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Checks and balances

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The region compensates for its market size and higher risk with better returns, analysts said, with property yields ranging from about seven percent for a prime building in Warsaw’s central business district to about 10 percent in Moscow.

This compared well against London where prime offices yielded five percent last year, but as the downturn drove yields in mature markets higher this year, some emerging Europe investors are seeking even higher returns through distressed buys. Still, many are aware of the various risks involved in purchasing in markets they may not be familiar with.

“If you can buy in London for six or seven percent, why buy in Central Europe? Central Europe needs to trade at a yield premium – my guess about 150-200 basis points,” Jones Lang LaSalle head of CEE Capital Markets & Investment Tomasz Trzoslo said.

Foreign opportunistic funds expect more banks to start taking over assets from insolvent developers, particularly in Russia, and launch a wave of discounted property sales later this year.

“My guess is distressed purchases (in Russia) will start accelerating at the end of this year, continuing to the next year,” Lee Timmins, senior vice-president of US property funds manager Hines, told reporters in an interview.
Hines is currently raising €300 million for an emerging Europe property fund, of which 70 percent will be invested in Russia as “we can make a better return on our money by investing a large portion into Russia,” said Moscow-based Timmins.

Russian properties could rebound quickly after hitting a bottom by the first quarter of 2010, boosted by a reforming market and resurgence in oil prices, said Charles Voss, Aberdeen Property Investors managing director for Russia.
“I can’t really see the whole world going for ten years in which oil is at $10-20 per barrel… the potential is for the Russian market to come out more quickly than some of the western markets,” said Voss, who is based in St Petersburg.

Baltic risks
Investors say they are more cautious elsewhere in the region, planning to give a wide berth to markets such as Hungary, Ukraine, Latvia and the remaining Baltic states where they expect more instability.

“I wouldn’t invest in any of the Baltic states where they still have foreign exchange problems. For core investors that is clearly a region where one should not invest,” DekaBank’s Junius said, adding he would also avoid Hungary.
“Its more of a structural issue… (Hungary) simply has too much debt, so the economic policy has to be restrictive rather than expansionary,” he said.

There are also more concerns about Romania, until recently a favourite among property investors in Eastern Europe due to its huge and relatively young population, and rising consumer spending driven by debt, CBRE’s Tromp said.
“It is unlikely economic growth over the next two to three years can again be driven by a massive amount of debt, so one of the major drivers of growth has been taken away,” he said.

Shipping insurance up 10-fold due to piracy

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Somali gangs have been marauding in the Gulf of Aden and Indian Ocean for years, seizing hundreds of ships and their crew to extract ransom, hitting a key route from Europe to Asia.

In the latest incident, pirates hijacked a Turkish vessel in the Gulf of Aden.

 “There has been a big increase in premiums to go through the Gulf of Aden,” Svein Ringbakken, insurance director at Den Norske Krigsforsikring for Skib (DNK), told the paper. In May 2008, premiums were 0.015 percent of a vessel’s value, but now the average is 0.15 percent, Ringbakken said, according to Borsen.

An executive at a Norwegian unit of insurance brokers Marsh  said insurance premiums vary, with a big player like Danish container shipping group AP Moller-Maersk getting “very competitive” prices due to its size, while smaller shippers pay a big premium, Borsen said.

Premiums can be even as high as 0.8 percent of a ship’s value if the vessel sails in particularly dangerous waters such as the Straits of Malacca between Malaysia and Indonesia or off Nigeria, Marsh’s Magne Andersen told the paper.
To avoid sailing through the treacherous Gulf of Aden, many shippers are choosing to avoid the Suez Canal and sail instead around Africa, adding some 5,000 sea miles to the journey.

Australian researcher Helen Bendall estimated the net extra costs for a supertanker to sail around the Cape of Good Hope in South Africa at around $7.2 million and for a container ship at about $3.8 million, Borsen said.

Emerging significance

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Emerging Europe’s banking sector is set to offer opportunities for banks to snap up assets from western rivals or homegrown lenders facing bad debt.  Consolidation ground to a halt by 2007 when a decade-long acquisition and privatisation rush dried up at high prices that reflected bumper credit and profit growth rates in the region. But a window of opportunity will open for buyers active to clear balance sheets or turn their focus back to domestic markets.

“There is a number of banks on sale at least informally,” says Debora Revoltella, head of strategic analysis at Italy’s UniCredit.

“And there is a number of banks which didn’t enter the region before because they missed the boat to build a franchise. Those could include Deutsche Bank or Spanish banks,” she said.

Some of the big names who lost out on emerging Europe balked at prices which topped out in 2006 and 2007, but they may find better value now.

“The banking landscape will be different in three years’ time,” said Cristina Marzea, an analyst of emerging European banks at Merrill Lynch.

Hardly any bank active in the region is now trading at more than twice book value, with some still lingering at less than book value according to reports.

“Whoever has cash now will get quite some opportunities, I’m not saying lifetime opportunities, but there are interesting assets at interesting prices,” Marzea said.

Western banks own the biggest lenders everywhere in the former Communist part of Europe apart from the former Soviet Union and Hungary, which has produced the only homegrown lender active across the region, OTP.

EU, market pushes for sale
Investment bankers and analysts looking at the region say that the banks which have sounded out possible buyers fall into three main categories.

The biggest chunks could come up for sale because the EU may demand western banks scale back business as a condition to approve state aid they received.

This could happen to Germany’s BayernLB, which owns Hungary’s fourth-largest bank MKB and, through its Austrian unit Hypo Group Alpe Adria, some of the biggest lenders in the former Yugoslavia. Together, BayernLB’s emerging European banks have assets of €29 billion.

The EU is walking a fine line between ensuring competition on the one hand and financial stability in the region on the other.

A firesale of assets under EU pressure in some of the worst-hit countries could undermine efforts to stabilise the region. However, if a major new name were to buy into it, this could also be seen as a vote of confidence.
A second group of possible sellers include those who may not be under regulatory pressure but need to clean up their balance sheets and refocus business and management issues.

“Everybody who is sub-critical mass is going to have another look at its strategy in this market,” said one investment banker who declined to be identified because he is advising clients in the region. “If there is no network, no strategy, this is just eating up management time and doesn’t go anywhere.”

This includes RBS’s Romanian business, Citigroup’s Polish arm Bank Handlowy, Allied Irish Bank’s Bank Zachodni WBK and Commerzbank’s BRE Bank.

These Polish banks have market capitalisations between $5 billion and $6.5 billion.

Finally there are locally owned lenders such as Romania’s Banca Transilvania, market cap $400 million, where pressure on owners to raise capital may accelerate a sale that analysts have pencilled in.

Growth to return, prices low
Despite the region’s bad press at the moment – a deep economic contraction and financial stability risks because of widespread lending in hard currencies – it is poised to get back on track.

The region’s allure for western banks lies in the fact that millions still do not have access to basic banking services.
Analysts have long noted the nearly complete absence of Deutsche Bank in the region – apart from some Russian business – and the German lender is currently looking at some of the assets on the market, investment bankers said.
The same is true for Banco Santander and HSBC with their experience in emerging markets. Among the banks who are already there, those with strong balance sheets like Intesa Sanpaolo and Societe Generale or those who just raised fresh cash like National Bank of Greece or Poland’s state-controlled PKO BP could use the opportunity for bolt-on acquisitions.

Global Takaful challenge

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The problem is that only a small percentage of people among the market’s potential customers and distributors understand the concept or its product offering.

The term Takaful refers to Islamic insurance, although those wishing to promote it to a wider global audience prefer to call it cooperative insurance. It covers the full spectrum of insurance products, from life insurance to home, business and automotive policies. What distinguishes this body of insurance products from more conventional policies is its adherence to fundamental principles governing risk and reward enshrined in Shari’ah law. These principles include the avoidance of uncertainty, gambling and the charging or receiving of interest.

Changing social needs
The basic Takaful concept of pooling the resources of the many to help victims of adversity has been practiced in Muslim society for over 1,400 years. However, until very recently, many Muslims believed that since society had an obligation to support its less fortunate members, individual insurance was unnecessary. This ambivalence was reinforced in the early 1900s when Islamic scholars in the Arab countries reviewed conventional insurance products and declared them unacceptable under Shari’ah law, which meant that even those who wanted to plan for their future capital accumulation and risk protection needs had limited or no options available.

Over the ensuing decades, society in traditionally Muslim countries changed alongside the rest of the world. Growing affluence and a younger population, combined with a break-up of extended families as younger members gravitated to urban areas, challenged traditional community-based support systems and stimulated demand for wealth accumulation opportunities. As these demographics and life styles evolved, the hunt was on for banking and insurance products that would meet the modern needs of the estimated 1.5 billion Muslims in the world. It was not until 1985, however, that the Grand Council of Islamic scholars in Mecca approved Takaful as an insurance system that complied with Islamic law.

“As consumers become increasingly aware of the availability of Takaful, the industry has shown very robust growth,” says Jaffer. “According to the World Takaful Report 2009, recently published by Ernst & Young, Takaful contributions posted an average compound annual growth rate of 30 percent between 2005 and 2007.”
The main countries showing this impressive growth rate are the countries of the GCC (Bahrain, Qatar, UAE, Kuwait and Saudi Arabia), with accelerated growth rates also being experienced in Malaysia, where an estimated 50 to 60 percent of the population is Muslim. The trend in Malaysia is of particular interest to industry experts forecasting the growth potential in non-Muslim countries, because a staggering 60 percent of Takaful customers in that country are non-Muslims. “This demonstrates that the market potential for Takaful in Europe goes well beyond the 16 million Muslims living there,” comments Jaffer.

