Cass magazine #2

CASS magazine Your Business & Lifestyle Guide

Activist Investors: Should Markets Like Them or Not? New Challenges for Hedge Funds Why universities should not hold the buildings?

Hermès: From Zero to Identity The community behind 21st century movie making

N°2 February 2016

CONTENT

MERGERS and ACQUISITION/ 14

M&As are back! What is the seventh M&A wave about?

REAL ESTATE/ 6.7

Why universities should not hold the buildings?

ASSET MANAGEMENT/ 8

A reflection and future of the Asset Management industry

Employee Reward Systems and M&A

EQUITY CAPITAL/ 16.17

How do private companies raise equity capital?

ACTIVIST INVESTING/ 18.19

Technicological innovations in Banking

Activist Investors: Should Markets Like Them … or Not?

HEDGE FUNDS/ 10.11

TRADING/ 20

BANKING SYSTEM/ 9

Hedge Funds: New Era, New Challenges

FINANCIAL MARKETS/ 12.13

Market Liquidity: the causes of changing market dynamics

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HUMAN RESOURCES and MERGERS AND ACQUISITION/ 15

At a glance. How the world prepared for a rate rise by the “World’s Bank”

STOCKS/ 20

Giants on the rise

CONTENT CHARITY FINANCE / 21

A big conversation about charity finance models and social investment

PHARMA MARKET/ 24

Pharmaceutical industry: recent trends and investment ideas

POLITICS/ 25.26.27

The Politcal leader: Interview with the UKIP MEP Gerard Batten

ECONOMY/ 28.29

China Hard Landing: What has happened, policy response, and challenges going forward

TO KEEP IN MIND/ 30

Securing a Graduate / Intern position at an Investment Bank, Hedge Fund or Asset Manager

CENTRAL BANK POLICY/ 31.32.33 The Great Rate Debate

FASHION/ 34

Hermès. From Zero to Identity: How passion and brand strategy can make a difference for an entrepreneur

THE MOVIE INDUSTRY/ 35

Independent and crowdfunded: The community behind 21st century movie making

LIFESTYLE/ 36.37

A weekend in London

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REAL ESTATE Why universities should not hold the buildings?

By Sergei Markovskii

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Open couple of brochures about our university, and you will see a punchline “Study business in the heart of City”. Cass Business School is proud that students are located right in the centre of the world top financial centre. But let us think how much it costs to occupy a building in prime location. Real estate is accountable for 20% of the Balance Sheet, which makes it crucial to consider such costs. There are two ways to occupy the building: buy or lease it. Operating lease is an off-balance sheet liability, and corporates prefer to reduce the cost of capital by optimising their balance sheets. Why is it relevant for non-profit businesses?

Let us consider a case of sale & leaseback of 106 Bunhill Row. The model is constructed as the deal would be pitched for the potential buyer, and calculates investor’s Internal Rate of Return and Equity Multiple.

The prime rent in City of London in Q3 2015 was £67.5 per square feet per year. Since the building had no capital expenditure in past 15 years, we assume reduction from prime by 20%, also allowing premium/discount for the floor level. In practice RICS accredited surveyors value the buildings, accounting for every unique feature.

Sale and leaseback is an artificial transaction, when the occupier of the building remains the same, however the landlord title is transferred to an investor. It has two important implications discussed further. First, it is a common practice to give incentives for the tenant such as rent-free period, so that he will

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choose that building over the available market stock. Second, the building needs to be reconstructed to suit purposes of the new tenant, and during this period site does not generate cash flows, this period is called void. Rent-free period as well as void represent investor’s costs, and they are transferred on the seller (Cass) in a form of price reduction. However, since the lease starts straight after the transaction completion with no void, it is zero, same applies to rent-free, which cancels each other with price decrease. Although, rent review period is 5 years, according to current rental value growth forecast, it will not change, because at break clause tenant might leave, and the landlord will have to give incentives described above again.

Table 1 shows what investor would get without leverage, taking a loan; and after subtracting asset management fees. The IRR of 7.1% corresponds well with “Core +” real estate style, meaning that this deal is competitive and realistic to be implemented.

Whereas core real estate would invest into most liquid, most developed and least leveraged properties for long-term rental income, this office is a secondary asset, and investor also puts in debt amounting to 60% of the purchase price and disposes it at the end of the lease.

REAL ESTATE The transaction will have several impacts on university accounts: converts illiquid asset - building into cash, creates a liability of rent, and causes monthly expenses of the amount equal to the rent. The lump sum can be used to start Cass or enlarge City’s endowment, so the main issue is to service the rent payments, preferably out of profits, growing the funds. It implies that part of the investment must be available at short notice.

In real estate: yield is net operating income/capital value. As a result of continuing QE, rates are expected to rise, which will drive yields up for quite a while. Higher yield together with falling rental value growth, caused by the office development pipeline (buildings to be completed) for 2018 and 2019. On the other hand, it brings rising returns for college endowment if, for example, invested in corporate bonds, because investors will continue to seek premium over higher risk-free rate.

Chart 2 represents the annual returns of the endowments with such structured portfolios. For the access to cash, part should be invested into liquid securities, typically the least risky asset - government treasuries, to seek for higher returns the choice might be such as shares of index ETFs, which have lower fees; or REITs, which are tax exempt. For this case GBP denominated investments would be preferred not to be exposed to FX risks. For the modelling purposes, we use investment grade mortgage backed bond, and the rationale is that its risk is similar to the building.

Table 2 provides summary of endowment forecast performance based on 10 Year history. It worth to point out that there is no free float in the long run, and such high returns are just representation of higher risk profile. There is one limitation to such deals, if the building is a strategic asset, which becomes a face of the university, such as College Building of City University, it should be kept, to ensure long-run presence.

Chart 1 shows the allocation of the funds of the endowments as at 2014, however limited in assets funds are not able to reach such diversification, especially considering illiquidity and lock-up periods. Such teams as J.P.Morgan Endowments and Foundations Group provide advice on the portfolio structure to ensure operating liquidity. Since Cass Business School has expertise in private equity, real estate and venture capital, running a ÂŁ10 million fund, it is possible to outperform other endowments, saving on fees.

Note: Forecast at the end of 20 year period

To sum up, the built up of ÂŁ153 million endowment fund will give a great start for the university to follow the US colleges $400 billion example. Asset management is so important for non-profit, because the proceeds are distributed to sponsor scholarships, develop facilities and hire professors.

The full model is available at https://yadi.sk/i/gcDohtuIoCR2M

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ASSET MANAGEMENT A reflection and future of the Asset Management industry

By Yathavan Thanapalan

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With interest rates at record lows for a record time the search for higher returns through assets is greater than ever. Since 2009, at the peak of the recession, the FTSE 100 has increased by 45%.

This increase has been fuelled by a great number of managers moving from low yielding fixed income, due to QE and low central bank interest rates, to the more profitable equities markets.

This has led reductions in many fixed income divisions across banks whilst asset and wealth management continues to be a growing industry with many notable banks such as Credit Suisse and UBS focusing on them as their core activities.

With asset managers seeking higher growth, 40% in the developed countries believe the most important area will be the SAAAME region. With the industry expanding to all corners of the globe, it has consequently become more complex and the costs of distribution networks have increased. Commercial costs such as investment in technology has been one of the significant rising costs.

A combination of increasing competition and falling confidence in active management has created falling margins across the industry, whilst, investors grow more confident of passive

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Source: UnSplash

investing and index funds. In the long term assets under passive management is set to increase to ÂŁ20.3 billion, the biggest growth of all products (PWC). Another new product, made famous by Blackrock, is factor investing which is a mix of both active and passive management. This is one area to look out for in the coming years.

Currently there is growing convergence between the long only and hedge fund managers. Each once had their own unique clientele, however, now they are competing for the same funds from high net worth and retail investors. It is no longer surprising to find long only managers using hedge fund techniques to complement their investment strategies.

Most importantly, however, the impact of technology will become greater on the industry. Application of data technology regarding customers and their preferences will be a few of the additional skills needed by future managers. Improved transparency and communication between investment manager and shareholders will be a must to remain in the industry. Most notably, the longer term competition will come from technology firms as they capitalise on their vast access to consumers around the world. For example, Ali Baba recently bought an asset management firm so that customers can invest in the fund instead of holding money in their accounts. How long would it be before the likes of Facebook and Amazon try the same?

BANKING SYSTEM Technological innovations in Banking

By Marine Le Lay

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Five years after the subprime crisis, we can still feel its aftermath as the banks try to recover to what they used to be.

The emerging trends such as digital technology, the evolution of customer inclinations or the accommodative monetary policy from the central banks constitute another barrier to come back to older profit habits.

According to Accenture, the banks could lose 35% of their market share and even the big banks are concerned: JPMorgan Chase return on equity going down from 25-30% before 2008 to 10.2% as at December 2015.

Source: Unsplash

This blip has been analysed in different ways in order to understand if the banking sector still has a future.

For some of them, those bad days were triggered by an excessive regulation of the monetary policies (hold more capital and liquid assets) as the policy makers are looking to protect their own country first, restricting the flow of capital worldwide.

For others it can be associated with a healthy return compared to an exceptional pre-crisis boom. Indeed, in the 90’s the banks used to cover as much services as possible, even the ones they were not good at. A lot of economists see it as an anomaly of the system as banks were not able to do so. They are now trying to go back to basics and to focus on their core activities. For example, UBS started focusing on its strengths by cutting half of its assets since 2007.

But we all agree on the danger banks are facing and the absolute necessity to innovate in order to face competition. The emergence of FinTech start-ups that revolutionise our traditional way of doing business is taking more importance than ever and are a matter of interest for all the enterprises across the borders.

As an example, The Lending Club offers a Peer to peer (P2P) platform that match lenders with borrowers and can progressively replace banking role by creating substitute of banking functions. Other examples are companies such as PayPal in payment or Robo-advisers in asset management.

FinTech start-ups are booming and shaking-up the traditional banking ecosystem. Its importance has considerably grown over

the past years; an Accenture report indicates that global investment goes from $930 million in 2008 to over $12 billion in 2015.

Entrepreneurs find a real incentive as they are cheaper to set up and to expand because of low operative costs.

The customers are changing while an “always online” culture has evolved and people want to check their investment portfolios as easily as they upload a new picture on Instagram. That is why FinTech start-ups are helping to turn a phone into a real point of sale by offering to businesses the chance to complete transactions as large financial institutions.

