Year: 2018

Stopping counterfeit drugs in their tracks in the Philippines

Posted on by Max Tomlin

In the midst of a drug war in the Philippines, President Rodrigo Duterte has announced a crackdown on the illegal sale of counterfeit over-the-counter medicines. On March 28, Duterte ordered police to arrest anyone involved in the manufacture, import or distribution of falsified pharmaceuticals. The command followed a public warning made by the Filipino Food and Drug Administration (FDA) and United Laboratories, which highlighted the difference between real and counterfeit medicine – in this case, Biogesic 500mg paracetamol tablets.

The FDA has continuously warned of the risk of counterfeit medicines to the economic and public health of the Philippines

The warning advised the public to identify modifications in the pill colour, foil patterns and illegible batch number markings on the packaging. Counterfeit medicine, however, is not exclusive to the Philippines: the World Health Organisation (WHO) estimates that in low and middle-income countries, one in 10 medical products are falsified, which are classified as non-FDA approved or intentionally misrepresenting an active ingredient.

Counterfeit crackdown
The FDA has continuously warned of the risk of counterfeit medicines to the economic and public health of the Philippines. Some headway has been made to reduce their availability. In January, the FDA and the Philippine National Police seized over PHP 3m ($57,570) worth of counterfeit medicine in Sampaloc, Manila. The confiscated goods included 15 different brands of over-the-counter medication, which were manufactured by an unidentified local drug company.

Rae Ann Verona, a journalist covering Filipino domestic news, told World Finance that confiscation is not enough: “It’s a start, but they have to get to the source and look at the reasons why counterfeit medicine manufacturers, importers, and distributors are thriving.”

In November 2017, the WHO estimated that counterfeit medicine accounts for 10 percent of a $300bn industry in low and middle-income countries. Salvador Panelo, Chief Presidential Legal Counsel, recently suggested that the percentage could possibly reach an alarming 70 percent in developing countries. According to the FDA’s Regulatory Enforcement Unit, seized products that have been imported from China or India are sold, directly or via online transactions, at a low cost in order to reel in unwary small-time dealers. The counterfeit pharmaceutical industry in the Philippines is clearly lucrative, while the importation of fake drugs through various channels is an added burden for authorities.

Public threat
Supply and demand is a key factor in driving the low price of counterfeit medicine compared with authentic drugs. “Counterfeit drug makers and suppliers will continue to distribute and manufacture as long as affordable medications are needed,” explained Verona. This is because affordable yet authentic medication is hard to find in the Philippines. Since 1985, drug prices have risen at a faster rate than in neighbouring countries like Thailand, Malaysia and Indonesia. Furthermore, a 2008 study stated that 12 percent VAT and public pharmacy mark-ups, some as high as 30 percent, contribute to the unaffordability of generic medication.

Jovencio G Apostol, a professor of pharmacology at the University of Santo Tomas, observed: “Health insurance coverage of Filipinos is one of the lowest in Asia.” As such, pharmaceutical products comprise 64 percent of out-of-pocket expenditures in Filipino households. Counterfeit drug manufacturers have exploited this need for affordable medication to satisfy their own money-making objectives.

Verona further explained that falsified medicine has an especially detrimental effect in developing countries: “Fake drugs deliberately cheat the public, which is dangerous in all countries, but especially for countries like the Philippines where an unfortunate number of people still lack access to clean water and sanitation… [This] makes them susceptible to bacterial diseases, for example.” Counterfeit drugs or poor-quality medicine may add to antibiotic resistance, which threatens the development of life-saving drugs in the future.

Fighting back
The Filipino Government has implemented various policies over the years to reduce prices and increase the use of generic medicine. These include: the Generics Act of 1988, the 2000 Half-Priced Medicines Programme and the Universally Accessible Cheaper and Quality Medicine Act of 2008. However, these measures have not resolved the problem – mainly due to rigorous marketing strategies executed by dominant manufacturers and importers of branded generic medication – as prices have remained among the highest in Asia.

As long as Filipinos demand affordable medication, the manufacture and distribution of counterfeit and substandard drugs will continue. The public is becoming more aware of falsified drugs, especially with the recent case of fake paracetamol, which may reduce the sale of counterfeits. However, it is unclear how much of a difference that will make to the overall industry. The government is tackling the issue by arresting those involved but, in order to stop the circulation of fake drugs, it needs to regulate the exorbitant mark-up of authentic medicine.

Jordan Islamic Bank invests in solar power as part of social responsibility

Posted on by World Finance

Jordan Islamic Bank is the country’s largest Islamic finance provider. In December 2017, its CEO – his excellency Mr Musa Shihadeh – signed an agreement to establish a solar power station, to provide renewable energy to its branches. It’s a concrete example of the bank’s commitment to social responsibility and sustainability. Musa Shihadeh explains the ambition behind the solar plant, and how Jordan Islamic Bank supports local businesses in their sustainability efforts – all with the drive to serve the economy of Jordan and make banking simple, fair and transparent for the Jordanian people.

World Finance: Tell me more about this solar plant; what do you hope to achieve?

Musa Shihadeh: Jordan is a non-producing oil country, and we import it. Three hundred days are sunny days in Jordan – therefore we made that plant.

This plant will cover 85 percent of our needs for electricity without oil, from the sunshine. And this will cover one third of our branches in the Amman area. That helps us by saving over the five years almost 50 percent of our costs of energy. Saving the government of Jordan foreign currency for importing oil, help the economy, and create a clean product for the climate and the country.

World Finance: You’re also working with local businesses to help them improve their sustainability; tell me more.

Musa Shihadeh: Yeah, we do help people to have sustainability of their business. We train SMEs, individuals, corporates; explaining to them how we can help, how can they benefit to further their business, and continue making profit and helping the economy as well.

World Finance: Another key aspect of your social responsibility programme is working to promote financial inclusion – what work are you doing?

Musa Shihadeh: Financial inclusion has been important. We try our financial inclusion by reaching women, young people, and other people who need to have banking activities. How we do it – we try to train and help, and explain, and make seminars and explanations of our services. How can they get it easily, transparently, fast, and through technology.