Takaful allows Muslims to avail themselves of the protection offered through an insurance contract without violating their religious beliefs, but it also provides compelling benefits to both religious and secular customers. The main benefit is the provision for the sharing of any retakaful (reinsurance) surplus in case claims do not exceed the amount of money policy holders have put into the Takaful fund for investment. In conventional insurance, this surplus is generally shared between the insurance company and the reinsurer, with nothing returning to the policy holders. “For Takaful, depending on the model chosen, 100 percent of the surplus is shared among the policy holders,” says Jaffer. “For example, FWU group has redistributed over $200,000 of surplus from the pool to its policy holders in the last three years alone.”

Takaful is also gaining in popularity among both Muslim and secular customers who have an interest in supporting socially responsible investment (SRI). Islamic law precludes investment in companies which have activities that are considered unlawful or unethical, and that includes most of the business practices and activities that SRI funds would avoid: military, tobacco, alcohol and gambling. Both SRI and Takaful aim at greater transparency regarding the companies selected for investment, and both types of funds have seen performance improvements despite the recent recession in which conventional funds have shrunk. “The combination of an ethical investment policy, significant growth potential and price competitiveness could make for a compelling business proposition to non-Muslims,” Jaffer notes.

Challenges ahead
Despite this vast market potential, Takaful operators have some significant challenges to overcome before these products enter the mainstream in European markets. First and foremost is the lack of a standardised interpretation of what constitutes Takaful. “Currently,” says Jaffer, “each market has its own set of rules and regulations for Takaful and industry experts recognise the need to make them more uniform. The Islamic Financial Services Board has recently published an exposure draft in which it makes recommendations for common governance of the Takaful industry worldwide.”

The absence of an organisation to regulate Takaful also makes its implementation more challenging in European countries, where regulations form the backbone of the financial industry. Takaful’s adherence to Shari’ah laws and its different approach to accounting practices such as the distribution of surplus, will require analysis within both the legal and tax structures of each jurisdiction.

One help in this process is the number of major European insurance companies and banks that have a high degree of familiarity with Islamic financing practices and the cultural mandates behind them as a consequence of having large operations in predominantly Muslim countries. AXA in France, Zurich in Switzerland and Allianz in Germany all have high Takaful exposure, and banks such as HSBC, Crédit Agricole or BNP Paribas understand the huge potential of Islamic finance, as they all have operations in the Middle East and Asia.

However, in the majority of cases, Takaful remains deeply embedded within the overall financial operations of these global financial institutions, which typically offer the full range of conventional as well as Islamic banking services in non-Muslim regions. “Conflicts arise because very few of the leaders in the Bancatakaful sector have stand-alone sales forces able or willing to dedicate all their resources to the promotion and distribution of Takaful,” notes Jaffer. “Instead, we see distribution of Takaful through generalist sales teams that may also be promoting credit cards and current accounts, or Takaful-linked products through investment teams that are also responsible for the sale of mutual funds and other structured investments. In those situations, we need to level the playing field by offering sales incentives that are similar to those offered for conventional products.”

Perhaps more important is the need for training. The recent Ernst & Young report noted that “as with the wider Islamic financial services industry, Takaful continues to suffer from a shortage of human resources with the requisite expertise.” Progress is being made in some regions: the Islamic Banking and Finance Institute Malaysia offers a comprehensive training programme which looks at Islamic banking, Takaful and Islamic capital markets; and Bahrain’s Islamic Finance and Banking Training offers courses targeted at financial industry experts, which cover the applications of key Islamic banking and financial instruments. However, despite the success being demonstrated by these regionalised efforts, what is needed, Jaffer believes, is a recognised institute for Takaful and accreditation for Takaful professionals.

Strategic alliances
Meeting demand for Takaful requires a complex mix of liquidity, access to capital markets, established distribution channels and local cultural understanding, which is giving rise to a growing number of strategic alliances between regional and international organisations. Successful ventures are already operating in Malaysia (ING and Public Bank; Aviva and CIMB), the UAE (Zurich Financial Services with Abu Dhabi National Takaful; AXA with Salama) and Saudi Arabia (FWU Group and National Commercial Bank have established the Al Ahli Takaful Company).

“Global players benefit by widening their offering and tailoring it to the customer base in each region they operate in,” notes Jaffer. “The local providers are benefiting from the global outreach and expertise their international partners can give them. Both parties can then realise economies of scale without compromising the offering, which must always be structured to respect the Shari’ah standards.”

Customer awareness remains low, however, and this is often attributed to a limited understanding of Islamic finance in the banking and insurance world, an issue that is beginning to receive wider attention within the industry. Nearly 100 industry experts attended a recent seminar in Paris organised by the Institut de Formation de la Profession de Assurances (IFPASS) on the introduction of Islamic finance in France. Similar events are being held in most of the major Muslim finance centres, while in the UK, the Institute of Banking and Insurance has begun publishing a quarterly magazine called New Horizon, which keeps readers abreast of changes and developments in the Islamic finance industry. Several universities around Europe are also beginning to offer degree courses in Islamic banking and finance. And it is easy to see why the industry is waking up to this sleeping giant: based on calculations in the Ernst & Young report, if growth continues at the rate observed since 2004, the global Takaful market will reach a total value of $7.7bn by 2012.

www.fwugroup.com

Mercantilism reconsidered

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This question constitutes a Rorschach test for policymakers and economists. On one side are free market enthusiasts and neo-classical economists, who believe in a stark separation between state and business. In their view, the government’s role is to establish clear rules and regulations and then let businesses sink or swim on their own. Public officials should hold private interests at arm’s length and never cozy up to them. It is consumers, not producers, who are king.

This view reflects a venerable tradition that goes back to Adam Smith and continues a proud existence in today’s economics textbooks. It is also the dominant perspective of governance in the US, Britain, and other societies organised along Anglo-American lines – even though actual practice often deviates from idealised principles.

On the other side are what we may call corporatists or neo-mercantilists, who view an alliance between government and business as critical to good economic performance and social harmony. In this model, the economy needs a state that eagerly lends an ear to business, and, when necessary, greases the wheels of commerce by providing incentives, subsidies, and other discretionary benefits. Because investment and job creation ensure economic prosperity, the objective of government policy should be to make producers happy. Rigid rules and distant policymakers merely suffocate the animal spirits of the business class.

This view reflects an even older tradition that goes back to the mercantilist practices of the seventeenth century. Mercantilists believed in an active economic role for the state – to promote exports, discourage finished imports, and establish trade monopolies that would enrich business and the crown alike. This idea survives today in the practices of Asian export superpowers (most notably China).

Adam Smith and his followers decisively won the intellectual battle between these two models of capitalism. But the facts on the ground tell a more ambiguous story.

The growth champions of the past few decades – Japan in the 1950s and 1960s, South Korea from the 1960s to the 1980s, and China since the early 1980s – have all had activist governments collaborating closely with large business.

All aggressively promoted investment and exports while discouraging (or remaining agnostic about) imports. China’s pursuit of a high-saving, large-trade-surplus economy in recent years embodies mercantilist teachings.
Early mercantilism deserves a rethink too. It is doubtful that the great expansion of intercontinental trade in the sixteenth and seventeenth centuries would have been possible without the incentives that states provided, such as monopoly charters. As many economic historians argue, the trade networks and profits that mercantilism provided for Britain may have been critical in launching the country’s industrial revolution around the middle of the eighteenth century. None of this is to idealise mercantilist practices, whose harmful effects are easy to see. Governments can too easily end up in the pockets of business, resulting in cronyism and rent-seeking instead of economic growth.

Even when initially successful, government intervention in favour of business can outlive its usefulness and become ossified. The pursuit of trade surpluses inevitably triggers conflicts with trade partners, and the effectiveness of mercantilist policies depends in part on the absence of similar policies elsewhere.

Moreover, unilateral mercantilism is no guarantee of success. The Chinese-US trade relationship may have seemed like a marriage made in heaven – between practitioners of the mercantilist and liberal models, respectively – but in hindsight it is clear that it merely led to a blowup. As a result, China will have to make important changes to its economic strategy, a necessity for which it has yet to prepare itself.

Nonetheless, the mercantilist mindset provides policymakers with some important advantages: better feedback about the constraints and opportunities that private economic activity faces, and the ability to create a sense of national purpose around economic goals. There is much that liberals can learn from it.

Indeed, the inability to see the advantages of close state-business relations is the blind spot of modern economic liberalism. Just look at how the search for the causes of the financial crisis has played out in the US. Current conventional wisdom places the blame squarely on the close ties that developed between policymakers and the financial industry in recent decades. For textbook liberals, the state should have kept its distance, acting purely as Platonic guardians of consumer sovereignty.

But the problem is not that government listened too much to Wall Street; rather, the problem is that it didn’t listen enough to Main Street, where the real producers and innovators were. That is how untested economic theories about efficient markets and self-regulation could substitute for common sense, enabling financial interests to gain hegemony, while leaving everyone else, including governments, to pick up the pieces.

Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, is the first recipient of the Social Science Research Council’s Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalisation, Institutions, and Economic Growth

ETFs and emerging markets

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Emerging markets and exchange traded funds (ETFs) have one thing in common: both are destined to hold increasing importance for investors for many years to come. Emerging markets offer some of the strongest long-term return prospects as they take their place in the global economy of the 21st century. The BRIC countries are widely predicted to become some of the biggest economies, yet there are many other nations set for growth too, in Asia, Latin America, Eastern Europe and the Middle East.

