2014 | World Finance

Eurobank goes from strength to strength as Greece fights back

Posted on November 24, 2014February 2, 2015 by Ashton Wenborn

At the height of the financial crisis, Greek banks faced the prospect of being nationalised. World Finance speaks to Dimosthenis Arhodidis, General Manager of Wealth Management at Eurobank, to find out how the bank escaped that fate and was able to make a dramatic rebound.

World Finance: Now Dimosthenis, as you just heard me mention, the ECB was able to eventually give back control of Greek banks, can you tell me how you and your bank were able to get out of that path of darkness?
Dimosthenis Arhodidis: Eurobank went through a difficult time over the last three or four years. Essentially the turnaround of Eurobank started in June 2013. The management of the bank changed and we basically acquired the Greek postal savings bank, which gave us extra liquidity in order to get back into the market and be able to finance the Greek economy.

However, the most important event occurred last May, when we recapitalised that bank by raising €2.8bn from the international markets, especially from a group of investors comprising of Fairfax, Wilbur Ross, Capital Research, Fidelity, Mackenzie, and Brookfield. This group of anchor investors is essentially our main shareholder right now, holding half of the shares which are not owned by HFSF.

The Hellenic Financial Stability Fund still owns 35 percent of Eurobank. However, 65 percent of the shares are owned by international investors and other Greek individual investors. As a result, Eurobank is essentially the most privately owned bank in Greece and hopefully we will be able in the years to come to return the funds that the HFSF contributed to the bank.

Eurobank is essentially the most privately owned bank in Greece

World Finance: Now you talked about the foreign investors a little bit, tell me about the ambitions of your local investors, I know there was a crisis of confidence of course when the crisis hit. Tell me, how are local investors feeling?
Dimosthenis Arhodidis: A big percentage of the local investors withdrew their money from Greek banks during the crisis between 2010 and 2012. With the change of government, with the elections that occurred almost two and a half years ago now, the confidence of the Greek investors came back and they started bringing some money back to Greece, and they started feeling better about the Greek economy.

Obviously this confidence has been building over the last two and a half years. The last few weeks have not been that great because there seems to be some political instability back in Greece. However, we hope that this political instability will subside, building the confidence of Greek investors will continue.

World Finance: Now in building that confidence can you tell me what are your private banking customers that are Greek spending their money on? Is it domestic or international investments?
Dimosthenis Arhodidis: Having Been through the Greek crisis, they seem to understand now that they need to diversify their investment portfolios from the Greek markets to foreign markets, although the Greek market has given very good returns in the last two and a half years.

However, overall, private banking clients with Eurobank need to feel and need to act like global investors with access to the global market. So what we try to convince them is that, besides the Greek risk, they should also have non-Greek risk in their portfolios and the percentage of Greek risk should be smaller than what it is right now for the average private banking Greek investor.

World Finance: Speaking of risk, can you tell me, how much are they actually willing to take on for those that want to maybe push the boundaries?
Dimosthenis Arhodidis: We have seen a shift during the last twelve months. Greek investors are willing to take more risk, they feel a little bit more comfortable about the Greek situation, and the international situation. Before the middle of 2013, what they were concerned about was to preserve their capital. But after that is they started feeling more confident. They’re trying to take more risk in order to increase their returns.

However, how much risk they want to take, there’s not a blanket answer. It depends on the risk profile of each client. What we try to do at Eurobank is to actually profile as accurately as possible the risk appetite of each client and essentially guide him based on that.

Hopefully the Greek economy will start growing again

World Finance: Now your riskiest clients, has their tone become more muted since the crisis, or are they even willing to hit back hard?
Dimosthenis Arhodidis: Well the high risk clients, the risk appetite became muted, but now they’ve come back strong. Essentially those are the clients that are trying to assume more Greek risk in their portfolios because, as you know, their yield from the Greek bond markets and the Greek stock market have been quite attractive.

However, our guidance is that they need to step back, they need to understand that risk is something that they do not see, but it hits you hard when it comes. So we try to make them understand that they still need to diversify and they still need to control the percentage of their portfolio that is assuming Greek risk.

World Finance: Finally, what does the future hold for Eurobank?
Dimosthenis Arhodidis: Hopefully the Greek economy will start growing again. It’s not only for Eurobank, it’s for the entire Greek banking system, what I’m going to say. We expect a growth rate of between half and one percent for Greece for 2014, which is the first good year, the first positive year after six years of recession.

This will essentially impact positively all Greek banks, Eurobank as well. It will impact the confidence of clients positively and hopefully more assets under management will come back to Eurobank either in Greece, or in Luxembourg, where we have a subsidiary providing wealth management services as well.

World Finance: Thank you so much for joining me today.
Dimosthenis Arhodidis: Thank you very much for inviting me and it was a pleasure to be here as well.

Bankers’ bonuses are ‘the wrong target’, says Conservative MEP leader

Posted on November 24, 2014 by Ashton Wenborn

Bank bonus caps have been seen as completely arbitrary, with most banks more than capable of side-stepping further EU political pampering. World Finance speaks to Syed Kamall, leader of Britain’s Conservative MEPs, to discuss more.

World Finance: Syed, what will be the effects of the bonus cap on the UK banking system?
Syed Kamall: In an internationally competitive market, banks in Britain and the EU won’t be able to compete as well with banks outside the EU for the best talent.

But the other thing we’ve got to think about as well is that if you limit bonuses, what it means is that banks will respond by paying higher basic salaries. And that means there’ll be less alignment between pay and performance, which means that bankers will be paid well regardless of whether or not they perform well.

World Finance: Do you think this was politically motivated?
Syed Kamall: Oh, it was clearly politically motivated. I mean, after the crisis policy wonks, politicians, legislatures, were all looking for a response. They wanted to be seen to be doing something. And one way to be seen to be doing something was to bash the bankers.

[B]anks in Britain and the EU won’t be able to compete as well with banks outside the EU for the best talent

Now, there’s a lot of things wrong with banking; it has to be restructured, and I’ve been working with a number of my colleagues in Brussels on some of those issues. But actually, bankers’ bonuses is the wrong target.

World Finance: George Osborne has surprised everyone, saying he’ll now not fight this – why do you think he came to this decision, and is it the right one?
Syed Kamall: Well I think he had to make a political decision, and it’s quite clear that the politics of this… it’s very difficult politically to stand up for bankers.

But actually, the whole point about focusing on bankers’ bonuses shows that we’re missing the real picture. What we should be focusing on are issues such as: how do we prevent a failing bank from being bailed out with taxpayers’ money in the future? How do we make sure that directors of banks are liable for failure?

I have no objection if they are paid well if the banks perform well and the shareholders are happy with that. But people should not be paid well when they preside over failure.

And the third, and probably more technical point, is we’ve got to change accounting standards so banks can’t have these financial instruments on their balance sheets, and book the profits up front but not put aside enough money when they blow up, such as CDOs and CDSs.

World Finance: What do you think the effects of this will be within Europe?
Syed Kamall: For those banks that want to attract the best talent, the best experts in their particular field, it will be very difficult to attract them within the EU. If those individuals are motivated by money.

And that’s why you see a number of banking professionals moving outside the EU, to places like Singapore, Hong Kong and elsewhere.

World Finance: Will this make the industry less competitive?
Syed Kamall: In terms of the competition, it’ll be about the best experts in the world, in particular areas of finance. And it’ll be more difficult for banks within the EU to attract those people.

But you’ve got to remember that individual bankers are motivated by different things. So some of them may well say, ‘Well actually, I would rather have a higher salary, but I’d rather stay inside in Britain.’ Don’t forget London’s a very attractive destination for people. Lots of people like to come here; it’s a very diverse city. And they may decide that’s more important than a higher salary.

World Finance: Obviously this ruling is going to be popular with the public, but will it increase risks for banks?
Syed Kamall: Absolutely! I think we’ve got to look at the implications of this. One of the implications is higher basic salaries. The other is that actually, we’ve missed the real target. The real target of the financial crisis, and what we should really be looking at, are things such as: how do we make sure in future when a bank fails that it can be wound down in a responsible way, without customers having to queue outside banks to get access to their money. But also at the same time, making sure that taxpayers never have to bail out banks.

We should be looking at making sure that those at the top of banks are liable in case of failure. I don’t mind them reaping the rewards when their banks do well, but they should also take responsibility for when their banks perform badly.

[T]here’ll be less alignment between pay and performance, which means that bankers will be paid well regardless of whether or not they perform well

And the third thing we have to look at is the whole issue of accounting standards, and making sure that banks can’t put CDSs or CDOs or complex financial instruments on their balance sheets; book the rewards up front, book the profits up front, but not be prepared to pay out when they blow up.

World Finance: Don’t you think banker bashing has gone a bit far now?
Syed Kamall: Undoubtedly. And I don’t think we should be bashing bankers now. What we should be doing is changing the behaviour, and preparing the market, for failure.

So when banks fail, you have an orderly wind-down procedure, you make sure that those bits of the failed bank can be sold off or taken over by new competitors, or by rivals. You have to make sure that retail customers can still have access to their money during that transition period – either from taking their money out of the machines in the wall, or by making sure they can pay their bills – otherwise we’ll have civil unrest.

