Wealth & Finance International | April 2015
Peer to Peer Lending Asset Management Expertise
Peer to peer lending is one of the fastest growing financial markets in the UK and is now worth over ÂŁ1bn
We speak to Copperstone Capital about their investment philosophy and strategy
Financial Services W&F catches up with Sadis & Goldberg, a financial services practice that represents hundreds of investment advisers and related investment entities
Time to Election Proof Your Investments We evaluate the risks ahead of he most uncertain election outcome in decades
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Welcome to your April issue of Wealth & Finance.
This month, we catch up with Copperstone Capital, a firm that boasts a wealth of global asset management expertise. The company’s director talks us through their investment philosophy and strategy. We also spoke to Sadis & Goldberg, a financial services practice that represents hundreds of investment advisers and related investment entities, and were so impressed that we named them our Ones to Watch in the fund industry this month. In our Financial Focus section, we flick through the eye opening new book, ‘Heroes and Villains of Finance’. This fascinating publication dives into the history of money as an institution, highlighting the 50 most significant figures that, rightly or wrongly, are responsible for the financial landscape we live in today. Plus, ahead of the most uncertain election outcome in decades, we evaluate the risks and detail exactly how you can ‘Election Proof’ your investments. We also help you to get your head around peer to peer lending in our Banking Zone section. And of course there’s our regular round-up of all the main news stories affecting the major regions and markets around the world. We hope you enjoy the issue!
contents 4. News
funds
10. Asset Management Expertise: Copperstone Capital 14. Ones to Watch in Funds: Sadis & Goldberg
finance focus
18. IP Investment Management: Collier IP 20. Heros & Villians of Finance: New book examines significant figures who have shaped today’s financial landscape 22. Financial services must catch-up to the demands of the digital consumer
markets matters
26. Time to election proof your investments 28. Technology enables inclusion of alternative assets in UMA
taxing times
32. Harewood Associates advise on pensions and investments 34. Eurozone’s exit from deflation gives ECB a pause for breath, but still a lot left to do
banking zone 36. Peer to peer lending 3
WealthWealth & Finance & Finance International | April |2015 April 2015
News
Property Transactions in Consumers Hands
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• London-based property consultancy Strawberry Star reveals 76% of UK consumers have had a bad experience with an estate agent, with a staggering 88% in London stating so • In a bid to respond to UK-wide consumer discontent, Strawberry Star launches to market with a market first: consumers will only pay the commission fee they think is appropriate for the service received • Tomorrow, firm launches nationwide survey of UK consumer sentiment towards estate agent services revealing overwhelming national dissatisfaction • National ombudsman statistics outline a quarter (26%)1 of national estate agent complaints were issues surrounding communications failures • With £700m worth of property acquired, the firm plans to expand further with the launch of offices in Singapore and Hong Kong
Key findings unearthed in Estate Agent Evaluations include (using nationally representative population figures): • Over 4.4 million consumers felt an estate agent had broken promises • More people in London have had a bad experience with an estate agent than any other part of the UK – with 88% stating so • Nearly one in 10 (9%) of the UK felt there was a lack of transparency from an estate agent – equating to over 4.4 million people • There is a generational difference in the quality of service, with 8% of 25-34 year olds feeling pressured into purchasing a house by an estate agent – twice the national average • 15% of the London population felt an estate agent broke their promises. More than any other region in the UK • In a regional comparison, the research found that Strawberry Star’s leading launch market, London, was the least satisfied with an estate agent, with a remarkable 88% admitting to a bad experience when looking for a property – over 4 million people
London-based property consultancy Strawberry Star has recently launched in the global market, with a unique service offer yet unseen on the international property market. In response to an alarming 76% of UK consumers who have had a negative experience with an estate agent, Strawberry Star’s clients will now be able to choose how much of the commission fee they pay, depending on their experience of the service.
Motivated by the fact that almost one in 10 UK consumers felt an estate agent did not listen to their requirements during their search for a home, Strawberry Star has placed their commitment to fulfilling the pre and post move requirements for each of their clients over all profit based objectives.
The launch brings an industry first to the consumer property market, testament to the firm’s overriding commitment to service over sale. This contracted promise extends from pre-sale interaction to post sale management of all owner/investor/occupier needs, whether this be performance based or service led.
In response to the report findings, Beresford continued: “We put people over property and ensure every single one of our clients - whether owners, occupiers or investors from the UK and abroad - feel that they are receiving a personalised service and are dealing with people that genuinely care about what matters to them. This commitment stands throughout every stage of the buying, moving, selling and letting process.”
With over 4 million people in the capital alone contributing the highest levels of national discontent, the launch of tomorrow’s report underpins the rationale behind Strawberry Star’s market defining offer. Championed by Dorian Beresford - CEO - Strawberry Star has placed an overriding level of attention on the relationship value behind the sale or purchase of a property, as opposed to purely the transactional value it holds.
The global launch was cemented with the opening of their Singapore office. Supporting an existent presence in Hong Kong, the Singapore office will champion the firm’s dedication to delivering the company’s Asian clients a sustained “on the ground” service.
In support of this, the Estate Agent Evaluations report reveals just over 7.5 million people across the UK feel the number one frustration towards estate agents is the agent’s overriding interest in receiving commission over finding the right property for their client, with one in five respondents in London stating so (18%).
The UK continues to be an incredibly popular property hotspot amongst Asian investors with Singapore and Hong Kong based investment now accounting for 90% of international purchases in the London new build market alone. Strawberry Star’s expansion into Singapore aims to confront the cultural, geographical and legislative challenges that face overseas investment into the UK.