Thus, it is imperative for the banks to change, evolve, choose the posture they will adopt and focus on it. It is obviously easier to say than to do, according PwC 61% of bankers consider a customer-centric business model important, but less than 20% are prepared for it.

Can we say that it is the slow death of banking? It seems more like an evolution of the way of payments, but people will always rely and be more comfortable with trusted advisors. The banks will advance as well by developing new products. According to Morgan Stanley, their most valuable asset is their “client first” policy that has always permitted banks to reach the top and this shift to customer driven is more than ever a necessity for all banks.

The consultancy firm Accenture even see a land of opportunities for the future and the level of return on equity going from 11% to 18-25% in 2020.

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HEDGE FUNDS Hedge Funds: New Era, New Challenges

By Polina Bolkhovitinova

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In this article I would like to discuss a fairly recent invention in the world of investments – hedge funds: their nature, performance and transformation.

The first hedge fund was launched in 1949 by A.W. Jones and four other partners with the capital of US$100,000 (the relative value in 2016 is approximately US$993,000), remarkably enough, now the hedge fund industry has reached over US$2.5 trillion in assets under management with more than 11,200 funds as can be seen from the map below.

Much of the recent growth is attributed to excellent performance-based gains which account for more than 50% of the rise in assets. Among regional mandates, North American and European focused funds have seen substantial asset growth. Regarding returns, according to Eurekahedge 2015 studies, hedge funds within Asia region (excluding Japan) have generated the largest year-todate return in 2015, being equal to almost 9.5%, comparing to other regions. However, in the course of 2015, the greatest losses for hedge funds occurred in August when the Chinese renminbi has faced its strongest devaluation in almost three years. This has happened as hedge funds have kept the Chinese Yuan in its long books and have not made a bet regarding its devaluation and a fall in Chinese Purchasing Managers’ Index. Meanwhile, rate cuts by the Chinese central bankers fuelled a bull run in the Chinese stock market, registering gains for hedge funds with Greater China exposure.

However, compared to other asset classes (e.g. equities) hedge funds only partially captured the strong market rally, suggesting that, on average, managers are still running low net exposures, i.e. the difference between long and short positions, and are generally defensively positioned.

Hedge Funds Outlook Profound transformations, new strategies, substantial regulations...

These are the words that have been used for describing the hedge fund industry in the past years. Since the financial crisis, excluding the Euro crisis period, hedge funds returns have fall below traditio-

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nal assets until 2014. This stands in contrast with the outstanding hedge funds’ track record achieved over recent decades.

In 2015, hedge funds have had a flat year, however, they continue to provide an attractive source of return, and also help stabilise portfolios in volatile time, especially during the period of strengthening regulations and Fed rate lift-off. As a result, the key drivers of returns are volatility, correlation and dispersion regimes that have also been affected by unprecedented monetary policies and tighter regulations. This has led to renewed discussion among investors about the role of hedge funds within a multi-asset class portfolio.

It is worth noticing that the fall in bond yields in the wake of the Fed’s QE programme has contributed towards worsening hedge funds’ performance. Additionally, the equity beta, i.e. systematic risk, has fallen while stocks rallied and alpha generation, i.e. the abnormal rate of return on investment, has shrunk as a result of the low volatility and a low dispersion environment.

According to Eurekahedge, it is estimated that, on average, hedge funds could deliver annual excess returns in the 5-6% range with low volatility. Therefore, diversifying portfolios with an increased allocation to alternatives is particularly attractive at this point in the cycle as hedge funds have demonstrated their ability to protect portfolios against wide market fluctuations. Although, as have been mentioned earlier, hedge funds had underperformed, however, on a risk-adjusted basis they overperform global equities due to their stability in the long run. The key point is when volatility rises, hedge funds outperform equity markets.

While the average hedge fund returned 4.46% during the course of 2014, Eurekahedge data shows that the top 10, 50 and 100 best performing hedge funds gained 128%, 65% and 48% on average over the same period.

Its interesting to their 2015 counterparts with the best 10 hedge funds in 2014 outperforming the best 10 hedge funds in 2015 by roughly 70%. As can be seen from Chart 1, the three year annualised period has the effect of smoothing out returns, resulting in less extreme returns and more gradual performance decline between top funds.

HEDGE FUNDS Funds Fees Hedge funds continue to raise money year after year with global AuM now reaching US$3 trillion, but fees have been trending downward. It is often claimed that hedge fund fees are high, but the more interesting question is: are they worth it?

As with traditional funds, hedge funds charge a management fee (2% used to be the industry’s mode, however, now it varies across the funds). Generally, fees are higher the more active a fund is managed. Additionally, most hedge funds charge a performance fee, often following the ‘high watermark principle’. This performance fee helps to align the interests of investor and hedge fund manager, as hedge fund managers are incentivized to generate desirable results for their investors. As hedge funds also try to minimize losses and add downside protection, fees will also depend on a manager’ skill.

And finally, most hedge fund strategies are capacity constrained and can’t be scaled endlessly. This means that a premium has to be paid for the scarce resource.

The traditional 2 and 20 hedge fund management and performance fee structure has become a relic of the past. In the years prior to the financial crisis, the average performance fees charged by newly set-up hedge funds were above 18% but have since fallen to 14.72% for funds launched in 2015. Funds have been reducing their performance fees in a bid to attract investors as managers continue to struggle with higher compliance and monitoring costs.

So why do hedge funds suit investors with various risk tolerance?

First of all, many hedge fund strategies have no, or only limited, exposure to equities. Also, in terms of volatility, hedge funds are more like bonds than equities. The addition of hedge funds to a traditional portfolio improves its risk profile as hedge fund return drivers are less sensitive to market movements, especially for hedge funds which generate pure alpha.

Hedge funds are a good addition to the portfolio as their true value in an asset allocation emerges in times when markets are less predictable and certain.

As hedge funds are actively managed and target asymmetric returns, they are unique stabilizers in a portfolio. This was also the case in the most recent market correction. From May to September 2015, a broad hedge fund index declined by about 5% while global equities lost about 10% and US high yield bonds lost about 6.5%.

In future, returns should become increasingly difficult to generate and volatility should also increase slightly, making active risk management ever more crucial as long-only investment instruments cannot provide investors with a hedge against downside risks during market cycles.

“Becoming more compliant” Hedge funds have changed in their nature due to institutionalization of the industry. There have been major capital inflows from the institutional investors, pension funds in particular, so that they now represent two-thirds of the hedge fund investor base, up from 20% a decade earlier. Although, this has contributed to better financial stability and reduced leverage ratios, operating costs have increased dramatically to meet demands for greater compliance and transparency and to implement tighter internal controls.

Despite the trend of decreasing hedge fund fees, there is still some value attached to keeping fees high as this places the fund in a ‘premium’ category compared to its peers which charge lower fees.

Not all hedge fund strategies are alike, and any individual strategy could underperform in a particular period. For this reason, diversification of a hedge fund portfolio across various managers and strategies is the best way to achieve stability.

Most hedge funds focus on loss aversion and the generation of market independent returns instead of managing a portfolio against a benchmark or an asset class, like mutual funds do. In short, hedge funds are betting on the skills of their managers to generate «alpha», whereas in the case of traditional funds the performance of an asset class or a market, the so called «beta», heavily influences the success of the strategy.

Therefore, investors create a bespoke hedge fund portfolio by selecting their preferred managers and styles.

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FINANCIAL MARKETS Market Liquidity: the causes of changing market dynamics

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Market dynamics have been changing recently and these changes are not yet well understood. Recent episodes of intense shortterm volatility have highlighted these changes; leading to suggestions that market liquidity is becoming a concern. Potential drivers of these changes include: increased uncertainty, changing economic fundamentals and a changing structure as to how market liquidity has historically been provided.

The current state of play Implied volatility is currently below crisis levels but above ‘normal time’ averages. Long-term interest rate and currency markets are two markets that have seen the biggest pick up in volatility in the past 12 months; both markets are now close to their crisis averages. However, turning back to just 2014, there were discussions surrounding the extremely low levels of volatility in a range of financial markets. Consequently, it is not the increase in implied volatility averages that are the concern for market liquidity purposes; the real concerns surround the recent episodes of extreme volatility and impaired market liquidity. This article focuses on the three clearest examples of these recent episodes.

In late 2014, US Treasury Yields fell by 29 basis points in just over

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Source: Unsplash

an hour – the intra-day range represented nearly eight standard deviations, exceeding the price moves that happened immediately following the collapse of Lehman Brothers – before retracing most of the fall by the end of the day (see chart 1a). On 15 January 2015, the Swiss Franc appreciated by 28% against the euro in just 20 minutes, before ending the day 19% below its intra-day high (see chart 1b0. And finally, in August 2015, equity markets fell precipitously at the start of the week, with declines in China spilling over to a range of developed markets indices. Equity derivative markets showed signs of extreme stress. The VIX index – a measure of 30-day implied volatility in the S&P 500 – recorded the largest two-day increase in its history to a level not seen since November 2008. The implied volatility of the VIX (the VVIX) rose to its highest ever recorded level (see chart 2). Fortunately, in each of these cases there were stabilising forces that meant volatility subsided and liquidity returned relatively quickly.

This therefore makes clear the current state of play for market liquidity. Long run averages do not show the current concerns for market liquidity; the largest concern is in future events of high volatility, they are more persistent and liquidity is not returned as quickly. Additionally, there are concerns that these events become more frequent, moving away from being an anomaly in the market, creating increased turbulence and uncertainty.

FINANCIAL MARKETS this year we have seen the Greek’s go perilously close to leaving the Eurozone and emerging markets growth has slowed down considerably, most notably in China (see page XX). These factors contribute to explaining some of the aforementioned episodes of short term volatility.

The causes of the changes in market liquidity Firstly the changes in market liquidity are reflected by a reversal of prices that have become misaligned with economic fundamentals which have been amplified by ‘crowded trades’ – where a large proportion of assets are held by investors with correlated trading strategies.

The largest driver behind this move has been the implementation of Quantitative Easing policy’s by the largest central banks across the globe. In these policies, the central bank electronically creates new money and uses it to purchase government bonds from private investors such as pension funds and insurance firms (see chart 3). These investors do not typically want to hold on to this money, because it yields a low return. So they tend to use it to purchase other assets, such as corporate bonds and equities. That lowers longer-term borrowing costs and encourages the issuance of new equities and bonds that should stimulate spending. This is often referred to as the portfolio rebalancing channel and shows clearly how ‘crowded trades’ have developed since the crisis. The risk here is the ongoing ‘search for yield’, with investors being more willing to accept higher credit and liquidity risk in order to improve investment returns.