We have phone banking, internet banking. They can do their business through it, and we can reach them wherever they are in the country, as well as connect them with international institutions all over the world.

World Finance: What other innovations are you bringing to market?

Musa Shihadeh: We bring whatever people need to satisfy their need and services and activities. For example, products for paying fees by loans for students. Paying hospital invoices, paid over the years. Paying their bills through eFAWATEERcom, which is the electronic government for that.

That’s what we invent and give for our customers, to satisfy their needs.

Our slogan is ‘our customer is our partner,’ and with this slogan – and with the easy access to our products – helps customers to further their business and get good returns for them and for our bank as well.

World Finance: This has helped you record good financial growth?

Musa Shihadeh: Sure. In assets, deposits and investments we are growing yearly. We have almost 15 percent return on shareholders’ equity, while the average banking sector has 10 percent.

This furthers our business as a bank, and further satisfies our customers, depositors, as well as shareholders in their shares.

World Finance: What do you hope to achieve with Jordan Islamic Bank? For the country and its people.

Musa Shihadeh: Our ambition is to serve the economy of the country; help the country as part of the system.

And for our people, that we connect them internationally. And that furthers the business for our customers, and satisfies them in fairness and transparent transactions and activities.

World Finance: Musa Shihadeh, thank you very much.

Musa Shihadeh: Thank you.

Plugging the cannabis knowledge gap

Posted on by Max Tomlin

The legal cannabis industry is a unique prospect for those looking for a potentially lucrative investment opportunity. In 2017, sales in the US state of Colorado reached $1bn in just eight months, a 21 percent increase from the same period in the previous year. According to Statistics Canada, Canadians spent around CAD 5.7bn ($4.5bn) on both medical and non-medical cannabis in 2017, with numbers expected to swell when the latter is legalised in July this year.

Given the lack of significant cannabis management expertise in the industry, having an experienced team really sets MJardin apart

Canada being the first major economy to make cannabis federally legal is huge news for this high-value commodity. A 2016 report by Deloitte estimates that the market, which includes tourism revenue, licence fees and business taxes, will be worth in excess of $22.6bn once the legislation comes into effect.

While the potential opportunities are obvious, the realisation of them is complex. This is particularly the case in the US, where cannabis is legal in a number of states but rules differ from one to the next. Adhering to a stringent regulatory framework, given the variance across the country, is why a rising number of growers and dispensaries are seeking the help of a third party.

Cannabis management companies can help such firms achieve maximum yield of top-quality products, all the while staying within the necessary legal parameters. In light of the market’s continued expansion expected over the coming year, World Finance spoke with Rishi Gautam, Chairman and CEO of MJardin, a leading cannabis management company.

Jump-starting success
MJardin manages licensed cannabis cultivation and processing facilities, together with retail dispensaries throughout the US. It also manages services, such as compliance, finance-related services, human resources software and intellectual property. “We don’t touch licences directly in the US, as we have separate licence holders who deal with that side of things. In Canada, however, we [attend] to our own licences and operate facilities as well,” said Gautam.

James Lowe was a pioneer of the cannabis management business when cannabis became legal in Colorado around 10 years ago. He and his team formed an initial management company to provide design services, and eventually cultivation management services, for newly licensed facilities. “In 2013, I met Lowe, as well as the other founders of MJardin, who were working in this management company format in the Denver area. We created the MJardin platform to basically institutionalise the work that he had started in the area of cultivation expertise,” said Gautam. “MJardin started officially in 2014; fast-forward four years to today and we are managing more than 30 cultivation, processing and retail facilities in five US states, and we’re making a large, aggressive push into Canada as well.”

In 2017, Gautam decided to become fully active in the business, taking the position of chairman and CEO. With a background in investment management, one of his first moves was to create a capital vehicle for the company to make strategic investments and take ownership stakes in various assets. “It’s a fairly new subsidiary but it has already proven to be quite effective, because the combination of capital combined with MJardin’s operating expertise allows us more powerful ownership in our managed assets.”
This permanent capital vehicle is a crucial part of MJardin’s strategy to both operate and invest in infrastructure assets in Canada, which will be facilitated further by its recent partnership with Bridging Finance, a leading private credit fund in the country. “We’re looking at Canada and other federally legal markets to make such owner-operated positions,” Gautam added. “A couple of years down the road, we see MJardin playing an integral part in the development of new markets.”

Knowledge is power
Another key thread to this strategy is maintaining a high level of expertise. “We have a team that has dealt in the production of legal cannabis for many years, and we’ve also created proprietary software and standard operating procedures, as well as other techniques, that have proven to be quite effective in numerous facilities across many different operating environments,” Gautam explained to World Finance.

Given the lack of significant cannabis management expertise in the industry, having an experienced team really sets MJardin apart from others in the space. There are states in the US, for instance, that have only been growing cannabis within a legal framework for less than five years. “MJardin has a head start, so to speak, because our senior operations team has been operating within a legal cannabis framework for a lot longer than five years, so they’re very familiar operating within a regulated environment,” Gautam explained.

As senior operators at MJardin have worked in the regulated environment for numerous years, they know exactly how to follow protocol and how to pass testing requirements. “This is crucial, because growing this plant in a very large-scale facility is not easy,” Gautam noted. “There’s always considerations to be made about the environment, the structure of the facility, plant health and so on, so we’ve created a solid system through training, software and standard operating procedures to minimise the risk of facility operations as much as humanly possible – that has been our goal since day one.”

Thriving through technology
Constant progress and innovation is vital for any high-value product, and this is certainly the case for cannabis cultivation. “We have a full-time research and development [R&D] team that focuses on improving and advancing cultivation techniques – from lighting systems to different soil media – in multiple facilities,” said Gautam. It’s important to note that MJardin’s R&D is production-focused, as opposed to being therapeutic or medical-focused. Gautam added: “This type of R&D has proven helpful because it allows us to retool and optimise our existing processes in a live facility – as opposed to a lab or some theoretical model. We’re fortunate to have several active facilities that produce and harvest plants – all within a cultivation R&D mindset.”

