Will commodities be the best investment of 2021?

The geopolitical events of the last year seem to have been the perfect storm in the commodity complex. Whether it was COVID-19 lockdowns disrupting supply chains and causing bottlenecks in everything from semiconductors to transportation upon reopening, or the enormous amounts of coordinated monetary and fiscal stimulus stoking inflation fears, has this confluence of events led to a situation where commodities are ripe to outperform all else? In other words, have we entered a commodity supercycle?

At HYCM, we’ve been working tirelessly throughout the pandemic to ensure that our clients have all the information they require at their disposal. Our goal is to distil what the big conversations are so that our clients can update their outlook on the markets in this fast-paced and volatile environment that appears to be the ‘new normal’. Our aim is to update our traders on what is shifting in the world of finance, as well as providing the means for them to take a position in relevant markets with the award-winning trading conditions and support that we offer. For example, we’ve prepared an update for our Middle-Eastern clients – for whom commodities make up a significant portion of their portfolio – regarding where copper, crude oil, and gold find themselves in the broader macro picture.


What’s most interesting about narrative-driven commodities like copper, is that they have already benefited from all of the above, but are also receiving a bid as it dawns on investors just what an enormous undertaking the green revolution will be, and how costly in terms of the commodities required to make it.

Copper is definitely one of these commodities, as it will not only be the cornerstone of the new electric grids but is also heavily used in all green energy technologies, from wind and solar to geothermal and hydroelectric. Copper wire demand is expected to grow at a Compound Annual Growth Rate of five percent by 2025 according to MarketInsights’ reports.

Copper has been one of the biggest commodity success stories of the past year or so, having gone on a staggering 144 percent run from trough to peak since April 2020. It set a higher low at $4.48 at the end of May and is now heading back up to test the highs at 4.80. If copper price manages to breach this level and stay above it in the coming weeks, it could be an indication of another move higher.


Crude Oil
Oil, which was hit hardest last year, is now trading at levels we last saw in April 2019 and January 2020, before markets crashed due to the pandemic. Technically, it appears as though it wants to move higher, but there’s been a certain amount of hesitation in this specific commodity market due to fears of an Iran nuclear deal with the new Biden administration and what that would mean for oil supply.

The concerns involve whether Iranian oil would have a detrimental effect on the price were it to start flooding onto a market that Iran had previously been prevented from participating in. $66.30 appears to have been an important line of support that had been tested and retested throughout March and May. The price finally broke through this level on May 27 to close at $66.94 on the day. Were it to continue pushing higher, the next lines of resistance are likely to be found between $72 and $77, which were the yearly high watermark levels for 2018.

There are a number of factors that can support oil prices at these levels. Namely, a global economy that’s yet to get back up to full speed owing to disparities in vaccine roll-outs across different geographical regions. This story is playing out across both the developed and developing world, with both Europe and India emerging from lockdowns.

India, a massive crude oil consumer, normally accounts for around 6% of global demand, saw its coronavirus cases and deaths reaching record highs in May. Since these peaks, both metrics have been dropping precipitously as vaccines are distributed and life gradually returns to normal. In the short term, India’s diesel consumption alone is reason enough to be bullish on oil. But looking further out, we see a demographics story unfolding here that’s hard to overlook. A young population of 1.4 billion people with a growth rate that puts Europe to shame, and a demand for energy that’s only going in one direction.

If the path of other developing nations like China has been anything to go by, then it’s likely that India too will prioritise growth first and worry about carbon emissions later, which is to say that demand for crude is only going to increase from here on. One thing is certain; OPEC has been excellent in managing oil prices over the last year. Saudi Arabia has at times taken voluntary deeper production cuts and that has undoubtedly helped oil producers everywhere. It has been a masterly response to a difficult crisis and at this time the oil markets are feeling confident in OPEC’s arms. Even if Iran’s supply does come back online, ING analysts are confident that the rising demand will be more than enough to keep oil prices from falling. As things stand, the Middle East region can look forward to higher oil prices this year and into next.


Gold set its current all-time high on August 10th of 2020 when it touched $2,075 after rallying by more than 14 percent from mid-July. It then sold off in September after hovering around the $1960 level. In November and December 2020, it attempted to reclaim those highs but was rejected from that same $1,960 level on both occasions. After the first attempt to break $1,960, the price dipped as low as $1,765, which was notable because it was the first daily close the precious metal had made below the 200-day moving average since March 2020.

A combination of factors, including a roaring cryptocurrency market and equities back above their former pre-pandemic highs, have led to a scenario where, despite bounce attempts like the retest of $1,960 in January of this year, capital has left the gold market in search of higher returns elsewhere.

Throughout 2021, it has continued to set a series of lower-highs, bottoming out in early March at around $1677 and then retesting this level again later in the month. It is currently staging a bounce from that level and has recently breached the 200-day moving average to the upside. At the time of writing, gold is trading at around $1,905, which is significant because these price levels are very close to gold’s previous all-time high of $1,920 back in 2011.

If you’ve been following the discussions around gold this year, you’ll be aware that crypto in general, and bitcoin specifically, have taken large bites out of gold’s market cap. The past nine months have seen crypto assets soaring in value, with the entire market making echoes of the speculative mania of 2017.

Why is this important for gold? Because now it appears as though the cycle is reversing. Bitcoin’s bull market started when gold’s topped out. Gold has been consolidating the entire time crypto assets have been rallying. It now looks as though bitcoin may have hit a top at $65k as gold attempts to stage a comeback. If bitcoin continues to sell off, you have to expect that some of that capital will flow back into gold. However, the crucial aspect to be aware of with gold is the level of real yields. If real yields keep falling then ultimately that, not Bitcoin prices, should support prices,

Technically, the picture couldn’t be worse for bitcoin or better for gold right now. Bitcoin recently dipped below its 20-week moving average (a typical sign of the end of its bull cycle) and hasn’t looked back, settling lower-low after lower-low. Meanwhile, gold appears to have completed a lengthy consolidation phase from August to April and is back above the 200-day moving average that it failed to hold in January. Look to a successful hold of that moving average as support before the entire market catches on that it’s gold’s turn in the spotlight.

In Dubai sales of gold jewellery have been up 17 percent on last year according to data released by the World Gold Council. If we see inflation concerns rise in the US, but the Federal Reserve keeps on refusing to raise interest rates until 2024, then this demand for gold could grow even further. Gold is a key commodity to watch for sure.

At HYCM, gold remains one of the top traded instruments, making up 31.48 percent of all trades* in May 2021. The other top instruments are US100, EURUSD, GBPUSD and USOIL. In general, HYCM offers highly competitive spreads for more than 300 instruments, including forex, stocks, indices, commodities, ETFs, and cryptocurrencies.**

HYCM is a global company with offices in Dubai, London, Hong Kong, and Cyprus. Regulated in each jurisdiction by the relevant authority, HYCM has a long-standing history and reputation in the Middle East, as well as other regions. HYCM has been the recipient of over 20 awards including Best Forex Broker in the UAE, the Middle East, Asia, and Europe. Traders can attend HYCM’s weekly online webinars and workshops, available to anyone looking to level up their trading, and traders in the Middle Eastern region can also participate in HYCM’s exclusive in-person seminars, typically held in one of Dubai’s breathtaking hotels.


*For HYCM Limited

**Cryptocurrencies are not available under HYCM (Europe) Ltd and Henyep Capital Markets (UK) Ltd.


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How can banks respond to the open banking revolution?

The success of open banking has been widely documented, with more than two million people and small businesses currently using it in the UK. These services give third-party financial service providers open access to financial data from banks and other financial institutions through Application Programming Interface (API) driven ecosystems. Open banking’s popularity is no surprise considering the benefits it offers customers. It can instantly round up and save digital spare change from consumer purchases, recommend financial products and make cross-border payments cheaper, faster and more secure than traditional bank transfers. What’s more, the need to evolve has accelerated because of the pandemic. In order to thrive in this landscape and retain their customers, banks need to be proactive.


What challenges are banks facing?
While the banking industry has advanced in certain ways in recent years, COVID-19 has hastened the need for a real shake-up. As explained in this report by KPMG, the financial sector was one of the industries most greatly impacted by the pandemic, with most banks seeing the price of their stocks slump. This has forced them to look at alternative revenue models by re-evaluating their product offerings and customer needs, setting up a landscape full of opportunity.

“Although COVID-19 may lead to a crisis in the real economy, the impact on the banking system and on the bank-customer relationship can also be defined as a ‘positive discontinuity’ for the purpose of digitisation of the sector and the ability to offer an excellent customer experience,” the report reads. This is something that many banks are already working towards. A recent survey of 300 global banking executives by banking software company Temenos found that 45 percent plan to create digital ecosystems, while 29 percent have open banking initiatives in place. But what of those not being so proactive?

We already know just how big a year 2020 was for open banking, with a Mastercard study finding that 62 percent of respondents across 12 European markets were interested in switching to digital banking. The company’s recent Global State of Play report also revealed that 53 percent of the world’s population use banking apps more than they did pre-Covid. Consumers have come to expect fast, accessible, convenient payments using online and mobile solutions and banks are now under pressure to meet these demands. This is especially true while they face stiff competition from tech giant offerings such as Google Wallet and Apple Credit Card, as well as the fintechs quickly creating sleek, user-friendly apps using open banking APIs.


How can banks respond to this shift?
Rather than banks seeing fintechs as their adversaries, it’s much better to make them collaborators. Fintechs can use cutting-edge technology to build streamlined, innovative APIs to replace a bank’s old-fashioned products. They can also do so quickly as they aren’t weighed down by things like customer acquisition and legacy infrastructures. This lean, flexible approach enables banks to reduce costs and give their customers far more seamless experiences with competitive prices. Fintechs also work with banks to find and provide solutions to ongoing security threats. In return, these businesses can benefit from a bank’s trusted name and large customer base.

Such partnerships have been embraced by plenty of banks already, with promising results. HSBC, for example, was the first UK bank to launch a successful standalone open banking application. “That was all done in partnership with other firms, very little of the build was within HSBC,” Hetal Popat, HSBC’s head of open banking and PSD2, explains to Computerworld. “[They] move faster, do things cheaper and bring new ideas and approaches into the firm.” He also notes that the open banking data lets them accept more customers for credit products: “There’s a lot of customers out there in the UK who are perfectly creditworthy, but the data the bureau has on them is limited and therefore, due to a thin file, banks may say no. Now we get more data, we can say this customer is creditworthy and offer a loan.”

