Wealth & Finance January 2014

January 2014

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Classic passions Coutts Index reveals a 257% return on classic motors

Plus...

Relax: The Dorado Beach experience.

A taste of enchantment

Know your onions Unusual commodities in the spotlight

The great EU fire sale

From iconic buildings to military hardware: sale signs go up

January 2014 | Contents

2 News & Appointments

Editor’s comment

Funds 6 Luck of the Irish

Welcome to January’s edition of Wealth & Finance. Despite only being a few weeks into 2014, we are already seeing a slew of reports and statistics showing performance in a range of sectors.

The super-rich are investing in the Irish property market once again.

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Money market mayhem The EU has money markets in its regulatory sights as part of a crackdown on so-called shadow banking but new regulations may be a death sentence for the sector, according to Cerulli Associates.

Our favourite is the brand new report from Coutts, which discusses how investments of passion have performed over a five-year period. The answer, for some, is remarkably well. But what really intrigues about these investments is that they combine investment with pure emotion.

Wealth Corner 10 Passion Pays Sometimes investing in what you love pays off – especially if it’s classic cars, watches or Chinese art.

12 The great EU fire sale With the economic crisis forcing governments to find innovative ways to ‘create’ cash, the EU fire sale is well underway as ever-more intriguing state assets are being sold or leased by European governments desperate to whip their public finances back into shape after a decade of living beyond their means.

We also take a look at how some of the more unusual commodities have been performing, changing tax rules and a court case that could threaten the confidentiality of trusts.

Banking Zone 14 Investment in principles With our every action having an impact somewhere, sustainable finance has appeared on the radar of many of the world’s top investment banks.

Everyone at Wealth & Finance would like to wish our readers a happy and prosperous 2014.

16 Bankers’ bonuses – still on trial in the court of public opinion The financial crisis revealed vulnerabilities in the regulation and supervision of the banking system at a European and global level.

Markets Matters 18 Know your onions Crude oil, gold and silver are top the world’s most popular commodities list, resulting in the media regularly reporting on the rise and fall of their values.

20 Invest in real estate without the bricks and mortar 21 Growth capital market: what’s in store for 2014?

Regulation Review 22 The Patent Box is one country’s generous tax incentive another’s ‘unfair competition’?

24 Jersey trust confidentiality – under threat?

Could a decision in the English Family Law Court have a far-reaching impact on the confidentiality of trusts in Jersey?

24 What are governments doing to promote investment?

Finance Focus 26 UK dividends end 2013 with a whimper 27 Top of the FDI spots Whether you’re new to foreign investment or an experienced hand, there are still some questions that are under constant review: where should you be investing your money and in what?

Taxing Times 30 The tax man goes global 32 Check your capital allowances New rules on capital allowances on UK commercial property transactions are set to come into force on 1 April 2014.

33 Nothing ventured, no tax reliefs gained

| Wealth & Finance | January 2014

34: Relax

The Dorado Beach Experience

January 2014 | News & Appointments

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What price goodwill?

Financial advisory and investment banking firm Duff & Phelps Corporation has released its inaugural 2013 European Goodwill Impairment Study, prepared in partnership with Mergermarket.

The study focused on financial data from 20102012 for companies in the STOXX® Europe 600 Index, which includes large, mid and small capitalisation companies across 18 countries in Europe.

However, only around 40% of respondents recognised goodwill impairment in 2012. Those who did cited ‘overall market conditions’ and ‘general industry downturns’ as the most common reasons for the impairments. Cash-generating unit specific factors cited as a less significant issue

Researchers found that in 2012 total goodwill impairment for companies in the STOXX® Europe 600 Index was €65 billion, down 15% from the €77 billion recorded in 2011.

The 2013 Study also includes information obtained from informal discussions with a sample of European investors and analysts. In general, these stakeholders highlighted the importance of transparent goodwill disclosures, with particular emphasis on the sufficiency of impairment methodology and assumptions, as well as related communication to the market.

When looking at industries telecoms recorded the largest goodwill impairment charges in 2012, with aggregate impairment of €23.4 billion. Financial and materials followed with aggregate goodwill impairment of €15.2 billion and €14.2 billion respectively.

Yann Magnan, Duff & Phelps managing director and Valuation Advisory Services leader for Europe, said: “Marked swings in aggregate impairment over the last three years have been heavily influenced by the impact of the global financial crisis and subsequent beginning of a recovery.

These European industry dynamics provide a contrast with findings from Duff & Phelps’ recently released US Goodwill Impairment Study, which found 67% of the goodwill impairment recorded in 2012 was found in IT, industrials and healthcare. Geographically, companies based in the UK recorded the largest goodwill impairments in 2012.

“More than two thirds of survey respondents that test goodwill for impairment on a fair value basis expect their impairment testing to change as a result of the introduction of IFRS 13 this year.

“We look forward to monitoring the impairment landscape under this evolving regulatory regime, and to communicating our findings to the market.”

Appointments Keaveney heads to Capstone Capstone Partners, a leading independent global placement agent, has announced that Michael Keaveney has joined the North American distribution team as a principal.

Michael will be responsible for limited partner and general partner relationships in the Northeastern and Eastern United States.

“We are pleased to add Michael to the Capstone team. His proven success in building strong relationships and raising capital will continue to expand and strengthen our North American coverage,” said Steve Standbridge, partner at Capstone Partners.

“Michael’s experience as both a funds placement professional and a limited partner gives him the ideal background to be successful at Capstone.”

Dual hire for MHA Emine Osman and Nigel Vosper have joined MHA MH Wealth Management this month to answer the growing needs from MHA MacIntyre Hudson’s clients for independent financial advice.

National Firm of the Year MHA MacIntyre Hudson works with MHA MH Wealth Management on behalf of their clients to provide valuable independent financial services to secure their financial future.

Emine has been advising private HNW individuals in the City of London for over 12 years. She develops long term relationships with her clients to understand their financial circumstances, improve their financial position while trying to anticipate constant changes in legislation.

Nigel has been involved in the commercial and personal wealth market for over 20 years. He specialises in providing sound financial advice in the commercial/corporate arena providing much needed protection for the Directors/Shareholders and employee benefit needs of SME businesses.

Alleway joins Questro Questro International, a new transfer pricing advisory firm has announced the opening of their first office in Zurich and the recruitment of Stephen Alleway as their new head of Transfer Pricing in Switzerland.

Questro International was founded in October 2013 by experienced and internationally operating transfer pricing professionals. Stephen joins the firm after 15 years of Big 4 transfer pricing experience at both PricewaterhouseCoppers and Deloitte covering the UK, Australia, and Switzerland.

Stephen has more than 15 years of tax experience in the field of transfer pricing. He has been named as a leading transfer pricing adviser in various publications since 2007.

Stephen was cited in the 2012 publication of World Tax, the International Tax Review’s directory of leading tax advisory firms around the world, as an adviser recommended for his transfer pricing work by contemporaries in the Swiss market. He is a contributor to publications on transfer pricing and speaks widely on the subject in Switzerland and internationally.

Wealth & Finance | January 2014 |

News & Appointments | January 2014

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Hedge funds post positive performance The January 2014 Eurekahedge Report reveals a positive performance from hedge funds as the industry’s total assets increased by almost 13% during the year to breach the US$2 trillion mark.

In fact, 2013 was the best year of performance-based gains for hedge funds since 2010, as they raked in US$100 billion during the year, with long/short equities strategies accounting for almost half the gain.

Net asset allocations to hedge funds stood at US$130 billion in 2013, with long/short equities managers witnessing net inflows of US$82.2 billion during the year.

December saw hedge funds deliver their fourth consecutive month of positive returns as global markets ended the year on a positive note. The Eurekahedge Hedge Fund Index was up 0.98% during the month while the MSCI World Index gained 1.67% in December.

All major hedge fund investment regions witnessed positive returns during the year, with European hedge fund managers up 8.77% in 2013 with net asset inflows for the year standing at US$60.2 billion – the highest level on record.

North American long/short equities hedge funds ended the year with gains of 18.48%, with 20% of these hedge fund managers outperforming the S&P500 Index by an average of 20.52% during the year.

Asian hedge funds outperformed their global peers and were up 15.86% in 2013, with fund managers recording net asset inflows of US$11 billion during the year – the highest level on record since 2007.

Appointments From Oz to Oakley Nick Hamilton, head of institutional business at Colonial First State in Sydney, is to return from Australia to work at Oakley Capital Management in the retail asset management business that Neil Woodford will run when he joins on 1 May 2014.

Before joining Colonial First State, Nick spent nine years as head of global equity products at Invesco Perpetual.

The appointment follows the news that Craig Newman, former Head of Sales at Invesco Perpetual has joined Oakley Capital Management as head of retail asset management.

Ruhan new partner at Genii

Japanese hedge funds remained ahead of other regions, up 26.77% with pure Japan mandated funds recording net inflows of US$700 million since June 2013.

Genii Capital has announced that Andrew Ruhan has joined the company as a partner. This appointment will enable Genii to strengthen and broaden its reach in the real estate, oil and gas, automotive and financial services sectors.

Greater China focused hedge funds were up 19.39% in 2013, outperforming the Hang Seng Index by more than 16%.

Having worked with Andrew on a number of projects in the past, this appointment is part of Genii’s strategy to further enhance its credentials in these core areas.

Among all strategies distressed debt hedge funds delivered the best returns and were up 17.95% in 2013.

In real estate, this will mean access and implementation of major global projects, including in Central Europe, the United Kingdom and major cities in the United States. There are also a number of synergies in the oil and gas sectors, particularly in supply and distribution, initially focusing on distribution in Africa.

McLaughlin partners up with Weil International law firm Weil, Gotshal & Manges has announced that Chris McLaughlin will join its London office as a partner in the Banking & Finance practice.

Chris, who was most recently a partner at Hogan Lovells, has extensive experience acting for banks and borrowers on the financing of cross-border private equity buyouts, European real estate acquisitions, and restructurings.