Moreover, the current state of the property market sees customers bound by lengthy contracts that only account for the performance element of a transaction. These contracts must be adhered to if the agent achieves a sale or let, regardless of whether the client’s requirements are truly fulfilled, or if the calibre of customer service was acceptable or not.
Having facilitated over £500 million of investment into the London property market, the development of the Asian arm of the business is a significant stage of Strawberry Star’s global expansion programme. This is set to include an enhanced regional presence in the UK along with offices in India, China
Strawberry Star CEO, Dorian Beresford, said: “Consumers both at home and overseas continue to be dramatically underserved by their agents. The level of unsatisfied customers here in the UK is astonishing and representative of the frankly abysmal service delivered by many in the industry. We feel it is our obligation to redress the balance and put the power back into the hands of the public by literally putting our money where our mouth is. No tie-in periods, no false promises and if the client is not delighted by our service they get to choose how much of our fee to pay.”
Since 2009, Strawberry Star has acquired £700 million worth of property. Throughout this period, the firm has facilitated £500 million in aggregate investments and continued to provide an end-to-end service for fund, acquisitions, development, new homes sales, lettings and property management.
With all global operations driven from a Central London head office and a further 25 UK offices in the pipeline, the firm has commissioned nationally representative research to ensure an in-depth understanding of the consumers they stand to serve. Aware of the emotively loaded nature of a “home move” or property investment, the research champions a suite of insights that unveil the true state of consumer sentiment towards UK property services.
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Wealth & Finance International | April 2015
News
Revolutionising Real Estate Investment BrickVest has raised $1m from 20 influential investors to build the first ever pan-European online real estate investment platform. Founded by Dr. Thomas Schneider, Emmanuel Lumineau and Adalbert Wysocki, BrickVest is revolutionising real estate investment by bringing together property owners, developers and investors for online, direct, transparent access to global real estate. The platform will launch this summer, offering unprecedented access to the European and North American real estate markets from as little as €1,000. The fundraising is backed by angel investors from the real estate and technology industries, including Harvard University Professor in Real Estate Finance, Richard Peiser. The founders are using their collective experience of more than 40 years investing in the real estate and technology sectors to seize a unique opportunity to create innovative investment products. In a market dominated by a few financial gatekeepers, these industry transforming products will significantly increase the level of transparency while reducing the costs of sourcing, structuring and managing investments. BrickVest’s Chief Investment Officer Dr Thomas Schneider says the real estate investment industry has long been gated by the same group of major players. With the launch of the company’s online investment platform, BrickVest is smashing through an opaque marketplace creating access never before given in the space. For investors seeking a wide range of risk adjusted transparent and easy to understand investments, BrickVest is that opportunity without incurring huge, unnecessary fees. Most existing real estate peer to peer funding options act as a brokerage service for investors. Instead, London-based BrickVest provides full investment manager services. This includes complete governance, as well as ratings and underwriting services through its proprietary technology. “This comprehensive service has never before been available to investors other than the major real estate players,” says Schneider. Commenting on why he has backed the platform, Peiser said: “After reviewing the concept presented by the founding team, it was clear that BrickVest has the potential to become the defacto online real estate investment platform globally. A multitude of financial services have been fundamentally altered by the use of web technology and BrickVest will do the same for real estate investment.”
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WealthWealth & Finance & Finance International | April |2015 April 2015
News
Concerns over Rising Employment Costs and Competition
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Small businesses have easier time accessing capital, but struggle with transition to digital.
there’s danger in being left behind if they don’t invest time and money in increasing their capabilities.”
Less than half of small business owners (49 %) expect business growth within the next 12 months, according to the latest Small Business Health Index from CAN Capital, Inc., the market share leader in alternative small business finance. This is a decline from the 58% of small business owners who expected growth in the previous index conducted in September 2014. It seems that small businesses expect 2015 to be a year of stability rather than expansion, with 40% of owners saying they expect their businesses to remain about the same over the next 12 months, up from 34% in the fall.
Capital Access Only 30% of small business owners surveyed anticipate needing external capital to run their small businesses in the next year, down significantly from 43%last quarter. For those who do apply, capital appears to be easier to come by. 38% said it is quite or extremely challenging to gain access to working capital, compared with 61% who said the same thing in the previous survey. This survey marked the first time that bank loans through a traditional process were the number one way small businesses successfully secured funding/working capital, replacing loans from friends and family. Notably, 44% of small business owners said they have not faced any challenges obtaining access to working capital, a large increase from the 27% who said the same thing in the previous survey from September 2014.
CAN Capital’s Small Business Health Index, powered by SurveyMonkey™ taps into key issues and trends that can help business owners across the country expand and grow their businesses including access to capital, marketing, government regulation, competition and talent recruitment and retention. “After years of growth, small business owners seem to think things are leveling off,” said Daniel DeMeo, Chief Executive Officer, CAN Capital. “They’re concerned about rising employment costs, competition, regulation and new trends in digital marketing and digital payments. While they recognize the opportunities that exist from investing in their businesses, they also appear to be feeling more cautious than they’ve been in the past.”
DeMeo said, “While small businesses are having an easier time obtaining working capital, nearly half still report challenges, from being unsure of where to turn to lacking adequate collateral. Many of them are also waiting longer than necessary, with more than a third saying it took them more than a week and sometimes several months, to secure funding. CAN Capital is committed to offering fast, efficient access to capital, as well as tools and advice to help small businesses grow.”
