Global Business Magazine - October 2012

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Cybercrime THE FIGHTBACK BEGINS

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shariah ComPLiant inVestment fUnds

women in finanCe

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The world’s capital market

The London Stock Exchange Group is Europe’s leading diversified exchange business, incorporating Borsa Italiana and the London Stock Exchange. With over 400 member firms trading and more than 2,600 companies quoted across its markets, the Group operates the largest and most liquid equity marketplace in Europe.

The London Stock Exchange’s Primary Markets team put UK and international companies in touch with one of the world’s deepest pools of global capital. Our markets are home to companies from all over the world, ranging from start-ups to some of the world’s largest corporations.

For further information, visit www.londonstockexchangegroup.com

INSIDE This Month:

Leading Lawyers of asia

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gibraLtar fUnd serViCes

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Business Talk In this digital age, computer hacking has evolved into a professional crime with criminal and political motives – a world away from young amateurs curious about how technology works. Our cover story looks at the very real threat hacking poses to governments and businesses worldwide, and whether the security that works in the real world can work on the Internet too.

Staying on the subject of security, our Leading Lawyers of Asia focus uncovers the difficulties faced by foreign lenders enforcing securities in Afghanistan; bad faith trademarks in China; and the impact of certain labour issues on Japanese industry.

Women in Finance finds out about the business intelligence expert who is staying ahead in the risk management world; what it takes to run a successful accountancy practice in India; and the tax consultant who is raising the profile of German women in finance.

Gibraltar Fund Services looks at the popularity of the British territory for those looking to re-domicile, or establish, a fund within Europe; and the continued growth of its investment industry.

This month we continue our focus on Shariah Law, putting the spotlight firmly on Luxembourg and its role as a domicile of choice for Shariah compliant investment funds, and how the European regulatory framework can contribute to their development.

In the wake of the Euro-crisis, Capital Markets takes a closer look at the role of a trade association in restoring confidence in the efficient operation of the market.

CoVer story

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Our Hedge Fund Managed Accounts focus examines the proposed amendments to investment fund structures in Japan, before heading to Australia to uncover the challenges faced by their hedge fund manager community.

LUXemboUrg shariah ComPLiant inVestment fUnds

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Leading Lawyers of asia

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With distance no longer proving a barrier to businesses succeeding, we take a look at the language services industry. We find out why the need for translation has increased; the importance of going beyond simply translation; how language is the only real barrier remaining in online business; and the reason why quality still remains a legitimate concern.

gibraLtar fUnd serViCes

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transLation serViCe ProViders

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Finally, Luxury Brand Series goes in search of those hotels around the world where exclusivity speaks a thousand words. No dictionaries required.

women in finanCe

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sPotLight on aUstria

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Contact Us:

CaPitaL markets

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deaL direCtory

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The opinions expressed in GBM do not necessarily reflect those of the editors, publishers or their agents. The information provided in GBM is general and may not be applied to a specific situation. GBM does not purport to provide legal or other professional advice and takes no responsibility for actions taken on the basis of information provided herein. Legal advice should always be sought before taking any such action. Laws and government policies are constantly changing and accordingly GBM takes no responsibility for the accuracy or currency of the information provided herein. If you require particular information you are advised to consult with the article’s author or seek legal advice.

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October 2012 • Global Business Magazine • 3

Cybercrime - the fightback begins

Cybercrime The Fightback Begins

According to the FBI and GCHQ we are in the grip of a cybercrime wave but businesses are too afraid of the potential damage to their reputations to speak out. Hackers working for networks of organised criminals are stealing and extorting millions of dollars from high-profile organisations using tricks that are both simple and sophisticated.

Whether they target cash, reputation or data, these criminals can do serious damage.

The number of new malicious computer programmes grew at an unprecedented rate record last quarter, according to security company MacAfee. While businesses are increasingly aware of the threat, nearly two thirds of respondents to a recent Detica Cyber Security Monitor survey thought that it would take a successful attack on either their or their competitors’ systems before the board of directors would take cybercrime seriously.

“There is a vast swathe of corporates who have valuable intellectual property, much more valuable than they understand, which is inadequately protected,” said Baroness Pauline Neville-Jones, former chair of the UK Joint Intelligence Committee in a speech to the Global Strategy Forum in February this year. “They don’t even know they have been the subject of attack. They usually have to be told about it by a third party, most of them do not discover it for themselves. The level of awareness is nothing like it needs to be. This is a very, very serious state of affairs”.

Hack and Heist Gone are the days when hackers were lone computer enthusiasts driven by curiosity.

These days the target of a hack is likely to have been chosen by a highly-organised group that has theft, extortion or corporate espionage in mind. Most hacks are now motivated by financial gain, pure and simple.

The minnows in this pool are the scammers that use phishing expeditions or keyloggers (see glossary) to steal credit card details.

Just last month, two men were convicted of installing keyloggers on point-of-sale computers in Subway franchises throughout the United States and of stealing the details of over 140,000 payment cards.

This case is typical of the sort of "digital pick-pocketing" that takes place using compromised computer systems. Far more lucrative heists bypass the customer and go straight for the organisation itself. In July this year, a trio of hackers who netted $3 million

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by breaking in to the networks of several local businesses, were sentenced to a total of 22 years. The three men drove around local business districts looking for poorly-secured wireless networks. Once in, they accessed payroll and procurement data to make expensive purchases or to divert employee salaries into their own offshore accounts. The spree went on for months before businesses began to come forward.

"I commend the businesses who quickly alerted law enforcement about the intrusions on their computer systems," said U.S. Attorney Jenny Durkan, head of the Justice Department's Cybercrime and Intellectual Property Enforcement working group.

"Without their help, law enforcement could not have put this ring out of business."

Wi-Fi networks aren’t the weakest link in the chain, however: users are still the leastsecure part of any IT network. The Taiwanese government recently sent an email claiming to link to a salacious video to 6,000 of its civil servants. The 1,000 functionaries who clicked on the attachment were sent for a mandatory two-hour “internet safety” training course.

But this exercise shows how easy it is to dupe an employee into opening the back door to an entire network: the attachment could quite easily have contained malware.

To break open an organisation’s security, hackers don’t even need to resort to using software tools. Simple phishing expeditions are used to trick employees into revealing user names and passwords. These user credentials are a honeypot for hackers, with employees in financial institutions as some of the highest-value targets.

The U.S Financial Services Information Sharing and Analysis Center (FS-ISAC) warned its members that they need to be on a state of heightened alert for attempted fraud after a recent spate of illegal wire transfers using phished employee details to spirit cash away to hard-to-trace, overseas banks.

"The wire transfer amounts have varied between $400,000 and $900,000, and, in at least one case [the thieves] raised the wire transfer limit on the customer's account to allow for a larger transfer," according to information obtained by the FBI.

Digital Extortion and Espionage As CTOs and IT security departments become more savvy about the risk of direct theft, criminals have adapted to use other, more inventive techniques.

“Recently malware developers have turned their attention toward ‘ransomware,’” warns security company MacAfee in its latest threat bulletin. “Ransomware hold parts or all of a victim’s computer or data hostage. The malware encrypts data or the entire computer and then, using anonymous payment methods, demands money to restore it…

Ransomware has increased during the last several quarters. This quarter we saw ransomware at its busiest ever.”

For a home user, loss of photographs and personal data can be upsetting. On a corporate network, however, blocking access to crucial files and infrastructure can completely close down operations.

Companies are handing over large amounts of money to digital kidnappers restore access

October 2012 • Global Business Magazine • 5

CyberCrime - the fightbaCk begins

to their compromised systems. And because of the danger to the reputation of any organisation that reveals it has been hacked, many victims stay silent.

Several recent phishing expeditions have targeted executive-level employees. The purpose of stealing executive-level data is not to steal money or damage IT systems – high-level employees rarely have access to the required operational software – rather, the attacks target the email accounts and document storage of these employees in order to uncover details of company strategy.

These attacks reveal extremely sensitive information about the company’s operations, according to Rohyt Belani, CEO of Intrepidus Group, a security consulting and training firm.

Some sectors are more vulnerable than others. The energy sector in particular has been the target of a number of cyberespionage attacks according to researchers at Dell Secure Works. A concerted cyber espionage campaign has so far targeted an oil company in the Philippines, an energy firm in Canada, and other targets, both civilian and military, in Taiwan, Brazil, Israel, Egypt and Nigeria. According to Don Smith, technology director at Dell SecureWorks, energy

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companies, pharmaceutical companies and the high-tech industry, are the most common targets of these espionage campaigns.

“All businesses should ask themselves just how confident they are that their cyber security regime minimises the risks of attack, but I would say very few [are sufficiently prepared] in my experience,” he told the Gartner Security & Risk Management Summit 2012 in London.

Tackling the Threat While business is reluctant to speak out, the threat of cybercrime is being acknowledged at national and international level. The European Commission is currently running a consultation on network and information security (NIS). According to the background report, “[In] the next ten years there is a 10% likelihood of a major Critical Information Infrastructure breakdown with potential economic loss of over $250 billion. Problems caused by cyber incidents also erode public trust and confidence online.”

According to a recent study by the European Network and Information Security agency, billions of euros of cybercrime goes unreported every year. Dr Marnix Dekker and Chris Karsberg, co-authors of a report

entitled “Cyber Incident Reporting in the EU’’, said, “Cyber incidents are most commonly kept secret when discovered, leaving customers and policymakers in the dark about frequency, impact and root causes.”

The danger of keeping security breaches under wraps is that it makes cybercrime so much harder to tackle. “Lack of transparency and lack of information about incidents makes it difficult for policy makers to understand the overall effect, the root causes and possible interdependencies,” the report states, “It also complicates the efforts in the industry to understand and address cyber security incidents.”

Customers, too, have a right to be concerned about the secrecy that surrounds cybercrime.

“In [many companies’] eyes as long as the product works, the customer doesn’t need to know about the dirty little secrets which go on behind the scenes – firms are simply happy to pretend everything in the garden is rosy when vast amounts of evidence is available to proves otherwise,” Simon Bain, CTO of document management firm Simplexo, told Computer Weekly. “By taking this approach these companies are in fact doing their customers a major disservice.

Organisations that hold information about us, do so on the basis of trust, and when that is broken, damage is done.”

Companies should be more open about the threats they face, he said. “Those that don’t are not only risking their customers’ livelihood, they are risking their own as well.”

According to research by BAE Systems information technology division, Detica, this culture of secrecy may be changing at last. The 2012 Cyber Security Monitor report showed that, for the first time, fewer than half of all businesses are worried about the reputational damage that follows from being the target of a cyber-attack. As understanding of the problem becomes more widespread, companies are more willing to talk openly about their experiences.

Leadership must now come from all levels of business organisations, experts warn.

“Organisations need to think beyond IT when planning IT security awareness training, and tackle it from the bottom up, as well as the top down,” Julie Peeler, director of the International Information Systems Security Certification Consortium ((ISC)²) Foundation, told Computer Weekly recently.

Peeler warned that higher-level employees often pose the biggest problems, because their actions have a greatest impact, but their mistakes are the least likely to come to light. “[Board] members are largely unaware that their organisations are fending off literally

thousands of attacks a day,” she said, advising companies at the (ISC)² Security Congress in Philadelphia last month to create an open culture about security breaches.

“Start with the CFO, who will know the potential cost of a breach, and the compliance team, which will know the potential liabilities,” she said.

The Beginning of the Fight Back The current estimated cost of cybercrime to the UK economy alone is £27 billion per year.

Criminal hackers have developed complex networks of information selling and skills trading that allow them to drive an arms race of ever-evolving threats.

“The popularity of certain types of malware rises and falls,” according to security company MacAfee’s threat report for the second quarter of this year. Unfortunately, cybercriminals do not pack up shop when one business model stops working; they invent other ways to make money.”

The encouraging picture that emerges from Detica’s research shows that companies are developing a more realistic understanding of the threats that they face. Only one-in-five respondents said they were “very confident” that their organisation was safe from cyberattack, down from one-in-three last year.

Respondents in IT roles are still more aware of the need for concern than their colleagues in other senior roles but the gap is closing.

Loss of customer data is still the number-one worry, but this year 43% of respondents said that they aware of the growing danger of intellectual property theft, up from 18% last year.

Glossary: Keyloggers: A keylogger is hardware or software that records which keys are pressed on a keyboard. This information is then sent to the person who installed the keylogger, enabling them to reconstruct everything that the user typed, including usernames and passwords.

Malware: “malicious software” - a piece of software that either compromises a system’s security or damages it in some way. These pieces of software often come in the form of email attachments or downloaded software (a Trojan or Trojan Horse) or as a virus that spreads itself from machine to machine on a network. Malware may install keylogging software, or might encrypt or damage files so that the user can no longer access them for example.

Trojan Horse or Trojan: a piece of software that looks like a perfectly legitimate programme but that is secretly installing malicious code.

Phishing: a phishing expedition uses fake websites to obtain usernames and passwords.

Phishers clone the genuine login screen for a bank or other high-value target. Users are lured to the fake site where they mistakenly believe it to be the real one and enter their login details which are sent directly to the scammer. Phishing expeditions that target CEOs or other high-value users in an organisation are referred to as “whaling.”

Perhaps the biggest challenge to tackling the cybercrime wave is the difficulty in finding skilled security professionals. At present there is no unemployment in the IT security sector, according to Hord Tipton, executive director of (ISC). Furthermore, the need for well-trained system security personnel is likely to double in the next two years.

The UK government has just invested £38 million in a three-year project that will support collaboration between seven UK universities and GCHQ, the centre responsible for UK Government Signal Intelligence. Professor Angela Sasse, Director of the new institute, said that it will tackle the “technical, social and psychological challenges” of network and information security.

Open communication between cybercriminals currently gives them the edge in this arms race. If business is to stand any chance of victory in the war against hacking then it, too, must learn to be open and to stand together with government, law enforcement and technology specialists against the threats it faces.

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hedge fUnd managed aCCoUnts - a kPmg sPonsored disCUssion

hedge fund managed accounts a kPmg sPonsored disCUssion

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Institutional investors have expressed a growing interest in managed accounts recently and we expect this to continue.

The credit crunch, and the gating of assets has led to investors demanding greater liquidity and transparency within their hedge fund portfolios. A shift to a managed account structure provides investors with greater control over their investments, as well as the greater liquidity and transparency that they demand. More managers are accommodating investor demands by offering a managed account platform. It is predominantly larger managers that are able to do this; however, managed account structures are also increasingly being offered by small boutiques.

Despite the rise of managed accounts, managers are unlikely to replace all existing pooled funds, as results from the survey showed most investors are still allocating to these funds.

Managed accounts are not suited to all strategies, and they are still an evolving area of the hedge fund industry. For investors they are an attractive option, particularly as they offer solutions for mitigating hedge fund investment risks.

Source: Preqin

October 2012 • Global Business Magazine • 9

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USA Hedge Fund Managed Account Platforms: Evolution to Flexibility

Hedge fund Managed Account Platforms (MAP) have origins in the investment banking world where they were created to support investment banks’ structured product offerings to institutional investors. Certain events related to the global financial crisis (such as the failure of Lehman Brothers, illiquid markets and the fraud at Madoff) spurred growth in these legacy MAPs, as well as new entrants, due to the desire by institutional investors for liquidity and portfolio transparency. The increasing desire by institutional investors to utilise MAPs for hedge fund portfolios, combined with the increasing number of hedge fund managers joining MAPs, has resulted in substantial growth for the industry.

As we move further away from the events of 2008 and 2009, and the focus of investors and the hedge fund community shift to the new challenges of today, the focus of MAPs has moved away from just liquidity and transparency to a much more diverse and expanded set of expectations, resulting in more diverse MAP offerings from market participants. Flexibility is the key in the industry today, and the options available to institutional investors, private banking clients and hedge fund managers are wide ranging and increasing as the months go by.

Many of the legacy platforms from the early 2000s (and prior) remain amongst the largest MAPs in the industry. These platforms have the advantage of long investment and operational track records, a reputation for operational excellence, and established relationships with many of the world’s leading hedge fund managers. Combined with excellent distribution capabilities offered to hedge fund managers, economies of scale and related operating efficiencies, and comprehensive services including risk monitoring, risk management reporting and support, legacy bank affiliated

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MAPs have an established product offering popular with institutional investors and hedge fund managers alike. Since the global financial crisis, certain platforms have seen their growth stall as a result of the affiliation with large financial institutions.

Investors or fund managers have frowned upon conflicts of interest (whether perceived or real) resulting from the business structure (and/or tie-in to the structured products business of the sponsoring institution), legacy structures which may have become outdated in a rapidly changing regulatory and tax environment, or legacy information systems which lag in the support of the execution of the MAP as well as the client experience.

As a result, a new generation of MAPs is starting to emerge, offering innovations that are designed to serve the current needs and expectations of institutional investors and hedge fund managers alike.

The resulting MAP landscape is one of flexibility, fuelling a new round of growth of this global industry, and providing excellent options for investors and hedge fund managers to meet their needs in running managed accounts.

In the global financial crisis, liquidity and transparency were key drivers of MAP growth. Today, while liquidity and transparency are still very important, enhanced transparency specifically supporting an investors risk management function (and risk reporting needs) as well as independent governance, are key drivers of innovation in the new generation of MAPs at sponsors such as HedgeMark, InfraHedge, and Guggenheim Fund Solutions. The investments being made in technology and support of investor’s risk management functions are enabling investors to have a better grasp on the risks inherent in their hedge fund portfolios, and better information that is

also enabling the overall growth of institutional investment in hedge funds. These new entrants to the MAP landscape and the risk management support they offer are forcing legacy MAP providers to make investments in these capabilities as well, resulting in an overall better service by the industry as a whole.

In addition to risk management support, the concept of independent governance is also emerging as a important trend to institutional investors today, which is being met with solutions by the MAP industry. Certain of the new generation, MAPs contemplate the involvement of independent directors and independent oversight of the MAP operations, and certain legacy MAP providers are responding with changes to their structures to include independent oversight. Similarly, with the global investment management industry facing significant regulatory change (such as the EU’s Alternative Investments Fund Manager Directive (AIFMD) and the Dodd-Frank Act in the United States), new MAPs are being created using structures that are designed with these new regulations in mind (creating ‘AIFMD ready’ products for Europe, for example). Legacy MAP providers who may be saddled with structures that were created well before the new regulations were drafted are being forced to reconsider their structures (and in many instances create new structures or change legacy structures) to adapt to the new regulatory environment. Rather than ‘one size fits all’ MAP structures of the past, many MAP sponsors now have multiple structures included in their MAP product suite, including UCITS wrappers, products structured in Ireland or Luxembourg in contemplation of AIFMD, structures specifically intended for U.S. distribution, and traditional offshore fund structures.

Mikael Johnson Lead Partner, Alternative Investments KPMG LLP 212-954-3789 majohnson@kpmg.com www.KPMG.com/US

Furthermore, private banks are looking at the enhanced marketing of hedge funds available under the JOBS Act in the United States, as a means of educating and enticing private banking clients to access hedge funds through MAPs sponsored by these private banks. The result of all of this innovation is a much more flexible product landscape to meet the diverse needs of investors, thereby providing more hedge fund access globally.

Finally, MAP providers also recognise that not all investors need the comprehensive set of services and products typically associated with legacy MAPs. As a result, the industry has evolved to include providers of platform operational solutions as a service, without the sophisticated risk management, monitoring, reporting, or other investment related capabilities tied to it. Certain private banks, fund of funds, hedge funds and even institutional investors, find it convenient to locate a ‘plug and play’ platform provider to handle the structure, operations, administration, accounting and other day to day functions of running a platform, with a fee structure that contemplates only the mechanics in the operations of the platform without the value added (and more expensive) functions supporting risk management.

The resulting evolution of the MAP industry provides flexibility to meet the needs of investors and hedge fund managers alike. With MAPs now in existence, which are agnostic to managers, investors or even distributors, it is easy to find a ‘plug and play’ solution to meet the business challenges of

today. There are many recent MAP trades in the marketplace, which exemplify the benefits of the flexibility offered across the MAP industry. For example, fund of funds managers are engaging MAPs to offer managed accounts where previously only commingled fund of funds were offered. The funds of funds don’t necessarily need distribution capabilities, structured products or even risk management support from the MAP; rather, they need an efficient, effective solution for running managed accounts that will not burden the fund of fund’s organisation with

operational activities (and costs) for which it was not originally built to accommodate.

In addition, a hedge fund manager with assets under management that is not significant enough to afford the creation of an internal infrastructure to support managed accounts can now engage a MAP (cost-effectively) to provide the operational capabilities necessary to run managed accounts, thereby allowing the hedge fund manager to raise capital from sources not previously available.

Finally, a large institutional investor with a diversified hedge

fund portfolio that includes fund of funds investments and managed accounts may struggle with the operational infrastructure necessary to run such an investment portfolio.

This investor can now find efficient, comprehensive solutions for risk management, reporting, investment structures etc at MAPs, which more efficiently support a hedge fund investment portfolio.

Because of the significant investment in and innovation by providers of MAPs today, almost everyone interested in hedge fund managed accounts can find solutions to support their needs.

At KPMG, we are market leaders serving hedge fund managed account platforms, with audit, tax and business advisory clients ranging from several of the largest legacy platforms to many of the new generation platforms being launched today. As a result of our market position, we are assisting clients with many novel ideas and witnessing innovation. It is from this vantage point that I believe the next five years will yield significant growth for the managed account platform industry, capitalising on new solutions to meet the needs of institutional investors, private bank clients and hedge fund managers alike.

October 2012 • Global Business Magazine • 11

hedge fUnd managed aCCoUnts - a kPmg sPonsored disCUssion

JAPAN Proposed Amendment to the Investment Trust and Investment Corporation Act of Japan

The Investment Trust and Investment Corporation Act of Japan (the ‘ITICA’) governs investment fund structures established in Japan, i.e. investment trusts and investment corporations. The ITICA also provides certain filing requirements and other regulations, such as those concerning management reports for foreign investment trusts and foreign investment corporations offered in Japan (such as mutual funds established as Cayman unit trusts and Cayman limited companies respectively). While the ITICA has not undergone any extensive amendments since 2000 when the investment corporation structure for investment in real estate properties (i.e.

J-REITs) was introduced, the Financial Services Agency of Japan (the ‘FSA’) is currently in the process of implementing an extensive amendment to the ITICA to update it and keep it relevant with recent trends in international fund regulation, social and economic developments and new financial products.

A working group of the Financial System Council to the Minister for Financial Services (the ‘Working Group’) is currently leading the ongoing discussion towards the amendment of the ITICA, and has released an interim report on the amendment to the ITICA on 3 July 2012. We refer below to some of the key proposed amendments under such discussion.

Amendments Concerning investment trusts The current ITICA does not allow an investment trust to issue different classes of beneficial interests. This has led to certain drawbacks, such as the need to establish different investment trusts, depending on the proposed system of computation of trust fees, even if their investment policies and objectives are the same.

The proposed amendment to the ITICA will allow for an investment trust to issue different classes of beneficial interests with, for example, different trust fees and different currency hedging policies. This is one of the key deregulation proposals contemplated for the improvement of the business efficiency of investment trusts.

In principle, the ITICA currently prohibits the trade of assets between investment trusts managed by the same investment management company, unless such trade is deemed necessary and reasonable or the consent of all the investors in the relevant investment trusts has been obtained with regard to such trade.

Currently the guidelines

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published by the FSA provide for certain safe harbours under which such trade may be deemed necessary and reasonable. The ITICA may also be amended to further clarify the scope of such safe harbours.

As for further deregulations, the FSA is also reviewing the requirements of written resolutions by beneficiaries of investment trusts, and the regulations regarding outsourcing by investment trust managers of functions other than investment management.

Additionally, from the view of securing the supply of proper financial products to retail investors in consideration of the increasing complexity of financial products and investment risks, further amendments are being proposed to the ITICA to enhance the rules on disclosure to investors regarding investment trusts, such as information on sales commissions, trust fees and investment risks. This is intended to facilitate the better understanding of retail investors of such information.

Amendments Concerning investment Corporations Currently, financing options available to investment corporations are limited, among others, the implementation of rights offerings. Another proposal is for the ITICA to be amended so as to allow for rights offerings to counter the shortage of funds available to investment corporations in a depressed economy. Also, from the financing aspect, the FSA is contemplating the introduction into the ITICA of regulations such as capital reduction without compensation.

Under the current ITICA, it is impracticable for an investment corporation to acquire offshore real properties through special purpose companies (notwithstanding that the direct acquisition of offshore real properties by investment

Anderson Mori & Tomotsune Osamu Adachi Partner Tel: +81-3-6888-1078 osamu.adachi@amt-law.com www.amt-law.com/

corporations is not prohibited), because the ITICA currently prohibits the holding by an investment corporation of more than 50% of the shares in any one juridical person (including a special purpose company).