However, banks must also ensure that they choose the right fintechs to partner with. That starts by establishing exactly what problem it is they want to solve. As Vince Padua, chief technology and innovation officer at Axway emphasises in an article for Forbes: “For banks, knowing that your customers want all things but that your institution alone can’t be all things for them is key.” Only when they have prioritised their requirements can they find a fintech that will deliver what their customers expect and help out when things go wrong. The open banking trend is here to stay, and partnering with fintechs to offer modern and sleek APIs is necessary to increase customer loyalty and attract new clientele.

Quantum computing is finally having something of a moment

In 2019, Google announced that they had achieved ‘quantum supremacy’ by showing they could run a particular task much faster on their quantum device than on any classical computer. Research teams around the world are competing to find the first real-world applications and finance is at the very top of this list.

However, quantum computing may do more than change the way that quantitative analysts run their algorithms. It may also profoundly alter our perception of the financial system, and the economy in general. The reason for this is that classical and quantum computers handle probability in a different way.


The quantum coin
In classical probability, a statement can be either true or false, but not both at the same time. In mathematics-speak, the rule for determining the size of some quantity is called the norm. In classical probability, the norm, denoted the 1-norm, is just the magnitude. If the probability is 0.5, then that is the size.

The next-simplest norm, known as the 2-norm, works for a pair of numbers, and is the square root of the sum of squares. The 2-norm therefore corresponds to the distance between two points on a 2-dimensional plane, instead of a 1-dimensional line, hence the name. Since mathematicians love to extend a theory, a natural question to ask is what rules for probability would look like if they were based on this 2-norm.

It is only in the final step, when we take the magnitude into account, that negative probabilities are forced to become positive

For one thing, we could denote the state of something like a coin toss by a 2-D diagonal ray of length 1. The probability of heads is given by the square of the horizontal extent, while the probability of tails is given by the square of the vertical extent. By the Pythagorean theorem, the sum of these two numbers equals 1, as expected for a probability. If the coin is perfectly balanced, then the line should be at 45 degrees, so the chances of getting a heads or tails are identical. When we toss the coin and observe the outcome, the ambiguous state “collapses” to either heads or tails.

Because the norm of a quantum probability depends on the square, one could also imagine cases where the probabilities were negative. In classical probability, negative probabilities don’t make sense: if a forecaster announced a negative 30 percent chance of rain tomorrow, we would think they were crazy. However, in a 2-norm, there is nothing to prevent negative probabilities occurring. It is only in the final step, when we take the magnitude into account, that negative probabilities are forced to become positive. If we’re going to allow negative numbers, then for mathematical consistency we should also permit complex numbers, which involve the square root of negative one. Now it’s possible we’ll end up with a complex number for a probability; however the 2-norm of a complex number is a positive number (or zero). To summarise, classical probability is the simplest kind of probability, which is based on the 1-norm and involves positive numbers. The next-simplest kind of probability uses the 2-norm, and includes complex numbers. This kind of probability is called quantum probability.


Quantum logic
In a classical computer, a bit can take the value of 0 or 1. In a quantum computer, the state is represented by a qubit, which in mathematical terms describes a ray of length 1. Only when the qubit is measured does it give a 0 or 1. But prior to measurement, a quantum computer can work in the superposed state, which is what makes them so powerful.

So what does this have to do with finance? Well, it turns out that quantum algorithms behave in a very different way from their classical counterparts. For example, many of the algorithms used by quantitative analysts are based on the concept of a random walk. This assumes that the price of an asset such as a stock varies in a random way, taking a random step up or down at each time step. It turns out that the magnitude of the expected change increases with the square-root of time.

Quantum computing has its own version of the random walk, which is known as the quantum walk. One difference is the expected magnitude of change, which grows much faster (linearly with time). This feature matches the way that most people think about financial markets. After all, if we think a stock will go up by eight percent in a year then we will probably extend that into the future as well, so the next year it will grow by another eight percent. We don’t think in square-roots.

This is just one way in which quantum models seem a better fit to human thought processes than classical ones. The field of quantum cognition shows that many of what behavioural economists call ‘paradoxes’ of human decision-making actually make perfect sense when we switch to quantum probability. Once quantum computers become established in finance, expect quantum algorithms to get more attention, not for their ability to improve processing times, but because they are a better match for human behaviour.

Light within the darkness

The World Bank predicted the global economy to shrink by 5.2 percent in 2020 – the worst performance since the end of the Second World War. Unemployment in the US reached a record peak of 14.7 percent in April 2020, and while it’s fallen significantly since, it’s hard to predict how the coming months will play out – especially as the effect of continued restrictions across the world come to bear.

Yet while it’s clear we’re in for some challenging times ahead, it might not all be doom and gloom; because for some, challenging times herald game-changing opportunity.

Researchers have observed a correlation between recessions and entrepreneurship; a Kauffman study in 2009 found that more than half of the companies on the Fortune 500 list were launched during a recession or bear market, as well as almost half of the firms on the list of America’s fastest-growing companies.

According to Dane Strangler, author of the study and a fellow at the Bipartisan Policy Centre in Washington DC, companies that form in those circumstances are often more resilient and nimble as a result. “There’s this trial by fire idea,” he told the BBC in a recent article. “If you get started in a recession, you really have to scrape and scrimp to make that company successful. You are trying to make it when you can’t get financing, and trying to get customers when there isn’t any demand.”

A quick glance at some of the most successful names in tech confirm the trend; Instagram, WhatsApp, Uber, Dropbox, Airbnb, Groupon and Slack were all formed around the time of the 2008 financial crisis. Facebook got its real growth spurt over that period, while Google and Salesforce launched just before the burst of the dot-com bubble.

It’s not just a recent trend, either; Burger King opened its doors in the midst of a US recession in 1953, while CNN began broadcasting in 1980, when US inflation was at a sky-high 14 percent. Hewlett-Packard came into existence just after the 1937–1938 recession – when unemployment hit 20 percent – and FedEx started shipping parcels just as the 1973 oil crisis hit.

In a recent study on ‘necessity entrepreneurship,’ researchers Frank Fossen and Robert Fairlie put this trend partly down to the higher levels of unemployment that inevitably come with recessions.

Fossen, Associate Professor of Economics at the University of Nevada, told World Finance: “Those who have a job are usually reluctant to give up their comparably stable income to take the risk of starting a business. The unemployed do not have as much to lose, which explains why we observe more entry into self-employment during recessions.”

Fairlie, Professor of Economics at the University of California, believes there’s no reason the COVID-19-induced downturn won’t give rise to new businesses just as the 2008 crisis did. “I think people have more time on their hands right now to think of creative ideas that will grow into successful businesses,” he said. “My guess is that anything to do with tech and online shopping will be the most successful.”

To help inspire hope for the coming months and beyond, we look at five of the all-time biggest companies to have formed in recessions in the past, and how, against the odds, they grew into global, billion-dollar behemoths.

General Motors

Formed: 1908

Background: The Bankers’ Panic of 1907

Current value: $140bn

The bankruptcy of two major brokerage firms and a run on all the banks associated with them caused the 1907 Bankers’ Panic and sent the New York Stock Exchange plunging by almost 50 percent from the previous year’s peak, marking the first major financial crisis of the 20th century. While the event itself was short-lived, the after-effects were to last for the following two years, and become one of the key motivations for establishing the Federal Reserve System in 1913.

It was in this climate that horse carriage manufacturer William Durant bought Buick Motor Company, transforming the ailing, debt-burdened business into the biggest-selling car brand in the US. He founded General Motors in 1908 and a string of several rapid acquisitions followed, including Oldsmobile, Cadillac, Catercar and Elmore.

“Industrial leaders realised that there was strength in unity and diversity,” wrote journalist Gerald Perschbacher in an article for Old Cars Weekly. “In the case of both Billy Durant and Henry Ford, a stringent national economic setback paved the way for the promise of fantastic futures in motoring.”

Not all of the acquisitions paid off; General Motors started losing money and Durant was ousted in 1911. At that point he co-founded Chevrolet, then bought a controlling stake in GM and returned to the company as President in 1916 – bringing the new brand with him in a merger. But it was when Alfred Sloan took to the helm in 1923 that the company got its real growth spurt, expanding internationally and buying Vauxhall Motors and a controlling stake in Opel – which remain its core divisions today.

Now the company has a workforce of more than 160,000 and a market capitalisation of $61bn. It hasn’t been without its hiccups in between, but if ever proof was needed that global giants could be formed at the most unlikely of times, this would surely be it.


Formed: 1911

Background: Sherman Antitrust Act 1910–11

Current value: $28.2bn

1910–11 saw the emergence of another panic, this time caused by the enforcement of the competition-regulating Sherman Antitrust Act. What ensued was a 26 percent plunge in the US stock market. While many businesses suffered double-digit declines over the following year, businessman Charles Flint saw it as an opportunity to merge three existing companies into the Computing-Tabulating-Recording Company – now International Business Machines (IBM). Those three companies had themselves been formed in a recession.

The ‘Long Depression’ of 1873–1896 – caused by a contraction of the money supply following the banning of silver coins and the collapse of several banks – had given rise to the International Time Recording Company, the Tabulating Machine Company and the Computing Scale Company.

They produced equipment to suit the time (literally); “a time clock for recording workers’ hours was needed as industrial production at the end of the century surged,” noted CNN Money. “Also, a tabulating machine was vital during the immigration wave, to tally up the expanding population.” Flint continued to build the company after the merger – albeit by “pulling off scams” with “inflated stock” and “fake capitalisation,” according to author James Cortada in his recent book, ‘IBM History of Computing: The Rise and Fall and Reinvention of a Global Icon.’

But he laid the groundwork for future success; in 1924, Thomas Watson Sr became Chief Executive and rebranded CTR to IBM. Typewriters and computers ensued, and by 1956, revenues had reached $897m, according to IBM Archives. For this reason, many credit Watson Sr with the real success of IBM. “Flint founded C-T-R Company, but I refer to Watson Sr as the ‘traditional founder,” said Peter Greulich, a former IBM employee and author of several books on the company. “Under his leadership, IBM weathered 10 major economic declines, three major wars, and four of the six largest declines in US stock market history. Over time it was Watson Sr who was remembered.”

Yet with brand revenue of $77.1bn and a status as one of the most powerful tech companies on the planet, Flint has clearly left some kind of a legacy – even if the company does look a little different today than when it first launched.


Formed: 1929

Background: Great Depression 1929–1930s

Current value: $130bn

It was in 1929, at the dawn of the worst financial crisis in history, that brothers Walt and Roy Disney rebranded their existing cartoon studio into Walt Disney Productions.

Six years earlier they had set up shop in their uncle’s garage in Los Angeles, creating animated productions including Alice in Wonderland under the name Disney Brothers Cartoon Studio. But it wasn’t until the Great Depression struck that they shot to global fame, following the debut of Mickey Mouse in the short feature film Steamboat Willie.