Small business owners in the Southwest and the West are the most optimistic, with 62 percent of owners in the Southwest and 60 percent in the West saying the small business environment in their regions is either excellent or good. In contrast, only 48% of small business owners in the Northeast described the environment as excellent or good, making it the only region of the U.S. where fewer than half of respondents had a positive view. Threats & Opportunities Rising employment costs from regulations including new minimum wage laws and the Affordable Care Act were cited by 44% of respondents as the biggest threat facing small businesses today. Competition was a close second, cited by 40%. Many small business owners also recognize the need to do a better job of reaching their customers online, with 60% saying their knowledge of digital/social media marketing was either fair or poor. Only 29% of small businesses said they have optimized their websites for mobile devices and 27% said they don’t have a website at all. Small businesses are also coping with the shift to digital and mobile payments. The survey found: • •
•
Less than half (44 %) of small businesses currently accept payments online. Only 13% accept mobile payments such as Apple Pay. While more than half (55%) are familiar with the transition to EMV (chip & PIN) credit cards, only 19% have taken steps to update their point-of-sale systems to be compatible with EMV. Just 18% say they plan to invest in new payments technology in the next 12 months.
“Technology is bringing revolutionary changes to small businesses,” said James Mendelsohn, Chief Marketing Officer, CAN Capital. “From new payments technology to the analytics and customer insights that are now much more readily available, there are incredible opportunities for small business owners to use these tools to better serve their customers and grow their businesses. At the same time, it can be hard to compete with the technological know-how of larger companies, and
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Wealth & Finance International | April 2015
Funds
Asset Management Expertise Copperstone Capital is an investment management firm founded in 2010 in Moscow, Russia. The Firm manages wealth for high net worth individuals and institutions and provides advisory services. We hear from the Director of the firm, who talks us through talks us through the company’s investment philosophy and investment strategy. Copperstone brings together a unique combination of global asset management expertise, a highly professional team with proven investment capabilities and extensive knowledge of the Russian business environment. We assist our clients in following areas: • Investment management • Personal Net-Worth Management • Advisory Services
COPPERSTONE ALPHA FUND Copperstone Alpha Fund is a long/short absolute return fund. It has a broad mandate with no restriction to a particular region or asset class. Even though we look for value in various markets around the world, our main focus is equity investments in Russia and the CIS. The fund’s performance is a result of thorough analysis, with a careful and consistent risk control and follow up. We strive to provide the best possible risk-adjusted return by exploiting our proprietary asset valuation models in line with a pro-active portfolio management approach. We pursue our investment objective by normally investing 50-60% of the Fund’s assets with value strategy, 20-30% with discretionary emerging and global macro strategy and the remaining assets with event-driven, opportunistic strategy. Since its launch, the Fund has had a solid performance track record and established an impeccable reputation of highest integrity, trustworthiness and transparency. In 2015 Copperstone Alpha Fund was recognised as the “Best Russian Fund (since inception)” by Acquisition International in London.
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Wealth & Finance International | April 2015
Funds
INVESTMENT PHILOSOPHY In our investment activities we generally seek a broader mandate with little restriction to a particular region or asset class. And though our main focus is equity investments in Russia and the CIS, this allows us to be much more flexible, looking for value in various markets around the world. This advantage becomes critical during prolonged periods of distressed economic conditions. The Fund employs a complex set of risk analytics on investment and operational levels, specifically designed to face the unique aspects of risk management for the Fund, where the ultimate goal is to create risk transparency and solid support on each step of the investment strategy realisation, making the investment process better structured and consistent. It takes more than just in-depth understanding of local markets to identify trends and undervalued businesses with high growth potential. It also requires a good network of connections within specific industry circles. Our broad network of industry and government contacts allows us to do regular sanity checks of any critical information we are planning to use in our decision-making process. INVESTMENT STRATEGY Value We seek risk-adjusted returns by investing in stocks trading at significant discounts to their intrinsic value. Fundamental bottom-up security analysis is utilised to identify investments with a “margin of safety” allowing to outperform the broad global equity markets with relatively low volatility even in periods of slow growth. It involves notable deviations from benchmark exposures and is not managed with the objective of limiting tracking error, but to provide consistent return across market cycles with considerable downside risk mitigation. The strategy anticipates long-term investment horizon, but may liquidate holdings that discontinue to meet our investment objectives and criteria. Discretionary Emerging and Global Macro This strategy aims to profit from short- and long-term trends in global markets, with a particular emphasis on CIS countries. We combine a top-down approach, stressing on analysis of macroeconomic and political factors and identify particularly attractive countries, asset classes and sectors, on one hand. On the other hand, we employ detailed bottom-up analysis to select particularly attractive individual securities. The list of instruments includes equities, futures and options, fixed income, foreign exchange and structured products. We use a systematic approach in risk management and follow our agreed internal procedures. Our proprietary system allows us to independently calculate the fund’s volatility and exposure in real-time, manage and fix the breaches immediately. Event Driven / Opportunistic The event driven component consists of a number of strategies that profit from the successful underwriting of particular events. This events include merger arbitrage, distressed securities and bankruptcy emergence, activist-driven value, significant earnings deviation from expectations, debt restructuring, IPO/SPO and increased liquidity. We take directional positions and constantly maintain flexibility to shiſt the allocations of funds.
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As we are not part of any large financial group, we do not face imitations and make completely objective decisions.
Moscow Kremlin wall and tower Red Square, Christ the Savior Church silhouette.