Barry Wolf, Weil’s Executive Partner, said, “We are delighted that Chris is joining Weil to further enhance the growing European Finance practice. In a short space of time, Stephen Lucas and the London team, working with our teams in Paris, the rest of Europe and the US, have established a leading reputation for sophisticated leveraged finance work.”

| Wealth & Finance | January 2014

January 2014 | News & Appointments

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Investor confidence in shares rises After a strong year for UK shares, the Lloyds Bank Private Banking Investor Sentiment Index survey shows private investor confidence in asset class is at its highest since the survey began in March 2013.

According to the monthly survey, the net sentiment (the difference between positive and negative views) among surveyed investors has risen to +38 at the start of January, with over 47% of respondents holding a positive view just 9% holding a negative view, while 31% held a neutral view.

This is in sharp contrast to March 2013, when the figure was just over +16, with nearly 34 per cent holding a positive view and over 17% negative, while 38% held a neutral view.

In other global markets, private investors looked beyond market concerns towards US equities following the first round of the government’s reduction in quantitative easing. Net sentiment improved towards the US stock market between December and January rising nearly seven points to +7.

Investors surveyed also remain broadly negative towards Eurozone stock markets, with sentiment staying firmly in negative figures at -21.

However, this is a substantial improvement on lows of -59 in April 2013.

Japanese shares also reached their highest net sentiment in the survey’s history, climbing almost five points from the previous month to +13 in January 2014.

Ashish Misra, head of investment policy at Lloyds bank private banking said: “It’s encouraging to see investors placing more faith in the UK stock market, and good news for British companies ahead of the first earnings season of 2014.

There has been a slew of positive economic data out of the UK throughout 2013, suggesting that the recovery is gaining momentum, and it’s likely that investors’ views towards the UK stock market are reflective of this.

“The increase in sentiment towards US equities was perhaps surprising given the QE taper that began just before Christmas, although US equities outperformed every other global equity market except Japan in 2013.”

Lloyds Bank Private Banking currently holds a positive view towards UK equities, with an overweight position in its client portfolios towards the asset class. Its stance towards US equities is neutral but it sees value in the Eurozone and Japan, holding an equity overweight position in both these markets.

Appointments Nagler joins Aurelius Tristan Nagler joined Aurelius Investments, London, on 2 January 2014 as managing director. He will lead Aurelius’ London office and be responsible for sourcing, identifying and executing equity investments across the UK and Ireland.

Aurelius´ focus remains on companies and corporate spinoffs with development potential generating revenues of between 30 - 750 million euros across all industries.

Dr Dirk Markus, CEO of Aurelius AG says: “We’re delighted to welcome Tristan to Aurelius. We have ambitious plans for targeting investment opportunities in the UK market and expect this appointment to be followed by further new hires to our London based team in 2014, augmenting our presence and enhancing our position in London.”

RiverPeak appoints Hay to advisory board Marianne Hay has joined the Advisory Board of RiverPeak Wealth, the newly launched wealth management firm.

Hay, who has headed global wealth and asset management groups including roles as CEO of Europe, Middle East and Africa Wealth Management at Morgan Stanley, Citi and Standard Chartered, will offer advice on the growth and development of the business.

Launched in December, RiverPeak Wealth provides portfolio management, investment analysis and financial planning advice.

Hay said: “The wealth management market in the UK continues to be fragmented with no clear market leader.

RDR has given RiverPeak Wealth an opportunity to develop new ways of providing wealth advice. I am looking forward to helping RiverPeak’s directors meet their ambitious goals over the months ahead.”

Saxo creates new role for Cassina Saxo Bank, the online trading and investment specialist, has appointed Matteo Cassina to the newly created position of global head of institutional business. He will be based at Saxo Bank’s London office in Canary Wharf, and report to the co-CEOs and co-founders of the Bank, Kim Fournais and Lars Seier Christensen.

The appointment is an important step in Saxo Bank’s strategy to continue its rapid growth within the institutional space. For the same reason Saxo is now placing its core institutional activities in London.

In 2011 Financial News nominated Matteo as one of the 10 most influential people in the European Market Structure. Along with his specific expertise in electronic trading he also brings extensive Regulatory and Market Control experience and high level access to the industry.

Wealth & Finance | January 2014 |

Funds | Luck of the Irish

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Luck of the Irish The super-rich are investing in the Irish property market once again | Wealth & Finance | January 2014

Luck of the Irish | Funds

7 Finally the luck of the Irish seems to be back as the economy has turned a corner and the domestic housing market is estimated to have grown by 0.9% in 2013, the first time since the economic crash.

Is this mild recovery in domestic demand a sign of a stronger recovery in 2014 and 2015?

The eurozone sovereign debt crisis still poses a significant risk to the economies of the UK, Republic of Ireland and Northern Ireland. In the Republic of Ireland, where the economic crisis broke out first, the economy has started to show signs of recovery, although high levels of unemployment and lower wages caused by the five-year economic crisis have pushed many mortgage holders to the brink of repossession.

Raising wage demands without improving purchasing power, leading to deteriorating competitiveness and increasing temporary credit – as Ireland did in the run up to 2007 – creates a housing market cycle and eventually large-scale negative equity. As a result any government that wants to stimulate demand for housing in a meaningful sense must also look at jobs.

While exact timings of housing market cycles may forever stump households, policymakers and economists, the underlying economics are straightforward. House prices are the result of three forces: demand and two types of supply, the supply of credit and the supply of dwellings. Demand for accommodation reflects broader economic conditions, in particular the jobs market.

What’s being seen in the recovery of the Irish housing market is demand and the two supplies at work. Couples assessing their future and deciding to stay in Ireland are overwhelmingly opting to be close to urban centres, and Dublin in particular, so demand is strongest in Dublin.

According to property website Daft’s Q4 2013 report, since late 2011 the rate of change in Dublin asking prices has gone from -22% to +11%, with all six regions in the Dublin market showing strong increases in asking prices in year on year terms.

Outside Dublin, the rate of change in asking prices has slowed from the -16% registered in late 2011 but prices are still falling, with an average fall of -6% during 2013.

Such a localised turn-around in housing market conditions, and the huge differences across regions, are by no means unique to Ireland. Currently the US is characterised by prices rapidly rising in some cities but not in others. However, while the economics may be universal, each market has its own unique context.

The current low level of supply is contributing to the strong growth in house prices in the Dublin region. While the number of house completions is expected to rise marginally in 2014, the housing supply constraint is likely to remain a factor in the market over the short term.

With demography continuing to change and the 2011 census confirming that since 2001 the population has increased by 125,600 (7%), the number of households is continuing to rise but the rate of household formation has slowed slightly, at least partly in response to the economic environment. The trend towards more single person households and older households is set to continue, resulting in a sustained demand for accommodation and in particular for smaller units of accommodation and supported housing.

Like all other economies, Ireland depends on its urban centres for creating jobs and wealth but in the past housing was built without any consideration of long-run demand. A range of government policies, from decentralisation to the national spatial strategy, were predicated on the belief that somehow Ireland was different and that an economy of small towns could compete in a world of cities.

Recently, Irish politicians and policymakers have expressed concern about rapidly rising house prices. Although this may signal an end to the mentality of perceiving house price rises as a good thing; as the government prepares to act, it must remember that previous interventions brought costs, not just benefits.

In a market as important as housing regulation is required but it must show an understanding of how housing markets work and with as many as 8,000 new units needed in Dublin each year into the medium term, policymakers also need to think about the bigger picture.

Irish house builder New Generation Homes, headed up by Greg Kavanagh, has spent over €100m buying up a vast land bank around Dublin to build new houses in one of the biggest gambles on property market recovery ever seen. The sums raised from investors are thought to be in the ‘tens of millions’ with the funding relating to specific transactions and development projects.

According to the Irish Independent, New Generation Homes raised money from US private equity firm Starwood, with earlier backing from Pacific Investments; the buyout firm founded by British entrepreneur Sir John Beckwith. Property sources have also indicated that Pat McDonagh, Ireland’s most successful software tycoon, is also involved, however, Kavanagh declined to comment on other investors in the venture.

Kavanagh said: “We have no bank debt. Everything is funded in cash. We just knew it was a sector to plough into as hard as we could. There was no competition in residential house building so we could buy up a lot very quickly and that’s what we did.”

Sealing its first property deal at the start of 2011, just weeks after Ireland was forced to enter the Troika bailout, it’s now estimated that New Generation has signed more than 50 deals to buy sites in the greater Dublin area with plans to build ‘thousands’ of houses.

“We have acquired enough sites to keep us busy for the next couple of years,” New Generation CEO Mark Elliot added.

The company is sitting on major paper profits already on some of its land deals, as prices for sites have risen strongly over the last year with investors flooding back into the market. One site, thought to have been purchased for €13m last year, may now be worth over €30m based on current values of up to €100,000 per unit.

It looks like 28-year-old Arklow man, Kavanagh’s money is safe as Hibernia REIT plc received €365m worth of backing from the legendary billionaire investor George Soros when it floated in December 2013.

Soros is one of the biggest backers of the recently incorporated Irish property investment company, whose principal activity is to acquire and hold investments in Irish property (primarily commercial property) with a view to maximising its shareholder returns.

Wealth & Finance | January 2014 |

Funds | Money market mayhem

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Money market mayhem The EU has money markets in its regulatory sights as part of a crackdown on so-called shadow banking but new regulations may be a death sentence for the sector, according to Cerulli Associates.

| Wealth & Finance | January 2014

Money market mayhem | Funds

9 Money market funds (MMFs) might not have caused the financial crisis but the EU Commission has now turned its attention to them – and Barbara Wall, a Cerulli director, says that while some of the proposals are reasonable, others are potentially destructive.

lower or negative in Europe, some investors are already losing money on their MMF holdings.

