Wealth & Finance May 2014

May 2014

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Safe techs

Due diligence technology offers a safeguard against cyber fraud

Plus...

The world’s most expensive yachts

Cut through the clutter How do wealthy families choose among the hundreds of organisations that advertise wealth management services?

Shifting sands We look at how the crisis in Ukraine has changed how disputes between UK and Russian businessesare resolved.

May 2014 | Contents

3 News & Appointments Funds 10 International Equity Returns: The Importance of Country Allocation in a Globalised World

by Marshall Stocker, Global Macro Equity Strategist and Portfolio Manager at Eaton Vance Management.

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Break the Glass Now is the time for hedge fund managers to be aggressive...

Wealth Corner 14 Cut Through the Clutter How wealthy families can choose from the wealth of financial services on offer.

17 Avoiding the Family Feud The potential pitfalls of using family members as trustees.

Banking Zone 20 Who is to Blame?

Authors Adrian Docherty and Franck Viort examine closely who was really to blame for the recent financial crisis.

22 Why Invest in Emerging Markets?

Author Dr Jerome Booth gives his thoughts

Markets Matters 24 Investing in Virgin Territory Calum Mckenzie, who has worked in the offshore financial services industry for over 14 years, tells us why the BVI offer much more than just sun, sea and sand.

Risk Management 26 Keeping an Eye on Fraud How due diligence offers a safeguard against cyber fraud.

Regulation Review 28 Breaking Up ...is Hard to Do How couples having marriage problems can survive on the family law battlefield.

30 Shifting Sands How the Ukraine crisis is affecting how Anglo-Russian business disputes are resolved

Finance Focus 32 Nip it in the Bud How M&A disputes can be resolved before they take root.

Relax 36 Join the Gentry

Editor’s comment In this month’s packed issue of Wealth and Finance, we hear from US-based WE Family Offices on what wealthy families should consider when choosing between the hundreds of family wealth management organisations (page 10).

Richard Travia of Tradex Global Advisors is on hand to fill us in on why, for hedge fund managers, now is the time to take a more aggressive approach (page 14), in an excerpt from their new book, authors Adrian Docherty and Franck Viort examine who – or what – was really to blame for the recent global financial crisis (page 20) and Stuart Poole-Robb from KCS Group offers his expert insight into how companies can guard against the rising tide of cyber fraud.

Lawyers, Michael Frisby and Paula Harris take an in depth look at how the crisis in the Ukraine has affected the way in which Anglo-Russian business disputes are resolved (page 30), family law expert Graham Coy explains how couples experience marriage difficulties can survive on the family law battlefield (page 28) and Calum Mckenzie gives us the lowdown on why the British Virgin Islands offers so much more than sun, sea and sand (page 24).

And of course, there’s our luxury lifestyle section in which we visit York’s opulent Middlethorpe Hall Hotel (page 38), take a look at exactly what the headland hotel in Cornwall has to offer (page 42) and we count down the world’s five most expensive super yachts (page 40).

Plus there’s the usual round-up of the news and views affecting the major regions and markets from across the globe.

Enjoy!

The opulent Middlethorpe Hall hotel reviewed.

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Top 5 Most Expensive Yachts

Mark Toon Editor

40 A Bewitching Experience Luxury, tradition and maybe a few friendly ghosts await you at the Headland Hotel

Wealth & Finance | May 2014 |

News & Appointments | May 2014

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News in brief London No.1 on Thriving Global Cities List London has for the first time posted the highest score among the 30 cities studied by PwC US in the sixth edition of its Cities of Opportunity report.

The British capital, the only city to finish first in three of the 10 indicators – economic clout, city gateway and technology readiness, a category it ties with Seoul – was followed by New York and Singapore.

Moving up four spots from the last edition, Singapore took third place overall and finishes first in two indicators – ease of doing business and transportation and infrastructure. Despite not having a top rank in any indicator, New York continues to show strong consistency across most of the categories. Rounding out the top five cities are Toronto and San Francisco.

Asset Managers Adapt as Buyers Pool Resources Centralized European fund selection process presents managers with an opportunity to exploit cross-border and cross-business relationships A total of 70% of cross-border European asset managers said they were targeting banks with central selection offices, compared with 30% targeting those with regional selection offices, according to a report by research firm Cerulli Associates.

The report found that European fund selection teams are centralizing across markets: regional office fund analysts are communicating more with fund selection headquarters.

“Regional offices had a strong influence on selection, but they are now subject to global buy lists from a central selection office in London or Zurich. It’s not the tail wagging the dog anymore,” said Philip Holton, analyst and main author of the report.

In Cerulli’s survey of 110 fund selectors, more than 55% of respondents reported they had a global selection team covering all business areas while only 9% said they were running teams independently. A further 16% run teams separately but with some synergies. The approach of a majority of fund selectors demonstrates the pressure they are under to centralize their research.

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The effects of cost and regulatory pressures are also culminating in the proliferation of preferred partnerships. Switzerland is the top market in terms of securing preferred partnerships (7.6 on average), while in France asset managers have had roughly half the number (4.9 on average) of successful partnerships secured.

“For cross-border asset managers, leveraging relationships across markets and business groups were voted the top criteria for improving relationships with private banks. However, with fund selection continuing to centralize, we see more scope for sales team to exploit cross-business relationships than cross-border ones,” said Barbara Wall, Europe research director at Cerulli.

Two Million Homeowners Over 55 to Downsize Up to 2.3 million homeowners aged 55 and over are banking on raising money from their homes through downsizing and on average expect to raise around £85,300 each from their property deals, according to new research from Prudential.

The research found that 38% of over-55 homeowners expect to sell their houses at some point, with one in five expecting to sell and buy another property within the next five years. More than three quarters of the over-55 homeowners who are planning to sell say that they aim to release equity from their home by downsizing. The average amount they hope to release is around £85,300.

Over-55 downsizers are equally as likely to spend the money raised on a one-off purchase as they are to save or invest a sum, the research hound. Nearly a third are planning to put some of the money into their pension pots.

Cape Wins Papua New Guinea Contract Energy services company Cape has announced a new contract for its subsidiary, Cape Papua New Guinea Limited. The contract was awarded by Oil Search (PNG) Limited, an oil and gas exploration and production company that has been operating in Papua New Guinea since 1929.

The scope of work encompasses a full suite of Cape’s services on the Kumul Marine Terminal, offshore Papua New Guinea. The contract will last for seven months, commencing imminently and should conclude by the end of the calendar year.

May 2014 | News & Appointments

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A Good Omen for India?

The newly-elected Indian government’s first victory in the High Court in London can be seen as an encouraging development for the future of international arbitration cases in the English courts.

Days after the new Indian government’s electoral triumph, the London High Court gave the government its first victory, with a judgement in favour of PEC Ltd, a company 100% owned by the Indian government.

binding agreement. PEC Ltd argued that this individual did not have the legal authority to enter into this contract. In July 2012, the GAFTA ruled that the agent did have the authority and PEC Ltd were made liable to pay AGR the claim.

PEC Ltd faced a US$6.2 million liability plus several years’ interest and costs under the Grain and Feed Trade Association (GAFTA); if the government lost they would have faced around US$9 million liability including interest, the other side’s costs and PEC’s own legal costs.

However, in its judgement the High Court ruled that the senior official of PEC did not have legal authority to conclude the contract.

Following this decision, PEC Ltd decided to challenge the Arbitration Award in the High Court in London. As the contract was executed on Indian soil, one of the main issues was whether the senior official who signed the contract was legally authorised by the PEC Ltd board.

The dispute focused on a Thai-based company, Asian Golden Rice (AGR), which entered into contract with PEC Ltd regarding the scale of 25,000 tonnes of rice. The contract was not performed by PEC. The issue before the English Court was whether the senior official who had signed the contract on behalf of PEC Ltd had legal authority to make the contract a legally

There was therefore a question of Indian Law in respect of which on PEC’s behalf Soli Sorabjee, a senior advocate of the Indian Supreme Court and the Attorney General of India, gave evidence in the court and Harish Salve, a senior advocate of the Indian Supreme Court and the Solicitor General of India, gave evidence for AGR. In its Judgment the English court has held that the senior official of PEC did not have legal authority to conclude the contract.

Solicitor Pavani Reddy Wins Top Legal Award Pavani Reddy, Managing Partner of city law firm Zaiwalla & Co Solicitors, has been named “Best in Legal Services” at this year’s British Indian Awards. The event recognises and celebrates the determination and the significant role that British Indians have in UK society.

Reddy is reputed as a leading expert in arbitration, and has also been involved in managing the cases of high profile clients before the UK Supreme Court and EU Courts surrounding the Iran nuclear programme sanctions imposed by the EU and UK. Reddy said: “I am extremely proud of this achievement and grateful to be sharing this success with Zaiwalla & Co Solicitors.

Appointments Burges Salmon Appoints New Partner Leading UK law firm Burges Salmon has promoted Tom Dunn, from the firm’s funds and financial services team, to partner, reflecting the firm’s continued growth in the funds and financial services sector.

Dunn joined the firm in March 2010, and advises a broad range of clients including financial institutions, investment funds, corporates and pension funds in relation to financial services regulation, investment funds and derivatives.

“I am pleased to be able to continue contributing to the success of the firm in this exciting area,” said Dunn. “The funds and financial services sector is constantly evolving against a challenging backdrop of legal and regulatory change. Many of our clients are at the forefront of new developments and innovation and I am delighted to have the opportunity to help them continue to grow their businesses.”

The head of Burges Salmon’s Corporate and Financial Institutions department, Chris Godfrey, said: “We are very pleased to welcome Tom as a new partner to the team. He is well respected by colleagues and clients in the funds and financial services sector for providing high quality, strategic advice. This appointment will enable Tom to build on the firm’s significant expertise in this area.”

CBI Gets a New Deputy Director-General The UK’s leading business group, the Confederation of British Industry (CBI), has appointed Katja Hall as its new Deputy Director-General.

