Wealth & Finance February 2014 by AI Global Media

February 2014

www.wealthandfinance-intl.com

Wealth

& i

f i n a n c e

Investing in Fine Wine Predictions for 2014/15 and more

Plus...

60 Seconds with an Asset Manager

featuring Greg Fleming head of Morgan Stanley’s asset-management division

Relax: Hotel Royal at Evian Resort

Eurekahedge & ILS Advisers Launch of the new USD Hedge Fund Index

February 2014 | Contents

3 News & Appointments

Editor’s comment

Funds 8 Fund Manager of the Month

elcome to February’s edition of Wealth & Finance International. We are already nearing the end of the year’s second month, with 2013 a distant memory. This month we are able to report the continued positive outlook with the world’s economy remaining stable with steady growth.

W&F Fund manager of the month: Richard Buxton

Ireland the New Gateway to the Global Funds Industry Confluence launches in Dublin to capitalize on growing investment industry move to data automation.

10 Skandia to Launch New Fund Range and Discretionary Portfolio Management Service

Featured in our news section is the first hedge fund play of 2014 emerging in the digital payment platform Bitcoin which provides the hedge fund community with just what they are looking for; price fluctuations and volatility.

Skandia will launch a new range of funds and a discretionary portfoliomanagement service.

12 2014 Outlook for Global Bond Funds Stable; Outlook for US Muni Leveraged CEFs Changed to Negative

Make sure you refer to ‘60 seconds With an Asset Manager’ featuring Greg Fleming who heads up Morgan Stanley’s asset-management division.

13 Markit Adds Emir to Its Global Trade Reporting Solution 14 Illiquidity Discount’ Boosts Euro Microcap Stocks Says Argos Investment Managers 15 Marketing Your Fund to and Through Consultants and Gatekeepers ‘Soft’ manager qualities are often what separates your fund from competitors

16 EU Asset Managers to Rationalise But M&A Spree Unlikely 17 60 Seconds With an Asset Manager

A favourite this issue has to be a continuation of last month’s ‘passion pays’ article, with the Coutts Index revealing that passion investments have risen, outperforming shares.

52: Relax Hotel Royal at Evian Resort

Next it’s ‘The Art to Investing in Art’ and the ‘Investment in Fine Wine’ features, both very interesting concepts and back up many of last month’s thoughts that perhaps investing in something you love can pay. We hope you enjoy the issue.

Morgan Stanley’s Greg Fleming Sees Asset-Management Division Gaining

18 Europe’s Fund Industry is Not Bold Enough Three good reasons to close or merge funds: performance, profitability, pointlessness

Hedge Flash 20 Eurekahedge and ILS Advisers Launch New USD Hedged Index Eurekahedge, a market leading alternative fund data provider, launched a new hedge fund index focusing on insurance linked securities (ILS), in partnership with ILS Advisers.

Wealth Corner 22 The Importance of a Family Office 24 Worsening Wealth Gap Seen as Biggest Risk Facing the World in 2014 The chronic gap between the incomes of the richest and poorest citizens is seen as the risk that is most likely to cause serious damage globally in the coming decade.

26 Coutts Index Reveals Passion Investments Have Risen 77% Since 2005, Outperforming Shares 28 Investing in Fine Wine Whilst wine is considered a relatively high-risk category.

Market Matters 32 Could China Ride the Year of the Horse Into a Golden Sunset? 34 Making the Right Move… 35 Pensions 36 Retirement? We’re Not Ready To Stop Working Yet! 37 Bonds Making a Bull Run

Banking Zone 38 Exchanges in UAE Increase Remittance Fees In order to cope with rising operational costs money exchange houses in the UAE have increased their service fees for high-value remittances to some Asian countries.

39 Foreign Exchange Faces FSB Investigation Finance Focus 40 Downbeat End to 2013, But Dividend Growth is Set to Improve 44 Management Buy-Out of Ogier Fiduciary Services 45 CEO Watch Regulation Review 46 New Survey Suggests Regulatory Change is Slowing Growth Among Financial Services Firms New research from SunGard* has highlighted how regulatory change is second only to market volatility as an executive issue for financial services firms.

Tax Review 47 UHY Property Tax Spend 48 The Art to Investing in ART

Wealth & Finance | February 2014 |

News & Appointments | February 2014

Offshore Deal Activity Rose Steadily in 2013 Year-end data signals strengthening M&A activity across a wide spectrum of transactions Quarter by quarter offshore deal volumes rose steadily throughout 2013, resulting in a cumulative 12-month deal value topped only three times in the last decade, according to a report released today by Appleby, one of the world’s largest providers of offshore legal, fiduciary and administration services. The latest edition of Offshore-i, which provides data and insight on merger and acquisition activity in major offshore financial centres, focuses on deals during the fourth quarter of 2013, as well as the year overall. The firm observed considerable gains in Q4 over the previous quarter in terms of the number of deals, their cumulative value, and average deal size. “While the final quarter of the year is typically the busiest, every one of the principal indicators has progressively improved,” said Cameron Adderley, Partner and Global Head of Corporate & Commercial. “Indeed, the global M&A environment is fragile and to an extent lacks depth, but we can’t help but view these year-end numbers as positive.”

The M&A Environment There were 607 offshore deals announced in the fourth quarter of 2013, with a combined deal value of USD47.9bn. The figures reflect a trend of steadily upward-moving offshore deal volumes, with a 6% increase in transaction numbers compared to the 572 deals that took place in Q3 2013, and a very positive story for deal value. The amount of money spent on offshore targets rose by 32% in Q4, up from USD36bn in the third quarter, and also significantly higher than Q1 and Q2 levels for 2013. The 10 largest transactions in Q4 2013 contributed one third of total deal value for the three-month period. This represents the lowest number for this measure in the past four years, with a substantial uptick in smaller deals. The Q4 report marked the first time Appleby analysed the value range of transactions and found the number of USD1bn-plus deals (11) is attractive and that the return of the mid-market engine is happening, albeit slowly. “It’s especially noteworthy that in 2013 the largest transactions contributed a much smaller percentage of the total number of deals – around 33% compared to 50% in 2012,” said Frances Woo, Group Chairman of Appleby. “We see the smaller percentage as good news because it signals a broad strengthening of activity across the deal-size spectrum.”

Geographic Trends Over the course of 2013, Cayman companies generally dominated offshore M&A activity as the target for most deals in three of the four quarters.

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In Q2 2013 the islands were briefly overtaken by the British Virgin Islands, but in Q4 Cayman targets accounted for more than one in four of the deals done offshore, and for a third of the dollars spent. In the fourth quarter the Cayman Islands saw 168 deals with a combined worth of USD15.6bn, as against 158 deals worth USD13.4bn in Q3. When compared to the same quarter a year ago, the volume levels remain broadly consistent, but value is over USD4bn higher than Q4 2012. Bermuda performed very well in Q4, closely following Cayman by value. The Bermuda market saw 116 deals with a combined worth of USD15.3bn, almost equalling Cayman for value despite 52 fewer transactions. For Bermuda the quarter was a particularly strong one, with value up 132% on the previous quarter, and volume up 26%. When compared to Q4 2012, the value of Bermuda’s transactions is up 51%.

Key themes of Q4 2013 •

•

There were more deals in the fourth quarter of 2013 than in any other quarter last year, with 607. Throughout the year deal volumes rose steadily quarter-on-quarter. The value of deals was USD47.9bn in Q4, up 32% on the previous quarter. The average deal size was USD79m and has only been higher in three quarters in the last four years. There were 11 USD1bn-plus deals in Q4 2013, almost double the number in the previous quarter, including two worth over USD2bn. Energy and natural resources deals feature heavily. Financial services and insurance continues to be the most active sector, while mining, quarrying and various manufacturing sectors were also busy. The largest type of deal by volume was a minority stake, but acquisitions continue to grow in number and were the biggest deal type by value, making up almost half of the deal value in Q4 2013. IPO activity remains encouragingly strong, with 62 IPOs pending or completed in Q4 2013 as against 28 in the same quarter of 2012. Bermuda as an offshore target had a breakout quarter and more than doubled the value of deals done on its shores, almost equaling the USD15.6bn deal value for Cayman. The frequency of buying activity made by offshore companies continues to grow and the combined value of such deals was USD37.8bn in Q4 2013, one of the largest amounts in the past few years. Offshore ranks sixth amongst world regions for deal volume in Q4 2013; fifth for deal value; and third for average deal size. Only North America and South and Central America record a higher deal average.

Appointments H.I.G. Capital Strengthens London Team with New Hires H.I.G. Capital, a leading global investment firm, announced today that two experienced private equity investors, Johannes Huttunen and Johan Pernvi, have joined the London team. Johannes was formerly at Silverfleet Capital where he worked on the origination and execution of transactions as part of the team in London. Before that he was at European Capital, working on UK buyouts, and in the healthcare M&A team at Deutsche Bank in London. Johannes has a first class honours degree in Management Sciences from the London School of Economics. Johan was previously a Senior Investment Manager at publically listed Swedish private equity company, Ratos, where he worked on buyout transactions. Before that he was at Bain & Co. Johan has an MSc from Stockholm School of Economics and a BSc from Lund University, School of Economics and Management. Commenting on the appointments Paul Canning, H.I.G. London Managing Director said: “We are delighted to welcome Johannes and Johan. These appointments will further strengthen our team’s in-house operational, financial and strategic expertise as we continue to seek opportunities to drive value creation working with businesses in the mid-market.”

February 2014 | News & Appointments

Argos Investment Managers to Expand in the UK Argos Investment Managers (Argos) is expanding its operations in the UK. Argos is a specialist boutique investment firm which manages a number of specialist high conviction investment strategies including the highly regarded European microcap fund ‘Argonaut’. ‘Argonaut’ is co-managed by two British European micro-cap specialists Philip Best and Marc St John Webb. Best who started his career at Warburg’s, leads a team of 14 experienced investment professionals operating out of Geneva. It also partners with external specialist managers such as Aubrey Capital Management of Edinburgh. Argos was originally founded in 2005 by Best and Swedish portfolio manager Cristofer Gelli. Three years ago, they were joined by another veteran of the London market Jean Keller who spent over 20 years in the UK, New York and Hong Kong at Baring Asset Management and the Lombard Odier Darier Hentsch (LODH) Group. Since Keller’s arrival and the end of the financial crisis, Argos has renewed its growth with AuM has tripling since 2009 and several new products have been launched. Initially Argos was mostly focused on the institutional market in Switzerland but now it is seeking to expand its operations primarily in France, Luxembourg and the UK. Keller said today, “Our base in Geneva is at the heart of Europe. That provides us with a different outlook on the world when investing in European equities. That said, London remains the centre of the investment management world and so having a strong presence in both centres is an important part of our future strategy. Our view is that a two centre approach will offer us a competitive advantage - the best of both worlds.”

Appointments Investec Specialist Corporate Capital strengthens team with New Hire Investec Specialist Bank (“Investec”) has announced the appointment of Tim Howson to its Corporate Lending business. Tim joins the Specialist Corporate Capital team, headed by Callum Bell, which originates, structures and arranges finance for transactions by financial sponsors and corporate clients with an enterprise value of between £100 million and £500 million. Tim joins Investec from Jefferies & Co, where he was Senior Vice President in the Leveraged Finance team. Tim was responsible for the origination and execution of leveraged loan and high yield bond financings to support financial sponsors and corporate acquisitions. As part of this role, Tim also worked on refinancing transactions across Western Europe, CEE and MENA. Prior to this, Tim worked in the Leveraged Finance team at UBS Investment Bank and the mid-market Leveraged Finance team at Barclays, both based in London. Callum Bell of Investec, said: “Tim’s appointment reflects our continued strategy of supporting corporate clients and financial sponsors in the mid-market. His origination and lending experience will support the team’s growth ambitions and reiterates our commitment to offering financing solutions to our clients to support their growth.” Tim Howson, said “I am excited to be joining Investec at this time and working in an ambitious, fast developing team focused on building long term relationships with corporates and financial sponsors, delivering financial solutions that help to add value for our clients.”

Wealth & Finance | February 2014 |

News & Appointments | February 2014

Over Three Quarters of IFAs See a Positive Outlook for the UK Economy in 2014 Matrix Solutions, the business intelligence company for the financial services sector, has today released new research showing that 78% of IFAs expect to see an improvement in the UK economy over the next 12 months. This is compared to 35% who held this view for 2013 and an 11 fold increase from 2011, when only 7% of IFAs expected to see an improvement. The “Voice of the Adviser” study from Matrix Solutions in association with Blue & Green Tomorrow, surveyed nearly 300 IFAs from across the UK and asked advisers whether they expected the overall economic conditions in the UK to be better or worse in 12 months’ time. The number of IFAs who expected the economy to worsen dropped to 4%, compared with its peak of 55% in 2011. The report also showed that IFAs have an optimistic outlook for the future of the advisory market in particular, with nearly three quarters (73%) expecting to see an increase in client numbers this year, compared to 51% in 2012. Those expecting to see a decrease has fallen from 27% to just 7%. The report, also found that:

• 82% of IFAs said they need to speak to fewer than 10 (7.2) prospects to win a new client; • In terms of method of recruiting new clients, word of mouth and recommendation remain dominant (84%); • 76% of IFAs said their clients ask them about ethical advice; Ian Beaumont, CEO at Matrix Solutions said: “This research is further evidence that confidence is returning to the market. Before RDR came in, many advisers

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were worried about the effect it would have on client numbers. However, with the majority of advisers expecting to see an increase in client acquisition this year, it seems that RDR has been less of a disruption than initially anticipated. This, coupled with advisers’ positive outlook for the economy, shows that they see the financial advisory market as continuing to thrive in 2014.” Simon Leadbetter, founder of Blue & Green Tomorrow said: “It is encouraging to see that advisers are more confident about the economic recovery. However, this new found confidence should be treated with caution. The recovery is fragile and by no means certain. Advisers should therefore maintain a watching brief over the state of the industry and work to make their propositions relevant in the market place.” Alex Blackburne, editor of Blue & Green Tomorrow said: “The fact that 76% of advisers get requests for sustainable, responsible and ethical investment options from their clients suggests the problem is one of supply, not demand. We would encourage IFAs to take a good look into the range of different sustainable, responsible and ethical funds available in order to offer their clients advice that is informed, comprehensive and meets what investors clearly want.” Julian Parrott, partner at Ethical Futures said: “I’m pleased to see the growing trend in enquiries about ethical and sustainable investment. The positive note sounded by advisers about future prospects bodes well and perhaps reflects recent figures about economic growth in the UK and ‘post-RDR’ optimism.”