In a bid to further improve its systems and processes, MJardin is making ardent use of data tracking. “We have compiled what we consider to be the largest database of cannabis production history out there, which is all stored within a single server – and that data is very powerful,” Gautam explained. “We have thousands and thousands of harvest data, including different strains of the plant, the different performance of each strain, production metrics like grams per square foot, etc. We have all of that plus raw data.”

At the centre of this is MJardin’s proprietary software, GrowForce, a cannabis management platform that tracks, corrects and analyses all of the data collected. “We continue to automate more and more of our processes through mobile applications and other digital forms.” He continued: “We’re in the process of digitalising our facilities so that everything is done through the app or the software; all that data is then fed into the server, which provides analytics across all of our facilities and hundreds of thousands of pounds of production of cannabis product, in a very robust framework.”

MJardin University
Given MJardin’s inclination to use technology to continually improve its processes, it comes as little surprise that the company has developed an innovative training platform for its employees. “MJardin University is a proprietary online learning management system that we created to help support the development and continuing education of all individuals within the organisation, from the hourly facility positions all the way up to senior operations managers,” Gautam explained. “We also have fast-track programmes to bring on managers who come from different industries, but have no cannabis experience. The online learning system complements on-the-job training; once you do a particular course online then you have to perform such tasks in front of a supervisor in the facility.”

Gautam added: “MJardin University is something that we’re very proud of. It’s a testament to the strength of the team we have, but also to our continuing development. As the space develops and new techniques emerge, we’re very much on top of all the advancements in the industry, and we have a scalable system internally to educate and train everyone.”

When asking Gautam what he considers to be the most important factor for investors looking into the space, the theme of having the right expertise again arose. “It’s obviously a very bullish market – there are plenty of companies taking themselves public, plenty of licences being acquired, facilities being built; there is a lot of activity in a very early stage of this fast-growing industry. New markets are opening up and cross-border deals are happening, but I think the most important thing for investors to realise is that the production of this plant today, on an ongoing basis, is not a commoditised process like tobacco, tomatoes or other cash crops.”

Indeed, cannabis is a speciality commodity: the production of this plant on a mass scale and in a regulated environment takes a lot of experience, and a lot of skilled labour. “More large-scale facilities are being developed, but skilled operators need to be used to minimise the risks involved. Indeed, that skilled operator needs to not only have the knowledge, but also the right people to manage these facilities.”

A new frontier for female investors

Posted on by Helen

The amount of wealth held by women is increasing. According to Boston Consulting Group, private wealth held by females grew from $34trn to $51trn between 2010 and 2015, with that figure set to rise to $72trn by 2020.

More than ever, the number of women in well-paid jobs is increasing. They also receive more inheritance from Baby Boomer parents, who have begun splitting their finances equally between sons and daughters, and have greater financial resources at their fingertips than ever before. Given this, it is no surprise that women are taking a greater proportion of the world’s wealth as they progress through the 21st century.

But what does this shift mean for the financial services sector, and how can the industry ensure it is best placed to cater to and benefit from a more gender-balanced market in the future?

Hargreaves Lansdown revealed that its female customers consistently outperformed their male counterparts by an average of 0.48 percent a year between 2015 and 2017

Savvy investment
Data from Hargreaves Lansdown, a leading online investment platform, has revealed that its female customers consistently outperformed their male counterparts by an average of 0.48 percent a year between 2015 and 2017. The comparison found that 44 percent of women had most or all of their portfolios held in funds, compared with 38 percent of men. By diversifying their holdings via a fund women were able to manage risk and experience less overall volatility in their portfolios.

The analysis also found that females typically adopt ‘buy and hold’ investment strategies, enabling them to profit from long-term gains instead of trying to make a quick buck. They also tend to avoid smaller, more volatile AIM-listed stocks. This more risk-averse approach frequently employed by women is starkly different to those used by their male counterparts, whose top investment goal is more likely to be about purely outperforming the market.

The ability to cater to different risk appetites and effectively communicate the various investment options available to both male and female customers is crucial to attracting investors at both ends of the spectrum. Furthermore, transparency, use of balanced language and avoiding jargon are all key to prevent alienating either side of the market.

Building confidence
Despite the numerous signs pointing to the strength of female investors, it is clear that a large proportion of women lack confidence when it comes to the stock market.

According to a recent poll by Boring Money, only 23 percent of women hold some sort of investment product, compared with 35 percent of men. Meanwhile, the ratio of male to female customers at the top 10 DIY investment platforms is more than two thirds male.

Many women cite lack of confidence, uncertainty and risk aversion as the top factors causing them to avoid the stock market. Additionally, while many are open to the prospect of using a financial advisor to guide and educate them, most wealth managers admit to having male-dominated client bases.

The lack of diversity within such firms is a hindrance to attracting a more balanced investor base, given the highly personal nature of the client-advisor relationship. Women want to feel represented and understood within investment firms – a fact some have begun to cotton onto as they improve gender imbalance in the workforce. Some have even set up specialist teams to focus on female clients.

Many women cite lack of confidence, uncertainty and risk aversion as the top factors causing them to avoid the stock market

However, more must be done to communicate these initiatives externally. Businesses that are improving diversity in the boardroom or taking action against their gender pay gap should actively promote such activity.

Prospective clients will be encouraged by such developments, and any momentum in this space will only chivvy along others in the sector to do the same.

Appeal to your audience
Like Millennials, many wealthy women are keen to invest their money ethically by looking at options that offer both social or environmental returns, as well as financial gain.

A relatively new introduction to the sector has been a so-called investment ‘gender lens’. This strategy enables clients to invest in businesses that support females, whether that be through backing ventures that help less-advantaged women or by engaging with funds that only hold companies with a gender-balanced board.

Ultimately, an investor’s priorities and risk appetite are determined by a nuanced set of personal characteristics and goals, and cannot be defined solely by their gender. However, it is clear that the investor pool is evolving, and businesses must be able to respond to the changing face of their client base as it develops.

Catering to alternative investor profiles through both product and service is crucial, but it will be the effective communication of these strategies that sets the champions in the sector apart from their peers. Those who are able to adapt and appeal to the growing base of female investors must not only instigate change internally, but should shout about their accomplishments in order to attract a new pool of clients and encourage wider change across the industry.

