March 2014
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What is the world’s most powerful brand?
Top 5 sectors Stocks for start-Ups and Mortar The hottest industry sectors for your start-up venture
Property vs Stock Market which is best?
Plus... Relax: Go Beyond Luxury. What to expect from the Maldives’ most exclusive resort
March 2014 | Contents
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Contents News & Appointments 4-11 Funds 10 Hedge Flash 12 Diversified Asset Allocation Strategies Cement Place as UK’s Most Popular DC Pension Default Funds, say Europe’s Managers 13 Nontraditional Fixed-Income Strategies Shined in 2013 14 Jon Moulton Backs Seneca Investment Managers Wealth Corner 16 The World’s Most Powerful Brand The World’s Most Powerful Brand.
22 Oxfam report reveals UK’s growing inequality Britain’s five richest families worth more than poorest 20% combined.
24 MIPIM 2014 Widening the investment net – alternative assets to constitute 15% of institutional investors’ portfolios within the decade.
Taxing Times 25 40p tax rate is ‘short termist’ and a ‘disincentive to aspiration’ Banking Zone 26 Trading Places
Editor’s comment With 2014 now well underway, high-networth investor confidence is definitely on the rise, reaching its highest level since the global economic crash of 2008. The latest annual international poll carried out by deVere Group reports that 57 per cent of those surveyed stated they were feeling ‘bullish’ about the investment outlook for the next 12 months - an increase of four percentage points on the 2013 poll. The survey also finds that 77 per cent of the high-net-worth investors are committed to investing more over the 12 months. So, with this in mind, this month’s edition of Wealth & Finance takes a closer look at the power of widening the investment net to take in alternative assets (Page 24), whether or not it’s time to buy Emerging Markets again (page 32) and finds out if increased M&A activity in the UK spells good news for commercial finance brokers.
Private banking over Investment Banking.
28 CEO watch Markets Matters 30 Top Five Sectors for Start-Ups Calling all ‘wantrepreneurs’ out there…
32 Is it time to buy Emerging Markets again? Wealth & Finance talk to Jade Fu, Investment Manager at Heartwood Investment Management.
33 Introducing a hybrid portfolio… Finance Focus 34 Stocks and Mortar 36 Increased M&A activity should spell good news for commercial finance brokers 37 Embrace the bull in the China shop
38: Relax Go Beyond Luxury
Wealth & Finance | March 2014 |
News & Appointments | March 2014
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Capital Dynamics’ 21-MW Dunmore wind farm kicks off operations Capital Dynamics, a global private asset manager, is pleased to announce its 21-megawatt (MW) Dunmore onshore wind farm in Northern Ireland is now complete, operational and generating power. Capital Dynamics first invested in the Dunmore wind farm project in January 2013. Since then it has successfully managed all aspects of the wind farm’s construction and power sales contracting – delivering the project ahead of schedule and under budget. The new Dunmore wind farm represents a successful collaboration between Capital Dynamics and its development partner TCI Renewables, along with turbine supplier Vestas Wind Systems, electrical contractor Kirby Group Engineering and civil contractor William & Henry Alexander. The Dunmore wind farm is located in one of Europe’s highest wind speed locations. It is expected to generate enough electricity to power 17,500 homes[1] – avoiding approximately 25,700 metric tons of greenhouse gas emissions per year[2], the equivalent of annual emissions from 9,200 passenger vehicles[3]. The Capital Dynamics Clean Energy and Infrastructure (CEI) team successfully negotiated a 15-year power purchase agreement with a major UK power retailer. That contract will secure for Capital Dynamics’ investors in the Dunmore wind farm a long-term, steady stream of income from the electricity generated and sold into the “All
Ireland” power market, which is expected to significantly increase wind power capacity in the coming years. “We are delighted to deliver a new supply of clean, renewable energy to the community of County Derry/Londonderry,” said Rory Quinlan, Managing Director in the CEI team at Capital Dynamics. “The timely completion of the wind farm’s construction is a testament to our construction and development partners’ excellent execution capabilities and another example of the CEI team’s experience in successfully bringing projects from construction through to commissioning, and most importantly, delivering them on time and under budget. With the Dunmore wind farm now operational and generating power, we are on track to deliver attractive returns for our investors.” “The Dunmore wind farm is the latest example of how a direct equity investment in a commercially proven, emissions-free asset can be de-risked, and potentially create enhanced and long-term cash yields for our investors in clean energy and infrastructure,” said Stefan Ammann, CEO of Capital Dynamics. “Dunmore caps off a year in which the CEI team successfully commenced or completed construction on 24 solar and wind energy projects across the US and UK, an impressive achievement on behalf of our investors.”
Appointments Williams joins Brightside Brightside, the specialist insurance broker, is pleased to announce Paul Williams has joined the Board as Chief Executive Officer, and to provide his overview of the 2014 strategy. Paul joins Brightside from Towergate Partnership Ltd, Europe’s largest independently owned insurance intermediary writing in excess of £2 billion of gross written premiums per annum, where he was a Director on the Retail Executive Committee responsible for all insurer and market relationships across the broking businesses. Following Paul Williams’ arrival, the Company remains focused on delivering compelling customer propositions, significant and sustainable growth and shareholder value. His breadth of leadership experience and market knowledge significantly strengthens the Group’s ability to achieve these objectives. On joining Brightside today, CEO, Paul Williams said: “Brightside has a history of rapid growth with considerable opportunity for further policy and profit growth without the underwriting risk of an insurer. As a new CEO, it is essential to ensure continuity in the implementation of the Company’s growth plan. “Initially, I will focus on a number of key areas to grow the profitability of the book. These will include; negotiating deals with key insurers, expanding our insurer panel and redefining our insurance capacity through the introduction of Delegated Authority and Managing General Agent agreements to augment the Group’s income streams. As well as continued strengthening of our validation techniques, which reduce our insurer partners’ exposure to fraud, to allow us to offer more competitive rates to our customers. “In addition, there are several exciting new partnerships planned for 2014, the first of which was announced last week, RatedPeople.com, the UK’s largest online trade recommendation service. These partnerships are key to developing our distribution. We will continue to concentrate on markets where we have strength and scale, particularly in the motor and SME arenas where we have developed expertise online and through our UK based call centres. Using our Quote Exchange platform we will use our technological advances to introduce additional niche brands to our portfolio.”
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March 2014 | News & Appointments
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Fisch Asset Management has joined the Group of Boutique Asset Managers (GBAM). Fisch Asset Management is an independent asset management boutique based in Zurich and is one of the leading convertible bond managers worldwide. The Group of Boutique Asset Managers (GBAM) is a global network of like-minded, independent specialist asset managers who have come together to improve their presence in international marketplaces. Members do so by sharing information and promoting their presence both individually and collectively to potential investors. The principle activities of GBAM are:• To foster cooperation among member firms. • To identify best practice and share experiences in all aspects of asset management (research portfolio management, risk control, marketing etc). • To improve understanding of operating in international markets.
• Improve recognition in the marketplace of the advantages offered by small, specialist businesses by providing a representative voice in the media. • To support members by highlighting their expertise in their chosen fields. The chairman of GBAM José Luis Jimenez said, “We are delighted that a boutique of the calibre of Fisch has joined our group. Since our inaugural meeting in Valladolid under a year ago the group has now grown to 16 members, representing asset managers from Europe, Latin America, Africa and Asia and managing over €100bn of asset under management.” Dr. Pius Fisch, chairman and founding partner of Fisch Asset Management said, “I am very pleased to be working with a range of different specialist boutiques from around the world. I’m sure I will learn much from their expertise while making a useful contribution to the Group.”
Appointments Seneca Investment Managers appoints David Warnock as Chairman Seneca Investment Managers Ltd, which recently acquired - subject to FCA approval Miton Capital Partners, today announced that David Warnock is joining as chairman. David Warnock has over 30 years’ investment experience in both public and private companies, in both the UK and USA. He co-founded Aberforth Partners and retired from there in 2008 after 19 years, having led much of the strategic development and management of the firm. Prior to that he worked with Ivory & Sime plc for four years and, before that, with 3i Group plc for seven years, the last four of which were in Boston, USA. David is currently Chairman of Troy Income & Growth Trust plc and a non-executive director of British Polythene Industries plc and Standard Life European Private Equity Trust plc, as well as being an active investor in a number of private companies. The acquisition of Miton Capital Partners by Seneca Investment Managers represents a key building block for Seneca Partners Group. It will add a profitable and successful fund division to the group’s UK asset management and corporate advisory operations. David Warnock, Chairman, Seneca Investment Managers, commented: “I am both privileged and excited to have been offered the role of chairman. Stuart has big plans for Seneca Investment Managers and my role will be to help those plans come to fruition in the years ahead.” Stuart Eaton, CEO of Seneca Investment Managers, added: “David is one of the most recognised people in the industry and it is a real coup to have him onboard. Our goal is to turn Seneca Investment Managers into a leading brand within UK financial services and his experience, expertise and contacts will certainly make that a lot easier to achieve.”