But it’s important that we have orderly wind-down procedures for banks.

World Finance: So how next are they going to put bankers in the gallows?
Syed Kamall: What’s been interesting is how they’ve been trying to expand the bonus cap to not only bankers. We’ve seen an attempt on asset managers that we fortunately managed to fight off in the European Parliament last year. It was a close vote by about seven; we won that.

And you’ll see in future financial legislation attempts to bring in caps on pay. And I think that’s where they will continue. And by doing that, we will miss the real target of the much more urgent reform we need, for making sure that when banks fail, taxpayers don’t have to foot the bill.

Mozambique plans economic revolution

Posted on November 24, 2014November 10, 2014 by Ashton Wenborn

After decades of promise, Mozambique is finally entering an era of unprecedented economic growth, spurred on by natural resource development and increased infrastructure delivery. Mozambique achieved its independence from Portugal in 1975. After a long period of civil war, peace came in 1992. Since then, the country has held four peaceful elections. It still faces many challenges to achieve faster economic growth that will improve the living conditions of its people and lift its just over 24 million citizens out of poverty.

Source: International Monetary Fund. Notes: Post-2012 figures are IMF estimates

Even though its GDP per capita remains very low (2013e: $640), Mozambique has consistently experienced economic growth in excess of seven percent per annum over the last decade. Even through the global recession of 2008, this growth path was maintained (see Fig. 1) – definitely a sign of good things to come. Mozambique is likely to see strong growth across various sectors of its economy over the next decade, with a strong emphasis on resources, energy, agriculture, telecoms, construction, transport and, to a lesser extent, tourism.

As with other African countries, poor or non-existent infrastructure in Mozambique is widely perceived as one of the greatest obstacles to economic development. The World Economic Forum ranks Mozambique 126th for the quality of its overall infrastructure (see Fig. 2).

The country currently has three major ports (Maputo, Beira and Nacala), five international airports (including Maputo, Beira and Nampula) and two main railway lines (Maputo and Sena). Mozambique’s international airports can accommodate 900,000 passengers per annum and the railways handle over 12 million tons of cargo each year. Mozambique’s location makes it a natural gateway to South Africa, Swaziland, Zimbabwe, Botswana and Malawi, increasing demand for its infrastructure. The ports of Maputo, Beira and Nacala are key to the development of the region’s hinterlands.

Vast resources
Mozambique is blessed with vast natural resources, including coal, aluminium, titanium, natural gas, hydropower, tantalum and graphite. The coal, gas and hydro could be exploited for energy generation. Mozambique, with over 160Tcf, has the fourth largest gas reserves globally and its prospects for coal-fired power are also strong, with three large coal deposits at Moatize-Minjova, Senangoe and Mucanha-Vuzi in the Tete province. Total coal reserves are estimated to be approximately three billion tonnes.

126th

Mozambique’s WEF ranking for quality of overall infrastructure (out of 160)

Needless to say, the development of the natural resources and infrastructure go hand in hand to foster economic growth. Even though it has taken some time, it looks like the Mozambican Government is starting to embrace this truth and is creating policy frameworks that encourage private sector participation across both disciplines. What is also very positive is the government’s resolve to see local beneficiation of its resources to create jobs, stimulate economic growth and deliver tangible benefits to the country’s citizens. This contributes to creating a positive investment climate that is bound to attract capital from international sources.

I have had various discussion with African-focused foreign investors and funds, all of whom have Mozambique as a high-priority country and are looking for investment opportunities to deploy capital. The same applies to the development finance institutions, South African financial institutions, Chinese conglomerates, and Brazilian investors all hungry for opportunities in Mozambique. This availability of investment capital per se is a vote of confidence in Mozambique, and reflects the positive investor sentiment and the strong belief in the long-term growth potential that Mozambique has to offer.

Mozambique World Economic Forum infrastructure ranking — Source: World Economic Forum

It is now critical for Mozambique to accelerate the development of investment opportunities to take advantage of positive investor sentiment. It is not to throw all caution to the wind, but neither is now the time to have the development of feasible infrastructure and resource opportunities hampered by red tape. Being a darling of the investment community only lasts a season: the only questions that should be relevant are how long we have and how much can be done.

Opportunities for investment
Infrastructure investment and development is critical if Mozambique is to achieve its economic potential and monetise its vast natural resources – so one would expect the country to not be short of investment opportunities, especially in the resources, energy and infrastructure sectors.

Analysis shows opportunities abound in both green- and brownfield across all the infrastructure sectors. This includes over $20bn of possible port, pipeline and rail projects in the medium term. There are also in excess of $12bn-worth of projects being developed in the energy sector: generation capacity could reach 16GW over the next decade. Delivering on just a fraction of these opportunities in the short term will be a great success story for Mozambique.

Mozambique’s estimated infrastructure capacity

900,000

Air passengers per annum

12m

Tons of rail cargo per annum

In Mozambique, it takes on average 13 days to register a business, compared to an average of 45.2 days in Sub-Saharan Africa.

The Government of Mozambique considers infrastructure improvement one of the pillars of its development strategy. As such, it has created development teams prioritising all new projects. This enables pro-active dialogues between the private and public sectors to facilitate the delivery of projects and minimise meaningless development expenditure and time (an issue rife throughout Africa).

The Mozambican Government is promoting the participation of the private sector to carry out investment opportunities to increase the development of general infrastructure, focusing on the logistics of import-export as well as general transportation. There is also a focus on creating an attractive business climate with various tax and trade incentives for qualifying projects.

Mozambique boasts an established stock exchange that has been in operation since 1999. Even though the exchange is small in global terms, there is an established capital market system that will mature as the economy develops and international capital flows into the country increase.

Challenges ahead
Access to financial services, funding and the sovereign credit capacity remain limited: this is one of the obstacles to accelerating project development and sustainable economic growth. There is also the matter of exchange controls and the administrative process relating to these regulations that impact on foreign direct investments and investor confidence.

It is now critical for Mozambique to accelerate the development of investment opportunities to take advantage of positive investor sentiment

The shortage of liquidity in the domestic banking system and sovereign credit risk create the need for bilateral agencies or multilateral development banks to fill the gap and try to facilitate increased liquidity in the local market. There is an increased focus on Mozambique by these agencies, but what is also needed is some out-of-the-box thinking to deliver products that will develop the local financial system and capital markets so they can create tangible and sustainable financial capacity for Mozambique in the long term.

Skills development and human resource capacity building will be needed to keep the Mozambican economy on a high growth trajectory. It will require a continued investment in the development of its people, in conjunction with creating feasible long-term job opportunities to give the youth of the country a hope and a future.

Despite the challenges, the Mozambican economy is headed in the right direction. One should be optimistic about the country’s long-term intentions to implement an economic revolution that will empower its people.

Iran sanctions: ‘people often adopt sanctions simply because they can’t think of any alternative’

Posted on November 24, 2014 by Ashton Wenborn

For the six world powers in talks with Iran, the goals have always been clear: blocking the Islamic republic’s path to a nuclear weapon, and lifting sanctions on the country that have crippled its economy and had a knock-on effect for the rest of the world. World Finance speaks to Lord Lamont, former Chancellor of the Exchequer and Chairman of the British-Iranian Chamber of Commerce, to ask what an agreement would represent.

World Finance: Lord Lamont, sanctions on Iran have been tightening since 2005, but you’ve always been strongly opposed to these. Why?
Lord Lamont: Well I’m not saying no action has to be taken against Iran’s nuclear programme, but I have pointed out that I think the history of sanctions producing the political results that one wants are few and far between.

For example, American sanctions against Cuba I think have strengthened the communist regime there. Equally, I think one of the effects of sanctions against Iran has been to strengthen the element of the state in the economy, the stake of the revolutionary guards in the economy, and to bankrupt the private sector and drive them into the arms of organisations like the revolutionary guard.

American sanctions against Cuba I think have strengthened the communist regime there

I’m not at all convinced that sanctions, generally, produce the political effects people want.

World Finance: What are the alternatives?
Lord Lamont: People choose sanctions simply as an alternative to war. I’m not suggesting we should go to war, but I think people often adopt sanctions simply because they can’t think of any alternative.

World Finance: How much does a resolution to the Iran talks mean to the world economy?
Lord Lamont: The outcome I think could be profound. Iran is obviously a large, important country. It could play a much more important part in the whole Gulf region, but you have really the last emerging market to have great size, not comparable in size to China, but it’s a major market, and it’s about time that it came back to the world economy and became part of the world community. Of course, that necessitates some changes in Iran’s behaviour as well.

World Finance: Most people expect there to be an extension on the November 24 talks, but how long can this go on for? How long can Iran’s economy sustain itself under these sanctions?
Lord Lamont: You would have thought not long, because the effect of sanctions has been very severe on the Iranian economy. But, very oddly, in the last year I would say, after Rouhani’s election, there’s been such an upsurge in optimism. The mere fact that these talks are taking place has had an effect on confidence.

Even if the talks don’t produce a dramatic solution, a comprehensive solution, but it is obvious that Iran is going to have better relations than in the past, I think some of these good effects will still continue.