The growing importance of ETFs stems from the fact that they offer investors one of the most efficient, cost-effective and convenient ways to access returns both from emerging markets and an increasingly wide range of other investment opportunities around the world.

So just what are ETFs? ETFs track indexes but, unlike “tracker” mutual funds, they are also shares that can be bought and sold on the stock market in the same way as any other shares. They provide access to a whole market through the purchase of just one share. Investors can purchase shares through existing stockbrokers.
There has been an exponential growth in the number of ETFs offered to investors in recent years. At first, ETFs gave investors access to mainstream indexes (the first mainstream ETF was launched in 1993 and tracked the S&P 500), but increasingly they are giving access to much more exotic markets and sectors in ever more innovative ways. Given the rapid development and popularity of emerging markets, it is hardly surprising that ETFs are being launched to cover these markets, too. ETFs offer investors many advantages in accessing emerging markets.

The first big advantage of ETFs is that they are a convenient and cost-efficient alternative to purchasing all of the underlying securities of a particular index. Structured as a single security, traded on an exchange just like a stock, ETFs empower investors to access entire indexes in one go. Clearly, investors may wish to go for stockpicking funds, but this can be a risky approach, as you might fail to pick the right fund manager. Much of the interest shown in ETFs has come from the realisation that the vast majority of returns in any given investment portfolio result from long-term asset allocation decisions rather than short-term market timing expertise. In fact, academic evidence indicates that the majority of fund managers underperform their benchmark indexes. This is especially true during periods of high market volatility, for which emerging markets are noted. ETFs simplify the asset allocation process by giving low-cost access to particular indexes. This makes them the perfect ‘beta’ investment for investors who implement a ‘core-satellite’ investment approach. ETFs can also be used to give effective exposure to particular emerging market countries or regions, with the ability to rotate this exposure as and when required.

At present, there is a big question mark over whether in the next few years it would be a good move to take a stockpicker approach to emerging markets. At a roundtable discussion held by Lyxor ETFs on emerging markets, Robin Griffiths, a fund manager at Cazenove Capital Management and a noted technical analyst, pointed out that because emerging markets are going through an ‘awesome’ secular trend then this lends them to ETFs: if the secular trend is stronger than the cyclical one then a passive stance is better, while if the reverse is true, then it is better to have an active stockpicking approach. Market conditions in favour of owning ETFs are likely to change only slowly over several years, he said.

Cost efficiency
Low cost is arguably the single most attractive feature of ETFs. BGI reports that the average total expense ratio for equity ETFs in Europe now stands at 37 basis points per annum – some way below the average TER of 87 basis points for equity index tracking funds and 175 basis points for active equity funds across the continent. This is an advantage for ETFs in any equity market, of course, but the high costs of trading in emerging markets can make ETFs a particularly cost-effective way to invest. If an investor decides to take the index tracking route, then the reliability of ETFs means that they are clearly advantageous because they have such low tracking errors against their benchmarks. Given liquidity problems tend to be more prevalent in emerging markets then a low tracking error gives ETFs a clear advantage over other types of funds, even tracker OEICs, SICAVs or unit trusts.

Such a wide choice of ETFs is now available that investors can have access to emerging countries. This has less relevance for retail investors but is a useful attribute for institutions, with large amounts to invest. Many global emerging market products with established track records rarely offer this single country access and if institutional investors like a particular country story then the chances are increasing that they can get that through ETFs.

Finally, ETFs are transparent and highly liquid. Investors can see the performance of an index and know how their investment is doing. Emerging markets are not noted for their transparency and liquidity, so these are reassuring qualities for investors. What is more, ETFs are listed on mainstream markets, such as the London Stock Exchange, with prices available in real-time, so investors can get in and out of the market any time of the day at a price very close to net asset value. This contrasts with mutual funds, which can only offer one price per day and because they tend not to be traded very often they can therefore have wide spreads.

Despite the growing popularity of emerging market ETFs, investors still tend to have underweight exposure to them generally. For example, when Lyxor launched its first emerging market ETFs into the UK in 2007, our analysis of data from the Investment Management Association covering the preceding five years showed that the total amount invested in UK retail and institutional funds in the global emerging markets sector had risen from just one percent to 1.6 percent, while exposure to the Far East ex Japan sector increased from just three percent to 3.6 percent.

Yet these results were in sharp contrast to research that we also carried out to assess sentiment towards emerging markets among UK independent intermediaries. In a survey of IFAs earlier that year, we found that nearly half (46 percent) of respondents recommended that investors should allocate between five and ten percent of their portfolios to emerging markets and 73 percent said that investors needed to increase their exposure to emerging markets. Anecdotally, we would say that a similar situation can be found among investors and advisers across Europe, where investors are clearly sold on the message of emerging markets, yet still have yet to align their portfolios accordingly.

The main reason cited among the IFAs we asked for this apparent mismatch was a lack of emerging market accessibility. ETFs, and Lyxor ETFs in particular, aim to help investors close this gap and help them improve the performances of their portfolios by providing cost effective solutions to some of the world’s fastest growing economies.

It would seem that improving investor sentiment is bound to lead to increasing allocations to emerging markets in their portfolios going forward. The increasing prevalence and choice of ETFs means that it will be hard for investors to ignore them. Hopefully, as investors and advisers increase their understanding of ETFs and grow to appreciate the benefits they offer, much of the increase in emerging market investment will find its way into ETFs. By using ETFs, investors can harness a whole new range of investment strategies both efficiently and cost-effectively.

The growing popularity of emerging markets and the use of ETFs to access them can be seen from Lyxor’s own ETF data. The number of shares outstanding in Lyxor’s leading emerging market ETFs collectively increased by 86 percent over the twelve months ending June 30, 2009, especially impressive considering the extreme levels of volatility in these markets over the same time period.

To paraphrase a quote from the film Casablanca, emerging markets and ETFs appear to be at the beginning of a beautiful friendship.

Red squared

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Russia’s budget deficit could reach 7.5 percent of GDP in 2010, stretched by state aid for banks, but economic growth should return after this year’s recession, Finance Minister Alexei Kudrin said recently. Russia has kept spending high to help the economy out of its first recession in a decade, while tax revenues are falling, in part due to lower prices for the country’s oil exports. Authorities had hoped to cap the 2010 deficit at five percent of GDP, but the Kremlin’s top economic aide Arkady Dvorkovich has stated that the shortfall would likely top six percent, albeit narrowing from the eight percent gap expected this year.

“We are now evaluating the approximate scale of the deficit. The estimate is somewhere between 6.5 and 7.5 percent of GDP,” RIA quoted Kudrin as saying on a visit to the Siberian city of Ulan-Ude.

Earlier, he said the bulk of the state’s 460 billion roubles ($14.62 billion) planned bank recapitalisation through the issue of special Treasury bonds will be carried out next year, with only 150 billion roubles issued in 2009.

Previously the issuance of the OFZ bonds – which Russia’s bigger banks will be able to use as collateral to secure financing from the central bank – had been expected to be fairly evenly split between the two years.

“The quality of the assets will show through only gradually on banks’ balance sheets, so the main problems will become apparent next year,” said Ekaterina Sidorova, analyst at Troika.

“Secondly they are probably running out of time to issue so much this year as there are certain procedures to be followed.”

Looking for extra funds
Russia’s government thinks the economy could contract by as much as 8.5 percent this year. Kudrin forecast one percent growth in 2010 as investment picks up, but was cautious about future prospects.

“I shall say that in the next few years economic growth will not return to pre-crisis level of six to eight percent,” he said.
The IMF is a little more upbeat on Russia than domestic officials, forecasting recently a contraction of 6.5 percent this year and growth of 1.5 percent in 2010.

Russia’s banks need more capital to compensate for the growing number of bad loans, just when the government is relying on them to kick start the economy with affordable loans. But for the budget, the issuance of the OFZ bonds means extra spending to the tune of 0.7 percent of GDP next year.

That – along with Russia’s pledge to donate $7.5 billion, around 0.3 percent of GDP, to a rescue fund for five ex-Soviet states – explains the increase in the deficit from the original plan, Kudrin said.

Meanwhile, a Finance Ministry proposal to get extra cash by raising the mineral extraction tax on natural gas has not been approved by the government.

“Looks like they won’t be able to take from Gazprom as Kudrin wanted,” a government source told reporters. “They were asked to think some more.”

Instead Russia could raise excise duty on alcohol, tobacco and petrol, Vedomosti business daily said. President Dmitry Medvedev recently urged Russians to kick the alcohol habit.

Don’t leave home without it

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Credit card delinquency figures bring to mind the rock classic “You Ain’t Seen Nothing Yet.” Since last July’s record report – delinquencies jumped to 6.6 percent of all card debt in the first quarter from 5.52 percent – the peak may still be far off.

The sunniest forecast in the Obama administration’s stress test suggested that credit card loss rates for banks would climb to between 12 and 17 percent in total over the next two years. This assumed an unemployment rate averaging just about 8.4 percent over the course of this year. Based on the gloomier scenario of 8.9 percent joblessness, the two-year write-off climbs to 20 percent.

As we race past the government’s worst assumptions, the risks mount that consumer distress will plunge the banks back into crisis. Despite recent rising profits, bankers will need to make sure that their seat belts are fully fastened for the turbulence ahead.