Hall will be promoted from Chief Policy Director, a position she has held since February 2011. As Deputy Director-General, Hall will lead the CBI’s policy development and lobbying work, including in the run up to the 2015 general election. Ms Hall will also be responsible for the CBI’s work internationally and for chairing the CBI management board. She takes over the Deputy Director-General position from Dr Neil Bentley.

“I’m delighted to be the new Deputy Director-General at the CBI, particularly at such an important time for British business,” said Hall. “The recovery is on track but there are a number of political risks on the horizon, including the future of the EU, the Scottish referendum and the general election next year. My job will be to help businesses to navigate these, and other, challenges - driving and developing policies that enable firms to create growth that benefits everyone. It will be a real privilege to work closely with CBI member companies to achieve this.”

Wealth & Finance | May 2014 |

News & Appointments | May 2014

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Lord Abbett launches fixed income UCITS Passport Portfolios for European investors Portfolios provide an opportunity for non-US based investors to take advantage of Lord Abbett’s investment strategies.

US investment management firm Lord, Abbett & Co has launched Passport Portfolios to provide non-US institutions and non-US resident investors with access to select Lord Abbett fixed income investment strategies through a suite of UCITS funds. The strategies available include the Lord Abbett Short Duration Income Fund, the Lord Abbett High Yield Fund and the Lord Abbett Strategic Income Fund.

The launch of the Passport Portfolios, which are are listed on the Irish Stock Exchange, provides an opportunity for non-US based investors to take advantage of Lord Abbett’s investment strategies.

Founded in 1929, Lord Abbett is now increasing its footprint as a global investment manager.

The funds include: the Lord Abbett Short Duration Income Fund (which is designed to focus on sectors that have demonstrated superior return profiles historically, such as investment grade and high yield short duration mortgage, corporate, government and asset backed securities; the Lord Abbett Strategic Income Fund (focused primarily on Baa corporate bonds, employing a flexible research-driven approach to corporate

bond investment opportunities across multiple sectors and a diversified blend designed to enhance return and reduce volatility) and the Lord Abbett High Yield Fund (designed to emphasise asset-rich companies with strong management teams, while seeking investment opportunities across the credit spectrum and applying rigorous risk management.)

“The launch of these products presents an opportunity for a wide range of investors outside the US, especially in Europe and the Middle East, to access US fixed income markets at a time when we are seeing attractive income opportunities there,” said Stephen Hillebrecht, fixed income product strategist at Lord Abbett. “We continue to see demand for yield-based strategies that also limit interest rate exposure, and we feel that our investment-led, investor-focused approach will be well-received. The US corporate and asset-backed fixed income market remains one of the deepest, broadest and most liquid fixed income securities markets in the world and continues to provide income-producing opportunities.”

Appointments GE Capital International Appoints New Capital Markets Leader Robert Plehn has been named as the new Capital Markets Leader for GE Capital International. He will be responsible for all strategic Capital Markets activities for GE Capital businesses across Europe and Asia Pacific, including cash flow and asset-backed loan and lease syndications.

Robert comes to GE Capital International having spent over 10 years with Lloyds Banking Group. At Lloyds he was Head of the Asset Backed Solutions team from 2011 and prior to that he held various roles at Lloyds including Head of the Capital Markets Debt Products Group, and Head of the Securitisation and Covered Bonds team.

PwC Invests in Corporate Venturing Mark Muth has joined PwC as a director in its London-based corporate finance team. He was a director of Unilever Ventures, the venture capital arm of Unilever plc, from its creation in 2002 until 2013. Prior to that, Mark was a managing director of GE Equity, the private equity business of GE Corporation. Muth began his corporate finance career with Bank of America.

PwC is building a practice advising European-based corporate venture capitalists on strategy, structure (tax and legal) and M&A.

New Hire for Brooks Macdonald Brooks Macdonald Employee Benefits (BMEB) has appointed Camille French as Client Relationship Manager to their growing London team, where she will be responsible for building and strengthening existing relationships with small-to-medium sized employers.

Camille has over 20 years’ experience in the financial services industry, with a focus on employee benefits consultancy. She joins BMEB from JLT Employee Benefits, where she developed strong working relationships with corporate clients and assisted with their specific requirements for auto enrolment, flexible benefits, employee engagement and other areas of employee benefits. Camille has also held roles at Alexander Forbes Consultants & Actuaries Limited and EW Blanch. She holds a Diploma in Financial Planning, as well as the FCA accredited Statement of Professional Standing.

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May 2014 | News & Appointments

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King Parallel Consulting and Sodali form strategic partnership New partnership aims to deliver corporate governance, strategic advice to boards and executive management, shareholder response advisory and transactional services.

King Parallel Consulting and Sodali Ltd have formed a strategic partnership to deliver shareholder response services to Chinese companies in the Greater China Region, including mainland China, Hong Kong and Macau.

The services will mainly focus on corporate governance, strategic advice to boards and executive management, shareholder response advisory and transactional services, specifically: • Preparation and conduct of shareholder meetings, ordinary and extraordinary.

• Transactional services such as mergers and acquisitions, response to shareholder activists, contests for control, takeover bids, capital restructurings and other corporate actions in which maximization of equity and debt holders’ reach, understanding and support is requested.

• Advisory and consulting services include corporate governance assessments and benchmarking, board evaluations, outreach and engagement with shareholders, as well as services related to IPOs.

and other parties on matters related to shareholder meetings and transactional services.

John C Wilcox, the chairman of Sodali, said that a partnership between King Parallel and Sodali will help Chinese companies develop customised corporate governance principles that are compatible with the country’s business structure and culture.

“There is no need to mimic western governance practices,” he said. “Once Chinese governance principles have been articulated, we will work with King Parallel to help Chinese companies implement them, handle their relations with global institutional investors and manage their cross-border transactions, shareholder meetings and IPOs. “The world’s second-largest economy should be accommodated within global best practice standards for corporate governance. Our goal is to introduce and harmonise corporate governance practices for Chinese companies.”

Dr Zhengjun Zhang, managing partner and CEO of King Parallel, said that many of his clients have been asking for governance advice and shareholder services in response to reforms introduced by China’s regulators during last few years, and “more and more companies will realise the need of professional shareholder services and governance services.”

News in brief Seinfeld is Hollywood’s Richest Actor Comedian Jerry Seinfeld has emerged as the wealthiest actor on the Hollywood and Bollywood Rich List compiled by ultra high net worth intelligence and prospecting firm Wealth-X. The co-founder of the eponymous TV comedy Seinfeld significantly increased his fortune through off-network syndication deals for the show, giving him at least US$400m in the fifth syndication agreement last year. He has also acted in numerous films.

Taking the second spot – and the only Bollywood actor on Wealth-X’s top 10 list – is movie star Shah Rukh Khan, who is estimated to be worth US$600m.

Financial Services Not Meeting FCA Phone Rules UK Financial Services companies are still struggling to comply with Financial Conduct Authority regulations which require them to record mobile phone conversations, a new report from analyst firm Ovum has found.

Research from call compliance specialist TeleWare, who sponsored the paper, estimates that as many as 45,000 mobile devices are at risk of non-compliance – far higher than the 25,000 often cited by the industry.

• Institutional investor outreach, engagement, disclosure, communication and interviews with shareholders, proxy advisors, activist investors

Wealth & Finance | May 2014 |

News & Appointments | May 2014

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EdTech Startup Wins £750k Investment Third Space Learning uses tech to connect disadvantaged students with maths experts from around the world for one-to-one learning support, helping raise attainment and reduce social inequality in education.

Tom Hooper, an experienced EdTech entrepreneur, winner of The Big Venture Challenge and part of Telefonica’s Wayra accelerator programme, saw an opportunity to use technology and global connectivity to tackle mathematical underachievement in schools, particularly for the most disadvantaged students. Recognising that a core component of the problem was the systemic shortage of numeracy expertise in our classrooms – less than 2% of primary school teachers are maths experts – he founded Third Space Learning.

Third Space has built a technology platform that connects a global community of numeracy specialists to students in schools across the UK. Students work one-to-one with their tutor in Third Space’s online classrooms. Schools purchase programmes for individual students, allowing their teacher to select precise learning objectives for each student, reinforcing what is happening in class. All sessions take place in school, in addition to normal maths lessons, accelerating what the children are learning in class. Launched in September 2013, Third Space is now used in over 70 schools across 30 local authorities.

Third Space is also part of a pioneering study by the Education Endowment Foundation (EEF). Recognising the scale of the social and academic problem, and the potential for Third Space’s model, the EEF are funding a 2-year Randomised Control Trial with Third Space and the Universities of York and Durham. This approach is still a relatively new concept in analysing innovation and education outcome studies. It will fund 600 pupils through the Third Space programme, tracking attainment of socially disadvantaged students at risk of failure.

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To raise the investment they needed to scale their business and reach more pupils, Third Space worked with ClearlySo, which raises capital for businesses that create social value, and has now raised £745k, including circa £200k from the Clearly Social Angels network. This is a group of high-net-worth business angels who proactively invest into social business and enterprises, offering mentoring and support as well as capital.

Other investors include Charles Prior, Founder of BPP; Andrew Colin, Founder and Executive Chair of INTO University Partnerships; Will Hobhouse, former Chairman of Explore Learning and Jack Wills; and Telefonica, through their Wayra UnLtd Social Technology programme.

Meganne Houghton-Berry, a Clearly Social Angels investor, said, “I was attracted to Third Space Learning because it offers a scalable, affordable solution to a major challenge in primary education – developing key maths skills. The beauty of their approach is that is works alongside the classroom teacher, providing a level of individual support that is proving to dramatically improve children’s performance.”