Also I don’t think you should underestimate the degree to which Iran can turn more towards Asia, India and China. I don’t think that they want to, I actually think they would like to engage more with the West.

World Finance: Iran has said that the other side’s greediness could scuttle negotiations, are we being greedy?
Lord Lamont: The Iranians I think by that are probably referring to the timescale in which sanctions should be lifted. Obviously from an Iranian point of view, they would like to see sanctions lifted immediately. Obviously from a Western point of view, they would want proof of Iran’s good behaviour over a period of years. So there has to be a compromise.

World Finance: Well it’s no secret that we’re headed for another recession, David Cameron said just as much at the G20. So is Iran the problem it once was? Surely we’ve got bigger fish to fry, is now the time to be limiting trade revenues?
Lord Lamont: Well, you could say that, but this is politics isn’t it. Iran can’t, by opening up, solve the problems of the world economy, even though it would be I think a very welcome development, and of course you’re right.

Sanctions hurt people both ways, people don’t always take that on board that, if you inflict pain by not selling things to Iran, that is at a cost to people who would otherwise have received the revenue from the export. There are no such things as one-way sanctions, but we think we can take it and that Iran can’t take it. But no, this is economically, of relative significance.

I don’t think you should underestimate the degree to which Iran can turn more towards Asia, India and China

But I think politically and diplomatically this is hugely important because Iran is a major player in the Middle East, and I’m not saying that if the nuclear issue is resolved Iran’s relations with the West will become dramatically different, but even if they become a bit different, that could make a profound difference to the politics of the Middle East.

World Finance: So as the Chairman of the British-Iranian Chamber of Commerce, why have you chosen to be so strongly invested in such a controversial country?
Lord Lamont: I got interested in Iran through a couple of businesses I was involved in years ago. I have no direct involvement in Iranian business matters now, but I’ve just become very interested in it as a political problem. My interest is largely political, although I’m Chairman of the Chamber of Commerce.

Over a decade I’ve had the opportunity of meeting quite a lot of Iranian politicians and officials, and I’ve for a long time had this feeling that this country has the capacity to change, this country could be an ally of the West. It’s a remarkable country, full of talent, fully of promise which has been locked out, and I think it would be better for everybody if we could just resolve this difference.

I think there’s caricature on both sides. The Americans and the Iranians just don’t seem capable of understanding each other half the time, and misrepresenting each other, but it shouldn’t be that way and it should be possible to bridge the gap.

Seguros Inbursa: Mexico is a new frontier for insurance

Posted on November 21, 2014November 10, 2014 by Ashton Wenborn

Although insurance penetration in Mexico is among the lowest in Latin America, the size of the sector is second only to Brazil. Underpinned by impressive social and economic gains in years passed, the country’s insurance market is looking up, and Mexico’s emboldened investment prospects, combined with key structural reforms and a stable regulatory framework, could spark the beginnings of an insurance sector boom. In only the last 10 years, the country’s insurance market has doubled in size however, there is still huge potential for expansion.

What’s more, the introduction of Solvency II standards to Mexico’s insurance market has cemented the country’s standing as a reputable place to do business and a fertile landscape for growth. In short, economic and social developments mean that the insurance industry is suitably diversified, well capitalised and competitive enough to contend with neighbouring nations. No longer the immature market it once was, Mexico today represents a promising new frontier for growth for so many industries, insurance included.

Insurance penetration in Mexico has fallen far short of its neighbouring Latin American nations, although there are still many opportunities for expansion

Analysts, not least those at Fitch Ratings, expect growth in the country’s insurance sector to mirror that of the economy, as major names look to convert the country’s momentum into premium growth, despite the added costs that have come by way of increased regulatory scrutiny. Although penetration numbers are slim, the opportunities to attract additional customers number in the many and, for as long as insurance players keep pace with new developments, premiums will continue to rise and the opportunities for growth improve.

Historically speaking, income inequality, coupled with the region’s exposure to natural disasters, has kept a lid on insurance penetration, with many firms opting out of what is, by global standards, an undeveloped insurance market. Other companies have, however, expressed a willingness to bolster their presence in Mexico and the surrounding Latin American region, and capitalise on what opportunities have been awoken by recent changes to the country’s economic, social and political climate.

The story of Inbursa began in 1965 with the company Inversora Bursatil. Through the years, other companies in the financial sector were acquired and by 1992 Grupo Financiero Inbursa was consolidated, incorporating all of these companies. Since then, it has offered a number of services through its subsidiaries – among them banking, investment and insurance – and is well positioned to improve upon the sector’s present complexion. World Finance spoke to Rafael Audelo, CEO of Seguros Inbursa, about the insurance market in Mexico, and how the company plans to expand upon its presence in Latin America and beyond.

In what key ways has Mexico’s economy changed in recent years, and how has this influenced the insurance market?
In recent years, Mexico has maintained economic stability due to three main factors: controlled inflation, manageable debt and a renewed democracy with a broad political receptiveness. Since last year, the current government has been promoting a series of structural reforms in energy, tax, education, and telecommunication, among others. Fast-forward to today and these reforms are starting to provide new opportunities and create a greater dynamism in the economy, which undoubtedly will result in growth for the sector and for Inbursa.

Can you talk to us about the insurance penetration in Mexico, and how this compares with neighbouring nations?
Unfortunately insurance penetration in Mexico is low, no more than two percent of GDP compared to other countries in Latin America. For example, for many years we have been looking to the implementation of compulsory motor insurance, given that only 27 percent of vehicles have it here in Mexico, whereas in other Latin America countries they have it already implemented.

Change in insurance premiums in Latin America graph — Source: EY. Notes: *Adjusted to US exchange rates as of 31 Dec

Situations like these are a great opportunity for growth, especially in the area of personal lines – homeowners, motor, life and health – and small and medium companies.

What are the biggest opportunities and challenges for insurance firms in Mexico?
Today, the priority of the population is to meet their immediate basic needs and, in doing so, insurance becomes secondary, which is why Mexico has a very low insurance rate. However, I am convinced that as the Mexican economy continues to grow and financial literacy blooms, incomes will increase and there will be a chance to achieve a higher penetration in the Mexican insurance market.

Insurance firms will have to bear in mind two things: first, the promotion of an insurance culture and the importance of preventing and protecting against risks, and second, compliance of the new regulation. The new insurance law in Mexico has already been promulgated and has seen to it that Solvency II becomes the principle regulatory framework by which insurance firms are governed. By April 2015, all insurance companies will have to submit to it. Mexico will be a pioneer in installing Solvency II for insurance firms and, in our case, Inbursa is and will be prepared for it.

It is important to mention that Seguros Inbursa has been rated by three of the main agencies. Fitch Ratings awarded Mexico a ‘AA(mex)’ standard, Standard and Poor’s gave it mxAAA and AM Best Company gave the company an A rating.

How have the government’s energy reforms and the infrastructure plan affected the insurance market?
With the new energy reform and infrastructure plan, new market opportunities have been made available and, as a result, more foreign investment is coming to Mexico. The insurance market needs to take the initiative in this instance and support the development of a modern and renewed Mexico.

Seguros Inbursa has maintained for the last seven years the country’s biggest energy, property and casualty insurance policy, that of the Mexican oil company Pemex, which is one of the biggest in the world. It has given us extensive experience in the energy sector and with such a gigantic policy it is only natural to face losses, but we are dealing with claims without any difficulty because we have the knowledge, the experience and the sufficient capital and reserves to cover the risks we are retaining.

[Mexico] is full of young people with new ideas, willing to install new projects and to succeed

Explain to us what Inbursa’s regional strategy is for Latin America and if there are broader challenges for the insurance industry there
Seguros Inbursa has been evaluating new expansion plans in Mexico and in Latin America over the past few years. At this point, we are operating through reinsurance business for Mexican companies’ operations in almost all of Latin America’s countries and in the Caribbean.

Besides that, we are developing joint ventures and a number of partnerships with local companies to place personal lines massive products, which we have been developing in Mexico with good results. Because of this, we are moving operations into Ecuador and Peru and building synergies with local companies. Inbursa is providing the know-how and we are acquiring from them the local market knowledge.

What differentiates Inbursa from local competitors?
We rely on three important factors: a strong distribution channel of more than 350 branches across the country, a strong big data base for a cross-selling process and a robust sales force (15,000 financial advisors) able to promote all kinds of financial services, including credit cards, loans, pension funds, bonds and insurance. It is important to mention that we are not only an insurance company, we belong to a strong financial group, which provides all kinds of financial services with a diversified portfolio of products, that helps us to build a very strong long-term relationship with our clients and, most importantly, helps us to create value and loyalty.

Tell us about the penetration of Grupo Financiero Inbursa through Inbursa in the Brazilian market, and its growth forecast for Latin America
In the case of Brazil, Banco Inbursa has recently acquired the Banco Standard de Investimentos to offer banking services through loans, personal credits, among others, with an aim to include new products and services along the way. By now, as I mentioned before, we have quite a few insurance and reinsurance operations in the Latin American market.

