.”

Inflation Falls Further Ahead of Scottish Referendum Data released on 16 September by the Office for National Statistics showed that UK consumer price inflation fell further to 1.5% year-on-year in August, from 1.6% in July.

Components of the index that pushed the rate of inflation down included food and non-alcoholic drinks, where prices fell by 1.1% compared to a year ago. Meanwhile, the cost of motor fuels fell by 5.7%, the fastest annual decline since March.

However, clothing, alcohol and tobacco all made offsetting upward contributions to the headline rate.

Two main factors have kept the UK inflation rate below the Bank of England’s central target of 2.0% over the past eight months. Weak wage growth for consumers has helped prevent prices from taking off with the recovery. In this sense, the low inflation rate is something of a relief as it has prevented living standards from falling too far over the year so far. On the global level, eurozone demand has taken a knock from the unexpected shock of the Ukraine crisis, reducing pressure on global prices such as commodities and energy. This happened against the backdrop of weakening Chinese growth, an expected development but nevertheless one which has had a downward impact on key prices.

China’s Next Wave of Global Business Giants Forecast in New Report 100 companies that could be “household names” in the next three to five years, including Lenovo and Alibaba.com, are just the tip of China’s business iceberg The next 100 companies in China set to become big players on the global stage have been identified in a new report by global accountancy body, ACCA (the Association of Chartered Certified Accountants).

coherent business strategies and close performance monitoring. In-depth industry knowledge as well as an awareness of customers’ needs also featured highly amongst the 100 businesses.

The report, China’s Next 100 Global Giants, identifies 100 fast-growing Chinese businesses that have the right mix of characteristics to emerge as global giants from across different regions and a range of sectors; and the challenge for global market share over the next three to five years, with companies such as film and record company Huayi Brothers Media Corp – China’s equivalent of Warner Bros – amongst the top 100.

Professor Andrew Atherton, Professor of Enterprise and deputy vice-chancellor at Lancaster University, UK, said: “An additional feature seen across these companies is that they have built very strong foundations in their domestic market, in some cases a dominant position, which acts as a solid launch pad for going global.

The report, authored by Professor Andrew Atherton, deputy vice chancellor at Lancaster University, also points to four case studies of Chinese companies and looks at how they have got to the cusp of global growth.

Ada Leung, head of ACCA China, said: “We’ve already seen Chinese businesses become household names and take a major chunk of the global market, such as Alibaba.com, Lenovo and Haier.

The point of this report is to not only assess and identify who the next big global players from China are going to be, but also to look at how they got to where they are now with the potential to compete against established giants in China and other markets.

“It’s not just about their balance sheets, it’s about growth. These companies’ future growth trajectories are based on sustained annual levels of growth from 2008-2012. The majority of the top 100 companies we have identified have doubled in size and in some cases quadrupled. They are clearly doing something right.”

Recipe for growth The analysis drew out common characteristics amongst the 100 companies, including clear and

“We are now seeing them developing business models to grow into as other markets. Around one-third of these giants in waiting are making their mark on the global stage. Yet, even those that have concentrated on their local markets within China are showing immense growth and the expectation is they will appear in other markets within the next three to five years.”

Ada Leung added: “As ACCA finance professionals play a more prominent role in the strategy and future outlook of today’s businesses, they will be driving these companies towards their continued growth and global aspirations.”

The analysis looked at not only revenue for the year, but also revenue growth from 2008-2012, as well as domestic dominance and international presence. Business model and strategy was also a factor in scoring the companies for the purposes of the research.

Top of the ACCA next global giants list was Hengtong Optic-Electric, an electronics company in Suzhou. China’s growing banking sector also featured prominently in the analysis. Other companies named in the report included iSoftstone Holdings Ltd, Hangzhou Hikvision Digital Technology Company Ltd, CTRIP and Zhejiang Shangfeng Industrial Holding Company Ltd.

Appointments New Hire at Schroders Schroders has appointed Henriette Bergh in the newly created role of Head of Europe Product and Manager Solutions (excluding the UK). Bergh joins the team this month reporting to Nico Marais, Head of Multi-Asset Investments and Portfolio Solutions. She will have a functional reporting line into Justin Simler, Global Head of Product Management for Multi-Asset.

In her role, Bergh will be responsible for the Multi-Asset product management and strategy in Europe. This will involve creating and implementing product strategy, management of the product range in Europe and consultant ratings, product development and client support.

Nico Marais, Head of Multi-Asset Investments and Portfolio Solutions: “Henriette is a key addition to our team. She has eighteen years investment experience advising both institutional and private clients across multiple asset classes and overseeing manager selection strategy teams. Henriette will work alongside our senior fund managers in London and Zurich, to enhance the investment service we provide to our clients.”

Retail Think Tank Appoints New Experts The KPMG/Ipsos Retail Think Tank has appointed two new industry specialists to its panel of experts.

Mike Watkins and Martin Newman joined the Retail Think Tank panel on 1 September. The panel meets quarterly to discuss the issues facing the retail industry and to assess the overall health of the sector.

Mike Watkins is Head of Retailer and Business Insight for Nielsen UK and is an expert in analysing trends in the food sector. Prior to joining Nielsen, Watkins worked for a number of co-operative retailers in management positions within the buying, marketing and merchandising teams.

Martin Newman also joins the Retail Think Tank.

Newman has 25 years of multi channel experience having previously run the online and multi channel functions for a number of brands, including Ted Baker, Burberry and Harrods. He is the founder and CEO of Practicology, a global strategic e-commerce and multi channel consulting practice, and an adviser and NED to a host of other businesses.

Wealth & Finance | August 2014 |

News & Appointments | September 2014

September 2014 | News & Appointments

6

7

HNWIs Increasing Family Investments High-net-worth-individuals are increasingly diverting investments into family businesses, according to the results of a survey by KPMG High-net-worth-individuals are increasingly diverting investments into family businesses, according to the results of a survey by KPMG.

securing offered private equity (PE) funding as demands often include selling 100% of the business to maximise exit events.

The trend is seeing a drop in the amount of funding family firms are raising from traditional banks and financial institutions. According to the findings of the report, 36% of family businesses have had recent problems accessing bank loans to finance their projects, fuelling a hunt for alternative investment.

Despite this though, PE and venture capital remain the preferred route to funding.

The global survey by the professional services firm also found: • 44% of HNWIs have previously invested in family businesses • 95% have had a positive experience • 76% hold a majority stake in the business • 60% are actively looking for investments • A ‘reasonable’ risk and return structure is sought • Investments are taking a long-term capital appreciation view • 58% of family businesses are seeking external financing The survey, which asked the opinion of 125 family businesses showed that increasing numbers of them are facing a challenging environment to source adequate financing. The survey also asked 125 high profile HNWIs, asking them about their experiences with investing in family businesses and how they see the relationships working.

According to the findings, family businesses contribute over 70% of the world’s GDP. However, many of them are seeing their financing options being evermore restricted. This is risking the potential for growth, with families put off of

Strategic investments from corporates, (the second preferred funding route), also see family business investment as a route to full ownership however, another reason for reticence on the part of the seeker, who want to retain control of their business and keep key information confidential.

This is seeing high-net-worth-individuals (HNWIs) take up the slack.

Estimates by KPMG suggest that the top 14 million HNWIs are worth a collective wealth of $53tn on a global level, with their priorities often closely aligned with those of famil businesses.

Many of them have direct experience in family business themselves.

Both target long-term capital appreciation as a top investment driver for example, 37% in the case of HNWIs and 23% in the case of family businesses. The route into top quality education is a factor in this decision, with the Global Head of Family Business at KPMG, Christophe Bernard saying: “From the survey, education and awareness on the potential benefits of these partnerships have emerged as important first steps to link these two groups.”