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News & Appointments | March 2014
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State Street Global Exchange Expands Global Futures Capabilities to Help Clients Access Futures Directly and Manage Complexity Advanced Algorithms, Analytics and Consulting Offer Actionable Insights for Buy-Side Traders
State Street Global Exchange has announced the expansion of its futures commission merchant (FCM) solution to include futures execution. State Street’s Futures Commission Merchant (FCM) solution includes support across the entire trade lifecycle through execution, clearing, collateral management, valuation and risk and analytics for OTC derivatives and futures. The futures execution capabilities include a global team of experienced traders, direct market access (DMA) and the use of State Street algorithms and analytics with seamless integration into existing workflows. The execution desk provides a global rolling order book, cross-product coverage from a coordinated sales team and access to more than 30 global exchanges and third-party platforms. Execution consulting and cross-asset trade flow and analysis, trade ideas and opportunities, market commentary, analytics and proprietary research are offered by the execution desk and through State Street Associates, State Street Global Exchange’s leading partnership with academia. “Powerful tools and capabilities that extract insights and value from a growing volume of investment data will increasingly determine success,” said Jeff Conway, executive vice president and head of State Street Global Exchange. “Our clients need actionable insights and the right tools to make faster and more informed investment decisions. The expansion of our futures capabilities demonstrates our commitment to help our clients access liquidity globally and see ideas through from concept to return.” In a recently released report that surveyed nearly 200 asset managers and examined their confidence and investment levels in data and analytics, State Street found that over the next three years, 81 percent of asset managers plan to increase investment in order management and execution systems and 64 percent plan to increase investment in electronic trading platforms. However, despite this increase in investment, only 19 percent have high confidence in their ability to optimize electronic trading strategies. “With this expansion into futures execution, we’re focused on giving our clients better control of their transactions,” said Martine Bond, head of trading and clearing, State Street Global Exchange. “As a custodian, we can remain un-conflicted and offer the size, speed and savings our clients need to stay ahead of market opportunities. We’re continuing to build our teams with fresh talent and extensive product knowledge to offer the most comprehensive global service for our clients to achieve superior executions.”
| Wealth & Finance | March 2014
March 2014 | News & Appointments
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News in brief New research from global analytics firm Cerulli Associates finds that traditional broker/ dealers are considering a direct model. “Firms within traditional advisory channels are beginning to consider direct broker/dealers as legitimate competitors and adapting their business models accordingly,” states Patrick Newcomb, senior analyst at Cerulli. “There are several benefits to launching a direct platform at a traditional broker/dealer, including creating a funnel for younger advisors that need help prospecting new clients, and to help advisors cultivate younger clients with small account balances.”
The first rise in British interest rates will likely come in the spring of next year Mike Franklin, Chief Investment Strategist at Beaufort Securities says, “Given the significance of the timing of an interest rate rise after the prolonged period of no increase, it is unsurprising that much speculation surrounds any hints from the Bank of England’s Monetary Policy Committee or from any individual members of the Committee about when the next move would come. The Bank of England has now decided to move from the level of unemployment as a sole threshold for reviewing interest rates to a much wider range of criteria. This is probably more realistic but complicates the situation for ‘rate twitchers’.” Mike continues, “The perception of the timing of a rate change is a particularly important component of equity market sentiment. The current hot spot for estimates is spring 2015 and, more specifically, May 2015. “Of course, a lot can change in the world economy before then and the ramifications for the UK economy could be significant. Consequently, even the Central Bankers here and elsewhere, including the Federal Reserve, cannot know for certain when in the future they will decide to move rates.
“It is axiomatic that, given the sacrifices that have been made already to nurture economic recovery around the world to a sustainable level – that is, without the need for long term Central Bank intervention - Central Bankers will not wish to jeopardise the recovery by raising rates too soon. “However, that does not mean that they will get their timing right and that is part of the risk facing equity and bond markets as well as the many companies attempting to formulate their plans for future investment.”
The first quarter issue of The Cerulli Edge-Managed Accounts Edition analyzes direct providers and eRIAs including the impact of the direct channel on traditional broker/ dealers.
“Many traditional firms already maintain a packaged mutual fund advisory (MFA) program,” Newcomb explains. “MFAs make up the largest assets within the direct channel, and many broker/ dealers have an existing MFA program.” Cerulli warns that firms outside of the direct channel need to tread carefully when entering the direct space. If positioned incorrectly, it could appear that the home office is trying to compete with its advisors, instead of offering them an additional service.
Mike concluded, “In a nutshell, if economies recover much more quickly to a level where they are deemed to be able to cope with a rise in interest rates, then interest rates will probably rise sooner. If Central Banks are right on this, then any rise in itself should not be a problem. “With question marks over the rate of growth in the Chinese economy and Latin America, some moderation of global growth in 2015 looks possible, in which case, interest rates would be unlikely to rise before the second half of 2015.”
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News & Appointments | March 2014
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Investment update on the situation in Crimea In our view, the geopolitical tensions surrounding the situation in Crimea, the Russian response and the consequent sanctions imposed by Western nations present an increasing source of risk within the global economy.
financial support to maintain economic stability in light of its large fiscal and current account deficits. In this respect, the IMF and bilateral lenders such as the EU are identifying the resources needed for an economic support programme.
The latest developments have seen Russia move to incorporate Crimea, which formally applied to become part of the Russian Federation after the 16 March referendum showed strong voter support for breaking away from Ukraine.
From the perspective of Russia, the rouble has fallen sharply in recent weeks, and there is a risk that an intensification of the confrontation and the imposition of further sanctions could further undermine the Russian economy.
Alongside the government of Ukraine, the US and EU dispute the constitutionality of the referendum. Diplomatic efforts to defuse the situation have so far been elusive, with the West viewing Russia’s intervention as a violation of Ukraine’s national sovereignty and Russia viewing it as warranted due to concerns about the safety of ethnic Russians and the political instability in Ukraine following the overthrow of President Viktor Yanukovich.
It could also have negative consequences for economies reliant on foreign trade and investment with Russia. In this respect, Western Europe could be vulnerable from an energy perspective, as Russia is the world’s largest energy exporter and a key supplier to the EU for meeting its energy needs.
The West, for its part, has imposed a narrow range of sanctions against high-ranking Russian and Crimean officials in the form of visa restrictions and freezes on assets and there is an indication that sanctions could be escalated.
In any case, it is worth noting that the recent developments have done little to reassure investors, already cautious about the prospects for emerging markets in the short term. From a fundamental perspective, we believe that other factors such as the slowdown in Chinese economic activity are of more investment significance in the long term.
The situation is still in flux and at such times markets tend to be driven much more by politics and news flow rather than fundamentals. And while we foresee a number of risk areas related to the situation, we do not expect that the situation heralds the return of a new Cold War era.
While political developments are fast moving, we expect any resolution of the situation to be a protracted process. In the short term, the situation is likely to evolve quickly and we may see associated market volatility as a result. We continue to monitor the situation and stand prepared to take action as required in the portfolios we manage.
Whether Crimea remains part of Ukraine or not, it is widely acknowledged that the Ukrainian government will need multilateral and bilateral
By Andrew Cole, Investment Director of the Global Multi Asset Group at Baring Asset Management
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March 2014 | News & Appointments
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The war on savers will drive retirees to seek higher risk investments The CEO of one of the world’s largest independent financial advisory organisations expects a growing number of retirees to consider “higher risk-higher return investments” as a direct result of the Bank of England’s February statement that interest rates are likely to remain low until the end of the decade. The comments from Nigel Green, founder and chief executive of deVere Group, follow Mark Carney’s assertion last month that rates will not rise from their historic lows for at least another year – and when they do rise, the increases are to be “gradual” and “limited”. The BoE governor also hinted that rates are expected to remain low – staying between 2 and 3 per cent – until around 2020. Mr Green comments: “The rock bottom interest rates are eroding people’s savings, which is reducing their spending power and limiting their financial options. “Therefore, the Bank’s raising of the prospect that interest rates are to stay low until the end of the decade is another hammer blow for retirees, and others living off a fixed income.
“Tired of their cash holdings making them, in effect, poorer over time, I fully expect more and more retirees will turn traditional investment thinking on its head. An increasing number will, I believe, consider higher risk-higher return investment opportunities as part of a well-diversified portfolio in order to be able to fund the retirement they want to enjoy.” He adds: “Traditionally, the mindset has been that as we get older we should reduce our exposure to risk and, for example, increase holdings of cash and bonds. However, in today’s world this prudent intention could have serious unintended consequences. “Since Mr Carney’s unveiling of his forward guidance policy last summer, we have found there’s been a steady growth in the number of retired clients seeking to increase their holdings of higher risk-higher return investments, which could potentially enable them to maintain or enhance their spending power and lifestyles in retirement. This trend’s momentum is, I believe, likely to build following the BoE governor’s latest longer-term forecast on interest rates.”
News in brief Times Wealth Management Services launches This week The Times and Sunday Times launches a new wealth management service – offering readers the opportunity to invest in a range of products such as ISAs, SIPPs, funds and Investment Trusts, together with access to expert advice and all at competitive rates. Times Wealth Management offers a clear, trustworthy and personalised service whether readers are planning for retirement, looking to save for university fees, build a nest egg as first time investors or if they are existing investors who are seeking to improve the way their portfolio is managed. The service types on offer are fourfold: Transaction only: a non-advised on-line service providing access to more than 2,000 investments supported with market-leading planning tools and research; Advisory: the investor receives personalised advice from a named adviser; Fully-managed: The investor has their portfolio managed for them; Wealth planning: a highly personalised service where a qualified financial planning expert advises them on issues such as pensions and inheritance tax. The Times and the Sunday Times are working in partnership with leading private client investment firm Bestinvest to deliver this new service which is open to everyone, from today, atwww.timeswealthmanagement.co.uk Neil Martin, Business Development Director at News UK, said:
“The launch of Times Wealth Management Services is an exciting milestone for The Times and Sunday Times. When it comes to money, trust is crucial and The Times and Sunday Times have been the papers of record for the latest money, investment and business news and advice for more than two hundred years, thus the titles are well placed to offer a competitive service that our readers are hugely interested in.”
