2009 | World Finance

Red squared

Posted on August 25, 2009 by

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

Posted on August 25, 2009 by

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

Posted on August 25, 2009 by

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.

Intelligent communities

Posted on August 25, 2009June 12, 2013 by itsupport

The EU needs new rules for internet downloads that would make it easier for people to access music and films without resorting to piracy, the bloc’s telecoms chief said recently.

Mapping out the priorities for the EU’s executive arm over the next five years, EU Telecommunications Commissioner Viviane Reding said it should consider new laws that would reconcile the interests of intellectual property owners and Internet surfers.

“It will therefore be my key priority to work on a simple, consumer friendly legal framework for accessing digital content in Europe’s single market, while ensuring, at the same time, fair remuneration (for) creators,” she told a seminar.

Current laws are ill-devised, she said, because they appear to force people, especially the young generation, to become internet pirates, or download content illegally. At the minute, this can only be combated by expert telecommunication support.

“Internet piracy appears to become more and more sexy, in particular for the ‘digital natives’,” she said, quoting a survey that showed that 60 percent of people aged 16-24 had downloaded audiovisual content over the past months without paying.

“Growing internet piracy is a vote of no-confidence in existing business models and legal solutions. It should be a wake-up call for policy makers,” she told the seminar, organised by the Lisbon Council think-tank.

Reding is expected to seek the telecoms portfolio again when the five-year term of the current commission ends in late 2009.

She said her other priority was to speed up the digitalisation of books, with 90 percent of books in European libraries no longer commercially available.

The commission should also seek to encourage payments with the use of mobile telephones by proposing common rules for them.

“The lack of common EU-wide standards and rules for ‘m-cash’ leaves the great potential of ‘m-commerce’ and the mobile web unexploited,” she said.

The commission will work to popularise video-conferencing to cut the number of business trips, which would lower emissions of gases responsible for global warming.

“If businesses in Europe were to replace only 20 percent of all business trips with video conferencing, we could save more than 22 million tonnes of C02 per year,” she said.

She also urged EU countries to accelerate the switchover from analogue to digital television to free up airwaves for other applications such as mobile broadband.

“I call on EU governments not to wait until 2012, the deadline for the switchover. They should bring these benefits to citizens now.”

Dear prudence

Posted on August 25, 2009 by

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

Posted on August 25, 2009 by

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

Posted on August 25, 2009 by

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

Posted on August 25, 2009 by

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

Angel Martin: Restructuring is key to the current climate

Posted on August 25, 2009March 24, 2023 by Ashton Wenborn

In the current economic climate many Spanish businesses are turning to restructuring specialists to help them navigate efficiently through difficult times. When it comes to choosing a restructuring advisor, Spanish companies and banks are increasingly seeking a name they trust and a proven track record.

KPMG’s Spanish Restructuring team comprises experts from a range of backgrounds including finance, banking, strategy and engineering. The head of the practice, Angel Martin, began his career at KPMG (Madrid and New York), before leaving to work in house for a quoted corporate business in the north of Spain, returning to the flock to launch the newly-founded practice in 2000, after training in the London Restructuring practice of KPMG.

“When KPMG first launched the Restructuring practice in Spain, times were good and few companies or banks needed the support of Restructuring specialists. Therefore the bulk of our work was with private equity firms, which often needed advice on managing their portfolios, and corporates.”

“Based on the strong reputation of our UK Restructuring practice in advising lenders and our integrated UK and Spanish teams, another core business area for us was working with UK banks in their Spanish loan portfolios, where we gained a strong reputation having the possibility of approaching Spanish financial institutions (banks and saving banks) which recognised the benefit of our advice for restructuring their biggest stress and distress loans. Roll on a few years and when the credit crunch bit, more companies and financial institutions in our home market turned to us for advice.”

KPMG’s Restructuring practice offers advice on both financial strategy and operational strategy for stress and distress businesses, each of which can be sub-divided into two distinct areas, finance and operationals:

Turnaround planning and implementation: In this field KPMG works with management teams in order to help create decisive strategic and operational plans to turn around stress and distress businesses. Here, the practice deploys small, experienced teams to work with all levels of management to understand the potential causes of underperformance and help develop a turnaround strategy.