What are your ambitions for Inbursa moving forwards?
Our major challenge is to have steady growth with profitability. We are in a country that has everything to achieve sustainable growth; it is full of young people with new ideas, willing to install new projects and to succeed. Foreign and local investment is widely available in Mexico and in Inbursa we are prepared to face new challenges. We have a great team of people, we have the strength and financial solvency, and a wealth of experience and expertise that we have built since the beginnings of the insurance company in 1935.

Lord Lamont: George Osborne deserves good press

Posted on November 21, 2014 by Ashton Wenborn

World Finance: Your contemporary George Osborne has come under a lot of flak of late, with his dealings in the economy, so what would you do differently?
Lord Lamont: Well I don’t think George Osborne has come under such a lot of flak, I think by and large he’s had a pretty good press, and I actually think he deserves to. I think he’s done pretty well.

I think [George Osborne] has done pretty well

We hear an awful lot of talk about excessive austerity. I don’t think the austerity has been excessive, what was excessive were the debts we rang up before all this started, and we like many other countries have had to rein in after the financial crisis, but I think it’s been done in a moderate way and with skill. I think it’s been well judged, and the result of that is evident in the faster growth Britain is enjoying, and the much fuller employment that we have.

So I think the government have done well. We obviously want to look forward to a new stage where, hopefully, living standards will improve. Obviously, in this period that we’ve just been through, living standards have not been improving. That’s been unavoidable, because of the excessive indebtedness, the amount of prosperity that we borrow from the future, but hopefully, if we continue on the right path, gradually living standards will start increasing again.

Liechtenstein fights back as market conditions threaten Europe

Posted on November 21, 2014November 10, 2014 by Ashton Wenborn

European financial markets became more relaxed in 2013 and the European economy was able to stage a recovery in the second half of the year. Liechtenstein’s financial sector was one of the beneficiaries. However, the risks faced by the financial system are still high – partly because of the continuing low interest environment and partly because European banks still need to hold a lot of capital, while government debt has not come down noticeably.

Tensions on the financial market have intensified again in 2014. Capital outflows from emerging markets, the crisis in the Ukraine and fighting in the Middle East have led to greater volatility on the markets and caused share prices to fall.

As all this is happening, Liechtenstein’s financial industry finds itself in the middle of a challenging transformation process. This process relates in part to the trend towards automatic exchange of information in tax matters and tax compliance for new business. Thanks to Liechtenstein’s excellent operating conditions, high degree of legal certainty, absence of government debt, modern and competitive tax law and attractive tools for asset structuring, the financial industry continues to play a major role in the country’s economy.

In 2013, Liechtenstein’s banks recorded a net inflow of new money, though persistently low interest rates are reducing earnings power. Customer assets managed by funds and asset management companies have also grown. These institutions have benefited from the rise in securities prices, while life insurance premiums have fallen.

The transformation process
Liechtenstein’s financial market is tightly connected with the rest of the world, so any crisis on the international markets quickly affects the principality. The next package of reforms should, therefore, ensure that banks are protected as much as possible from any crises. There are four sets of measures required: the first concerns prevention through high capital adequacy ratios, the second covers protective measures such as early intervention, the third concentrates on rescuing a bank’s system-relevant functions and the fourth concerns the bankruptcy process and bank liquidation.

Cooperation and transparency are increasingly important for market access and combatting abuse

It should be noted, however, that Liechtenstein’s banks already have very high capital adequacy ratios and have never had to call on state support.

Meanwhile, the transformation process continues. Cooperation and transparency are increasingly important for market access and combatting abuse. In November 2013, Liechtenstein set out its position on the future international standard for automatic exchange of information on tax matters. The main condition is that constitutional procedures and protection of confidentiality have to be guaranteed and thus that any information provided is used exclusively to clarify tax affairs. There are some key questions relating to automatic information exchange: what are the exact conditions for establishing tax compliance? How will constitutionality and data security be guaranteed in any bilateral agreement? Which data will be exchanged?

International standards have been established, but they still leave room for manoeuvre in actual implementation. Using this room strategically will play an important role in giving clients confidence in the Liechtenstein financial centre.

Securing market access
International cooperation goes beyond tax, however. Cooperation on financial market supervision, for example, has become crucial for market access.

Securing market access remains a challenge for the Liechtenstein financial sector, as can be seen from the temporary refusal to allow Europe-wide cross-border management and the sale of alternative funds from Liechtenstein. This regulatory blockage has been caused by constitutional problems that Norway and Iceland have had with the adoption of the EU ruling on the three European regulatory authorities in the European Economic Area. So even though Liechtenstein has put the legal conditions in place, it cannot yet reap the benefits.

As well as smart implementation of the regulations, the expansion of the network of double taxation agreements and a debate about developments in future years are vital to the future success of the financial centre.

One of the main topics for the future is the digitalisation of the financial world. The way information technology has changed our lives and work represents one of the most important social transformations in human history. The financial services sector wasn’t the only one to be taken unawares by the speed and depth of the digital revolution. Digitalisation calls into question many aspects of the relationship between clients and their financial institutions. It has also changed the entire working environment for financial companies.

Round the clock availability of services and more intense dialogue are central elements in the new relationship with clients. Questions of data protection and privacy have to be viewed through the new prism of the digital world. It is becoming extremely difficult to ensure total privacy, so it will become much more important to clarify with customers exactly which areas should be covered by enhanced protection and how this protection can be guaranteed. The interaction between legislation and the financial industry is crucial here. If it is used actively in the interests of clients, new opportunities will arise for Liechtenstein as a financial centre.

‘We follow our clients east to west’: Mashreq Bank on its expanding presence

Posted on November 21, 2014February 2, 2015 by Ashton Wenborn

The Middle East is one of the world’s fastest growing markets in the international financial arena. World Finance speaks to John Iossifidis, Executive Vice President and Head of International Banking at Mashreq Bank, to discuss how the company has cemented its place in the region and beyond.

World Finance: John, tell me about some of the regional expansion plans your bank has embarked upon.
John Iossifidis: I joined the bank in 2009, and the ambition at that time was really to grow international, because we realised that our UAE home base was going to be fairly limited in terms of our overall ambition. There’s 52 banks in the UAE, so growth and competition is fierce.

We wanted to grow beyond that, and in that five years we’ve opened in Bahrain domestically, opened in Kuwait, expanded into our presence in Egypt, and continued to expand in Qatar. And we’ve developed a global financial institutions business.

World Finance: So tell me how demographic have actually contributed to this transition.
John Iossifidis: Part of it really for us was, as I said, strategy in terms of diversifying away, and our strategy is to follow our clients. Our clients have been regionalising, so the shift in terms of being a regional player and a regional bank have meant that we provide regional solutions to our clients as they grow outside of the UAE as well, because the UAE is a hub, and Dubai is a hub, and you’re actually seeing people moving into Bahrain, Kuwait, Qatar, and Egypt is back again. Now they have some more stability after the recent change in government.

I expect more investments coming in to Qatar

We follow our clients east to west, and by that I really mean that China, Japan, Korea, India, as they do business, firstly, with the Middle East, and secondly through the Middle East and into Africa. So we follow the trade flows and the investment flows as they go from East Asia to West Africa.

World Finance: So as your non-UAE clients mature and expand as you just described, can you tell me what sort of services are they demanding from you?
John Iossifidis: Well typically they want us to provide solutions, they want us to provide capital for them in terms of different investor bases, they want us to provide simple trade finance services and the ability to move their goods from China, or importation of commodities into Africa, or heavy machinery into the UAE as they continue to develop and invest in infrastructure.

World Finance: Excellent. Now what sort of investments are they particularly looking to tap into?
John Iossifidis: At the moment we’re seeing a lot of infrastructure investment in the Middle East, and that infrastructure investment is there, they’re monetising oil wealth at the end of the day, and we’re seeing huge amounts of infrastructure investment to create jobs for the future, whether it’s getting ready for Expo 2020 in Dubai, or whether it’s becoming a tourist hub or in Qatar getting ready for the football World Cup.

They’re also putting in infrastructure in terms of railways, airports, shipping ports, etc.

World Finance: Now we all know that the UAE as well as Dubai have really established their reputations as financial hubs. Tell me about some of the other emerging markets in the Middle East that are worth watching for?
John Iossifidis: I expect more investments coming in to Qatar. You’re seeing a play happen in Saudi Arabia, for them to be included in the indexes as we move forward. I think the other one really is with stability seeming to return into Egypt. More broadly, and it really does depend on our business and our business model, to be honest, Turkey continues to be of great interest globally.

And as I said, client base going from east to west, and following those trade flows. Africa is of huge interest everywhere, China is of huge interest everywhere.

World Finance: Exciting to watch, as the industry expands its reach and Mashreq Bank’s place in that. Thank you so much John for joining me today.
John Iossifidis: Thank you very much.

KPMG: get to the core of your customers to promote business growth

Posted on November 21, 2014November 21, 2014 by Ashton Wenborn

To become more effective and provide greater value, most finance organisations are striving to better understand business, provide relevant analysis and insights, and enable strategic decisions. But in today’s world, these capabilities are just the table stakes. To truly elevate their game, leading chief financial officers (CFOs) are turning their organisations into indispensable business partners. They’re doing so by changing the way they think about their internal customers – and how to deliver the services that matter.