Appointments Argos Appoints Nick Hamwee to Head UK Expansion Argos Investment Managers has appointed former investment banker and asset manager Nick Hamwee to help build its UK business in London. Hamwee has a 25 year track record of building businesses including at Sanford Bernstein in New York which he joined in 1995 and where he developed relationships with many of the leading UK & European financial institutions. Hamwee returned to the UK in 1998 to join Credit Suisse First Boston with a similar mandate and in 2000 became co-Head of CSFB’s US Cash Equity Business in Europe. During his stewardship CSFB gained significant European market share establishing itself firmly and consistently in the top three US investment banking franchises in Europe. Hamwee’s move to Argos re-establishes the professional relationship he built up with Argos CEO Jean Keller when they worked together at Lombard Odier in London in the early 1990’s. At the time Hamwee was Head of US Equities with primary responsibility for all US Institutional Equity Portfolio Management across the group. Jean Keller said, “I am naturally delighted to be working once again with Nick – a very senior investment professional. He has tremendous experience of the UK market and I could think of no-one better to take Argos forward in the UK.” Nick Hamwee said, “Argos provides an exciting opportunity to develop a significant and differentiated new boutique asset manager here in London. The business already has some first class talent and so I am delighted to help drive this venture forward.”

February 2014 | News & Appointments

Appointments Situs Appoints Andrew Serling As Head Of Ranieri Partners Asset Management Situs, a leading provider of global commercial real estate advisory services, today announced that Managing Director Andrew Serling has been appointed Head of Ranieri Partners Asset Management, Situs’ registered investment advisor. In his new role, Serling will provide strategic direction to the investment advisor and present Situs with business development opportunities as they pertain to commercial mortgage backed securities (CMBS) bond investors. Additionally, Serling will continue to serve as Managing Director for the parent company, Situs. “This is a significant appointment at a pivotal time for Ranieri Partners Asset Management, and we are confident that Andrew’s leadership qualities, combined with his strategic thinking and relevant experience, will enable him to leverage the key attributes of the Situs Platform,” said Steve Powel, President of Situs. “I am certain that Andrew’s approach and his unparalleled track-record of integrity and delivering client focused results will be highly valued and complementary to our board business.”

News in Brief Hedge Embark on Bitcoin Phenomenon Surprisingly the first hedge fund play of 2014 has emerged not in an established stock or commodity, but in the emerging digital payment platform Bitcoin. Undoubtedly Bitcoin will attract more interest from hedge funds, which in turn will push its value higher. Huge price fluctuations and mad volatility are exactly what hedge funds seek and that’s exactly what Bitcoin has delivered to date. The appearance of hedge funds in the Bitcoin market virtually assures expansion of a massive bubble followed by eventual implosion.

Influential, Independent and Generous: Women and Philanthropy Did you know…for almost 90% of wealthy households, women are either the sole decision-maker or at least an equal partner in charitable decision-making. When only one spouse decides, it’s the wife who decides twice as often as the husband. Older women in the top 25% of combined income and assets gave 156% more than men. So on average if a man gave $100, a women gave $256.3. Women who participate in a philanthropic network are four times more likely than women who do not to volunteer or offer other involvement with a non-profit.

A senior financial executive and self-directed leader, Serling brings more than 20 years of experience in real estate capital markets and investments. Throughout his career, Serling has managed teams comprised of traders, analysts, and operations professionals under various investment platforms. “This is a remarkable opportunity to further develop and grow Ranieri Partners Asset Management,” said Serling. “The Situs platform is well-positioned to cultivate opportunities across the global commercial real estate (CRE) capital markets industry. Furthermore, we look forward to partnering with existing and future clients to assist them by supporting, identifying and executing favorable investment opportunities.” Serling joined Situs in January 2013, after having spent 15 years with Berkadia Commercial Mortgage and its predecessors Capmark Investments LP and GMAC Commercial Mortgage, where he was Head Trader and a founding member of the Debt Investment Group. In addition, he was a founding member of the CMBS trading business at Lehman Brothers. Serling received his Bachelor’s degree in economics from George Washington University, and earned his Master of Business Administration in Finance from the State University of New York at Albany. He also holds a Master of Science in Real Estate Development and Investment Analysis from New York University.

Wealth & Finance | February 2014 |

Funds | Fund Manager of the Month

Fund Manager of the Month W&F Fund manager of the month: Richard Buxton, Head of UK Equities, Old Mutual Global Investors This month Wealth & Finance has selected Richard Buxton, Head of UK Equities at Old Mutual Investors as our fund manager of the month. We recognise him as such for so quickly making a name for himself at Old Mutual Investors since his departure from Schroders last year and for launching his first fund within 6 months. Richard joined Old Mutual as Head of UK Equities in June 2013. He was previously at Schroders, where he managed the Schroders UK Alpha Plus Fund for over 10 years. Prior to Schroders he spent over decade at Baring Asset Management, having commenced his investment career in 1985 at Brown Shipley Asset Management. Old Mutual Global Investors announced the launch of the Old Mutual UK Alpha Fund (IRL) (‘the Fund’), on Monday 16th December 2013. The Fund is managed by Buxton, who has an impressive track record investing in high conviction stock ideas. His UK Alpha Fund performance has stood the test of time through rallying, volatile and defensive markets and has significantly outperformed the UK equity market for more than 10 years, almost exclusively through investment in large cap stocks. A mirror of the £1bn onshore Old Mutual UK Alpha Fund, the objective will be to maximise long-term capital growth through a

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concentrated portfolio of 35-40 predominantly large cap UK equities, with no benchmark or tracking error constraints. The Old Mutual UK Alpha Fund has delivered 34.73%, 52.74% and 130.33% over 1, 3, and 5 years respectively. The comparative Benchmark, the FTSE All-Share, returned 22.76%, 35.64% and 96.74% over the same time periods, to 31 October 2013. Richard Buxton, comments: “It is very pleasing to be able to launch a fund to mark the six month anniversary of my arrival at Old Mutual Global Investors. Flows into the Old Mutual UK Alpha Fund have been positive since June and assets under management currently stand at circa £1bn. We have also received increased demand from our international client base and therefore decided that it was appropriate to provide a vehicle for them to access this strategy.” Commenting on the outlook for the UK, Richard added: “UK growth seems likely to be better than reported, given the data on employment and business confidence. Valuations, meanwhile, are supportive. Anyone who invested in UK equities at current valuations at any time in the past 95 years would have made a profit in the following 10 years. This suggests that we are leaving the sideways market of the past 13 years and entering a bull phase.”

Ireland the New Gateway to the Global Funds Industry | Funds

Ireland the New Gateway to the Global Funds Industry Confluence launches in Dublin to capitalize on growing investment industry move to data automation.

Confluence, the global leader in investment data management automation, has continued its expansion by opening an office in Ireland. Regulatory challenges such as AIFMD have meant that fund managers are increasingly looking to data automation to help manage their investments.

PICTURE “The Irish funds industry supports an innovative business environment within a renowned regulatory landscape and Ireland’s status as an international hub for the funds industry is deserved.”

Located in Dublin’s popular Silicon Docks district, the new operation extends Confluence’s European presence beyond London and Luxembourg, where the company has serviced the European asset management industry since 2006. Despite the increase in regulation, many fund managers still rely on manual spreadsheets to track investments that make up a multi-trillion dollar industry. Confluence has been working to create a smooth, automated process which saves time and improves accuracy. Commenting on the opening, Skip Smith, Chief Operating Officer of Confluence said, “The global fund industry’s appetite for data consolidation and automation solutions is increasing. The Dublin office is part of our strategic plan to meet the rising needs of back office professionals. Our goal is to support asset managers and service providers as they look to solve the complex data management challenges associated with regulatory issues, and other cross-border reporting challenges.” Smith concluded, “Ireland is a financial gateway to the global fund industry and it was a natural next step for our business to open an office in one of the international fund jurisdictions. The Irish funds industry supports an innovative business environment within a renowned regulatory landscape and Ireland’s status as an international hub for the funds industry is deserved.” Confluence provides data consolidation and automation solutions to more than 40 percent of leading global investment managers. Ireland hosts over 40 percent of global alternative investment industry fund assets and an infrastructure that provides distribution and domicile services to over 12,000 funds.

Wealth & Finance | February 2014 |

Funds | Skandia to Launch New Fund Range and Discretionary Portfolio Management Service

Skandia to Launch New Fund Range and Discretionary Portfolio Management Service Skandia will launch a new range of funds and a discretionary portfoliomanagement service later this month to complete its WealthSelect range of portfolio management solutions. Skandia believes high quality portfolio management delivers significant value and that a range of solutions are essential to meet different investors’ needs. Skandia’s WealthSelect proposition offers financial advisers a range of portfolio management solutions in the market. These currently include the existing multi-asset solutions Spectrum and Generation, which are risk and income targeted respectively. Building on this, WealthSelect will also offer financial advisers a new fully researched range of high quality funds and a discretionary managed portfolio service. The average AMC of the funds within the WealthSelect proposition is 0.52 per cent, and there is no additional charge for the managed portfolio service. This will enable financial advisers to offer a range of portfolio management solutions to their clients at very attractive prices. The new researched fund range will comprise 42 single strategy funds that are run by Old Mutual Global Investors, also part of Old Mutual Wealth. Over half of these funds will be sub-advised by many of the UK’s best known investment houses – Aberdeen, Artemis, Blackrock, Fidelity, Henderson, Invesco Perpetual, JP Morgan, Newton, Schroders and Threadneedle. The range will also include a selection of passive funds which can be used to keep overall portfolio costs down if required. The managed portfolio service will enable advisers to offer their clients a discretionary investment service without their clients incurring the additional costs of a discretionary fund manager. The managed portfolios will be aligned to client risk levels three to 10 on Skandia’s platform risk profiling scale (10 being highest risk), in order to meet a wide range of client profiles. The portfolios will be available through all products on the platform – ISA, pension, bond and unwrapped collectives and will be optimised to the products as appropriate. The managed portfolio service will enable financial advisers to produce co-branded, client specific portfolio reports on a quarterly basis. These reports will show portfolio performance – both cumulative and discrete – volatility, asset allocation, sector breakdown, country breakdown and detailed information about each fund in the portfolio. The managed portfolio service is optional and advisers can choose to manage their own portfolios using the WealthSelect researched fund range if they prefer. Paul Feeney, chief executive of Old Mutual Wealth, says: “Our aim is to continually increase the value we offer to financial advisers and their clients who use our platform as we grow into a fully integrated investment business. The retail distribution review has increased adviser demand for high quality; high value portfolio management services and we are leading the response. Through WealthSelect we give advisers access to the best brands in the market, with easy to use regular reporting and strong performance through active portfolio management. All at a market-leading price. We believe it will enable advisers to offer a compelling investment solution to suit a wide range of their clients’ needs.”

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PICTURE

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Funds | Global Bond Funds

2014 Outlook for Global Bond Funds Stable; Outlook for US Muni Leveraged CEFs Changed to Negative The outlook for the global bond fund sector in 2014 is stable, as corporate default rates remain low, refinancing risks diminish, and companies keep healthy liquidity profiles, says Moody’s Investors Service in “2014 Outlook -- Bond Funds.” However, Moody’s is changing the outlook on US municipal closed-end funds (CEFs) to negative from stable, as increasing fund leverage, declines in municipal credit quality, and interest rates trending upward weigh on the sector. Globally, Moody’s does not expect more large outflows from fixed income investments as happened in the second half of 2013 amid fears the US Federal Reserve would rapidly taper its bond purchases. “Investors will continue to rely on fixed-income investments to provide reliable income and steady returns, even in the face of higher interest rates,” says Yaron Ernst, Moody’s Managing Director - Managed Investments Group. “Bond funds in 2014 will continue to benefit from the interest of pension funds that, given volatile equity markets, have in recent years increased their allocations to bonds at the expense of equities.” Moody’s expects bond markets to also show some volatility, as important events loom such as the US debt ceiling being reached again in February, and the European Central Bank’s Asset Quality Review of large European banks. After several turbulent years, however, global sovereign creditworthiness is likely to be comparatively stable in 2014, helping to support the stable outlook on bond funds. The stable outlook extends to the bond fund sector in Latin America, Moody’s says, where the funds are becoming more attractive, as disciplined fiscal and monetary policies in many Latin American countries strengthen their capital markets. In the US municipal CEF sector, however, asset values may continue to deteriorate as municipal credit conditions remain weak and long-term interest rates continue to rise. Market sentiment also remains weak, and portfolio credit quality worsened throughout 2013. These pressures continue to weigh on several key credit metrics, which could lead to rating downgrades, should managers be unwilling to adjust portfolio exposures and/or de-lever, says Moody’s. Moody’s maintains its stable outlook on US CEFs that invest in equities and taxable bonds, given their more stable underlying asset quality.

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Global Trade Reporting Solution | Funds

Markit Adds Emir to Its Global Trade Reporting Solution Markit ready to report OTC derivative trades for customers subject to Emir Markit, a leading global diversified provider of financial information services, today announced that MarkitSERV is reporting over-the-counter derivative trades in rates, credit and equities for customers subject to the European Market Infrastructure Regulation (Emir).

UTIs from trading venues and clearinghouses, can generate UTIs when they are not provided and enables users to send, receive and agree UTIs across all workflows. Under Emir, this helps ensure reporting is performed without duplication as required by Esma.

The service went live in January 2014, ahead of the February 12th compliance date, in order to facilitate the loading of historical trades into a trade repository.

Henry Hunter, managing director and global head of derivatives processing at Markit, said: â&#x20AC;&#x153;Our global trade reporting solutions help market participants adapt to multi-jurisdiction regulation efficiently. MarkitSERV provides customers with a cross asset class service to manage all of their post trade requirements, including trade affirmation, trade confirmation, routing to clearing and reporting.â&#x20AC;?

