Gold issue 38 may 2014

ISSUE 38 Μαυ 14 - june 13, 2014 PRICE €4.95

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the international investment, finance & professional services magazine of cyprus

Investing in Cyprus Real Estate get real!

Potential investors from around the world

+4

Expert views from Cyprus

+ MARINA KUZNECOVA, PAVLOS LOIZOU, FIONA MULLEN CROWDFUNDING The new trend in start-up funding

EU-US TRADE

Transatlantic Trade & Investment Partnership

INTERVIEWS

Philippos Raptopoulos Delia Velculescu Jens Wilhelmsen

Plus:

MONEY / BUSINESS ECONOMY TAX & LEGAL LIFESTYLE / OPINION

Issue 38 May 14- June 13, 2014

6 EDITORIAL 8 up front 14 FIVE MINUTES WITH…

get real!

Investing in Cyprus Real Estate

20

After a prolonged period of falling sales and plummeting prices, the real estate sector is doing its best to rebound from the multiple blows it received from the global financial crisis. We sought out the views of four experts about what foreign investors – and, in particular, institutional investors – want when they decide to take a look at Cyprus with a view to growing their wealth. We have also compiled a list of 60 of the world’s biggest and most successful institutional investors that focus on real estate in Europe.

+ opinion Shocking Forecasting

By Savvas Savouri 32 The Next Miracle?

By Andreas Koupparis

39

Time to Teach Old Dogs a New Trick

By Tasos Aristidou 41

26 special

30

supplement 49| Accounting, Audit & Tax

Advisory Firms in Cyprus.

46

66 70 26| On the Road to OECD Compliance Six months ago, the Global Forum’s assessment of Cyprus as a non-compliant jurisdiction regarding the availability of tax information sent shockwaves through the professional services sector. Things are being fixed, says EY Tax Partner Philippos Raptopoulos.

30| TTIPing the Trade Balance Peter Chase, Vice President for Europe at the EU-American Chamber of Commerce in Brussels on the Transatlantic Trade and Investment Partnership (TTIP).

38| Resilient People, Resilient Economy Fiona Mullen, Founder of Sapienta Economics Ltd, on the economy, NPLs, privatisation and more.

42| Will Russian ‘‘de-offshorisation’’ measures be the undoing of internationalbased structures?

By Philippos Aristotelous and Stavros Supashis

46| Welcome to the Age of the Calculated Risk-Taker

74 78 82 84 96

{money} {business} {economy} {tax & legal} {lifestyle}

66| The Grand Illusion

Marios Loizides, Head of Wealth Management at Piraeus Bank, on what went awry in Cyprus’ economy in recent years.

Cyprus needs to seek a view of the bigger picture and to change its mentality, says Pavlos Loizou, Managing Partner of Leaf Research.

34| Time to Step on the Gas

62| Listening to the Voice of the Client

The island’s future lies with oil & gas, says the Chairman of the Norwegian Business Association in Cyprus, Jens Wilhelmsen.

Marina Kuznecova, Senior Financial Associate, Retail & Corporate Sales, Saxo Bank Cyprus on why Saxo has been so successful.

70| Funding the Dream

4 Gold the international investment, finance & professional services magazine of cyprus

Crowdfunding is the new trend in start-up funding and innovation culture

magad 21,5x28,5cm.indd 1

26/03/2014 11:11 π.μ.

EDITORIAL

Better Late Than Never

M

embers of the Troika delegation were back in Cyprus this month, using their particular brand of friendly persuasion to ensure that we stay on track as far as the financial assistance and adjustment programmes are concerned.

It is to be hoped that, after insisting that Cyprus adheres strictly to all the guidelines set out in last year’s Memorandum of Understanding, they will give the Government its fourth positive evaluation and, realistically, there is no reason to believe that this will not happen.

It is clear that, as was the case in Greece, Ireland and Portugal, austerity measures may be painful but they have proven to be absolutely necessary. Moreover, the bailout agreement forced the island’s political parties to accept measures which, today, everyone agrees should have been taken years ago and, regarding which, they ought to have put aside any supposed ideological differences in the name of the common good.

If there is a theme running through this month’s magazine, it is that of correcting past mistakes, accepting responsibility and taking a fresh look at old situations with a view to improving matters. Pavlos Loizou, Managing Partner of Leaf Research (page 66) speaks about the “deep-rooted complacency” that characterised much of the economy, and in particular the real estate sector, when things were booming. Elsewhere, Marios Loizides, Head of Wealth Management at Piraeus Bank, notes that “a lot of people in Cyprus believed that the island was exempt from what was going on in the rest of the world” (page 46), while economist Fiona Mullen explains that “Cyprus was not productive enough – and it could be seen in big current account deficits and the fact that the country was falling in the global competitive rankings, etc.” (page 38). These are not people who are benefiting from hindsight but people who offered advice which was not heeded at the time.

Hopefully, the Anastasiades government and the opposition parties are listening more closely these days. It would appear that they are taking action when it comes to restoring the island’s reputation as a reliable jurisdiction for foreign investment. Following the OECD Global Forum’s assessment of Cyprus as “non-compliant” in certain areas relating to tax information, it has moved quickly and, according to Philippos Raptopoulos, EY Tax Partner, “we are at last undertaking the correct measures” (page 26). However, there is still much to be done. Jens Wilhelmsen, the Founder and Managing Partner of Anchor Capital Management Ltd., which manages private equity funds that invest in particular in oil & gas field service companies, for example, believes that “Cyprus is the natural and logical hub for the distribution of logistics and oilfield services for the Eastern Mediterranean” but he notes that “to my mind, in spite of all the talk, this is something that the authorities and the business community haven’t really latched onto yet” (page 34).

The three sectors that have traditionally fuelled the economy are tourism, professional services and real estate. Today, major efforts are being made by the private and public sectors alike to ensure that they continue to play their key role. Thanks to new markets, tourism appears to be holding up well and while it is still difficult to attract new business to the island, the broad professional services sector has managed to retain the majority of its foreign clientele. Real Estate has not been so fortunate but it is clear that it needs to restore its lost fortunes, and the major developers are now making great efforts to attract all-important foreign investment. This month’s cover story presents expert views on how realistic their prospects are.

It is easy for us all to be wise after the event but the truth is that, if Cyprus is to recover, it is better that measures be taken – albeit under pressure – late than not at all. Fortunately, those in power appear to be finally getting the message.

John Vickers, Chief Editor

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Effy Pafitis, Chloe Panayides Contributors to this issue

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up front

T

Qatar Airways Launches Cyprus Route

he much-anticipated Qatar Airways Doha-Larnaca service with direct flights between the two cities started in April.

The carrier now flies four times a week to Larnaca – which is its first route to Cyprus – while the Government has expressed the hope that the number of flights will increase over time.

Flights will be operated by

an Airbus A320 on Tuesdays, Thursdays, Saturdays and Sundays, all departing from Larnaca at 14:10 and Doha at 08:10.

During a three-day official visit to Qatar by President Nicos Anastasiades in March, the Government signed an aviation agreement with the Gulf state, which provides the right for Qatar Airways to land in Cyprus and continue to other European destinations

(excluding Greece in order to protect the interests of Cyprus Airways).

Other features of the agreement relate to unlimited rights of cargo flights by Qatar Airways to Cyprus, and conversely for Cyprus Airways, as well as a code-share agreement between the two carriers, allowing Cyprus Airways to fly to previously unreachable destinations through Qatar Airways.

Paphos Ranked 6th in Value

For Money Survey

P

aphos has been named as one of the best value hotspots for holidaymakers in 2014 in the UK Post Office annual survey.

The Post Office barometer shows that the coastal resort has climbed to sixth place on the chart, as a top value for money resort. The results come as good news for the industry, as Cyprus has long been viewed as an expensive tourist destination with value for money rarely coming top of the island’s attraction list, especially among Britons. According to the Post Office, Paphos has registered the biggest fall in prices – 21% – among the 20 European resorts surveyed.

Although Bulgaria’s Sunny Beach is cheapest overall, overtaking the Costas and the Algarve, Paphos has seen a huge drop in the price of ten tourist staples or ‘basket of goods’ compared for each destination. The ‘basket’ includes lunch and evening meals, drinks, sun cream, insect repellent and a daily newspaper, among other items. The total in Paphos came

BoC Sells Ukrainian

Business

B

ank of Cyprus recently completed the sale of its Ukrainian business, comprising (i) its holding of 99.77%

to £62 sterling (€75.30), taking it to sixth place in the table from tenth last year. A cup of coffee in Paphos now costs £1.83 compared to £2.12 in France and Corfu but still a euro more expensive than Bulgaria, the Algarve and Majorca. Paphos had the cheapest water from all destinations at 25 pence a bottle, and the cheapest insect repellent at £1.32. It wasn’t the most expensive in any category. Other resorts in Europe rated as good value are Crete, Istria and Corfu – all three appear in the top 10 destinations. The most expensive baskets of goods were to be found in several Italian resorts totalling over £100 in each.

in its subsidiary bank in Ukraine, PJSC Bank of Cyprus, (ii) the funding provided by the Bank to PJSC Bank of Cyprus, and (iii) its loans with Ukrainian exposures, to Alfa Group.

Regarding its Ukrainian business, BoC announced that the sale consideration has been revised to €202.5 million (10% discount from €225 million), where an amount of €102.5 million has been received and an amount of €100 million will be deferred up to 31 March 2015. PSJC

8 Gold the international investment, finance & professional services magazine of cyprus

Bank of Cyprus was acquired by the Bank of Cyprus Group in 2008. It operates a network of 42 branches, focusing both on individuals and businesses in Ukraine. As at 31 December 2013, it had total assets and equity of around €234 million and €55 million respectively.

The sale falls under the Group’s strategy of focusing on core businesses and markets and disposing operations that are considered as non-core and is being achieved ahead of the Restructuring Plan.

Saxo Bank Honoured at Sell-Side Technology Awards 2014

​​​​​​​S

axo Bank has been named Best Outsourcing Provider in the SellSide Technology Awards.

The awards are designed to recognise leading technology providers through an auditable methodology and input from eight judges consisting of sell-side CIOs and consultants and Waters magazine’s senior staff members.

Matteo Cassina, Executive Vice President at Saxo Bank said: “Saxo Bank continues to be the partner of choice for financial institutions looking to replace or upgrade their trading technology. Our success rests in our ability to offer a range of solutions to support our clients’ trading needs.

“Underpinned by innovation, this offering, combined with our revenue sharing model, allows clients to upgrade their trading systems at no upfront cost. As technology becomes even more important to the banks’ profitability, we expect demand for our white label services to continue to grow.”

Winners of the Sell-side Technology Awards were announced at an award ceremony in New York.

European Award for Harneys Cyprus

H

arneys Cyprus has won an award for its role in the High Yield Deal of the Year category of IFLR’s 2014 European Awards.

The firm was involved in Emma Delta Finance’s noteworthy high yield offering in 2013. Harneys represented Jefferies International Limited and Jefferies LLC, which acted as the sole manager and placement agent respectively in regards to the offering by Emma Delta Finance plc of its €250,000,000 8.50% First-Lien Senior Secured Notes due 2017 and €150,000,000 12.00% Second-Lien Senior Secured Notes due 2017. The Harneys Cyprus team was led by partners Nancy Erotocritou and Pavlos Aristodemou. Associates Demetris Nicolaou,Styliani Constantinou and Alexia Shakou also provided assistance.

up front

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up front

Microsoft-Nokia Merger Completed

F

ollowing Microsoft’s acquisition of Finnish Nokia, first announced in September 2013, the official completion of the merger took place on April 25.

“Today we welcome the Nokia Devices and Services business to our family. The mobile capabilities and assets they bring will advance our transformation,” said Microsoft CEO Satya Nadella. “Together with our partners, we remain focused on delivering innovation more rapidly in our mobile-first, cloud-first world.”

Reporting to Nadella is former Nokia President and CEO Stephen Elop, who will serve as executive vice president of the Microsoft Devices Group, overseeing an expanded devices business that includes Lumia smartphones and tablets, Nokia mobile phones, Xbox hard-

ware, Surface, Perceptive Pixel (PPI) products and accessories. Windows Phone is the fastestgrowing ecosystem in the smartphone market, and its portfolio of award-winning devices continues to expand. The Nokia acquisition will help Microsoft accelerate innovation and market adoption for Windows Phone, introducing further customers to the Microsoft services via Nokia mobile phones.

Furthermore, with the Nokia mobile phone business, Microsoft will target the affordable mobile devices market, a $50 billion annual opportunity, delivering the first mobile experience to the next billion people while introducing Microsoft services to new customers around the world. Founded in 1975, Microsoft is the worldwide leader in software, services and solutions that help people and businesses realise their full potential.

Microsoft Cyprus is based in Nicosia.

Real Silver Anniversary for Windsor Brokers

Cyta Introduces Samsung Galaxy S5

T

he Cyprus Telecommunications Authority (Cyta) has introduced the new Samsung Galaxy S5 smartphone through its Cytamobile-Vodafone mobile service.

The new Samsung is available free with the RED4 package until the end of May or with other packages costing €73 a month. The RED4 deal offers free insurance for 12 months and more MB of mobile Internet. Furthermore, it offers free video goals service and highlights from the Cyprus football championship, Champions League and UEFA Europa League, a multiSIM service for up to five devices on the same account and cheaper mobile Internet when travelling to other Vodafone networks.

2014

has been quite a year for Cyprus-based investment and trading firm Windsor Brokers. Beginning the year with its 25th anniversary, the company has also launched a new website dedicated to its milestone, which is set to feature unique offers and promotions. The first promotion of the year, the Silver Offer, launched on May 1, will see Windsor Brokers award 25 silver bars of 1kg each to 25 traders.

Clients of Windsor Brokers will be able to earn tickets to the monthly draw each time they open an account, trade or deposit funds into their accounts.The more tickets clients earn the more chances they will have to win a bar of silver at the end of the trading month.

For more information on the offer, visit www.windsorbrokers.com/en/content/free-silver

10 Gold the international investment, finance & professional services magazine of cyprus

Andrey and Julia Dashin Launch Charitable Foundation

A

ndrey and Julia Dashin officially launched their new charitable foundation on 5 May. The objective of Andrey and Julia Dashin’s Foundation, is to offer support to Cypriot society, by giving the opportunity to individuals and organisations in need to apply for financial aid. Speaking about the inspiration behind the set-up of the foundation, Andrey Dashin noted: “I believe that we all love this island regardless of our birthplace. We all see our own future and the future of our children tightly bound to Cyprus. But unfortunately, not all of us understand that we also have responsibilities towards it. We have responsibilities and should take appropriate action for the future of the island, for the future and prosperity of our society, and the overall future of our home.” Dashin is the founder of ForexTime Ltd (FXTM), and Chairman of the Board of Directors and shareholder of the Alpari brand. His wife and wellknown TV personality, Julia Dashina, noted: “In my previous line of business I was described in print as being ‘beautiful’, ‘trendy’ or ‘fashionable’. But today, in the context of our charity, I would prefer to be described as being useful to society, helpful and giving. I would also like to be characterized as a person who dares to think that we can make our world a better place”.

The Foundation will start off with an annual budget of approximately €500,000, aiming to double the amount in 2-3 years’ time. It will work on a grant basis, paying diligent attention to the process of selecting eligible persons for the grants.

Andrey and Julia Dashin have years of experience in philanthropic activities, having founded the Alpari Charitable Fund in Russia in 2005, which received the “Philanthropist of the Year” Award for two consecutive years in Russia.

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up front

The Richest People in Europe W

ith 468 dollar billionaires, Europe claims 28% of the world’s ten-figure fortunes adding up to an aggregate net worth of €1.4 trillion. Rus-

sia leads the count with 111 billionaires while Germany has the second-highest, boasting 85 tendigit fortunes. The United Kingdom is home to 47 billion-

aires, slightly more than France, which has 43.

Cyprus has four: John Fredriksen who has amassed €10 billion from shipping and who is

Norwegian by birth but holds Cypriot citizenship; easyJet founder Stelios HajiIoannou (€2.16 billion) and his shipping-involved brother Polys Haji-

Ioannou (€1.3 billion) both of whom live in London. The only Cypriot billionaire to be a resident of the island is Turkish Cypriot Suat Gunsel whose for-

tune of $1.2 billion (€864 million) was partly made through his exploitation of Greek-Cypriot owned real estate in the occupied north of the island.

Here are the Top 10 European euro billionaires: Ortega 1. Amancio (Spain)

Net worth: €44.6 billion Source of wealth: Zara

Though he stepped down as chairman of Inditex (best known for its Zara brand) in 2011, Ortega still owns nearly 60% of its shares. He also has a growing real estate portfolio, estimated to be worth nearly €3.65 billion, much of it acquired at bargain prices during the financial downturn.

2.

Liliane Bettencourt & Family (France)

Net worth: €24.8 billion Source of wealth: L’Oréal

L’Oreal’s grand dame Liliane Bettencourt has grown wealthier this year thanks to the French cosmetics giant’s stock price, up 9% since 2013. Now suffering from dementia, she was replaced on the Board by her grandson Jean-Victor Meyers in 2012. Nestlé›s planned sale of its 8% stake will raise the family›s holdings to 33%.

3.

60 brands including Dom Perignon, Bulgari, Louis Vuitton, Fendi and Sephora. The vast bulk of the fortune is tied up in Christian Dior stock, through which he holds the controlling interest in LVMH. He also has billions in LVMH directly and in supermarket chain Carrefour.

5.

Michele Ferrero & Family (Italy)

Net worth: €19 billion Source of wealth: Chocolates

Ferrero, now 87, heads the family that owns the Ferrero Group, maker of Kinder and Ferrero Rocher chocolates, Nutella and Tic Tac. He inherited the company from his father, who started making a hazelnut spread called Nutella when cocoa was rationed during World War II. Recently the company has enjoyed spectacular growth.

Albrecht 6. Karl (Germany)

Net worth: €18 billion Source of wealth: Retail

Albrecht and his late brother Theo took over their mother’s grocery store in Essen, Germany in 1946 and turned it into the retail giant Aldi. In 1961, they split ownership, with Karl taking the rights to the Aldi brand in the UK, Australia and the US, while Theo got the rest of Europe.

Stefan Persson (Sweden)

Net worth: €24.7 billion Source of wealth: H&M

The Chairman of fast fashion favourite Hennes & Mauritz (H&M) saw his fortune boosted this year thanks to a 25% surge in the company’s stock price. Persson, who is Sweden’s richest person, handed over the day-to-day running of the business since 2009 is Persson’s 38-year-old son KarlJohan, CEO and owner of a chunk of shares himself.

The elder Persson enjoys downhill skiing, tennis and golf.

Arnault & 4. Bernard Family (France)

Net worth: €24.1 billion Source of wealth: LVMH

Schwarz 7. Dieter (Germany)

Net worth: €15.2 billion Source of wealth: Retail

The Schwarz Group, founded by Dieter’s father, Josef, with revenue of around €65.5 billion, comprises the Lidl and Kaufland store chains; the former is Germany’s second biggest discounter behind Aldi. Schwarz shuns all publicity but uses the dividends from his Dieter Schwarz Foundation to fund charitable projects, supporting education and daycare facilities for children.

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Net worth: €13.9 billion Source of wealth: Aldi, Trader Joe’s

Theo and his brother Berthold inherited the discount supermarket chain Aldi Nord and the US discount grocery Trader Joe’s in 2010 when their father died. The two chains have more than 5,300 stores in nine European countries and the US. Aldi Nord is owned by a family foundation that pays dividends to the beneficiaries.

Del Vecchio 9. Leonardo (Italy) Net worth: €13.8 billion Source of wealth: Glasses

Leonardo Del Vecchio founded Luxottica in 1961 and has chaired the €7 billion company ever since. The world’s largest producer and retailer of sunglasses and prescription glasses, Luxottica owns Ray-Ban and Oakley and makes glasses for Burberry, Bulgari, Chanel, Coach, DKNY, Dolce & Gabbana, Armani, Prada, Ralph Lauren, Tiffany and Versace.

Alisher Usmanov 10. (Russia) Net worth: €13.4 billion Source of wealth: Steel, telecom, investments

The richest man in Russia, Usmanov made his fortune in metals (iron ore and steel) and now has interests ranging from telecommunications (Megaphone, Russia’s No. 2 mobile phone operator) to media (Kommersant, the country’s largest business daily). He also owns a stake in Arsenal FC. In 2013 he formed USM Holdings with Andrey Skoch and Farhad Moshiri.

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Bernard Arnault, oversees a far-reaching luxury empire with

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Albrecht Jr & 8. Theo Family (Germany)

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interview

five minutes with...

Delia Velculescu IMF Mission Chief for Cyprus

T

he numbers in Cyprus for 2013 were better than expected. How do you explain this?

Cyprus’s GDP fell by 5.4% in 2013 against our projections of 6% at the time of the third review of the economic programme that is supported by IMF financial assistance (and 8.7% at the onset of the programme in May 2013). Private consumption did not fall as deeply as we expected, as individuals used their savings to smooth spending. Investment also contracted by less than envisaged. On the supply side, while construction and financial services declined significantly, tourism outperformed expectations, and the service sector held up.

Still, even as the outcome was better than expected, the recession was deep, and the economic situation remains very difficult.

If the Cypriot programme were to go off-track, would you see a possibility of a further haircut on bank deposits?

The Cypriot programme, which included very difficult and upfront decisions to address the root of the crisis, is on track. This is due to strong policy implementation and commitment by the Cypriot authorities, as well as broad support from the population and assistance from the international community.

Our efforts are directed toward keeping the programme on track so that Cyprus can remain on a path toward recovery and self-sustainment. However, risks to the

programme remain. Should difficulties emerge in programme implementation, we would need to assess their causes – i.e. fiscal, structural, or financial – and find appropriate solutions. Regarding the financial sector, banks and cooperative credit institutions have been recapitalized under conservative assumptions and buffers have been built in the programme to address potential risks.

If loan losses in Cyprus go beyond PIMCO’s adverse scenario, what will be the therapy?

Banks will need to address resolutely losses associated with non-performing loans. The programme includes a strategy based on two pillars: on the one hand, supervisory measures, including monitoring and assessment of banks’ progress toward loan restructuring targets and the development of corrective measures as needed; and, on the other hand, a reform of the legal debt restructuring framework to provide balanced incentives to both creditors and debtors to work out troubled loans. Banks and coops have adequate capital to address a further increase in nonperforming loans, and the programme includes a buffer that could be used to address capitalization needs if additional unforeseen risks materialize.

During your last visit to Cyprus, you were said to be surprised that foreign companies hadn’t abandoned the island after the haircut and the increase to the corporate

14 Gold the international investment, finance & professional services magazine of cyprus

tax rate. Given that Cyprus is now looking for stability, can you make a commitment that the Troika will not ask for any more changes to the tax regime?

Under the programme, additional fiscal measures will need to be identified in the outer years, to secure a primary fiscal surplus of 4% of GDP by 2018. This is needed to place public sector debt on a sustained downward path. However, Cyprus’ recovery is expected to be driven by the services sector, which relies on a favourable tax regime, among other factors. The programme does not envisage a change in this regime.

If the Cypriot government were to suggest an alternative way of raising €1.4 billion instead of the privatisation procedure, what would your reaction be?

The privatisation of state-owned enterprises envisaged under the programme has three aims: first, to reduce public debt, which is very high by international and historical standards and places a drag on growth; second, to improve economic efficiency by transferring resources from the public to the private sector and allowing for competition and better and more cost-effective services for the population; and third, to attract foreign direct investment, which can bring jobs and increase liquidity in the economy.

So privatisation does not simply seek to raise short-term resources for the budget but rather to bring a range of benefits to the economy.

get re What Institutional Investors Expect from Cyprus Real Estate.

By John Vickers & Effy Pafitis

A

sk anyone what Cyprus needs in order to restart its economy and you can be sure that one of the first things you’ll hear is “Foreign Investment”. But what, precisely, is going to attract investors to the island? Real estate has traditionally been considered one of the most successful sectors and, until five years ago, despite wellpublicised problems over the issuing of title deeds, property development was indeed thriving.

That was then, this is now. Today, after a prolonged period of falling sales and plummeting prices, the real estate sector is doing its best to rebound from the multiple blows it received from the global financial crisis and last year’s coup de grâce from Cyprus’ own crisis and banking sector collapse, as developers look to new markets and attempt to offer new and different investments. They are attending property trade fairs in China, giving presentations in the Gulf, advertising in Russia and elsewhere. Holiday homes have been replaced to some extent by grander projects – golf resorts, marinas, hotels, impressive office blocks – in search of foreign investors with the financial backing to realise their architectural dreams for Cyprus. Although not everyone agrees that real estate is the best investment, there are signs that, globally, plenty of people do. Last month, the New York-based investment bank Morgan Stanley released the results of a survey which

cover story

real! revealed that 77% of investors with at least $1 million in assets own real estate. Direct ownership of residential and commercial properties was the No. 1 alternative-investment pick for 2014, with a third of the millionaires surveyed saying they plan to buy this year. Some 23% said they expect to invest in real estate investment trusts, the second-most popular choice.

Wealthy foreigners are buying highend US properties for their safety and because they’re denominated in dollars, the world’s reserve currency, but they are looking elsewhere too. Earlier this month, a penthouse at One Hyde Park, London’s most famous luxury housing development in Knightsbridge, was sold for £140m, making it the city’s most expensive flat. The London property market, which has long been a favourite with Middle Eastern investors, has seen a surge of interest from Russian and Ukrainian buyers in recent

weeks as the tension between the two countries causes their wealthiest residents to seek safe places for their cash. Cyprus, however, is not London or New York, even if it does have a sizeable Russian (and Ukrainian) community in Limassol, but that does not mean that it cannot attract enough investors to its best real estate projects. We sought out the views of several experts about what foreign investors – and, in particular, institutional investors – want when they decide to take a look at Cyprus with a view to growing their wealth. After all, they have – literally – a world of choice. Is Cyprus in a position to give them what they need?

We have also compiled a list (right) of some of the world’s biggest and most successful institutional investors that focus on real estate in Europe. The local companies that wish to take advantage of foreign-based investment funds would do well to take a look at it.

No

Name

Website

info

1

ADLER REAL ESTATE

www.adler-ag.com

At the centre of its activities is the acquisition and management of residential properties throughout Germany.

2

AEW CAPITAL MGMT

www.aew.com

Its European Property Investors Special Opportunities raised $1.1 billion in 2013 alone.

www.aimco.com

The self-administered and selfmanaged Real Estate Investment Trust, investing solely in apartment communities, opened its first London office in January of this year. Listed on the NYSE, its market value currently stands at $4,588.99m (as of May 6, 2014).

www.allianz.com

Founded in Berlin, the insurance and asset management firm’s vast network of international locations includes an office in Cyprus. Total revenue of 2013 stood at €110,773 million.

www.angelogordon.com

It began investing in commercial real estate in 1993 and has acquired over $13 billion of properties. The firm was founded in 1988 and currently manages approximately $25 billion of investment portfolios.

www.arricano.com

It is a leading owner, operator and developer of shopping centres in Central and Eastern Europe, owning a €2.4 billion portfolio of 153 primarily food-anchored retail properties and shopping centres throughout the area.

3

4

5

6

AIMCO

ALLIANZ

ANGELO GORDON

ARRICANO REAL ESTATE

the international investment, finance & professional services magazine of cyprus

Gold 17

Investing

cover story

in Cyprus

in Real Estate Liakos M. Theodorou Partner, Head of Assurance & Advisory, PwC Cyprus

T

he events in Cyprus following March 2013, have affected economic and business activity on the island adversely. The island’s small size and restricted market, coupled with the current unfavourable economic environment and uncertainty over the domestic banking sector, may not favour it as a strategic option for international investors. At the same time, opportunities are emerging for investments in a number of sectors including real estate.

The attractiveness of the Cyprus real estate market is subject to the market’s features and perceptions for Cyprus as a whole.