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Wealth & Finance International | April 2015
Funds
Ones to Watch: Fund Industry of the Month Sadis & Goldberg is internationally recognied for its financial services practice that consists of representing hundreds of investment advisers and related investment entities (including hedge funds, private equity funds and venture capital funds) in every aspect of their legal needs. The Firm was founded in 1997 by several prominent attorneys committed to excellence in the practice of law. Some of our partners began their career at the Securities & Exchange Commission (“SEC”) and many other partners and associates are seasoned attorneys who started their career at large international law firms. All have vast levels of training and proven track records of professionalism, skill and diligence. Notwithstanding its concentration in financial services, the Firm also maintains departments in the following areas of law: Regulatory & Compliance, Litigation, Corporate, Tax, Trusts & Estates and Real Estate.
Reflecting on 2014, the matters undertaken in the Financial Services, Corporate, Tax, Regulatory and Family Office Groups were more complex in nature when compared to prior years. This is a direct result of the increased sophistication of our clients. While the commercial terms continue to evolve, the regulatory requirements continue to become more complex and investors have become better educated and more demanding. The Firm enjoyed further business growth last year from a variety of sources, assisting in corporate acquisition and divestiture, support for family office clients, risk reviews, documentation enhancements and agreements with principals and employees. Sadis & Goldberg’s client roster also grew, attracting a number of emerging and institutional managers, family offices and institutional investors. There are various positive factors in hedge funds’ favor. Traditional asset classes are perceived by many investors to be either overvalued or fairly valued, so investors in hedge funds are less likely to be subject to market volatility. Also, the reduced competition from bank proprietary trading has benefits for hedge funds. This in turn is benefiting the Financial Services Group. Our practice is global and many of our clients are well diversified. That being said, the New York metropolitan area has been bustling during the most recent 12 months and we expect the growth of the local economy to continue. Sadis & Goldberg has not only been intimately involved with the creation of various investment products, but also with many of the distribution
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Ron S. Geffner is a member of Sadis & Goldberg LLP and oversees the Financial Services Group.
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Wealth & Finance International | April 2015
Funds
models including seed transactions, acceleration capital, creation of hedge fund platforms, joint ventures, and the retention of third party marketers. Working with over 850 funds, in addition to refining our legal acumen, we are actively involved in the most current legal trends in the industry, as well as creating todays current commercial terms. Sadis & Goldberg are the winners of Hedgeweek North American Law Awards – 2011, 2014 and 2015. They rank amongst the top global awards. Drawing upon the collective experience of our corporate, securities, tax and litigation attorneys, Sadis & Goldberg is widely recognized as providing skilled legal guidance to all types of clients throughout the alternative investment industry. Our extensive experience in representing the financial community provides us significant economies of scale and the background to respond to most legal issues without time-consuming or costly research and analysis. We regularly monitor state and federal regulatory developments, which permits us to keep our clients well advised. The wealth of training and knowledge our attorneys have acquired through exposure to cutting-edge deal flow and legal techniques at previous law firms, as well as at Sadis & Goldberg, ensures that our clients receive advice from experienced attorneys with extensive training in their practice area. In addition, many of our attorneys have multiple advanced degrees, including MBAs, LLMs and CPAs. Moreover, our broad market connectivity grants us access to information and an understanding of market dynamics unavailable to most law firms, rendering us capable of providing unparalleled guidance and advice to our clients. When clients are looking for a firm in this sector they should consider many factors with the first consideration being global reach. Our market leading global practice is ideally suited to assist managers and sponsors across the world. Another factor to consider is a dedicated team. Sadis & Goldberg has one of the most experienced investment funds teams and is counsel to many hedge, private equity and venture capital funds throughout the world. Distinguished history is another factor that clients should consider when choosing which company to use. Sadis & Goldberg have been recognized by Lipper HedgeWorld and Alpha Awards as one of the top five law firms in the U.S. for its hedge fund practice and Hedgeweek recently named Sadis & Goldberg the best law firm in the U.S. Policy guidance is a very important factor for clients to consider. Our compliance practice provides routine legal guidance to managers located globally in order to promote their commercial and legal objectives. Comprehensive industry knowledge is another factor for clients to consider before choosing a firm to work with. We offer clients the benefit of our comprehensive industry knowledge and our relationships with prime brokers, placement agents, consultants, investors, and other industry players. Our relationships accrete to the success of our clients. Full market coverage is the final factor that we feel is important for clients to consider. We represent sponsors of U.S. and European investment funds across the full range of alternative investment strategies, including both hedge and private equity funds; institutional investors in all types of funds; and asset management groups and principals in M&A transactions, executive compensation, and tax and estate planning.