Tom Hooper said: “Our vision is to create a global community of talent, changing the means of supply so that every child can have access to the one-to-one help they need. This vision has been embraced by schools across the country, and now by the Education Endowment Foundation. We have been fortunate to receive the backing of talented angel investors who share our ambitions, and bring incredible experience in founding and building global education businesses. Their support will be invaluable in achieving our aims.”

May 2014 | News & Appointments

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Asia ex-Japan Asset Managers Covet Retail Investors Most ...but succeeding in Asia’s retail mutual fund segment increasingly requires commitment and patience Within Asia ex-Japan’s retail fund space, mass retail investors are the client segment that fund houses are keenest to tap, according to a recent annual survey conducted by research firm Cerulli Associates. This category of clients overtook high-net-worth investors (HNWIs), who had been a priority in the past few years.

The survey, which Cerulli conducted in March this year as part of the latest iteration of its flagship annual publication, Asian Distribution Dynamics 2014, has found that mass market investors scored highest on the agendas of firms in Taiwan, India, and China, while HNWIs-still a key source of assets for now and the foreseeable future-are placed second or third on the priority lists of managers in Singapore, Taiwan, India, Korea, and China.

“Low-hanging fruit such as private banks, are getting harder to access.

It makes sense as fund managers expand their footprints to look at mass market clients, which often form the bread-and-butter of any retail business. However, managers will need to remember the cost of acquisition for this client segment is high and returns are often long-term,” said Yoon Ng, Cerulli’s Singapore-based Asia research director.

Ng noted that the retail-focused survey was also targeted at heads of distribution or retail business, which likely also explains why the results show a greater priority on retail, rather than institutional, clients.

Still, cracking Asia’s retail segment increasingly requires commitment and patience, on top of getting the right distribution and products. A large part of this is driven by regulations. For example, managers keen to sell funds in China through the Hong Kong-China mutual recognition agreement have to register the products locally. Hong Kong-based firms are also encouraged to groom more local investment talent.

Similarly, Taiwanese regulators increasingly expect foreign managers to help contribute to the development of the local funds scene, while Indian authorities have moved to raise fund companies’ capital adequacy by five times, as well as requiring them to seed their open-end funds at 1% of the amount raised.

The increased regulatory focus on developing local markets is likely to prompt global fund houses to reassess their priorities and determine whether they can or want to dedicate extra resources to meet the requirements. This will eventually separate the wheat from the chaff – which bodes well for the fund industry.

“Global fund houses will increasingly need to show that they are in the business for the long haul, and not just to make a quick buck,” says Chin Chin Quah, a senior analyst with Cerulli who led the report. “Ultimately, demonstrating an ability to stay committed to a local market can boost a firm’s relationship with regulators, distributors, and end-investors.”

Wealth & Finance | May 2014 |

Funds | International Equity Returns

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International Equity Returns: The Importance of Country Allocation in a Globalised World

by Marshall Stocker, Global Macro Equity Strategist and Portfolio Manager at Eaton Vance Management

In an increasingly globalised world, mutual fund managers must prioritise their investment process according to country, industry, and stock research efforts. With globalisation having drastically expanded the landscape of equity investment, the major benchmarks for international funds now represent more than 20 countries.

This phenomenon along with empirical data has led researchers and academics to conclude that investors are better advised to know “it’s predominantly a country-pickers’ market.”

When investing in less-developed economies the country factor becomes crucial. A study

by Morck, Yeung, and Yu , which looked at synchronous stock price movements in emerging markets, shows that markets are inefficient at differentiating among emerging market companies within the same country. Indeed, they observed that stock prices within a low

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per capita GDP economy tend to move up or down together. They also postulate that political events in a low-income country are more likely to create market-wide stock price movements.

Another study, by Estrada, Kritzman and Page, focusing on countries versus industries in emerging markets, looked at emerging market equity returns from 1989-2002 and observed that country returns have a wider dispersion than industry returns do. For this reason, they concluded that “skillful portfolio managers and investors in emerging markets should focus on countries rather than on industries.” Supporting this conclusion is the experience of the global financial crisis (2007-2008), when nearly all equity assets declined in value, and the dispersion of returns widened. Thus, investment managers were afforded greater opportunity to lessen a portfolio’s decline by allocating to countries whose equity markets experienced only moderate declines.

“

Researchers and academics have concluded that investors are better advised to know that it’s mainly a country-pickers’ market

“

Investors making international equity allocations to developed and emerging market funds are bound to analyse the importance that a fund manager places on country, industry, and stock selection. The manager’s investment process should reflect what empirical studies have repeatedly observed: for international equity funds, country selection is consistently more important than industry or stock choice. When determining why a fund’s performance differs from a broad equity benchmark, new data from 2007-2013 confirms that country allocation remains the primary determinant of active returns, especially for emerging markets funds.

Hence, a skilled investment manager should be making portfolio allocations from a decision set with higher dispersion (countries, not industries), as this will allow for the magnitude of potential above-average performance to be greater.

For a brief period in the late 1990s, and in a rare, but notable contrary result, Cavagalia, Brightman, and Aked , studied elements which drove stock returns around the world and found that the industry factor had overtaken the country factor.

However, the telecommunications, media, and technology (TMT) bubble in 1999 changed that perspective, as Brooks , who demonstrated that diversifying across countries is more effective than diversifying across industries in terms of risk reduction, suggested that the TMT was responsible for the rise in industry factor importance.

This was confirmed by Estrada (2006), when in the absence of TMT stocks, the country effect dominated the industry effect.

Empirical analysis embedded in today’s macroeconomic context continues to support that country selection explains more than half of an international equity fund’s excess return.

In terms of strategy, this means that investors should select fund managers whose primary endeavour is to identify the correct countries into which an international equity fund should be invested – meaning that smart managers will prioritise macro analysis at the individual country level in a substantial way when managing international equity portfolios.

International Equity Returns | Funds

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Wealth & Finance | May 2014 |

Funds | Break the Glass

BREAK GLASS 12

the

We have been discussing the extreme overvaluation of the corporate high yield bond market for several quarters now. We have been pragmatic the entire time, understanding that the current environment is still awash with liquidity from the Fed. We continuously question our thesis, as part of our process. As we continue down the path of identifying mispriced, over-levered and vulnerable credits, we conduct market surveillance and listen to what other successful investors think. Google “high yield bubble� yourself. You’ll see that they (we) are not alone...

We are as convinced as ever that being short specific credits in this fully-heated credit environment, at levels where there is no upside for the bonds, is not only the right direction, but also an extraordinary opportunity. The cost to be short today is historically cheap and argument to be short is as strong as ever.

March and April were very difficult months for hedge fund managers, and I suspect that May will also prove to be challenging. As correlations of hedge funds continue to rise, there are many investors that we have spoken to over the last year that have made asset allocation shifts in their respective portfolios to minimize the impact of an isolated burst in the current high yield bubble. We applaud that forward thinking, and suggest that it is now time to be aggressive. Build short positions in high yield credit now, while yields are compressed, prices are high, spreads are tight and overall interest rates are low. Once the market loses its bid, free-falling high yield bonds will be hard to take advantage of. Break the glass now, while you are still able.

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Richard Travia, Partner and Director of Research at Tradex Global Advisors LLC, says that, for hedge fund managers, now is the time to be aggressive...

Wealth & Finance | May 2014 |

Wealth Corner | Cut Through the Clutter

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CUT THROUGH THE CLUTTER The choices facing wealthy families when selecting a wealth advisor can be both overwhelming and confusing. US-based WE Family Offices tell us how to tell the difference...

The choices facing wealthy families when selecting a wealth advisor can be overwhelming and confusing: How do you choose among the hundreds of private banks; trust companies; asset managers; brokerage firms; single- or multi-family offices; and investment advisory firms that advertise wealth management services?

Bombarded with marketing material, it can feel overwhelming (sometimes impossible) for clients to discern the significant differences that exist between firms with very similar marketing messages: “Objective advice.” “Conflict-free.”

“Open architecture.” “Fee-only.” “Same side of the table…”

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Do these terms sound familiar?

Further complicating the decision is the fact that the right choice for one family may be the wrong choice for another. How can a family be certain which kind of wealth advisory solution is right for them?

Our objective is to help wealthy families understand the choices they face, how to cut through the “noise” and tell the difference between firms so they can choose the firm, or combination of firms, that is right for them.

MANUFACTURER Manufacturers create and sell financial products. Typical examples are investment funds like a mutual fund company, private equity firm, or hedge fund. Manufacturers sell to investors (clients), either directly or through distributors, which are typically banks or brokerage firms. These distributor- intermediaries may be affiliated with the manufacturer or have

agreements with the manufacturer to distribute their investment products for a fee paid by the manufacturer. Manufacturers are typically compensated with investment management fees paid by investors (clients).

DISTRIBUTOR Distributors sell investment products and services to their clients and customers. Common examples of Distributors are: private banks, brokerage firms and trust companies. Distributors source investment products from manufacturers, which are often their affiliates, or if they are “open architecture,” from non-affiliated manufacturers. Distributors often have arrangements in which manufacturers pay the distributor a fee to sell their products to the distributor’s clients.

These distribution agreements often exclude other in- vestment products from the distributor’s menu of available investments. Distributors often receive fees from both their customers (including sales commissions), and from the

Cut Through the Clutter | Wealth Corner

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manufacturers (distribution fees) whose products they sell.

INDEPENDENT FEE-ONLY FIDUCIARIES A fee-only, independent, SEC-registered adviser has three primary characteristics, which often define their service offering to clients and distinguish them from other types of advisers: •

They have a legal obligation to put their clients’ interests ahead of their own;

•

Their compensation structure can remove the actual or potential conflicts that arise from sales-based compensation; and

•

Their independence from any manufacturer or distributor allows them to assess the client’s needs, and then recommend and source financial products and services that are right for the client, without the added complications of a sales agenda.

While many manufacturers and distributors provide sound advice, these three distinctions that characterize an independent, fee-only, fiduciary adviser can help create a significantly different client experience and relationship. Advice provided by this type of adviser should not lead to sales or commissions, as is common with advice from manufacturers or distributors.