On the supply side, the shortage of liquidity in Cyprus has created opportunities for investments in real estate projects of different sizes and level of development/maturity, including the following: • Mature projects that have been completed and provide a stable stream of cash flows, where owners wish to consolidate and realise the value of such assets • Real estate projects where development has commenced and significant investment has been made, but the projects are stagnant as there is a funding gap and it is difficult to secure additional financing • Real estate projects at the planning stage, where licensing has been obtained Given the current economic

environment, it is expected that the investors’ perception of risk will be relatively higher; hence investor return requirements in possible transactions are also expected to be on the high end.

What kind of institutional investors are likely to invest in Cyprus real estate?

Potentially interested investors could broadly be classified in the following categories: • Financial buyers (institutional investors) are generally more sophisticated, seek large and attractive investment opportunities with a relatively more short-term to medium-term orientation (depending on the type of institutional investors).

Examples of institutional investors include the following: • Real estate funds • Private equity funds • Hedge funds • Sovereign wealth funds (e.g.

Middle East) • Pension/insurance funds Some types of institutional investors such as private equity funds have a short-term investment horizon and may be willing to invest in relatively higher risk real estate projects (e.g. projects under development that are stagnant due to difficulty in securing additional funding, or projects at the inception stage), albeit at relatively high return requirements.

In contrast, infrastructure funds seek relatively stable and mature assets over longer-term investment horizons and require relatively lower returns compared to private equity investors.

These investors could potentially be interested in tourism infrastructure projects including integrated resorts such as golf resorts, marina resorts and large-scale mixed use resorts.

Other types of institutional

18 Gold the international investment, finance & professional services magazine of cyprus

investors such as pension funds/ insurance funds have relatively long-term investment horizons and seek stable assets with strong cash flow and stable (but relatively lower) returns. Examples of real estate assets of interest could be land, mature commercial real estate or office property with secured and high quality anchor tenants.

Sovereign wealth funds (e.g.

Middle East sovereign wealth funds) and other regional investors could potentially be interested in investments in large real estate opportunities with a medium-term to long-term investment horizon and requiring relatively lower returns compared to private equity investors.

income-producing real estate assets. Examples could be the sale and leaseback of commercial areas or office buildings with premium tenants, stable and secure cash flows and long term visibility of cash flows. Investments by family offices tend to be of a relatively lower size, with a medium-term to long-term investment horizon and relatively lower required equity returns compared to institutional investors (e.g. private equity).

Targeted high net worth individuals/family offices could originate from Russia given the strong business relationships between Cyprus and Russia, as well as social, cultural and other ties/considerations.

• Strategic investors Strategic investors including international real estate companies and/or construction companies, are mainly interested in capitalising on potential synergies with existing operations and/or obtaining access to new markets and real estate products.

These investors could introduce a new sense of direction and vision, provide funding and/or know-how, management skills, marketing techniques, clientele, etc.

Strategic investors have a relatively longer term investment horizon and could potentially be interested in partnering in large real estate projects (such as tourism real estate, commercial real estate, residential real estate and mixed use resorts) that can demonstrate healthy and secure cash flows.

What do institutional investors want to see? What will they take into consideration when making investment decisions?

• Individual investors (high net worth individuals/family offices) High net worth individuals and family offices could potentially be interested in mature and

• Macroeconomic environment • Location, concept and uniqueness of the real estate project/ property • Existence of licences and permits as per the regulatory environment • Expected return (risk return trade-off) • Investment horizon • Availability of information including solid and realistic business plans that reflect country and project specific risks (current economic environment and specific market conditions) • Security of cash flows and long term cash flow visibility (e.g. premium secured tenants), and prospects for growth in future profitability/cash flows • Corporate Governance and transparency • Tax considerations for implementing and realizing an investment • Corporate brand • Market position

No

• Business strategy • Management • Liquidity position • Existing capital structure • Transaction costs What is your advice to project owners in Cyprus such as Real Estate Developers, Hotel Owners, and other Entrepreneurs? What do they need to do to be considered eligible and to have a reasonable chance at least to be considered by institutional investors?

Property owners and entrepreneurs should identify well in advance the type of investor(s) (strategic and/or institutional, etc.) who might possibly demonstrate considerable interest and whose profile and investment criteria fit more closely with the characteristics of the specific asset/project under consideration.

Preparing for a transaction is also of crucial importance. Depending on the origin and profile of possible investors, thorough preparation needs to be undertaken prior to attracting and discussing with such sophisticated potential investors.

Proactive and effective planning allows a potential seller to obtain full understanding and information on the subject matter, prepare and demonstrate a well organised project/company prior to the commencement of negotiations with potentially interested parties and facilitates decision making.

Potential sellers should be in a position to: Identify and demonstrate clearly the unique and value- adding characteristics of the real estate property/ project (e.g. strategic and unique location, security and visibility of cash flows, investment horizon, future prospects, • quality and credibility of the company (corporate brand) etc) • Identify any weaknesses or areas for improvement in the project/ company and take corrective action proactively.

This is expected to improve the possibility of completing a transaction timely and at a relatively improved consideration.

In general, indicative matters/ areas that may be considered and addressed by project/company owners during the preparation stage include, among others, the following: • Scope of a potential transaction - Sale of shares and percentage holding to be offered - Sale of business/assets (all or part of operations) • Obtaining all relevant licences and permits - Preparation of a solid and detailed business plan - Conservative and realistic assumptions as regards future cash flows/profits (standing up to scrutiny from the point of view of the investor) - Healthy and sustainable profitability/cash flow generation after finance and attractive returns - Financial projections should incorporate the prevailing economic and market/business conditions • Other detailed management financial information, including key performance indicators (“KPIs”) and benchmarking • Secured and formal agreements (e.g. with tenants) • Possible reorganisation to facilitate tax planning and investor entry & exit • Corporate Governance and transparency in decision making • Quality, experience of the management team/key talent, and continuity of the key talent following a potential transaction (and under what terms) • Organisational structure, systems and processes: - Possible reorganisation of organisation structure, for more efficient, effective and flexible management - Update and documentation of the adequacy of systems and processes.

Name

Website

info

7

ATRIUM EUROPEAN REAL ESTATE

www.aere.com

The leading owner, operator and developer of shopping centres in Central and Eastern Europe, ownn a €2.4 billion portfolio of 153 primarily food-anchored retail properties and shopping centres throughout the region.

8

BEACON CAPITAL PARTNERS

www.beaconcapital.com

This private real estate investment firm traces its history back over 65 years of developing, owning, and operating real estate.

9

BEHRINGER HARVARD

www.behringerinvestments.com

It offers alternative investment programmes such as real estate investment trusts (REITs), joint ventures, and proprietary programme structures.

10

BLACKROCK

www.blackrock.com

With 60 offices in more than 30 countries and $4.32 trillion in assets under management, it is one of the largest asset management firms worldwide.

11

BLACKSTONE

www.blackstone.com

The premier global investment and advisory firm has raised nearly $32 billion in equity – including that from its extensive real estate investments – since 2008.

12

BROOKFIELD ASSET MGMT

www.brookfield.com

It is a global alternative asset manager with over $175 billion in assets under management.

13

CARLYLE GROUP

www.carlyle.com

Its Carlyle Europe Real Estate Partners III Fund raised $3.494 billion in 2008.

14

CB RICHARD ELLIS INVESTORS

www.cbreinvestors.com

The full-service real estate services company had a total transaction value of $223.2 billion in 2013.

15

CBRE GLOBAL INVESTORS

www.cbreglobalinvestors.com

It is one of the world’s largest real estate investment management firms with $90.2 billion in assets under management as of March 31, 2014. Its European Shopping Centre Fund has attracted €231 million in equity so far.

16

CLARION PARTNERS

www.clarionpartners.com

The real estate asset management firm invests in commercial, residential, industrial and leisure properties, estimating $30 billion in total assets currently under management.

17

COLONY CAPITAL

www.colonyinc.com

The privately-held independent global real estate investment firm, founded in 1991, invests in diverse and complex property, corporate, and portfolio transactions across five continents.

18

CORNERSTONE RE ADVISERS

www.cornerstoneadvisers.com

A full-service real estate advisory firm managing real estate debt and equity investments, it reported $42 billion in assets under management for 2013.

19

CPP INVESTMENT BOARD

www.cppib.com

The global institutional investor, which operates a dedicated real estate investment segment, had $201.5 billion in net assets as of December 2013, reporting an increase of $8.7 billion for the first quarter of 2014.

20

CREDIT SUISSE

www.credit-suisse.com

The Switzerland-based, leading global finance services company offers a wide range of real asset investment programmes across its real estate and commodities businesses. It reported €304.4 billion in assets under management as of December 2014.

21

DEKABANK

www.dekabank.de

With 2013’s year-end assets under management totaling €170 billion, the Group ranks among Germany’s major securities service providers.

22

DOLPHIN CAPITAL INVESTORS

www.dolphinci.com

A leading investor and developer of large-scale residential resorts in emerging markets, Dolphin is one of the largest private owners of developable seafront land in Greece and Cyprus.

23

DUET REAL ESTATE

www.dreflimited.com

Listed on the LSE, its share price currently stands at £74.50 (as of May 7).

24

EII CAPITAL MANAGEMENT

www.euroinv.com

It is one of the leading global providers of real estate securities investment management services.

Since 1987, the firm has been managing diversified portfolios of publicly listed US REITs and real estate operating companies (REOCs).

25

EUROPEAN REAL ESTATE INVESTMENT TRUST

www.ereit.co.uk

It is a closed ended property investment company domiciled in Guernsey and listed on both the Channel Islands and London Stock Exchanges.

Investing

cover story

in Cyprus

in Real Estate George Mountis

Director Business Development, Emergo Wealth

What kind of institutional investors are likely to invest in Cyprus real estate?

The type of investors that demonstrated interest to invest in big real estate projects, in which Emergo Wealth has acted for both the buy and sell side of the investment, includes mainly foreign High Net Worth Individuals (HNWI) and institutional investors (i.e. private equity firms, financial/investment companies and hedge funds).

For commercial and mixed use real estate projects (depending on the size of the investment), the interest is primarily from foreign investors. Some local investors are seemingly willing to invest but mainly in ‘distressed assets’ with significant market value discount.

For residential real estate properties, in the Q1 of 2014, almost

40% of the sale and purchase agreements involved foreign buyers (mainly from Eastern Europe, Middle, Far East and the UK).

There has been an increase in interest from local buyers but, again, such investors are always looking to invest in ‘distressed assets’.

Local sources of funding investments are limited as there has been a significant flight of private capital and the domestic institutional investors (pension and provident funds) are already over-invested in local real estate properties.

Earlier this quarter, the government announced changes to the criteria by which the citizenship is granted to investors. The amount necessary for foreign investors to secure a Cypriot passport has been reduced to €2.5 million for someone participating in a collective investment worth at least €12.5 million. This programme has proven to be effective and we believe that the new criteria will be welcomed by investors from Eastern Europe and the Far East (China).

foreign investors are increasingly cautious when it comes to actual asset due diligence 20 Gold the international investment, finance & professional services magazine of cyprus

How realistic is it to expect investments from institutional investors in various types of real estate?

It is realistic. In the next few months, we expect that some more deals will be announced mainly concerning hotel/tourism real estate investments. As Emergo Wealth, we believe that Cyprus has started regaining the international investment community’s confidence vote, as we have seen an increase in interest from institutional investors.

We represent numerous foreign investors that have already arrived in Cyprus. Together, we review specific assets and projects, looking at opportunities to invest in anything from large-scale real estate projects (mainly in the tourism/hotel industry), to operating hotels and/or acquiring nonperforming loans/assets, etc.

As previously mentioned, these sophisticated investors have seen this scenario play out elsewhere (Spain, Ireland, Germany) and they know that, in two or three years, the economy will start

growing again, provided that the country streamlines its public sector, strengthens its supervisory bodies, and restructures its banking industry.

What do institutional investors want to see? What will they take into consideration when making investment decisions?

Obviously, these investors are here (or want to come) to make money, some short-term and others long-term. They are interested in investments that are at a discount in terms of market value and they are also keen to acquire assets that have some form of an ‘exit’ strategy in place. The problem in Cyprus is that, due to the limited demand and liquidity (especially during the last few years), investors are particularly worried as to how they could possibly exit from specific investments, i.e. dispose of assets in the near future. Today, it is very easy to get in (acquire), but tough to get out (sell). Furthermore, foreign investors are increasingly cautious when it comes to actual asset due

diligence, thus they thoroughly investigate both the underlying financial and legal aspects of a transaction (i.e. title deeds and charges on the estate have been one of their major priorities).

We recommended that all investors take into consideration the actions outlined below: •Formulate a specified strategy and define assessment criteria.

•Review individual projects/ assets against the predefined strategy.

•Make an in-depth examination of projects that meet return and risk profile (reviewing risks and exit strategy).

•Carry out in-depth due diligence.

What kind of returns are foreign institutional investors expecting from investing in real estate projects in countries like Cyprus?

In Cyprus, “investment yield” is a term not frequently used.

It is widely acknowledged, however, that yields are a useful analysis tool demonstrating the relationship between rent and property prices.

At the end of Q4 2013 (RICS, 2014), average gross yields stood at 3.8% for apartments, 1.9% for houses, 5.3% for retail, 4.5% for warehouses, and 4.3% for offices. The parallel reduction in capital values and rents is keeping investment yields relatively stable and at very low levels (compared to yields overseas). This suggests that there is still room for repricing of capital values to take place, especially in the commercial real estate.

What is your advice to project owners in Cyprus such as Real Estate Developers, Hotel Owners, and other Entrepreneurs?

What do they need to do to be

considered eligible and to have a reasonable chance at least to be considered by institutional investors?

1.

Rational pricing – adjust asset prices to reflect market conditions.

2.

Those who have a mortgage on their assets need to review asset pricing with their bankers to ensure the lowest pricing that the banks might be willing to accept in order to release the mortgaged assets. Companies are urged to do so before entering negotiations with institutional investors.

3.

Obtain professional advice to prepare investment presentations and highlighting project attractiveness (i.e. ROI, unique selling points that could provide the edge needed to make an asset stand out from the crowd).

4.

Evaluate the local market with comparable project characteristics and values (forget about 2012 pricing. Institutional investors are not interested in purchasing assets at historic topof-the market valuations).

5.

Coordinate the preparation of disclosures and other required documentation (i.e. title deeds, building permits for any work done, etc.).

6.

Perform roadshows to major investment destinations (again professional advice might be needed).

7.

Create bundles or portfolios of properties that can be collectively sold to investors (Government incentives are provided for such collective schemes).

No

Name

26

EYEMAXX REAL ESTATE

www.eyemaxx.com

An international property developer focused on the markets of Germany, Austria and Central Europe, EYEMAXX’s core business is the development of commercial properties such as retail centres and retail parks.

27

F&C UK REAL ESTATE INVETMENTS

www.fctr.co.uk

A British property investment firm, it reported £283.2 million in total assets last year.

28

FORUM PARTNERS

www.forumpartners.com

This global real estate investment and corporate finance firm is headquartered in London with offices worldwide.

29

GLL REAL ESTATE PARTNERS

www.gll-partners.com

GLL’s funds under management exceed €5 billion, 42% of which is located in Western Europe and 39% allocated in the USA.

www.globalworth.com

An AIM real estate investment company, its portfolio currently comprises an Asset Manager platform and eight real estate investments all located in Bucharest, Romania.

www.harborgroupint.com

The Group controls more than $3.8 billion in real estate investment properties, owning in excess of 10.5 million square feet of commercial properties and 24,500 apartment units throughout the US and UK. With almost five decades of experience in investing in real estate equity, securities and debt, Heitman estimates it possesses $27.3 billion in assets currently under management.

30

GLOBALWORTH

31

HARBOR GROUP INT’L

Website

info

32

HEITMAN

www.heitman.com

33

HINES

www.hines.com

34

INVESTCO RE

www.invesco.com

35

INVESTCORP

www.investcorp.com

36

INVESTORS IN REAL ESTATE LIMITED

www.igre.co.uk

An LSE-listed, closed-ended, Guernsey incorporated investment company, it invests in a global portfolio of listed real estate securities

37

INVISTA EUROPEAN REAL ESTATE TRUST

www.ieret.eu

A closed-ended investment company domiciled in Luxembourg, it is listed on the LSE, boasting an investment portfolio that extends across 7 European countries.

Investing in a plethora of property types, the investment management firm has more than $22 billion in equity.

It has a diversified portfolio of real estate properties, including residential, commercial and industrial property types.

A leading provider and manager of alternative investment products, serving high-net-worth private and institutional clients, it has approximately $10.5 billion of assets under management.

38

ISTAR FINANCIAL

www.istarfinancial.com

With its European subsidiary iStar Europe, it has completed over $35 billion of commercial real estate investments over the past two decades, becoming one of the most experienced companies in the global commercial real estate finance markets.

39

J.P. MORGAN

www.jpmorgan.com

J.P. Morgan provides the full range of real estate advisory and capital market solutions with specialised expertise in M&A sell-sides, crossborder transactions, capital raisings and IPOs.

40

KUWAIT INVESTMENT COMPANY

Www.kic.com.kw

Founded in 1961, the KIC provides a wide range of local and international investment services.

41

LASALLE INVESTMENT MANAGEMENT

www.lasalle.com

One of the world’s leading real estate investment managers, it has almost 700 employees in 16 countries worldwide, with $47.6 billion in assets under management.

42

LNR PROPERTY CORPORATION

www.lnrproperty.com

It is a diversified real estate investment, finance, management and development company.

43

MACQUARIE GROUP

www.macquarie.com

Its Real Estate team provides advisory and capital arranging services to real estate and real estate-related market participants.

It reports $39 billion in equity raised, last year.

44

MORGAN STANLEY

www.morganstanley.com

Today, Morgan Stanley’s real estate franchise comprises three distinct yet globally integrated businesses: banking, investing and lending. It reported full year net revenues of $32.4 billion for 2013.

Investing

cover story

in Cyprus

in Real Estate Charis Papacharlambous Director-General, Cyprus Investment Promotion Agency (CIPA)

What kind of institutional investors are likely to invest in Cyprus real estate?

My feeling is that we’ll first see interest and possible investments in mixed use or tourismrelated projects that generate a constant stream of income, rather than in pure real estate projects which will probably come at a later stage. In the end it all comes down to an investor finding something that creates a constant flow of revenue and can be considered as providing a decent return. At the end of the day, no-one invests money in projects that are not expected to yield a decent return.

How realistic is it to expect investments from institutional investors in various types of real estate?

Strictly speaking I think that it is realistic, considering that, as a country first of all, we are continuing to improve the regulatory framework and other things that need to be changed in order to help Cyprus regain its credibility. This is very important and it’s the first box that we need to tick – making sure that we have a credible and high- quality economy in place. Secondly, we need to

make these ventures attractive enough from the investor’s financial perspective and to minimise risk, which also has to do with the overall economy.

The country’s macro-economics and long- term potential are what we need to focus on.

Attracting investment will take time and coordinated efforts on a number of fronts.

What I would like to see is the addition of new sectors and improvements to the quality of existing sectors so that we have a more diversified economy.

It’s very important that new things develop, such as a the film industry, the funds industry, research and development, medical tourism – things like that where we seem to have advantages but for which we don’t seem to have a firm and cohesive strategic plan whereby to develop them.

I am conservatively optimistic about the future of investment in the country’s real estate sector and I base this mainly on the mid- to long-term prospects of the economy as a whole.

What do institutional investors want to see? What will they take into consideration when making investment decisions?

It is a fact that the first thing they are looking at is the Return on Investment. They can get a better return if prices are pushed down. We need to compare what we are offering from a global perspective. Our competition is the whole world and we need to be realistic with

our costs and our returns. Real estate was overpriced in the past so there is no point in considering the prices of that time and thinking about how much difference there is today.

It’s irrelevant. It was a bubble and it burst so now we have a new de facto situation and we have to start from that. At the present moment, a lot of foreigners are looking at Cyprus as a place with distressed assets and they have good reason to be thinking like this even if we do not feel good about it.

In addition to the return, investors are looking at issues such as risk, security, prospects and, of course, other things such as exit strategies.

We need to be working to become a more modern economy. For example, if we create more interest in the Cyprus Stock Exchange, that could open up opportunities for investors looking to enter, expand but also exit the market. If we can assist CySEC, the Central Bank and generally all regulators in improving their role, this will establish a greater sense of security among potential investors.

There are lots of things we could be doing. No-one disputes the fact that Corporate Governance is an issue that needs improving, for example.

Also, we need to ensure that procedures are simple, adhered to, and the same for everybody, and there needs to be clarity in everything related to the economy. Basically we have to build a solid framework and economy.

What kind of returns are foreign institutional investors expecting from investing in real estate projects in countries like Cyprus?

Because some of these investors have so many options, from what I hear they are certainly talking about double-digit returns. They can find projects in countries that we would consider less developed than Cyprus, which can yield significantly higher returns than what most Cypriot ventures could even in the best of times.

What is your advice to project owners in Cyprus such as Real Estate Developers, Hotel Owners, and other Entrepreneurs? What do they need to do to be considered eligible and to have a reasonable chance at least to be considered by institutional investors?

• They need to have detailed and realistic business plans and financial analyses ready. • They need to appreciate that it has to be a win-win situation and that these investors are spoilt for choice • They need to take a totally professional and coolheaded approach to their projects. No space for sentiment and when the deal is on the table one has to take it. • It’s important that the business community works together and that each individual or company realises that it is not in competition with the others. • Property developers need to work together to help build the Cyprus brand. They can’t do it on their own. • Feel good about foreign investors.

I am conservatively optimistic about the future of investment in the country’s real estate sector 22 Gold the international investment, finance & professional services magazine of cyprus

Panayiotis Chrysostomou Director, Symmetria F.S. Ltd

What kind of institutional investors are likely to invest in Cyprus real estate?

The type of institutional investors most likely to exhibit interest in investing in Cyprus are investment funds, such as property funds or private equity funds, investing in property as part of their investment strategy. Distressed asset funds that would invest in property alongside other asset classes have also shown interest. It should be pointed out, however, that the lack of sizeable projects/properties makes investing by foreigners more difficult, given the portfolio sizes of such institutional investors abroad, and limits the type of institutional investors who may be interested.

How realistic is it to expect investments from institutional investors in various types of real estate?

Despite the size limitation described above, we believe it is still realistic to expect investments in any of the above fields as investors would assess the potential of such investment opportunities in terms of expected returns and risk. Most institutional investors interested in Cypriot property are aiming at tourism-related assets as they think the story of tourism is one which will hold up. We realise that some Funds are monitoring developments in Cyprus on the issue of foreclosures, insolvency and the relevant legislations as well as developments on the possible creation of an asset management company to which problematic banking assets shall be transferred, as they feel that more investment opportunities may surface in the future. Certain Property Funds, which may be interested, would probably need to buy gradually to accumulate a meaningful size.

Some of those Funds would aim at income generating properties whereas others, such as Private Equity Funds and Distressed Funds, would be more flexible but again require size. The lack of Property Funds in Cyprus is negative as it again limits the number and type of investors who may show interest.

What do institutional investors want to see? What will they take into consideration when making investment decisions?

Institutional investors’ due diligence process would assess whether there is a good investment case behind any potential property investment opportunity, which would be economically sound and would result in a good return either in the form of yield or capital gain. Including a property or a set of properties in an institutional portfolio would also depend on how well they would fit with the rest of the portfolio and therefore investment characteristics would also be assessed from that angle. Diversification would be decisive for such investments and factors such as expected return, risk and correlation with other portfolio holdings would be seriously considered in investment decision making.

How are they going to evaluate risk and return? What kind of returns are the foreign institutional investors are expecting from investing in real estate projects in countries like Cyprus?

Global investors are continuously hunting for yield and are increasingly looking at countries like Cyprus that may offer an attractive risk-return proposal. Prospective investors would, of course, expect a return that would compensate them for the risk undertaken. Among other factors, they would pay serious attention to the expected investment horizon and would require the appropriate return given expected exit from each investment opportunity and associated risks.

Website

No

Name

info

45

NEWMARK GRUBB KNIGHT FRANK

www.ngkf.com

A multinational real estate service firm headquartered in New York City, providing fully integrated platform of services to prominent multinational corporations and institutional investors across the globe.

46

ORION CAPITAL MANAGERS

www.orioncapitalmanagers.com

This is a real estate investment firm, whose prime focus is commercial real estate investment management.

47

PERELLA WEINBERG PARTNERS

www.pwpartners.com

It raised €1.2 billion for its debut European vehicle, Perella Weinberg Real Estate Fund I.

48

PROLOGIS

www.prologis.com

It is a leading owner, operator and developer of industrial logistics real estate across the Americas, Europe and Asia. With $51 billion in total assets under management and approximately 574 million square feet owned, managed or under development, it was named as one of Fortune’s World’s Most Admired Companies for 2014.

49

PRUDENTIAL REAL ESTATE INVESTORS

www.investmentmanagement. prudential.com/view/page/ pimusa/187

The firm deals in real estate investment throughout the US, Europe and Middle East, boasting $55.7 billion in assets under management as of December 2013.

50

QATARI DIAR REAL ESTATE INVESTMENT COMPANY

www.qataridiar.com

TherealestatesubsidiaryoftheLSE-listedQatarInvestmentFund,thecompany investsinpropertiesthroughoutEurope andtheMiddleEast.

51

REAL ESTATE CREDIT INVESTMENTS

www.recreditinvest.com

It is a specialist investor in European residential and commercial credit markets, focused on the UK and Western Europe.

52

REAL ESTATE INVESTORS PLC

www.reiplc.com

Formed in 2004, REI PLC is a publicly quoted property investment company with interests in quality commercial and residential properties throughout the UK.

www.rockpointgroup.com

Rockpoint proactively targets specific asset classes and geographic regions given current market conditions, with particular focus on value creation opportunities, distressed/restructuring opportunities and complex situations.

53

ROCKPOINT GROUP

54

RREEF REAL ESTATE

www.rreef.com

It invests across the risk spectrum in core, value-added and opportunistic real estate, real estate and infrastructure securities and real estate debt on behalf of governments, corporations, insurance companies, endowments, and retirement plans worldwide.

55

SCHRODER REAL ESTATE INVESTMENT TRUST LIMITED

www.srei.co.uk

Listed on both the Channel Islands and London Stock Exchanges, it s a closed-ended property investment company, domiciled in Guernsey.

56

SIRIUS REAL ESTATE LIMITED

www.sirius-real-estate.com

Sirius owns and operates business parks, offices and industrial complexes across Germany.

57

TRASTOR REIC

www.trastor-reic.gr

Formerly Piraeus REIC, the company is a special purpose real estate investment company, interested in both retail and commercial property. It was listed on the Athens Stock Exchange in 2005.

58

TRISTAN CAPITAL PARTNERS

www.tristancap.com

A London-based real estate investment management company, it specialises in investment strategies in all property types across the UK and continental Europe, for select institutional and private investors.

www.ubs.com

It offers high net worth and affluent individuals around the world a complete range of tailored advice and investment services. Its Global Asset Management’s Global Real Estate business actively manages real estate investments globally and regionally within Asia Pacific, Europe and the US.

www.wpcarey.com

It is a leading global net-lease REIT, listed on the NYSE that provides long-term sale-leaseback and build-to-suit financing for companies worldwide, owning and managing an investment portfolio of more than $15 billion. Its asset manager specializes in the acquisition and management of singletenanted commercial real estate.

59

60

UBS AG

WP CAREY

the international investment, finance & professional services magazine of cyprus

Gold 23

opinion

Shocking Forecasting The delayed effects of 2008 have yet to detonate.

I

n the five or so years running up to 2008, I never lost an opportunity to warn of what I saw as a near certain shock to the US residential market, a quite different banking one hitting the softer parts of the eurozone, and a third shock I saw looming across what was being all too sanguinely termed ‘Emerging Europe’.

As far as the UK was concerned I warned that it could not avoid being hit by the three shocks I feared elsewhere.

Some considered my views as consistent but frustratingly difficult to time. Others saw them as over-cautious. There were even those who saw me as having lost all sense of perspective.