As detailed in the regulatory technical standards of the European Securities and Markets Authority (Esma), Emir requires EU counterparties to all derivative contracts to report certain trade information and details to a registered trade repository. Even before the first compliance deadline was set by Esma, MarkitSERV had sent several million trade records to the DTCC Derivatives Repository Ltd. on behalf of over a hundred firms. Emir is the latest regulation covered by MarkitSERVâ&#x20AC;&#x2122;s global trade reporting solution. MarkitSERV already provides trade reporting services for the trade reporting regimes of the following regulators: Australian Securities and Investments Commission (ASIC), Hong Kong Monetary Authority (HKMA), Japan Financial Services Agency (JFSA), Monetary Authority of Singapore (MAS), OTC Derivatives Regulators Forum (ODRF) and US Commodity Futures Trading Commission (CFTC). MarkitSERV provides a complete Unique Transaction Identifier (UTI) service for a range of asset classes across all supported regimes, including Emir. MarkitSERV receives

MarkitSERV is a global electronic trade processing service for OTC derivatives. Through MarkitSERV, industry participants have a single point of access to 15 clearinghouses, five trade repositories and more than 1,500 counterparties worldwide. MarkitSERV is also used by Swap Execution Facilities (Sefs) for trade routing to clearinghouses, confirmation and regulatory reporting. Markit is a leading global diversified provider of financial information services. We provide products that enhance transparency, reduce risk and improve operational efficiency. Our customers include banks, hedge funds, asset managers, central banks, regulators, auditors, fund administrators and insurance companies. Founded in 2003, we employ over 3,000 people in 11 countries. For more information, please see www.markit.com.

Wealth & Finance | February 2014 |

Funds | Who Wants an Illiquidity Discount?

Illiquidity Discount’ Boosts Euro Microcap Stocks Says Argos Investment Managers Investment in less liquid European small cap stocks has led to ‘illiquidity discounts’ partially inverting over the past 12 months so propelling Argos Investment managers ‘Argonaut’ fund towards the top of the leader board of European Small Cap funds*. Philip Best and Marc St John Webb’s fund has benefited significantly from their investing in quality small cap European businesses who prices have been depressed, in part, as a result of fears of illiquidity. However, as European stock rose last year, the ‘illiquidity discount’ partly reverted helping to propel Argonaut up by 43%. “Just because a share is illiquid does not mean that the underlying quality of the business is poor or that the business performance of that company cannot be strong. What we have seen over the past 12 months is a partial inversion of this illiquidity effect – with the smallest companies outperforming the largest ones,” writes the duo in their latest monthly report. Best and St. John Webb are also keen to point out the intrinsic benefits of investing in European small cap companies. For example they point out that they target undervalued, quality companies with strong balance sheets. These companies not only tend to be bought out as markets improve but are done so with a significant premium – the average being over 50% over the past 18 months. Best and St John Webb have recently undertaken a large statistical analysis which looked at the price-to-book and priceto-earnings ratios of Argonaut over the past ten years of its existence. It shows that current valuations remain up to 30% lower than pre-financial crisis suggesting this part of the European stock market has some way to go before it is fully valued. Argonaut’s geographic weighting has moved (up to 40%) in favour of French companies given that this is where the duo are finding most value. “This is not a result of a top-down analysis (we are as aware of the problems with the French economy as any other observers) it is simply that from a bottom-up approach this is where we are currently finding the most value in our universe of European companies.” The two managers say that from a tactical point of view the French government had recently launched a new tax efficient saving scheme for private individuals to invest in small and micro-cap companies and, as a result, many fund management groups were launching funds to specialise in this area which is leading to a flow of buying in a previously unloved area of the market, “Which enables us to take profits on our cheap assets as they rise,” they said.

| Wealth & Finance | February 2014

PICTURE

Marketing Your Fund to and through Consultants and Gatekeepers | Funds

Marketing Your Fund to and through Consultants and Gatekeepers ‘Soft’ manager qualities are often what separates your fund from competitors is a summary finding in the recent reported survey of institutional consultants and gatekeepers by Market Strategies international’s Cogent Reports. Investment consulting firms are now saying they are paying greater attention to ‘soft’, subjective factors in assessing money managers.

“Gaining a clear picture of investment philosophy is particularly crucial for consultants seeking to match client philosophies to the right portfolio manager,” the study stated. Asset managers need to work harder to differentiate their philosophy and approach relative to competitors, the report admonishes.

Firms that place a greater emphasis on increasing and demonstrating transparency in their communications and processes are favoured, Cogent noted.

This raises two vital questions for your money management firm that affect its ability to be understood by the consultants and gatekeepers you need to sell to and through.

In 2013, assuming you were delivering acceptable risk/return characteristics and met AUM size and track record length requirements, did your firm find itself favoured over competitors?

How easy have you made it for sceptical prospective investors and those who influence them to understand your investment philosophy and process so they buy into your portfolio management story?

Institutional consultants and gatekeepers recognise that quantitative data on performance does not provide them with enough information for recommending one money manager over another. In fact, consultants surveyed by Cogent complained that managers from different firms were presenting charts and pitches so similar that differentiation in between them was hard to ascertain.

Have you clearly differentiated your strategy from those of similar performing competitors? Here is a tip. Reexamine the written marketing collateral you use throughout the selling cycle. You do, of course, have more than just a monthly performance sheet and a flip chart that delivers more performance related data, staff bios and a few bullet points labelled Philosophy and Process, right? Take out a yellow highlighter and highlight each detailed bit of copy that educates and persuades people to understand and buy into your investment philosophy and the process you use in managing your portfolio.

While improvements in technology and increasing data transparency has made is easier to access and manipulate quantitative data that doesn’t explain how a portfolio manager assembled and managed his basket of holdings. Hence the study’s observation “consultants and gatekeepers place a great deal of value on being able to build a clear picture of the process asset managers are following. Remember, process is one of the things that institutional investor clients are paying their consultants and gatekeepers to identify, pass judgement on, and be able to explain to them. While those surveyed want to find money managers who have the “ability to openly articulate benefits (and weaknesses) of [their] product”, there is a problem. Many consultants and gatekeepers reported that asset managers frequently struggle to articulate investment philosophy, especially during introductory meetings where differentiation is key, and junior or unprepared staff can become a huge detractor from consideration.

Now, go back and reread the highlighted bits. Is this content really enough of an explanation as to how you think and run your portfolio? If this is what you read of a competitor would you feel that it was a complete-sounding explanation? If the answer is No, then you need to rethink what your investing storyline is and how to better explain it in print. Remember, your printed marketing collateral is what represents you when you are not there in the room with the consultant and his team, or his investor client. Your investment beliefs and process storyline needs to be both complete and easy to comprehend and digest; not some hodgepodge of disparate jigsaw puzzle pieces the consultant has to figure out how to assemble in order to get the picture of you and your firm. If chunks of your storyline are missing, you need to give a rethink as to how you are spending your face time in sales presentations communicating the crucial ‘soft’ manager qualities for which consultants and gatekeepers are on the lookout. In both your written and oral presentations it is the storyline about how you think and invest that is key.

Funds | EU Asset Managers to Rationalise but M&A Spree Unlikely

EU Asset Managers to Rationalise but M&A Spree Unlikely European asset managers are set to rationalise further, but a widespread M&A spree is unlikely, Fitch Ratings says. Most managers may opt for less intrusive strategies, such as a reduction in the number of funds and cost-cutting, to tackle margin pressure in a fragmented and competitive market rather than face M&A challenges. We have previously highlighted that the elimination of sub-scale activities and the reduction in the number of funds will remain an important component of industry rationalisation. Around 250 funds are currently eliminated every quarter in the European market. Further rationalisation potential remains because the market is fragmented. For example, 65% of cross-border fund ranges do not have a single flagship fund with assets of more than EUR1bn. We do not expect widespread M&A because there are not many large candidates left and deals can bring considerable risks. There could be stark cultural differences among managers and they may also face investor outflows. Other challenges include a negative impact on an asset managers’ credit profile if an acquisition involves debt funding, regulatory hurdles in the approval phase and over-paying in a competitive market, particularly if a bidding war is triggered. In addition, the European landscape is markedly different from the US, with a much larger captive business component - notably insurance assets - that is less prone to change hands. This partly explain differences in the pace and scope of consolidation on both sides of the Atlantic. Nevertheless, we expect some further selective M&A activity among European asset managers, particularly where institutional investors increasingly demand scale, such as alternative investment, private equity and real estate.

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Aberdeen Asset Management’s (A-/Stable) acquisition of Scottish Widows Investment Partnership and Schroders’ (A+/Stable) acquisition of Cazenove Capital, both in the UK, are examples of recent selective acquisitions. Aberdeen’s deal will add scale to its UK equities and fixed-income business, while Schroders expanded its private banking operations. We expect the acquisition of smaller specialists to remain popular ways for asset managers to add competences, products, clients or distribution channels. European asset managers have also generated interest from overseas parties, such as Bank of Montreal’s recent offer for F&C Asset Management, and the sale of Robeco to Japan’s Orix and of Dexia Asset Management to New York Life in 2013. These transactions enhanced growth platforms and increased geographical diversification of previously North American- or Asian-focused funds. Our “European Asset Management: Tapping Growth Through Rationalisation, Innovation, Diversification,” report at www.fitchratings.com has further details on the sector.

60 seconds with an Asset Manager | Funds

Seconds with an Asset Manager

Morgan Stanley’s Greg Fleming Sees Asset-Management Division Gaining Greg Fleming, who runs Morgan Stanley’s asset-management business, has predicted that the business will boost profitability in the next two years while increasing assets by approximately a third. Fleming commented that reaching about $500 billion of assets under management by the end of 2016 from $373 billion in December 2013 is “very achievable.” Fleming, 50, estimates that equity will rise to about 20 percent by then and will be maintained consistently. Fleming set new targets four years after he was brought in to help repair the asset-management unit amid losses and investor withdrawals. While the division is the smallest of the New York-based investment bank’s three businesses it was also the most profitable last year. “We’ve come a long ways,” Fleming said. “We are well-positioned over the next three years to continue to grow investment management and increase its relevance and contribution to Morgan Stanley.” The division, known as Morgan Stanley Investment Management, had $3 billion of revenue and $984 million of pretax profit last year. Assets under management have climbed 46 percent from when Fleming took over. The unit now oversees $343 billion in traditional equity and fixed-income funds as well as money-market products and funds that invest with hedge-fund and private-equity managers. It has $30 billion of assets in a merchant-banking unit that operates real-estate and private-equity funds. Fleming said he’ll boost assets and revenue by increasing the North American sales force adding more choices within long-only fund offerings and raising new merchant-banking funds. The firm will also seek more assets for its liquidity products and reduce capital tied up in hedge funds, he commented. Risks to the plans include new regulations, an investor shift toward passive investments and fee compression, Fleming said. “Merchant banking will take 18 months to 36 months to show benefits from raising new funds”, he said. Fleming also runs the firm’s brokerage, known as Morgan Stanley Wealth Management that serves mostly individual investors.

Wealth & Finance | February 2014 |

Funds | Europe’s Fund Industry is Not Bold Enough

Europe’s Fund Industry Is Not Bold Enough Three good reasons to close or merge funds: performance, profitability, pointlessness

he number of fund launches in Europe fell last year. But so did the number of closures, a good chunk of which were set maturity funds immediately replaced by rollover vehicles. The pace of rationalization through closures of poor funds or via merger into stronger vehicles needs speeding up, according to The Cerulli Edge-Global Edition. “What is striking about our studies is just how many big groups have long-term mainstream underachievers with significant levels of assets that could (or should) be merged into better-performing sibling funds,” commented Barbara Wall, Cerulli’s Europe Research Director.

“What is true of the U.K. market also applies to Europe’s overcrowded fund market.” Reviewing performance, we have chosen to look at fund batting average. Batting average is the number of days a manager outperforms or matches its benchmark over a time period and scored out of 100. To describe atrocious funds here we selected funds with a batting average in the range 0 to 25, so at best only outperforming or matching its benchmark once every four days over a 10-year period. Across Europe, we have identified 122 funds (excluding money market funds), controlling assets worth €42 billion (US$56.7 billion) that have been consistently atrocious performers. A further 1,440 funds, with AUM of €24 billion, are undersized and unloved, launched between three to five years ago but still having failed to attract assets of more than €50 million. Looking at the longer-term picture, poor performance and low AUM overlap considerably.

Fund fees are falling in Europe and this is putting pressure on profitability. Thus Cerulli would expect managers to pay particular attention to the viability of subscale funds. “Finally managers need to weed out pointless funds from their range,” added Cerulli senior analyst Angelos Gousios. “These fund strategies were briefly fashionable but, like loon pants and atmospheric nuclear weapons testing, are unlikely to find favor again. Thankfully, many of these foolish forays have already met their maker-including a whole host of tech funds and illiquid Spanish property funds.”

Other Findings •The demand for income and risk products kept U.S. product developers busy in 2013. Geographic diversification has been a key focus. Specifically, asset managers are focusing on the non-core fixed-income space in their development plans for the next year. Unconstrained bond and bank-loan funds topped the list for do-

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mestic fixedincome strategy plans for 2013, with 23% and 20% of respondents selecting them, respectively. •On gross figures, bond fund launches still retain some of their appeal for asset managers. They were the most popular funds launched in 2013 YTD October, although numbers are down sharply on the previous year. Fund closures may well top last year’s level (of 292) too, when the full year tally is done. Even so, we think a net increase of around 400 bond funds is likely-again a sharp reduction on last year’s numbers. •The distribution landscape in China saw many new developments in 2013, especially in the online distribution segment. Following the success of Yu E Bao, the first product to be sold through such platforms, many fund management companies have leapt on the bandwagon. Is Yu E Bao a one-hit wonder, or will others see similar success?

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Hedge Flash | Eurekahedge

Eurekahedge and ILS Advisers Launch New USD Hedged Index I

n 2012, Eurekahedge, a market leading alternative fund data provider, launched a new hedge fund index focusing on insurance linked securities (ILS), in partnership with ILS Advisers. Two years after the successful launch of the ‘Eurekahedge ILS Advisers Index’; the first index tracking the performance of 32 funds investing exclusively in insurance risk, Eurekahedge together with ILS Advisers announced today the release of a USD hedged version of the benchmark. The index was incepted in December 2005 and has returned 71.27% through January 2014. The index has an annualised return of 6.88% and an extremely low volatility, producing one of the highest Sharpe ratios of all of Eurekahedge indices at 2.17. The index boasts an impressive risk-reward profile in comparison to alternative investment vehicles and other asset classes as illustrated in the figure below.

Since its inception, the ‘Eurekahedge ILS Advisers Index’ has experienced an increasing acceptance by ILS investors, ILS funds, consultants and advisers, as a representative and fair benchmark for the asset class of insurance linked securities. The year 2013 marked a new record for the asset class, as the total value of outstanding catastrophe (CAT) bonds passed US$20 billion for the first time. The asset class on insurance linked investing has been rapidly gaining traction among professional investors as an avenue of diversification due to its non-correlation to traditional and alternative asset classes and its stable and attractive performance – especially as an alternative to fixed income investments in the low interest rate environment.