With their collective worth and the investment route being largely under-optimised at present, advisors could see increasing engagements to facilitate Family Office and HNWI tie-ups.

Appointments Hans Van Der Noordaa to Become CEO of Delta Lloyd Next Year Hans van der Noordaa, member of the Management Board Banking will become the Chief Executive Officer of Delta Lloyd N.V. as of 1 January 2015.

He will therefore step down from the Board per 1 October 2014.

Hans van der Noordaa was appointed to the Executive Board of ING Group in April 2006 and in 2009 became a member of the Management Board Banking with responsibility for ING’s retail banking operations in the Benelux. His career in financial services spans almost three decades. He joined ING in 1986 and over the years held various management positions within both ING Banking as well as ING Insurance, including CEO of Insurance Europe and Insurance Asia Pacific.

Ralph Hamers, CEO of ING said: “For more than 25 years Hans showed strong dedication to ING, its customers and employees. During these years he contributed to the success of ING when managing both insurance and banking divisions. During the recent years when ING went through trying times, Hans played an important role in the restructuring process and helped setting the future course of the company. I am thankful for his work and wish him well in his new position at Delta Lloyd.”

Michael Clements Joins SYZ Asset Management SYZ Asset Management, the institutional arm of Swiss banking group SYZ & CO, has announced the arrival of Michael Clements as Head of European Equities. He will be heading up the London-based team of fund managers and analysts and will manage the OYSTER European Opportunities, OYSTER European Selection and OYSTER Continental European Selection funds. He is joined by Claire Manson, who will be taking over the management of the OYSTER European Mid & Small Cap fund. Both were previously with Franklin Templeton.

Michael Clements’s investment style is in line with that of the previous manager. His strategy is characterised by an active management style, with a focus on strong alpha generation based on a bottom-up approach, an absence of style or cap bias and strong convictions.

Claire Manson will be taking over the management of the OYSTER European Mid & Small Cap fund, replacing William Sharp. Claire Manson was part of Michael Clements’ management team, having joined Franklin Templeton in 2009. She will be applying the same investment approach to small- and mid-caps.

| Wealth & Finance | August 2014

Cash Reserves of EMEA’s Listed Companies Hit New High

Listed companies in EMEA have almost ¤1tn in cash, up from ¤714bn in 2007, with 59% of major businesses in the region to invest in the next 12 months Listed companies across Europe, the Middle East and Africa have built up cash reserves of almost ¤1tn (¤963bn), according to a new report by Deloitte.

The 1,200 listed companies in the region have added a further €47bn to this surplus in the last 12 months alone, whilst the total has increased by around ¤250bn since 2007. More than 75% of this sum is held by just 17% of companies, mirroring the global trend where around a third of companies hold 80% of the US$3.53tn in cash reserves.

In addition to analysing publicly available data for listed companies, Deloitte also surveyed 271 C-level executives at listed (73 respondents) and non-listed companies (198 respondents) in 14 countries.

The analysis of listed companies’ cash positions is supported by this survey, with 77% of respondents reporting a cash surplus in 2014, with 20% holding more than ¤250m.

relatively low growth prospects. With growth in EMEA subdued, we believe companies will need to invest significantly, both organically and inorganically, to achieve their ambitions.”

Iain Macmillan, head of M&A at Deloitte UK, added: “Although we have seen an upturn in the level of merger and acquisition activity globally, in Europe M&A activity continues to lag behind. If European companies want to achieve double digit growth, then they need to consider M&A activities as part of their growth strategy. Our study on cash shows companies that are taking a more bullish stance on growth and spending their cash on M&A and capital expenditure are reaping the benefits through enhanced share price performance.”

This suggests that both listed and non-listed companies across EMEA have been behaving in a similar fashion, preserving their cash instead of investing.

This is a radical change since the financial crisis and a behaviour which looks set to stay. It comes at a time when business competitiveness in Europe appears to be under threat. Since 2010, a net balance of 41 European companies has exited the Global Fortune 500, the sharpest fall on record.

59% of the survey intend to invest some of their reserves this year, whilst 31% say their focus will be on continuing to strengthen the balance sheet. Of those companies intending to invest, 54% say that growth will be the primary focus of their investment strategy in the next 12 months. However, one in five companies’ investments will be directed at maintaining existing assets. Staff training and development is seen as an investment priority by 69% of companies, with the same proportion feeling likewise about investing in new markets and 64% intending to invest in new technology.

Chris Gentle, head of research, EMEA, said: “Our research found that the leaders of many companies expect double digit revenue growth in the years to come, yet continue to focus much of their efforts on the eurozone, a region identified by most as having

Gentle said: “Our research suggests that the majority of large businesses across EMEA have reached a pivot point in their attitude to investing, with the impetus to use their cash reserves for growth increasing all the time. However, confidence remains

brittle and it is likely that such activity will return gradually. There is a paradox in Europe between the firepower its companies have to invest and the ongoing requirement of the European Central Bank to announce a new stimulus package as happened earlier this month.

“The focus on training and development is intriguing. Faced with an aging workforce business leaders seem set on addressing the challenge of increasing productivity to enhance competitiveness. Firms hope that by investing heavily in their workforce, they will see a boost to productivity and in turn grow. This is a major shift from the past 10 to 15 years where the focus has been less on the impact of human capital and more on technological and business process innovation.”

Deloitte’s analysis shows that EMEA businesses see their home markets as critical. 35% of respondents are set to make investments inside the EU in the next 12 months, followed by North America (27%) and China (21%). In contrast, 13% of companies will invest in Brazil, 8% in India and just 4% in Russia.

Gentle commented: “It is essential for businesses to pursue growth on both front, in their region and in the high growth markets. Much of the talk after the financial crisis was of the growth opportunities offered by the BRICs, but it is clear that business leaders are adopting a more subtle, portfolio approach, mixing mature and emerging market opportunities.”

Wealth & Finance | August 2014 |

September 2014 | News & Appointments

9

“Privacy Crisis” Engulfs the Office Office-based businesses are facing an unprecedented privacy crisis with their employees, new research has revealed After decades of open plan offices and an unrelenting drive for shared work spaces, the number one complaint from office workers is now a lack of privacy.

Extensive new international research carried out by market researchers IPSOS and the Workspace Futures Team of office furniture manufacturer Steelcase, shows that 85% of people are dissatisfied with their working environment and cannot concentrate. 31% even leave the office to get work completed.

More than 10,000 workers across 14 countries were questioned about their office environments and working patterns.

Key findings from the research include:• Office workers are losing 86 minutes per day due to distractions.

• Too many employees are chronically disengaged at work.

• They are unmotivated, unproductive and overly stressed.

• They have little capacity to think and work creatively and constructively.

• The right balance between private and collaborative working spaces can deliver a step change in employee engagement and productivity.

Bostjan Ljubic, vice president of Steelcase UK and Ireland, said: “The drive for collaborative working

| Wealth & Finance | August 2014

spaces was founded on getting people working better together. It has been enormously successful and has delivered efficiency on a major scale but too much interaction and not enough privacy has reached crisis proportions, taking a heavy toll on workers’ creativity, productivity, engagement and wellbeing.

“People not only expect privacy in their private lives - they want it at the office as well. Our research has found that for people to collaborate with their colleagues more effectively they need less ‘we’ time and more ‘me’ time than they are getting today.

“Over the years we have seen office preferences shift from more enclosed spaces to more open.

