Wealth & Finance June 2014

June 2014

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How to Enjoy Retirement

Top tips for baby boomers

How to Invest in Oil Importance of Business Accountancy

• Rogue Traders: How to Guard Against Them • • Alternative Investments: Gathering Pace • • Spotting Business Troubles Early • •

Plus...

Conflicts of Top Tips: Reselling Interest Luxury Goods

What Most Annoys British Restaurant Diners?

June 2014 | Contents

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Contents News & Appointments 4-9

Editor’s comment

Feature 10 Steering Clear of the Brink John M. Collard, Chairman and CEO at Strategic Management Partners Inc, says early warning signs can pinpoint business troubles – and changing the leadership style can help to achieve a turnaround Funds 12 How to Enjoy Your Retirement Three top kickstarter tips for baby boomers Markets Matters 14 How to Invest in Oil The oil market can be confusing, but can offer great returns, say US commodity brokers Bluenose Capital Regulation Review 20 Conflicts of Interest Battles within insurance intermediaries need to be managed better, says the FCA 22 Risky Business We take a look at how the investment management industry can guard against rogue traders Finance Focus

Our June issue has some great tips for people nearing retirement age on how to make sure you’ve got enough in your pension pot.

We hear from Bluenose Capital on how to invest in oil – and it’s not as complicated as you may think! Also, John M. Collard of Strategic Management Partners tells us how to spot – and rectify – business troubles before they escalate.

We also take a look at how the investment management industry can protect itself from the often devastating impact of rogue traders.

There’s a fascinating insight into the recent Elan/Perrigo merger – part of a growing trend of US companies moving into Ireland.

We also look at alternative investments, and see why they’re continuing to gain popularity.

24 Luck of the Irish A look at the growing trend of US companies’ investment in the Emerald Isle 26 An Attractive Opportunity Alternative investments’ popularity is showing no sign of abating, say Aberdeen Asset Managers Ltd

In an extract from his new book, investment advisor Nicolas Schmidlin delves into the numerous different types of business accounting systems.

Risk Management

In our downtime section, Relax, we take a light-hearted look at what gets British restaurant customers angry.

28 The Importance of Business Accountancy In an extract from his new book, The Art of Company Valuation and Financial Statement Analysis, Nicolas Schmidlin delves into the myriad different types of accounting systems Relax 34 GarÇon!

What gets British diners cross?

36 A Sound Investment?

A new app helps determine luxury goods’ resell value

And, of course, we’ve got the usual round-up of the news and views affecting the major regions and markets from across the globe.

Enjoy the issue.

Mark Toon, Editor

Wealth & Finance | June 2014 |

News & Appointments | June 2014

June 2014 | News & Appointments

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Dip in Pay Awards Confirmed Despite some positive news on the economy, pay award levels are expected to remain subdued for the time being Pay deals across the whole economy resulted in a median 2% increase in the three months to the end of May 2014, according to the latest analysis from pay specialists XpertHR. This marks a fall from the 2.5% median increase recorded in the first three months of the year.

Settlements in the not-for-profit sector make up almost one in five of the sample of basic pay awards this quarter., analysis shows. They are set at a median 2%. And when not-for-profit deals are excluded from the private sector, the median private-sector pay settlement rises to 2.5%.

The whole economy figures for April are heavily influenced by a couple of key sectors that typically set pay awards around this time of year. Further analysis reveals that pay settlements in the public sector are centred around 1%, although 14% of groups in our current analysis have had pay frozen and several deals are weighted towards the lowest paid.

Furthermore, pay awards in the manufacturing-and-production sector, at a median 2.5%, continue to sit above those in the services sector (2%).

XpertHR Pay and Benefits editor Sheila Attwood said: “Employers are continuing to take a cautious approach to pay reviews, with settlements of 2% in the private sector at the same level as seen over the latter part of 2013.

Over the economy as a whole, four in 10 pay awards were worth the same or more than the 2.4% May 2014 retail prices index (RPI) inflation.

“Despite some positive news on the economy, pay award levels are expected to remain subdued for the time being.”

Also, private-sector pay awards are worth 2% at the However, while RPI is forecast to rise slightly median, the same as the whole economy figure. towards the end of the year, XpertHR’s latest pay

forecast survey found that private-sector employers expected to award a median 2.5% increase during 2014. Another year of below-inflation pay awards is therefore on the cards for the majority of employees.

EMEA Private Equity Market Sees Healthy Start to 2014 Strong inflows into healthcare sector and Sub-Saharan Africa

The deployment of private equity capital in the Europe, Middle East and Africa (EMEA) region reached healthy levels in the first four months of 2014 despite a hiccup in April, says S&P Capital IQ in a new report.

General partners in EMEA deployed €3.1bn more capital from January to March compared to the same period last year. However, deal volume in April was only €4.2bn versus €9.5bn in April 2013, leaving the aggregate for new entry deals at €23.2bn, or 4.5% lower than the same period last year, according to the latest quarterly EMEA Private Equity Market Snapshot report.

due to its longer term investment horizon and ability to cope with some volatility in the growth trajectory,” said Aldeco-Martinez.

Also of note, the healthcare sector saw the largest volume of capital invested in Q1 2014, at an aggregate €56.8bn. Analysis by S&P Capital IQ shows that multiples within the healthcare industry have been trending upwards since 2011/12, with average implied enterprise value/EBITDA and implied equity value/LTM net income multiples at record post-crisis highs.

“The data suggests that the healthcare sector is heating up as multiples reach close to pre-crisis The strongest trend emerging so far in 2014 has highs and deal counts begin to creep upwards in been increased activity in Sub-Saharan Africa certain sub-sectors. With indications of potentially (SSA), with private equity firms located in EMEA significant funds waiting for the appropriate opincreasing their entry level capital to €748.7mn, portunities in the traditional European healthcare or 803.1% higher than the capital deployed in the industries, according to S&P Capital IQ data, this same period last year, and raising the deal count is unlikely to change in the short term,” said Paul by 41% to 41 deals.

Bishop, senior research assistant at S&P Capital IQ. “However, the question for this industry remains The report also notes that the SSA region is whether enough high value opportunities are increasingly a destination for private equity firms currently available to support this trajectory over globally – SSA activity increased by 38% in terms the long term.” of deal counts and 262% in terms of invested capital (€806mn) compared to January-April 2013.

The latest EMEA Private Equity Market Snapshot also shows that as a destination hub for global pri“The drivers behind the growth in private equity vate equity firms, the EMEA region seems to have activity in the SSA region have been numerous lost some of the appeal it held last year. and complex,” said Silvina Aldeco-Martinez, managing director at S&P Capital IQ. Sub-Saharan Afri- “Aggregate deal volume in the EMEA PE market ca appears to be rapidly moving from an agrarian fell to €20.5bn (January-April 2014) from €29.5bn to a consumer-based economy, largely due to its (January-April 2013), a drop of 30%,” said Alderapidly expanding middle class. Furthermore, the co-Martinez. “However, deal counts have shown region has reduced its reliance on exports to Eugreater resistance to any downward pressure, rope and other developed markets, and increased declining by only 6% to 1279 new entries in 2014 its exposure to higher growth Asian economies. from the same period in 2013. In terms of exits, there was a more moderate decline of 4.7% in “The private equity market, in particular, is wellaggregate deal volume, and 8% in deal counts.” placed to capitalise on growth within the region

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Appointments Senior Promotion and Two Senior Hires at Ogier Ogier Fiduciary Services in Jersey has announced the promotion of Charles Le Cornu to Director and welcomes new directors Simon King and Jon Barratt to the funds and real estate teams respectively.

Le Cornu joined Ogier in 2006 and has 10 years of experience in the offshore financial services industry specialising in investment fund accounting and administration. Le Cornu has particular experience with private equity, venture capital and mezzanine funds.

Prior to joining Ogier in 2006, Le Cornu trained with KPMG and is a member of the Institute of Chartered Accountants in England and Wales.