Take another 0.3% off that and many will seek alternative havens. Gates or additional fees may be a better way to stop overwhelming redemption requests.

The Commission maintains that MMFs are systemically important, as do the International Organisation of Securities Commissions and the Financial Stability Board. That in itself is true: European MMFs have some €1.0 trillion (US$1.3 trillion) under management, hold huge amounts of short-term bank debt, and hoover up a fair share of sovereign short-dated paper.

Wall says: “Cost and effectiveness arguments seem to cut no ice with eurocrats. The Committee on Economic and Monetary Affairs (ECON) has even tabled amendments that go further.

Among its proposals—not yet adopted—is an outright ban on MMF sales to retail investors.

There is a killer clause as well: all CNAV funds to convert to variable NAV funds by 2019. Death by regulation at its starkest, we believe.”

Without them, issuers would have to find other buyers and investors would need other places to park their money. But ‘systemically important’ overrides all other concerns as lawmakers fear a repeat of the Reserve Primary Fund incident when the US$62.5 billion (€46.0 billion) USbased fund infamously ‘broke the buck’ when Lehman Brothers collapsed.

European MMFs were also hit by Lehman.

Some redemptions were suspended or funds quietly topped up from sponsors’ own reserves.

Yet European MMFs required no government guarantees as in the United States to halt a catastrophic run.

Nevertheless, Europe wants more safeguards.

The Commission wants to rein in UCITS (Undertakings for Collective Investment in Transferable Securities) funds, the largest chunk of the industry, and to harmonise rules for funds under the Alternative Investment Fund Managers Directive. They include tighter investment criteria: only higher-rated money market instruments; on-demand or maturities less than 12 months; no short-selling; and issuer and securities exposure limits.

Wall says: “So far, so reasonable – although the Institutional Money Market Funds Association (IMMFA) points out MMFs that invest only in sovereigns already exceed strict standards laid down

by Europe’s market regulator, ESMA. “But there is more bad news in the Commission’s text. It also wants to impose a 3% capital buffer on funds that use a stable net asset value, aka constant net asset value (CNAV).”

The industry points out this would be expensive: average MMF management fees are around 20 to 50 basis points or just 0.08% for IMMFA members. The cost of providing the buffer could add another unpalatable 30 basis points.

Added to the mix is current monetary policy.

With interest rates low and possibly moving

What next?

So, if the proposals come true what will investors do? Plenty in the industry think some investors will flee MMFs. JP Morgan Asset Management recently asked more than 200 treasurers, CIOs, and senior cash decision-makers around the world for their thoughts on MMFs, finding MMF usage highest in Europe and in companies with smaller cash balances.

If VNAV funds become the norm, 71% of all respondents would still continue to use MMFs but may reduce their allocations. Nearly 30% would stop using them entirely and reallocate their assets.

Cerulli’s figures show CNAV funds account for slightly less than 40% of all MMF assets in Europe. ECB numbers point to a similar figure.

The fund industries domiciled in France, Ireland, and Luxembourg would be hardest hit by the measures.

The ECON amendments would hurt, but are unlikely to be a fatal blow. Yet many fund groups are unlikely to want to stay in a business where margins are negligible or negative, particularly if they are on the hook for losses suffered while CNAV funds are still allowed.

Even a lower buffer will drive all but the biggest groups out of the market. The net result will be fewer, but bigger funds—so potentially a bigger individual systemic risk—and less liquidity in the financial system with fewer buyers of government bonds. To put it another way, these are precisely the issues that Europeans should be seeking to avoid.

And of course, there is no certainty that the combined buffer, VNAV, and investment criteria bundle will actually stop a run if calamity were to strike. Even so, it already looks like the MMF industry will lose this particular battle.

“Cost and effectiveness arguments seem to cut no ice with eurocrats. The Committee on Economic and Monetary Affairs (ECON) has even tabled amendments that go further. Among its proposals—not yet adopted—is an outright ban on MMF sales to retail investors. There is a killer clause as well: all CNAV funds to convert to variable NAV funds by 2019.

Death by regulation at its starkest, we believe.”

Wealth & Finance | January 2014 |

Wealth Corner | Passion pays

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Passion pays Sometimes investing in what you love pays off – especially if it’s classic cars, watches or Chinese art

According to the new Coutts Objects of Desire Index, whose first issue was released this month, the value of leading investments of passion has increased by 82% in US dollar terms since 2005. During the same period the value of the MSCI All Country Index rose by 53%.

The Index, developed in conjunction with Fathom Consulting, aims to provide the global benchmark for monitoring the performance of passion assets. It 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.

The top returns for the period between 2005 and 30 June 2013 are: • Classic cars – their 257% rise has outpaced all other investments by more than 80 percentage points over the seven and-a-half-year timeframe • Classic watches have stood the test of time, rising by 176% • Traditional Chinese works of art rose by 163% • Jewels returned 146% • Trophy properties – billionaire residential properties in the ten prime global city locations and the world’s most desirable leisure locations rose by 100%, despite losing value in the run-up to the global recession.

Mohammad Kamal Syed, Head of Strategic Solutions at Coutts, said: “The Coutts Index has been created to measure passion assets, or objects of 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.

“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.”

“Your accountant would have frowned when in 1986 you told him you were paying £73,000 for a new Ferrari 288 GTO. But it would have been a good call – today that same car would be worth close to £1m.”

As yet, the emerging markets of Russia and China haven’t broken into the classic car scene. If they do, the odds are stacked in favour of values continuing to rise.

Classic watches have been making their mark as a form of one-upmanship for more than a century as American industrialists sought to commission and buy the most complicated and intricate in terms of mathematical tolerance – some gearing ratios are calculated to ten decimal places.

Author and journalist Nick Foulkes explains that in some cases the brands are their biggest own collectors as they buy back their own historical pieces to fill gaps in their museums. Vacheron Constantin started buying its own work back for its museum as long ago as 1911, and did so again in 2012 when it bought back a Packard chiming watch for $1.8m.

When it comes to jewellery diamonds have always been a girl’s best friend but natural pearls are the best performers. The reason is rarity – Raymond Sancroft-Baker, Christie’s jewellery expert explains: “The traditional sources around Basra and the Gulf area have been polluted, while fishermen who used to dive for the molluscs have found better paid jobs in other industries.”

The well-documented interest in buying back heritage meant the performance of Chinese works of art did not come as a surprise. Over the past five years, the Chinese art market has been the fastest-growing art market in the world, reaching $14bn in 2012. Patti Wong, Sotheby’s chairman in Asia says: “For Sotheby’s in Asia, the participation of mainland Chinese in auctions accounted for just 4% of the auction turnover in 2004; by 2011, this rose to nearly 50%.

Classic car expert Quentin Willson couldn’t agree more – according to the Coutts’ report he turned down an offer for his 1961 Jaguar E-Type that would have made him a profit of £135,000. “Getting a decent return on capital on many investments hasn’t been easy of late, but the classic car market is on a massive roll,” he says.

“I know my E-Type will carry on appreciating. Selling now would be crazy. 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. Even prices of relatively recent classics have gone stratospheric.

| Wealth & Finance | January 2014

defpicture / Shutterstock.com

Passion pays | Wealth Corner

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“The internet has played a pivotal role in triggering interest. Many entrepreneurs in China are buying art as they do business – using the internet. Asian collecting tastes are widening beyond art: in Hong Kong in 2003, we sold only four collecting categories – Fine Chinese Ceramics and Works of Art, Chinese Paintings, Jewellery and Watches. We now sell nine categories, including Wine, Contemporary Asian Art, 20th Century Chinese Art and Southeast Asian Paintings.”

For many ultra-high-net-worth individuals, acquiring passion assets is less about investing and more about purchasing – purchasing assets driven by their emotions. It is also about rarity – it is easy to commission a new yacht but you can’t buy another Treskilling Yellow, one of the world’s rarest stamps. This gives added kudos for those who own a oneof-its-kind item, be it a Chinese vase, a pink diamond or a stamp.

Wealth & Finance | January 2014 |

Wealth Corner | The great EU fire sale

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The great EU fire sale With the economic crisis forcing governments to find innovative ways to ‘create’ cash, the EU fire sale is well underway as ever-more intriguing state assets are being sold or leased by European governments desperate to whip their public finances back into shape after a decade of living beyond their means. So if you fancy an island, some military hardware or a former diplomatic building, now’s your chance to grab a bargain…

Some assets, like the Parthenon, will always be off-limits but government offices and diplomatic buildings are ripe for rationalisation. With activity picking up, and some markets seeing significant price rises, staying on prime sites is difficult to justify.

More than a dozen foreign missions in London are cashing out and moving to less fancy districts. Canada’s High Commission building on Grosvenor Square was sold last November for £306m to an Indian developer who plans to turn the grand building into luxury flats.

Ireland is considering the sale of billions of euros of assets, from Dublin’s historic port to the famous Irish National Stud horse breeding operation which is worth nearly €1bn. It’s also in the process of selling off stakes in Aer Lingus; Bord Gais, the gas utility, and Coillte, the forestry company. Bord Gais has been valued at €2.5bn and the Department of Transport confirmed that there has been ‘strong interest’ in the government’s €123m share in Aer Lingus.

Spain is looking to raise cash by offloading, among other things, two major airports and a large chunk of El Gordo, its famous lottery. The debt-stricken government is planning to sell off assets in Madrid, where a deal worth up to €3.5bn to sell a minority stake in the city’s water company, Canal Isabel II, is underway and the Madrid Metro could be sold – it’s believed to be worth €2bn.

Greece is probably the continent’s biggest auctioneer, so far only raising a mere €180m of its declared €50bn target.