But in some organisations the pendulum has swung too far,” notes Bostjan Ljubic. “Many people do not realise that effective collaboration actually requires individual private time.”

Workers are not, however, looking to turn back the clock to the days when they were isolated in closed individual offices.

Instead, they are desperately seeking privacy within open plan settings - where they can function effectively and complete work without being driven to distraction.

The IPSOS survey showed that 95% of people identify having the ability to work privately is important but less than half, 41%, say they have the opportunity.

“What people are now looking for is choice and control in their workspace and that is now what is redefining privacy in the working environment,” said Ljubic.

The Steelcase-IPSOS research shows that companies and organisations, committed to creating efficient, collaborative spaces, have not been considering privacy sufficiently in the design of their offices.

Steelcase contends that it is necessary to create an ‘ecosystem’ of different spaces where employees can choose the level of privacy they require.

“Many offices have limited options such as individual workstations, private offices, conference rooms and a cafe,” explains Ljubic. “However, having studied people at work in depth they need spaces for different types of work and these include formal and informal work in groups or alone. Some people find it inspiring and creative to work in a crowded, noisy environment whereas others prefer quieter spaces and quite often they want a mix of both. The workplace needs to offer a variety of public and private spaces - for We and I work.”

Nearly 70% of workers questioned in the Steelcase-Ipsos research worked in open spaces or in a combination of individual and open space offices and the results demonstrate a strong link between employees’ satisfaction with their work environment and their level of engagement.

Engaged workers are most satisfied with their work environment (31%) while the least engaged are also the most dissatisfied (69%). The most satisfied and engaged workers says their workplace allows them to concentrate easily, work in teams without being interrupted, choose where to work within the office.

Wealth & Finance | August 2014 |

Funds | Do I Really Need a Fund Administrator?

Do I Really Need a Fund Administrator? | Funds

10

11

Do I Really Need a Fund Administrator?

In a new book, hedge fund legend Ian Morley takes on the arrogance and falsehoods of the investment business with a collection of In short, the answer is No, says David Bailey, Global Head of Marketing and Cominsightful home truths, or “laws”.

munications for the Augentius Group. But life is getting complicated and many fund managers are turning to professional fund administrators. What is changing?

Ian let W&F in on and his four sense laws forinfund managers...

What are the pitfalls what common should a manager look for an administrator?

U

nlike many other asset classes (long only, hedge etc) the Private Equity and Real Estate industry (PERE) has for many years run its own back offices and carried out its own administration. PERE is the only assets class that in many instances carries out its own administration. However the pace of change, and outsourcing to professional administrators is increasing.

This is being driven by a number of factors: • Increased Regulation and Compliance – life is just getting more and more complicated and managers, and their CFOs in particular, are finding that they no longer have either the resources or knowledge in-house to handle all the work that is being thrown at them.

• Investors are increasingly looking for a high level of professionalism – and as investors themselves become more sophisticated, and require data in a range of different ways, so there is a need for professionalising the back office.

• Investors and regulators are also beginning to challenge the way things have been done. Is it correct that the manager calculated his own fees and pays himself? In other asset classes this is carried out by independent third parties.

• Managers themselves are finding the costs of the “back office” are going up. Given the complexities, more staff are required and better systems needed – all at a time when management fees are under pressure from investors.

There is no doubt that the industry as a whole, let alone the CFO, is under pressure from Regulation and Regulators. Dodd Frank and SEC inspections

| Wealth & Finance | August 2014

in the US, AIFMD and its complex impact in Europe and FATCA the world over. And this is just the beginning. Much of the information and data, processed and held by the administration function is relevant to these regulatory initiatives, but it takes time to understand the regulation, determine which data is required and package and present it in the manner required. For each and every fund manager to learn the regulations and determine how to deal with it is expensive, time consuming and resource hungry.

An administrator is a wholesale processor. It can understand legislation, develop products and services to accommodate the client’s needs and then provide the reporting interface to the regulator, in whatever shape and form is required.

The manager is taking advantage of the overall costs being spread across multiple managers and being provided with a solution, by professionals, who are intimately involved in the industry, at a fraction of the costs of doing it themselves. And if anything goes wrong – they can blame the administrator!

Investors are increasingly seeing the value of professional administration and the value of having a set of “independent” eyes watching over the fund. They want their fund managers to be focussed on doing deals and making money for them – not worrying about back office and regulatory issues. They also want high quality reporting, on time in a multitude of formats. And they don’t want the fund manager distracted from making money for them. As a consequence of this combination of issues, investors are increasingly encouraging their managers to seek out profes-

sional third party administrators to take on the administration function – releasing the managers from much of the burden and allowing them to focus on making money.

Private Equity and Real Estate fund management is now in a world of rapid change, and that change will only speed up. We have gone past the “point of no return”, and life is only going to get harder and harder for PERE managers, the CFO’s and their staff. Administrators can provide the solution to the problems, guiding their clients through the FATCA maze, dealing with Form PF reporting to the US regulator and the plethora of regulatory, potentially required under AIFMD. The administration industry is stepping up to the plate and providing their clients with the professional expertise, knowledge and services that their clients want – and the industry is moving to take advantage.

About the author...

David Bailey is Global Head of Marketing and Communications for the Augentius Group, with over 20 years’ experience in the industry.

Augentius is one of the largest independent Private Equity and Real Estate administrators in the world. Responsible for the administration of over 250 funds, across 13 international offices, and servicing circa 6,800+ investors on behalf of more than 125 fund management groups located in 35 countries around the world, Augentius is the only truly global player.

Wealth & Finance | August 2014 |

Funds | A Peek into the Large Banks’ HFT Prop Desks

A Peek into the Large Banks’ HFT Prop Desks | Funds

12

13

A Peek into the Large Banks’ HFT Prop Desks A

In the second of a series of articles, Karim Taleb gives us an overview of the intersection of banks’ HFT prop trading, and specifically the impact on CTA and Global Macro strategies

recent regulatory communication read as follows: “High frequency trading (HFT) – We are currently working on getting the National Futures Association to take a look at HFT in terms of whether it provides an unfair advantage to some market participants and interferes with the functioning of the markets…”

in higher trading costs for individual investors and institutions who bought or sold stocks. Pursuing to the settlement, firms settled for US$1bn in damages, and which was the largest antitrust settlement up to that point. Moreover, these firms became required to monitor and record telephone conversations of their Nasdaq traders.

fine could prove the easy part compared to being able to make a cultural change towards working with integrity.

their own, and transactions would naturally flow between buyers and sellers by simply posting and resting their best bids and offers.

Presumably, the banks and dealers promised not to do it again after that case – or perhaps unless they could do so without getting caught.

Under such a clear and simple system, there is no need for liquidity intermediation and the market does not need “making”.

A separate agenda aimed at curbing proprietary trading at banks was started by economist Paul Voelcker. His main concern and justification are to prevent the banks from further endangering their clients’ safe deposits by placing them at risk.

He also reminded the banks about the already big privilege they have of creating credit, and presumably insinuating that prop trading violates a banking license.

The basics of what became known as the “market-makers Nasdaq rig” was to force the buyers and sellers to pay a needless and inflated bid-ask spread of 25 cents – essentially preventing the investors buy and sell orders of interacting directly and to be matched at a lower spread.

The HFT’s Claim to Making-Markets

Paradoxically, technology has managed to remove intermediaries in almost every sector so far, ranging from booking travel to retail shopping – except for Wall Street, whose co-located machines continue to disrupt trading traffic to take a toll on an otherwise natural buyer-seller transaction flow.