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Company: Sadis & Goldberg LLP Name: Ron S. Geffner Email: rgeffner@sglawyers.com Web Address: www.sglawyers.com Address: 551 Fifth Avenue, 21st Floor New York, NY 10176 Telephone: 212.573.6660
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Wealth & Finance International | April 2015
Financial Focus
Need Advice? Look No Further Coller IP provides specialist services in IP for a wide range of clients engaged in IP investment, management and monetisation and for an equally wide range of drivers including, growth, cost management, offshoring, return on investment analysis, balance sheet considerations, asset transfer, dispute resolution, licensing, flotation, liquidation, business expansion, restructuring and for other strategic purposes. Our clients span the spectrum of spin-outs and start-ups to multinationals and across all sectors. Our team draws on real world Technical, Legal and Commercial (TLC) skills and experience. For the past 10 years, we have been passionate about delivering high quality IP assets through our TLC for IPŽ services. Understanding how to develop high quality IP also places Coller IP in a leading position for carrying out IP due diligence. This is important for all situations and especially so in relation to investment decisions. We assess the strength of the IP, taking all factors into consideration, including provenance, technical credibility, the robustness and coverage of any documents that relate to registered IP, including legal drafting, market attractiveness In the context of company growth this includes the ability of the IP to underpin the business strategy. Our due diligence extends to all intangible assets involved in a deal. It is not only about patents designs and trademarks. For many organisations, reputation, know-how and creative materials contribute significantly to their value. It is only recently that organisations have tried seriously to put a value on intangible assets. Putting a monetary value on intellectual property can be contentious, but is possible and frequently essential. Just like other assets, IP can be valued - and bought, sold or leased. Anyone involved in selling or acquiring a company or portfolio should establish what intangible assets the target company or portfolio owns, whether they are live and valid, their significance and commercial value, and whether they are fully protected in all key jurisdictions. Encouraging IP to be understood in the Boardroom has been our aim from the outset and is one of our biggest challenges. Even if the assets have been included on a balance sheet, IP is often not valued accurately, and the information provided may not be sufficiently detailed to be useful. Good IP due diligence and valuation needs to rely upon sound evidence, information and expertise, which is where Coller IP excels. “The financial approaches used in the valuation process are similar to those used to value many tangible assets. Examples include the cost approach, the market approach, the income approach or a combination of these. The essential skill in providing an IP valuation for due diligence purposes lies in understanding the risks associated with the commercial impact of the IP, which means a clear understanding and judgement of all technical, legal and commercial aspects, Richard Branson’s ability to embrace innovation with an entrepreneurial flair is something to be admired.
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Wealth & Finance International | April 2015
Financial Focus
Two Sides to Every Story People both inside and outside the world of finance are perpetually curious about the larger– than–life characters that built, shaped, and continue to populate the industry. Heroes and Villains of Finance is a fascinating dive into the history of money as an institution, highlighting the fifty most significant figures that, rightly or wrongly, are responsible for the financial landscape we live in today. From philosophers and bankers to fraudsters and academics, the book provides a striking introduction to the most remarkable characters in the history of finance.
The book reveals how their impact reaches far beyond the financial system itself and has helped shape the course of human history. It explains how the economic systems of today would look very different if it weren′t for these innovators, thought leaders, storytellers, and rebels and takes readers inside their stories to understand their thinking, their background, their perspective and their inspiration. Highlights include chapters on: • Knights Templar and how they became the first banking institution • The Rothschild family and how they pioneered the use of financial instruments in order to safeguard their wealth from distrusting European monarchs • Charles Ponzi and the evolution of the Ponzi scheme • Sidney Weinberg who started at Goldman Sachs as a 16 year old janitor’s assistant and rose to become CEO • Bernard Madoff and how he masterminded the largest financial fraud in US history “Heroes and Villains of Finance provides a fascinating and insightful guide to the personalities and developments that have transformed finance and continue to do so. Anyone trying to understand where finance is now, how it got there and where it might go should read this book.” - Dr Stephen Davies, Institute of Economic Affairs “This book is a marvellous introduction to a gallery of fascinating figures from the world of Big Money. The author has chosen a brilliant collection of crooks, entrepreneurs, philosophers, economists and bankers. These highly readable short lives provide an excellent education to any reader who wants to understand the personalities who shaped today’s world of investment.” Luke Johnson, CEO of Risk Capital Partners, former chairman of Pizza Express and Channel 4 Television, Financial Times columnist and author of Start it Up.
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Wealth & Finance International | April 2015
Financial Focus
Demands of the Digital Consumer IRESS talks to us about the demands that they face from digital consumers.
The evolution of consumer expectations as a result of the digital revolution has drastically altered their approach to financial services according to new research by IRESS, the leading supplier of wealth management, financial markets and mortgage systems. IRESS’ report “Data, Disruption and the Digital Consumer” highlights the level of pre-purchase research undertaken by consumers. 80% of consumers surveyed online now conduct research before making a significant purchase or investment decision. This is largely due to the impact that price comparison sites have had, as 52% of consumers use them, 60% trust them and 33% say that they have had a positive impact on them personally. Company websites are the next most popular method (49%) to research products while 19% use peer review websites and 29% say that they use a specialist website. • 80% of consumers now conduct research when making significant purchases or investments, with online crucial • Despite this, consumers less likely to secure complex products unassisted online • Consumers believe financial services lags behind other industries (retail and music lead) in technology adoption • Consumers call for single view of all their financial information and improved security • A quarter (25%) of consumers are willing to pay for professional financial advice The online opportunity Despite the research consumers are undertaking online, their comfort in making online unassisted decisions is inconsistent across financial services. While 56% of people in the online survey had carried out a bank account transaction online, consumers are less likely to implement more complex product decisions or make transactions with longer lasting impacts without using any other channels. For instance, just