Common examples include: fee-only unaffiliated multi-family offices, outsourced CIOs, independent financial planners, and unaffiliated registered investment adviser firms.

In summary, the key to understanding the difference between wealth management service providers is understanding their primary source(s) of compensation.

While determining whether a financial advisor owes its clients a fiduciary obligation is a very important factor to consider when evaluating a particular advisor, it is also critical to get answers to the following two questions:

Firstly, is this advisor’s compensation based in whole or in part on the products and services they recommend to me? And does this advisor have agreements or an affiliation with (i.e., a financial interest in) a company or companies that sell financial products and services?

Unfortunately, in the wealth management space, the distinctions between “advisors” are not so clear and often times manufacturers or distributors position themselves as if they were independent, fee-only fiduciary advisers. This can lead to unfortunate outcomes for families who think they may be getting objective advice, but instead are often being sold expensive financial products and services without being clearly told about the firm’s financial interest in the sale.

One of the most important steps in evaluating which wealth managers to hire (or the ones you currently work with) is to understand the business model and interests of each. The framework outlined above can help you make that determination.

Wealth & Finance | May 2014 |

| Wealth & Finance | May 2014

Avoiding the Family Feud | Wealth Corner

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Avoiding the Family

FEUD

Paul Schrijver, international specialist for Skandia international, discusses the potential pitfalls of using family members as trustees.

A trust arrangement requires several different elements: a settlor (the person establishing the trust), a trustee (the person or trust company who holds the trust property and manage the trust) and beneficiaries (those who will receive the trust property - who they are is dependent on the type of trust used).

Often a popular strategy is to appoint a family member or members as the trustee, as people believe this ensures their wishes will be carried out after their death. However, our research has shown that 22% of financial advisers have experienced problems when this happens as family disputes have started upon the death of the settlor. This is most likely because the family members cannot see eye to eye on how assets should be distributed to beneficiaries. Family members are emotionally attached to the situation and may have vested interests, so may find themselves in a position where they have a conflict of interest. If they have to take a vote on an action, and they are split, there is no easy way to resolve the dispute.

However, there are a couple of alternative options that can greatly help clients and financial advisers avoid family disputes. These include setting up a protector on the trust, appointing a corporate trustee to manage the trust, or a combination of the two.

A protector is an individual (or company offering fiduciary services) who can be appointed to fulfil certain duties and responsibilities. They will also be given certain powers under the terms of the trust deed. They do not manage the trust; they are not responsible for the administration of the trust and they don’t have to ensure tax is paid correctly. However, they do have the right to dismiss a trustee, and if there are disputes or uncertainty among trustees, they can make the final decision in respect of allocating trust property to beneficiaries (other than for Bare Trusts) or to another settlement.

The protector, who may be the settlor, a family member, or third party such as a solicitor, might also be a trustee (if appointed during the settlor’s lifetime), but this could create a conflict of interests. In situations of conflict, they will have legal power to make the final decision in the above situations.

A further alternative to using family members as trustees is to use a corporate trustee, such as Royal Skandia Trust Company. Using a corporate trustee will ensure the wishes of the settlor are considered and that on-going consideration of the beneficiaries needs are taken into account

in an unbiased and fair way. A key benefit of using a corporate trustee is they will be able to take care of all the administrative responsibilities, such as maintaining trust records, filing the appropriate tax return at trust level and providing continuity for generations to come.

In fact, financial advisers have suggested that corporate trustees can add real benefit and that the top three advantages are: • • •

Professional oversight Professionals ensure the wishes of the settlor are considered Professionals ensure taxes and liabilities are taken care of

Using a combination of a corporate trustee and appointing themselves as protector could provide a perfect solution for those who are hesitant to relinquish complete control to a corporate body, but who don’t want family members to be in a potential position of conflict, or face the administrative burden of running a trust. However, as not all providers offer the option of having a protector on the trust, investors will need to be check their policy allows this.

Trusts are an excellent method of tax planning and can add real benefits if structured correctly. The role of trustee carries with it significant responsibilities and if there is concern over a potential family dispute it is worth considering the other options available.

“

Using a combination of a corporate trustee and appointing themselves as protector may provide a perfect solution for those who are hesitant to relinquish complete control to a corporate body, but who don’t want family members to be in a potential position of conflict, or face the burden of running a trust

“

It is well publicised that using a trust can optimise tax efficiency for both onshore and offshore investments. By using trusts as an estate planning tool, settlors can ensure their assets sit outside the scope of UK inheritance tax (IHT), decide how they wish their wealth to be distributed and remove the need to apply for probate.

Wealth & Finance | May 2014 |

Tax |

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| Wealth & Finance | May 2014

Wealth & Finance | May 2014 |

Banking Zone | Who is to Blame?

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Who is to

blame?

In an extract from their new book, Better Banking: Understanding and Addressing the Failures in Risk Management, Governance and Regulation, Adrian Docherty and Franck Viort examine closely who was really to blame for the recent financial crisis. | Wealth & Finance | May 2014

Banking Zone | Who is to Blame?

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“The chief punishment is this: that no guilty man is acquitted in his own judgement.”

Satires, Juvenal.c 100 AD The current financial crisis has had a major negative impact on the wealth and wellbeing of the global economy. Millions of people have had their lives transformed and tens of millions more have had their personal financial situation damaged. Quantified impact estimates relay the hard economic facts: in the European Union, for example:

When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves.”

Public intervention cost taxpayers substantial sums of money and even put some Member States’ public finances at risk. Between October 2008 and October 2011, the Commission approved ¤4.5 trillion (equivalent to 37% of EU GDP) in state aid measures to financial institutions, of which ¤1.6 trillion (equivalent to 13% of EU GDP) was used in 2008–2010. Guarantees and liquidity measures account for ¤1.2 trillion, or roughly 9.8% of EU GDP. The remainder went towards recapitalisation and impaired assets measures amounting to ¤409 billion (3.3% of EU GDP). Budgetary commitments and expenditure on this scale are not sustainable from a fiscal point of view, and impose a heavy burden on present and future generations. Moreover, the crisis, which started in the financial sector, pushed the EU economy into a severe recession, with the EU’s GDP contracting by 4.2%, or ¤0.7 trillion, in 2009.

The perception of intense unfairness is reinforced when people see how much bankers are paid, in good times and in bad. Mega-bonuses are paid to senior bankers who are supposed to be superstars, yet are often exposed as unethical and incompetent. Bankers are highly paid and have not been seen to suffer unduly as a result of the crisis. They continue to collect bonuses, hardly any previous bonuses have been “clawed back” and scandals based on egregious behaviours continue to emerge. The banking industry seems rotten: “From excessive levels of compensation, to shoddy treatment of customers, to a deceitful manipulation of one of the most important interest rates, and now this morning to news of yet another misselling scandal, we can see that we need a real change in the culture of the industry.”

Beyond the data, the impact is quite clear: the experience of a financial crisis is unpleasant, unfair and unacceptable.

It would be convenient to find a single cause for the crisis, identify the appropriate remedies and thus resolve the problem. The popular media has tended to follow this approach and has fostered the view that there are specific parties to blame and that it is through their actions exclusively that the financial crisis was brought about.

Naturally, since this is a financial crisis more than anything, there has been a desire to blame the banking industry – and bankers in particular – for the problems.

The specific aspect of banking that seems to draw popular ire is the asymmetry of gains and losses. This has been expressed several times as either “heads I win, tails you lose” or, to put it in more technical terms, “the privatisation of gains and the socialisation of losses”. This perceived asymmetry of risk and reward is not a new aspect of banking: in 1837, the President of the United States reportedly expressed his anger at such a situation: “Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country.

However, it would be wrong to assume that bankers’ culture alone brought about a financial crisis of this proportion. This crisis may have reached its boiling point in the boardrooms and trading floors of banks around the world, but it has its roots in other, fundamental aspects of our economic and financial system: •

Major, structural imbalances in our global economy, savings patterns and trade flows

•

Excessive belief by all parties in the stability and sustainability of a loosely regulated, freemarket system.

•

Political inability to nip an asset bubble in the bud and rein in borrowing; indeed, the promotion of popular yet unsustainable policies based on increasing levels of governmental and personal indebtedness.

•

Major failings in risk management at banks, including an over-reliance on statistical techniques and insufficient challenge of assumptions; in a word, over-confidence.

•

Regulatory and supervisory failings on the part of several of the world’s

leading financial authorities •

A crisis of governance in many of the world’s leading banks, with unclear accountability for ruinous strategies and management processes

•

Ineffective shareholder governance and accountability of regulatory and supervisory authorities (or to put it dramatically, a crisis of capitalism and democracy)

•

Difficulties in understanding how markets set asset prices: the recent decision to award the Nobel prize to Eugene Fama, Lars Peter Hansen and Robert Shiller highlights not only the importance of their contribution but also the remaining challenges

Limiting the analysis of this crisis to the behavioural issues of bankers may satisfy a psychological need for retribution and give the public at large the confirmation that they are innocent bystanders, but this will miss the point. Our ability to prevent further crises happening in the future will depend on our ability to understand clearly what brought us to the predicament in which we find ourselves. Hating bankers may have become a global sport, but it does not solve the structural issues in our economy and banking system: “The wide appeal of scapegoating banking is motivated by a sense of incomprehension towards the workings of the world. In contrast to previous times, there is a relative dearth of accounts that provide a convincing structural explanation for the global economic upheaval. In such circumstances the wider structural imbalances that have afflicted the different spheres of economic life are difficult to discern. That is one reason why the fantasy that Wall Street and greedy bankers have brought down an otherwise robust economy is so widely upheld.”

About the Authors...

Adrian Docherty and Franck Viort have, in aggregate, 40 years of experience serving and advising the financial services sector on strategic issues, in a variety of economic conditions and in many different countries around the world.