The dismal job market bodes ill for default rates. The US is continuing to haemorrhage jobs at an unexpectedly rapid pace. It would take only another few months of job losses at June’s rate to push unemployment above 10 percent, according to Decision Economics. If June’s payroll loss is sustained – an unlikely but possible outcome – unemployment would climb to 11 percent in less than six months. Credit card issuers may also be dismayed that once Americans lose their jobs they are taking ever longer to find new work. The share of the jobless without work for more than six months is up to almost 30 percent – the highest level since records began in 1948.

While many people can continue to service their debts for a couple of months, half a year of unemployment can cause all but the most prudent saver to default. Benefits replace roughly half of previous wages, according to the Economic Policy Institute in Washington. A report issued recently by Standard & Poor’s indicates that the loss rate on credit cards has risen faster than joblessness over the past six months.

It’s not just the unemployed that will find themselves increasingly stretched. Wage deflation is now a real threat – magnifying the challenge of servicing debt. Weekly earnings fell at an annualised 0.6 percent in the three months to June. This may help explain why an increasing number of Americans are late even in paying their home equity line of credit – usually a priority for those who want to keep their homes.

America’s banks have at least had a little time to buckle up. The Federal Reserve warned the top 19 banks to brace for losses of up to a figure of $600 billion. The more vulnerable have raised extra capital to cushion themselves and with the yield curve so steep even the dullest bankers can produce strong profits.

Even so, at current trends the banks will need all their energy to keep ahead of rising defaults. It is increasingly clear that the bank stress tests were not stressful enough.

Obese assets

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One of the best ways to protect a portfolio against stagflation within it’s next few years is to buy commodities, particularly agricultural products, an experienced US-based fund manager said recently.

The idea of trying to shield assets from stagflation – high inflation coupled with low or zero growth – sounds odd at a time when the world is focusing on deflation and falling prices.

But Adam Robinson, director of commodities at Armored Wolf, said the massive amounts of money flooding into the global economy from central banks and governments may have set many stable and unstable economies up for rampant inflation within a couple of years.

“The most likely scenarios are economic recovery and stagflation. In both these scenarios commodities are set to rally,” Robinson told reporters at a recent conference.

Robinson assigns a 30 percent probability to economic recovery and a 60 percent probability to stagflation.
“It’s not going to happen now, but in a couple of years’ time the chances of stagflation are high,” he said.
Many institutional investors seeing inflationary risks have jumped right onto the commodities bandwagon. Assets under management in commodities rose roughly $34 billion to $210 billion in the second quarter of this year, according to figures released by Barclays Capital.

Pension funds have typically used the traditional method of products based on commodity indices such as the S&P GSCI and the Dow Jones-UBS Commodity Indexes.

Gold is normally the first commodity that investors turn to when they are worried about inflation but, historically, all commodities have risen in line with inflation. Indeed, many investors are currently seeking gold purchases.

Buy for 2011 delivery
Robinson recommends investors to buy futures contracts that promise to deliver commodities in 2011, mainly because that is when stagflation will take hold in many countries across the globe.

“Some of my pure inflation trades go out to the second half of 2011… commodities like meat and agricultural products work better,” Robinson went on to say.

Demand for solid commodities such as livestock and grains is relatively inelastic as people have to eat, whether economic growth is strong or weak. It is this reliance that keeps their price steady.

For metals such as aluminium, where inventories are currently at record levels – around 4.4 million tonnes in London Metal Exchange (LME) warehouses – demand is mostly reliant on economic activity.

“It doesn’t apply to the same extent in metals,” Robinson said. “No one feels any pressure to buy aluminium now or for two years out because there is so much already in storage.”

In the energy market, Robinson thinks it makes sense to buy crude oil because it is a supply driven market and to a large extent depends on the decisions of the Organisation of the Petroleum Exporting Countries (OPEC).
“Sell refined products such as gasoline because end user demand will remain weak.

Dear prudence

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ADNIC has established itself as the reliable insurer. A public shareholding company incorporated in Abu Dhabi, ADNIC has been doing business for 37 years and has branches in Dubai, Sharjah, Al Ain as well as a representative office in London. The company’s strong financial backbone is supported by strong reinsurance protection, with “reliability” not just a motto but instead a hard-earned reality. The team of professionals enable short-term and long-term commitments to clients and partners to be more than fulfilled; claims services are efficient, and the company is pushing forward on the technology front. The recently relaunched website epitomises ADNIC’s desire to build with professionalism and reliability at its core. Characterised by continuous, unabated growth across a variety of sectors, ADNIC’s combined ratios and results are consistently one of the best in the industry. The company transacts a variety of business and personal products and is noted for its strong capitalisation, earnings and liquidity; focus on the local market is never forgone for want of less commitment across a larger geographical sphere. The company is looking to develop geographically in viable markets overseas – specifically, markets more than willing to recognise and welcome ADNIC’s history, brand and service offerings. ADNIC considers itself to have a long-term commitment to quality locally, regionally and internationally.

Ever looking forward under new CEO Walid Sidani, ADNIC is currently focusing on its drive to be the employer of choice through modernisation and expansion. This is happening on both cosmetic and infrastructural levels from bottom through to top-level, and the changes will spread across the four branches as well as the head office; ADNIC truly values the importance of customer interaction.

“We will automate to achieve the desired outcome of offering the highest level of quality and efficient service to our clients,” said Mr Sidani in a recent interview. Ever-striving, the pursuit is so far going well with ADNIC winning the 2008 Human Resources Development Award for insurance organised by the Emirates Institute for Banking and Financial Studies (EIBFS).

ADNIC’s expansion is more than surface-level; the internal processes will be revamped for customer ease, and technology systems will be upgraded to further the point-of-sale experience. As well as pushing forward its own reputation and progressive ethos, ADNIC – A-rated by Standard & Poor’s – is keen to develop links with key businesses in the market. As such, ADNIC has entered into a partnership with Vanbreda International to launch ‘SHIFA’, a new medical insurance product that provides high quality health services and considerable coverage internationally. The co-branded product has three modules: Silver, Gold and Platinum providing customers with access to a network of over 10,000 medical service providers. It also offers members the flexibility to consult a provider that is not part of the network. ADNIC have also embarked on a joint venture, partnering with a highly-reputed Lloyd’s Syndicate. Together, the companies have set up a managing agency in the DIFC, Dubai, UAE, to serve the regional risks market in specialist underwriting areas including energy.

ADNIC is not only interested in market share or making big jumps. In these times of instability, ADNIC instead prefers to focus on cementing its position as risk carrier rather than risk transferor. Success is down to financial stability, dedicated management, skilled professionals and extensive use of information technology. The company aims to set the benchmark for the insurance industry in UAE year upon year. Constantly rejuvenating itself, winning the Middle East Insurance Company of the Year award is evidence of the value of what ADNIC themselves describe as “prudent not conservative” underwriting.

For further information tel: +9712 626 4000;
email: r.munir@adnic.ae;
web: www.adnic.com

Time for a re-think

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No one has come out of the various international reviews into the global banking crisis with much credit. Regulators have been shown to have been slow and ineffective, boards have demonstrated a poor awareness of risk, and audit committees have earned a reputation as the “rubber-stampers” of corporate greed. Yet even those that had a massive financial interest in the companies that have either taken a dive in value or are now in the hands of the tax-payer (or at least on paper) did little to act.

Institutional investors have been keen to pour scorn on directors and audit committees, but they have been reticent about their own voting records and engagement activities with boards. Armed with three mighty weapons – the vote at the AGM, the option to disinvest, and the ability to issue governance warnings, like the Association of British Insurers and its “red-top reports” – critics say that they are rarely used, and that pension funds are largely “toothless tigers” or “sleepy”.

According to the Trades Union Congress (TUC) annual survey of fund managers released at the end of June this year, the majority of institutional investors failed to challenge the remuneration reports of large financial groups in the run-up to the financial crisis. The report, which analyses the voting patterns of 20 leading fund managers for the period between July 2007 and July 2008, says every bank remuneration report voted on in the period received the support of 60 percent or more of the surveyed fund managers. The one bank that received less than 60 percent support was HSBC.

The TUC also takes institutional investors to task for their acquiescence in the merger of ABN Amro and Royal Bank of Scotland – largely regarded as disastrous – which was opposed by only one investor, Co-operative Insurance Society. “The fund managers who are meant to exercise ownership rights and responsibilities often fail to do so,” said Brendan Barber, TUC general-secretary. “What is worse is that many will not even tell the unions that represent thousands of pension fund savers whether or how those ownership responsibilities were exercised.”

“The tragedy is that this system has been tested, with the result being the near destruction of the global financial system. In practice, big banks were accountable to no one, their boards free to chase big bonuses without any regard to safeguarding the long-term interests of their shareholders,” he added.

Severe discrepancies
Although the majority of fund managers supported the banks’ remuneration reports, there were wide discrepancies within the survey group. Six of the surveyed fund managers supported every single remuneration report, while there were six who supported less than half. The TUC found strong overlap between the six managers who supported all remuneration reports and the eight managers who supported all management incentive schemes.

The head of the UK’s City watchdog has also slammed the inactivity of institutional investors. In a speech to the Securities & Investment Institute Conference on May 7, Hector Sants, the chief executive of the FSA, said that the current financial crisis “has demonstrated that we can no longer rely on senior management judgements” and that “there are some management decisions that have revealed a degree of incompetence, and at times a rather cavalier approach regarding risk management.”

Sants said that shareholders have a duty to raise objections. “Shareholders must take responsibility to be active individually and more importantly, in collaboration with other investors, to engage with senior management and non-executive directors in companies and question the effectiveness of the construct of their boards,” said Sants. “They should also challenge management to ensure business plans are credible,” he added.