For more information, visit www.instinctif.com

World Finance Wealth Management Awards 2017

Posted on by Max Tomlin

If the mood at the end of 2016 was to be distilled to a single word, it would surely be ‘uncertainty’. Shocking election results in the US and UK, accompanied by the emergence of AI-powered technologies, had investors and wealth managers wringing their hands. Governments, businesses and the media dissected the potential impact of these forces, leaving many leaders trapped in a state of indecision. However, as we make our way further into 2018, the skies look far clearer than they did 12 months ago. The threats of doom and gloom have not yet come to pass, and may never do so if trends continue.

Wealth managers have to examine markets critically and remove themselves from the temptation to look only at short-term problems; considering the bigger picture is the only way to successfully do business

Identifying real threats and ignoring irrelevant noise will be of increasing importance for wealth managers as the industry grows. According to a 2017 report by PwC, titled Asset & Wealth Management Revolution: Embracing Exponential Change, the total amount of global assets under management will double by 2025. This means an increase from $84.9trn in 2016 to $145.4trn in 2025. “Asset managers can take advantage of this massive global growth opportunity if they’re innovative,” said Olwyn Alexander, PwC’s Global Asset and Wealth Management Leader, at the release of the report. “But it’s do or die, and there will be a great divide between few haves and many have nots. As a result, things will look very different in five to 10 years’ time, and we expect to see fewer firms managing far more assets significantly more cheaply.”

To successfully navigate 2017, wealth managers had to examine markets critically and remove themselves from the temptation to look only at short-term problems; considering the bigger picture is the only way to successfully do business. The winners of World Finance’s 2017 Wealth Management Awards have deftly navigated these market challenges and avoided the pitfall of indecision. Where many panicked, these leaders acted with confidence and ensured they took full advantage of what the year presented them with. With increased competition between firms expected in the coming years, only the most successful will survive.

Unstable market, stable gains
The trend of uncertainty failing to hurt the world’s economy is perhaps best illustrated by the performance of the US market. The Dow Jones broke its own closing record 69 times in 2017, surpassing 24,000 in December. While the Dow is by no means a thorough tool for measuring the performance of an economy, its success was echoed in other measurements. The Chicago Board of Operations Volatility Index hit its lowest point ever in November, adding to evidence that the worst-case scenario expected by many will not come to pass.

The US was the ultimate leader in global wealth creation, continuing a surge of gains as post-financial-crisis growth continues. The US added $8.5trn to global wealth during 2017, according to Credit Suisse’s 2017 Global Wealth Report; more than half of the world’s total growth. “So far, the Trump presidency has seen businesses flourish and employment grow, though the ongoing supportive role played by the Federal Reserve has undoubtedly played a part here as well, and wealth inequality remains a prominent issue,” said Michael O’Sullivan, Chief Information Officer for International Wealth Management at Credit Suisse, when the report was released. “Looking ahead, however, high market valuations and property prices may curb the pace of growth in future years.”

While not as dramatic as the US, Europe also posted consistent wealth growth. In absolute terms, Germany, France, Italy and Spain made it into the top 10 countries with the biggest gains. According to Credit Suisse’s findings, the biggest winner was Poland: it posted an 18 percent increase in average household wealth gain, a rise that was driven mainly by equity prices. Asia also saw significant growth as the region started catching up to the more developed economies of the West. This continued wealth growth will fuel the global wealth management industry and act as the catalyst for the industry’s expected surge.

Technologically difficult
Apart from the growing market that is placing increasing pressure on smaller wealth management players, technological change is also accelerating competitiveness in the industry. One significant development pertinent to the wealth management industry is the ability of robotic process automation (RPA) to reduce costs, particularly as regulation makes business-as-usual more expensive.

According to Capgemini’s Top 10 Trends in Wealth Management 2018 report, the automation of basic, repetitive and time-consuming tasks can speed up processes by 60 percent. The tools are also easier to implement than ever before; RPA does not require existing computer systems to be rebuilt and can be done step by step, even without programming knowledge. Client on-boarding, back office operation automation and regulation compliance are just a few of the many ways RPA systems are being utilised. Compliance is particularly notable, as it is set to dominate the costs of many companies in the near future.

Also noted in Capgemini’s report is the tremendous scrutiny the wealth management industry has faced on the back of the global financial crisis, with regulations changing at a tremendous pace. In 2016 alone, Thomson Reuters Regulatory Intelligence tracked more than 52,000 regulatory updates divided among 500 regulators across the globe. Many changes relate to increasing transparency, drawing clearer distinctions around conflicts of interest and providing greater consumer protection.

Adding to the already tremendous challenge facing wealth management companies is the fact that regulations are going in very different directions across regions, particularly when it comes to new technology. Of particular note is Europe’s incoming General Data Protection Regulation, which will likely require a significant update of computer systems in many wealth management companies. The firms that will succeed in this environment will be the ones that find ways of doing business more efficiently while still meeting the strict new regulations that continue to emerge.

Innovate to differentiate
One potential benefit of all this change is the opportunity for enterprising wealth management firms to differentiate themselves from their competitors, something many have often failed to do. Capgemini noted that other sectors of the financial services industry are well ahead in this regard, and there is plenty of opportunity for the wealth management sector to catch up. Differentiating products and services from competitors will be necessary as automation and regulations make competing solely on price far more difficult. As high-net-worth individuals demand greater customer service, communication will be a deciding factor in many clients’ decisions.

Saying firms need to integrate more innovation into their business models may be a cliché, but doing something truly unique is still the best way to stand out. Though tremendously difficult, the current landscape of the wealth management industry necessitates that companies do exactly this to survive.

These forces will push the wealth management industry to achieve bigger and better things in 2018. The winners of World Finance’s 2017 Wealth Management Awards are the firms that have shown the aptitude and skill to examine a financial landscape that is becoming more competitive every day.