The pair continued to build the empire, producing animated shorts of Mickey Mouse and playing on America’s need for joy at a time of national depression. They eventually released their first full-length animated feature film, Snow White and the Seven Dwarfs, in 1938. It took three years, 300 artists and 200,000 drawings to produce – and, at $1.5m (around $26m in today’s terms), went several times over budget.

But the risk paid off; it became the biggest-grossing film in US box office history at the time with revenues of $7.9m (equivalent to $141m) in the first year alone. High costs and low margins for the films that followed, including Bambi, Fantasia and Cinderella, led to growing debt, however. But a turning point came in the 1950s, when Disneyland opened in California and gross income ballooned from a mere $6m in 1950 to a whopping $70m in 1960 (according to Bob Thomas’ book Walt Disney: An American Original).

The rest is, quite literally, history. Walt Disney World theme park opened in 1971; Disneyland Paris followed in 1992. And in March 2019 Disney acquired 21st Century Fox in a $71.3bn deal, adding to its growing list of brands and turning the company into the biggest media behemoth in the world.

The company now has 12 theme parks spread out across the globe, a cruise line and a streaming service among its reams of assets. A Disney Imagineer famously once said, “If you can dream it, you can do it,” and this global megabrand has proven the point – even in times of major economic strain.


Formed: 1975

Background: The recession of 1973–75

Current value: $1trn

When OPEC members imposed an embargo on the US during the Arab–Israeli war – causing the price of crude oil to quadruple and inflation to soar – the world tumbled into a deep, 16-month slump. The stock market crashed, with GDP falling 3.4 percent and unemployment hitting nine percent in the US [according to the National Bureau of Economic Research], causing a rather unfortunate stagflation.

It didn’t stop Seattle-born friends Paul Allen and Bill Gates launching what was to become the world’s biggest software company, though. Microsoft was formed in April 1975, against a backdrop of continued high inflation and low economic growth.

Growth was steady at the start: “In 1975, Microsoft had three employees, $16,000 in revenue and one single software product,” reads a statement from the company.

But in 1980 the real magic happened, with IBM asking Microsoft to create an operating system for the IBM PC – MS-DOS. Daniel Ichbiah, author of a 1995 Bill Gates biography, puts this down to Gates’ “incredible powers of persuasion.” “Some of his actions were exemplary,” he told World Finance. “Especially the way he convinced the giant IBM to ally itself with what was at the time a tiny company.”

Microsoft was paid a royalty for every IBM computer sold. In 1986 the company went public to global enthusiasm, leading 31-year-old Gates to be named the world’s youngest billionaire just a year later. In 1990, the company’s revenues topped $1bn for the first time.

Roll on 30 years – and several Xboxes, smartphones and cloud services later – and Microsoft is, as of 2019, a trillion-dollar company.


Formed: 2008

Background: Global financial crisis of 2008

Current value: $100bn

Among the string of billion-dollar success stories to come out of the 2008 crash was Airbnb. But this peer-to-peer rental giant didn’t start with the aim of becoming a billion-dollar company; instead it was a way for roommates Joe Gebbia and Brian Chesky to pay the bills.

In 2007, a design conference was coming to San Francisco and hotel demand was exceeding supply; so they turned their loft into “a designer’s bed and breakfast, offering young designers who come into town a place to crash,” in the words of Gebbia, who pitched the idea to Chesky in an email as “a way to make a few bucks” [the former showed the email at a TED talk in 2016].

They created airbedandbreakfast.com, bought three air mattresses and welcomed in their first three guests. The initial success spurred them on to turn the idea into a fully fledged business, with the help of a new, third comrade, Nathan Blecharczyk. The start-up launched at SXSW in 2008, but it took nearly a year of investor rejections, a stint on the accelerator programme Y Combinator and a rebrand to ‘Airbnb’ before Sequoia Capital took a chance on the trio and threw $600,000 seed investment into the business.

By 2011, Airbnb was in 89 countries and had one million nights booked on the site. Big-name Silicon Valley venture capitalists poured $112m into the company, propelling its value to more than $1bn and giving it official ‘unicorn’ start-up status.

It hasn’t been without its hurdles since, not least legal battles and a backlash from cities calling for bans, but the company has so far managed to weather the storms, expanding with several new launches and acquisitions, and recording revenues of $4.8bn in 2019.

The pandemic has thrown another spanner in the works; how it performs among investors will be revealed during 2021 in the aftermath of its much publicised and delayed IPO. But if anyone can pull through a financial crisis, it’s surely one that came to existence at the height of the worst global downturn in more than half a century. As the other companies on this list suggest, having origins in recession can prove useful training ground for future turmoil – and when the economy does eventually boom again, those who have endured the darkest times will be all the more resilient for it.

Selling off corporate art to stem pandemic losses

In 2020 British Airways made headlines following its decision to sell off some of the oldest and most valuable parts of its art collection. Struggling with mass redundancies, data breaches and a stream of cancellations, the company began purging artworks in a bid to offset its pandemic losses. Over the past few months, other major corporations have followed suit.

London’s Royal Opera House recently sold a prized David Hockney at auction for £12m and UK travel agent Thomas Cook likewise parted with a 3,000-year-old Egyptian statue, held in its archives since the end of the 19th century. Meanwhile, the Royal Academy is facing criticism for its retention of a Michelangelo during a period of mass staff redundancies.

Corporates selling their art collections is not a new phenomenon, but the pandemic has certainly accelerated that trend. More businesses are looking at where they can extract latent value in assets, which has encouraged bigger collectors to dispose of their collections. Over the summer, BA consequently sold 17 pieces of art that had previously decorated its executive lounges, including works by Damien Hirst and Bridget Riley.

These sales were primarily triggered by BA’s efforts to ‘preserve funds and protect jobs,’ but other corporates have been purging their artworks as a result of changing tastes and an evolution in ideas surrounding corporate responsibility in the arts. Deutsche Bank, which boasts one of the largest corporate collections in the world, for instance, recently announced it would be reducing its art collection by over 4,000 pieces, in part, to improve “the contemporary quality” of its collection. By selling corporate collections made up of household names, the company is freeing up money to invest in young or emerging artists.


Playing the long game
In comparison, stagnant collections made up of Damien Hirst or Tracey Emin might look good, but do little to support the long-term art ecosystem. This sort of art is primarily viewed as an investment avenue the value of which is tied up for years on end in the hopes that one day it will return a profit. The sales we are seeing now are a case in point. There is a whole new generation of artists in need of long-term support and mentoring that can only be achieved through the acquisition or renting of new artworks.

It is no surprise then that corporates who are increasingly conscious of their image and brand are purging their household names in favour of collections made up of new, more culturally relevant, artists. The writing appeared to be on the wall with BA’s announcement in June 2020, but in truth the trajectory of corporate collecting had begun to shift before the pandemic.

We have also seen an increasing number of businesses selling their collections all together in favour of art rental, which offers bespoke collections and flexible leasing terms for a small fraction of the cost of ownership. Corporates are able to engage and improve the wellbeing of their teams, meet their social responsibility targets and provide economically sustained support of artists.

Not only is the trend of selling off art collections making physical space in lounges and lobbies for new flexible artworks to be installed, it is also creating space for new names to arise in the industry. Through art rental, artists who are at the beginning of their career are given a viable and sustained income by corporates looking to enhance their CSR portfolio. This is of particular value for those who, due to their background or economic circumstance, may not be able to afford to support themselves until they reach gallery representation or develop a market for their work.

Corporates, likewise, are able to curate collections that can be scaled up and scaled down depending on business and social requirements. With the rise of flexible working, this is something that will become increasingly important post pandemic. Offices are set to be transformed into cultural hubs and will need to be culturally relevant and consistent with business values. With equality becoming one of the defining narratives of 2020, businesses that are championing issues related to sexuality, gender, race and socioeconomic equality – for instance through the very visual displays of artwork – will be the ones that come out on top.


Promoting diversity
We are also seeing a rise in the number of companies giving staff creative agency over their working environments. This is particularly important when it comes to art. According to a recent study by Dr Craig Knight, individuals work 15 percent more productively in environments containing artworks and plants, a figure that doubles to over 30 percent for spaces where participants had a say in curation.

It is no surprise then that demand for art rental businesses such as ARTIQ has remained strong during the pandemic. International banking group Investec are shortly to install a recently curated collection of London and South African artists to show their passion and commitment to promoting diversity. Corporate patronage has long been a core part of business identity and will continue to be as we emerge from the pandemic; however the manner in which corporates support the cultural economy is modernising.

The value placed on arts and culture by corporates is being sped up by the pandemic as they try harder to engage all stakeholders in a more visible way. We are thus unquestionably witnessing a marked shift away from how companies have traditionally collected art. Emerging in the place of stagnant collections is a new type of arts patronage, one that can truly support the arts ecosystem and champion diversity across not only the arts, but society as a whole.

Digital innovation presents the dawn of the smart ports

A powerful drone speeds along an inland waterway near Rotterdam and drops a package of spare parts onto a barge on the move, just the latest development in the global phenomenon known as the ‘smart port.’ According to the port of Rotterdam authorities, the trial delivery in late September 2020 went smoothly and now they are pushing ahead with more flights to fully assess the technology’s potential in making the port, the busiest in Europe, into a more efficient, quieter, safer and less polluted environment.

Rotterdam is one of the world leaders in the adoption of digital technologies that are transforming these maritime hubs. “Drones can have a major impact on traffic and transport,” says Port Authority adviser Ingrid Römers. “The next few years will be devoted to the phased preparation of airspace and drone technology.”

Although only one aspect of the smart port, drones are already being deployed to detect levels of pollution in vessels approaching the coastline, to inspect the contents of stacks of containers rather than sending workers up on cranes, and as at Rotterdam, to save time by delivering packages instead of the crew having to come ashore.


Long-term projects
Some ports are turning themselves into centres of innovation. For instance Singapore, the second-busiest in the world in terms of total shipping tonnage, hires the country’s brightest talent to conduct ‘hackathons’, events at which they are encouraged to come up with innovations for its long-term project, the Smart Port Challenge. “The port is working with partners on maritime scale-up initiatives to identify and develop promising maritime tech companies to get them ready when the economy picks up,” chief executive Quah Ley Hoon told the Oceans 2020 conference in early October 2020.

One of the biggest challenges ports face is handling the sheer volume of haulage traffic in and out

Shanghai, the world’s biggest container port, is following the same path by attracting the best researchers from around the world with its own version of Silicon Valley. Similarly, Rotterdam has invited maritime-focused start-ups to base themselves there. A current project is an energy hub that uses artificial intelligence to predict patterns of consumption and production. The result should be more transparent and lower prices for users, predicts Nico van Dooren, director for new business. “This is a solution that will help achieve the goal of a carbon-neutral port.”