The aim is to provide a clear understanding of the needs of stakeholders and to provide solutions on how to address differing agendas. Furthermore, within this practice, the team focuses on the development of operational plans to help support the delivery of the strategic plan, and also looks at the potential financial and strategic impact of corporate actions.

Martin says, “As a team we always give the best advice for the company, and that doesn’t always equate to what the management team want to hear. Our principal concern is for the health of the business.”

Corporate financial restructuring: This involves diagnostic assessment, debt advisory, liquidity and working capital management, the development of robust operational and financial plans to underpin the restructuring communications and negotiations with lenders and other stakeholders, accelerated M&A advice, strategic financial advice and contingency planning.

Operational restructuring: In this area, the Restructuring team aims to provide a delivery of profit and loss savings right through to the bottom line. Here, KPMG works with management teams to help deliver profit and reduce the impact of loss, focussing in maximising cash.

This is achieved by an analysis of the underlying cost-drivers and a generation of ideas across a business, implementation of a tried and tested methodology for the validation, approval and delivery of actions and the delivery of improvements through line management, without disrupting the overall business.

Strategic cash generation: The team works with the management of companies to help generate cash and embed a cash culture within the business.

A key aspect of this system includes working capital cycle reviews in order to identify opportunities for improvement, detailed balance sheet reviews to engender cash generation, hands-on assistance in implementing opportunities and the development and transfer of skills to the management team.

Crisis management
Another core competence of KPMG Spain’s Restructuring in the restructuring team is their ability to structure and implement the best possible strategy during times of crisis. Here, the team offers lender advisory, turnaround and cash management services.

In the field of lender advisory services, the practice helps lenders assess their options for repayment, refinancing and recovery from underperforming businesses. To this end, the team provides an independent business review, including diagnosis of sources of underperformance, a security review and collateral options, contingency planning services, an assessment of the management team, strategic insolvency advice, and gives options assessment for strengthening the firm’s credit position. It can also undertake inter-creditor negotiations and deal structuring if required.

When it comes to turnaround executive management, the practice offers crisis management with the aim of stabilising the business with the view of implementing turnaround. KPMG can provide practical plans for restructuring the business and increasing the speed of turnaround, install executives into key leadership positions and help ensure a timely flow of information. They also manage communications between the board of directors, management team and financiers and offers fallback planning and also provides deep and broad support by tapping into KPMG’s network of firms.

In terms of crisis cash management, KPMG’s main aim is to help stabilise cash flows and buy time in order to promote effective negotiations with stakeholders. This is achieved by in-depth analysis of immediate and near-term funding requirements, development and transfer of robust cash flow forecasting processes to the management team, the identification of short and near term cash generation and the provision of advice to the management on means of effective communications with stakeholders.

Exit planning
Another key area in which the practice offers substantial support is that of exit planning and implementation. Here, the team often assists companies looking to relocate or close down. Spanish subsidiaries of foreign companies, in line with the rest of Europe are often inclined to relocate to be closer to their clients or target audience. In the case of Spanish subsidiaries this often means Eastern Europe. Other factors driving this include cost benefits of the region to which they are moving, and improved and more flexible labour arrangements. KPMG can help a business to liquidate in one jurisdiction in an organised way, in order to facilitate a move to a new market. The practice also advises on cash management, tax, labour and legal advice to minimise the cost for the relocation.

Insolvency
Crisis could end up in and insolvency procedure. The Restructuring department of KPMG provides financial, strategic and legal advice to get in and out and insolvency procedure in Spain. They have been appointed by the Spanish SEC as an administrator of the biggest insolvency procedure in Spanish history, Martinsa Fadesa.
In terms of the type of business that KPMG in Spain works domestically, the restructuring team is particularly active right now, in the automotive, real estate and related industries, retail, distribution and other industries. Combine this with the depth and breadth of expertise from the heads of the different sectors of KPMG, the team offers a true ‘one-stop-shop’ for any businesses under stress or distress. Today, KPMG are kept busy with key issues that trouble the Spanish market; the real estate crash, the banking crisis, the fall of the retail sector and the imminent decline of the rest of the industries. π

For further information tel: +34 91 456 3525;
www.kpmg.com

Starting out in the Indian legal market

Posted on August 25, 2009 by

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

Posted on August 25, 2009 by

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

Inception to market leaders

Posted on August 25, 2009 by

The idea for effringo began in late 2004 when two ex colleagues from o.tel.o GmbH, Francis Billard and Jörg Dobbeck, met each other at a Christmas party. Within a few hours a plan was formed and it was decided to feed on the experience of people that they knew and could rely on.