Wealth & Finance | March 2014 |
Funds | Hedge Flash
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Hedge Flash According to Eurekahedge Hedge funds posted their best performance in the last 12 months, up 1.79% with fund managers delivering performance-based gains of US$15 billion and recording net asset inflows of US$11 billion during the month, bringing the current AUM of the global hedge fund industry to US$2.03 trillion - a new record high.
Emerging markets also showed signs of stability with the MSCI Emerging Market Index[3] rising 2.15% during the month. Positive macroeconomic data from the Eurozone showed acceleration in manufacturing activity which provided further support to the markets, while tensions surfacing in Crimea towards the month end failed to dampen investor sentiment.
Long/short equities hedge funds recorded their 15th consecutive month of positive net asset flows, with net capital allocations to the strategy for 2014 standing at US$19.0 billion.
All hedge fund regional mandates ended the month in positive territory with the exception of Japan focused hedge funds, which were down 0.94% during the month. Japanese equity markets continued to lose ground despite the global recovery as the developing situation in Ukraine brought about a rise in the yen as a safe haven currency, reducing the competitiveness of Japanese exports and pushing down Japanese stock prices. North American fund managers were the best performers during the month, returning 2.44% in February as the MSCI North America Index[4] climbed 4.52%. The Eurekahedge Europe Hedge Fund Index rose 1.89% while the MSCI Europe Index[5] gained 4.74%, aided by improving economic data from Greece and better than expected PMI data from the region. Asia ex-Japan focused funds were up 2.19%, with managers focused on Greater China realising gains of 1.73%, outperforming the CSI 300 Index which declined 1.07% during the month.
Trend following strategies posted their ninth consecutive month of net asset outflows in February, and saw redemptions worth US$12.7 billion over this period. Total assets in North American hedge funds reached a new high of US$1.36 trillion with assets growing by US$11.1 billion in the first two months of the year. Japan investing hedge funds recorded their second consecutive month of negative returns, down 1.12% year-to-date. Latin America focused hedge funds have outperformed the MSCI EM Latin America Index by over 6% on a year-to-date basis. Distressed debt investing hedge funds delivered their eighth consecutive month of positive returns - up 2.25% during the month and 3.37% yearto-date. In 2013, a total of 1,124 new funds were launched while 777 funds reported themselves as liquidated, bringing the current size of the hedge fund industry to 10,757 hedge funds. Performance update Hedge funds bounced off the lows in January to finish the month up 1.79%[1] as global equity markets recovered with the MSCI World Index[2] gaining 3.87% during the month. Market sentiment held strong as weaknesses in recent US macroeconomic data were largely attributed to the weather conditions, with Fed chair Janet Yellen reaffirming the need to keep the QE tapering on track as the US economy continues its recovery. Figure 1: January and February 2014 returns across regions
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On a year-to-date basis, North American and Asia-ex Japan focused hedge funds lead the table with returns of 2.53% and 2.11% while Japan and Latin America investing funds are in the read- down 1.12% and 1.46% respectively. Following the Fed’s second round of QE trimming earlier this year, funds focused on Latin America faced significant headwinds despite which they have managed to outperform the MSCI Latin America Index[6] by more than 6% year-to-date. Mizuho-Eurekahedge Asset Weighted Index The asset weighted Mizuho-Eurekahedge Index was up 2.31% in February as some of the larger index constituents outperformed during the month. It should be noted that the Mizuho-Eurekahedge Index is US dollar denominated and as such during months of strong US dollar gains, the index results include the currency conversion loss for funds that are denominated in other currencies. The asset weighted Mizuho-Eurekahedge Long Short Equity Hedge Fund Index posted the largest gains of 3.38%, followed closely by the Figure 2: February 2014 year-to-date returns across regions
Hedge Flash | Funds
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Mizuho-Eurekahedge Emerging Markets Hedge Fund Index, increasing 2.92% during the month, but still down 0.23% for the year. Emerging markets suffered large losses in January as Fed tapering and currency depreciation prompted capital flight from underlying economies. Figure 3a: Mizuho-Eurekahedge Indices February 2014 returns
Figure 3b: Mizuho-Eurekahedge Indices February 2014 year-to-date returns
Asset flows update Hedge funds posted a strong rebound in February with the Eurekahedge Hedge Fund Index up 1.79%[7] as underlying markets rallied with the MSCI World Index gaining 3.87%[8] during the month. Final asset flow figures for January revealed that managers incurred performance-based losses of US$4.5 billion while recording net asset outflows of US$1.7 billion as hedge funds got off to a rough start in 2014. Preliminary data for February shows that managers have posted performance-based gains of US$14.8 billion while net asset inflows stand at US$11.0 billion, bringing the current assets under management (AUM) of the industry to US$2.03 trillion – the highest level on record.
Figure 4: Summary monthly asset flow data since January 2011
Based on 49.23% of funds which have reported February 2014 returns as at 13 March 2014 MSCI AC World Index (Local) [3] MSCI Emerging Market Index (IMI- Local) [4] MSCI AC North American Index (USD) [5] MSCI AC Europe Index (Local) [6] MSCI EM Latin America Index (IMI- Local) [7] Based on 49.23% of funds which have reported February 2014 returns as at 13 March 2014 [8] MSCI AC World Index (Local) [1]
[2]
Wealth & Finance | March 2014 |
Funds | Diversified Asset Allocation Strategies Cement Place as UK’s Most Popular DC Pension Default Funds
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Diversified Asset Allocation Strategies Cement Place as UK’s Most Popular DC Pension Default Funds, say Europe’s Managers Asset managers foresee no let-up in the commanding position of diversified growth funds as the most popular default fund for UK defined contribution pension default funds The dominance of diversified asset allocation strategies in the UK defined contribution pension default fund landscape has been underlined by an exclusive finding in Cerulli Associates’ institutional report, European Defined Contribution Markets 2013: Winning With a Targeted Approach. In the survey of European asset managers conducted for this report, two-thirds (66.7%) of managers expected diversified growth/asset allocation strategies to be the most popular choice, followed by lifestyle strategies (20%). Target-date funds, which have been launched in Europe by some US-headquartered investment managers, were mentioned by fewer asset managers (6.7%), but interest in this sector is expected to grow. Blended funds, with a significant portion of active and passive approaches, were also mentioned. “Getting one’s default fund strategy right is crucial for managers in the UK and Continental markets, because default funds take in the bulk of DC pension contributions,” said David Walker, associate director at Cerulli Associates in London. Laura D’Ippolito, a senior analyst at the firm, added: “Setting up a target-date strategy in the United Kingdom is much more complex than simply bringing over a successful strategy from the United States.”
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Nontraditional Fixed-Income Strategies Shined in 2013 | Funds
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Nontraditional Fixed-Income Strategies Shined in 2013 In the February 2014 issue of The Cerulli Edge - U.S. Monthly Product Trends, Cerulli examines nont raditional fixed-income strategies. February’s Monthly Spotlight features OppenheimerFunds as this month’s Pinnacle Player. Nontraditional fixed-income mutual funds and institutional strategies saw substantial asset flows in 2013. The search for yield and risk mitigation is driving interest in unconstrained bonds, floating rate/bank loans, and alternative and private fixed income.
More investors will seek unconstrained managers with solid three-tofive-year performance records and well-resourced managers with global credit research and trading operations. Despite a mutual fund asset drop of 2.5% during January, they still managed to attract net flows of $39.7 billion. International equity once again topped the net flows chart as the asset class drew in $17.4 billion. Equity ETFs started the new year with a mixed bag. Domestic equity ETFs suffered net redemptions of $20.9 billion in January, while their sector equity counterparts fared better with flows of $2.8 billion during the month.
Wealth & Finance | March 2014 |
Funds | Jon Moulton Backs Seneca Investment Managers
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Jon Moulton Backs Seneca Investment Managers Seneca Investment Managers, the new fund management firm within the Seneca Partners group, has announced that Jon Moulton, via his family office, Perscitus Advisers, has acquired a significant minority shareholding in the company. The investment by Moulton, founder and managing partner of the private equity firm Better Capital, is a considerable coup for the newly formed Seneca Investment Managers — and confirms its potential. In late January, Seneca Investment Managers acquired - subject to FCA approval - Liverpool-based Miton Capital Partners, a profitable and successful fund division of Miton Group. The funds currently managed by Miton Capital Partners are: CF Miton Distribution Fund; CF Miton Diversified Growth Fund; and the Midas Income & Growth Trust plc. Jon Moulton, Founder, Better Capital, commented: “Seneca Investment Managers is a firm with a huge amount of upside potential. Under Stuart Eaton’s leadership, I have no doubt that an already successful fund management team will go from strength to strength. We have a lot planned for the new company and are backing it to become a major force within UK financial services.” Stuart Eaton, CEO, Seneca Investment Managers, added: “For someone of the calibre of Jon Moulton to invest in Seneca Investment Managers suggests that our vision for the company is on the right track. Seneca Investment Managers is not simply about offering a more holistic proposition to our existing clients but building a challenger brand in the broader UK fund management sector.”