Smoothing the passage
Digital technology lies at the heart of the smart port. Hamburg, the third busiest port in Europe, has installed sensors, camera systems and smart lights on roads in order to monitor traffic, alert users when a bridge is lifting, and to smooth the passage of working barges and other vessels in busy times. One huge benefit of this is a reduction in the number of accidents.

One of the biggest challenges ports face is handling the sheer volume of haulage traffic in and out, but here digitisation and artificial intelligence are coming to the rescue. About 2,500 trucks circulate every day through Montreal, capital of Quebec, passing in and out of the port, the second biggest in Canada, and causing unwanted congestion and pollution in the city. One solution is an app, Trucking PORTal, that alerts drivers to the volume of traffic at port terminals in real time. And in a trend being widely adopted in Europe, it can also provide the latest schedules for the freight trains, something that authorities see as replacing many haulier movements.


Digital communication platform
On the other side of the world, China has embarked on easily the most ambitious of all smart-port projects. Beijing aims to put all the nation’s ports, including Shanghai and their logistics operations, under the umbrella of a single, all-embracing, digital communication platform.

This is a key part of the maritime Silk Road, also known as the Belt and Road Initiative. It is a controversial but bold plan to link Chinese and European ports through the South China Sea, southern Pacific and the Indian Ocean in a vast ecosystem in which ports become hubs in a global supply chain. The entire project relies on digital platforms that harness the floods of data flowing around the world and convert it into information that ports can use. Thus ports become ‘intelligent infrastructures’ instead of mere turntables for cargo. Two ports – Piraeus in Greece and Djibouti in East Africa – are among the first to join the ecosystem.

The maritime Silk Road has its critics though, with doubts raised about the heavy debt that recipient countries are forced to take on. For example, China has seized the port in Djibouti because the country could not afford to pay back loans. Ultimately though, the goal of the smart port is to make them productive but congenial places where people want to live, or at least live nearby. In short, they will be given back to the citizens.

Gibraltar’s financial services will benefit from decision

Around 90 percent of Gibraltar’s Financial Services business is UK-facing and with Brexit looming, the Gibraltar Government sought and achieved not only inclusion in the Withdrawal Agreement via the Gibraltar Protocol, but also, more recently, a bespoke arrangement that guarantees market access to financial services for Gibraltar-based licensed firms. This commitment is now enshrined in UK law through the Bill, which is the legal framework through which this relationship will be maintained and is aimed to deliver certainty for Gibraltar financial services firms and minimise disruption to business.

Further, the UK Government recently published a Technical Notice for guidance on Financial Services in preparation for the end of the transition period on December 31, 2020. It proposes the introduction of the new Gibraltar Authorisation Regime (GAR), a modernised framework that will offer wholesale and retail market access to Gibraltar-licensed firms.

This new regime will be underpinned by bespoke arrangements for information-sharing, transparency and cooperation between the two governments and the regulators. It will be based on aligned legislation and supervisory practice, as well as high standards of financial regulation.


Seizing new opportunities
On the occasion of the introduction of the Financial Services Bill, John Glen, Economic Secretary to the Treasury, said that the country must ensure a regulatory regime that works for the UK and allows it to seize new opportunities in the global economy now that the UK has left the European Union.

“Following the work we’ve done to prepare for EU exit and ensure a smooth transition to a UK rule book, this Bill is the next step in delivering a regulatory framework that boosts the competitiveness of our world-leading financial services sector and ensures that UK consumers are properly protected. It’s part of an ambitious programme to enhance the UK’s first-class standards and our attractiveness as a location for business, both of which will be crucial to help our economy bounce back,” Glen said.

Legislation will deliver on commitments to long-term market access between the UK and Gibraltar for financial services firms

In his Written Ministerial Statement earlier on this year, Chancellor Rishi Sunak said the “legislation will deliver on commitments to long-term market access between the UK and Gibraltar for financial services firms based on shared, high standards.” A spokesperson from HM Treasury pointed out that the UK and Gibraltar have had reciprocal market access in financial services based on the EU Single Market, so having left the EU together they will be committed to continuing as before. This measure will preserve Gibraltar’s regulatory autonomy and enable the territory to choose where it wishes to access the UK market in terms of alignment and cooperation.

The Gibraltar Government is also now consulting on GAR, which could provide permanent UK market access for Gibraltar-based financial services firms. Reciprocally, similar provisions are also being developed in Gibraltar law to enable UK firms to access the Gibraltar market.


Challenging scenario
Ros Astengo, journalist at Gibraltar’s public service broadcaster GBC News, said that this is a challenging scenario especially as equivalence between the UK and the EU has yet to be agreed. “It is a unique arrangement between Gibraltar and the UK and does not extend to the Crown Dependencies or other Overseas Territories. It is quite an achievement, and highlights the unique and historic nature of the relationship between Gibraltar and the UK,” she added.

Astengo commented that Gibraltar worked hard to achieve a commitment on market access at an early stage of joint discussions on the impact of its departure from the EU, explaining that there have been countless meetings between the Chief Minister of Gibraltar, Fabian Picardo, and other senior officials, with their UK counterparts over the past four years.

“Keeping open channels of communication, even during lockdown periods, has been crucial. However, at the risk of downplaying the enormous work and detail that has gone into this agreement, I think the historic nature of the UK-Gibraltar relationship, and similarities in regulatory regimes and standards, not to mention language and laws, has been significant,” she said.

“As a result, Gibraltar will retain its position as a well-regulated and attractive jurisdiction for business with unique access to the UK financial services market,” Astengo added. “Of course, the UK has its own challenges with no future relationship deal in place and they have yet to come to an agreement on equivalence with the EU. But that’s a different story,” she concluded.

Sustainable investment boom sees huge surge in ESG funds

2020 was a watershed year for ESG funds. Investment strategies that take environmental, social and corporate governance factors into account enjoyed record inflows; over the last year, a third of inflows into global funds was invested using ESG strategies, rising to more than half in June and July.

As of September, global inflows into sustainable funds are up again, reaching $80.5bn, and assets in sustainable funds are at an all-time high. Numbers suggest that this was money well invested: 40 percent of ESG and sustainable funds made top-quartile returns in the first half of this year, with the average ESG outperforming its traditional peer, according to Trustnet. The idea that sustainable investment sacrifices returns for morals has been well and truly put to rest.

The COVID-19 pandemic is partially responsible for the spike in inflow, as investors seek sustainable investments that can withstand an unpredictable market. Hortense Bioy, Director of Sustainability Research at Morningstar, told World Finance: “The disruption caused by the pandemic has highlighted the importance of building sustainable and resilient business models based on multi-stakeholder considerations.” The global health crisis has had an impact on all categories of the ESG model: beyond health and safety, the pandemic has resulted in increased interest in employee benefits and “renewed focus on management compensation”, says Bioy, as well as intensifying already increasing concern over the climate crisis. Similarly, the success of ESG funds this year has been widely attributed to favourable sector exposure driven by the pandemic.

Sustainable investment tends to avoid oil and gas, the value of which plummeted earlier this year; despite oil prices stabilising after dipping to sub-zero in the US for the first time in history, energy stocks continue to underperform. On the other end of the market, tech stock is heavily prevalent in ESG strategies: in October, Apple, Amazon, Facebook and Google-owning Alphabet were up 18 percent year on year.

There is a sense that the success of ESG is attributable to special circumstances. But as of July, the ubiquity of tech stock – eight of the 10 best performing large-cap funds using ESG metrics have either Apple, Amazon or Microsoft as their biggest holding – has led to lasting success: almost 60 percent of sustainable funds delivered higher returns than their conventional counterparts over the past decade.

Research conducted by the World Resources Institute suggests that differences in sector exposure accounts for just 0.77 percentage points of current ESG over-performance; a significant 0.65 percentage points were gained by picking better-performing stock within each sector, suggesting that ESG is an effective measure of financially successful investment.

The numbers are impressive. But the vogue for ESG is plagued by accusations of greenwashing, calling the strength of ESG’s claim to sustainability into question. While ESG fund integration considers a company’s ESG profile, financial performance remains the top priority when purchasing stock. This is where ESG differentiates from socially responsible investing (SRI) and impact investing, which respectively screen investments according to specific ethical guidelines and prioritise quantifiable social impact.

What’s more, ESG valuation is conducted independently or using an agency score, the latter of which was recently deemed unable to “facilitate meaningful investment analysis that was not significantly over-inclusive and imprecise” by the chair of the SEC. Varying definitions and methodologies mean one company can attract scores across the spectrum, making it increasingly difficult for investors to identify truly sustainable companies. ESG continues to be dominated by the European market, and, according to PwC, European sustainable investment products could increase threefold by 2025, outnumbering traditional funds.

Proposed regulations developed by the EU, set to commence over the coming years, outline a number of environmental objectives driven by the EU’s pledge to become climate neutral by 2050, including pollution prevention and the transition to a circular economy. Regulating non-financial sustainability-related disclosures aims to enhance the comparability of financial products; the catch-all nature of the disclosure guidelines means they will cover the vast majority of funds that currently claim to use ESG strategies, and the appeal of retaining its marketing advantage will outweigh the administrative burden.

Philipp Woelk, EU policy officer at responsible investment charity ShareAction, told World Finance that the regulation could have more influence on which funds ESG inflows will be directed towards rather than impact its booming growth. “Ideally, the regulation will shift funds to the ‘better’ ESG funds and ultimately push the laggards, who, until now, have benefited from the ESG or sustainable label, to do more ESG integration.” The initiative does not strictly aim to make ESG an exclusive status but rather to direct capital towards more sustainable growth and make broader, non-financial considerations a vital element of mainstream sustainable investing

Managing demand: why have retailers failed at successful pre-order events?

In September, Sony’s PlayStation 5 was triumphantly listed by retailers as available for pre-order. But for eager gamers looking to grab the latest hardware, the event quickly turned into a disaster. The PlayStation 5 was supposed to be available for pre-order on September 17, but according to videogame news website Polygon, many retailers put their listing up early. Customers who had signed up to receive an official email alert for the start of pre-orders discovered many retailers had already sold out, and those who did get online early experienced crashed websites, unexpectedly empty shopping carts and cancelled orders.

“Let’s be honest: PS5 pre-orders could have been a lot smoother,” Sony glibly tweeted the following day. A positive product launch experience is critical for success, but the unique challenges of 2020 combined with hastily implemented digital infrastructure has seen even the biggest companies struggle to hold a successful pre-order event.