As it happened, the US did suffer a nasty sub-prime crisis, severe shocks did hit a raft of eurozone nations and economic reversals were suffered widely across what was exposed as not-soemerging Europe. Britain’s pains were themselves not inconsiderable.

I am not returning to old ground to gloat and I apologise if it seems so. I am reprising the run up to – and the events of – 2008 for a very timely reason; what has happened since 2008 is not the full extent of what I was convinced was looming.

The plain truth, or certainly as I see it, is that the United States and continental Europe have shocks from their excesses up to 2008 that are still to detonate. The reason they did not detonate at the time is not because they were duds or because they were safely defused: their detonation was simply delayed.

It was delayed in the US by a dramatic cut in short rates and then the considerable printing of money (or its equivalent quantitative easing), and delayed too because of forbearance over mortgage dereliction and fiscal pump-priming. In fact, Washington has now used every delaying tactic possible.

No currency free to do so across the region will remain upright

info: Dr. Savvas Savouri is a Partner and Chief Economist of Toscafund.

24 Gold the international investment, finance & professional services magazine of cyprus

By Savvas Savouri

Europe has also resorted to delaying tactics.

There was the financial support extended in 2008 to those non-euro nations whose currency weakness was threatening to send serious external shocks into eurozone economies already struggling with internal pains. Another delaying tactic was the nationalisation of bad banks.

All the evidence is that the delaying tactics have now been exhausted. In the United States, long rates are edging higher. Their ascent will, I believe, steepen as tapering takes away the monetary stimulus upon which the economy has become far too reliant. As for the Treasury market, it will have to cope with the sell-off shock that should have detonated some time ago but was delayed.

The ongoing slide in the currencies of Turkey and Ukraine is reopening wounds in Europe that were patched-up six years ago but never healed.

With time – and not a great deal of it, in my opinion – the dominoes will begin to fall. Be in no doubt that neither the zloty nor the forint nor the leu, nor indeed any currency free to do so across the region will remain upright. As for the euro, it will be the unit these will fall most against. We will, in effect, see the full extent of the competitive devaluation shocks that should have detonated in 2008.

What then of the UK? There will no doubt be those expecting me to say that London was also culpable in delaying rather than defusing the detonations that the UK economy should have suffered in 2008/9. I will not make such a claim.

By way of evidence I will point to sterling’s considerable slide in 2008 as evidence that it acted as a hugely valuable blast-wall, absorbing the shocks which would have otherwise had to be taken by nominal wages and factory prices.

Today, renewed unpleasantness across mainland Europe will prove more help than hindrance to a Britain swallowing up the human and financial capital evacuating to it.

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GLOBAL FORUM

on the Road

to OECD

Compliance Six months ago, the Global Forum’s assessment of Cyprus as a non-compliant jurisdiction regarding the availability of tax information sent shockwaves through the professional services sector. Things are being fixed, says EY Tax Partner Philippos Raptopoulos.

By Effy Pafitis

W

e’ve all heard that honesty is the best policy.

Today, during the current period of economic instability, honesty is no longer the ‘best’ policy – it is the only policy.

There has been much publicity surrounding the issues of transparency, trust and compliance with international regulations. These practices are viewed as essential for the smooth cooperation of countries when it comes to tax matters and laying the foundations for confidence for further business relationships.

Foreign firms are

now required to bring their decision-makers to the jurisdiction if they want to

continue reaping the benefits of Cyprus’ favourable

tax regime

The subject is of particular significance to Cyprus. Finding itself on the receiving end of a non-compliance assessment by the Global Forum of the Organisation for Economic Co-operation and Development (OECD), the island has been obliged to take and enforce the necessary measures to meet requirements or face the consequences.

This predicament begs many questions: What is the OECD Global Forum? How did they come to evaluate Cyprus unfavourably? Finally, what is being done to change the island’s negative rating?

the international investment, finance & professional services magazine of cyprus

Gold 27

GLOBAL FORUM

What is the Global Forum?

The Global Forum was originally established in 2001 by OECD member countries along with a number of participating partners and has been a driving force behind the development of the international standards of transparency and exchange of information for tax purposes.

Following the restructuring of the Global Forum as a consensus-based organisation – where all members are on an equal footing – the Forum agreed on a three-year mandate to promote the rapid implementation of the standard through the peer review of all its members and other jurisdictions relevant to its work, with an ambitious agenda to improve transparency and exchange of information for tax purposes.

The Global Forum now includes 121 member jurisdictions and the EU, along with 12 observers; making it the largest tax group in the world. Cyprus is one of these 121 members.

Cyprus has taken

significant steps and we are on the right track to soon become a

‘compliant country’

How are members evaluated?

All members of the Global Forum undergo peer reviews of their legal and regulatory framework for the exchange of information in tax matters and the implementation of the standard in practice. The process is overseen by a 30-member Peer Review Group (PRG) which meets three or four times a year to discuss the peer review reports that are finally adopted by the Global Forum members.

The review is mainly interested in ascertaining the correct ownership and identity of information for all relevant entities and arrangements, ensuring that it is available to the competent authorities and that reliable accounting records are kept for all relevant entities and arrangements, and providing information under its network of arrangements in a timely manner. The main areas of interest of the Global Forum Review are the obtainability, availability, transparency and exchangeability of information for tax purposes.

How was Cyprus evaluated?

During the preliminary Phase 1 of the review, which examines the legislative framework of the country, the OECD discovered that all the legislation governing the availability of information for ownership, accounting and banking was in place, as was legislation relating to access to information, rights and safeguards.

Despite this, the network of agreements for the exchange of information was evaluated to be in need of improvement, as was confidentiality.

Though these results revealed that the legal framework was mostly in place, the results of Phase 2 showed that they were not being correctly implemented.

The jurisdiction was thus evaluated as partially compliant on the grounds of availability of information for ownership and the timely exchange of information, and as non-compliant for the availability of information for accounting and access of power to information.

The compliance rate for income tax return filings was evaluated at 35%, whilst the compliance rate for annual returns filed with the Registrar of Companies was just 23%. The response-time for the

28 Gold the international investment, finance & professional services magazine of cyprus

exchange information was significantly longer than the accepted period of 90 days.

Thus, in November 2013, Cyprus was assessed as a Non-Compliant jurisdiction.

What happens now?

Such an unfavourable evaluation harms the country’s reputation as well as existing and future relationships. Far from being naïve about the severity of the situation, the responsible Cyprus authorities have since been working hard to increase compliance and enforce more stringent regulations.

“Cyprus has taken significant steps and we are on the right track to soon become a ‘compliant country’,” says Philippos Raptopoulos, EY Tax Partner.

“At last,” he adds, “we are undertaking the correct measures.”

These measures include collecting a more holistic database of information on companies operating on the island, improving longterm planning of information exchange and tracking information.

Cyprus is also catching up on pending requests for information.

It was recently announced, for example, that the authorities have responded to 40 of a total of 48 requests submitted by India for information for tax purposes. It is speculated that these recent efforts will soon lead to Cyprus being removed from India’s blacklist.

Cyprus must continue in particular, Raptopoulos suggests, to “enhance substance in the operations of International Business Companies (IBCs).” IBCs in Cyprus, though accustomed over the years to hiding from correct regulation on the island, must now bring substance to their operations on the island.

This means that, instead of having an empty office with a forwarding address, foreign firms are now required to bring their decision-makers to the jurisdiction if they want to continue reaping the benefits of Cyprus’ favourable tax regime.

Operations of substance imply a functioning workforce, including senior firm members, as well as holding important events such as Annual General Meetings in Cyprus.

Such measures not only contribute to compliance and trustworthiness; they aid employment in Cyprus, allowing the international firms that take advantage of Cyprus’ offerings to contribute to the economy in some way.

However, the time-frame within which Cyprus achieves compliance is not only relevant but, as Raptopoulos stresses, “very critical.”

If Cyprus is slow to fully implement the measures proposed by the OECD and achieve compliance, both existing and prospective future business relationships will be in jeopardy.

Despite this severe consequence hanging in the balance, Raptopoulos assures Gold that “we are on track to achieve it.”

The Global Forum convened again earlier this month and an interim progress report on Cyprus was filed during the meeting.

The final assessment will be undertaken in November.

“If we are rated as compliant, the reputation of our jurisdiction in both the European and International markets will be restored.

Many countries will therefore revisit their stance on Cyprus,” Raptopoulos explains.

There is, it seems, no time to lose.

©2014 KPMG Limited, a Cyprus limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

All rights reserved. Printed in Cyprus.

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eu-us trade

TTIPing the Trade Balance The Transatlantic Trade and Investment Partnership (TTIP) is a trade agreement that is presently being negotiated between the European Union and the United States. It aims at removing trade barriers in a wide range of economic sectors to make it easier to buy and sell goods and services between the EU and the US. On top of cutting tariffs across all sectors, the EU and the US want to tackle barriers behind the customs border – such as differences in technical regulations, standards and approval procedures. These often cost unnecessary time and money for companies who want to sell their products on both markets. The TTIP negotiations will also look at opening both markets for services, investment, and public procurement. By John Vickers

P

eter Chase, Vice President for Europe at the EU-American Chamber of Commerce in Brussels, will be in Cyprus later this month to speak about the Transatlantic Trade and Investment Partnership. He gave an exclusive interview about TTIP to Gold.

Gold: Given that tariff barriers between the US and the EU are already low, is the proposed Transatlantic Trade and Investment Partnership (TTIP) going to make a real difference?

Peter Chase: Absolutely! In the first place, you need to realize that the starting-point of the US-EU economic relationship is that it is based on investment, rather than trade. US firms have over $2.2 trillion invested in Europe, while European firms have $1.67 invested in

30 Gold the international investment, finance & professional services magazine of cyprus

the United States. This is an exceptionally deep and broad relationship, unparalleled anywhere else. As a result, some 40% of transatlantic trade is intra-firm. This means that while tariffs may be low on average, they are frequently paid two or even three times as a firm sends components back and forth between its plants on either side of the Atlantic. Just eliminating these taxes on the companies’ internal activities will significantly increase their global competitiveness. In addition, the low average tariff rate hides a lot of peak tariffs in many areas – a substantial proportion of the duties placed on products in the US and European Union exceeds 5%, and these get even higher in the areas of textiles, apparel, shoes, foodstuffs and even cars and light trucks. Simply eliminating tariffs could have a major impact on growth. Indeed, according to the European Centre for International

Peter H. Chase joined the US Chamber of Commerce as its Senior Representative in Europe, based in Brussels, in April 2010.

He became Vice President for Europe in August 2012. Chase is a Foreign Service Officer with more than 30 years of experience in promoting US business interests abroad. He brings substantial expertise on Europe to the Chamber, including tours as Minister-Counselor for Economic Affairs in the US Mission to the European Union (2007-2010), Director of the State Department’s Office of EU Affairs (20042007), Chief of Staff to the Under Secretary of Economic Affairs (2001-2003), and Counselor and Minister-Counselor for Economic Affairs in the US Embassy in London between 1997 and 2001.

His first foray into the EU came as economic counselor at the

Mission to the EU between 1992 and 1996. Other relevant assignments include two years as Director for Investment Affairs at the Office of the US Trade Representative and two years as foreign and economic policy adviser to Sen. Bill Bradley (D-NJ). His earlier career was oriented toward China, including opening the first US Consulate General in Guangzhou, serving in the Office of Chinese and Mongolian Affairs, and working with the American Institute in Taiwan. Chase has a Master of International Affairs from Columbia University’s School of International Affairs and a bachelor’s degree in Chinese language and literature from the University of Washington.

Political Economy’s econometric modelling, eliminating tariffs would mean that US and EU GDP would be $180 billion higher in five years over what it would have been if we did not take this step.

Gold: Presumably TTIP is meant to do much more than just eliminate tariffs on trade in goods?

P.C.: Yes, of course. We hope to significantly improve customs procedures with a single electronic platform, so that an exporter’s documents can be used directly by the importer.

We intend to liberalise trade in services, the sector now responsible for the vast majority of net job creation in the US and EU. We see room for freeing up investment, and opening procurement markets. And we see major growth opportunities, especially for small and medium sized enterprises, through finding ways to simplify the regulatory requirements exporters need to meet while maintaining the high standards of protection the US and EU give to our consumers, workers, environment and investors. Indeed, many believe some 80% of the gains from TTIP will come from this regulatory cooperation.

Gold: Would it not make more sense for both partners to be looking towards new markets or do you view TTIP as the start of a much longer process towards global free trade?

P.C.: Both the United States and the European Union seek liberalisation of trade globally. Our markets are relatively open, and we believe others should be too. We both hoped for a successful Doha Round in the WTO, but for many reasons that did not work. By pressing for bilateral liberalisation, including between ourselves, we hope to reignite the movement toward broader trade liberalisation.

Gold: Fears have been expressed on both sides that wherever regulation is less strict, it will be adopted as the norm and will therefore lead to a decline in standards and consumer protection.

Are these fears well-founded?

P.C.: No. In both the US and the European Union, our regulators are charged by our political systems with protecting our consumers, workers, environment and investors. The high levels of protection our citizens demand are conveyed to the regulators by the politicians who oversee those agencies. There is no way that regulators on either side would ever reduce the level of protection for a trade agreement. That said, our regulators face an enormous challenge given the amount of goods and services they need to watch over. An increasing amount of these comes from countries whose regulatory systems our regulators do not know as well. At the same time, they face tight budget constraints. In this sense, by partnering with a transatlantic counterpart they know and trust, regulators can become more efficient and therefore more effective in carrying out their mandates to protect our citizens.

Gold Last year, the Centre for Economic Policy Research estimated that agreement on TTIP will result in annual GDP growth of €68-119 billion in the EU and €50-95 billion in the US over the next 15 years. Do you agree with this prediction? On what do you base your optimism?

P.C.: The CEPR study was done by a team of well-respected economists using one of the best computer models for forecasting the impact of a free trade agreement like TTIP on an economy. This study, like every other econometric study of TTIP, demonstrates conclusively that it will bring net gains to our economies, and generate jobs for our people. In that sense I “agree” with it, although there are other studies that show that the gains from TTIP could be even greater. It is very difficult to model the dynamic effects that can happen when a firm enters a new market – especially one as large as the United States – because the costs of doing business there go down. If the firm succeeds in getting a foothold, it may quickly find network effects start developing, such as receiving more recognition from the public for its product or service. This is one reason why over half of US exports go to our 20 FTA partners, and one reason why the IFO Institute in Germany, which uses a historical approach, estimates that the gains from TTIP could be much bigger.

Gold: The figures that are often quoted suggest that the EU will benefit more than the US. Is this correct? If so, does it matter?

P.C.: To me, whether the US or EU gains “more” is irrelevant – we both stand to gain significantly. More growth in the EU and the US will generate gains for third countries as well. Reducing the cost of doing business between the two largest economies in the world just makes sense.

Gold: A recent poll showed that just 41% of Americans and 38% of Germans want to see all duties removed from goods imported to both countries, while 39% of Americans and 41% of Germans want to remove all investment restrictions between the US and the EU. Why the low support for what is, on the face of it, a deal that will benefit everyone?

Reducing the cost of doing business between the two largest in the world just makes sense the international investment, finance & professional services magazine of cyprus

Gold 31

eu-us trade

Both the US and the European Union need this agreement to help stimulate growth and jobs in our economies, and to bring us geopolitically closer together P.C.: I’m not sure what poll you are citing; I have seen others – for instance, a recent poll by Pew Research – which indicates a substantial amount of support among Germans and Americans for an ambitious liberalisation of transatlantic trade – I believe the figure is 75% in Germany and 79% in the United States.

The results of polls, of course, depend on the question. But when it comes right down to it, if every econometric study, and virtually every business organisation – including, for instance, the EU farmers organisation and the European Food and Drink Federation – thinks TTIP will increase opportunities, then that would seem a good reason for going forward.

Gold: Is it true that audiovisual issues have not been included in the proposed agreement? If so, why?

P.C.: It is true that the government of France successfully argued that the mandate given to the EU negotiators said audio-visual issues should be excluded in TTIP. The United States, of course, may still request things in this area, and we will see how the agreement comes out in the end. But one needs to think about this in more detail: what does it mean that audio-visual is excluded? Does that mean any of the general provisions on, say, good regulation or intellectual property should not apply as well to movies, CDs or even computer games? Or that even if the US wanted to allow Europeans to invest more in our television industry, we could not do so? Or that Irish musicians, who have a long-running dispute with the United States on royalty payments, should not be able to use these negotiations to win a final settlement?

In other words, the audio-visual industry is broad, and one where Europeans also have many priority interests. As such, both sides should be careful about precisely what the EU wants to exclude, because the broader the exclusion, the more difficult it will be for Europe to advance its own interests in this area, as well as others in the negotiations.

Gold: Critics of TTIP are especially negative about the socalled investor-state dispute settlement process. What’s your view of this?

P.C.: Investor-state dispute settlement, or ISDS, is simply a mechanism to enforce investment provisions in an international treaty. So the first thing one has to look at is what those obligations are. In the 1,400 investment treaties that EU member states have, and in the 45 or so the United States has, these obligations are very basic but important. The countries that have entered into these investment treaties guarantee they will: Treat investors from the other country the same way they treat their own investors and those from other countries provide a minimum level of treatment that is “fair and equitable” and provides full protection and security to the investment (for instance, by sending the police or fire trucks to a factory) Expropriate investments only for a public purpose and in a

32 Gold the international investment, finance & professional services magazine of cyprus

non-discriminatory fashion, and pay prompt, adequate and effective compensation in the event of an expropriation Allow free transfers of funds to and from the investment.

These are all fundamental protections that we in the United States and in the European Union believe we will always provide to investors – this is why we are both the largest hosts to, as well as sources of, foreign investment. We have agreed to these basic protections between the United States and most member states (including in our treaty of Friendship, Commerce and Navigation with Cyprus), so there is no reason we should not do so in this first treaty between the United States and the European Union.

It is also natural that we should include the traditional mechanism to enforce these protections: ICSID. The World Bank set up the International Centre for the Settlement of Investment Disputes in the early 1960s precisely to help resolve situations where a single investor might be affected by a measure adopted by a government.

The whole idea was to ensure that the investor’s home government did not need to make a diplomatic incident out of an investment dispute if it didn’t want to – ICSID “empowers” the investor to resolve the dispute directly through a well-respected arbitral process.

While I doubt we will have many investment disputes between us, we should certainly have an efficient mechanism for addressing them. We see TTIP as a “gold standard” agreement that will set a model for other treaties we are negotiating, including with China.

Gold: Do you agree that, while the partnership refers to Trade and Investment, it is actually a much more wide-ranging agreement that will bring the two sides closer on many global political issues?

P.C.: Yes. Few people realize that TTIP will be the first Congressionally-ratified agreement between the United States and the European Union. That alone has a geopolitical significance. But further, the thing that characterizes both the United States and the European Union is our belief in the dignity of the individual, and the rule of law that protects this notion. These beliefs will be the foundation for everything agreed in TTIP; settling on these provisions will also help us promote these views globally.

Gold: How confident are you that agreement can be reached by the end of 2015?

P.C.: Very. I have been working on US-EU economic issues for over 20 years, mainly during my 30-year career as a US diplomat.

Both the US and the European Union need this agreement to help stimulate growth and jobs in our economies, and to bring us geopolitically closer together. We know what the problematic issues are, and both sides are bringing a pragmatic approach to the negotiations to ensure that we can conclude a deal, and do so quickly.

Therefore, I am confident we can get the basic agreement done by the end of 2015. It will take a while after that to get the ratifications, including by each EU member state, but I am confident we can do that as well.

Maria

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OIL & GAS

Time to Step on the Gas The island’s future lies with oil & gas, says the Chairman of the Norwegian Business Association in Cyprus. But the Government needs to start work before others steal a march on us

By John Vickers, Photo by En Face Studio

34 Gold the international investment, finance & professional services magazine of cyprus

J

ens A. Wilhelmsen is the Founder and Managing Partner of Anchor Capital Management Ltd., which manages private equity funds that invest in particular in oil & gas field service companies. Born and brought up in Norway, where he obtained his MBA, he later moved to Sweden, Singapore and finally London where he lived for 25 years, working for a family-owned investment company and a shipowning company before starting his own business in 2001.

“It wasn’t exactly perfect timing,” he says with a wry smile. “I launched my first fund on 9/11!” Nevertheless, despite the ‘false start’ as he calls it, Anchor Capital finally

and a lot of employment.”

Norway has developed its own unique model, says Wilhelmsen, not only as regards how it manages the wealth earned from oil & gas (the well-known Petroleum Fund of Norway, now the Government Pension Fund, into which the surplus wealth produced by Norwegian petroleum income is deposited; it is the largest such fund in the world with a total value at the end of 2013 of $853.9 billion) but also in the way it has managed to tap into the oilfield service and the oil & gas industries.

“The authorities persuaded international firms to share their knowledge and to offer employment to local experts, and this is something that Cyprus should also be ready for. The country needs to attract international oil & gas service companies to come here and then to ‘control’ them to a

there was a need for such an organisation.

Here, of course, there are not as many big Norwegian companies as there are in London or Singapore but quite a lot have set up something in Cyprus and there quite a few Norwegians living here. So I discussed the idea of setting up a similar association with a Cypriot friend, the former Minister of Finance Takis Klerides, who suggested we seek the views of the Norwegian Ambassador. He, in turn, welcomed it and so we said, ‘Let’s start something small and see what happens.’ We already have around 20 companies as members and, interestingly, we have already started receiving enquiries from oil & gas service firms asking if they should come here and establish themselves.”

This is a development that Jens Wilhelmsen is especially pleased about because,

Cyprus is for investors with a high-risk mentality right now got off the ground, advising investors who wish to put their money into private equity. About one third of the business pertains to investments in in oil service companies, mainly in Norway and Scotland.

How does Wilhelmsen view Cyprus which currently finds itself at the start of what could be its greatest-ever economic venture?

“I look upon it as Norway was in 1965,” he says, “in that, back then, Norway didn’t know there was oil and gas in the North Sea, it had no oil service industry and no oil and gas companies. Everything was started from scratch and I think that this is exactly what is going to happen here because Cyprus is the natural and logical hub for the distribution of logistics and oilfield services for the Eastern Mediterranean. And to my mind, in spite of all the talk, this is something that the authorities and the business community haven’t really latched onto yet.”

They should take a look at Stavanger in Norway and Aberdeen in Scotland, he says. “Today, that’s where they’ll find the highest number of billionaires per capita in the two countries. Fifty years ago they were both small fishing villages. Natural gas is a resource that Cyprus really has to tap into and prepare for because these oil and gas service companies are going to be serving everything that is going on in the Eastern Mediterranean. There’s a lot of money in it

certain extent so as to gain more than just tax revenues from them.”

What made Jens Wilhelmsen move to Cyprus? It was an easy decision, he says.

“I was running an international investment business and Cyprus was an ideal place in which to base and operate my investment companies, not only because of the tax regime but also because of the rules on the transfer of capital gains and dividends among different jurisdictions. So that’s how it started. I bought a house in Paphos in which I started to spend more and more time and then I was asked to become Chairman and CEO of Songa Offshore, which was the first Norwegian listed company that came to be based in Cyprus when it moved its entire operation to the island in 2010. Songa Offshore also owns oil rigs operating offshore worldwide and Cyprus has proved to be a good base from which to operate.”

Last month, the newly-founded Norwegian Business Association in Cyprus (NBAC) had its inaugural meeting, with Wilhelmsen being elected Chairman. Why did he decide to become involved in this particular venture? Before moving to Cyprus, he was President of the NorwegianBritish Chamber of Commerce in London.

“I kind of ‘rejuvenated’ it in 1996, turning it from a traditional old-fashioned Chamber of Commerce into a networking organisation,” he explains, “and I saw that

as he explains, “I think that larger companies have a corporate responsibility towards smaller ones and those at are established can offer help and support to new ones, both foreign and Cypriot. If we can help Cyprus companies get involved in the oil & gas services industry by encouraging Norwegian ones to come and partner with them, it will be a very positive development. I focus on the energy industry because I believe that this is where the opportunities lie.”

Wilhelmsen’s Anchor Capital is a group of companies with, among others, a management company in London and another in Cyprus, plus a holding company in Bahamas. “The management moved with me to Cyprus,” he explains. “Some of the investment companies are based here for the more international business while others are in Norway, focusing primarily on Norway and Sweden.”

Given that he invests particularly in oil & gas companies, Wilhelmsen is confident that Cyprus will offer opportunities for him to expand his business. However, when asked about Cyprus’ broader investment appeal, he is rather less optimistic for now: “You have to look at three broad categories of investors,” he says, elaborating that the first category comprises firms and individuals that invest internationally and want to use Cyprus as a base. “It’s a good

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Gold 35

OIL & GAS

location for holding companies,” he says.

“The tax regime is good, the service industry is good, communications are good and life here is very good! All these things are in place for anyone thinking of operating an international business from Cyprus. Unfortunately, Cyprus has not yet done enough to respond to negative reports and allegations in the international press so as to dispel what has become a bad reputation.

Many investors will not move to Cyprus right now because of the perceptions about money-laundering, etc. And although we know that they have been investigated and deemed unfounded, the people who read those original reports are probably still unaware that they were untrue.”

The second group of investors who are looking at Cyprus these days are those who believe that the country is suffering and has a lot of cheap assets waiting to be picked up at knock-down prices. “Even here, however, there are quite a lot pf pitfalls and investors are very cautious, particularly regarding the lack of title deeds,” he says.

“In addition to that issue, the more they read and see how the banking system was operating, the more cautious companies will become about investing locally. Cyprus is for investors with a high-risk mentality right now.”

Where Jens Wilhelmsen feels much more positive about potential investments is, coincidentally, one of his own areas of expertise, the oil & gas service business.

“This is a new opportunity in Cyprus,” he says, “and I think those oilfield & gasfield service companies that take the plunge now and establish themselves here will have great opportunities for profits and growth.”

How optimistic is he that there will be sufficient quantities of gas in Cyprus’ Exclusive Economic Zone? “Very,” he says without hesitation. “There is obviously a link between the Aphrodite field and what the Israelis have discovered. It’s quite expensive to drill for gas and you can be sure

that ENI-Kogas and Total wouldn’t be prepared to drill if they didn’t already have a good idea of what to expect. I am certain they will find more.” The big question, says Wilhelmsen, is whether there is oil underneath the gas. “If there is only gas, all the capital investment has to be made before it can be pumped out and sold, whereas with oil, you just put down the ‘straw’, suck up the oil and sell it, with the proceeds then financing further exploration. With oil the cash flow will come much more quickly.”

As far as the predictions for when gas revenues will start to flow into the state coffers, Wilhelmsen describes 2020 as “a very optimistic scenario,” expressing his own view that we are not likely to see anything before 2025. “It takes a very long time to get everything in place, distribute and sell the gas, etc. Some people are even suggesting 2028 as a more likely date.”

The founder of Anchor Capital also thinks that the Government is placing too much focus on the question of whether or not to construct an LNG Plant, noting that there are two idle plants in Egypt and that unless the Government goes ahead with the project, it will eventually happen “when the international companies decide that it’s time.” Instead of focusing so much on if and when it will be built, or if Turkey will place obstacles in the way, Wilhelmsen believes that the Government should focus on the opportunity to become the logistics centre for oil and gasfield services at this early stage of development of the energy sector in the Eastern Mediterranean before someone else does. “Right now there are no other contenders,” he says, “and as in everything you have to start small and grow bigger. In practical terms, local companies are novices in this sector and they don’t know what is required so they need to learn. They should be given incentives to diversify into this new industry.” The ports at Larnaca and Limassol will be the main centres and part of them at least they

Cyprus is the natural and logical hub for the distribution of logistics and oilfield services for the Eastern Mediterranean 36 Gold the international investment, finance & professional services magazine of cyprus

ENI-Kogas and Total wouldn’t be prepared to drill if they didn’t already have a good idea of what to expect needs to be dedicated to oil & gas services, Wilhelmsen says. “This is how Stavanger and Aberdeen developed. They both had far-sighted mayors who decided that they wanted to make their cities the oil capitals of Norway and Scotland respectively. They obtained the support of the local business community and they succeeded. The Government and the private sector in sector need to cooperate on this and to set their objectives.”