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Wealth Corner | Ferrari – The World’s Most Powerful Brand
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Ferrari The World’s Most Powerful Brand
Hetman Bohdan / Shutterstock.com
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Ferrari – The World’s Most Powerful Brand | Wealth Corner
17 The Brand Finance Global 500, have an annual study conducted by leading brand valuation consultancy Brand Finance. The world’s biggest brands are put to the test and evaluated to determine which are the most powerful and mostvaluable. Ferrari is the world’s most powerful brand. The legendary Italian carmaker scores highly on a wide variety of measures on Brand Finance’s Brand Strength Index, from desirability, loyalty and consumer sentiment to visual identity, online presence and employee satisfaction. Ferrari is one of only eleven brands (including Google, Hermès, Coca-Cola, Disney, Rolex and F1 racing rivals Red Bull) to be awarded an AAA+ brand rating and has the highest overall score.
Brand Finance Chief Executive David Haigh stated, “The prancing horse on a yellow badge is instantly recognizable the world over, even where paved roads have yet to reach. In its home country and among its many admirers worldwide Ferrari inspires more than just brand loyalty, more of a cultish, even quasi-religious devotion, its brand power is indisputable.” Though Ferrari is the world’s most powerful brand, being a niche, luxury brand with an officially capped production, it is perhaps unsurprising that it is some way off being the world’s most valuable. Its US$4 billion brand value puts it 350th in brand value terms. David Haigh continues, “Apple also has a powerful brand, rated AAA by Brand Finance. However what sets it apart is its ability to monetize that brand. For example, though tablets were in use before the iPad, it was the application of the Apple brand to the concept that captured the public imagination and allowed it to take off as a commercial reality.” This is just one of the factors responsible for its US$105 billion brand value; Apple is the world’s most valuable brand for the third year in a row.
Wealth & Finance | March 2014 |
Wealth Corner | Samsung Closing In On Apple’s Brand Value Crown
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Samsung Closing In On Apple’s Brand Value Crown
Dutourdumonde Photography / Shutterstock.com
| Wealth & Finance | March 2014
Samsung Closing In On Apple’s Brand Value Crown | Wealth Corner
19 Apple’s dominance is being challenged by Samsung however. The Korean giant’s improving reputation for reliability, a faster pace of innovation and wider range of devices are among many factors that have seen its brand value increase by US$20 billion to US$79 billion this year. Other tech successes include Netflix, which has nearly doubled its brand value to appear in the Brand Finance Global 500 for the first time. Its value has grown 93% in a year to US$3.2 billion, to make Netflix the 468th most valuable brand. Still operating only in the Americas, Scandinavia and the British Isles, there is huge potential for further growth. Facebook meanwhile has recovered from its problematic IPO, which saw its reputation suffer and its brand value plunge in 2013. This year it has rebounded, adding 76% to its brand value to bring the total to US$9.8 billion, putting it 122nd. Investor confidence in its long term prospects has returned as revenues from mobile advertising have grown. Tech brands in general have tightened their grip on the Brand Finance Global 500. Walmart is the only non-tech brand remaining in the top 10. Once the world’s most valuable brand, it now sits in 9th having been overtaken by Amazon. The usurpation of the world’s biggest retail brand by the biggest online retailer represents yet another coup for tech brands over ‘real-world’ businesses.
The World’s Most Valuable Brands (Top 20) Rank 2014 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Rank 2013 1 2 3 4 10 7 11 8 5 6 15 9 20 n/a 14 13 21 12 17 22
Brand
Country
Apple Samsung Google Microsoft Verizon General Electric AT&T Amazon Walmart IBM Toyota Coca Cola China Mobile T Wells Fargo Vodafone BMW Shell Volkswagen HSBC
US South Korea US US US US US US US US Japan US Hong Kong Germany US UK Germany Netherlands Germany UK
Brand Value 2014 (USD bn) 104.68 78.75 68.62 62.78 53.47 52.53 45.41 45.15 44.78 41.51 34.90 33.72 31.84 30.61 30.24 29.61 28.96 28.57 27.06 26.87
Brand Rating 2014 AAA AAA AAA+ AAA AAAAA+ AA AAAAA+ AA+ AAAAAA+ AA+ AA AAAAAAAAA AA+ AAAAAA
Brand Value Change (USD bn) 17.38 19.98 16.49 17.25 22.74 15.37 15.00 8.36 2.48 3.79 8.92 -0.48 8.55 9.06 4.20 2.60 5.73 -1.18 3.40 4.01
Brand Value Change (%) 20% 34% 32% 38% 74% 41% 49% 23% 6% 10% 34% -1% 37% 42% 16% 10% 25% -4% 14% 18%
Brand Value 2013 (USD bn) 87.30 58.77 52.13 45.53 30.73 37.16 30.41 36.79 42.30 37.72 25.98 34.20 23.30 21.54 26.04 27.01 23.24 29.75 23.67 22.86
Brand Rating 2013 AAA AAA AAA+ AAAAA+ AA AA+ AAAAA+ AA+ AA+ AAA+ AA AA+ AA+ AAA AAA AAAAAAAAA-
Wealth & Finance | March 2014 |
Wealth Corner | Sinking Nokia Takes Finland Down With It
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Sinking Nokia Takes Finland Down With It US brands continue to dominate the Brand Finance’s list, occupying 185 brands of the 500 spots. Japan is second. Despite 7 Japanese brands having dropped out of the table, the total for the country as a whole is up thanks to brand value increases of over 30% from Japan’s three biggest brands; Toyota, Mitsubishi and Honda. President Shinzo Abe’s ‘Abenomics’ programme has begun to pay off and global demand for Japanese goods is improving. Germany, France and the UK complete the top 5. Despite China’s status as the world’s second biggest economy, it is 6th in terms of total brand value as its brands are still developing. Huawei and Baidu have both increased their brand values by over 50%. While controversial for their close associations with the Chinese government, both are likely to exert increasing influence around the world in the next few years. Nations that have not fared so well include Finland. The country’s only brand, Nokia, has finally been squeezed out of the table after years of slow decline. Nokia has continued to hemorrhage brand value as a result of its inability to effectively counter the challenge Apple and Samsung. Falling out of the Brand Finance Global 500, it follows Blackberry, which dropped out of the top 500 last year. The BRIC nations of Russia, India and in particular Brazil have also fared relatively poorly. The number of Brazilian brands in the table is down from 9 to 5 and those that remain have all lost over 20% of their brand value. One Indian brand has dropped out of the table and several of those that remain have fallen further down the rankings. Tata, India’s flagship brand is the exception however, climbing to 34th worldwide with a brand value of US$21.1 billion.
Total Brand Value by Country Country United States Japan Germany France Britain China South Korea Switzerland Netherlands Spain Canada Hong Kong Italy Sweden Australia Russia Brazil India Norway Denmark Austria Malaysia Uae Saudi Arabia Mexico Chile Singapore South Africa Luxembourg Taiwan Thailand Portugal
Total Brand Value 2014 (USD bn) 1,908.6 376.7 324.0 266.0 262.1 229.0 152.0 120.8 112.0 76.2 75.4 69.9 57.2 54.8 50.3 42.2 37.8 35.7 15.8 10.2 9.6 9.2 8.9 8.0 7.8 7.4 7.3 5.4 4.8 3.8 3.7 3.1
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Total Brand Value 2013 (USD bn) 1,614.6 338.7 247.0 212.5 218.4 185.3 132.8 97.3 93.8 70.6 74.0 41.5 51.3 50.5 43.9 46.4 59.9 40.6 16.5 7.0 3.7 9.9 7.3 3.3 17.8 3.0 9.3 5.2 3.8 3.0 2.6 2.8
Brand Value Change (USD bn) 294.0 38.0 77.0 53.4 43.7 43.7 19.2 23.5 18.2 5.6 1.3 28.4 5.9 4.3 6.4 -4.2 -22.1 -4.9 -0.7 3.3 5.9 -0.7 1.7 4.7 -9.9 4.4 -2.1 0.2 1.0 0.7 1.1 0.3
Brand Value Change (%) 18% 11% 31% 25% 20% 24% 14% 24% 19% 8% 2% 68% 11% 8% 15% -9% -37% -12% -5% 47% 160% -8% 23% 141% -56% 146% -22% 4% 26% 25% 44% 11%
Number of Brands in Top 500 2014 185 42 32 37 35 27 12 19 12 10 13 7 8 7 8 8 5 5 3 3 2 1 2 2 2 2 2 1 1 1 1 1
Number of Brands in Top 500 2013 185 49 33 31 32 26 14 19 11 10 14 4 8 8 8 8 9 6 3 2 1 2 2 1 4 1 3 1 1 1 1 1
Sinking Nokia Takes Finland Down With It | Wealth Corner
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Total Brand Value by Sector Sector Banks Technology Telecommunications Retail Conglomerate Automobiles Oil & Gas Insurance Media Beverages Utilities Food Cosmetics Transportation Engineering Others Global 500
Total Brand Value 2014 (USD bn) 633.1 615.8 500.1 408.9 313.1 289.7 216.0 190.9 149.1 101.8 94.4 86.5 86.1 69.5 59.9 552.2 4,367.1
Total Brand Value 2013 (USD bn) 581.4 488.7 385.0 338.9 257.9 244.1 212.9 141.1 120.6 88.4 86.0 64.4 67.5 53.8 51.4 429.6 3,611.6
Brand Value Change (USD bn) 51.8 127.0 115.1 70.0 55.3 45.7 3.1 49.9 28.5 13.4 8.4 22.1 18.5 15.7 8.5 122.7 755.6
Brand Value Change (%) 9% 26% 30% 21% 21% 19% 1% 35% 24% 15% 10% 34% 27% 29% 17% 29%
Number of Brands in Top 500 2014 71 44 47 50 16 28 26 29 19 13 17 14 13 9 16 88 500
Number of Brands in Top 500 2013 64 43 46 50 18 28 24 27 19 12 19 15 12 13 11 99 500
Dirima / Shutterstock.com
Wealth & Finance | March 2014 |
Wealth Corner | Oxfam report reveals UK’s growing inequality
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Oxfam report reveals UK’s growing inequality Britain’s five richest families worth more than poorest 20% combined A damning new study by Oxfam has highlighted the scale of Britain’s growing inequality, revealing that the five richest families in the UK are wealthier than the poorest 20% of the population combined.