Simon King joins the funds team from State Street where he most recently held the position of head of client services (EMEA), having previously managed private equity administration teams in Jersey. King also brings with him a wealth of real estate experience having worked for M&G Real Estate where he was director of transaction management and director of property legal services. King holds a diploma in company direction with the IoD. Jon Barratt joins as a director to lead the real estate team and to act as a director for a number of client companies. Barratt has 25 years of management experience, seven of which were offshore with HSBC corporate banking in Jersey with particular emphasis on offshore structured corporate real estate clients. Barratt is ACIB qualified with the Institute of Financial Services.

Paul Willing, CEO of Ogier Fiduciary Services, said: “I am delighted to announce these new appointments within Ogier Fiduciary Services. We are forecasting for each of our funds and real estate businesses to grow considerably over the next five years and I look forward to working with Charles, Jon and Simon in achieving our ambitious growth plans whilst continuing to deliver the very highest levels of client service.”

Wealth & Finance | June 2014 |

News & Appointments | June 2014

June 2014 | News & Appointments

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Chinese confidence for the future drops to record low Consumers seemingly underwent a reality check in June as the Westpac MNI China Consumer Sentiment Indicator fell sharply to the lowest level in nearly a year, in spite of signs that measures taken by the Chinese authorities have stemmed the decline in growth.

The Westpac MNI China CSI fell 7.1% to 112.6 in June from 121.2 in May, as consumers reported a broad based hit to confidence. While sentiment remained above the breakeven 100 level, meaning that optimists still outnumbered pessimists, confidence has not been this low since July 2013.

Households’ perceptions of their Personal Finances were also hit, with both Current and Expected Personal Finances falling 7.5% and 6.9% respectively. Respondents were particularly concerned about their family expenses likely due to the recent increase in consumer prices, particularly food prices.

hitting a record low. The survey has a strong track record as a reliable gauge of the future path of the economy and cautions against becoming overly optimistic that China is past the worst.”

Westpac’s Senior international economist Huw McKay commented that “Chinese consumers have reconsidered the more upbeat posture they assumed in May. While optimists continue to outnumber pessimists by a comfortable margin, precautionary savings are again on the rise as a proportion of income, with consumers now assessing that their own finances are on somewhat shakier ground.”

While general levels of confidence declined, consumers remain unperturbed by the weakening in the housing market exhibited in other data, possibly helped by action already taken by central and local governments to underpin the market. The House Price Expectations compoOf the five components that contribute to the nent, which measures the outlook for prices over Westpac MNI China CSI, three fell to the lowest level the coming six months, increased to the highest “Notwithstanding these results, consumers are since the series began in April 2007. Expectations level for more than three years in June. still positive about the six month outlook for for Business Conditions in 5 Years hit sentiment the house prices and they collectively gauge that hardest, falling to 126.4 in June from 137.7 in May. Commenting on the data, Chief Economist of it remains a ‘good time to buy a house’ on net.

Business Conditions in One Year and the Durable MNI Indicators Philip Uglow said: “While some The latter situation contrasts directly with the Buying Conditions Component also fell sharply, indicators point to a stabilisation in economic perceived wisdom of the analyst community at with the latter hovering only just above the 100 growth, consumers don’t see it lasting for long, present and accordingly requires careful watchlevel that separates optimists from pessimists. with future expectations for business conditions ing over the coming months”, he added.

Appointments Keensight Capital appoints Magdalena Svensson as investment director Keensight Capital, one of the leading players in European growth private equity, has appointed Magdalena Svensson as investment director.

Svensson benefits from 14 years of experience in the private equity industry.

Having started her career in 1998 in Sweden at Swedbank, she joined the Paris office of ABN Amro Capital in 2000. As investment manager and analyst, she was involved in the structuring and execution of over twenty investments.

She subsequently joined XAnge Private Equity in 2004, following their acquisition of ABN Amro Capital’s small cap activities, first as investment director and subsequently as partner from 2012. In the context of her different positions, Svensson has acquired specific know-how in various sectors, including technology, software, services, education and health.

Jean-Michel Beghin, managing partner at Keensight Capital, said: “We are delighted to welcome Magdalena as part of our team. She is a seasoned professional with extensive knowledge and experience in the new technology, services, and healthcare sectors. Her international profile, which fits perfectly with our culture, will allow her to efficiently implement our investment strategy of accompanying fast-growing companies across Europe”.

Svensson, 38, holds an MBA from INSEAD and is a graduate of the University of Gothenburg, Sweden in finance.

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Wealth & Finance | June 2014 |

News & Appointments | June 2014

June 2014 | News & Appointments

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Pine Brook Opens Houston Office

Appointments

More Women Aged 65+ to Be in Paid Work by 2020

Keefe, Bruyette & Woods hires Alessandro Santoni to European research team

New York-based investment firm, Pine Brook has announced the opening of a new office in Houston, Texas.

Keefe, Bruyette & Woods (KBW), a full-service, boutique investment bank and broker-dealer that specialises in the financial services sector, and a wholly owned subsidiary of Stifel Financial Corp. has announced the appointment of Alessandro Santoni to its European equity research team as managing director where he will be responsible for coverage of Italian, Greek and Austrian banks. He will also oversee the firm’s emerging market bank research.

“KBW is committed to growing our presence in Europe and we’re investing the necessary resources to ensure that our clients have access to the best subject-matter experts providing unbiased recommendations to help them navigate the constantly changing financial landscape,” said Thomas B. Michaud, CEO of KBW.

Tomorrow’s older population will also not look like today’s, according to a new report Life at older ages will look very different for women in the early 2020s than it does today.

They are likely to be healthier, their husbands will live longer, and they will be much more likely to be in paid work.

These are among the main findings of The Changing Face of Retirement, a new report published today by the Institute for Fiscal Studies (IFS) and funded by the Joseph Rowntree Foundation and the IFS Retirement Saving Consortium, with support from the Economic and Social Research Council. The study projects the demographic and financial circumstances of those aged 65 and over in England up to 2022–23.

that far fewer pensioners will be living alone in the future. IFS projects that 38% of people aged 85 and over will live in couples in 2022–23, up from 25% in 2010–11. This would accelerate a trend which has already seen the proportion of those aged 85 and over living in couples increase by about 10 percentage points between 1990 and 2010.

The projected increase in employment rates of older women is driven by improvements in health and, in particular, the rise in the female state pension age from 60 in 2010 to 66 in 2020.

The additional female workers are drawn predominantly from women in good health.

Over the 2000s, the incomes of those aged 65 and over rose by 2.8% per year on average (faster than The health of older women is improving. Within for younger individuals), as state pensions and each age group the proportion of women with benefits and private pensions grew rapidly. IFS no substantial health problems is projected to projects that the incomes of this group will grow rise by more than 5 percentage points: for exam- slowly between 2010–11 and 2014–15, before ple among those aged 65 to 74 it is projected to recovering to grow by 2.0% per year over the increase from 39% to 47%. period from 2014–15 to 2022–23. This growth will be driven more by increased earnings and private Over the decade from 2012 to 2022 the popula- Employment rates for women in their late 60s, al- pensions than by state pensions and benefits. tion aged 65 and over is projected to increase by ready at their highest level for forty years, are set 22% (from 17% to 20% of the overall population). to increase faster and approach or even overtake The net incomes of 65 to 74 year olds will grow Tomorrow’s older population will also not look men’s in the early 2020s. IFS projects that 37% by 3% per year on average between 2014–15 and like today’s. of women aged 65 to 69 will be in paid work in 2022–23, boosted by higher gross earnings. Net 2020–21, compared to 16% in 2010–11 and just income among those aged 75 and over will only Increasing life expectancy, plus the fact that mor- 8% in 2000. Meanwhile, male employment rates grow half as fast, at 1.6% per year. tality rates are lower for those in couples, means for this age group rise from 29% to 33%.