Wealth & Finance | May 2014 |

Markets Matters | Why Invest in Emerging Markets?

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Why Invest in Emerging Markets?

As with any investment, the reason to invest in emerging markets is to benefit from a combination of future income and capital appreciation. Emerging market economies now constitute the bulk of economic activity on the planet, and for investors to ignore this is to miss out. But the case for investment is not just about return.

Emerging markets, through virtue of being different from developed countries, can help diversify risk – indeed, reduce and protect from major risks coming from elsewhere.

Investments vary from the highly liquid to the illiquid, with many asset types or asset classes to choose from: sovereign dollar-denominated debt, local money markets, local currency-denominated government bonds, inflation-linked bonds, corporate bonds (already highly significant), equities (shares), small-cap equities, frontier equities, private equity, distressed debt, real estate and infrastructure, to name a few main categories. In many cases investment portfolios can be investment-grade only. They can take local currency exposure or not (if not, currency exposure is still being taken, albeit in, say, the dollar or euro). | Wealth & Finance | May 2014

Compared to dollar-denominated emerging debt, local currency debt instruments are more exposed to explicit local interest rate dynamics and currency risk. In earlier stages of market development these should be seen as different expressions of the country risk, and as a result investors often might not hedge a currency risk when it is deemed too risky, but rather sell the asset (the bond or equivalent).

So the way to manage local currency debt is to be focused on active management of country risk, not just local interest rate dynamics.

Then again, in many local emerging debt markets there is a now broad range of instruments to invest in, including the full range of maturities in both domestic and external currency as well as inflation-linked bonds, and a predominantly domestic investor base.

The consequence is that whatever one’s view there will be a way to express it in the debt market of that country without exiting.

In more recent years there has also been huge growth in corporate bond issuance, offering huge diversification for the investor. Much of this, moreover, is denominated in local currencies, with markets

Why Invest in Emerging Markets? | Markets Matters

23

dominated by local investors. Indeed, local currency-denominated corporate debt could soon be the largest debt market in the world (insofar as it is still considered a single market). Financial deepening will no doubt continue in emerging markets as capital markets catch up with the developed world, and approach similar sizes proportionate to GDP. The fundamental credit-worthiness of many emerging markets is much stronger than in 1990. Yet because markets are imperfect, there are information asymmetries, prejudices and agency problems and returns are often highly attractive – as opportunities have not been properly understood and arbitraged away. Volatilities have reduced since 1990, and risks for many investments have also come down. The prejudices of some create opportunities (market inefficiencies) for others – and as prejudices often only die with their owners, the opportunities are likely to exist for several decades more.

About the author...

Dr Jerome Booth is a well-known economist, emerging market expert, investor and entrepreneur. He is a sought after commentator on global economic events, was part of the MBO creating Ashmore Investment Management, which is now one of the world’s leading investment managers dedicated to emerging markets and, until May 2013, served as its head of research.

Through his private office, New Sparta, Jerome manages a number of his investments. He is the principal shareholder and Chairman of the UK phone company New Call Telecom. He is Chairman of the investigative news journalism company ExaroNews, and Chairman of Walpole Publishing which produces Moving On Magazine for school-leavers.

Wealth & Finance | May 2014 |

Markets Matters | Investing in Paradise

24

Calum Mckenzie, who has worked in the offshore financial services industry for over 14 years, tells us why the Idyllic British Virgin Islands offer much more than just sun, sea and sand.

In ves ting in virgin terri tor y | Wealth & Finance | May 2014

Investing in Paradise | Markets Matters

25 The main factor that makes the British Virgin Islands an attractive investment/business destination would be confidentiality. The BVI is the leading jurisdiction for the incorporation of companies. The number of companies registered now will be approaching one million with approximately 500,000 being active. The single main reason for this is the product… the BVI company is quick and simple to obtain/register, easy to use and understand – thanks to pragmatic, clear and simple legislation, recognised worldwide and a historically proven product.

to change the landscape of mutual funds business in the BVI (aside from codifying certain requirements, which were previously imposed by the Financial Services Commission).However SIBA has created a regime for the licensing and operation of investment advisors, broker dealers, market makers and custodians where such activities were previously unregulated. SIBA also introduced a market abuse regime which provides protection for investors by criminalising insider trading, circulating misleading information and market manipulation.

It should also be noted that the service providers in the BVI are very competent. The jurisdiction itself has built its own reputation for the past 25 years and has proven it will do what is necessary to enable business to thrive within the BVI. In short, people can rely on the BVI.

As a BVI Fund is a regulated entity the establishment and use of such a licensed entity is, as one would assume, a more complicated, costly and time consuming process than establishing a simple BVI business company. However on a relative basis BVI mutual funds are a highly attractive product. The set-up procedure is efficient, quick and relatively low cost. There are no investment restrictions (aside from public funds) and returns are not subject to tax at corporate level. They can provide access to international markets and allow international investors access to locally managed assets and globally held investments.

The BVI has long been recognised as the go-to domicile for the incorporation of offshore companies. There is no question that this can be attributed in large part to the basic tenet of the jurisdiction being tax neutral, highly cost efficient and offering a good degree of privacy within which to conduct business affairs.

The BVI has a highly-regarded legal system based on English common law and is home to the Commercial Court of the Eastern Caribbean Supreme Court, which provides unparalleled legal access to practitioners. The legal framework is modern yet proven and trusted with prudent modern regulations.There is a stable political climate, as the recent change in the governing party demonstrates and there is a dedicated network of high quality sophisticated corporate and financial service providers based in the region. It is home to the full array of global offshore law firms and also all of the ‘Big 4’ accounting and audit firms, along with a very good range of niche and boutique service providers. It is OECD ‘white listed’ and is a member of IOSCO (International Organisation of Securities Commissions).It has also recently undergone another review by the IMF and has in large part been given a glowing report. General living standards in the BVI are very high compared to most other Caribbean islands - and indeed compared to many other supposedly more sophisticated jurisdictions - and as a result of this the BVI has a very high GDP per capita. All of these factors have contributed to the success of the BVI and its core product of the BVI business company.

The key in this regard is to ensure that you choose the correct BVI service provider for your needs as not all BVI based service providers offer such value added services.

In addition to the value added products available in the investment business sector, the BVI continues to be a popular domicile for insurance products most notably captive and re-insurance vehicles.

However with the onset of more demanding and discerning clients, the BVI now has service providers who are able to facilitate clients’ demanding products such as high net worth life insurance and specialty products such as professional indemnity insurance and directors and officers insurance.

These can be facilitated and provided through BVI-based specialty brokers with access to premier international insurers and the Lloyd’s market. Using a licensed broker based in the BVI that specialises in financial services ensures that you have someone who understands both the needs of the specific client, albeit a fund, private trust company or service provider, and the regulatory and legal obligations of BVI licensees.

The jurisdiction has for some time been seeking to add value to its core company product and has created a number of successful complimentary products and structures resulting in more sophisticated options for clients.

Having such providers available is another important development to the local industry, which in many other jurisdictions remains underserved by overseas brokers that do not fully understand the nuances and complexities of offshore financial services jurisdictions.

In the main, since the creation of the original BVI business company in 1984, BVI companies have been used by individuals for traditional purposes such as trading, holding, contracting or uses such as succession and wealth planning. For corporate users BVI business companies are the vehicle of choice for those wishing to establish subsidiaries to fulfill a wide range of corporate and group functions at low cost and great efficiency. Such uses would include special purpose vehicles for one-off transactions, joint ventures, or other more general operations such as treasury functions or to provide access to foreign capital markets.

However, the maturation of the BVI as a jurisdiction means that the BVI is ideally placed to handle much more sophisticated types of business.

One area of business that is anticipated to grow significantly in the BVI is the provision of BVI-based independent directors who can implement and administer an appropriate good corporate governance structure.

The BVI is the number two domicile in the world by number of registered mutual funds. In order to bolster this segment of the industry the Securities & Investment Business Act (SIBA) was passed into law in 2010 and created a legislative and regulatory framework governing the entire investment business industry (as opposed to simply mutual funds as per the 1996 Mutual Funds Act). SIBA in itself has done little

In conclusion it can be said that the BVI is placing itself well in the competitive world of finance. It has demonstrated over an extended period of time its ability to meet the changing demands of its customers and yet simultaneously enhance its products and reputation. The BVI is an ideal place to do business and will continue to be the leading choice for the discerning needs of the global financial community.

Such a path of progression is inevitable on the back of the recent financial scandals and the ongoing economic crisis, both of which have led to a world of increasing compliance and a need for transparency.

The professional and experienced service providers in the BVI are well placed to capitalise on this segment of the industry as an increasing and exciting opportunity.

Wealth & Finance | May 2014 |

Risk Management | Keeping an Eye on Fraud

26

KEEPING AN EYE ON FRAUD The CVs of even the most senior corporate executives can no longer be taken at face value - particularly during M&A discussions.

High flying executives’ careers often span continents and an impressive-looking CV that moves from one country to an-other can often cloak the career of a professional fraudster. The speed with which modern executives frequently shift jobs and industries can also be used to obscure a trail of fraudulent or covert activity.

The threat of a “rogue” executive is particularly dangerous when exploratory merger or acquisition discussions take place. In such cases, in the name of “transparency”, organisations invariably feel obliged to open up their communications networks to potential partners who are also actual competitors in the marketplace.

KCS recently advised a company within a particularly competitive and sensitive sector of industry during a period of re-financing with a view to a possible sale. Unfortunately, the organsation suffered covert action by a competitor and possi-ble buyer in an attempt to steal all its proprietary IP. One of the potential buyers trying to determine the client’s strategy sought to extract the client’s proprietary ‘know-how’ before the business was sold.