The FSA is currently reviewing such restrictions, with a view to updating them in order to promote investments in offshore real properties by investment corporations. As the Act on Special Measures Concerning Taxation of Japan provides

Takahiko Yamada Associate Tel: +81-3-6888-5861 takahiko.yamada@amt-law.com www.amt-law.com/

certain tax merits to investment corporations satisfying similar requirements on shareholdings, it is likely such Act will also need to be amended in concert with any amendment to the ITICA in this regard.

Currently, the trading of units in listed investment corporations on any stock exchanges in Japan is not subject to insider trading regulations under the Financial Instruments and Exchange Act of Japan (the ‘FIEA’). To

promote greater transparency in transactions of investment corporations' units, the FSA may revise the FIEA to make insider trading regulations applicable to the trading of units in listed investment corporations.

Additionally, to enhance investor confidence, the FSA is also contemplating the strengthening of investment corporation governance in cases involving an investment corporation's acquisition of assets from related parties.

Conclusion The Working Group is planning to release a final report on the ITICA amendments by the end of 2012, with the preparation and submission by the FSA of an amended ITICA bill to the regular Diet scheduled for 2013.

According to such timeline, the amended ITICA can be expected to come into effect between the latter half of 2014 and early 2015.

hedge fUnd managed aCCoUnts - a kPmg sPonsored disCUssion

AUSTRALIA Hedge Funds in Australia – New Challenges and Opportunities

Australia’s A$32.6 billion (US$33.2 billion) hedge fund manager community is the second largest in the Asia-Pacific region – just marginally smaller than Hong Kong. The nation’s hedge fund managers control more assets than Singapore and Japan combined (Australian Trade Commission, Australian Hedge Funds August 2011: www.aima-australia.org).

With this size has come recent increased regulatory scrutiny.

The Chairman of the Australian Securities & Investments Commission (ASIC) recently

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commented that “one thing that was clear as the [Global Financial] Crisis unfolded was that hedge funds had largely passed below regulatory radars and regulators needed to address this lack of attention” (AIMA Australian Hedge Fund Forum: Speaking notes for address

by Greg Medcraft, Chairman, Australian Securities and Investments Commission: www. asic.gov.au).

In the recently released ASIC Regulatory Guide 240, ASIC decided not to restrict retail

access to hedge funds, but rather introduce new burdensome disclosure requirements for ‘hedge funds’ and ‘fund of hedge funds’ which don’t necessarily apply to non-hedge fund products (even if those products carry similar risks to hedge funds). The new disclosure requirements are largely in the form of ‘if not, why not’ benchmarks and a prescriptive list of disclosure requirements.

These changes have raised significant concerns within the industry. ASIC has taken on a number of these concerns in the

Minter Ellison Lawyers Stuart Johnson / Nathan Cahill Partner Tel: +61 2 9921 4907 / +61 2 9921 4933 stuart.johnson@minterellison.com nathan.cahill@minterellison.com www.minterellison.com/funds-management/ consultation process. However, a number of significant issues remain which will affect the saleability of products and retail investors understanding.

Firstly, a ‘hedge fund’ is near impossible to define. ASIC have settled on a hedge fund definition being something that people think of as a ‘hedge fund’ or a fund that has at least two of the following characteristics: complex strategy or structure; leverage for investment purposes; uses derivatives other than for hedging or short-term exposure; engages in short selling; and has a performance based fee. The regime also applies to ‘fund of hedge funds’, where a hedge fund invests 35 per cent or more of its assets in an underlying hedge fund(s).

Unfortunately, this definition captures a host of products that are not what most would consider a ‘hedge fund’. This has been one of the greatest sources of industry concern. For example, simple equity yield products tailored for the retiree market are caught under this definition because they are often short sell and use derivatives to reduce the risk profile. These products are hardly hedge funds but nonetheless will fall within the new regime.

Secondly, the new disclosure regime means that hedge fund manages will now need to disclose a shopping list style of content – much of which will not be relevant to retail clients in deciding whether to invest.

Examples of this disclosure include the qualifications of the investment professional responsible for the fund, and the time they spend in managing the particular fund. Nathan Cahill, Hedge Fund specialist in Minter Ellison’s Financial Services Group commented: “The new regime takes disclosure further

away from the clear, concise and affective disclosure approach that the Australian government was seeking. Whereas in the past managers were required to disclose information that is material to investors in deciding whether to invest, now they will be forced to disclose information that is not only not necessarily relevant but also likely to confuse investors.”

Thirdly, the new regime will create an unlevel playing field for products. It means that some products such as a long-only fund may fall outside of the prescriptive disclosure requirements of hedge funds, whereas a highly hedged long-short fund will have the new regime apply to it. When these two funds compete for investor monies, the hedge funds will be doing so with a greater marketing drag through the onerous and lengthy disclosure. When one compares the performance of such a long-only fund versus the highly hedged fund during financial market crashes, it’s often the latter that will offer a retail investor a safer risk profile and downside protection. The new disclosure regime does not operate based on this risk profile, but rather rewards those managers and products that can fall outside of ASIC’s ‘hedge fund’ definition. As all of this is occurring in an environment of increased market pressures on hedge funds in Australia, there is greater scrutiny on short selling disclosure and regulation, use of OTC derivatives and fee levels.

requirements on superannuation funds to disclose information on the positions they hold in hedge funds and their underlying investments is problematic for the often private hedge fund industry (as they seek to preserve market competitiveness by keeping portfolios secret).

There is significant fee pressure on fund managers in the Australian market through the Australian MySuper reforms that seek to provide a low-cost default superannuation option for the majority of Australians.

Many hedge fund strategies cannot in our experience be operated for the 25 basis points management fee (and no performance fee) that we have witnessed superannuation funds seek. This has already meant these superannuation funds limiting the strategies that they will invest in, and also hedge fund managers seeking to tailor their strategies to the price the market will pay.

Minter Ellison’s specialised Alternative Assets Investment Group provides innovative and commercially astute solutions for local and global fund managers and hedge fund managers.

In the wake of greater Australian Government pressure to simplify investments and focus on those with lower fee structures, many institutional superannuation funds have been reducing mandate allocations to hedge funds. For example, regulatory

October 2012 • Global Business Magazine • 15

hedge fUnd managed aCCoUnts - a kPmg sPonsored disCUssion

SPAIN Managed Accounts In The Spanish Asset Management Industry

In some cases Spain is not that different: as in other jurisdictions, the 2008 global meltdown, and the fallout of the Madoff fraud, prompted investors to consider the attractions of managed accounts versus those of commingled funds.

The attraction of managed accounts was not so much that they are professionally managed, since collective investment schemes too share that characteristic. It was not either that they are specifically tailored to the interests of one investor, since fund managers can tailor a commingled fund to serve the interests of a collective sharing the same needs or regulatory constraints (say, pension fund managers).

Rather, their attraction was the fact that the assets within the managed accounts are held in the name of the managed account.

Thus, managed accounts gave investors an opportunity to mirror a manager’s reference fund, tweaked and twisted as necessary to suit the investor’s needs to a bespoke fit, with the added benefit that the assets in the account are held in the account’s name. This latter feature proved too essential: Spanish investors in the questionably denominated Madoff “feeder” funds located in Luxembourg discovered to their dismay that having been defrauded was not enough punishment: they had, on top, to struggle to evidence their ownership of the “feeder” funds.

Another equally important feature of the managed accounts is the fact that, if necessary, investors could close down a manager at the click of a finger. The Madoff fraud there too provided an important lesson: Spanish investors in the Luxembourg “feeder” funds discovered, again to their dismay, that they could not remove the fund manager in charge, and were basically dependent on the manager’s good will. This was the more jarring as many if not all of the

16 • Global Business Magazine • October 2012

investors considered the fund manager to be directly culpable of the fund’s debacle.

To certainty of ownership of the assets, a relationship among equals with the account’s manager, more nimbleness and flexibility on the investment side, managed accounts offer an additional feature of particular relevance for investors having fiduciary duties of their own, such as pension fund managers or collective investment schemes managers: greater transparency.

As UCITS, AIFMD, MiFID and other regulations in progress impose greater liabilities and obligations on managers of other’s people money, managed accounts appear to be in the investment world what BB creams have been in the cosmetics one: the perfect everything to everyone’s needs.

Investors will be able to benefit from a manager, or several managers’ wisdom, appoint custodians of their own choice, and have perfect control of the investment strategies and assets.

However, the world being what it is, the blessing of managed accounts does not come unmixed, and, at least for Spanish institutional investors, presents a certain number of difficulties.

The first one, is, as so often happens, taxation. Investment funds enjoy a privileged tax treatment in Spain. The principle behind this policy is that investment in transferable securities must be encouraged, and that collective investment schemes (and UCITS most of all) have to be rendered as attractive as possible, and taxation is a big portion of attraction. Thus, investors, both HNWI and institutional investors, will enjoy a much better tax regime if they invest in a commingled fund than if they channel their investment through a managed account. An obvious alternative would be to set up an investment fund that would then allocate part of its assets to a managed account. This set up, however,

would deprive the managed account of most of its attractive features: the investment policy of the managed account could not depart of that the “umbrella” fund and the removal of the account manager would require the cooperation of the fund’s manager, to name just two.

Therefore it does not make much sense. The tax difficulties, however, are relevant principally for individual investors (HNWI or others) since pension funds and other institutional investors have a favourable tax regime of their own that renders it easier for them to disregard, or at least not consider

Maria Gracia Rubio de Casas.

Financial Services Regulation Team.

determinant, the tax treatment of an investment.

Finally, the use of a managed account by an institutional investor –or other types of investors having fiduciary

responsibilities- will require that the investor complies with applicable rules in terms of internal organization and compliance to ensure an appropriate monitoring of the managed account manager(s) and custodians. This, in turn, raises the question of the possibility for EU-based institutional investors to appoint non-EU based managers.

MiFID 2 and the new rules on passporting of third country managers could open new possibilities in this regard.

Baker&McKenzie, Madrid., Spain.The Financial Services Regulation Team in the Baker&McKenzie Madrid office provides specialized advise to financial institutions, both Spanish and non Spanish, providing services in the Spanish and EU territory.

The team has been recognized by international publications as one of the leading teams of the Spanish market.

October 2012 • Global Business Magazine • 17

hedge fUnd managed aCCoUnts - a kPmg sPonsored disCUssion

What do Hedge Fund Investors Want Now? Following the credit crunch and the Madoff affair, there have been considerable upheavals in the hedge fund market.

A number of funds have disappeared and others have restructured. Some have shown themselves to be more resilient and have increased assets under management. However, investors are now more wary and are looking closely at the nature of the arrangements they have with hedge fund managers. In particular, investors have been focusing on fees, the level of control they have in relation to the fund, track records, transparency, what external oversight is available (e.g. reputation of third party administrator and auditor; whether a managed account platform offers any additional checks and balances) and key man composition. This is leading a number of investors to reduce the number of hedge fund managers with whom they invest - but often increase the amounts of money they give to those hedge fund managers. There is also a focus on standards produced by the Hedge Fund Standards Board and to what extent these should be adopted by hedge fund managers. Many investors are thinking again about whether they want a traditional fund or whether they want the greater flexibility provided by a managed account.

It is abundantly clear that the top performing hedge fund managers are still largely able to dictate terms – investors continue to want to invest with them. Conversely, hedge fund managers whose funds are in trouble, are finding it difficult to keep hold of assets. Fees are being scrutinised far more closely. The 2 and 20 model is not as secure as it once was.

Bridget Barker, Head of the Investment Funds and Financial Services Group at Macfarlanes LLP, London

Although, in the majority of cases, performance fees seem to remain at the 20% level and management fees are under particular pressure. Conflicts of interest and governance are also a key focus.

The industry has seen considerable generational change – senior managers have been moving on (forcibly or otherwise) and younger managers taking over. Investors want to know who exactly is managing their investments and how much of their time is being devoted to that activity.

Control rights come in a number of different forms. Investors want greater liquidity – so the unfettered right to redeem and to walk away from the fund.

Greater transparency is also being required – partly as a result of the standards set by the Hedge Fund Standards Board.

Investors want better and more frequent reporting throughout the term of the relationship.

They want early warning of problem issues or team changes.

In some cases (particularly for investors with deeper pockets) this is leading investors to look away from the classic fund structure (where all investors are treated exactly the same) to managed account arrangements which are more tailored to suit the precise requirements of the investor. Having a one to one agreement with a hedge fund manager allows an investor to have greater dialogue with that hedge fund manager and to negotiate tighter terms, including better liquidity rights, without the hedge fund manager necessarily having to give these provisions to other investors.

This, in turn, raises issues of transparency and fairness in dealing between investors that may need to be addressed.

18 • Global Business Magazine • October 2012

In the 2012 report on Hedge Fund Managed Accounts and Platforms undertaken by Global Business Magazine, it transpired that 16% of all institutional investors surveyed have already moved an allocation of assets to a managed account. A further 23% of institutional investors in the survey were also considering their first allocation to a managed account structure during the course of this year.

The survey revealed that 65% of fund of fund managers are either currently running a managed account for their clients or considering doing so within the next 12 months. 60% of managers based in North America currently run managed accounts which compares with 40% of European managers and 44% of managers based in Asia and the Rest of the World.

It is mostly larger managers which offer managed accounts structures. Approximately half of the managers with over US$500 million in assets under management are offering managed accounts, although it is expected that smaller managers will increasingly begin to offer the

structures over the next year or so.

Managers are facing a torrent of new legislation, including the Alternative Investment Fund Managers Directive. Since a managed account of itself will not be an alternative investment fund for the purposes of the Directive, it should be possible to use managed accounts to structure arrangements which will permit managers to fall outside the tough provisions of the Directive.

All of these issues mean that the market is currently in a state of flux with many investors looking to change their existing relationships with hedge fund managers. Undoubtedly, the balance of power has swung towards investors. Going forward we fully expect to see a greater proportion of managed accounts allowing investors to enter into more tailored arrangements with their chosen fund managers and give them the greater control and transparency that so many investors are now demanding.

KPMG’s Alternative Investment Funds practice Global resources.

Local team.

Around the globe, KPMG member firms have more than 3,000 professionals in 60 international jurisdictions serving investment funds. Our worldwide Alternative Investment member firm network is comprised of more than 1,900 Audit, Tax, and Advisory professionals, including 125 partners, who focus on serving alternative funds and their sponsors in all of the significant industry locations.

For more information on how KPMG can help you achieve your business objectives in alternative investments, please contact Mikael Johnson, Lead Partner, Alternative Investments, majohnson@kpmg.com kpmg.com

© 2012 KPMG LLP, a Delaware limited liability partnership and the U.S. 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 the U.S.A. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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October 2012 • Global Business Magazine • 19

LUXemboUrg shariah ComPLiant inVestment fUnds

Luxembourg Shariah Compliant Investment Funds Pierre Oberlé Business Development Manager ALFI (Association of the Luxembourg Fund Industry) info@alfi.lu www.alfi.lu

How Can the European Regulatory Framework Contribute to the Development of Shariah-Compliant Funds?

Some European jurisdictions have become important domiciles for Shariah-compliant funds, with Luxembourg ranking first in Europe in terms of the sheer number. There are actually two main drivers behind this recent development. The first driver is that several financial groups involved in the Islamic funds business in different parts

of the world have reached a certain size and want to expand internationally. Having a UCITS product can help them extend their investor base and penetrate new markets. The second driver is client demand for transparency in the aftermath of the global financial crisis.

First Driver: UCITS and its Distribution Passport In terms of assets under management, Luxembourg is the number one investment fund centre in Europe and the second in the world after the United

20 • Global Business Magazine • October 2012

States. While Luxembourg’s success in the fund industry is a result of its business model, above all it is the success story of a truly European idea – the UCITS framework, which celebrated its 25th anniversary in December 2010. That same month, the Luxembourg Parliament ratified UCITS IV, making Luxembourg once again – as in 1985 and 2002 –the first EU country to incorporate the new rules into national law.

UCITS stands for ‘ Undertaking for Collective Investment in Transferable Securities’, and derives from a European Directive of 20 December 1985, that introduced a single EU-wide regulatory regime for open-ended funds investing in transferable securities such as shares or bonds. This Directive is

aimed at ensuring high levels of investor protection; it regulates the organisation, management and oversight of UCITS funds, and sets rules for diversification, liquidity and risk management.

One key aspect of UCITS is the ‘ European passport,’ which makes it easy for a fund domiciled in one EU country to be sold to investors in all of the others. Over the years, UCITS has become a strong global brand, and these funds are now well accepted in many nonEuropean jurisdictions. Today Luxembourg-domiciled UCITS are distributed in more than 65 countries around the globe, with a particular focus on Europe, Asia, Latin America and the Middle East.

Over time, Luxembourg has indeed become the leading centre for global distribution of investment funds. By the end of 2011, 72% of all funds sold in at least three countries were domiciled in the Grand Duchy, and its leadership in cross-border fund distribution made a decisive contribution to its growth, attracting fund promoters from around the world. More recently, these have included promoters of Shariahcompliant funds – a natural development as the UCITS

structure is well suited to the principles of Islamic finance.

Since UCITS funds are designed primarily for retail investors, their main concern is safety, and their rigorous investment policies are consistent with Shariah law’s prohibition of gharar (uncertainty). UCITS funds are therefore especially appropriate for Shariah-compliant fund promoters targeting investors worldwide.

ALFI, the representative body of Luxembourg’s fund industry, launched a working group dedicated to Islamic Finance in 2008. One of the first tasks of this group was to conduct research into assets eligible for Shariah-compliant UCITS funds.

The group’s report concluded that Luxembourg was able to offer a range of vehicles that were appropriate for Shariahcompliant investment, meeting the specific needs of both investors and promoters without additional legislation.

The UCITS framework has evolved over the years. Adopted in December 2001, UCITS III, consists of two Directives – the Management Company Directive and the Product Directive. The Product Directive allows funds to invest in a wider range of financial instruments, making it possible for promoters to establish money-market funds, index-tracking funds, and derivative funds as UCITS funds. But whereas including derivatives as eligible assets for UCITS funds has encouraged the use of more innovative investment strategies, not all of these new strategies are suitable for Shariah-compliant funds.

UCITS IV has brought more innovation. Although none of the new measures will have a specific impact on Islamic funds, promoters of these funds will benefit from UCITS IV innovations along with the rest of the industry.

The list of fund promoters with Shariah-compliant vehicles in Luxembourg shows that prominent international names in conventional investment funds have been quick to climb aboard.

In most cases, these promoters already had a conventional range

domiciled in Luxembourg and have simply added a Shariahcompliant fund. More recently, smaller players from the Middle East have also begun setting up funds in the Grand Duchy.

Usually, these promoters have already been operating funds for domestic investors in their home countries, but have difficulty selling them abroad. For them, Luxembourg’s international reach has definite appeal. While this is still a new trend, it is set to intensify in the coming months, with a number of projects now in the pipeline.

This development has also raised questions relating to the administration of Islamic funds.

Another major work undertaken by the ALFI working group has been to identify potential operational challenges linked to service Shariah-compliant funds, find solutions, and recommend standard practice for local players. Therefore, the group has now begun work on guidelines for Shariahcompliant fund administration.

Administrators are naturally required to understand how Shariah-compliant funds work, but their systems must also be adapted to accommodate them.

As Shariah law bans usury and short selling, and prohibits investment in forbidden goods and services, complying with these requirements affects administration of an Islamic fund. For example, in a long-only Shariah fund, the administrator will provide oversight on the fund manager by monitoring and checking for Shariah compliance.

If an improper trade is made as in the shares of a company engaged in haram business are traded, the administrator will cancel the trade, with any losses covered by the manager and any gains donated to charity.

Also, since a Shariah-compliant fund cannot earn interest on its investments, standard cash management services often cannot be used, since cash held by Shariah funds must be kept separate from cash held by all other funds. And as most commonly used fund accounting platforms cannot provide Shariah-compliant fund accounting, service providers

often develop their own reporting method to comply with Shariah rules.

Second Driver: Regulated European Alternative Funds and Client Demand for Transparency The second driver is the demand for transparency and increased investor protection, which resulted from the financial crisis.

The trend in the financial sector is now towards high quality regulation. This is what an increasing number of investors expect, and what Europe has to offer. Indeed, a trend for relocating offshore funds onshore has been observed over the past three years, and wellestablished European domiciles such as Luxembourg have been among the clear beneficiaries of such fund migrations.

A consequence of the financial crisis is that regulators and policy makers all over the world have taken action to enforce greater transparency, better client information, and ultimately better protection. The G20 has decided that there should be no unregulated managers or products in the marketplace: the United States answered with the Dodd-Frank Act and Europe’s answer was a new Directive called the Alternative Investment Fund Managers Directive – better known under its acronym: AIFMD. The Directive was finally approved by the European Parliament on 11 November 2010, and was published in the Official Journal of the European Union on 1st July 2011, after 26 months of intense debate and negotiations between the European Commission, the European Council of Ministers and the European Parliament. Member States now have a period of two years to transpose it into national law.

The scope of the Directive is pretty large. It is applicable to all managers of non-UCITS collective investment schemes ‘which raise capital from a number of investors with a view to investing it in accordance with a defined investment strategy for the benefit of those investors’, thereby covering managers of

non-UCITS Shariah-compliant funds as well. Indeed, this Directive is designed to regulate all managers involved in activities that are not compliant with UCITS rules, such as real estate, private equity and hedge funds. A large number of Shariah-compliant funds invest in real estate or private equity so this Directive will have a direct impact on them. Luxembourg, with the SIF (Specialised Investment Fund) introduced in 2007, has an appropriate vehicle for Shariah-compliant real estate and private equity funds.

The Directive will be applicable to AIFM established in the EU, but also outside the EU if they manage or distribute funds to professional investors within the European Union. Non-European Shariah-compliant fund managers targeting, or looking to target a European client base should therefore be aware of the potential impact the AIFMD will have on their strategy.

Currently, alternative investment funds are regulated at national level, and managers willing to market their funds in the European Union have to face up to 27 different authorisation regimes. The good news is that the AIFMD will put an end to this by setting up a single authorisation regime. Once authorised, the EU managers will be entitled to market the EU AIF that they manage to professional investors, using the simplified regulator-toregulator notification mechanism established under UCITS Directive. Just like UCITS, these funds will also be granted a European passport, and this passport will also, at a later stage, be available to nonEuropean managers and funds that comply with comparable regulation.

Today, there are just around 40 Shariah-compliant fund units domiciled in Luxembourg.

Compared with the total of 13,000 Luxembourg-domiciled fund units, they are still a niche activity. However, this is clearly only the beginning of the story with a number of projects in the pipeline.

October 2012 • Global Business Magazine • 21

LUXemboUrg shariah ComPLiant inVestment fUnds

Advantages and Expertise of the Luxembourg Financial Sector in

Frédérique LIFRANGE Avocat Elvinger, Hoss & Prussen 2, Place Winston Churchill B.P. 425 L-2014 Luxembourg frederiquelifrange@ehp.lu Phone: (+352) 44 66 44 0 Direct Line: (+352) 44 66 44 5330 Fax: (+352) 44 22 55 www.ehp.lu Gast JUNCKER Avocat Elvinger, Hoss & Prussen 2, Place Winston Churchill B.P. 425 L-2014 Luxembourg gastjuncker@ehp.lu Phone: (+352) 44 66 44 0 Direct Line: (+352) 44 66 44 5231 Fax: (+352) 44 22 55 www.ehp.lu

Setting Up Shariah Funds

According to the latest statistics, Luxembourg is the fifth largest domicile for Shariahcompliant investment funds (‘Sharia Funds’) worldwide and the first nonMuslim domicile. Its success is due to its structuring expertise and its track record in cross-border distribution. It is also due, in large part, to the flexibility of its legal and regulatory framework (which is designed to accommodate products from different traditions and thus does not require the implementation of any specific provision to host Shariah Funds). The only Islamic finance specific Luxembourg provisions are two tax guidelines referred to hereinafter and a note issued by the Luxembourg regulator (the ‘Commission de Surveillance du Secteur Financier’) on sukuks.

Luxembourg offers a broad range of regulated or unregulated investment vehicles that may be structured in a Shariahcompliant manner. The choice between the regulated vehicles which include: (i) undertakings for collective investment in transferable securities (‘UCITS’); (ii) so-called Part II funds; (iii) specialised investment funds (‘SIFs’); and (iv) investment companies in risk capital (‘SICAR’), mainly depends on the target investors and investment strategy .