Thirdly, underlying changes in market structure are the third cause of changing market liquidity. Historically, many financial markets have relied on core intermediaries, such as dealers, to provide liquidity through their market-making activities. But, in response to regulation necessary to strengthen their resilience, there is evidence that dealers have become less willing to expand their inventories, which alleviates the prices impact of a large sell-off meaning market liquidity has fallen.

Should we be concerned about market liquidity?

Whilst it is clear that market liquidity has decreased this does not necessarily mean that this is a large risk that we should be concerned about. This article has highlighted the concerns of a change in re-pricing of risk and that it could generate sustained illiquidity in, and the dislocation of, financial markets to the real economy. Additionally, there must be a risk that future shocks could have more persistent and more widespread impacts across financial markets than has been the case in the recent past. But it should be noted that, the correct answer is not always maximal liquidity, we are unlikely to return to this pre-crisis state and should not see this as an aspiration. The correct answer is that investors must be committed to appropriately pricing their risk, avoiding carelessness in the ‘search for yield’ and act with caution in less liquid financial markets.

Secondly, changes in market liquidity have occurred due to increased levels of uncertainty in the macro-economy. There are a multitude of interlinking events that are causing this increase in uncertainty. The continued wait for the rate rise in the US and UK is one strand contributing to uncertainty. Additionally, Source: Unsplash

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M&A Mergers&Acquisition

M&As are back!

What is the seventh M&A wave about?

By Giulio Malberti

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Financially speaking, there is a very little interest in the history of M&A. Nevertheless, it provides a useful basis to understand what to expect and therefore avoid committing the same errors that occurred in the past.

Since the late 1800’s, M&As in each of the six waves have been characterized by some common business growth imperatives, which ranged from horizontal or vertical mergers, to hostile takeovers and mega mergers.

Academics and professionals agree that the six and last M&A waves, started after the 2001 recession and finished with the blast of the economic crisis in 2007, was characterized by the introduction of globalization, as many companies needed to create a multi-national reach. Furthermore, low interest rates and shareholders looking to spread their ownerships between themselves and institutional investors boosted the rise of Private Equity funds.

The cheap-capital and high-liquidity market, according to Camaya Partners, created distortions in target companies’ prices, which ended up to be overvalued. The outbreak of the credit crisis in late 2007 is considered the end of the sixth wave.

Source: KPMG

From 2008 to 2010, M&A activity sank to its lowest levels since 2004, due to the economic downturn. Volumes started to decrease during summer 2007 as the easy credit that fueled deals began to shrink.

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In 2014, optimism seems to be back in the market. In the first half of 2015, the value of M&A activities reached $1.75 trillion, the largest volume since 2007 and an increase of 75% over the same period in 2014, according to Camaya Partners.

Data provider Dealogic expects the value of takeover announcements to reach $4.58 trillion this year, which far exceeds the value of $4.29 trillion in 2007.

According to the Wall Street Journal, Global mergers and acquisitions are on pace this year to hit the highest level on record, as top firms across many industries have strengthened their positions and built up record cash reserves during the crisis, which, if not invested, will make investors demand for larger dividends or cash buy-backs. According to The Economist, these companies are now in a good position to look for consolidating deals, adding product lines and customers, while weaker firms, which have recently resisted to bidders’ offers and whose shares are undervalued by the market, are now pushed by impatient shareholders to accept takeovers.

Furthermore, profits and revenue growth is slowing down and the soaring dollar made it harsher for US companies to compete overseas. As a matter of fact, the S&P 500 is expected to fall by 1% in the second quarter of 2015, after growing by 0,9% in the first quarter of the same year, according to WSJ. S&P 500 firms’ profit grew by 5.5% in 2014, but the trend is slowing down sharply, forcing them to look somewhere else for growing opportunities.

Why can we say that a new wave has begun?

- In the first half of 2015, the value of M&A activities reached $1.75 trillion, the largest volume since 2007 and an increase of 75% over the same period in 2014; - Top firms have strengthened their positions and built up record cash reserves during the crisis; - Profits and revenue growth is slowing and the soaring dollar made it harsher for US companies to compete overseas.

We have indeed entered a new M&A wave: what is it about exactly? Can we name it, as KPMG did, ‘The rise of the BRICS’?

Most assuredly, emerging markets are going to have a growing importance in transactions, especially in raw materials.

Examples are already numerous: Indian companies such as Mahindra and Vedanta announced they were interested in buying stakes in Pininfarina, an Italian car designer, and Cairn Energy’s Indian oilfields, respectively. Chinese Lenovo bought IBM’s personal-computer division and Brazilian 3G Capital announced the merger of the already-owned Kraft Foods Group and H.J. Heinz Holding Corporation.

The appetite for companies in emerging markets for adventures in the old world is surely coming back.

Furthermore, South Africa has been recently accepted as one of the world’s best emerging economies, which will boost investments in the M&A sector in the continent.

M&A Mergers&Acquisition And lastly, what’s the pace at which we can expect the wave to expand, and when will its growth slow down? If history repeats itself, we expect the volume of M&A deals to increase at a pace between 25% and 40% in the first two years. According to The Economist, in the 1990s wave we saw a rise of 25% and 24% in the first two years, respectively, and in the early 2000s wave a rise of 40% and 43%. Will the growing pace of this wave be in line with the last ones’? Which will boost investments in the M&A sector in the continent.

HUMAN RESOURCES in MERGERS&ACQUISITION

Employee Reward Systems and M&A

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By Dr Valeriya Vitkova

HR-related issues can be the primary cause of failure for many M&A deals. In fact a recent study by the M&A Research Centre at Cass Business School which looks at what distinguishes successful from unsuccessful deals shows that HR involvement and key employee retention are among the main drivers of successful M&A deals. In this context, it is critical to determine how performance will be defined, measured and rewarded following the completion of an M&A deal.

Large M&A transactions result in the need to reconcile two (usually) different reward systems and due diligence is one of the first critical steps towards this. As part of our study we conducted interviews with company executives and found that 93% of respondents believed that issues faced by the organisation post-deal could be resolved if HR teams were involved in deals and that an HR component should be included in the deal team as early as the targeting stage.

Understanding how employees were rewarded in the past and defining the objectives of the reward system that the company should have following the acquisition is vital. A key guiding principle throughout this process should be the value proposition

that the company wants to offer to existing and potential employees as this affects the type of people that stay and join the organization. At one end of the spectrum of reward systems are those that offer relatively equal base pay thereby promoting cooperative behaviour and job security. At the other end are systems that offer more varied pay which rewards individual performance and encourages a more competitive environment. Therefore, the type of culture that is to be promoted post M&A needs to be considered. The potential for cultural conflicts should also be evaluated, particularly when geographical borders are crossed.

Our study found that the number one issue cited as a contributor to the failure of a deal was culture – an area that HR would be ideally-placed to judge.

Last but not least, the post-deal reward system should not only be in line with the overall strategic direction of the business but it should also be used as a tool to achieve key strategic goals. Irrespective of the type of reward system that is to be implemented communication to employees is crucial. When people know what is happening, how and why it affects them, they are more willing to accept changes.

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PROFESSORS ANALYSES EQUITY CAPITAL,

BY PROFESSOR MEZIANE LASFER

ACTIVIST INVESTING,

BY PROFESSOR SCOTT MOELLER

How do private companies raise equity capital?

By Professor Meziane Lasfer, Faculty of Finance

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There are currently about 4.89 million UK companies, out of which only about 2,100 (0.04%) firms are quoted, i.e., trading in the stock market. Similar statistics are observed for the US (0.06% out of 6.5m businesses) and more or less across the world. While these quoted companies are usually large and can get funding from their shareholders by having seasoned equity offerings relatively easily, albeit costly, the question as to how all these large number of private firms get funding is still contentious. The purpose of this note is to review the different financing methods they could adopt, the process of obtaining such funding, and the costs and benefits of each source of finance. The topic is so broad that my focus is more on private equity funding, excluding questions relating to debt financing, hybrid securities, such as convertible bonds, pay-in-kind (PIK) debt and preference shares, and the optimal financing method.(1)

Raising Capital through the Firm’s Life Cycle

The financing method any company adopts depends critically on its stage in its life cycle. At a start-up stage, the firm is likely to be very small. its internal funding ability is very limited because it is likely to be loss-making. Thus, its external funding needs are likely to be very high, but it is constrained by its low infrastructure, because external funding usually requires tangible fixed assets to be set as collateral/guarantee. Therefore, a start-up firm is likely to rely on the owners’ capital to supplement its small bank debt financing, and may get funding from ‘business angels’.(2) At this stage, the firm will be growing fast to reach in some few years its rapid expansion stage, where, while its internal funding capacity is still very low and its external funding needs very high, is is likely to be able to attract funding from venture capitalists and it is also likely to come to the stock market in the form of an Initial Public Offering (IPO).

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EQUITY CAPITAL This funding process can easily be illustrated with the case of Amazon.com, a company which is valued on 8 Dec 2015 at $317.51bn. Geoff Bezos created the company by bringing $10,000 and borrowing $44,000 from a bank in 1994. Then, about a year later, his parents gave him $245,000 (lucky man!) and 2 business angels invested $54,000. In the first quarter of 1996, 20 business angels invested $937,000, and in June he managed to raise $8m from 2 venture capitalists. A year later the firm was quoted in the stock market by issuing 3m shares and raising $49.1m. Subsequently, the firm raised public debt (bonds) in the market.

It is obvious that not many companies achieve this tremendous experience as raising capital is complicated and depends on a large number of factors. I will focus below on how to raise finance from Angels and venture capitalists. Nowadays, companies can recur to crowdfunding and can get other sources of equity financing, including corporate venture financing, private equity and public offering. These alternatives share relatively the same following process, even though they have some specificities which may be dealt with in future contributions.