“It’s deeply worrying that these extreme levels of wealth inequality exist in Britain today, where just a handful of people have more money than millions struggling to survive on the breadline.”
In its ‘Tale Of Two Britains’ report, the charity found that the gap between rich and poor has grown significantly over the last two decades and warned that, while the incomes of the wealthy elite have increased dramatically, austerity measures continue to hit poorer families hard.
In light of its recent findings, the charity has appealed to the Chancellor to raise revenues from those most able to afford it and says it wants to see a renewed clamp down on tax dodgers, as well as a long-term strategy to raise the minimum wage to what it calls a ‘living wage’.
According to the study, the richest 0.1% of the population have seen their incomes grow nearly four times faster than the poorest 90% of the country and the wealthy elite now enjoy an extra £24,000 in their pockets every year. Put simply, this is nearly as much as the average UK salary of £26,500 or enough to buy a small yacht or a sports car.
“Increasing inequality is a sign of economic failure rather than success,” Mr Phillips said.
Speaking about the report, Oxfam’s director of campaigns and policy, Ben Phillips said: “Britain is becoming a deeply divided nation, with a wealthy elite who are seeing their incomes spiral up, whilst millions of families are struggling to make ends meet.
| Wealth & Finance | March 2014
“It’s time for our leaders to stand up and be counted on this issue.”
Oxfam report reveals UK’s growing inequality | Wealth Corner
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So exactly who are the UK’s five richest families? The Grosvenors (£7.9bn) The Duke of Westminster and his family owe the bulk of their wealth to the fact they own 77 hectares of Mayfair and Belgravia, some of the world’s priciest real estate, close to Buckingham Palace.
Cadogan family (£4bn) Like the Grosvenors, the Carlton family’s wealth is built on property – specifically 90 acres of property and land in West London’s Chelsea and Knightsbridge.
It goes without saying that, as property prices in the capital continue to rise, so does the fortune of the Grosvenor family, which also owns 39,000 hectares in Scotland and 13,000 in Spain.
Charles, the eight Earl of Cadogan, ran the family business, Cadogan Estates, until 2012 before handing it over to his son Edward, Viscount Chelsea.
In addition to this, the family’s privately owned Grosvenor Estate property group also has £12bn ($20bn) worth of assets under management, including the Liverpool One shopping mall.
The Earl, who was previously chairman of Chelsea Football Club, is a first cousin to the Aga Khan and started in the Coldstream Guards before moving into business in the City.
Reuben brothers (£6.9bn) Indian-born brothers Simon and David Reuben laid the foundations of their vast fortune in metals. Brought up in London, the pair started in trading local scrap metal but soon branched out into trading tin and aluminium.
Mike Ashley (£3.3bn) Newcastle United Football Club chairman, Mike Ashley made his billions through his Sports Direct discount clothing chain, which he launched soon after leaving school.
They got their big break when they moved into Russia following the break-up of the Soviet Union, buying up much of the country’s aluminium production facilities and forging a close relationship with oligarch Oleg Deripaska – a close associate of Nat Rothschild and Peter Mandelson. The brothers are still involved in mining and metals but now sit at the head of a hugely diverse business empire that takes in everything from property, 850 British pubs, and luxury yacht-maker Kristal Waters. Hinduja brothers (£6bn) Srichand and Gopichand Hinduja co-chair the multinational Hinduja Group. The business has a presence in 37 countries and takes in businesses ranging from trucks and lubricants to banking and healthcare. Their careers began in their father’s textile and trading businesses in Mumbai and Iran but diversified when they purchased truck maker, Ashok Leyland from British Leyland and Gulf Oil from Chevron in the 1980s. In the 1990s, they also established banks in Switzerland and India.
As the sole owner of the fast growing business, which snapped up brands such as Dunlop, Slazenger, Karrimor and Lonsdale, Ashley was the major beneficiary when it floated on the stock market in 2007. He now owns 62%. Lottery Winner Flash One couple who won’t need to worry about the Oxfam report are car mechanic Neil Trotter and his partner Nicky Ottaway who recently scooped a £108m EuroMillions Lottery jackpot. The windfall means that the couple are now 745th on the UK Rich List, worth more than the likes of Robbie Williams, George Michael and celebrity couple Chris Martin and Gwyneth Paltrow. But while they may not have to worry about the UK’s growing inequality, they may still need a few tips on how best to invest their new found fortune wisely. So, with this in mind, we’d like you to drop us a line with any suggestions you have as to where savvy investors will be putting their money in 2014.
The familylive in a £300m mansion on London’s Carlton House Terrace, a spot that overlooks St James Park and sits close to Buckingham Palace.
Wealth & Finance | March 2014 |
Wealth Corner | MIPIM 2014: Widening the investment net
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MIPIM 2014:
Widening the investment net – alternative assets to constitute 15% of institutional investors’ portfolios within the decade Interest in so-called ‘alternative property assets’, such as healthcare, hotels, student accommodation, privately rented housing, and infrastructure has never been so pronounced. According to research by JLL, alternative assets account for 5% of institutional investors’ portfolios at present, but that number is set to rise to 15% by 2023. Some investors are looking to diversify their portfolios; others are attracted by higher returns and yields; some by the availability of long, index-linked leases that match their requirements. At an event held by the British Property Federation and JLL today, key industry figures will talk about these drivers, and whether alternative assets will play a much greater role in property investment in the future. As the UK demographic changes, and an ageing population, an international student base and Generation Rent emerge, the healthcare and private rented and student accommodation sectors are becoming attractive to a range of investors. The panel will today discuss what is driving this increased appetite, and whether these assets offer sustainable investment solutions. Liz Peace, Chief Executive of the British Property Federation, said: “Having recently launched a student accommodation committee, we are aware of the growing demand for alternative assets and for new income streams. As new asset classes emerge it is important to identify and discuss potential problems areas so that we can understand them fully and ensure that they are brought onto a level pegging with more traditional outlets such as office and retail.” Bill Hughes, Managing Director of Legal & General Property, commented: “We view the rise of alternative real estate sectors, ranging from residen-
| Wealth & Finance | March 2014
tial, care homes and student accommodation through to leisure, as an important tool for fund managers looking to maintain the diversification benefits of property as an asset class and manage structural change as well as a conduit for injecting much needed investment into the UK’s social and economic infrastructure. As these emerging sectors in turn become mainstream, there are a number of important implications for how we define the property universe. As part of this, we should expect to see the up-skilling of fund managers to provide their clients with indepth knowledge and understanding, as well as a full range of risk/return solutions.” Kenneth Mackenzie, Managing Partner of Target Advisers, said: “The importance of specialist investment vehicles with diversified risk profiles and specialist managers is key to wise investment in some of these niche areas. While the background demographics in healthcare are persuasive, specialist and in depth knowledge is key if the mistakes of the past are to avoided in the future. The underlying client group are residents and families in distress, served by lowly paid staff, and moderate long term rents and returns are key to sustainability. Investors need longer memories.” Jon Neale, Head of UK Research at JLL, said: “We estimate that today, institutional investors have circa 5% of their portfolio invested in alternatives. Based on a survey we carried out among fund managers during the middle of last year, we expect this to rise to around 15% by 2023. Our respondents suggested that this would be driven mainly by a greater need for diversity and the availabililty of the very long, index-linked leases that match pension fund requirements. However, it also identified some issues with the sectors – in particular the lack of data and information and the need for skills beyond those of the traditional property investor.”
40p tax rate is ‘short termist’ and a ‘disincentive to aspiration’ | Taxing Times
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40p tax rate is ‘short termist’ and a ‘disincentive to aspiration’ The Chancellor’s likely move not to give relief on the 40p tax rate in his Budget has been branded as ‘short termist’ and slammed as a ‘disincentive to aspiration,’ by the boss of one of the world’s largest independent financial advisory organisations. Thecomments from Nigel Green, deVere Group’s founder and chief executive, come a day before George Osborne’s penultimate budget before the next general election, in which he is expected to reduce the threshold for the 40p tax, thereby dragging more middle-class workers into the higher band. Mr Green comments: “Increasing the tax burden on more and more middle class workers by pulling them into the top band will result in a significantly higher proportion of the population with a reduced ability to save for their futures.
“With many of today’s working population likely to spend 25 to 30 years in retirement, creating additional barriers to saving adequately for older age - which is what this measure does - is extremely short termist.
“With a steadily ageing population, should the middle classes not be able to financially support themselves, the State’s already burgeoning welfare bill will skyrocket due to increasing medical and care costs.”
“There needs to be rewards, such as greater pension tax reliefs, not disincentives, for prudently putting money aside into pensions.”