UCITS and Part II Funds, for example, are the only vehicles that may be marketed to both retail and institutional investors (SIFs and SICARs being reserved to sophisticated investors). UCITS are also the only vehicles benefiting from a European passport, allowing their easy distribution throughout the European Union, as well as simplified registration and recognition in a number of countries worldwide. This situation will evolve from July 2013, with the introduction of another European passport (restricted to marketing to professional investors) for managers of SIFs, SICARs and Part II Funds, falling within the scope of Directive 2011/61/ EU of the European Parliament and of the Council on Alternative Investment Fund Managers.

The most flexible vehicle in terms of investment policy is the SIF, which may invest in any kind of assets, provided that it does not invest more than 30% of its assets in securities of the same kind issued by the same issuer. This flexibility is important, as Shariah Funds have to combine the requirements pertaining to the relevant vehicle with Shariah principles. Whereas this is relatively unproblematic for SIFs and SICARs (contrary to SIFs, SICARs are not subject to any diversification rules but invest all their assets in risk capital), UCITS-compliant Shariah Funds have to verify the compliance of the relevant Islamic

instruments with UCITS eligible assets requirements.

Compliance with Shariah principles requires the setting-up of specific mechanisms such as the purification of dividends, and the scanning of investments through a Shariah screen, usually carried out by a Shariah (advisory) board comprised of independent Shariah scholars. The role and practical details pertaining to the functioning of that board (which, in practice, is set up to assist the management body and investment manager of the fund in their respective roles) is described in the prospectus of the relevant product.

Shariah Funds may also require adjustments in terms of custody. Indeed, if it is generally accepted that the custodian of a Shariah Fund does not itself need to operate in a similar manner as an Islamic bank, the custodian is required to be in a position to exercise its activities towards the fund without violating any Shariah principle. The prohibition of interest income for the fund, for example, prevents the fund from lending or borrowing money with interest, and requires the settingup of appropriate agreements to deal with overdrafts in a Shariah-compliant manner.

All regulated vehicles are subject to the supervision of the Commission de Surveillance du Secteur Financier’, which only verifies compliance with Luxembourg laws and regulations, but does neither opine on the compliance of the investment policy and operations of the relevant vehicle with Shariah precepts nor approve the composition of the Shariah board.

From a tax perspective, Shariah Funds have benefited from the favourable regime applicable to Luxembourg funds/SICARs. Besides, the economic-based approach sustaining Luxembourg tax law has been, to a large extent, sufficient to encompass Shariah Funds (and Shariah-specific transactions) with a limited need for specific provisions.

Nevertheless, the direct tax authority issued a circular detailing the main concepts of Islamic finance and their tax treatment on 12 January 2010. It was closely followed by the indirect tax administration on 17 June 2010, which issued a circular detailing the tax treatment of murabaha and ijara.

Recent trends confirm Luxembourg’s success as a domicile of choice for Shariah Funds.

Amongst others, we have recently been asked to (i) assist one of the top US asset managers in the setting-up of the first Luxembourg sukuk-compliant Shariah Fund (to be launched soon), and (ii) to establish a SIF for the asset management arm of the family office of one of the largest merchant families in Saudi Arabia.

Gast Juncker / Frédérique Lifrange / Céline Wilmet

22 • Global Business Magazine • October 2012

ELVINGER, HOSS & PRUSSEN LUXEMBOURG LAW FIRM

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Corporate and Tax Banking, Insurance and Finance Commercial, Employment, Litigation and Arbitration Investment Funds and Asset Management Administrative, Property and Construction Law Insolvency Law and Restructuring

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www.ehp.lu

LUXemboUrg shariah ComPLiant inVestment fUnds

Jason Kabel Head of Fixed Income BLME jason.kabel@blme.com www.blme.com

UK Fund Manager Perspective – Sharia’a Compliant Funds Domiciled in Luxembourg After a tough few years the global economy is still struggling to recover. Growth remains patchy across different markets and regions. However, there is an increasing demand for Islamic finance, which is a positive sign for the asset management industry, and in particular Luxembourg, which has made Islamic finance a particular target for its fund industry.

Islamic finance is a growth area and has been for the past two decades. Indeed market commentators estimate that the today the combined Islamic finance and asset management industry is worth over US$1 trillion and that it is currently growing at rate of 10-15% per annum. This means that with the right kind of Islamic fund offering competitive yields, there is considerable scope for such funds to enter the mainstream asset management market.

This growth can, in part, be attributed to the global financial

crisis, which has created a shift in investors’ attitudes. Investors are managing risk through diversification, and are becoming increasingly keen to transfer some of their investments away from traditional asset managers and financial organisations to ethical and alternative investments.

Many Middle Eastern investors are transferring some of the investments back to their domestic markets. However, they remain keen to invest in Sharia’a (Islamic law) compliant activities and funds, particularly those denominated in US dollars and Sterling. The UK and European fund market remain attractive to these investors who appreciate the robust legal and regulatory regimes.

In parallel with this demand from the Middle East stimulating growth in this sector, the European market for Islamic finance has rapidly developed.

This is due to interest from both conventional investors who are attracted by the similarities with the ethical finance industry and the large Muslim population across Europe.

Luxembourg has long supported the Islamic finance industry. At

24 • Global Business Magazine • October 2012

last count there were over 37 Islamic financial organisations and funds domiciled there. The Banque Centrale de Luxembourg was the first European central bank to join the Islamic Financial Services Board (IFSB) and the only European country to have hosted an IFSB event. The first Sukuk (an Islamic bond) listed on a Stock Exchange outside of Malaysia or the Middle East was on the Bourse de Luxembourg. islamic Asset Management – an opportunity The Islamic asset management industry has experienced significant growth in recent years and has shown resilience under the turbulent global economic situation. The most recent report on the Islamic asset management industry by Ernst and Young states that the sector is growing by 7.6% per annum (Islamic Funds & Investments Report 2011, Ernst and Young). There has been a sustained growth with an increase in both the assets under management and the number of funds. We are regularly seeing new funds being launched in new markets, such as Australia.

As an Islamic bank BLME adheres to the ethical principles of Sharia’a. To comply with Sharia’a principles, BLME is prohibited from investing in conventional finance, alcohol or tobacco production, promotion

or sales, the adult entertainment industry such as casinos, gambling and pornography, and weapons including arms and defence manufacturing. Many of these investment restrictions are similar to those of ethical financial organisations.

In addition, we also carry out financial screening of any company that we invest in, to ensure that debt is less than thirty-three per cent of total assets, and that cash and interest bearing items are less than thirtythree per cent of total assets. We also check that the total interest and income from non-compliant activities is less than five per cent of the total revenue of the company.

The opportunities available to organisations offering Islamic finance and the demand from investors looking for Sharia’a compliant funds were the impetus behind BLME launching the US Dollar Income Fund in March 2009. luxembourg – a financial Centre As a UK Financial Services Authority (FSA) regulated entity operating out of the UK, we are often asked why our funds are domiciled in Luxembourg. Having a fund that is Luxembourg domiciled allows BLME to offer a tax-neutral and therefore tax efficient product to investors. The investors then take responsibility to pay the relevant taxes in their own jurisdiction.

The tax rules are clear and understood by most well informed investors across the UK, Europe and MENA regions who are our target market.

According to Luxembourg for Finance, there are no plans to make any significant changes to the tax legislation in the

foreseeable future.

In addition, the importance of Luxembourg’s political and financial stability cannot be overstressed as a motivating factor for prospective fund investors and for asset managers looking to launch new funds.

Furthermore, the infrastructure in place in terms of regulation, custodianship and legal expertise in Luxembourg is well established in the asset management sector. Luxembourg is the second largest domicile for funds in the world after the US and has double taxation treaties with most investing countries.

While Luxembourg provides the infrastructure of the fund, investment expertise is sourced from advisors based in London. The conventional asset management industry is well established in the UK with asset management companies managing over £3.9 trillion of assets (Investment Management Organisation, October 2011 Report.). These assets are managed on behalf of UK and international clients.

The UK legal and regulatory environment is robust, and there is a wealth of experienced fund managers and financial advisors who can help distribute our products. the siCAV – sif fund structure The structure allows funds to invest in a wide variety of asset

Diagram 1

types, including both traditional and alternative investment products. The rules governing SICAV-SIFs are designed to accommodate all investment styles and objectives. A SICAV SIF is an onshore Luxembourg investment fund. A SIF takes a collective investment approach to investor funds and applies the principle of risk diversification.

The structure is flexible with new sub-funds or compartments being added easily and in a cost effective manner. As a relatively newly established fund manager, the lower administrative burden inherent in being able to set up sub-funds quickly has been an important deciding factor in using this structure.

We are able to access a significant number of investors as, subject to local regulations, the funds can be marketed internationally (other than the United States) to institutional investors and to individuals who meet the criteria of ‘Well-Informed Investors’.

A Well-Informed Investor, as defined by the Luxembourg regulator (CSSF), is an institutional investor such as any organisation that manages or advises on funds, assets, investments or pensions. An individual who invests at least €125,000 in the fund, or has their expertise confirmed by an investment firm may also be classified as a Well-Informed Investor.

us dollar income fund – Case study The US Dollar Income fund provides investors with the optimum mix of return, liquidity and security. Through our asset management products, including the $Income Fund, we aim to generate a fair and equitable profit from transactions and funds that are backed by real assets. This method of investing avoids speculation, short selling and excessive credit creation, whilst encouraging sound risk management procedures.

The US Dollar Income Fund is a sub fund or compartment of the BLME Umbrella Fund SICAVSIF (Diagram 1) domiciled in Luxembourg. When setting up a new fund the structure is particularly important as this dictates how, to whom and where the fund can be marketed.

It is important that the structure of the fund is appropriate for both the target investors and the assets to be managed. The US Dollar Income Fund has met its performance objectives and has consistently and significantly exceeded its target return (Chart 1). It has been ranked in the top percentile since launch by Reuters fund ranking service, Lipper Hindsight, in a peer group of over 730 conventional funds.

the US Dollar Income Fund – a High Yield Fund and a Light Industrial Building Fund. The High Yield Fund offers higher returns than the US Dollar Income Fund and invests mostly in Sukuk. As of July 2012, this was the top performing Sukuk fund as ranked by Zawya. The Light Industrial Building Fund is a property fund that targets returns of 8-12% by investing in light industrial buildings across the UK. the future for islamic funds Ernst and Young estimate that global Islamic assets under management reached US$58 billion in 2010, which is a very small proportion of total global assets under management. The relative size of Islamic assets under management means that the industry has yet to reach critical mass and remains fragmented, with only 30% of fund managers having over US$100 million assets under management. However, this creates opportunity for larger fund managers to enter the Islamic market and consolidate.

With global financial centres such as Luxembourg and the UK creating a level playing field for Islamic products, the possibilities for growth in this sector are significant.

Under the BLME Umbrella Fund SICAV-SIF, there are currently two other funds in addition to

Chart 1

October 2012 • Global Business Magazine • 25

LUXemboUrg shariah ComPLiant inVestment fUnds

Sharia funds: The Luxembourg platform There has been a recent surge in demand for Sharia-compliant instruments from Islamic investors and conventional investors.

This has accelerated the growth of Shariacompliant entities investing in a wide range of sectors, such as equity, real estate, private equity, infrastructure, etc.

Worldwide, there are more than 800 Shariacompliant investment funds active, and their number is growing. There are currently about 40 (regulated) Sharia-compliant investment funds in Luxembourg. The number of unregulated Sharia-compliant entities is difficult to determine, but it is clear that Luxembourg is a key player in this sector.

26 • Global Business Magazine • October 2012

Islamic financial products differ from conventional financial products due to prohibitions on interest, gambling, uncertainty, short selling and trading in unlawful products (like alcoholic drinks, weapons, adult entertainment, etc). Under Sharia, an investor is like a business partner seeking to obtain profits from underlying assets or businesses (but is generally exposed to the losses as well) and can never be a creditor expecting a fixed interest return on loans granted.

The key elements for setting up Shariacompliant investment funds in Luxembourg are as follows:

regulatory Luxembourg has a variety of vehicles that can accommodate Sharia-compliant investments. Regulated vehicles (such as UCITS - undertakings for collective investment in transferable securities), lightly regulated vehicles (such as Sociétés d’Investissment en Capital à Risque - SICAR and specialised investment funds - SIF) and unregulated vehicles (Sociétsé de Participations Financières - SOPARFI and certain securitisation vehicles) are available to promoters and investors. The range of vehicles can cover all types of Shariacompliant instruments and can be tailored for all types of investors, including retail investors, high-net-worth individuals, and professional or institutional investors.

Moreover the Luxembourg regulator (CSSF) is aware of Sharia business and has issued a circular letter to define the treatment of Sukuk from a

regulatory point of view in order to facilitate issuance of such instruments. The CSSF also confirmed that the role of the Sharia board is an advisory or consultancy one, assisting the manager in the decision making process. taxation Luxembourg offers tax-efficient structuring possibilities for investments made by local entities and for tax efficient cash repatriation.

The Luxembourg tax authorities are familiar with Sharia-compliant structures and issued two circular letters in 2010 to confirm a substance over form approach for Sharia-compliant transactions, ensuring that there is no difference in tax treatment of Sharia-compliant transactions compared to conventional transactions.

The first circular deals with the direct tax treatment of murabaha and sukuk and also describes various other Sharia-compliant instruments (musharaka, mudaraba, ijara, ijarawa-lqtina and istisna). The circular confirms that the taxation of the margin generated from murabaha agreements can be deferred over the term of the transaction (as is the case in a conventional financing arrangement with annual interest being generated on financing). The circular also explicitly confirms that, for Luxembourg tax purposes, Sukuk would be treated in the same way as conventional bonds and consequently the yield on Sukuk would be treated as deductible (similar to interest payments on conventional debt instruments).

The second circular focuses on indirect tax.

The circular covers various VAT and transfer tax aspects related to

murabaha and ijara agreements and ensures that the indirect tax treatment applicable to Sharia-compliant agreements is similar to conventional finance agreements.

Profit margins under murabaha and ijara agreements are, for example, assimilated to conventional interest and consequently not subject to VAT. The circular also covers mitigation of the transfer tax impact regarding resale transactions of Luxembourg real estate.

Accounting and auditing requirements Accounting for Sharia-compliant vehicles does not differ from any other legal structure.

For regulated structures like SICAVs (Sociétés d'Investissement à Capital Variable), FCPs (Fonds commun de placement) or SIFs, account balances are to be stated at fair value whereas for other structures, valuation is at the lower of cost or market.

The auditor expresses an opinion that the accounts give a true and fair view of the financial position of the entity and of the results of their operations and changes in their net assets for the year, in accordance with Luxembourg legal and regulatory requirements.

For some regulated funds, the auditor has to prepare an ‘Analytical report of the auditor’, in which an opinion is given on compliance with, inter alia, the entity’s investment policies and restrictions. This report is addressed to the Supervisory Authorities and the Board of Directors. It is not distributed to other parties. publication requirements Every year, all entities are required to lodge their audited annual accounts with the Register of Commerce. Regulated entities are required to submit a copy of the same annual accounts and the ‘Analytical report of the auditor’ to the supervisory authorities. Funds under Part I or II of the Law of 17 December 2010 are required to publish their NAVs at least twice a month for Part I funds and once a month for Part II funds.

David CAPOCCI Tax Partner Cross-Border Tax - M&A Deloitte S.A. 560, rue de Neudorf, L-2220 Luxembourg, Grand Duchy of Luxembourg Tel/Direct: +352 451 452 437 Fax: +352 451 453 505 dcapocci@deloitte.lu | www.deloitte.lu M. HOSSEN Partner | Assurance Deloitte S.A. 560, rue de Neudorf, L-2220 Luxembourg, Grand-Duchy of Luxembourg Tel/Direct: +352 45145 2780 Mobile: +352 661451107 mchossen@deloitte.lu | www.deloitte.lu

service providers There is a good range of Luxembourg service providers capable of serving Shariacompliant structures. Dedicated specialised services, such as screening, purification, zakat calculations and Sharia advisory services are available as well.

In summary, Luxembourg historically has played a first mover role in the area of Islamic finance. Opportunities in this sector are moreover important, as the country has all the tools to attract more Sharia’a funds: a flexible set of suitable vehicles, which can be structured in a tax efficient way, and service providers ready to serve.

October 2012 • Global Business Magazine • 27

Leading lawyers of asia

Leading Lawyers of Asia 2012 As the western world is shaken by economic turmoil, most investors are now looking into Asia as the best alternative for business. Investment opportunities now abound in Asia is due to the increase in Asian purchasing power and the availability of much cheaper labour.

Coping with the global financial crisis and strict banking regulations are just some of the current challenges facing governments today. Pushing for a more positive investment climate in their respective economies means creating an atmosphere that encourages partnerships between the government and the private sector.

While some governments in developing Asia have started opening their economies to foreign investment and private capital for infrastructure development, both government and the private sector are still wary of the risks involved.

Afghanistan: Afghanistan is a fast growing emerging market of strategic importance close to some of the largest and fastest-growing markets in the world. Afghanistan is remarkably rich in mineral resources. There are currently more than 1,400 identified mineral deposits. These include energy minerals such as oil, gas and coal as well as iron and copper deposits of world quality. Furthermore known precious and semi-precious stones in Afghanistan include emerald, jade, amethyst, alabaster, beryl, lapis lazuli, tourmaline, ruby, quartz, and sapphire. Finally great opportunities for investments exist within the hydrocarbons industry.

Following the national privatisation programme most of the major state-owned enterprises have been slated for international tender 2006-2008 which has made entry into all these sectors easier.

Bangladesh: The Bangladesh economy is developing and in transition. The ready-made garments industry is responsible for nearly 80% of the country’s export revenue. Other sectors such as seafood, ceramics, pharmaceuticals and software development are growing and contributing positively to Bangladesh’s economy. Foreign investment, including from the UK, has begun to filter into Bangladesh in these sectors, particularly in garments.

Local companies involved in exporting need foreign machinery, equipment, services and expertise to improve the quality of the products they offer to international markets.

China: China is THE great economic success story of the past 30 years. China’s growth has been sustained and the economy grew 8.7 per cent in 2009, the best performance of all major economies. While the rise of China is easy to acknowledge, businesses constantly need to catch up with the speed and depth of change and development in China’s large 28 • Global Business Magazine • October 2012

and complex market space. Whether selling, trading, investing or franchising, China offers opportunities in abundance to UK companies, large or small.

India: India may be a complex and challenging market but it is a one that cannot be ignored

by UK companies that are seeking to expand and go international. India is the second fastest growing economy, after China. The business opportunities, which a few years ago, existed only in the traditional economic heartlands of Mumbai, Delhi and Bangalore have now stretched to the emerging cities of Nagpur, Ahmedabad, Chandigarh, Pune and Jaipur, to name but a few.

Japan: Japan is the 3rd largest economy in the world. With GDP twice the size of the UK and GDP per person 10 times that of China, Japan remains the high-tech powerhouse economy of Asia - with the 2nd highest spend worldwide on R&D, a hunger for IP and new trends, and an increasingly globalised outlook.

Exports from the UK are worth £8 billion a year and 450 British companies have operations in Japan. British companies are succeeding in Japan across a wide range of manufacturing, consumer goods, high tech and services sectors.

South Korea: Often thought of as a difficult market, South Korea is worth the effort. It has a wealthy population and a predicted economic growth rate of 5% in 2010, making it the 4th largest economy in Asia and the 14th globally.

Over the next five years, the South Korean economy is set to make the 10th-largest contribution to world growth. That’s as much as the UK and more than France or Italy.

Despite the global slowdown, South Korea’s economy grew by 3.6 per cent in 2011, the fastest in the OECD (Organisation for Economic Co-operation and Development).

Pakistan: Pakistan has a population of 190 million that is poised to grow rapidly in the coming decades. The economy has transformed from a low skilled agrarian economy to a modern industrial nation. The GDP of Pakistan comprises of agriculture (23%), industry (24%) and services (53%). Much work is still needed for Pakistan to bring its economy in line with the developed economies of the world. This gap offers a unique economic opportunity for developed nations like UK to export its technology, skills and expertise to manage the resources available in Pakistan and generate economic benefits for both the countries.

Taiwan: Taiwan leads the world in the manufacture of computer-related products and semiconductors. Before the global recession, high-tech products made up around 51.6 per cent of the country’s exports, compared to 29 per cent in South Korea and 20 per cent in Japan. Accounting for 17 per cent of the global market, Taiwan’s photonics industry is estimated to be worth US$90 billion in 2011. It ranks as the leader in the world for production volumes and second in terms of production value.

Hong Kong: With one of the most open and businessfriendly environments in the world, Hong Kong offers excellent opportunities for UK companies. Hong Kong is a major centre for British business in the region. In 2011, UK exports of goods to Hong Kong were valued at £5.1 Billion, up by 20% over 2010, making Hong Kong the UK's 3rd largest market in Asia (after mainland China and India) and our 13th largest export market worldwide.

Not only is Hong Kong an attractive market in its own right and a springboard into the China market, it is also an ideal base for regional operations.

Source: Asian Development Bank and the UKTI

AFGHANISTAN The Security Situation in Afghanistan: Foreign Lenders Beware

Foreign lenders have financed vast sums of money to Afghan businesses in recent years. To secure such financings, they have generally taken security over the borrowers’ assets and undertakings including security over land. To date, very few securities have been enforced presumably because borrowers have been meeting their repayment obligations.

The World Bank has predicted a significant slowdown in the Afghan economy leading up to and following the NATO military withdrawal in 2014. In addition, there are widespread concerns of a substantial weakening of the Afghan currency, the Afghani.

The majority of the subject financings, and therefore repayment obligations, are in USD. Borrower earnings are generally in Afghani. A weaker Afghani is, on its own, likely to make it difficult for a large number of borrowers to meet their repayment obligations.

Coupled with reduced cashflows for many borrowers - which is likely to result from any economic slowdown widespread borrower default may be inevitable.

Therefore, foreign lenders may need to enforce their securities in the not too distant future.

Regrettably, many foreign lenders are likely to encounter major difficulties in enforcing their securities. This is because the vast majority of their securities do not create valid security interests under Afghan law. As such, many foreign lenders may not be entitled to priority over other creditors in the event of the borrowers’ insolvency and may not have recourse to secured assets that have been transferred to a third party.

Foreign lenders can, before any economic slowdown, re-structure their transactions and securities, and enact other measures, to better protect their investments.

legal framework The legal framework for the

recognition and enforcement of security interests consists of the: (a) Afghanistan Commercial Code 1955 (Commercial Code); (b) Afghanistan Civil Code (Civil Code); (c) Afghanistan Law for Secured Transactions on Movable Property in Banking Transactions 2009 (Moveable Property Law); and (d) Afghanistan Law for Mortgages on Immoveable Property in Banking Transactions 2009 (Immoveable Property Law).

The Moveable Property Law and the Immoveable Property Law were devised and implemented by the former administration of Da Afghanistan Bank (DAB). Both laws have been, and continue to be, praised for finally providing lenders with a workable system for the recognition and enforcement of their securities.

The Moveable Property Law and Immoveable Property Law reflect DAB’s commendable attempt at modernizing Afghanistan’s legal framework for governing securities. The laws are based on almost universally accepted concepts of security creation, perfection, priorities and enforcement.

However, both laws contain a serious shortcoming. That is, their application is generally limited to securities granted to secure loans provided by persons that are licensed,

by DAB, to provide banking services inside Afghanistan.

As such, foreign lenders, who generally do not have a banking license in Afghanistan - are not entitled to the benefits of the Moveable Property Law and the Immoveable Property.

Foreign lenders must therefore look to the Commercial Code and the Civil Code for the recognition and enforcement of their securities. In summary, under these codes, only securities granted over tangible assets that are, or their title deeds are, in the physical possession of the foreign lenders are recognized. The Commercial Code does in theory recognize

non-possessory security interests over negotiable instruments and ‘other commercial documents.’

However, senior members of the Afghan judiciary have made it clear that such security interests will only be recognized and enforceable between the borrower and the lender, and will not have an impact on the rights of a third party.

Furthermore, in practice, only securities over land are capable of being perfected under the Commercial Code and the Civil Code, i.e. a security instrument can only be registered with the registry of the Commercial Court. The registry of the Commercial Court will only register securities over land – securities over other assets will not be registered. However, under the Constitution of the Islamic Republic of Afghanistan 2004, a foreigner’s interest in land is arguably limited to a leasehold interest. Any other interest granted to a foreigner, including a security interest, may be considered unconstitutional and therefore unenforceable.

Consequently, foreign lenders may not be able to enforce a security interest in land against any party, including the borrower.

Conclusion The framework for the recognition and enforcement of security interests under the Commercial Code and the Civil Code is extremely narrow and does not sufficiently recognize the current security structures devised and implemented by foreign lenders in connection with their financings in Afghanistan. Consequently, the vast majority of securities held by foreign lenders may not create valid security interests under Afghan law and may not provide foreign lenders with priority against the borrower’s other creditors and third parties that have acquired the secured assets.