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Wealth & Finance International | April 2015
Financial Focus
2% have secured a retirement product solely via the internet, 3% have secured a mortgage while only 9% have invested in stocks, shares or funds. However, there is clearly appetite for greater online access, with almost one third of people saying they would feel comfortable securing a mortgage solely online (30%) or investing in stocks and shares or funds (31%). The gap to be filled here would seem to be providing some level of assistance or scaled advice. More than two thirds of consumers (68%) were positive on the impact of technology in their interactions with financial services firms. However, it is clear that the industry has more progress to make. When asked which industry had embraced technology the most in the last five years, nearly a quarter (23%) stated retail, with music a distant second at 12%. Financial services scored lower, with 9%. There are clearly innovations that consumers need and would like to see implemented. Nearly a quarter of people (23%) said they would like the ability to view their financial world – bank accounts, mortgages, investments, insurance – in one place. The joint most popular response was increased security through the use of biometrics, which 23% of people said was one of the innovations that they would most like to see. Fully integrated customer service options across phone, online, social media and text (18%) was the next most popular prospective advance. The future shape of advice Financial advice remains an important service for many people. Overall, a quarter (25%) of consumers are willing to pay for professional financial advice, with this figure rising steeply for those with higher incomes (42% of respondents with a household income of more than £60,000). There are clearly online opportunities for efficiently delivering this advice to a wider audience. However, when it comes to planning how much to save for future retirement, almost half (44%) of consumers still prefer the reassurance of face to face advice with an adviser – clearly, digital is to form part of a ‘menu’ of advice options. Simon Badley, Managing Director (UK), IRESS, commented: “Digitalisation has meant the needs and demands of consumers has undergone a seismic shift in the last decade. Financial Services companies need to do more to match the consumer experience and engagement expectation and build more trust from the digital consumer. Without innovation from established companies, the industry will be more prone to disruption. “Regulatory change and in particular the pensions freedoms have highlighted a need for access to financial advice but the solution will not be a ‘one size fits all’ approach. This research has shown that many consumers still want face to face advice when planning for retirement yet will happily make financial decisions online in other scenarios. The future is undoubtedly multi-channel.” The report has also led IRESS to the development of five key foundations: • Unify engagement via multiple financial advice options ranging from full advice, scaled or guided advice and self-service. • Simple and secure multi-channel engagement and customer support will help consumers switch between channels based on advice need or assistance in real-time. • Integration of research and advice functions into digital models to take advantage of the high level of online research already being conducted on financial decisions • Provision of simple but detailed information and guidance online via semi-automated prompts for people to utilise when researching, selecting or altering products • Leverage technology to provide consumers with a consolidated single view of their overall financial position, ensuring consistency between channels.
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Tamworth Castle, England
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Wealth & Finance International | April 2015
Markets Matters
Time to Election Proof Your Investments The most uncertain election outcome in decades is set to spark volatility in the markets, wealth management expert Equilibrium Asset Management has warned. Recent uncertainty has affected the performance of sterling on the stock markets. With the outcome of the upcoming election still no clearer, investors face difficult decisions about how best to manage their assets in a turbulent electoral climate. Speaking about the effect the unpredictable UK General Election is having on the stock market, Mike Deverell, investment manager at Equilibrium, said: “May’s election looks to be the most uncertain in recent history. Markets hate ambiguity, so some volatility looks likely. “Given the possibility of a referendum on Britain’s continued membership of the EU, we can expect to see more pronounced instability in the shares of companies which trade in Europe. The impact of this uncertainty would dwarf that created by the Scottish referendum. With both the Conservative Party and the Labour Party locked together in the polls, the prospect of either party winning an overall majority looks bleak. Britain’s post-election landscape could see parties such as the SNP and UKIP wielding significant influence. With the SNP advocating the break-up of the UK, and both UKIP and the Conservatives set to offer a referendum on Britain’s membership of the EU, the consequences of the General Election result are highly unpredictable. It looks increasingly likely that the uncertainty which surrounds the build up to the election could persist for some time after votes have been cast, leading to a prolonged period of volatility. Mike Deverell has outlined his tips for investors to help them ‘election proof’ their investments: “In most portfolios we are holding tactical cash of perhaps eight per cent. This should protect portfolio values if markets do drop back and also provides some opportunity to take advantage of volatility. “In the event that markets do fall back, investors might consider investing in a tracker index, as a ‘volatility trade’ and also look at purchasing a defined return product. These latter products work well in more volatile markets since the index does not need to gain to make a return. “If the anticipated market volatility does not arise then the set aside tactical cash can be invested elsewhere. However, it could be better to be cautious for now and be prepared.” Before making any financial decisions, it’s important to speak to a financial adviser. Equilibrium specialises in offering expert advice on wealth and investment management, pensions and inheritance tax strategies in the UK.
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WealthWealth & Finance & Finance International | April |2015 April 2015
Markets Matters
Technology Enables Inclusion of Alternative Assets in UMA Tirdad Shojaie, SVP Product, Marketing & Business Strategy, Investment Services, Fiserv. Over the last few years, the managed account industry has made significant progress in supporting additional assets and strategies, particularly through UMA programs. These developments are of vital importance, as UMA programs are gaining traction with an increasing number of investors.