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Eurekahedge | Hedge Flash

About the index The Eurekahedge ILS Advisers Index is an equally weighted index of hedge funds that explicitly allocate to insurance linked investments and have at least 70% of their portfolio invested in non-life risk. The new USD hedge version of the index is base weighted at 100 in December 2005 and has returned 7.18% per annum with a volatility of 2.30% until the end of 2013.

How insurance linked securities work Insurance linked securities (ILS) also known as catastrophe or cat bonds are a transfer of insurance risk to the capital markets typically by insurance or reinsurance companies. The performance of ILS depends on the occurence respectively non-occurrence of an insured event. ILS show a low correlation with traditional asset classes and other alternative investment. ILS are typically not exposed to duration risk or interest rate risk since their return consists of a variable interest rate component plus an insurance premium for the risk assumed. Moreover they protect investors against inflation. Typically the ILS funds diversify their exposure across different perils such as natural catastrophe (wind, earthquake), man made risk and across different geographies US, Europe and Asia.

About ILS Advisers ILS Advisers was founded in Hong Kong by Stefan K. Kräuchi and Hansrudolf Schmid in 2011 as part of HSZ (Hong Kong) Ltd. an independent asset manager regulated by the SFC. The two founders combine over 40 years of industry and management experience on top level of major financial institutions. The purpose of ILS Advisers is to develop the Asian market for Insurance Linked Investments. ILS Advisers are strictly an independent investment consultant with an exclusive focus on investing in insurance linked securities. ILS Advisers identify and monitor the best ILS managers and products globally and bring them to professional investors. ILS Advisers help clients to understand the asset class, support them in their selection and investment process and provide ongoing services once the investments are made.

Target clients are institutional investors such as Sovereign Wealth Funds (SWF), Pension Funds, Banks, Family Offices and Fund-of-Funds. Stefan K. Kräuchi has over 20 years of international experience in the in the asset management industry with UBS, AIG Investments (now PineBridge) and Credit Suisse Group in Zurich, Tokyo and Chicago. In his previous role he was a member of the Executive Board of a large Swiss private bank, where he was in charge of the products and services division with assets under management of over USD 20bn including insurance linked investments of over USD 2bn. Since 2004 he has been instrumental in pioneering and developing products in the ILS space for the Swiss and European market. Hansrudolf Schmid is the founder and president of HSZ Group. After an education in law he pursued his career in finance, covering investment banking, private banking and investment management, first in New York followed by Zurich and Hong Kong. Further Information on ILS Advisers can be found at www.ilsadvisers. com

About Eurekahedge

Founded in 2001, Eurekahedge is an independent financial data and research company focusing on alternative investments. Eurekahedge maintains coverage on 29,000 alternative funds globally and its research covers hedge funds, funds of funds, UCITS hedge funds, long-only absolute return funds, CTA/managed futures funds, emerging markets hedge funds, insurance-linked securities and specialist funds. In addition to fund data Eurekahedge publishes the world’s largest suite of over 250 alternative investment benchmark indices, and the widely read The Eurekahedge Report, a monthly look at the alternative funds industry’s asset flows, fund performance, macroeconomic trends and league tables. Eurekahedge has offices in Singapore and New York. Eurekahedge is owned by Mizuho Bank, which owns a 95% stake in the company. www.eurekahedge.com

Wealth & Finance | February 2014 |

Wealth Corner | Family Office

The Importance of a Family Office With the next 10-20 years set to see a tidal wave of assets transferring to the next generation, careful consideration is needed to keep that generation thriving. Wealth and Finance International’s Kathryn Mallory-Smith considers the role and benefits of using a family office… With many firms offering support and guidance regarding tax, assurance, advisory, financial and organisational services, whether you are deciding on a long-term investment strategy, or setting up a foundation, family office experts help you debate the challenges and issues from all angles, while assisting with the common dilemma faced by many; whether to sell or scale up a business for future generations. Amongst business owners and families with multi-generational wealth there is a well know proverb, ‘shirtsleeves to shirtsleeves in three generations’. In order to break this cycle most families with over $25m in wealth seek the services of a family office. However, with many business owners initially believing they can manage their financial assets as well as they managed their business, they soon come to realise managing wealth is very different, requiring a different level of expertise. The management of your family’s balance sheet is no different or less important than the management of a corporate balance sheet, and like your business, it needs people with specific skills to manage all aspects of your assets, liabilities, income and expenses as they are interdependent. However, instead of having specialists in operations, sales and products, business owners need a team of legal, philanthropic, tax, and investment specialists; each of these roles can be fulfilled by the family office. The family office either outsource the work to the right partner, or hire in and manage in-house providing the expertise required. One of the main advantages to using a family office is the family’s wealth being managed on a holistic basis, and in the 21st century a family needs to think strategically regarding the development and security of its wealth for future generations due to the ever increasing volatile global markets. Of course there are costs associated with setting up a family office, which must be taken into consideration, meaning asset size does play a part in the decision making process. However, this said, there is no magic number or single asset size to determine whether a family office is suitable; some families have an office with assets below $200m, whereas others, without one have assets well over

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that amount. Also, if a family only require tax advice or administrative support, then the chances are a family office will prove to be too costly.

family spending their money on. The value and power of consolidated reporting is clear, simplifying complex wealth for better, faster, smarter decision making.

Additional benefits of a family office include the ability to control personal financial and administrative affairs, reap the benefits of being an institutional investor and customise services to each family member. There are many tales of once wealthy families who unfortunately, were unable to maintain prosperity for more than one or two generations, and these are the ones who would have benefitted from a family office.

Data management and reporting provide analysis on investment drivers, and spending patterns including; performance, allocation, risk, generational ownership structures, expenses and other key financial indicators.

The family office may not be the right solution if a family has cohesion issues, perhaps making group decisions is a challenge or individuals have a difficult time getting along, however this can be helped by doing things together. A useful remedy may be to bring family members closer during family retreats, strengthening bonds and building relationships through team-building exercises, which may sound very corporate and business like, but the affect and impact of this should not be under estimated. Other considerations are the level of interest and talent of the next-generation, which play a vital role in deciding whether it is viable to scale up or better to sell up. If the interest and/or talent are not there it would be wise to sell the business before erosion takes place. However, if the interest and talent are present it may be a great opportunity to move a business to the next level and growth phase. In order to avoid the risk of wealth erosion over the long-term, younger family members need to be developed and brought into the family’s affairs sooner rather than later, and families need to ensure that assets are invested properly, perhaps by the diversification of portfolios and/or the inclusion of alternative investments. Measuring risk and performance by using consolidated financial reporting provides key performance metrics of a complex family’s total wealth, and quickly and accurately answers an array of questions on demand. Questions like; what is my total wealth, how am I invested, which managers are performing well, which managers are underperforming, how much am I spending compared to plan, as well as what is my

However, it’s not just about data management and security; great reporting allows an 18 year old and an 80 year old, regardless of background or sophistication, to view the same report and have the same understanding within seconds. There is another well-known proverb; ‘once you’ve seen one family office you have only seen one family office’, as each family office is different, being designed to meet the specific needs of the family’s principles. With experience and expertise to navigate the maze of complex investment structures, while mitigating risk, and meeting a family’s lifestyle objectives, the family office ensures that the wealth created remains to benefit future generations. As entrepreneurial families have to make important decisions, some of which have far-reaching consequences, there is a responsibility to do everything right when wealth is at stake. It is therefore advisable to seek the comprehensive, integrated and tailored services of a family office to understand how to structure wealth preserving it for future generations. Due to the increasingly volatile global markets, and ever increasing regulations all placing additional burden and risk on the private wealth market, managing wealth today is vastly more complex than at any other time in history. The 2008 financial crisis saw improperly managed investment risk decimate family fortunes in a matter of days or even hours in some cases. With the role of the family office set to increase during 2014 and beyond we can expect to see more single family offices being set up, with some single family offices transforming into multi-family offices. Your family’s wealth has a long history: make sure it has a long and prosperous future.

Family Office | Wealth Corner

FAMILY CONTROL

BALANCING THE NEEDS IN A FAMILY BUSINESS SYSTEM

SHAREHOLDING LIQUIDITY

CAPITAL NEEDS

There are many important considerations to make when setting up a family office, below are some of the most common: • Separate private wealth and business assets • Family governance • Wealth preservation • Risk management • Confidentiality issues

Wealth & Finance | February 2014 |

Wealth Corner | Worsening Wealth Gap Seen as Biggest Risk Facing the World in 2014

Worsening Wealth Gap Seen as Biggest Risk Facing the World in 2014 The chronic gap between the incomes of the richest and poorest citizens is seen as the risk that is most likely to cause serious damage globally in the coming decade, according to over 700 global experts that contributed to the World Economic Forum’s Global Risks 2014 report, released today. Taking a 10-year outlook, the report assesses 31 risks that are global in nature and have the potential to cause significant negative impact across entire countries and industries if they take place. The risks are grouped under five classifications – economic, environmental, geopolitical, societal and technological – and measured in terms of their likelihood and potential impact. Most likely global risks: After income disparity, experts see extreme weather events as the global risk next most likely to cause systemic shock on a global scale. This is followed by unemployment and underemployment, climate change and cyberattacks. Most potentially impactful global risks: Fiscal crises feature as the global risk that experts believe has the potential to have the biggest impact on systems and countries over the course of the next 10 years. This economic risk is followed by two environmental risks – climate change and water crises – then unemployment and underemployment, and fifth critical information infrastructure breakdown, a technological risk. “Each risk considered in this report holds the potential for failure on a global scale; however, it is their interconnected nature that makes their negative implications so pronounced as together they can have an augmented effect,” said Jennifer Blanke, Chief Economist at the World Economic Forum. “It is vitally important that stakeholders work together to address and adapt to the presence of global risks in our world today.” In addition to measuring the seriousness, likelihood and potential impact of these 31 global risks, Global Risks 2014 includes special investigations into three specific cases: the increasing risk of “cybergeddon” in the online world; the increasing complexity of geopolitical risk as the world moves to a multipolar distribution of power and influence; and youth unemployment and underemployment.

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Worsening Wealth Gap Seen as Biggest Risk Facing the World in 2014 | Wealth Corner

In particular, the report considers the twin challenges facing those coming of age in the current decade of reduced employment opportunity and the rising cost of education, and considers the impact on political and social stability as well as economic development. With over 50% of young people in some developed markets currently looking for work and rising informal employment in developing regions where 90% of the world’s youth live, the report offers insight into how technological and other measures can be deployed to mitigate some of this risk. David Cole, Group Chief Risk Officer of Swiss Re, said: “Many young people today face an uphill battle. As a result of the financial crisis and globalisation, the younger generation in the mature markets struggle with ever fewer job opportunities and the need to support an ageing population. While in the emerging markets there are more jobs to be had, the workforce does not yet possess the broad based skill-sets necessary to satisfy demand. It’s vital we sit down with young people now and begin planning solutions aimed at creating fitfor-purpose educational systems, functional job-markets, efficient skills exchanges and the sustainable future we all depend on!”

3. Proliferation of low-level conflict, caused by technological change and reluctance of major powers to intervene, which could easily spill over into full-scale warfare. 4. Slow progress on global challenges, where persisting deadlock in global governance institutions leads to failure to adequately address environmental and developmental challenges that are truly global in nature “A more fractured geopolitical environment threatens to impede progress in industries which are critical to global development, such as financial services, healthcare and energy,” noted John Drzik, President of Global Risk and Specialties at Marsh. “The world needs more coordinated governance to prevent slow-burning, systemic risks from developing into full-blown crises.” Global Risk 2014 has been developed with expert contributions from Marsh & McLennan Companies, Swiss Re, Zurich Insurance Group, the Oxford Martin School (University of Oxford), the National University of Singapore and the Wharton Risk Management and Decision Processes Center (University of Pennsylvania).

The deepening reliance on the Internet to carry out essential tasks and the massive expansion of devices that are connected to it, make the risk of systemic failure – on a scale capable of breaking systems or even societies – greater than ever in 2014, according to the report. Recent revelations on government surveillance have reduced the international community’s willingness to work together to build governance models to address this weakness. The effect could be a balkanization of the Internet, or so-called “cybergeddon”, where hackers enjoy overwhelming superiority and massive disruption is commonplace. “Trust in the Internet is declining as a result of data misuse, hacking and privacy intrusion,” said Axel P. Lehmann, Chief Risk Officer at Zurich Insurance Group. “A fragmentation of the Internet itself is the wrong way to solve this issue, as it would destroy the benefits the Web provides to all of us. Rather than building walled gardens, it is time to act by setting up security standards and regaining trust.” Today’s multipolar world presents four key threats that could each impact global stability in the next five to ten years: 1. Emerging market uncertainties, whereby the world’s major emerging markets become unstable as a result of social, political or economic pressure. 2. Commercial and political frictions between countries, where trade and investment become increasingly used as a proxy for geopolitical power, with increased flashpoints as a result.

“A fragmentation of the Internet itself is the wrong way to solve this issue, as it would destroy the benefits the Web provides to all of us. Rather than building walled gardens, it is time to act by setting up security standards and regaining trust.”