As a further indictment on the 40p rate, Mr Green, deVere Group’s chief executive, adds: “It clearly serves as a disincentive to striving middle class workers from wanting to earn more, a disincentive to working harder, a disincentive to securing a promotion – in short, it serves as a disincentive to aspiration. Naturally, this is all to the detriment of the British economy, both now and for the longer-term.”
He continues: “Clearly, should the majority of the population be financially independent in older age this means not only will they and their families be able to enjoy the retirement they desire with a higher disposable income, which will boost the economy, but they are likely to be less dependent on the State.
Wealth & Finance | March 2014 |
Banking Zone | Trading Places – private banking vs investment banking
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Trading Places private banking vs investment banking With more stability in earnings and the perception of a more stable working life, coupled with a better lifestyle, it’s no wonder more people are choosing the more subdued private banking sector to build their careers, over the cut-throat world of investment banking.
| Wealth & Finance | March 2014
Trading Places – private banking vs investment banking | Banking Zone
27 There’s something undeniably exciting, enticing and desirably risky about investment banking… young males in power suits, patrolling their territory like lions protecting the pride, and playing for high stakes under extremely high pressure… It makes a great movie for a start, think The Wolf of Wall Street and you’re pretty much there! But there is a new trend emerging among the money-hungry, power-seeking, career-driven generation… more and more are turning to the private banking sector. Considered to be a slower pace of life, more suited to the older gent, and certainly not the stuff that films are made of (well, not a Hollywood blockbuster anyway), private banking is becoming more desirable as both as career and lifestyle choice. Thurleigh Investment Managers, for one, has witnessed a giant turnaround in how wealth managers are perceived, as chairman, David Rossier, explains: “When I started in the industry with SG Warburg in 1978, the crème de la crème were the people who did corporate finance. Wealth managers were definitely second, or even third, class citizens. This has completely changed now --the brightest people want to go into wealth management.” There are many possible reasons for this shift in dynamics, perhaps is it that investment banking has been seen to be struggling under the weight of blame for the recent economic turbulence which began in 2008. This theory has led to dramatic cuts in investment banks, whether because demand for their services collapsed during the recession or because their activity was felt superfluous, even harmful, to the rest of the bank. One of the banks that was hardest hit by the crash and had to be bailed out by the Swiss government, was UBS. With 10,000 jobs worldwide cut in 2012, including more than 5,000 in the investment division (a third of its staff), it its shifted focus to its prime private banking business, keeping its investment bank as a resource for its private-banking clients. Following suit were Credit Suisse, Barclays, Deutsche Bank and Royal Bank of Scotland who have also cut tens of thousands of jobs and scaled back their investment banking divisions over the past few years.
Global Private Banking Survey 2013, McKinsey forecast that the profit pools of the private banking sector worldwide would grow by more than 10 per cent annually to exceed $70 billion by 2016. In order to capture some of this burgeoning sector, last year a number of firms went on a mass recruitment drive, including Edmond de Rothschild and JP Morgan Private Bank, which tried to boost their London-based teams to take advantage of the country’s growing HNW market. Luigi Pigorini, CEO of Europe, Middle East and Africa at Citi Private Bank, hit the nail on the head when he stated: “It’s one of the few places which are growing.” And indeed Citi Private Bank has seen an increase in the volume of job applications it has received since the crisis, both for junior and senior positions. Applicants to its graduate programme have risen by 40 per cent since 2010, while the number of candidates for more senior roles has doubled from 2011. ‘We are seeing a lot of applications from other sectors of finance, including investment banking, corporate banking and asset management,’ says Pigorini. This shift towards private banking is also due to the industry now requiring employees with a wider skillset than before. Investment Manager at Vestra Welath, Bandish Gudka, says: “Tax regimes in the Western world have changed and a lot of clients are now holding assets and company shareholdings in their own names and therefore require the investment banking specialism within their private portfolios.” Team the above reason with increasing competition, regulatory requirements and the fact that clients now tend to keep a closer eye on how their accounts are managed means the industry needs to attract more and better graduates and professionals, often head-hunting them from other sectors. For example, Thomas Gottstein, head of investment banking in Switzerland Credit Suisse, was promoted last year by the company to lead its UHNW business. It’s not hard for talented people from other industries to make the move into wealth management, as the skills needed are easily transferable.
As always, and more so in times of recession, people tend to go where the jobs are, and jobs at the moment seem to be predominantly in the wealth management sector because there are so many more HNWs today than in 2008. That year saw a fall by 15 per cent to 8.6 million, according to the World Wealth Report; by 2012, there were 12 million. Wealth needing to be managed has gone in the same period from $32.8 trillion to $46.2 trillion.
Dina de Angelo, a director at Pictet who is often involved in the bank’s recruiting, explains: “No matter what the investment performance is, if the relationship is not good, the business does not survive. And what skills do you need to make it work? Trust, the ability to think under pressure, to multitask, to put the right team and services around the client, sometimes great leadership skills. And those are all skills that you can gain in other industries.”
Growth in the industry is also likely to continue in the next few years: according to the World Wealth Report, by 2015 total wealth will be $55.8 trillion, driven by China and emerging markets. And in its
Together with these adjustments it’s the way private bankers are seen that has changed, as the industry is viewed as safer than corporate finance and able to provide a better work/life balance.
Wealth & Finance | March 2014 |
Banking Zone | CEO watch
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CEO watch Interesting thought‌
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CEO watch | Banking Zone
29 The Bank of England governor’s statement that interest rates could rise six-fold in the next three years has been met with muted optimism by the boss of one of the world’s largest independent financial advisory organisations. Wealth & Finance speaks to deVere Group’s founder and chief executive, Nigel Green about the reaction after Mark Carney told MPs that the bank rate could reach 3 per cent within three years. It is currently at 0.5 per cent, where it has been since the BoE halved the rate five years ago. Mr Green comments: “This is, of course, another welcome positive indicator that the economy is recovering.
“However, with rates still not expected to reach even above 3 per cent before 2017, it makes for almost a decade of misery for British savers. As such, I do not expect the millions of hard-working Brits, who have been prudently putting money aside and who have been adversely affected by years and years of monumentally low interest rates, will be hanging out the bunting and popping the champagne corks just yet.”
He explained: “Tired of their cash holdings making them, in effect, poorer over time, I fully expect more and more retirees will turn traditional investment thinking on its head. An increasing number will, I believe, consider higher risk-higher return investment opportunities as part of a well-diversified portfolio in order to be able to fund the lifestyle in retirement they want to enjoy.
Earlier this month, Mr Green said that he expected a growing number of British retirees to consider higher risk investments in order to receive a better rate of return as a direct result of the Bank of England’s prediction that interest rates are likely to remain low until the end of the decade.
“Traditionally, the mindset has been that as we get older we should reduce our exposure to risk and, for example, increase holdings of cash and bonds. However, in today’s world this prudent intention could have serious unintended consequences.”
“Naturally, the forecast is also a step in the right direction for anyone who has savings in a bank or building society – and especially for pensioners and others living off a fixed income. These savers, who represent the vast majority of the UK population, are the ones who have been hit hardest by the interest rates being at historic lows for so long.
Wealth & Finance | March 2014 |
Markets Matters | Top Five Sectors for Start-Ups
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Top Five Sectors for Start-Ups Calling all ‘wantrepreneurs’ out there… If you’re fed up of the rat race and want to give being your own boss a go, now could be the right time. With record numbers of people looking to finally take the plunge and work for themselves, we’ve picked the five hottest industry sectors that you might want to consider for your start-up venture.
E-learning E-learning, that is learning using online technology, has come a long way over the last ten years but is still somewhat in its infancy when it comes to mass adoption. This is all likely to change over the next few years, with personalised learning tools and aids that learn about your abilities and, based on your progress, tailor what to teach you next, potentially leading to a self-made educational revolution. With regards to the corporate world, e-learning courses have a lot of catching up to do too. Relatively low adoption and lack of innovation have hindered early results - with most, in reality, being little more than an updated version of old fashioned paper and pen-based learning principles. It is within the education sector that adoption of gamification principles, used so successfully in the apps we download and use daily, really become key. In start-ups they can make e-learning fun, challenging and rewarding, to enable students to learn, and to graduate, with flying colours. The ever-rising cost of education and university fees creates demand for more practical and cost-effective vocational training and specialised skills for a new economy - all of which are major business opportunities.
Consumer health Current health care systems, both in the UK and abroad, are under huge pressure. Most are crying out for innovative solutions to help diagnose, treat and prevent illness – and, more importantly, to decrease rising healthcare budgets. There are already mobile apps and devices promising to significantly improve productivity and it is likely that more and more health services will eventually be delivered through intelligent hardware and software. Fitness and wellness applications are also picking up speed, with many smartphones now coming with built-in features to monitor heart rate, provide advice and offer step-by-step guidance on living a healthier lifestyle. From the all-too-familiar announcements of NHS funding issues and care crises across a multitude of disciplines, it is clear that something has to change. Start-ups that want to change the world would do well to start here. 3D printing Similar to the wearable tech market, 3D printing has also shared a lot of the media limelight recently. Once just a dream, but now becoming a reality, 3D printing is exactly what it sounds like - the process of making a three-dimensional solid object from a digital model. Currently, this sector is far from perfect, printers only being able to produce simple, single colour, single material objects. But the industry is evolving at a rate of knots, with the eventual vision of producing everything from personalised shoes to car parts to prosthetic limbs, all at the touch of a button. And it’s not just the actual printed objects that provide a wealth of opportunities, it is the industries that will spring up because of this new technology, offering personalised, tailored products and services, with on-demand delivery. Mobile customer engagement Whilst wearable tech might be the ‘in thing’ in fashion, you only have to look at how addicted the world has become to smartphones, tablets and other such gadgets. We are constantly tapping away whilst on the train, bus, in the street – and our smartphones no longer simply call and text, they are an all-encompassing lifestyle device that we simply cannot live without. The next challenge, so far largely untapped by Google and major brands, is personalised location-based customer engagement – this being real time, real world communication: mobile purchases and e-commerce, instant customer feedback, real time offers and deals, instant interactive information – all services and tools that engage consumers and give them something back in return for their engagement… and instantly too!