Accordingly, foreign lenders are at risk of suffering extensive losses if Afghan borrowers default on their repayment

Zmarak Zhouand Partner Satchu & Zhouand Tel: + 93 791 669 999 (Afg) and + 971 505 543 584 (UAE) z@sz.af www.sz.af

obligations.

Unfortunately, due to the likelihood of an economic slowdown and a weaker Afghan currency, an increase in borrower default leading up to and after 2014 may be imminent.

Foreign lenders can, before the economic slowdown, restructure their securities and implement other measures to ensure their positions are adequately protected.

Foreign lenders should consider engaging Afghan counsel to undertake an immediate review of their existing securities and transaction structures, amend existing securities and implement quasi-security and other measures to better protect the foreign lenders’ position and restructure transactions to take advantage of foreign assets and other protections.

For a confidential discussion, contact Satchu & Zhouand Lawyers & Advisors.

This document is intended to provide general information in summary form on legal topics current at the time of publication. The contents do not constitute legal advice and should not be relied upon as such. Legal advice should be sought in individual cases. We will not be liable in any way to any person that has relied on the contents of this document.

October 2012 • Global Business Magazine • 29

Leading Lawyers of asia

Significant Labour Issues in Japan

Shinichiro Abe Principal Baker & McKenzie (Gaikokuho Joint Enterprise) Ark Hills Sengokuyama Mori Tower, 28th Floor, 1-9-10 Roppongi, Minato-ku, Tokyo 106-0032, Japan Phone # 81-3-6271-9440 Fax # 81-3-5549-7736 www.bakermckenzie.com shinichiro.abe@bakermckenzie.com

30 • Global Business Magazine • October 2012

When it comes to the subject of labour issues in Japan, there are several topics we can introduce. One interesting example is a case in which a court (Fukuoka District Court) allowed director liability for the failure to monitor the financial condition of a wholly owned subsidiary. This subsidiary executed a series of fraudulent transactions, which resulted in a large amount of dead stock for

the company. The directors of the parent company could have examined documents with regards to the transactions or the stock stored in warehouses. They could have also interviewed the employees responsible for these transactions. If the directors had done any of these things, they could have taken the necessary steps to prevent the losses incurred in these

JAPAN

transactions. However, the directors did nothing, and as a result the losses of the subsidiary continued to mount. The court found that the directors had breached both their fiduciary duty and duty of care, and that they were therefore liable for the losses incurred by the subsidiary.

Japanese academics and authorities are now discussing whether they should clearly state a rule that the directors of parent companies are obliged to monitor their

subsidiaries in the context of the reformation of the existing Company Act. The next topic is the abuse of a company split. In Japan there are a few company split cases in which almost all of a splitting company’s assets (e.g. $100) are transferred to the successor company, while liabilities in an amount equivalent to the amount of the assets, are jointly owed by the successor company and the splitting company (e.g. liabilities jointly owed are $100 among total liabilities of $300). The successor company then pays nominal consideration (e.g. $1) to the splitting company for the assets. As a result, existing creditors of the splitting company (e.g. the creditors for the $200 in liabilities that are not jointly owned) cannot recover their claims because the assets have been transferred and for practically no consideration. Under the Company Act, the splitting company does not need to provide notice of this company split to creditors whose liabilities remain

with the splitting company. Therefore, creditors who would only be paid by the splitting company are astonished when they realise that the splitting company has divested itself of all of its assets (e.g. $100).

The Japanese courts are trying to formulate several equitable measures to protect existing creditors in this situation. Legislators are discussing whether existing creditors should be entitled to ask the successor company to pay claims up to a maximum level equivalent to the amount of the transferred assets (e.g. $100), within the context of a future reform of the Company Act. The third topic is about labour-related issues.

The first is the termination of temporary workers under the reformed Japanese Worker Dispatch Act, which will become effective on 1 October 2012. In Japan, many companies, including auto manufacturers, use temporary workers so that they may easily terminate them in the event of an economic downturn.

Temporary workers are hired by a temporary labour agency, and this agency delivers them to a host employer. The host employer can then terminate a worker dispatch agreement at will. However, the reformed Act focuses on preventing temporary workers from being used as a substitute for permanent workers. The host employer will be obliged to take action for the purpose of stabilising temporary workers’ employment, including but not limited to, introducing them to new jobs and/or new host employers etc. In addition, the reformed Act will prohibit the host employer from hiring former employers as new temporary workers for one year after the termination of their employment. Even more temporary workers will be deemed to have been hired as permanent employees where the host employer breaches the Act. The second issue is that the Japanese labour Contract Act (LCA) has also been reformed and became effective on 10 August 2012.

The LCA clarifies the existing practice that employers cannot terminate employment without firstly, submitting a reason why they need to terminate the employment of temporary workers; and secondly, proving that due process was observed in terminating employment. In addition, the LCA allows temporary workers who apply for permanent worker positions after working for the same company for more than five years to be treated as permanent workers. Taken as a whole, the above labour issues may have a significant impact on Japanese industry.

October 2012 • Global Business Magazine • 31

Leading Lawyers of asia

SOUTH KOREA Shipping & Maritime Legal Practice in South Korea Jipyong Jisung Choon-Won Lee Partner Tel: 82-2-6200-1910 cwlee@jipyong.com www.jipyong.com

Choon-Won LEE – also widely known as CW LEE to the domestic and international shipping society – is now most well known for being a leading Korean maritime lawyer, representing the new generation of Korean shipping society.

CW LEE specialises in maritime matters and dealing with both wet and dry cases. Generally, with regard to wet matters, that is, admiralty or casualty cases, he has dealt with fire, collision and oil pollution. With regard to dry matters, he has dealt with B/L, charterparty and shipbuilding disputes.

CW LEE graduated from the Seoul National University, School of Law in Korea and obtained LL.B. in 1988. Having completed the graduate school at the Korea Maritime University in 2001, he went on to obtain a LL.M. at the University of Southampton, England in 2003, specialising in the maritime law stream. CW LEE passed the High Level Government Officer Examination in 1988 and the Bar Examination in 1990. In 1993, after completing a two-year course at the Judicial Research and Training Institute conducted by the Supreme Court of Korea, he was admitted to the Korean bar.

Having started his profession as a young attorney at Lee & Ko in 1993, CW LEE dedicated himself to excellence in the practice of maritime law as a long-time partner at Choi & Kim. In October 2008, he joined Jipyong Jisung and launched a maritime team, which is now one of the most respected in Korea.

His practice involves all aspects of maritime, aviation, insurance and reinsurance, offering a wide range of high-quality and efficient legal services in both dry and wet matters, including charter party disputes, cargo claims, collisions, fire, oilpollution, ship building, ship lease and ship finance issues.

He represents most of the major

32 • Global Business Magazine • October 2012

P&I Clubs and ship owners, including large-scale Korean ship owners, aviators and insurers worldwide and nationwide in numerous cases.

Indeed, CW LEE has handled various noteworthy shipping and maritime matters such as the Hyundai Fortune, which is recorded as one of the largest casualty cases in the worldwide shipping society, with the estimated total amount of dispute in approximately USD 1.5 billion, including the cargo claims of USD 0.5 billion.

In this case, he successfully persuaded the court to dismiss all claims against the owners of Hyundai Fortune, and obtained a nil assessment decision in the limitation proceeding – unprecedented in Korean judicial history. His recent litigation success also includes the Kotoku Fortune case, an international collision matter where, employing unparalleled expertise, he successfully brought the desired results for the clients in all civil, criminal, limitation and maritime safety tribunal proceedings.

However, the worldwide shipping market crisis from October 2008 to the middle of 2009 resulted in a sharp decline of ships’ prices. Furthermore, charterparties between shipping companies and shipbuilding contracts with shipyard were broken, and some of Korean shipping companies went bankrupt. Out of these circumstances, not only have many charterparty disputes and shipbuilding disputes arisen, rehabilitation or bankruptcy proceedings for shipping companies in financial distress have also been progressing.

These recent general trends in Korean shipping law market have affected CW LEE’s legal practice in the field.

As a result, CW LEE has been dealing with many charterparty disputes between Korean shipping companies, or between

Korean shipping companies and foreign shipping companies. He has provided legal opinion on re-structuring a charterparty, taking legal measures in order to receive unpaid hire, or initiating legal proceedings for the purpose of concluding the disputes.

More importantly, CW LEE has been handling various rehabilitation/bankruptcy proceedings, acting for various claimants in filing their claims to the court and taking relevant measures. He has also been acting for the receiver of the rehabilitation company, and defending their interests against various claimants’ claims. As such, his current practice focuses more on contract disputes in ship funds, shipbuilding and charterparties, and the rehabilitation/bankruptcy of domestic shipping companies – all of which have increased since the 2008 crisis.

CW LEE provides his clients with high quality legal services at a reasonable cost.

Furthermore, he receives praise and commends for his prompt responses, and in always exerting his best efforts in protecting his clients’ interests in every way.

CHINA Is a Bad Faith Trademark Application a Headache?

In China, many of the famous brands have met problems in fighting against bad faith trademark applications or registrations, with imitated or copied marks being smoothly registered and cancellation actions failing. Indeed, some of the famous foreign marks have been filed or registered by individuals or other companies in China, in respect of similar or dissimilar goods or services. This has resulted in the dilution of the true owners’ famous marks.

Unlike the previous low-level imitation or counterfeiting which were easily attacked, these actions make some infringements legalised, and those imitated or

copied marks co-existing with some famous brands – even blocking them from entering the Chinese market.

owners, since their marks might be blocked by earlier bad faith applications, or registrations of identical or similar marks.

These trademark registrations have been legally processed because everyone has been granted the legal right to file his/her trademark application.

However, the problem the true owners face is how to deal with the ‘legalised’ infringements.

Nonetheless, there are solutions against most bad faith trademark applications and registrations.

The non-use cancellation, or opposition through the dispute procedure, are the main means against a bad faith registration or application, which can be used after a comprehensive study of a specific case. Generally speaking, a non-use cancellation can be considered against a registration, which has been obtained for over three years and seems unlikely to start being used. The opposition and dispute based on the same considerations of prior use and prior right of the true owners constitute elements of the marks and backgrounds of both the parties involved etc. They only differ in the stage of filing, namely before or after the mark in question is registered. Though bad faith could be argued in an opposition or dispute action, the concept is not supported or recognised if no evidence proving the internal or direct relationship between the two parties is submitted, since the PRC Trademark Law defines only very specific phenomena as ‘bad faith’.

China is a jurisdiction of ‘firstfile-priority’ in trademark registrations so earlier application is recommended.

This is especially applicable to those companies whose products are closely related to daily life and easy to manufacture.

However, it is more important to those famous trademark

Boss & Young Patent and Trademark Law Office Jinshan Liu Senior Partner, Trademark Attorney +86 10 5879 3300 (general) +86 10 5879 4005 (dir) liujs@boss-young.com www. Boss-young.com

The trademark authorities, realising the impact of bad faith applications and registrations, have been making efforts to protect the true owners’ legal rights. As one of the leading and influential trademark practitioners in China, Boss & Young has been standing in front of the research and practice of trademark protections. Mr. Jinshan Liu is held in high regard by many of his clients for his experience and capacity to offer comprehensive services in consultation, prosecution and solutions for trademark matters.

October 2012 • Global Business Magazine • 33

gibraLtar fUnd serViCes

gibraLtar fUnd serViCes THE GROWTH OF THE INVESTMENT INDUSTRY IN GIBRALTAR The Gibraltar Funds & Investments Association (‘GFIA’) was formed in 1996 under the original name of the Gibraltar Association of Stockbrokers and Investment Managers (‘GASIM’). It is a non-profit organisation, which is referred to in several statutory instruments in Gibraltar. Its task is to promote the investment industry in Gibraltar and to represent the industry in front of the Government of Gibraltar and the Regulator – the Financial Services Commission. In 2009 its scope was also expanded to include the funds industry.

At present, GFIA’s membership is comprised of stockbrokers, law firms, banks, audit firms, investment managers, fund managers, fund administrators and non-executive directors, as well as individuals involved in the financial sector in Gibraltar. GFIA maintains strong relationships with both the Government of Gibraltar and the Regulator, and through constant dialogue, ensures the smooth working of Gibraltar’s investment industry. GFIA is led by its Executive Committee, which is comprised of nine members elected by the members.

The Executive includes a chairman, a secretary and treasurer as well as the heads of the three sub-committees – the Technical,

34 • Global Business Magazine • October 2012

Training and Marketing committees.

The Technical Committee meets regularly and is tasked with advising the Executive on technical matters. In addition to this, it acts as an open forum for all members of the industry to discuss technical queries and issues as well as other matters concerning the regulation of licensed financial entities.

The Technical Committee advised the Government on the amendment of Gibraltar’s Companies Act to make it more user-friendly for investment funds. It also had significant input on the new Experienced Investor Funds Regulations.

The Marketing Committee works to present articles in industry publications and to organise conferences in the major financial centres, in order to highlight the possibilities of working with Gibraltar in the establishment of investment management firms and funds. This year, the Marketing Committee is planning two events in London centred around Gibraltar Day. One event will be for industry practitioners and the other event will be for financial journalists.

There are also two Swiss events planned and attendance at the annual GAIM conference in Monaco is anticipated.

The Training Committee organises training events for the industry and guests. In the past they have had events focused on topics such as AIFMD, UCITS IV, Dodd Frank, MiFID II and the new EIF Regulations. This year, the Training Committee is planning a seminar on fund directors responsibilities and corporate governance. Along with the Technical Committee, it will also present a seminar on the implementation of AIFMD into Gibraltar’s legislation.

In respect of its local obligations as well as international ones, GFIA seeks to promote Gibraltar´s funds and investment industry both locally and abroad. GFIA will most likely have a central role in advising Government on the implementation of the AIFMD into Gibraltar legislation. As Gibraltar is within the European Union, it has an obligation to implement all directives into its national legislation. This year, GFIA will consider seeking membership of international fund association groups such as the European Fund Managers Association.

However, lengthy and somewhat politically involved, this will be more of a long-term project.

In order to understand the workings of GFIA it is helpful to have a background as

to the growing funds industry in Gibraltar.

Since 2005, with the advent of the Financial Services (Experienced Investor Funds) Regulations 2005, recently updated to Financial Services (Experienced Investor Funds) Regulations 2012 (‘EIF Regs’), Gibraltar’s funds industry has experienced positive and qualitative growth. Prior to 2005, Gibraltar’s fund industry comprised a handful of funds regulated under the, then, Financial Services Ordinance 1989 and a few dozen private funds. Whilst the regime of the former worked in practice, it relied heavily on obtaining derogations from the Regulator, which made the process of authorising a fund somewhat cumbersome. Despite this, the private funds industry grew fairly rapidly. As private funds in Gibraltar are not regulated and can only be offered to an identifiable category of persons whose number is fifty or less, there were no actual statutory requirements for the production of audited accounts. However, the industry practitioners very much insisted on a prospectus or the engagement of a fund administrator, as a matter of professional investment protection and proper corporate governance.

Furthermore, to meet the demand of certain funds that had grown and wished to market themselves to external investors, the industry proposed to Government the Financial Services (Experienced Investor Funds) Regulations 2005 (the ‘Regulations’). These regulations ultimately codified what had become the practice with private funds but

with a few additional elements, to allow the funds to be marketed more extensively.

Generally, investment into Experienced Investor Funds (‘EIFs’) was limited to either experienced investors defined as either investment professionals, investors who had €1million besides the value of their residential home, or investors who invested €100,000 or equivalent. It is important to note that as these conditions were not cumulative, it was sufficient for an investor to comply with just one of them in order to be able to invest in a Gibraltar EIF. The Regulations also required the engagement of two Gibraltar based directors authorised by the local Regulator to act as fund directors, as well as the appointment of a local fund administrator. This authorisation process was particularly attractive, as a fund was allowed to begin trading on the basis of a legal opinion issued by local counsel, stating that it was properly established in accordance with the Regulations. A fund would then have to notify the Regulator within fourteen days of its commencement of trading, with the notification accompanied by the company’s constitutional documents, a Private Placement Memorandum and a regulatory fee of £2,500. The regime worked very well and has since become probably one of the most flexible regimes within Europe.

Led by the GFIA, the industry requested certain amendments to the regime to increase its competitiveness and ease of use. The main areas of change were the permission to use foreign fund administrators in certain circumstances, the expansion of the definition of experienced investors and the addition of an optional pre-launch authorisation scheme.

In April 2012, the Financial Services (Experienced Investor Funds) Regulations 2012, were signed into law by Gilbert Licudi QC, Minister, with responsibility for Financial Services. The principal amendment of these new regulations was that under certain circumstances, foreign fund administrators were eligible to act for Gibraltar EIFs. In an attempt to enable funds – especially some of the larger and

more institutional funds – to use brandname administrators, the regulations established a process whereby a foreign fund administrator could be permitted by the Regulator, with approval of the Minister, to service EIFs. It was also proposed to expand the definition of experienced investors such that in addition to the existing classes of experienced investors, funds would be able to admit investors who were: participants who had invested an aggregate of €100,000 in one or more Experienced Investor Funds; professional clients under MiFID as defined under the Financial Services (Markets in Financial Instruments) Act 2006; investors who had invested €50,000 and who had been advised by a professional adviser (regulated to provide advice in the jurisdiction they are based in) to invest in the fund, with the fund’s administrator receiving confirmation of such advice; and investors who were investors in funds which were established outside of Gibraltar, aimed at professional or sophisticated investors, and whose funds were subsequently re-domiciled to Gibraltar.

The latter has been seen as an important addition because, in light of the Alternative Investment Fund Managers Directive (‘AIFMD’) which is scheduled to come into force in 2013, there is the expectation that a significant number of Caribbean and Channel Island funds will consider re-domiciling into an EU jurisdiction such as Gibraltar, in order to avail themselves of the marketing advantages of European domiciled funds.

These amendments to the Experienced Investor Fund regime in Gibraltar are anticipated to improve the competitiveness of the Gibraltar Fund regime, while keeping the interests and objectives of investors and the Regulator intact. It is also anticipated that the new regime will be more user-friendly for the more institutional funds.

GFIA and the funds industry in Gibraltar have matured over the last decade, drawing on experience from clients and staff from other jurisdictions, as well as developing significant home-grown expertise. Funds are now seen as one of the pillars of the Finance Centre in Gibraltar, along with insurance, banking and private client work. Gibraltar’s size and the efficient communication between GFIA, the regulator and Government, have allowed it to develop into what is arguably the best experienced/expert fund regime in Europe. It is certainly one with great flexibility and quick time to market.

For more information: info@gfia.gi or call +350 200 64740.

October 2012 • Global Business Magazine • 35

gibraLtar fUnd serViCes

GIBRALTAR – THE NEW EU DESTINATION FOR FUND MANAGERS AND RE-DOMICILING FUNDS Gibraltar is a British Overseas Territory, with a legal system that is widely based on that of England and Wales, implementing all EU directives (such as the UCITS directive) by virtue of having EU membership since 1973.

These changes now make Gibraltar a compelling jurisdiction.

The Experienced Investor Fund Regime

As part of the EU, Gibraltar is required to implement the Alternative Investment Fund Managers Directive (AIFMD) by 22 July 2013. The AIFMD, whilst applying directly to Alternative Investment Fund Managers (AIFMs), will also indirectly apply to Alternative Investment Funds (AIFs).

Whilst recognised as a global finance centre, Gibraltar was not known as a funds jurisdiction until 2005. However, since the birth of the EIF Regulations in 2005, Gibraltar has progressively positioned itself as the finance centre of choice for those looking to re-domicile, or establish, a fund within Europe.

An EIF is a collective investment scheme, regulated by the Gibraltar Financial Services Commission (FSC), which sits outside of the retail environment, and is targeted at investors with sufficient experience, knowledge and understanding of the investments they choose to make and its associated risks.

In a move to increase its market share, the EIF Regulations have recently been amended, and the definition of an experienced investor now includes a lower investment threshold, thereby making the jurisdiction more competitive. Additionally, the ability to launch a fund quickly via its EIF ‘deemed authorisation’ route shows Gibraltar’s intent: A fund can now be launched prior to receiving FSC approval.

Since April 2012, EIF administrators need not have a physical presence in Gibraltar provided they are established within the EEA or an FSC approved jurisdiction.

36 • Global Business Magazine • October 2012

The AIFM (July 2013) and Re-domiciling to Gibraltar

Perhaps the most controversial change arising from the AIFMD is in relation to EUAIFM’s managing non-EU AIFs and non-EU AIFMs managing EU AIFs, thus affecting EU Fund Managers managing offshore funds and Offshore Fund Managers managing EU funds.

An Offshore Fund Manager managing a EU fund can continue to market the EU fund in the EU to professional investors, pursuant to national private placement rules. However, the ability to do this is likely to end in the near future. The ability to passport within the EU to professional investors may not become available until 2015.

Similarly, EU Fund Managers managing offshore funds will require authorisation under the AIFMD. Even if the offshore fund is not being marketed in the EU, the AIFMD requires that there be cooperation arrangements between the EU Fund Manager’s home regulator and that of the offshore fund. EU Fund Managers will also be able to continue marketing their offshore funds in the EU to professional investors,

pursuant to national private placement rules. However, the ability to do so is likely to end in the near future, and the EU Fund Manager’s ability to passport his/her offshore fund may not be become available until 2015.

Gibraltar – the Solution to the AIFMD Gibraltar will offer Fund Managers the ability to be authorised pursuant to the AIFMD, and for their AIFs established in, or re-domiciled into, Gibraltar to passport within the EU in accordance with the AIFMD. Since 1996, foreign companies have been able to re-domicile into Gibraltar, a wellestablished jurisdiction. This has allowed for the uninterrupted continuity of the company and thus its assets, without triggering any exit charges. The process offers a swift, inexpensive and efficient re-domiciliation.

The easy re-domiciliation process and close relationship with the regulator that a small jurisdiction can offer, makes Gibraltar the perfect EU setting for EU Fund Managers wishing to re-domicile their offshore funds, thereby overcoming the obstacles presented

by AIFMD whilst at the same time benefiting from an efficient, low tax European onshore location.

It is therefore expected that the 2012 EIF Regulations will represent a significant advantage for AIFs moving into the EU, particularly in light of the EIF’s ability to become exempt from tax on its investment income.

Gibraltar is a very attractive location for Fund Managers seeking to move into the EU, with a location at the southernmost tip of the

Iberian Peninsula; close proximity to Spain’s Costa del Sol and Costa de la Luz; 300 days of sunshine per year; strong links to the United Kingdom (daily flights to London, Sterling as currency and English as business language); and a bilingual population. When coupled with the HEPSS status available to Fund Managers (capping tax on the first £120,000 earned, i.e. £29,940), it is understandable why so many high net worth individuals have already made Gibraltar their home.

Triay & Triay Triay & Triay, 28 Irish Town, Gibraltar, GX11 1AA Melo Triay (Managing Partner), Jay Gomez (Associate), Javi Triay (Trainee Solicitor) financial.services@triay.com | Tel: (+350) 200 72020

Triay & Triay is a full service law firm established in 1905, with a dedicated Financial Services Team experienced in the set-up of Gibraltar investment funds and the re-domiciliation of offshore funds into Gibraltar. The firm’s Private Client Team and Property Team are also very experienced in assisting Fund Managers establishing themselves in Gibraltar.

Triay&Triay_hp_GBM_New_Ad:Layout 1 9/7/12 3:15 PM Page 1

Tried & Trusted Gibraltar’s prominence as a mainstream European Finance Centre is now well established.

Gibraltar’s Lawyers Since 1905

Gibraltar offers business and lifestyle advantages for those looking to undertake financial services and investment business within the European Union, coupled with the security of a highly regulated jurisdiction and a culture which facilitates business.

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Private Client / Wealth Management

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Corporate & Commercial

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Employment

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Family

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Insolvency

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Financial Services & Investment Funds

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Litigation

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Personal Injury

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Property

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Shipping & Admiralty

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Taxation

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Telecommunications & E-commerce

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Trusts

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Wills & Probate

In recent years Gibraltar’s Financial Services and Investment Funds Industry has prospered.

At the forefront of this growth is Triay & Triay, one of Gibraltar’s most respected and prestigious law firms.

With over 100 years experience and a visionary and practical approach towards clients’ needs, Triay & Triay remains at the forefront of the legal profession in Gibraltar, with a tried and tested reputation for excellence and bespoke practical solutions.

28 Irish Town, Gibraltar • Tel: +350 200 72020 • Fax: +350 200 72270 • www.triay.com • info@triay.com October 2012 • Global Business Magazine • 37

triP adVisor

the world’s Best hotels for service Travelling on business can often be a tiring and lonely experience and made all the more unpleasant if faced with a hotel that gives bad service. With such an abundance of hotels in every major destination in the world, finding hotels commended for outstanding service can be difficult.