An early and more successful entrant into the fray, was the Portugese national power grid which is now part-owned by the Chinese, and part by Oman Oil. The deals were worth €592m to Portugal. An even bigger deal, worth €8bn, saw 21% of Energias de Portugal, the national energy company, bought up by China’s Three Gorges Corporation.

| Wealth & Finance | January 2014

Britain is looking to cash in and convert the government’s 49% stake in National Air Traffic Services into ready cash, along with the BBC’s ‘doughnut’ Television Centre, part of which is listed, and the iconic Admiralty Arch. The latter is expected to sell for £75m and be converted into a hotel.

Plans have been drawn up to sell off hundreds of embassies and homes owned by the British Foreign Office in countries around the world, at a total value of around £240m.

The Ministry of Defence is planning spectacular disposals of assets to plug holes in its finances by selling the site of Deepcut Barracks and lots of unwanted military hardware, including helicopters, Land-Rovers and specialist luxury watches.

Some sales have already taken place, for example 72 ‘retired’ Harrier jump jets were recently sold to the US for about £116m, and the decommissioned aircraft carrier HMS Ark Royal was put up for auction last year with a decision on its sale thought to be imminent.

The Dutch defence ministry raised several million euros last year as part of a €1bn austerity drive by selling of a job lot of 18 F-16 Fighting Falcon fighter jets to Chile. A number of naval vessels were also put up for sale.

The Austrian government caused a public outcry in June 2013 when it put two mountains up for sale for a combined price of €121,000. Local opposition to the planned sale of Rosskopf (2,600m) and its neighbour, Grosse Kinigat (2,700m) forced a climb-down – but one minister has said they could go on sale in the future.

And an entire Latvian town was auctioned off to a Russian firm in 2010 for the sum of £1.9m.

Skrunda-1, once a Russian military base, had been left abandoned after the fall of the Soviet Union.

In 2010 the Italian government began a mass sell-off of up to 9,000 buildings, beaches, forts and even islands to help pay off national debt.

Their combined value was estimated at more than £3bn, although it is not clear how much of this has materialised. Dozens of Venetian palazzos were sold to become hotels and more cash was raised by selling the right to advertise on the Colosseum.

France has been selling off government real estate for several years. Historic châteaux, Parisian mansions and even the royal hunting lodge at la Muette, valued at £10m, have gone on sale.

The French also leased out a defence-ministry building on the Place de la Concorde, moving its occupants to less plush offices on the outskirts of Paris.

Leasing may be a good move: providing a steady stream of revenue which can help trim annual deficits, as opposed to the one-off debt-reducing lump sum that comes from a sale. It is also an attractive option for financially troubled countries that would struggle to obtain fair value in a disposal.

This particularly applies given the number of assets that have been put up for sale at the same time, which has had the effect of depressing prices and may explain why there’s such a gap between the headline valuations and the sums actually raised.

Leasing also has the advantage of impermanence – albeit as part of a long-term arrangement – after all, once sold the family silver remains sold and it is unlikely to be returned to the state when better times arrive.

The great EU fire sale | Wealth Corner

13 Off-limits: The Parthenon

‘The doughnut’, BBC’s Television Centre, buy it while its cheap!

Grosse Kinigat, may still be sold

French defence-ministry building, Place de la Concorde, long term let

Wealth & Finance | January 2014 |

Banking Zone | Investment in principles

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Investment in principles With our every action having an impact somewhere, sustainable finance has appeared on the radar of many of the world’s top investment banks. Kathryn Mallory takes a look at the world of green bonds…

A consortium of investment banks has announced their support of The Green Bond Principles (GBPs). The principles were developed with guidance from issuers, investors and environmental groups and serve as voluntary guidelines on recommended process for the development and issuance of green bonds (GBs).

The GBPs are built on first-to-market issuances by multilaterals and provide a platform for other future GB issuers to target funding to green projects. They are complemented by an appendix of established definitions of green project categories that were developed by multilaterals, non-profit and non-government organizations, and other relevant stakeholders.

Bank of America Merrill Lynch, Citi, JPMorgan Chase and Crédit Agricole Corporate and Investment Bank served as a drafting committee for these principles, which later this year will propose a governance process that allows for diverse stakeholder input into the GBPs. Many renewable energy technologies are increasingly efficient and cost effective, but many still need support if their market share is to increase.

The GBPs encourage transparency, disclosure and integrity in the development of the green bond market. They suggest processes for designating, disclosing, managing and reporting on the proceeds of a GB. They are designed to provide issuers with guidance on the key components involved in launching a GB, to aid investors by ensuring the availability of information necessary to evaluate the environmental impact of their GB investments and to assist underwriters by moving the market towards standard disclosures which facilitate transactions.

Why introduce green bonds?

With five of the 13 US headquartered banks, namely Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley being leaders in financing new coal-fired power plants, becoming members of organisations that support of sustainable banking, such as the Global Alliance for Banking on Values (GABV) isn’t an option.

Green bonds are the result. It is anticipated that an independent third party will be designated to serve as a secretariat whose administrative duties will include facilitating information exchange with issuers, investors, underwriters, and other stakeholders such as non-profit environmental organisations, non-government organisations, academics and other thought leaders.

The principles state: “The GBPs recommend concrete process and disclosure for issuers which investors, banks, investment banks, underwriters, placement agents and others may use to understand the characteristics of any given GB,” adding: “The principles have four primary components: use of proceeds; process for project evaluation and selection; management of proceeds; and reporting.”

| Wealth & Finance | January 2014

Among the projects recognised by the principles are renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation and clean water and drinking water.

The GBPs recommend the use of quantitative and/or qualitative performance indicators which measure, where feasible, ‘the impact of the specific investments’. The principles add: “Much progress towards standardisation has been made in the past several years.

“Issuers are recommended to familiarise themselves with impact reporting standards and, where feasible, to report on the positive environmental impact of the investments funded by GB proceeds.”

Do they work?

Given that the two approaches to energy finance are incompatible, the jury is likely to remain out for some time. But, according to Bloomberg New Energy Finance: “GBs sold by development banks, projects and companies reached about $14 billion last year, a record.”

Once the preserve of development banks, interest in green bonds has been growing among new buyers and corporate bond investors. Proceeds are used on projects to cut greenhouse gas emissions, adapt to climate change or expand the use of renewable energy.

The burning of coal ‘is the largest contributor to US greenhouse gas emissions,’ according to the 2013 Coal Report Card. ‘US banks financed a combined $20.8 billion for the worst-of-the-worst companies in the coal industry in 2012’.

Despite national policies and international efforts aimed at mitigating climate change, emissions of carbon dioxide and other greenhouse gases grew 2.2% per year on average between 2000 and 2010, compared to 1.3% per year from 1970 to 2000. The two main drivers for the increasing emissions are economic growth, which has risen sharply, and population growth, which has remained roughly steady.

It’s unlikely that the GB initiative will singlehandedly turn the tide toward adequate investment in climate finance but if it signals a commitment to climate finance on the part of some of the world’s largest financial institutions, it could be a start. These banking heavyweights have enormous potential to transform markets, support businesses in building a sustainable future, and to find innovative solutions to key conservation challenges.

Investment in principles | Banking Zone

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Fast facts • To stabilise the atmospheric concentration of CO2, investment in non-carbon producing energy sources has to rise by $147 billion a year • New international climate change agreement due to be signed in 2015 for emissions targets from 2020 • Nine of the investment banks supporting green bonds are ranked in the world’s top 30 banks

Green Bond Principle Supporters: • Bank of America Merrill Lynch • BNP Paribas • Citi • Crédit Agricole Corporate and Investment Bank • Daiwa • Deutsche Bank • Goldman Sachs • HSBC • JPMorgan Chase • Mizuho Securities • Morgan Stanley • Rabobank • SEB

Wealth & Finance | January 2014 |

Banking Zone | Bankers’ bonuses – still on trial in the court of public opinion

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Bankers’ bonuses

– still on trial in the court of public opinion The financial crisis revealed vulnerabilities in the regulation and supervision of the banking system at a European and global level.

New rules came into force on 1 January 2014 to tackle some of the vulnerabilities shown by the banking institutions during the crisis.

But will they reduce the emotive reaction to bankers’ bonuses?

| Wealth & Finance | January 2014

Bankers’ bonuses – still on trial in the court of public opinion | Banking Zone

17 One of the results of governments having to provide unprecedented support to the banking sector in many countries during the financial crisis was the amount of public attention bankers’ bonuses received.

And it’s not a topic that’s gone away – with the 81%-taxpayer owned Royal Bank of Scotland considering paying staff bonuses worth twice their salaries, both the UK’s prime minister and chancellor of the exchequer are resisting calls to use the government’s majority stake in RBS to prevent this from happening.

With regard to bankers’ remuneration, two arguments are generally put forward: the first is that it is a regrettable necessity: ‘talent will flee if we do not pay what the market demands’. Many executives in other industries will recognise and have sympathy with the war for talent - but it has been argued that in the banking industry this focus pushed bonuses to unreasonable levels increasing risk profiles, and undermining bank performance.

The second argument is that a bonus is the proper reward for performance, and that letting the market decide is an ideological good.

Both arguments face the problem of not really cutting it where public opinion is concerned.

Andre Spicer, professor of organisational behaviour at Cass Business School said: “If the financial crisis taught us anything it is this: paying bankers large bonuses for short term performance is a recipe for disaster. It incentivises very risky behaviour, undermines performance, destroys shareholder value, and creates systemic problems the tax payer is forced to cover.”

The new EU rules mean that banks can only pay bonuses of 100% of the recipient’s salary, which rises to 200% if shareholders give explicit permission. It’s fair to say that all EU-based banks are watching each other’s progress on aligning ideology and the war for talent with the new rules.

Cash-based allowances for particular roles and monthly or quarterly share allowances seem favourite so far, as EU-based banks with offices in countries not affected by the cap face the unenviable task of not losing their brightest talent to unfettered rivals.

The chancellor, and effectively RBS’s main shareholder, George Osborne has chosen to attack the EU bonus cap stating: “These European rules will not lead to bankers being paid less,” but he acknowledged that ‘bankers being paid less’ is now held as a public ideal.

