Wealth & Finance December 2013

December 2013

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2014:

return of the norm?

Hermes Fund Managers CEO Saker Nusseibeh discusses where to invest in the longer term and the challenges ahead in 2014.

Plus...

Service on the move for wealth management sector

Asset allocation: a balancing act How should you allocate your investment portfolio between the growing range of asset classes now available?

What are governments doing to promote investment?

Carmignac Gestion’s Didier Saint Georges considers whether government action plans are helping or hindering investors – and comes to the conclusion that the picture is mixed.

December 2013 | Contents

3 News & Appointments Funds 6 UK & Japanese equities to drive multi asset returns

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Strong economic momentum in the UK and successful government reforms in Japan will drive equity growth in both markets in 2014, according to Baring Asset Management (Barings).

Hedge funds keep gaining 2014: return of the norm?

Hermes Fund Managers CEO Saker Nusseibeh discusses where to invest in the longer term and the challenges ahead in 2014.

Wealth Corner 10 Service on the move for wealth management sector The increasing financial strength of clients is driving investment in the online and mobile delivery segments of the wealth management sector, according to new research.

11 Family offices: the conversion factor

The increasing amount of regulation means that for many hedge funds a conversion into a family office is an attractive proposition.

12 Asset allocation: a balancing act

How should you allocate your investment portfolio between the growing range of asset classes now available?

Banking Zone 10 Pound puts on a positive performance During the past year the pound has outperformed the majority of global currencies according to the latest research from Lloyds Bank Private Banking.

15 Bitcoin: a worthy investment vehicle?

16 Can the EU leaders finally find a solution to suit all when dealing with the long list of failing eurozone banks?

Editor’s comment Welcome to the December edition of Wealth and Finance. As you’d expect at this time of year we’re reviewing 2013 and spending a lot of time considering what 2014 will bring.

The answer is that there seems to be more optimism about the year to come than there was a year ago. There are still some concerns – government performance in the eurozone, for instance (page 24) and whether the eurozone banking deal is sufficient (page 16).

We’ve also taken a look at how investment decisions are changing – Venture Capital Trusts are attracting more first-timers, while Bitcoin is providing investors with an interesting time.

If you are celebrating this month, the team at Wealth and Finance hope you have a wonderful time, and we would like to wish all our readers a happy and prosperous 2014.

Markets Matters 18 ICBC offers dim sum bonds to London Industrial & Commercial Bank of China Ltd (ICBC) has become the first Chinese bank to offer a yuan-denominated dim sum bond issuance in London.

19 Venture Capital Trusts appeal to first-time investors 20 Panoramic predictions for 2014

Stephen Campbell, Partner of Panoramic Growth Equity, gives his predictions on the growth capital market in 2014.

Regulation Review 22 Moody’s: stable outlook despite regulatory changes Moody’s outlooks for the money market fund (MMF) sector and asset manager sector are stable, says Moody’s Investors Service in its two new industry outlooks for 2014.

23 RDR – one year on

As the Retail Distribution Review (RDR) approaches its first anniversary a new study by Investec Wealth & Investment reveals that 43% of intermediaries believe that the new regime has improved the quality of advice they provide to clients with just 5% saying it has had a negative effect.

24 What are governments doing to promote investment?

Finance Focus 26 UK: could there be an airport decision soon?

One hundred and ten years to the day since the era of powered flight began, possible solutions to the UK’s aviation capacity crunch were revealed.

28 UMW oil & gas: 2013’s largest oil & gas IPO

Taxing Times 30 Guernsey Signs 50Th TIEA and receives praise from OECD 32 Four smart year-end tax moves

34: Relax From Paris, with love

Under the new IRS rules, it’s important to calculate your taxes early so you can take steps that may help to lower your bill.

Wealth & Finance | December 2013 |

News & Appointments | December 2013

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News in brief UK to introduce plastic banknotes The Bank of England has announced it is to introduce polymer bank notes from 2016. The £5 note will be the first to go plastic, followed by the £10 note in 2017. Australia was the first country to introduce plastic bank notes, which last 2.5 times longer than cotton paper notes.

US house building at fiveyear high Official figures from the Commerce Department reveal that US house building activity recovered strongly in November, nearly a third higher than in the same period last year. Construction of new homes hit 1.091 million, up 29.6% compared to November 2012, the highest level in five years.

Credit Suisse joins LuxCSD as first transfer agent Luxembourg’s central bank and Clearstream have unveiled Credit Suisse as the first transfer agent to join their central securities depositary, LuxCSD, making more than 1,500 investment fund share classes available for DVP settlement in EUR central bank money.

DVP (delivery versus payment) is the market’s preferred settlement choice since it is more efficient, more secure and offers more real time settlement compared to the free of payment (FOP) option.

LuxCSD is jointly (50/50) owned by the Banque centrale du Luxembourg (BCL) and Clearstream International SA. The migration to LuxCSD results in a series of benefits for investors in Credit Suisse investment funds, such as reduced settlement risk through direct access to central bank money.

In view of the implementation of TARGET2-Securites (T2S) – the future, harmonised platform for settlement that the European Central Bank is currently developing, replacing the current set up of domestic CSDs – LuxCSD will support Credit Suisse Fund Services (Luxembourg) SA to be best positioned for the growing demand from

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distributors/ investors to facilitate settlement through a T2S based account.

Patrick Georg, LuxCSD’s general manager, said: “We are pleased to welcome the first transfer agent using LuxCSD’s fund issuance and settlement services. The migration of fund shares handled by Credit Suisse is a further milestone for LuxCSD in fulfilling its mandate to prepare the Luxembourg investment funds industry for the implementation of T2S and to ensure an easy transition for market participants.”

But the pace of building permits - an indicator of likely future construction levels - fell 3.1% in the month. However, this was still 7.9% higher than the same period a year ago.

Global M&A activity to continue The steady increase in global M&A activity will continue into 2014 as the world economy strengthens and confidence returns to the boardroom, according to a preview of the findings from Clifford Chance’s latest Global M&A Trends report.

While global M&A in the first 11 months of 2013 is broadly flat year-on-year (US$1.87 trillion in 2013 - up from US$1.86 trillion from the equivalent period in 2012) consistent quarterly increases in global M&A activity values show positive momentum which Clifford Chance anticipates will be sustained into the new year and beyond.

e-invoicing could save billions The UK public sector could be wasting as much as £2bn a year as a result of being slow to take up e-invoicing, according to new research.

The adoption of e-invoicing would make a real contribution to economic growth in the UK, driving productivity and efficiency by allowing greater output of goods and services for lower factor inputs, whilst also facilitating prompt payments and providing much-needed liquidity to many SME suppliers of large companies and the public sector.

Denmark has already implemented public sector e-invoicing and has estimated a saving of €120m-€150m a year.

December 2013 | News & Appointments

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What price goodwill?

‘Tis the season of goodwill – and a new study from Duff & Phelps Corporation reveals that goodwill impairment is costing European firms less than it did a year ago.

The 2013 European Goodwill Impairment Study, prepared by the independent financial advisory and investment banking firm in partnership with Mergermarket, focused on financial data from 2010-2012 for companies in the STOXX Europe 600 Index, which includes large, mid and small capitalisation companies across 18 countries in Europe.

Key highlights include: • For 2012, total goodwill impairment for companies in the STOXX Europe 600 Index of €65 billion represented a decrease of approximately 15% from the €77 billion recorded in 2011 • From an industry perspective, Telecommunications Services recorded the largest goodwill impairment charges in 2012, with aggregate impairment of €23.4 billion. Financial and Materials followed with aggregate goodwill impairment of €15.2 billion and €14.2 billion, respectively. These European industry dynamics provide a contrast with findings from Duff & Phelps’ recently released US Goodwill Impairment Study, which found 67% of the goodwill impairment recorded in 2012 was booked by Information Technology, Industrials, and Healthcare • Geographically, companies based in the UK recorded the largest goodwill impairments in 2012

• Approximately 40% of European companies responding to Duff & Phelps’ Survey recognised goodwill impairment in 2012.

Companies that did so cited ‘overall market conditions’ and ‘general industry downturns’ as the most common reasons for the impairments. Cash-generating unit specific factors were cited as a less significant issue.

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

“Against the backdrop of ESMA’s regulatory vigilance and investor demands for increased financial transparency, Duff & Phelps examined goodwill impairment trends across Europe,” said Yann Magnan, Duff & Phelps managing director and Valuation Advisory Services leader for Europe. “Marked swings in aggregate impairment over the last three years have been heavily influenced by the impact of the global financial crisis and subsequent beginning of a recovery.

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

Appointments Dual hire for Palamon Palamon Capital Partners announced the appointment of Philippe Arbour as Managing Director of Structured Finance and Antony Barker as director of Investor Relations and Marketing.

Philippe joins having spent ten years with Lloyds Banking Group, where he worked in a variety of roles, most recently as a director in the Leveraged Finance & High Yield team.

Antony Barker re-joins Palamon from global placement agent Campbell Lutyens and DMC Partners, where he was an investor relations associate.

Before that, he spent five years at Palamon, working across the breadth of Investor Relations and Marketing activities.

Louis Elson, managing partner of Palamon, said: “We could not be more delighted to welcome Philippe and welcome back Antony. Each is a consummate professional who brings talent and expertise to our team.”

A Coull boost for Syntaxis Syntaxis Capital, a leading provider of mezzanine finance in Central Europe, has boosted its responsible investment credentials with the appointment of Rupert Coull, a seasoned expert in environmental, social and governance (ESG) principles. Rupert will take on central responsibility for all elements of the firm’s ESG policy, as Syntaxis furthers its commitment to responsible investment.