The Process of Raising Capital

In order to obtain equity funding, the entrepreneurs need to “dance” in front in from of potential investors. They do so to attract the equity investors’ interest. They need to describe fully their company, stressing on the product, the competition, the financial performance, particularly the turnover and the profits achieved if the firm was already trading, and the assets and equity and liabilities. They need to stress also their track record, such as their ability to run and to grow companies, and the uses of funds the investors are going to provide. The critical point is the amount of funds required by the entrepreneur and the proportion of shares to be exchanged. For example, the entrepreneur may ask for £50,000 in return for 20% stake. This implies that the company is valued at £250,000. The investor is not likely to agree and may offer £50,000 for 25% stake, valuing the firm at £200,000. In general, they are likely to ask for 40% stake valuing the firm at only £125,000. The big decision for the entrepreneur is whether to accept or reject the offer. If the deal is accepted, the contract will be signed. The investor takes active role through monitoring, advice and contacts. The investor is not likely to provide the full funding at once, but the funds are released progressively depending on the performance of the firm.

DID YOU KNOW ?

...About the writer

Meziane is a Professor of Finance, He teaches Corporate Finance, Financial Analysis, Research project Management and Financial Economics to MBA, MSc and PhD students. In addition, Meziane taught executives in UK and abroad. His outstanding teaching performance led him to win the first Dean’s Prize for Teaching Excellence in 1998, 2003, 2006 and 2008.

The critical question is about the involvement of the investor. In general, the investor is likely to get involved significantly in the running of the firm by sitting on the board and sometimes even end up running the firm. I met two entrepreneurs who had different views on this: one was happy and the investor became a kind of partner. The other had to fight to get rid of the investor and to ensure independence. The question the entrepreneur needs to ask is whether the benefits through the provision of funding and, more importantly advice and contacts, are more important than the costs which include mainly the monitoring and the interference in the strategy and the day to day running of the firm.

For the entrepreneur, it is important to assess these factors at the time of seeking funding and agreeing the contract.

Finally, the investors would like to leave the firm after usually 5 years’ time. The funding they provide is not perpetual. Their aim is to invest in firms to earn high returns which can be realised by bringing the company to the stock market through an IPO or by selling to another investor through trade sales. However, they may generate lower returns through refinancing or liquidation.

Overall, raising capital is critical for undertaking suitably identified investment projects and insuring survival. However, the entrepreneurs need to understand in depth the different sources of finance (debt, equity and hybrid securities). The prerequisite is also to know how, when and why they need to raise capital from private and public sources. The link between their firm’s life cycle and its financing needs and sources is also a requirement.

Given that raising capital is a strategic decision, the entrepreneur should understand fully the costs and benefits of each source of finance.

(1) Debt funding includes start-up loans, bank loans and overdrafts, peer-to-peer lending, asset-based lending, invoice finance, leasing and hire purchase, export finance, trade finance, mezzanine and bonds (which are usually not open to small firms). The note does not deal with the needs of the financing which varies from pre-trading/profit to expansion into new territories. Each of these needs may require specific financing method, but, because of the length constraints, such details are left out.

(2) Business angels are wealthy individuals/successful business people who invest in usually start-ups. One way of understanding these investors is to watch the BBC programme called Dragons’ Den. It is a bit more or less the reality.

Venture capitalists, discussed below, on the other hand, are financial companies which raise funding form big institutional investors or from the stock market if they are quoted, and invest in high growth firms.

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ACTIVIST INVESTING Activist Investors: Should Markets Like Them or Not?

By Professor Scott Moeller, Director of the M&A Research Centre at Cass Business School

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Since 2010 there has been an incredible inflow of capital to hedge funds that focus specifically on activist investing. The aggressive and often hostile actions of activist funds have created negative publicity and an increased focus on the shortened holding period of these investors. But are activists a blessing or a curse?

The M&A Research Centre (MARC) at Cass Business School recently published research that analysed the short- and long-term performance effects of activist campaigns in the United States, Germany, and the United Kingdom. It highlights important patterns in the outcomes of shareholder activism in the United States, Germany, and United Kingdom since the beginning of 2010, when the economies of these countries were emerging from the depths of the financial crisis.

Activism tends to be concentrated largely in the United States, but this report is particularly timely as there has been a move recently for the activist investors to expand their activity into Europe.

One claim is that activism is representative of “short-termism” that has been derided by many CEOs, government officials and proponents of good corporate governance. Data actually shows, however, that declining holding periods for equities is decades in the making and not a recent phenomenon to be blamed on shareholder activism. Despite research touting the benefits of long-term share ownership, the holding period on the NYSE, LSE, and Deutsche Börse has been less than two years for at least the past two decades.

Another criticism of activists is their tactics. In particular, they have come under fire for pressuring companies to use buybacks or special dividends to return cash or otherwise reward shareholders. It is argued that this type of outcome fails to consider the ramifications of the lack of capital investment and the impact this will eventually have on future growth. William Lazonick, the economist, has studied that special dividends and share buybacks can also result in artificially boosted share prices and stock-based compensation for executives.(1) The solution to these perceived problems is hard to determine and there have been a number of reports written on the topic, most focussed on the US. Frequent critic of short-termism, Harvard Business Review in its report “Focusing Capital on the Long Term”, puts the challenge to institutional investors to be good corporate stewards and make sure strategy is aligned for the long-term.(2) However, as pointed out in its Activist Insight, some of the largest, most powerful institutional investors are increasingly backing activists in their campaigns for change.(3)

Source: The Alert Investor

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ACTIVIST INVESTING ...ABOUT THE WRITER

Scott is a professor in the Practice of Finance and Director of the M&A Research Centre at Cass Business School. He has worked in the Investment Banking industry (Morgan Stanley and Deutsche Bank) for almost 20 years prior to moving to academia over 15 years ago.

Scott also teaches Mergers & Acquisitions in the MBA and MSc programmes and has also taught ‘Business Intelligence and Social Networking’ in the MBA programme and ‘Corporate Finance’ in the executive education programmes. Scott is a frequent commentator on business issues on television (BBC, CNN, Bloomberg, CNBC) and in the press (Financial Times, Sunday Times, Independent) and has written for the Wall Street Journal, the BBC and other publications.

Therefore, it was timely for Cass to look at this topic and especially to take the research further to look at Europe. Two Cass students, MBA candidate Douglas Markey and MSc student Aleksandra Novikova (now a PhD student at Cass Business School) worked together with Dr Valeriya Vitkova and me on this project.

Our principal findings are as follows: •In Germany, the reaction to activist actions is generally negative, in contrast to the United States (US) and United Kingdom (UK) where long-term performance does show outperformance in some cases.

•In the US, activism related to M&A is shown to be successful.

US activists that take short positions tend to perform poorly.

In both the UK and Germany, the results indicate that returns improve considerably when the full length of investments is taken into account.

•Activists hold their investments in each jurisdiction for more than one year, and in the UK and Germany, holding periods typically exceed 1.5 years, commensurate with other so-called ‘long term’ institutional investors. These results call into question the accusations that activists are only looking for shortterm gains without consideration of the longer-term health of a company.

•Based on the length of the activist investments studied, both current and exited, the data indicates that fears of short-termism may be overblown. When compared with average equity holding periods the evidence does not suggest that activists take a shorter view than typical investors.

•The low activity and relatively poor performance in Germany suggests that it is the least receptive market for activists when compared to the US and UK. •The evidence shows that activists could take a more prominent role in the UK but there is always the possibility that returns will suffer if more activists pile in.

•The United States is the undisputed leader of shareholder activism but despite its commonality, the performance from investors shows that finding the right approach remains challenging.

In conclusion, the research shows that there should be a nuanced and thoughtful reaction to the rise of activists, as they are not the ‘force of evil’ that many market commentators suggest. And from an academic perspective, this will certainly prove to be a very fruitful area of research for a number of years, as activists continue to increase in number in Europe.

(1)Lazonick, W., 2012. In the Name of Shareholder Value: How Executive Pay and Stock Buybacks are Damaging the US Economy. In Clarke, T. & Branson, D. The SAGE Handbook of Corporate Governance. London: SAGE Publications Ltd. pp.476-96.

(2)Barton, D. & Marc, W., 2014. Focusing Capital on the Long Term. Harvard Business Review, January-February(1), p.8 (3)Activist Insight, 2015. Activist Investing - An annual review of trends in shareholder activism. Research. London: Activist Insight.

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TRADING & STOCKS TRADING

At a glance

How the world prepared for a rate rise by the “World’s Bank”

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By Christoforos Konstantinidis

Our previous prediction in the first edition (May 2015) of the CASS Magazine has been crystallized, as the Federal Reserve was preparing for its first rate rise since 2006. The Euro was broadly falling against all of its major counterparts reaching 1.0563 versus the U.S. Dollar and 0.7033 against the English Pound on the last day of November 2015.

The clear diversion of the major Banks’ policies is continuing and it affects dramatically their currencies. As we expected, the European Central Bank has signalled move to boost inflation. The president of the European Central Bank, Mario Draghi, suggested he will do anything to help the economy, hinting that his Bank’s next move is an increase in its Quantitative Easing program.

In contrast, Janet Yellen running the Federal Reserve, has risen the rate in their December meeting. Both policies lead to the same final result, a weaker Euro and a stronger Dollar.

Looking forward, we expect this trend to continue. Without any signs of a European recovery and further fears of the migrant crisis escalating to arguments between member states, the Euro is entering a difficult year. As of the first trading weeks in January, Euro has rebounded and EUR/USD is trading between 1.08-1.09 corridor.

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GIANTS ON THE RISE

By Léah Guyot

Fans of the Star Wars saga were not the only ones frantically looking forward to the release of the first movie of the franchise since the rights were bought by The Walt Disney Company (DIS). Indeed, shareholders are attentively looking at the stock’s movements and they should. Back in April 2015, when the trailer for Star Wars: The Force Awakens that has been released in cinemas on 17th of December turned out to be a real booster for the company.

but should still watch out since more original content could mean a rise in subscription prices…

The week preceding the release of Jessica Jones, an original Netflix show in collaboration with Marvel, Netflix (NFLX) saw its stock went up by 20bps and has been plummeting since. Shortly after that, Netflix announced that 31 scripted original shows are in the works for 2016 as well as many other content such as documentaries and feature films. Shareholders could expect a rise in the share’s value throughout 2016

After being cited as one of the cleanest companies, Tesla Motors (TSLA) saw its stock price has risen by 3.01%. This is a stock that potential investors should watch closely since its price is greatly influenced by the price of oil. Therefore, it should be considered a high-risk but high-return investment.

Goldman Sachs recently published a note that could truly influence stock prices considering the current context. Indeed, the firm published a research that showed who were the greenest companies what is very timely considering the Global Climate Summit that has happened in Paris.