As many people within any industry are aware, the hardest part of a start up is the task of getting the name right. This took a surprisingly long time until they hit upon the Latin name “effringo” which means “to set out”, which is exactly what they wanted to do, set out into a new telecommunications generation. The next few months were used in getting the team together and when the company was founded in February 2005 all except one position were filled.

At the first team workshop they decided that there were to be four main areas that would be of extreme importance for their company

the market;

financing the company;

the right technology;

strategic partners;

the research and development of further services and products.

The market
The market was ready, but they were not. They started designing the wheel again with features that were not available, features that no-one wanted, features that did not function and in all likelihood probably never would. Instead of approaching the ripe market they were getting themselves tied up in more and more new and innovative products. During this time VoIP was becoming more socially acceptable, as greater numbers of business customers wanted to take advantage of this “new” technology.

It seems that this was the time for effringo to make the next wrong decision. With a lot of enthusiasm they combined their energy into the evaluation of an “asterix” based PBX solution. Unfortunately, they found that that this market was overrun by nearly every provider offering a telephone exchange. After the second workshop they decided to stick with their core business and concentrate on that which they do best. Also, they wanted to optimise switch technology to initially cope with short term future requirements and make a plan to cover mid and long term product development.

Financing the company
Seven months, and several presentations and meetings later, they were able to convince the KfW (Kreditanstalt für Wiederaufbau), that their enterprise was worth investing in.

Almost simultaneously negotiations were going on between effringo and Craig Taverner from Mory limited. Craig Taverner was not only interested in investing but was just as interested in getting to know effringo’s intentions concerning R&D. This was later to be seen as a one in a million piece of luck.

In October 2005 investors were on board, ready to choose the technology provider, and nearly ready.

The right technology
After walking many miles at the CeBit trade fair, a strenuous series of tests and a RFQ phase, they came up with a short list of eventual providers. In pole position was a provider that had a definite price advantage but just did not work out on the chemistry side of things. During the ensuing discussion effringo decided to go with a company from Texas, USA. A meeting in the states was soon planned, and there they were able to convince each other that technology is the right one and that effringo’s business concept for Europe and the Middle East would help both companies. Furthermore the status team showed us that it is not all about technology, people also count in this day and age. That was when the decision was made.

Strategic partners
It was clear from the start that with effringo offering a complete telephony service, with high reliability, at a competitive price, there were not a lot of strategic partners to choose from. Deutsche Telekom was not an acceptable solution, as they were considered the enemy. The obvious choice at that time was British Telecom with their numerous POIs, and readiness to listen to small companies.

Where to place the servers and connect to the World Wide Web and transport networks was an easy decision to make. In the carrier room at InterXion in Düsseldorf, nearly all of the renowned telecommunications companies are present and if required it is only 10 minutes from the effringo offices.

Research and development
As mentioned, this position was not initially filled, which was an affect of making a few bad decisions. This was rectified when Craig Taverner, one of the investors, came on board. From this point in time the R&D department was in experienced hands. One of his first decisions was to have a technology workshop with technicians, sales personnel from effringo, and a development team from stratus in the idyllic town of Margaretetorp in Sweden. Aside from the daily business needs, the members were able to nail down the core business as being both national and international wholesale based on the newest version of the entice switch. This meant saying goodbye to end customers and business customers, as the business would now be based on partnerships with other carriers.

By this time the next round of investment was ready. After preparing a multitude of spread sheets and meetings to convince the investors that the new direction would be the right one, the end of 2007 saw effringo with financial backing and around the same time effringo received the newest version of the entice switch.

The present
Today, the strategy that effringo follows shows that they can achieve success in their market place in a recessionary environment whilst at the same time enjoying fair partnerships. Early on, they knew that the market was moving away from “cheap and nasty”. The market requires excellent speech quality, a high degree of reliability and a set of basic standard features such as CLI and FAX, both of which the market is willing to pay for. This was realised at an early stage in the business thanks to networking with national carriers. The company reserve special thanks to one of the pioneers in VoIP, Telefonica Deutschland. Long term knowledge of the market and the capability to listen hard and talk straight also characterise the effringo mentality. Effringo has bilateral contracts and connections with a multitude of renowned international companies for VoIP based telecommunication. The bilateral aspect helps minimise the risk for both partners and of course each party is therefore eager to make sure their partners succeed in the market.