World Finance Wealth Management Awards 2017

Europe
Andorra

Crèdit Andorrà

Belgium

Belfius Bank

France

BNP Paribas Banque Privée

Germany

Vontobel Wealth Management

Greece

Attica Wealth Management

Italy

Mediobanca

Luxembourg

Banque Pâris Bertrand Sturdza

Portugal

PT Golden Visa

Switzerland

Kaiser Partner

The Netherlands

Rabobank

Africa
Ghana

The Royal Bank

Mauritius

MCB Private Banking

Nigeria

Standard Bank Wealth and Investment

North America
Bermuda

Clarien Bank

Canada

Scotiabank

US

Citizens Bank

Latin America
Argentina

Puente

Bahamas

CIBC FirstCaribbean

Brazil

BTG Pactual

Middle East
Kuwait

KFH Investment

Qatar

QInvest

UAE

FGB Wealth

Asia-Pacific
Armenia

Unibank Privé

Australia

Westpac Private Bank

India

Kotak Wealth Management

Malaysia

Maybank

Taiwan

King’s Town Bank

Thailand

Kasikornbank

World Finance Corporate Governance Awards 2018

Posted on by Max Tomlin

Corporate governance is about effective management, upholding a certain level of moral and ethical integrity, and building relationships with company stakeholders. It also requires strong leadership and a commitment to making the right decision – not necessarily the easy one.

The relative economic prosperity delivered by 2017 did not always produce the most favourable conditions for corporate governance policymakers. Falling unemployment, persistent growth and buoyant stock markets may have made for a healthy business climate, but success can sometimes cloud judgement. It is much harder to introduce – let alone adhere to – strict rules and regulations when the going is good.

When it comes to corporate governance, companies will need to think carefully about both their present-day image and their long-
term reputation

So, although 2017 brought financial stability, it was also notable for a number of corporate governance missteps. In the US, Equifax faced accusations of insider trading, while Steinhoff, one of South Africa’s leading retailers, struggled to explain accounting irregularities. Perhaps worst of all was Uber’s decision not to disclose the data breach it suffered in 2016, an act that even raised eyebrows among those who had grown accustomed to reading about the company’s many indiscretions.

The past year also brought the issue of sexual harassment into the spotlight. Following allegations made against producer Harvey Weinstein and a number of other high-profile Hollywood stars, the ‘Me Too’ movement soon spread to other industries – and the finance sector was no exception. In light of the testimonies of countless women, many businesses are rethinking their policies on sexual harassment and taking a closer look at gender imbalance in the workplace.

The World Finance Corporate Governance Awards celebrate the companies that are not simply reacting to shifting attitudes, but are being proactive in driving positive change. By maintaining the highest possible standards of transparency, sustainability and inclusivity, these organisations have proven themselves to be worthy recipients of this year’s awards.

Taking responsibility
Maintaining the status quo is easy, but it can lead to stagnation. In 2018, a growing push towards greater corporate responsibility will make it difficult for businesses to simply continue as they were. The Harvard Law School Forum’s Global and Regional Trends in Corporate Governance for 2018 report sees board quality and composition as one of the biggest developments to take place this year. Increased gender diversity is sure to be a key focus area, with institutional investors showing a greater willingness to vote against nominating committees if they feel female members are underrepresented.

Similarly, companies will find themselves expected to create a positive working environment. Reports of sexual harassment need to be thoroughly investigated and gender pay gaps swiftly closed. Accountability will surely be high on the corporate governance agenda this year, with board members no longer able to plead ignorance regarding harassment, whether it discriminates against any gender, sexuality, race or creed.

If creating a more transparent working environment helps organisations deal with toxic cultures, it will also help them with financial disclosure. Across the world, pressure is mounting on firms to ensure their pay practices are as fair as possible. In Germany last year, the Transparency of Remuneration Act came into force and, more recently, an updated version of the Markets in Financial Instruments Directive (MiFID II) was implemented across the EU. The individual accountability of management body members will be heightened as a result of MiFID II, and employees will surely agree it’s about time, too.

In 2018, management will be placed under greater scrutiny than ever before when it comes to their corporate governance policies. Whether this relates to human capital, investor stewardship or remuneration, companies will need to think carefully about both their present-day image and their long-term reputation.

Technological trouble
The world of technology changes rapidly, creating new business opportunities and unforeseen problems. For corporate governance policymakers in particular, technological developments can prove to be something of a headache. Throughout 2017, high-profile organisations – including the likes of Equifax, Verizon and the UK’s National Health Service – suffered cyberattacks that disrupted operations and fractured customer trust. Although cyberattacks are, to a certain degree, unavoidable, the ways in which businesses react to them will determine the extent of the damage caused.

The threat posed by cybercriminals certainly isn’t going away, which means that businesses of all sizes will need to make a renewed effort to improve their defences in 2018. Technical solutions will, of course, be important, but better corporate governance will also prove vital. Companies must ensure that cyber-risks are conveyed to all members of staff – from new recruits to c-suite executives – and not simply left to the IT department. Board members should also make cybersecurity discussions a regular part of company meetings in order to discuss the legal and financial implications of an attack.

The formal adoption of the General Data Protection Regulation (GDPR) in May this year will also have a substantial impact on corporate governance worldwide. GDPR will significantly change the corporate landscape, forcing companies to take personal privacy and data collection more seriously. Some organisations are likely to increase their investment into employee training, while others may choose more technical solutions. Whichever approach is taken, businesses need to act sooner rather than later.

Looking long term
Sustainability is a corporate governance concern for businesses around the world. In the EU, concerns over corporate contributions to climate change achieved mainstream acceptance a number of years ago, but more work needs to be done. In particular, better corporate planning for the two-degree scenario, which aims to limit the average global temperature increase to two degrees Celsius, is of paramount importance.

In the US, the Task Force on Climate-Related Financial Disclosures aims to support better access to corporate data so climate-related risks can be assessed, priced and managed more effectively. Although corporate attitudes towards environmentalism are a little less clear-cut following President Donald Trump’s decision to pull out of the Paris climate accord, local governments and many private businesses have subsequently come out in support of the agreement. As in the EU, there is currently no requirement for a US organisation to appoint a climate change expert to its board, but this is certainly something for forward-thinking companies to consider.