Indeed, customer centricity isn’t just for marketing departments. If you’re trying to increase the value and credibility of your finance organisation, take a close look at the needs of your internal customers.

Understanding business customers
What challenges do different functions and business units face in executing their responsibilities? What kinds of insights do employees in these areas need to do their jobs better, and at what level of detail? To answer these kinds of questions, you need to understand not only what your internal customers value — but also what their customers’ value is. This kind of knowledge is the beginning of a meaningful business relationship.

For business partnership to be most successful, finance employees need to hone their softer skills such as influencing, negotiating and listening

To improve your value, apply a commercial mentality to the management of each relationship. For example, consider assigning each customer a relationship manager, who can regularly assess the customer’s needs, resolve concerns and provide the customer with a single point of contact – all while improving their interaction with the finance organisation.

Moreover, consider developing ‘service statements’ that define the services your organisation will provide, the goals, roles, timeframes and, importantly, the customer’s responsibilities during the relationship. Each customer should be actively involved in defining the responsibilities and objectives of their finance partner, but your organisation will need to communicate clearly the kinds of services you will provide – and the kinds you won’t – in step with your strategy for business partnership.

In addition to determining your customers’ needs, make sure you have the capacity to meet them. Building this capacity may involve some changes to your operating model, so you can free up your staff from their core finance work to serve as business partners. In fact, according to our conversations with CFOs, true business partnership requires a minimum of 15 percent of the finance team’s time, and business partnering should not be viewed as a part-time or secondary role – but rather a core part of the team’s responsibility.

Another consideration for capacity is the location of your finance employees. For successful relationships, business partners should be co-located with their internal customers. This way, customers feel that their finance partners ‘belong’ to them and are an integral part of their team – which positions finance as a creator of business value.

Meeting customer needs
Your employees also need to have the right skills for business partnership. That is, your internal customers will assume their business partners have technical skills in finance, but do they also have the ability to challenge the business in a firm and constructive manner? Can they balance empathy and customer service with an ability to say no to certain requests, explaining why the focus needs to be on other areas? Are they easy to do business with?

For business partnership to be most successful, finance employees need to hone their
softer skills such as influencing, negotiating and listening. A team that operates in this way can be fully involved in a customer’s decision-making versus merely providing information, so it’s important to consider your employees’ training and development.

To complement their soft skills, good business partners also need strong commercial skills, as well as a broad understanding of the business. So you might look to MBA-qualified employees to supplement your more traditional CPA-qualified team members. To build your team’s knowledge of the enterprise and experience in different functions, rotate your business partners through a range of different roles – ideally on two- to three-year assignments – so they can develop their skills and learn different parts of the company.

Of course, to succeed with business partnerships, finance must excel at core competencies, which are critical to building credibility. Otherwise, if you’re creating management reports with errors or not completing payroll on time, the business is unlikely to seek you out for decision-making advice.

With this foundation in place and a focus on customer centricity, the finance industry is in a prime position to add value as a strategic business partner. Leading CFOs are going beyond a numbers-focused roles to make their organisations a key player in strategic planning, growth and operational efficiency. Will you be one of them?

Terrorists have ‘any number of routes’ to achieve financing

Posted on November 20, 2014 by Ashton Wenborn

Money laundering and terrorist financing. How big a risk are these to companies, and how easy is it to inadvertently be involved? Globally, regulations have come in which affect certain businesses, especially banks and other financial institutions, to target exactly this. World Finance discusses more with Dennis Cox, author of The Handbook of Anti Money Laundering.

World Finance: Dennis, terrorist financing, how does this work exactly?
Dennis Cox: Obviously terrorists need money, that’s how they get their arms, that’s how they can fight their wars. They’ll be doing a variety of things to do that. We’ve seen extortion, we see kidnapping, and you see drug trafficking, and you see theft of various types. There’s any number of routes for these funds to go in.

They then will want to do what? They’ll want to pay people, people to fight their wars, they’ll want to pay for munitions of various types. What they have to do is to try to find the funds to get into the places where those products are sold, and those mostly in the western but not entirely so, and they have to show them as being legitimate funds.

Clearly, a legitimate armaments business will not want to deliberately go out and fund a terrorist organisation, but they won’t possibly do it directly. So it tends to go through a series of third parties and different counter parties to try to disguise where the eventual delivery of the assets are. So by the time the armaments firm’s doing it, it looks like legitimate business, but at the end of the day it’s not.

[Financial sanctions are] better than nothing

World Finance: Now can companies inadvertently get involved, and how can they spot this?
Dennis Cox: Because it’s not the terrorist that normally goes directly to the armaments manufacturer and says ‘please can I have some guns,’ then what may be a legitimate looking business could be the firm that approaches the armaments manufacturer. And indeed, they may be doing some legitimate business, at the same time as doing some business that is not as legitimate.

So for the poor armaments manufacturer then, they’re at the disadvantage of seeing legitimate work, and they’re actually ending up doing something that is not something they would have wanted to do.

World Finance: How effective are financial sanctions in combatting terrorist financing?
Dennis Cox: They’re better than nothing. The difficulty is, again, with terrorist financing as with financial crime deterrents itself, is that they tend to get ahead of the market, and they will find ways around the rules.

What we can do is make it more difficult for them, and try to, where we can, lay controls in place. But there’s of course a difference between things that are in the primary market, where you buy directly from a manufacturer, and things that are in a secondary market, the second hand market, the recycled market. And the recycled marker is much harder to police.

World Finance: Well investors, both private and institutional are always on the lookout for greater gains. Often, this takes them to emerging markets, which lack transparency. Would you consider emerging markets to be more prone to terrorist financing?
Dennis Cox: Some of the emerging markets have certainly been where the terrorist financing is actually ending up, in that that’s where the wars are being fought, and when you’re thinking about some of the things that are going on at present, which are some of them are emerging market by nature, most of that financing is probably not done in those emerging markets. It’s probably done elsewhere, and the goods are then shipped to the emerging markets.

What we can do is make it more difficult for them, and try to, where we can, lay controls in place

World Finance: So penalties for terrorist financing, are there any examples of high profile companies being involved inadvertently or not?
Dennis Cox: Not a lot. You know if you’re an arms manufacturer that there is a higher risk that your assets could eventually be show on television being used by a terrorist. That’s at the heart of reputational risk, certainly will stop someone wanting that to happen. And particularly if you’re using something like a missile or something of that type, something that’s a major asset, then it doesn’t look good if you were the manufacturer of it.

If you’re a company, you’re just showing the greatest care, that’s probably all you can do. Try to see if you understand who’s really buying it, try to see if the person is really representing that firm, and do what you can to try to stop it happening.

World Finance: So what do you think companies really need to be aware of?
Dennis Cox: There are rules, there are laws here. This has got a zero de minimis. It is criminal activity, and ‘thou shalt not.’ It’s not got a value set below it, but those are the rules to make sure you don’t break the law, they’re not the rules to maintain your reputation, and firms need to think what it means to create a brand and how quickly you can lose it. All of these rules are always a minimum, they’re not a maximum, and you should do what you think is right, as long as you do that, then you’ve got to be able to justify your actions.

Absolute return UCITS funds increase in popularity

Posted on November 20, 2014November 10, 2014 by Ashton Wenborn

European investor demand for accessing alternative investment exposure through liquid, regulated onshore vehicles, continues to grow. With equity markets at record highs and fixed income yields near or even at record lows in the case of Europe, investors are looking to gain access to alternative sources of return. It is against this backdrop that undertaking for the collective investment in transferable securities (UCITS) absolute return continues to gain traction among both institutional and retail investors.

In June this year, assets in absolute return UCITS funds increased to around €184bn (see Fig. 1), up from approximately €159bn at the end of 2013. This was underpinned by the general popularity of the UCITS brand, which now represents one of the fastest-growing segments of the fund management industry.

Particularly in Europe, regulation relating to alternative investments continues to become more onerous and often limits the investment universe and eligible assets available to investors. For example, AIFMD and Solvency II regulations in Europe are pushing more institutional investors to allocate to alternative investments in regulated onshore fund structures, in a bid to minimise capital charges. Furthermore, wealth managers continue to allocate client capital to UCITS absolute return, as clients, still affected by 2008, want exposure to liquid, regulated investment products.

Popularity surge
Given the well-documented problems experienced by hedge fund investors in 2008, the popularity of absolute return UCITS funds has increased. For hedge fund investors, UCITS-compliant vehicles address some of the more prominent concerns of investors including, but not limited to, liquidity, custody of assets, regulation, transparency and risk management.

€184bn

Absolute return UCITS fund, June 2014

€159bn

Absolute return UCITS fund, December 2013

Liquidity is particularly valued by investors following the financial crisis. Most offshore hedge funds offer monthly or quarterly redemption frequencies, but, under UCITS legislation, UCITS funds are compelled to offer redemptions at least with a bi-monthly frequency – with most UCITS funds offering daily or weekly liquidity. Given the high-profile scandals relating to fraud that affected certain offshore hedge funds during the financial crisis, the drive to regulate hedge funds has increased, with UCITS addressing this particular concern.