This article focuses on the intersection of banks’ HFT prop trading, and the impact on CTA and Global Macro strategies in specific. We start with a brief historical preview to define the context and set an evolutionary baseline.

Background on Market-Making Back in 1999, and based on an antitrust class-action lawsuit alleging an industry-wide conspiracy amongst securities firms, the Justice Department charged 24 major securities firms with fixing transaction costs for investors and which resulted

| Wealth & Finance | August 2014

More interesting than the incriminating evidence uncovered, is the widespread collective collusion revealed at these 24 major securities firms.

“

In that respect, being able to pay a billion dollar

While the typical investor primarily looks at being dollar-wise, banks have not been blind to the pennies that would pile up from such wisdom

“

As an old timer and former Federal Reserve official, Voelcker knows a bit more about banks than most, and appears to bring some sanity to a banking system that managed to morph into a casino. Yet one wonders whether he had HFT in mind with his comments, or whether he knew anything about it if at all. The large banks and a small number of proprietary trading funds have done an excellent job running their HFT operations in utmost secrecy so far.

Quoting Attorney General Janet Reno: “We have found substantial evidence of coercion and other misconduct in this industry… As a result of this conduct, American investors had to pay more to buy and sell stocks than they would have if there had been true competition.”

Monetising the flow under labels of “market-making” or “liquidity-provisioning” has long been an obsessive fantasy of the large banks – an obsession similar to that of Wile E. Coyote, who neither spared any means nor ever lacked imagination when planning how to catch the Road Runner.

The reader is likely familiar with how a dripping faucet could easily fill the sink or tub within hours, so what if the global financial markets could be systematically scanned and skimmed at the source, one “drop” at a time? While the typical investor primarily looks at being dollar-wise, banks have not been blind to the pennies that would pile up from such wisdom, and in fact extremely motivated to pick up loose change; the recurring revenue potential is huge.

With regulators either asleep at the wheel or too busy keeping up with the Madoff’s and a growing list of financial fraud, it made perfect sense for the banks to deploy silent and automated HFT algorithms to collect change here and here in the markets, it seems.

While there was a time when market-making was a genuine function offered by banks with access to a broad client base, this function is no longer required for most publicly traded securities.

Available connectivity and trading technology fully enables buyers and sellers to transact on

We also know that Wall Street banks have an active lobbying effort in Washington tasked to maintain these needless HFT intermediaries that work against the interest of the consumer and in opposition to the competitive principles that banks constantly preach to the real industry.

Fragmentation & Speed Allow Market Abuse The growing prevalence of low-latency and high-frequency trading algorithms co-located just next to the matching-engines of the exchanges has unquestionably impacted the core of the financial markets and created a biased quotation and execution system.

This writer gave two presentations a couple of years ago on HFT entitled “The New Market Order” and “HFT: Order or Chaos?”. In both talks, the characteristics of an inadequate market structure were described, and the consequences of an increased fragmentation, speed, and complexity were discussed. One of the main points was that the micro-structure of the markets as initially designed, and later on revised by the exchanges, had not caught up with the fast technological

propagation; the markets micro-structure hence remains too loose and open to abuse by low-latency and high-frequency quoting and trading systems. The effects of such structural changes are clear to the insiders and prop desks, and have subverted the integrity of the markets in a relatively short time.

The increase in complexity for instance, and when coupled with automated trading, has undermined liquidity and price quality. The deterioration is evident in both the increased intraday price variation and the amount of true posted liquidity and market depth.

The NBBO in a security, for instance, can now be caused to vary widely without even a single trade actually taking place, and based solely on manipulative quotation practices like “fluttering”.

This misleads most investors or the 99.99% nonHFT participants by causing them to react on such virtual and misleading price data.

While in the case of the Nasdaq Rig the evidence of manipulation could be clearly gathered and assembled, leaving no room for doubt, HFT comes with a twist and a mask where the fingerprints are well camouflaged under terabytes of stored data and which are practically impossible to trace.

Lurking behind a complex network of hardware and software setups, and spread over various remote locations away from public view, the job of identifying a needle in a haystack looks trivial in comparison. With spam quotations and cancellations reaching the rate of millions per second, and sent by computers and not humans, the exchanges are having trouble just keeping up with the hardware requirements to operate such a network and store the sheer amount of worthless data it generates.

On the regulatory front, and as evidenced in various independent and much simpler cases, regulators remain well behind in understanding how the markets have morphed with technology, and what is actually going on.

Some well-intended officials have publicly stated and alluded that the problem with HFT is mainly those “cheetah traders”, almost hinting that the problem lies with the smaller proprietary trading firms capable of deploying poorly designed or tested algorithms which could go rogue and create chaos in the market.

As a matter of priority, this writer posits the opposite in this article: The real and sustained damage to the markets is being done by the prop desks of the large banks, and not by the typical firm trading with a limited capital and a limited technology budget.

With all other variables remaining constant, it is precisely the inordinate scale of the large banks which is abusive to the markets, and which becomes evidently excessive when coupled with HFT.

About the author...

Karim Taleb, PhD is the Principal of Robust Methods LLC, a global investment management firm specialising in absolute returns strategies for private and institutional investors.

Possessing state of the art quantitative expertise, Robust Methods draws from deep market insight and theoretical and computational methods to design and produce superior trading strategies for the financial & commodities markets.

Wealth & Finance | August 2014 |

Funds | Fund Focus

Fund Focus | Funds

14

15

Fund Focus: Brevet Capital Management Brevet Capital Special Opportunities Fund III In this month’s Fund Focus, we look at Brevet Capital’s Special Opportunities Fund III, a short duration fund targeted at privately-held, non-sponsor backed companies – a growing market

o Upside revenue sharing has the potential to enhance returns to over 25% per annum o On average, 70% of asset returns is cash realized on a monthly basis The hedge fund structure provides more diversity with a constantly growing investment capital base. Over the life of the portfolio, Brevet has originated 874 assets and enhanced investment returns by managing cash drag.

B

revet and its affiliates or predecessors have originated senior secured loans to middle market growth companies. Over the past 20 years, through proprietary deal origination, sector expertise, collateralized structuring and customised products, Brevet’s proven investment process challenges the status quo and produces attractive risk averse returns with credit versus equity risk.

FundIIIIII NetReturns Returns Fund – –Net 1.2% 1.0% 0.8%

Brevet’s target market is privately-held, non-sponsor backed companies. This market continues to expand due to; the changes prompted by the financial crisis, alternative lenders focus on pre-crisis strategies of CLO and club originations and large cap firms dominating financial opportunities with banks. According to Deloitte’s “Mid-Market Perspective” report published in 2011, the middle market opportunity is quantified as US$6.1tn in revenue and 40% of the national GDP. This market has an increased demand for lending due to restrictions and limits levied on regional and community banks.

Within the above outlined market, Brevet: • • •

targets first time borrowers focuses on sectors “over looked” due to complexity and historical lack of need for financing looks for the companies that are seasoned, cash generating and asset rich while wanting to remain private

0.6% 0.4% 0.2% 0.0% 09/09 12/09 03/10 06/10 09/10 12/10 03/11 06/11 09/11 12/11 03/12 06/12 09/12 12/12 03/13

Initial Period: Deployed Seed Capital

Misalignment of subscriptions and deployment

Implemented 6 month callable capital structure to manage cash drag

06/13 09/13 12/13 03/14 06/14

Added CoInvestment

Closed Liquidity Facility

Fund III is a short duration fund targeted at this growing market. Launched in 2009, the cumulative net return is 50.59% as of 31 July, 2014¹.