Wealth & Finance | February 2014 |

Wealth Corner | Coutts Index Reveals Passion Investments Have Risen 77% Since 2005, Outperforming Shares

Coutts Index Reveals Passion Investments Have Risen 77% Since 2005, Outperforming Shares Passion investments returned 77% (local currency terms)* since 2005, outperforming shares, according to the first edition of The Coutts Index: Objects of Desire. Launched today, the new Coutts Index aims to provide the global benchmark for monitoring the performance of passion assets. The Index, developed in conjunction with Fathom Consulting, captures the price return in local currency (net of the holding costs) of 15 passion assets across two broad categories: trophy property and alternative investments. Alternative investments can be further broken down into fine art, collectibles and precious items. Of all the alternative investments Coutts examined for the Index, classic cars have returned the most since 2005, rising by 257%, outpacing all other investments by more than 80 percentage points over the seven and-a-half-year timeframe. Classic watches have also proved they can stand the test of time, rising by 176% from 2005 to 30 June 2013. Jewels returned 146% in comparison, while the standout performer in the fine art space is the traditional Chinese works of arts sector, which rose by 163% between 2005 and 30 June 2013. Over the past seven and a half years, the Coutts Index, based in US$ terms, has risen by 82% – over the same period, the MSCI All Country Equity Index has risen by 53%, based in US$ terms. The Coutts Index incorporates a real estate component supplied by Savills World Research. Trophy property comprises ‘billionaire’ residential properties in the ten prime global city locations and ‘leisure’ properties in the world’s most desirable leisure destinations associated with these cities. Both measures lost value in the run-up to the global recession, but billionaire property values have risen strongly since, rising 100% from 2005 to 30 June 2013. Mohammad Kamal Syed , Head of Strategic Solutions at Coutts, said: “The Coutts Index has been created to measure passion assets, or objects or desire, in terms of performance, cost of storage and currency. But while many alternatives have provided spectacular returns, there is more to investing in these assets than price appreciation. For many people, profit is furthest from their mind.” He added that for many ultra-high-net-worth individuals, it is less about investing and more about purchasing – purchasing assets driven by their emotions. “The benefit is more than just profit. Owners can bond with like-minded people in an elite network, with assets offering escapism and a chance to re-enact history. Indeed, there is one thing that the Coutts Index, for all its robustness, can’t measure – and that is happiness. The idea of someone paying $50m for an uncomfortable old car, with windows that don’t work and a noisy engine, seems illogical. In many ways it is. But the happiness such a car can bring is immeasurable.” Coutts commissioned articles and interviewed experts for its first edition of the Coutts Index. They included Stanley Gibbons, the world’s leading stamp dealer, Berry Bros. & Rudd, the wine merchant and auction houses Sotheby’s and Christie’s. Quentin Willson, broadcaster and classic car specialist, looked under the bonnet of the classic car market. He wrote: “If you had bought a 1970s Ferrari Daytona for £50,000 in 2003, it would be worth £250,000 today. A 1960s Aston Martin DB5 bought for £60,000 a decade ago would now command £350,000.” “The question is whether the classic car market has peaked. I’ve been wondering whether the bubble will burst ever since prices started to rise in 2009. But they have kept on rising and were up 27% in the first half of 2013.” Nick Foulkes, author, historian and watch enthusiast, revealed why he has been fascinated with watches since he was a child. He wrote: “I can still remember writing an article in the 1980s, saying that the price of an old ‘Paul Newman’ Rolex Daytona was about to overtake the price of a new one. Now you will be lucky to find one for under £70,000.” “But not all watches will burn a hole in your pocket. Rolex recently launched some particularly attractive Day-Date models with brightly coloured dials. These recalled the original ‘Stella’ dialled Rolexes and are now creeping up in value, but these Day-Date models can still be purchased for four figures. And I still think that vintage Cartier watches are hugely undervalued.”

| Wealth & Finance | February 2014

Coutts Index Reveals Passion Investments Have Risen 77% Since 2005, Outperforming Shares | Wealth Corner

27 COLLECTIBLES The category of Collectibles comprises five classifications of items: Fine Wine, Stamps & Coins, Classic Cars, Rugs & Carpets and Rare Musical Instruments. Fine Wine and Classic Cars have both posted extremely strong price returns over the past seven years, with cars recovering strongly during the first half of 2013, after falling in 2012. Stamps & Coins have more than doubled in value since 2005, maintaining a strong performance, while Rugs & Carpets and Rare Musical Instruments have barely moved in price since 2005.

PRECIOUS ITEMS Precious items include Jewellery and Classic Watches. Jewels and Classic Watches have almost tripled in price since 2005. Both classifications lost value during the global recession, but their price return before and after was extremely strong.

Chart Classic Watches have proved they can stand the test of time, rising by 176% from 2005 to 30 June 2013. Jewels returned 146% in comparison. Of all the alternative investments we examined for the Index, Classic Cars have returned the most since 2005 and: rising by 257%, outpacing all other investments by more than 80 percentage points over the seven-and-a-half-year timeframe.

TROPHY PROPERTY The Coutts Index incorporates a real estate component supplied by Savills World Research. Trophy property comprises ‘billionaire’ residential properties in the ten prime global city locations and ‘leisure’ properties in the world’s most desirable leisure destinations associated with these cities. Bothmeasures lost value in the run-up to the global recession, but billionaire property values have risen strongly since, with leisure properties more than recovering the ground they lost.

“If you had bought a 1970s Ferrari Daytona for £50,000 in 2003, it would be worth £250,000 today. A 1960s Aston Martin DB5 bought for £60,000 a decade ago would now command £350,000.” The Billionaire Index rose 100% from 2005 to 30 June 2013.

Wealth & Finance | February 2014 |

Wealth Corner | Investing in Fine Wine

Investing in Fine Wine Whilst wine is considered a relatively high-risk category, due to lack of regulation and pockets of volatility, long-term returns can be very good. Itâ&#x20AC;&#x2122;s actually quite difficult to make an argument against wine in favour of equities based on volatility alone when one comparatively looks at the data. Comparing the performance of the FTSE to the Wine Owners benchmark index (the Wine Owners 150) (rebased) shows that top wines have performed very well over the last 7 years, assuming a well-diversified range of holdings. Over a 3 year view, one of the worst ever periods for red Bordeaux, the WO150 index has only delivered annual returns of 3.4%. Personally as a collector, Iâ&#x20AC;&#x2122;ve always thought it sensible to think of wine investments as for a minimum period of around 4-5 years. I know more active collectors who like to sell and reinvest as soon as they see a reasonable return. I know other collectors who tend to hold for very long periods of time â&#x20AC;&#x201C; and although they may go through periods of flat or negative growth, they more often than not benefit from increasing scarcity over time, and when demand starts to pull significantly ahead of supply prices move quite sharply to reflect that imbalance. There is no one right answer on hold vs sell strategies, other than each individualâ&#x20AC;&#x2122;s temperament. Longer-term hold strategies may nonetheless benefit from partial realisation of profits to mitigate the risks of re-ratings. For example Bordeaux 2003s enjoyed a rapid run up over a 5 year period to 2008, before fears over premature maturation sent the market back down again. Collectors who sold off in 2007 or 2008 realised excellent returns, whereas those who held on will have seen disappointing performance.

Bordeauxâ&#x20AC;&#x2122;s steady decline from its broad-based peak in the summer of 2011 has led investors to reappraise the role of red Bordeaux, and especially the First Growths within their portfolio. Whereas before 2008 top red Bordeaux might have accounted for 90-95%+ of all wine investments, these days diversification is seen by many as much more important as a hedge against volatility. Others see many buying opportunities on the back of 2 year lows and expect the Bordeaux market to move up in the next year or so. Whether weâ&#x20AC;&#x2122;ll see a recovery start in 2014 or 2015 remains to be seen.

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In fact, just like any other investment class, wine will have periods of outperformance and periods that are sluggish or poor. It is because of this dynamic that medium or longer-term holds are likely to perform more consistently. This strategy also has the benefit of giving the wine owner the additional option of being able to appreciate matured vintages and deriving great pleasure from drinking them.

Predictions for 2014/15 Bordeaux re-evaluated

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Investing in Fine Wine | Wealth Corner

29 No futures market One thing is for sure; the new Bordeaux release of the 2013 vintage next spring will be a damp squib. No one needs to buy a very poor vintage as a future, which this unequivocally is. Looking back over the last 15-20 years, demand and prices tend to recover on the back of good to excellent new vintages.

a globalising market. What that view never took into account is the speed with which new emerging wine markets pick up wine knowledge and culture. I don’t agree with the idea of price homogeneity across different vintages based on the label. Wine buyers are becoming increasingly educated and will pay a premium for the best.

Could Italy run?

Searching for value The subdued state of the left bank Bordeaux market suggests there are buying opportunities, such as First Growths from 1996 – a superb vintage that is coming into an early stage of its long maturity phase. Because of this, demand ought to pick up and could well be fair value following declines of 35%. Volatility creates buying opportunities in any market, and wine is no different. When sentiment in negative markets become oversold. In wine, the very greatest vintages comprising wines that are most susceptible to high prices at release are often those that are sold off the hardest. One such vintage that has been sold down over the last 2 ½ years and yet which is of the highest quality is 2005. Whether the market has yet hit bottom is hard to judge. What is sure is that 2005 is the next great vintage following 1996 and 2000 that has a huge drinking window. As stocks of 1996 and 2000 start to diminish, the laws of supply and demand are likely to have a much stronger influence on 2005. Back vintages of right bank Bordeaux have picked up, with the very top of the market leading the way. This may have a positive effect on the peer group of right bank, merlot-dominated top wines. Typically production volumes are much lower than the big Medoc (left bank) estates, and scarcity exerts a greater influence on market pricing of older vintages. Back in the 2011 some people thought was that vintage variation was going to be a less significant driver of value appreciation than brand recognition in

Italy could well continue its recent run of form, since substantial gains at the very top of the market have not yet translated into similar broad-based growth across prime regions such as Piedmont and Tuscany. Bigger estates tend to offer better market liquidity, so when selecting small boutique producers, careful evaluation is needed to be sure you’re buying low production wines that are likely to be in demand when it comes time to sell. Small production and weak or unknown demand is not a good combination in any region. Of course where tiny production meets insatiable demand from the world’s wealthy, excellent returns can be achieved.

Has top Burgundy reached a Zenith? Extreme scarcity and overwhelming global demand for wines by the most sought after estates have made top Burgundy a consistently good bet. Whether those wines will continue to appreciate remains to be seen given the dizzy heights they have scaled. Whilst most investors continue to believe in their long-term prospects, in the medium term, performance graphs suggest careful selection is required. Further down the pecking order, a new generation of young, gifted winemakers who are taking over family domaines and transforming quality are akin to ‘emerging markets’ opportunities as well as being beautiful, affordable wines to consume.

PICTURE

Wealth & Finance | February 2014 |

Wealth Corner | Investing in Fine Wine

Do’s and don’ts – the wine investors’ safety-first Diversify Don’t put all your eggs into one basket. Wine should generally not exceed 5-10% of your total net asset value.

Take a portfolio approach Build a diversified portfolio of fine wine - spread your bets since fine wine is not one homogenous market A portfolio’s core will include Bordeaux, Burgundy, and might encompass top Italians.

Buy the best you can afford Wines are stored in bonded warehouses, where they can be kept for years or even decades without requiring tax and duty to be paid. It’s worth considering that when buying wine for investment since storage charges of around £10-£12/ case can disproportionately eat into the profits of the best values. Think of future liquidity With the advent of self-serve exchanges and greater market transparency, the top sought-after wines are reasonably liquid. If priced to Market Level an investor can expect to typically cash out within 1-8 weeks. The further down the pecking order the investor goes, the propensity to find a buyer quickly decreases without significantly dropping the asking price.

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Buy In Bond London is the centre for fine wine trading. It’s a market that is truly global, and buyers can span Asia, The Americas, Europe and parts of Africa. Storing fine wine in bond means not paying VAT and duty, which makes it much more attractive to a global audience. It also tells the buyer that the wine has been professionally stored it whole life, which helps establish good provenance and makes your wine more desirable on the secondary market.

Buy wine you might like to drink Your own preferences or interests should quite rightly influence your portfolio. So for example if you are familiar with top Californians and enjoy rich sunny styles, you might choose to buy Harlan, Phelps, Opus One etc.

Beware of cold-callers Don’t buy wine from cold-callers, or at least not unless you know them or have satisfied yourself that they are reputable and that prices of their ‘picks’ are competitive. Typically these calls come so-called from wine investment companies. Were these businesses operating In an FCA regulated market, many might be open to accusations of over-selling. It’s not uncommon to find companies that cold-call offering investors wine significantly higher than Market Level.

Investing in Fine Wine | Wealth Corner

Self-serve Typically, collectors are very often also wine enthusiasts. Part of their interest is in doing the research and reaching their own conclusions about which wines they wish to buy. The biggest challenge collectors face is keeping on top of their collections knowing what they bought, from whom, what its worth, when its ready to drink, what to keep for longer, when is the optimal moment to sell… when they have so little time free outside their demanding jobs.

Wine Owners Market Level pricing – the price at which a wine is likely to find a ready market – now gives collectors and consumer generally that critical piece of information to inform their decisions. It protects them from offers that are overpriced, helps them identify market value, and ensures that they know what is a realistic achievable price when the time comes to sell.

What is Wine Owners?

Active self-management appeals to the collector, but they lack the organisational tools, information, access to market and settlement mechanisms to be able to do so. Platforms like Wine Owners (www.wineowners.com) finally make it possible for collectors to do so.

Wine Owners (www.wineowners.com) provides a complete solution for managing, analysing and valuing a fine wine portfolio, and is fully integrated with a peer-to-peer trading exchange that safely connects buyers and sellers via a 2-sided market that gives everyone direct access to the secondary market at low commission rates. It’s easy to sell out of, and buy into your portfolio - with assured steps that protect the buyer, and a fast settlement process that means sellers get paid very quickly.

Price discovery is a pre-requisite of any properly functioning market

Wine Owners takes care of all the details; such as payment, inspections, transfers and delivery.

Would you buy a company stock without checking current price and reviewing past or comparative performance? In most cases you would expect to have access to that information. Wine ought to be no different but for years consumers weren’t able to easily access the detailed level of information that provided those indications for wine.

Meanwhile, the online portfolio management platform provides a wealth of information on 160,000 fine wines, with all the analysis tools necessary to make active self-management and tracking of fine wine collections simple, rewarding and more transparent than ever before; helping to inform decisions on what wines to buy, drink, hold, consume or sell.

Wealth & Finance | February 2014 |

Markets Matters | Could China Ride the Year of the Horse into a Golden Sunset?

Could China Ride the Year of the Horse into a Golden Sunset? Apparently (according to one broadsheet astrologer anyway) the Chinese Year of the Horse heralds difficult times for those involved in the minerals mining industries. Given that country’s recent focus on gold, I think even the Chinese would dispute that prediction.

Although of course the merchants and goldsmiths quickly worked out that they could issue more certificates than the gold they held (because not everyone would ask for it back at once) the certificates were nonetheless linked to gold and could always be exchanged for it.

At the end of 2013 I wrote in the Black Swan newsletter “Gold has looked weak throughout the year but guess who has been buying: China.

Indeed, for most of history, the currency that has circulated in economies has either been itself an item of intrinsic value (gold/silver) or linked to an item of intrinsic value (Bretton Woods and the post World War Two exchange rate mechanism). This automatically prevented governments from simply “printing money”. Then, on August 15th 1971, Richard Nixon severed the final link of the US dollar to gold. In so doing he severed the last link of paper currencies to any item of real value. True, international gold convertibility of most major currencies had gone decades before but in the 1960’s the US dollar could still be exchanged for gold at the rate of $35 per ounce.

The chart on the left is China’s imports of gold from Hong Kong. They will also have been buying through Shanghai and other areas but this remains a good proxy for what is happening overall as it is the data least likely to be faked! We can be sure that China has a plan here so it is still a sensible move to have a decent exposure to the yellow metal. Apart from that the markets look very “toppy”. The Swan has an exposure against the Dow which may yet come good but the only sectors looking like strong buys are miners: the China boom has NOT ended.” I have been puzzling ever since over what China’s plan with gold might be. Today I want to set out one possible scenario but first I want to talk about market rigging and fraud.