ING IM appoints senior EMD managers ING Investment Management International (ING IM) has announced the appointments of Marcin Adamczyk and Alia Yousuf.

Marcin joined as senior portfolio manager EMD Local Currency, based in The Hague. He has more than 15 years’ experience in EMD Fixed Income markets and joins from MN, a Dutch pension fund fiduciary manager.

Alia Yousuf joins as senior portfolio manager EMD Local Currency, based in Singapore and has 13 years’ experience managing EMD portfolios and joins the company from ACPI Investment in London.

Marcin and Alia join a team of more than 25 investment professionals located in three regional centres both reporting to Marcelo Assalin, lead portfolio manager EMD Local Currencies, based in Atlanta, USA.

Wealth & Finance | December 2013 |

Funds | UK & Japanese equities to drive multi asset returns into 2014

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UK & Japanese equities to drive multi asset returns Strong economic momentum in the UK and successful government reforms in Japan will drive equity growth in both markets in 2014, according to Baring Asset Management (Barings), the international investment firm.

The firm maintains a preference for UK and Japanese equities within the Baring Multi Asset Fund, and has increased its overall weighting in equities in the fund due to bullish global economic developments.

Barings believes that economic prospects for the UK are well supported while earnings expectations have not been subject to the same degree of over-enthusiasm that some parts of the world have experienced. For Japan, 2013 witnessed an excellent performance from Japanese equities as the government’s policy of renewed asset purchases has taken hold.

“Looking into next year, we expect the global economic recovery to remain on track, with inflation remaining benign. Central banks will look to become less active in their attempts to support the global economy, gradually reducing their asset purchase programmes over time. This suggests that bond yields will slowly rise, as investors look to reduce their exposure to this asset class, in the absence of any major negative shock to economic growth.”

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Andrew Cole, investment manager, Baring Multi Asset Fund, says: “While the ongoing strengthening of sterling as a result of better economic data and the prospect of rising concerns about a change in government ahead of the 2015 election could make us reassess our view on the sector, we believe UK fundamentals remain strong.

“We also remain positive on Japanese equities though the government now faces the delicate task of dealing with politically sensitive structural issues, such as the reform of the labour market.

We are confident that government policy is heading in the right direction and that the necessary adjustments will be made. However, the first months of 2014 will be crucial for Japan and we remain vigilant.”

Overall, Barings is positive on global economic prospects for 2014, observing that US economic data continues to improve with the recent government shutdown only stalling upward growth. The changeover in leadership at the Federal Reserve, with Janet Yellen assuming the role of chairman in February 2014, also suggests

that monetary policy will remain in its current accommodative state. In terms of Europe, although the eurozone has not shown the same growth overall, the German economy is still expanding and should help drive a regional recovery.

Andrew Cole adds: “Looking into next year, we expect the global economic recovery to remain on track, with inflation remaining benign. Central banks will look to become less active in their attempts to support the global economy, gradually reducing their asset purchase programmes over time. This suggests that bond yields will slowly rise, as investors look to reduce their exposure to this asset class, in the absence of any major negative shock to economic growth.”

In the equity sphere, Barings believes that current share price valuations are reasonable, and can tolerate a small rise in government bond yields without overly damaging their potential for further growth. As a result, Barings remains positioned for further outperformance in equities over bonds, although it recognises that equities are no longer quite as attractively valued as they were.

With a higher weighting in equities in the fund than at the same time last year, Barings has looked to provide some protection through the use of put options in case bonds witness a more dramatic rise in yields or if corporate earnings suffer greater downgrades than expected.

Andrew Cole concludes: “Over the summer we increased our exposure to interest rate risk as expectations of a change in Federal Reserve policy faded. We are now looking to take profits on this position and also to reduce the interest rate sensitivity in the portfolio. We continue to expect equities to outperform bonds as the economic recovery continues around the world. However, markets are likely to be more volatile and we will continue to monitor for any significant changes in policy by central banks or developments in earnings expectations.”

Hedge funds on gain streak for third consecutive month, up 1.37% | Funds

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Hedge funds keep gaining Hedge funds delivered their third consecutive month of positive returns as global markets maintained their upward momentum. The Eurekahedge hedge fund index was up 1.37% during the month, edging past the MSCI world index which gained 1.27% in November.

Key highlights for November 2013: • Total assets in the hedge fund industry are now at a record of US$1.97 trillion, surpassing the previous record of US$1.95 trillion in June 2008 • Net asset flows for the year recorded at US$122.2 billion, with net allocations to North American managers standing at US$64.0 billion year-to-date • European fund managers were up 7.41% November year-to-date with net asset inflows for the year standing at US$48.2 billion - the highest level on record • Asia ex-Japan hedge funds have outperformed the underlying markets by more than 10% November year-to-date • Greater China focused hedge funds outperformed the Hang Seng index by over 12% as at end-November • Latin America focused managers posted their fifth consecutive month of positive returns - outperforming the MSCI EM Latin America Index by almost 8% on a year-todate basis • Distressed debt investing remains the best performing strategy in 2013, up 14.81% November year-to-date • Japanese hedge funds remained ahead of other regions, up 24% as at end-November • Eurekahedge is currently tracking over 1,200 funds with year-to-date returns in excess of 15%

Regional Indices Global markets remained upbeat on the back of positive macroeconomic data from the US, with incoming Fed chair Janet Yellen’s testimony before the Senate’s banking committee adding a further dose of optimism to the markets as she reiterated the necessity of the Fed’s QE program for an enduring recovery in the US economy.

Meanwhile, European markets were supported by the ECB’s cut in its interest rates to 0.25% the lowest on record as fears surfaced over the prospects of a deflationary spiral in the eurozone region. Asian markets edged upwards on the back of strong third quarter GDP estimates from China, with markets reacting positively as details emerged regarding the CCP’s third plenary session.

All regional mandates, with the exception of Eastern Europe and Russia, posted positive returns with Asian hedge fund managers leading the way. The Eurekahedge Asia ex Japan hedge fund index is up 1.73% during the month, outperforming the MSCI Asia Pacific ex Japan index which was down 0.05%. Japanese fund managers posted yet another month of positive returns, up 1.27% as the Nikkei 225 index climbed 9.31% helped by a fall in the value of the yen relative to the dollar.

North American managers were up 1.18%, (8.59% year-to-date) as equity markets rallied to new highs with the NASDAQ, S&P500 and DJIA gaining 3.58%, 2.80% and 3.48% respectively during the month.

was up 0.37% during the month. Emerging markets focused funds are up 0.47%, with fund managers exposed to India posting losses (down 1.88%) as the BSE Sensex index declined 1.76% in November.

Strategy Indices All hedge fund strategies, excluding relative value, were positive with fixed income fund managers leading the pack with returns of 7.28% during the month. A handful of fixed income funds which were investing in ‘bitcoins’ realised mammoth gains during the month as leading central banks recognised the virtual currency as legal tender.

Long/short equity managers were up 0.97% as equity markets rallied, while event-driven strategies raked in gains of 1.44%, with the Eurekahedge event-driven hedge fund index up 10.36% year-to-date.

CTA/managed futures funds using systematic strategies were up 1.41% while those deploying quant strategies saw gains of 1.71% during the month. On the whole CTA/managed futures strategies continued their rebound and were up 1.22%, though it is the only strategy that remains in the red on a year-to-date basis - down 0.94%.

Meanwhile, distressed debt hedge funds are up 1.19%, outperforming the BoFA Merrill Lynch US high yield index which gained 0.47% during the month. The Eurekahedge distressed debt hedge fund index is up an impressive 14.81% on a year-to-date basis.

European fund managers posted gains of 0.43%, ahead of the MSCI Europe index4 which

Wealth & Finance | December 2013 |

Funds | 2014: return of the norm?

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2014: return of the norm?

Hermes Fund Managers CEO Saker Nusseibeh discusses where to invest in the longer term and the challenges ahead in 2014.

Looking forward to 2014, we seem to have two reasonably solid foundations on which to build a forecast for the year. The first is that growth in the Anglo Saxon economies, especially the US has come through stronger and more solidly than anticipated by many, as evidenced by the stronger employment numbers in the US and the revision to economic data in the UK. The US economy seems to be well on its way to grow at around 2.75% while the UK economy looks like growing in the twos. In both economies, unemployment is coming down, so this is not a jobless recovery, and in both, the housing market, the bedrock of consumer ‘feel good’ seems to be on the path to a recovery.

The second is that in both economies the central bankers have intimated that although unemployment will likely fall below the ‘trigger’ 7%, they are likely to keep monetary conditions easier for longer, for fear of disrupting what they see a fragile recovery.

This gives investors a conundrum. We can see that the economic recovery is feeding into share price appreciation, but we also know that normalization is inevitable. The problem is that we have no indicators as to what might trigger it, or how long this period of abnormality (strengthening economy/easy monetary policy) might last.

Elsewhere in the world, the outlook is a little less clear. In the eurozone, the economy remains anaemic, as seen from the most recent data from France, and heavily dependent on German economic health. Investors know that the banking problem in Europe has not been resolved, but merely fudged for a time.

However, the key issue which is yet to resolve itself is to do with the tension between the federal nature of a monetary union and the confederate nature of the political structure. While many commentators will look out for indicators of a large fissure, I think we are likely to see the

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effects of this tension in many smaller ones. We had an indication recently with the restructuring of EADS. This was triggered by the company’s difficulty in competing in the defence market against two headwinds.

First and foremost, with austerity in Europe, defence spending has declined substantially.