The future
The goals of effringo for the mid future are to strengthen their existing partnerships, especially Telefonica Deutschland for the German market due to their excellent position in that market, to boldly extend present markets concentrating on Africa and South America and they are currently developing an exchange and routing software that will support the interoperability between the carriers.

Last but not least effringo are on the lookout for investors with a long term vision who are willing to accompany them to the stock market when the recession recedes. The quintessence of this story is that the journey goes on; effringo have made mistakes and learned from them, they have the energy and compassion to reach their ambitious goals and are human enough to be fair in a world that not always is.

Future growth
Effringo’s network is based on a complete VoIP solution from Stratus Telecommunications including the SoftSwitch for call processing with built in Session Border Controller (SBC) for network security. They use the Stratus Telecommunications product known as ENTICE, which was an important choice to ensure competitive operation and support to allow them to grow and provide new capabilities to customers as well as introduce features that helps to manage its business and profitability.

In this way, the ENTICE solution has been a critical component and has assisted the company in becoming one of the leading VoIP providers in Germany.

The exceptional services provided by the ENTICE family also helped ensure smooth operation from the initial deployment through the growth of the effringo network. All network growth steps are achieved without any service disruption which is critical for business.

Stratus Telecom license the SoftSwitch based on simultaneous calls (rather than subscriber numbers or connections). This means the cost of the solution is directly related to their use of the product and therefore to business revenues, meaning it is very competitive.

The company are very satisfied with Stratus Telecommunications and ENTICE for several reason:

Management: give them complete backing when needed;

Development: provided them with innovative ideas at various stages;

Sales: the sales team helped in defining a feasible roadmap of features and products which enables us to plan our future business expansion, supporting different types of customers in Germany as well as international customers.

As far as future growth, ENTICE provide the scalability required to become a major operator in Europe and additionally allows Effringo the potential to provide residential features, business features such as Centrex and enables full integration into legacy networks by supporting signalling systems for traditional fixed and mobile networks.

For further information tel: 49 2182 5708 464;
email: joerg.dobbeck@effringo.com

Routing the ReTakaful road

Posted on August 25, 2009 by

While Takaful currently only represents a small fraction of the global insurance industry, it is among the fastest growing categories, rising over 20 percent a year in most available markets.

Research indicates that gross Takaful contributions have grown from $1.4bn in 2004 to over $3.4bn in 2007, and there still exists an expanding and untapped Muslim population on almost every continent. Based on research interviews and estimates, the likely size of the global Takaful market could be over $8bn by the end of 2012.

Bearing this in mind, the Hannover Re Group recognised the potential and decided to enter this niche market, establishing Hannover ReTakaful. The group has had extensive experience in the operations of cooperatives and mutuals in the past, and so entering the market was logical.

Hannover ReTakaful BSC (c) was established as a fully Shariah compliant company, licensed by the Central Bank of Bahrain (CBB). It was formally registered on October 3, 2006 in Bahrain. The company’s authorised capital is $135m and currently has a paid up capital of $54m.

The board consists of André Arrago (chairman), Christian Lefebvre and Mahomed Akoob. Arrago is a member of the Executive Board of Management of Hannover Re Germany and Lefebvre is the Head of Hannover Re’s Facultative Operations. Akoob, who also serves as managing director of Hannover Retakaful, has extensive experience in the reinsurance market and has been with the group for a number of years.

The Shariah Advisory Board of the company consists of eminent scholars from around the world namely, Dr Mohammad Elgari, Mufti Abdulnabi Hamidi and Mufti Hassan Kaleem. The board supports and underpins the development of the company and its product offering. Mahomed Akoob noted “Hannover Re is the first of the major international reinsurance groups to devote itself to the emerging Islamic insurance market with its own exclusive subsidiary.”

Growth of an industry
Bearing in mind that a quarter of the world’s population are adherents to the Islamic faith, 70 percent thereof are under the age of 35 and the global Islamic insurance market is scarcely developed, the group sees extremely attractive prospects for innovative product design. The governor of the Central Bank of Bahrain (CBB), His Excellency Rasheed Mohammed Al Maraj, noted, “We are sure that the participation of Hannover Re will make a positive contribution to the development of the financial sector of the Kingdom of Bahrain and the region.”