The LIBOR Stitch-up If someone had asked me in 2011 if LIBOR was rigged I would have scoffed and answered “NO!”. I would probably have gone on to say that it would be impossible to have a conspiracy that large amongst so many people. Sooner or later somebody would crack and the whole thing would be blown wide open. Come June 2012 that “someone” turned out to be Barclays. Clearly realizing that the game was about to be up Barclays “confessed” and in exchange for shopping all the other banks involved paid a reduced $460mil in fines. This looks a bargain against the $1.5bil paid by UBS that December but actually all the fines were pretty meagre. LIBOR is the starting point for around $350 trillion in derivatives trades and the Financial Times reported that the rigging had been going on since 1991. You do not need many basis points on $350tril over a twenty year period to move your lifestyle well into the comfort zone; or your bank’s profits; or your bank’s balance sheet. So actually those fines look like something of a bargain: particularly as no one has yet been jailed. Bob Diamond had to resign, but he is now back in charge of another bank. There is strong evidence that a similar market manipulation has been happening to gold and that it may be about to come to an end. As we look at this possibility it is important to remember how impossible the rigging of LIBOR once seemed.

We thus entered a period when, for the first time in history ALL world currencies were “Fiat Currencies” . The last 43 years have thus been fundamentally different from all preceding economic history. We have lived in a period where currencies have not been linked to anything other than a government’s statement of what a currency is worth. Once governments could issue as much money as they chose the inevitable happened. Governments could not resist : they “printed” money. There is a whole discussion to be had here, one I’ll address another time, but suffice to say that for the governments the decline in the value of the currencies is actually beneficial.

The return of gold: Back to the Future? But hold on….governments still have a lot of gold in their central banks right? Well they all say they have and since they are governments it must be true. Or is it all nothing but a game of Liar’s Poker? 2011 was the last time China released data on its gold reserves. According to the World Gold Council the following is the current ranking. Now the Chinese data here is actually 2011 data and since we know that China purchased in excess of 1,000 metric tonnes of gold last year alone this table is clearly out of date even though it purports to be as of January 2014. But it gets more interesting. If we assume gold has been mined at 1,400mt a year for 200 years (which is probably on the high side) then the total gold ever mined is around 280,000mt. Some of this is sitting in jewellery and museums and some has been consumed in industrial uses: the computer on which I am writing this for instance.

Gold as a supporter of currencies

So I am going to round that to 250,000mt of gold ever mined in the world. Now the top 20 countries on the World Gold Council list hold 27,500mt between them or in other words about 11% of all the gold ever mined!

Gold has been used as a medium of exchange for thousands of years. Back in Roman or pre-Roman times there were a number of good reasons for this. Firstly it is rare, but not too rare. Secondly, it is simple and easy to mine. At the basic level it is visible in rich veins and these can be mined with simple tools.

No one below the top 6 has over 1,000 tonnes so China’s purchase of 1,000 tonnes last year alone is absolutely massive. If as is rumoured, China is about to announce

It can then be smelted at a relatively low temperature to turn it into bars or ingots. Thirdly, it is golden: most of the other elements in the periodic table, which might appear as prospective currencies, are silvery in colour and thus hard to distinguish instantly from each other. Then, lastly, it does not corrode. For hundreds of years gold circulated as physical currency until the convenience of holding gold in a vault and simply passing on the certificate entitling someone to that gold came to be seen as more convenient. The creation of what is effectively paper money is often erroneously attributed to the London Goldsmiths in the 17th Century. Wrong, it was the Chinese who invented paper money with “Merchant Receipts” circulating in the Tang Dynasty around 700.

| Wealth & Finance | February 2014

Could China ride the Year of the Horse into a Golden Sunset? | Markets Matters

that its holdings of gold are now in excess of 5,000mt the only possible source for this gold is the USA. So China is in the process of cornering the physical gold market and right now I would say they have probably done it.

Another LIBOR? Could the gold markets also be rigged? Given what we have seen with LIBOR the obvious answer is “yes” they could be. Conspiracy theories have been around on the gold price for years . But a recent article by Paul Craig Roberts and Dave Kranzler really caught my attention. I have stated since the Quantitative Easing program began in 2008 that this would inevitably lead to inflation. It is impossible to inject that amount of money into the system, both in the US and Europe and NOT get inflation. At the same time as the massive QE programs have been injecting money into the system, Asia, and in particular China, have been buying gold and demanding physical delivery of every ounce they buy (see the graph at the start of this article). What Roberts and Kranzler clearly explain is the method by which the market has been manipulated. The major bullion banks (at the behest of the Federal Reserve) go short on the Comex exchange in New York. They do this running naked short positions (a position where they do not have the gold to deliver). If the derivative positions on COMEX are allowed to remain open, and closed only when there is a fall in the gold price, the downward pressure can be relentless. The same banks are also dumping physical gold on the LBMA in a way so as to ensure the maximum downward pressure on the price. Although this started as long ago as 2000 the main effort to push down the price has been since the recent high of $1,900 in 2011. Unless this intervention had taken place the price of gold would probably be closer to the $5,000 predicted by Standard & Chartered a couple of years ago. The objective of the manipulation was to protect the value of the dollar in the face of the massive injections of money into the system and you would have to say that it has by and large worked. However on the other side of most of the physical trades sat the Chinese, each time demanding physical delivery of everything they purchased.

few years looks as though it can only have come from the vaults of the Western central banks, particularly the Fed. However long this continues, at some point it will come to an end and at that point China will control the world gold markets and the world monetary system. What should investors do about it? Well, hold gold obviously but also hold the shares of gold mining companies. I can not do better than quote Louis James, Senior Metals Investment Strategist at Casey Research: “While we’re convinced that buying gold and silver right now will provide handsome rewards, much more money will be made by investing in companies that mine these precious metals. For investors with an appetite for risk, the really big paydays will come from speculating in the best of the best junior miners”. I could not put it better! Richard Poulden, Chairman of Wishbone Gold Plc

Let’s hear from Roberts and Kranzler: “It became more imperative to drive down the price, but the lower price resulted in higher Asian demand for which scant supplies of gold were available to meet. Having created more paper gold claims than there is gold to satisfy, the Fed has used its dependent bullion banks to loot the gold exchange traded funds (ETFs) of gold in order to avoid default on Asian deliveries. Default would collapse the fractional bullion system that allows the Fed to drive down the gold price and protect the dollar from QE.” So is there evidence, as there was with LIBOR, of people heading for the exit? Yes, there is. Firstly Germany asked for its 1,500mt of gold held in the Federal Reserve to be sent back. Instead of complying the Fed negotiated seven years in which to return 300mt. So pretty obviously they have not got the gold to deliver. Secondly, Deutsche Bank has withdrawn from gold and silver price fixing. These price “fixes” occur twice daily and there are only 5 banks involved. That number has just been reduced by 20%.

Conclusion China is almost certainly the largest holder of physical gold in the world and by a very substantial margin. Much of the physical gold purchased by them over the last

Wealth & Finance | February 2014 |

Markets Matters | Making the Right Move

Making the Right Move… The majority (77 per cent) of millionaire investors say they own real estate while 35 per cent say they own a related investment, real estate investment trusts (REITs). This is a key finding of the Morgan Stanley Wealth Management Investor Pulse Poll, a periodic survey of US high net worth investors, including a subset of households with a million dollars or more in financial assets. Questions about investments in alternative asset classes were posed only to the millionaire sample. The survey found that investors who received advice from a financial advisor are much more likely to say they were knowledgeable about alternative asset classes (57 per cent), compared with those who have not received professional advice (30 per cent).

“This finding underscores the important role financial advisors play in providing information and education about the potential use of alternative asset classes by suitable investors in an appropriately diversified investment plan”says Andy Saperstein, head of investment products and services for Morgan Stanley Wealth Management. After real estate and REITs, millionaire investors cite ownership of collectibles (34 per cent), followed by precious metals (28 per cent), private equity (27 per cent), real assets (oil, gas, mining, 17 per cent), private real estate funds (16 per cent), hedge funds (16 per cent), and venture capital (13 per cent). Asked to recall an alternative investment unaided, 77 per cent of millionaires can recall at least one (led by hedge funds, at 19 per cent), while the remainder (23 per cent) said they could not recall an alternative without prompting. As with actual ownership, real estate (33 per cent) and REITs (23 per cent) lead the list of alternatives the surveyed investors expect to buy in 2014, followed by collectibles (20 per cent), private equity (19 per cent) and precious metals (16 per cent). Investors who work with financial advisors say their advisors are well informed about alternative asset classes. Nearly seven out of ten (68 per cent) say their advisors are knowledgeable about alternatives, and four in ten (41 per cent) say their advisors are “very knowledgeable”.

| Wealth & Finance | February 2014

Pensions | Markets Matters

Pensions More than one in five pension savers have stopped paying into schemes over the past two years to meet everyday living costs, according to new research* from MetLife. Its nationwide study found 21% of savers have cancelled pension contributions to save money over the past two years with the average annual payment cancelled amounting to more than £900. The highest rates of cancellations were among those aged 35 to 44 where 31% have dropped pension saving and among those aged 45 to 54 where 28% have cancelled contributions. The research, commissioned as part of Dr Ros Altmann’s report ‘Pensions - Time for change’ sponsored by MetLife, underlines the need for increased flexibility and innovation in pension planning. Dr Altmann’s report says the current UK pension saving system is “out of date” and not “fit for purpose” at a time when retirement is less of an event and more of a process. The MetLife research shows nearly half (49%) of all workers would want to continue working past the current standard retirement age of 65 – rising to 52% among those aged 55 to 64.

“However it is vital that people do save for retirement if they want to avoid the risk of surviving on a low income in old age. The Government’s auto-enrolment reform has made a major contribution but clearly there needs to be more done to encourage saving and making pensions work better.” The MetLife research shows around 23% of employees would want to continue fulltime in their current job at the age of 65 instead of retiring while 21% would want to go part-time either in their current job or in another job. Around 4% would want to start another full-time job. MetLife passed the £4 billion assets under management milestone a year after hitting the £3 billion mark underlining the continued strong growth in the unit-linked guarantees market. Continuing expansion is being driven by the success of its new generation of guaranteed products offering shorter capital guarantee terms in response to adviser and client demand for increased innovation. MetLife has seen rapid growth underpinned by its Managed Wealth Portfolios which have grown to more than £1.3 billion under management in just 12 months after launching the new funds in partnership with world-leading asset manager BlackRock.

Dominic Grinstead, Managing Director, UK, MetLife said: “People have a wide range of financial pressures to cope with and it can be tempting to stop saving into a pension when there are other calls on your money.

Wealth & Finance | February 2014 |

Markets Matters | The Market Matters Class of 2014

Retirement? We’re Not Ready to Stop Working Yet!

• One in four planning to retire this year don’t feel ready to stop work.

• Changing face of retirement shows more than half willing to consider working past State Pension Age

• Thirteen per cent are delaying retirement because they want to work on

ew research from Prudential1 has highlighted how attitudes to retirement are changing, with nearly one in four (23 per cent) people planning to retire this year saying they don’t feel ready to stop working altogether. Meanwhile 13 per cent of those who had been scheduled to retire have chosen to delay their plans because they don’t want to give up work just yet. The research into the ‘Class of 2014’ is Prudential’s seventh annual study tracking the future plans and aspirations of people who plan to become new retirees this year. More than half (54 per cent) will consider working past the State Pension Age in an attempt to make their retirement more financially comfortable.

Around a quarter (23 per cent) would consider working full-time while 31 per cent would weigh up the idea of working on part-time. Ideally they would prefer to continue in their current job with reduced hours, with 32 per cent of those considering working past the State Pension Age suggesting that option is the one that would suit them best. However, this year’s results highlight positive attitudes to retirement despite ongoing financial pressures. The main motivation for 57 per cent of this year’s retirees who would consider continuing to work past the traditional retirement age is to keep mentally and physically fit. More than a third (35 per cent) also cite the ability to boost retirement savings as a consideration, while 40 per cent simply enjoy working and 39 per cent don’t feel ready to retire just yet. The study also found that the ‘Class of 2014’ are expecting a busy and enjoyable retirement – 53 per cent of those planning to retire this year intend to do more exercise, 37 per cent will be socialising more, while 36 per cent plan to take up voluntary or charity work. Around 29 per cent say they have no worries or concerns and are really looking forward to their retirement. Stan Russell, a retirement income expert at Prudential, said: “For many people retirement is now a gradual process rather than a watershed where you simply stop working one day and become retired the next, and that is reflected in the change in attitudes shown by our research. “However, there is no one size fits all solution to retirement and many people will be looking forward to leaving work as soon as they can. What is important is that people plan ahead for retirement and do as much as possible to ensure a comfortable retirement by consulting a financial adviser or retirement specialist well ahead of their planned retirement date. “Working past traditional retirement ages is not solely driven by financial pressures and the research shows growing numbers of people wanting to carry on working because they enjoy it and because it keeps them stimulated mentally and physically. Increased life expectancy and improvements in general health are changing how we think about retirement.”

| Wealth & Finance | February 2014

Bonds Making a Bull Run | Markets Matters

Bonds Making a Bull Run Bond markets have enjoyed a bull run over the past 30 years, largely supported by both falling interest rates and inflation and, since 2008, loose monetary policy. Things began to change last summer as prices fell and yields started rising, and we expect this environment to continue in the coming year. Indeed, 2013 gave us only the third negative annual return for global bonds since 1987. The other two were 1994 and 1999. What does the year ahead look like for bonds? Neither the US Federal Reserve nor the Bank of England is likely to raise interest rates from their all-time lows this year. That will be a discussion for 2015. What we do believe, however, is that the yield curve in isolation will continue to adjust towards a level that is more normal in historical terms. The direct result of this will be higher bond yields and we see 10-year funding costs for the UK and US rising to the 3.5-3.75% level this year. If they move any higher than this, it is likely that central banks will feel the need to intervene and keep yields at bay for fear of choking off the economic recovery. We also expect the pace and volatility of rising bond yields this year to be less aggressive than we saw in 2013. A significant part of the excess overvaluation of government bonds was largely unwound last year when yields for US 10year Treasuries moved to 3.0% from 1.6% as the market adjusted for a less active Federal Reserve. More importantly, we do not see yields falling back to the lows that we saw in the past few years because we do not subscribe to the notion of a global deflationary environment. Inflation is often called the genie and deflation the ogre, but we do not believe that either will resurface this year. While there is talk of possible deflation in Europe, this is not the case on a global level. Using the US as an example, consumer spending is on the increase again after years of deleveraging, unemployment is falling and wages are rising, albeit modestly. The bond yield rise that we anticipate goes hand in hand with an improving global growth background. Some would argue that yields have moved up to levels that make a strong investment case for bonds, but we do not believe that they have reached that point yet. However, they look more attractive than 12 months ago and we would consider buying at yields below what is historically considered to suggest fair value, given the benign inflation environment.