On the subject of Larnaca, he notes that ENI has already leased part of the port for five years and Noble Energy is transferring some of its equipment there. “It is already starting to become an oil & gas service base and everything that the companies need, from storage to office space, jetties, etc., is there. For some reason the local authorities are now fixated on building another marina. It doesn’t make good business sense, given that Vasilikos is still developing, Limassol is very busy and Larnaca has been under-used for years.”

Finally, I ask Jens Wilhelmsen if, due to the financial crisis, he has any regrets about the decision to relocate to Cyprus. No, he says, but he acknowledges that “things didn’t go as expected because of the crisis.”

Cyprus was badly hit, he says, but it should be easy to turn things around. “The financial crisis has killed off the likelihood of new businesses coming here for the time being but I believe in the energy business.

It will come because the international industry has decided that Cyprus is the place. It’s just a matter of time. Oil & gas companies are definitely going to come here. In a few years we’ll look back at this particular time as nothing but a blip!”

opinion

The next miracle?

The Cyprus startup revolution has begun

I

n her quest to find the city where the next hotbed of tech or financial genius will emerge, author Lisa Roolant recently posted an article on the TransferWise Blog entitled “Why you should pay attention to these 8 emerging tech hubs”. In it she portrays 8 cities where technology’s influence is growing by the minute and which “the world should start paying close attention to”. Guess which city hit number 3 on the list? Nicosia!

Others on the list include Eindhoven, Dublin, Hong Kong and Tel Aviv. The author refers to companies like NCR and TSYS that have chosen Nicosia for their regional headquarters.

Is this ranking for Nicosia amongst the next potential “Silicon Valley, Silicon Alley, or East London’s Silicon Roundabout” really justified? I believe very much so! An embryonic entrepreneurial ecosystem is emerging, with an increasing number of startup awareness events, competitions and accelerators popping up. These are early days yet and, understandably, there is more hype than substance. But this turmoil forces a tectonic shift in mentality especially amongst young Cypriots which will inevitably result in brilliant ideas emerging as strong companies.

Exactly a year following the Eurogroup decisions that shattered the Cypriot economy and the local banking sector, together with people’s dreams of a “secure” future, a growing number of young ambitious Cypriots are reacting to the resulting economic crisis by creating businesses largely driven by technology. Startups like NIPD Genetics (www.nipd.com), Teach ‘N Go (www. teachngo.com), Student Life (studentlife.com.cy), ENERMAP (enermap.eu), Aqualligence (aqualligence.com), AtYourService (atyourservice.com.cy) and Pollfish (www.pollfish.com) are only a few of the dozens of new companies with great global growth potential that have popped up recently in Cyprus.

Events in which young entrepreneurs meet to

The state should create a startup and investmentfriendly environment

By Andreas Koupparis

exchange ideas are becoming a very regular thing.

Meet-ups, workshops and demo days by young people’s networks such as the Cypriot Enterprise Link (CEL), as well as events like Hack Cyprus, Startup Live, Startup Weekend, TEDxNicosia and Global Entrepreneurship Week fill out the auditoriums every time. In particular, Hack Cyprus was the first and largest technology festival described by Techcrunch as one of the best European Technology Startup events! The first accelerator programme, Chrysalis Leap was run in 2013 and mentored five Cyprus-based teams, helping them convert their sustainable and cleantech project ideas into fully-fledged business plans, ready to be pitched in front of investors.

The rapid developments in the Cypriot startup ecosystem have inevitably caught the eye of investors both in Cyprus and abroad, who see great opportunities for huge returns in some of these high-growth startups. Just over a year ago, the Cyprus Business Angels Network, CYBAN (www.cyban.com.cy) was created as the only nonprofit business angels’ network in Cyprus with a full European Business Angels Network (EBAN) membership with currently about fifty members.

CYBAN connects innovating fast growth companies to equity finance by reviewing about 100 businesses per year to select the most exciting and cutting edge companies to pitch to its members.

In the last 12 months three high growth startups have already received funding from CYBAN angel investors and a fourth is currently negotiating funding with network members.

For all the ingredients in the startup ecosystem to blend well, the state should create a startup and investment-friendly environment, offering the right incentives to both sides of the equation. In today’s challenging times, bold moves are needed for Cyprus to survive yet one more blow. The Cyprus Startup Revolution is unfolding fast and can undoubtedly play a significant part in the next economic miracle in Cyprus.

info: Andreas Koupparis is Chairman of CYBAN, the Cyprus Business Angels Network (www.cyban.com.cy)

the international investment, finance & professional services

Gold 37

cyprus

Resilient Resilient When Fiona Mullen was interviewed in Gold two years ago, she began by predicting that 2012 was going to be worse for Cyprus than 2011. She also said, “All the indications are that consumer spending is really going to be hit this year, due to the increase in VAT, skyrocketing electricity prices, unemployment and, for those in the public sector, less take-home pay because of their higher social security contributions and the freeze in the Cost of Living Allowance.” She also made this telling comment about Cyprus Popular Bank (Laiki): “The absolute worst-case scenario for Laiki is that it never gets any of its debts back from Greece, which is half of its loan portfolio.” Two years on, things have changed so much that we decided that it was time to talk to her again. By John Vickers, Photo by Jo Michaelides Gold: You’ve seen the figures and read the Troika’s reviews. Have you been surprised by the way the Government has tackled the situation over the past year?

Fiona Mullen: The Government seems to have decided that the best way to the Troika’s heart is through implementation of the programme and that when you do implement it you start to obtain some flexibility – in our case it’s extra time for healthcare reform. It doesn’t surprise me that the Government has done what it needed to do but outside observers might be surprised, given what went before and how the previous Government behaved.

Gold: The predictions may have been worse than the reality but is there anything that can change the fact that we are unlikely to see any growth until 2015?

F.M.: I must admit that have been teased because my first projection was -15% for last year! But I changed it very rapidly because I do look at the figures every month. The reasons for the reality not being been as bad as predicted are, fortunately, long-term ones. Businesses in Cyprus are quite adaptable. Everyone I know in the private sector has taken a pay cut and businesses acted quite fast to ensure their survival, which is probably why things haven’t been quite as bad

F People,

Economy as many of us thought they would be. Cyprus was also rather lucky in that it was the last into the crisis when everyone else was coming out of it; the general global economy has been getting better, as has the eurozone economy, so it has benefited to a small extent from that too.

Gold: So what still concerns you?

F.M.: What worries me in the longer term is the massive drop in investment that’s taken place. If you look at total investment, it’s gone all the way back to 1995 at today’s prices.

Construction alone – meaning housing investment – dropped by 30% last year. When the economy is massively disinvesting and the banks can’t lend, where on earth is growth going to come from? The IMF seems to think that we all have enough cash to keep growing but I think it is more likely a case of treading water rather than growing. People and businesses are surviving but not growing. That was actually a problem before the crisis – Cyprus was not productive enough – and it could be seen in big current account deficits and the fact that the country was falling in the global competitive rankings, etc. It also comes out in some figures I’ve been looking at concerning Total Factor Productivity, which essentially show that we haven’t been improving our productivity for quite some time. When that happens, you can’t grow as an economy and, if you don’t grow in an advanced economy, you end up with high unemployment. This is one of the reasons for the island’s high youth unemployment.

Gold: The banking sector has changed drastically since you were last interviewed in Gold two years ago. Did you see it coming?

F.M.: In April 2012, I addressed an IMH conference and I presented two scenarios: a “very pessimistic” one and an even more pessimistic “Armaggedon” one! So yes, I saw it coming.

What I didn’t expect, however, was the haircut. I suppose I was also surprised by how long it took the previous Government to notice that there was a problem with Cyprus Popular Bank and then I felt – was it surprise or horror? – at how the Europeans decided that they were going to deal with it. There were all kinds of reasons for their chosen option, including perceptions about money laundering and the idea that EU taxpayers were growing tired of bailing out Mediterranean countries, but while there was certainly a lot of politics involved, there was also plenty of hard-core economics too. The principle that taxpayers shouldn’t have to bail out banks that make silly decisions is a good one but to suddenly jump on a small eurozone country and impose the bail-in looked – and was – a little unfair.

Gold: Do you think that Bank of Cyprus can survive?

F.M.: I’m cautiously optimistic that Bank of Cyprus will be OK. Everyone is looking at the Non-Performing Loan (NPL) ratio that’s defined by the Central Bank but that’s not the best ratio to look at if you want to see how Bank of Cyprus is handling its NPLs. The Central Bank forces the banks – even if they have restructured such loans – to keep them on the books as NPLs for 6 months. The ones that really count in international terms as NPLs actually stabilised between the 3rd and the 4th quarters of 2013. If Bank of Cyprus can keep them at the same level, it will be provisioning less which means less of a hit on profits and less of a hit on capital, so it will stay solvent.

Gold: Is there a need for a ‘Bad Bank’ or can they do the same job in-house?

F.M.: I think it’s a good idea but its time hasn’t yet come and that has to do with Bank of Cyprus needing to do other things before then. Ultimately it is a good idea because Bank of Cyprus is still far too big. It has 40% of the market and when a bank is that big and, at the

The Cypriots are resilient people. They have always dusted themselves off and got back up again and they will surely do it again

iona Mullen has been providing economic analysis and research to an international audience for 20 years. In 2006, she founded Sapienta Economics Ltd to provide independent analysis on a range of European and Middle Eastern countries.

She has written extensively on the economics of Cyprus and has been the Cyprus contributor for the Economist Intelligence Unit (EIU) since 2001. She also served as economy adviser to the Special Adviser to the UN SecretaryGeneral on Cyprus, Alexander Downer.

Prior to living in Cyprus, Mullen was Director of the flagship Country Reports and Country Profiles and Senior Europe Analyst at the EIU. Fiona is a regular contributor to Gold.

same time, nobody wants to touch it, that’s not healthy for any economy.

Gold: How confident are you that the complete lifting of banking restrictions will not lead to massive flights of capital?

F.M.: It’s difficult to tell unless we know who is holding that money, which the banks don’t tell us, obviously. Clearly, it’s considered a risk but we may have reached the stage where the longer restrictions remain in place, the more uncertainty there will be in the market. Bank of Cyprus will need to know that it can access liquidity if it needs to, and it’s been reducing its dependence on ELA, so for every reduction of €50 million or €100 million, that’s potentially spare capacity it has to borrow.

Gold: What’s your general view on privatisation?

F.M.: I have to say that I’m not a complete neo-liberal and I don’t think that privatisation per se cures all ills. One only needs to look at what happened to train services in the UK to see this. However, I think that privatisation needs to happen in Cyprus in order to cut the links between the big utilities and the political parties. Of course, whether or not that will change with privatisation depends to a certain extent on who is buying. With big companies, you certainly need the market to work but you have to ensure that they are run well and that regulation works properly if the privatisation process is to really benefit society.

Gold: The aim is to raise €1.4 billion from the three semi-government organisations but some say that Cyta alone has assets and infrastructure worth €1 billion. Isn’t there a danger of selling these corporations off cheap?

F.M.: At the moment, this being Cyprus, there are all kinds of conspiracy theories doing the rounds about why Cyta has been chosen first for privatisation but the truth is that it is in better shape than the other semi-government organisations. But privatisation is often more

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Gold 39

cyprus

about public finances and reducing the Government’s liabilities regarding pensions, etc. It’s not only a question of how much money can be raised – although the Government needs all it can get to pay off debts – but also one of how to reduce growing pension liabilities which are always large in organisations like Cyta. That said, it would be a big mistake to sell it at well below its true value.

Gold: What would a settlement of the Cyprus issue do for the economy of the new federal republic?

F.M.: I’ve been having another look at this recently with two academics – Alexander Apostolides and Mustafa Besim – and our findings will be published on 28 May. One of the indications is that, with a solution, over a 20-year period Cyprus will add about €18 billion to its present GDP, virtually doubling it, and the growth rate will definitely rise. On both sides of the dividing line there has been such a poor record of productivity that the only hope of getting any faster growth is through the infrastructure and the investment that will come as a result of a solution, plus all the long-term benefits such as tourism from Turkey, etc.

Gold: There’s been a lot of talk about Famagusta and the idea of its return to the Greek Cypriots as a confidence-building measure.

Some hold the view that even if it were returned tomorrow, the cost of rebuilding would be unthinkably high. You have been involved in the so-called ecocity project.

What do you think?

F.M.: For me as an economist, the whole premise of the Famagusta ecocity project is precisely to answer the question how the rebuilding and revitalising of Varosha will be paid for.

Some kind of smart concept is needed, otherwise there will be no private investment and without it the city is simply going to lie idle as no-one has the money to build it up again. So whether it’s a “model ecocity” or an “education city”, it needs to have something different and new to offer in a eurozone country that can’t compete on price. That, for me, is the attraction of the ecocity idea. It is also essential that any plan should have the involvement of all stakeholders, otherwise you’re not going to make the most if the city’s return, and that is one of the things we’re trying to do – bring in the Turkish Cypriot and Greek Cypriot Famagustans to give their feedback and ideas so that it’s not just a top-down process. With a showcase like this, the big companies will want to come because it will be a good investment and

Privatisation needs to happen in Cyprus in order to cut the links between the big utilities and the political parties a good advertisement. It’s important to think big. At a recent meeting, someone said “the bigger you think, the more likely you are to get the investment” and that might well be true.

Gold: Have things changed since you last came up with projections for the cost and benefit of a settlement?

F.M.: One thing that’s changed is that the economics of the settlement is now becoming the “elephant in the room” – among all the others – and my concern is that worries about the economy could prevent a settlement. The more Greek Cypriot land and property that is returned, the greater the number of Turkish Cypriots to be resettled and that costs money.

There are various private sector solutions for handling this but such questions need to be looked at again and fleshed out a bit more in the light of the new realities in the real estate market. This is an issue that needs to be dealt with at the negotiating table so that one or both sides don’t turn round at the end and say “We can’t afford this.”

Gold: There can be no settlement without Turkey’s agreement. Can natural gas change minds about Cyprus in Turkey?

F.M.: It’s interesting that since the joint statement, both in Turkey and in Cyprus – at least on the Greek Cypriot side – people are now talking about gas in the context of a settlement in a way they never did before. The President has given hints that he might be willing to do gas business with Turkey in the event of a solution. It certainly won’t be discussed in the reunification talks but everyone recognises that it could be a catalyst. The problem is that it’s a moving target: one moment Israel looks as if it might be thinking of building its own LNG Plant, the next it’s lobbying hard to sell gas to Turkey via a pipeline that will have to go through Cyprus’ Exclusive Economic Zone. Will that be part of a Famagusta deal?

Who knows? It is also a fact that Turkey sees gas as an incentive for the Greek Cypriots to compromise and the Greek Cypriots see it as an incentive for both Turkey and the Turkish Cypriots to do so. As long as each thinks that the other needs a solution more, we may end up with a “who blinks first” type of standoff.

Gold: Will Europe try even harder for a Cyprus settlement in the light of what’s happening with Russian gas and Ukraine?

F.M.: I am of the opinion that, on the whole, the other EU member states never really think about the Cyprus problem. I think we came

40 Gold the international investment, finance & professional services magazine of cyprus

incredibly close to falling out of the eurozone – and possibly the EU – last year and some member states would have been prepared to let that happen. None of them seems to realise that Cyprus is a country in the Eastern Mediterranean with 30-40,000 Turkish occupation troops in the northern part. The British and the Americans do understand this and that’s why the British sent in technical assistance and the Americans paid a lot of attention to what was going on last year. Historically, the EU member states haven’t paid much attention to the Cyprus issue and the situation between Russia and Ukraine and the possible effect on EU gas supplies might serve as an opportunity for them to get involved.

Gold: Are you more or less optimistic for the future of Cyprus than you were 1 or 2 years ago?

F.M.: We’re all more optimistic than we were a year ago! Compared to two years ago, yes I am but I like to use the analogy of being out of intensive care but not yet out of hospital. At least that’s the case as far as the banks are concerned. The blow didn’t kill us but it’s going to take us some time to get back to where we were before. It all comes back to the productivity problem, the fact that no-one is investing and the banks are handicapped by not being able to lend, and all the while the day when gas revenues come seems to be retreating further.

That said, Cyprus has a very resilient economy and the Cypriots are resilient people. I’m sure that many are suffering more than they are saying, which is part of the culture, and the statistics on the use of food banks show that many people are struggling. You have to admire them. They have always dusted themselves off and got back up again and they will surely do it again.

We came incredibly close to falling out of the eurozone – and possibly the EU – last year and some member states would have been prepared to let that happen

opinion

Time to Teach Old Dogs a New Trick

By Tasos Aristidou

Provident Funds have reached a dead-end

A

Provident Fund is an investment scheme, the funds of which are collected from contributions by employees and employers. On retirement, or in the case of leaving the company before retirement, the employee is paid a lump sum.

Until very recently, Provident Funds were a very popular form of employment benefit scheme provided to employees of Cyprus companies.

Provident Funds vary from firm to firm. Their most distinctive feature is that every month a small part of the employee’s salary is deducted as a taxdeductible contribution to the Fund. At the same time, most employers contribute the same amount to the Provident Fund for each employee as an extra employment benefit.

The contributions of each employee for each month are then added to a collective pool, resulting in a total amount available for investment.

There is no doubt that the financial crisis has affected many employers in Cyprus as companies experience reduced revenue and decreased receivables recoverability. They are consequently trying to cut their operating expenses and, unfortunately, their main target seems to be salaries and employee benefits.

As a result, we have seen many employers cutting their own contribution to the fund to nil or almost nil and at the same time, giving their employees the option to freeze their contributions as well.

Provident Funds are thus not receiving new injections of money for investments.

Not only that, fearing the present economic conditions, many committees running Provident Funds are, in many instances, ‘scared’ to make big openings.

Many are therefore restricting the activity to very low risk investments offering a minimal return.

Nil contributions and minimum investments are thus causing Provident Funds to become stagnant and offer no real benefit to employees.

Desperate times require drastic changes. If the Provident Fund option for small medium entities is now leading to a dead end, a potential solution is the dissolution of current funds and the creation of Employee Mutual Funds.

Under the new scheme: 1) All assets are liquidated, the current Provident Fund is dissolved and two new Employee Mutual Funds are created.

Desperate times require drastic changes

One could argue that those who want this can simply gather together and form their own investment fund outside the firm. However, the dissolution would allow employees to get away from the old-fashioned and restrictive regulations under which Provident Funds currently operate and which are not really fit for purpose in today’s world.

In addition, the dissolution of the Fund and the use of already contributed funds by the new scheme would allow members with low contributions to be part of a new fund that already has large sums available for investment instead of having to start from scratch.

2) Two new Mutual Funds = Two different risk levels.

Employees will have the option to choose which Fund they would like to participate in. The creation of two Funds would allow employee segregation into risk takers and risk avoiders. In this way, the management committees would not have to worry about the risk level desired by their members (currently a huge drawback of Provident Funds).

3) Each Fund will have its own investment plans and be run by its own management committee.

In case of profits, each Fund will pay an annual return to its members.

The annual return will actually create a potential cash inflow in the immediate future to the members of such funds. With traditional Provident Funds, an employee only receives his/her contributions upon leaving the company. For some employees, this may take decades.

The biggest limitation on the above idea is the loss of the benefit that contributions are tax deductible.

That is why firms with Provident Funds and related associations need to put pressure on the government and request amendments to current tax legislation in order to allow these Mutual Funds similar treatment to existing Provident Funds.

Many employees now feel that their Provident Fund is no longer a real benefit and may not be for some time due to the current economic situation.

The creation of a new type of Fund would make employees feel that their contributions are being used for their benefit now, instead of having to wait for years to see an actual cash benefit from them.

I believe it is time for a change and the present time is ideal to make Provident Funds – or their proposed replacement - beneficial to company employees.

info: Tasos Aristidou is a Chartered Accountant, currently employed as an Assistant Manager at Horwath DSP, Nicosia. the international investment, finance & professional services

Gold 41

Will Russian

‘‘de-offshorisation’’

measures be the undoing of internationalbased structures?

42 Gold the international investment, finance & professional services magazine of cyprus

russia

The Russian government has increased efforts to combat tax base erosion by discouraging the use of offshore jurisdictions to mitigate tax liability.

By Philippos Aristotelous and Stavros Supashis

L

ike its counterparts in other major economies, in order to counter tax base erosion, the Russian government has stepped up its efforts towards so-called de-offshorisation of Russian investments. This initiative is spearheaded by President Putin, who has frequently expressed the view that Russian corporations and individuals must contribute to the economy in which they operate by paying Russian taxes.

The following is an outline of the steps taken by Russia to date in order to discourage tax mitigation by the use of offshore jurisdictions and to analyse within the Russian context the concepts of ‘‘beneficial ownership’’ and ‘‘controlled foreign corporations’’ (‘‘CFC’’) rules, which are the major means at the disposal of the Russian authorities to counter the loss of tax revenue from the use of offshore jurisdictions. Russia has also been attempting to limit aggressive tax planning and downright tax evasion by incorporating limitation of benefits and exchange of information clauses into its double taxation agreements. The tax authorities are also monitoring developments in the OECD’s Base Erosion and Profit Shifting initiative.

Current state of Russian tax legislation

Russia has adapted quickly to the ‘‘marketisation’’ of its economy. Its tax system is becoming increasingly sophisticated and the tax authorities have grown in confidence and readiness to challenge what they see as abuse of the tax laws. Unlike most jurisdictions, Russia does not have a general anti-abuse rule for countering tax avoidance. Instead, the tax authorities rely heavily on the notion of ‘‘unjustified tax benefit’’ as defined from time to time by the Russian courts.

Over the years, courts in Russia have developed practical criteria that they use in order to identify transactions or circumstances associ-

ated with unjustified tax benefit, such as the practical inability of one party to adequately adhere to specific contractual obligations (e.g. due to the lack of specialised personnel or equipment) and the non-recurrent nature, exceptional size or lack of commercial justification of certain transactions.

Russian tax authorities have given a number of specific examples of transactions which they consider as being used to obtain an unjustified tax benefit, including an agency arrangement under which the agent’s sole function was to create a paper trail to misrepresent the commercial reality of the underlying transactions, and the issue by foreign companies of securities which were contributed to the capital of a Russian company which subsequently disposed of the securities to a specific purpose, limited duration company at a substantial artificial loss.

Apart from the notion of ‘‘unjustified tax benefit’’ in recent years the Russian tax authorities have begun to challenge international tax mitigation structures on the basis that the recipient of funds in a transaction is not the beneficial owner of the income from which the funds are derived. A number of cases have come before the courts, with mixed results.

The first instance of the Russian tax authorities using the beneficial ownership concept for the purpose of challenging treaty benefits (in this case unsuccessfully) is the 2012 case of Eastern Value Partners Limited, which concerned back-to-back debt financing provided by one Cyprus company to a related Cyprus company with operations in Russia. The first Cyprus company was not the economic source of the finance, but merely an intermediary — the funds that it on-lent to the second Cyprus company were provided to it by a related entity resident in the British Virgin Islands (BVI).

The first Cyprus company onlent the funds to the second Cyprus company on the day on which it received them. It had no other transactions in the year concerned. Furthermore,

it instructed the borrower that repayment of the loan and of interest accruing on it should be made direct to the company in the BVI. In the light of these facts, the Russian tax authorities contended that the double tax agreement did not apply, and that withholding tax at 20 percent was due on the interest paid from Russia to the BVI. The Moscow Arbitration Court ruled in favour of the taxpayer, saying that the banking arrangements for the remittance of interest should not affect the attribution of income to the person who has legal and economic power in respect of that income. The mere fact that the funds were transferred to the BVI did not make the BVI company the beneficiary of the underlying income. The second Cyprus company continued to be the beneficiary of the income, regardless of the banking arrangements and consequently was considered as beneficially owning the income.

Another area to which the Russian tax authorities have recently begun to devote attention is transfer pricing. Transfer pricing rules were introduced with effect from January 1, 2012, requiring Russian taxpayers to provide the authorities with information on transactions between related parties during a given financial year (controlled transactions).

The rules contain wide-ranging definitions of what constitutes a related party and a controlled transaction (including transactions exceeding 2 million roubles (approximately US$57,000) in a given tax year and transactions with a sole purpose of concealing a controlled transaction).

Additionally Russia has a very strict approach towards jurisdictions offering preferential tax treatment which do not adhere to their reporting obligations. Jurisdictions that the tax authorities consider deficient are included in a so-called black list (the ‘‘List of the States and Territories providing preferential tax treatment and (or) not requiring disclosure and furnishing of the information upon conducting of financial transactions (offshore zones)’’ appended to Order 108n of

In recent years the Russian tax authorities have begun to challenge international tax mitigation structures

the international investment, finance & professional services magazine of cyprus

Gold 43

russia

the Ministry of Finance of the Russian Federation dated November 13, 2007). Companies resident in any of the 42 blacklisted countries (which include Bahamas, Bermuda, BVI, the Channel Islands (Guernsey, Jersey, Sark, Alderney), Gibraltar, Hong Kong SAR, the Isle of Man, Malta and the United Arab Emirates) are not entitled to the Russian participation exemption and are subject to special transfer pricing control scrutiny in Russia.

Cyprus was removed from the Russian blacklist at the beginning of 2013 and has improved its exchange of information facilities in order to remain off the list.

Options available to the Russian authorities

Currently, Russian authorities are considering a number of measures in order to prevent Russian corporations from improperly conducting their business through offshore jurisdictions.

These include the introduction of CFC rules, a more detailed and exhaustive definition of the notion of beneficial ownership and a prohibition on offshore companies dealing with the State and State-owned bodies.

CFC rules have been introduced by numerous countries in order to counter artificial reduction or deferral of tax liabilities by accumulating value in low-taxed offshore entities that is not attributed to (and taxable in the hands of) their owners. They allow states to impose tax on resident taxpayers who control a foreign CFC even though they have not actually received income from it, generally by taxing the income of the CFC as deemed income of the taxpayer. While CFC rules vary widely between jurisdictions, a common factor is the degree of control that the beneficiary has over the disposition of the income of the overseas company.

Some countries identify CFCs by comparing the tax rate (whether effective or nominal) in the home jurisdiction with the rate in the overseas jurisdiction.

Others publish a list of designated jurisdictions, entities or regimes. In either case the principle is the same, that the overseas burden of tax is unduly lower than in the home country. CFC rules are predominantly a domestic matter and over the years there has been an ever increasing debate as regards their compatibility with double tax agreements. The official position of the OECD is that they are compatible, but there is a considerable weight of opinion to the contrary.

Although the Russian tax authorities are paying increasing attention to the concept of

beneficial ownership and although most of Russia’s double taxation agreements include the concept, Russia has not yet incorporated it into its domestic tax legislation, except in relation to government and Eurobond issuances.

For all other purposes the Russian authorities rely on the interpretation of the concept under the OECD model. Again, there is no clear definition of what is a ‘‘beneficial owner’’ in the current OECD Model but the concept must be construed and applied in the light of the original intention of the OECD which was to counter tax evasion. A definition of the term is expected to be incorporated in Russian domestic law in the near future and this will make the position much clearer.

According to Russian media reports, Russia’s Ministry of Economic Development has embarked on drafting legislation that bars offshore companies from bidding for state purchases.

This legislation targets companies that are resident in the 42 countries on the black list of non-cooperative jurisdictions referred to above.

It should not, therefore, affect the use of entities resident in jurisdictions which the Russian authorities judge to have adequate information exchange arrangements, such as Cyprus.

The scope of the Russian de-offshorisation initiative and the extent to which it is pursued are very much a political matter, and will be determined by the ultimate goals and objectives of the Russian state. Should the Russian authorities decide to eliminate or significantly curtail the scope for businesses to channel inbound and outbound investments and do business in Russia by establishing and using international structures (something that will also amount to a de facto, if not also a de jure denouncement of Russia’s major double tax treaties), then the long-term adverse effects on the Russian economy, such as the discouragement of inward investment, may outweigh the benefits.