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Between 2010–11 and 2022–23, gross earnings are projected to grow by an average of 8% per year among those aged 65 to 74. Gross private pension income for this group is projected to grow at 5% per year – faster than projected growth for older age groups (a reversal of trends seen in the previous decade).

Incomes for the poorest pensioners will grow by about 1% per year in real terms, assuming their state pensions and benefits rise as currently planned. As both earnings and private pensions are forecast to grow faster than this, income inequality among those aged 65 and over is projected to grow.

Katy Heald, a senior researcher at the IFS and an author of the report, said: “Employment rates for women in their late 60s will increase further and faster over the next few years, approaching or even overtaking those among men of the same age. This reflects improving health, as well as being a response to the rising state pension age.

Of course, while increasing earnings will boost the incomes of these women, longer working lives will not necessarily leave them better off in a broader sense.”

Andrew Hood, a research economist at the IFS and also an author of the report, said: “The next decade or so will see a big fall in the proportion of older pensioners living alone. This is good “Absolute” income poverty for those aged 65 news as people in couples are healthier, less and over, using a benchmark uprated in line with lonely, and have higher incomes. Incomes of the CPI, will fall from 20.1% in 2014–15 to 12.7% those aged 65 and over in general will also conin 2022–23, around a third of its 2000–01 level. tinue to rise, partly reflecting higher employment This is driven by real income growth of 2.0% per rates. As a result, levels of poverty among this year over that period. As income poverty among group will keep falling, particularly for couples, those in couples is projected to fall faster, pover- and income poverty will become increasingly ty among the over 65s will become increasingly concentrated among older single women.” concentrated among single women.

Most recently, Santoni served as head of strategy, research and investor relations at Banca Monte dei Paschi di Siena (BMPS), Italy’s third largest bank. Prior to that, he was head of the Southern European banks team at Goldman Sachs. Earlier in his career, Santoni was responsible for equity research coverage of Italian banks at ABN AMRO Bank N.V. in London. He earned a PhD in cognitive science-economics from the University of Siena, a master’s in economics at Bocconi and three degrees. In addition, he is currently finalising his executive MBA from Columbia Business School, Hong Kong University and the London Business School.

Santoni will be based in KBW’s London office and will report to Fred Cannon, global director of research at KBW. His appointment is effective 15 July 2014.

“We are pleased to welcome Alessandro to KBW and expect him to assume a key leadership role advising on European retail bank strategy,” said Cannon. “His background both inside the banking sector and from the outside looking in provides a unique perspective on the issues facing these companies and adds tremendous value to our clients.”

Keefe, Bruyette & Woods currently provides equity research coverage on 576 financial services companies across North America, Europe and Asia.

Wealth & Finance | June 2014 |

Steering Clear of the

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Brin

Business trouble means different things to each of us at different times. The perception differs depending on the stakeholder, but the fear is always the same – loss of their investment (money, time, energy, good will, reputation). The anticipation of loss is unacceptable. No one likes to lose –anything.

Lenders, creditors, and shareholders may lose their investment. Owners can face financial ruin, disgrace, or humiliation. But worst of all, the employees have the most to lose. They can lose a life force, their income, and have little to say over the decisions that impacted that loss. In these times of miserable job climate, stubborn economic recovery, and uncertain accounting practices, this loss can be the most devastating.

Top management is often aware that problems exist. The trouble is, they wait too long to do anything about them. Why? Perhaps it’s hope: “Things will get better soon.” Perchance it’s naiveté: “Management doesn’t know how to manage in this situation.” Maybe it’s guilt: “If I’d been a better manager, I wouldn’t be facing failure in the first place.” Perhaps it’s Founders Syndrome: The owner believes that only they can run the company. But what is the most dangerous trouble of all? Denial. Denial makes owners or managers unwilling to admit that problems even exist. Or worse, it can blind them to the very problems that are heading their companies toward sure demise. Here’s the bottom line: The longer it takes to get necessary help, the harder it will be to relieve the trouble and the more risk you assume.

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When a company is in trouble, the rules change.

Management is often “out of its element” entering untrodden ground. People haven’t had to manage in this environment before. Why will they succeed now? The odds are that they will, at the very least, have difficulty.

Let’s put this leadership role into proper perspective. Leadership requirements differ between those for healthy, growing companies and for those in a troubled situation. The CEO that managed the company into trouble clearly is lacking the skills to doctor it back to health.

Time and again, the obvious signs of business trouble are rarely its root causes. Losing money, for example, isn’t the problem. Rather, losing money is the result of other problems. Diminishing sales, declining profits, mass employee exit, creditor suits, the threat of bank foreclosure, and no cash are only part of the equation. These problems can be repaired. The true dilemma becomes, who can handle the crisis management role?

Differences in style are a key to success, in either situation. In the growth scenario, team building and coaching are buzzwords. But in the initial crisis and subsequent turnaround situation, time is an enemy.

Decisive action is required.

To save the company you must change the style of leadership to affect change. Clear thinking must prevail and a special set of skills must be applied.

If there is a qualified leader within the company, then delegate the job of turnaround to them, and provide proper support. If there is not a qualified leader in the company, and there usually isn’t, don’t hesitate to locate a professional at this type of work.

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Top management is often aware that problems exist. The trouble is, they wait too long to do anything about them. Why?

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hether you are an investor, serve on a board of directors, own or manage a company, you face business risks. All of the stakeholders accept additional risk when the company is heading for trouble. Balancing these risks can cause a predicament. By recognising some early warning signs that indicate business trouble on the horizon, you can eliminate, overcome, or, at the very least, side step many of those risks.

The focus is dramatically different. This is one reason why the troubled environment is so foreign to many managers, and hence, the difficulty finding qualified talent from within the company. The stable environment allows for mistakes and longer lead cycles to achieve goals. Troubled companies have one goal – to survive and get well. If the symptoms persist with no cure, the patient can die.

If the leaders who were in power while the company’s position was allowed to deteriorate are still there, why should the lender believe that they would now be instrumental in correcting the situation?

To make matters worse, in the eyes of management, the lender is often viewed as an enemy instead of a key part of the turnaround equation. With all the suspicion that can surround a troubled company, it is important that trust be re-established with the bank. Credibility with the lenders is mandatory to success – and to keeping that cash flow at the bank.

Since the bank holds the trump card, the institution must feel comfortable working with the turnaround leader. It means laying everything out on the table to keep the situation honest – and honouring commitments made to the lender.

John M. Collard, Chairman and CEO at Strategic Management Partners Inc, says early warning signs can pinpoint business troubles — and changing the leadership style can help to achieve a turnaround...

The ability to deal with change at a rapid pace is essential. This is why a seasoned practitioner can be the answer to a successful turnaround plan; they’ve “been there, done that.”

“When it rains, it pours” may be clichéd, but when applied to a troubled company, one can be sure that “Murphy is shaking the clouds.”

Remember, not all companies are salvageable.

The fact-finding must proceed as quickly as possible so that a realistic assessment of the current state of the company can be prepared. The specialist’s first priority will be to manage cash flow — to stop the haemorrhage. Analysis of sales and profit centres and asset utilisation should indicate where the real problems – not the symptoms – are located. Next, a business plan outlining and suggesting possible courses of action – or cures – will be prepared.

Following this diagnostic stage, the transition can begin towards a turnaround. Most importantly, the leader needs to get things moving again. Once the course of action is chosen, implementation and monitoring can occur. The specialist should remain involved at least until the business is stabilised, and preferably until the transformation is complete and a new leader is found.

Who can help these besieged businesses?

Turnaround specialists generally are either interim managers or consultants. These leaders didn’t start out as such – they were often managers that worked their way up the corporate ladder through hard work and (hopefully) fair play to build a solid management reputation. They have developed a set of skills to handle problem solving, getting results with minimal resources, (tight) cash flow management, negotiating and dealing with bankers, investors and creditors. The stakeholders will usually work with a turnaround leader – if he/she is credible.