Secondly, the EU, by banning BAE’s proposed merger, placed it at a disadvantage to the big US players (who are already supported by a bigger US military budget).

The other issue that Europe faces is linked to its prolonged period of austerity and the stickiness of unemployment, and that is to do with the rise of political tensions. This is already being reflected in the rhetoric employed by even mainstream parties about immigration.

Finally, developing markets showed that they are neither immune from the economic cycle, nor de-coupled from the economic fortunes of the big developed blocs. The question there is not so much whether we see a recovery (we do, as evidenced by the recent Chinese export data), but centres around the sensitivity of these economies and their financial system to the monetary cycle in the developed world.

One can construct an argument that Chinese companies have been benefitting (albeit surreptitiously) from the lower rates on the greenback, which throws up the question of the effect tapering would have on developing economies and their financial systems.

Taking all the above into account, we can probably reasonably predict that equities, including emerging market equities, will continue to make headway, on the back of improving earnings and strong balance sheets.

The question is what will stop this shooting into overvalued territory? The obvious answer is fears about monetary tightening or about

dislocation in Europe. Nonetheless, with yields at decade-long lows and recovery outside the eurozone proceeding at a solid pace, equities will offer investors both a reasonable risk adjusted return and a hedge against the possibility of inflation.

The end of the easing cycle will also be interesting to watch. Besides a knee jerk reaction to the start of a tightening cycle in the bond markets with its ensuing loss in value, we may in certain markets see a situation where correlation between these two asset classes is positive, meaning they both rise, driven by, on the one hand, pension schemes looking to lock into inflation linked bonds to meet their liabilities as the interest rates go up, while on the other, the perception that tightening interest rates is the result of improving economic conditions that feed into a positive cycle in equity markets.

What of the other asset classes? For as long as we have this abnormal situation of prolonged low yield, some investors will continue to look for yield-like returns, hoping to capitalise on anomalies thrown up by the dislocation in the banks, including regulatory capital, direct lending, property lending and so on. That is fine as long as they realise that higher yields come at the price of higher risk. At the same time, the underlying fear of the return of inflation (as a result of this long period of monetary easing) will lead many investors to seek to hedge their inflation risk using assets such as property.

An outlook is never considered complete without a currency outlook. Unfortunately, my wizardry is somewhat rusty, so I shall pass on that. Other than to say that, with the ECB prevaricating on QE in the Euro-zone and Germany first needing to ‘smell’ deflation before climbing down, the longer the wait, the more likely that eurozone misery will end up being compounded by a stronger euro.

2014: return of the norm? | Funds

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Wealth & Finance | December 2013 |

Wealth Corner | Service on the move for wealth management sector

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Service on the move for wealth management sector The increasing financial strength of clients is driving investment in the online and mobile delivery segments of the wealth management sector, according to new research.

The research was carried out by global analyst Ovum and indicates that IT spending growth in the global wealth management industry will accelerate in 2014 to 4%, up from 3.1% in 2013, before peaking in 2015 at 4.5%.

Wealth managers will also prioritise user experience in order to improve client trust in the next year. This will require increasing sales and servicing effectiveness, which will drive further front-office IT investments.

The focus on controlling operational budgets will remain strong but wealth managers will increase IT spending on new initiatives. As a result, IT spending is expected to grow in Europe by 2.1% by the end of 2013 and accelerate to 2.9% in 2014. As their economies strengthen, IT spending in Asia-Pacific markets is expected to grow by 3.2% in 2013 and 3.9% in 2014.

“IT is under the same pressure as other parts of the business in that it needs to control costs while funding investments to meet regulatory and strategic requirements,” says Jaroslaw Knapik, senior analyst, financial services technology, Ovum. “This will lead to low-cost, digital channels and back-office transformation projects.”

This view is supported by Ovum’s ICT Enterprise Insights – the largest survey of senior IT executives ever conducted – which reveals that reducing operating costs and supporting revenue growth are the most important objectives impacting IT investment strategy in 2013.

It also states that any IT project will be cautiously evaluated on its return on investment (ROI) and ongoing maintenance costs before approval.

Over half the respondents to the ICT Enterprise Insights survey indicate that their IT budgets are set to increase by 6% or more between 2013 and 2014, driving spending to £20bn by 2017. This is a significant shift from the previous year, when most increased by between 1% and 5%.

Knapik concludes: “Wealth managers will devote effort to revenue growth, rather than reducing costs. This will drive further front-office investments, in physical and digital channels, as well as product development.”

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Family offices: the conversion factor | Wealth Corner

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Family offices: the conversion factor The increasing amount of regulation means that for many hedge funds a conversion into a family office is an attractive proposition – some well-known names such as George Soros and Stanley Druckenmiller have already made the conversion.

The chief benefit is that family offices do not have to register as investment advisors with the US Securities and Exchange Commission but the change also means that other investment objectives can be taken into account, such as philanthropy and tax efficiency.

Of course, to make the conversion viable, the monies in the hedge fund belonging to the family and employees must be considerable.

Another example of where the family office outcome has been used is that of the billionaire trader Steven A Cohen, who is in the process of conversion after the hedge fund he founded, SAC Capital, pleaded guilty to securities fraud charges following a long-running federal investigation.

In its plea deal SAC Capital agreed to pay a $1.2 billion penalty to federal authorities and said it would stop managing money for outside investors – effectively becoming a family office.

Vistra Netherlands managing director and global head of family office services, Sjaak ten Hove said: “We are delighted to welcome the skilled staff and the high profile network of HVK FOS into the Vistra Group.

“By bringing both companies together, we will be able to further extend our existing specialized service offerings to single and multi-family offices. The existing international network of HVK FOS could also be a logical starting point for a swift international expansion through selective add-on investments in existing Family Office Services practices.”

Jac Veeger, director of HVK FOS, added: “We will be joining one of Europe’s fastest growing corporate services groups, which will bring benefits and opportunities to our existing clients and staff.

“Since Vistra is a leading player in the High Net Worth Individuals and families market segment, the combination of both companies will create a strong platform for further growth in the Family Office Services business. Our clients will be able to benefit greatly from the broader range of services and on the ground presence in other key jurisdictions of Vistra.

Obviously, our clients will keep their existing contacts to ensure business continuity.”

The conversion has meant that Mr Cohen, who did not face personal charges, has had to find a buyer for SAC Re Ltd, the reinsurance firm he formed in 2012. SAC Capital has managed the reinsurer’s assets and was its largest investor.

SAC Re is to be bought by Hamilton Reinsurance Group, which is led by the former insurance executive Brian Duperreault and Two Sigma Investments, for an undisclosed amount.

Two Sigma will become the sole investment manager for the reinsurer, which will be renamed Hamilton Re after the deal closes, which is expected to be at the end of 2013.

The sale of SAC Re will mean a return to the insurance business for Mr Duperreault, who most recently was chief executive of Marsh & McLennan Companies and before that was the chief executive of ACE Ltd. Another move in the family office sector is the acquisition of Netherlands-based HVK Family Office Services by Vistra, the fast-growing corporate services group, The acquisition of HVK’s Family Office Services division enhances and supports Vistra’s recently launched Family Office Services Division, which is focused on advising, implementing and managing group structures for the family offices of High Net Worth Individuals and families.

Apart from generating new and additional family office revenues, it is expected that Family Office Services will generate new revenue streams for Vistra’s traditional trust services.

“We are delighted to welcome the skilled staff and the high profile network of HVK FOS into the Vistra Group.

“By bringing both companies together, we will be able to further extend our existing specialized service offerings to single and multi-family offices. The existing international network of HVK FOS could also be a logical starting point for a swift international expansion through selective add-on investments in existing Family Office Services practices.”

Wealth & Finance | December 2013 |

Wealth Corner | Asset allocation: a balancing act

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Asset allocation: a balancing act

How should you allocate your investment portfolio between the growing range of asset classes now available? According to Cass Business School’s Centre for Asset Management Research (CAMR) this is one of the most difficult and important decisions any investor has to make. Research (and common sense) shows that getting asset allocation right is far more important than finding a manager that can outperform their particular market.

Many institutional investors, including large insurers and pension funds, make use of sophisticated optimisation software to help them allocate their funds across different asset classes. The inputs generally require the user to specify the return they expect on any asset class of interest, along with the likely volatility of those returns, plus the correlations between these asset classes. The technology behind this approach to asset allocation is used to identify the ‘optimal’ asset class mix for their retail clients.

The output generally gives reassuring, scientific looking data with precise looking charts of expected outcomes. But ultimately the pseudo-scientific output is only as good as the inputs. So unless you are very good at forecasting asset class returns into the indefinite future, and return volatilities and correlations, the results of your optimisation process, however fancy, will be nonsense. Remember the old saying: garbage in equals garbage out.

In response to the growing dissatisfaction with apparently sophisticated optimisers that simply give us the answer that we have put into them, there is now a growing body of evidence that shows that alternative, almost simple-minded approaches, to the same asset allocation problem produce results that are at least as good as those produced by the most sophisticated optimisers.

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Asset allocation: a balancing act | Wealth Corner

13 One such approach, referred to as ‘1/N investing’, advocates allocating equal amounts of capital to each asset classes of interest. So, for example, if there are ten (N) asset classes then the approach simply requires that each asset class has a weight of 1/10, that is, 10%. Andrew Clare, from CAMR, says: “To some extent, any other type of weighting implies that one knows something about the world. In my view, the events of the last few years have shown us that we know only one thing – and that is that we know virtually nothing about the future!”

that might need to access their funds in a hurry, or if they are approaching retirement, or if they have retired and are in income drawdown.