Pre-pay to play
In 2020, almost every retail category has been forced to develop some kind of pre-order system. COVID-19 has left consumers unwilling, or in regions with strict lockdowns, unable to visit stores in person. With international supply chains disrupted and many businesses in tough financial positions, pre-orders are often the only way to guarantee a supply of stock. “This year (2020) it has not only happened to consumer electronics: I have seen it in categories such as bikes, health and fitness items, which have been in such heavy demand,” Miles Clemans, Managing Director of inDemand Online Retail Services, told World Finance. “Some of my clients have really struggled under the weight of pre-orders.”

For companies like Sony, this has been coupled with a massive surge in demand for home-based entertainment. An October report from McKinsey & Company described it as a new ‘homebody economy’, driven by people redirecting the money they would have spent on travel back into their home. If you can’t take your holiday to Spain, adventuring in a video-game might be the next best thing. This has made demand far more difficult to forecast, overwhelming companies’ websites with an unprecedented volume of traffic.

A pre-order event needs to be treated like an old-fashioned, in-person launch, similar to what has been perfected by the likes of Apple over the last decade

Clemans said systems are more often than not the main point of failure. “Pre-orders are a workaround to business as usual. When the usual e-commerce system sees ‘10 in inventory’, as soon as 10 units are sold it will say ‘out of stock’ and the consumer will not be able to purchase. But along comes the pre-ordering system that overwrites it, and you start having exceptions to the rules, and exceptions to exceptions to the rules. That’s when systems start to get tested.”

Besides technology, COVID-19 has placed business communication systems under immense strain. Clemans said communication between internal departments, such as marketing and warehousing, is important, but a lot of companies need to think more about their consumers. “Demand has been so intense and they haven’t really thought through how to communicate at a consumer level to advise them ‘Sorry, we oversold within 30 minutes of opening up the pre-ordering.’

“A very negative experience for a consumer is to get a refund without a very good explanation of why all that energy you expended getting excited has gone to zero.” In a rush to implement pre-order systems, Clemans said the testing of both technologies and systems is often overlooked. “Maybe a cursory test is done between one or two developers, but I don’t think that’s good enough. It needs to be a really comprehensive testing process that has gone through more levels than just the IT department, particularly marketing.”


For the fans
In many ways a pre-order event needs to be treated like an old-fashioned, in-person launch, similar to what has been perfected by the likes of Apple over the last decade. A well-thought-out plan coupled with clear communication between all parties is the core of any successful event, in-person or otherwise.

Some companies are getting it right. Electronics maker Xiaomi releases many of its new products exclusively to the company’s ‘VIP’ fans first, making demand more manageable while engaging with its most devoted customers. Additionally, these VIPs tend to be a little more forgiving of the minor faults or problems new consumer electronics often have.

Although in many ways, simply limiting ambitions a bit might be the best solution. “A lot of these over-sales and issues arise out of greed,” Clemans said. “People get very excited about the amount of dollars that can be taken for nothing in return.

“There have to be some caps right at the start, because it could become 10,000 orders when you actually only have access to 1,000 in stock. That means you potentially have 9,000 emails to send to unhappy customers, if you do get to send them at all.” Depending on how COVID-19 permanently changes the way we live our lives, better systems and more realistic expectations will have to become the new minimum for retailers.

The Swedish experiment: was it forward-thinking or not?

Since the onset of the COVID-19 pandemic, Sweden has stood out from the rest of Europe by resolutely refusing to lock down. In April of this year, as cities around the world turned into ghost towns, Sweden’s urban centres didn’t look too different to normal, with Swedes still able to drop their kids off to school in the morning and enjoy a coffee with friends in the afternoon.

It wasn’t quite business as usual, mind you. Gatherings of more than fifty people were banned, employees were encouraged to work from home, university teaching was moved online and the nation’s elderly were urged to self-isolate. But Sweden’s approach was certainly less stringent than the nationwide lockdowns seen elsewhere across Europe. Rather than enforcing new legal obligations on its citizens, the Nordic nation instead based its strategy on a sense of collective social responsibility – in effect, trusting its people to act sensibly and “do the right thing” to limit the spread of the virus.

Sweden appears to have been able to soften the economic blow to small businesses and avoid the onslaught of job losses

To its critics, this approach was utterly irresponsible, putting the economy ahead of saving lives. To its supporters, meanwhile, it represented a more realistic, long-term strategy – and one that sought to avoid the potentially catastrophic social and economic effects of a national lockdown, including mass unemployment, delayed treatment for non-COVID-related illnesses and months of lost education for children and young people. While the nation’s chief epidemiologist, Anders Tegnell, has insisted that protecting the economy was by no means the main aim of the strategy, by allowing businesses to remain open, Sweden appears to have fared better than many of its European neighbours when it comes to the COVID-19 economic downturn.

Although the nation still experienced an economic contraction in the second quarter of the year, with its GDP shrinking by 8.6 percent, this was significantly less than the estimated average for the European Union as a whole, which saw a decline of approximately 11.9 percent. At the opposite end of the spectrum, meanwhile, those individual European nations that imposed particularly strict lockdowns were hit hard by the COVID-19 crunch, with Spain’s economy contracting by 18.5 percent after implementing arguably the harshest lockdown in the EU. By keeping society open throughout the pandemic – even with spending reduced as Swedes embraced voluntary social distancing – Sweden appears to have been able to soften the economic blow to small businesses and avoid the onslaught of job losses that is currently blighting countries across the EU.


Protection at a critical juncture
So, while the strategy hasn’t worked miracles when it comes to the Swedish economy, with a recession still very much on the cards, its supporters believe it has gone some way to protect livelihoods at this critical time. But the strategy has also attracted fierce criticism from around the globe, prompting the New York Times to label Sweden as ‘the world’s cautionary tale.’ It is undeniable that Sweden has suffered a worse fatality rate than its Nordic neighbours, registering over 6,000 COVID-related deaths since the pandemic began spreading throughout Europe in early March.

While this might seem like a lower figure than the tens of thousands of deaths seen in Spain, Italy, France and the UK, for this small nation of just 10 million citizens, it gives Sweden the fifth-highest death rate per capita in Europe. Despite the widespread criticisms of the strategy that led the country to such an ignominious ranking, Sweden’s experts and health officials have stood by the controversial approach, with Tegnell recently telling the Financial Times that nationwide shutdowns are like “using a hammer to kill a fly.”

With a second wave of COVID-19 sweeping through Europe and entire nations placed back under strict lockdowns, all eyes are once again on Sweden to see whether the nation changes tack. This time around, the nation has tightened up its approach, introducing an eight-person restriction on sitting together at restaurants and cafes. As for other recommendations – avoiding public transport and non-essential shopping – these remain voluntary guidelines, marking a stark contrast to the legally enforced curfews and “stay at home” orders seen elsewhere in mainland Europe. Lockdowns, by their very nature, can only ever be temporary solutions, and as the spiralling cases in Spain, France and the UK seem to show, they appear to offer only temporary respite from the virus.

While governments across the EU have floated the idea of short, sharp, “circuit-breaker” lockdowns, as the months drag on, it’s clear that Europe needs to think about its long-term strategy. Swedish politicians have described the pandemic as “a marathon, not a sprint,” and only time will tell if the nation’s lockdown-free approach can go the distance and pay off in the long run.

Investors are moving in on music as an asset class

The London Stock Exchange isn’t the most rock ‘n’ roll of environments. Or rather, it didn’t used to be. That appears to be changing however, thanks to the arrival to the market in recent years of music royalty investment trusts – funds that own the rights to pieces of music, including by some of the biggest names in pop and rock.

Hipgnosis Songs Fund, a British, Guernsey-registered investment company, floated on the LSE in July 2018, raising £200m for its IPO. Founded by Merck Mercuriadis, former manager to acts such as Elton John, Beyoncé and Guns N’ Roses, the fund’s first acquisition was a catalogue of songs from Terius Youngdell Nash, better known by his stage name, The-Dream. While not a household name himself, The-Dream is an award-winning producer and songwriter, having co-written hits for the likes of Justin Bieber, Beyoncé, Rihanna and Jay-Z.

Hipgnosis has subsequently raised an additional £845m through further share issues, most recently raising £186.4m in 72 hours in September 2020. An aggressive acquisitions policy has seen the fund add 117 catalogues comprising 57,000 songs to its pipeline, which together offer investors a yield of 4.17 percent, according to data by Winterflood. The fund has been part of the FTSE 250 Index since March 2020.


Two can play that game
Hipgnosis had long boasted of being the “first and only” UK investment company offering access to song royalties, but that all changed in November when Round Hill Music Royalty Fund announced that it had raised $282m from its own IPO on the LSE. The company, which is managed by New York City-based Round Hill Music (RHM), a music publisher and owner and operator of music copyrights, hoped to raise $375m, attributing the shortfall to the “global turbulence” caused by the COVID-19 pandemic. The fund is targeting total returns of 9–11 percent per annum, with a dividend yield of 4.5 percent. Since its launch in 2010, RHM has raised $472m in two private equity funding rounds and expects to raise an additional $250m in a third fund due to close soon. This war chest has enabled the company to acquire a portfolio of over 120,000 songs.

The strong market for these funds is driven by an evolution in the way we think about music, Mark Mulligan, managing director of media and technology analysis company MIDiA Research, told World Finance. “You’ve got pension funds and global asset managers looking at music as just another asset class to put within their portfolios of assets with a certain risk and opportunity profile,” he explained. “Institutional investors have looked at music publisher catalogues in particular, at how the value of that asset class has augmented over the last half decade plus.”

The figures are significant. In March 2020, Will Page, a visiting fellow at the London School of Economics and former chief economist for the music streaming service Spotify, published his annual report into the value of the music copyright business with the music industry publication Billboard. He calculated that in 2018 (the most recent year for which data was available) the music copyright business was worth $30.1bn, a 9.3 percent increase year-on-year from 2017. The music business is notoriously complex in terms of how royalties are apportioned and to whom, but the basic premise is that every time a song is purchased or performed, its copyright holders (and in most cases there will be several) earn some income.

Hipgnosis and RHM seek to pack their pipelines with high-earning songs: contemporary hits and classic tracks that receive a lot of radio airplay, are frequently streamed via services such as Spotify, or regularly licensed for use in films and advertising. Out of the many thousands of tracks in the catalogues these funds own, only a few dozen will yield very high returns by themselves. RHM’s portfolio includes the rights to songs recorded by The Beatles and Frank Sinatra, while Hipgnosis owns copyright to songs by Barry Manilow and Dave Stewart of Eurythmics. By acquiring aggressively and widely, these funds increase the likelihood of a good return for investors.

The music copyright business has not escaped the impact of COVID-19. With bars, shops and music venues closed during local and national lockdowns, there have been fewer opportunities for song plays, which means a fall in earnings for copyright holders. The International Confederation of Societies of Authors and Composers (CISAC), whose members operate in 120 countries worldwide, anticipates a fall of $2bn–$3.45bn in royalty collections in 2020.