The solution was to discreetly assess not only the client’s physical security but also its IT security and integrity - both of which had been breached - causing a major leak. A program of discreet vetting and remote IT access was then used to assist the client to protect its IP and to continue with its refinancing without any damage to its reputation. | Wealth & Finance | May 2014

The danger of unscrupulous individuals infiltrating merger talks or potential partnership deals is particularly acute in de-veloping regions, where even respectable business figures often have a checkered and varied career that is difficult to track. Traditional due diligence is, therefore, at best of little value; at worst no value at all in the more complex and dan-gerousmarkets of Eastern Europe, Latin America and the Asia Pacific region where the market is far more opaque than in Western economies.

In the case of international merger deals, there is a very real and pressing need to understand the cultural, social and commercial dynamics inherent within the market in order to assess the performance of key executives within their home environment, where businesses often routinely play by a different set of rules than those in the UK or the US. But even in the more sophisticated Western economies, an impressive CV can cover a multitude of sins. Companies that were once household names can collapse overnight, making it difficult to check on an executive’s employment history. Examples in the UK include former “blue chip” companies such as Marconi and ICI. This has sometimes led to a culture of serial incompetence, where executives with a history of corporate disasters or even personal profiteering, can effectively fail upwards, representing a real threat to future security.

Keeping an Eye on Fraud | Risk Management

27

Stuart Poole-Robb, chief executive of strategic intelligence, risk and security management company KCS Group, explains how due diligence offers a safeguard against cyber fraud.

All this adds up to the fact traditional due diligence will no longer address the real threats. Something extra must be done to unmask those who deliberately set out to infiltrate, embezzle and cheat.

Organisations who enter into partnerships or merger negotiations with potential competitors, something that is increas-ingly commonplace in industries such as Information Technology, need to use an enhanced form of due diligence, tailored to the digital age. KCS has termed this process: “Discreet Non-Conventional Due Diligence (DNCDD)”.

This newly-enhanced form of due diligence is designed not only to verify an individual executive’s identity and CV but also to follow his or her digital trail.

Today, there is an ocean of digital information freely available over the internet which is constantly fed and updated. Few high profile executives can avoid using social networking sites such as LinkedIn or Twitter and many actively seek the publicity and opportunities self-marketing afforded by the internet. This is particularly true of those individuals who may need to enhance their personal profile and paper over the cracks in their career history.

However, It is not purely a case of going online to perform enquiries but more one of identifying all risks, weaknesses and threats surrounding both the financial and personal background of the person under review.

For this reason, it is essential that due diligence be carried out by an external agency practiced in scrutinising legal infor-mation to detect past or present deceptions. It is also important that the external agency undertaking the due diligence has a sufficiently broad range of international contacts and sources of information to check discreetly on any anomalies in an executive’s past in whichever markets they have been professionally active.

The cost of not performing sufficiently careful due diligence during even exploratory merger costs can be extremely high in the case of even exploratory merger or partnership talks.

Even seemingly “innocent” executives can be used by a competitor to compromise his/her employer’s security. A trick now in use is to set up an apparently bona fide but in reality bogus interview process.

The targeted executive is ap-proached by a headhunter and ask if he/ she would be interested in a lucrative career with another organisation. The target is then invited to attend an interview in a hotel suite. Anxious to impress, the target can then be gradually milked for valuable information before he/she realises, possibly weeks too late, that they have been duped.

Lloyd’s Risk Index 2013 lists cyber-crime risk as now being the world’s number three risk overall. According to research company CapGemini, cybercrime costs British companies £21bn a year. In the US, where cyber crime had an early foot-hold, annual corporate losses are measured in trillions of dollars.

Wealth & Finance | May 2014 |

Regulation Review | Breaking Up ...is Hard to Do

28

Breaking Up ...is Hard to Do

Graham Coy, Head of Family Law at Mundays LLP, explains how couples experiencing marriage problems can survive on the family law battlefield. | Wealth & Finance | May 2014

Breaking Up ...is Hard to Do | Regulation Review

29 Family Law in England and Wales does not stand still; it is often forgotten that Scotland has its own legal system and this will remain the case no matter what happens on 18th September, when the “in/out” Referendum takes place.

In many ways the changing landscape of Family Law in England has its advantages. It enables the law to evolve and adapt.

Inevitably, there is a downside: unpredictability. What may have happened ten or five years ago or even just two or three years ago may not be the case now.

The principle underlying English law and how financial issues are resolved on separation and divorce is “fairness”. Strangely, that word is nowhere to be found in the legislation. What is fair and what is not is nowhere defined. Each set of circumstances, each family are different. In other words, another source of unpredictability. To find a fair resolution requires not just a clear understanding of the law but also legal and financial ingenuity and dexterity.

Marriage breakdown is now all too familiar. The average length of a marriage in this country is just over 11 years, and the most common age for marriages to fail is when the couple are in their early 40’s. Having to rely on a Judge making a decision is expensive, stressful and drawn out.

It is not surprising that Clients want, if they can, to be in more control and be in a position to set out what will happen if a relationship fails.

This desire for greater autonomy has become a significant feature of Family Law in England over the last 12 months.

The prime examples of this trend are the far greater use of both pre and post nuptial agreements and developing other methods of resolving disagreements.

While pre and post nuptial agreements have been an integral part of many other legal systems for a long time, for many years English Courts would have nothing to do with them. The thinking was that Parliament had given the Judges the obligation and the power to make decisions when marriages failed and financial disputes had to be resolved and no-one, not even the parties to the marriage itself, could take that power away.

That is no longer the case. Gradually, Judges accepted that married couples should be able to determine for themselves what they wanted to happen, financially, if their marriage broke down. Judges were also faced much more frequently with cases where one or both of the couple were born abroad, married abroad and had entered into pre-nuptial agreements abroad. These agreements could not just not be ignored any longer.

Accordingly, provided that certain safeguards were met, pre and post nuptial agreements have increasingly carried more weight and more often than not have been determinative.

This approach has now received the endorsement of The Law Commission, the body which advises governments on law reform. As long ago as 2009, the Commission was asked to consider whether the existing legislation needed to be amended to specifically provide for pre-nuptial agreements.

At the end of February 2014, its report was published. The Report came with a draft Bill which introduced the concept of “Qualifying Nuptial Agreements”. These would be enforceable again if certain conditions were met. It is unlikely that legislation as envisaged by the Commission will be introduced before the next General Election in 2015 but even if it were it would do little to alter the law as it is now.

A pre or post nuptial agreement cannot prevent either party from going to Court to resolve financial differences. A party to such a pre or post agreement is likely to be held to that agreement unless they were placed under undue pressure to sign it, did not have full knowledge of the other person’s financial position, did not have independent legal advice or the circumstances have so changed since the agreement was signed that upholding the agreement would be unfair.

Nuptial agreements, therefore, should be part of routine financial planning. Like wills, they need regular review. They have distinct advantages for those wishing to protect what they have built up before marriage or re-marriage, for those wishing to protect or “ring fence” inheritances and for those wishing to protect their businesses.

Nuptial agreements are best entered in to before marriage and should normally be completed at least 21 days before the wedding.

However, the process is not stress free. Planning well in advance, being sensible and realistic and expert advice are all essential.

No-one likes going to court. It is expensive and stressful. In addition, as a result of cut backs in government funding, the court process is now taking even longer; the worst scenario is that a case can quite easily take up to 2 years to be resolved if no agreement can be found.

As a result, family lawyers have devised other methods to help their clients resolve their differences. Sometimes and rather condescendingly referred to as ADR, Alternative Dispute Resolution, they include Mediation and Collaboration and now Arbitration.

Arbitration has long been a feature in the commercial world. Its introduction in to the realm of resolving financial disputes has distinct advantages, especially at a time when the Court system is facing increasing challenges.

Arbitration is quicker, far more flexible and cheaper, even though the arbitrator’s fees have to be provided for, and also more confidential. When a marriage fails, privacy is normally seen as essential. This is even more so the case where substantial amounts of money are involved and where information can be very commercially sensitive.

Until recently, this was taken for granted. 2014 has witnessed some High Court cases, at least, being heard in public, something that even 12 months ago would have been considered extraordinary. For those who wish to ensure complete privacy and confidentiality, arbitration offers guarantees which the Court system cannot.

Finally, the last 12 months have featured several instances of one party or another trying to lie and hide their assets, transferring them to third parties or to trusts and corporate vehicles in off-shore tax havens. The lessons to be drawn from these cases, in one of which terms of imprisonment were served, are that more often than not “truth will out”, and that in the process enormous legal costs can be incurred and, far more importantly, families can be destroyed.

Wealth & Finance | May 2014 |

Regulation Review | The Shifting Sands of Anglo Russian Business Disputes

30

THE SHIFTING SANDS OF ANGLO RUSSIAN BUSINESS DISPUTES Michael Frisby and Paula Harris of law firm Stevens & Bolton LLP tell us how the crisis in Ukraine has changed how disputes between UK and Russian businesses are resolved.

| Wealth & Finance | May 2014

The Shifting Sands of Anglo Russian Business Disputes | Regulation Review

31 With Ukraine apparently on the brink of civil war, Foreign Secretary William Hague has warned that, “Russia must choose whether it is open to diplomacy and de-escalation, and if it decides otherwise, we must be ready for a different state of relations with Russia in the next 10 years than in the last 20.” He indicated that Russia is likely to pay a heavy price for its actions.

While Mr Hague’s words could be dismissed as rhetoric, both the US and EU have already imposed sanctions against Russia including asset freezes and visa bans targeted at Russian officials. It has been questioned whether sanctions to date have teeth, but further far-reaching economic, trade and financial sanctions are contemplated. With real potential for reciprocal boycotts by Russia if the crisis escalates, concerns as to the risks of doing business with Russia in the current climate are rapidly increasing.

The Foreign and Commonwealth Office has also made proposals for a system of sanctions that would prevent the English courts enforcing commercial agreements involving entities from targeted regimes, with a view to dissuading the private sector from doing business with them. While the proposals are intended to target so-called rogue states, they have raised a question mark about the potential handcuffing of the English courts.