Consultants are often a choice of the management team. Why? Because they are an advisor, they offer recommendations to management. Often the same management that guided the company into trouble in the first place. Why will they make those decisions now? Why risk allowing the same person to try again? Whether a consultant is effective depends upon management’s willingness to listen and implement the specialist’s recommendations.

Practitioners, by contrast, are hands-on decision makers who actually take control – often as CEO –for a period of time. They are in control of the company’s destiny, take decision-making reins, plot the course, and steer the company through troubled waters, hopefully to safety. They must have an active line manager orientation, be decisive, isolate problems and find solutions quickly.

Be assured there are countless cases where existing management agreed to work with a turnaround consultant only to placate the board or the lender.

There is no substitute for qualified leaders with decision-making authority.

Too often, companies die unnecessarily. Why? Because, most leaders haven’t learned to recognise the symptoms of oncoming illness in their business.

When you wait too long to recognise deteriorating characteristics the company seeks bankruptcy protection. Only attorneys and accountants benefit from this process. It’s the astute lender or manager that recognises infallibility, and has the foresight to ask for help – before serious trouble sets in.

One thing’s sure: the longer you wait to admit that the company is heading for trouble, the more difficult the resulting problems will be to solve. Getting to the real issues is the catalyst toward change – and recovery.

And that’s a much more acceptable risk.

Wealth & Finance | June 2014 |

Funds | How to Enjoy Your Retirement

Funds | How to Enjoy Your Retirement

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Reece Fallaize, senior technical manager at deVere Group, gives us three top retirement-planning kickstarter tips for baby boomers

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“Naturally, for those in their 20s and 30s, the key to avoiding this issue would be to start saving as much as possible as early as possible in order to accumulate a larger pot,” says Reece Fallaize, senior technical manager at deVere Group. “But how can those who have recently retired or who are about to kickstart their retirement planning and potentially avoid having to considerably downsize their retirement ambitions and lifestyle?”

To address this question, deVere Group, which has

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80,000 clients and US$10bn under advice, has released a set of “retirement planning kickstarter tips”.

“The first tip is to review your pension annually, just like a company produces accounts on an annual basis and can plan ahead based on those results,” says Fallaize. “Markets are constantly changing therefore your pension should reflect the current and forecast market conditions for optimum results.”

“The second tip is to know the benefits of your pension. What will your income be? What is it likely to be in the future? And, more importantly, when can you receive it? What about a spousal pension and a guaranteed minimum pension? Knowing exactly what benefits you have or don’t have will enable you to plan ahead more effectively, and subsequently make other suitable arrangements if necessary.

“And the third tip is to be aware of pension charges, or to be broader be aware of ‘pension costs’, which

are all the things that erode your overall pension income. These are namely charges, inflation and, of course, taxation. We often find individuals who are content with 2 to 3 per cent growth per year, but once we factor-in charges and inflation the real value of their pension is being decreased annually.

“As a starting point, people should find out what charges you are paying and see if you are getting the best deal possible. Charges alone can make a significant difference to your overall retirement income.”

“The world has changed in recent years – and baby boomers are the first generation in a new era of retirement,” Fallaize says. “Many people are now retired for more than a third of their lives and retirement planning strategies have to reflect this fresh reality.

“By following these tips, baby boomers should be on track to revive and boost their retirement plan and keep it in-check.”

Many so-called ‘baby boomers’ are coming to a depressing realisation: there just might not be enough in their pension pots to last throughout their retirement, or enough to enable them to enjoy the retirement they had envisaged

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How to Enjoy Your Retirement

These days, retirement can last for four decades.

And with life expectancy increasing, financial support from the state dwindling, the cost of living, medical and care set to rise further over the longer-term, rock bottom interest rates and annuities, many so-called “baby boomers” are coming to a depressing realisation: there just might not be enough in their pension pots to last throughout their retirement, or enough to enable them to enjoy the retirement they had envisaged.

Wealth & Finance | June 2014 |

Markets Matters | How to Invest in Oil

Wealth Corner | Profit From Your Passion

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how to invest in

oil

Commodity traders Bluenose Capital Management give us some pointers on investing in black gold You’ve heard the success stories about investors who have made money investing in “Black Gold” and “Texas Tea”, otherwise known as oil, and you are looking for a way to participate too! The question is how?

The oil market can be very confusing to both the professional and individual investor, with large price fluctuations occurring on a daily basis. The largest fundamental influence on the oil market is supply and demand. When demand increases and production stays the same, oil prices generally increase. When demand lessens and production continues at the same pace then oil prices are likely to decline. This is just one of a multitude of factors that contribute to

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the price of oil. Additional factors include: geopolitical risk; shocks to the supply chain, for example pipeline shut downs; extreme weather/hurricanes; and seasonal changes in demand.

Increasingly, the activities of commodity investors and speculators bidding on oil futures contracts, companies hedging actual exposure to oil and many major institutional investors, such as pension and endowment funds have contributed to the fluctuations on the price of oil. Many attribute wide short-term swings in oil prices to these speculators, while others believe their influence is minimal.

Wealth & Finance | June 2014 |

Markets Matters | How to Invest in Oil

Regardless of the underlying reasons for changes in oil prices, investors who want to capitalise on oil price fluctuations have a number of options. A relatively easy way for the average person to invest in oil is through the stocks of oil drilling and service companies. In addition to stocks, there are mutual funds, exchange traded funds (ETFs) and exchange-traded notes (ETNs), which may invest in oil futures contracts rather than common stocks.

A drawback to these types of investments is that you can only be one-sided, meaning you are either long or short. Profit or loss is determined by the price direction. One investment option that can be profitable regardless of the direction of oil prices is the writing of options on oil futures contracts.

How should you invest In oil? Bluenose Capital Management, LLC (BNC), a Commodity Trading Advisor (CTA) in the DC metro area, offers two trading programs in the oil complex. Our programs offer a simple and efficient way to expose an investor’s portfolio to the price and performance of oil without actually owning it. We believe the best way to invest in this complex market is to incorporate the use of options on the oil futures contract which will allow the investor an opportunity to profit in rising, declining and flat markets.

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Regardless of the underlying reasons for changes in oil prices, investors who want to capitalise on oil price fluctuations have a number of options.

A relatively easy way for the average person to invest in oil is through the stocks of oil drilling and service companies

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How to Invest in Oil | Markets Matters

Disclaimer: investing in futures contracts is extremely risky, and can often involve leveraged purchasing. You may experience the loss of your entire investment, and potentially more. If you are seeking preservation of capital or will be taking regular distributions, an investment in oil may not be prudent for your portfolio. The fluctuating prices of oil will require investors to be able to withstand dramatic drops in principal and could potentially delay a desired exit-point.

In both of BNC’s programs, investors do not actually own oil; each individual account consists of options contracts on crude oil, which gives investors exposure to the price of oil. By investing in the BNC CL & CC programs, you have the ability to make money in either rising, falling or sideways markets.

There are a number of things to consider before investing. As with all investments, make sure you do your research and/or consult with an investment professional prior to committing your money. You should determine if your investment portfolio can handle the volatility of an oil-correlated investment.

Fluctuations over the short-term can be tremendous which could cause an investment in oil to have large swings over short time periods. Investors in oil-based holdings should be comfortable with wide swings in value. You should also find the proper investment vehicle based on your objectives and available risk capital.

Where do I go from here? Investors wishing to allocate US$15,000 or more of their portfolio to oil should consider opening a managed account with Bluenose Capital Management. Establishing an account will give you the opportunity to benefit from investing in the oil market and achieving success regardless of the direction of the price movement in oil. Opening an account is relatively easy and your broker will assist you in the account opening process. We are here if you have any questions.

| Wealth & Finance | June 2014

Wealth & Finance | June 2014 |

| Wealth & Finance | June 2014

Wealth & Finance | June 2014 |

Regulation Review | Conflicts of Interest

Conflicts of Interest | Regulation Review

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Conflicts of Interest Inherent battles within insurance intermediaries are not being properly managed, a review by the Financial Conduct Authority (FCA) has found After looking at seven of the largest intermediaries who serve small business clients, the FCA has concluded that in some firms, control frameworks and management information have not developed at the same pace as business models.