Of course, sustainability concerns can cover more than just the environment. Long-term planning and honest appraisals are often seen as the minimum requirement for good corporate governance, yet some companies have still failed to achieve this. Notably, the collapse of Carillion in the UK showed what happens when governance fails. Consistent board effectiveness reviews and regular, impartial auditing are needed if an organisation is to deliver sustainable success in the best interests of all its stakeholders – not just its managing directors.

Organisations now have more channels through which to communicate with investors and members of the public. What’s more, they have access to corporate data in greater quantities and at higher levels of accuracy. With this in mind, there is little excuse for companies that continually fail to deliver the high standards of transparency and accountability expected in the modern business world. To celebrate those who have shown a willingness to embrace these values for the good of their employees, customers and industry, we present the World Finance Corporate Governance Awards.

World Finance Corporate Governance Awards 2018

Angola

Banco de Fomento Angola

Bahrain

Batelco Group

Bermuda

Arch Capital Group

Canada

Nutrien

Chile

IPAL

China

HNA Capital

Colombia

Tecnoglass

Cyprus

Bank of Cyprus

France

Unibail-Rodamco

Germany

Metro Group

Greece

TITAN Cement

Iran

MAPNA Group

Italy

Telecom Italia Group

Jordan

Jordan Islamic Bank

Kenya

KCB Group

Mexico

Unifin

Nigeria

Zenith Bank

Norway

SalMar

Peru

InRetail

Philippines

PLDT

Poland

PKN Orlen

Portugal

Millennium bcp

Saudi Arabia

SABIC

Singapore

CapitaLand

South Africa

Kumba Iron Ore

Spain

Amadeus

Switzerland

LafargeHolcim

Thailand

BCPG

UAE

Dubai Electricity &
Water Authority (DEWA)

UK

De La Rue

US

Twitter

World Finance Islamic Finance Awards 2018

Posted on by itsupport

Heading into 2017, expectations surrounding the global economy were bleak. The fear was that the surprise political outcomes in the US and UK would send markets on a path fraught with unpredictable fluctuations. Ironically, the one thing that no one predicted occurred: relative stability.

With much of the world’s focus on the US and UK, significant results in Islamic finance were critically overlooked by many. Total sukuk issuance volume rose to $97.9bn in 2017, an increase of 45 percent from the previous year. According to S&P Global’s most recent Global Sukuk Market Outlook report, this performance has created good liquidity conditions in Gulf Cooperation Council (GCC) countries, where the majority of sukuk assets are held, as well as in emerging Islamic finance sectors elsewhere. While growth in sukuk issuance is expected to slow in 2018 as governments rein in their budgets, the next few years will be filled with promise and challenge in equal measure. Geopolitical instability and the persistently low price of oil will make long-term success a difficult goal that only the strongest players in the industry will be able to achieve.

The 2018 World Finance Islamic Finance Awards celebrate the most successful operators in the sector, both in the GCC and abroad. With as many risks as opportunities on the horizon, identifying the best in Islamic finance is now more pertinent than ever. The ethical finance model is in ever-growing demand, and the winners of this year’s awards have set themselves up to capitalise on significant interest from new and unlikely sources.

 

Mixed expectations
If current trends continue, Islamic finance is expected to become an even greater force in the world than it already is. According to the fifth edition of the Islamic Finance Development Report, released in December 2017, growth in Islamic finance has not come to a standstill despite a broad economic slowdown in GCC countries. The report, which was compiled by business intelligence company Thomson Reuters and the Islamic Corp for the Development of the Private Sector (ICD), indicated that as more investors seek sustainable and ethical investments, Islamic finance is receiving greater attention from a larger variety of sources. Based on the report’s findings, the global Islamic finance industry will reach a total global asset volume of at least $3.8trn by 2022, representing an annual growth rate of 9.5 percent.

“The data make it clear that the industry is continuing to grow and develop despite the slowdown,” said Mustafa Adil, Head of Islamic Finance at Thomson Reuters, at the release of the report. “It is evident that Islamic finance can serve as a strategic tool for policymakers to cope with the slowdown, especially in the Middle East. This can be seen in the many steps taken by governments and regulatory authorities, such as introducing new regulations for the Islamic finance sector, raising awareness of the industry among potential market players through hosting seminars, or building a roadmap to plot development of the overall industry.”

 

A critical point
Still, the consequences of the economic slowdown will not go entirely unfelt. The dramatic surge in sukuk bonds issued during 2017 is unlikely to be repeated in 2018, thanks, in part, to the persistently low price of oil. While the situation is nowhere near as dire as it was in 2016 when the price of oil crashed dramatically, the weakening that occurred has had a lingering effect on GCC countries.

The other challenges facing the region are the boycotts still surrounding Qatar. Launched in June 2017, the wide-reaching embargo by Saudi Arabia, the UAE, Egypt and Bahrain has affected businesses and institutions including Qatar Airways and the Al Jazeera news network. With the spat still ongoing and unlikely to be resolved any time soon, the closure of political and business channels will impact economic sentiment surrounding the region. It is impossible to predict how this will pan out, which is enough to worry any investor.

While Islamic finance has the potential to reach significant heights in the future, the next 18 months will be critical for businesses that operate in this space. The operators that will succeed are the ones with a broader vision than their competitors.

 

Going international
One area where Islamic finance has tremendous scope to grow is in regions beyond the GCC. The benefits of a country opening the door to Islamic finance can be clearly seen in the UK, which was the first western nation to issue a sovereign sukuk. It is now the West’s number one centre for Islamic finance, according to TheCityUK’s 2017 Global trends in Islamic finance and the UK market report. At the time of publication, the report stated that 65 sukuk, worth a total of $48bn, had been listed on the London Stock Exchange.

While the UK’s potential for Islamic finance is well known, Africa has also been highlighted as a location ripe with opportunity. S&P Global published an analyst note in August 2017, pointing out that Africa lagged well behind the rest of the world in terms of sukuk issuances despite presenting tremendous potential; a mere $2bn has been issued by only a small number of African governments.