Much of the current public antipathy towards offshore jurisdictions and other European financial centres such as Cyprus, Switzerland and Luxembourg is the result of misunderstanding (often promoted by governments) of the reason for their use. Contrary to the general perception that the motive for using offshore structures is tax avoidance or money laundering, the reality is that in most cases the ‘‘diversion’’ of capital through intermediary financial centres to the ultimate destination of the investment is driven by pure business, political, commercial or legal reasons.

For example, the reason why so much foreign investment into South-East Asia is routed

Another area to which the Russian tax authorities have recently begun to devote attention is transfer pricing through Singapore is foreign investors’ perception that Singapore provides a much more reliable, transparent, predictable and secure environment than direct investment into a country whose legal system they are unfamiliar with and do not have confidence in. Cyprus built its success as an international financial centre on offering a similar benefit for investors into Eastern Europe.

Comment

Russian businesses are no different in seeking out the jurisdictions offering the greatest degree of political certainty and financial advantages, such as access to loan financing and investment. Legal infrastructure is a particularly important part of the mix, and they favour jurisdictions offering a legal system which is well-adapted for use in international business transactions and which they can rely on to protect their legitimate legal rights and interests.

This does not mean that the funds concerned are not being reinvested in Russia: on the contrary the tendency is to utilise such offshore structures to conduct business within Russia, in which Russian businesses have an advantage due to their deep knowledge of the intricacies of the market.

However, the investors also have the added reassurance that, if disputes or other problems should ever arise, they will be resolved through a transparent, predictable and reliable legal system.

In conclusion, structures in transparent jurisdictions which are established for proper business purposes and meet the substance requirements satisfactorily should not be affected by the de-offshoring initiative. Concerted action is required on the part of foreign governments in respect of effective exchange of information and foreign professionals in respect of proper and well-structured planning of their clients’ business in order to ensure that all structures properly established and managed will remain unaffected by any changes in Russian tax policy and practice.

info: Philippos Aristotelous and Stavros Supashis are partners in the corporate and commercial department of Andreas Neocleous & Co LLC 44 Gold the international investment, finance & professional services magazine of cyprus

Welcome to the Age

of the Calculated

Risk-Taker

: t n e m e g a n a m h t l Weaa process of pr

rvation, e s e ag

ame of growth. .

46 Gold the international investment, finance & professional services magazine of cyprus

By Chloe Panayides, Photo by Jo Michaelides

wealth management

And it seems that, contrary to the old “who dares wins” axiom, it is actually those who dare only in moderation – who make calculated risks – who will succeed and prosper. Marios Loizides, Head of Wealth Management at Piraeus Bank, talks to Gold about what, in his estimation, went awry in Cyprus’ economy in recent years, and reveals that today’s investors have diversification firmly on their minds.

“M

any economists consider the global financial crisis of 2008 to be the worst since the Great Depression of the 1930s,” Marios Loizides, Head of Wealth Management at Piraeus Bank notes with profundity.

Elaborating, he explains: “Generally speaking, the financial crisis was triggered by relaxed regulations that encouraged home ownership, providing easier access to loans in conjunction with very low interest rates. People were getting real estate loans based on the theory that property prices would continue to rise. This started a wave of downgrading of government debt in many countries; private debts arising from a property bubble were transferred to sovereign debt as a result of banking system bailouts.”

Regarding the practical conditions that led to the painful bailout programme in which Cyprus is currently embroiled, Loizides says: “Unfortunately, a lot of people in Cyprus believed that the island was exempt from what was going on in the rest of the world.

“The downgrading of the Cyprus Government’s bond credit rating to junk status by international credit rating agencies, huge losses sustained by Cypriot banks from the Greek government debt crisis, along with the banks being overleveraged to local property companies…these are what brought Cyprus to its knees.

“Then, the inability of Cyprus to refund its daily expenses and recapitalise its financial sector brought the Troika of international lenders to the island.”

Despite the current global crisis’ com-

parativeness to crises passed, it is far from a case of history repeating itself, as Loizides notes. Recounting the infamous bail-in of depositors, he says assuredly: “This definitely reflected a new strategy being put into place on a worldwide scale, with the first test run taking place in Cyprus. Despite our early denials, the bail-in strategy for insolvent banks has already become official policy throughout Europe.

Cyprus became the testing ground for EU leaders who did not – and do not – want to use their taxpayers’ money to save banks from collapse.”

Continuing, Loizides observes: “On top of the bail-in, to keep cash from pouring out of Bank of Cyprus and the rest of the banking system, the Government introduced capital controls, which are still partly in place: something that nobody would have ever thought could happen in an EU member state.

“Even though the banks in Cyprus that were facing capitalisation problems are now fully capitalised, depositor confidence has been affected, and I think the European Central Bank stress tests will be crucial in terms of reestablishing confidence in specific financial institutions.”

With certain banks still struggling to regain their composure, Loizides isolates the problem thus: “Financial institutions now have to focus on the recovery of nonperforming loans (NPLs), which stand at close to 40% of their loan portfolios.

NPLs reached €26 billion and are continuing their upward trend.

“The successful management of NPLs will definitely help banks to regain strength and limit their risks of needing new capital.”

So what’s to be done? “Definitely,” Loizides explains, “we need long-term strategic planning, clear and achievable

Global Markets

“E

urope is showing strong signs of resilience. Banks are raising private funding and capital, funds have been flowing back to peripheral Europe securities and Europe’s GDP is growing. Three quarters of domestic demand expansion in the euro area is good news.

Europe remains attractive in a global context. Margins have seen a significant cyclical decline and we now expect the improvement in economic growth to drive a significant rebound.

This, together with a catch-up from low levels in the financial sector, should drive good earnings growth and support returns. However, caution is still required. I do not believe that Europe has secured a self-sustaining resolution of the crisis yet. Ukraine has not become an economic crisis for Europe yet but it needs watching.

We still see the underlying fundamentals for above-trend growth in the US economy very much intact. We expect a rebound in growth momentum to be the key driver of markets in the near term. Accordingly, we continue to anticipate that real GDP growth will pick up in the US this year, as the housing recovery continues, consumer spending strengthens, and business investment picks up amid greater certainty about the economic output. In addition, we anticipate that the unemployment rate will fall faster and wage/inflation pressures will rise a bit faster.

We remain very constructive on Japan over the longer term, where we expect performance to be supported by further Bank of Japan easing, nuclear restarts and continued structural reforms (such as special economic zones, potential further cuts in the corporate tax rate and immigration reform) in combination with a further weakening of the yen and strong profit growth.

Emerging markets growth has disappointed broadly this year in response to weakening fundamentals and geopolitical risks. Among the emerging markets, the key risks currently emanate from Russia and the tensions in Eastern Europe. If Russia were seen to be targeting other territories for annexation this could become a global shock to sentiment and growth.”

the international investment, finance & professional services magazine of cyprus

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wealth management

Diversification of assets is vital solutions, and immediate action by all involved. The banking system needs to regain people’s trust.”

As to how this may be attained, Loizides is clear and concise: “Lifting of all capital controls, along with stricter procedures for granting new loans, and stronger supervisory laws and regulations from the relevant regulatory authorities, will help to boost confidence in the banking system, and the economy overall.

“Without a strong and healthy banking system, it will be very hard for the economy to accelerate.”

With recovery on everyone’s mind, a new leaf has been turned in Cyprus’ history books; a revelation of sorts: “Bank clients in Cyprus have,” Loizides begins, “for the first time, realised that keeping all their eggs in one basket is not safe. It has even transpired that deposits are not as safe as many people once believed.

“Thus, people have started checking and evaluating other qualities, besides merely what interest rates financial institutions offer. People are turning to more diversified portfolios, including different asset classes, to limit their risk.”

And the moral of Loizides’story? “Diversification of assets is vital.”

As head of Piraeus Bank’s wealth management unit, Loizides knows a thing or two about diversification. Explaining his philosophy as to how to optimise a risk/reward ratio in an otherwise volatile economic environment, Loizides explains: “Investors need to hedge against the investments they already have. These could be real estate investments, cash deposits, equities or anything else. This reduces the risk inherent in any one investment. Diversification of a portfolio may be as broad or as narrow as an investor wishes. However, broader diversification equates to less risk and less return.

Factors such as future goals, the investment time frame, tolerance for investment risk, and age, are crucial in determining how to construct an investment portfolio.”

Elaborating further, Loizides continues: “Different asset categories should be included in a portfolio. Dividing an investment portfolio among different asset categories is a must. However, the process of determining which mix of assets someone is to hold

in his/her portfolio is a very personal one.”

At its core, diversification cannot guarantee a boost of performance, nor will it ensure gains anymore than it may guarantee against losses: “But,” Loizides notes, “it can help to set appropriate levels of risk.

Diversification has proven its value, even in challenging markets and periods.

“Wealth preservation is the main objective of investors; therefore, asset allocation is still the focus of our business. We aim to protect investors from downside risks, while looking for investment opportunities.

The global economy is looking much better than in 2013, and good investment opportunities are arising.”

Without a strong and healthy banking system, it will be very hard for the economy to accelerate Explaining how Piraeus Bank may facilitate the striking of this fine balance, Loizides notes: “Wealth management is more than just investment advice, as it can cover all aspects of a person’s financial life. Besides traditional banking services, we provide our clients with customised solutions that properly fit their financial needs. Our aim is to identify what is of importance to customers, and to create strategies to help them realise their goals.”

When probed as to how the imperativeness of not only building but also maintaining trust within this sphere is met, Loizides is adamant: “Our main goal is to create long-lasting relationships with our clients

48 Gold the international investment, finance & professional services magazine of cyprus

that will endure for years. “Therefore, we will sit down with the customer and, through an in-depth analysis, try to understand his or her specific needs, as well as what the client wants to achieve in the short- and long-term.

“We explicitly outline all the possible risks, and do our utmost to provide the most appropriate financial solution, taking into consideration all the different factors. Furthermore, we assign a relationship manager to each client, who will be responsible for addressing all banking or investment requests.”

What are the key qualities that define the relationship manager’s role? “The relationship manager is not only the point of reference for the client, he/she strives to provide excellent service, proactively listens to the client, and coordinates everything in an efficient manner with full confidentiality,” Loizides notes.

In an ever more competitive world, the personal touch is priceless in acquiring and caring for clients. Piraeus Bank is not content to rest on its laurels, says its Head of Wealth Management, and he explains how he ensures that the bank’s offerings are constantly being enriched: “We focus exclusively on the needs of our clients and their families and we commit our resources to help them achieve their goals,” he says.

“We understand that our clients spent a lifetime pursuing the goal of financial success. In volatile markets and changing world events, uncertainty is understandable. We continuously monitor developments, follow international research, and try to stay as informed as possible in order to be ahead of the game, and then advise our clients accordingly.”

Detailing new products and services, Loizides adds: “We offer a broad range of financial solutions, as well as access to the best investment managers globally to private, corporate, and institutional clients.

Our expertise covers equities, mutual funds, fixed income, alternative investments and structured products. We constantly review and update our product offering list with the latest addition being the offering of a true Open Architect Platform that gives our clients access to thousands of funds.”

Special SuPPLEMENT

Accounting, Audit & Tax Advisory Firms

in Cyprus

Accounting firms play a key role in Cyprus’ vital professional services sector, providing a host of services including accounting & payroll, audit & assurance, tax & business to international and local companies. More and more of them are playing an increasingly proactive role in attracting business to the island, thereby enhancing its reputation as a regional financial services centre. On the following pages, six of the country’s leading accountancy firms present details of their services and a brief company profile.

the international investment, finance & professional services magazine of cyprus

Gold 49

SPECIAL SUPPLEMENT

Baker Tilly

B

aker Tilly Klitou (operating as Baker Tilly) is a leading firm of auditors, accountants and business advisors. It operates through offices in Nicosia, Limassol and Larnaca in Cyprus, Bucharest in Romania, Sofia in Bulgaria and Chisinau in Moldova.

14 partners and more than 200 people offer services of the highest standards to more than 4.500 businesses operating both nationally and internationally.

Synergy, determination and professionalism are among

the key ingredients that make our teams able to handle all tasks assigned successfully. Whatever the size of the assignment, we can provide an experienced individual or team to meet each client’s specific needs.

Baker Tilly International

Baker Tilly firms in Cyprus, Romania, Bulgaria and Moldova are independent member firms of Baker Tilly International. Baker Tilly International is the 8th largest accounting network in the world by fee income and is represented by 161 firms with 738 offices in 137 countries, with a global fee

income of $3.4 billion and 27,000 people worldwide (June 2013).

Our Services

• Audit and Assurance Services • Accounting Services • Corporate and Personal Taxation Services • Internal Audit Services • IFRS Services • Consulting and Business Advisory Services, including: ❍ Business & Enhancing Performance Advisory Services ❍ Financial Advisory Services ❍ Corporate Governance, Risk & Compliance

Awards/Accreditations/Achievements

• Cyprus Special Exports Award for Services 2011 (Cyprus) • “ICPAC Quality Checked” Certificate (Cyprus) • Eligibility to Audit World Bank Finance Projects (Romania, Bulgaria, Moldova) • ISO certificate for financial audit and related activities (Romania) • ICAEW- Approved Training Practice • ACCA - Approved Employer – Trainee development Platinum level • ACCA - Approved CPD Employer

cover story

and of any size, and we do so whilst maintaining the personal attention and partner involvement that clients demand.

Our membership with Baker Tilly International provides us with a range of resources that facilitates access to the specialist knowledge, experience and intellectual property of thousands or recognised experts worldwide.

In addition it affords us access to a recognised global brand, customised training and leadership and people development programmes, industry tools and international technical and practice management resources to complement our own resources.

Working with Baker Tilly The characteristics that shape a successful organisation are often difficult to define. Size is not the deciding factor. “Big” is no guarantee of quality.

The essential differences are defined by people with a clear vision of where they want the organisation to go. Our ambition is to be a leading firm in the countries where we operate focused on delivering exceptional client service. We have a dynamic management team with the vision to realise this ambition.

We are servicing clients in almost any industry

We maintain our quality services to the highest of standards as we have to meet strict quality guidelines laid down by the network’s technical team. Regular Quality Assurance and Peer review visits are carried out to member firms. Sharing good working practices helps to maintain high quality levels and consistency of approach to work carried out by member firms.

How can Baker Tilly in Cyprus help you

• We advise local and international businesses on how to best set up their business in Cyprus.

• We developed the local knowledge and links to service our clients in a more cost efficient and cost effective way.

• We possess the accounting, audit and tax expertise for all business types and sizes.

• We follow a personal service approach to our clients at no extra cost.

• We will look after your specific business interests, like our own.

Contact Information

Address: Corner C Hatzopoulou & 30, Grivas Dighenis Avenue, 1066 Nicosia | Mailing address: P.O. Box 27783, 2433 Nicosia Tel: (+357) 22458500 | Fax: (+357) 22751648 | e-mail: info@bakertillyklitou.com | Website: www.bakertillyklitou.com

the international investment, finance & professional services magazine of cyprus

Gold 51

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Special supplement CSR

Deloitte Limited

Working together with our clients As One Always one Step Ahead The success of our firm is defined by the strength of the relationships we have with our clients.

Helping their businesses succeed is at the core of everything we do.

D

eloitte, with more than 500 professionals operating out of offices in Nicosia, Limassol and Larnaca, is one of the largest professional services organisations in Cyprus, providing a full range of services to a diverse client portfolio. Our services include audit, tax, consulting, financial advisory, wealth advisory and an integrated services offering addressed primarily to the international business community, focusing on accounting and payroll, tax compliance and the formation and administration of companies, partnerships and trusts. As part of the Deloitte global network, with more than 200.000 people in over 150 countries, we have the advantage of a global sharing of knowledge with a local adaptation and personal approach, built on the solid foundations of more than 55 years of successful operation on the island.

Our vision is to be Standard of Excellence, standing out in our markets through the impact we have on the reputation and success of our clients and being the first choice for talent.

Our core services Delivering outstanding service to all clients is our top priority. We, at Deloitte, offer our clients a broad range of fully integrated services in areas that include Audit, Tax, Consulting and Financial Advisory.

Our client service teams, under the leadership of a Lead Client Service Partner, help create powerful business solutions for organisations operating all over the world. This integrated approach combines insight and innovation with business knowledge and industry expertise to help our clients exceed their expectations.

Our wide range of professional services includes:

•Audit & ERS In today’s changing global economy, businesses need trusted advisors. Because our audit professionals take time to understand our clients’ business and needs, we help them identify major risks and opportunities over and above performing the traditional financial reporting function. We offer our clients a broad range of audit and enterprise risks services.

Our audit services include statutory audits of financial statements, non-statutory audits and other attest opinions, International Financial Reporting Standards (IFRS) services and governance services. Our ERS services include internal audit, IT audit and control assurance.

Deloitte Audit is the latest generation of Deloitte’s transformed audit platform, which is purposefully designed to address the complexities of modern businesses, incorporating new methodologies, content, and technologies to ensure relevant, high quality audits in a constantly changing environment.

•Tax & Legal The provision of taxation services is core to Deloitte’s business both in Cyprus and in the international arena. Deloitte has one of the largest teams of taxation experts in Cyprus, providing a full range of business and personal taxation services.

Our Tax & Legal services team keeps our clients up to speed on the developments that may affect their business, help them interpret their significance and integrate tax considerations into their strategy, with special emphasis on business tax, personal tax, indirect tax (including VAT), global employer services (including solutions for high net wealth individuals) and cross-border tax.

•Integrated Services Our Integrated Services team provides a broad range of professional services which are tailored to support both international and local clients with offices in Cyprus and also clients who elect to outsource specific accounting and administration processes.

Our team of highly trained and suitably qualified accounting professionals, recognise the specific needs of our clients and offer an extensive range of accounting and administrative services, providing the necessary assistance and professional support to enable our clients to operate their business enterprises smoothly and efficiently.

Our integrated services include accounting and payroll, contract administrative and other, tax compliance and formation & administration of companies, partnerships and trusts.

•Consulting Services Our consultants help our clients improve business performance and increase shareholder value. We combine expert business strategy and financial skills with the ability to deliver major business change programmes.

Our consulting services include human capital services, strategy transformation schemes, technology specific solutions and actuarial & insurance solutions.

•Wealth Management Services Our wealth management team has the resources and capabilities to deal with all aspects of the financial affairs of high net worth clients under one roof and to look after the client’s finances on a long term basis.

Our team provides practical and imaginative wealth management solutions combining sound investment advice, with tax efficient structures and long term succession planning.

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In addition our team provides transaction advice, international advice as well as family office services.

Our investment fund services team which includes investment, tax, wealth management, accounting, audit, corporate finance and consulting specialists provides tailor made multi-disciplinary solutions to investment funds. The team can assist with the formation of a fund, ongoing tax consulting and compliance, audit, investment compliance and the raising and introduction of capital.

•Financial Advisory Services Our Financial Advisory Services professionals provide strategic and financial advisory services to clients throughout every phase of the economic cycle. By managing our service offerings, we can extract synergies, from our deep specialisation to provide added value to our clients.

Our Financial Advisory Services team provides corporate finance, M&A transaction and valuation services, feasibility & reorganisation studies. The team also undertakes forensic and dispute resolution services and advice on grants & incentives.

Industries Understanding the implications of the services we provide is one of the ways we insure success.

Multifunctional industry groups representing each of our service areas create client specific solutions that add value across an organisation.

Our main industry groups include: - Financial Services - Oil & Gas - Energy & Resources - Shipping - Consumer Business - Travel, Hospitality and Leisure

- Technology, Media & Telecommunications - Public Sector - Real Estate & Construction - International Business People and Talent The power of Deloitte is its people, and the future of the organisation lies on their continued delivery of exceptional service and innovation. Our aim at Deloitte is to be the first choice of the most sought after talent.

To achieve this, we focus on three priorities: make explicit our employer value proposition, build a true coaching culture, and focus on our differentiators - flexibility, diversity, mobility and performance excellence.

Our firm’s continuous investment in its people is recognised by local and international bodies and organisations. Some of our firm’s most recent achievements, of which we are particularly proud are:

Investors in People (IIP) Gold & International Champion

In Business Award for Best Workplace of 2012

Corporate Social Responsibility At Deloitte, corporate responsibility is the heart of everything we do: our approach to quality, leadership, talent and our clients. Our business is built on the quality of our work, on strong ethical principles and integrity, on an understanding of our impact on wider society and the trust placed in us by our clients. We understand that our business has wide and farreaching impacts and that being responsible in every aspect of the way we conduct our work is crucial to our own long-term success.

We are already renowned for the quality of our clients, for our own business performance, for the influence we have and how we set the agenda on matters that transcend our business self-interest. We want to continue to build on our reputation and be regarded as the responsible business.

Contact Information Nicosia: 24 Spyrou Kyprianou Ave, CY 1075 Nicosia Tel.: 22 360300, Fax: 22 360400 E-mail: infonicosia@deloitte.com Limassol: Maximos Plaza, Tower 1, 3rd floor 213 Arch. Makarios III Avenue, CY 3030 Limassol Tel.: 25 868686, Fax: 25 868600 E-mail: infolimassol@deloitte.com

ISO Certification 9001

Larnaca: Patroclos Tower, 4th floor 41 - 43 Spyrou Kyprianou, CY 6051 Larnaca Tel.: 24 819494, Fax: 24 661222 E-mail: infolarnaca@deloitte.com

Deloitte Investment Services Ltd is the Wealth Management Advisory Firm of 2012 in Cyprus

by Corporate Intl magazine

www.deloitte.com/cy

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Eurofast Profile Eurofast is a boutique international professional services organisation employing over 200 people in South East Europe & the Eastern Mediterranean through fully fledged subsidiaries in Lefkosia, Athens, Thessaloniki, Sofia, Bucharest, Belgrade, Podgorica, Tirana, Skopje, Zagreb, Pristina, Banja Luca, Sarajevo, Cairo, Alexandria, Tbilisi and Rep offices in Moscow, Kiev and Beijing.

All eurofast offices have implemented a uniform region-wide management policy with the same clientfocused approach and partner-led personal service. Every Eurofast office consists of teams ranging from 15-60 professionals from across all the financial services fields including tax advisors, accountants and consultants.

Our offices are interconnected via state-of-the-art technology and computer systems. Telephony and video conferencing facilities are in addition centralized; the server and intranet system ensures that otherwise remote locations adhere to even the smallest detail in our client service and philosophy; thus making us local experts with global knowledge.

Eurofast specializes in the following services: • Accounting & Payroll • Mergers & Acquisitions

& Transactional Practice • International Tax • Immigration & Citizenship • Transfer Pricing • Real Estate Tax • Indirect Taxation • Financial Services • Energy Tax • Shipping Tax We have become the number one reference point for entrepreneurs interested in expanding into South East Europe & the Eastern Mediterranean. This is attributed to the fact that we offer localised professional services and support our clients operating in multiple jurisdictions in one single meeting, using one single language for their entire operations.

We invite anyone with a business idea which they believe can be successful company in South East Europe & Eastern Mediter-

Leading Professional Services... across South East Europe & East Mediterranean ranean to contact us. We can help them by • Evaluating the idea to see whether it is viable • Connecting them with business partners • Creating a business plan • Seeking financing • Assisting in all legal and regulatory issues in the Region Eurofast is recognised as a leader in professional services.

We have achieved worldwide market recognition for our exceptional advice, capabilities and innovation. The nominations and awards which Euro-

Contact Information

fast has received in recent years are a true recognition of the valued and trustworthy client work we deliver every day, as well as our knowledge, accountability, innovation and excellence in our field of expertise.

In 2014 we have won the “Regional M&A Tax Firm award” from M&A Global Today in recognition of our M&A work in the Region as well as being ranked “Top Tax Advisor “ in Cyprus.

Over the past 6 years Eurofast has been awarded 3 “Cyprus Tax Firm of the Year” awards by International Tax Review (ITR) and has been ranked in ITR’s World Tax Guides throughout the year as a leading tax firm in Cyprus.

Address: Cypress Centre, 5, Chytron Street, P.O. Box 24707, 1302 Nicosia | Tel: (+357) 22699222 | Fax: (+357) 22699004 Website: www.eurofast.eu

cover story

the international investment, finance & professional services magazine of cyprus

Gold 55

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EY Cyprus Brief History

EY is a global leader in assurance, tax, transactions and advisory services. We are 175,000 people based in 728 offices in over 150 countries. The firm is organized into 29 Regions and four Areas – Americas, AsiaPacific, EMEIA and Japan.

The collective intelligence of our 175,000 professionals around the world is one of our key assets - and it grows every day as we see, learn and do more.

EY Cyprus has a presence of 77 years on the island.

The firm serves as a trusted business advisor and auditor to a broad range of clients, from private individuals and entrepreneurial businesses to major public companies and large multinationals.

The EY Cyprus firm is part of EY’s Europe, Middle East, India and Africa (EMEIA) Area and one of the 21 countries that comprise the Central and Southeast Europe (CSE) Region.

Within this structure, we provide fast, easy access to the information and people with the best skills and wealth of expertise, to help our clients make the right decisions.

We are closely linked with EY’s dedicated global industry centres, for sharing industry-focused knowledge and experience. In this way we anticipate market trends, identify implications and develop clear points of view on relevant industry issues.

Our industry specialisations in Cyprus cover Asset

Management, Banking and Capital Markets, Consumer Products, Hospitality, Insurance, Oil & Gas, Power & Utilities, Real Estate, Retail, Shipping and Telecommunications.

Cyprus is an attractive location for the development of entrepreneurship and a distribution hub and gateway to investment in the European Union, Eastern Europe, Asia and Africa. Accordingly we have created dedicated, multilingual, teams to serve entities engaged in international operations and do business wherever you are.

Whatever the industry, our local teams and global network of professionals can provide with highly responsive advice that meets client’s assurance, tax, transaction and advisory needs.

Our Services

Assurance Services Strong independent assurance provides critical information for investors and other stakeholders, a robust and clear perspective to audit committees and timely and constructive input to management.

Tax Advisory and Compliance Services In Tax we help our clients assess, improve and monitor their tax function’s processes, controls and risk management and maintain effective relationships with the tax authorities. Tax has five sub-service lines which cover a wide range of issues: Business Tax Services, Transaction Tax,

Human Capital, Indirect Tax and International Tax Services (ITS).

Advisory Services Our Advisory Services include assistance on a broad range of areas: Performance Improvement, Risk, Information Technology, Financial Services Risk Management and Actuarial Services. We understand that our clients need services that are adapted to their industry issues, so we bring our broad sector experience and deep subject matter knowledge to bear in a proactive and objective way.

Transaction Advisory Services At EY Cyprus we work with our clients to help them drive competitive advantage by proactively managing their capital agenda which determines how they strategically raise, invest,

Global Compliance and Reporting In a world of increasingly technical, complex and demanding compliance, we provide exceptional client service using our integrated services. Our specialized services include: Establishment and set up of legal entities, Corporate Secretarial Support Services, Administration Services, Accounting Services, Payroll Administration and Personnel Related Services, Tax and VAT Services and other.

Family Business Services EY has developed a unique service model that addresses every aspect of the family business agenda. We can help businessmen take the right decisions when they hand over a company, ensure that their executives understand the tax implications of all the business decisions they make, see

we provide fast, easy access to the information and people with the best skills preserve and optimize their capital. We offer services that include Valuations and Business Modelling, Restructuring, Transaction Support, M&A Advisory and Project Finance.

into the future and take the required steps to make sure that their business is able to evolve and strengthen, understand and control risk, enhance systems and processes, manage capital and manage and retain talent.

Contact Information

Address: Nicosia Tower Centre, 36 Byron Avenue, P.O. Box 21656, 1511 Nicosia Tel: (+357) 22209999 | Website: www.ey.com/cy

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WE SUPPORT YOU IN EVERY ASPECT OF DOING BUSINESS IN AND

© 2014 EYGM Limited. All Rights Reserved.