Wealth & Finance | February 2014 |

Banking Zone | Forex

Exchanges in UAE Increase Remittance Fees In order to cope with rising operational costs money exchange houses in the UAE have increased their service fees for high-value remittances to some Asian countries.

arly reports suggest fees for transactions below Rs50,000 remain unchanged at between Dh15 and Dh25, depending on the service provider and remittance destination, however since January high value transactions above Rs50,000 will cost more. The Dh5 increase applies to anyone remitting more than Rs50,000 to India, 50,000 taka to Bangladesh, Rs50,000 to Sri Lanka and Rs50,000 to Nepal at Al Fardan Exchange, UAE Exchange, Al Ansari, Lulu Exchange and Wall Street, among other money transfer operators. The hike is not applicable to those remitting funds to Pakistan. Currently the UAE is considered one of the cheapest locations to send money by the World Bank. The UAE and other Gulf Cooperation Council (GCC) countries have estimated more than 15m expatriate workers remitting more than Dh294bn ($80bn) to their families back home every year, which sees money exchanges booming as a result. For instance, UAE and Gulf-based non-resident Indians are the largest contributor of foreign remittances to India and the World Bank’s latest migration development report confirms India is the world’s largest recipient of foreign remittances. The majority of remittances from the UAE are being sent to Asian countries, which are also considered the top recipients of funds from migrant workers worldwide; in the last year they sent a total of $71bn to India, $26bn to the Philippines and $60bn to China. India is closely followed by Bangladesh, Sri Lanka and Nepal, again due to the large number of expats from these countries based in the UAE. According to industry sources, money exchange houses under the Foreign Exchange and Remittance Group (FERG) unanimously agreed to increase rates however, Osama Al Rahma, CEO at Al Fardan Exchange and chairman of FERG said the increase was an individual decision among remittance companies, and not a unified move. There was also no prior approval from the UAE Central Bank. Mr Al Rahma said: “We decided this on our own. It is up to every single exchange house to either go with the increase or keep their fees unchanged, but a lot of them are expected to follow suit, considering the inflation we’ve been experiencing.” This is the first price adjustment implemented in about seven to eight years, by money transfer operators and they have maintained that the increase is very minimal, and does not affect the majority of their customers. An exchange house manager stated that approximately 85% of the money transfers that they facilitate are under Rs50,000 in different Asian currencies.

| Wealth & Finance | February 2014

The new fees are expected to impact the middle to high income expats with financial capacity to wire home more than Rs50,000 in currencies of the four countries, while blue collar workers are likely to remain unaffected. Sachin Kumar, a graphic designer, who has been in the UAE for 12 years and is a regular remitter to his home village in Kerala, India said it is an unnecessary expense: “I am not saying Dh5 is a huge amount, but why are money exchange companies increasing the burden on expats?” Sri Lankan maid Shyama Karunappa is in agreement with Mr Kumar and said she does not want to pay Dh20: “I sent money once in three months and I do manage to wire Rs50,000. It is hard-earned cash, and every penny counts.” Sudhir Kumar Shetty, chief operating officer, global operations at UAE Exchange said: “The transaction fee was not hiked and has been steady for so many years, in spite of the ever increasing operational costs. Now the costs have touched their pinnacle, hence fee revival became inevitable.” Mr Al Rahma pointed out that money exchange houses in the UAE have been saddled with high operational costs and heavy regulatory business burdens: “Rents for our various outlets, for example have gone up by 30-50% in a year. Besides that, we have to increase our investment in technology to comply with the Central Bank’s regulation against anti-money laundering. Then there’s Emiratisation, which requires us to hire more locals and this means added expense on compensation.” Money exchange companies also argued that while they are being regulated by the Central Bank, they don’t need to seek prior approval to adjust their rates. “The industry has behaved well for some time and besides, the hike we are talking about is very nominal,” Mr Shetty said implying that with such a minimal increase there is no reason for the regulator to intervene. Recently remittance service providers have turned down a proposal by the Central Bank to reduce the charges on domestic money transfers. A money exchange official said the fee hike will mainly impact the corporates and not the labourers because majority of them remit money below Rs50,000. Since of the major exchange houses have decided to hike their fees the greatest impact will be on corporate clients, especially those who have multiple large transactions.

Forex | Banking Zone

Foreign Exchange Faces FSB Investigation The world’s top financial regulator, The Financial Stability Board (FSB) are to open an investigation into allegations of price manipulation into the world’s largest financial market. Foreign exchange benchmarks will be reviewed by the FSB in a global investigation into allegations of price manipulation. The FSB, which co-ordinates regulation for the G20 leading economies said it would open its own investigation into the manipulation allegations. Chaired by Bank of England governor Mark Carney the FSB has taken this latest step to investigate allegations that a handful of senior traders colluded and exchanged market-sensitive information in an attempt to manipulate benchmark currency rates. Among those leading the investigations into potential wrongdoing in the $5.3tn/day (£3.2tn) market are the US Department of Justice and Britain’s Financial Conduct Authority (FCA). The US Federal Reserve is also involved, according to several sources, although the extent of this involvement as yet remains unclear. In a recent statement the regulatory task force for the G20 said: “Recently, a number of concerns have been raised about the integrity of foreign exchange rate benchmarks. The FSB has consequently decided to incorporate an assessment of foreign exchange benchmarks into its ongoing programme of financial benchmark analysis.” The scale of the probe and severity of the allegations were outlined by FCA chief executive Martin Wheatley, who told British lawmakers that the investigation would last into next year.

“Recently, a number of concerns have been raised about the integrity of foreign exchange rate benchmarks. The FSB has consequently decided to incorporate an assessment of foreign exchange benchmarks into its ongoing programme of financial benchmark analysis.”

He also said that the allegations were ‘every bit as bad’ as Libor; when trader’s manipulated the London interbank offered rates (Libor), benchmark global interest rates, resulting in banks shelling out $6bn in fines and settlements. With the scandal continuing to unfold more than 20 traders have already been put on leave, being either suspended or fired, but so far no charges of any kind have been brought against anyone. It is alleged that groups of senior traders shared market-sensitive information relevant for the popular WM/Reuters ‘fix’, or London fix, which is set at 4pm London time, using actual trades. London is the hub of the global market and accounts for approximately 40% of the $5.3tn traded on an average day. Most of the major banks in the industry, such as Citigroup, JP Morgan Chase and Deutsche Bank are co-operating with regulators, handing over emails and electronic chat room communications between traders. The FSB board has set up a group to study how best to move from a quote to a market transaction-based system for compiling interest rate benchmarks like Libor, which will be chaired by Guy Debelle, assistant governor at the Reserve Bank of Australia, and Paul Fisher, executive director for markets at Bank of England. The FSB will present its conclusions and recommendations to the G20 leaders’ summit in Brisbane in November.

Wealth & Finance | February 2014 |

Finance Focus | Downbeat End to 2013, But Dividend Growth is Set to Improve

Downbeat End to 2013, But Dividend Growth is Set to Improve • • • • • • • •

Headline dividends dip 1% in 2013 to £79.8bn, first decline since 2010 Underlying dividends rise 6.8%, but growth slows through the year Special dividends fall by two thirds to £2.4bn, accounting for the headline decline FTSE 250 dividend growth is much slower than FTSE 100 on underlying basis Prospective yield for equities in 2014 is 4.2% Equity yields still come out top, but the gap with bonds is narrowing Forecast for 2014 reduced by £800m as dividend growth slows more than expected 2014 dividends will hit £101.1bn, up 26.6% due to Vodafone’s enormous £16.6bn special payout

UK companies paid their shareholders a headline £79.8bn in 2013, 1.0% lower than in 2012 (£80.6bn), according to the latest UK Dividend Monitor from Capita Asset Services, which provides expert shareholder and corporate administration services. This is the first decline in annual dividends since 2010. Although marginally ahead of Capita Asset Services’ £79.7bn forecast, underlying growth was actually poorer than expected. Underlying dividends were £77.4bn, up 6.8% on 2012 on a like for like basis. Furthermore, dividend growth slowed markedly as the year progressed, with a disappointing Q3, and with Q4 up just 4.4% year on year. In cash terms Q4 still delivered a record for the fourth quarter, at £15.0bn, however. On an underlying like for like basis, FTSE 100 dividends rose 7.0%, compared to 2.9% from the FTSE 250 for the full year. The decline in headline payouts is due to a sharp drop in special dividends in 2013, which fell by almost two thirds to £2.4bn (2012: £7.0bn) as big payments from Cairn Energy and Vodafone were not repeated. For the coming year, Capita Asset Services’ forecast is £101.1bn, smashing the previous record set in 2012. This is due to the unprecedented £16.6bn dividend from Vodafone, which will be the largest single payment in UK corporate history. Capita now expects underlying dividends to rise 6.3% in 2014 to £82.2bn, trimming almost £800m from its preliminary estimate for the coming year. Nevertheless, this still entails an acceleration in the run rate of dividend growth from the lacklustre 5.6% of the second half of 2013. Equities yield 4.2% for the coming year (excluding Vodafone’s special), still significantly ahead of gilts which now offer 3.0% for 10 years. But the gap has narrowed

| Wealth & Finance | February 2014

sharply as share prices have run ahead and bond prices have begun a long awaited correction. At industry level, (barring the tiny tech sector) 2013 growth was fastest among industrials (up 15%), with general industrials and engineering firms increasing payouts the most. The bigger consumer goods industry also did well, raising dividends 9%, with strong contributions from food and drink manufacturers. Companies supplying the booming UK car industry boosted payouts 20%. Basic industries firms, which include metal and mining companies have seen a dramatic slowdown in growth, from 70% in 2011 to 16% in 2012 and 4% in 2013. Justin Cooper, CEO of Shareholder Solutions, Capita Asset Services, said: “UK dividends ended 2013 with a whimper. Sustaining the stellar dividend growth of 2011 and 2012 was always going to be difficult, but in the event 2013 has been a harder year for income investors than expected. Growth is still there, but it has been slowing sharply. However, the coming recovery in corporate earnings offers a much brighter outlook and will herald a renewed acceleration in dividend payments. Dividends lag the earnings cycle for obvious reasons – companies have to make the profits before they can pay them – so we are only penciling in fairly modest growth for the year to come, but 2014 will be buoyed by Vodafone’s huge payout. This will make 2014 a record year. Equity yields are still very attractive, even stripping out the Vodafone effect, and will provide crucial support for share prices despite the relatively high valuations at present. 2014 is also likely to see a very busy IPO market as the supply of new companies, pent up through the years of economic gloom, is finally unleashed onto the market. With investors earning £101bn dividends this year, money is there to buy the new firms seeking to list.”

Downbeat End to 2013, But Dividend Growth is Set to Improve |

Finance Focus

annual dividends

special dividends

Wealth & Finance | February 2014 |

Finance Focus | Downbeat End to 2013, But Dividend Growth is Set to Improve

| Wealth & Finance | February 2014

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Wealth & Finance | February 2014 |

Finance Focus | Deal of the Month

Management Buy-Out of Ogier Fiduciary Services The Ogier Group announced that the partners of Ogier Fiduciary Services have agreed terms to complete a management buy-out of the Ogier Fiduciary Services business from the Ogier Group. The deal closed on 1 February 2014 with final completion being subject to the usual regulatory approvals. The management buy-out of Ogier Fiduciary Services is being backed by Electra Partners, an independent private equity fund manager with over 25 years’ experience of supporting businesses, including those in the financial services industry. On behalf of its major client, Electra Partners has agreed to invest £83 million of equity in the £180 million transaction. Completion is subject to certain conditions including regulatory approvals. The deal will result in significant additional funding to ensure that Ogier Fiduciary Services is able to realise its ambitious growth plans, taking advantage of market opportunities as they arise. The investment will also ensure Ogier Fiduciary Services continues to provide the very highest levels of client service supported by additional investment in key systems and infrastructure. Commenting on the news Nick Kershaw, CEO Ogier Group said “Ogier Fiduciary Services is now at the stage where an MBO makes perfect sense given the additional investment needed to achieve its significant growth plans. This transaction is one of the largest and most significant within the offshore world and I believe that Electra will be an excellent partner for Ogier Fiduciary Services; together they will continue to deliver impressive growth.” Paul Willing, CEO Ogier Fiduciary Services said “The Ogier Group has provided us with a solid foundation and enabled us to grow the business to the size, reach and scale that it enjoys today. However, we believe that the time is right to accelerate our growth through the additional investment and support that Electra will provide.” Alex Fortescue, Chief Investment Partner of Electra Partners said “Ogier Fiduciary Services is a really strong business with both a domestic and an international growth story driven by some of our core investment themes – in this case the increasing regulation and internationalisation of the corporate and investment management markets which Ogier Fiduciary Services serves. We are excited about the opportunities ahead for the company and look forward to working with Paul and his team to deliver further growth.” Ogier Fiduciary Services will continue to be led by Paul Willing as Chief Executive Officer, supported by the current Executive team. There will also be no change to clients’ existing relationship management teams. Currently employing 450 people across 10 jurisdictions, Ogier Fiduciary Services is expected to grow strongly over the next 5 years, building on its track record of 13 years of consecutive growth - even during the recent challenging economic conditions. This is in part due to the very broad range of services provided through Ogier Capital Services, Ogier Corporate Services, Ogier Fund Services and Ogier Private Wealth. Ogier Legal, led by Nick Kershaw as Chief Executive Officer and supported by the Legal Executive Board, will continue as a leading, international partner-led law firm that is recognised by clients as providing outstanding technical advice, coupled with commercial understanding and a first class commitment to client service. Nick Kershaw added “With 350 employees in 8 jurisdictions Ogier Legal is extremely well placed to provide multi-jurisdictional legal advice across all time zones. Along with a substantive presence in BVI, Cayman, Guernsey and Jersey we have a strong footprint in Asia with our offices in Hong Kong, Shanghai and Tokyo and our Luxembourg office is going from strength to strength.” Although the Ogier Group will be splitting into two independent businesses it is anticipated that Ogier Fiduciary Services and Ogier Legal will continue to benefit from a close relationship. They will also continue to share premises and facilities, and Ogier Fiduciary Services will continue to use the Ogier brand for a period to help ensure a smooth transition. Throughout the transition process, management’s focus is to ensure the MBO is completed with no disruption to clients and day to day business. It is very much “business as usual” with the focus being on continuing to provide outstanding client service.

| Wealth & Finance | February 2014

CEO Watch | Finance Focus

CEO Watch This month Wealth & Finance speaks to Sebastian Giordano, Interim CEO of WPCS about their recent acquisition of BTX Trader, LLC. Mr. Giordano contributes expertise in areas of restructuring, operations, finance, strategic planning and business development. He has over 25 years of experience as a board member and senior executive. Mr. Giordano has held senior positions with ITT Continental Baking Company, AMF Incorporated, Dynamics Corporation of America and IPCO Corporation. He has extensive experience in analysing business units engaged in manufacturing, distribution and retail sectors across multiple industries including food service, healthcare, consumer and industrial products. He received his undergraduate degree and MBA from Iona College. BTX Trader, which was recently acquired by WPCS, is the first trading platform to enable Bitcoin traders and industry researchers to access market data and execute orders on the five most popular Bitcoin exchanges in a single application. On the 26th December 2013 it was announced that BTX Trader, LLC released a beta version of its Windows-based trading platform that is now available to the public at www.btxtrader.com. According to Sebastian Giordano, Interim CEO of WPCS, “Now that we have completed this pioneering acquisition in the emerging Bitcoin industry, we intend to hit the ground running. The public release of the beta version of the BTX Trader platform will give the market a preliminary glimpse of some of the features and capabilities that will ultimately help define our unique and proprietary technology.”