But Mulligan is hopeful about the sector’s recovery from what he terms this “mini-recession. It’s not a market like travel or movie theatres, which have been completely decimated,” he said. “There’s a very clear path to return because what’s been happening to music publishing income splits over the course of the last five years is a rapid acceleration towards streaming, and streaming is booming. It has a dent at the moment after uninterrupted years of growth; however, compared to the broader economy, its relative value as an asset class actually holds up.”

Race for the superfuel

In September 2020 the giant container vessel Jacques Saadé, owned by French shipping group CMA CGM, set out on a roughly 80-day maiden voyage from Europe to Asia and back.

There’s nothing unusual in that, except that this brand-new 400-metre-long vessel is the first ultra large container ship to be fuelled entirely by liquefied natural gas (LNG), a low-emission fossil fuel that so far has only powered much smaller vessels.

In the next few years the Jacques Saadé will be joined by eight sister ships. But looking further to the future, the engines on these vessels will be able to run on zero-emission fuels – as they become available in the coming decade. This is a race with profound consequences for the planet, and even Big Oil is joining in. ExxonMobil, for example, is working with Synthetic Genomics to develop algae into a viable biofuel for transport. The goal is to produce 10,000 barrels a day – equivalent to 3.65 million barrels a year – by 2025. “With continued breakthroughs on the horizon, the hope is that some day, passengers may fly on algae-fuelled planes and packages will be delivered by algae-fuelled trucks,” the oil giant hopes.


An urgent situation
As the world’s airlines embark on their commitment to a zero-emission strategy by 2050, refiners are trying to plug a yawning gap in sustainable aviation fuel (SAF). In mid-2019 Total fired up a bio-refinery in France with a capacity of 500,000 tonnes a year made from waste and a variety of vegetable oils. And US-based LanzaTech will supply SAF to All Nippon Airways (ANA) from 2021. The situation is urgent, warns LanzaTech’s chief executive Dr Jennifer Holmgren – “bold action is needed.”

On the bright side, Steve Csonka, executive director of American government agency Commercial Aviation Alternative Fuels Initiative (CAAFI), believes costs can come down. “We’re working to reduce the cost of production,” he told World Finance. “I believe SAF can be produced more economically. Biofuel is the only proper way.” So what exactly is biofuel? The criteria require that it be biodegradable, non-toxic, almost carbon neutral, and definitely not derived from a fossil fuel.

There are conventional biofuels refined from organic crops, or biomass, such as corn or sugar, while “second-generation” biofuels are created from waste such as cooking oil, forestry ground waste, household rubbish and even plastic, the scourge of environmentalists.


Hybrid product
Encouragingly, biofuel production is on the rise. In late September, Italian oil and gas group ENI opened a bio-refinery that will turn out 750,000 tonnes a year from used vegetable oils, animal fats, algae and other waste products that will be converted into Enidiesel+, a hybrid product with 15 percent biofuel.

British Airways and Shell are collaborating on a plant in Britain that will convert household and commercial solid waste into 13 million gallons of SAF a year. “The jet fuel coming from the plant could fuel all British Airways’ 787 Dreamliner-operated flights from London to San Jose, California and New Orleans in a year,” says director Robert Jeffery. Production is expected to begin in late 2024.

And in the Netherlands a KLM-led consortium has unveiled plans to build a plant that would produce about 33 million gallons of SAF a year from 2022, using local waste and residues as the basic feedstocks. The airline has contracted to buy 75 percent of the output for 10 years. Meanwhile, the science of SAF is progressing in leaps and bounds. Rotterdam The Hague Airport is examining the feasibility of producing SAF from nothing more than air – or more accurately, from CO2 drawn from the air, using a process known as direct air capture. It would then be refined on-site into renewable kerosene. “If all goes according to plan we expect to have the first flight with our blend take off by 2022,” hopes airport director Ron Louwerse. “The resulting kerosene can be blended to 50 percent and fuelled into planes that are currently in operation.”Because of pressure from authorities, zero-emission fuels cannot come soon enough for airlines. “The only way for the airlines to control their own destiny is to meet their targets,” says CAAFI’s Csonka.


Responsible roadways
On the ground, a front-running alternative to biofuels is hydrogen: particularly in the form of fuel cells that, like batteries, produce electricity through an electro-chemical process. Fuel cells have already been widely adopted in trucks, trains, buses and forklifts. Their only emissions are water vapour and heat. The essential energy source – hydrogen fuel – is stored separately. However, to qualify as ‘green’ hydrogen, it must be produced from solar, wind, hydro-electric, geothermal energy and other renewable sources. Promisingly though, the cost of renewable hydrogen has been falling steadily for years as production is ramped up, notably in giant projects in Europe, Australia and Chile.

Two big Spanish companies believe they have the answer – and it’s called ammonia. In early 2020, fertiliser producer Fertiberia and energy group Iberdrola announced plans to boost the production of ammonia by electrolytic hydrogen to 800 MW by 2027 at a cost of €1.8bn. “Producing ammonia through green hydrogen is the most efficient way for long-term and large-scale storage of energy,” believes Fertiberia chairman Javier Goni.

But why ammonia? It is the source of a clean fuel, especially for shipping. And it is relatively cheap and abundant. According to a report by the Korean Register of Shipping, ammonia works out 32 percent cheaper than hydrogen and 15 percent cheaper than methanol, another long-term alternative. “Hydrogen requires excessive costs for transport, and methanol requires excessive cost for capturing carbon dioxide needed for production,” the study noted.

Most experts believe LNG is only an ‘interim fuel’ that will be replaced by zero-emission alternatives within 15–20 years

Compared to other fuels, ammonia presents a low risk of self-ignition when correctly stored. (The explosion on August 4, 2020 of a large amount of ammonium nitrate stored at the Port of Beirut was reportedly a result of long-term neglect.) However, ammonia is highly toxic and must be carefully handled.

Whatever it’s produced from, hydrogen is gaining ground in all forms of transportation. In a landmark deal in late 2020, Volvo and Daimler Truck agreed to develop, produce and commercialise fuel-cell systems, primarily for heavy-duty trucks. “The hydrogen-based fuel cell is a key technology for enabling CO2-neutral transportation in the future,” believes Daimler Truck chairman Martin Daum. Incidentally, Daimler’s parent company Mercedes-Benz announced earlier this year that it had stopped all development on the internal combustion engine. “In the future the world will be powered by a combination of battery-electric and fuel-cell electric vehicles, along with other renewable fuels to some extent” predicts Martin Lundstedt, president and chief executive of Volvo Group.

Another automotive giant putting its faith in hydrogen fuel cells is Hyundai, which is rolling out heavy-duty trucks – up to 1,600 by 2025 in Europe alone. A pioneer of the technology, the South Korean group has been producing fuel cell-powered passenger vehicles for seven years. Although they are up to twice as expensive, hydrogen-fuelled trucks have several advantages over diesel-juiced ones. They accelerate much faster, are quieter, and require much less maintenance.


Deep green seas
Having seen what fuel cells can do on terra firma, the generally conservative shipping sector is beginning to embrace fuel cells. “Fuel cells will play a key role in helping marine industries address greenhouse gas emissions on the water and in ports,” predicts fuel-cell pioneer, Canada-headquartered Ballard. And prices are falling – the cost of Ballard’s latest module, FCMove, is a third cheaper than its predecessor.

This is long overdue, according to environmentalists. Until the International Maritime Organisation’s tougher regulations against CO2 emissions were introduced in January 2020, the vast majority of ships’ engines ran on low-grade, highly polluting bunker fuel. And even though the LNG-fuelled Jacques Saadé is flying the flag for low-emission fuel, most experts believe LNG is only an ‘interim fuel’ that will be replaced by zero-emission alternatives within 15–20 years.

The pressure is coming from everywhere. The EU wants green hydrogen to replace oil, natural gas and coal as a fuel source for all heavy industry, not just transportation. Switzerland will apply a stiff road tax on diesel trucks. And China has embarked on the biggest clean transportation project in the world – in Shanghai, for instance, some 500 fuel-cell-powered delivery vans are at work. And finally, the cheapest fuel is the wind. As well as powering offshore wind farms that are churning out many times more megawatts than experts predicted a decade ago, it is being harnessed on ships to boost the engines.

A roll-on, roll-off ferry, Ville de Bordeaux, that delivers Airbus parts around Europe, is partly powered by a kite system while another French shipping group will install 4,200sqm of sails on two 136m cargo vessels. When not in use, the four sails simply fold out of the way. Other shipping companies are experimenting with the Flettner Rotor, essentially a tall cylinder that “spins” the wind into propulsion. Estimates of fuel savings range from 10 to 30 percent. While not exactly a superfuel, at least the wind doesn’t have to be manufactured.

Could the pandemic spell the end of corporate travel?

In March 2020, the dawn of coronavirus effectively wiped out global travel in the space of a week – on a scale we’ve never seen before. Airline traffic tumbled 96 percent in April 2020 compared with the same period in 2019, according to data from the Transportation Security Administration (TSA), and it has only mildly recovered since, with passenger numbers still down 70 percent year-on-year as of October 2020.

In June 2020, airline industry group IATA projected total carrier losses of nearly €100bn to the end of 2021, and in October, IAG (parent company of British Airways) confirmed losses of €5.6bn in the first nine months of 2020.

Hotels have been just as decimated; a survey by the American Hotel and Lodging Association (AHLA) found that almost two thirds of hotels in the US were at or below 50 percent occupancy – “below the threshold at which most hotels can break even and pay debt,” according to the report. Hugh Taylor, Chief Executive of hotel management and consultancy business Michels and Taylor, said average occupancy levels across the firm’s clients in the UK and Europe had hovered at around 15 percent for the year. “This is my fourth recession in my career, and I have never seen anything like it,” Taylor told World Finance. “Since March, business has essentially collapsed, and perhaps 90 percent of most hotels’ income has just disappeared.”


Slow recovery
Optimists might say this is a passing phase, with a full recovery imminent in the next few years. For leisure travel this might well be the case, with pent-up demand for escaping those same four walls likely to explode as soon as a vaccine makes things safe again.

But the same can’t necessarily be said for corporate travel, with recession-induced budget constraints and continued COVID-19 restrictions leading some analysts to predict a slower recovery for the sector. McKinsey research in August 2020 concluded that “the post-crisis return will take years and that business travel will return at a slower pace than leisure travel.” This is in line with previous trends; in the 2008–2009 recession, leisure travel fully recovered to pre-crisis levels in two years, according to the report, while business travel took five years. That was without the dynamics of a pandemic to contend with.