The appeal of Islamic finance models in Africa exists on multiple levels, S&P Global posited. Much of Africa is in need of an infrastructure overhaul, and so the continent’s many development opportunities present a wealth of potentially lucrative investments. Given that sukuks need to be tied to tangible assets, these kinds of investments are a perfect fit for many of the projects that need to be undertaken. Additionally, these kinds of projects are appealing to investors. African investments offer a welcome opportunity to diversify portfolios significantly, making demand for private sector sukuk issuances in the region highly possible in the relatively near future.

However, there are challenges to be overcome before this can happen. S&P Global stated it only expects a few nations to take advantage of this opportunity due to the complexity of sukuk products. Often, there is not the structural, legal or taxation framework in place to facilitate a sukuk issuance, slowing down many potential investors’ entry into the market.

Despite these challenges, progress is being made: the ICD, which is the largest Sharia-compliant multilateral development bank in the world, has made significant efforts towards making Islamic financing models in Africa possible. The technical support of the ICD facilitated the sukuk issuances made between 2014 and 2015 in Senegal and Côte d’Ivoire, with more cooperation like this expected in the future. If the momentum to overcome these (admittedly large) technical hurdles remains, Africa could soon be nipping at the heels of London in terms of world-leading Islamic finance centres.

Between the challenges in the GCC and opportunities presented in Africa, the Islamic finance sector is in a difficult position, but one that can be successfully navigated by deft operators in order to unlock the industry’s great potential. With Islamic finance continuing a march of success in many markets and seeing greater competition, only the best
will remain successful. The World Finance Islamic Finance Awards 2018 recognise the businesses that will be ready to meet the tremendous opportunities that lie ahead with determination and focus.

 

World Finance Islamic Finance Awards 2018

Best Islamic Bank

Algeria
Banque Al Baraka D’Algerie

Bahrain
Al Baraka Islamic Bank

Bangladesh
Shahjalal Islami Bank

Brunei
Tabung Amanah Islam Brunei

Egypt
Al Baraka Bank Egypt

Indonesia
Bank Muamalat

Jordan
Jordan Islamic Bank

Kazakhstan
Al Hilal Bank

Kuwait
Kuwait International Bank

Lebanon
Al Baraka Bank Lebanon

Malaysia
Maybank Islamic

Nigeria
Jaiz Bank

Oman
Bank Nizwa

Pakistan
Habib Bank

Palestine
Arab Islamic Bank

Qatar
Qatar Islamic Bank

Saudi Arabia
Alinma Bank

Turkey
Al Baraka Turk Participation Bank

UAE
Abu Dhabi Islamic Bank

UK
Al Rayan Bank

US
Bank of Whittier

 

Global recognitions

Islamic Banking Chairman of the Year
Sheikh Mohammed Al-Jarrah Al-Sabah, Chairman at Kuwait International Bank

Business Leadership and Outstanding Contribution to Islamic Finance
Musa Shihadeh, Vice Chairman and General Manager at Jordan Islamic Bank

Islamic Banker of the Year
Mohammad Nasr Abdeen, CEO at Union National Bank

Best Islamic Insurance Company
Tawuniya

Most Innovative Islamic Finance Solutions
Al Wifaq Finance Company

Best Islamic Home Finance Programme, Middle East
Safwa Islamic Bank

Best Islamic Investment Banking Services
The Investor for Securities

Best Islamic Wealth Management Company
Saudi Kuwaiti Finance House

Best Islamic Home Financier, USA
Guidance Residential

Sukuk Deal of the Year
Al Baraka Turk Participation Bank, First Exchange-Listed Tier1 Sukuk

Best Islamic Trade and Project Finance Provider
Kuwait Finance House

Best Islamic Asset Management Company
Sidra Capital

Best Islamic Banking and Finance Software Solutions
Temenos Group

Best Core Banking Systems Implementer, Middle East
Masaref Business and Systems Consultancy

Best Islamic Banking and Finance Law Firm, Africa
MMC Africa Law

Best Department Store Chain, Africa
Aswak Assalam

Kuwait International Bank targets digital innovation for retail growth

Posted on by World Finance

Kuwait International Bank has been providing financial services to the country for over 40 years. In 2007 it responded to growing demand for Sharia compliant services and transformed into a full-fledged Islamic bank. How will it transform next? Mohammad Said El Saka is the bank’s deputy and acting CEO, and at the top of his agenda is digital innovation. He explains the Kuwait International Bank’s vision and strategy, and the successful year it delivered for the bank – both internally, as well as for its customers and shareholders.

World Finance: Tell me about your vision and strategy for the bank.

Mohammad Said El Saka: The main vision is to be the Islamic bank of choice in Kuwait, and we have defined three pillars to work on. One is the digitalisation, focusing on retail. The second one is to go advisors for the corporate, mid-to-large size. And the third one is one stop real estate shop.

The bank has been established back in 1973 as a specialised real estate bank, not only focusing on real estate finance, but also specialising in both property management as well as real estate appraisals. So we wanted to capitalise on this as well.

In order to achieve these three pillars, we’ve been working on five core competencies. One is digital innovation, two is service and product innovation, the third one is control efficiency, fourth one is risk management excellence, and the last one is strategic pricing.

World Finance: So how successful was this strategy in 2017?

Mohammad Said El Saka: It was very successful actually, in terms of reflecting very good results on the bottom line. We have growth on all the financial dimensions: total assets, financing receivables, operating income, and customer acquisition.

We’ve recorded almost $4bn as deposit balances end of 2017. And here is a very successful story about the strategy implementation, because we have relaunched the full suite of our deposits.

We had a product called Arzaq, it was relaunched back in early 2015, and it has recorded continuous growth for the last 12 quarters.

We’ve also launched a new long-term deposit called Al-Boushra, it’s three years that distributes on a semi-annual basis. We have re-introduced our savings accounts, changed the payment terms to be on a quarterly basis rather than on an annual basis, which actually recording one of the highest if not the highest profit returns in Kuwait.

We have also launched a similar account, but for corporates, as well as the last product is a flexible deposit end of 2017, with a magnificent impact on the market.

World Finance: Sounds like a positive year for the bank and your customers; how about your shareholders?