“What it will lead to is a Fred Goodwin-style situation where you will not be able to get the money back off the bankers if things go wrong,” he added, acknowledging that the former CEO of RBS is now an unquestionable pariah in public opinion.

His opinion was supported by Mark Carney, governor of the Bank of England and chair of the Financial Standards Board, which sets global standards, who described the bonus cap as ‘crude’.

When opposition leader Ed Miliband confronted David Cameron on the subject, the prime minister declined to answer the question at all: instead he talked about the bank’s total remuneration figure.

For, although banks are rewarding for financial performance, they are also including other non-financial metrics, such as customer satisfaction, which should encourage bankers to look beyond the immediate bottom line. In addition, they are rewarding for performance over the long term and locking up rewards in share options, the idea being to discourage short-term risk taking.

Mr Spicer added: “Fortunately regulators and banks have learned some lessons from the crisis and changed the way they reward their employees. Changes in remuneration could lead to some unintended consequences. Locking up bonuses over a long time period could mean they cease to become a motivator. This is because a £1 cash bonus today is valued higher than £2 share option bonus in a few years’ time.”

He added: “Declining bonuses could also push some bankers who favour quick rewards for risky behaviour into the shadow banking system. This might create problems at the murky margins of the market which regulators have difficulty penetrating.

“Finally, the ongoing controversy over bonuses and remuneration changes are likely to further alienate many senior bankers who already feel like they have been waiting a few years to be paid for their work.

“As remuneration changes in the banking sector, it is important that banks look at other ways of motivating staff. Many working in the financial sector find it very insecure and unsatisfying, but are willing to trade this for high pay. As the job becomes less lucrative, banks need to find ways to make jobs more stable and more satisfying for employees. This might involve changing the culture or addressing issues around work life balance.”

Wealth & Finance | January 2014 |

Markets Matters | Know your onions

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Know your onions Crude oil, gold and silver are top of the world’s most popular commodities list, resulting in the media regularly reporting on the rise and fall of their values. But from onions to pork bellies there are a plethora of other commodities on offer; read on to learn how and why some are traded.

| Wealth & Finance | January 2014

Know your onions | Markets Matters

19 All commodities are subject to speculative market demand and while some of the more unusual commodities often trade with less fluctuation than their better known counterparts there can be severe price spikes.

Being one of the most volatile commodities traded on the world market, trading is not for the faint-hearted – nor the poor – as the smallest amount one can trade and take possession of at any given time is currently 20 tons.

Raised mostly in California, Colorado, Kansas, Arizona, Nebraska and Texas, live cattle are traded from 10.05am-2pm in contract sizes of 40,000 pounds during February, April, June, August, October and December.

Indian agriculture is vulnerable to these sharp price cycles, meaning policy-makers have encouraged the creation of storage facilities. But if storage facilities are controlled by a small group of middlemen who procure large volumes to manipulate prices, it leads to market failure.

Pork serves as the basis for bacon products and pork belly futures are known to rise or fall dramatically in response to higher or lower demand for bacon. Historically, pork belly futures rise in value the most during cold winter months when bacon is consumed most.

Major traders of this commodity include meat manufacturers, grocery chains, and certain restaurant chains, all of whom are affected significantly by rises or falls in the prices of beef.

The Indian onion market is known for its large and developed status. More than half the onion produced in India is grown in three states; Maharashtra, Karnataka and Gujarat. Several other states are capable of producing the crop but, due to their privileged status in water endowment, farmers prefer to raise cereals.

While not as newsworthy as crude oil, palm oil is the world’s second most widely produced edible oil. Over the years it has become an essential ingredient in basic household products such as margarine and soap.

Although the onion harvest seems to be well distributed over the year, slow transmission of price information, poor facilities for timely transportation of products and above all, a concentration of storage facilities in only a few states, have led to a demand-supply gap.

There is a strong indication of ‘onion hoarding’ in some areas of production but, as a multi-season crop, hoarding makes limited economic sense.

But price rises are also a feature of vegetables that are far more perishable and cannot be stocked or hoarded. Soybeans, being the basis of both soybean oil and soybean food products are one of the most competitively traded commodities of all. Trading and prices are most volatile during summer months; rising with sunny skies and falling – sometimes plummeting – due to floods or droughts.

Despite the rise of polymer alternatives, rubber is still a hot commodity on the world markets, being versatile and used in all walks of life. Also known as natural latex, it is produced primarily in countries like India, Thailand, Indonesia, Malaysia, and China.

Companies and investors wishing to trade in rubber futures do so on the Tokyo Commodity Exchange, the Singapore Commodity Exchange, or Bangkok’s Agriculture Futures Exchange. The physical purchase and acquisition of rubber usually occurs in New York, Kula Lampur, and London.

Pork bellies, as the name suggests, come from the underside of hogs, which are cut into sections and flash frozen. Pork belly futures have been traded in a competitive world market since 1961, when they debuted on the Chicago Mercantile Exchange.

In recent years it has even been used as a biofuel, with the Commonwealth Scientific and Industrial Research Organization finding it could reduce greenhouse gas emissions. All of these uses mean palm oil is expected to remain a hotly traded but volatile commodity this year.

Since the first farmer learned to shear a sheep’s coat, wool has been of immense value to society and is used to make everything from clothing to blankets to noise absorbers. Produced mainly in Australia, it’s available for mass purchase on the Australian Wool Exchange in Sydney, Melbourne, Fremantle and Newcastle. Roughly 80 agents facilitate the trade of wool through the exchange, while those looking to purchase wool futures contracts must turn to the Tokyo Commodity Exchange.

Vital to coffee brewers and chocolate makers alike, cocoa has a well-deserved reputation as a fickle plant. It only grows within specific latitudes no greater than 10 degrees north and south of the equator.

The top two cocoa growing countries are Ghana and the Ivory Coast; despite their near perfect climates, extended dry spells can ruin the crop and too much water breeds disease and lower yields. The worst culprit is something called black pod disease, which can lead to crop losses between 30-90%.

As hedges against cocoa prices can cause occasional spikes, Starbucks and other coffee houses have been known to employ futures contracts, purchasing multiple metric tons.

Live cattle, as opposed to feeder cattle, are any cattle from calf to about 600-800 pounds.

As the foundation of much of the world’s beef supply, live cattle find themselves traded daily and feverishly on the world markets.

Like live cattle, lean hogs are traded in contract sizes of 40,000 pounds and during the same months. They are mostly produced in the Midwest; Iowa, Minessota, North Carolina and Illinois. The cost of hog feed greatly influences the supply of pork as the average hog is raised for six months to roughly 250 pounds before being slaughtered and made available on the world markets.

The US is currently the world’s largest exporter of pork and traders are advised to follow the movements of day to day hog trading via the Hogs and Pigs Report, released quarterly, and the CMA Lean Hog Index, a two day average of prices.

Sugar, known as Sugar no. 11 by traders; a term used to denote raw cane sugar in its pure, unprocessed form is traded in contract sizes of 50 tons at roughly $11.20 per contract. Sugarcane in this form is responsible for nearly three quarters of all the worlds’ sugar production, making it a commodity of tremendous importance to any business or industry dependent on sugar.

Sugar trading has become subject to political risks, like India’s recent banning of new futures contract trading, as well as the risk of poor harvests. Brazil is the world leader in sugar production at present, producing over 14m tons per year, of which 6m is exported. Australia chips in with 5.5m tons produced and 4.7m exported.

High horticulture prices, and in particular onion prices, raise a number of questions on how commodity markets are run and governed. Hoarding is most often identified as the culprit, but is it the only factor? Are broader policy measures needed? With our food habits shifting towards fruit and vegetables, the horticulture sector demands greater attention in terms of demand projections, supply planning, infrastructure, intelligence and market reforms.

Two reforms are possible: the first being to encourage more entrants, since competition will reduce the incentive to store for long periods.

The second is to bring in some degree of transparency and market intelligence. However, neither will overcome the challenges the weather presents to farmers and harvests.

Wealth & Finance | January 2014 |

Markets Matters | Invest in real estate without the bricks and mortar

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Invest in real estate without the bricks and mortar Fluctuations in house prices might be a staple part of media coverage but their long-term performance has been solid. The question is how do you invest in the domestic housing market without tying up huge amounts of capital in bricks and mortar and putting yourself at the mercy of local events, dodgy tenants or void periods?

Since the autumn of 2012 the answer has been a Property Authorised Investment Fund (PAIF) or a real estate tracker – and, for UK residents they can form part of an ISA or a SIPP. The minimum investment in both is £1,000.

Launched in September 2012, the TM Hearthstone UK Residential Property Fund aims to outperform the LSL Acadametrics UK House Price Index. It is structured as a PAIF and is open to a range of investors, from individuals with ISAs and SIPPs to large scale institutional pension schemes.

Christopher Down, founder and chief executive of Hearthstone Investments says: “At over £4 trillion, residential property is the largest asset class in the UK – bigger than UK equities and commercial property combined.”

Hearthstone has been working with builders and developers to acquire existing build stock and to support future acquisitions from new residential developments.

Castle Trust stepped into tracking the housing market when it launched both its growth tracker and income tracker in October 2012 – to a cool reception from analysts, according to the Financial Times.

But the current strength of the UK housing market means that Castle Trust has reported that its growth Housa tracker has been delivering up to 11.2% growth since its launch.

| Wealth & Finance | January 2014

Meanwhile, its income Housa tracker has delivered capital growth of 6.6% since launch and is providing an annual income of 2-3%.

Both trackers provide returns directly linked to, and always in excess of, the Halifax House Price Index (HHPI) – whether the HHPI rises or falls.

Sean Oldfield, CEO at Castle Trust said: “Residential property is one of the most stable asset classes and, long term, has historically delivered annual returns of about six per cent a year which is comparable to equities, but with much less volatility. Against cash, gilts and corporate bonds, our Housa trackers now look very attractive indeed.”