Bahrain has been chosen as a base due to its success as a financial and insurance hub, supported by the following success factors:

The ongoing support by the government through the CBB;
A comprehensive and clearly defined legal and administrative framework;
A highly skilled and qualified workforce;
Strategic location;
Excellent infrastructure facilities;
Liberal economics based on free market.

Hannover ReTakaful is a 100 percent subsidiary of Hannover Re Germany and therefore an integral part of the group. It provides Retakaful underwriting expertise for Takaful companies worldwide, in all lines of business on a proportional, non-proportional and facultative basis. Hannover ReTakaful has substantial underwriting capacities for property, casualty and family retakaful.

Recognised success
In 2007, Standard and Poor’s awarded a rating of A with a stable outlook to Hannover ReTakaful. The rating was reaffirmed by S&P in 2008. For a retakaful operator, a top rating is a prerequisite for being offered and awarded the full spectrum of business to underwrite.

For the financial year ended 2008, Hannover Retakaful had a gross premium of approximately $42m. Over the last two years, it has established business relationships with more than 70 clients spread across MENA, South East Asia, the Asian sub-continent, South Africa, Sudan and the UK. Hannover Retakaful is also watching developments carefully in other potential takaful markets.

According to Mahomed Akoob, setting up a fully-fledge retakaful company is evidence of the strong commitment of the group to takaful development. The group decided not to take a ‘wait and see’ approach or stepping slowly into the market, by opening windows without adequate tie-up capital. Neither did it want to be a party that exploits momentum without being able to contribute significantly.

A subsidiary approach coupled with professional expertise is the model that Hannover Re has adopted. It avoids many possible problems of having dual systems in one body, as might be found in the window concept, but at the same time secures full access to group know-how and technical experience. By so doing, it will be able to boost its role by implementing conventional discipline and professionalism into the new market that faces natural scarcity of both.

Hannover ReTakaful has been playing a primordial role in its cooperation with regulators and industry bodies such as ICMIF, the IFSB and the GTG to ensure soundness within the industry. In recognition of its contributions, it has received a number of awards, such as:

Innovation Award 2007, International ReTakaful category, Middle East Insurance Forum (MEIF);
Best ReTakaful Company 2008 Award, International Takaful Awards 2008;
Best ReTakaful Operator 2008 Award, Islamic Business and Finance Awards 2009 by CPI Financial.

Most recently, it received the Best ReTakaful Issuer 2009 Award, from World Finance, and the award for the Best Reinsurance Company at the International Takaful Awards 2009. The company is growing steadily within the market. It is confident that growth will continue, especially as Takaful appetite increases within the Islamic community and Takaful companies increase placement with professional and technically sound Retakaful companies rather than conventional reinsurers. The opportunities for increased takaful insurance, particularly in the GCC is tremendous. The growth in the region and low insurance penetration means that there are substantial prospects for further development.

The robustness of the industry is emphasised by the fact that Islamic institutions have been less affected by the global crisis because Shariah law prohibits interest-based products. Islamic institutions were therefore not involved in some impaired and toxic asset classes that have affected many conventional banks. Takaful insurance and reinsurance have demonstrated resilience to current conditions, which is expected to continue. Sustainability may be attributed to liquidity, capital adequacy and strict guidelines as prescribed by shariah.
“We are in a very exciting market which is open to innovation and knowledge sharing. Hannover ReTakaful is committed to playing a significant role in the growth and development of the Takaful and Retakaful markets.” said Mahomed Akoob.

Hannover ReTakaful transacts all lines of non-life, life, and health reinsurance and maintains business relations with more than 5,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices on all five continents with a total staff of roughly 1,900.

The rating agencies most relevant to the insurance industry have awarded Hannover Re very strong insurer ratings (Standard & Poor’s AA- Very Strong and AM Best A Excellent).

The company’s overarching objective is to expand its position on the international reinsurance markets as a major reinsurance group of above-average profitability with an optimally diversified portfolio. The portfolio of Hannover ReTakaful supports this objective.