Current beta features include •Order Entry Standard limit orders and stop limit orders on five exchanges -CampBX, BTC-E, BitStamp, BTC China and Mt. Gox; •Trade Life Cycle Management Blotter window to monitor positions and orders, including the ability to cancel orders; •Market Data Real-time information for six exchanges: CampBX, BTC-E, BitStamp, BTC China, Mt. Gox & CaVirtex displaying time and sales trades; quotes with latest prices bid/ask/last prices; tick charts showing bid/ask/last over the past four hours; and, bar charts for longer term price trend analysis. Giordano concluded that, “In addition to continuing the aggressive steps initiated in August 2013 to improve WPCS’ balance sheet and performance through, amongst other things, cost reductions, debt restructuring, cessation and sale of negative cash flow businesses, and focusing on our remaining profitable engineering subsidiaries, we fully expect that BTX Trader will begin generating revenue by mid-year of calendar 2014. This public beta release is merely the first step towards establishing and then growing the Bitcoin segment of our business.”

WPCS encourages Bitcoin traders and others to download, install and try out the beta version of the BTX Trader application and take a look at our blog for the latest updates. Still in development mode, but the firm is on schedule to release both web and mobile versions of the platform by early 2014.

Wealth & Finance | February 2014 |

Regulation Review | SunGard

New Survey Suggests Regulatory Change is Slowing Growth Among Financial Services Firms Key findings of the survey include New research from SunGard* has highlighted how regulatory change is second only to market volatility as an executive issue for financial services firms. With many new regulations taking effect during the course of 2014, in some cases it is even considered the number one strategic risk. Senior executives are now concerned that regulatory change is distracting attention from core business activities and potentially hindering companies’ ability to grow. Adapting to new regulations is also causing financial services firms to rethink their approach to compliance and restructure their organizations accordingly. Many, however, still do not feel ready for the changes taking effect this year. Jeffrey Wallis, managing partner and president of SunGard Consulting Services, said,“The definition of what regulators are becoming concerned about is broadening to include areas such as operational risk, adding extra strain to the financial services industry. Our survey demonstrates that executives at the highest levels are struggling to marry ensuring regulatory readiness with maintaining a focus on day-to-day operations. In our work with firms on regulatory compliance, we see the most success when a business takes a combined approach to the twin challenges of growth and compliance.” Sang Lee, managing partner, Aite Group, said, “Regulatory reform is putting the financial services industry under intense pressure, and the situation will not change in the near future. This pressure is being felt all the way up to the C-suite and the board. Regulatory uncertainty has forced some companies to put off key investments in new industries and geographies at a time when they are increasing their investment in compliance across departments. Regulations may be putting a strain on the industry, but we are starting to see some companies use them as an opportunity to reorganize themselves along more efficient lines. These businesses will be the future leaders in the industry.”

| Wealth & Finance | February 2014

Regulation is high on the executive agenda •The pressure of dealing with change has expanded beyond compliance departments into the C-suite. One in two respondents warns that dealing with regulatory change has impacted shareholder returns and the ability to invest for the future. •Almost half of respondents describe themselves as “highly stressed” by the current pressure of regulatory change, with little prospect of imminent improvement. •The broad nature of regulatory change is driving a more cross-functional response within businesses. Best-in-class institutions are breaking through siloes, allowing for a more efficient response to the issue.

Despite ongoing efforts, readiness levels remain relatively low •Only one in two companies say they are highly ready for the regulatory changes that they must confront throughout 2014 and 2015. •Financial services firms plan to continue investing heavily in technology, people and processes over the next two years to cope with regulatory change.

Firms are starting to move beyond checking the box •While recognizing the benefits of a culture change to compliance, forty percent of respondents are finding it challenging to move beyond a checking the box approach. •Despite concerns that the degree of regulatory change is overblown, most firms responded in the survey that they accept the need for change and are moving along with their responses to new regulations.

UHY Property Tax | Tax Matters

UHY Hacker Young issue warning not to miss out on maximising your tax relief on property purchases Following the introduction of legislation in 2012, and with effect from the 1st of April this year, commercial property acquisitions will require an additional level of tax due diligence to ensure buyers secure their capital allowances tax relief for future years. Whereas previously somebody buying a property could make a claim for unclaimed capital allowances many years after acquisition, HMRC are changing the rules meaning that key important steps must now be taken prior to sale.

The new rules require that where it is established that a seller was entitled to claim capital allowances but has not done so, the seller must ‘pool’ the value of the qualifying fixtures in a building in its tax return before the sale of the relevant property. Once ‘pooled’, the seller and buyer must agree on a value for the fixtures within two years of sale, and make a mandatory s198 election to this effect. This value should be agreed at the time of sale as part of the negotiations on the property. In addition, the purchaser’s solicitors will need to ensure they receive a properly completed section 19 of the standard form of commercial property standard enquiries (known as a CPSE form) to determine the capital allowances history for the property being sold. This is something that has been ignored or incorrectly completed in the majority of cases in the past. Matthew Hodgson, Tax Partner in the Manchester office of international accountants UHY Hacker Young, said overlooking the s 198 election agreement as part of the sale process could have far-reaching consequences for all subsequent owners of that property.

“If these important new requirements are not met, no capital allowances will ever be available to the buyer, or any future owner, of the property.” The mandatory pooling and obligatory s 198 election will therefore have a huge impact on all parties involved in commercial property transactions, and if the claim is not made correctly or ignored, there could be considerable adverse financial consequences. Purchasers would therefore be advised to ensure that the sale and purchase agreement contains either a warranty that the seller has pooled its capital expenditure on fixtures in the property or an undertaking that it will do so prior to completion of the transfer of the property.”

Wealth & Finance | February 2014 |

Spend | The Art to Investing in Art

The Art to Investing in Art James Butterwick, art adviser to Oracle Capital Group Art is the ultimate symbol, the ultimate luxury item. Put aside the yacht, the garage, the fleet of Bentleys and vacate the Hyde Park 1 address. Art is where it’s at. But is it a wise investment? As a dealer in fine art of 28 years, I tend to act with restraint, even scepticism at the words, ‘investment in art’. I am not even sure I believe in the concept. This is a more rarefied and, dare I say it, subtle world where vast fortunes can be made, and indeed lost. This being the case, the following advice is crucial to the success of any purchase in art: •Seek advice from auction houses and dealers •Miracles don’t happen •A little knowledge is a dangerous thing •Never buy a name, always buy a picture. If you can combine the two, you have achieved your goal •A painting is worth what someone will pay for it •Selling a piece of art takes time. With the help of a dealer, timing your sale to the exact moment when the art is in high value can save you time and substantial costs.

cance when you consider that they all took place between October 2008 and June 2009, the eight months that followed the world financial crash. Whilst it can’t be said that a profit was made on every painting sold, it is the second group of figures, the profits posted on paintings purchased between 2005-2006, that are the most striking. Myself and the collector in question bought on the crest of a boom in the art world and yet we sold successfully during a financial trough when many others were less fortunate. There was no science involved, no calculated nor specially-directed investment on the side of the buyer. We simply stuck with the tried and tested method of buying not names, but pictures. The exact meaning of this is simple and refers us in part to a quote from Forbes.com that, “art market indices mostly track high-performing works, and ignore the duds - skewing both risk and return figures”. In very simple terms, many artists of world renown painted many thousands of paintings of which only a fraction are worth buying. To a dealer or other expert, it is no great science to spot the better pictures from the so-called ‘duds’.

A crisis-free investment? Let’s say you had invested $250,000 with me between 1994 and 1996 in one particular area of the market, Russian Art from 18901930. By 2008, you would have seen a return of $5,000,000, or 20 times your original investment. If you had invested $3,000,000 around ten years later (2005-6), you would have seen a return of $8,500,000 by 2008, giving a nice return of 250% over three years. Sound spectacular? Apparently, over the first period you would have seen greater reward with shares in Gazprom, and over the second you might have seen a greater return in gold, real estate or zinc. These art sales and the profits thereof take on a far greater signifi-

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If sold today, the return on the paintings in question would look considerably more, with the stock purchased between 2005 and 2006 likely to fetch $15-17,000,000. While this offers evidence to the claim that people ‘move into collectibles’ when times are rough, it also shows that great art, great paintings, will always find a buyer and that art may even somehow be a “financial-crisis-free” investment. The great science, however, is how to buy these commercial items. This is where the secret to being a clever buyer lies.

The Art to Investing in Art | Spend

The role of the dealer If you are offered a painting by Malevich for $5,000,000 which, according to the sellers, is worth $40,000,000 on the open market, you are not being offered a real Malevich but an offer to go and physically burn $5m worth of $100 notes in a public square. These paintings are almost always accompanied by certificates of authenticity from ‘noted academics’ who are almost all either incompetent or simply corrupt. My maxim when offering advice on these ‘miracle’ paintings is simple. Would either of the two leading auction houses, Sotheby’s and Christies, or any credible dealer, offer them for re-sale? If the answer is no then the painting should be avoided. Sadly, the world of Russian Art has been cursed with such paintings but blame lies firmly with the academics. They simply have no experience of the art market - how could they from their ivory towers? - and are not financially liable for their opinions. The dealer is the filtering mechanism; experienced at buying and selling they understand where the potential pitfalls are. A dealer will also help a client with the promotion of his paintings, for example, organising for items to be reproduced in books or shown at museum exhibitions. Whilst some clients prefer anonymity, I try to persuade them of the value of showing an item in public. By increasing a painting’s exposure, you increase its value because, by virtue of it appearing in a museum, the Art establishment has given it an official seal of approval.

A competent dealer will also help research a painting, frequently finding information that will increase its value. For example, a work from my collection was found to have been owned by the great tenor Fyodor Chaliapin and illustrated in a book from 1918. Whilst a clever market analyst might be able to put an exact percentage figure on how much this increased the value of the work, I am more sanguine. A painting is worth just exactly what a buyer is prepared to pay for it - the aforementioned work was finally sold for much more than I could possibly have hoped. Blue chip purchases Dealers have a phrase, ‘to talk a picture off the wall’. Indeed, I have been involved in several deals where Party 1 has a painting that they have no intention of selling but Party 2 is so keen to obtain the work that they will make an offer far above the ‘market price’ which, in itself, is something difficult to quantify. I enjoy such deals because the painting in question is usually a masterpiece and both parties are getting blue-chip returns - either a museum quality painting or an inflated price. To overpay is fine, to underpay is potentially fatal. There simply are no bargains around. I can quote tens of examples. Twelve years ago, a client tried to haggle on a purchase, insisting on a 10% discount which, taking into account his overall wealth, was unnecessary. I explained that he was making a major mistake and he eventually withdrew his terms. The painting is now worth 15 times what he paid for it.

Wealth & Finance | February 2014 |

Spend | The Art to Investing in Art

Buy the art, not the investment The art market is, essentially, like any other: supply and demand are the motors. However, in the case of the blue chip ‘investments’ that I advise on, supply is running out and demand is strengthening. To successfully invest in art one needs to be detached, less rational and less in control, leaving many of the decisions to those better qualified than yourself. Listed below, however, are the key things to remember:

• Find a trusted dealer • Be patient • Don’t expect miracles, no one lets great works sell at a discount • Don’t buy names, buy pictures • Go blue chip • A painting is worth what someone will pay for it • Don’t haggle • High prices for the greatest works are always justified • Enjoy it In my opinion, the last word should come from Larry Gagosian, one the greatest dealers in the world today: “An art investment can also be a bad investment.” Therefore, buy the art, not the investment. If you have the great art that others covet, you’ll make money.

| Wealth & Finance | February 2014

The Art to Investing in Art | Spend

Wealth & Finance | February 2014 |

Relax | Hotel Royal at Evian Resort

Hotel Royal at Evian Resort The stunning Hotel Royal at the luxurious Evian Resort will open early July 2014 following a major refurbishment. Known for its stunning Belle Epoque style and decadent interiors the major refurbishment will see a makeover that will provide both the very best of modern-day comfort combined with the traditional spirit of this legendary place visited by famous personalities. The extensive project has been entrusted to interior designer François Champsaur and head architect of historic monuments François Châtillon. Many specialised craftspeople will also be called upon to ensure that history and heritage are respected. Spacious new rooms and expansive suites will be created. Many of which will have magnificent views overlooking Lake Geneva. An outstanding

| Wealth & Finance | February 2014

Presidential Suite will also be constructed as part of the refurbishment. Public areas as well as all rooms and suites will be carefully renovated using decadent fabrics, silks, linens and materials ensuring the soul and identity of this palace dating back to the early 20th century will remains intact via the restoration of its frescoes and collection of period furniture. Luxury and tradition make a perfect match with the final touches added to a new style of living, in order to meet the demands of the guests staying at this opulent 5-star hotel. Rooms will start at €610 for a double on a bed and breakfast basis.

Hotel Royal at Evian Resort | Relax

Wealth & Finance | February 2014 |