Goldman Sachs Building Source: Flickr

Source: FabulousMomBlog

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CHARITY FINANCE Head Over Heart: a symposium on the future of nonprofit finance

By Cass Centre for Charity Effectiveness

The Centre is the leading nonprofit and philanthropy centre in the UK. Cass CCE was formed in 2004 through a partnership between Cass Business School and The Worshipful Company of Management Consultants. It is based on the vision of its founding director, Professor Ian Bruce. CCE provides advisory services, professional development, Masters programmes which are all supported by its mission of driving transformation in the non-for-profit sector.

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Cass CCE recently held a symposium on charity finance and social investment which brought together charity leaders, funders, regulators, umbrella bodies, government figures, academics and the investment community to have a big conversation about charity finance models and the potential opportunities social investment can deliver.

Earlier research from Cass CCE found that 20-25% of organisations are ready to go for it, 60% inquisitive but equally concerned about what the change will mean, 20% will not go on the journey.

With many organisations and trustees pretty uncertain about how social investment and finance will work for them, speakers looked at the case for it.

One big reason more charities are looking at social investment is the climate of austerity which is testing charity finance models.

Grants and government funding are down by 25%, and according to the latest NCVO’s Almanac there is a predicted £4.6bn shortfall in voluntary sector finances by 2018/19.

A social investment and social finance model using a balance of donations, grants and repayable finance can start to address some of these key challenges, but this is still a fledgling market.

However, a survey commissioned by Cass CCE for the Symposium highlighted that the next five year period will a 10-12% shift away from donations and grants and towards social investment models.

Clearly some boards are risk averse and the model won’t work for everyone. CFG’s Chief Executive Caron Bradshaw, one of our speakers, reported a rise in the number of trustees beginning to see social finance as an enabler rather than a risk. She added however, that boards need greater financial capability so trustees ask the right questions and put in place the best business models before they embark on social investment.

The complexity and hype around the market is another barrier to growth that needs addressing before businesses and charities can talk the same language and build the social investment market together.

The Symposium survey highlighted that only 45% of all charities say they have a clear understanding of social investment.

Sara Llewellin, Chief Executive at Barrow-Cadbury Trust, closed the Symposium and argued that time should be taken to build understanding so that nonprofits and charities can decide if social investment is a useful tool for them or not. She argued that sometimes taking that time to understand can pay real dividends in the long-run as different business models will emerge as a result.

Ten key questions for charities before embarking on social investment were also discussed: -What finance do we need and why do we need it? Are there alternative ways of getting finance or raising money?

-Would a loan or crowdfunding be a better option?

-What kind of financing will make the most impact?

-Which investors should we use and are there intermediaries we -should be talking to?

-Will the social investment be part of a balanced funding mix?

-How much will it cost?

-When will we be able to repay?

-Will we need to change our business model to do it?

-What will the impact be and how will it enhance our mission?

-How will that impact be measured for investors?

For some organisations, social investment is already enabling them to be financially sustainable, take their work to scale and make a genuine impact for their beneficiaries. But it is not a silver bullet that will be right for everyone. Further conversations between charities, government, the investment community and academics are needed to lead to greater collaboration and action to grow the market and help greater numbers of organisations benefit.

Check out our social finance page at Cass CCE where soon you can view the highlights of the symposium as well as news of future social finance events.

(http://www.cass.city.ac.uk/research-and-faculty/centres/cce/knowledge-sharing/ sustainability-and-social-finance)

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Let’s together

HydroVillage is a social project aiming to introduce hydroponic plant growing systems in areas of the world suffering from soil infertility. We are committed in helping farmers in these areas to gain a sustainable income and improved livelihoods overcoming the soil infertility barrier.

We want to bring the university community closer to our work and inspire towards sustainable eco solutions to shape a more viable world.

grow

120 brand new plant systems.

Juazeiro, Brazil • August 2015

Be p rt of the change

PHARMA MARKET Pharmaceutical industry: recent trends and investment ideas

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By Katarzyna Toniak

The recent Hilary Clinton remarks about high drug pricing brought back media’s attention to the pharmaceutical industry and the immense amounts of money involved in it. So far, the industry has been known for its billion-worth megadeals. Just in the US, healthcare saw 938 deals with the record worth of $310bn (57% YoY from 2013), the highest M&A activity among all the industries. The average premium accounted for 34%, which is still below the 2010 peak of 39%; however, the deals were more than twice as high as in 2013 according to Dealogic’s data. It poses a question: ‘How do companies have enough money to finance all the deals?’

As PwC estimates show in Chart 1; the pharma market may be worth $1.6tr by 2020 with the biggest markets (US, UK, Canada, France, Germany, and Japan) earning 60% of the industry’s total revenues. The problems of aging population, obesity and unhealthy lifestyle accelerate the development of various diseases, which creates opportunities for drug companies. This is why pharma has never been as successful as it is now.

What are the current trends within the industry? Currently, the industry faces three main challenges: raising customers’ expectations, lower development productivity (as shown in the chart), and management stagnation. The last one relates to being reliant on the same business models without implementation of forward-looking changes. Moreover, company revenues are slashed by a ‘patent cliff ’(1) and increased number of generics available on the market. Just within a six-year period to 2018, EvaluatePharma estimated that the generic erosion will take out roughly $148bn of revenues. Changes in the regulatory environment are not beneficial either e.g. the Affordable Care Act (ACA) is projected to reduce pharma revenues by $112bn over the next decade by bringing another 30m Americans under the insurance umbrella. Another consequence is limiting pharma companies’ ability to set up drug prices due to the shift to value-based purchasing(2). Opposite to it, there is the technology development in collecting biological data. This is crucial as majority of the modern diseases stem from disturbances in human cell component interaction. Therefore, I believe that genomics and cell therapies will be the future cash cows.

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What does it mean for investors? Well, it depends on your risk-aversion level. For risk-takers, I would recommend investing in stocks, which have a breakthrough drug in one of the final stages of approval by the FDA (US regulatory body) or its overseas equivalent. If it is approved, the value of the stock could increase a couple of times just in a matter of days. Examples of such companies include: Zafgen Inc (beloranib), Ohr Pharmaceutical (OHR-102), or Regeneron Pharmaceuticals Praluent (alirocumab) Injection. For less risk-averse investors, I would recommend loans or notes issued by some specialty drug makers. Most of them have maturities until 2022; however, some tranches are becoming callable within the next one to two years. Among companies offering the products are: Valeant Pharma Intl, Endo International or Mallinckrodt plc. Probably, one of the first questions that pops into your head is: ‘Isn’t it risky?’ especially after the recent negative press on Valeant. Well, my answer is: ‘no’. Although the most indebted of the three is Valeant with net leverage of 2.06x at a secured level, according to the Permitted Indebtness provision as of 04/01/06, the maximum ratio is 5.25x, which gives it spare capacity to take on more debt. Due to the rather broad portfolio and continuous M&A (5 companies acquired only in 2015), Valeant has enough assets to sell-off if it runs out of cash (which is really unlikely anyway).

And this is just a limited picture of this fast-paced and broad sector, which provides lots of opportunities for investment, no matter whether you are an individual investor or an investment company.

NOTES

(1) Sharp decline of revenues after the patent expiration (2) Products will be priced based on values buyers accord them

POLITICS The political leader : interview with the UKIP MEP Gerard Batten

By Edouard d’Espalunge

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Cass Magazine interviewed Gerard Batten, a senior political leader and UKIP (UK Independence Party) Member of the European Parliament (MEP) for London on Tuesday 5 January 2016. The interview highlights several political themes that UKIP supports with such as Brexit, migrants, student fees, Islam, UK deindustrialization, and international political issues.

What impact do you think a “Brexit” would have on London, Europe’s number 1 financial place, accounting for 4% of the UK’s total GVA (Gross Value Added)?

Gerard Batten: It would free the City to look outward to the world, as British trade and commerce did so successfully for hundreds of years before we joined the EU in 1972. The finance industry is now controlled by the EU by means of six Directives passed at the end of 2010 (and supported by Conservative MEPs). The City might have to comply with EU legislation inside the EU but not outside, and most of our profitable international trade is with the outside world not the EU. The City would thrive free of the shackles of the EU. What is your opinion concerning the EDL and the BNP. Do you consider they could represent a large pool of votes for the UKIP?

Gerard Batten: The EDL was never a political party and did not have votes to win. The BNP has been steadily declining since 2009 and is now effectively finished. UKIP has always taken votes from all sections of the population.

Calais migrants are a recurring topic in France. What would be, in your opinion, the best solution to deal with the thousands of migrants between 4000 and 10 000 according to sources)?

Gerard Batten: The best solution for the UK is to control its own borders and ensure that these people cannot enter British territory. The French have allowed this problem to arise and just want to offload the problem onto the UK. It is up to them how they control their own borders.

How could the UK stop deindustrialization (eg. closure of Kellingley pit) and regain a new competitive advantage?

Gerard Batten: By leaving the EU we would free ourselves from the EU Directives that prevent us taking unilateral action. Before the last steel plant shut down the Government was paralysed because it had to consult the European Commission before it could take any action.

Needless to say this did not happen anyway.

There may be a case for subsidising some key industries, but that is a decision a sovereign British government and parliament should have the freedom to make. EU law prevents us from doing that which is another reason why we need to leave.

Could you explain why you earned the third largest vote share and only one seat in the House of Commons at the 2015 general election?

Gerard Batten: That is very easily explained by our first-past-the-post voting system. FPTP is only suited to a two-party political system, or three at a pinch. But we now have a multi-party system. I have for many years been in favour of some form of proportional representation for parliamentary and local elections.

Source: The Independent

Could you explain why you earned the third largest vote share and only one seat in the House of Commons at the 2015 general election?

Gerard Batten: That is very easily explained by our first-past-the-post voting system. FPTP is only suited to a two-party political system, or three at a pinch. But we now have a multi-party system. I have for many years been in favour of some form of proportional representation for parliamentary and local elections.

What the results do demonstrate is that UKIP wins votes on a broad basis across the UK; whereas Labour support tends to be concentrated in urban areas and Tory support concentrated in the shires.

The cost of fees for students in London are still high in 2015, more than 15,000 for a master student and more than 5000 for a bachelor student. What would be your solution to help students in terms of payment/job access/ pay-back facilities?

Gerard Batten: The UKIP Manifesto for the last General Election addressed this issue. UKIP policy is for students taking degrees in science, technology, engineering, mathematics and medicine would not have to repay their tuition fees. UKIP would also look to extend the number of such subjects.