Research into the understanding of small business customers also demonstrated that few understood that there was a possibility for their insurance intermediary to be conflicted.

Clive Adamson, director of supervision at the FCA, said: “Small businesses are experts in their particular field but are often not experienced in buying insurance. That is why they need to be able to trust their insurance intermediary to act in their best interests. If there are conflicts of interest that are not identified or properly managed, that trust is put at risk.”

Insurance intermediaries can play a number of roles in the distribution chain, sometimes acting as agent for the insurer as well as the customer.

These different obligations and the way intermediaries are remunerated create the potential for conflicts of interest that need to be actively managed.

The FCA focused its review on small business customers as they have more complex insurance needs than retail clients but are not always more sophisticated buyers of insurance. As a result, small businesses often rely on insurance intermediaries for advice. The FCA wanted to establish how the flow of revenue from insurers or other sources to intermediaries could affect how customers were treated. It found that:

• disclosure provided to customers was sometimes very generic and unlikely to meet their information needs or enhance their understanding; and • conflicts of interest were not always effectively mitigated in relation to add-on insurance or services, premium finance or where the cost of insurance is borne by a third party.

Consumer research also revealed that small businesses are not aware of the differing roles intermediaries can perform. Many (68%) believed that intermediaries acted as their agent when selecting and placing their insurance. Further, a large majority (86%) of small business policyholders expected their insurance intermediary to search for more than one quote, which was not consistent with placement processes within some intermediary firms.

The FCA is concerned that if conflicts are not properly managed there is the risk that decisions are made in the interest of firms rather than their small business customers. This could result in some small businesses over-paying or buying products they don’t need.

Whilst the FCA’s review focused on larger firms, all intermediaries should take note of the findings and ensure any conflicts are appropriately managed. The regulator will be working closely with the industry to communicate the results of the review and, with the firms involved, will use appropriate regulatory tools to address specific issues.

• there was increased risk of conflicting interests where firms fulfilled multiple roles in the distribution chain and acted as agent for both the customer and insurer in the same transaction; • the control framework and management information in some firms had not developed in line with changes in the size and complexity of the business; • some intermediaries relied on disclosure as the main way to address conflicts of interest rather than having effective control frameworks in place;

| Wealth & Finance | June 2014

Wealth & Finance | June 2014 |

Regulation Review | Risky Business

Report Predicts Slow Recovery for Wind Energy Market | Markets Matters

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Risky

Business

We take a look at how the investment management industry can guard against rogue traders

While examples of “rogue trading” can be found over a century ago, the practice first came to the fore of the British finance industry in 1995, with the collapse of Barings Bank following huge losses by derivatives trader Nick Leeson. The scale of Leeson’s gambling, and the ease with which he was able to carry out highly unscrupulous transactions, present investment banks and wealth managers with serious reason for concern.

continuing battle is the driving force behind new insurance policies and products designed by Baronsmead to protect and reassure fund managers and investors alike. The issue of providing insurance cover for rogue trading can be complex because there is the potential for a manager to suffer both first and third party losses from its rogue traders.

Through fraudulent, unauthorised derivatives trading, Leeson cost the bank a total £827m, leading to the bank’s closure. While the losses Leeson incurred have since been dwarfed by similar cases over the past decade, his actions put the issue of rogue trading on the agenda in the UK.

As well as a potentially large loss of revenue through unauthorised trading, firms also face risk of action from investors and regulators. Investors can sue the fund manager for negligence in failing to act and prevent such rogue actions and this leaves them at risk from compensation to be paid out to investors and fines to the regulators.

The high profile cases of Leeson, Adoboli, Kerviel and others lead to a common association of rogue trading as a danger for banks. However, the investment management industry is also at risk, as we witnessed recently with Aviva Investors. The fund management arm of Aviva has been forced to set aside £126m for compensation and £6m for costs after two employees violated the group’s trading policy by booking profitable trades to third party hedge funds rather than Aviva’s funds.

The main reason for this perception is that it is much more feasible for hedge funds and investment managers to take effective, preventative steps to mitigate any risk of rogue trading. Primarily, this is due to the size of the average manager, with the majority of firms having less than 50 staff. This makes for a more cohesive and transparent operation, in which accountability is greater. There are also the changes in technology, which have made it more difficult to simply hide mistakes. These factors, coupled with an increase in the authority of back office staff, have made it much harder for rogue traders.

However, hedge funds still remain at risk, as rogue traders have proven evasive enough to evolve alongside technology and legislation. This

| Wealth & Finance | June 2014

There is potentially a grey area when it comes to rogue trading insurance cover, as some unauthorised actions could actually be mistakes, errors in recording or even negligence.

So third party investor claims against a manger for negligent supervision of the trading activities should be reasonably easy to insure under a professional indemnity insurance policy. More difficult to insure is the direct loss to the manager from the rogue trading and this is because many rogue trading problems stem from a desire to cover up poor trading performance rather than any intent to cause any loss to the manager or to make any personal gain for the trader.

This grey area of cover has led Baronsmead to develop its first party insurance cover for managers for the rogue trading activities of their staff. This is a relatively unique product offered by Baronsmead, and thus far has been received well by the market.

Underwritten by Apsley Specialty Ltd, the asset management specialist insurer, Baronmead’s cover means that investors can sue funds for negligence as a result of rogue traders.

Wealth & Finance | June 2014 |

Finance Focus | Luck of the Irish

Luck of the Irish | Finance Focus

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Lorcan Tiernan and Adrian Benson, senior partners at Irish law firm Dillon Eustace, give us an insight into last year’s blockbuster merger between Irish pharmaceuticals company Elan and US drug firm Perrigo – a transaction that’s part of a growing trend of US companies moving to the Emerald Isle

A characteristic of Ireland that possibly makes it unique amongst host jurisdictions is its young educated population, position in and history with the EU, efficient regulatory regime and a pro-business, hard-working attitude. What this has meant is that companies domiciling here do not simply put up a name plate, appoint fine boardrooms and host quarterly board meetings.

An increasing number are expanding staff numbers, opening manufacturing and/or R&D facilities and embracing what the country has to offer as a stepping stone to Europe and beyond.

This trend has impacted on the mergers market in Ireland and has resulted in a steady stream of sophisticated mergers between US acquirers and Irish targets.

2013 saw two “blockbuster” deals of this type – Actavis’ US$8.5bn takeover of Warner Chilcott and the more recent US$8.6bn acquisition of Elan Corporation plc

by Perrigo Company. The Perrigo/Elan transaction is a textbook example of how these transactions are structured.

Elan Corporation Plc is a well-known and storied home grown “boom to bust and back to boom” story that has captured the Irish corporate imagination down through the years. The drama of its eventual merging into Perrigo served this narrative well.

Founded in 1969 by Dan Panoz, Elan became the darling of the Irish Stock Exchange and reached heady heights with a market capitalisation of over US$20bn by 2001. Following Securities and Exchange Commission charges of accounting irregularities, the company’s share price collapsed from a high of US$70 to US$5, leaving a considerable number of previously exuberant investors licking their wounds. However, the company survived and under the guidance of a former Merrill Lynch banker, Kelly Martin, began a painstaking restructuring process.

It helps of course to have a blockbuster drug in your locker and Elan had Tysabri, a drug used in the treatment of multiple sclerosis. However even at this point the road wasn’t to be smooth with the share price clawing its way back only to collapse in 2004 and again in 2008 when concerns emerged around the drug.

In early 2013 Elan licensed Tysabri to Biogen for an upfront payment of US$3.25bn and perpetual royalties.

The announcement of this deal seemed to solidify the interest of Royalty Pharma, a fund specialising in mopping up royalty interests that had previously expressed some interest in acquiring Elan. In 2013 alone, Tysabri accumulated revenues of US$1.6bn. In late February

| Wealth & Finance | June 2014

2013, Royalty Pharma made an indicative offer of US$6.6bn in cash for the company. This offer was not warmly received and kicked off an acrimonious hostile takeover process – an unusual and rarely successful creature on the Irish landscape – which ultimately led to Elan initiating a formal sales process in June.