FROM CYPRUS • Integrated services covering all global compliance aspects • Tailored, quality services from teams combining deep local knowledge and global experience • Highly responsive advice that meets your assurance, tax, transaction and advisory needs

Visit: ey.com/cy

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Gold 57

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ww ww

SPECIAL SUPPLEMENT

Grant Thornton Cyprus Brief history

We are Grant Thornton Cyprus, one of the leading accounting practices in Cyprus. Founded in 1942, we became a member firm within Grant Thornton International Ltd in 1982.

With offices in Nicosia and Limassol and with more than 100 people, we apply strong technical guidance and breadth of experience to ensure that clients receive a truly different experience.

Services provided

by Grant Thornton Cyprus

The firm offers a full range of assurance, tax, specialist advisory and outsourcing services to clients ranging from public companies and multinationals to private businesses across a broad spectrum of industries. We have also formed a China Desk, a service focused on helping Cypriot and Chinese companies tap into each other’s markets.

What makes us different?

Dynamic organisations know they need to apply

both reason and instinct to decision making. At Grant Thornton, this is how we advise our clients every day.

We combine award winning technical expertise with the intuition, insight and confidence gained from our extensive sector experience and a deep understanding of our clients. The real benefit for dynamic organisations is more meaningful and forward-looking advice that can help to unlock their potential for growth.

Through empowered client service teams, approachable partners and shorter decision making chains, we provide a wider point of view and operate in a way that’s as fast and agile as our clients. The real benefit for dynamic organisations is more meaningful and forward-looking advice that can help to unlock their potential for growth.

Our culture

We have created a culture of openness and transparency, where all of our people can make a difference. Our CLEARR values: collaboration, leadership, excellence, agility, respect and responsibility, underpin our culture and how we do business – they are embedded throughout our business and set the parameters of how we expect people to behave with their colleagues, clients and the world at large.

Corporate social responsibility At Grant Thornton, we’re always aware of the impact that our business activities could have on the wider community.

With that in mind, we want whatever we’re doing to have only positive effects for our people, our clients and suppliers, our environment and our community. We believe being a good business is about more

than just a strong reputation in the business world, it’s about having the respect of the public.

Global strength

Grant Thornton is one of the world’s leading organisations of independent assurance, tax and advisory firms. These firms help dynamic organisations unlock their potential for growth by providing meaningful, forward looking advice. Proactive teams led by approachable partners in these firms, use insights, experience and instinct to understand complex issues for privately owned, publicly listed and public sector clients and help them to find solutions.

More than 38,500 Grant Thornton people, across over 120 countries, are focused on making a difference to clients, colleagues and the communities in which they live and work.

We have created a culture of openness and transparency, where all of our people can make a difference.

Contact Information

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www.gtcyprus.com www.gtcyprus.com

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Reason says: there are three ways to go.

Reason says: choose the largest advisor

Instinct says: choose the right advisor

Instinct says: only one leads to growth.

Business Business decisions decisions are are rarely rarely black black and and white. white. Dynamic Dynamic organisations organisations know they need to apply both reason and instinct know they need to apply both reason and instinct to to decision decision making. making.

We are are Grant Grant Thornton Thornton and and it’s We it’s what what we we do do for for our our clients clients every every day. day.

Contact us us to to help help unlock unlock your your potential Contact potential for for growth. growth. ©2014 Grant Thornton (Cyprus) Ltd. All rights reserved. Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by member firms. ©2014 Grant Thornton (Cyprus) Ltd. All rights reserved. Grant Thornton International and the member firms are not a worldwide partnership. Services are delivered independently by member firms. the international investment, finance & professional services magazine of cyprus

Gold 59

SPECIAL SUPPLEMENT

Local Expertise, Global Reach

Susana Poyiadjis - Partner

Nexia Poyiadjis

T

he foundations of the firm were laid in 1969 when the late Joseph Pavlou Poyiadjis, a UK Chartered Accountant, started his own accountancy practice as a sole practitioner, operating from Nicosia under the name of “J. Pavlou”. In 1976 he was joined by his younger brother and now Senior Partner of the Firm

John Pavlou Poyiadjis, also a UK Chartered Accountant, and the firm was renamed “Pavlou, Poyiadjis & Co”.

Since 1980 the firm was renamed to Nexia Poyiadjis Chartered Accountants, being the exclusive member of Nexia International in Cyprus, one of the largest and longest established international networks of independent high quality accounting and consulting firms. With over 23,000 professionals

and 570 offices in 105 countries Nexia International gives us strong links in major cities around the world and helps organizations and individuals with an international outlook to maximize and sustain their potential.

We are leading providers of Audit and Assurance, Business Advisory and Consulting, Taxation and Wealth Management to publicly listed companies, regulated financial entities, small and large owner-managed businesses, professional practices and private individuals.

One of the strongest areas of specialist knowledge and expertise where our firm has a clear competitive advantage is our services to the financial services industry.

These include Audit and Assurance, Tax, Compliance and Advisory services to Cyprus regulated investment firms and funds. We currently service some of the most known and prestigious clients in the industry.

We have a dynamic team of Partners and Top Management consisting of John P. Poyiadjis, specializing on Insolvencies & Business Advisory, Susana Poyiadjis, leading the Audit & Assurance Division with specialization in Financial Services, Michalis Mavrommatis, leading the Taxation Department, Raffi Boyadjian, Partner in the Audit & Assurance Division and

Contact Information

Melina Schiza heading the Human Resources Department.

Our teams consist of people from different backgrounds with wide range of interests and areas of specialization thus enabling them to applying the highest level of expertise to every deliverable and adding value to the services offered to our clients.

We provide a supportive, rewarding and vibrant environment where our people have many opportunities to grow and succeed. We are very proud that this is reflected in our recent accreditation with the Investors in People (IIP) standard, an important and official recognition of the best practices we follow in the area of Human Resource Management and Development.

At Nexia Poyiadjis we believe that you should expect something special from your business advisors. Vibrant and constantly growing as a firm, we continue to improve our knowledge and skills for the benefit of our clients.

Clear thinking, in-depth understanding and a vision for success are primary objectives at Nexia Poyiadjis. All above, and more, are delivered with superior service, integrity and commitment.

Address: 2, Sophoulis Street, Chanteclair House, 8th Floor, 1096, Nicosia | Tel: (+357) 22456111 | Fax: (+357) 22666276 e-mail: np@nexia.com.cy | Website: www.nexia.com.cy/

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the international investment, finance & professional services magazine of cyprus

Gold 61

Listening to the V online trading

62 Gold the international investment, finance & professional services magazine of cyprus

Voice of the Client Saxo Bank has been going from strength to strength, with its latest award coming just this month when it was named most innovative social trading platform by International Finance Magazine. Marina Kuznecova, Senior Financial Associate, Retail & Corporate Sales, Saxo Bank Cyprus told Gold why it has been so successful.

By John Vickers

G

old: Although Forex Trading in Cyprus is done almost exclusively through dedicated firms, banks have traditionally been the biggest international currency traders. How much of an advantage does Saxo’s status as a bank gives it over its competitors?

Marina Kuznecova: Since 1992, Saxo Bank has been a facilitator in the global capital markets, aggregating liquidity, offering access to exchanges around the world and providing its powerful suite of products and platforms to private clients, institutions, banks and brokerages. With a wide range of asset classes,Saxo Bank can tailor to the majority of investors.

Since receiving European bank status in June 2001, the bank has rapidly gained a leading presence in online trading thanks to our superior client service, competitive pricing and focus on the development of industry-leading trading platforms.

Saxo Bank possesses a highly competitive market niche in Cyprus due to the fact that we are a Danish regulated financial institution and all of the clients’ trading

the international investment, finance & professional services magazine of cyprus

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online trading

We believe that a physical presence is essential for market penetration accounts are opened in Denmark. Compared to our local competitors, we offer a multi-product solution, which can be managed from a single account. Besides Forex, our clients can trade FX Forwards, FX Options, CFDs, stocks, futures, ETFs, ETCs, ETOs and bonds. In addition, we are a service-minded company, where all of our clients are supported at every stage of the customer sales process in their native language. The trading platform is available in more than 20 languages.

Gold: Would you also include the fact that clients’ assets up to €100,000 are guaranteed by the Danish government?

How many other firms can claim this?

M.K.: Yes, our clients’ deposits are protected by the Danish Guarantee Fund for Depositors and Investors up to €100,000 for cash deposits.

Saxo Bank is incorporated in Denmark as a licensed bank and is regulated by the Danish Financial Supervisory Authority (FSA).

Saxo Bank A/S is a fully licensed and regulated European bank. The company is subject to stringent financial reporting requirements under EU directives and specific regulations regarding client handling.

In regards to other firms’ claims, it will depend on the regulatory body in which they are governed.

Gold: Saxo Bank does not deal in retail banking, so what exactly do its purely banking activities consist of?

M.K.: The best description of Saxo Bank’s traditional business model is that of a facilitator. The Bank offers products and services provided by third parties and offers access through its online trading platforms.

As a part of our business model we act as a trading platform bridge, connecting our clients with financial products and services.

Our trading platforms are designed for retail clients, Introducing Brokers and financial institutions. In addition, Saxo Trader can be branded and customized for White Label business.

Gold: Saxo Bank was a pioneer in online trading and it has maintained its leading position in the market as Forex, in particular, has grown in popularity and significance. What are the keys to

this continuing success?

M.K.: I believe the key aspect is a continuous focus on innovation. We would like to provide our clients access to even broader asset classes and an even more efficient trading platform.

Gold: Tell us about Saxo Bank’s awardwinning trading platform.

M.K.: We provide a “triple access” to Saxo Trader for our clients. The platform is available as a downloadable version, which is preferred by most of the clients due to its flexibility and ability to be customized for both beginners and advanced users.

SaxoWebTrader can be accessed through a browser from any PC with Internet access, which is very convenient when you are travelling. In addition, our Saxo Trader mobile apps for iPad, iPhone and Android have gained a significant popularity due to its optimized trading layout.

Gold: In addition to Forex, what else can Saxo clients trade?

M.K.: The FX product range comprises spot FX, forwards, options, binary touch options and CFDs on FX. Equities are traded in the form of cash stocks, CFDs on single stocks, CFDs on stock indices, exchange traded Contract options, ETFs (exchange traded Funds), ETCs (exchange traded Commodities) and ETOs (exchange traded options). Commodities are traded in the form of Futures, CFDs and Contract options.

Gold: You have recently added stock options trading to the Bank’s trading platform. How significant is this latest addition?

M.K.: Saxo Bank constantly listens to the “voice of the client”. Investors are seeking more diversity in asset classes, instruments and financial services; we have built a flexible solution which caters both to the retail and institutional market segments, enabling our clients to trade equity options in a way that best enhances their individual investment strategies The launch enables clients of both to consolidate their existing portfolios by allowing them to trade multiple asset classes from a single account, and to take advantage of Saxo Bank’s cross product margining. Stock options are a great

64 Gold the international investment, finance & professional services magazine of cyprus

way to hedge a portfolio by using multiple strategies.

Gold: Do you have more innovative products in the pipeline?

M.K.: We recently launched a new analytical portal, TradingFloor.com, which is the first ever multi-asset social trading platform and an investment solution for the social media age. All users have an online profile, there is complete transparency around all of their investment decisions, and traders can share and discuss strategies with each other rather than with paid professionals. And just this month it has been named most innovative social trading platform by International Finance Magazine.

Gold: Saxo Bank already has a physical presence in 25 countries and it has plans for further expansion. Given that it is essentially an online trading platform, what is the point of having offices around the world when you could, presumably, have a huge operation in, say, Denmark?

M.K.: Several years ago, all Saxo Bank’s global and regional operations were in Denmark. Since 2006, we have started to open up offices in London, Singapore and other major cities. We opened our Cyprus office in April 2012 with a focus on servicing clients from Cyprus and Central-Eastern Europe. We believe that a physical presence is essential for market penetration as, in this way, we can be closer to our clients. Our regional offices are designed to hold private meetings with clients, seminars, product and/or platform related workshops. We are always happy to see clients at our premises and I strongly believe that a personal meeting is essential for mutually effective and efficient future cooperation.

Saxo Bank possesses a highly competitive market niche in Cyprus

interview

Cyprus needs to seek a view of the bigger picture and to change its mentality

By Chloe Panayides, Photograph by Jo Michaelides

D

eities did not give birth to the Wonders of the World; nor are catastrophes created by demons: people, in all their good intentions and imperfections, forge their fortunes.

Cyprus is learning this the hard way, according to Pavlos Loizou, Managing Partner of Leaf Research.

Long gripped by the illusion that the economy and the real estate sector are extricable, and that abounding apathy is devoid of repercussions, stakeholders are finally seeing the light, and adjusting their sight.

Seeing clearly is the first step to overhauling one’s mentality, Loizou explains, as he leads Gold through a psychology lesson that, he maintains, is better learnt sooner than later.

“I would describe what we’re enduring in Cyprus right now as being akin to passing through the five stages of grief,” Pavlos Loizou, Managing Partner of Leaf Research, begins. “Which are,” he clarifies, “denial, anger, bargaining, depression and acceptance.”

Meditating pensively, Loizou continues, explaining Cyprus’ current condition thus: “Following a decade of growth – and of apathy – the wind was knocked from our lungs as the global economy began to crumble.”

Despite the events of March 2013 which bought home most acutely to every single citizen the magnitude of Cyprus’ economic ailment, Loizou maintains: “The party actually stopped in 2008. Worst of all, nobody knew what to do to combat the deteriorating market.”

Precisely when the island’s stakeholders

should have been embroiled in an honest confrontation with the problems at hand in order to generate a suitable solution, they had, instead, covered their eyes and closed their ears.

“When I initially approached certain banks, describing what Leaf Research could offer them – considering that non-performing loans (NPLs) were heavily on the rise – I was met with complete denial of there even being a problem,” Loizou states.

The sheer stillness and quiet prevailing in Leaf Research’s office – in the buzzing centre of Nicosia, no less – is perhaps testament to the company’s unfailing focus. The team at Leaf Research, which was founded in 2011, works tirelessly to fulfil its core aim of being able to advise its clients via the collecting and interpreting of facts and figures pertaining to the real estate sector.

“Further to merely producing a report,”

Loizou clarifies, “we aspire to execute it in practical terms, using our hands-on experience.”

So what does Loizou’s experience tell him of what went wrong, resulting in the infirmity afflicting the real estate market at present?

“What I often find happens in Cyprus, to the detriment of the island’s overall development, is that people all too easily consider real estate in isolation. On the contrary, real estate must explicitly be embedded within the wider economy,” Loizou explains, confirming that, indeed, it was precisely this lack of vision that had resulted in uncontrolled growth.

“Cyprus actually underwent three consecutive booms,” he says. “Between 2002 and 2004, it experienced an ‘internal’ boom, as it prepared for EU membership and experienced a marked reduction in political risk. Jointly, these factors led to the second boom, an ‘external’, or ‘foreign’, boom, between 2004 and 2007: international investors began to look to Cyprus, buying holiday homes, establishing corpo-

Name-dropping is used unabashedly and

unapologetically for personal gain

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interview

Everything starts and ends with value; unfortunately, we take that in Cyprus to mean

monetary value rations, and more. And, finally, there was a particularly potent credit boom between 2006 and 2008, as banks began, in essence, to give away money.”

Collectively, Loizou concedes, this led to prices rising unwarrantedly. “Did it make sense? No. People were selling at one price, only to find a year later that the said property had supposedly doubled in value. The situation spiralled out of control.”

True to the adage that “evil prospers when good men do nothing,” Loizou believes that this affliction had long gripped the market: “For a long time, there was little quality in the real estate sector. It became a high-volume, low-margin business.

Banks were freely granting loans, and valuers were spinning out the same material, reproducing reports without really giving the depth and breadth of attention needed to each individual case. Major – and respected – accountancy firms were often employed by foreign investors contemplating construction of a project in Cyprus; however, concrete knowledge of the sector cannot be usurped for all the dutiful analysis and number crunching conducted.

“And so it was that people with the know-how were producing sub-par quality work of high volume and low margin, and accountants were producing low volume, high margin work, devoid of the necessary knowledge of the industry.”

Deep-rooted complacency may have served well enough whilst times were good;

however, once the economic tides turned, the real estate sector was left painfully exposed.

“Property prices continued to rise as salaries remained the same, causing such a disproportional rift that local people began to be priced out of the market, leading inevitably to other problems. Household debt in Cyprus, for example, has doubled since 2006.”

The sociological ramifications of the real estate market skewing so acutely are not to be undermined or underestimated, Loizou notes, with young people no longer able to purchase a place to live, a development that altered the dynamics of holistic societal development.

“It stands to reason that if a young person is earning a starting salary of €40,000, and wants to purchase a flat for €200,000 (at five times the person’s salary), then it constitutes a sustainable investment. However, if a young person is earning €15,000 per annum – an average of sorts in Cyprus currently – and the flat costs €200,000, then what should be a rite of passage suddenly becomes a terrible, unsustainable expense,” Loizou explains.

So what precautions should Cyprus have taken whilst enjoying its growth trajectory, protecting itself, furthermore, from the changeover of currency in 2008?

“Not to get caught up in semantics,” Loizou says with a smile, “but there is a ‘should’ and a ‘could’ to this answer.”

Continuing, he elaborates: “A better policy and practice certainly should have been implemented. Primarily, there should have been better regulation concerning the granting of loans from the Central Bank of Cyprus, as that would have helped regarding how many loans were dispersed and the repayment capability of the borrower, as well as crystallising focus on how loans were granted.

“By this I mean that there were three types of lending in Cyprus. Firstly, name lending: in other words, if you were a person of prominence in Cyprus, whether by family or professional status, your financials wouldn’t be checked. Secondly, asset lending: money is borrowed against, for example, land. The problem here is that even if someone has inherited a lot of land from

68 Gold the international investment, finance & professional services magazine of cyprus

their family, that doesn’t mean that their current salary can sustain the debt owed.

If someone’s land is worth €1 million, and they borrow €800,000 – on a salary of €20,000 per annum – and the market is strong and liquid, then it might be OK because they could sell the land to pay back the loan. However, if the market is not liquid, then we have a serious problem, as their salary alone does not suffice in supporting loan repayments.”

The final type of lending, says Loizou, is based, precisely, on the repayment capability of the borrower. “It is based not only on how much a person is making, but on the tangible, practical repayment capacity of that person. This is the type of lending that should have been practiced unambiguously.

It was not.”

He continues: “Furthermore, there should have been better local Government in terms of the land registry working correctly.”

And what of the ‘could’?

“The ‘could’ element comes down to the fact that Cyprus is a tiny country of some 800,000 people. Everyone – in some capacity – knows everyone else, giving rise to nepotism, which is abused beyond restraint. Name-dropping is used unabashedly and unapologetically for personal gain, with no policy or practice ethically exempt from this tradition. It has become almost impossible to break the chain and follow not only good, but right, practice.”

Having been blissfully in denial for quite some time, the island transitioned into anger in March 2013 as many protested the severity of the bail-out agreed upon by the Government and the Troika of international lenders. Now, applying the Memorandum of Understanding is somewhat akin to bargaining: if we get our affairs in order, conditions will improve; if we practice transparency, investors will return; and if we follow the MoU, the European Commission, the European Central Bank, and the International Monetary Fund will grant the island the money needed to sustain itself.

What, then, does the future hold?

“In practical terms, there are three prevailing conditions that worry me,” Loizou admits. “The fragmentation of political

parties, the agreement with the British government about the Sovereign Base Areas (SBAs), and the relaxation of rules, and incentives, for new developments.

“I’ll start from the beginning,” he says encouragingly.

“Firstly, the fragmentation of political parties means that no one party – or even two! – command a majority. We now need three or four parties to pass agreements.

All decision-making will have to be heavily compromised, which diminishes the Government’s ability to take bold steps.”

Loizou continues: “Secondly, whilst the agreement for the SBAs was hailed as a saviour of sorts – a monumental step in Cyprus’ history, spoken feverishly about for perhaps three days, after which it has all but been forgotten by the public – I feel there are practical implications of the agreement that have not been heeded. Let me put things in context. The core urban area of Nicosia (excluding the peripheral areas) is 80km². The SBAs are collectively 200km².

“The core of the agreement is twofold: yes, development will now be allowed.

However, responsibility to maintain infrastructure in the SBAs will now fall on the Government, which means massive additional operational expenses.

“Meanwhile, a great deal of new real estate will hit an already saturated market.

How will this help the closest municipalities of Limassol, or Larnaca? It won’t; it will hinder their recovery.”

Warming to the subject, Loizou elaborates further: “The long-term implications are significant: whilst everyone rejoiced, thinking only in terms of foreign investment coming to Cyprus, few considered the market as a whole. For example, there is already talk of building hotels in the SBAs: but does Cy-

prus really need more hotels? Do we also have plans in place to sustainably bring in the extra people to stay in the hotels?”

Moving onto the third and final stipulation, Loizou notes: “The relaxation of regulations regarding what people can build in the countryside, in the city centre etc., is related to my fear concerning the SBAs. Despite the thinking that more development will generate revenue for the economy overall, it will merely result in over-supply. The Government is throwing carrots, but there are no sticks. Granting further incentives and permits will merely flood the market, creating pent-up oversupply.”

When probed as to the state of town planning in combating this eventuality, Loizou states: “Whilst we have good and detailed town planning – covering what can be built and where – there’s no consideration for whether granting permission for a certain project will be detrimental to other existing enterprises.

“For example, Nicosia’s main retail hub was once Archbishop Makarios III Avenue, the centre of town always profitably abuzz. Then The Mall of Cyprus was constructed. The population of Nicosia didn’t massively increase, so what happened was merely the redirection of retail traffic from one locale to another. Now, another mall is close to completion on the opposite side of town. Yes, it represents a development and, yes, it’s important to allow for new projects in a locale, but surely not when they are to the detriment of another existing, fully-functioning entity.

“Makarios Avenue has all but closed, reflecting a loss of revenue, jobs, and livelihoods.”

Responding to the suggestion that Cyprus should be tending to what it’s already

We want to be a financial services centre but we don’t have strict regulations in place because XYZ individuals will be affected

got, Loizou states enthusiastically: “Precisely! Instead of incentifying even more new developments that don’t propose to fill a gap in the market, incentify refurbishment.

Fix up what already exists; manage your assets; make them profitable again, both aesthetically and practically.”

Approaching the core of Loizou’s psychology lesson, he notes: “Everything starts and ends with value; unfortunately, we take that in Cyprus to mean monetary value, instead of core value: subscribing to a higher purpose, asking questions such as what are we trying to achieve? We have no vision. For example, we want to be a financial services centre but we don’t have strict regulations in place because XYZ individuals will be affected (allowing nepotism to get in the way of our development).

“We want to encourage foreign investors to Cyprus, but it takes a whole year to get the permits to change the function of an ordinary shop into, for example, an eatery; and local Government closes at 2.30pm every day when we pride ourselves on our service. Admittedly, this is all slowly changing, but it shouldn’t really have been a problem in the first place considering how far we’ve come.”

Pushing through the stage of depression, emerging into acceptance, and therefore reacquiring a healthy state of affairs demands invigoration of thinking, Loizou believes: “The MoU will be a great asset in changing the status quo, forcing us to do things we’ve known we’ve had to do for a long time. Fundamentally, we live in a country that produces nothing (except the prospect of developing our newly discovered oil and gas fields). Thus, we must ask ourselves: What have we been selling? What could we sell? It’s a philosophical question, and reflective of the vision I’m not seeing.

Whether we are going to become an oil and gas hub, a financial centre, or a destination for wealthy foreigners to come and play (think Dubai), we need a charismatic leader who can instil a deeper awareness and ambition in the population.

“More importantly,” Loizou concludes, “we need to distance ourselves from the apathy that characterises us in Cyprus, to seek a view of the bigger picture, and to change our mentality: it’s time we awoke from our illusions.”

the international investment, finance & professional services magazine of cyprus

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d

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ea

m

Fun

in

r D

Crowdfunding is the new trend in start-up funding and innovation culture

By Irene Demetriou

Task 1: Open your phone. Go to your

Apps. How many do you have? Our smartphones often appear like application labyrinths, complicated mazes of technology filled with apps for dietary habits, apps for fashion trending, apps for measuring heartbeats while we jog, apps for news, apps for chatting and messaging, apps for noting tasks and daily planning: anything you can imagine is probably already an application.

Task 2: Open your mind. Go to all the

ideas you ever had and all the times somebody else got there first. An idea for an online portal which gathers information on available pharmacies, doctors, emergency units? Already done. An idea for interactive children’s bookcases, where removable shelves are re-arranged from A to Z or from 1 to 10? Already done. An idea for a company, a unique service, a platform of information? Most of them are already there.

What do we learn from our daily insistence to reject any idea we may have but never

70 Gold the international investment, finance & professional services magazine of cyprus

implement? We learn that somebody else – somebody much braver, much more active and less of a procrastinator who has no fear of failure – has implemented their inspiration and succeeded. Our usual excuse – and admittedly a most pressing issue in these days of austerity and financial caution – is the lack of capital and funding. How are you to kick-start an awesome idea you may have, without any money to start with?

Well there is a solution and it works: it is called crowdfunding.

CROWDFUNDING

PLATFORMS

What is crowdfunding?

Crowdfunding is the use of small amounts of capital from external financing, i.e. a large number of individuals, to finance a new business venture, typically via the Internet. The rise of the crowdfunding industry over the past decade has come from the advancement in web- and mobile-based applications and services. The name is selfexplanatory in that the crowd funds startup ideas, which are showcased on online platforms in a target-type of arrangement: each start-up publishes an online campaign with a desired funding target and has a specific amount of time to achieve that target.

So, as an entrepreneur, you would prepare a campaign which, on being published on a crowdfunding platform, would hopefully raise capital from potential investors.

For his 2008

election campaign,

Barack Obama

managed to raise over $137 million

using this method

Types of crowdfunding

In Donation-Based Crowdfunding, money is raised by members of a community with no financial return to the people funding a campaign. You may receive a discount, a gift such as a book, free tickets, etc. Public figures also use this method to raise money for political campaigning or for a cause: for his 2008 election campaign, Barack Obama managed to raise over $137 million using this method. This type of crowdfunding also carries a wider social and altruistic motivation, often employed to raise money for socially sensitive purposes, for example disaster relief or schemes to tackle unemployment.

In Equity-Based Crowdfunding or Crowdinvesting, as a funder you become a shareholder in the company you invest in. This means you are entitled to dividends from the company’s revenue and a share of the value in the company when shares are sold.

You may also have managerial rights such as the right to vote on certain decisions. As an investor, you also run the risk that any investor runs with a company, in that the company may fail and you may lose your investment. This type of crowdfunding is gaining momentum amongst technology start-ups or for start-ups which wish to go into production as soon as possible.

Crowdfunding platforms Crowdfunding platforms are the most effective tool to make your project idea visible to the world. If you are an aspiring

or existing entrepreneur with a start-up in mind, you can publish your fundraising campaign and tell your story in order to attract involvement and investment.

If you are an investor, a crowdfunding platform will present in an orderly and professional manner all the fundraising campaigns submitted to the platform, a description of each one’s policy and monetisation strategy and its desired funding target. The benefit to the investor is that, by searching on these platforms, they can see the level of support from other project investors as well as the time remaining by the end of the campaign, before deciding whether to invest or not.

Crowdfunding platforms receive applications from project owners and, once accepted, the project owner must initiate his or her campaign online. There are many different ways in which a crowdfunding platform makes money. Some add a success fee to the total amount of crowdfunding achieved. Other platforms may take an equity interest in your project, just like an investor. As of 2012, 450 crowdfunding platforms have been identified, which goes to show both the popularity and effectiveness of the idea, but also the essential choice both start-ups and investors have to make in choosing the medium which suits them best. For example, some crowdfunding platforms allow the project owner to receive the amount of total funding even if the original target has not been met. In other cases, if you have not met your initial stated target, you lose all the money, and the investors are reimbursed by the platform.