He highlights another approach to asset allocation, which is getting a great deal of attention from institutional investors, and is similar in spirit to the 1/N approach to asset allocation. This is the ‘equal risk’ approach, also known as ‘risk parity’.

Mr Clare explains: “Our results indicate that a risk parity approach to asset allocation may not enhance return when applied to a range of broad asset classes, but that it might reduce drawdowns – a key concern for investors. Conversely, our results with regard to, for example, the choice of weights for a global equity portfolio suggest that a risk parity approach to the weights might enhance the return over time, but may still leave the portfolio vulnerable to a large drawdown. In other words it may enhance the average return, but it does not eliminate the downside risk that investors fear most.”

The idea is that rather than investing in the asset classes using information from an optimiser, or allocating an equal amount of capital to each one (1/N investing), this approach argues that capital should be allocated in such a way that the volatility of each asset class multiplied by its weight in the portfolio is the same. So an asset class with low return volatility would need a higher weight than one with high return volatility.

The interesting feature of figure 2 is that when applied across broad asset classes, risk parity can reduce the maximum drawdown compared to a 1/N strategy: from 47% to just 20%. However, within broad asset classes the maximum drawdown is almost the same for both approaches.

And in the case of developed economy bonds, it is considerably worse.

Overall, risk parity does appear to offer something to investors, although it may not be the investment panacea that its proponents claim.

For example, suppose an investor was considering investing in just two asset classes, one with volatility of 10% and the other with volatility of 30%. A risk parity approach to the weighting of these asset classes would require that the investor invested 75% in the low volatility asset class and 25% in the high volatility asset class.

Mr Clare continued: “At CAMR we have been investigating the impact that a risk parity approach to investing can have on a multi-asset class portfolio. We collected return data on the sub-components of five broad asset classes: developed and emerging market equities, developed economy bonds; commodities; and commercial property. All together we used data on 95 individual asset classes.

“We then undertook the following experiment: we calculated the performance statistics for a simple buy and hold strategy for the five main asset classes, where we allocated 20% of the portfolio to each of the five asset classes, that is, we chose the asset class weights based upon the principles of 1/N investing.

“Next we formed a portfolio based on these five broad asset classes, where the weights were set at the beginning of each year so that each broad asset class had the same weighted volatility as every other asset class, based on the volatility of that asset class over the previous year.”

The first two bars of figure 1 show the return achieved from both approaches. They are almost identical. The 1/N approach achieved a return of 6.71%pa, while the risk parity approach achieved a return of 6.78%.

However, when the same approach within each asset class was applied the results, also shown in figure 1, were more encouraging. In most cases a risk parity approach seems to have enhanced returns, in some cases quite considerably. For example, a 1/N approach to an investment in a wide range of emerging market equities would have produced an average annual return of 5.48%, while a risk parity approach produced a much more impressive return of 9.58%. This result suggests that investors were not being rewarded for exposure to very risky emerging equity markets and that, by comparison, overweighting the less volatile emerging equity markets would have been a more profitable strategy.

Figure 2 shows the maximum drawdown statistics for each of the strategies and asset classes shown in figure 1. A portfolio’s maximum drawdown is the maximum peak to trough decline in its value over a particular time period. This statistic should be of crucial interest to any investor

Wealth & Finance | December 2013 |

Banking Zone | Pound puts on a positive performance

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Pound puts on a positive performance During the past year the pound has outperformed the majority of global currencies according to the latest research from Lloyds Bank Private Banking. The pound has risen against 53 of the 74 currencies analysed.

Out of the 74 countries surveyed 14 currencies have declined in value by over 10% against the pound since November 2012. The largest decline was the Venezuela bolivar, which fell by 48%. Other significant declines include the Papua New Guinean kina (26.3%), South African rand (15.6%), Jamaican dollar (14.1%) and the Egyptian pound (14.0%).

As a whole the Latin American countries have fared badly against the pound with the Brazilian real falling by 11.7% this, coupled with the poor performance by the Venezuela bolivar and the Argentine peso, meant South America was the worst performing region against the pound.

On the opposite side of the coin the Seychelles rupee and Israeli shekel are the top performing currencies against the pound both of which have risen by 7.2% over the past year. They are closely followed by the Romanian leu at 5.0% and the euro, which saw a 3.5% rise.

Although Venezuela is oil rich, the bolivar has been under considerable pressure due to high inflation and a large budget deficit and there was a devaluation of the currency in February. High domestic inflation has also impacted on the peso and real.

The pound outperforms 13 of the 16 currencies in the G20 group of economies with the largest decline by over a quarter at 27.7% being the Argentine peso. Other countries within the group losing out are the Japanese yen (24.7%) and Indonesian rupiah (23.7%).

Over the past 12 months in total there has been little movement against the dollar. But since the spring the US dollar has fallen by 9% against the pound from $1.49 to $1.63 in November. The movement appears to reflect the growing confidence in the UK economy, although some of the appreciation can also be explained by the fact that markets have lowered their expectations for US official interest rates by more than they have for UK rates in recent months. Although the US dollar has fallen against the pound since spring at the current rate there is little difference to a year earlier.

The Australian dollar falling by almost 16% was possibly the only good news for the England cricket fans who were following the Ashes tour.

During the height of the Eurozone debt crisis the Australian dollar and Japanese yen were considered as ‘safe haven’ currencies, holding initially high valuations, which may be a contributing factor to their decline along with the monetary easing in 2013 carried out by both the Reserve Bank of Australia (RBA) and the Bank of Japan.

Out of all the countries in G20 only the euro, the South Korean won and the Chinese yaun have risen against the pound. It has been a tale of two halves for the euro and yaun. In the period up to July the euro rose against the pound by 7.6% and the yuan by 8.9% but since then both have fallen by 4.5% and 8.5% respectively against the pound. Despite this decline they both remain stronger against the pound than a year ago.

The easing of the euro crisis along with an improved outlook for the UK economy are some of the drivers behind the change in the euro to the pound performance.

| Wealth & Finance | December 2013

Nitesh Patel, economist at Lloyds Bank, said: “The strength of the pound against most currencies during 2013 will have been good news in controlling UK inflation and for many long-haul holiday makers travelling outside the Eurozone.

“However, for UK exporters this is not good as it potentially makes them less competitive. Improving economic news has been one of the key drivers behind the general rise in the value of the pound, although some of the appreciation can also be explained by the fact that markets have lowered their expectations for US and euro-zone official interest rates by more than they have for UK rates in recent months.”

Bitcoin: a worthy investment vehicle? | Banking Zone

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Bitcoin: a worthy investment vehicle?

December has been a busy month for the digital currency Bitcoin with Bank of France sending a warning to users and investors about its risks and the Chinese authorities restricting the ability of local Bitcoin exchanges to receive yuan-based deposits, causing the value of the virtual currency to halve overnight.

But there was better news for the digital currency as e-commerce site Overstock.com told the Financial Times that it was planning to accept Bitcoin in the second half of 2014.

The Chinese central bank extended the ban to payment companies like YeePay, and gave them until 31 January 2014 to stop trading with Bitcoin, describing the digital currency as not legally protected and having no “real meaning”.

BTCChina announced that due to action by a third-party payment provider, YeePay, it could no longer accept deposits in the Chinese currency, although it would still be able to process withdrawals.

Bobby Lee, a former Yahoo developer who co-founded BTCChina this year said: “As of right now, we have received notice from our third-party payment company that they will disallow customers from making deposits into our exchange.”

December also revealed that the surprise holder of the biggest Bitcoin wallet was the FBI – caused by its seizure of the Silk Road online drugs marketplace accounts. However, this doesn’t make the agency the largest Bitcoin holder as most spread their holdings across several wallets so if one is hacked, or they lose the key to it, all is not lost.

It’s clear that there are two opposing forces at work: the enthusiasm of users and the caution of central banks. The question for investors is who will win?

Wealth & Finance | December 2013 |

Banking Zone | Can the EU leaders finally find a solution to suit all when dealing with the long list of failing eurozone banks?

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Can the EU leaders finally find a solution to suit all when dealing with the long list of failing eurozone banks?

| Wealth & Finance | December 2013

Banking Zone | Can the EU leaders finally find a solution to suit all when dealing with the long list of failing eurozone banks?

17 During the recent banking crisis which almost destroyed the eurozone, the European Central Bank stepped in with unprecedentedly cheap loans for struggling banks along with their pledge to do ‘whatever it takes’ to stay on track.

that moment the single resolution fund would finance all bank closures which means in the first year of operation the costs of closing down a bank would be fully covered by a fund set up by the home country where the bank resides.

The crisis which toppled banks and dragged down states such as Ireland and Spain, sending shockwaves across the continent, left countries needing a fresh blueprint outline of what to do when a bank fails, which created the drive to form a ‘banking union’.

The plan will see a €55bn ($75bn; £46bn) fund, financed by the banking industry, over 10 years being set up, however RBS received €54bn from the public purse in 2008 and with Anglo Irish Bank swallowing up €85bn to prevent collaspse in 2010, the question is whether €55bn is enough in the context of the eurozone banks’ balance sheets?

The banking union has pledged to “break the vicious circle between banks and sovereigns”, with European Commission president, José Manuel Barroso stating it is: “The beginning of the end of bank bailouts.”

The cost of closing down one of the 6,000 eurozone banks will initially be borne by its home country, but eurozone partners will eventually share the obligations of fellow currency bloc members after 10 years, under the terms of the EU proposal. The move takes banking oversight out of the hands of national regulators for the biggest eurozone banks.