Furthermore, investors’ have also been criticised for being slow to challenge “positive” financial data. Their over-reliance on the reports and ratings of credit ratings agencies such as Moody’s and Standard & Poor’s led to a burgeoning trade in high-risk investments, such as collateralised debt obligations. Arthur Levitt, a former chairman of the SEC, said in September 2007 as the scale of the crisis was dawning, that “we need investors to accept more responsibility for evaluating structured financial products.” He added: “Credit ratings agencies play a critical role in the capital markets, but their judgements are guides, not stamps of approval. Too often, institutional investors have been investing in sophisticated credit products on the basis solely of the credit rating and without fully understanding the inherent risks they are undertaking.”

Unsurprisingly, institutional investors have decided to fight back – by unleashing a new “voluntary” code. Hot on the heels of the current Walker Review of corporate governance into the UK’s beleaguered banking industry and its approach to risk management and the UK corporate governance watchdog the Financial Reporting Council’s review of the Combined Code on Corporate Governance, the UK’s most influential group of institutional investors has outlined its thoughts on what needs to be done to improve accountability in the boardroom.

The Institutional Shareholders Committee (ISC), which is made up of the Association of British Insurers, the Association of Investment Companies, the Investment Management Association, and National Association of Pension Funds, has issued a paper which sets out what changes could be made to encourage greater shareholder engagement with companies to enhance their corporate governance.

Improving institutional investors’ role in governance, the paper sets out a number of ideas where shareholders could be more active in encouraging boards to justify or change their strategies. Firstly, the ISC says that those responsible for appointing fund managers should specify in their mandates what type of commitment to corporate engagement, if any, they expect. Where shareholders delegate responsibility for such dialogue to third parties, they should agree a policy and, where appropriate, publish that policy and take steps to ensure it is followed.

Secondly, it says, there should be effective dialogue. Many institutional investors seek regular dialogue with companies on corporate governance matters. Mostly this is conducted on an individual basis, and works well. But when an individual approach fails, the ISC believes that a collective approach by several institutional investors may be useful to ensure that their message is heard. The ISC says that a broader network might include foreign investors and sovereign wealth funds with an interest in long-term value.

Clear sailing required
However, the group says that “it is important that there are no regulatory impediments, real or imagined, to the development of collective dialogue” as “uncertainty about the rules on acting in concert can be a deterrent to such initiatives”. The ISC says that the authorities should make it clear that collective dialogue is permitted and that it is possible for individuals to receive price sensitive information in the course of dialogue – provided there is appropriate ring-fencing.

While the ISC says that dialogue between investors and company boards is the preferred form of engagement, it also stresses that investors have a duty to use their “full range of powers”, such as voting against company resolutions at the AGM, where “dialogue fails to produce an appropriate response”. The ISC believes that investors have – on occasion – been too reluctant to act in this way.

The ISC is also keen to ensure that concerns that investors raise with company chairmen are shared with the rest of the board, as it believes that all board members have a duty to act in accordance with the best interests of the company and its shareholders. The ISC says that one way of making boards more accountable would be for the chairs of leading committees to stand for re-election each year. If support for any individual fell below 75 percent (including abstentions), the chairman of the board should be expected to stand for re-election the following year.

The ISC believes that this would be a powerful incentive to resolve concerns during the intervening period. Indeed, the requirement for chairs of committees to put themselves up for re-election would motivate them to keep abreast of investors’ views and ensure that concerns are addressed in a timely way, it says. The ISC adds that in practice it should lead to improved dialogue with investors about issues that might be controversial. It would also broaden the agenda beyond the remuneration issues that dominate dialogue at present, it says.

Lastly, the ISC has made a number of suggestions to amend the Combined Code on Corporate Governance which it feels could enhance the quality of the dialogue between companies and investors. The ISC suggests that chairmen should retain overall responsibility for communication with shareholders and/or their agents, and be encouraged, through amendment to the code, to inform the whole board of concerns expressed (whether directly or through brokers and advisers).

Both the chairman and the rest of the board should ensure that they understand the nature of the concerns and respond formally if appropriate.

The ISC also believes that the senior independent director should intervene when appropriate communication between board members and shareholders does not happen.

If warranted by the extent of the concerns, the code should also encourage him/her to take independent soundings with shareholders and/or their agents, and work with the chairman to ensure an appropriate response from the whole board.

The investors’ body also wants the Combined Code to emphasise the importance of succession planning more clearly, with chairmen reporting annually on the process being followed and progress made. Furthermore, it says that the audit committee’s terms of reference should be expanded to include oversight of the risk appetite and control framework of the company.

ISC chairman Keith Skeoch says that “we believe this paper is a useful contribution to the evolving debate. Institutional investors wish to be more effective and have an important role to play. The ideas set out in this paper are an important step in this direction and should make a real difference.”

Know your role
However, not all investors are convinced. Colin Melvin, chief executive of Hermes Equity Ownership Services, which provides governance services for investors with £50bn of assets, says that the ISC should not be in charge of checking whether its members stick to its proposed new code. Instead, Melvin has suggested that the monitoring role should be transferred to an independent body, saying that the current investment governance framework, “is equivalent to giving the Confederation of British Industry responsibility for the Combined Code on corporate governance”.

Melvin’s call follows a damning critique of the ISC by Lord Myners. The City minister accused the investor body of making little progress in reviewing compliance or revisiting its core principles in the light of experience. He also attacked pension fund trustees for failing to incorporate the ISC’s principles on corporate engagement in fund manager contracts.

The ISC’s proposal for a new voluntary code would not, says Melvin, be enough to address the lack of accountability revealed by the financial crisis. He added that too many investment institutions were absentee owners who failed to engage actively with companies in which they invested.

Melvin says that there is a need for a strong “comply or explain” regime policed by a body similar to the Financial Reporting Council, which monitors the workings of the Combined Code. The Hermes chief has also called for a redefinition of institutional shareholders’ fiduciary obligations to discharge the duties of ownership and promote good governance. This echoes a longstanding proposal by Lord Myners.

When the City minister first suggested that the duties of pension fund trustees and their agents should be redefined in his review of institutional investment for the Treasury in 2001, the fund management industry resisted the move and persuaded the Treasury to support the creation of a new set of principles by the ISC. It is these principles that the ISC now wants to turn into a new, revised code in response to pressure from the government. However, Lord Myners has questioned whether a body controlled and funded by industry trade groups constitutes the best model to focus on investor interests and responsibilities.

Some investors have accepted a degree of blame for their failure to vote against boardroom decisions more robustly –or at all. Peter Chambers, chief executive of Legal & General Investment Management, which owns about 4.5 percent of the UK stock market, has conceded that shareholders could have done more in the past, particularly where boards had appeared deaf to their concerns, and said that shareholders need to look at how to sharpen their relationships with boards. Nonetheless, he maintains that most of the blame still lays with boards and regulators. “It is difficult to conclude that bank boards did their job effectively, but the regulation also failed,” he said.

Power to the people
The US has decided to put more power into the hands of shareholders to hold boards to account. Let’s hope they use it. On July 1, SEC scrapped a controversial 72-year-old rule that allowed broker-dealers to vote in corporate director elections on behalf of their clients without specific instructions. The change, first proposed by the New York Stock Exchange three years ago, comes amid public anger over lax oversight of companies taking on excessive risk. Activist investors and unions have long blamed the broker vote for making it difficult to oust directors and for skewing election results in favour of candidates backed by management. The change would in effect apply to director elections held by public companies after January 1.  The change on broker voting came as the SEC proposed a series of sweeping proposals aimed at improving corporate governance and disclosure. The regulator is considering requiring companies to disclose more information about company directors, why they have chosen to combine or separate the chief executive and chairman positions, and what the board’s role is in risk management. Mary Schapiro, SEC chairman, said the proposals were aimed at “enhancing the quality of the system through which shareholders exercise their franchise”.

But the vote to eliminate the rule was close, with the two Republican commissioners making up the five-member SEC dissenting. Kathleen Casey, one of the Republican commissioners, said she was concerned that the change would undermine retail investors in favour of institutional investors. The US Chamber of Commerce, which represents more than three million businesses, echoed those concerns, saying the change “dramatically shifts’’ additional voting power to activist investors and unregulated entities such as proxy advisory services. “The SEC has . . . allowed certain investors to jump to the head of the line,’’ said Tom Quaadman, an executive director at the chamber.

However, Ann Yerger, executive director of the Council of Institutional Investors, which represents pension funds, said: “Eliminating discretionary broker votes will ensure that director elections are no longer tainted by phantom votes. Counting uninstructed broker votes is akin to stuffing the ballot box for management, as broker votes almost always are cast in favour of management’s candidates for board seats.’’

Protecting your assets

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Given that trillions of dollars worldwide have been written off from company balance sheets, pension funds and investment portfolios, it is little wonder that asset managers are looking for good news. Many argue that it could be a long time coming if reports from certain quarters are to be believed.

According to a study released by researcher Cerulli Associates of Boston, it mat take at least five years for the global asset management industry to recoup the $10 trillion that disappeared in the last six months of 2008. The firm found that worldwide, the investor assets managed by the industry had shrunk to $43 trillion as of December 31, 2008, representing a loss of $10 trillion, most of which occurred in that year’s fourth quarter.

Every asset class, except for money market funds, was hit by the downturn. Assets held in money market funds posted a 1.7 percent increase, while equity funds were the hardest hit, posting a decline of 39.6 percent, the report found. Revenue for asset management firms also suffered. With the decline in asset values and relocation of assets away from higher-yielding equities to lower-yielding fixed-income and money market funds, net revenue declined, Cerulli reported.