Cash as a Percent of AUM

Cash as a Percent of AUM

For interested investors, we appreciate the opportunity to take your calls or emails. Please

For interested appreciate opportunity to take your calls or emails. Please contact us contact usinvestors, at +1 212we 974 5777 or the at ir@brevetcapital.com at +1 212 974 5777 or at ir@brevetcapital.com (1) The performance of the S&P 500 Index and Barclay’s Capital US Aggregate Bond Index are presented for comparThe performance of the S&P 500 Index and Barclay's Capital U.S. Aggregate Bond Index are presented for comparative purposes. ative(1) purposes.

Most investments are structured as senior collateralized secured loans with upside participation.

• • •

Coupons and fees on Fund III’s current portfolio are over 14.5% per annum Upside revenue sharing has the potential to enhance returns to over 25% per annum On average, 70% of asset returns is cash realized on a monthly basis

The hedge fund structure provides more diversity with a constantly growing investment capital base. Over the life of the portfolio, Brevet has originated 874 assets and enhanced investment returns by managing cash drag.

| Wealth & Finance | August 2014

As indices, the S&P 500 Index and Barclay's Capital U.S. Aggregate Bond Index are not available for direct investment, and there are no management fees, trading expenses or operations costs associated with them. The S&P 500 Index is a market-capitalization As indices, S&Pcontaining 500 Index Barclay’s USchosen Aggregate Bond Index are not for to direct investment, weightedthe index 500 and widely held U.S.Capital securities for market size, liquidity, and available industry group represent U.S. equity are performance.

The Barclay's Capital U.S. expenses Aggregate Bond Index is chosen to associated represent U.S.with bondthem. marketThe performance. and there no management fees, trading or operations costs S&P 500Any Index comparison to the indices is for informational purposes only. The volatility of these indices may be materially different than that of is a market-capitalisation weighted indexsignificantly containing 500 held securities chosen for market liquidity, Fund III and Fund III’s holdings may differ from thewidely securities thatUS comprise the index.

Correlation to S&Psize, 500 and to Barclay's U.S. Aggregate Bond Index calculated from the inception Fund III. Capital US Aggregate Bond Index is chosen to and industry group to represent USisequity performance.

The of Barclay’s PAST PEFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE

represent US bond market performance. Any comparison to the indices is for informational purposes only. The volatility of these indices may be materially different than that of Fund III and Fund III’s holdings may differ significantly from the securities that comprise the index. Correlation to S&P 500 and to Barclay’s US Aggregate Bond Index is calculated from the inception of Fund III.

PAST PEFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE

Wealth & Finance | August 2014 |

Wealth Corner Markets Matters| HNWIs: | Make aKeeping Mint the Taxman Smiling

HNWIs: Keeping the Taxman | WealthMatters Corner Make aSmiling Mint | Markets

16 16

17 17

Make a Mint Gold bullion coins, which are VAT- and CGT-free in the UK, are an increasingly attractive investment.

Shane Bissett, The Royal Mint’s Director of Commemorative Coin and Bullion, tells us more

P

eople purchase gold as an asset which holds its value over time. The value of gold is intrinsic. It does not rust, cannot be counterfeited and is considered to be the original and most far reaching global currency.

Gold is a highly transferable monetary asset. The start of the world economic downturn in 2008 helped to spur fresh interest in gold sales as investors started to seek alternative options.

Sales of gold bullion coins in particular have been boosted after they were awarded VAT-free status in the United Kingdom. The fact that they are Capital Gains Tax (CGT) free for residents of the United Kingdom also acts as an additional attraction. However, only bullion coins considered to be “legal tender” are exempt from CGT in the UK. The Royal Mint’s Britannia and Sovereign bullion coins fall into this category, whilst the South African Krugerrand does not, as it is not legal tender in the UK. In the first financial quarter of this year The Royal Mint has seen sales of its gold Sovereign and Britannia coins increase by 13%, whilst silver coin sales have increased by 43%.

Shane Bissett, The Royal Mint’s Director of Commemorative Coin and Bullion, says, “At the moment we are seeing most of the demand for our gold and silver coins coming from North America and Europe, particularly Germany. Consumers in these countries have traditionally purchased gold and silver for many generations, and Germany has previously experienced hyperinflation which has influenced the views of German consumers.

American consumers are able to add gold and silver coins to their Individual Retirement Account funds which drives a lot of activity.”

| Wealth & Finance | August 2014

The World Gold Council has previously estimated there is potentially £4bn latent demand for gold investment within the UK alone, but consumers have been deterred from taking the plunge because of the perceived barriers to purchasing precious metals.

The bullion market is often considered to be a complex and confusing area for individuals to explore, possibly requiring the services of a reputable broker to negotiate the fairest price. People can also be put off by the fact that they cannot see the bullion first hand before they buy it, and this option may not be easily accessible to them.

Bissett says, “Where the average consumer may have shunned gold due to perceived complexities, The Royal Mint can help make this ‘alternative’ option a much more accessible and open opportunity.

The Royal Mint brand is instantly recognisable as a reliable and trustworthy avenue into the gold market, and we are continuing to see our sales grow each year as a result. In particular, we are seeing an increase in customers who would prefer to buy gold and silver coins to ingots or bars because coins offer a more affordable introduction into the bullion market, and also give the purchaser the flexible option of dividing their collection and redistributing the coins if they wish to.”

Potential gold bullion buyers may also have concerns about the risks associated with shipping their purchase, and where to store their bullion.

The Royal Mint introduced its own high security precious metal storage facility, The Vault™ in response to increased demand for bullion coins and market demand for additional vaulting capacity.

Bissett adds, “Our customers can store their gold bullion coins in The Vault TM at The Royal Mint

which is protected 24 hours a day, 7 days a week and 365 days a year by the Ministry of Defence, rather than have them shipped, which offers extra security and peace of mind. We have been a highly respected and trusted source of coins for kings, queens and governments for over 1,000 years. This proud long term heritage is one of the reasons that we are globally recognised as a reliable source for bullion coins.”

The Sovereign is the world’s oldest bullion coin still made to this day, having existed in one form or another for over 500 years. It is the most accurately specified coin in the bullion world, with its weight and purity guaranteed to five decimal places by an Act of Parliament, the Coin Act of 1971.

The Royal Mint introduced its Britannia 1oz gold proof coin in 1987 to offer direct competition to other 1oz gold coins in the bullion market, changing its purity specification to ‘four nines’ (999.9) gold in 2013, indicating it is 99.99% gold. This was followed by launch of the Britannia 1oz silver proof coin in 1997. The purity of this coin was also enhanced to ‘three nines’ (999) fine silver in 2013, meaning it is 99.9% silver.

The Royal Mint is one of the world’s oldest and most venerable organisations, with an unbroken history of minting British coinage dating back over 1000 years.

For further information about The Royal Mint bullion or The Vault™ please visit www.royalmint.com/bullion

Wealth & Finance | August 2014 |

| Wealth & Finance | August 2014

Wealth & Finance | August 2014 |

There’s No Alternative to Strong Data Management | Risk Management

Risk Management | There’s No Alternative to Strong Data Management

21 21

20

There’s No Alternative to Strong Data Management A

lternative investments are becoming an increasingly attractive option. Private equity and real estate have always been popular, but recently large sums have also been put into infrastructure or real assets such as timber, agriculture or energy.

if used by just one or two people, spreadsheets just don’t provide the required protection at an enterprise level. Other than basic password restrictions, users have little control over who opens them and what changes they make, which can lead to inaccuracies and confusion.

At the same time and as with most other financial transactions, these investments are coming under greater scrutiny with regulators and investors alike demanding more detailed, transparent and frequent reporting cycles. This is challenging the entire sector where reporting has typically been slow and information lacks the granular depth required.