French president, François Hollande said: “That is what banking union is about: stopping financial crises from happening again and, if there is a bank failure, preventing the entire European financial system from being attacked.”

The UK and 10 other non-eurozone economies are not part of the deal; however, non-eurozone member states may choose to sign their banks up to the new regulatory regime. David Cameron, UK prime minister told reporters that the eurozone needs a banking union, but Britain won’t be part of it.

Lithuania, which holds the rotating presidency of the EU has prepared the proposal, which is being discussed at an extraordinary meeting of senior officials in Brussels. Separately, several European finance ministers and senior EU officials will meet again in Berlin to try to make further headway on a compromise for rules to wind down stricken banks.

Sealing a deal will allow Germany’s Chancellor Angela Merkel, who wants to see more centralised powers in the eurozone, and her peers to declare an important overhaul of banking, although Germany and some other countries want to retain their own high degree of supervision over the smaller banks which are deemed to pose less systemic risk.

Analysts and even some European Union officials warn that the elaborate construction isn’t ‘European’ enough to work and is still too dependent on the national governments.

European Central Bank president Mario Draghi warned that the current rules under discussion to wind-down banks are “overly complex” while financing arrangements “may not be adequate”.

Throughout the talks, Germany and other rich eurozone countries such as Finland made it clear that they didn’t want their taxpayers to pay for problems that had developed in other countries’ banks in the past. They argued that if the resolution funds prove too small to deal with a big bank’s failure, taxpayers in the lender’s home country should pick up the bill.

Draghi said: “I am concerned that decision-making may become overly complex, and financing arrangements may not be adequate. We should not create a Single Resolution Mechanism that is single in name only.”

Irish minister for finance, Michael Noonan also cautioned against creating a mechanism that was “overly-cumbersome”. He added: “One would want to be able to resolve a bank over a weekend, as the maximum time span, so anything that’s too cumbersome with various layers to it, I don’t think would be effective.”

The agreement is extremely complex and would see the resolution fund paid for by the banks themselves which would gradually merge into the single resolution fund over the next decade.

It would also see a new European ‘resolution authority’ being created, which would decide when and how banks would be bailed out or even closed.

Leaders are hopeful of finalising a deal before the new bank ‘stress tests’ begin next year which are expected to reveal that some are overexposed and in need of new injections of capital.

All the national funds for closing down banks would be merged into one ‘Single Resolution Fund’ for the eurozone after 10 years. From

Wealth & Finance | December 2013 |

Markets Matters | ICBC offers dim sum bonds to London

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ICBC offers dim sum bonds to London Industrial & Commercial Bank of China Ltd (ICBC) has become the first Chinese bank to offer a yuan-denominated dim sum bond issuance in London.

ICBC was advised by Herbert Smith Freehills on the RMB2 billion (US$328.5 million) issuance, which is only the second-ever yuan-denominated dim sum bonds issuance to be offered in London.

ICBC, China’s largest lender by assets, offered the bonds in two tranches—one for 1.3 billion yuan, with a three-year maturity and a 3.35 percent coupon, and the other at 700 million yuan with a five-year maturity and a 3.75 percent coupon.

Proceeds from the offering will be primarily used to boost offshore yuan-denominated loans for ICBC. ICBC London, ICBC (Asia), ICBC International, the Royal Bank of Scotland, JP Morgan and Standard Chartered Bank (Hong Kong) Limited were the underwriters on the issue.

The Herbert Smith Freehills team on ICBC’s latest bond issue was led by Hong Kong partner Kevin Roy and Beijing partner Tom Chau, who were supported by counsel Zhong Wang, and associates Isaac Chen, Shell Chen and Stanley Xie. Herbert Smith Freehills has advised ICBC on several of its business transactions in recent years.

The firm most recently represented the overseas investment arm of ICBC—ICBC International Investment Management Limited—on its US$50 million acquisition of a 6% stake in SCP Company Limited, a Chinese shopping mall operator.

Late last year, the firm also advised ICBC on the issuance of its RMB1 billion (US$164.3 million) three-year fixed-rate bonds due 2015, the first overseas RMB bond issuance for ICBC.

| Wealth & Finance | December 2013

Venture Capital Trust virgins | Markets Matters

19 Research by Albion Ventures reveals that more than one in six (16%) people investing in a venture capital trust (VCT) this tax year will be doing so for the first time.

A further 11% of advisers believed their clients would be investing in VCTs as a means of improving their portfolio diversification while 10% attributed rising VCT popularity to the fact that independent financial advisors have become increasingly familiar with the sector.

Venture Capital Trusts appeal to first-time investors

Patrick Reeve, managing partner of Albion Ventures said: “VCTs are set to attract many new investors this tax year and this is underlined by our own experience as we’re seeing interest from an increasingly wide range of potential investors, from young professionals to the comfortably retired. The findings also suggest that advisers have become more familiar with VCTs, possibly as a result of RDR, and as a result feel confident recommending them to suitable clients.”

He added: “Ultimately it’s been a combination of low returns on savings products and the reduction in the pension lifetime allowance that have acted as a catalyst for VCTs, which have a proven ability to deliver a reliable income stream and act as a tax efficient retirement supplement.”

The research also revealed: • 31% of advisers predict increased levels of interest among their clients in VCTs this tax year compared to just 3% who forecast a fall in support • the top three reasons why their clients are backing VCTs are: their ability to generate tax free dividends (20%); they have maximised their ISA contributions (20%); and the new limits on pension contributions, which will see the total amount that savers can keep in their pension reduced from £1.5m to £1.25m (16%) The research follows the launch of Albion VCTs top up offers, which are seeking to raise up to £15 million across its six venture capital trusts.

The offers are targeting a monthly tax-free income of 5% (should investors choose to invest equally across all offers), equivalent to 7.1% on the net cost of investment after up-front tax relief at 30%.

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

Wealth & Finance | December 2013 |

Markets Matters | Panoramic predictions

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Panoramic predictions for 2014 Stephen Campbell, Partner of Panoramic Growth Equity, gives his predictions on the growth capital market in 2014

| Wealth & Finance | December 2013

Panoramic predictions | Markets Matters

21 What’s in store for the UK growth capital market in 2014?

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

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

The general election is set for the first half of 2015. Will this have an impact on the market next year? What factors might influence activity?

“The build-up to the general election will affect our industry because it is likely to prompt closer scrutiny of investment practices - that may result in pressure for further regulation and oversight of the finance sector. For example, the current focus, quite rightly, on some banks’ treatment of SME customers is bound to lead for more calls for responsible investment practices.

“In the short term, the Scottish independence referendum will result in some background noise but so far we have not seen any anxiety or concerns from either our portfolio companies or our investors. As a panUK investor, we do not expect the referendum to have any effect on our business.”

Where will the opportunities lie?

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

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

Do you see a trend for any particular kind/structure of deal – eg MBIs and why?

“MBIs have become viable once again after being completely out of favour.

Debt funding has finally become available once more and we have seen a number of good backable candidates who are looking for businesses to buy.

“The growing understanding of the potential benefits of the UK’s Patent Box Regime, which offers very valuable tax concessions, will increase foreign interest in buying UK companies.”

Tell us about the mindset of UK entrepreneurs – what are they most concerned about?

“The UK’s entrepreneurs continue to be cautious about diluting their own equity, but as opportunities that require capital present themselves, they generally have to make a judgement – do they avoid dilution and miss out on the opportunity or accept the investment and hope that the opportunity means they end up with a smaller stake in a much bigger business? As economic confidence grows this decision becomes easier.”

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

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

What would you call on government to do to support investment into SMEs? “Easing the administrative burden on SMEs is of paramount importance: for example, by making it easier to hire staff, or even incentivising companies to do this, the government would create a significant economic boost.”

What’s in store for your portfolio companies in 2014?

“We are very excited about the opportunities that 2014 holds. We have two portfolio companies very likely to exit in 2014 at impressive multiples.

The demand for our brand of responsible, involved SME equity financing will only grow in the months ahead as companies start thinking again about growth opportunities. We see an environment where companies are looking to thrive, rather than simply to survive as has been the prevailing mood over the last few years.”

“MBOs are on the increase as rising house prices have given managers the means with which they can contemplate buying a stake in their businesses.

We expect this trend to accelerate as larger companies look to divest noncore activities.”

What will the fundraising environment be like?

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

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

What about the exit environment?

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

All of this points to a great market for exits in the coming year.

“As the economy comes out of recession, companies start overtrading. That’s where we see our opportunities lying – in good businesses that can’t service the rising demand for their goods and services with their present capital structure. In particular, we can step in where the banks won’t help.”

Wealth & Finance | December 2013 |

Regulation Review | Moody’s: stable outlook despite regulatory changes

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Moody’s: stable outlook despite regulatory changes

Moody’s outlooks for the money market fund (MMF) sector and asset manager sector are stable, says Moody’s Investors Service in its two new industry outlooks for 2014, although MMFs face wide-ranging regulatory changes.

Finally, merger and acquisition activity is likely to continue in the next 12 to 18 months, says Moody’s, as bank capitalization regulations and regulatory compliance costs continue to motivate asset sales and business divestitures.

The reports ‘2014 Outlook: Global Asset Managers’ and ‘2014 Outlook: Money Market Funds’ are available to Moody’s research subscribers at www.moodys.com

The likely finalization of regulatory reforms in the coming year will be a key issue for money market funds, says the rating agency. Proposed regulatory changes in the US include a controversial requirement that non-government MMFs float their net asset values (NAVs) – instead of being traded at a constant dollar price.