While annual revenue peaked in 2007 with $167 billion. That total dropped to $156 billion in 2008, Cerulli found. And asset management revenue may decline further, to an estimated $133 billion in 2009.

Other consultants have suggested that the industry needs to shake up its practices. Money managers must offer new portfolios and keep cutting costs to survive in an era where frightened investors prefer safer fixed-income funds to stock and hedge funds, says a recent report by business consultants The Boston Consulting Group (BCG). Badly bruised by last year’s financial crisis when tumbling markets and investor redemptions shrank global assets 18 percent to $48.6 trillion, the consultancy – writing in its seventh annual asset management industry survey – says that asset managers face more tough times in 2009 and the years ahead.

BCG forecasts that profits will shrivel again, likely falling to 30 percent or less this year from 34 percent at the end of 2008. Even though the Dow Jones industrial average just finished its best quarter since the fourth quarter of 2003, BCG warns firms against becoming too confident or thinking the worst is over.

In what the consultants called an “Armageddon scenario” where the recession deepens and asset prices drop even more, industry assets could decline between 30 percent and 35 percent by 2012. In a “recovery scenario” where the economy recovers gradually, assets could still drop between five percent and 10 percent by 2012. And in a “Happier Day scenario,” where the economy rebounds next year, the industry could pull in between 10 percent and 20 percent in new assets, the report said.

The survey found that investors who lost billions in retirement savings last year and will soon need to retire on their smaller nest eggs will want safer and cheaper investment options. Even company and state pension funds will be affected by the shift in the tastes of retirees, the consultants said, forecasting that institutional investors will cut stock allocations to somewhere between 35 percent and 45 percent by 2015 from roughly 55 percent in 2007.

The end is nigh
Funds that deliver returns by altering asset allocation instead of trying to pick the best stocks will prosper, while exchange-traded funds and portfolios that follow indexes will be very popular, the survey found.
Similarly, the appetite for hedge funds has declined after many of these loosely regulated portfolios failed to return money to investors in a timely way last year. The survey found that hedge fund assets, after shrinking to $1.4 trillion from $1.9 trillion last year, will not top that peak by 2012.

In any case, says BCG, fund firms should specialise in certain areas, review how they pay their managers and possibly consider merging with others to gain market share. The industry is already seeing mergers such as the sale of BGI to BlackRock by Barclays and the proposed divestiture of Columbia Asset Management by Bank of America. In July, Societe Generale and Credit Agricole signed a final agreement to merge their asset management arms and create a top 10 global player with €591 billion of assets under management. The new company will be 75 percent owned by Credit Agricole and 25 percent owned by SocGen.

Credit Agricole and SocGen say their combined asset management company would be the fourth-biggest in Europe in terms of assets under management and the eighth-biggest in the world. The transaction remains subject to approval from regulatory authorities and is expected to close during the fourth quarter of this year. “The next few months will be used to define the organisation of the new entity to enable it to be fully operational for the 2010 fiscal year,” the banks said. The SocGen/Credit Agricole deal is part of wider consolidation in the asset management industry as fund managers face a withdrawal of clients’ money and write-downs caused by the global financial crisis.

Industry observers expect similar announcements to take place throughout the rest of the year. Investment bank Jefferies Putnam Lovell has said that there will likely be a steady flow of asset management mergers and acquisition activity in the second half of 2009 and that divestitures by companies needing to shore up cash – like the blockbuster deal by Barclays to sell its asset management business to BlackRock – will be the strongest driver of activity.

Continual trend
Divestitures accounted for 47 percent of the deals announced in the first half of 2009 compared to 26 percent of the deals announced in the first half of 2008. Asset managers looking to add scale and private equity firms looking for inroads into the growing asset management market will also play a role. There were 72 announced transactions in the first half of the year, down from 109 in the same period last year. “We expect divestitures to remain the driving force in M&A activity through the second half of the year as the asset management industry faces its most radical reshaping on record,” said Jefferies Putnam Lovell’s managing director Aaron Dorr.

While convergence in the market may end up bringing some welcome results, the news that Europe wants to impose greater regulatory oversight on the hedge fund industry has been met with utter dismay in its principal market – the UK. London is the current home of 80 percent of Europe’s hedge funds, but they could be tempted to move to Switzerland and the US, say experts, if the EU proposals are enforced.

The UK government has already slammed the proposals. Financial Services Secretary Lord Myners has said that the draft European Union law that would subject hedge funds to new regulatory controls would need “major surgery” before the UK can support it. The minister has also hit out at European countries seeking to “make political capital” from advocating a clampdown on the hedge fund industry, calling their actions “woefully short-sighted” and “bordering on a weak form of protectionism”. “It is perhaps easy for other European countries to make political capital out of demanding intrusive regulation of an industry of which they have little or no direct experience,” Lord Myners said.

The EU directive, a response to public anger at the excessive risk-taking that led to the credit crisis, would require many hedge funds and private equity firms to register with regulators and disclose more about themselves and their investments. They would also have to meet increased minimum capital requirements and limits on borrowing, which have triggered threats from some big UK hedge funds to move overseas unless the plan is rewritten.
Most hedge funds with more than €100 million in assets, buyout firms managing more than €500 million and companies more than 30 percent-owned by a private equity firm would be regulated under the EU plans. The rules would limit the amount of leverage, or borrowing, funds can use and require the use of European-domiciled banks.

Hedge funds use complex investing strategies to make returns, even when markets are falling, and they have been blamed – the industry says unfairly – for threatening future financial stability. Under the EU plans, hedge funds would be required to be more open, and their ability to borrow would be limited. Investment associations are concerned that if these rules are adopted, hedge funds will be driven out of the EU.

Yet some of the criticism surrounding the industry are being reviewed. The UK Financial Services Authority (FSA), the City watchdog, is conducting a survey of hedge fund borrowing. “This will allow the FSA to identify the warnings signs of excessive leverage and we will ensure it has the powers to intervene directly with managers to prevent the build-up of excessive leverage wherever this is justified,” said Myners.

Myners has said that Britain will seek “significant changes” to the EU proposals, with officials lobbying in “a dozen key capitals” over the summer. Speaking to the Alternative Investment Management Association in July, Lord Myners said: “Our aim is a framework which allows efficient, well run and well regulated fund managers to compete for business without restriction across the EU and to make the EU a base from which to compete in global markets. The draft directive needs major surgery before this can be delivered.”

“The UK is reaching out bilaterally to leverage natural alliances and win over others. Officials will lobby in more than a dozen key capitals over the summer. I myself will be engaging directly with my opposite numbers in key member states.” The minister added that there was now widespread acceptance among leading European regulators, including Jacques de Larosière, chairman of the strategic committee of the French treasury, and Charlie McCreevy, EU internal markets commissioner, that hedge funds and private equity funds had not been central to the financial crisis.

Over three-quarters of Europe’s hedge fund-managed assets, worth about $300bn, are managed out of London. The City is hoping to win support from the US administration to head off the new regulations from Brussels, which have been roundly condemned by just about everyone associated with the industry – particularly since London has so much to lose from any  regulatory interference.

Robert Jenkins, chairman of the UK’s Investment Management Association, has said that the EU’s approach to alternative investment legislation was “curious”. “When the banks ran out of liquidity, our customers for whom we act as agents, helped supply it,” he said. “When the banks ran out of capital, the funds we manage contributed to the take up of new debt and equity issues. And when one day, governments divest their shares in the walking wounded of the banking world, to whom do you suppose they will sell? In short, the investment management industry is not part of the problem but we are part of the solution,” he added.

Mayor of London Boris Johnson, has warned that the Commission’s plans to regulate hedge funds could “strangle” the City as a financial centre. “It is a weird thing that under the fog and confusion of war, the Commission seems to be proceeding to attack something in which London simply excels and was not responsible for the recent catastrophes. I think it is very, very dangerous to the City. It is very important that we defend an industry that generates huge sums of tax for this country.”

However, the European Commission says its proposals are necessary “to overcome gaps and inconsistencies in existing regulatory frameworks at national level” and that they will “improve the macro-prudential oversight of the sector and [allow governments] to take coordinated action as necessary to ensure the proper functioning of financial markets.”

Hedge funds have used their most prominent annual gathering – the GAIM conference in Monaco in June – to speak out against the “disastrous” new regulatory proposals, especially after a number of hedge fund managers feel that they may have been complacent about how quickly the momentum for the industry’s reform would gather pace. As one fund manager said: “We’ve assumed that the political will will follow the economic will. Historically that’s wrong. And now lots of us are beginning to think that maybe we’ve been a bit complacent.”

As well as speaking out against the EU, attendees at GAIM have also criticised an apparent lack of action from the UK government on the issue. Several fund managers have said they had previously had confidence in the UK’s ability to resist punitive regulation from Brussels, but were now fearful that the Brown government was too politically distracted to act decisively.

”The FSA’s hedge fund regulation has actually always been very good, and the UK has the infrastructure, the capital markets and the prime brokerages that make it ideal for hedge funds. But now we risk driving them out,” said Simon Luhr, the managing partner of London-based SW1 Capital. ”The prime minister can’t stand up for himself right now… I think it’s going to be a disaster.”

Other managers, though, have been much more sanguine. Lobbying efforts have intensified in recent months and a considerable amount of behind-the-scenes work was going on said one major London-based fund partner. ”I think people just need to be a bit patient. It’s only the first draft of the new rules,” he said. Hedge fund managers will be hoping that the process goes no further.