With the reform of Russia’s own commercial court system well under way, and notably the dissolution of the progressive Supreme Arbitrazh Court (commercial court) expected later in 2014, concerns abound as to how all of these events will threaten international trade between the UK and Russia.

Businesses are reviewing their prospects for successfully enforcing commercial contracts with Russian entities, whether by litigating in the English or Russian courts, or by other means such as private arbitration.

There is no formal reciprocal treaty for the enforcement of English judgments in Russia, although in the past the Russian courts have recognised English judgments on reciprocity principles. In light of the Russian court reforms and escalating tensions, there can only be uncertainty as to whether a similar approach will continue to be taken.

As for arbitration, Russia signed up to the New York Convention governing the enforcement of foreign arbitral awards in 1958. Therefore, enforcement of an English arbitration award in Russia ought to be relatively straightforward. In recent times, however, the Russian courts have refused to enforce foreign arbitration awards on grounds widely justified as public policy. Such decisions were not what might have been predicted.

The value of a commercial contract is always dependent upon its enforceability. Obtaining full value is uncertain where performance by the counterparty is ultimately a matter of goodwill. When entering into a contract, consideration must be given to dispute resolution and enforcement mechanisms. But of course, on a longer term contract a dispute may not arise for a couple of years or more. In the current political climate, much might have changed may have been transformed.

In view of all this, businesses contracting with Russian companies will need to review all their options carefully. It is possible to try to protect one’s position and avoid future problems at the negotiation stage, for example by looking closely at jurisdictional issues and structuring appropriate security and payment methods.

In his speech Mr Hague referred to the flight of over $63bn in capital out of Russia. The recent developments are undoubtedly alarming and the spectre of a trade war potentially looms. In the current climate businesses are well advised to spend time carefully considering and structuring contracts with Russian businesses to avoid potential problems in the longer term.

Wealth & Finance | May 2014 |

Finance Focus | Nip it in the Bud

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Nip it in the

Bud

Phil Beckett, managing director at corporate forensic investigation and e-disclosure firm Proven Legal Technologies, explains how disputes in M&A can be resolved – before they turn into a costly legal battle.

As parties enter into mergers, acquisitions, joint ventures or any sort of corporate deal, there is often an overriding sense of harmony that this is a win-win scenario. However, perceived wisdom is that the success of any M&A activity can in fact be a double edged sword, and the sense of joyous congruous is often short-lived. These non-harmonious feelings can drift or surge into legal action that very often ends up in a bitter, long-running and often expensive court battle.

Is there anything that can be done to try and avoid this? From a forensic technology perspective there are two main exercises that can be performed to tackle these problems, one looks at it from a preventative angle and the other seeks to preserve the position at the time of the deal for all parties involved.

During these sorts of corporate deals, a large amount of effort is focused on due-diligence – trying to provide the parties seeking to acquire, invest or merge with an independent, verified view of the entities in question.

Due-diligence, at a minimum, will include a level of accounting activity seeking to confirm valuations, income streams and expense commitments amongst other things. Sometimes it takes on a reputational or compliance angle, especially with legislation such as The Bribery Act potentially having extreme effects.

However, the due-diligence of accounting data can be – viewed through a different lens – looking to identify any unusual patterns or transactions from a potentially fraudulent perspective. Before performing this sort of analysis, it is important to ensure that all data is captured and then normalised to ensure that transactions are consistently and completely analysed.

The analysis can take on simple forms such as checking for payments of round-sums, looking for payments to entities in high risk countries or can be linked to politically exposed people or identifying payments to entities before or around key contractual dates or authorisation limits. Although, it can also take more advanced and complex forms, such as Benford’s Law. This looks for unusual frequencies of transactions with the same leading digits and also statistical clusters and outliers that seek to identify transactions that are statistically deviated from the norm.

In addition to this more enhanced review of accounting data, there are other sources of data that can be revealing, specifically email data.

Although, getting agreement to access this data in a due-diligence guise, before a transaction has been completed can be challenging, the benefits can be profound.

Being able to search and analyse the email communications between key senior executives within an organisation can often be very revealing. Relevant keywords can be searched for along with other more generic warning

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signs. Sentiment analysis can also be progressed to determine the attitude of the sender of emails, with respect to some topic or the overall context of an email. By reviewing the results of these searches and analyses, a deeper insight can be gained into the information being provided and thus can be used enhance further avenues of discussion or enquiry.

The second exercise seeks to preserve the digital state of key systems and computers at the time of the transaction. This enables, if necessary, all parties to maintain or have access to a copy of the data from these systems months or years later in a state where they have not been contaminated by subsequent management actions or decisions. This relatively inexpensive exercise is designed to simply preserve key systems by quarantining back-ups of key network-based systems, for example the accounts system, key individual’s e-mail server data and key departmental shares. In addition, the exercise takes forensic images of key local devices used by key individuals, such as their computer and smartphone.

This approach allows for analysis to be performed in the future on a historical dataset. The analysis can be aimed at the accounting data to re-analyse the data from a quantification perspective based on reality rather than assumption, or looking to quantify the effect of specific business practices that subsequently turn out to be suspicious or under scrutiny.

However, the approach can also be used to search local devices for evidence of potential wrong-doing that has subsequently come to light or is alleged. This can include analysing how a machine was used to communicate, for example, searching for remnants of messages read, as well as the details of messages in the in-box from web-based email systems.

Analysing chat messages can also be very revealing – including those of corporate chat systems. This analysis can span the use of Skype, Facebook, iChat and Yahoo Messenger.

Relevant documentation can also exist related to potential wrong-doing.

This can, but may not be, a “live” file on the system, therefore it is equally important to search for deleted material.

This can be achieved through two processes. Firstly, by seeking to recover and carve deleted files so that historic documentation can be searched and viewed. Secondly, by analysing any Windows artefacts in order to identify files that may have been present on the computer, or other devices. This relies upon Windows recording information about documents that the user is generally unaware of. For example, the creation of LNK files when files are opened, irrespective of their location; and MRU (Most Recently Used) lists in the Registry that record the last files that were opened in a certain application (for example Word or Excel).

With corporate activity continuing to show signs of recovery and given the recent economic events since the “credit crunch”, stakeholders are going to be even more focused on the success of their activity. Considering the historic track record, the above can not only help detect potential issues before the transaction completes, but also helps preserve an un-tainted position if the worst does happen.

Nip it in the Bud | Finance Focus

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With corporate activity continuing to show signs of recovery and given the recent economic events since the credit crunch, stakeholders are going to be even more focused on the success of their activity

“ Wealth & Finance | May 2014 |

Finance Focus | UMW oil & gas: 2013’s largest oil & gas IPO

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| Finance Focus

35 At an expected listing market capitalisation of approximately RM6 billion, the UMW Oil & Gas IPO will be the largest oil and gas offering globally in 2013, raising approximately RM2.4 billion for both UMW Holdings and UMW-OG. It is also set to be the largest offering in Malaysia for 2013 and the eighth largest IPO in Asia Pacific excluding Japan.

The IPO involved an offering of a total of up to 843 million shares at an IPO price of RM2.80. This was split approximately 30:70, with an Offer for Sale of up to 231 million existing shares and a Public Issue of 612 million new shares to the following categories: • 249 million to Bumiputera investors approved by the MITI • 400 million shares to Malaysian institutional and selected investors

(other than Bumiputera investors approved by the MITI) and foreign non-US institutional and selected investors • 194.58 million shares to retail investors comprising eligible directors and employees of the UMW Group, persons who have contributed to the success of the UMW-OG Group, entitled shareholders of UMWH and the Malaysian Public.

Albar & Partners acted as legal counsel to UMW-OG as to Malaysian law.

Lead partners in the transaction were Ms Lily Tan Chea Li, senior partner, corporate and capital markets, and Ms Cassandra Hogg, partner, corporate. They provided details of the transaction.

“The listing exercise launched simultaneously with execution of the elaborate internal IPO reorganisation exercise. The work on this IPO has been

Wealth & Finance | May 2014 |

Relax | Join the Gentry

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Join the Gentry Middlethorpe Hall, in York, offers flawless service, fine dining and a genuine sense of history and tradition, all in a beautifully-preserved, three centuries-old country residence.

The restoration, conservation and conversion into a country house hotel has clearly been carried out to exacting and historically accurate standards.

The building, which stands in 20 acres of grounds, has been elegantly decorated in an 18th century style. The large entrance hall features a stunning oak staircase and chequered marble floors. The public rooms are furnished with antiques and fine paintings and look out over the sweeping lawns and parkland. The resulting impression is that of a well-kept, well-furnished private manor house, rather than a 29-bedroom hotel.

The 20 acres of manicured gardens and parkland which surround Middlethorpe Hall are also the result of a transformation – from a rose bed and nettles to a parterre that now includes a fragrant rose garden, intriguing walled garden and romantic meadow which leads to a lake surrounded by beautiful specimen trees. There is also

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a ha-ha wall (a wall, popular in the 17th and 18th Century on country estates of the landed gentry, designed to be invisible from the house, ensuring a clear view across the estate.)

Today, Middlethorpe Hall is renowned for its imaginative cuisine and its panelled dining rooms which overlook the manicured gardens. The gardens surrounding Middlethorpe have also been extensively restored and replanted. What remains of the previous garden includes a tall cedar al Lebanon on the main lawn, a mature red oak in the spring garden, a Turkey oak giving shade to the south east of the house a line of beech trees on the west boundary, as well as a specimen sycamore and lime trees.

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Located within the historic city of York, Middlethorpe Hall is a country house built in 1699 of mellow red brick with limestone dressings, for a wealthy businessman from Sheffield. In the 1980s it was bought and reopened as a luxury hotel, restaurant and spa.