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Top Five Sectors for Start-Ups | Markets Matters
31 Wearable technology Wearable technology has now come into fashion and some may say it is the future. With smartphone manufacturers bringing out watches which call, text, email and keep you connected whilst on-the-go, and the likes of Google releasing its innovative and interactive glasses, the number of wearable tech gadgets is tipped to rise ten-fold in the next few years. So far the devices appearing on the market have been a little gimmicky offering ways to track how far you have walked or alert you to the latest Facebook updates posted by friends. But, with the big brands starting to latch on, this year’s Las Vegas consumer electronics gathering already promises a major ‘wearable’ theme. Remember how the smartphone market sprung up around us and now we can’t live without our constantly connected devices? The same is predicted for wearable tech. Innovative start-ups that tap into this trend could be a good fit.
Wealth & Finance | March 2014 |
Markets Matters | Is it time to buy Emerging Markets again?
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Is it time to buy Emerging Markets again? Wealth & Finance talk to Jade Fu, Investment Manager at Heartwood Investment Management. Following the recent sell-off in emerging markets, there is a view developing that now is the time to invest. The numbers certainly on the face of it look compelling: the MSCI Emerging Markets Index is trading at 1.5 times price-tobook value and poor sentiment has already resulted in outflows of over $30billion from emerging market equities so far this year. However, we believe that it is still right to tread cautiously. Recent capital outflows and the past three years of market underperformance have not happened without good reason. The biggest challenge facing emerging markets is growth. Many emerging economies are not growing as fast as they were: China’s underlying growth rate continues to decline, while other large emerging economies have seen their growth rate plummet. Mexico recorded GDP growth of just 1.1% last year, while Russia grew by 1.3% and will struggle again in 2014. The reasons for this are both structural and cyclical: a common issue is the need for further reforms to encourage growth and investment.
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This will be a slow process and so far the actions by policymakers in emerging economies have mostly lacked transparency.
Civil unrest grips Thailand and Ukraine, and concerns about government corruption plague countries such as Turkey and Nigeria.
Perhaps and more importantly, emerging economies continue to be vulnerable to external factors, while domestic political risk also has the potential to affect investor sentiment. One such external factor has been the US Federal Reserve’s move to reduce its quantitative easing programme; many emerging markets have faced heavy capital outflows and violent currency movements as investors have reacted to anticipated higher interest rates in the US.
Taking all these factors together, it is difficult to hold a very optimistic view of emerging market assets at this time, even if lower valuations have made them appear more attractive. Emerging markets are not homogenous; we do see pockets of value appearing in some areas but a targeted approach is, we believe, a more sensible approach rather than making sweeping statements as to whether emerging markets as a whole are a buy or not.
Furthermore, a number of emerging market countries are also facing elections this year, which brings political risk into the picture.
Introducing a hybrid portfolio… | Markets Matters
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Introducing a hybrid portfolio…
STOXX Limited, a leading provider of innovative, tradable and global index concepts, has introduced that the newly launched STOXX Europe Low Beta High Div 50 Index has been licensed to Deutsche Bank to be used as the basis for structured products. The index selects the 50 stocks with the lowest beta out of the members of the STOXX Europe 600 Index with a dividend yield which is higher than the EURO STOXX 50 Index’s dividend yield. It is the first index of its kind, and is designed to act as an underlying to structured products and other investable products, such as exchange-traded funds. “The STOXX Europe Low Beta High Div 50 Index creates a hybrid portfolio of high dividend and low risk investment strategies based on Europe’s two most favored benchmarks,“ said Hartmut Graf, chief executive officer, STOXX Limited. “The innovative and transparent concept, combines screens based on the composition of the underlying STOXX Europe 600 Index with thresholds derived from the fundamental values of the EURO STOXX 50 Index.” Giulio Alfinito, Head of Equity Investor Products Europe at Deutsche Bank, said: “STOXX Europe Low Beta High Div 50 Index is a significant development in the low volatility and low beta investment space. The intuitive selection mechanism provides access to stocks with low historic exposure to systematic risk. The index is an ideal candidate for investors seeking partial or full capital protection through options and other structured products”. The STOXX Europe Low Beta High Div 50 Index is derived from the STOXX Europe 600 Index. To be eligible for inclusion in the new index, companies must have a net dividend yield for the past twelve months that is higher than the overall net dividend yield of the EURO STOXX 50 Index over the same time period. All those companies are then screened for their beta to the EURO STOXX 50 Index over the past twelve months, and only those 50 companies with the lowest beta are selected. A cap of eight companies per country is applied to ensure diversification in the index. The STOXX Europe Low Beta High Div 50 Index is weighted by liquidity measured through components’ three month average daily trading volume (ADTV), with a single component’s weight cap of 5 percent. The index is reviewed annually in December, with the cutoff date for dividend yield and beta data being the last trading day of the previous month. The STOXX Europe Low Beta High Div 50 Index is calculated in price, net and gross return versions and available in Euro and USD. Daily historical data is available back to December 23, 2002.
Wealth & Finance | March 2014 |
Finance Focus | Stocks and Mortar
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Stocks and Mortar We’re British… We’re obsessed with tea, the Royal Family and walking in the Peak District, but it’s no secret that Britons are also obsessed with house prices. We are constantly tracking the rising and falling property valuations, with both glee and despair, and calculating how much we have ‘made’ on our real estate investments via valuation websites - but is our obsession really justified?
This unhealthy, but typically British, obsession began in the eighties when house prices first shot through the roof. But when they came crashing down in the early nineties, we practically lost the plot, and for an entirely different reason. Once again, but more recently, our bricks and mortar mania reached an all-time peak in the run-up to the financial crisis, when house prices soared to previously unseen heights… and incredibly, five years later, house prices are even higher still. Excitingly, government figures currently value the average house price at £250,000 – a cool quarter of a million - although in London you’ll find that figure leaps to an astonishing £450,000, a whopping 20% higher than before the credit crunch began back in 2008. For many of us, owning a home is not only a status symbol, but it seems to be the only way to build serious wealth, with mantras such as ‘property is the best investment’ whispered among those lucky enough to be able to afford more than one residence, and reports of grown adults ‘still living with their parents’ bringing a tear to the eye… but by stark contrast, many Britons remain fervently sceptical about stock markets. Perhaps it is because we remember Black Monday of 1987, when stock markets came crashing down, and recession inevitably followed. However, the more recent period of economic turbulence saw the FTSE 100 lose half its value at the height of the credit crunch, yet over the last ten years, the stock markets have returned to a previous stability and delivered a higher return than house prices. A far higher return. Surprised? Then read on.
| Wealth & Finance | March 2014
With constant talk of house price rises in the UK, particularly in London, when compared with other parts of the world, our capital’s rising value seems positively tame. Recently, data taken from Halifax, which has records on property prices going back more than 30 years, were analysed by experts and the results, whilst showing an increase leave a lot to be desired. In February 2009, at the very peak of the financial crisis, the average UK property cost £160,164. Now, five years later, in February this year, it cost £179,872. Yes, that is a veritable increase… but it is only a little over 12% higher. Whereas, over the same period, the benchmark FTSE 100 index has delivered a total return of an astonishing 103%, including growth and dividends, according to figures from S&P Capital IQ. And over a longer period, such as ten years, the stock market wins hands down once again. In February 2004, the average UK property cost £148,497, according to Halifax. Today’s £179,872 figure is just 21% higher. Over the same period, the FTSE 100 delivered a total return of 110% - this includes the fact that it lost half its value during the financial crisis! So what is the moral of my story? What is the lesson to be learned? Well there isn’t one, but for a moment close your eyes and consider this mantra instead… stock markets do crash, but their recovery powers are enormous. Better still, stocks and shares give you something that your home never ever will, as major FTSE 100 companies pay regular dividends to investors as a ‘thank you’ for holding their stock.
Right this minute, the FTSE 100 offers an average dividend yield of just over 3.5% a year. If you re-invest that dividend for growth, year after year, your money will grow in value even if stock markets remain flat during that period. Over the longer run, dividends account for roughly 40% of the profits you make from stocks and shares. You don’t get a dividend from owning a property, all you get is the pride of saying ‘look at this, this is mine, I’ll be paying for it over the next twenty years, but it’s mine!’ Oh yes, and you get plenty of expenses, such as the cost of doing it up, and repairs and maintenance… the list goes on, and on, and on. In an ideal world, you would hold both property and shares, but if you’re one of the growing number of people who truly believe they can never build personal wealth, simply because they can’t get on the property ladder, do not despair for there is another way. And over the past 10 years, it has been far more rewarding than any stack of bricks, no matter how inviting, ever can be. Better still, you don’t have to be rich to invest in stocks and shares. The average deposit for a first-time buyer is now £26,533... A crazy amount, especially considering that this is more than the average Briton’s annual salary. But first-time investors can buy shares from as little as £500. Do you think that maybe, just maybe, it’s time we became crazy about share prices instead of house prices?