Perrigo Company, the ultimate acquirer of Elan, has itself a long and storied history having been founded in 1887 in Allegan, Michigan – albeit a more low profile presence than its target. Having grown into the world’s largest manufacturer of generic OTC pharmaceuticals, the company has expanded exponentially beyond its home base through acquisitions in Israel, the UK and Australasia as well as a number of strategic purchases in the US.

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A unique characteristic of Ireland among host jurisdictions is its young educated population, position in and history with the EU, efficient regulatory regime and a pro-business, hardworking attitude

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Luck of the

Ireland has been one of a number of jurisdictions worldwide competing for the domiciliation of US companies to its shores. Over the years this has seen a number of companies domicile here –Accenture, Jazz Pharmaceuticals, Willis and Eaton Corporation to name a few. The main reason touted for this growing trend has been the more favourable and transparent tax regime in Ireland and, although that is a factor, it is only one.

While undoubtedly the benefits to Perrigo arising from the transaction have included substantial synergies driven to a certain degree by the tax savings (Perrigo now take advantage of Ireland’s 12.5% corporate tax rate and after tax operational synergies and related cost reductions they hope to achieve tax savings greater than US$150m) Perrigo’s CEO Joe Papa (who has led the group in 17 acquisitions) is on record as describing Ireland as the “perfect gateway” in the group’s expansion plans. He believes that the group is in a stronger position to make further acquisitions and has strengthened their business and financial profile. The new structure has provided Perrigo with a diversified platform for further expansion. Perrigo now have their headquarters in Ireland which is home to most of the world’s top 10 pharmaceutical companies with the sector employing 24,000 here.

The structure of the deal followed what has become a relatively well-worn path for similar acquisitions of this type of Irish company, primarily in the pharmaceutical space (there are no sector constraints explaining this but it appears to be how the market has evolved – the structure would work equally well in any sector or industry).

The transaction involved the creation of a new Irish holding company (New Perrigo) which acquired Elan by way of an Irish High Court sanctioned scheme of arrangement. This resulted in Elan becoming a wholly owned subsidiary of New Perrigo with the Elan shareholders holding approximately 29% of the shares in New Perrigo.

One of the benefits of following the scheme of arrangement route is that once the necessary majority of Elan shareholder approval is met (being a majority in number representing 75% in value of shareholders voting) the transaction becomes binding on all shareholders, doing away with the necessity to “squeezeout” any unhappy minorities. It is worth noting that at the Extraordinary General Meeting of Elan, 99.5% of the shares represented at the meeting voted in favour of the acquisition.

A second advantage is that the transfer of shares under a court sanctioned scheme of arrangement does not attract Irish stamp duty at the rate of 1% of the market value of the shares. However it does introduce an extra lair of “approval” following the shareholder vote in the open forum of an Irish court room which, theoretically at least, introduces some element of execution risk over and above a typical merger.

On the US side of the equation, an indirect wholly owned subsidiary of New Perrigo was formed and merged with Perrigo Company, the Michigan corporation, with each outstanding share of Perrigo Company common stock being cancelled and converted into the right to receive one New Perrigo share.

As part of the financing for the deal, Perrigo entered into a number of unsecured credit agreements and an issuance of senior secured notes. Dillon Eustace acted as listing agent for Perrigo in the listing of US$500m 1.3% senior secured notes due 2016, US$600m 2.3% senior secured notes due 2018, US$800m 4.0% senior secured notes due 2023, US$400m 5.3% senior secured notes due 2043. The notes were listed on the global exchange market of the Irish Stock Exchange on 8 November 2013.

The deal completed towards the middle of December.

Upon completion, Perrigo had mobilised available cash of approximately US$1.7bn which was used to finance the acquisition and repay existing indebtedness of both Elan and the Perrigo group of companies.

This type of transaction , while not unique, is multi-faceted and complex involving as it did in the Perrigo/Elan case considerations of Irish Takeover Panel Rules, SEC requirements, US, Israeli and Irish listing requirements (Perrigo issued and listed bonds on the Irish Stock Exchange), an Irish Court approval process, large scale financing as well as sophisticated tax structuring. As such it requires a certain degree of scale to justify the cost although the experiences of those who have taken this particular path to our shores would suggest that it has been worth it.

Wealth & Finance | June 2014 |

Finance Focus | An Attractive Opportunity

An Attractive Opportunity | Finance Focus

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An Attractive Opportunity Aberdeen Asset Managers Ltd talk us through the continuing rise of alternative investments

Nevertheless, before investors begin to paint banners and think of holding up damning statements on picket lines we believe there is a solution to this dilemma.

The mere combination of the words “alternative” and “investments” used to send shivers up most investors’ spines. However, once explained in plain simple English these types of assets can in many cases be appropriate for a wide range of portfolios.

So, what do we mean when we say alternative investments? Well, the term is typically used to describe any asset class that is not equities, fixed income, property or cash. Private equity, commodities and hedge funds are popular examples but anything from stamps to fine wine have also fallen under this umbrella.

The risks associated with such investments? Alternative investments are often more illiquid and can be more expensive to buy and sell than traditional asset classes.

This means that they should only really be considered as a longer-term investment. However, the upside of these additional risks is that they have the ability to enhance potential returns, diversify risk and serve to lower the overall volatility of the portfolio.

Hedge funds stick out as the most well-known example of alternative investments. Perceived by many as a higher risk investment, they can allow for better risk-adjusted returns if included as part of a broader investment portfolio. What is the best way to gain exposure to hedge funds? In our view, a “fund of” hedge funds approach is likely to be the most appropriate choice. Yes, this does lead to additional fees but investors can benefit from the skill of dedicated specialists who can pick the most appropriate strategies for the investment environment.

| Wealth & Finance | June 2014

Private equity investing offers many benefits, one of which is that it allows investors to capture opportunities in innovative technologies that may not yet be available via stock market listed companies. Many technologies that have now emerged into wider public awareness, such as 3D printing, owe their existence to initial private equity funding. Private equity owned companies go on to deliver other advantages, particularly when compared to public companies. Executive management teams of companies listed on, for example, the S&P500, can find the rigours of regular public reporting requirements a distraction from growing the business. The more cynical commentators argue that stock markets have merely become exchanges to facilitate M&A activity between quoted companies, rather than act as a public access point into a company’s growth potential. Private companies backed by private equity offer investors a different approach to achieving returns.

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The mere combination of the words ‘alternative’ and ‘investments’ used to send shivers up most investors’ spines. However, once explained in plain simple English these types of assets can in many cases be appropriate for a wide range of portfolios

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Traditional investments have had their fair share of criticism recently. In the midst of an (albeit slowly) accelerating global economy many investors have raised concerns over the seemingly endless positive run for developed stock markets, especially given the lack of underlying sales or revenue generation. On the other hand, government or investment grade bonds continue to be criticised for failing to meet even some of the most basic valuation metrics. In fact in some recent quarters we have seen the correlation of returns between government bonds and equities turn increasingly positive leading to some anxious moments when both fall at the same time. Indeed, investors appear to be stuck between a rock and a hard place.

Managers can be more intelligently incentivised to deliver returns through innovative performance-linked pay.

Admittedly, private equity ownership by nature can seem tough, yet in reality very effective in getting the best out of businesses. This approach has consistently proven effective in unlocking hidden potential, often leading to higher rates of return compared to traditional asset classes. Although both public and private company valuations have risen in recent years, private equity managers continue to prove that they are effective stewards of investors’ capital.

Infrastructure as an alternative investment is persuasive too, providing investors with attractive growth prospects and the benefits of diversification. At its heart, the asset class encompasses the system of public works in a country, state or region, including transport, utilities, communication and energy. Investments can generate stable cash flows over the long term, and projects can enjoy limited competition, often resulting from natural monopolies, concessions or government regulation. In addition, projects tend to be capital intensive and benefit from economies of scale with high fixed and low variable costs.