Impeccable service comes, of course, as standard

Guests can relax before candlelit tables in the panelled dining rooms and enjoy antiques reflecting the tastes of several centuries. The dining room is an oasis of calm, where guests leisurely dine overlooking the magnificent view of the gardens and parkland. Nicholas Evans’ superb cuisine has won many accolades over the years.

Impeccable service comes, of course, as standard.

The hotel also boasts a health and fitness Spa built behind the handsome façade of two listed Edwardian cottages. This offers guests a range of facilities, from Decléor, ESPA and Jessica treatments with trained therapists, to a swimming pool, sauna and gymnasium.

Middlethorpe Hall exudes a comfortable, luxurious atmosphere – and the hotel’s individual guest rooms and cottage suites are no exception.

The twenty-nine comfortable and fully equipped bedrooms, each decorated individually, are located both in the house and in the attractively restored 18th century courtyard next to it. There are several room types ranging from single rooms to a deluxe suite in the main house. Ten of the rooms

Join the Gentry | Relax

37 are in the main house, seventeen in the 18th century classical courtyard, as well as a garden suite and two cottage suites in an adjacent cottage.

Ten bedrooms and suites are located in the historic main house. Situated on the first and second floors, and accessible by a lift, they are characterized by very high ceilings, large sash windows overlooking the south lawn or the beech avenue.

Inside the main house, the best rooms are the four-poster bedrooms. These two spacious four-poster rooms overlook the south lawn, and both have a king-size bed and are furnished with antiques and fine paintings as well as more modern amenities.

There are also two suites in the main house, one of which is the Duke of York Suite, named after the stay of His Royal Highness Prince Andrew. Decorated with antiques and fine paintings, it includes a fireplace, living room and a “coronet” king-size bed.

There’s plenty to do in the surrounding area, too. Horse racing fans are certainly well catered-for – Middlethorpe Hall overlooks the famous York racecourse.

The city of York, a short distance from Middlethorpe Hall, is one of Britain’s most historic cities, and is still surrounded by its medieval city walls, which enclose some of the most splendid urban architecture in the British Isles, including York Minster cathedral, the medieval street of the Shambles, the castle and a vast number of other fascinating buildings and museums.

Tel: +44 (0)1904 641241 Email: info@middlethorpe.com Website: www.middlethorpe.com

Wealth & Finance | May 2014 |

Relax | TKTKTKTKTKTKTKTK

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Top 5: Most Expensive Yachts AZZAM Commissioned by Khalifa Al Nahyan, the president of the United Arab Emirates, the 180 metre-long Azzam is currently the largest luxury yacht in the world.

As well as being the largest yacht (and fastest, with a top speed of 37mph) Azzam is also the most expensive, having cost a reported sum of US$627m. And if that seems a lot, it’s perhaps worth noting that sum makes up a mere 3.5% of Sheikh Khalifa’s net worth of US$17.9bn.

. ,a rich symbol r e p s su tu rld’s ate sta e most o w e th im of th the ult ces are r built y n s ve ti ala ma For te yach ating p sive – e n o a priv e five fl d expe n s a The ious – r luxu

ECLIPSE Chelsea Football Club owner Roman Abramovich took delivery of the Eclipse in 2010 after shelling out an estimated US$475m on the 165.3 metre-long superyacht.

The Eclipse features two helicopter pads, 11guest cabins, two swimming pools, exterior fireplace and a dance hall, as well as coming equipped with intruder detection systems, a German-built missile defence system, as well as bullet-proof glass and armour plating in the master suite and bridge.

SERENE The 440-foot Serene, which features seven decks, two helicopter landing platforms, storage for a large submarine and a large internal swimming pool, is owned by Russian businessman Yury Shefler, the founder of the company that makes Stolichnaya Vodka.

Serene, which is valued at US$330 million, sleeps up to 24 guests and also features a gym, a climbing wall, a dancefloor and a library. It’s also available for charter – for US$2.2m.

A Named for the first initial of its owners, Russian businessman Andrey Melnichenko and his wife Aleksandra, the 119 metre-long A’s provocative styling has polarized opinions since its launch, evoking comparisons with submarines and stealth warships.

A was delivered in 2008 at a rumoured cost of US$323m. Its suites feature leather or white stingray hides on the walls and ceilings, and crocodile-skinned furniture. Abovedeck there is a helipad and swimming pool forward of the superstructure and two more pools aft, one of which is glass-bottomed and can be viewed from the below-deck disco.

DUBAI At 162 metres, Dubai is the world’s third-largest superyacht. Besides multiple dining areas, saloons, guest and VIP suites, other notable features onboard this US$300m superyacht include two owner’s suites on the sixth and seventh decks and two heli-observation rooms on the seventh and eight decks.

In addition to three elevators serving all the decks, the Dubai has a huge open glass staircase which connects a large number of guest and VIP suites, as well as an owner’s deck.

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Wealth & Finance | May 2014 |

Relax | A Bewitching Experience

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a

Bewitching

experience

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A Bewitching Experience | Relax

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Tradition and luxury – and maybe a friendly spirit or two – await you at Cornwall’s historic Headland Hotel.

Wealth & Finance | May 2014 |

Relax | A Bewitching Experience

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This is the Headland – a place steeped in history and tradition, and one of the finest hotels in southern England.

Behind the imposing facade, the Victorian grandeur continues. The Headland’s public areas offer an almost overwhelming choice of places to sit, relax and enjoy a bite from the hotel’s award-winning menu.

The Fistral Suite has an open fire and views across the grounds, Fistral Beach and the sea beyond—and, perhaps most importantly, close proximity to the bar—making it an ideal spot for intimate lunches and dinner parties.

The Ballroom still boasts its original wooden, coil-sprung floor where at least 300 guests can waltz gracefully through the night. During the day, it doubles as a lounge, with lots of comfy sofas. Like the rest of the hotel, it’s been lovingly preserved.

Guest rooms include soaring four-poster or canopied beds and a freestanding bath as well as modern touches such as a large flat screen TV. The Headland’s 4-star main building is just the beginning, though.

In the hotel’s grounds, overlooking the ocean, are 40, 5-star self-catering holiday cottages. A cosy space in a winter storm, or cool respite on a sizzling summer’s day, these cottages – which come with one, two or three bedrooms – are quite possibly the last word in luxury beachside accommodation.

and well-equipped kitchen. Some cottages also boast sheltered gardens and balconies.

And of course, if you need them, all the facilities afforded by a luxury hotel are just a stone’s throw away.

One thing you certainly wouldn’t want to miss is the hotel’s acclaimed spa. With six beautifully designed treatment rooms—one with a stylish oversized hydrotherapy bath— there are a wide range of treatments, all of which will make your busy urban life seem but a distant memory.

Perhaps the most intriguing treatment on offer is “The Dreaming.” According to the hotel, this treatment developed from a desire to reconnect the mind and spirit with the body by creating an incredibly relaxing and rejuvenating treatment which will release tension and send guests into a dream-like state where their immune system is boosted.

Using gentle flowing movements using organic oils and balms from head to toe and incorporating a hand and foot pamper, full body massage and scrub, head massage and facial. The skin of the face and body is cleansed, invigorated, restored and nourished. Tired muscles are eased and energised, and all the body systems are rebalanced and rejuvenated.

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urrounded by the raw beauty of the Cornish coast on three sides, the views are breathtaking. Wild Atlantic rollers pound the shore, while high above this dramatic landscape a set of red brick towers survey the golden sands, marram grass and rocks dividing land and sea.

The Headland’s 4-star main building is just the beginning

As soon as you catch a glimpse of these beautifully-appointed cottages you imagine yourself walking hand-in-hand along the sandy coves before popping a bottle of Champagne and watching the sunset from your private balcony.

Guests can also enjoy a fully equipped state of the art gym and leisure area with a pool, sauna, stream room, jacuzzi and aromatherapy showers.

Many of the cottages have a sea view (one, “Mariners 2” enjoys spectacular 270˚ coastal views from its living area on the towering fourth floor), others a “sea glimpse.” All have a four poster bed made up with feather duvet and pillows, as well as a dining area

All its mod-cons aside, the Headland is a place steeped in history – and the hotels’ past was in fact a somewhat turbulent one.

When building work commenced there was immediate opposition from the local fishermen, who claimed the hotel was being built on common land they had used to dry their

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nets for generations.

Newspaper reports from the time show that one night a group of disgruntled seamen pulled down the hotel’s foundation walls, burned the scaffolding and threw the foreman’s hut into the sea. The Newquay Riots, as they were dubbed by the press, resulted in several men being fined and all building work grinding to a halt. Two hundred unemployed miners from the nearby town of Redruth were recruited because the locals were unwilling to return to the site, and as the new workers arrived in Newquay, traction engines equipped with steam hoses were used to keep the resentful natives at bay.

The hotel was eventually finished, however, and to the highest standards: a DC generator was installed in a remote underground chamber; there were two bathrooms for gentlemen and two for ladies on each floor; every bedroom had a fire place, hot and cold running water, electric light, and an electric service bell – all of which were considered luxuries out of the reach of most ordinary people at the time.

Among the hotel’s famous guests was none other than the future King Edward VIII. The then Prince of Wales arrived at the Headland to convalesce after suffering from mumps whilst training at the Royal Naval College in nearby Dartmouth.

During the Second World War, the building was requisitioned and became a Royal Air Force hospital – a part of its history that has given rise to numerous alleged spooky happenings inside the hotel. Guests (possibly fresh from a few post-dinner drinks in the Terrace bar) have reported seeing the ghosts of men in uniforms walking around the corridors late at night.

The hotel may also be familiar to anyone who visited a cinema back in 1990 – much of the movie adaptation of Roald Dahl’s The Witches was shot on location in the Headland Hotel (named “Hotel Excelsior” in the film.)

Rowan Atkinson played the hotel manager.

During a break from filming, he managed to flood the hotel by leaving his bath taps turned on.

Thankfully, the hotel has now completely dried out – and now it’s waiting for you to write your own history.

Wealth & Finance | May 2014 |

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