Taylor believes it will be at least three or four years before things get back to pre-crisis levels – including in the cities whose economies rely on business travellers. “London recovered within about a year amid the 2008 crisis,” he said. “This time our current forecasts suggest it isn’t likely to get back to 2019 levels until at least 2023, 2024 or possibly later.”


The bottom line
The impact of this on the travel industry and wider economies at large is clearly significant.

In 2018, corporate travel spend hit $1.4trn, according to a 2020 trends study by the World Travel and Tourism Council (WTTC), representing 21.4 percent of overall spend in the travel and hospitality sector.

Airlines are reliant on the corporate market for their profits. While business travellers typically only represent around 12 percent of overall airline passengers, they account for as much as 75 percent of passenger revenues, according to a recent report by travel software company the Trondent Development Corporation.

Hotels are likewise hugely dependent on the corporate sector. The AHLA found that corporate travellers represented around 40 percent of all hotel guests in the US, spending $280.2bn in 2014 (compared to $660.3bn spent by leisure guests) and generating $141.5bn in tax revenue. “The majority of the big branded hotels make their money from corporate travel,” said Taylor. “Conferences, events and meetings and so on all generate significant revenues.”


Digital dawn
While it’s easy to see the effects of this in the short term, the longer term is harder to forecast. Some believe business travel will make a full recovery; others predict the advent of the Zoom era may spell the end of overseas business meetings for good. The reality is probably somewhere in the middle. Research suggests there will always be demand for in-person dealings; in a recent survey by travel forecasting agency Globetrender, 60 percent of respondents felt most deals and decisions couldn’t be made virtually. But as businesses across the globe reel from recession, how prepared they will be to fork out on a costly trip for a quick, one-off meeting that could be done online in an hour leaves a very big question mark.

“Even after the emergence of effective therapeutics or a vaccine, don’t imagine a return to pre-pandemic business travel patterns,” wrote Michael Litt, Co-Founder and Chief Executive of video platform Vidyard, in a recent Forbes article. “In-person meetings will be reserved for times when it’s absolutely necessary.” The McKinsey researchers likewise concluded that “some travel for internal purposes will be permanently replaced by virtual meetings and collaboration.” To what extent these forecasts play out in reality remains to be seen, but what is clear is that this is the start of a long, uphill battle – and travel businesses and the economies they serve will likely be bearing the brunt for some years to come.

Central banks are gradually warming to digital currencies

Last April, amid the COVID-induced panic that engulfed the planet, more shocking news came from China. The People’s Bank of China (PBOC) announced that it would start testing its own central bank digital currency (CBDC), a first for a major economy. Government employees in four cities were paid in digital yuan, while four commercial banks began internal tests. By December, around 50,000 lucky citizens had received 200 e-yuan (£23) in their digital wallets to spend on apps such as the food delivery service Meituan. A new era had started.


A change of heart
It has not always been like that. When Bitcoin, the first cryptocurrency, appeared in 2009, central banks disparaged it as a fad, a dud, or even a fraud. Many banned its use. In 2013, China barred its banks from using it as a currency, citing concerns over financial stability. The same year, Paul Krugman, perhaps the world’s most famous economist, penned an op-ed entitled “Bitcoin is evil.”

Gold-backed sovereign digital currency offers a compelling solution to slowing economic growth and rising inflation that many markets around the world are experiencing

Fast forward to 2021, and the mood music has changed. Central banks around the world set up working groups to discuss the merits of CBDCs. A survey by the Bank for International Settlements (BIS) found that most developed economies are considering the idea. International organisations like the IMF weigh the pros and cons of a novel financial architecture dominated by CBDCs. The Bank of England has released a roadmap leading to a digital pound sterling, a prospect that could help the UK’s COVID-stricken economy benefit from negative interest rates, according to Andy Haldane, the bank’s chief economist.

As for the US, it is grudgingly joining the party, with Treasury department and Fed officials openly discussing the possibility of a digital dollar. One reason for this Damascene conversion is that commercial banks have embraced the blockchain, the technology underpinning cryptocurrencies, with leading banks such as JPMorgan Chase using it for cross-border payments and settlement. “What has spurred interest in CBDC issuance is the realisation that it offers a holistic solution for updating financial infrastructure and enables instantly settled payments at no cost to customers,” said Josiah Hernandez, head of the CBDC Group, a think tank specialising in sovereign digital currencies. One such venture is Project Ubin, a project designed by Singapore’s central bank that aims to provide a global payments platform for central banks.

Elvira Nabiullina, governor of Russia’s central bank

Sovereign digital currencies have also moved up on the agenda of political leaders, with G20 finance ministers contemplating the need for a global regulator to lay down the law in the Wild West of cryptocurrencies. G30, an influential group of central bankers and academics, advises policymakers to take action before rogue players do it first. Countries like Venezuela and North Korea are already using cryptocurrencies to push their agendas. The former has launched its own digital currency, aptly named the Petro, to bypass US sanctions. The Russian government is also considering issuing its own CBDC, backed by gold. Elvira Nabiullina, who heads the country’s central bank, has said that it could be used to settle trade transactions with other countries. In the current climate of debased fiat currencies, stablecoins, namely digital currencies backed by stable assets, are emerging as a safe asset. “A gold-backed CBDC offers a compelling solution to slowing economic growth and rising inflation that many markets around the world are experiencing,” Hernandez said.


Replacing physical cash
Another reason why central bankers are warming up to CBDCs is the slow but steady adoption of cryptocurrencies by the public (see Fig 1). Initial coin offerings (ICOs), once seen as a scam, are becoming a mainstream method for start-ups to raise capital. By late November 2020, the total market capitalisation of crypto assets stood at £476bn. COVID-19 has also boosted the use of digital cash, with digital payments becoming the norm. “The pandemic has led to an increased focus on digital cash to replace contaminable physical cash, in addition to creating more reliable, effective, and optimised mechanisms for the distribution of [COVID-19] relief funds. This led central banks to prioritise CBDCs,” Hernandez said.

Not surprisingly, it was a technology company that kick-started the race. In June 2019, Facebook announced the launch of its own digital currency, Libra. The project’s white paper stated that CBDCs could be integrated into the Libra network, sparking fears among central bankers that a private company would compete with them in their own game.

In a dramatic testimony to Congress last July, Mark Zuckerberg warned US policymakers that if they didn’t endorse Libra, China would move first. Chinese officials took notice, worrying that the yuan would not be included in Libra’s currency basket, amid a trade war with the US. “China’s trials have accelerated as a result of Facebook’s attempt to introduce Libra, even as the PBOC had been conducting research on a CBDC for many years,” said Dylan Loh, a China expert who teaches at the Nanyang Technological University in Singapore.

China first
Many interpreted China’s announcement last spring as a part of its distraction tactics amid the global furore over the pandemic, which allegedly started in Wuhan. However, it was far from a spontaneous move. Xi Jinping, the country’s president, had announced the launch of e-yuan on October 24, 2019, a day the government has named “China Blockchain Day.” Relevant infrastructure was long underway, culminating in the launch of a blockchain-based service network that can support applications in various fields, from healthcare to insurance.

Unlike other digital currencies, the e-yuan is not a cryptocurrency, nor is it based on blockchain technology. As a centralised currency, it will be issued by the central bank and circulated through China’s network of state-owned banks. Although China is gradually becoming a cashless society, it has no plans to ditch banknotes and coins. Users will be able to turn their deposits into tokens stored in digital wallets.

Domestic considerations have played a role. Government officials hope that a digital yuan will reduce transaction costs, facilitate cross-border payments and include China’s 200m unbanked citizens in the financial system. Some also point to a covert plan to rein in the country’s most popular payment services: Alipay (owned by Alibaba) and WeChat Pay. The government is imposing tougher antitrust rules on Chinese tech powerhouses, including the e-commerce giant Alibaba. Merchants will be able to use the digital yuan for free, whereas commercial payment systems charge a fee. “These two companies control 96% of the Chinese mobile payments market, and have been allowed to operate in a lightly regulated fashion thus far. Fiat money in digital form will likely result in a more resilient multiplayer financial ecosystem,” said Professor Michael Sung, Co-director of the Fintech Research Center at Fudan University.


Control via blockchain
In a country where the tight grip of the state rarely loosens up, the launch of a sovereign digital currency has raised concerns over privacy. Many believe that China hopes to stem capital flight, a problem that has worsened over the last decade, despite strict capital controls. A report published last August by the blockchain firm Chainalysis found that Chinese citizens had moved $50bn in cryptocurrency out of the country within just 12 months. The digital yuan could be incorporated into China’s notorious social credit system, which rewards citizens for good deeds such as donating blood or punishes them for defaulting on loans or jaywalking. “Cryptocurrencies demonstrate a new opportunity for states to incorporate their values and ideology into money, whether that’s monitoring people’s behaviour or how they spend their money,” said Olinga Ta’eed, a blockchain expert who teaches at Birmingham City Business School and is a member of China’s e-commerce Blockchain Committee. He added: “China never had any problems about saying this. They openly admit that there is some degree of control.”


Sidestepping sanctions
However, China’s plans could be even more ambitious. A CBDC used beyond China’s borders could consolidate the yuan’s position as a reserve currency, as Yi Gang, governor of the central bank, has implied. As a result, America’s most powerful weapon, the dollar, would lose some of its appeal. “There could be a ‘dollarisation’ effect across Asia for the yuan due to increased access through digital issuance and the strong trade and lending activity the country maintains in the region. This could lead to less dependence on the dollar in the region and other markets with similar ties to China,” Hernandez said. “China seems to be approximately five years ahead,” said Philipp Sandner, head of the Frankfurt School Blockchain Center at the Frankfurt School of Finance & Management.

He added: “If a country successfully launches a CBDC or a private payment system, such as Libra, is used heavily, it can change international capital flows substantially. Therefore, the dollar, as the most prominent reserve currency, could lose its dominance.”

A case in point are US sanctions. In a meeting of the BRICS countries in 2019, policymakers and executives from Brazil, Russia, India, China and South Africa discussed the launch of a common cryptocurrency as an alternative to the dollar. Such a system would help these countries skirt the international payment mechanism SWIFT, through which the US imposes sanctions on rogue states. “Having a CBDC and allowing other regional actors to plug their financial system into this infrastructure will help China reduce its reliance on the SWIFT payment system and thus reduce the costs of US sanctions,” Loh said.

Chinese media have reported that the government has considered the launch of a gold-backed token on the back of the country’s position as a leading gold exporter and its access to gold reserves elsewhere through its Belt and Road Initiative (BRI). China could force participant countries to accept loans in digital yuan to boost its adoption. “I have no doubt that China will eventually roll this [the digital yuan] out nationally. Once this is done, and teething issues are addressed, it can look forward to blending this with its BRI programme,” Loh said.