Emerging market infrastructure opportunities appear to be especially attractive. While advanced economies face the challenge of maintaining, upgrading and modernising their extensive infrastructure networks, emerging economies have to dedicate a large proportion of national income just to meet basic human development needs. This growing awareness coupled with historical under investment in infrastructure and the emergence of new middle classes, has led to a number of opportunities for private sector involvement to help finance, build and operate projects.

The current outlook for investing can be spun with both positive and negative connotations, and yes there may be no obvious value left in many mainstream investment opportunities, particularly if their returns become more correlated, but it would be premature to lose all hope just yet.

Alternative investments are available that can help improve the return dynamics of an overall portfolio. So while the current environment may be challenging, on reflection it may just act as an opportunity for investors to uncover and learn about opportunities they never knew existed.

The value of investments and the income from them can go down as well as up, and your clients may get back less than the amount invested.

Wealth & Finance | June 2014 |

Risk Management | The Importance of Business Accountancy

Tax Reform in Cambodia: Are we witnessing the first green shoots? | Taxing Times

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The Importance of Business Accountancy In an extract from his new book, The Art of Company Valuation and Financial Statement Analysis, Nicolas Schmidlin delves into the myriad different types of accounting systems

| Wealth & Finance | June 2014

United States. This set of rules, the US Generally Accepted Accounting Principles, or US GAAP for short, governs the accounting principles for all companies subject to Securities and Exchange Commission (SEC) regulation.

On the other side of the Atlantic, beginning in 1973, the European Union began harmonizing the diverse accounting rules of its member countries. This process eventually culminated in the creation of the International Financial Reporting Standards. The IFRS have so far been adopted by more than 100 countries, including all the members of the European Union, Hong

Kong, Australia, Russia, Brazil and Canada.

Whilst there are several differences between the US GAAP and IFRS, both accounting systems are based on a similar set of principles and are, by and large, comparable. Following the previously mentioned international harmonization of accounting standards around the globe, a key future milestone is the planned full adoption of the International Financial Reporting Standards by the SEC. This adoption, when it occurs, will also require US companies to employ the IFRS, which will effectively unify the accounting standards in most developed countries. This process,

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Whilst the accounting systems in the US and Europe are by and large comparable, the outward appearance of the annual reports is not

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The precursors of today’s accounting rules came into being after the stock market crash of 1929, when the American Institute of Accountants’ special committee first proposed a list of generally applicable accounting principles. By 1939, the first Committee on Accounting Procedure was created in the US in order to establish a coherent and reliable system of accounting standards. This set of rules was meant to tackle the rather dubious and unreliable accounting procedures and helped to restore the trust in financial statements published by listed companies. Now the Financial Accounting Standards Board (FASB) prescribes the main accounting standards in the

Wealth & Finance | June 2014 |

Risk Management | The Importance of Business Accountancy

The Importance of Business Accountancy | Risk Management

additional information and graphs that can be included in European-style reports have at least the potential of being suggestive. Given the laxer rules, European annual reports also exhibit a considerably lower degree of comparability than their US counterparts. US annual (10-K) and quarterly reports (10-Q) can also be easily accessed via the SEC web page, whereas the reports of European companies can only be obtained directly from their respective investor relations websites.

Having said this, it must be mentioned that the SEC’s EDGAR system to access 10-K and 10-Q filing isn’t the most user-friendly. Retrieving company reports may sometimes be faster by simply searching for the term ‘company name + Investor Relations’ in a search engine.

Listed companies usually publish interim reports on a quarterly basis as well as a more detailed and extensive annual report at the end of each fiscal year. Smaller companies, whose stock is traded in less regulated markets, often face less rigorous reporting obligations. In this case issuers are commonly able to report less frequently and are able to disclose less information to the general public. Irrespective of the extent of the reporting obligations, these publications are usually released a few months after the end of the quarter or the fiscal year and form the basis of financial statement analysis.

which was initially aimed to be completed by 2014 but might require more time, will allow investors to directly compare financial figures and ratios between European and American companies without having to adjust them for diverging accounting treatments.

Given the fact that large-scale regulatory projects such as the US GAAP/IFRS convergence are rarely implemented on schedule, this book covers both accounting standards, presenting case studies of companies using the US GAAP as well as IFRS. The book focuses primarily on USbased and British corporations but also considers emerging market companies. This approach is simply a recognition that the vast majority of investors will have access to equity markets around the world.

| Wealth & Finance | June 2014

Whilst the accounting systems in the US and Europe are by and large comparable, the outward appearance of the annual reports is not.

Whereas there are virtually no restrictions as to the presentation and quantity of information contained in European annual reports and financial statements, US companies have to complete a predefined form (commonly called form 10-K) which must be filed with the SEC. The latter leaves little room for supplementary charts and data, which may often provide further information about the market and business model of the company. The standardized presentation and submission requirements can be mainly attributed to the US accounting scandals and frauds in the late 1990s which resulted in the passage of the Sarbanes-Oxley Act. As a result of this legislation, financial statements of listed corporations are more or less standardized, and

have to be signed by management and filed with the SEC. From an investor’s point of view, this offers both benefits and drawbacks. On the one hand, US-style annual reports (10-K) are well structured and clearly laid out once the reader gets used to the numerous legal phrases peppering the reports. Information about the market or additional industry data, however, is only rarely contained within these reports.

In contrast, European annual reports not only supply their recipients with the essential annual accounts, but also include additional data intended to deepen an understanding of the company. It can, however, be argued that forming a true opinion of a company’s performance and prospects is more likely in the case of a US-style annual report, as the

Quoted companies are generally organized as an affiliated group, or, in other words, as a consolidated group of individual companies under the roof of a parent company. Therefore it is the consolidated financial statements or group accounts that are usually the starting point in any balance sheet analysis. The distinction between consolidated group accounts and the individual accounts of the parent company is important since the vast majority of European companies publish both accounts in their annual reports. In essence, the consolidated group accounts or financial statements present information about the group as that of a single economic entity. So, although big enterprises consist of numerous subsidiaries worldwide, the consolidated financial statement acts as if there was only one company that encompassed the whole group. In the process of consolidating the accounts of all affiliates and subsidiaries into one group account, all interdependencies between the individual group companies are effectively cancelled out. For example, both a receivable and a liability are being created if one company grants a loan to another group affiliate. On a group level, however, this can be considered a non-event and thus has to be eliminated. Therefore the consolidated group accounts always result in a more accurate representation of the state of the group than an analysis of the individual group member accounts could ever yield.

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In the process of consolidating the accounts of all affiliates and subsidiaries into one group account, all interdependencies between the individual group companies are effectively cancelled out

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About the author...

Nicolas Schmidlin is the founder and CEO of ProfitlichSchmidlin AG, a valuation-driven investment advisory firm that aims to achieve high absolute returns whilst minimising fundamental risks.

Nicolas studied business administration in Frankfurt am Main, and graduated with a first class MSc in investment management from Cass Business School in London. He gained further practical experience as an investment advisor for institutional clients in London and Frankfurt.

Wealth & Finance | June 2014 |

Wealth Management | Transferring Investments Between Generations

Transferring Investments Between Generations | Wealth Management

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Transferring Investments Between Generations

By Ian Marsh, Head of Asset Management at Fleming Family & Partners.

The successful transfer of wealth between generations is fraught with difficulty. FF&P has just completed a proprietary review entitled “The world in 2043: Wealth strategies for intergenerational success”. This report involved canvassing 90 UHNW families and advisers who collectively are responsible for overseeing assets of at least £100bn.

The surveyed audience identified “six horsemen of the wealth apocalypse”, in other words the biggest threats to success of intergenerational wealth transfer. These are: lack of strategic planning, family disputes and divorce, excessive risk taking, fragmentation on inheritance, inflation and taxation. It is vital that families plan for all six.