Fund managers typically enter data before sending spreadsheets round to colleagues for their input.

At each stage, versions are distributed sideways for more data to be added, amended or removed. It can take weeks for the data to flow to reach an investor report – by which time it is already out-of-date. It’s also often difficult to tell when elements have been updated. When they look at a balance sheet or P&L in Excel, they don’t know whether changes were last made yesterday, or the month before. Spreadsheets have no reliable method of versioning, but these upcoming regulations – in particular AIFMD – will make the tracking of changes mandatory.

The AIFMD and EMIR in Europe, and Dodd-Frank in the US, looks set to disrupt this sector directly.

Basel III and Solvency II in Europe, and FATCA in the US may also have an impact. Inevitably, fund managers are beginning to assess their business models and supporting systems to ensure compliance with these regulations.

Suddenly data management – often previously overlooked – is now becoming a top priority and an urgent one too. These new regulations are designed to give investors and other stakeholders improved shock-testing, security, analysis and transparency. Up-to-date reporting based on credible data will soon be a necessity and is causing headaches for businesses that have failed to update their data management systems or, more likely, are still holding all their data in spreadsheets.

So how can these fund managers negotiate this new landscape? It’s not just about survival; how can they implement the right systems and processes to help them positively thrive in this increasingly competitive arena?

The first change must be to stop total dependence on these ubiquitous spreadsheets. They are great tools, but are no longer enough for analysis and reporting in this tough new environment. Secure

| Wealth & Finance | August 2014

Spreadsheets have been popular for so long because they can be tailored to a thousand different uses, including data modelling. But spreadsheets were not developed specifically for modelling and have certain disadvantages. For example, the notion of time doesn’t exist in Excel and financial modelling involves assessing how parameters will evolve over time. So, for example, is someone refers to August 2014 in Excel, they have to remember that there is a value for it somewhere in column T. So what’s the solution? Data needs to be secure, but easily accessible by the right people and – for users to have confidence in using it for key decision-making – it must be clean, consistent and reliable.

With the right kind of centralised database system, efficient data warehousing and management tools plus an approach that delivers high-quality data, fund managers can begin to see the results they need.

One of the main benefits is the constant connection to underlying data. So, just by pressing a button users get the latest data sets instantly and can pass these up to the next level without re-keying or re-checking anything. If a firm is using a third party partner to supply certain services, it is straightforward to connect the data sources.

Structured data in a single database is the goal.

With this single, central system users always have the most up-to-date version of models and formulas at their fingertips. Changes are dynamic, so when one person makes an alteration everyone can see what they have done and the impact of their changes. This makes it easier to try multiple iterations of different scenarios to totally test the robustness of any decision. This total transparency makes auditing and compliance far more straightforward.

Once the information is centralised and easily accessible, it is important to build reporting and analytics capability. This is where managers can use the data proactively, taking advantage of analysis and what-if scenarios to enable forecasting and future planning in a way that can be demonstrated and easily communicated to investors.

“

It’s not just about survival; how can fund managers implement the right systems and processes to help them positively thrive in this increasingly competitive arena?

“

New regulations aimed at increasing transparency for investors mean fund managers are now rushing to assess their data systems.

Guillaume Fiastre, CEO at financial services business software vendor Taliance, tells us how they can make sure they stay on top

About the author...

The sensible path is to draw on the help and assistance of IT support to help make these changes.

However, remember that any implementation and change must be led by the business, with decisions made on a firm business basis. Those with a good understanding of fund management are the best placed to understand exactly what is needed by both the organisation itself and investors.

Guillaume Fiastre started working in real estate in the mid 1990’s. In 2000, he set up his own software publishing company to develop the first property asset management solution in France, FinAsset. In early 2003, when Taliance acquired FinAsset, Guillaume Fiastre became the deputy managing director of the entity, and became CEO in 2007.

So in this way, what looks on the surface like a disruption can actually be turned into a great opportunity to transform a business into a modern, highly competitive operation with the flexibility to cope with any further regulation or other change that might – and is quite likely to – occur.

During this period, he was actively involved in numerous initiatives aimed at improving the transparency and responsiveness of the property market through information systems including creation of the FIDJI format, and participated in finance and innovation working groups.

Wealth & Finance | August 2014 |

Immigration: The Achilles Heel of the M&A Boom? | Risk Management

Risk Management | Immigration: The Achilles Heel of the M&A Boom?

23

22

Immigration: The Achilles Heel of the M&A Boom?

Companies going through mergers and acquisitions rarely give very much thought to immigration issues. But, say Jackie Penlington and Kelly Garcia,

from Stevens & Bolton LLP, unwittingly hiring people you can’t legally employ can result in a major headache

W

ith recent figures published by the Office for National Statistics confirming that net migration into the UK is up by 38% in the last year, UK companies may find themselves increasingly recruiting or inheriting more non-EEA nationals in their workplace.

This is especially relevant in light of the recent boom in global mergers and acquisitions.

According to Dealogic, a firm providing support to investment banks, global M&A volume has increased by 43% in the past year.

While companies going through mergers usually consider issues such as office space, finances, tax and communication with employees, they often give little thought to immigration issues.

This puts them at risk of inheriting employees they cannot employ lawfully. Following recent changes to the civil penalty scheme, it also means that they face paying fines of up to £20,000 per illegal worker.

| Wealth & Finance | August 2014

An important issue to consider is the sponsorship licence that enables a company to sponsor and therefore employ non-EEA nationals. This licence, which is granted by the Home Office, is not transferable. Any merger, takeover or de-merger or change of ownership must be reported to the Home Office within 28 days, along with details of any sponsored workers affected by the change.

Failure to do so can result in sponsored migrants losing their right to live and work in the UK, and deprive the business of key personnel.

If there is a change in the ownership of an organisation, the sponsor licence is revoked and the new owners must apply for a licence if they do not already have one. In some cases, the existing entity must apply for a new licence. Where a business is sold through an asset sale, as opposed to a sale of its shares, the position is clear enough, but we recently acted for a company that was a licensed sponsor and whose share capital was purchased by a larger company. Although the legal entity

remained the same and therefore there was no change of employer, the Home Office confirmed that our client had to obtain a new sponsor licence.

So as the law currently stands, any share sale resulting in a controlling number of shares being transferred to a new owner means the old sponsor licence will be revoked and a new licence must be applied for within 28 days.

Where the identity of the employer has changed, which it generally does with an asset sale, TUPE (the Transfer of Undertakings (Protection of Employment) Regulations 2006) is triggered and the new employer becomes responsible for any sponsored workers who transfer to it under the regulations.

As TUPE often also applies to outsourcing arrangements, any sponsored workers employed by the old service provider will become the responsibility of the new contractor, who will need to apply for a licence if it does not already have one. This must be done within 28

days of the transfer. Both buyers and companies tendering for service contracts should ensure they carry out due diligence to establish whether any sponsored migrants would be transferred to them.

Where TUPE applies, the new employer should carry out right to work checks in relation to all transferring employees within 60 days of the transfer. If it does not and it later transpires that one of the employees does not have the right to work, the new employer will not have a statutory excuse in relation to employing an illegal worker and will face a civil penalty of up to £20,000.

Buyers of businesses and new service providers should check in good time if the seller or current service provider sponsors any migrants so that they can make arrangements to continue to sponsor those migrants. If they do not do so, they may find themselves employing the migrants unlawfully. There is also a risk of migrants bringing employment claims if the new employer has to dismiss them because it did not apply for a spon-

sor licence or make the other necessary arrangements to be able to continue to sponsor them.