With over 60 million users, TripAdvisor travellers have visited and reviewed hundreds of thousands of hotels around the world and have honoured these properties as the world’s best for service.

“These are the world’s best hotels for service according to TripAdvisor travellers,” commented TripAdvisor spokesperson Emma Shaw.

“These properties are up against extensive and tough competition from all around the world, but their stunning accommodation, enviable locations and, most importantly, superior service puts them at the top of their game.”

the world’s best hotels for service: 1. Arcadia residence – prague, Czech republic

Set in one of the most historically significant areas of Prague (Vyšehrad), the Arcadia Residence combines the comfort of hotel services with the intimacy of an apartment. A short distance from the Old Town away from the bustling tourist routes, guests can enjoy the properties’ peaceful and enviable location in the quarter.

As one TripAdvisor traveller said, “We have travelled all over Europe and stayed in many great hotels, but have never had such personal and outstanding service.”

2. hamanasi Adventure and dive resort – hopkins, Belize

Located on a 12-mile stretch of beautiful beach, Hamanasi is a secluded and intimate hotel where guests can snorkel, scuba dive or simply kick back and relax. Featuring spacious and comfortable rooms designed with Belizean hardwood furniture and Central American folk art, guests will marvel at this tropical paradise.

As one TripAdvisor traveller said, “This hotel completely exceeded our highest expectations.

The rooms are incredible and the service is impeccable.”

3. Anastasis Apartments – imerovigli, greece

Situated on top of Caldera cliff, Anastasis Apartments overlook the breathtaking Aegean Sea. Elegantly designed with each apartment and suite featuring traditional architecture of Santorini, guests can unwind on the private balconies and gaze at the picturesque sunset.

As one TripAdvisor traveller said, “It is the detailed and personal service that stands out the most here. Just wonderful.”

4. seaCoast inn – hyannis, Massachusetts

A quaint lodge centrally located in downtown Hyannis, guests have easy access to a plethora of restaurants and attractions, 38 • Global Business Magazine • September 2012

including whale watching and sailing. With ferries available to Islands-Nantucket and the famous Martha’s Vineyard, all can experience the old-fashioned friendliness of Cape Cod. As one TripAdvisor traveller said, “I would not hesitate to recommend the SeaCoast Inn as a place to stay, as the service was above expectations in every way.”

5. the Charterhouse – torquay, united Kingdom

Built in 1907, this family run hotel boasts wonderful Edwardian features, including large bay windows which overlook the stunning gardens. Close to Devon’s wonderful coast line, guests can expect a warm pot of tea or coffee and biscuits on arrival.

As one TripAdvisor traveller said, “I would recommend a stay here, as you will receive the most excellent service with attention to detail, in a wonderful location.”

6. 2inn1 Kensington – Cape town Central, south Africa

Featuring individually styled rooms adorned with striking African art, 2Inn1 Kensington is a beautifully remodelled Victorian house.

With panoramic views of the slopes of Table Mountain and Lion’s Head visible from the terraces, this property is a scenic joy.

As one TripAdvisor traveller said, “What astonished us the most about this hotel is the outstanding people and service.”

7. la Villa Marbella - Charming hotel – Marbella, spain

A 150 year-old hotel wonderfully refurbished and decorated in an Asian style, La Villa Marbella evokes tranquillity from the soft sound of singing birds and the sound of its running fountain. Perfectly located, the property is a short distance from restaurants, the beachfront and the marina.

As one TripAdvisor traveller said, “This hotel is absolutely the best. They make you feel at home with their impeccable service, care and hospitality.”

8. Blackheath lodge – Cape town Central, south Africa

With 12 stylishly designed rooms, this renovated Victorian house is in the prime location of Sea Point, close to the vibrant city centre of Cape Town and the famous beaches of Clifton and Camps Bay. As one TripAdvisor traveller said, “This is a great place to stay. The rooms are nicely decorated, the breakfast is great and the service is excellent.”

9. the phoenix resort – san pedro, Belize

Within a few steps of shopping, dining and nightlife, the location of The Phoenix makes it easy for guests to explore the charming town of San Pedro. Boasting views of the beautiful turquoise waters of the Caribbean from each condo, this property is a delight for the eyes.

As one TripAdvisor traveller said, “The staff at The Phoenix really pamper and provide top notch service to the guests.”

10. enigma Apartments & suites – fira, greece

Perched on the cliff side of western Santorini, Enigma provides spectacular views of the famous Caldera and the island’s traditional old port. With luxury suites featuring outdoor Jacuzzis, guests can unwind and marvel at the splendour that is the Aegean Sea and the celebrated Santorini sunset.

As one TripAdvisor traveller said, “Enigma is the ideal spot to see the most amazing place in the world... Santorini. I spent six wonderful days there and commend the service, friendliness and attentiveness of the staff.”

For more information on these hotels, including reviews and travellers photos, visit www.tripadvisor.co.uk/ TravelersChoice-Hotels-cBestService-g1

LUXUry brand series – worLds most eXCLUsiVe destinations hoteLs & resorts

LUXURY BRAND SERIES

worlds most exclusive

dest inat ions, hotels & resort s

40 • Global Business Magazine • October 2012

hotel Milano scala Milano

A new and charming Hotel in the heart of Milan, located right in the centre of the most cultural and vibrant neighbourhood of Brera.

The Hotel Milano Scala is at walking distance from “La Scala” Theatre, the Duomo Cathedral and from the finest shopping district of Via Montenapoleone.

A 19th-century mansion, totally renovated though maintaining the intimate and home atmosphere very much beloved by International guests, houses the seven-story Hotel Milano Scala where both the name and the concept focus on music, the point of strength and the distinctive mark of Milan.

As you walk in, let the sensory experience made of photos and music welcome you in a soft and elegant atmosphere. Before rushing into the whirl of daily activities ,nourish your spirit with the morning live Harp concert while tasting a delicious breakfast served in Ristorante La Traviata, whose name has been inspired by one of the most famous Opera of Giuseppe Verdi.

All the 62 sophisticated appointed guest rooms , including 10 suites, decorated with tasteful details, offer a unique view from the private balcony facing Via dell’Orso or the

inner courtyard which preserves the style and the charm of the old Milan terraced houses.

A special care to sustainability and environment makes Hotel Milano Scala the first “zero emissions” hotel and the only hotel in Milan, and one of the few in Italy, to produce and make use of energy exclusively from clean and renewable sources. This combination recently allowed the hotel the prestigious “Hospitality Award 2012” in the category “Management & Project Innovation”.

On the top floor of the hotel, Guests will find a surprising and extraordinary Sky terrace facing the historical centre of Milan with a view ranging from the Duomo Cathedral to the outstanding monuments of the city, ideal for the typical Milanese Aperitivo in an new eco-chic version.

Hotel Milan Scala is the perfect choice for the most demanding guests who want to discover the true Milan thanks to the very attentive service and caring offered by our guest Assistant who will suggest the most evocative itinerary and experiences of this extraordinary city.

Rates starting from Euro 250 per night including breakfast Packages available on request Hotel Milano Scala Via Dell’Orso, 7 - 20121 Milano Tel: +39 02 870961 Fax: +39 02 87096096 booking@hotelmilanoscala.it www.hotelmilanoscala.it

On the ground floor, an elegant Lounge Bar PrimaDonna and an excellent Restaurant La Traviata managed by the Brand “Green Mood” with a wide selection of “Healthy & Green” culinary choice welcome the Guest, while the living room with multi-media library and crystal ceiling offers a view on the vertical garden.

October 2012 • Global Business Magazine • 41

LUXUry brand series – worLds most eXCLUsiVe destinations hoteLs & resorts

ViCtoriAJungfrAu grand hotel & spa interlaken, Switzerland

In the picturesque mountain setting of the Jungfrau region stands the VICTORIA-JUNGFRAU Grand Hotel & Spa, the 5-star hotel and spa resort steeped in tradition in the heart of Interlaken.

The 224 rooms and suites feature some of the most audacious of dream interiors. A stylish combination of classic yet fresh and modern, elegant materials, and fine furnishings lends each room its own distinctive cachet.

Our restaurants and bars offer you the very best that regional and international cuisine has to offer. Not to mention the side dish of breath-taking views! Savour the very finest of haute cuisine creations at the Restaurant La Terrasse with its 16 GaultMillau points, enjoy delicious Swiss specialities at the Jungfrau Brasserie or discover a rich diversity of pasta dishes at La Pastateca. And there is no better way to relax afterwards than with a drink in the stylish surroundings of any one of our bars.

The luxurious 5500 m2 VICTORIAJUNGFRAU SPA opens up an entirely new world of wellness and well-being. The

42 • Global Business Magazine • October 2012

spa concept combines health, beauty and relaxation, all on the same premises.

Besides wellness treatments at the ESPA SPA and SENSAI SELECT SPA the VICTORIA-JUNGFRAU SPA also comprises a comprehensive fitness and health offer, beauty treatments and an award-winning hairdressing salon. At the Spa’s heart is the stunningly spacious swimming pool, its impressive architecture reminiscent of the bathing tradition established by the Romans.

Other facilities include whirlpools with panoramic views, a steam bath, a Finnish as well as a bio sauna, solariums and relaxation areas.

The Hotel VICTORIA-JUNGFRAU is also ideally equipped for meetings, seminars, conferences, conventions, receptions,

concerts and other exceptional events. The 16 magnificent Belle Epoque salons and modern seminar rooms accommodate between four and 400 people.

Our stylishly appointed function rooms provide the perfect setting for every occasion.

Whatever the reason for your stay with us, whether it’s a wellness weekend, family holiday, wedding celebrations or a business event, the unique grand hotel atmosphere and the incomparable spa offer are certain to delight you.

VICTORIA-JUNGFRAU Grand Hotel & Spa Höheweg 41 3800 Interlaken Switzerland info@victoria-jungfrau.ch www.victoria-jungfrau.ch Tel.: 0041 (0)33 828 28 28, Fax. 0041 (0)33 828 28 80

islas secas resort panama

Located under the shadow of Panama's highest mountain, the dormant volcano Baru, and twenty-five miles from shore, Islas Secas Resort is a remarkable, rugged and magical 16-island archipelago. Bathed by the azure, rich waters of the Tropical Eastern Pacific and adorned with exotic wildlife, secluded bays, coves and spectacular private beaches, Islas Secas Resort provides an idyllic setting and is Panama's finest, private unique getaway destination.

Islas Secas offers seven striking guest Casitas tailored to people who appreciate privacy, pristine natural surroundings and deluxe accommodations. Accented by rich caramel rattan furniture and plush beds, the Casitas feature local Panamanian art which highlights the local spirit of the islands. Each Casita has an adjacent Bohio, ideal for reading, lying in a hammock, quiet meditation and spa treatments.

Dining at Islas Secas is a culinary delight.

Our private chef creates a menu exclusively to your taste. Guests may start with a serving of sautéed seafood ceviche over tomatoes compote, followed by organic chicken with a side of Yuka salad, and opt for a decadent fresh pineapple crumble cake for dessert. All menu items are locally sourced and organic whenever possible.

Guests that seek a vacation of unexpected pleasures, customized adventures, haute cuisine and simple elegance, will want to put Islas Secas at the top of their bucket list. Experience swimming with a pod of Spinner dolphins, kayaking with sea turtles or catching that long-elusive marlin. Our resort provides true, naturally created ecoescapades at every turn.

For those who seek adventure, there is a broad range of activities. Scuba diving and snorkeling, whale watching, surfing, kayaking, sailing, jungle trail hikes, bird watching and swimming are just a few. Islas Secas is also renowned for fishing. It is the closest land-based lodge to the world famous fishing grounds of Hannibal Bank and Isla Montuosa . These fishing areas thrive due to nutrient-filled waters and are a sports fisherman’s dream.

worries disappear, including spa services, gourmet beach picnics and spectacular sunset deck soirees.

Whether you are enjoying the world class fishing, diving amongst our vibrant coral reefs bristling with marine life, hiking the islands to view the mangrove and exuberant tropical rain forest or indulging in a relaxing, romantic day on your own private island, Islas Secas Resort provides a truly unique experience for those seeking recreation, relaxation and exclusivity.

Islas Secas Resort Islas Secas, Chiriqui Republic of Panama U.S.A. 800 377 8877 INT. 646 837 0455 info@islassecas.com www.islassecas.com

While there is much to do on Islas Secas, sometimes the best vacation consists of doing very little! Part of the Islas Secas experience is taking the time to relax and soak in the beauty and solitude of your surroundings.

The resort offers several ways to let your October 2012 • Global Business Magazine • 43

LUXUry brand series – worLds most eXCLUsiVe destinations hoteLs & resorts

domes of elounda

Domes reinvents Elounda, restoring its lost principal of exclusivity.

The essence of the Mediterranean, the culture, the cuisine, the temperament, the architecture, are holistically captured in the form of a luxury resort consisting for the first time of only suites & villas that provide a small number of exclusive guests with all the amenities of a resort, while offering an abundance of living space, privacy and extraordinary service.

Minimally interfering with the natural habitat and harmonically blended with their surroundings, domed structures with breathtaking ocean views emerge from the ground.

Respecting its natural contours and creating a Mediterranean settlement on a hillside of flower gardens, stone pathways, and olive groves just a stone’s throw away from the Venetian castle on the island of Spinalonga, the setting for Victoria Hislop’s bestselling novel “The Island”...

It is all is part of our new design inviting the senses to feast on sights, scents and tastes from the rich outdoors through large windows, and spacious verandas that capture sea breezes and provide the perfect setting for the ultimate fantasy getaway. We invite you to experience... Domes of Elounda. honeymoon In this special time of your life, let us make your honeymoon in Greece a time to

remember. Domes of Elounda honeymoon resort specializes in creating the honeymoon of your dreams. Located in Elounda, Crete, one of the most exclusive romantic destinations of the world, let us cater to your needs while you immerse yourself in luxury and celebrate your love.

Whether you plan on relaxing in your honeymoon suite by your personal pool, soaking in the sun on our sandy beach by the crystal blue waters of the Mediterranean, or self-indulging at the Domes spa we have ensured that your honeymoon in Greece will be more than you ever imagined!

Thomas Kostopoulos Reservations Manger +30 2310 810624 +30 2310 810634 info@domesofelounda.com www.domesofelounda.com

hôtel Villa Belrose saint-tropez, france

The Hideaway of Saint Tropez!

Situated on a hill at only 5 min from St Tropez, the 5 star hotel Villa Belrose, completely renewed, is the ideal place to spend moments of relaxation and relieving. In a welcoming atmosphere, profit from a personalized service, a gourmet restaurant, a 200m² heated pool and from a luxury beauty center. With its terrace the Villa Belrose offers you an exceptional and panoramic view over the Gulf of Saint Tropez.

Hotel Villa Belrose Contact Reservation: Mélanie Wenger by phone +334 94 55 97 99 or email reservations@villa-belrose.com

LUXUry brand series – worLds most eXCLUsiVe destinations hoteLs & resorts

Anantara Bangkok riverside resort & spa

An Urban Oasis of Riverside Tranquility Escape to a tropical refuge and bask in a serene river breeze, watching snapshots of age-old river life unfold. Soak up a luxurious waterfront lifestyle before setting out in search of ancient treasures and a cosmopolitan urban vibe. Spread out over 11 acres of magnificently landscaped grounds, Anantara Bangkok Riverside Resort & Spa offers the best of both worlds, with a hideaway of spacious riverside tranquillity that provides a seamless gateway to extraordinary journeys in Thailand’s bustling capital.

Nestling the majestic Chao Phraya River, a rare combination of experiences appeal to business and leisure guests, romantic couples and families alike. Guests are welcomed by a blend of Thailand’s warm hospitality and Anantara’s intuitive, personalised service.

While opening a window to Thailand’s authentic river culture and embarking upon voyages of exciting discovery, stems from an urban paradise that seems a world away, yet is only minutes from the city’s colourful contrasts.

407 rooms, including 97 suites, reflect the natural grace of Thai culture, and feature an in-room bar, tea and coffee making facilities, internet access via LAN and WiFi, an LCD TV, DVD player and iPod dock. Guests enjoy 24 hour in-room dining and a choice of breathtaking river and garden views from private balconies, while the Suan Luang Suite is situated and designed as a palatial penthouse sanctuary.

At Anantara, days can be deliciously lazy 46 • Global Business Magazine • October 2012

or filled with adventure cushioned by indulgence. Work out with a garden view in the fitness centre and revive tired muscles in the sauna. Competitive tennis matches can be followed by time spent languishing at the generous swimming pool and Jacuzzi, all enhanced by glimpses of the Chao Phraya River and the opportunity to sip inventive cocktails at the swim-up bar. Younger guests are kept safely entertained at kids’ club or with a baby sitter whilst parents recreate one of the world’s most popular cuisines with a master chef cooking class, or step into the sanctuary of the Anantara spa to experience sensual relaxation through the healing arts of ancient remedies.

Call upon an experienced concierge to book trips of a lifetime and unforgettable local experiences, perhaps getting acquainted with

the city’s pulsing street life on a customised tuk-tuk escapade, or soaking up the kaleidoscopic sights and sounds of the river’s canal culture aboard a traditional longtail boat. Stroll down to the jetty and hop on the resort’s complimentary shuttle boat for a 20 minute journey to the Saphan Taksin sky train station, which connects to prime shopping districts. Though lazier shoppers need only take a few steps to the resort’s adjoining shopping centre, or to the Jim Thompson boutique within the resort itself.

10 restaurants and bars dish up culinary diversity. Wake up to a breakfast buffet of world flavours at The Market. Replenish at Numero Uno with a coffee and freshly baked pastry, or the finest handmade chocolates. Enjoy sunset cocktails on the pier at Longtail Bar. Delve into Pacific Rim

traditions at Trader Vic’s, where unique flavours are cooked in Bangkok’s only woodfired Chinese oven. The Japanese steakhouse Benihana delivers lively “eatertainment” through theatrical Teppanyaki style. Savour the Italian way of life in Brio’s Tuscan villa setting. At Riverside Terrace an international buffet and BBQ is accompanied by Thai dance performances overlooking the river.

Step aboard a beautifully restored antique rice barge to dine on delectable Thai cuisine and glide past the city’s famous cultural sites with a luxurious Manohra Dining Cruise.

For the ultimate in secluded intimacy, Dining

by Design invites guests to collaborate with a personal chef and choose an idyllic location, such as a candlelit meal along the river or a picnic under the shade of a banyan tree.

and the ability to practice their swing at eight nearby golf courses.

Discover urban sophistication and calming waterfront scenery at Anantara Bangkok Riverside Resort & Spa. Anantara Bangkok Riverside Resort & Spa 257/1-3 Charoennakorn Road, Thonburi, Bangkok 10600, THAILAND Tel: +66 2 476 0022 Fax: +66 2 476 1120 bangkokriverside@anantara.com www.anantara.com

Special functions and weddings take place in a range of elegantly appointed indoor venues and scenic riverside spaces. Business travellers balance work with pleasure, courtesy of impressive recent enhancements to the resort’s meeting venues and facilities, October 2012 • Global Business Magazine • 47

LUXUry brand series – worLds most eXCLUsiVe destinations hoteLs & resorts

Anantara Cruises

Re-Discover the ‘Venice of the East’ With the Newly Launched Anantara Cruises, Bangkok While most people think of Thailand’s sprawling capital Bangkok as a hectic array of tuk-tuks, vendors and crowded streets, it is also a city that relies on its intricate waterways, canals and rivers thus being labeled the ‘Venice of the East’. Life on the river is a unique way to explore one of the oldest capitals in the orient and seeing it at a calmer more serene pace is all part of Anantara’s latest journey with the launch of Anantara Cruises.

With Anantara Cruises, guests see for themselves how Thailand’s waterways are the country’s lifelines, and why Bangkok’s Chao Phraya River is one of the most famous and significant. Locals living on its banks maintain an authentic lifestyle, creating vivid snapshots of a bygone age in between glittering temples like the Temple of Dawn, landmarks of regal heritage such as the Grand Palace and Royal Barges Boathouse, as well as striking bridges and monumental buildings which reflect the capital’s dynamic evolution over the past 20 years.

A couple of one hundred year old rice barges “Anantara Song’ and ‘Anantara Dream’ have been painstakingly rebuilt from teak and restored to their present splendour to cushion the appeal of a real Thai adventure.

Guests will make themselves at home on the river for overnight excursions that blend quintessential old world charm, modern comforts and truly personalised service, choosing between vessels and itineraries designed with discerning traveller needs in mind.

Guests in search of ancient wonders can join a two night, three day Ayutthaya Adventure accommodating up to four couples on the Anantara Song, or reserve this fine cruiser for private charter. The colonial grace of this 20 metre, ultra deluxe river boat - dubbed ‘The Orient Express of the River’ – is evident in every exquisite detail. Thai master craftsmen were employed for its reconstruction, with most of the work carried out in centuries old tradition – using mostly a sharp eye and patience with simple tools in very experienced hands.

The distinctive design blends warm teak, padua and mahogany woods, complemented by custom made furniture covered with colourful Thai silks and cottons. Oriental 48 • Global Business Magazine • October 2012

rugs were chosen alongside Thai and Southeast Asian art, sculptures and artifacts, while a number of accessories were sourced from artisans working along Thailand’s rivers and canals, as well as from remote rural areas, resulting in a harmony of sophisticated and rustic folk accents.

Renovated to provide privacy and comfort, separate crew quarters allow guests to feel as if they have the boat all to themselves, while an onboard team, comprising of a captain, two service staff and a chef, delivers seamless cruise expertise and gracious hospitality.

Guests reside in four air conditioned staterooms filled with all the five star luxuries guest can expect from Anantara.

On the spacious upper deck, an expansive lounge and dining area with a full bar sets an idyllic scene for breakfast, lunch,

afternoon tea and dinner, served from a well provisioned galley. A separate sun deck invites guests to take in views of Ayutthaya’s crumbling city walls and lively markets on the banks, in between stopping off to explore temples such as Wat Mongkhon Bophit, built to protect one of the country’s largest bronze Buddha statues dating back to the 15th century.

Alternatively guests can call Thailand’s most luxurious cruise, the Anantara Dream, their very own river residence by reserving this magnificent vessel entirely to themselves for a two night, three day Ayutthaya Thousand Golden Temples Tour or Ang Thong Mystic River Tour.

Offering ample living space for up to only two couples, the two staterooms (20 and 25 square metres) are fully air conditioned and

feature elegantly tiled ensuite bathrooms with a full shower and a comfortable two metre square super king sized bed dressed with delicate linen, alongside a library and deluxe branded amenities.

Beyond these extra allures, Anantara Dream voyages offer luxury discovery experiences such as a private cooking class, spa, onboard yoga retreat, Thai wine tasting class, a self guided walking tour at various points of interest along the way, or learn the art of sailing the old rice barge on the renowned ‘river of Kings’ from the Captain himself!

Anantara Song Two-night/three-day package:

Double occupancy: THB 69,000 net per cabin Private Charter: THB 230,000 net (1-8 passengers) Inlcudes all meals and non alcoholic beverages onboard, deluxe turndown gifts, tour programmes with an English speaking guide, private roundtrip limousine transfers and admission charges at designated places.

Anantara Dream

deluxe turndown gifts, private cooking class, all meals and non alcoholic beverages onboard, full ground tours programs with an English speaking guide and admissions charges at designated places.

For enquiries and bookings, call +66 2477 0770, email bangkokcruises@anantara.com or visit cruises.anantara.com

Available for private charter only at a cost of THB 200,000 net (for 1–4 passengers).

The package price includes two nights’ accommodation onboard, private roundtrip limousine transfers, welcome champagne, October 2012 • Global Business Magazine • 49

LUXUry brand series – worLds most eXCLUsiVe destinations hoteLs & resorts

hotel urban Madrid

Palace of Modernity If Ángel Saavedra, Duke of Rivas, Director of the Academy of Languages in around 1865, romantic and liberal, lifted his head, he would not believe his eyes at what his house has become. Here, on the noble site of a 19th century edifice that would one day be turned over to the people, the most modern, sophisticated, elegant and multiethnic hotel in the city, the Urban, has risen up like a latter-day phoenix.

In the “Madrid de los Austrias”, between Ventura de la Vega and Carrera San Jerónimo streets. Across from the Congress of Deputies, just a stone’s throw from the Puerta del Sol, two from Gran Vía, three from the Reina Sofía, Prado and Thyssen museums, the so-called magical triangle of art. In the heart of the most iconic Madrid, at this crossroads of culture, shopping, politics and finances.

With a swimming pool in the heavens, a restaurant under the moon, a spectacular courtyard joined to the heart of the city and avant-garde architecture, Madrid’s Hotel Urban has been born.