I think that it is a scandal to saddle students with massive debts when they leave university; especially as they cannot now afford somewhere to live because of the demand on housing.

What is your political analysis of the recent results of the Front National in the regional elections of October 2015? How do you interpret the fact that the French Socialist Party decided to ask its voters to vote for the right wing candidates (“Les REpublicains”) to avoid the victory of the Front National in the 2d round when it was confronted to a traditional right wing contender?

Gerard Batten: This was a totally cynical exercise by the republican and socialist parties and showed their utter contempt for the voters. The election was not about what those parties are supposed to believe in and stand for, but rather an unprincipled stitch-up to ensure that the Front Nationale did not win. That about sums up what the Europe-wide political establishment now stands for – nothing it can sell to the voters at large, but rather just hanging on to their own positions and power.

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POLITICS In local elections in 2014, UKIP won 163 seats, an increase of 128, bud did not manage to take the control of any council. In the same way, the new strategy of the Front National since the beginning of 2010 is to strengthen its local presence and not only focus on national issues.

Do you pursue the same strategy?

Gerard Batten: In the past UKIP’s focus has been national but we have had a lot of success in winning local council seats in recent years. We are focusing more on local elections and we expect to see more gains in future elections.

We have been spectacularly successful in European Parliamentary elections, coming first in 2014; and of course we became the third party in British politics in last Mays’ general election. And don’t forget that the only reason we are having a referendum on EU membership is because of the sustained and growing UKIP electoral threat.

In local elections in 2014, UKIP won 163 seats, an increase of 128, bud did not manage to take the control of any council. In the same way, the new strategy of the Front National since the beginning of 2010 is to strengthen its local presence and not only focus on national issues.

Do you pursue the same strategy?

Gerard Batten: In the past UKIP’s focus has been national but we have had a lot of success in winning local council seats in recent years. We are focusing more on local elections and we expect to see more gains in future elections.

We have been spectacularly successful in European Parliamentary elections, coming first in 2014; and of course we became the third party in British politics in last Mays’ general election. And don’t forget that the only reason we are having a referendum on EU membership is because of the sustained and growing UKIP electoral threat.

INTERVIEW

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Chronologically, you gained 11 MEPs out of a total of 24 in the 2014 European Parliament election. Then you had your first elected MP with Douglas Conswell winning the seat of Clacton and who kept it in the 2015 General Election during which UKIP also took control of Thanet District Council and saw its share of the vote rise to 13% nationally. What are your expectations for the next Shire district council elections?

Gerard Batten: As a UKIP’s London MEP I am not involved in the shire elections, but as I said before we expect to do well and win more seats.

What is your point of view on the results of the SNP in the last general elections? Do you think it is a strong trend? Or a Lib-Demlike score?

Gerard Batten: Here I will give a purely personal view and depart from UKIP policy. I found it astounding that having voted to stay in the UK the their referendum the Scots then elected 56 SNP MPs out of a total of 59 in the general election. It seems the Scots want to have their cake and eat it. The proof of the pudding will be seen in the Scottish Parliamentary elections this May. If the Scots vote in an SNP majority then I cannot see how that can be interpreted as anything other than a vote to leave the UK. The danger that faces the rest of the UK is that in the coming EU referendum the Scots may vote to remain in the EU while the English vote to leave. We could possible see a situation where the UK is expected to remain in the EU on a slim majority accounted for by Scottish votes.

That would be totally unacceptable to the English.

If that happens then in my view Scotland should leave the UK; that way Scotland can remain in the EU while England can leave.

Would you consider the Canadian system as relevant when dealing with immigration?

Gerard Batten: I am not familiar with the Canadian system, but for years since I was the UKIP immigration policy spokesman I have advocated an Australian points based system that allows us to have a controlled, limited and selective immigration system.

Source: EnglishBoy

POLITICS I

Source: Mirror

In the UKIP newspaper “the OUT POST”, Steven Woolf MEP, UKIP Migration spokesman expressed deep concern about the effect the inexorable rise of immigration is having on public services in Britain: “Our public services cope with more than a million illegal migrants who have disappeared into the black economy we have to provide schools and healthcare for hundreds of thousands of children migrants”. How the UK could change laws to ensure a stable situation?

Gerard Batten: England is the first or second most densely populated country in Europe, and one of the most densely populated countries in the world. We simply cannot absorb a third of a million net population gain every year due to uncontrolled immigration. This puts an unbearable and unsustainable strain on our national infrastructure.

While we are members of the EU we cannot control our borders or immigration system. By leaving we can regain control and implement a controlled immigration and system.

What is your opinion on Zac Goldsmith (Conservative) and Sadiq Khan (Labour) who are running for the London Mayoral Election 2016?

Gerard Batten: Well I won’t be voting for either of them. I don’t want Labour’s policies of international socialism, and I won’t be voting for a billionaire’s son who has never had to work in the real world. We need a London Mayor who understands the lives of ordinary people and UKIP has of course an excellent Mayoral candidate in Peter Whittle and I will be backing him.

The UK’s planned in-out referendum is planned for the end of 2017.

Do you think the recent migration trends and the terrorist attacks in Paris (13 November) in which a Syrian migrant participated could be a warning for Britons (40% were ready to leave the EU in 2015) enabling them to be more aware of what being a member of the EU actually involves?

Gerard Batten: I think that the consequences of uncontrolled immigration will indeed bring home to voters what membership of the EU actually means to them personally.

What sort of relationships do you have with Ms. Joelle Bergeron member of the ELDD) and what is your opinion concerning the Front National?

Gerard Batten: I don’t know the lady. I agree with some of the things that the Front Nationale stand for. They defend their own country and are standing up against mass uncontrolled immigration into France, and they oppose fundamentalist Islam. Who can disagree with that?

10 days ago, Mr. Carswell told the BBC that UKIP needed “a fresh face” as a leader and called for UKIP to become a party that is not seen as “unpleasant” and “socially illiberal”. What do you think about that?

What changes do you think are needed now?

Gerard Batten: I don’t know what he is talking about. UKIPPERs are actually very liberal in the real meaning of the word. We represent the tried and tested values of our country, tolerance, freedom under the law (our law), and a sense of national identity; we want to restore our national independence and the supremacy of English law. I don’t what is ‘unpleasant’ about that. Douglas is fairly new to UKIP so maybe he doesn’t quite get it yet.

UKIP is now entering the most important phase of its 22 year existence – to fight and win the referendum on EU membership. Nigel is the best spokesman on that subject in Britain today and he must lead UKIP during that campaign. If UKIP ever wants a ‘fresh face’ I don’t think Douglas is it; he is too much of a free-market Tory for my taste, and I think for most UKKIPERs. UKIP needs to replace Labour as the party of the patriotic, hard-working classes.

Three words to explain why it is relevant to leave the EU as soon as possible?

Gerard Batten: To choose freedom!

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ECONOMY China Hard Landing: What has happened. policy response, and challenges going forward The Chinese Hard-landing has been a buzzphrase in financial, and even mainstream press in recent times. The slowing growth, and structural change of their economy, is at the forefront of economic thought, business and politics around the globe.

Source: Wikipedia

The slowdown China’s economy is in transition, from decades as an investment led economy, to one driven by domestic consumption. Last year, consumption contributed 50.2% to GDP growth (+0.2% from previous year) whilst investment contributed 48.5% (-5.9% from previous year). The notable inability of consumption growth to pick up the slack from falling investment, is a large contributing factor to Chinese growth, falling sharply over recent years to 6.9% yearly growth in Q3 2015, as can be seen from Chart 1. Additionally, Chinese imports fell by 18.8% on a year ago in October, suggesting domestic demand is not strong enough to soften the hard-landing.

Government investment has led to oversupply in many key industries. Notably, output in China’s solar power industry is around twice global demand. Oversupply also exists in other industries such as: cement, coal, chemical, wind power and automobile. As shown in Chart 2, this oversupply and high debt

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has led to declines in key industrial activity indicators: industrial production, fixed-asset investment, cement production and electricity production.

China has experienced a boom of credit in recent years, particularly in corporate debt. Corporate debt now stands at around 160% of GDP and rising, however the increase in bank lending, has not been allocated in the most profitable areas. A Thomson Reuters study found that, industrial companies’ debts, as a multiple of core profit, rose from 2.5 in 2010 to 4.2 in 2015. As well as this, loosening monetary policy, falling bank reserve ratio requirements and a scrapping of the cap of loans to deposits (75%), has fuelled, and will remain fuelling the rise in China’s corporate debt. This is worrying, as sharp rises in credit, remain one of the two best indicators of near-term economic crises (the other being a rapidly appreciating exchange rate).

ECONOMY

Exports, another key driver of growth, have dropped off with emerging market and European weakness. The US and Europe are the two main export destinations for China, mainly in electronics, industrial machinery and toys. As these two economies’ growth has struggled post crisis, so has their growth in appetite for Chinese goods.

Government response FISCAL The Communist Party of China (CPC), in its latest five-yearplan, set measures to a more balanced, inclusive and sustainable growth model. The main goal is to double incomes by 2020, from the 2010 level (requiring 6.6% yearly GDP growth). The CPC also seek to increase consumption as a percentage of GDP. The main policies: - Innovation-driven growth to come through internet firms and new start-ups.

- Abolishing the one-child policy to reduce the pace of a shrinking working population.

- Increased social welfare in the form of state services, pensions and social security.

- Reduction of red tape through improved management of state owned assets and government efficiency.

- Liberalisation of prices through a reduction of government intervention in prices.

MONETARY The People’s Bank of China (PBoC) have loosened policy over the last year, seeking an increase in the money supply, thus increased economic output. This is in spite of the low responsiveness of banks’ interest rates to policy rates, when compared to advanced economy equivalents.

Challenges: Headwinds to growth The US Federal Reserve’s tightening of monetary policy, will make Chinese exports more expensive. The reminbi (China’s currency) is pegged to the US-dollar, therefore, further predicted appreciation of the greenback, in response to Fed tightening, is expected to push the reminbi up with it. This recent appreciation in the nominal effective exchange rate, has already affected export volumes.

Additionally, slowing emerging markets will continue to put downward pressure on exports volumes. Emerging markets are slowing for a number of reasons: dollar-denominated debt worries fuelling capital outflows and plummeting oil prices to name a few. This is likely to lower their appetite for Chinese goods.