K

Viva la Vita

onstantinos Aristotelous and Styliana Vasili managed to secure more than £27,000 for their project, which has been campaigned via Seedrs. The two young, Cypriot entrepreneurs living in London, have created Viva la Vita, a mobile application providing a handpicked shortlist of the best fitness classes happening today and tomorrow, bookable with just a few taps. Revenue is generated through a 15% commission fee on each booking. The entrepreneurs have prepared the iOS version which will be launching in a few weeks while the funds raised though Seedrs will be used, amongst other things, to fund the development of the Android version.

The idea is that a person who cannot commit to monthly gym routines, will pick a gym class featured on the App and book a place through Viva la Vita on his/her mobile phone.

the international investment, finance & professional services magazine of cyprus

Gold 71

CROWDFUNDING

TOP FUNDED EIS

✪

Humble Grape: Successful wine & events company creating a technology driven Wine Bar in Shoreditch.

Rare Pink: Custom diamond engagement rings online at competitive prices.

123.7% iven W

EQUITY: 15.00%

SEIS

✪

Blue Crow Media: High quality curated city guide apps for contemporary urban life.

120.4%

INVESTMENT: £250,000

iven W

Overfunding

Success Stories

Veronica Mars Movie: Veronica Mars is one of the five highest grossing crowdfunding projects to date. Aiming for $2 million in funding, it ended up with over $5.7 million and a studio-backed film adaptation based on the popular TV series of the same name.

The Glif: This is a simple smartphone holder that works as a stand or tripod attachment. It’s such a simple piece of engineered plastic, yet it solved the common problem of stabilizing that users faced when trying to use their iPhone camera to film or photograph. The project was designed on a $10,000 budget, but ended up surpassing $137,000 in funding.

Pebble: Pebble is a watch which connects to iPhone and Android smartphones using Bluetooth, alerting you with a silent vibration to incoming calls, e-mails and messages. Amazingly, the venture raised over $10 million through crowdfunding.

Tidy Books: A mother from England managed to raise £105,000 for her innovative and eco-friendly storage that get kids reading.

EQUITY: 10.53%

114.3%

INVESTMENT: £100,000 Overfunding

How to design a successful crowdfunding campaign

 Decide how much funding you want to raise .  Decide for how long your campaign will run.  Create a top-notch video showcasing your product or service.  Understand that crowdfunding platforms are not charity hosts and that they will demand something in return; read the policies and terms of each platform before deciding where to publish your campaign.  Keep the idea professional and with a plan in mind. As with traditional investments, no-one is likely to give money to amateur time-wasters.

How to invest in a crowdfunding campaign

 Choose start-ups which you feel passionate about in order to secure maximum engagement.  Understand that, as with any investing

Crowdfunding platforms are not charity hosts and that they will demand something in return 72 Gold the international investment, finance & professional services magazine of cyprus

EIS

✪

iven W

EQUITY: 5.00%

INVESTMENT: £50,000 Overfunding

attempt, failure is more likely than success. Be prepared to pay a price for it.  Some campaigns are based on flexible funding, meaning that the idea will materialise even if the target goal is not secured; understand the dangers of investing in a start-up which has not raised the desired capital but proceeds nevertheless.

Applicability in a local context

The best part about crowdfunding is that anyone can benefit, as long as the idea is solid and has a monetisation plan in view. Government organisations and ministries can also be involved in crowdfunding, through the initiation of campaigns and create synergies with local stakeholders in producing something unique, either for profit or, equally importantly, for social campaigns and cultural activities. It would also be interesting to see politicians raising campaign sponsorships through crowdfunding campaigns in Cyprus’ next parliamentary elections. Perhaps it is time to look at more inventive sources of funding, such as crowdfunding and European funding through competitive programmes and open our ideas to the world; you never know who might just be willing to fund your dream.

info: Irene Demetriou is Business Development

Manager for Andreas Neocleous & Co LLC.

{May 14 – June 13, 2014}

issue

38

86

+ BOok reviews MONEY: Capital in the Twenty-First Century

By Thomas Piketty 77

74

{money}

82

{economy}

74 Solvency II: Nearly 80% of European insurers On Track 76 Fall in Private Consumption Milder than Anticipated 77 Americans lack basic personal finance skills A new survey underscores the need for financial education

82 2014 Recession “Moderate” Compared to 2013 The May 2014 Economic Outlook of the Economic Research Centre of the University of Cyprus.

78

84

{business}

78 Talent mismatch costs global economy $150 billion 80 Business Statistics Eurozone Unemployment Stable, Retail Trade Up.

BUSINESS: Six Simple Rules: How to Manage Complexity without Getting Complicated

By Yves Morieux & Peter Tollman 80 TAX & LEGAL: Storytelling for Lawyers

By Philip N. Meyer 85 LIFESTYLE: The Shock of the Fall

By Nathan Filer 89

{tax&legal}

84 Tax Transparency and Morality 85 Company Tax Returns Filing Deadlines Extended

86

{lifestyle}

86 Buying a Piece of the Action Investing in Music Memorabilia 90 A Day In The Life Susana Poyiadjis

the international investment, finance & professional services of cyprus

Gold 73

: I I y c n e SoNlevarly 80% of EuTrorpaecank

insurance

{money}

Reporting requirements (Pillar 3) still represent a major challenge

N

early 80% of European insurers expect to meet Solvency II requirements before January 2016, according to EY’s European Solvency II Survey 2014. Overall, Dutch, UK and Nordic insurers are the best prepared, while French, German, Greek and East European (CEE) insurers are less confident.

The survey of 170 insurance companies, conducted in the Autumn of 2013, is an update of EY’s 2012 pan-European survey and spans 20 countries including Europe’s largest insurance markets. The findings reveal a consistently high state of readiness to implement the Pillar 1 balance sheet and fulfill most of Pillar 2, systems of governance, but Pillar 3, the reporting requirements, still presents a major challenge.

Martin Bradley, EY’s Global Insurance Risk and Regulation Leader, says: “Postponing the Solvency II regulatory deadline to 2016 has bolstered insurer confidence that they can meet the requirements in the time frame. However, as companies become more realistic about their implementation readiness, it is clear that some are less prepared than they had expected – many simply delayed their plans by at least one year, which might cause them issues now. While insurers are sending a strong message that they are seeking to improve their risk management effectiveness, they have a long way to go in terms of reporting, data and IT readiness.”

Insurance companies appear to be generally well prepared on all aspects of Pillar 1, with French, Dutch and Italian companies approaching compliance and Greek, Portuguese and Central Eastern European insurers showing a lower level of readiness. However, nearly 85% of respondents see room for improve-

n O s r e r insu

ment in the effectiveness and/or efficiency in meeting Pillar 2 requirements.

Martin says: “Insurers know that they need to tackle embedding risk culture at the front line more effectively. The top four improvements identified by insurers as delivering improved risk management effectiveness all related to interface with the front line, but these changes were also ranked as being the hardest to achieve.”

For another key element of Solvency II, the Own Risk and Solvency Assessment (ORSA), there is a significant spread in readiness from lowest to highest by country. The Netherlands, Nordics and UK are more prepared, with Greece, Portugal and CEE less prepared.

Almost 76% of respondents say they have yet to meet most or all Solvency II reporting requirements (only a marginal improvement compared to 80% in 2012). Martin says: “The level of implementation readiness has made little progress since 2012. Uncertainty in implementation and timing delays may explain the lack of progress but it is now critical to accelerate these projects in 2014. Given the current status, the reality for many is that the 2015 transitional reporting will need to be done largely on a manual basis.”

Data and systems readiness for Pillar 3 continues to lag behind Pillars 1 and 2. Only 25% of insurers have selected or designed a system to meet Pillar 3 requirements, and 66% of respondents note that data and systems are not designed to support ORSA assessments beyond the normal reporting cycle.

Jan Leiding, Partner in Financial

Services, Europe, Middle East, India and Africa at EY, says: “Not surprisingly, the decision to freeze or place programmes into “business as usual” means that only limited progress has been made in data and IT across all pillars in the last 12 months. Rapid gap assessments, prioritization and strong project leadership are needed to meet deadlines.”

Given the two-year delay in Solvency II implementation, insurers appear more confident in the approval of their models for day 1 use; 67% of the companies surveyed believe they will be ready. This reflects the extra time they have had to finalize their programmes.

As a general trend, the proportion of insurers planning to use a (partial) internal model has dropped since our previous survey. However, partial internal models have shown the most noticeable reduction, and companies adopting full internal models are more likely to be continuing with their plans.

While the overall frequency of interaction with regulatory bodies is considered largely adequate, insurers expect more in terms of support in the interpretation of regulatory requirements (79% are not satisfied) and in terms of the amount and quality of feedback on company-specific implementation (75% are not satisfied). This might reflect the fact that supervisors are understaffed as they cope with the new regulation. In addition, 61% of the surveyed insurers are not completely satisfied with the size of their supervisory teams.

Find a copy of the full report at www. ey.com/insurance.

Postponing the Solvency II regulatory deadline to 2016 has bolstered insurer confidence that they can meet the requirements in the time frame

74 Gold the international investment, finance & professional services magazine of cyprus

A great cup of coffee.

1. Engomi 2. Strovolos (Aretaieio) 3. Strovolos (Athinon) 4. The Mall of Cyprus 5. Pallouriotissa (Kantaras) 6. Larnaca (Finikoudes) 7. Limassol (Makariou Aven.)

8. Ayia Napa (Makariou Aven.)

22 252134 22 250345 22 311984 22 570177 22 434395 24 622224 25 251136 23 722818

consumption

{money}

Fall in Private Consumption

Milder than Anticipated According to the European Commission’s latest European Economic Forecast, published on 5 May, the fall in private consumption in 2013 proved milder than anticipated, as households smoothed out consumption by drawing on their savings to mitigate the adverse impact of the recession. Below is the Cyprus chapter of the Spring Forecast.

The recession was broad-based in 2013 …

The recession intensified in 2013, as real GDP declined 5.4 %. The decline was broadly based, with all domestic demand components contracting more than in the previous year.

Nevertheless, the fall in private consumption proved milder than anticipated, as households smoothed out consumption by drawing on their savings to mitigate the adverse impact of the recession. The resilience of the tourism and professional business services sectors helped to mitigate the fall in economic activity and exports. Imports fell more than exports, leading to a positive contribution of net trade to growth. Unemployment further increased, albeit at a lower rate at the end of 2013, to 16.9 % in December 2013. Reflecting sizeable spare capacity, HICP inflation turned negative towards the end of 2013, bringing the yearly rate down to 0.4 %.

… but is likely to ease somewhat in 2014.

While short term indicators such as business sentiment and consumer confidence suggest that the recession will continue in 2014, the decline in activity is expected to ease. Tight credit conditions and declining disposable income on the back of further wage cuts will remain a drag on private demand, while the necessary fiscal consolidation measures will continue to weigh on public consumption. Net trade should contribute positively to growth, as imports shrink more than exports. The contraction of the economy is expected to push the unemployment rate up to 19 % in 2014. Data for the first months of the year suggest a bot-

toming out of HICP inflation. A combination of base effects from administrative reductions in energy prices last year and further VAT hikes should leave HICP inflation almost unchanged from 2013.

Growth is set to resume in 2015 …

In 2015, growth is forecast to resume gradually as private domestic demand strengthens.

The restoration of a sound and well-capitalised banking sector and the gradual deleveraging of both households and corporates should clear the way for more balanced growth. Export of goods and services are forecast to expand, supported by structural reforms in the tourism sector and a further acceleration in the growth of foreign demand. Reflecting the pick-up in demand, imports are set to increase and the labour market is projected to improve slowly, with unemployment starting to ease and employment picking up. As a result, HICP inflation should start to accelerate gradually

… but downside risks remain.

Risks are tilted to the downside. On the domestic front, a more protracted period of tight credit supply conditions and/or a slower reduction of household debt, which would draw out the deleveraging process, could postpone the economy’s recovery. On the external side, Cyprus’s sizeable trade links with Russia mean that its exports could suffer should negative spillovers emerge from the tensions between Russia and Ukraine. Risks to the HICP inflation forecast are also on the downside, reflecting possible larger pass-through to consumer prices from the ongoing price-competitiveness adjustment.

76 Gold the international investment, finance & professional services magazine of cyprus

Fiscal adjustment progresses The 2013 general government budget deficit reached 5.4 % of GDP, significantly better than projected at the onset of the economic adjustment programme. This largely reflects the tight budget control and strict execution of the significant consolidation efforts required under the programme. The budget deficit in 2014 is projected to widen slightly, to 5.8 % of GDP, while the primary deficit is expected to remain flat. Falling corporate profits, combined with declining wages and employment are set to lower revenues from direct taxes, while the drop in private consumption should translate into lower revenues from indirect taxes, despite increases in the VAT rate and excise duties. On the expenditure side, continued efforts to reduce the public sector wage bill, intermediate consumption and other current expenditure are projected to outweigh the increase in socialtransfers driven by the further worsening labour market conditions. In 2015, the improving macroeconomic situation and better labour market conditions are expected to support revenues from taxes and social contributions. Total expenditure, meanwhile, is projected to remain largely unchanged, as the impact of ageing on pension payments will be largely offset by a deceleration of the retirement wave in the public sector. Nonetheless, the deficit in 2015 is projected to increase to 6.1 % of GDP, as the 2014 projection includes an exceptional dividend from the Central Bank of Cyprus. After a sharp increase in 2013, the debt-to-GDP ratio is expected to continue rising in 2014 and 2015, broadly reflecting the macroeconomic conditions.

personal finance

{money}

Americans Lack Basic Personal Finance Skills

New survey underscores the need for financial eduacation

O

On 1 April, the National Foundation for Credit Counseling (NFCC) released the results of the 2014 Financial Literacy Survey conducted online in March by Harris Poll among more than 2,000 US adults. In its eighth year, the survey provides a snapshot of the American consumer’s level of knowledge as it relates to financial literacy, as well as behavioural and attitudinal trends associated with personal finance.

“This year’s survey once again confirms what we already know: the need for financial education is great,” said Susan C. Keating, president and CEO of the NFCC (above).

“Without a solid foundation on which to base everyday financial decisions, Americans are on a slippery slope as they begin to rebuild their financial lives following the Great Recession.”

Significant gaps of personal financial knowledge revealed in the survey include budgeting, saving, and understanding credit reports and credit scores - all key areas related to successful money management.

Budgeting and Debt: Some 61% of US adults, the highest percentage in six years, admit to not having a budget. Financial experts generally agree that a budget is a basic tool of financial management, and without it, a person can more easily lose track of spending. Nonetheless, consumers appear reluctant to utilize this tool, which could explain why

about one in three adults (34%) indicated their household carries credit card debt from month-to-month, with 15%, or more than 35 million people , admitting to rolling over $2,500 or more monthly.

Savings Versus Spending: When asked which areas of personal finance are most worrisome, the top concerns were evenly divided between insufficient “rainy day” savings for an emergency (16%) and retiring without having enough money set aside (16%). However, the proportion of adults who are spending less when compared to the previous year continues to decline, from a high in 2009 of 57%, to a low in 2014 of 29%. This suggests that, although consumers are uncomfortable with their lack of savings, they may have nonetheless increased their year-over-year spending.

The absence of a budget, insufficient savings, spending beyond what can be responsibly repaid, confusion around credit reports and scores, and an admitted lack of knowledge pertaining to personal finance are reds flags that demand attention. The good news is that nearly three in four US adults (73%) agree that, considering what they already know about personal finance, they could still benefit from advice and answers to everyday financial questions from a professional. Further, if they were having financial problems related to debt, 27% of adults, or more than 63 million people, indicated they would reach out to a professional non-profit credit counselling

This year’s survey once again confirms what we already know: the need for financial education is great

77 Gold the international investment, finance & professional services magazine of cyprus

agency for assistance. It is now up to them to take the next step and attain the skills necessary for long-term financial stability.

BOOK REVIEW Capital in the TwentyFirst Century

By Thomas Piketty (Harvard University Press, 2014) R.R.P. £29.95 (£29.95 from amazon.co.uk)

W

hat are the dynamics that drive the accumulation and distribution of capital? The author analyzes a unique collection of data from twenty countries, from as far back as the eighteenth century, to uncover key economic and social patterns.

He argues that the reduction in inequality in developed countries after World War II was a “one-off” that was driven entirely by political choices and policies. It did not happen automatically. Those policies, he says, have now been largely reversed, especially in the United States. As a result, the drive toward increased inequality is likely to be relentless. Piketty’s solution is a global wealth tax, which is, he argues, the only thing likely to work. He is dismissive of the idea that more education for the masses can solve the problem. Conservatives will dismiss Piketty as a socialist but the conclusions of the book (Le capital au XXI siècle in the French original) are backed by more hard data than any other economist has so far amassed, and they deserve to be taken very seriously.

the international investment, finance & professional services magazine of cyprus

Gold 77

productivity

{business}

A global study

by PwC, commissioned

by LinkedIn, reveals the economic impact of not having the right people in the right jobs

N

Talent mismatch costs global economy

$150 billi n

ew research by professional services network PwC, commissioned by LinkedIn, the world’s largest online professional network, reveals that poor talent adaptability – the inability for people to retrain for new skills or switch industries – is costing the global economy billions of dollars in lost productivity and leads to businesses wasting huge sums on avoidable recruitment costs.

The study, Adapt to Survive, for the first time analyses millions of interactions from LinkedIn’s network of 277 million professionals, and information on 2,600 employers from PwC’s Saratoga database, one of the world’s largest and most robust resources of people and performance metrics, to understand which countries are better at aligning talent with opportunity.

It examines five key talent behaviours within 11 markets and identifies two significant ‘costs’

which are based on the surveyed markets being as good at matching talent with the right opportunities as the Netherlands – the most adaptable market in the study. When these costs are combined this could mean the economy is missing out on US$150 billion: • A lost opportunity to generate US$130 billion of additional productivity – the research found a strong correlation between the adaptability of the talent in a particular country and the performance of its companies.

If markets were better at matching talent with the right opportunities, this could unlock as much as US$130 billion of productivity in the 11 markets studied (including US$65.6 billion in China, US$29.3 billion in the US and US$11.7 billion in Brazil).

• Avoidable recruitment costs of US$19.8

billion – this lack of access to the right talent is driving up the cost of recruitment for employers today. The longer time taken to find the

78 Gold the international investment, finance & professional services magazine of cyprus

Well-performing economies such as Germany rank lower than expected right candidates, and the increased likelihood for mismatched talent to leave sooner, are costing companies in those countries US$19.8 billion in avoidable recruitment costs.

Most adaptable countries according to the Talent Adaptability Score

The research spans a wide spectrum of economies by development phase, size and industry types. Each market is assigned a Talent Adaptability Score based on five key behavioural factors, which include: the average number of times professionals in that market switch industries, the average number of different positions held in a professional’s career, the average number of internal promotions in

Methodology Productivity gain

PwC first created a benchmark for adaptability based on five key variables – the Talent Adaptability Score – and then cross-referenced this score with the stated productivity of employers in each of the 11 markets through its Saratoga database of 2,600 employers. This allowed PwC to equate improvements in adaptability of each market’s workforce with increases in productivity. PwC has taken a conservative approach by asking “what productivity could be unlocked if everyone was as adaptable as the Netherlands?” If you apply their adaptability to each of the 11 markets in this study, there is approximately $130bn of potential productivity to be gained. PwC’s Saratoga database captures information on the amount of resignations that occur for people with less than one year of service. This is widely regarded as unwanted, and often avoidable turnover, indicative of a mistake during the recruiting process resulting in a poorly matched employee. Through the Saratoga database, PwC was able to estimate the number of new hires made in a country in one year, and then determine how many of these resigned within 12 months. PwC was also able to estimate how many hires would have resigned in the first year if they were performing as well as the Netherlands (4.8% first year resignation rate). By taking the difference between the actual number currently happening, and the better performing number, then PwC could calculate the number of ‘excess’ hires in a given year. Combining this with the cost per hire allows PwC to calculate the savings potential in the 11 markets analysed of US$19.8 billion.

CEOs are worried about a growing skills gap that market, the average number of employers a professional has had in each market and the average number of open vacancies divided by the market’s population.

The Talent Adaptability Score is a powerful indicator of a market’s ability to respond to future shifts in demand, not a snapshot of current economic performance. Scores vary significantly by country, with the Netherlands’ multilingual workforce and international business base placing it first in the ranking.

Emerging markets India and China have lower scores due to the existence of fewer mature sectors and their geographic size which limits talent mobility.

Well-performing economies such as Germany rank lower than expected, in part because it is a specialised economy which works well whilst its sectors are buoyant and stable, as they are today. But it also makes the country less able to respond to structural changes.

Commenting on the findings, Michael Rendell, Partner, Global Head of HR Services practice at PwC, said: “Worldwide unemployment continues to rise while jobs remain unfilled, and CEOs are worried about a growing

skills gap. The better employers and employees are at adapting to changing circumstances and aligning their skills with the available opportunities, the more productive organisations will become. Our research shows that a better talent fit between employer and employee could unlock $130 billion in additional productivity globally, begin to close the skills gap and drive a market’s competitive advantage.”

Dan Shapero, VP of LinkedIn Talent Solutions and Insights, added: “Countries increasingly differentiate themselves in the global marketplace via their human capital. Up until now, it’s been challenging for them to assess the skills, knowledge and experience of their workforces due to the dearth of professional data. We’re hopeful that countries will leverage the insights uncovered in Adapt to Survive to maximise the efficacy of their human capital and create more opportunities for their workforces.”

Talent Adaptability Score

RANK

COUNTRY

TALENT ADAPTABILITY SCORE**

LOST PRODUCTIVITY OPPORTUNITY*

AVOIDABLE RECRUITMENT COSTS*

SIZE OF THE PRIZE*

1

Netherlands

85

-

-

-

2

UK

67

1.44 billion

0.43 billion

1.87

3

Canada

61

1.86 billion

0.11 billion

1.98

4

Singapore

57

0.22 billion

0.06 billion

0.29

5

US

57

29.34 billion

2.37 billion

31.71

6

Australia

52

3.65 billion

0.37 billion

4.02

7

France

41

3.23 billion

n/a billion

3.23

Using evidence from LinkedIn profiles and metrics from PwC Saratoga to assess each country in five areas: 1. The promotion rate (scaled to take account of growth in the home market) – which indicates the reward offered by employers as the value of talent increases 2. The market vacancy rate – the lower the vacancy rate, the better the fit of talent to available jobs 3. Average number of profile positions – the number of positions that professionals list on their LinkedIn profile, which is an indication of the liquidity within the given market 4. Average number of employers – the average number of employers each individual has had, in any sector, which is a proxy for liquidity of opportunity 5. The industry switching rate – the rate at which professionals switch between different sectors, which shows their willingness to apply their skills to different areas.

8

Germany

39

4.92 billion

n/a billion

4.92

Overall ranking

9

Brazil

36

11.71 billion

0.07 billion

11.77

10

India

34

8.61 billion

0.38 billion

8.99

11

China

23

65.58 billion

16.02 billion

81.61

TOTAL

-

130.56

19.81

150.38

Country by country findings

*all figures US$ | **scores are relative (a score of 100 would mean a #1 rank in each of five variables) To explore the data further or download a copy of the report, visit www.pwc.com/talentadaptability

Each country is assigned a percentile ranking (on a scale of 0-100) for each of the 5 metrics included. The overall score is then calculated by averaging the percentile ranks across all 5 metrics. To achieve an overall score of 100 would require the country to be best performing in each metric relative to the other countries.

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statistics

Eurozone {{business business}}

Unemployment Rate

Remains Stable

T

he eurozone seasonallyadjusted unemployment rate was 11.8% in March 2014, stable since December 2013, but down from 12.0% in March 2013. The EU28 unemployment rate was 10.5% in March 2014, stable compared with February 2014, but down from 10.9% in March 2013. These figures are published by Eurostat, the statistical office of the European Union. Eurostat estimates that 25,699,000 men and women in the EU28, of whom 18,913,000 were in the eurozone, were unemployed in March 2014. Compared with February 2014, the number of persons unemployed decreased by 66,000 in the EU28 and by 22,000 in the eurozone. Compared with March 2013, unemployment decreased by 929,000

in the EU28 and by 316,000 in the eurozone.

Among the Member States, the lowest unemployment rates were recorded in Austria (4.9%), Germany (5.1%) and Luxembourg (6.1%), and the highest in Greece (26.7% in January 2014) and Spain (25.3%).

Compared with a year ago, the unemployment rate increased in ten Member States, remained stable in three and fell in fifteen.

The highest increases were registered in Cyprus (14.8% to 17.4%), the Netherlands (6.4% to 7.2%), Italy (12.0% to 12.7%) and Croatia (16.6% to 17.3%), and the largest decreases in Hungary (11.2% to 7.9% between February 2013 and February 2014), Latvia (13.9% to 11.6% between the fourth quarters of 2012 and 2013), Portugal (17.4% to 15.2%) and Ireland (13.7% to 11.8%). In March

2014, the unemployment rate in the United States was 6.7%, stable compared with February 2014, but down from 7.5% in March 2013.

In March 2014, 5.340 million young persons (under 25) were unemployed in the EU28, of whom 3.426 million were in the eurozone.

Compared with March 2013, youth unemployment decreased by 322 000 in the EU28 and by 166 000 in the eurozone. In March 2014, the youth unemployment rate was 22.8% in the EU28 and 23.7% in the eurozone, compared with 23.5% and 24.0% respectively in March 2013.

In March 2014, the lowest rates were observed in Germany (7.8%), Austria (9.5%) and the Netherlands (11.3%), and the highest in Greece (56.8% in January 2014), Spain (53.9%) and Croatia (49.0% in the first quarter of 2014).

Six Simple Rules: How to Manage Complexity without Getting Complicated

By Yves Morieux & Peter Tollman (Harvard Business Review Press, 2014)

D

R.R.P. £20.00 (£20.00 from amazon.co.uk) oes your organisation manage complexity by making things more complicated? If so, you are not alone. Business complexity has apparently increased sixfold during the past sixty years and, all the while, organisational complicatedness -- the number of structures, processes, committees, decision-making forums and systems -- has increased by a huge factor of thirty-five. In their attempt to respond to the increasingly complex performance requirements they face, company leaders have created an organisational labyrinth that makes it more and more difficult to improve productivity and to pursue innovation. According to the authors, it also disengages and demotivates the workforce. They argue that it’s time for leaders to stop trying to manage complexity with their traditional tools and, instead, to leverage their employees’ intelligence. The way to manage complexity, they say, is not through fashionable team building and feel-good “people initiatives” but through six simple rules, which include understanding what others do, rewarding those who cooperate and blaming those who don’t.

In the end it all comes down to common sense and personal relationships.

Volume of Retail Trade up by 0.3%

I

n March 2014, compared with February 2014, the seasonally adjusted volume of retail trade rose by 0.3% in both the euro area (EA18) and the EU28, according to estimates from Eurostat. In February retail trade increased by 0.1% and 0.3% respectively.

In March 2014, compared with March 2013, the retail sales index increased by 0.9% in the eurozone and by 1.6% in the EU28.

The 0.3% increase in the volume of retail trade in the eurozone in March 2014, compared with February 2014, is due to a rise of 1.3% for “Food, drinks and tobacco”, while

the non-food sector fell by 0.3% and automotive fuel by 0.1%. In the EU28, the 0.3% increase in retail trade is due to rises of 1.0% for automotive fuel and of 0.7% for “Food, drinks and tobacco”, while the non-food sector fell by 0.1%. The highest increases in total retail trade were registered in Estonia and Latvia (both +2.8%), France (+2.3%) and Romania (+2.2%), and the largest decreases in Portugal (-1.7%), Austria (-0.9%), Germany, Ireland and Slovenia (all -0.7%). The 0.9% increase in the volume of retail trade in the eurozone in March 2014, compared with

80 Gold the international investment, finance & professional services magazine of cyprus

March 2013, is due to rises of 1.9% for the non-food sector, of 0.8% for automotive fuel and of 0.3% for “Food, drinks and tobacco”.

In the EU28, the 1.6% increase in retail trade is due to rises of 3.3% for the non-food sector and of 1.8% for automotive fuel, while “Food, drinks and tobacco” fell by 0.1%.