In the century when the future will become reality, the Urban is a virtually galactic challenge, an impossible dream. Kubrick and Blade Runner. A benchmark in the starry universe of Madrid hotels, a cosmopolitan and heterogeneous meeting point where there are no set rules. Luxury and elegancy without rigidity.

Comfort, technology, decoration and individualised attention in one thousand square metres of floor space. Five-star deluxe modernity with 102 rooms featuring minimalist design. With an incredible terrace overlooking the Madrid skyline.

With a GlassBar and a Europa Decó, the latest enticing gastronomic hotspots. With meeting rooms, an outdoor swimming pool, a sunroom, gymnasiums and a multi-ethnic museum, all transforming the Urban into a jungle of singular emotions. Avantgarde, modern, innovative architecture.

Cosmopolitan, urbane and transgressive.

This is not the luxury of yesteryear, according to owner Jordi Clos. It is a hotel with the top amenities and services made possible by state-of-the-art technology. “Luxury emerges when the economy embraces art.”

This is the URBAN. A luxurious treat for the senses.

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the group Derby Hotels Collection “Luxury and economy must go hand in hand.

Economy without art is diluted and becomes something pragmatic”. The best example of this philosophy: the Urban, the latest addition to the Derby Hotels Collection.

An enthusiast of hotels, art and Barcelona, Jordi Clos, the hotel’s promoter, president and patron, has built a group of high range hotels, the Derby Hotels Collection, whose flagships are the Claris in Barcelona, the Villa Real in Madrid, and now the Urban, just a stone’s throw from the Villa Real.

Unique, original spaces in which art and gastronomy turn the guest into a sybarite.

Jordi Clos is a well-known personality in Spain as a result of his prominent

activities as an art collector, scholar and patron, and especially through his founding and tutelage of the Egyptian Museum of Barcelona, his archaeological excavations and the School of Egyptology he patronises.

“I design the buildings myself, because I have a clear idea of what I want to convey to guests”. Clos sketches the hotel, the rooms and the spaces. He does not accept what is facile, as prestigious architects such as Oriol Bohigas, Carlos Bassó, Toyo Ito and Jordi Garcés can attest to.

Identity is the cornerstone of everything. For this reason, each of his hotels – eleven fully owned establishments including six hotels and two aparthotels in Barcelona, two hotels in Madrid and one in London – has some distinctive feature. And all of them have a specific theme, which transforms them into small-scale museums. Egyptian art, Roman mosaics, engravings from Napoleon’s time,

Art Deco or modern and contemporary painting.

This group’s latest landmark, after the Urban, is its international expansion, having acquired London’s The Caesar, a four-star hotel with 140 rooms in the environs of Hyde Park. Still to come are Paris, Rome, Milan, Berlin and Prague.

Hotel Urban 5* GL Carrera de San Jerónimo 34 Madrid 28014. Spain Tel: +34 91 787 77 70 www.derbyhotels.com urban@derbyhotels.com

October 2012 • Global Business Magazine • 51

LUXUry brand series – worLds most eXCLUsiVe destinations hoteLs & resorts

saint James paris

The Saint James Paris is a new on-the-rocks formula, a cocktail of elegance, humour and fantasy, to be enjoyed without moderation!

Just off the boutiques and restaurants of Victor Hugo avenue, in the exclusive 16th district, the latest addition to Relais & Châteaux is hidden in a private garden at a few minutes’ walk from the ChampsElysées, Trocadéro and Congress Centre.

Part château, part family townhouse, it has just been redecorated by the designer Bambi Sloan who created a blend of grandeur and intimacy, of classicism and extravagance.

Highly Parisian yet decidedly beyond fashion… Simply unique.

52 • Global Business Magazine • October 2012

The Saint James Paris combines all of the services of a château-hotel, the privileges of a private club and the charm of a preeminent family home.

It is a fabulous venue and a true feast for the senses. For the mind and for conversation, follow the mythical library and the bar, lounges and meeting rooms… For gastronomic pleasures, visit the gourmet restaurant... For a breath of nature, the large terrace in the centre of the park… For fitness and beauty care, the spa with its precious care cabins, hammams and fitness centre…

As for the rest, there are the 48 rooms and suites filled with beautiful dreams and jealously guarding their special secrets!

Each of the 48 spacious rooms and suites unveils its own story inspired by famous guests, from My Fair Lady to Elizabeth of Austria, the Last Queen of Scots, René Magritte…

The dining room and its stunning summer terrace offer a cozy setting to taste the creative and refined French cuisine after a drink in the famous library-bar. Brunch on Sundays. 24-hour room service.

Let us pamper you in our Gemology spa with treatments made out of gems and hotgemstone massages, or keep in shape in the very chic fitness room.

Our convertible Smart car is at your disposal for a shopping session in Paris or to drive out of the city. Our concierges Clefs d’Or are at your disposal to arrange any requests. WiFi and valet parking are free.

For your meetings and events, our private rooms welcome up to 25 persons in a U-shape and 50 personsfor a cocktail.

43 avenue Bugeaud 75116 Paris, France . phone +33 1 44 05 81 81 www.saint-james-paris.com

October 2012 • Global Business Magazine • 53

transLation serViCe ProViders

TRANSLATION SERVICE PROVIDERS

2012

GUIDE

54 • Global Business Magazine • October 2012

EUROPE, UNITED STATES, LATIN AMERICA Should I Care about Translation Quality?

Quality as an abstract notion achieves godlike proportions both amongst language service providers (LSPs) and localisation service buyers. It invisibly presides over every transaction in this industry, yet it is highly elusive when it comes to being defined. So, should you care about it? This is the million dollar question for the language industry.

Quality and measuring it take centre stage in any event where more than three LSPs are present, and lively discussions revolve around those twin axes. Almost nobody would risk commercial suicide by saying that quality in translation does not matter.

Internationally renowned localisation guru Renato Beninatto caused a stir in a recent industry event when he said LSPs need not care about it, as quality is irrelevant as a differentiator when it comes to selling translation services. We would like to take his bold statement a step further and say that a prospective buyer should not care about it either.

Any prospective buyer looking for a translation provider has their brand message in mind. Their concern is getting it across to their intended audience with all the idiosyncratic aspects in place for another culture, often vastly different from their own. Their logical expectation is that this must be done effective and efficiently, without unnecessary risk, within the allowed timeline, and adhering to the guidelines, all at a reasonable price. But above all else, this cultural transfer must not become a nightmare of proportions for themselves or their company. It has to be just one more item in a business strategy. Definitely not a corporate problem!

Translation buyers only need to concern themselves in communicating their needs and objectives to the vendors so that getting the message through is guaranteed. And where does translation quality figure into this?

Well... it does not. With the communication objectives clearly defined and choosing a vendor with the cultural expertise to achieve them, quality of the language services should be a given; it is a basic expectation, and in this sense it is irrelevant.

Because quality does matter, of course, but if you choose correctly you do not need to care about it in the sense of worry about it. Translation quality is the legitimate concern of the translators and of the whole LSP language team, that which they must consistently deliver. The client, in turn, should be concerned with quality of service, about their experience interacting with their LSP. That is where we like to focus and where our work ethic is put to serve the client's needs.

We always say Ushuaia Solutions is not in a B2B market, but in a P2P market (where P2P does not stand for file sharing but for ‘People 2 People’). As people establishing and maintaining relationships with other people, quality is to be found in the relationships themselves, in understanding what is important for the other part, and giving them just what they need.

In our 12 years in the language industry, we have become attuned to the fact that what the majority of our customers appreciate in us most of all is what we like to call the ‘Philosophy of the Three Loves’ – love the job, love the team, love the client. This allows us to shorten the distances imposed by

traditional B2B dealings, and sets the frame where we can start managing relationships instead of projects. When you can reach the person behind the email address and help them achieve their goals, it certainly helps give quality of service all the relevance it deserves, becoming important as an end product in itself.

But what do our customers get from us when we tell them our difference factor is providing outstanding service? They receive what they need at that point in time and beyond, based on rock-solid foundations.

Our team has to be ready to deliver innovative solutions to their every problem; carefully foster and preserve their trust in our team; go beyond the call of duty; engage people as a whole with their emotions, needs and feelings; build authentic relationships with them; ask the right questions and listen to their needs to provide the right answers.

At the end of the day, we can safely conclude that quality does matter, but it should not be the client's concern. We must follow Peter Drucker when he says quality is what is of use to the client, and it is not achieved by the vendor but perceived by the buyer. And that follows naturally as a given when the conditions for our brand of P2P business are established and maintained.

Julieta Coirini Client Relationship Manager Skype: jcoirini Ushuaia Solutions Rioja 919 – S2000AYK – Rosario +54 341 4493064 Argentina www.ushuaiasolutions.com

What is it that really matters, then? Why all this talk about quality instead of quality talk? Why should we devote so much time and effort to the development of Quality Assurance standards and processes? Why the myriad acronyms QA, QC, QI, where the Q always stands for Quality?

October 2012 • Global Business Magazine • 55

transLation serViCe ProViders

INDIA An Outline of the Translation Industry Translation is one aspect of what is often referred to as the language services industry, which also includes localisation (when content is adjusted to reflect the local market) and globalisation (in which content is written for a global market). According to the USbased market research company Common Sense Advisory, the world language services market totalled $14.25 billion in 2008 and is expected to increase by about 10% by 2013 – the Indian market alone accounting for around $500m and growing at rates in double figures.

As trade goes increasingly global, the need for translation services is booming worldwide with English still the most common language. According to the New York based business research organisation Allied Business Intelligence, English accounts for nearly half of all translations (either into or out of English): Not far behind is Japanese, followed in no particular order by French, German, Spanish and now of course Chinese.

More than ever, companies, services and businesses are seeking to have their products, documents and publicity material translated to reach a global audience.

Common Sense Advisory estimates that the Asia-Pacific market accounts for about a third of the global languages services industry, and is expecting it to grow by about 8% a year. Research carried out by Allied Business Intelligence suggests that for the top five globalising sectors – aerospace, automotive, business, engineering and financial services – translation services are a crucial element of how they do business.

Despite considerable improvements in software since the first attempts at MT back in 1954 when Georgetown University and IBM worked in partnership to machinetranslate a series of sentences from Russian, Machine Translation (MT) still only accounts for 1% or so of all translations. However, there are a few cases in which a ‘human’ translator can post-edit a MT, and while this is a far cheaper option, very few texts really lend themselves to this kind of treatment.

This is not to be confused with Computer Assisted Translation (CAT), which is useful for texts such as technical manuals, some types of legal documents, and other texts where consistency is vital. The various CAT software packages are constantly being updated, and is a good way to ensure that, for example, the same term is used for a vehicle manual every time it is updated.

The gold standard is of course human

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translation, and the vast majority of translations are done this way. There are a number of factors to take into account which include: the translator’s expertise; whether or not a large text will have to be split between several translators; where there is a time constraint and the consistency issues that could result from this; proofreading; and of course quality control to ensure accuracy.

Cost is of course another issue as translators have to be paid, and as the industry is by its very nature a cross-border one, exchange rate fluctuations can have a significant impact on the outsourcer’s margin, as well as the translator’s willingness to work for a particular rate in a given currency.

The best way to ensure a good translation is to use an agency. A good agency will have a network of translators and contacts that they can draw on in order to source the best person to do the translation and the best person to do the proofreading. Most agencies have their own quality control procedures, because a poor translation of a legal document such as a contract for an international transaction can be not only embarrassing, it can also lead to serious disputes and legal action.

All Translation Services Private Limited is a company based in India. With a vast network of business contacts all over the world, we are ideally placed to provide translations and other kinds of language services designed to reach customers, grow business and bring products to the global market. All Translation Services has many years of experience sourcing and delivering high quality translations and content including, but not limited to: international telecom supply contracts for Anglophone companies trading in Francophone Africa; academic theses for publication; bi-lingual business journals; company handbooks for organisations that are expanding abroad; newsletters; press releases; marketing copy; legal correspondence for use in court cases; tenders for the supply of equipment; school reports; resumes; and employment contracts. At All Translation Services, we know how important it is to be able to rely on an accurate and well-written translation.

That’s why our network of native speaker translators and language service providers across the globe ensures that you get the best translation every time. All Translation Services: translations you can trust!

All Translation Services PVT. Ltd 337-338, Vardhman Premium Mall Deepali, Pitampura, New Delhi 110034, INDIA Tel: +91-11-27027009, +91-11-27018827 pawan@alltranslationservices.com www.alltranslationservices.com

UK Why the Business World Needs Website Translation Developments in global communication and the advantages of the Internet have resulted in language being one of the only real barriers remaining in international business possibilities. Website translation services are at the forefront of breaking through this barrier and creating a business world with no borders. Since 2004, nearly 50% of all online business transactions were completed in a language other than English. Automatic translation tools are almost useless for this purpose as accuracy cannot be guaranteed or monitored. This is why a reliable and professional translation service is pivotal in ensuring the upkeep of your company’s reputation and the positive outcome of your business ventures.

Despite the current unstable global financial climate, some economies around the world are continuing to thrive and grow.

In particular, parts of South America, the Middle East and Russia are seeing a burst in business activity that is bringing international investment into these countries. China has also long been a major player in global business, and is the second largest economy in the world behind the United States. Over the past 30 years, China has increasingly invited trade from overseas businesses, and this is an opportunity that many in the west have taken keen advantage of. Translation professionals operating in China had a 46.09% increase in their income in 2012 – a figure that is sure to continue growing.

When the decision is made to enter a foreign market there are many things to consider. Making your company’s website understandable to the country in which you intend to expand is of the utmost importance.

This is why a professional consultation with Quick Lingo to discuss your website translation needs is paramount. In a survey conducted by commonsenseadvisory. com, 72.4% of consumers stated that they would be more likely to buy a product if the accompanying information was in their own language. Additionally, 56.2% of consumers went on to say that being able to obtain information in their native language was more important than the price of the product. Faced with these statistics it is shocking to observe that out of the top 1,000 global websites, 433 are presented in just one language, making no attempt at all to provide translation for potential global visitors.

Approximately 64% of Internet users don’t speak English as a first language, so the

Godwill Bindeeba Managing Director Quick Lingo Translations E: godwill@quicklingo.com Tel: 02088357036

importance of having your site translated into the many alternatives is immediately evident. Quick Lingo understands the needs of a global market and strives to produce a high quality service for every business.

It is predicted that employment levels for translators and interpreters will increase by 42% between the years 2010 and 2012, demonstrating the rapidly growing necessity of such acute skills.

The localisation of website content has to be approached in a wholly pragmatic way in order to guarantee the best results and highest returns for your company. Not only does the content have to be translated to precisely depict the original material, but cultural differences have to be taken into account. A professional translator will be sensitive to these differences and maintain such accuracy that it will appear as though the translated version is the original written text. Being completely aware of the culture within the target country is essential to providing a perfect translation. At Quick Lingo, only native speakers are ever used in translation tasks. This means that if you want to translate a website from English into Arabic, then an Arabic translator will always be assigned the task. This ensures accuracy and eradicates the possibility for mistranslation.

As the semantics of languages are subject to constant evolution, when it comes to achieving perfect website translation, a culturally aware linguistic professional is the only viable choice to entrust with the task.

Translation technology is rapidly developing and the capabilities of such programmes are more impressive than ever. But when

it comes to your business, it goes without saying that you want a highly qualified and extremely experienced professional to be responsible for your website translation.

There are some aspects of language that a computer can’t always be guaranteed to comprehend. Therefore, a human translator is necessitated to ensure the meaning of content is not confused.

Quick Lingo is a relatively new player in the global market but our expansion has occurred at a rapid and pleasing level. Since our emergence into the translation game in 2010, we have already accumulated many high profile clients such as the BBC and Sky News. This is a fact that demonstrates our high quality services and reliability in the industry. Our clients choose to come back to us, time and time again, knowing that they will receive exactly what they want in a time frame to suit their needs.

With many global economies expanding at an exciting rate, it is foolish to presume that marketing your company solely in English will be enough to sustain your company’s presence and growth. Website translation services readily exist with uncapped capabilities of promoting businesses around the world, creating and encouraging the possibilities that a truly global market has to offer.

October 2012 • Global Business Magazine • 57

transLation serViCe ProViders

USA The Translation World is Flat In The World Is Flat: A Brief History of the Twenty-First Century, Thomas Friedman discussed the role of the Internet and other factors in accelerated globalisation. He wrote, ‘The world has been flattened ... global collaboration and competition – between individuals and individuals, companies and individuals, companies and companies, and companies and customers – have been made cheaper, easier, more friction-free, and more productive for more people from more corners of the earth than at any time in the history of the world.’

How does this affect translation? For one, the translation industry is growing. As companies gain greater access to potential customers around the world, the need for translation has increased.

However, managing translation – even in just a few languages – has always been laborious.

How is it possible to translate more content into more languages efficiently? Fortunately, the same changes making translation more important are also making it easier to procure and manage.

With technical advances in the translation industry, we see better content management, increased use of ‘translation memories’, improved machine translation and other enhancements. However, it is important not to overlook the possibility we also have to be more efficient from a human resources standpoint.

Translators today are both more specialised and technically sophisticated. Furthermore, from the point of view of the translation project manager, it is easier than ever before to find the ‘perfect’ person for a given job – ‘perfect’ because they not only specialise in the field and have the required software, but are also available when the job needs to be done. Thanks to the very large pools of specialised translators available in organised databases online, that perfect match is just a click away.

How can buyers of translation services take advantage of this trend? If you work with a translation company, odds are that you are already experiencing the benefits. Your translation vendor might already supplement

its own database of translators with online databases of specialists.

On the other hand, if you have translation needs but do not work with a translation company, you may want to consider using an online database yourself. At ProZ.com, the leading online database of freelance translators and translation companies, clients are able to review the services of tens of thousands of translation companies and hundreds of thousands of freelance translators, selecting those most suitable for their projects. Similar to telephone directories, contact is established directly between client and service providers. Clients use this service for free.

At ProZ.com, it is our hope that this kind of convenience will make it easier for you to reach those customers across this worldmade-flat, in their languages and cultures, more quickly and effectively.

.com

For more information please visit: http://www.proz.com/

58 • Global Business Magazine • October 2012

Thanks to Translators without Borders,

mothers in India receive health information by SMS in their language.

Join our global community of professional translators, volunteers and NGOs. Our mission is to increase access to knowledge through humanitarian translations.

Donate Now! TranslatorsWithoutBorders.com

Our Mission: Translators without Borders facilitates access to knowledge by translating information that would not otherwise be available in the language of the people who need it.

Designed by UNITpartners.com

October 2012 • Global Business Magazine • 59

women in finanCe

Women in Finance

60 • Global Business Magazine • October 2012

UK Integrity Due Diligence – The Hot Topic in the Risk Management World the regulatory environment While the business intelligence sector has long been a proven tool for the identification and mitigation of exposure to integrity and corruption risks for any company wishing to expand and operate in overseas markets, the introduction of the UK Bribery Act has seen it take on a new dimension. For those companies who have not traditionally been users of business intelligence, the Act – seen by many observers as one of the most onerous pieces of anti-corruption legislation on the world’s stage – has provided a fast introduction to the subject. Principal 4 of the Ministry of Justice guidance (which details six principles to guide organisations in establishing and implementing ‘Adequate Procedures’ to prevent bribes being paid on their behalf), states that companies should apply ‘due diligence procedures, taking a proportionate and riskbased approach, in respect of persons who perform services for or on behalf of the organisation, in order to mitigate identified bribery risks.’ Such due diligence, known by Deloitte as integrity due diligence, has thus in recent months become one of the hottest topics in the risk management world, with many UK companies (and those international companies with an operational presence in the UK) seeking to ensure that adequate due diligence has been conducted on the third parties with whom they do business.

The Business Intelligence Team at Deloitte In 1997 Deloitte was the first of the then-Big 4 professional services firms to establish a fully resourced and dedicated Business Intelligence team. The firm recruited Emma Codd who, armed with ten years of experience in the sector, set out to establish a team that focused on integrity due diligence, amongst other key service offerings. Fifteen years on, the team stands at over 200 people globally, together speaking over 80 languages at native or fluent level. Having firmly established themselves as a leader in the field, the team counts numerous blue chip organisations as its clients, conducting integrity due diligence both in an M&A context and in the context of anti-bribery legislation (such as the Bribery Act). While the team is used by clients to better understand potential business partners/ acquisition targets/Joint Venture partners and other third parties on a global basis, it is most frequently used by those clients who are seeking growth from emerging markets or those geographical markets that present heightened risks in terms of corruption and other integrity risks, with the team’s work providing significant assistance for those companies that wish

to identify and mitigate these risks pre-transaction or relationship formation.

About emma Codd Having joined the firm in 1997 from a specialist risk consultancy, Emma became a partner at Deloitte LLP in 2003 and remains at the helm of the Business Intelligence team today. Emma – a history graduate from the School of Slavonic and Eastern European Studies at the University of London – now has 23 years of experience in integrity due diligence work (having started in the sector with a temping job at an investigation company while at university). Emma’s day-to-day role is varied – no two cases are the same and her team runs a large number of assignments at any one time. Therefore, a normal day might see her advising on the corruption risks attached to an acquisition target in an emerging market, or advising a client on restructuring their process to screen hundreds of third parties.

Emma maintains a lead role in all integrity due diligence projects conducted by her team – from liaising with clients, determining the team for the project, approving methodologies – to reviewing the resultant work product. Emma’s length of experience, including her employment both within boutique firms and her current Big 4 role, has made her a unique individual within the sector, who has an exceptional understanding of the risks of operating in emerging markets.

In addition to her role as the partner responsible for Business Intelligence, Emma has also held a number of other roles within the firm, including representing the UK firm on a global initiative; being one of the key members of the firm’s ‘Women in Leadership’ activities; and the Chair of a group of partners advising the UK senior partner and sponsoring partner of the UK firm’s women’s network – a role that she has held since its foundation seven years ago. the changing face of the Business intelligence sector While Emma has conducted integrity due diligence for over 23 years, over the last five to 10 years she has seen considerable change in the industry, with changes in legislation leading to new entrants and a period of growth. This, coupled with companies looking to the emerging markets for their growth, has meant that integrity due diligence remains a vital tool for any company wishing to expand to, or operate in, these markets.

Deloitte Emma Codd Partner and head of the Business Intelligence Services, Forensic team at Deloitte Tel: +44 20 7303 2172 ecodd@deloitte.co.uk www.deloitte.co.uk October 2012 • Global Business Magazine • 61

women in finanCe

India A Firm That’s Moving with the Times While Staying True to Original Values Headquartered in Mumbai (India), my firm B.K.Khare & Co. was founded 50 years ago by my father. As managing partner and stakeholder, while it was not a conscious career choice to begin with, having inherited this practice and qualified as an accountant, I have come to love what I do. Although India has a healthy number of woman professionals, very few have chosen to be in accountancy, and not even a handful manage or head a practice.

When I joined the firm, it already had an esteemed reputation for quality of service and a high level of trust reposed by clients.

Today, we have successfully built on this foundation to grow into a full service firm on a much larger scale. An almost exclusively corporate practice, the important differentiator from our competition is clearly the level of trust we enjoy with our clients.

This has been built over several decades of consistently servicing their requirements with proficiency, sound technical knowledge, partner involvement and uncompromising professional integrity.

In leading the firm, it has been my mission to grow the practice within the framework of values and ethics that I believe in unequivocally. In other words, we work with clients that are well governed and provide services with the highest degree of professionalism. Furthermore, value for our services is not only measured by the quantum of fees, but in prioritising client satisfaction and doing the job well.

In order to achieve this I have focused on initiatives to develop the people and practice, transforming the firm from owner-driven to a broad-based professional organisation.

This has involved strengthening the systems and processes in place, with training not just limited to technical aspects but in the grooming and development of managerial skills, to grow leaders from within the firm.

The service offerings of the firm have also

been expanded to cater to the requirements of the client necessitated by the economic boom in the country.

Today we are a ten partner firm with more than 150 employees. The client base of the firm is comprised of largely corporates, many whom belong to prominent business houses. We have the capability of servicing these client requirements in most metros across the country, through an informal network of associates. Outside Mumbai – the financial capital of the country – the firm has branch offices in the IT and manufacturing hubs of Pune and Bangalore. Last year we joined the Morison International Association of accountants and legal firms, which has enabled us to service client requirements across the globe. We are happy to be associated with a member network that has a cultural affinity with our firm, and is assured that our clients are being serviced with the professionalism they have come to rely on us for.

The professional landscape in India of accountants comprises of ‘The Big 4’, medium-sized local firms (of which there are not too many in number), and a large number of small firms and sole proprietors.

My firm is in the upper quartile of mediumsized Indian firms. However, what distinguishes the firm from other peers is that we have a presence in almost all business verticals – from finance manufacturing, retail and infrastructure to oil and natural gas.