Europe lagging behind
Europe is watching the latest developments in Asia with consternation. The Eurozone recently came out of an existential crisis, culminating in the Greek referendum, and is now entering a period of uncertainty due to the pandemic. Many think that launching a digital euro would be too risky. For others, it seems inevitable. In November, Christine Lagarde, the head of the ECB, said that an e-euro will appear in two to four years, with a decision being expected by the middle of 2021.

Christine Lagarde, President of the European Central Bank

One reason why Eurocrats are suddenly keen on CBDCs is that they sense an imminent threat to Europe’s hard-won monetary sovereignty. “Libra and the Chinese CBDC were a wake-up call for central banks, including the ECB,” Sandner said. Last October, the ECB published a report mapping out possible iterations of an e-euro. One reason why it could be necessary, the report notes, is to assert the “strategic independence of the EU”, notably “if there is significant potential for foreign CBDCs or private digital payments to become widely used in the euro area.”

The main question is whether the ECB will enable ordinary citizens to open e-euro accounts at the central bank, thus bypassing commercial banks. Although endorsed by blockchain enthusiasts, such an innovation would increase funding costs and possibly raise interest rates on loans. The ECB’s balance sheet would also balloon, forcing the bank to acquire assets held against the digital euro. Fabio Panetta, who chairs the ECB’s CBDC task force, has said that the bank is exploring whether its settlement system could support retail depositors. However, most experts doubt that commercial banks would be left out. “They will put a stop to anything they think could be a threat to their core business, even if they pay some lip service to it. Central banks also don’t want the risks and the politics that go with retail accounts,” Ta’eed said.


The end of a dream
If the pandemic proved that borders still matter, the rise of CBDCs confirms the role of the state as a financial arbitrator. Geopolitical tensions had already slowed down financial globalisation, even before the advent of COVID-19. With the rise of insular trade blocs, the era of borderless financial markets might be coming to an end. “It’s ironic that after so many years of hollowing out the state through privatisation and globalisation, it now roars back through CBDCs,” said James Cooper, Professor of Law and Associate Dean at California Western School of Law. One reason why central banks may be keen on digital currencies, Cooper marked, is taxation. “Getting records of people’s financial transactions so there’s a tax basis is important, because the state relies on tax to generate revenue for state activity.”

Cryptocurrencies demonstrate a new opportunity for states to incorporate their values and ideology into money

For the early pioneers of the blockchain, however, this may be a wild awakening. Cryptocurrencies started as a libertarian dream that would free money from the long arm of the state, namely central banks and tax authorities. They may now empower the very Leviathan that Bitcoin’s inventors were trying to bring down. “A great dream often outlives its dreamer,” Hernandez said, pointing to other technological innovations that deviated from their original purpose. For more cynical analysts, such a development was inevitable. “Data is the new currency,” Ta’eed said. “Why else will the central banks support CBDCs, if not to effect some kind of control?”

Embracing corporate diversity by shattering the glass ceiling

When Jane Fraser steps into her role as Citigroup’s CEO this February, she’s set to make history as the first woman at the helm of a major Wall Street bank. That’s big news for the industry, and it’s not the only example of recent female success stories in finance; in November 2019, Alison Rose made a UK first by becoming head of NatWest Group. The same year, Suni Harford became the first female president of UBS Asset Management. In January 2020, Stephanie Cohen stepped up to co-lead a new consumer banking and wealth management division at Goldman Sachs, putting her in line to compete for the CEO crown in the future.

These announcements mark promising progress – but they also highlight the reality that they’re still glaring exceptions to the rule.

The figures speak for themselves; women represent less than one in five positions in the financial services C-suite, according to 2019 data from McKinsey, despite the fact they make up nearly 50 percent of entry-level roles. In the investment sector the image is bleaker still, with women holding just 10 percent of senior roles in venture capital and private equity firms, according to a 2019 study by data firm Preqin. Add that to the fact the gender pay gap continues to reign supreme – with men earning 23.1 percent more than women in financial services on average, according to recent analysis by the BBC – and it’s clear there’s still a way to go. Institutions are under mounting pressure to improve the situation.

In 2018, the UK Treasury select committee published a women in finance report examining how the industry could improve its diversity credentials. More recently, David Swensen – head of Yale’s $31.2bn endowment and one of the US’s most eminent investors – threatened to pull money from businesses not increasing women and minority group representation in the coming years.


The maths gap
It’s clear the issue is at the forefront of the agenda – but what more should the industry be doing, and why are women still being held back from the industry’s top spots? The problem starts with the pipeline, according to Brad Barber, professor of finance at UC Davis’ Graduate School of Management and author of the study ‘Family, Values and Women in Finance.’ His research found that only 30 percent of recent finance majors were women, with fewer girls than boys pursuing maths, leading to a “math gender gap.”

“Across countries there is a correlation between the math gender gap and the representation of women in finance,” he told World Finance. “This suggests cultural attitudes, which vary across countries, may discourage women from pursuing math-oriented careers like finance. It’s also possible (even likely) that the general culture of finance, particularly the stereotype of Wall Street as a male-dominated culture, is not appealing to women.” The UK Treasury’s women in finance report indeed found that “alpha-male culture” continued to be an issue in the industry – especially around bonuses, where the style of negotiation was seen to “result in higher rewards for men and act as a deterrent for women.”

Changing that image, then, is crucial in attracting more women into the field. And that starts with education, according to Amanda Pullinger, chief executive of 100 Women in Finance, a global network working to empower women in the industry. “It’s about saying, how can we change perceptions around finance and inspire young teenage girls to pursue it as a career?” she said. “We know there are negative perceptions, but it’s an industry that can have enormous impact on the world. There are lots of roles out there, and it’s about getting young women inspired to consider them as a career.”


Barriers to progression
Yet even among women who do enter the field, the majority don’t progress to the highest ranks, according to Alexis Krivkovich, senior partner at McKinsey and author of several studies, including ‘Closing the Gap: Leadership Perspectives on Promoting Women in Financial Services.’

“Our 2019 data showed that companies in the finance sector start off with even representation between men and women,” she told World Finance. “But this drops by more than half by the time we get to the C-suite.”

The research found several reasons for this – but perhaps the most glaring barrier was the fact that many entry-level women simply didn’t aspire to the top spots, leading to a divisive “ambition gap.” According to the study, only 26 percent of entry-level women surveyed envisioned themselves in a top executive position, compared to 40 percent of entry-level men. This could be due to several reasons, with issues balancing family and working life the number one hurdle, according to the research.

There are lots of roles out there, and it’s about getting young women inspired to consider them as a career

Yet perhaps the biggest issue is the fact there are still relatively few female role models in the finance industry to aspire to. In a women in banking survey by the Institute of Leadership and Management (ILM), 70 percent of women cited the greater proportion of men in senior financial roles as a barrier to progression, and 41 percent said a lack of female role models was part of the issue. This creates a self-perpetuating circle. “As women go through the ranks, particularly on the investing side, they tend to be the only one in that group or the only one in the room,” said Pullinger. “And that sense of being the only one, particularly if you don’t have other women to look up to – that’s where a lot of women become discouraged, I think, and find it really hard.”

She believes increasing the visibility of women in senior positions, for example by encouraging public speaking and creating peer networks, is an important step in changing cultural stereotypes and encouraging more women to take the leap.


Sponsoring success
Having role models, of course, depends on women getting to these positions in the first place. And for that, the industry needs a bigger emphasis on sponsorship, according to Krivkovich. “Companies should be instituting formal mentorship and sponsorship programmes for younger tenure women,” she said. “They should also be coaching managers and senior leaders on how to encourage women to progress.” McKinsey’s research found that women who received advice on career advancement from managers and senior leaders were more likely to be promoted – but only 34 percent of senior-level women said they had received advice, compared with 44 percent of men.

And it’s not just about women supporting women; given men continue to dominate financial leadership positions, they’re critical in helping bring about change.

The ILM report found that a “lack of understanding between men and women within the industry” was one of the key obstacles to creating a more inclusive culture, concluding that “while it may seem sensible for women to be mentored or coached by other women, this is not necessarily the best solution.”

Pullinger likewise believes getting male peers involved is crucial in the march towards gender parity – especially when it comes to blasting entrenched stereotypes and encouraging women to take up less traditional roles. “In investment, I know so many women who have been pushed or encouraged to go into certain female-dominated areas, like the investor relations side,” she said. “What I want to see is a generation of young women, inspired by other female portfolio managers and analysts, coming into the industry and not being put off by the fact there aren’t many women on that side.”


Good for business
In any case, getting men involved in the fight for parity might well be in their interests. Several studies have shown businesses with greater diversity produce better results; McKinsey found companies in the top quartile for gender diversity on executive teams were 21 percent more likely to have higher profitability.

A 2019 report by Stanford Graduate School found that companies with more women performed better on the stock market, with investors considering these firms more ethical and more likely to think outside of the box. That’s likely to become even more important in the coming years, as Gen Y and Z come to dominate the market; in a survey by public relations firm Weber Shandwick, 67 percent of millennials said they were more likely to work at a company that had a formal, stated goal of improving gender equality in the C-Suite.

There are other arguments in favour of hiring more women in financial leadership. A study by economists Peter Kuhn and Marie Claire Villeval found that women tended to take a more collaborative, team-oriented approach – which could have several benefits when it comes to leading the future workforce.

As Pullinger puts it, “I think the world of work is going more and more to a structure where collaborative leadership is needed. And I think it’s understood that it’s no longer about command and control – that’s not how you create better results.”


Turning point
Institutions are waking up to this, with several recent senior promotions among women – not least Jean Hynes, set to become CEO of Wellington Management in June 2021, Deborah Zurkow, named Global Head of Investors at Allianz Global Investors in January 2020, and Bea Martin, who became Global Treasurer of UBS in December 2020.

“I have seen a lot more conversation between women and their partners around the distribution of what happens in the home as a result of COVID-19 and more people working remotely,” said Pullinger. “For those willing to have that conversation, I’m hearing that this could actually be a blessing in the long term.”

Krivkovich agrees this could be a game-changing era. “This time is a unique moment in our history where the future of representation hangs in the balance,” she said. “We are at a crossroads – if companies are thoughtful about their approach to diversity, equality, and inclusion, they have a lot to gain. But if they don’t address the unique challenges surfaced by COVID-19 – which in many cases has exacerbated the ‘double’ shift mothers usually take on – they could lose a significant portion of women from the workforce.”

Time will tell how institutions respond, but it’s clear that pressure is mounting – and those burying their head in the sand might have some very big questions to answer in the coming years.