For further information tel: +973 17 214 766;
email: mahomed.akoob@hannover-re.com

Finance Agonistes

Posted on August 25, 2009 by

For at least a quarter-century, the financial sector has grown far more rapidly than the economy as a whole, both in developed and in most developing countries. The ratio of total financial assets (stocks, bonds, and bank deposits) to GDP in the UK was about 100 percent in 1980, while by 2006 it had risen to around 440 percent. In China, financial assets went from being virtually non-existent to well over 300 percent of GDP during this period.

As the size of the financial industry grew, so, too, did its profitability. The share of total profits of companies in the US represented by financial firms rocketed from 10 percent in 1980 to 40 percent in 2006. Against that background, it is not surprising that pay in the financial sector soared.

The City of London, lower Manhattan, and a few other centres became money machines that made investment bankers, hedge-fund managers, and private equity folk immoderately wealthy. University leaders like me spent much of our time persuading them to recycle a portion of their gains to their old schools. For the last two years, things have been different. Many financial firms have shrunk their balance sheets dramatically, and of course some have gone out of business altogether. Leverage is down sharply. Investment banks with leverage of more than 30 times their capital in early 2007 are now down to little more than ten times. Trading volumes are down, as is bank lending, and there have been major layoffs in financial centres around the globe. Is this a short-term phenomenon, and will we see an early return to rapid financial-sector growth as soon as the world economy recovers?

Already the market is full of rumours that guaranteed bonuses are returning, that hedge funds are making double-digit returns, and that activity is reviving in the private equity market. Are these harbingers of a robust recovery for the financial sector, or just urban myths? There is no certain answer to that question, but perhaps economic history can offer some clues. A recent analysis by Andy Haldane of the Bank of England of long-term returns on UK financial sector equities suggests that the last 25 years have been very unusual.

Suppose you had placed a long-term bet on financial equities in 1900, along with a short bet on general equities – in effect a gamble on whether the UK financial sector would outperform the market. For the first 85 years, this would have been a very uninteresting gamble, generating an average return of only around two percent a year.

But the period from 1986 to 2006 was radically different. During those two decades, your annual average return would have been more than 16 percent. As Haldane puts it, “banking became the goose laying the golden eggs.” Indeed, there is no period in recent UK financial history that bears any comparison to those jamboree decades.

If you had unwound your bet three years ago, you would now be sitting pretty – as long as you had gone into cash, of course – because the period since 2006 has undone most of these gains. So if you had held your bank stocks up to the end of last year, over 110 years your investment would have yielded an annual average return of less than three percent, still broadly a break-even strategy. Why was this 20-year experience so unusual, with returns so much higher than at any time in the last century? The most straightforward answer seems to be leverage. Banks geared up dramatically, in a competitive race to generate higher returns. Haldane describes this as resorting to the roulette wheel.

Perhaps that analogy is rather insulting to those who play roulette. Indeed, the phrase “casino banking” tends to ignore the fact that casinos have a rather good handle on their returns. They are typically very astute at risk management, unlike many of the banks that dramatically increased their leverage – and thus their risks – during the last 20 years.

The conclusions that we might draw for the future depend heavily on how central banks and regulators react to the crisis. At present, financial firms are learning the lessons for themselves, reducing leverage and hoarding capital and cash, whereas the authorities are trying to persuade banks to expand lending – precisely the strategy that led to the current crisis.

Of course, we know that a different approach will be needed in the longer run. In effect, the authorities are following the approach first outlined by St Augustine. They would like banks to be “chaste,” but not yet.

But when growth does return, leverage will be far more tightly constrained than it was before. Regulators are already talking about imposing leverage ratios, as well as limits on risk-weighted assets. If they follow through, as I expect, there will be no return to the strategies of the last two decades.

In that case, finance will no longer be an industry that systematically outpaces the rest of the economy. There will be winners and losers, of course, but systematic sectoral out-performance looks unlikely. What that will mean for financial-sector pay is a slightly more complex question.