Domestic consumption growth, is unlikely to fill the slack in growth left by government investment. The Chinese have long had a low propensity to spend, with saving and thrift favoured in their culture. China currently saves around 30% of disposable income, 6 times more than the US. Chart 5 shows that the saving ratio has not changed, in response to rapidly increasing incomes.

This is coupled with an ageing population, which sees the current generation picking up their parents’ bill for healthcare, housing and living, in the absence of government pensions and social security. The future planning of this expense for thecurrent generation, is likely to halt a consumer spending culture that is seen in advanced economies. Moreover, demographic changes will lower the working population, and therefore people with disposable cash. Further pointing to the thesis that, without a change in spending culture within China, consumption will not stop the economy from hard-landing.

Chart 4 depicts the policies implemented over the past year: - Cut the one-year lending rate to 4.35%, the 6th cut this year: lowering the cost of finance for businesses and households.

- Cut the deposit rate to 1.5%: lowering the incentive of businesses and households to save.

- Lowered the commercial banks’ reserve requirement to 17.5%: freeing up capital, to increase lending to the real economy.

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Securing a Graduate / INtern position at an Investment Bank, Hedge Fund or Asset Manager

CENTRAL BANK POLICY

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By Steven Griffiths

Deciding on which career path to follow after you graduate can be a daunting task for a number of reasons: the variety of options available, your different areas of interest and the diverse skill set you have.

With fierce competition from across the world for Graduate and Internship positions at Investment Banks, Hedge Funds and Asset Managers, it is important to be confident in your selected industry and role choice.

Having read and selected a variety of CVs, Cover Letters to progress to the next stages and then interview many students for Graduate and Intern positions, I’ve noticed 2 main areas students need to improve when trying to start their careers.

Get noticed in your Applications, CV and Cover Letters(/ to secure an Interview)

Many students have one CV and use this to apply for a number of roles. The lack of effort easily shows when comparing against a large number of potential candidates.

- Each application, CV and Cover Letter should be treated as a new venture, even if roles appear similar, each company will use slightly different wording and this should be reflected in your application - Take the time to do your background research and be informed about the Industry, Role, Product and Company you are applying for in terms of skills required and latest market trends - Your Cover Letter should be treated as an opportunity to convey and elaborate any specific skills, projects and work experience which you were unable to fully express in your CV or application and that directly relates to the role

Stand out in your Interviews / to secure a role

Now you have made it through to the Interview stage, it is important to take the opportunity to further work on your background knowledge, technical questions and very importantly your interview technique.

-Human Resource interviews can involve a telephone pre-screening call. Be rehearsed, prepared, passionate and concise in your answer on why/what you know about the role/ company/product. Be positive in your answers and attitude to competency based questions - Line Managers / Co-Workers will be primarily interested in your skills set for the role (to check suitability) and product knowledge (to check levels of interest).

Many students apply to too many different roles, which makes this difficult to get noticed in your applications and stand out in your interviews. It’s very unlikely a student will be good at Trading and also be good at Research or M&A as each involves different personalities and attributes, even if you have the time to thoroughly research specific role, product, industry and market information.

So take the time to really research your desired career, channel your efforts to create depth in your applications, which in term, creates a confident, informed and passionate interview style to help you secure and start your career.

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ABOUT THE WRITER

Steven Griffiths is an external contributor to The Cass Magazine. He has 10yrs+ Investment Banking Experience in the Front Office and was involved in recruiting and interviewing graduates and interns. Steven has received Masters Degree from Imperial Business School. He has also founded ‘Students in the City’ to help students get noticed in their applications and stand out in during interview process.

CENTRAL BANK POLICY

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The Great Rate Debate

By Jiří Daniel

The last few months have witnessed an intense debate over monetary policy around the world, as each corner thereof wrestles with a unique set of economic challenges. Nowhere does opinion appear to be more divided than in the United States, as the country continues its gradual recovery from its deepest recession in generations. At the center of the discussion: the Federal Reserve and its decision on whether to raise interest rates for the first time in over nine years.

Economists from academia, government and the financial sector have been struggling to make sense of this unprecedented situation, with notable figures weighing in on either side of the issue.

To name but a few, Joseph Stiglitz, Larry Summers and David Blanchflower stand on the side of accommodation, while Robert Shiller, Paul Volcker and David Stockman favor a rate hike. Even the Federal Open Market Committee (FOMC) has shown signs of deep division; Minneapolis Fed president Narayana Kocherlakota, for example, continues to argue for further stimulus in the form of negative interest rates, while St. Louis Fed president James Bullard has posited that the FOMC is exceptionally close to meeting its policy objectives and that the current emergency setting of monetary policy is thus unwarranted.

The debate revolves mainly around the true state of the US economy, and more specifically that of inflation and (un)employment, which the Fed is committed to targeting under its dual policy mandate.

Employment The nearly nine million jobs lost during the recession served as a vivid indicator of the output gap for the public, politicians and policy-makers alike. Employment statistics have thus unders-

tandably been subject to considerable scrutiny throughout the post-crisis period; any discussion of policy normalization, beginning with the tapering of quantitative easing, would have been inconceivable without general confidence in a robust, sustained rebound in employment.

Fortunately, this is precisely what has happened. Net job creation has averaged more than 200,000 per month since October 2010, rapidly bringing down the unemployment rate from 9.4% to 5.0%. Long-term unemployment, which soared during the crisis, has come down even faster (see graph – employment 1).

However, the discussion of labor market slack has run considerably deeper than those figures would suggest; Fed chair Janet Yellen has steered it towards alternative measures which point to a more uneven picture of the recovery. Chief among these is underemployment (U6), a measure which takes into account people working part-time because they cannot find a full-time job as well as discouraged workers “marginally attached” to the labor force. U6 remains elevated by historical standards ((see graph – employment 1), even as labor force participation has declined. Further color can be gleaned from data on the duration of unemployment, specifically the difference between its median and mean. While the former has returned to levels approaching at least those seen in the early- to mid-2000’s, the latter remains far above its pre-crisis range (see graph – employment 2), hinting at a dichotomy in the labor market. On the one hand, there appears to be a strong demand for, and even a shortage of workers with skills employers value, as further evidenced by the record-high number of open jobs as well as a healthy number of quits (indicating workers’ confidence in their ability to find a new job). On the other hand, there appears to be a significant amount of structural unemployment – a segment of the population who continue to be unemployed due to skills unsuitable for the jobs available in the economy, or indeed skills lost through long-term unemployment.

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CENTRAL BANK POLICY

Unfortunately, while the Fed must attempt to gain as broadbased a view of the economy as possible, the above may be a consideration too far. Monetary policy is ultimately too blunt an instrument to be able to compensate for the lack of fiscal policy action resulting from political deadlock in Washington, D.C., and continuing accommodation on those grounds would be likely to create potentially dangerous distortions in the economy.

The Fed itself has acknowledged as much by stating that its employment objective has been met to the extent that monetary policy can influence it.

Going forward, that does not mean the employment debate is over, however. Recent concerns over the impact of slowing global growth on the US economy, coinciding with two months of below-trend net job creation in August and September, highlight how alert a data-dependent FOMC must be to new developments. Moreover, when interest rates do move off the zero bound, the discussion is likely to simply shift further towards estimating the natural rate of unemployment (a.k.a. NAIRU, the non-accelerating inflation rate of unemployment) – a key determinant of the path of interest rate increases.

Recalling James Bullard’s position from above, however, one can see that the assessment of changes in the price level is far from clear-cut, and arguably even less so than that of labor-market health. Those who see the inflation target as close to being met point to alternative, more stable measures such as the core CPI, which excludes volatile food and energy prices (although it cannot remove the indirect effects on other prices), and the trimmed-mean PCE, each reading of which excludes the categories with the greatest price level change in the month. Both metrics stand close to but below 2% (1.9% and 1.7% respectively at the time of writing; see graph- inflation). Proponents of policy tightening thus emphasize the transient nature of oil’s impact on headline inflation numbers, arguing that low oil prices are ultimately a boon rather than a concern due to the extra money they put in consumers’ pockets.

Inflation As the economy has taken strides towards full employment, the focus has increasingly turned to inflation. This shift has furthermore been fueled by the recent divergence of inflation from the 2% target, at least by some measures; a halving of oil prices beginning in November 2014 has sent both the Consumer Price Index (CPI) and Personal Consumption Expenditure (PCE) index plummeting to near-zero levels normally associated with recession. Parallels drawn with Japan, which today continues to struggle to extricate itself from the hold of a spiral of falling prices and economic stagnation despite unprecedented stimulus, have led to calls for loose monetary policy to persist if only to mitigate any risk of deflation.

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Source: NBCNews

The Federal Reserve Bank of Washington D.C.

CENTRAL BANK POLICY Still, challenges to that reasoning remain. Some point to the lack of acceleration in core inflation as a sign of consumer weakness, suggesting that businesses seem to have limited scope to raise prices despite the increased spending power that should result from lower oil prices. That is, there appears to be a limit on margin expansion as some of the oil price decline gets passed through to goods prices. Further support for this view comes from the muted growth in average hourly earnings, which not only serves as a proxy for the balance between supply and demand for labor, but also constitutes a crucial determinant of the future path of inflation through its impact on consumers’ purchasing power. Indeed, questions over the interaction between residual damage from the recession, recent price trends, and the forty-year trend of flat real wages have led to a concern that longer-term inflation expectations, as opposed to just its immediate rate, may have eased. Of course, such expectations are difficult for the Fed to measure reliably across the broader economy; the five-year, five-year forward inflation expectation rate observable in the financial markets (and recently declining to below 2%) may not constitute an accurate indicator.

Ultimately, the Fed appears to be accepting the view that since monetary policy involves long lags and the effect of oil prices should drop out of headline inflation in the first months of 2016, there is indeed a case for initiation of interest rate increases even when the price stability objective is factored in. However, the debate over inflation is unlikely to go away at any point during the tightening cycle – much more so than the one over employment.

In sum, the Fed’s decision on the precise timing of its first rate hike since 2006 almost certainly will not end uncertainty over the appropriate path of monetary policy going forward. The aggregate data, hampered by divergences within the population, will probably continue to send conflicting signals, with dysfunctional fiscal policy and the uncertain global economic outlook presenting further risks. In such an environment, the FOMC will likely tread very carefully as it considers each successive policy action. It has made very clear that these will be slow, gradual, and far from pre-planned as normality remains far away.