Moody’s expects that improving macroeconomic stability will support markets and boost investor confidence, which together will stimulate growth of assets under management (AUM). Any market volatility arising from the Fed’s anticipated tapering of its bond purchases should be short-term in nature, and accommodative policies are likely to remain in place through 2014.

“Investor anticipation of rising rates has already caused some mutual fund flows to move to equity from fixed income products,” says Yaron Ernst, managing director of Moody’s Managed Investments Group.

“The industry’s increasing equity asset allocation should boost revenues and further improve leverage metrics in 2014, but will be partially offset by regulatory changes that may weigh on managers’ profitability,” added Ernst. These include proposed constraints on distribution and compensation payments, and potential new rules that impose capital and liquidity adequacy requirements.

Moody’s also expects that the rising use of cheap passive ‘beta’ products, including index funds and ETFs, will prompt traditional asset managers to develop products that deliver attractive risk-adjusted returns at a reasonable cost.

| Wealth & Finance | December 2013

The large institutional investor base in the US is largely opposed to the proposed reforms and has indicated that MMF use would decline if any reform proposals are enacted. But Moody’s expects that larger MMF providers would offer government MMFs or alternative products, mitigating the loss of prime CNAV business.

In Europe, regulatory initiatives mean that new internal controls and policies – covering payments, capital, and liquidity requirements – will weigh on MMF profitability, as costs of complying with new regulations mount.

In addition, the persistent low interest rate environment will continue to pressure fund yields and dampen MMF managers’ profitability. Fund managers will continue to focus simultaneously on both the low and high ends of the credit and maturity range, resulting in greater pressure on MMFs’ credit and stability profiles, says Moody’s.

As a result, Moody’s expects that MMF industry consolidation will accelerate in 2014, as more small- to medium-size players exit the market. The new credit and operational requirements will put further pressure on MMF managers’ cost structures, and strengthen the advantages of large players with more scale.

RDR – one year on | Regulation Review

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RDR – one year on: the verdict As the Retail Distribution Review (RDR) approaches its first anniversary a new study by Investec Wealth & Investment reveals that 43% of intermediaries believe that the new regime has improved the quality of advice they provide to clients with just 5% saying it has had a negative effect.

Despite many misgivings ahead of the introduction of RDR, one year on the majority (59%) of advisers believe that it has ‘improved’ or ‘significantly improved’ their levels of knowledge about the investment sector.

However, when asked to rank the biggest challenges RDR has had on their businesses, advisers cited the costs they have incurred and maintaining levels of profitability. In third place was the cost of professional indemnity insurance, followed by the transition from a commission to a fee-based approach. Despite the concerns expressed by many in the run up about passing QCF Level 4, this was ranked the fifth biggest challenge.

IW&I’s research also underlines the role RDR has played in the continued growth in popularity of partnering Discretionary Fund Managers (DFMs): one in four (23%) have already increased or plan to increase the number of client portfolios outsourced to DFMs compared to just 3% who plan to reduce the number. Furthermore, over half (53%) of respondents believe that increasing numbers of advisers are now outsourcing to DFMs and over a third (37%) think that bespoke portfolio options are most commonly selected compared to 24% who favour other models.

Mark Stevens, Head of Intermediary Services, Investec Wealth & Investment, said: “This research strongly indicates that advisers are positive about the impact RDR has had on the industry; many are now better qualified, more knowledgeable and their clients have benefited as a result.

“One year on, the overriding challenge posed by RDR has been the financial costs involved with transforming their business models and the impact this had had on their profitability. This has translated into consolidating and in some cases reducing client bases in favour of driving profitability. We expect that over 2014 the focus will shift back to growing their businesses.”

Wealth & Finance | December 2013 |

Regulation Review | What are governments doing to promote investment?

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What are governments doing to promote investment?

Carmignac Gestion’s Didier Saint Georges considers whether government action plans are helping or hindering investors – and comes to the conclusion that the picture is mixed.

| Wealth & Finance | December 2013

What are governments doing to promote investment? | Regulation Review

25 President Xi Jinping in China and Prime Minister Shinzo Abe in Japan both acted resolutely with regard to their countries’ respective destinies, setting out particularly bold action plans. Conversely, in the USA the Executive’s capacity to act is still being hampered by the recurring threat of congressional gridlock, while in France, the eurozone’s second largest economy, the fiasco of the government’s economic measures is all too apparent.

The US economy has the advantage of access to cheap energy derived from shale oil and gas. However, as in the eurozone, the economy will nonetheless have to rely on the global economic cycle to generate profits for its companies. The eurozone continues to waver between austerity and growth policies, political integration and sovereignty, and will only undertake its first serious review of the state of its banking sector in 2014, four years after the crisis erupted.

Conditions in China, Japan and shortly, we believe, in Mexico, are ripe for the implementation of reforms that will bring about economic growth over a lasting, medium-to-long term trend. It is on precisely this type of powerful trend that major long-term investment decisions are based.

In China last month, barely one year into his term as head of state, Premier Xi Jinping presented a programme of structural reforms that will be decisive for the coming decade. His aim is nothing less than to divert the sources of the country’s economic growth from a model that was, although imperfect, adequate until 2008 (with growth based primarily on exports to developed countries), to a model in which domestic consumption will have to play a far greater part.

The granting of land ownership rights to farmers, the gradual ending of social and financial discrimination against migrants (Hukou status), the deregulation of capital markets, the review of local government budget management, the gradual submission of state-owned companies to free market principles, and the gradual opening up of economic sectors to foreign investment are all part of this holistic approach to improving the governance of the country and taking it forward to lasting prosperity.

In China, we must pay particular attention to how the authorities manage the trade-off between maintaining short-term economic growth and pushing through structural reforms. In Japan, we must look out for the Diet voting through the necessary legislative changes and ensure that greater monetary support remains a viable option, in the event that the two next ‘arrows’ are slow to materialise. But the conditions and, above all, the political will are in place, just as they are in Mexico. Xi is clearly a strong leader who has rapidly grasped the reins of executive power and has demonstrated his determination to face the conservatism of entrenched interest groups head on.

Abe enjoys a broad popular support base, convinced of the efforts required if Japan is to regain its past prestige. Pena Nieto enjoys considerable political capital in Mexico and has grasped the historical opportunity of pegging his reforms to the US energy revival.

In India, we will know in six months’ time whether Narendra Modi, currently chief minister of the State of Gujarat, has won the general election.

Backed by Raghuran Rajan, the remarkable new governor of the central bank, he may in turn light the flame of the far-reaching reforms that India needs so badly.

Ten years down the line, Gerhard Schröder’s renowned Agenda 2010 reforms, launched in 2003, are startling evidence for Europe of the virtues of bold reforms. Unfortunately, this example has so far failed to inspire the spread of similar changes in the region, with the exception of Spain, to a certain extent, and certainly not in France.

In a global investment strategy, these projects constitute a source of longterm performance that perfectly complements positions taken on the economic cycle. Thus, in addition to our positions on stocks that stand to gain from the eurozone’s emergence from recession and the US manufacturing recovery, we are steadfastly invested in these long trends.

In Japan, the famous ‘third arrow’ of Shinzo Abe’s economic plan consists in carrying the monetary and fiscal policies already embarked upon through to completion to stimulate growth through structural reforms.

There also, the goals are very ambitious: helping the private sector to shed long-standing regulatory shackles (healthcare, energy), promoting investment and industrial tie-ups, encouraging women into the workplace, making employment regulation more flexible, encouraging innovation, and signing large-scale international free trade agreements.

Mexico is another example of the long view. The Mexican economy’s low productivity (for example, turnover per employee at Pemex is one of the world’s lowest for oil companies) is now the target of a programme of far-reaching reforms tabled by new President Enrique Pena Nieto. These consist of relaxing job market regulations, boosting non-oil revenues and encouraging competition in strategic sectors such as energy, banking and telecoms.

Any structural reform is by nature 1) complex, and therefore hard to sell to the public, 2) arduous, as it targets what are often well-entrenched interest groups and 3) suspect, as it involves looking into the future.

It is therefore understandable that such reforms are usually met with profound scepticism on the part of investors. It is true that these bold scenarios could be derailed. And even at the best of times, the long march of structural reforms rarely advances at a steady pace. It is therefore imperative that we follow the progress of their implementation closely.

Conditions in China, Japan and shortly, we believe, in Mexico, are ripe for the implementation of reforms that will bring about economic growth over a lasting, medium-to-long term trend. It is on precisely this type of powerful trend that major long-term investment decisions are based.

Wealth & Finance | December 2013 |

Finance Focus | UK: could there be an airport decision soon?

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UK: could there be an airport decision soon?

One hundred and ten years to the day since the era of powered flight began, possible solutions to the UK’s aviation capacity crunch were revealed.

Business leaders have been warning that a decision on airport expansion is required sooner rather than later as the UK struggles to maintain its place as an international transport exchange against emerging major hub airports.

The Airports Commission’s interim report, published earlier this month, notes the historic failure to deliver new airport capacity in the UK and the commission has taken an independent approach to the challenge.

It confirms that a fresh look at the UK’s aviation needs was timely and necessary, setting out how much the global economy, the aviation industry and the domestic and international policy environment has evolved since the government last considered these issues in the 2003 ‘Air transport white paper’.

The commission came up with a package of proposals to ease the capacity squeeze until a new runway can be completed. Sir Howard Davies said: “There are many inefficiencies in the way airspace is managed.” He called upon the Civil Aviation Authority, the air-traffic control firm NATS, and airlines to collaborate to make improvements.