Solidity and opportunities

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This disparity in rankings demonstrates the great growth potential of this segment which, with the elevation of the C and D classes to the consumer market, continues offering excellent opportunities for insurers. For five years, it has been one of the fastest-growing segments in the country, with double-digit growth rates. In 2008, the insurance industry represented four percent of Brazil’s GNP, as one of the few segments with growth based on financial solidity. Within this promising scenario, the Bradesco Seguros e Previdência Group, the leader of its segment in Latin America, with a 24 percent market share of the Brazilian insurance industry, offers a wide range of products available nationwide while focusing on activities contributing to sustainability and quality of life. The group has once again demonstrated outstanding financial solidity, with €19.912 billion in technical reserves in 2008.

The global financial crisis, which started in 2007 with the subprime mortgage collapse in the US, intensified in the last quarter of 2008 with the bankruptcy of Lehman Brothers and the US Treasury bailout for AIG. In concert, the central banks of the world’s largest economies, led by the Federal Reserve Bank and the ECB, injected trillions of dollars and euros into their markets in an attempt to stanch the most serious global crisis since the 1929 crash. The collapse of credit and the sharp drop in stocks, commodities and real estate markets in the last quarter of 2008 battered developed economies and, consequently, caused an economic slowdown in emerging countries.

After a 2.7 percent growth in 2007, the combined GNP of OECD member nations suffered a 3.1 percent decline last year. Led by China, emerging economies experienced a growth rate of six percent, as compared to more than eight percent in 2007. Only a few countries were spared a drop in production in the last quarter of 2008.

Despite the projections of the World Bank and the IMF showing that the global crisis won’t start to recede until 2010, fortunately, starting in March of this year, international capital flow has been gradually restored in the principal international financial centres. The impact of the global economic slowdown, in terms of production, unemployment, consumption and the poor performance of stocks, bonds and real estate has also affected the insurance and pension markets, with a 3.5 percent decrease in revenue from premiums on a global scale (measured in US dollars).

Developed economies, which make up the OECD and represent 86.56 percent of the global insurance and pension market, have experienced a 5.3 percent decrease in revenue from premiums (measured in US dollars), as a result of the impact of the financial crisis on the technical reserves of companies operating in this segment. On the other hand, insurance markets of emerging economies registered a 15 percent growth (measured in US dollars) in 2008, but that is insufficient to neutralise the retraction of the markets of OECD member nations, since these economies only represent 13.34 percent of the global market, according to data from Swiss Re.

Due to the serious global economic crisis, it has become imperative to recognise the importance of strengthening the reserves of insurers as a way to minimise any impact on their ability to guarantee the peace of mind and protection of their policy holders. In Brazil, the insurance and pension market is one of the world’s most solid, thanks to the existence of a stringent regulatory framework concerning technical reserves. Brazilian insurance and pension plan companies are strictly forbidden from investing their technical reserves in derivatives. Based on these premises, from January to March of 2009, the Brazilian insurance industry registered a 3.2 percent growth, with annualised ROE between 15 percent and 30 percent. In most other countries, however, the insurance industry has shown negative growth rates and low ROE.

Solidity of the group
The Bradesco Seguros e Previdência Group, which is part of the Bradesco Organisation, under the leadership of Bradesco Bank, is a paragon of financial solidity. The group closed 2008 with a 24 percent share in revenue from premiums and contributions in the Brazilian insurance industry, according to data supplied by the Superintendência de Seguros Privados (Susep), Brazil’s regulatory agency for this segment.

In 2008, the group’s financial assets totalled €21.985 billion, amounting to 40 percent of the Brazilian insurance and pension industry, while technical provisions reached €19.912 billion, which represents 34 percent of the entire Brazilian industry. Of this sum, 97.9 percent of its reserves were invested in fixed income offerings producing good profitability and immediate liquidity, and 2.1 percent in variable income securities.

The group closed 2008 with above-average performance in the Brazilian insurance and pension industry. Its client portfolio increased by 14.55 percent compared to the previous year, reaching 27.482 million insurance policy holders and pension plan participants. Total premiums amounted to €7.137 billion, the equivalent of nearly one percent of the Brazilian GNP. This represented a 7.78 percent growth compared to 2007. The group paid €5.056 billion in insurance claims plus payments and benefits to pension plan participants. Net profits for 2008 totalled €816 million, a growth of 12.44 percent compared to 2007, and stockholder equity amounted to 29.11 percent.

The figures for 2009 already demonstrate the excellent performance of the group’s financial management, designed to strengthen solidity. In March, the group’s client base reached 28.590 million, including insurance policy holders and participants in pension funds, an increase of 13.16 percent vis-à-vis the same period in 2008. Offering a wide range of products, the group has 338 offices throughout Brazil, plus a network of over 31 thousand insurance brokers. It also relies on the support of the more then three thousand branches of the Bradesco Bank. Revenue from premiums during the first quarter of 2009 amounted to €1.7 billion, an increase of 2.74 percent over the same period in 2008, when the Brazilian economy was at peak performance. Net profits for the quarter totalled €211 million, which represents 36 percent of the entire Brazilian insurance and pension industry. Stockholder equity was 31.82 percent and the participation of the group in the results of the Bradesco Bank was 38 percent. Also notable is the group’s unwavering focus on initiatives supporting sustainability and quality of life, through projects in the areas of education, health and the environment. An outstanding example of this policy is the group’s support for the Bradesco Foundation (www.fb.org.br), which provides education and professional training for more than 110 thousand children, teenagers and adults every year at its more than 40 centres throughout Brazil.

A growing insurance industry
The performance of the Brazilian insurance market showed positive results in 2008, with revenues of €29.846 billion, 15.15 percent growth as compared to the previous year. The most promising sectors in the Brazilian economy – automotive and real estate – also offer excellent opportunities for insurers. Some measures taken by the Brazilian government to reduce taxes on durable consumer goods, for sectors capable of generating an exponential effect in terms of production, employment and income (vehicles and parts; construction materials; stoves, refrigerators and washing machines) have allowed an increase in the participation of the domestic market in sustaining the country’s economy.

The expansion of credit plus income growth in classes C and D, which dominate more than 50 percent of the Brazilian consumer market and who gained greater access to financial products like pensions, health plans and insurance, have generated new opportunities for insurers. An example of this is the increase in the sales of affinity policies, which are mass-marketed in partnership with retail chains, credit card companies and public service providers. Their growth potential has led the group to adopt a greater focus on this segment through the creation of BSP Affinity in 2008. More than one million policies were sold last year.

In the automotive insurance segment, in the Brazilian fleet of more than 40 million vehicles, a little more than 11 million have some sort of insurance, while the potential is for half of the fleet (20 million units) to have some sort of insurance coverage. The outlook for the real estate market is even better. There is currently an estimated shortfall of seven million homes in Brazil, which housing development programs by state and city governments aim to reduce. Homes are the principal asset of low-income families, and the increase in the number of homeowners could generate more policy holders. Today, only 10 percent of Brazilian homes have some sort of insurance coverage, which demonstrates the growth potential in this segment. Among small and medium-sized businesses, there is also great growth potential through a number of insurance choices.

Another high-demand segment, in which the group holds a leading position with 35 percent of the market, is pension plans, which help foment long-term savings. Likewise, the group is the leader in corporate health care plans, with strong penetration among the country’s largest corporations. Dental coverage, the third most requested benefit among workers, is another area with huge growth potential for the group. For a country with more than 190 million inhabitants, the strength of the internal market is of extreme importance.

Samuel Monteiro dos Santos Jr is Executive Director Vice-President of the Bradesco Seguros e Previdência Group

Starting out in the Indian legal market

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What prompted you to undertake law?
I joined the legal profession by default.  Around the time I graduated, the two professions in demand were (i) MBA; and (ii) Chartered Accountancy. I didn’t make the cut for either and so joined law.

What changes have you noticed personally in the practice of law since the time when you started and now?
Both the practice and the administration of the legal system has changed greatly, since I first joined in the year 1979.  In those days, the practice of law was centered around litigation and there were only few solicitors who did not litigate (but specialised in conveyance of property) and that too was largely in Bombay where there was a fair amount of property work. Today, in India (though not as much as it is in the western world), there is a lot of non-litigative corporate work happening and in fact a lot of the larger firms have almost begun to look upon the practice of litigation as something to be avoided.

The foras have also greatly expanded. In the early days if you practiced in Delhi, the foras of practice which were available were the Supreme Court under which there were the State High Courts and below them the District Courts. However, in the last decade and a half, several specialised tribunals have come up and in addition to what was there earlier (namely the Income Tax Tribunal, CEGAT etc), we now have the TDSAT which handles telecom disputes, we also have the consumer protection court, which handles cases pertaining to consumer complaints and the administrative tribunals which handles service disputes.