The service offerings of the firm consist of assurance, tax and advisory services. The assurance practice comprises the audit of the financial statements of companies as required by the statute (statutory audit), as well as the management audits referred to as internal audit in local parlance. Statutory audit involves issuance of an opinion on the true and fair view of financial statements under Indian GAAP. After the ‘Big 4’ in India, our firm has the highest number of statutory

Padmini Khare Kaicker Managing Partner B.K.Khare & Co. Chartered Accountants 706/708 Sharda Chambers, New Marine Lines, Mumbai – 400 020

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audits of listed companies, many of which find a place in the Stock Exchange index (more than 20 listed companies). Aside from corporates in diverse businesses, my firm also conducts audits of some of the prestigious hospitals, schools and colleges in the country. Internal audit is gaining increased importance as a tool for management to scale up their businesses, and ensure competitive advantage by adopting best practices amongst peers. Needless to say it is one of the fast growing services of the firm.

The firm being founded by my father, whose prowess in the field of taxation was widely recognised, has meant that tax obviously remains a core area of expertise for the firm.

Domestic tax services (apart from advisory and structuring) include representation before the Tax Authorities in assessments and appellate proceedings up to the highest levels (Tax Tribunal), excluding Courts. Transfer Pricing and interpretation of Treaties for expatriate taxation (which are newer areas of the tax practice which we want to develop).

Advising international firms on entry strategy has also become a felt need with the opening up of the Indian economy.

In the consulting practice, the firm undertakes advising and also the implementation of corporate restructuring, due diligence, valuations and organisational reviews. Currently, the task before me is to expand the depth and width of the consulting practice, and also develop capabilities and talent.

In the near future my firm will complete 50 years of practice. It is my ardent desire to continue growing B.K.Khare & Co. into an institution which is self-sustaining, responsive to the needs of its people, clients and the market. This will enable it to enjoy a position of leadership in the professional world, with the emphasis on significance rather than just size.

pbkhare@bkkhareco.com Tel nos: +9122 22000607/6360/7318 Fax: +9122 22003476 www.bkkhareco.com Branches – Pune, Bangalore

Germany A Consultant with an Impressive Career in Taxes Andrea Bilitewski started her career in taxation with the Hamburg tax authorities.

After having finished her business studies at the University of Hamburg, she left the tax authorities to work for BDO Germany.

Andrea Bilitewski is a certified auditor and certified tax consultant. In 2000 she became the youngest female equity partner of BDO Germany, and established the M&A tax and legal department in Hamburg. Services of the M&A tax and legal services department range from transaction and restructuring advice – to tax structuring and tax planning nationally and internationally. A special focus of the department lies in banks/ financial services, public sector and real estate.

The M&A tax and legal services department currently consists of a team of 16 lawyers, certified tax consultants, certified auditors and graduates in business administration.

With this combined expertise, the team provides a full range of knowledge necessary for M&A tax and legal services. In addition, the team works closely with other experts from BDO Member Firms in a global network of 135 countries.

Overall, the quota of women in the M&A tax and legal services department as well as the management of the department ranges at about 40%. Besides her position as head of the M&A tax and legal services department, Andrea Bilitewski is also chairman of the European Union Centre of Excellence of the BDO International Network as well as cochairman of BDO Germany’s China Desk.

Andrea Bilitewski continuously writes for various transaction tax reference books and teaches at the International School of Management in Hamburg. She actively participates in the preparation of official opinions of the auditors institute regarding the accounting of reorganisations.

Andrea Bilitewski is a member of the tax commission of Hamburg’s Chamber of Commerce, the Association of Women on Supervisory Boards and the Women Finance Association.

BDO AG Andrea Bilitewski Partner Tel: 0049 40 30293 0 andrea.bilitewski@bdo.de www.bdo.de

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spotlight on

aUstria Hanni Grassauer International Media Relations ABA-Invest in Austria (Austrian Business Agency) Opernring 3, A-1010 Vienna Tel. 0043 1 588 58 57; Fax: 0043 1 586 86 59 h.grassauer@aba.gv.at www.investinaustria.at

Dynamic Innovative Strength in the Centre of Europe January 2012 saw Austria increasingly establishing itself within Europe as a soughtafter research location for future industries such as life sciences, environment and energy, information and communication technologies (ICT), and mobility and traffic.

In 2011, the Alpine Republic boasted an R&D/ GDP ratio of 2.79 percent (Statistics Austria: Press Release dated 19 April, 2011), which is significantly higher than the EU average.

This means for the first time total R&D expenditures will surpass the threshold of EUR 8 billion. Foreign-controlled companies account for more than half of total corporate research and development expenditures, corresponding to a volume of EUR 2.646 billion (Statistics Austria: Statistics on Foreign Business Entities: Compiled on 30 September 2011). What exactly do these firms benefit from? They take advantage of attractive funding, a research premium of ten percent for companies based in Austria, a businessfriendly tax system, the bundled know-how of international experts, and the strong links of the business and scientific communities.

Eight Good Reasons for Selecting Austria as a Research Location

1. high r&d/gdp ratio For more than ten years Austria has continually increased its ratio of research and development expenditures to GDP (R&D/GDP ratio), from a level of 1.8 percent in the year 1998 to 2.79 percent in 2011.

This spending exceeds the comparable average for the EU-27, the OECD member 64 • Global Business Magazine • October 2012

countries – and since 2009, the USA (www. epp.eurostat.ec.europa.eu). The dynamic impetus of innovative strength is also shown in the clearly-defined goal for 2020, which is a further increase in the R&D/GDP ratio to 3.76 percent (Austrian Research and Technology Report 2011) – considerably above the R&D investment volume of three percent of GDP, which has been defined by the EU in its growth strategy Europe 2020.

Austria is highly motivated for one clearcut reason: Only those who already work today on the innovative solutions required to master the challenges of tomorrow, will be able to succeed in the face of international competition – in spite of, or precisely because of, the current tense economic situation.

2. full speed Ahead with innovations In R&D the country located along the Danube, is focusing on core strengths such as life sciences, environment and energy, ICT, and traffic and mobility. This has been a success, as confirmed by international rankings. The Innovation Union Scoreboard (2011) rates Austria as eighth in the top ranks of innovation followers. Furthermore, Austria has set itself the ambitious target of moving ahead to become one of the most innovative countries in Europe by the year 2020.

3. dynamic growth Austria has laid the groundwork for the future. In 2011, R&D expenditures will surpass EUR 8 billion for the first time

(Statistics Austria: Press Release dated 19 April 2011). Private industry accounts for the lion‘s share of EUR 3.7 billion (44.6 percent), followed by the public sector with EUR 3.21 billion (38.7 percent). A total of EUR 1.34 billion in R&D expenditures were transferred directly to Austria from abroad (16.2 percent) – mainly via subsidiaries of foreign firms.

The business environment in Austria has been favourable to R&D investments for a long time. In 2009, some 500 foreign controlled companies based in Austria accounted for half of all corporate R&D expenditures, amounting to EUR 2.646 billion. In 2011, this direct R&D financing from abroad totalled EUR 1.340 billion (or a share of 16.2 percent). Moreover, in November 2011, 22 top international companies based in Austria such Baxter, NXP Semiconductors Austria, Voestalpine, Infineon, Magna and AT&S, committed themselves to increasing their R&D expenditures by 20 percent up until 2015 (www.bmvit.gv.at/innovation/ forschungspolitik/innovationsland.html).

4. Attractive Research Premium Companies carrying out research in Austria pay lower taxes. At the beginning of 2011, the underlying conditions conducive to entrepreneurial innovation were further improved when the research premium for expenditures relating to a company’s own research and development as well as contract research, was increased from eight to ten percent. The research premium is paid out in cash.

5. The Research Promotion Country Austria The central funding agency for researchintensive companies is the Austrian Research Promotion Agency (FFG), which facilitates quick access to funding services for companies operating in all business sectors that are based in Austria, including subsidiaries of foreign industrial groups. This is achieved via headquarter programmes, standard and start-up funding as well as 30 other special initiatives. Other funding organisations include Austria Wirtschaftsservice GmbH (aws) and the Austrian Science Fund (FWF), which provides support to basic research as the counterpart to industrial or commercial research.

6. Strong Partners: the Business and Scientific Communities ‘A knot cannot be tied with one hand only’ is an old Mongolian jewel of wisdom, which is becoming increasingly important in innovation competition. For this reason, companies and research facilities in Austria have been involved in strategic partnerships for many years in the form of competence centres and specific industry clusters. These are designed to exploit synergies and future potential, and create strong networks to work on developing trend-setting, future-oriented and profitable solutions.

More than 40 Competence Centres One of the most successful Austrian funding initiatives is COMET (Competence Centres for Excellent Technologies). For many years COMET has succeeded in promoting the targeted and sustainable cooperation between industry and science with respect to the top technologies in the country by creating suitable framework conditions.

Today 46 such competence centres bundle their internationally sought-after R&D know-how, thus ensuring attractive competitive advantages for foreign investors as well. During the entire duration of the COMET funding initiative (2006-2019), a total of EUR 1.5 billion will be invested in industry-related research by the Federal Ministry for Transport, Innovation and Technology and the Federal Ministry of Economy, Family and Youth, as well as federal provinces, companies and research institutions (www.bmvit.gv.at/presse/aktuell/ nvm/2009/1029OTS0087.html).

Excellent examples are the ‘Research Centre Pharmaceutical Engineering’ (RCPE) in Graz for pharmaceutical process and product development, or ‘ONCOTYROL’– the competence centre for cancer therapy located in Innsbruck – which aims to translate its research results in the fields of genomics, proteomics and metabolomics to clinical cancer medicine.

The ‘Austrian Centre for Medical Innovation and Technology (Acmit)’, a competence centre in Wiener Neustadt in the field of medical robotics, is opening new perspectives for buttonhole surgery (minimally invasive surgery), whereas ‘Bioenergy 2020+’ boasts several research facilities in Austria and successful innovations in environmentally friendly energy production from biomass.

More than 50 Industry Clusters More than 50 industry clusters located in all nine federal provinces, featuring some 3,500 companies and 420,000 employees, work to strengthen Austria‘s innovative capabilities (www.clusterplattform.at/ index.php?id=68). Synergies are exploited and strategic partnerships with renowned research institutes and excellent researchers are pursued within the framework of closelyknit networks of specialised firms – from international R&D headquarters to SMEs and innovative spin-offs.

There has already been recognition for this partnership-drive approach to innovation from the USA. In 2010, the Styrian-based ‘Eco World Styria’ was named the global number one environmental technology cluster by the Cleantech Group. Best practice examples also include the ‘Mechatronics Cluster (MC) Upper Austria’ which now encompasses 334 partners in the fields of plant construction, mechanical and apparatus engineering as well as technology and component production (www.mechatronik-cluster. at/1160_DEU_HTML.php). The Styrian cluster pioneer ‘AC Styria’ continues to enjoy an international reputation for innovative vehicle development.

7. Highly-Qualified Researchers and Specialised Personnel In order to bring innovations to market, one does not only need good ideas derived from research and development work but also highly qualified specialised personnel to practically translate these ideas into reality.

Austria offers both, due to a long tradition of application-oriented education and training. Moreover, Austria’s economy is very well positioned in European comparison when it comes to further education and lifelong learning. After all, 81 percent of the companies offer active continuing education and qualification programmes for their employees, as confirmed by the Third European Continuing Vocational Training Survey (2005) (IBW: Institute for Research on Qualifications and Training of the Austrian Economy / Format/trend supplement: ‘TOP Location Austria’: April 2011).

8. Proximity to Eastern Europe Thanks to its geographical location in the heart of Europe, Austria has established itself as the business interface to the growth markets of Central and Eastern Europe.

The Alpine Republic boasts 300 regional corporate headquarters, significantly ahead of competitive CEE business locations such as Poland, Slovakia, Czech Republic and Hungary (ABA-Invest in Austria).

Approximately 1,000 international companies coordinate their Eastern European business operations from Austria.

Research-intensive companies such as Boehringer Ingelheim – one of the 15 biggest pharmaceutical companies worldwide – rely on the small but excellent research location of Austria for its R&D activities.

The pharmaceutical giants invests EUR 145 million annually in Austria (Boehringer Ingelheim January 2012 / Format/trend supplement: ‘TOP Location Austria’: April 2011), coordinating the entire clinical research in Central and Eastern Europe as well as in the Asian and African markets from its regional centre in Vienna.

Austria has also long proven its value to Siemens as a bridgehead to the East, for example, as the R&D headquarters for application-specific chips (ASICs) and constraint-based configurations (complex configurations) in Vienna. In addition to this, the worldwide technology strategy of the group is significantly impacted by the more than 1,300 researchers and developers of Siemens Austria, focusing on future-oriented fields such as smart grids or rail-bound public transport, as demonstrated by an investment volume of EUR 331 million in the year 2011 (Annual Report of Siemens Aktiengesellschaft Austria 2011).

ABA-Invest in Austria is the national investment promotion company of the Republic of Austria. It has established itself as the initial point of contact for international investors and companies interested in setting up business operations in Austria. ABAInvest in Austria offers consulting services free of charge when selecting a suitable site, or provides support in dealing with public authorities and funding agencies, with labour and tax issues and identifying cooperation partners.

In 2010, ABA-Invest in Austria consulted 198 companies setting up business in Austria, which invested a total of EUR 221.1 million.

Since its founding in the year 1982, the national investment promotion company has enabled investments of EUR 5.95 billion in Austria, creating a total of 41,472 new jobs.

In 2009, ABA-Invest in Austria was ranked by Global Investment Promotion Benchmarking of the World Bank Group as the best national investment promotion consultancy in the world. Today, in addition to its headquarters in Vienna, it operates consulting offices in New York and Tokyo.

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The Austrian Private Equity and Venture Capital Industry – Here to Stay!

AVCO - Austrian Private Equity and Venture Capital Organisation Lothringerstraße 12, A-1030 Vienna T. +43 1 526 38 05 office@avco.at www.avco.at

Austria has a young but very professional risk-capital industry, which has existed for approximately three decades. The country can look back at years of constant development and success, as well as a continual increase of key figures – right up to the point when the whole of Europe was hit by the financial crisis.

Like many other European markets, the Austrian Private Equity market is still suffering from this development. In addition to this, it is facing new European framework conditions. As seen all over Europe, these changes have led to higher standards and intensive due diligence activities, combined with decreasing investment and fundraising volumes. In this article, we look at the situation in detail.

Status quo of the Austrian Private Equity and Venture Capital Industry The latest reported period in 2011, concluded that the Austrian Private Equity and Venture Capital Industry invested €124 Mio. This amount was invested in 103 SME in Austria and abroad – a decrease of only 3% compared to the previous year, which is a good sign taking into account the difficult economic situation.

Among these investments, an increase of the buyout segment (51% of all investments) was observed. However, the early stage segment unfortunately decreased to 20% of all investments in 2011. The branch ‘Computer & Consumer Electronics’ ranks first in the list of branches invested in by Private Equity, followed by ‘Chemicals & Materials’ and ‘Consumer Goods & Retail’. This more or less reflects the structure of the Austrian SME landscape, which is the main source for the investments undertaken by the Austrian funds.

Just like investment activities, fundraising activities remained more or less stable, with Austrian funds raising €249 Mio (€ 40 Mio. of which were ‘finally closed’ in 2011). It is worth noting that despite disappearing completely during the financial crisis, the banking sector came back to the Austrian Private Equity Industry as an institutional investor in 2011. In the challenging years that followed 2009, existing capital commitments were not withdrawn by the institutional investors despite being seen in Europe previously. This is the reason for the ongoing investment activity up until now, although actual fundraising activities are very challenging.

The exit activities of Austrian Private Equity and Venture Capital Funds remain at the same (low) level as in the year before (not considering a mega deal which took place during the reporting period). It is evident that in general de-investments have been postponed to carry the portfolio companies through the economically challenging period and to ensure profit for the investors. Having a potent co-owner is a clear advantage for these companies and a clear asset of Private Equity. It also allows for flexibility in both the route and the time of the de-investment.

While times are quite difficult today, if we take all these figures into account, the Austrian industry is very active and is acting in its usual professional manner. At present, project initiation and due diligence processes are being performed very intensively and future investments can be expected soon, especially in the branches leading the ranking. This means that while urgently needed capital is still available for SME in the current climate, it is more of a challenge to attract private growth capital due to the higher selection standards implemented as a consequence of the financial crisis.

Framework Conditions Next year Austria faces the national implementation of the Alternative Investment

Fund Manager-Directive (AIFM-D). The targets of AIFM-D are to provide greater transparency and reduce systemic risks in the financial markets. These aims are clearly supported by the Austrian Private Equity Industry. Nevertheless, AIFM-D might mean some challenges for the Austrian funds that are rather small compared to international players. The small national Private Equity and Venture Capital Funds are not intended to be regulated by this directive due to the defined thresholds. To ensure that the AIFM-D does not cause any disadvantages to those funds, it is essential that the thresholds foreseen in AIFM-D be implemented in Austria.

At the same time, the European Venture Capital Fund Regulation (EVCF-R) is being discussed and promoted by the European Commission – its aim being to provide a set of regulations and a European Fundraising Passport tailor-made to the sub-threshold area of AIFM-D. The exact focus of EVCF-R, whether designed for early stage funds only, or for small and early stage funds in general, is still under discussion.

It is vital for the Austrian Private Equity and Venture Capital Industry to implement all these regulations in a way that ensures the achievement of the intended goals. It also gives Austrian funds the chance to use the advantages of the regulations through realistically practicable efforts in corporate governance, reporting activities and necessary resources.

Activities of the Austrian Private Equity and Venture Capital Organisation – AVCO

date service offering for its members.

AVCO will go on putting all its efforts into working on the legal framework conditions on a national and EU-level. In addition to this, it will not only offer newly developed matching platforms, but will maintain cooperation with investors. It will also focus PR activities and awareness on communicating the testimonials and the image of the private equity branch. Networking platforms and activities will be created and fostered as well as AVCO’s lobbying activities. An education programme will offer Private Equity basic training and provide know-how transfer to young employees of AVCO members, entrepreneurs and journalists. Regular information about other AVCO members and the Austrian Private Equity Industry will also be provided with the newly implemented newsletter and other regular information offers.

In doing this, AVCO is opening up to investors, family offices, bank institutes, portfolio companies, Business Angels and professionals, in addition to the current members coming from both the fund side and from the service providers. Furthermore, re-organisation of membership fees will result in a significant decrease of costs.

Outlook

activities. Meanwhile in Europe, a recovery from the crisis is being observed. This has resulted in a phase of increased due diligence activity, to find attractive targets for investments sourced by former fundraising rounds. The opportunities in Austria’s hightech and innovative branches are still there; they just need stronger equity endowment.

This situation is accompanied by changing framework conditions, which are causing the additional momentum of uncertainty, due to the fact that to a certain extent the exact setup and way of national implementation of the European set of regulations are unclear.

However, as stated in the headline, the Austrian Private Equity Industry is here to stay. The established structures are professional, and public awareness and the understanding of the added value and the advantages of intelligent money are increasing. Entrepreneurs value the professional co-ownership provided

by Private Equity and Venture Capital.

Furthermore, there are still a considerable number of projects and internationally competitive SME in the pipeline…

Author Dr. Jürgen Marchart, Managing Director, AVCO

In the long run, the Austrian Private Equity and Venture Capital Industry is set to continue suffering from the reluctant activity of institutional investors, which will lead to stagnating volumes and investment

Due to these changing economic and legal conditions, the Austrian Private Equity and Venture Capital Industry is facing some challenges and changing requirements right now. This, combined with changing expectations towards the national umbrella organisation and the clear needs of its members, is why AVCO is adopting its structure to fit this new situation and generate an optimal and up-to-

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Austrian Particularities in Connection with Securing International Bank Financings Specht Böhm Rechtsanwalt GmbH Dr. Markus Haberfellner, LL.M. Partner markus.haberfellner@spechtboehm.com www.spechtboehm.com

Over the last few years, certain standards have been developed in Austria in connection with the securing of national and, in particular, international bank finance transactions. While typically Austrian assets serve as collateral for securing the obligations of non-Austrian borrowers, the below particularities also apply to transactions in which the Austrian group entities act as borrowers and grantors of collateral (typically referred to as guarantors) at the same time. Under both scenarios, loan documentation based on model finance agreements developed by the Loan Market Association (LMA) – a think tank for syndicated loan markets established in 1996 – are commonly used in large volume transactions. The model agreements are usually revised on the basis of market standards and legal requirements of the involved jurisdictions. When structuring international bank financings with a nexus to Austria, the following aspects should be taken into account for avoiding legal defects as well as significant additional costs. stamp duty In case of an Austrian angle in international finance transactions, Austrian stamp duty issues are typically of a high priority. While stamp duties of 0.8% or 1.5% (depending on the type of loan) of the loan proceeds were abolished by the implementation of a new stamp duty regime effective from January 2011, the execution and/or bringing of loan and collateral documents (including replacement recordings and substitute documentation) in (to) Austria may still trigger stamp duties in connection with

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the granting of certain collateral, such as sureties (1.0% of the secured obligation) or assignments of receivables (0.8% of the consideration).

Certain strategies have been developed for avoiding triggering stamp duties in connection with the execution of loan agreements and collateral documentation.

Most importantly, all relevant documents (containing or referring to critical transactions/instruments with respect to stamp duties) are to be executed and kept outside of Austria. Additionally, contractual precautions apply.

Capital Maintenance and financial Assistance As a result of a rigorous capital maintenance regime and relevant court decisions applicable to Austrian corporates, upstream, as well as side-stream security (including guarantees) granted by an Austrian corporate to its (direct and indirect) parent companies and sister companies, may be deemed forbidden repayments of equity and thus held void, unless certain conditions including, inter alia, adequate (arms' length) consideration received by the guarantor, are satisfied. Additional limitation wording is included in the loan and collateral documents.

The considerations made in connection with the capital maintenance regime also apply to financial assistance provided by a subsidiary. However, specific financial

assistance provisions only apply to Austrian stock corporations, and prohibit corporate transactions such as advancing a loan or granting security, if intended to assist in the financing of the acquisition of the company’s own shares or the shares in its parent company. Thus, Austrian stock corporations are available to a limited extent only for securing finance transactions, and are often transformed into a limited liability company for avoiding financial assistance issues. security trustee In general, Austrian law does not recognise security trusteeships (except for certain structures such as for bond issues) under which a party – usually one of the lenders in a syndication scenario – is acting as security trustee on behalf of the lenders syndicate. To facilitate a syndication of the loan, the concept of an Austrian law joint-and-several creditorship or an abstract assumption of debt (under non-Austrian law) for creating a parallel debt structure is applied. Both alternatives ensure that the security trustee may act as creditor of all obligations owed by the borrowers and guarantors.

Control issues International loan documentation commonly grants control and information rights to the lenders. Depending on the degree of the lenders' influence on the Austrian company (acting either as borrower or guarantor) agreed in the finance documents, these rights may trigger any of the following risks.

Pursuant to the Austrian Act on Equity Replacements as well as certain principles developed by the Austrian Supreme Court, certain loans granted by a shareholder may qualify as replacing equity and thus shall not be repaid, and security granted in connection with such loan shall not be enforced in a company's financial crisis. Furthermore, in a company's insolvency the lender's claims are subordinated.

Significant control rights of the lenders could allow them to exercise influence on the management of the Austrian borrower or guarantor. Depending on the extent of these rights and the degree of their exercise, the lenders may be considered ‘shadow directors’ who would have to face equal obligations as appointed managing directors of the company – and in particular, liabilities to third party creditors.

While control and information rights typically agreed under standard LMA documentation do not qualify as ‘control’ under the relevant provisions referred

to above, a thorough examination of the documents shall be made to avoid unacceptable insolvency and liability risks triggered by over-reaching control rights of the lenders. perfection of securities Certain securities, including pledges, security transfers and security assignments, only become effective upon perfection through a certain act of publicity, including inter alia, notification to the pledged company, registration in the land register and notification of the third party creditors.

Pursuant to Austrian international private law, the validity and enforceability of these securities are subject to the lex situs and shall not be subject to a choice of law by the parties. over-securing Austrian grantors often provide a variety of collateral instruments in favour of the lending banks. While no specific Austrian law provisions on over-securing exist, a general rule regarding the prohibition of contracts contra bones mores may apply. Pursuant to this rule, a security shall not overly constrain the guarantor's business unless justified by the context of the entire business transaction, and the value of the secured claim shall not be grossly disproportionate to the value of the security, provided the secured party acted in bad faith.

Markus Haberfellner is a partner at Specht Böhm Rechtsanwalt GmbH with a particular focus on cross border finance transactions.