The key difference between the two for investors is that the fund is an open-ended fund, which should enable investors to remove funds quickly. But the trackers involve some tying up of funds – both are available for three, five and 10-year terms. However, there are no upfront or management fees.

Both the fund and the trackers have the advantage of giving investors exposure to residential markets across the UK. Hearthstone in particular has invested in the London and south-east market.

As housing market analysts are pointing to two separate markets within the UK – London and everywhere else – using either a tracker or the fund enables investors to spread their bets. For instance, although the London market is booming now, experts are predicting its growth will slow over the next five years while the market in other parts of the country picks up.

Perhaps one of the most interesting aspects of both the fund and the trackers is that parents and grandparents are using them as a savings vehicle to help first-time buyer relatives take their first steps into bricks and mortar.

Growth capital market: what’s in store for 2014? | Markets Matters

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Growth capital market: what’s in store for 2014?

Stephen Campbell, Partner of Panoramic Growth Equity, joins us to give his predictions on the UK’s growth capital market in 2014

What are your overall predictions for 2014?

We think 2014 will be the year of the exit, which is good news because exits are the heartbeat of our industry: they increase the speed at which money flows round the system, benefiting everyone – funds, accountants, lawyers, listing brokers, management and even PR advisers.

The re-emergence of the Alternative Investment Market as a viable exit route, particularly for fast growth businesses, will encourage greater investment by funds in these types of companies.

Where do you think the opportunities will lie?

As the economy comes out of recession, companies start overtrading.

That’s where we see our opportunities lying – in good businesses that can’t service the rising demand for their goods and services with their present capital structure. In particular, we can step in where the banks won’t help.

Any predictions for particular types of deal?

MBIs have become viable once again after being completely out of favour. Debt funding has finally become available once more and we have seen a number of good backable candidates who are looking for businesses to buy.

MBOs are on the increase as rising house prices have given managers the means with which they can contemplate buying a stake in their businesses. We expect this trend to accelerate as larger companies look to divest non-core activities.

What about the fundraising environment?

The British Venture Capital Association says private equity funds raised an average of £28.5bn a year over the four years from 2005 to 2008, but in the whole of the four years that followed the total amount raised was just £20bn - an average of £5bn a year, which is 82% down.

Private equity funds that raised money during the boom period that ended in 2008 will now have finished investing the money, or be reaching the end of their five-year investment cycle. Demand for these funds is rising once more and the debt markets will not be able to fill that void, so this strongly suggests that fundraising will pick up again. And if, as we expect, there are more exits in 2014, this will also boost fundraising.

What about the exit environment?

Large companies are holding historically high levels of cash - one recent US Fed study showed companies were holding 12% of assets in cash against a long run average of 6%. Meanwhile, organic growth is still patchy and cost cutting has reached the point where there is nothing left to cut. All of this points to a great market for exits in the coming year.

Is there any expected regulatory change that will impact your business?

The renewables sector is one which we invest in and what is really needed there is a period of stability. If 2014 proves to be a year of limited regulatory change and consistency on policy, it would greatly help this industry.

What’s in store for your portfolio companies?

We are very excited about the opportunities that 2014 holds. We have two portfolio companies very likely to exit in 2014 at impressive multiples. The demand for our brand of responsible, involved SME equity financing will only grow in the months ahead as companies start thinking again about growth opportunities. We see an environment where companies are looking to thrive, rather than simply to survive as has been the prevailing mood over the last few years.

We are very excited about the opportunities that 2014 holds. We have two portfolio companies very likely to exit in 2014 at impressive multiples. The demand for our brand of responsible, involved SME equity financing will only grow in the months ahead as companies start thinking again about growth opportunities. We see an environment where companies are looking to thrive, rather than simply to survive as has been the prevailing mood over the last few years.

Wealth & Finance | January 2014 |

Regulation Review | The Patent Box

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The Patent Box... is one country’s generous tax incentive another’s ‘unfair competition’?

Caroline Hunt, Director of Corporate Tax, Crowe Clark Whitehill, examines the pressure being placed upon the UK’s Patent Box tax.

Businesses are under immense pressure to produce innovative new products to keep up with the competition. The UK’s Patent Box tax incentive was developed as a spur to industry to develop and patent new products and encourage innovation.

But now this generous tax regime, introduced in April 2013 has come under fire from other EU countries, notably Germany, who feel that it represents harmful competition in the race to attract foreign corporate investment.

The Patent Box was introduced into UK tax legislation in April 2013. It allows profits arising from qualifying patents to be taxed at a reduced rate of corporation tax. If the Patent Box continues, by 2017 the rate of corporation tax applied to Patent Box profits will be 10%, a significant discount compared to the anticipated rate for other taxable profits.

The rate is currently 15.2% compared to the main rate of corporation tax of 23%. It will fall to 13.3% on 6 April 2014 and gradually taper down to 10% from 1 April 2017, when the main rate of corporation tax is expected to be 20%.

Too much of a good thing?

The challenge to the Patent Box comes as part of a general clampdown on tax regimes that are perceived to facilitate profit shifting rather than genuine economic development. The EU’s Code of Conduct Group has fielded complaints from several member states (including Germany) that the Patent Box is too generous and represents harmful tax competition.

The EU’s Code of Conduct Group was not able to reach a majority decision about this and the matter was referred up to The Economic and Financial Affairs Council (ECOFIN). ECOFIN met in December but was unable to conclude whether the UK’s Patent Box regime is a ‘harmful’ tax incentive. It recommended a review of existing preferential intellectual property regimes by the European Commission, which is expected to be concluded by mid-2014.

The review will look at economic substance and compliance with OECD principles of each regime.

It is likely to differentiate between measures that encourage genuine economic activity and those that merely facilitate profit shifting. The review is expected to take place under the Greek presidency of the EU and be concluded by mid-2014.

The ‘active management’ test The review of the Patent Box will concentrate on whether the ‘active management’ test, which does not require research and development (R&D) to be performed in the UK, is ‘harmful’ tax competition.

Broadly, ‘active management’ means input into the decision-making processes relating to the development and exploitation of intellectual property rights.

This would include activities such as deciding on whether to maintain protection in particular jurisdictions; granting licences; researching alternative applications for the innovation or licensing others to do so.

Where the rights are being exploited by incorporating the item into products, activities such as deciding on which products go to market, what features these products will have and how and where they will be sold would also count as ‘active management’.

| Wealth & Finance | January 2014

The UK government robustly defends its view that in today’s global business environment it is not realistic to demand that R&D has to be performed in the UK and if there were a requirement to carry out the R&D in the UK, this would be in breach of European Union law.

The UK tax legislation has been carefully drafted so that passive owners of qualifying patents cannot benefit from the reduced rate of corporation tax. Groups that carry out research and development outside the UK not only have to adhere to the ‘active management’ conditions but also to strict ‘development’ conditions before Patent Box benefits can apply.

The furore caused by the Patent Box in Europe highlights the issues facing multinational businesses operating in different, often competing tax regimes, where one country’s ‘generous tax incentive’ is seen by another as ‘unfair competition.’

In any event, the EU Code of Conduct is not legally binding, so the UK government could potentially resist any adverse findings that come out of the review, which could be a gift in the current political environment.

So for now, it is business as usual, with the expectation that the Patent Box incentives will continue to be available in their current form.

Companies should be looking to make the most of a tax regime that other EU members think too generous.

The Patent Box | Wealth Corner

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Wealth & Finance | January 2014 |

Regulation Review | Jersey trust confidentiality – under threat?

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Jersey trust confidentiality – under threat?

Could a decision in the English Family Law Court have a far-reaching impact on the confidentiality of trusts in Jersey? Kathryn Purkis and Dan Boxall from Collas Crill, Jersey, examine the issues.

Background The high-profile Tchenguiz v Imerman case has seen the Family Division of the English High Court refuse a request from Jersey’s Royal Court to refrain from ordering disclosure in the English proceedings of sensitive trust information relating to a beneficiary who had appealed to the Jersey court.

The English case is part of a long-running divorce saga in which the wife was seeking financial relief from the husband – a linked case has led to new law on the use of secretly obtained documents in divorce cases.

The case focussed on certain BVI-law trusts, the trustee of some of which was a Jersey-resident company. Neither the husband nor the wife was a beneficiary of the trusts in question but it was open to the trustee to add them as such. The wife’s application asked that the English court should vary the trusts under the English statutory regime on the basis that they were post-nuptial settlements and/or that it should find that the assets of the trusts were financial resources available to the husband.

The Jersey trustee was joined to the English proceedings. Rather than submitting to the English court’s jurisdiction the trustee applied to the Royal Court, in private and convening the trusts’ beneficiaries, for a blessing of its decisions (a) not to submit but (b) to disclose certain information concerning the trusts and their assets to

| Wealth & Finance | January 2014

the husband’s father (who was a beneficiary) in the knowledge that the information would end up being available to the English court and the wife.

Fulfilling its obligation of full and frank disclosure on such an application, the trustee provided affidavits, evidence and argument to the Royal Court and to the convened parties, including sensitive information relating to its reasoning and its decision-making process. The Royal Court blessed both of the trustee’s decisions.

However, the husband’s adult children were beneficiaries of the trusts and they applied to the English court to make submissions about the trusts which included making undertakings that they would disclose information they had received as part of the trustee’s application to the Royal Court.

As disclosing the information would have placed the children in contempt of the Royal Court, they had to apply to Jersey for permission to disclose. In its judgment the Royal Court said it would usually refuse permission but as there were unusual circumstances it did grant permission.

The judgment But in granting its permission the Royal Court expressly asked the English court not to breach the trust’s confidentiality.