Tell us a bit about your own firm.
Karanjawala & Company, as it is known today, was started almost over 25 years ago by my wife and I, Manik Karanjawala, in 1983. When we began, a large part of our practice used to come to us from other legal firms situated in Bombay who used us for their Delhi work as they did not have a branch in Delhi. Over the course of time, we have been able to accumulate a fairly large direct clientele, including corporate clients like the Tata Group, Hindustan Lever Ltd, The Bombay Dyeing Group, Colgate Palmolive, Procter & Gamble and many other corporate firms. We also service well known media companies, like STAR TV and Hindustan Times and have also represented well known political figures/celebrities, including the former Prime Minister, Late Shri V.P. Singh  and Late Madhav Rao Scindia, who was our former Aviation and Railways Minister and many other well known political personalities. We have also represented several royal families, like the Gwalior family, the Kashmir family and my firm represented the Nizam of Hyderabad in one of the litigations pertaining to his jewellry. The work over the years came at a steady pace, but if I were to look back and try and reflect upon and isolate a few “turning points” then the four turning points that come to mind are (i) the first I think came in 1987 when Late V.P. Singh (who was then our Defence Minister and later became the Prime Minister of our country) became my client. I was his lawyer before the Thakkar-Natrajan Commission and again years later when I represented him before the Jain Commission (which went into the assassination of Rajiv Gandhi). I think that particular association gave me and my firm a profile which projected us in a very distinctive manner; (ii) the second turning point I think came in 1990, when both Indian Airlines (the national carrier) and Air India became clients. The firm was able to widely expand its litigation base and to a considerable extent it gave us a “critical mass”, which the firm required in order to take it to a higher level; (iii) The next significant addition came when Rupert Murdoch, in his visit to Delhi after interaction with us, appointed my firm as the legal retainers for STAR TV. STAR has been my client since then and was first among several of the other media clients that the firm is now servicing, including the Hindustan Times, which is again another very well known media group in India. STAR’s functioning in its early years in India had a fair amount of controversy and there was a whole spate of high profile litigation which we had to handle; (iv) The next big leap came in the early 2000s when the Tata Group (India’s largest Corporate Group) started coming to the firm in large measure for their litigation needs. Our client presence had reached a stage when in 2004 the India Today magazine announced its “power list”, it described me as one of the 50 most influential people in the country. The reason it gave in support of the same was that my firm “is the first port of call for several powerful people in legal trouble.”

Do you have any advice for a young litigator, who is about to start his career?
I would make two suggestions (i) The first is that care should be taken to ensure that you join a busy office which has a lot of litigation. Its much better to work in a busy place where you will gain experience rather than just chase a big name. This is important as a large part of your career will be conditioned by where you first joined and a lot of care should be taken to start at the right place; (ii) Second, its important to ensure whilst working on a case that you do not develop an unnecessarily pessimistic attitude to the same. Litigating lawyers are like doctors and a good “bedside manner” does matter. If from the beginning your attitude towards a particular case is negative, even if you win, the client will not be inclined to give you full credit for the same and more often than not your own pessimism will subconsciously prevent you from giving it your best. More than anything, I feel it is essential for a litigator to adopt a “can do” attitude to his work. Nobody likes a downer.

What are your suggestions to corporates in India insofar as the conduct of their litigations is concerned?
I have often noticed that corporates, whilst in the midst of a litigation, are more than happy to spend large sums of money on counsels as well as on solicitor firms by way of fees, but never sufficiently invest in building up their own legal in-house team. Corporates who insist on A Grade counsels and firms often quite foolishly settle for a C Grade legal in-house team. Most litigations are conditioned by the input that the client gives and I feel that it would be well worth their while to invest a fairly large amount of money in building a strong legal in-house team. Its also important to understand that more than the firm you go to, its team that you get to work for you within the firm is what will ultimately matter. The same amount of care should always be taken when picking the team from within those available.  

To sum up to what circumstances would you attribute your success?
I have said it before and am again reiterating that I have always believed in one quality that Napoleon looked for in every general: I am lucky.

Buyers versus sellers

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An investment banker associate of mine recently shared an interesting statistic. He said his business, a veteran establishment, currently spends around 80 percent of its time with buyers. This time is spent reassuring them that they’re getting a good deal when buying a company. Now that’s a sign of the times.

Rewind two years, and I can almost guarantee you the same bankers were spending 80 percent of their time with sellers. Of course, two years ago the market was a hive of activity and sellers were beating off prospective buyers with a swatter. Today, we find ourselves in a climate where seller and buyer alike are very cautious. Buyers want the safest bet for as little as they can get away with. Sellers are reluctant to lower their prices. We end up with a lot of tension, and a gulf between sellers’ and buyers’ expectations – both of which can conspire to put the brakes on a deal. To keep things moving, what’s needed is responsive due diligence.

Due diligence should enable advisers to retrieve statistics and solid facts they can use to reassure buyers they’re getting good value. Advisers need to make this as easy as possible for themselves and their clients. The last thing they want is to spend hours sifting through documents in a paper data room every time the buyer asks a question.

Nor do they want to perform fruitless searches on VDRs. I don’t claim to have all the answers about the best way to search documents, but anyone who says it’s sufficient to search document titles is missing the point. Realistically, how often is someone actually looking for a specific document name? On the contrary, it’s what’s inside the document – a word, a phrase, a figure. A search function should locate precisely what someone is likely to search for, whether it exists in the title, body or reference area.

This is really what makes the best VDR solutions so valuable. If you’re using the right technology, once you’ve uploaded your content it becomes 100 percent searchable, using Boolean, pattern and concept searching, just like leading online search engines. This allows you to find whatever it is you’re looking for in sub-second time, which can rapidly help to reconcile buyer and seller in order to seal a deal. Sellers will still have to come to terms with lower offers, and buyers will still have to ask a lot of questions to make sure their purchase decision is wise. Using a smart due diligence tool like Merrill DataSite gives a deal the best chance of moving through to completion. And that, in this climate, is worth its weight in gold.

Keeping due diligence out of the limelight
As we enter another phase of recession, the M&A market seems to be picking up. We’re starting to see a slow but well-defined increase in activity, as public companies with ready cash emerge in a powerful position. Because this power is brandished in a climate of caution, it puts targets under pressure. Buyers have money, but they’re going to be careful, utilising deals that really “move the needle.” That means they’ll be spending a lot of time over due diligence – and it’s unlikely to be the confirmatory due diligence that many companies have been used to.

Anyone reading the press of late will know of public deals in which buyers are demanding no-holds-barred access to business details. But there is a risk with this. It can attract a lot of attention, which can trigger a leak to the press – which can damage a target’s business. Targets must push for the utmost secrecy and discretion throughout the due diligence process.

Under the spotlight
To be fair, a leak can be triggered quite innocently. If a team of suited and booted lawyers from Company A all stride at once into the lobby of Company B, it’s going to spark the curiosity of employees, customers, partners and anyone else that happens to be looking on. Still, it’s important to avoid making blunders. If journalists get hold of the news before the target is ready to announce it, there’s no knowing what the press coverage will be and how it will affect business. Not only that, but the higher profile of the deal may give the buyer more power than they rightly deserve. Then of course, should the deal go sour – to spread the doom and gloom a little further – the target will find itself under new pressures. If the press has announced to the world that the deal fell to pieces, finding a new buyer, not surprisingly becomes much, much harder.

Into the shadows
Confidentiality is therefore something that must be considered from the outset of due diligence. A secure VDR can ensure that your part in due diligence is managed with the utmost discretion. The best providers have expert teams available around the world to work with companies through the night to scan and upload their documents into the VDR, with no onlookers and a much lower risk of leaks. In Merrill’s case, we provide staff that is fully vetted by us and backed up by a 40-year heritage of getting this right for our clients. For the greatest assurance of security and confidentiality, companies should look for a VDR provider that is ISO 27001-certified. If the vendor has achieved this, you can rest assured the data inside it is securely protected too. So everyone can stay out of the limelight, and just get on with the business at hand.

A longer view for best results
Much has been written about the best practices of due diligence directly related to the information exchange between sellers and potential buyers during the sales cycle. More needs to be said about the enormous benefits that can be gained by extending this acute attention to detail so that it begins much earlier in the process. Of course, as many are quick to protest, this is easier said than done. Due diligence preparation is already labour-intensive enough, and difficult to accomplish, given today’s down-sized workforce.

But the potential pay-off is enormous. Such advanced planning can help a company drive a top valuation that may initially have seemed out of reach. It can also help a company identify potential problems and address them before inviting potential buyers to the negotiating table. And it doesn’t have to be as labour – or resource-intensive as you’d think. VDRs are a perfect focal point for early, ongoing due diligence efforts because they streamline the process so that it can be assimilated into day-to-day operations. Rather than requiring employees to interrupt their “real jobs” for due diligence information gathering, a VDR can integrate the process into the staff’s daily routine. The VDR document repository can be populated as a part of daily operations, and becomes available for review on an ongoing basis.

Recognising the potential benefits offered by this approach, companies are launching “pre-transaction” data rooms and performing their own due diligence audits to test and perfect their strategic plan. Used in this way, the VDR offers a risk-free “test-bed” that enables them to ensure that they are presenting the company for sale in the best possible manner.

By the same token, companies can benefit greatly by extending their due diligence efforts to minimise post-merger integration issues, which are among the most common reasons why many mergers fail. To help smooth out potential cultural wrinkles, the merger team needs a confidential platform where employee information can be viewed and exchanged and team members can conduct an ongoing dialogue about employee-related issues. This is where the power of VDRs can go a long way toward keeping all teams connected and supporting the goals and culture of the newly merged organisation. In fact, many companies are now using virtual data rooms for exactly this purpose, to facilitate communication and HR due diligence review. The most advanced VDR solutions have enhanced their solutions to include tools specifically for the HR process.

Not “business as usual”
Extreme caution may be changing the dynamics between buyers and sellers, but it shouldn’t prevent good deals from getting done. Rather, it should drive buyers and sellers to seek out better, smarter, faster ways to accommodate greater levels of scrutiny in the due diligence process. In this climate, where buyers want to dig farther and deeper – and more quickly – into a seller’s business, the right virtual data room solution can make all the difference.

For further information tel: +212 229 6605;
www.merrillcorp.com