We therefore recommend the following: • Carry out due diligence and consider immigration issues at an early stage of a merger or acquisition or when a change in service provider arises • Diarise any deadline for applying for a sponsor licence and submit the application, with all supporting documents, within 28 days • Ensure that all relevant notifications are made by the buyer and seller in relation to the sale, including, for example, details of any new offices or changes to migrants’ circumstances resulting from the purchase • Carry out right to work checks within 60 days of a TUPE transfer • Ensuring robust HR processes are put in place so that the buyer is able to comply with their duties as a sponsor.

About the authors...

Jackie Penlington joined Stevens & Bolton LLP as an Associate in March 2014. She specialises in personal immigration law and advises on obtaining entry clearance, leave to remain and settlement in a wide range of categories She also advises employers in relation to sponsorship licence applications and Tier 2 sponsorship.

Kerry Garcia joined Stevens & Bolton LLP in 2006 and is responsible for the day to day running of the firm’s immigration practice.

She is experienced in all aspects of business immigration law and also advises in relation to obtaining indefinite leave to remain and naturalisation. Kerry regularly advises employers and individuals in relation to the points-based immigration system.

Wealth & Finance | August 2014 |

Mitigating Environmental Risks in M&A | Risk Management

25

Mitigating Environmental Risks in M&A Hans Nieuwenhuis, senior consultant at consulting and engineering company Tauw, offers us some advice on how companies seeking merger and acquisition opportunities can build an effective strategy to solve environmental risks

C

ompanies seeking merger and acquisition opportunities across the globe are today being faced with ever-growing, and stricter, environmental liability systems.

Environmental liabilities include a wide range of perils.

Contamination; hazardous waste; toxic chemicals in water, air or on land, asbestos: identifying these pitfalls, and then building an effective an effective approach on how to handle these environmental liabilities, is an extremely important part of the M&A process.

According to Hans Nieuwenhuis, senior consultant at consulting and engineering company Tauw, to successfully mitigate environmental risks in M&A one

| Wealth & Finance | August 2014

must first of all identify those environmental risks.

“Next comes an approach on how to solve such risks and issues,” Nieuwenhuis continues, “by technical means, through insurance, through warranties and indemnities and so on.”

Current transaction practice requires greater due diligence, says Nieuwenhuis, while also retaining firmer control of transaction costs. “This means that the due diligence process has to be tailored to the transaction phase and on materiality considerations.”

Each type of industry has its own distinct environmental issues, says Nieuwenhuis. “We will always

discuss an appropriate scope of work, fitting to the type of industry, the number of assets, and the suggested materiality threshold.”

Contrary to other types of due diligence, environmental due diligence requires site visits, says Nieuwenhuis. This is vital in order to check that the practice matches the theory (for example, is the storage of hazardous substances in accordance with the permit requirement?)

Ultimately, Nieuwenhuis says, “Proper understanding of industrial processes, fast mobilisation, worldwide capabilities and timely reporting are key to servicing the M&A industry.”

Wealth & Finance | August 2014 |

Islamic Finance: Dominating the Global Banking Industry | Finance Focus

Finance Focus | Islamic Finance: Dominating the Global Banking Industry

27

26

Islamic Finance: Dominating the Global Banking Industry

to conventional investments then Shari’a- compliant structures can provide a solution. An increase in the breadth of the Islamic finance offering will only help with this.

The Islamic financial industry is flourishing – and not just in the Middle East. Barry Cosgrave, senior associate in the finance group at Shearman & Sterling LLP, tells us why

What, then, of the challenges facing the Islamic finance industry going forward? The call for standardisation continues although at a more muted level. With the growing prevalence of Islamic finance structures, documentation and approach has undergone an organic standardisation to complement the more manufactured version evidenced by the ISDA/IIFM Tahawwut Master Agreement (an agreement, published in 2010, designed to govern the legal and credit relationship between two parties embarking on a bilateral trading relationship involving Shari’a-compliant hedging transactions).

H

aving suffered an inevitable slowdown during the global financial crisis, Islamic finance is once again on the rise, with growth now being seen outside the traditional heartlands of the Middle East and South East Asia and taking on an ever more innovative and global flavour.

The announcement by the United Kingdom government of its inaugural £200m Sukuk issue (Sukuk is the Islamic equivalent of bonds) is perhaps the most high-profile example, but first of a kind issuances by FWU AG in Germany and Tilal Development Company in Oman, as well as innovative structures employed in the Axiata Sukuk in Malaysia and the Sadara Sukuk in Saudi Arabia clearly illustrate that the Islamic finance industry is moving forward.

What has led to this increase in activity? The growth in Islamic finance is down to certain key factors which probably fall into three main categories: the continued strong cash position of Islamic investors; the de-mystifying of Islamic finance products; and the growing familiarity of Islamic finance professionals with the needs of Shari’a scholars which has led to consequential efficiencies in implementing Islamic structures.

Whilst there has been a noticeable improvement in access to liquidity since some of the bleaker days of the recession, it is no secret that capital is still hard to come by for a number of businesses.

Islamic investors in the Middle East remain cash rich but lack asset classes in which to invest.

Whilst the Islamic finance market in South East Asia has traditionally been domestic, Middle

| Wealth & Finance | August 2014

Eastern investors tend to be more outward looking, which drives overseas investment. However, those investors that need to invest in line with Shari’a principles have often found a lack of assets in which to place their funds, resulting in a stockpiling of cash resources.

Traditionally, Shari’a-compliant instruments have been viewed with a great deal of caution by conventional investors. Much of this was down to a simple lack of understanding of what were perceived to be mysterious structures with complicated names. However, as an increasing number of Sukuk have run through the maturity cycle, it has provided an illustration of how Islamic instruments bear many of the characteristics of conventional finance products.

Finally, Islamic finance has become increasingly popular as the cost of structuring and documenting Shari’a-compliant business has decreased.

Much of this comes down to Islamic finance professionals having gained an increased understanding of the requirements of scholars, which has led to a corresponding decrease in costs. This increased understanding has also complemented the general de-mystifying of the industry.

Increasingly, Islamic instruments are being employed in innovative ways, even where the structures themselves are tried and tested. The SAR7.5bn Sadara Sukuk is a good example of this: the financing formed a part of a larger financing package which closed in two phases with the Sukuk forming phase one and a combined conventional and Islamic finance package forming phase two. The use of Sukuk was aimed at tap-

ping into the vast liquidity that Saudi Arabia has but which its institutions have struggled to deploy in an environment where Shari’a-compliant assets are hard to come by.

The debunking of the Islamic finance mystique is well illustrated by the number of conventional institutions that invest in Sukuk. It is estimated that around 60% of Sukuk are subscribed for by conventional institutions who regard Sukuk no differently to other fixed income investments. As a result, Sukuk are as attractive to conventional investors as they are to Islamic ones. The problem has traditionally been the comparatively high costs associated with entering into Shari’a-compliant structures. However, as industry professionals gain an ever-increasing insight into the requirements of Shari’a the burden on scholars has reduced. This has allowed scholars to turn their attention to more innovative asset classes to underpin Sukuk and to look at new structures to address products such as hedging and risk management, feeder funds and structured investments.

Islamic finance continues to be an important part of the global financial industry and the increase in its popularity has tracked a general increase in the growth of ethical investment products. It is worth noting that a number of the asset classes in which Islamic investors are prohibited from investing (for example tobacco manufacture, the gambling industry and arms production) are the same as those which ethical investment funds avoid. There are obviously some Shari’a-specific prohibitions but the majority of those prohibitions are shared.