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Wealth & Finance International | April 2015
Markets Matters
The growing interest in UMAs is amplified by investor demand for portfolio diversification to limit risk, enable better returns and achieve long-term household financial goals. While UMA portfolios have traditionally included mutual funds, stocks and bonds, managers are quickly appeasing the growing appetite for alternative strategies like hedge funds, variable annuities, futures, and options. As these assets are highly sought-after, their inclusion in UMA programs is helping raise awareness of the entire managed account industry. The Power of the Sleeve Sleeves are synthetic UMA partitions, which can facilitate access to the broader pool of assets in demand by investors, while providing a cost-effective and highly-efficient apparatus for managers and sponsors. Most notably, though, sleeves provide the functionality for managers to include both alternative and traditional investments in UMA portfolios. By permitting multiple strategies and sleeves in a single account, UMA offers a natural flexibility and incentive for managers to present sponsors with a wider array of investment opportunities. Accordingly, UMA platform providers are taking notice and enhancing their technology to allow for the trading and accounting of more assets and currencies. As this happens, the UMA structure can easily accommodate newer sources of funds with additional sleeves. Industry Consequences It is clear that investors are driving the need for multi-sleeve, multi-strategy UMA platforms. That said, managers and sponsors have an imperative to support this evolving service model. The multi-sleeve UMA structure enables tremendous benefits for all managed account participants: • Managers have greater opportunities for product adoption among individual investors • Sponsors reserve more investment options to help clients meet their respective financial goals • Investors can reduce risk by diversifying assets within a single account – in lieu of opening and managing multiple accounts In the bigger picture, we are also witnessing a subsequent evolution among large UMA providers, as many are consolidating and integrating legacy managed account systems onto a single platform. While this denotes an extensive undertaking, it will allow for the streamlined delivery of many different asset classes – particularly those in hot demand by investors. UMA to UMH Another reason for the growing relevance of a single UMA platform stems from the industry’s commitment to deliver the Unified Managed Household (UMH). Broadly defined, UMH provides a comprehensive approach to manage all assets and liabilities of a household, helping investors achieve an overriding set of household goals. A UMA platform capable of holding a variety of asset types and investment strategies in a single account, with sleeves essentially acting as sub-accounts within a master, providing the technological infrastructure for the industry to deliver UMH. Once investors make the connection between UMA and UMH, logic tells us there will be even greater adoption in the future. When all is said and done, the continuous ascension of UMA is expected in the years ahead, and leveraging alternative assets in UMA portfolios will help drive this outcome.
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Tirdad Shojaie Head of Product, Marketing and Business, Fiserv
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Wealth & Finance International | April 2015
Taxing Times
Advise on Pensions and Investments Thriving North West property investment company, Harewood Associates, in Bolton, Lancashire, have delivered a strong supporting case for investing in property over a pension. In time for the upcoming elections, where the future of pensions is uncertain, Harewood Associates Managing Director, Peter Kiely, believes that it’s imperative to be equipped and aware of any possible pitfalls when investing pension funds into private companies and properties. Peter stresses that it is vital to research any companies, using Companies House to ensure there is a strong set of accounts and testimonials present. There are also several reasons to be wary of any cold calling companies or upfront fees, reputable companies would never advocate this. Above all, questions should be asked and you should have access to any legal agreements prepared by a reputable Solicitor, the Land Registry can help with this. “We don’t want to alarm people but believe that greater freedom within pension investment options is essential. Not all companies operate with the same integrity and honesty as Harewood Associates, we truly believe it is a privilege to be entrusted with client’s money and we look after their best interests to maximise their returns.” Money expert, Martin Lewis, backs up Peter’s opinions by saying, “I’m concerned many will be nervous about releasing the cash in case they’re left with none in old age and will therefore sit on it, never spending it, depriving themselves of the benefit and living a worse life than necessary. If you’ve a sizable pension pot its worth spending the £300 to £1,000 it’ll cost to get an independent financial adviser.” About Harewood Associates Peter Kiely launched Harewood in 2010 which was during the middle of the recession. The company is now projecting a £40 million turnover next year and £50 million the following year with offices covering the North West and Mayfair, London. Harewood offer up to 30% per annum return from investing in new residential developments. The Share Deal gives investors the opportunity to invest in a variety of high profit residential developments. Each development is owned by a single purpose vehicle (or SPV). This is a simple, private limited company set up for the sole purpose of buying, developing and selling a single residential development. As an investor, you will own shares in this company and therefore when the property is sold, you will receive a share of the profits in proportion to the amount of the shares you own.
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Wealth & Finance International | April 2015
Taxing Times
ECB can Pause for Breath.... but Still a Lot Left to Do Annual consumer price inflation across the Eurozone climbed up to zero in April 2015, after four months of consecutive declines. It still remains well below the European Central Bank’s target of at or below 2.0% however, with the weak performance owing largely to declining energy prices. The unemployment rate stayed steady at 11.3% in March.
This should give the ECB a chance to catch its breath after a bumpy start to the year. Its quantitative easing programme (QE), launched to address the currency union’s anaemic economic performance, is showing results. Much has happened through the currency channel, with the euro depreciating sharply against major currencies since the policy was announced. Consumers are also starting to feel the benefits: confidence across the Eurozone is up and retail sales are growing at their fastest pace since 2005. This has caused some to think that the ECB may terminate QE earlier than the currently suggested timeframe of end 2016. The last two years suggest that trying to gauge the economic climate a year ahead can be tricky. Cebr remains on the cautious side. The Eurozone job is definitely not done yet, let alone well done. Germany is carrying on a decent path to recovery but the union’s second-largest economy, France, is still far from finding its way there. Much needed labour market reforms have been absent from the picture, and with the presidential election season approaching fast, appetite for pressing on with unpopular measures is bound to decline. Conditions seem brighter in the South, especially in Iberia. Looking ahead to the rest of the year, the Eurozone’s southern periphery will most certainly enjoy an uptick in the summer as tourist season kicks in. Receipts from tourism should be especially strong this season given the weakness of the euro and geopolitical tensions in regional competitors such as North Africa. But the fundamentals remain weak. Greece, while closer to a deal now after a new reforms package emerged from the new negotiating team in Athens earlier this week, is still at a very fragile state. Its banking sector is heavily dependent on the ECB’s willingness to continue providing funds through the Emergency Liquidity Assistance mechanism. In 2015 thus far, around €30 billion of deposits have been withdrawn from Greece’s banks. And non-performing loans are at 35%, much higher than 2012 levels of 25%. The banks remain systemically sound: capital adequacy ratios at above 12% are exceptionally high. But any “accident” in the negotiation process would quickly make banks lose deposits. It will then be up to the ECB to decide the country’s fate.