The highest increases in total retail trade were observed in Romania (+13.4%), Luxembourg (+12.1%) and Hungary (+8.4%).

Decreases were registered in Malta (-2.0%), Finland (-1.3%), Slovenia (-1.1%) and Spain (-0.6%).

cyprus

2014 Recession

“Moderate”

{economy}

Compared to 2013

The Economic Research Centre of the University of Cyprus has published its Economic Outlook for May 2014, in which it forecasts that the recession in 2014 will be moderate compared to 2013.

R

eal GDP growth for 2014 is projected at -3.4%. During the first quarter of 2014 real GDP is estimated to contract (y-o-y) by 4.0%; in the second and third quarter real activity is forecasted to also decline by 2.7% and 3.2%, respectively. In the final quarter of 2014 recession is projected to accelerate compared to the previous two quarters as real GDP growth is estimated at -3.8%.

The forecast moderation of the recession in 2014 is driven by the slowdown in output contraction in Cyprus and the improvement of external real economy conditions in the final quarter of 2013. Domestic leading indicators associated with the real economy continued to improve over the first months of 2014, resulting in less negative forecasts compared to those reported in the previous issue of this bulletin.

Other recent developments in the economy that have contributed to more favourable projections include: (i) the strengthening of economic confidence in Cyprus and the euro area, (ii) the improved performance of international stock markets and the pickup of the Cyprus stock exchange index, (iii) the reduction in some domestic lending interest rates and the decline in the spreads of European periphery countries, mainly that of Greece. The slowdown of the deposit contraction in the final quarter of 2013 and ongoing deleveraging also appear to play a role in shaping the current projections for 2014.

The forecasts, however, are accompanied by considerable downside risks, most notably those related to the stabilisation process of the financial system in conditions of declining output, high unemployment, and large private and public debt burdens. In particular: • A prolonged period of tight financial conditions may have long-term effects on

investment, employment and growth as well as on the rates of non-performing loans given the adverse real economy conditions.

• Failure of the financial institutions to adopt effective strategies to manage the rising rates of non-performing loans could result in additional capital needs.

• Failure of the state to shape an up-to-date and functional legal framework on debt enforcement, restructuring and insolvency, could undermine the fragile confidence in the banking sector, thereby, impacting negatively on domestic activity.

Other downside risks relate to the following: • Possible escalation of the crisis in Ukraine followed by new EU sanctions on Russia may negatively affect international business activities and tourism revenues in Cyprus.

• Delays in the advancement of agreed structural reforms could damage consumer, business and investor confidence and create risks to fiscal targets and economic activity.

Upside risks to the outlook are mainly linked to investment decisions associated with energy and tourism sectors, and stronger growth in the United Kingdom and the euro area.

CPI inflation in 2014 is projected at slightly negative levels (-0.9%) mainly because of the recessionary conditions and the absence of significant upward pressures on international oil prices. However, data on price expectations currently point to only a limited risk of prolonged deflation.

The projections here suggest a milder contraction in real GDP for 2014 compared to the -4.8% forecast in the economic adjustment programme. Nevertheless, the econometric analysis based on the currently available data suggests that the recession is likely to persist in 2015, indicating that the adjustment of the economy may take longer to complete.

82 Gold the international investment, finance & professional services magazine of cyprus

Escalation of the crisis in Ukraine followed by new EU sanctions on Russia may negatively affect tourism revenues

BOOK REVIEW The Death of Money: The Coming Collapse of the International Monetary System

By James Rickards (Portfolio Penguin, 2014) R.R.P. £14.99 (£14.99 from amazon.co.uk)

T

he premise of this excellent book is fairly straightforward: the current monetary system is unsustainable and it’s bound to collapse due, among other causes, to debt, structural problems in the world economy, derivatives and uncontrolled increases in the money supply. The author of the acclaimed Currency Wars looks at previous monetary collapse, inflation, deflation and economic complexity, which he points to as an exponential risk for catastrophe. The book is not only rich with analysis, conclusive evidence and prediction; Rickards weaves vast and varied domestic and global dealings into a vivid tapestry that gives us a glimpse into a world of intrigue, investigation and high-level, behindclosed-door planning. It is essential reading not only for market and geopolitical professionals but for average investors and consumers as well. Rickards has the most uncanny ability to accurately analyze and predict what lies ahead, and the book concludes with recommendations for investing to protect personal assets before the economic landscape shifts in a way that most of us will not see coming.

Tax

corporate tax

{tax&legal}

T

he days of global corporations exploiting tax agreements to minimise their tax bills may be coming to an end, according to KPMG, whose new International Corporate and Indirect Tax Survey compares corporate and indirect tax rates from over 130 countries.

According to the KPMG Corporate and Indirect Tax Rate Survey 2014, Cyprus has the fourth lowest corporation tax at 12.5% along with Ireland and Liechtenstein.

The lowest corporation tax in the world is the 9% paid by firms in Montenegro.

Despite some internationally low corporation rates, many companies exploit loopholes in international taxation agreements to further lessen their tax bill.

KPMG has warned that due to increasing pressure from the OECD and EU, these taxation practices will have to end. “All signs suggest that

The global tax landscape is changing dramatically and will continue to do so for the foreseeable future we will continue to see increased pressure for more transparency between taxpayers and the tax authorities, and more disclosure by public companies as to the amount of their tax payments and where those taxes are being paid,” the Survey notes.

“Ultimately, business leaders, tax authorities and

Transparency and Morality

According to KPMG’s Corporate and Indirect Tax Rate Survey, issues of tax transparency and morality continue to overshadow and influence tax regulation around the world.

policymakers will need to remember that this is a changing world and one can resist the change or embrace it.

The problem with the former is that one tends to get left behind. Do not become complacent: this issue is not going away,” it states.

Tax transparency and morality continues to overshadow and influence tax regulation around the world, the Survey notes. “The public debate and the link between tax and morality have led to multiple discussions about corporate tax among international bodies and domestic governments. What is clear is that, in situations where double non-taxation occurs, there is immense pressure for governments around the world to take action. Accordingly, besides the multilateral actions pursued at the level of the OECD and EU, all countries are independently adjusting their legislation to better address this critical issue, while still trying to maintain their competitiveness. Within this framework, the cross-border interaction of all these new measures still remains to be

84 Gold the international investment, finance & professional services magazine of cyprus

seen.” The KPMG Survey states that “The question of companies paying their ‘fair share’ is now one of the most prominent areas being scrutinized by governments, the general public, investors and media. Companies are being challenged to disclose their total tax contributions publicly. To cope with this increasing demand, they must put solid tax strategies into place, invest in technology and commit to effective tax communications. “The global tax landscape is changing dramatically and will continue to do so for the foreseeable future. Although corporate tax rates in many countries have stabilized after a decade of decline, there are multiple issues currently at play that deeply influence the world of corporate tax. As rates have leveled off, tax authorities in the vast majority of developed countries are facing pressure to increase revenues from their tax base with fewer resources. This has led to tax authorities pursuing more tax audits and investigations leading to larger adjustments, with more potential for penal-

Highest Corporate Tax Rates

55%

United Arab Emirates

40%

United States

35.64% Japan 35% Angola 35% Argentina 35% Malta 35% Sudan 35% Zambia

34.5% St. Maarten 34% Brazil 34% Pakistan

34% Venezuela

33.99% Belgium 33.99% India 33.33% France 33% Namibia 32%

Mozambique

ties and interest. Moreover, tax authorities are also looking for coordinated solutions in the EU, OECD, and G20 context. In addition to the coordinated call for more tax transparency and effective exchange of tax information, tax authorities have focused in on three key areas: (1) The use of international tax planning schemes to reduce the effective tax rate, especially in situations where double nontaxation arises as a result of the interaction of tax systems; (2) Transfer pricing methodologies that have been applied by large corporations; and (3) Permanent establishment thresholds.

Lowest Corporate Tax Rates

9%

Montenegro

10%

Bosnia and Herzegovina

10% Bulgaria 10% Gibraltar 10% FYROM 10%

Paraguay

10% Qatar 12% Macau 12% Oman

12.5% Cyprus 12.5% Ireland

12.5%

Liechtenstein

14% Jordan 15% Albania 15% Georgia 15% Iraq 15% Kuwait 15% Latvia 15% Lebanon 15% Lithuania 15% Mauritius 15% Serbia 16% Romania

16.5% Hong Kong 17%

Singapore

17% Slovenia 17% Taiwan

17.92% Switzerland

deadlines

{tax&legal}

Company Tax Returns Filing Deadlines Extended

The tax return must be submitted no later than 15 months after the end of the tax year returns, and to give the Inland Revenue Department the company’s last known contact details. The deadline was initially 21 March 2014 but it has subsequently been extended to 31 May 2014.

(Information courtesy of Andreas Neocleous & Co LLC)

S

ection 5 of the Assessment and Collection of Taxes Law as amended requires companies to file their tax return for any year no later than the end of the following year. A three-month extension is allowed if the return is filed electronically. As electronic filing is now compulsory, this effectively means that the tax return must be submitted no later than 15 months after the end of the tax year. For example, company income tax returns for the year 2012 were due before 31 March 2014.

In response to the recommendations of the Global Forum on Transparency and Exchange of Information for Tax Purposes and within the framework of a wider action plan to improve tax compliance, the tax authorities have extended the deadline in a number of instances.

The last date for electronic filing of returns for 2012 has been extended by three months to 30 June 2014.

Company income tax returns for 2008-2011 Meanwhile, in March this year, the Inland Revenue Department announced that. as part of its initiative to improve compliance, it had completed the first phase of sending out reminders for tax returns through the TaxisNet electronic filing service for the tax years 2008 to 2011. All companies that had not yet submitted returns for the tax years 2008 to 2011, were reminded to do so without delay via notices sent to each company (IR 22(2014) and Circular No. 2014/2 dated 30 January 2014.

The Department advised all companies that had not received a reminder nor submitted a tax return for one of these years to contact their local Income Tax Office to verify the information contained in the department’s records, so that they can immediately comply with the

requirement to file tax returns.

As stated in the reminder, non-compliance will incur an automatic penalty of €100 under section 50A(a) of the Assessment and Collection of Taxes Law and continued non-compliance will incur a further automatic penalty of €200 under section 50A(b) and legal action to remedy the default. The deadline for filing returns was initially 15 April 2014 but it was subsequently extended to 9 May 2014.

Dormant companies Inland Revenue Circular 2014/2 dated 30 January 2014 reiterates the tax authorities’ definition of a dormant company and the information it must include in its tax return.

Dormant companies must have filed their tax return for the year 2011 on form IR 163DOR no later than 9 May 2014. Only a director of the company may sign the tax return on the company’s behalf.

Non-resident companies incorporated or registered in Cyprus Inland Revenue Circular 2014/3 dated 20 March 2014 sets out the information that non-resident companies must include in their tax return and requires the return for the year 2011 to be submitted no later than 9 May 2014.

Companies with which contact has been lost, or contact with the beneficial owners has been lost In an announcement dated 7 March 2014, the Inland Revenue Department requested the Cyprus representatives or advisers of companies they were no longer in contact with to complete a declaration on a prescribed form (IR 163CON) that contact had been lost and that they were not in a position to submit tax

BOOK REVIEW Storytelling for Lawyers

By Philip N. Meyer (OUP USA, 2014) R.R.P. £12.05 (£12.01 from amazon.co.uk)

“M

ake no mistake about it – lawyers are storytellers. It is how we make our livings,” Philip N. Meyer tells us and he goes on to prove it most convincingly. Everyone knows that successful courtroom rhetoric can best be viewed through the prism of storytelling but, until now, legal literature has not produced a practical and detailed analysis of the elements of narration as used in law practice – that is, plotting, characterization, point of view, style and settings in place and time. Meyer’s book fills this gap. Free of jargon and full of practical examples of good legal storytelling, it goes well beyond providing practical assistance to litigators and serves perfectly well as an introduction to the principles of narration for teachers and students of literature, creative writing, and popular culture.

Meyer’s discussion of Gerry Spence’s final argument in the Karen Silkwood case, for example, is inspired and he shows how the best lawyers are creative artists of the first magnitude. Lawyers and non-lawyers alike will find this remarkable book an extremely good read.

the international investment, finance & professional services magazine of cyprus

Gold 85

{lifestyle}

Buying a Piece

of the Action

By Chloe Panayides

investing in music memorabilia

With the musical form being capable of seducing unabashedly, it is no wonder that its associated memorabilia is likewise coveted with such zeal and devotion; but will investing in music memorabilia serve as a redemption song for those seeking alternative avenues in which to channel their capital?

t was the late reggae singer-songwriter Bob Marley who famously sang in his song Trenchtown Rock: “One good thing about music: when it hits you, you feel no pain.”

Over the course of the last decade, the global financial crisis erupted unforgivingly, with a multitude of people from all walks of life being hit hard. Some have been forced to endure the pain of losing their jobs, others to suffer a severely reduced monthly income; others still have lost their

life savings or watched a once-sound investment disintegrate.

With the real estate sector plummeting and stocks on the rocks, it may be that, after all, Marley’s lyric possesses a prophetic undertone.

Whether we are listening to the car radio, humming a tune, or whistling whilst working, music has become so prevalent in our lives that many barely notice it at all: it has become second nature to use music as a means of relaxation or entertainment or, sometimes, as a source of infinite solace.

Some, indeed, evolve their entire identities around a particular sphere of music, dressing, talking, and acting according to the dictates of the genre.

It seems only natural, therefore, that music memorabilia should have come to possess not only great sentimental value but monetary value too.

And with the music memorabilia market emerging, first and foremost, from this

Prior to embarking on a quest to attain items of both sentimental and monetary value, one would do well to disentangle the term ‘music memorabilia’ adoration, taking a hit would not necessarily induce the pain akin to traditional assets tumbling; whilst ardent aficionados may not be able to draw monetary gains from their possessions during times of economic downturn, the pleasure-gain will nevertheless be unsurpassable. The person who paid close to $1 million for Eric Clapton’s favourite Fender Stratocaster – affectionately named ‘Blackie’ – at a Christie’s auction in 2004 will no doubt attest to that.

Prior to embarking on a quest to attain items of both sentimental and monetary value, one would do well to disentangle the term ‘music memorabilia’. The breadth and depth of possibilities inherent in this description require definition in order for musicophiles to be able to focus their efforts accordingly.

Consider it as being akin to a pyramid.

From bottom to top, items crystallise from being massive in number, and therefore cheap, to singular and astronomically priced.

The general demarcations are as follows: Items such as ticket stubs, flyers, photos, t-shirts, and posters from, in particular, landmark concerts (an original Woodstock poster in good condition is now worth some $3,000) Records, either vinyl or CDs (limited editions or first prints can command healthy sums) Handwritten lyrics or sheet music, instruments played by the musicians themselves, and trademark clothing worn during performances Arbitrary items merely belonging to said musicians, from cigarette cases to books, cars, and more (demonstrative of the everintensifying celebrity-driven culture).

It stands to reason that anything further embellished with a genuine signature will gain momentously in value.

In contrast to other alternative assets, the above pyramid makes the music memorabilia market acutely accessible to all manner of investors: people may choose to spend as little or as much as they like to bring the items of desire into their possession.

A Beatles enthusiast, for example, has numerous options. Whilst back in 1997 a signed photo of the group cost $8,000, that price has now risen to $40,000 (no doubt spurred by the death of George Harrison in 2001); still, this is far below the $118,230 that one fan paid in 2014 to acquire a copy of the US release, Meet the Beatles!, signed by all four band members, no less, and one of only a handful

John Lennon’s 1965 Rolls Royce - elaborately decorated - sold for $2.3 million in 1985

the international investment, finance & professional services magazine of cyprus

Gold 87

investing in music memorabilia

For Those About to Rock

O

ne day, in 1979, Eric Clapton – an enduring rock presence and guitarist of immeasurable dexterity – entered his local hang out, the Hard Rock Café in London, founded by young music-lovers Isaac Tigrett and Peter Morton.

A frequent customer, Clapton was unhappy with the thought that others may occupy his regular table, and asked Tigrett to hang his guitar above his favourite bar stool, to ‘mark his spot.’

A red Fender Lead II was promptly secured on the wall; more than merely marking Clapton’s spot, this simple act gave birth to the worldwide phenomenon that is the Hard Rock Café.

The story goes that a week later, a package arrived. It was a lovingly wrapped guitar – a Gibson Les Paul – accompanied by a note that simply read: “Mine’s as good as his! Love, Pete.” Townshend, that is; the guitar was from Pete Townshend, songwriter and guitarist extraordinaire of The Who.

After that, the guitars never stopped coming. Today there are more than 70,000 guitars, drums, pianos, harmonicas, microphones, shirts, scarves, shoes, handwritten lyrics, cars, bikes, a bus (!) and assorted rock memorabilia – revered as the largest, most valuable such collection in the world – on the walls of over 163 Hard Rock Cafes, Hotels and Casinos in 52 countries worldwide.

The most notable pieces include: Jimi Hendrix’s custom-built Flying V Guitar, Madonna’s iconic pink bustier, worn on the Blonde Ambition Tour in 1990, eyeglasses and a military jacket worn extensively by John Lennon in the 70s during peace concerts, Lenny Kravitz’s autographed black Gibson Flying V guitar smashed during a performance in 1994, Axl Rose’s black leather ‘skeleton’ jacket worn on stage in Guns n’ Roses’ 1989 Atlantic City appearance with the Rolling Stones, and Kurt Cobain’s Fender Jazzmaster used by the deceased musician at the Cow Palace on April 8, 1993.

in existence. Meanwhile, in 2009, another ardent admirer purchased John Lennon’s handwritten lyrics for All You Need is Love at auction for $1 million: a singular item, a landmark song, by a beloved – and deceased – artist: the very top of the pyramid.

And so it is that the music memorabilia market may accommodate all breadth of tastes and depth of pockets.

The above example, indeed, further illustrates the core of a sound collection: the more focused one is on either a genre (whether it’s rock n’ roll, classic rock, heavy metal, country, or folk), an artist or band, or a category of items,

the stronger the collection – and therefore the investment – will be.

Indeed, as the market is balanced on a supply and demand dynamic, investors would do well to carefully correlate their acquisitions with iconic musicians, probing accordingly: How popular is the artist? Is there an existing market for his/her memorabilia? Are they considered significant in music history? Do they have a lasting, influential musical legacy?

Inevitably, the more sought-after the memorabilia, the higher the prices will be driven up over time, as demand endures and supply dwindles.

A case in point is a pioneer in both music and the music video, Michael Jackson. His 13-minute Thriller short, released in 1983, reflected an unprecedented weaving of musical and visual forms, entering the Guinness World Records in 2006 as the most successful music video of all time, having sold over nine million copies.

The album of the same name, mean-

Eric Clapton’s favourite Fender Stratocaster – affectionately named ‘Blackie’ – sold for $1 million in 2004

88 Gold the international investment, finance & professional services magazine of cyprus

A Beatles photograph signed by all four members

while, still stands, over 30 years after its release, as the biggest selling album of all time, with some 42.4 million copies registered as having been sold.

It is of little surprise, therefore, that when the signed red leather jacket worn

by Jackson in the video came up for auction in June 2011, just two years after his untimely death, one enthusiastic bidder paid $1.8 million for it.

Earlier still, in 1965, Bob Dylan sent shockwaves throughout the music world when taking to the stage at the Newport Folk Festival, fully amplified, with an electric guitar. Charging against the grain of acoustic folk for which he had been known and loved, many responded with dissatisfaction and disappointment at Dylan’s development. Still, retrospectively, musicophiles seem to have forgiven without forgetting: when the very same 1964 Fender Stratocaster came up for auction on December 6, 2013 at Christie’s, it sold for $965,000, an impressive 93% above its pre-sale estimate.

Having isolated a sphere within which to concentrate one’s efforts, collectors must, thereafter, give credence to additional considerations, most notably, condition, authenticity, and liquidity.

Particularly when dealing with items of which many exist in the market (such as posters), condition may be the difference between value and mere virtue. However, an original piece of sheet music, an instrument, or an item of clothing showing signs of wear and tear will not, it seems, deter the faithful.

Regarding authenticity, it is in music memorabilia aficionados’ good fortune that, due to the pervading popularity of the market, specialist auction houses are plentiful, with experts on hand to be consulted as and when needed.

Omega Auctions based in Cheshire, England holds regular dedicated auctions to music memorabilia, with bidding avail-

Bob Dylan’s 1964 Fender Stratocaster came up for auction on December 6, 2013 at Christie’s: it sold for $965,000

An original Woodstock poster in good condition is now worth some $3,000

able in person, over the phone, and via the Internet for convenience.

Heritage Auctions, meanwhile, situated in Texas, has a dedicated entertainment, music, and posters department, as does Bonhams, an auction house of world renown. The Popular Music Memorabilia section of Bonhams’ department offers collectors the opportunity to acquire pieces relating to legends such as The Beatles, Elvis Presley, The Rolling Stones, The Grateful Dead, Eric Clapton, Queen, Michael Jackson and more.

Dealing primarily with auction houses may seem like the more costly option considering

the buyer’s premium; however, confirming authenticity of items is vital, and building a relationship with an esteemed auction house may prove profitable in the longterm. Replicas, reprints, and fakes circulate multifariously and furiously, holding zero value in the music memorabilia world.

It is therefore important, experts advise, to not only ask the right questions in order to ascertain the provenance of the item under consideration but to demand a certificate of authentication too. Moreover, adequately educating oneself is indispensable. Only the knowledgeable will know, for example, that original posters of landmark shows will seldom include the year alongside the month and date: inclusion of the year is thus considered a tell-tale sign that a poster may be a fake.

Lastly, but not least, liquidity in the market is largely dependent upon being able to aptly partner buyers and sellers according to wants and availability. However, just as a music lover will gladly commit a lifetime to musical exploits – listening, playing, learning – so must they commit themselves

The red leather jacket worn by Michael Jackson in his Thriller video sold for $1.8 million in 2011

D

When translating the fascination the public holds with these two ladies into the world of memorabilia sales, many experts are converging their opinions accordingly, asking: Is Lady Gaga, further to representing the voice of a generation, destined to become a likewise highly collectable, and thus valuable, phenomenon?

Recent sales are already indicative of the growing craze surrounding the young singer.

At Julien’s Auctions in Beverly Hills in 2011, a dress worn by Lady Gaga for a magazine shoot sold for a commendable $31,250, along with a prop machine gun from her Born This Way music

monetarily over the long-term to acquire tangible incarnations of the musical greatness they so very much admire.

And so it is that what begins as a musical declaration may just cadence into an investment redemption song.

BOOK REVIEW The Shock of the Fall

By Nathan Filer (The Borough Press, 2014)

Girl Power

espite their careers having launched decades apart, Madonna and Lady Gaga share a kinship on the music scene that seems to transcend the sphere of their songs and onstage antics.

Daring, different, and divergent, Madonna has long endured as a cultural icon, with Lady Gaga gaining in similar prominence.

One need only look for proof of Madonna’s power in the 2008 sale of a photograph taken

by Helmut Newton in 1990 of Madonna on a bar holding a bottle of beer that wrought $96,000 at a Christie’s auction.

investors would do well to carefully correlate their acquisitions with iconic musicians

video, which made $7,680.

Meanwhile in 2011, Lady Gaga’s signed Steinway piano became available via auction website Charitybuzz: one bidder parted with $42,500 to acquire it.

More impressive still, a singular teacup that was boasted as having been used by the controversial entertainer, was auctioned for charity in 2011 for $75,000.

One may only conjecture as to the lengths her ‘little monsters’ (the affectionate nickname used to denote her fan base) will go to bring into their possession a part of their beloved ‘mother monster’ once they are older and have a disposable income...

R.R.P. £7.99 (£3.85 from amazon.co.uk)

M

ental health nurse Nathan Filer won the 2013 Costa Book Award for this, his first novel, which is a moving account of schizophrenia and grief. The book is narrated by Matthew Homes, from the age of five to his early 20s and is a gripping account of his descent into schizophrenic illness following the sudden death of his younger brother Simon. If the subject sounds depressing, you will be surprised by the humour, acute observations and philosophical insights that the author has woven into his narrative. Matthew is actually conducting his own writing therapy, writing out his thoughts on an old typewriter and interspersing them with letters, doodles and sketches. The book uses drawings, varying typefaces and typographical tricks to represent his swelling bundle of papers. Given its admittedly difficult subject matter, this is a surprisingly easy, flowing read and it presents a set of exceptionally welldrawn subsidiary characters in addition to Matthew. Touching and thought-provoking, it is a gripping, exhilarating read that will stay with you long after you’ve reached the last page.

the international investment, finance & professional services magazine of cyprus

Gold 89

A Day in the Life

Susana Poyiadjis The partner at Nexia Poyiadjis Chartered Accountants on the pleasures of travel, music, books and movies.

“I usually get up around 7.30am, though

it often depends on what time I went to bed the previous evening. Breakfast is just a cup of tea and around 8.15am I usually start calling colleagues and clients from home before going to work around 9am. At some point I’ll read the news but once the day’s meetings and workload start, they go all the way through to lunchtime when I either meet up with clients or associates at a nearby restaurant or otherwise just have a salad at the office. Afternoons mean more meetings, reviews and phone calls and I usually leave around 7.30-8.00pm. I enjoy working out at the gym about three times a week, especially after gentle reminders from my great trainer Stella! Another viable and sometimes preferred alternative to the gym is going out for drinks with friends or colleagues. At school I liked history, physics and maths and, eventually was influenced by my family – actually my dad – to study law in the UK, by attending LLB Law at the University of Bristol. The later transition to accounting wasn’t easy but it proved to be very beneficial to have studied law first. My father was one of the founding members of Nexia Poyiadjis but, contrary to what

many people think, entering a family business is very challenging and one may certainly argue that it’s a lot harder than joining another firm. In Nexia I had to work twice as hard to prove myself in order to gain the loyalty and trust of my colleagues. Working with my father was not a walk in the park due to the generation gap and the level of familiarity.

Luckily, as he is open-minded and highly professional, we developed a good working relationship by clearly defining our individual responsibilities. I have no regrets at all about my choice of career. I enjoy what I do, especially the communication and interpersonal relations I have developed with people. Of course, deadlines can be overwhelming at times but I think that, as long as you love what you do, such problems can be resolved in any job. Away from work I read quite a lot. Recent titles range from “Taking the Leap: Freeing Ourselves from Old Habits and Fears” by the Buddhist writer Pema Chodron to “Too Big to Fail: Inside the Battle to Save Wall Street”

by Andrew Ross Sorkin and even “50 Shades of Grey” by E.L. James, so my tastes are

More favourites

90 Gold the international investment, finance & professional services magazine of cyprus

I have varied tastes in reading!

quite varied! I also go to the cinema about once a month – I enjoy the whole ‘popcorn and coke’ ritual – and particularly like sci-fi movies (one of my favourites is James Cameron’s “Avatar”.) The last movie I saw was “Dallas Buyers Club”. I took piano lessons for 8 years and I still play a little. I listen to all types of music depending on my mood, but I guess if I had to describe my favourite style of music that would be alternative rock. I usually listen to The Script,

U2, and I do have a soft spot for Greek singers Michalis Emirlis and Sakis Rouvas.

I’m very much a city person and I could certainly imagine living somewhere like London, Milan or New York which are very cosmopolitan, and there’s always lots to do and places to go like theatres, bars, concerts and restaurants.

That is, of course, taking into account that you have adequate time, energy and money to enjoy what a city has to offer! I’m fortunate to be able to travel a lot both for business and pleasure. Some of the countries I’ve visited are the US, Russia, South America, India, China, and many countries in Europe and the Middle East. Seeing how people live in their own country helps me understand better their philosophy, culture, belief and value system. I find particularly interesting how integrated people’s religion is with their way of life. I’m happy with my way of life, and that’s partly because I have managed to blend my work with my leisure time in a way that works for me.

These are interesting times, the world is changing, the market is changing and we will have to change with it by being open and receptive to whatever arises. Yet in these times it is crucial that we also keep in mind the wider context in which we make individual choices about how to live.”

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