If an investor is looking for an ethical alternative

The question is often asked as to whether the global financial crisis could have been prevented by a purely Shari’a-compliant investment environment? It is, of course, impossible to say, but it should be remembered that the Islamic finance industry has not been free of problems. There have been a number of high-profile defaults on Islamic instruments and insolvency- type situations for Islamic companies. However, these scenarios may be expected during times of heightened economic stress and tight liquidity. What is important to note is that Islamic finance structures have performed no worse than their conventional counterparts.

The main challenge for the industry will be to drive innovation through the development of a more diverse range of financial products. Islamic finance is still too reliant on Sukuk as its major asset class and there is a particular need for short-term investment instruments similar to the Central Bank of Bahrain Salam programme. Sukuk will always remain the key Islamic investment tool but more variety will be needed in order to maintain growth.

About the author...

Guillaume Fiastre started working in real estate in the mid 1990’s. In 2000, he set up his own software publishing company to develop the first property asset management solution in France, FinAsset. In early 2003, when Taliance acquired FinAsset, Guillaume Fiastre became the deputy managing director of the entity, and became CEO in 2007.

During this period, he was actively involved in numerous initiatives aimed at improving the transparency and responsiveness of the property market through information systems including creation of the FIDJI format, and participated in finance and innovation working groups.

Wealth & Finance | August 2014 |

We believe sound tax advice is more important than ever.

It requires not only professional expertise but above all insight into our clients’ wishes and goals. Our personalized commitment adds real value to our tax advice, which is reflected in the C&B More motto: ´Connect to add value´.

We are specialized in advising the Shipping Industry with (re)financing and structuring challenges. We provide tax planning services to optimize financ-

Rotterdam Van Nelleweg 1 3044 BC Rotterdam +31 10 7503195

Groningen Peizerweg 87B 9727 AH Groningen +31 50 7115290

Postal address: P.O. Box 13023 3004 HA Rotterdam

Connie.roozen@cb-more.com +31 6 51226404 Hendrik.boonstra@cb-more.com +31 6 47090150

www.cb-more.com | Wealth & Finance | August 2014

Wealth & Finance | August 2014 |

Relax | Aurora-inspiring Luxury

30

Aurora-inspiring Luxury | Relax

31

Aurora-inspiring Luxury Lucky souls discovering the luxuriously comfortable Hotel Rangรก in Iceland have just possibly found the finest way on Earth to enjoy the majestic Northern Lights

| Wealth & Finance | August 2014

Wealth & Finance | August 2014 |

Aurora-inspiring Luxury | Relax

Relax | Aurora-inspiring Luxury

32

Such feelings are soon spirited away as the Hotel Rangá, surrounded by the ubiquitous panoramic scenery, comes into view. A luxuriously comfortable countryside hotel built in a traditional log-cabin style, it already has a reputation for the high quality of its food, accommodation and customer service. Frequented by high net-worth individuals and discerning honeymooners, the fact that is also favoured by many Icelanders is testament to the prestige offered.

Also ideal for ground-shaking business leader meetings, the hotel offers 51 non-smoking rooms. Well-appointed and with a real sense of cosy luxury, there are 24 standard rooms, 20 deluxe rooms and seven suites – each one individually tailored for each continent of the world.

A World of Luxury The standard rooms at Hotel Rangá provide guests with a choice of either a queen sized bed (5 rooms) and 19 rooms with twin beds. Nearly all are equipped with Jacuzzis and have views over the East Rangá River or the famous volcano Mt. Hekla.

Deluxe rooms offer even more luxury and higher levels of comfort. Three rooms are equipped with twin beds while the other 17 have king-sized beds. All offer 26m² of luxurious spaciousness. The rooms face the river, Mt. Hekla or the outdoor Jacuzzis.

The suites at Hotel Rangá are all individually themed in keeping with each of the seven continents. Providing guests with the ultimate in hotel comfort and relaxation, staying here is simply entering a world of luxury.

The size of the suites range from the truly impressive 40m² to the staggeringly large 74m². Designed with the latest décor and fixtures and furnishings, each item has been carefully sourced from the continents they represent. The Junior Suites allow you to stay in Asia,

| Wealth & Finance | August 2014

Australia, North America or South America while the Master Suites offer you Africa and Antarctica. The Royal Suite is a European affair.

The food at Hotel Rangá is as stunning as the rooms and the surrounds. Located right next to the salmonstocked-like-sardines East Rangá river, it is unsurprising that many ‘Rekis’ make the hour long trip for dinner on frequent occasions. Offering a la Carte, lunch and bar menus, along with a true connoisseurs wine list, the restaurant and bar area is wonderful for relaxing with friends.

With a ‘Farmers Market’ concept and combining modern Nordic cuisine with the traditional culinary delights of the Mediterranean, it is all about predominantly local, fresh and high quality ingredients. With its European and Scandinavian gourmet Christmas Buffet enjoying world renown, visitors staying at the hotel in November and December have an extra treat to look forward to.

Light Up Your Life with the Aurora Borealis With its impressive location Hotel Rangá is perfect to discover everything this constantly shifting land has to offer. Whether exploring the highlands, the glaciers or the nature reserves, the volcanoes, black sandy beaches or magnificent waterfalls, this is an ideal base.

It is very likely that you are planning your Iceland trip to witness the Aurora Borealis of course and for that, the Hotel Rangá is perfect. Though the Northern Lights do descend south more frequently with the Sun being in a

“

It is, quite simply, inspirational, with few people left unaffected by the beauty and intrigue of the cascading blues, purples, yellows, reds, greens and every colour in between

“

L

ocated between the towns of Hella and Hvolsvöllur on the south coast and just off the Icelandic ring road, the Hotel Rangá is about a two hour drive from Keflavik Airport and little over an hour east of Reykjavik. Largely a remote country almost by definition, it is easy to get a sense of heading towards the back of beyond as you make your trip.

33

period of turmoil at the moment, you can never experience the sheer thrill of seeing them this far north.

It is quite simply inspirational, with few people left unaffected by the beauty and intrigue of the cascading blues, purples, yellows, reds, greens and every colour in between. Without any interruption from light pollution, when skies are clear above the hotel, it would be hard to find a better location. For the real experience head here in the winter and, perhaps, take a cool drink to one of those outdoor Jacuzzis. If it is late though, there is no need to worry. The hotel offers a wake-up service so you do not miss the light show.

Though the Aurora Borealis are the highlight of many an Icelandic trip there is so much more to do. Stargazing at Hotel Rangá is another joy with those clear skies still beautifully lit up even if the Northern Lights are not playing with the atmosphere. To take even more from the experience, you may want to head to the exciting new Hotel Rangá Astronomical Observatory, complete with roll-off roof and two high quality computerized telescopes.

During the day Iceland is quite simply the best adult playground in the world, with the hotel able to organise ‘Super Jeep’ tours, ATV motorbikes, cave exploration in Iceland, dog sledding, glacier tours and so much more.

With less adventurous activities such as bird watching, golf, whale watching and cultural tours also available, a must-do is the trip to the Eyjafjallajökull Erupts visitor centre, to really get the lowdown on the volcano that disrupted thousands of flights back in 2010.

No matter the reason for your visit though, Iceland and the Hotel Rangá will make the perfect destination. Just do not get put off by Hrammur, the towering 10-foot tall polar bear in the hotel reception.

For more info and reservations...

Tel: +354 487 5700 Email: hotelranga@hotelranga.is Web: www.hotelranga.is

Wealth & Finance | August 2014 |

| Wealth & Finance | August 2014