Stocks and Mortar | Finance Focus
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Wealth & Finance | March 2014 |
Finance Focus | Increased M&A activity should spell good news for commercial finance brokers
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Increased M&A activity should spell good news for commercial finance brokers Bank lending activity continues to generate considerable debate, but a recent upturn in Mergers & Acquisitions activity in the UK offers a ray of hope for brokers who are hoping to see their clients take a more positive attitude to growing their business. There’s an ongoing debate about whether banks are lending or not. The banks say they are, business owners generally say they are not. Who is right? Well, in some ways it doesn’t matter what the banks are doing. The reality of the situation is that there are many other options available to businesses who want to raise finance today than there were a few years ago. Asset finance, invoice finance, short term lending, and crowdfunding on an equity and debt basis are all viable options.
The appetite to invest Perhaps the key question from the perspective of a commercial finance broker is whether a client has the appetite to invest in building their business. Recent years have seen business owners adopt a more cautious approach to invest in growing their businesses, whether this would be funded from their built up reserves or from obtaining a loan or equity finance. Increase in M&A activity Recent research from Cass Business School and Towers Watson showed that UK companies were involved in more mergers and acquisition activity last year than any other country in Europe. This could be great news for commercial finance brokers in 2014. In Europe 106 deals over $100m (£610m) were completed in 2013. 30 of these deals were done by UK companies, representing a strong performance when you consider that Gerrmany did 6 deals, and France recorded 7. On a global basis, mergers and acquisitions reached $2.8tr (£1.7tr) last year, the highest total since 2008, according to Dealogic. Why do M&A deals create positive sentiments? When mergers and acquisitions go well, the new business entity that gets created carries more value than the two (or more) that it was formed from would previously have generated. In this situation, the new business is more competitive and forces its competitors to look at stepping up their game. This invariably leads to a desire to invest/borrow, which is where the market gets kickstarted. All the signs are very good in the UK economy at the moment. GDP is growing, interest rates are low, and business confidence is on the increase. The scene is set for a busy time for commercial finance brokers and other funding advisers. For our part at rebuildingsociety.com, we’re here to help you quickly obtain loans for established business clients looking to borrow from £25k to £2m, with options for further loans.
| Wealth & Finance | March 2014
Embrace the Bull in the China shop | Finance Focus
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Embrace the Bull in the China shop A rise in negative investor sentiment towards China ignores a number of stronger positives and the long-term investment case remains firmly intact, believes Investec Wealth & Investment (“IW&I”).
extent that it has been in ‘bad’ assets, these have largely been sponsored by regional/provincial governments whose credit will ultimately be supported by the remarkably solvent central government.”
The thrust of most negative reports centres around six key issues: that China has grown at an unprecedented rate; has a lot of debt; struggles with corruption; has unreliable statistics; is suffering a growth slowdown; and, because of its size, if it goes wrong could be a real problem for the global economy.
Current concerns over the “shadow” banking system in China have a high profile because their products have been sold to consumers, but the sector is a small part of the overall debt burden, according to IW&I. The rise in China’s debt over the past five years has in fact predominantly come from the corporate sector – largely a function of loans to State Owned Industry. Once again, this is government debt by another name and the Chinese government is “good” for its debt, believes IW&I.
However, China is fully aware of its challenges, believes IW&I. The current slowdown is largely self-engineered by the new leadership, whose efforts to rein in lending and tackle corruption have imposed a significant austerity burden on growth – IW&I estimates over 3% of GDP. As China ‘cleans house’, bankruptcies and insolvencies will increasingly be part of the regular news-flow from China – but this is a sign that markets are being allowed to work, not a harbinger of imminent disaster. John Haynes, Head of Research, Investec Wealth & Investment, said: “China has a lot of debt – the total burden of public and private sector debt has risen from around 150% of GDP to over 200% of GDP since 2008. But the country also has a lot of assets, even beyond the $3.8trn of foreign exchange reserves which amount to around one-third of GDP. “Only a small fraction of investment over the past five years has been in ghost cities or corrupt projects; a good deal has been in productivity enhancing infrastructure, including housing and transportation. To the
John Haynes continues: “For a crisis to develop either politics or the financial system must be unstable. Neither is the case in China. We know from our experience of the Eurozone crisis what to watch for – namely bankruptcies (or the possibility thereof) of key banks. This will not happen in China because the key institutions are state-owned and well funded: banks’ loan to deposit ratios are only around 70%, savings are all locally sourced, there is no risk of deposit flight and foreign funds in China are in illiquid investments. “Many China watchers appear to be confusing the signals generated by a necessary tightening of control in the financial sector with an imminent crisis. We think this will prove to be overly pessimistic. We are not factoring-in a China ‘surge’ in our positive investment outlook for the year but simply a stabilisation. Since we think China is in control of its own destiny, to us this seems like a modest expectation.”
Wealth & Finance | March 2014 |
Relax | Go Beyond Luxury
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Go Beyond Luxury What to expect from the Maldives’ most exclusive resort A regular visitor to the Maldives, Czech businessman and Chief Executive Officer of PPF Group, Jiri Smejc fell in love with the region’s beautiful location and the heartfelt hospitality of its local people. However, the one thing he felt was missing was the opportunity to enjoy absolute unspoiled privacy; somewhere he could escape to in peace and truly call his own.
Well, to start, there’s the stunning, no-expense-spared surroundings and architecture. Velaa (translated literally as ‘turtle’) pays tribute to the generations of sea turtles that flock to the island to nest and the entire island is littered with turtle motifs, from the hatcheries and conservation areas to the very shape of the resort, which brings to mind the body and head of a giant turtle.
Opening its doors in December 2013, Velaa Private Island is a place with no restrictions and offering almost complete freedom. A haven for those looking to escaper the outside world and experience unadulterated luxury and unrivalled service in one of the most picturesque places on Earth.
But it’s only once guests have arrived, via either a 45-minute sea plane ride or a four-hour cruise on board a luxury yacht (your choice)that it becomes clear how truly special the resort really is. There’s the chance to tuck into the Michelin star menu, prepared by renowned Parisian chef Adeline Grattard and served in one of the island’s three restaurants, a nine-hole golf course (designed by a Ryder Cup-winning captain, of course), dolphin watching and, if walking isn’t your thing, you can always take a trip around the island in a private submarine.
But, not surprisingly, getting away to an island that promises to take its visitors ‘beyond luxury’ doesn’t come cheap. The already stellar levels of quality and service at the many established resorts in the area, Velaa needed to bring something truly special to the table.
There are also two bars, boasting the largest wine and champagne collection in the Maldives (this alone cost over $1m), and for those who like to be pampered, there’s a spa, offering bespoke treatments and private yoga sessions on the beautiful beachfront.
The price for a seven-day stay in one of the island’s 45 private villas (naturally, each with its own pool) can rise to a staggering £126,000 and even the shortest breaks will set you back thousands. So what can visitors expect for their money?
For sport lovers, the island is also home to a Troon Short Game Golf Academy, designed by Ryder Cup-winning captain, Jose Maria Olazabal, and there’s a dedicated state of the art dive centre that takes guests on underwater snorkelling excursions and the submarine rides.
For the 43-year-old billionaire, the answer was simple – he would build his own 50-acre island paradise.
| Wealth & Finance | March 2014
Go Beyond Luxury | Relax
39 How does it compare to the most famous billionaire’s playground of them all? Just in case Velaa happens to be fully booked, you’ll be relieved to hear that Jiri Smejc isn’t the only billionaire with his own tropical hideaway. British entrepreneur Sir Richard Branson bought his own slice of paradise, Necker Island in the British Virgin Islands in 1978, opening the doors to visitors a few years later in 1984. Set over a sprawling 74 acres, Necker Island is considerably larger than Smejc’s resort, and as well as being home to Sir Richard’s private residence, features luxury accommodation for up to 28 guests. The retreat offers visitors formal or informal indoor and outdoor dining (with all food prepared by a team of Michelin-trained chefs) and a 3,800 square-foot pavilion that houses a bar, cinema and entertainment area. As you’d expect from any self-respecting island paradise, there are a mind boggling number of activities for lucky visitors to enjoy, including kite-surfing, sailing, windsurfing, water-skiing, kayaking and power-boating. And if you fancy trying your hand on the island’s two tennis courts, there’s even a professional on hand to give you a few tips.
There’s no need for golf fans to feel left out either because, while Necker Island doesn’t boast its own course, excursions can be easily booked to visit those housed on neighbouring islands. And if you’re in the mood for something a little more adventurous, you can even try your hand a bit of underwater exploration and take a trip on the island’s specially designed three-person submarine, the Necker Nymph. But if all this sounds a little too strenuous, don’t worry; there is also a huge range of luxurious spa treatments available for visitors who prefer to do nothing more than kick back and soak up the billionaire lifestyle in the company of the island’s 200 flamingos. Bear in mind though, if your idea of a perfect retreat is total privacy (and with prices rising to a hefty £40,000 per night, why wouldn’t it be), you might want to give Necker Island a miss as many of the beaches surrounding the resort are still designated Crown land and, as such, are open to the public. We’ll, you can’t have everything.
Wealth & Finance | March 2014 |