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WealthWealth & Finance & Finance International | April |2015 April 2015
Banking Zone
Peer to Peer Lending We hear from Kevin Caley, Managing Director and Co-Founder of ThinCats as he talks us throughPeer to peer lending and how it is one of the fastest growing financial markets in the UK, now worth over ÂŁ1bn.
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In simple terms, peer to peer lending connects individuals or companies looking to borrow money with investors who would like to invest it, usually over the medium to long term. On average interest rates are between 4% and 15% which makes peer to peer lending an appealing option for savers stifled by record low interest rates. One of the unique advantages of peer to peer lending is that as well as being used to preserve and grow capital it can also be used to provide a regular monthly income. This is made up of the capital and interest payments received each month from the business or individual you have lent to. A SIPP is very similar to a pension but there is one key difference. A SIPP gives you much greater choice about where you invest your pension whereas a traditional pension will limit your options to the providers fund selection. This means you can maintain a tax efficient way of saving into your pension but have greater freedom about where it is invested.
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Wealth & Finance International | April 2015
Banking Zone
1. How/where would you start if you wanted to invest your P2P loan in a SIPP? Do your research. As with any investment make enquiries into what you are investing and what each provider offers. Some providers focus on personal loans whilst others on property or business loans. Any provider worth their salt will be a member of the P2PFA and regularly publish performance statistics on their website. The P2PFA has a useful video explaining what peer to peer lending is http://p2pfa.info/. 2. What is the minimum/maximum amount you can invest in a SIPP? There doesn’t tend to be a minimum amount you can invest through a SIPP, but it all depends on which firm you ask to manage it. However, it is important to compare the fees that you’ll be charged for managing or administrating your SIPP. 3. What are the benefits of investing your P2P loan in a SIPP? Investing in Peer to peer through a SIPP means get the same tax relief that comes with a traditional pension whilst also getting access to higher interest rates than offered by most pension funds or high street savings options. Additionally, if you are looking to preserve your capital and take a monthly income peer to peer enables you to do this. 4. How can you take an income from a peer to peer lending through a SIPP? Peer to peer lending means you get your capital repayment from the borrower each month plus the agreed interest payment. You can either take both as monthly income or preserve your capital by just taking the interest payment as an income. 5. What are the main risks of this type of investment? Peer to peer lending is very different from investing in the stock market which can go up or down. With peer to peer lending the interest rate you agree to at the start of the investment will remain the same until the loan term is over. It is important to recognise that if a borrower defaults you could lose all of your investment. You can spread your investment over a number of loans and look at whether the peer to peer provider offers secured loans. Secured loans mean that the borrower provides security so in the event they cannot make repayments their security can be called upon to repay the lender. 6. Is P2P investment in a SIPP just for the sophisticated investor? SIPPs are generally considered to only be suitable for those who feel confident choosing and managing their own investments. And as with all investments if you do not feel confident seek advice or don’t invest in it. 7. What words of wisdom would you give to an investor? P2P is a comparatively new asset class but has shown a reliable growth pattern over the past five years as well as low default rates. The P2P Finance Association is the trade body which controls standards and the FCA also regulate the industry too. I’m a big believer in getting different points of view, so I’d recommend before any investment speaking to as many people as possible before investing in anything. ThinCats have an online lender forum packed full of people who have been investing through peer to peer. 8. What does the risk and return profile of a typical P2P SIPP look like? Loans on the ThinCats platform are currently returning an average of 10% gross interest. With % interest determined on each loan where the risk is reflected in the interest rate it attracts through the auction process. All loans are available to the SIPP and therefore it is up to the lender to determine the level of risk they wish to take. You must also factor in the additional tax relief that come with a pension. 9. What are the charges/fees involved in peer to peer lending? This varies depending on the provider but as a ThinCats lender it costs
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nothing to join or transact on the ThinCats website. As previously mentioned though, it is important you check the SIPP provider’s management and administration charges.
Do your research. As with any investment make enquiries into what you are investing.
Kevin Caley, Managing Director and Co-Founder of ThinCats comments: “Low interest rates have in the most hit those who are saving for the long term hardest but new pension rules have provided more options for people to invest their pension savings where they see fit and take a more flexible approach to taking an income. An increasingly popular way of investing for retirement is through a SIPP. SIPPs allow people to maintain all the tax benefits of a traditional pension plan but give allow a wider range of investment options, including peer to peer lending. One of the unique advantages of peer to peer lending in a SIPP is that as well as being used to preserve and grow capital it can also be used to provide a regular monthly income. This is made up of the capital and interest payments received each month from the business or individual you have lent to.” ThinCats is a peer to peer lender founded in 2011, under Kevin Caley, Peter Brown and Paul Meier. ThinCats connects experienced investors with established UK business borrowers and provides a real alternative for investors and for businesses that need funding. Investors registering on the platform are able to bid directly on UK businesses, all of which have been vetted by ThinCats’ sponsors, who each have local, industry specific and banking expertise. The network is expertly placed to meet the needs of anyone managing an investment portfolio (including individuals, pension fund managers and companies with cash deposits), and provide direct access to the low risk market sector traditionally occupied by high street banks. The personal lending/borrowing experience at ThinCats is underpinned by a minimum loan size of £1,000. This was deliberately designed to interest serious investors able to carefully consider the businesses they choose to lend to. Now, more than 4 years later less experienced investors are benefiting from that expertise and intensive ‘crowd due diligence’.
Kevin Caley, Managing Director, ThinCats
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