CBI director-general John Cridland said: “There is now overwhelming evidence that direct flights open doors to new trade, but with capacity in the south-east set to run out as early as 2025, we need to see urgent action as soon as the Commission’s final recommendation is delivered to government in summer 2015. It is no longer acceptable to bury our heads in the sand on this.”

He added: “The Airport Commission’s interim report details the vital upgrades we need to ensure we are making the best of our existing international gateways up and down the country.”

The interim review concludes there is a need for one additional new runway to be operational in the south east by 2030. Analysis also indicates the likely demand for a second additional runway to be operational by 2050.

Two options for 2030 are a full-length new 3500m runway to the northwest of the existing pair at Heathrow, and a second at Gatwick to the south of the main runway. The third option was the proposal to extend Heathrow’s existing northerly runway westwards to at least 6,000m, across the M25, allowing take-offs and landings from the same runway at the same time.

More than 50 other schemes were rejected, including expansion at Stansted. However, the commission said there is likely to be a case for considering them as potential options for 2050.

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None of the Thames Estuary options were shortlisted due to there being too many uncertainties and challenges surrounding them at this stage.

The commission will undertake a further study of the Isle of Grain option in the first half of 2014 and will reach a view later next year on whether that option offers a credible proposal for consideration alongside the other short-listed options.

Commenting on recommendations, Mr Cridland said: “We need a longterm, strategic vision for our airport infrastructure so the Commission’s consideration of options for additional capacity not only to 2030 but as far ahead as 2050 is very encouraging.”

He added: “The report provides a credible and sustainable list of options for additional runway capacity, while recognising that investment should not be limited to either additional hub or point-to-point capacity. We need both.”

The report was welcomed by leading aviation figures. Sir Richard Branson, president of Virgin Atlantic, praised the shortlist of Heathrow and Gatwick, saying “These options are the ones that make the most economic sense for the UK. We have deliberated for far too long and not built a new runway for almost 70 years. Now is the time to speed up this important decision and not to get stuck in debate again.”

Looking further ahead, Sir Howard said it was likely that there would be a “demand case” for a second additional runway by 2050 and in the final report the Commission will set out its recommendations on the process for decision making on additional capacity beyond 2030.

Sir Howard added: “It’s perfectly possible that you do a Heathrow third runway up to 2030, and then when you look at what’s needed up to 2050 it’s a Gatwick option, or vice-versa. However, a second runway could be built at Stansted or even Birmingham.”

The Commission has also improved how future aviation demand is forecast. It has reviewed the assumptions in the existing model, considered the impact of a carbon constraint to take account of the UK’s current environmental commitments and employed scenario testing to evaluate its key conclusions. It has also considered whether the UK requires additional hub or non-hub capacity and concluded both are a requirement to cater for a range of airline business models.

The next phase of its work will see the Commission undertaking a detailed appraisal of the three options identified before a public consultation in autumn next year and delivery of a robust final recommendation to government in summer 2015.

UK: could there be an airport decision soon? | Finance Focus

27 Immediate action recommendations for improvement: 1. Implement an ‘optimisation strategy’ to improve the operational efficiency of UK airports and airspace, including: • airport collaborative decision making • airspace changes supporting performance-based navigation • enhanced en route traffic management to drive tighter adherence to schedules • time based separation 2. Implement a package of surface transport improvements to make airports with spare capacity more attractive to airlines and passengers, including: • the enhancement of Gatwick Airport Station • further work to develop a strategy for enhancing Gatwick’s road and rail access • work on developing proposals to improve the rail link between London and Stansted • work to provide rail access into Heathrow from the south • the provision of smart ticketing facilities at airport stations 3. Conduct trials at Heathrow of measures to smooth the early morning arrival schedule to minimise stacking and delays and to provide more predictable respite for local people 4. Establish an independent noise authority to provide expert and impartial advice about the noise impact of aviation and to facilitate the delivery of future improvements to airspace operations.

Wealth & Finance | December 2013 |

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

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

The IPO involved an offering of a total of up to 843 million shares at an IPO price of RM2.80. This was split approximately 30:70, with an Offer for Sale of up to 231 million existing shares and a Public Issue of 612 million new shares to the following categories: • 249 million to Bumiputera investors approved by the MITI • 400 million shares to Malaysian institutional and selected investors (other than Bumiputera investors approved by the MITI) and foreign non-US institutional and selected investors • 194.58 million shares to retail investors comprising eligible directors and employees of the UMW Group, persons who have contributed to the success of the UMW-OG Group, entitled shareholders of UMWH and the Malaysian Public.

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

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

| Wealth & Finance | December 2013

“The listing exercise launched simultaneously with execution of the elaborate internal IPO reorganisation exercise. The work on this IPO has been intense. The submission to the relevant authorities on the proposal was made less than two months from the kick-off meeting in relation to the deal and the listing is anticipated to complete within seven months from kick-off.

“Cross-border negotiations involving multiple parties in the various transaction documents to the IPO required delicate consideration in the execution of these agreements. For example:• The retail underwriting agreement involved six different underwriters jointly underwriting the retail offering. The interests of the different parties and the implications of the cross-jurisdictional nature of the transaction had to be considered.

• There were heavy negotiations at the early stages of the deal with more than 30+ non-disclosure agreements executed with potential investors during the cornerstone presentations and road shows. This led to the execution of 21 cornerstone agreements with investors, which included three foreign cornerstone investors - Fullerton Fund Management Company Ltd, JF Asset Management Ltd and FIL Investment Management (Hong Kong) Limited.

• Lock-up arrangements were also put in place with UMWH, UMW-OG the Selling Shareholders and the cornerstone investors to restrict any dealings of UMW-OG shares for a period of 180 days from the date of listing.

• A share lending agreement between CIMB and UMWH was also entered into to undertake the price stabilisation activities for a stabilising period of 30 days from listing.”

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

29 UMW-OG is a Malaysia-based multinational provider of drilling and oilfield services for the upstream sector of the oil and gas industry. UMWOG is responsible for drilling services and oilfield services. In drilling services, UMW-OG is one of the market leaders in provision of offshore drilling services, hydraulic work-over services and related oilfield services including premium connections threading, inspection and repair services for OCTG in Malaysia.

The drilling services business is offered by way of its services through its fleet of offshore drilling rigs and hydraulic workover units (HWUs) which is operated in both Malaysia and other parts of south east Asia, as well as acting as an agent in Malaysia for international companies providing specialised drilling equipment and services.

UMW-OG is the first Malaysian owner of jack-up drilling rigs and the sole Malaysian owner and operator of HWUs, as well as being a PETRONAS-licensed provider of HWU services. The drilling services business offers its services through offshore drilling rigs, which consist of the NAGA series of one semi-submersible drilling rig and three premium jack-up drilling rigs, as well as its fleet of four UP GAIT HWUs. In the oilfield services business, UMW-OG offers Oil Country Tubular Goods (OCTG) threading, inspection and repair services in Malaysia, Thailand, China and Turkmenistan, which includes specialised services for premium threading for premium connections used in high-end and complex and demanding operating conditions.

Wealth & Finance | December 2013 |

Taxing Times | Guernsey signs 50th TIEA and receives praise from OECD

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Guernsey signs 50th TIEA and receives praise from OECD Guernsey has been commended for its leadership on tax transparency and cooperation by the Organisation for Economic Cooperation and Development (OECD) after concluding its 50th bilateral Tax Information Exchange Agreement (TIEA).

In recent weeks Guernsey has concluded bilateral TIEAs with jurisdictions including: Switzerland, one of Guernsey’s finance sector’s key trading partners; Gibraltar and Bermuda, both overseas territories with strong international finance sectors; Hungary and Slovakia, both members of the European Union and the World Trade Organisation; Swaziland and Lesotho, members of the Southern African Development Community and the African Tax Administration Forum.

The latest TIEA to be signed, with Bermuda, marked Guernsey’s 50th in total.

Monica Bhatia, Head of the Secretariat to the OECD’s Global Forum on Transparency and Exchange of Information, welcomed the news of Guernsey’s 50th TIEA signing.

She said: “Guernsey has shown that a small jurisdiction with a clear commitment to transparency and exchange of information and strong engagement with partners can set the pace in developing an extensive network of tax information exchange agreements. This is a very impressive achievement.”

The OECD is the supra-national body which, along with individual jurisdictions such as Guernsey, has driven forward tax transparency

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initiatives over the past decade, particularly since it launched the so-called ‘white list’ of tax transparent and cooperative jurisdictions in 2008.

Pascal Saint-Amans, the OECD’s Head of Global Tax Policy, also welcomed the Island’s leadership.

“Guernsey has been one of the most active jurisdictions promoting transparency in practice.

Guernsey started negotiation of agreements prior to 2009, paving the way for many other jurisdictions. The number of TIEAs signed so far seriously enhances Guernsey’s reputation as a responsible and transparent financial centre, as recognised by the Global Forum peer review,” said Mr Saint-Amans.

The praise from the OECD follows that from UK Prime Minister David Cameron earlier this year for Guernsey’s leadership on tax transparency, as well as his statement that there are no grounds on which to consider Guernsey a tax haven.

Gavin St Pier, Guernsey’s Treasury and Resources Minister, commented: “Guernsey’s long-standing commitment to tax transparency is a central factor in cementing Guernsey’s reputation as a sustainable, stable and good place to do business.

Guernsey signs 50th TIEA and receives praise from OECD | Taxing Times

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Our reputation and our competitiveness as an international finance centre are inextricably linked.