Jersey trust confidentiality – under threat? | Wealth Corner

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Its reasoning was: • that it is in the interests of justice that trustees should be able to apply to the Royal Court in private and to speak frankly, confident that what is said or produced will not be released or used elsewhere • that in blessing the decision of the trustee effectively to provide information for the English proceedings via the husband’s father, the Royal Court had ‘done all that it can to ensure that the Family Division is made fully aware of the financial position of the trusts and the likelihood of the husband benefiting’ • that in the Royal Court’s view it was highly unlikely that the material disclosed in the trustee’s Royal Court application would add to the relevant knowledge of the English court or would be relevant to the issues which the English court had to resolve.

The Royal Court expressed the hope that, in the interests of comity (respect and courtesy between nations) the English court would take note of its concerns and invited it ‘to consider very carefully’ whether it needed to make any disclosure order.

In particular the Royal Court said it hoped very much that the English court would respect the nature of the trustee’s Royal Court application and not order disclosure of the ‘sensitive material’, which included material showing the reasoning and decision-making process of the trustee or other parties.

Although considerable weight was given to the comity argument, the English judge ordered that disclosure, including that of sensitive information, should be made on the grounds that the trustee’s thinking was relevant to the availability of wealth, whether the husband would become a beneficiary and whether the trust is nuptial.

Where next?

When discussing comity, the English judge said that he did not see that his order should impede or undermine the interests of comity. He also expressed the hope that ‘cooperation between the English court and the Royal Court of Jersey, and other courts, in cases in which wealth is held in trusts or other similar vehicles will continue to develop.’.

But it appears that the Royal Court of Jersey, at least, is not as enthusiastic. In its own judgment granting permission to the beneficiaries, the Royal Court had put a marker down, making clear that, if it ‘were to find that the Family Division began routinely to make orders requiring disclosure of applications by trustees brought in private, the court would have to consider amending its procedures either so as to heavily redact any material served on English-resident beneficiaries or to preclude material from being sent out of the jurisdiction and allowing only inspection within the jurisdiction.’.

When discussing comity, the English judge said that he did not see that his order should impede or undermine the interests of comity.

He also expressed the hope that ‘cooperation between the English court and the Royal Court of Jersey, and other courts, in cases in which wealth is held in trusts or other similar vehicles will continue to develop.’.

It’s an area to watch with interest both in respect of jurisdictions’ interest in offshore trusts and the response of the courts where the trusts are based.

Wealth & Finance | January 2014 |

Finance Focus | UK dividends end 2013 with a whimper

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UK dividends end 2013 with a whimper UK companies paid their shareholders a headline £79.8bn in 2013, 1% lower than in 2012 (£80.6bn), the first drop in annual dividends since 2010. But prospects are looking better for 2014.

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 findings come from the latest UK Dividend Monitor from Capita Asset Services, which also revealed that underlying dividends were £77.4bn, up 6.8% on 2012 on a like for like basis.

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%.

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. 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.

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.

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 sharply as share prices have run ahead and bond prices have begun a long awaited correction.

| Wealth & Finance | January 2014

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. This year 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.”

Top of the FDI spots | Finance Focus

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Top of the FDI spots Whether you’re new to foreign investment or an experienced hand, there are still some questions that are under constant review: where should you be investing your money and in what?

We take a snapshot of some FDI spots.

Once upon a time it was the BRICS (Brazil, Russia, India, China and South Africa), now it’s the MINTs (Mexico, Indonesia, Nigeria and Turkey) – countries with natural resources, young populations and growing economies.

Eventually it’s predicted they will become some of the most powerful economies in the world – in the meantime they’re investing heavily in infrastructure, which presents opportunities to foreign investors.

For example, many of the countries in sub-Saharan Africa, which the Economist magazine believes will grab seven of the places in the world’s top ten fastest growing economies by the end of next year, have limited access to electricity so there is an increasing amount of investment in solar and hydro power projects.

It’s considered that if Nigeria manages to sort out its power infrastructure the country could experience prolonged annual double digit growth. Why? Well, according to the BBC, 170 million people in Nigeria share the same amount of power as 1.5 million in the UK – most businesses have to go to the expense of generating their own power and yet the country is already growing by 6-7% a year.

Opportunities also exist in economies which have failed to attract an acronym – for instance, Hungary and Ghana – and those for whom international relations are changing, eg Argentina.

Of course, successful FDI depends on more than just finding the right project to invest in – it also means finding the right partners, who understand how to do business in their jurisdiction. It’s not just the formal legal and accounting practices that matter: cultural differences can have a huge impact on the success of an investment.

Wealth & Finance | January 2014 |

Finance Focus | Top of the FDI spots

28 Iceland • Annual growth: 2.7% in 2012 • Opportunities: offshore oil and gas exploration, green energy, • The 2008 crash led to a growth in innovative young businesses, particularly in the IT sector • Government keen to diversify the economy • Projected GDP growth 2014: 2.7% Spain • Annual growth: -1.4% in 2012, but this hides an international trade surplus • Business confidence returning, real estate providing bargains • Restrictions on availability of banking finance have left gap in the market • Joint ventures, strategic acquisitions and direct investment in start-ups proving successful • Projected GDP growth 2014: 0.5%

Russia • Annual growth: 3.4% in 2012 • Opportunities: engineering, natural resources • Paradox: the country’s ability to support itself – it’s number one in the world for the amount of natural resources per capita – means the pace of legal, administrative and technological change is slow • Concerns: the political situation is deterring investors • Projected GDP growth 2014: 2.3%

Hungary • Annual growth: -1.7% in 2012, but appears to have returned to growth in 2013 • Skilled, multi-lingual workforce • Opportunities: manufacturing, IT and technology – also consider agriculture • Government provides numerous incentives • Projected GDP growth 2014: 2%

Nigeria • Annual growth: 6.6% in 2012 • Opportunities: petroleum, mining, power, agriculture, telecoms and IT • Tax incentives available • Investors encouraged to incorporate community development and corporate social responsibility in their plans • Projected GDP growth 2014: 7.4%

Ghana • Annual growth: 7.9% in 2012 • Opportunities: oil-related industries, packaging, hotel and real estate • Difficulties: the deficit poses a challenge for the infrastructure development needed to support the discovery of oil • Financial service sector reforms promote global standards and have enhanced performance • Projected GDP growth 2014: 7.4%

| Wealth & Finance | January 2014

Turkey • Annual growth: 2.2% in 2012 • Opportunities: real estate, construction, energy, healthcare and hospitality • Attractive geographical position • Qualified young workforce • Projected GDP growth 2014: 3.8% Mauritius • Annual growth: 3.3% in 2011/12 • Light tax regime with vast network of double taxation agreements • Experienced in attracting FDI • Trained and skilled workforce – many speak French and English • Projected GDP growth 2014: 3.7%

Ethiopia • Annual growth: 6.9% in 2011/12 • Opportunities: manufacturing, infrastructure, natural resources, agriculture • Average manufacturing wage: $80 a month • Off-limits for FDI – finance and telecoms • Projected GDP growth 2014: 6.5%

The Philippines • Annual growth: 6.6% in 2012 • Opportunities: infrastructure, manufacturing • Government has made major reforms to combat corruption and provide a good business environment • Local and foreign investment incentives being offered • Projected GDP growth 2014: 6.2%

Top of the FDI spots | Finance Focus

29 Canada • Annual growth: 2.71% in 2012 • Opportunities: agriculture, oil and gas • Stable fiscal system, member of the North American Free Trade Area, incentives for R&D investment • Sailing times from Canada’s Atlantic and Pacific deepwater ports are up to two days shorter than from other North American ports • Projected GDP growth 2014: 2.3%

Mexico • Annual growth: 3.8% in 2012 • Opportunities: oil and energy • Government has embarked on major reform programme, including education, labour and finance, foreigners can now buy land without setting up a trust • Concerns: ongoing problem with violence, but this rarely affects foreign investors or their companies • Projected GDP growth 2014: 3.8%

Israel • Annual growth: 3.1% in 2012 • Opportunities: technology, telecoms, e-commerce, medical devices and general life sciences • Provides technological innovation, highly competent and innovative employees, fair legal system and highly professional legal and accounting talent • Despite unrest in neighbouring countries, Israel has not allowed geopolitical events to interfere with business • Projected GDP growth 2014: 3.4% Myanmar • Annual growth: 6.4% in 2012 • Opportunities: natural resources, agriculture • Evolving environment – local political dynamics are particularly important • Concerns: rapid changes are leading to unpredictability, despite the benign economic outlook • Projected GDP growth 2014: 6.8%

New Zealand • Annual growth: 3% in 2012 • Opportunities: real estate, agribusiness • Stable political and financial environment with low regulatory hurdles for investors • Concerns: ongoing research into FDI may prompt change in rules • Projected GDP growth 2014: 3.3%

Peru • Annual growth: 7% in 2012 • Opportunities: mining, construction • Largest producer of gold, zinc, tin and lead in Latin America • Government has introduced favourable financial policies • Projected GDP growth 2014: 6.2%

Argentina • Annual growth: 3.4% in 2012 • Opportunities: oil and gas exploration, petroleum activity services, mining, infrastructure development, transport, farming, food processing and technology • Government incentives, particularly in sectors that provide employment and produce goods for local market and exports • Government working to normalise international relations • Projected GDP growth 2014: 6.2%

Wealth & Finance | January 2014 |

Taxing Times | The tax man goes global

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The tax man goes global Where the corporates go the tax man (or woman) must surely follow – and as companies become increasingly globalised so governments are increasingly collaborating with each other on tax administration and collection issues.

It should come as no surprise – governments around the world are short of money and cracking down on legal loopholes like the Double Irish with a Dutch Sandwich to increase corporate tax take is an obvious way to fill the coffers.

It’s also a very popular move – in 2013 corporate tax dominated media headlines following public outrage over the idea that companies were ‘not paying their fair share’, however legal the tax activities in question.

The Organisation for Economic Co-operation and Development (OECD) agrees – last year it launched an action plan and a consultation on the tax challenges of the digital economy.