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Private Equity/Venture Capital-Guidance Through a New Regulatory Framework

DLA Piper Weiss-Tessbach Rechtsanwälte GmbH Phillip Dubsky Partner Tel: +43 1 531781901 phillip.dubsky@dlapiper.com www.dlapiper.com

The Austrian market for private equity is still comparatively small on an international scale. In 2011, private equity and venture capital funds situated in Austria invested EU 124 million in businesses in Austria and abroad (AVCO Press Release 21 June 2012).

However, the current Euro/banking crises, a weak capital markets environment and stricter minimum equity capital requirements (Basel III), have created a financing gap for small-and medium size enterprises which dominate the Austrian market. While one would be led to believe that this would trigger a move towards private equity and venture capital as the primary source of capital for growth companies, this has so far not materialised. The financing gap continues, and a significant number of very attractive and innovative technology growth companies – particularly in the early stage phases – continue to struggle to obtain financing for innovation and expansion. This seems to be particularly true for companies in the biotech and medical devices space, which usually require multiple financing rounds until they are mature to be exited via

the capital markets or an acquisition by a strategic investor.

Moreover, contrary to the expectation of a few years ago, Austria has not been able to capitalise on the gateway to the CEE for private equity and venture capital financing.

While there are a few funds based in Austria, which use the country as the basis for the CEE investments, most funds focusing on the CEE region have set up offices in the Czech Republic, Poland or Hungary.

The reasons for the fledgling venture capital and private equity industry in Austria are to a certain extent based on the fact that Austria is a comparatively small economy, with small businesses that do not meet the minimum revenue or cash flow requirements of some of the larger funds. This in itself would not be a major impediment, because other small economies have a thriving private equity and venture capital environment (e.g.

Switzerland, Israel and Sweden).

The positive impact of venture capital and private equity industry on the economy through innovation, the solving of succession issues, increasing export activity, and most importantly, job growth, are widely acknowledged by the industry and the government. Nonetheless, in addition to a certain reluctance by entrepreneurs who have traditionally relied on debt financing, the main impediment to significant growth in the industry have their root and cause in the local regulatory framework of the industry.

The lack of tax incentives for investors is one of the key hurdles for investments in Austrian growth companies. In particular, the sale of participations is for the most part, not exempt from corporate taxes.

Given that private equity and venture capitalist investors are usually not interested in receiving dividends but look for returns resulting from the sale of their portfolio companies, the current regime will usually lead to double taxation at the level of the portfolio company and

the investor. In addition, certain regulatory uncertainties of the industry and the strict, antiquated Austrian capital maintenance rules make common acquisition financing and debt-push down structures difficult to implement. Avoiding these pitfalls calls for careful acquisition structuring with experienced advisors.

A government agency, the Austria Wirtschaftsservice Gesellschaft mit beschränkter Haftung (AWS), has been created to act as the Austrian central agency for subsidies and capital guarantees for private equity and venture capital investments. The aim of AWS is to make early stage companies with a high-risk profile more attractive for private equity and venture capital, by granting capital guarantees in connection with long-term private equity and private equity associated debt financing. The AWS has, however, recently stopped its guarantee programme.

Instead, the government created a fund of fund programme in 2010 which was then furnished with EUR 2.9 million in 2012, and which allows venture capital funds to get a commitment under standard market conditions of up to 30% of their total fund from AWS. Moreover, the government has very recently (17 July 2012) announced that it will create two funds in a total amount of EUR 140 million. Both funds – which should be ready to make their first investments by early 2013 – focus on providing funds to start-up and early stage technology companies. The so called ‘Gründerfonds’ (Start-up Fund) will have a total amount of EUR 65 million at its disposal, and will support early stage companies by investing amounts ranging from EUR 110.000 up to EUR 1 million.

The ‘Business Angel Fund’ will have EUR 45 million at its disposal, and is expected

to write tickets between EUR 150.000 and EUR 300.000. The goal is to provide support by matching private business angel investments with public funds. The Business Angel Fund is supported by the European Investment Fund (EIF) and will ideally be able to leverage public with private funds at ration of 1:3. In addition, through a network of angel investors, early stage companies supported by the fund should be able to benefit business angel know-how and network. The structuring of both funds is currently ongoing and will be administered

by AWS. Given the above-mentioned financing gap, the establishment of the Business Angel Fund and the Start Up Fund are an encouraging development to kick-start early stage investments in Austria. However, the public funding of early stage companies could jeopardise the fledgling private venture capital industry in Austria by creating a quasi-government monopoly on early stage fund. As a consequence, the much-needed privately funded venture capital funds are in danger of being crowded-out by public money. Therefore, when implementing the new funds, the government will need to take care of these concerns in order to not disturb a very fragile venture ecosystem.

In addition to providing welcome additional funds to early stage investments, there is still room for improvement with regards to the regulatory framework in connection with private equity and venture capital.

The main issues include: the tax-free sale of participations; a change of antiquated capital maintenance rules; enabling flexible fund structuring to meet investor requirements; and the careful implementation of AIFM Directive in order to not overburden the industry and provide a safe harbour.

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CaPitaL markets

Capital Markets The Euro-Crisis, Capital Markets and Regulation Cross-border financial markets in Europe have an important role to play in financing the economic recovery of the region. However, markets are still in the grip of the continuing euro-crisis, while at the same time attempting to implement a number of fundamental regulatory reforms. The International Capital Market Association (ICMA) is a trade association whose members are active in both buy and sell sides of the international capital market and include global banks, regional banks, brokers, central banks, private banks and institutional asset managers, along with infrastructure providers and law firms.

ICMA is focused on the measures necessary to restore confidence in the efficient operation of the market and its ability to contribute to economic recovery.

As the future shape and structure of the market evolves, we are investing a great deal of time in working with our members through market committees in all areas of international debt capital market activity. As such we are well placed to observe some of the emerging trends in the industry. Some of these are outlined here.

Moving from unsecured to secured funding The move from unsecured to secured funding for financial institutions is one of the key trends resulting from the crisis. There is clear evidence for this from the repo market, where ICMA’s European Repo Council semi-annual repo survey shows long-term continued growth of the repo market in Europe since the crisis began, unlike the unsecured commercial paper markets, for example.

Perhaps the best example of the move to secured funding, is the dynamic growth of the covered bond sector, with increased usage by issuers based in an increasing number of jurisdictions. The rationale here is clear – greater security and lower cost of funding than the senior unsecured markets, as well as more consistent market access.

The senior unsecured market effectively shut down for 17 weeks in 2011. This was unprecedented and emphasised to bank treasurers that in times of extreme stress they could no longer rely on this mainstay of bank funding to be available.

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International Capital Market Association (ICMA) Talacker 29 P.O. Box, 8022 Zurich Switzerland Telephone: +41 44 363 4222 Fax: +41 44 363 7772 www.icmagroup.org info@icmagroup.org

The shift from unsecured to secured funding also has further consequences currently being discussed amongst our members, namely the increasing requirement for high quality collateral and a growing debate on structural subordination.

Collateral shortage The demand for collateral is increasing dramatically, and not merely because of the increasing proportion of covered bond issuance and the growth of the repo market.

Aside from these there are many other calls on collateral which include: LTRO exercises by the ECB which involved borrowing by the banks against eligible collateral; the Basel regulatory requirements, translated in the EU through the Capital Requirements Directive (CRD) IV/Capital Requirements Regulation (CRR), introducing liquidity stress buffers which involve holding assets on a short list of high quality collateral; and an additional rise in demand for additional collateral to be posted as an initial and variation margin, whether in respect of remaining OTC derivatives or those standardised transactions being shifted to Central Clearing Counterparties (CCPs).

All of these add to the demand for high quality collateral and it is widely perceived that demand will outstrip supply. ICMA and others in the industry are already exploring how to mitigate this problem. One way is to continue the work on improving efficient use of existing collateral, such as greater interoperability between clearing and settlement systems in different countries, and making sure the plumbing works well – and there is good progress in this. The other initiative is to broaden the range of assets which can be used as collateral, to perhaps include gold, equities, high grade corporate debt, or credit claims alongside the more traditionally favoured cash, government and covered bonds. the future of unsecured senior debt Structural subordination is a cross-cutting theme, with many strands including the market impact of the ECB, and others achieving preferred creditor status in the Greek restructuring earlier this year.

Similarly, work being undertaken by the regulators on systemic risk and ‘too big to fail’, where they are introducing the concept of ‘bail-in-able bonds’, has the potential

to change the ranking of claims at the, as yet undefined, point of non-viability of a financial institution. It is not clear how this will work at this stage, but what is clear is that it is not positive news for the holders of senior unsecured debt, which may be subject to bail-in.

Another consideration is that the more a bank’s balance sheet becomes pledged to back covered bonds and similar secured liabilities, the greater the reduction in the aggregate amount of unencumbered assets, and arguably the quality of the assets available for the senior debt holders in the case of a bankruptcy.

This debate on asset encumbrance is gathering steam, with regulators looking at the situation, investors concerned about it, and issuers anxious about the impact of any additional future regulations. There are no easy answers since the business models of various banks, their asset and liability mix, overall credit strength, market position etc are all so varied – and frankly it is unlikely that there could be a one size fits all solution.

However, this is a topic to watch going forward.

Changes to Market structure The third theme is market structure, because while all are aware of the structural changes to the derivatives markets in the EU which will ensure that standardised derivatives will trade on exchange with clearing and settlement through CCPs and reporting into trade repositories, the future of the Over-the-counter - OTC cash bond markets is less clear. The OTC cash markets – the original Eurobond markets – have operated reasonably well over the last 45 or so years, but we await the implementation phase of the revised Markets in Financial Instruments Directive (MiFID II) and associated regulation MiFIR, for greater clarity as to their future. These new regulations are likely to create a new category called an Organised Trading Facility (OTF). Will the OTC market migrate to such OTFs in the future – if so will market makers be able to trade using their own capital? What will happen to liquidity?

As things stand there are no clear answers.

Again, it is essential that the industry and associations such as ours engage actively in these discussions.

participants, as step changes in capital and the cost of capital, coupled with higher costs of funding, restrictions on running short positions in sovereign bonds and enormous volatility, have all conspired to reduce liquidity in the secondary debt markets, and large swathes have moved to a brokerage style order driven market. Calls for greater transparency as well as some of the other elements of proposed regulation, have the capacity to, and almost certainly will, reduce liquidity even further.

Migration of Assets from Banks to Asset Managers The financial crisis has resulted in a major deleveraging of the banking system.

Consequently, there have been a major migration of assets – from bank balance sheets to asset managers who are now taking on more traditional wholesale banking roles such as supplying capital. This shift in the centre of gravity from the sell-side to the buy-side and the move to more market based financing, has implications for the way the asset management industry will be regulated in future. Financial transactions taking place outside the traditionally highly regulated investment banking sector or ‘shadow banking’ are already subject to regulatory scrutiny in the EU. ICMA, which has an active asset management community co-ordinated through the Asset Management and Investors Council, takes a keen interest in developments in this area.

ICMA is currently monitoring more than 20 different regulations and directives, each of which has an impact on our members’ activity in the capital markets, and only a few of which are mentioned in this article.

There is an enormous amount at stake as the future shape and organisation of financial markets in Europe is being defined. The move to market-based finance is likely to increase the relevance of the securities market as a conduit for funding the real economy. This means ICMA’s role in ensuring an efficient well functioning market will become even more crucial in the future.

Martin Scheck, Chief Executive, International Capital Market Association (ICMA)

Liquidity is a particular concern for market October 2012 • Global Business Magazine • 73

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deal directory Intertek Group Plc Acquires NDT Services Limited On 10 September 2012, Intertek Group Plc (‘Intertek’), the leading international provider of quality services to a wide range of industries, announced that it had acquired Materials Testing & Inspection Services Limited and its operating subsidiary NDT Services Limited (NDT or ‘the company’).

NDT is a provider of non-destructive testing services to the energy, petrochemical, power and aerospace industries, used by companies to assess the integrity and reliability of a range of industrial components being manufactured or on installations. The company helps clients to identify flaws or defects in aircraft, pipeline, power station, refinery and oil platform components, to assess their projected lifespan in order to reduce the risk of failure and disruption to operations. It holds key industry accreditations and is a leading European provider of non-destructive testing to the aerospace industry, and is a prominent operator in the power sector. The company will form part of Intertek’s Industry & Assurance division. Wolfhart Hauser, Chief Executive, Intertek Group Plc, commented: “NDT has a strong reputation and market position and we are pleased to welcome the company to Intertek. Building on our Moody acquisition, this acquisition enhances our existing services to our energy, petrochemical, power and aerospace clients and reflects our strategy of continually expanding our capabilities to meet the full quality needs of clients in each industry.” For more information, visit www.intertek.com.

Opsec Security Group Acquisition of JDSU’s Holographic Security Business On 19 September 2012, Opsec Security Group announced that it had entered into an agreement with JDS Uniphase Corporation to purchase its New Jerseybased holographic security business (the ‘Holographic Security Business’ or ‘the business’) for an initial consideration of $11.5 76 • Global Business Magazine • October 2012

million (‘the acquisition’). The Holographic Security Business is primarily focused on the production and supply of security holograms and related optical-security devices for transaction cards, in addition to products for secure government documents and other brand protection customers. Key clients of the business include MasterCard, VISA and American Express. For the year ended 30 June 2012, the Holographic Security Business generated revenue of $19.7 million and profit before tax of $0.4 million. As at 30 June 2012, it had gross assets of $9.0 million. Mark Turnage, Chief Executive of OpSec, commented: “The acquisition of JDSU’s Holographic Security Business demonstrates our commitment to providing the best brand protection solutions across an array of industries on a global scale. This addition complements OpSec’s existing brand protection initiatives, broadens our vertical coverage and expands our customer base in key areas. The acquisition benefits all customers as we leverage our global footprint to deliver solutions that protect and enhance brand value in more markets across the world.” For more information, visit www. opsecsecurity.com.

Quindell Portfolio Plc: Major Contract Acquisition of Quintica On 18 September 2012, Quindell Portfolio Plc (‘Quindell’ or ‘the Group’), the provider of sector leading expertise in software, consultancy and technology enabled outsourcing, announced a major contract win in South Africa and the acquisition of Quintica SA (Pty) Limited and Quintica International Limited (collectively ‘Quintica’), a specialist systems integrator and outsource service provider to the telecommunications marketplace throughout the Middle East and Africa. The acquisition allows Quindell to further strengthen its systems integration capability for its technology solutions, and provides a platform for further expansion into a geography where the demand for software and services continues to expand at a rapid rate. Rob Terry, Chairman and Group Chief Executive of Quindell said: “I am

delighted to announce the tighter integration of the Quintica team within Quindell through this acquisition. Their knowledge and expertise with our Challenger OSS platform has already helped us in a number of international opportunities, and now as part of the Group we look to expand our reach within the Middle East and African territories and beyond. The combination of technology expertise and demonstrable track record in outsource service provision is an ideal match for the Quindell business model and philosophy.” For more information, visit www.quindell.com.

Redstone: Recommended Acquisition of Maxima Holdings Plc On 17 September 2012, the Independent Maxima Directors and the board of directors of Redstone announced that they had reached agreement on the terms of a recommended acquisition of Maxima by Redstone. The acquisition fits with Redstone’s strategy to be a leading provider of network based end-to-end managed services and technology and infrastructure solutions, creating an independent UK managed services provider with enhanced revenues, customer scale and technical ability. The combination of the businesses is complementary in terms of technical capabilities, and should provide good potential for cross selling into each company’s respective client bases.

Commenting on the acquisition, Richard Ramsay, Non-Executive Chairman of Redstone, said: “I am pleased to announce the proposed acquisition which the Board of Redstone believes will confer benefits to shareholders of both Redstone and Maxima. The Enlarged Group will benefit from enhanced scale, an enlarged client base with increased cross-selling opportunities, a broader technical offering and a reduced cost base. We are excited by the opportunities for the Enlarged Group to capitalise on its position as a leading independent UK managed services provider and to deliver healthy profit margins.” For more information, visit www.redstone.co.uk.

Sage Group Plc Acquires EBS and Cenize in Brazil On 21 September 2012, Sage Group Plc (‘Sage’), the leading global supplier of business management solutions to small and medium-sized enterprises, announced that through its subsidiary Folhamatic Tecnologia em Sistemas S.A. (‘Folhamatic’), it had acquired EBS Empresa Brasileira de Sistemas Ltda (‘EBS’), a provider of accounting, business management and tax software in Brazil for a cash consideration of up to £10.6m (R$35.0m). The acquisition strengthens Sage’s market leadership position in the accounting firm market in Brazil and extends the geographic breadth of its offering, particularly in the Southern region. Sage has also recently acquired Cenize Informática Ltda. (‘Cenize’), a provider of accounting software to over 7,000 small and micro businesses in Brazil, a market segment with significant growth potential. These acquisitions will be integrated into Folhamatic, the leading provider of accounting, tax and payroll and regulatory content software in Brazil, which was acquired by Sage in June 2012.

Commenting on the acquisition, Guy Berruyer, CEO of Sage, said: “We are pleased to announce the acquisitions of EBS and Cenize which are in line with our strategy of expanding our footprint in Brazil. These businesses are high growth, with recurring revenue models and are focused on core SME accounting customers. They are also highly complementary to Folhamatic, expanding our addressable market by geography and by segment.” For more information, visit www. sage.co.uk.

Segro Plc Acquisition of Prime French Logistics Assets Further to the announcement of 2 July 2012, on 19 September 2012 Segro Plc (‘SEGRO’) completed the acquisition of a portfolio of eight prime French logistics assets for €160.8 million (£129.7 million) from Foncière Europe Logistique, a subsidiary of Foncière des Régions. The portfolio comprises 13

buildings, which are 10 years old on average, totalling approximately 255,000 sq m of lettable space and currently generating €14.2 million (£11.5 million) of annualised rental income. SEGRO is Europe’s leading owner-manager and developer of industrial property. SEGRO’s portfolio comprises £4.8 billion of industrial and warehouse assets concentrated in and around major business centres and transportation hubs such as ports, airports and motorway intersections.

The Group serves over 1,400 customers, spread across many geographies and different industry sectors. Commenting on the acquisition Chief Investment Officer, Phil Redding, said: “This acquisition significantly enhances SEGRO’s existing platform in the Ile de France region and in Lyon, and marks another positive step forward with our strategy to expand our portfolio of high quality logistics assets located in the strongest markets.” For more information, visit www.SEGRO.com.

ESI Integrity’s assets. We expect to be able to support all of the Lapis customers with the resources acquired from ESI Integrity and believe that this will result in a highly net income accretive transaction once the technology is fully transferred.” For more information, visit www.spectra-science.com.

Schroders Plc Completes Acquisition of 25% Interest in Axis Asset Management Company On 18 September 2012, Schroders Plc announced that following receipt of regulatory approvals its wholly owned subsidiary, Schroder Singapore Holdings Private Limited, has completed the acquisition of 25 per cent of the share capital of Axis Asset Management Company, the Indian asset management business of Axis Bank Limited. For more information, visit www.schroders.com.

Spectra Systems Corporation Acquisition of Certain Assets from Lapis Software Associates

Waterlogic Plc Acquisition of AquaPrix Inc

On 17 September 2012, Spectra Systems Corporation, a leader in machine-readable high-speed banknote authentication, announced that it had acquired certain assets of Lapis Software Associates (‘Lapis’), including their proprietary source codes, multi-year contracts and long-standing customer relationships. Consideration for the acquisition is $0.75 M in cash payable upon completion. Lapis, headquartered in Parsippany, New Jersey, USA, is a leader in the gaming software industry and has a 15% worldwide market share of the secure Internal Control Systems (‘ICS’) segment primarily with USA state lotteries. ICS is a secure, high-speed data platform, which plays a critical independent security role in auditing online and many other gaming systems. Commenting, Nabil Lawandy, CEO of Spectra, said: “The acquisition of the Lapis ICS Business adds to the international customer list we acquired in the ICS area when we recently purchased the majority of

On 20 September 2012, Waterlogic Plc, a leading designer, manufacturer and global distributor of point-of-use (‘POU’) drinking water purification and dispensing systems, announced that it had agreed to acquire the trading assets of AquaPrix Inc. (‘AquaPrix’), a highly-regarded vendor of innowave water dispensers based in Northern California, USA. AquaPrix has an existing installed base of over 3,400 water dispensers supplying and servicing blue chip corporations and homes located in the San Francisco bay area, including Silicon Valley. Following completion, the AquaPrix business will become part of Taylor Made Water Systems Inc., a subsidiary of Waterlogic USA, the Company’s US division. Peter Cohen, Chief Executive, Waterlogic Commercial, commented: “AquaPrix is our second US west coast acquisition further enhancing our North American presence. We are especially excited about the opportunity to introduce Waterlogic’s highly innovative Firewall UV October 2012 • Global Business Magazine • 77

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water purification technology and associated products into the AquaPrix customer base. AquaPrix is a highly complementary business, having sold the Company’s products for over 14 years and we look forward to welcoming it into the Waterlogic Group. We continue to explore future acquisition opportunities and will update shareholders in due course.” Casey Taylor, CEO Taylor Made & Regional VP Waterlogic USA, commented: “We are delighted to have made our first bolt-on acquisition since the recent commencement of our US west coast hub.” For more information, visit www. waterlogic.com.

AMEC Acquires 50% Stake in Brazilian Oil & Gas Company AMEC, the international engineering and project management company announced on 19 September 2012, that it had signed an agreement to acquire a 50 per cent stake in Kromav Engenharia Ltda (‘KROMAV’) from its owner managers for $12.5 million in cash.

KROMAV is a privately owned Brazilian offshore oil and gas and marine engineering company based in Rio de Janeiro, with a team of some 200 people specialising in engineering services for offshore platforms, FPSO (Floating, Production, Storage & Offloading) vessels and other marine applications. Combining KROMAV’s local reputation and engineering expertise with AMEC’s international major project delivery capability will support AMEC’s Vision 2015 strategy to develop fully integrated service capabilities in Brazil. “This investment in Brazil is one of our foundations to delivering Vision 2015 in the oil and gas market and we are proud to associate ourselves with the technical expertise of KROMAV,” said Simon Naylor, President of AMEC’s

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Natural Resources Americas business. “The combination, AMEC KROMAV, will be able to better assist customers and regional operators in the largest deepwater market in the world.” For more information, visit www.amec.com.

G4S Acquisitions of Vanguarda and Interativa, Brazil On 18 September 2012, G4S, the world’s leading international secure outsourcing group, announced its further expansion in Brazil, with the acquisition of 100% of leading security provider Vanguarda Segurança e Vigilância Ltda. (‘Vanguarda’). Vanguarda provides security personnel, security systems and monitoring services and mobile patrols to key strategic sectors such as banking, transportation, commercial buildings, education, health and public services. The acquisition of Vanguarda follows on from the purchase by SSE DO Brasil Ltda. of 100% of Interativa Service Ltda. (‘Interativa’) from its founders and other directors in December 2011. Interativa provides unarmed security and facilities services. G4S’ strategy is to expand beyond security in selected large developing markets where the market opportunity is large and there is significant growth potential. Nick Buckles, CEO of G4S said: “We are pleased to have made two strategically important acquisitions in Brazil.

Vanguarda and Interativa will provide G4S with an excellent platform for growth in one of the world’s leading economies. We are delighted to welcome their experienced and capable management, who will help us implement our strategy to invest in security and broader facilities services in the region.

We are confident that these expanded service offerings and broadened capabilities covering security, facilities management and

technology, provide us with excellent growth prospects in this large and exciting market.”

For more information, visit www.g4s.com.

Goldstone Acquisition of Residual Interest in Akrokerri Licence GoldStone (‘GoldStone’) the company focused on gold in West and Central Africa, announced that it now holds 100% of the Akrokerri Licence, following the acquisition of the residual 4.9% interest held by Volta Resources Inc. (‘Volta’). GoldStone has entered into an acquisition agreement with Volta (the ‘Acquisition Agreement’) for the purchase of the Residual Interest for a consideration of 1,500,000 ordinary shares of 1p each in GoldStone (‘the Consideration Shares’). Under the terms of the Acquisition Agreement, Volta may not dispose of any of the Consideration Shares before 30 June 2013. The Akrokerri Licence was renewed on 12 May 2011 for a 12-month period.

Application has been made for admission of the Consideration Shares to trading on AIM, which is expected to occur on 19 September 2012. Following the issue of the Consideration Shares, there are 319,856,738 ordinary shares of 1p each in issue with each share carrying the right to one vote. Jurie Wessels, Chief Executive of GoldStone, said: “We are delighted to have acquired full ownership of the Akrokerri Licence. Based on the existing resource at Akrokerri and the current share price, the consideration is equivalent to an acquisition cost of approximately US$16 per attributable resource ounce. We anticipate the Akrokerri resource will be increased with the results of this year’s drilling.” For more information, visit www.goldstoneresources.com.

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