“I am delighted that we have reached this milestone through the hard work of the tax team in Guernsey. However I can assure the international community that we will not simply be resting on our laurels. We want to continue to be ahead of the curve in order to maintain our reputation and our competitiveness.”

Fiona Le Poidevin, Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry, said: “The signing of Guernsey’s 50th TIEA emphasises Guernsey’s continued commitment to information exchange and the meeting of international standards. It puts us significantly ahead of other international finance centres in this regard and demonstrates that the Island is held in high esteem by our trading partners.

“When combined with the knowledge that Guernsey has signed Double Taxation Arrangements (full or partial) with 20 countries, the signing of these agreements is welcomed by those within industry itself. It provides clarity and certainty on matters of taxation, which makes it more attractive to conduct business between Guernsey and other jurisdictions.”

Guernsey started negotiating TIEAs in 2001 and signed its first, with the US, in 2002. The Island’s policy since then has been to demonstrate its commitment to transparency and exchange of tax information by negotiating agreements with as many relevant jurisdictions as possible including OECD, G20 and EU members, as well as other jurisdictions where Guernsey may have a domestic tax interest of its own in obtaining information.

Rob Gray, Guernsey’s Director of Tax, added: “This is an important milestone, but the work goes on, however, as we try to arrange the signature of the 17 further TIEAs and DTAs, which have already been finalised, and complete negotiations on several other agreements we currently still have under discussion.

“The Rich List is not limited to British citizens and it includes individuals and families born overseas but who predominantly work and/or live in Britain.

This excludes some individuals with prominent financial assets in Britain”

“With possible participation in the OECD Multilateral Convention on Mutual Administrative Assistance in Tax Matters and signature and putting into effect FATCA based agreements, similar to the one recently signed with the UK, with the US, and possibly significantly more countries on the horizon, there is little time to reflect on our previous achievements.”

Pascal Saint-Amans, the OECD’s Head of Global Tax Policy, also welcomed the Island’s leadership.

Wealth & Finance | December 2013 |

Taxing Times | Four smart year-end tax moves

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Four smart year-end tax moves Under the new IRS rules, it’s important to calculate your taxes early so you can take steps that may help to lower your bill.

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Four smart year-end tax moves | Taxing Times

33 First, the good news: “This will be one of the easiest tax-planning years in more than a decade because the tax laws are set and we’re no longer dealing with uncertainty,” says Anthony Olmo, director of Tax Services, Merrill Lynch Family Office Services.

He’s referring to the American Taxpayer Relief Act of 2012, which took effect at the beginning of this year and resolved several long-standing questions about federal tax rates and rules. The bad news: almost everyone could see taxes go up.

According to Vinay Navani, a CPA and a shareholder at Wilkin & Guttenplan PC, a public accounting firm in East Brunswick, NJ, that means it’s more important than ever to review your tax projections before the end of the year, while there may still be time to take action. Here are four strategies that could help you lower your bill next April.

1. Lower your income Ordinary income tax rates for those at the top of the income scale have climbed to 39.6%, from 35%. And last January, all taxpayers saw their social security payroll tax rate return to 6.2% after a two-year tax ‘holiday’ during which the rate was 4.2%. These higher rates, along with changes to capital gains tax rates, could increase the potential benefit of basic tax-planning strategies that lower your taxable income.

Probably the most straightforward way to reduce your taxable income this year is to take advantage of 2013’s new contribution limits to tax-advantaged retirement plans. Deductibility limits on such accounts were raised by $500 this year, to $17,500 for employer-sponsored plans such as 401(k) s and to $5,500 for individual retirement accounts (IRAs).

If you’re 50 or older, you can kick in an extra $5,500 to your 401(k) - for a total of $23,000 - and an additional $1,000 ($6,500 total) to your IRA, but bear in mind that the deductibility of contributions to traditional IRAs may be limited or unavailable depending on your income and other circumstances.

3. Look at Your Giving Plans Last year’s generous exemptions for gifts made during your lifetime or from your estate are now permanent, and they’ve been enhanced by annual inflation adjustments. So for 2013, you can pass along $5.25 million tax-free ($10.5 million for couples) in lifetime and estate gifts. Exceeding the maximum estate tax exemption carries a higher cost, with excess gifts taxed as high as 40%, up from 35% in 2012.

The separate annual exclusion from gift taxes rises to $14,000 per donee this year. But be aware that a holiday gift check written in 2013 that’s not deposited until 2014 will count as a 2014 gift.

4. Watch Out for the AMT This year’s tax law permanently applies inflation indexing to the alternative minimum tax (AMT). Under these new rules, the AMT affects primarily those who earn $200,000 or more per year — but, depending on your deductions, the AMT can hit those with incomes much lower than that.

While the flat 28% AMT rate is less than the top rate for taxes computed according to regular tax rules, the AMT excludes several deductions and credits and often results in higher total tax payments. Everyone is required to calculate taxes with and without AMT rules, and to pay the larger bill.

Unfortunately, deciphering the AMT can be extremely complex, Navani warns. And if you are teetering on the brink of triggering the AMT, you’ll want to look carefully at your options. You could, for instance, postpone taking an investment loss or gain until 2014 if that would be to your advantage.

“Now that the tax rates seem to be set for a while, you have an opportunity to look further ahead,” says Olmo, “and make tax-aware investing moves that could help keep your taxes in check.” Talking with your advisor and tax planner or accountant can help you decide on an investing strategy that will help minimize your tax burden while allowing you to stay on track to pursue your goals.

Lowering your income this year by deferring compensation until next year might also be worth looking into, if you can do it. It may seem that postponing 2013 income until 2014 just means that you’ll owe more next year.

But if you’re in a transitional year near your retirement, or if your income varies from year to year, this year’s new, higher rates may make it worthwhile to investigate all the options.

2. Put your investment losses to work For most people, the tax rate on long-term capital gains — for investments you’ve held for more than a year and that you’ve sold at a profit — is holding steady at 15%. But if you earn more than $400,000 ($450,000 for couples filing jointly) your long-term capital gains will now be taxed at 20%.

In addition, if your income exceeds $200,000 ($250,000 for couples filing jointly) you may be subject to a new 3.8% investment-income surcharge that’s added to your regular capital gains tax rate to help fund Medicare.

“So sit down with your advisor to do a careful review of your portfolio,” Olmo says.

If, for instance, you have losing investments, you could sell those and use the losses to offset certain capital gains you may have. You can also use your losses to offset as much as $3,000 in ordinary income — a particular benefit, because your tax rate on ordinary income is likely to be significantly higher than the rate you pay for long-term capital gains.

“This will be one of the easiest tax-planning years in more than a decade because the tax laws are set and we’re no longer dealing with uncertainty,”

Wealth & Finance | December 2013 |

Relax | From Paris, with love

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From Paris, with love Whether you visit in the springtime or not, Paris is a magical destination at any time of the year and research published in 2013 revealed it topped the list of cities people most want to visit.

And if you’re looking for a city break then where better to stay than in a hotel that has some of the city’s most luxurious and spacious rooms and suites and has been designed with a sense of style and luxury that says ‘Paris’?

Fast Facts

The Mandarin Oriental, Paris, is Mandarin Oriental Hotel Group’s first address in France, and is situated in the city’s heart, with the Garnier Opera, Tuileries Gardens and the Louvre all close by. In fact, the site it stands upon was once home to the royal riding school.

• Since the 16th century, the site of Mandarin Oriental, Paris has been a Capuchin monastery, a hippodrome, a theatre (the Cirque Olympique) and even a royal riding school.

• The two wings of the Art Deco building of Mandarin Oriental, Paris are the work of Charles Letrosne, a distinguished Parisian architect of the 1930s who also contributed to World Fairs held in the city.

• Accommodation on the top floor of the hotel may be connected to create the biggest suite in Paris, measuring 1,000 square meters.

• The imposing stone bar in the hotel’s Bar 8 weighs nine tons and was designed by Agence Jouin-Manku. Intricately assembled from stone quarried in Spain, it originally weighed 50 tons and was cut in Italy by craftsmen working round-the-clock for two months.

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Although housed inside an historic Art Deco building, the hotel is modern and comfortable and brings together the foremost international names in architecture and design. The colours used for décor are both relaxing and opulent. In a country renowned for its style who could expect anything less?

From Paris, with love | Relax

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The architect Jean-Michel Wilmotte supervised renovation of the building, its facade and garden, in consultation with landscape design agency Neveux-Rouyer. Sybille de Margerie of SM Design imagined the interior design and decoration of the rooms, suites, spa and public spaces while Agence Jouin-Manku lent its talent to the bar and restaurants.

Highlights of the hotel include the beautiful camellia tree-planted indoor garden, which offers an oasis of peace in the city centre; a choice of two restaurants – one of them the two-Michelin star signature restaurant, Sur Mesure par Thierry Marx – a bar and The Cake Shop, also under executive chef Thierry Marx.

Although there is a lot more to Paris than its reputation for romance, for many the obvious time to visit is Valentine’s Day. The Mandarin Oriental, Paris is offering a special ‘Love in Paris’ package for anyone who wants to visit the city in February.

The ‘Love in Paris’ package includes: • Luxurious accommodation for one night • Breakfast for two in-room or at Camélia • Oriental Essence Treatment or Personalised Facial Treatment for two in a couples’ suite (80 minutes) • Romantic welcome amenity in room of a bottle of Champagne and rose petal arrangement • Upgrade room to room/ suite to suite • Candle gift by “Belle de Nuit” The ‘Love in Paris’ package is available from 1 February to 28 February 2014 and is priced from €1,235 based on two sharing.

Wealth & Finance | December 2013 |

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