A UCITS fund, including all documentation relating to the fund, needs to be approved by the local regulator at launch, for example, by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg or the Central Bank of Ireland in, you guessed it, Ireland. Regulatory monitoring post-fund inception is particularly focused on the use of financial derivative instruments (FDI) by the UCITS fund as well as general risk management processes employed.

Independent service providers (trustee, custodian, administrator and auditors) are another pre-requisite for UCITS funds and have to be selected by the fund and approved by the local regulator.

Portfolio concentration limits that form part of UCITS limit the ability of the investment manager to take large idiosyncratic exposures and reflect one of the principle concepts of UCITS, namely diversification. Adherence to these portfolio concentration limits, such as the well known 5/10/40 rule are monitored by the trustee and have to be respected by the investment manager. Exposure limitations are also in place, for example, no more than 20 percent of net assets can be invested in cash deposits with any one-credit institution and the maximum exposure to a single OTC derivative counterparty is five percent (increasing to 10 percent for certain credit institutions).

Leverage is also limited to 10 percent of net assets and can only be used for short-term liquidity purposes. Transparency, another deficiency unveiled by the financial crisis, is also facilitated through UCITS by means of the Key Investor Information Document (KIID) that discloses risks and investment objectives of the UCITS fund to the investor. This is important, as although UCITS provides increased investor protection, the regulations do not aim to ensure that all UCITS-compliant products have the same risk/return objectives. Not all UCITS funds are made equal.

Eligible assets
The UCITS framework also defines eligible and non-eligible assets. For example, real estate and private equity investments are not eligible assets. The Eligible Assets Directive also prohibits the holding of physical commodities. Critics argue that these limitations are a negative for UCITS, as not all absolute return strategies are replicable within the UCITS framework. Certainly less liquid strategies, such as distressed investing are less suited to UCITS, but even in the case of commodity strategies, although the holding of physical commodities is not feasible, alternative UCITS funds can gain commodities exposure through indexation strategies, which are highly liquid and meet other UCITS rules relating to diversification.

Further criticisms have also focused on the limitations of short selling, which is a fundamental element of hedge fund investing and traditionally a source of a large amount of returns and alpha generation for hedge funds, as well as serving simple hedging purposes. While the UCITS directive prohibits even ‘covered’ shorting where stock is legitimately borrowed before selling in addition to ‘naked’ short selling, synthetic shorting can be executed through the use of cash-settled derivative instruments that are entirely permissible under the UCITS directive. The shorting element of a traditional offshore equity long/short fund, using securities lending can be easily replicated by instruments such as correct for difference (CFDs) or equity swaps within the UCITS structure.

Alternative investments are increasingly on the radar of both institutional and retail investors as traditional classes such as equities and bonds are generally regarded as expensive, certainly from a cyclical perspective and even from a historical view. For example, a survey by BlackRock in December 2013 of 87 of the world’s largest institutional investors, representing over $6trn of investable assets, found that 28 percent of respondents said they intended to increase allocations to hedge funds in 2014. Yields on 10-year German bonds dipped below one percent in August 2014 and with German inflation running at 0.8 percent year-on-year for the month of July, this barley results in a positive real return even with an investment maturity of 10 years (the German two-year note yield actually went negative in August 2014).

This dearth of yield is forcing traditionally conservative investors to look at unconstrained strategies and diversification to their long-only allocations in an overall portfolio context. It is against this backdrop that Byron Capital Partners believes that absolute return fixed income and relative credit strategies, structured within a UCITS wrapper, can offer superior risk-adjusted returns.

A diverse fund
Byron Capital Partners launched the UCITS-compliant Byron Fixed Income Alpha Fund in November 2010, to respond to traditional fixed income investors’ requirements to look for uncorrelated sources of return to global bond indices. This year the Byron Fixed Income Alpha Fund went up approximately 3.43 percent for the year through mid-August. In contract the Byron Fixed Income Alpha Fund returned 3.47 percent in 2013. The ability to achieve alpha on the short side particularly manifested itself last year with gains being made in short US Treasuries for example, that sold off as of May 2013 following former Federal Reserve Chairman Ben Bernanke’s taper talk.

Furthermore, against the broader hedge fund universe, the fund has performed well with the HFRX Global Hedge Fund Index up only 0.9 percent for the year to date through August 15 2014. Since fund inception, credit risk has been tightly managed with the fund running an average credit rating of BBB, and duration has averaged approximately two and is currently 1.8.

While the fund has the ability to take sub-investment grade exposure, as per the prospectus, exposure is limited to 40 percent. These limitations serve the fund well as reflected by the recent sell off in high yield bonds with the Lipper High Yield Bond Index declining (1.29 percent) over the month of July 2014. In contract the Byron Fixed Income Alpha Fund returned 0.22 percent over the same month. Byron Capital Partners sees one of the larger risks in credit markets currently being secondary market liquidity.

The credit research team at RBS recently estimated that liquidity in secondary credit markets has fallen by 70 percent since 2005. Since the financial crisis, large banks have reduced bond inventories substantially following regulatory changes that discourage prop trading and increase required capital charges. Dealer inventories of US corporate debt have been under $70bn for two years in comparison to mid-2007 when that number was $250bn (these statistics also do not reflect outstanding US corporate bonds increasing by approximately 30 percent to $6.5trn over the past two years). As a result, a potential shortfall in liquidity may be required when needed most and raise volatility.

Against this backdrop, the Byron Fixed Income Alpha Fund continues to exhibit high levels of diversification (in excess of UCITS requirements) with the aim of keeping the portfolio as nimble as possible and responding to changes in market conditions. The ultimate goal of the fund remains a focus on the generation of absolute returns with low volatility over different cycles in fixed income and credit markets.

‘Investors are seeing the efforts that Greece is undertaking’, says Attica

Posted on November 20, 2014February 2, 2015 by Ashton Wenborn

After four years of exile from market borrowing, Greece is back with a vengeance, but is the real economy discouraging investor sentiment? Representatives from Attica Wealth Management, Theodore Krintas and Dimitra Vassilakopoulou, shed light on the financial situation in their country.

World Finance: Dimitra, do you think Greece was even ready to enter into the bond market?
Dimitra Vassilakopoulou: Oh yes, I believe so, definitely. You see, Greece had to convince the financial community that it had managed to overcome one of the deepest and hardest crises in history, losing almost 25 percent of GDP. So great achievement like primary surplus and current account surplus had to be sealed by the market’s recognition.

Also, the timing proved to be very right. As the issuance over subscription was impressive, and the yield came out at very decent spread levels. We have to understand that this issuance put Greece again, after four years of absence, in the market’s map.

World Finance: Very interesting. Greece’s really high returns in a period of ultra-low interest rates must have shored up investor confidence, or did it?
Theodore Krintas: Absolutely, we are in a period where all investors all over the world are hunting for yields. Now offering a higher yield, an extra yield, being a country in Europe after all this effort, that Greece remains in the European Union, it is very important.

The problem of a high debt level remains, and we have to face it

But there is also another part that is important to state here. The fact that investors are seeing the efforts that Greece itself is undertaking, and I understand that this is going to be elaborating more and more in the months to come.

World Finance: Now some of the systemic issues still riddling Greece, of course, very high debt levels. We’re looking at numbers of over €300bn. Tell me, what does that do in terms of negating the impetus or momentum that you’ve been able to build in the bond markets?
Dimitra Vassilakopoulou: The problem of a high debt level remains, and we have to face it, but it does not consist a threat at the moment, so we have to realise that 85 percent of our debt is in the hands of our European partners, the ECB and the IMF. So the rate, the average rate of our debt is very low, it’s lower than 2.5 percent, and the duration profile is very favourable.

So what we have to do is not to lose all of our energy on that. We should focus on reforms and on exploring our competitive advantages, which could be agriculture, tourism and shipping, in oder to restart our economy and to pay off all of our debt.

World Finance: Now you’ve just talked about some of the investor confidence. The Greek government has in some ways denied the scale of this crisis. How does that hit at investor confidence both individually and locally?
Theodore Krintas: In a huge way, I’m afraid. It has been a very long time with Greek politicians representing the situation in a different way than it was, so finally the investors lost the confidence in the country. That hit the country even more during a very difficult period.

I have to say that this has already changed. Actually, it is my belief that Greece has changed already, and the fact that we’re seeing some remaining, they’re remaining on the same path, is because it has been there for the past 30 years or so. I understand that the European partners along with the IMF are helping the country to understand what should be the next steps.

The populations has also believed, decided, that it would take on the next steps, and for sure Greek statistics are not on the table any more.

World Finance: Now in order to continue with the growth that you’d like to see happen, what sort of regulatory changes do you want to see the government enact as soon as possible?
Theodore Krintas: There are a couple of very important steps that the government has to take, the sooner the better. It is very important, for example, to create a stable tax, an economic environment for the country for the next five to ten years. Stability is very important in order to attract foreign direct investments, and Greece is in big need of foreign direct investments for the simple reason that the money that exists in Greece is not enough in order to restart the economy quickly. So the first step, focus on tax and economic stability.

The second step, focus on helping enterprises to start up and grow. Greek and international enterprises. I think if those two things happen sooner, the economy will grow very quickly.