Yet another view of inflation relates to asset prices, although these do not affect the measures traditionally targeted by the Fed. The argument here is that easy monetary policy has significantly inflated asset prices in the financial markets, leading in turn to a “reach for yield” into risky assets, and even alternative assets ranging from art to classic cars. Some of the most “hawkish” economists have been citing such “distortions” as a reason to restrict monetary policy for years now, even when the traditional dual mandate objectives remained distant. The introduction of this line of reasoning once again indicates a dichotomy between rich and poor, with monetary policy again unable to target the fortunes of one group over the other, i.e. wages and consumer prices as opposed to asset prices.

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FASHION HermEs. From Zero to Identity How passion and brand strategy can make a difference for an entrepreneur

By William Fong

In the world of business, Hermès’ implementation of the supply and demand theory holds. Hermès’ annual revenue increased from 50 to 460 million US dollars between 1978 and 1990, rocketed to 4.1 billion Euros in 2014, with a net profit of 780 million Euros.

Source: Wikimedia

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Hermès.

Surely it is something we are familiar about. Some might find its name pleasing to the ear, and its products pleasing to the eyes and sense. The odds are big, because that is what Hermès is portraying to the society, the essence of savoir-faire and savoir-vivre. The former telling us that impeccable product craftsmanship portrays refined elegance, and the latter giving the definition of living life well and enjoyable.

Let this article take you on a flânerie, to the world of Hermès.

What comes to your mind when you first hear the word Hermès? Is it that mainstream brand that sells arrays of products at expensive prices?

Is it the legendary Birkin, Kelly, and Constance bag that are lusted by women and men all around the world? Rest assured, this brand has become a lifestyle and an identity. By looking at the Hermès logo, it is portrayed by a horse, a carriage, and the master himself. This is what the high level bourgeois person in Paris would look like in the 1830s.

Hermès is and has been a status symbol.

178 years ago, Thierry Hermès established his harness shop in the Grands Boulevards in Paris. His first customer was the horse, and second was the rider. As time went by, his generations expanded the brand into selling saddles, clothes, shoes, scarves, and of course, leather bags.

So why is it different than any other brands in the market?

Most luxury brands today profit from selling lower-priced items in mass as opposed to their flagship products. For example, Louis Vuitton sells more bags and belts than their trunks, Ford sells more Focus than the Mustang, and Burberry, which creates second line brands (Burberry Brit, Sport, Swearshirts) selling more affordable clothes and scarves than the custom-made Prorsum. Hermès, on the other hand, prefers to maintain the brand’s quality and personality by uniquely making each and every piece by hand, from hand rolling silk pieces to carving chairs and tables, hence the limited number of production. This is what Hermès is proud about; scarcity creates luxury. The company believes that luxury equals to exclusivity, meaning an effort (time and value of money) is needed to acquire a certain product. In the present day, a Kelly bag takes up to 25 hours to produce and the rumoured waiting list can last up to 2 years.

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Hermès believes that simplicity is a sign of perfection. This concept is strongly tied with the French culture, particularly the Bourgeois. The sub-cultute is often associated with the essence of class, which is not easy to attain. Religion, family background (possibly aristocratic), education, politeness or manners, and the way a person dresses are the main determinants. Hermès successfully penetrates into and influence the society by having the idea of simplicity and luxury. An Hermès’ customer would look luxurious without having to show vulgarity and to flash their wealth. Its products are easily recognisable even though brand stamping are merely visible.

Hermès is passionate, just like France who highly values passion. If we take a look at Hermès’ marketing campaign, very few to none of the campaign involves celebrities and opinion leaders compared to other fashion brands more especially which are owned by the LVMH. This is because Hermès believes in what it does, what it produces, and the principles it holds. Being real and authentic make Hermès stand out.

But is it possible for demand to rise and rise without declining?

The answer is yes. Its rich culture, heritage, and passion bond together to create such a powerful brand that makes the user feel rich, powerful, and delightful. Hermès is present everywhere, from the late Princess Grace Kelly in 1956, Jane Birkin in the 1990s, Pakistan’s first female foreign minister, the previous first lady of Indonesia, to people of our generation. It has become a lifestyle and an identity.

A message for the future entrepreneurs of Cass Business School, by believing in yourself into creating and developing things you are passionate about, as well as carefully assessing the benefits that your product or service would provide to your customer, the result would be limitless.

Source: Luxurydaily

MOVIE INDUSTRY Independent and crowdfunded: The community behind 21st century movie making

By Jacopo Ciufoli

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Source: Floodmagazine

To the least attentive, crowdfunding could appear to be one of the latest web based trends and brush it off as the new, hipster, channel surfing through the myriad of startups. Yet crowdfunding has deeper and historic roots. It is a common human sociological behaviour dating back thousands of years; especially in the entertainment world. It is no different from what ancient Greek theatre companies did raising their voice in a market place. Providing the people with a quick preview of their show on the following day. It is - speaking in more recent motion picture terms- what the late Heath Ledger did in The Imaginarium of Doctor Parnassus to charm women into giving money to sustain the show.

Similarly, moviemakers have begun using crowdfunding platforms such as Kickstarter and Indiegogo to raise awareness and increase budget.

There are currently over 1,200 live projects for movies between these two websites. These platforms give independent movies the chance to be under a spotlight which would hardly ever have lit for them outside the inches of a computer. The widescreen proportion remains the untouched in the industry yet today movies tend to start from the 16:9 of a pc screen rather than a theatre.

The format of a project advert is simple, and essentially similar among the different service providers. A company presents its product, stating its aims and mission; essentially posting a synthesised and more visually appealing business plan. All companies highly recommended to attach a video that can help provide a better understanding of the product itself to potential supporters. In exchange of funding, companies commit to providing supporters with a few perks and gifts depending on the range of money donated.

On paper, there is no better way for an independent filmmaker to post a trailer to his movie, which would have to be done anyway, and potentially be paid to do so. Crowdfunding platforms are a mouth-watering launching pad in terms of marketing. Active supporter figures are in the millions just shy of 11 and 6mln for Kickstarter and Indiegogo respectively. These numbers are significantly high, yet questions remain on whether or not these platforms can truly assist in creating a successful movie.

In most cases, successful projects in the Film category cannot even be imagined as a threat to privately funded blockbusters. This holds both in budget and content; by definition indie movies are not intended to sell but rather to narrate a meaningful story. Most of these is released straight to VOD (video on demand) which somewhat limits the chances of making it a public sensation.

A high percentage of movies on these platforms are documentaries or stories based on true events. This could find an explanation in the social aspect of crowdfunding. Hence, crowdfunded movies clearly aim at a different target of viewers than franchises.

Zach Braff ’s Wish I Was Here serves as an accurate illustration of the movie crowdfunding community. The project raised over $3mln (exceeding the original goal set at $2mln) in just 30 days. In his Kickstarter video, the director rightfully addressed his fans with an unprecedented plea for the industry. In antithesis to classic trailers or movie ads which impose seductive snapshots to generate interest, Braff leveraged on the human aspect from behind the script as far as behind the camera. He spoke out to people interested in knowing where the movie was coming from and who were the people behind it. His ‘whole foods label’ approach proved successful. Updates were continuously posted showing the work done by the Production Designer, releasing the soundtrack along with casting videos (!) to mention a few. All things that blockbusters only release as additional features on a DVD which viewers would have to wait months for and most importantly cough up some more money to have access to.

Margins for improvements in this sector are quite broad and clear. It is certainly an opportunity to stand out for filmmakers with a solid idea yet few connections.

To create a successful campaign, to fully capitalise on these platforms’ marketing potential in the movie industry, makers have to appeal to ‘authenticity’. Projects have to appeal to and present themselves as simply being implementers of Corporate Social Responsibility; providing customers (viewers) with a sustainable and suggestive product of which everyone can have stake in and be part of.

Crowdfunded movies are still classify as the industry’s lightweight contestants yet statistics point towards a more radiant future. Oscar winning short documentary, Inocente started this process in 2013 and it seems that the gold rush for independent filmmakers has only just begun.

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LIFESTYLE A WEEKEND IN LONDON

By Alexia monnier

Saturday in Chelsea & Notting Hill Saatchi Gallery Saatchi Gallery is now having «the Champagne Life» exhibition

Bluebird Have a walk on King’s road, stop at Bluebird to do some shopping and even have a drink/lunch, amazing concept store

Saatchi Gallery www.saatchigallery.com/ Duke Of York’s HQ, King’s Rd, London SW3 4RY 020 7811 3070

Aux Merveilleux If you are still hungry I suggest you the best Brioche of London at AUX Merveilleux Aux Merveilleux www.auxmerveilleux.com/home/ 88 Old Brompton Rd, London SW7 3LQ 020 7581 0226

Blue Bird http://www.bluebird-restaurant.co.uk/ 350 King’s Rd, London SW3 5UU 020 7559 1000

Electric Cinema And now you need a rest, go see a movie at the Electric Cinema you won’t regret it!

Electric Cinema https://www.electriccinema.co.uk/ 191 Portobello Rd, London W11 2ED 020 7908 9696

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LIFESTYLE Flower Market

Sunday in Shoreditch

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Have a walk in the Flower Market. If the weather is nice, it is an amazing crowded place full of beautiful colours.

Pizza East

Go to Pizza East for a nice lunch, the pizzas are delicious!

Columbia Flower Road Market www.columbiaroad.info/ Columbia Rd, London E2 7RG

Pizza East www.pizzaeast.com/ 56 Shoreditch High St, London E1 6JJ 020 7729 1888

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Cerial Killer Cafe

BoxPark

Near Shoreditch High Street, you’ll find BoxPark with the latest pop-up fashion & lifestyle stores, food, drinks and events

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BoxPark 2-10 Bethnal Green Rd, London E1 6GY www.boxpark.co.uk/ 020 7033 2899

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Walk around Bricklane to do some shopping and have some cereals at the Cereal Killer Cafe.

Cereal Killer Cafe www.cerealkillercafe.co.uk/ 139 Brick Ln, London E1 6SB 020 3601 9100

Boundary Rooftop

To end your weekend on a lovely note, have a drink on the Boundary Rooftop (the Boundary street is full of nice shops and amazing tags so have a look!)

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Boundary Restaurant, Rooms & Rooftop 2-4 Boundary St, London E2 7DD www.theboundary.co.uk/ 020 7729 1051 rooftop/

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