Family constitutions are at the centre of planning for the successful wealth transfer. These constitutions can take the form of structured written creeds (FF&P’s report mentions Japan’s Mogi family who have adhered to the same family creed since the mid seventeenth century) to much looser family agreements and understanding. The common feature of most successful families is communication, with regular family meetings that involve all generations and allow the development of the entrepreneurial talents of the next generation. Too often when the children of successful parents are not included or are not aligned with the strategy of a family, wealth can soon dissipate.

| Wealth & Finance | June 2014

The report highlights that enormous wealth is expected to be handed down to the next generation, as much as £5 trillion in the UK alone.

It is not surprising that 71% of the surveyed audience identified real capital preservation as their number one challenge when planning for intergenerational transfer of wealth.

Gold is still perceived as a suitable asset class – almost 90% of the surveyed audience said so. The surveyed UHNWs and advisers ranked highly physical assets, including agricultural land which attracts (in the UK) specific tax reliefs and real estate which is regarded favourably on account of its inflation hedging potential. The highlight remained central London residential In a low income, low return and possibly high property: 91% of the surveyed respondents inflation world, asset allocation is key for capital believed that this category would be a good preservation. FF&P believes in diversification and investment over the next 30 years. Average builds multi asset class portfolios for its clients forecasts (from the survey) of central London who are usually focused on preserving wealth property prices in 2043 were £6.5m against for the next generation. The focus on capital today’s average of £1.5m. preservation was often emphasised by those UHNW families participating in FF&P’s survey.

Outside of “real assets”, hedge funds and This reflects the respondents’ concern about a private equity still score well with UHNWs; recurrence of a major financial crisis, high inhowever the focus on hedge funds now is more flation and asset correlation which are possible inclined towards liquid solutions i.e. UCITS-reguoutcomes of Quantitative Easing, where policy lated funds that trade in liquid markets. UHNWs makers have directed liquidity at markets via still find illiquid private equity attractive but this central bank purchases of sovereign bonds. requires patience and discipline as the investment cycle can last as long as 15 years.

FF&P believes that asset correlation particularly between equity and bond performance has FF&P believes that alternative investments are reduced the natural diversification properties of very important in an environment where bonds conventional multi asset class portfolios and as and equities do not (in our opinion) represent a result we have been increasing weightings in good value. As well as private equity hedge alternative investments. Indeed most of the adfunds and gold, portfolios of UHNW clients tend visers and UHNWs we spoke to would allocate to include, amongst others, insurance bonds, a surprisingly high proportion of their portfolios, aircraft leasing funds, mezzanine debt funds.

25% on average, to alternative assets.

Wealth & Finance | June 2014 |

Relax | Garçon!

2014’s Top Luxury Trends | Relax

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2014’s Top Luxury Trends

Garçon!

What most annoys British restaurant diners?

New research reveals all...

The findings show Brits are most offended by people snapping their fingers to get a waiters attention (45.96%) while not surprisingly chewing with your mouth open came a close second (45.6%). Despite the popularity in the trend to take photos of food for social media, people using mobile phones offends 40% of Brits, with 12% even taking the extra step to complain about fellow diners to the restaurant.

Other notable annoyances include romantic couple’s public displays of affection, known as PDA (22%) while using a toothpick with people watching was also seen as a dining etiquette faux-pas (16%). It’s not just other diners disturbing our dinner enjoyment, as restaurants themselves can also ruin a meal with friends. Rude service is the top way for restaurants to offend Brits (65%), a factor that rates higher amongst women (70%) than men (59%).

Leading British etiquette expert William Hanson has worked with Bookatable to create a Modern Dining Etiquette Guide which aims to help restaurant goers have | Wealth & Finance | June 2014

more pleasurable and memorable dining experiences. “It’s clear from the research that people experience a number of frustrating behaviours when eating out with friends and family,” says Hanson. “Traditional table manners can still be relevant even in the age of mobile phones and social media so a little thought for the neighbouring table can go a long way to ensuring everybody enjoys a nice meal.”

Neighbouring tables were also cited as the cause for dinner guests to feel irritated. No matter how cute they are, for 51% of Brits, crying or misbehaving children would leave them sighing under their breath. And that table loudly celebrating a birthday? 49% of Brits want to turn the volume down on overly loud guests.

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The lines between what is acceptable behaviour have become blurred

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New research, from online restaurant booking service Bookatable, reveals that Brits are far from being on their best behaviour when visiting restaurants, leaving friends, loved ones and other diners with a less than enjoyable dining experience.

Joe Steele, CEO, Bookatable, says: “As modern trends, such as community dining (where guests share a table space) and photographing food continues to grow, the lines between what is acceptable behaviour have become somewhat blurred. It’s interesting to see that Brits still believe in the idea of table manners even if it’s not necessarily what they are personally experiencing on meals out. Going for a nice dinner out should be an enjoyable experience so Bookatable created a Modern Dining Etiquette Guide to bring some clarity where there may be confusion. “ The survey of 2,000 Brits also revealed that one in five no longer makes a considerable effort to look nice for dinner. Peter Avis, restaurant manager at Babylon Roof Gardens, London, says: “I think it is important to not become complacent and adopt an ‘anything goes’ attitude. Standards must be maintained and each guest’s individual values respected.”

A thought that can also be applied to diners who enjoy using their mobile phones during dinner, Avis continues: “Although it’s lots of fun, too much social networking at the table can cause disjointed and unengaged conversation which can be unpleasant for others at the dining table, so it’s important to remember those around you.”

Wealth & Finance | June 2014 |

Relax | A Sound Investment?

A Sound Investment? | Relax

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A Sound Investment?

Shoppers are increasingly choosing luxury items based on their resell value. But how do you tell which goods are most likely to bring a decent return, and which will depreciate quickly? A new app may offer an answer...

The RealReal, the leader in authenticated luxury consignment, has launched RealBook, an app that allows consumers and consignors to calculate the resale value of their luxury goods in categories that include women’s and men’s fashion, and fine jewellery & watches.

Additionally, smart and savvy shoppers now have a predictive tool to use when buying retail that accurately assesses the future value of designer items they are investing in today.

The RealBook app, a “Kelley Blue Book” type service contains dynamic features that allow consumers to view and sort thousands of products by resale price, save products under “favourites” to receive resale price updates, share products via text, Facebook, Twitter, and email, and shop

similar products on The RealReal.

The RealBook app is fed by proprietary data aggregated from The RealReal’s database of over 500 designer brands and over 500,000 luxury goods sold to date.

An example of resale value data points for luxury designers derived from the RealBook app include: • • •

| Wealth & Finance | June 2014

Resale value of popular brands: David Yurman: 45% off retail, Hermes accessories: 30% off retail, Jimmy Choo: 65% off retail.

Brands that hold their value the longest: Cartier, Chanel, Christian Louboutin, David Yurman, and Van Cleef & Arpels.

Range of resale value: Between 10-90% off original retail price.

“Over the last couple years, we’ve seen our consignors turn into savvy shoppers, calling us on a daily basis from retail stores, asking what designer brands they should buy to get the highest resale value in the future. We realised this was becoming a trend, and built RealBook to inform and empower consumers with data to help them manage and make smart luxury investments,” says founder and CEO Julie Wainwright.

“When I make a designer purchase, I look at it as an investment and an asset. I consider whether the item might have residual value when I’m no longer interested in owning or using it, and consigning that asset at The RealReal lets me recoup part of my initial investment quickly and easily.

Discovering The RealReal has completely changed the way I shop,” says Robin Silverman, avid consignor and shopper on The RealReal.

Everyone with luxury items now has a luxury resale marketplace in The RealReal with more than three million members to sell their luxury items easily, quickly, and at top resale value. In just three years, The RealReal is now processing more than 40,000 luxury goods per month, and has shipped more than 500,000 luxury items to date. www.therealreal.com.

Wealth & Finance | June 2014 |