Responses published in January 2014 indicated that while the tax affairs of digital organisations had grabbed the headlines, in practice any corporate can reorganise itself to legally make the most of tax regimes.

According to Angel Gurría, Secretary-General of the OECD, the 15-point action plan will be rolled out during 2014 and 2015: “This plan sets forth 15 ambitious actions that will result in the most fundamental change to the international tax rules since the 1920s! It will allow countries to draw up the co-ordinated, comprehensive and transparent standards they need to prevent Base Erosion and Profit Shifting.

“International tax rules ensure that businesses don’t pay taxes in two countries – double taxation. This is laudable, but unfortunately these rules are now being abused to produce double non-taxation. We aim to address this, so that multinationals pay their fair share of taxes.

| Wealth & Finance | January 2014

“To ensure that the actions can be implemented faster, a multilateral instrument will be developed for countries which may want to amend the totality of their existing network of bilateral treaties at once, rather than proceed treaty by treaty.”

In an article for Hindu Businessline, Girish Vanvari and Ravi Shingari, both from KPMG, agree: “There is growing realisation that with corporations transcending boundaries in scale and operation, tax policy reform is no longer a purely domestic issue.

“Governments the world over are increasingly coordinating on issues of tax administration and collection, and seeking global best practices.

Take, for example, the UK, the Netherlands, Italy and Australia, which offer a mechanism to offset tax losses within an economically consolidated group.”

They point out that any tax policy requires uniform laws and efficient collection, together with certainty. The recent Vodafone case has left India’s tax regime uncertain, which could dissuade investors rather than attract them.

The OECD’s proposed reforms have been strongly backed by France, whose president Francois Hollande has announced that the country’s corporation tax burden could be eased as soon as next year, although details remain unclear.

Japan’s cut in its corporate tax rate has left the US as the OECD member with the highest rate of corporate tax at an effective rate of 30.9%. Unfavourable comparisons with the UK (effectively 16.7%) and Hong Kong (effectively 16.5%) have led to strong calls for reform, particularly as the US taxes foreign earnings at domestic rates. However, analysts believe that politics will get in the way of tax reform for much of 2014.

One country whose proposed corporate tax reforms appear to be welcomed by politicians and businesses alike is Switzerland. Pressure from the EU has forced it to change its treatment of its ‘ring fencing regime’, in which earnings based on activities outside Switzerland receive favourable tax treatment.

The government has recognised that ‘certain provisions in Switzerland’s corporate tax system are no longer compatible with international standards’. But it has also been clear that any changes must enhance Switzerland’s appeal as a business destination. It is expected that the ongoing consultation process will finish this summer.

However, while politicians and public opinion have focused on corporation tax, this ignores the taxes businesses have to pay for their employees.

According to the Paying Taxes 2014 report by the World Bank and PwC, in the past nine years corporate income taxes have consistently fallen, while labour taxes borne by companies have been more stable and ‘now represent the largest component of the total tax obligations’.

Somehow the change in the tax burden is a point that doesn’t seem to be registering with the public.

The tax man goes global | Taxing Times

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So what is a Double Irish with a Dutch Sandwich?

It may not be long before they become something you’ll be ordering for lunch but, for the moment, they enable corporations to do their duty for their shareholders in seeking out the best tax treatment possible.

Here’s a simple version of how it works: • US-based Company A develops a product or technology that carries intellectual property rights.

• It sets up a subsidiary, Company B, in Ireland but ensures it has its headquarters in a jurisdiction with zero corporation tax – Bermuda is good.

• Company A sells or licenses its foreign IP rights to Company B, thereby assigning revenues from foreign profits to Company B. Company A now only pays US taxes on the fees Company B remits to it, not the profits.

• Maximise foreign profits and reduce home fees by having Company B pay as little as possible for the IP rights.

• Set up Company C, also in Ireland; it will be owned

by Company B and will carry out most of the activity of selling products – it may have branches in other countries.

• Set up Company D, this time in the Netherlands.

Transfer the profits from Company C to Company D – Ireland has tax-free transfers within the EU and this avoids withholding taxes.

• Transfer the profits from Company D to Company B. Irish law says that if a company is managed elsewhere its profits can be transferred tax-free.

Wealth & Finance | January 2014 |

Taxing Times | Check your capital allowances

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Check your capital allowances New rules on capital allowances on UK commercial property transactions are set to come into force on 1 April 2014.

The effect of the legislation, which was introduced in 2012, is to 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 before 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.

| Wealth & Finance | January 2014

“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.”

Nothing ventured, no tax reliefs gained | Taxing Times

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Nothing ventured, no tax reliefs gained Research has revealed that the majority of independent financial advisors (IFAs) believe sophisticated UK investors are underweight in venture capital and so failing to make the most of the tax reliefs on offer.

The study, which was commissioned by venture capital investor Albion Ventures, also showed that IFAs estimate that less than a fifth (17%) of their clients currently have direct exposure to venture capital, with most of those surveyed (48%) believing that their clients’ exposure to venture capital will increase in the next five years. Just 3% expect a decrease.

Only a handful of IFAs (2.2%) believe their clients are overweight in the sector.

Venture capital trusts (VCTs) provide investment for smaller companies and offer investors a range of incentives including: 30% income tax relief, tax free dividends and no tax on capital gains.

VCTs have grown in popularity in recent years. In 2012-13 £370m of funds were raised by VCTs, £45m more than 2011-12.

Patrick Reeve, Managing Partner of Albion Ventures said, “IFAs recognise there is currently an investment gap in the UK venture capital sector. Most investors are not realising the potential benefits of investing through VCTs. “Financial advisers need to explore alternative tax efficient methods to help their clients build up a suitably sized nest egg. VCTs are a great option offering investors significant tax incentives and long-term capital growth. Investors in VCTs also benefit in the knowledge they are helping small firms grow and are supporting the wider UK economy.”

However, the 30% income tax relief only applies to holdings kept for at least five years, providing no more than £200,000 is invested into the VCT each year. The high-risk nature of VCTs means they are best suited to sophisticated investors.

The research follows the launch of Albion VCTs Top Up Offers, which are seeking to raise up to £15 million across its six venture capital trusts. The Offers are targeting a monthly tax-free income of 5% (should investors choose to invest equally across all Offers), equivalent to 7.1% on the net cost of investment after up-front tax relief at 30%.

Investors in the Offers also have the option to boost their capital growth by participating in the dividend reinvestment scheme (“DRIS”), under which dividends are reinvested in the form of new shares in Albion VCTs.

Wealth & Finance | January 2014 |

Relax | The Dorado Beach Experience: a taste of enchantment

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The Dorado Beach Experience: a taste of enchantment Ritz-Carlton, Dorado Beach is a private retreat situated on Puerto Rico’s northern coast taking inspiration from the legacy of its original developer, Laurance S Rockefeller.

After landing opt for either self-drive or chauffeur-driven travel through Purto Rico’s beautiful landscape. Beginning life as a plantation, the luxurious resort is hidden away in tropical rainforest surroundings with beautiful beachfront accommodation steps away from the sea.

One of the wonderful things about the 1,400 acre retreat is its retention of Rockefeller’s principles regarding conservation and the environment with a modern, minimal twist on ‘barefoot elegance’. The décor and furnishings, whilst offering luxury and comfort aplenty, complement the amazing natural and lush landscape.

There is plenty of choice to suit your accommodation needs; from one to four bedroom residences or, for larger families, choose the five bedroom villa on the east beach with its oceanfront infinity pool with Jacuzzi, outdoor dining space and built-in grill.

Or perhaps ‘Su Casa’, the original Spanish hacienda restored to its original 1920s grandeur is more your thing, complete with four bedrooms and extraordinary oceanfront views.

My family and I stayed in a two-bedroom residence located on west beach, which was well equipped for our comfort and convenience with flat screens, an iPhone docking station and complimentary wireless internet for the occasional check up on emails.

We had our own private patio and lounge areas offering a wonderful sense of airiness, space and freedom while the beachfront location, outdoor ‘rainforest’ shower and a private plunge pool were all a hit with my young son. The swimming pools were a peaceful, idyllic place to relax and unwind while sipping a cocktail and absorbing more stunning ocean views.

Dining in the reserve is yet another wonderful experience with plenty of options inspired by the Spanish heritage entwined with Caribbean and American influences. Choose from relaxed, casual beach and poolside dining to ‘Mi Casa’ by José Andrés, for a more decadent and formal setting. My only advice would be to ensure you do not visit the market ‘La Cocina Gourmet’ when you are hungry! On offer are Puerto Rican coffees and homemade gelatos amongst many other tempting treats and delights.

Looking back the accommodations nestled among towering palm trees and the ocean views make this a go-to luxury oasis and it certainly lives up to its popular Spanish name; la isla del encanto, meaning ‘the island of enchantment’. All I can say is its one not to miss and I look forward to returning one day in the future.

| Wealth & Finance | January 2014

Things to do: The Beach Club: including adult and family pools. Relax in the warm climate and lush surroundings of the tropical oasis Fitness and Wellness Center: complimentary access for guests to the state of the art, fully equipped fitness centre which includes the tennis center boasting five courts, offering lessons and world-class tennis programs year round Barlovento - access a variety of sports equipment, in addition to Jean-Michel Cousteau’s Ambassador of the Environment classrooms Rockefeller Nature Trail: walk, cycle or drive your own golf buggy around the historic Rockefeller trail, which offers the opportunity to reconnect with nature and explore Dorado Beach’s natural wonders Golf: choose from the three spectacular 18-hole golf courses Spa Botánico: visit the five acre natural haven designed to inspire well-being and provide pure relaxation including open air tree-house treatment platforms Tours: if you can tear yourself away from the reserve why not take in some of Puerto Rico’s culture and history and join one of the organised tours on offer.

The Dorado Beach Experience: a taste of enchantment | Relax

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Wealth & Finance | January 2014 |