Howard Davies, Director of the LSE, was the founding Chairman of Britain’s FSA and is a former Deputy Governor of the Bank of England

Hitting the right notes

Posted on August 25, 2009 by

The IndoChine Group is a unique reflection of contemporary Asian lifestyle, synonymous with nutraceutical cuisine and award-winning designs. An active socially responsible organisation which prohibits the sale of near-extinct marine species foods (including sharks’ fin, blue-finned tuna and yellow-finned tuna), IndoChine has since grown into an international lifestyle brand boasting of fine-dining restaurants, clubs, bars and even a luxury villas and resort property. IndoChine now has venues strategically located in Singapore, in and around Asia and even Europe, including Kuala Lumpur, Malaysia; Jakarta, Indonesia; Phuket, Thailand; and Hamburg, Germany. IndoChine caters to an international jet-set clientele and takes pride in delivering to astute and affluent guests a memorable lifestyle experience not easily found elsewhere. IndoChine is not simply about food and drinks; it is also about music, fashion, sports, arts and culture, parties and even the environment.

Having received numerous awards and accolades internationally for its unique holistic lifestyle concepts, IndoChine has been the preferred venue for numerous glamorous and large-scale events of up to 2,000 people, including two MTV Asia post-award parties; a post-opening party for Cirque du Soleil’s Quidam; the International Indian Film Academy Awards party; the International Olympic Committee (IOC) 2012 bid party of London, New York, and Paris, which took place in 2005 across Singapore at two of IndoChine’s venues. IndoChine also had the pleasure of the company of dignitaries and celebrities such as Henry Kissinger, Michael Bloomberg, Mikhail Gorbachev, Tony Blair and his wife, Cherie Blair, the Prime Minister of Laos, His Royal Highness Prince Albert II of Monaco, Sting, Raoul Gonzales, INXS, Ian Thorpe, David and Victoria Beckham and even Mariah Carey.

With such immense wealth of experience in luxury hospitality, it was only natural for IndoChine to venture into Phuket and set its sights on developing palatial villas and a chic hotel perched atop Kalim Bay. With one of the most picturesque and unobstructed views of Patong Beach, IndoChine Resort + Villas is sheer heaven on earth as you awake in the plush comforts of your suite to the breathtaking views of the Andaman Sea, which greets you each and every way you turn.

Secluded and truly indulgent, IndoChine Resort + Villas blends the cutting-edge style of modern Asian living, with the welcoming warmth of Thailand to create a resort like no other and offers guests something beyond the ordinary beach resort or hotel room that is so readily available today. Made up of 20 spa villas, 19 apartment suites, six residences, 11 Gaya studios, eight sky pavilions and 24 hotel suites, there is a type of accommodation to suit every taste – from lavish residences to chic ocean studios – IndoChine Resort + Villas offers privacy and sophistication to cater to the most discerning traveler.

IndoChine Resort + Villas is the IndoChine Group’s first foray into the luxury resorts and villas’ arena is now followed by a joint venture with one of the top hotel management consultancies in the world, the LaTour Signature Group, headed up by renowned hoteliers, Tom LaTour and John Small. The joint venture sees the creation of LaTour IndoChine Hotel Group Pte Ltd, a hotel management company that will provide wide-ranging expertise to developers entering into the realm of boutique hotels, six-star hotels and whole ownership and fractional exclusive villas. The vision of LaTour IndoChine is to contribute to the realisation of wholly luxurious boutique hotels, one-of-a-kind six-star hotel experience and affordable full-service hotel chains for the affluent and business travellers of today.

This joint venture with LaTour Signature will also draw on IndoChine’s strengths that include establishing partnerships with key hospitality stakeholders in various markets. Combined with LaTour Signature’s years of experience in all aspects, from conceptual planning to marketing, sales, staffing and operations, LaTour IndoChine aims to be one of the world’s top hotel management companies. In addition to Singapore, LaTour IndoChine has targeted to expand further within Asia, Middle East, New Zealand and Australia, with the intention of building up a portfolio of boutique hotels, six-star hotels and hotel chains.

The LaTour IndoChine Hotel Group aims to add to its portfolio a variety of properties – from boutique hotels to hotel chain developments, such as the IndoChine Resort + Villas, which will continue to flourish with the vision and enthusiastic perspectives from hospitality luminaries Small and LaTour.

In this way, LaTour IndoChine targets to provide potential clients with the necessary services and expert advice required to get luxury resorts and hotels successfully off the ground and into the market.

In the potential in the ever-growing international luxury market, IndoChine has clearly strategically diversified to further tap on the high-end consumer segment, while keeping closely in line with providing holistic lifestyle concept to the jet-set guests. With the completion of IndoChine Resort + Villas, IndoChine Group is certainly hitting all the right notes taking luxury hospitality to new heights.