Greece has paid the price for all this behaviour

World Finance: Now in order to achieve some of the changes that Theodore just mentioned of course, you still want to have as much of a stable environment as possible, but as we all know, there has been tension, there have been protests in the nation’s capital, bombings even. How have those impacted the market?
Dimitra Vassilakopoulou: Greece has paid the price for all this behaviour, and for all its weaknesses, and especially its political instability. Things have changed dramatically, have improved dramatically. During the last two years, Greeks have finally realised that, without great sacrifices and hard work, their future looks gloomy. So extremists were pushed out to the fringes of the society, and we have managed this year, Athens tourism to become one of the best seasons this summer since the Olympic Games of 2004.

Even the opposition has become much more realistic, as everybody now realises that the strict European framework leaves no other alternative but to proceed with the necessary restructuring of our economy.

World Finance: OK, very positive to hear. Now I want to hear from you Theodore, do you think that Greece’s entering into the bond market is a signal that the European community has officially entered out of the debt crisis?
Theodore Krintas: It is a very positive signal, that is for sure, but we still know and we still understand that in Europe we have a lot of steps to take in order to get into a new growing era. So we are not in a crisis mode still. This is our belief. But there are still more steps to take, and I understand that the first step by Greece is entering the Euro market, the bond markets, was a positive. But we need more and more to come.

I hope that with leadership and vision over the European Union, that will grow for the prosperity of the people and the world in all, will come and will be the base of our future.

World Finance: Very exciting indeed. Good luck ahead to Greece. Theodore, Dimitra, thank you so much for joining me today.
Both: Thank you.

‘People don’t like Obama, that’s clear’: what’s next for the American economy?

Posted on November 19, 2014 by Ashton Wenborn

The future of the US economy is anything but certain with presidential elections looming. World Finance meets with Ryan McMaken, Editor of Mises Daily and The Free Market, to discuss what’s next for the world’s number one superpower.

World Finance: So Ryan, where does the US economy sit among other superpowers today?
Ryan McMaken: The US economy is still very strong compared to the rest of the world, and that seems to be the big word since 2008 or so, is: the US doing fine compared to other major economies in the world.

Most people who are living in the economy, middle class people, are aware things are not going that well compared to, say, how they were a decade ago or 15 years ago. People sense that employment is not great, that they’re not getting wealthier, but they look out to the rest of the world and the conclude, well things could be worse. So that’s very much the attitude that seems to be prevailing right now.

World Finance: Looking at the forthcoming elections, and the economy is obviously one of, if not the most important issues that Americans care about. What will Obama try to push through in his last two years?
Ryan McMaken: He doesn’t really have to do anything. All he has to do is say, hey, I had these great things I was going to do and the Republicans and Congress killed all of our great plans. Primarily the administration is going to rely on the central bank, and that’s where you’re going to see most meaningful policy.

The US economy is still very strong compared to the rest of the world

World Finance: And the contenders for the next presidential office, what are they likely to do?
Ryan McMaken: So much of politics right now in America is really just about personal issues. People don’t like Obama, that’s clear. Will that translate into a problem for the Dems in 2016? Quite possibly not.

Remember, Obama was re-elected two years ago, so there’s not a real reason to believe there’s a major ideological shift in this country. And so 2016 doesn’t look to be any sort of revolutionary watershed year. The economy will be lacklustre, and both parties will claim they can do better, and with the old guy going out, they’ll both be able to make that case.

World Finance: Unemployment is down below six percent, the economy is growing, and sentiment is positive in the markets. So why do so many Republicans feel Obama has had an unsuccessful presidential experience?
Ryan McMaken: Well the numbers look pretty good if you look at just the headline numbers in terms of employment and economic growth. But when you start to drill down a little bit more and you look at how many people are participating in the labour force, those numbers are at 30-year lows. You look at growth in wealth for real households, you look at people’s ability to afford an apartment or a home that they consider to be satisfactory, and there’s a lot of dissatisfaction there.

World Finance: How much of an issue is the withdrawal of quantitative easing?
Ryan McMaken: Well it looks like it’s going to be a major issue over time, but if we look at really what the fed has been doing this year, even as they started to cut back on QE and were saying they’re going to stop it, they were finding new and different ways to keep liquidity flowing into the market, there’ no reason to believe the fed is going to start selling off all of their assets. They’re just going to find other more subtle ways to continue to really put more money into the economy.

So is the money supply going to go down? Certainly not, that’s going to continue to expand. The fed is going to continue to have a very active role in making sure asset prices continue to go up.

So much of politics right now in America is really just about personal issues

World Finance: Obama was instrumental in hiring Federal Reserve head Janet Yellen. So how successful has she been?
Ryan McMaken: We refer generally to the Yellen-Bernanke bank at this point. After the 2008 crisis, the policy has been all the same year-to-year. More liquidity, increasing the money supply, really making sure that banks aren’t ever in a position where they might become insolvent, and a very close relationship between major banks, too big to fail institutions and the central bank and Congress, all to make sure there’s no real risk of any major economic disturbance.

Now, can they successfully manage that? They claim, hey, it’s no problem, we’ll end QE, we’ll start pulling all of that excess money out of the economy so there’s no inflation, but even the fed fully admits they’ve never done that before, they have no idea, they have no real plan at all. So people are just kind of hoping the fed knows what it’s doing, but there’s no actual evidence to believe that that is the case.

World Finance: With respect to Obamacare now, which has been a bone of contention, the aim was to get six million uninsured insured. But it has to have a knock-on cost to businesses, so has that incremental cost to mid-to-large size business thwarted growth, or at least delayed economic recovery in the United States?
Ryan McMaken: Well certainly it’s increased labour costs significantly, and so that’s a big problem for both employers who are looking to expand, and for people who want to get a job, especially more low paid people who don’t really have an alternative of different healthcare plans that they might be able to take advantage of.

The larger political issue of course is, what are they going to do about it to reverse that, and the Republican party has no plans whatsoever for actually undoing Obamacare, and it just looks like this is part of the economic landscape now, is that healthcare costs are going to go up, and quality may be going down. But in terms of major political changes to it, that’s not a discussion.

The economy simply is not existing on its own two feet

World Finance: What are the major challenges to America’s economy moving forward?
Ryan McMaken: Just dealing with the present crisis, which continues. It’s the same crisis that began in 2008, and that is an anaemic economy, an economy that is highly regulated now. To refer to it as a free market economy is really stretching the bounds of credibility at this point, because so much of the economy depends on a very active central bank.

The economy simply is not existing on its own two feet and employment continues to be weak as people leave the workforce, people are retiring early, and young people are not entering the workforce into fields that they receive training for.

World Finance: So the American Dream for most, is it now an even more distant reality?
Ryan McMaken: It’s very difficult for a lot of people. It’s definitely not getting any easier. If you happen to be well politically connected in an industry that benefits from help from the central bank or the treasury, then you might be going alright, but if you’re in an industry that’s all on its own, you might be looking for a lot more trouble in the future.

Greece can return to its former glory, says Attica Wealth Management

Posted on November 19, 2014November 10, 2014 by Ashton Wenborn

Greece experienced one of the deepest economic crises in history in 2008 and subsequently lost almost 25 percent of its GDP in six years. As expected, the financial sector, which remains the largest industry of the Greek economy, has suffered huge changes. The so-called banking sector has been downsized to six from 13 institutions, mainly through mergers and acquisitions. Meanwhile, the systemic banks control 90 percent of the industry.

Eventually these changes began to affect the Greek asset management market, which is the sector of our specialisation at Attica Wealth Management. Assets under management, consisting of open and closed end funds, real estate funds and private portfolio management, have narrowed by almost 50 percent in recent years to €12bn. We operate in an extremely competitive environment, currently in recession.

During these years we had to develop our own identity and build our competitive advantage. In doing so, the first step was accepting a vision that goes along with our principles in life. Our main target is to maintain our clients’ standard of living – to focus on their wealth preservation. We cannot predict the future and won’t promise the fulfilment of dreams. Mission accomplished, for us, means our clients have a good night’s sleep.

Since we consider ourselves global asset managers we are also determined to succeed overseas. We chase what we consider achievable in accordance with our potential. Our expertise derives from our long experience in the markets and our well-organised, faithful, flexible team, who are ready to overcome each and every difficulty.

One of the most common sayings in the literature of economics is that of combining strengths with opportunities

Physical advantages
One of the most common sayings in the literature of economics is that of combining strengths with opportunities. If one can combine natural advantages with serious services, we can also create such opportunity. It’s a small world and technology and available time make the impossible possible. Today’s business environment has several types of participants. When one offers well-being services, they must focus on the clientele that really asks for those services. In a country like Greece the target group remains small. Besides, the country is small. But at the same time all people are in possession of the most demanding asset – risk. Risk on all aspects of life and, as time passes, risk of well-being during retirement.

Greece has some outstanding natural advantages in the well-being industry. Mediterranean climate and nutrition, variety in landscape, one of the world’s biggest island complexes and east-west proximity. The country’s history (although recently not so heroic) and its monuments, inhabitants’ hospitality, openness and warmness are also key elements that help it compete. Greece also boasts a high school graduation level of over 85 percent, it is among the highest in Europe for university degrees per 1,000 people and approximately 60 percent of the population are capable of speaking the English language.

When it comes to wealth management, advantages exist but they are not so obvious and there is definitely hard work to be done. Greeks have always been internationally exposed. Immigrants since the First World War, great importers, students in the best universities around the globe and sailors by birth, Greeks understand globalisation well enough. Greek bankers as a sub group played a significant role in the greater region and adopted all international regulations quickly and successfully. Asset managers are well trained, have worked abroad or for serious big names and have also earned respected results in niche markets. So there is some ground to build upon.

But the country is just coming out of the worst crisis since the Great Recession, its reputation is seriously damaged and the political situation is far from being solid enough by the western world’s standards. The good news is that in the wealth management business, time has always been available. And this is what the country needs. Time to overcome weaknesses, and a stable and fair tax system, to offer one of the most high-end global product combos: well-being and wealth management services.

Finding a solution
Attica Wealth Management focuses on providing solutions to wealth preservation and retirement planning. The company was established in 2001 under the name Attiki Mutual Funds Management Company, managing three mutual funds at the time. In 2005, through the merger with Attiki Investments Closed End Fund, the company launched two global mutual funds and widened its portfolio, mostly in European equity and bond markets. The following year we were granted the permission to offer discretionary portfolio management and investment advisory services by the Hellenic Capital Markets Commission and extended its asset management services.

In 2007, a new era dawned for the company, with changes in corporate strategy and culture. Under the new name Attica Wealth Management, the company upgraded its offered services, emphasising delivering high-quality asset management to private clients. At the same time the company enriched its product mix through the launch of two new specialised mutual funds: Real Estate Global Equity and Small Cap Greek Equity.

We create a map based on perceptions and experiences. At the base of our map are our beliefs and identity

After serious efforts, our business has continued to thrive today. In 2012 and 2013 Attica Real Estate Fund ranked first for international mutual funds managed by Greek fund managers for a three-year period. Also in 2013, Attica Domestic Equity Fund received an overall four star rating from Morningstar and was named Greek Portfolio Manager of the year by IHFA. This year, we exceeded 100 private accounts and €30m under management in our discretionary portfolio management services. Our total assets under management, including our mutual funds, reached €110m, even though the country remains in recession.

Our achievements continued, as our obsession to improve ourselves and enhance customer satisfaction led us to apply international standards in our business. Since August 2014, the company has been acknowledged with ISO 9001 (quality management) and ISO/IEC 27001 (information security management system) certifications from DQS Hellas.

Breaking the habit
Financial markets are driven by societies and they will develop. For every one of us, a very important step forward is to appreciate how little we know about the world we live in.

At the same time we never live in the world as it is. We create a map based on perceptions and experiences. At the base of our map are our beliefs and identity. One cannot change people but they can change their beliefs by altering their subjective world experience. Consequently 40 to 45 percent of what seems like a decision is actually a habit.

Since 2007, Attica Wealth Management addresses two serious problems: the very basics of good life after retirement and the securing of existing wealth. Our services are important to us, to our families, to our friends and to our clients.

We are set to succeed and a huge amount of whether a company succeeds or fails depends on habits that emerge within the organisation. So we are focused on breaking the bad habits and creating the right ones, which people will perform automatically as they get rewarded for performing such habits. We also try to change keynote habits that ignite a change reaction on general change.

Our work is set to inspire, and help all of us better our lives in some way. At the same time the most difficult part in every business is to keep in line with your vision when the environment changes, competition intensifies and clients seem to prefer other services or products. In situations like this one, people must be brave and get more people to take action. Even better, get employees and customers on the same page.

In a simple sentence, Attica Wealth Management doesn’t sell wealth management services, we offer solutions to two problems: pension and wealth safety.

Greece reinvigorated by PPP projects

Posted on November 19, 2014February 2, 2015 by Ashton Wenborn

From the roads you drive on to the hospitals you attend, an increasing number of public institutions around the world are being delivered through public-private partnerships. Greece has been a continental leader in its enthusiasm for them. World Finance speaks to representatives from Attika Schools PPP, Constantine Stavridis, Nikos Matzoufas, and Ellie Kakoullou, to discuss how such programmes are being rolled out.

World Finance: Greece of course has been hard hit by the recession; can you tell me, how does a country stand to gain from the introduction of PPPs?
Nikos Mantzoufas: Indeed, infrastructure projects are needed in the world: the same is valid for Greece. Greece has a long history of PPP projects, and a bright future.

During the crisis, during the first semester of 2014, we actually achieved the financing of three projects, being ranked fourth at the European level compared to GDP.

So Greece has good projects, and we’re hoping more and more projects come to market.

Ellie Kakoullou: Our bank has been particularly interested in these projects. Banks in Greece have traditionally financed the public sector and the private sector, and PPPs have given us the opportunity to finance a combination of both, with a well-balanced risk allocation, allowing us to finance private sector companies that can efficiently and effectively, with few time delays and fixed-price-dates certain contracts undertake these projects. With the public sector angle of a steady flow of payments that will repay these projects.

Our bank has particularly targeted all these projects since their inception

Our bank has particularly targeted all these projects since their inception. This year we’re actually targeting four waste-management projects that we hope to go ahead with in 2014 and 2015.

Constantine Stavridis: National Bank of Greece had a significant contribution to the country’s PPP history. It has been involved also in the latest generation of projects, through its management of the Jessica urban development fund.

PPPs will give the opportunity to develop expertise in the country, enhance the ability of our private-owned companies to create a new market, and also expand abroad.

World Finance: Right, now, Nikos, of course we know that there have been a number of funds that have played a significant role in the execution of PPPs, one of them being the Jessica fund. Tell me about it.
Nikos Mantzoufas: The Jessica Fund was vital for the PPP projects that we have financed this year.

It was vital because of a scarce liquidity of the market, and at the same time it developed a unique structure at the European level.

The schools projects that we reached the financing was the first project at the European level that combined Jessica funds, EAB loans, commercial banks, and private capital.

This unique structure has been achieved and developed something that is quite unique and many other countries with liquidity issues will also follow.

So the Jessica fund, coming from European structural funds, has become a very crucial and vital element for the financing of Greek projects.

World Finance: Now from the perspective of commercial banks Ellie, can you tell me, do you see the number of PPPs increasing?
Ellie Kakoullou: A lot of these projects have high capital expenditure, so commercial banks obviously are no better equipped to cover a greater proportion of these projects, but are still very happy to see the EAB and Jessica join them in these structures.

Greece is lagging behind in this sector, and we are aiming through PPPs to deliver good projects, environmental projects

And yes, all four systemic banks are very interested in moving these projects ahead. We’ve now undertaken the advisory of the waste management projects that we expect to mature in 2014 and 2015, and we’re very enthusiastic about going ahead with them.

World Finance: Now I had a chance to speak with Minister Notis Mitarachi, and he had this to say about why it was more fiscally responsible to rely on PPPs than government funding for these types of projects.

Notis Mitarachi: We believe that the private sector is a better executor for this project. We have passed the construction and finance to the concessionaire. That is important from our point of view, because we can control the cost to the public coffers of these projects. Historically – and this is not only the case in Greece but in many other economies – public projects have overrunning costs. With PPPs, this is now secured.

World Finance: Now Nikos, of course part of the funding that backed this project’s €35.8m that came from EIB. Now that is a large amount of money, but also finite. What are you going to do five to 10 years down the road when you have to continue to fund these schools?

Nikos Mantzoufas: This is a very important element of these PPP structures. These PPP structures are for 25 years; the total amount of the value is €110m, so the total development was €110m, enabling and mobilising private investment and private banks.

And all these payments will be repaid in the long run by the state through availability payments on what is called the typical UK PPP structure.

That means that we are paying as public when the service and the building is delivered, and only if the maintaining is being provided. Otherwise no payments will be made.

This will improve the projects and improve the state budget, since it’s paying for something that’s been delivered.

World Finance: Now one more thing that Minister Notis Mitarachi said was that these PPP projects are eventually going to trickle down in terms of their impact at the municipal level. Can you tell me what sectors really stand to gain from such a move?

Constantine Stavridis: The total at the moment, we have projects in the pipeline of around €1bn. These are in many sectors. One very important sector that involves municipalities is waste management.

Greece is lagging behind in this sector, and we are aiming through PPPs to deliver good projects, environmental projects.

Another very promising sector is the rural broadband sector: bringing fast internet to many municipalities around Greece: rural areas that cannot have access there.

Recently we have a project of telematics at the urban transportation system, a project that is like the one in London, knowing where the buses are arriving. But this is a 12 year period project where the contractor is keeping it and maintaining it over the long run.

As a closing remark, I can say that the PPP structure can bring the best of all worlds: of the world of the private sector, of the banks, and of the public. We do believe in that: making better projects for the public.

World Finance: Very exciting times of course for Greece with these PPP projects on the horizon. Nikos, Ellie, Constantine, thank you so much for joining me today.
Nikos Mantzoufas, Ellie Kakoullou, Constantine Stavridis: Thank you, thank you very much.