Mohammad Said El Saka: There was also a good reflection on the shareholders, because we have been listed in MSCI Morgan Stanley Capital Index for the small caps back in June 2017, and were also shortlisted in FTSE Russell Capital Equity index. Also cash dividends payout is one of the highest as well.

World Finance: Give me some examples of the digital innovations you’re bringing to market.

Mohammad Said El Saka: Two main products we launched in 2017. One is for the omni channel and mobile application, and the second one is the first iteration of its kind; it’s visual IVR. So we’re simply following the life of the customer, not only to have a normal routine contact centre, but it became a visual one. So it’s like, one of its kind in omni-channel product that’s launched in 2017, and we have a lot to go actually in 2018 as well.

World Finance: And all of this success has been recognised with a number of accolades over the year.

Mohammad Said El Saka: Yes; first of all we had the honour to receive the World Finance awards as the best Islamic bank in Kuwait, and best Islamic Bank in GCC, and also best customer acquisition, which reflects our deposits.

In addition, the Union of Arab Banks has recognised us as the best vision in banking strategy. Bankers Middle East has also recognised us as Best Change Management in Kuwait, and these two awards reflecting the strategic implementation and the change management that we have.

Capital Finance International as well, the fastest growing Islamic banking in 2017 MENA, and the best Sharia compliant bank. Forbes has also recognised us as one of the top 50 listed companies in Kuwait.

So it was a very successful year, and we wanted to extend our appreciation to our customers, depositors, shareholders, employees, and special thanks to the regulatory authorities, especially Central Bank of Kuwait for their guidance, supervision, instruction, and continuous support.

World Finance: Mohamed, thank you very much.

Mohammad Said El Saka: Thank you sir.

How Nordea Life Assurance’s evolution allows it to succeed in the life insurance sector

Posted on by Max Tomlin

In the once quiet and stable life insurance sector, the transformation of business practices and customer expectations is now well underway. In a marketplace where customers expect detailed insight and a highly personalised service, the models and procedures of the past are now severely lacking. By modernising, particularly through digital services, insurers currently have an opportunity to differentiate themselves in a crowded market. According to Deloitte’s 2017 Insurance Outlook report, operators in the life insurance and annuity sector have a significant growth opportunity by making products that are more straightforward and relevant to individuals’ needs. For a product like life insurance, which is not often at the front of people’s minds, the opportunity to engage customers is a thrilling possibility.

The stakes are high with every customer interaction. Through social media, customers can and will let their opinion of a brand be heard loud and clear

However, the difficulty is meeting the steep expectation customers now have for service. This greater demand is evident in customers’ increasing interest in add-on services for insurance, as Pekka Luukkanen, CEO of Nordea Life Assurance Finland, explained in an interview with World Finance: “Customers are no longer satisfied with just having an insurance product – customer-specific needs arise after the product has been bought, and customers will increasingly emphasise the personal benefits they gain from their insurance solution.”

In order to have the flexibility to offer these services to customers, Nordea Life Assurance has undergone significant changes over the last few years in order to propel the company to new heights. On its journey of continual improvement, Nordea Life Assurance is now looking to what the future holds and how this can benefit customers.

Faster and nimbler
The success of Nordea Life Assurance is built on a clear and far-sighted strategy that has been underway for years. “Last year’s successful implementation of the key target in Nordea Life Assurance’s previous strategy period, namely the migration to a single core insurance system, gave us a unique competitive edge in the market,”
Luukkanen said.

This change in process will do more than just make Nordea Life Assurance faster and more nimble than its competitors. Luukkanen explained: “A single insurance system will simplify the company’s operations, as every change needs to be implemented only once, unlike in a situation where we have multiple systems. The existence of a single, modern system also makes digitalisation development easier as it would be extremely difficult and expensive to build new service concepts into the old systems.”

To get the most out of this model, Nordea Life Assurance has implemented industry-leading processes. The process-driven operating model and quality system the company developed was awarded a quality certificate by Lloyd’s Register Quality Assurance in 2015. The certificate, based on the ISO 9001 standard, was most recently renewed in June 2017. “This means that Nordea Life Assurance Finland continues to be the only life assurance company certified in this manner in the Nordic and European markets,” Luukkanen explained.

The process-driven operating model has been integral to the continued improvement of quality at Nordea Life Assurance. Luukkanen said: “It has enabled extremely predictable and effective risk management because it is very clear to the personnel how responsibilities are divided and how various things are measured. Moreover, process-driven operations enable all of our processes, including the targets set for personnel and how these targets are measured, to be communicated effectively to everyone working at the company.”

For Nordea, efficiency has also been key. Nordea Bank, the business’ distribution channel, has given it tremendous reach with maximum efficiency. The company has also been able to adjust its operations to meet recent challenges of the business environment, including the implementations of Solvency II regulations. Utilising robotic automation has also helped speed up business, with the company now automating 20 process phases. Luukkanen explained: “These phases enable high quality, shorter delivery times and the automation of routine work phases, which improves the meaningfulness of work. This perfectly supports our goal of automating the company’s processes in order to foster growth and improve customer and employee satisfaction.”

The employee experience is another significant achievement of Nordea Life Assurance. In February 2017, the company received the Great Place to Work Finland accolade, and a survey reported 89 percent of employees consider Nordea Life Assurance an excellent place to work. This is tremendously important for Luukkanen, as employee retention is integral to the company achieving its goals. He declared: “We believe that the great employee experiences will ultimately benefit the customers and, consequently, lead to good owner experiences, enabling long-term development in the future.”

The customer of tomorrow
For the next stage of Nordea Life Assurance’s quest for quality, the focus will be on improving the customer experience. This will be the primary goal of the company through to 2020. Today, customers in any field expect greater ease of use as well as outstanding personalised experiences. The stakes are high with every customer interaction; through social media, customers can and will let their opinion of a brand be heard loud and clear.

Luukkanen recognises that customer service is a differentiating factor across brands in the entire life insurance industry, and defines what products are offered. He said: “[Customers] want a full-service package that is available at any time, in any place. There will no longer be any demand for traditional service concepts in insurance solutions that are not deemed absolutely necessary. In this type of a competition, the winner will be the service provider that not only exceeds customer expectations, but demonstrates clearly to the customers the benefits available to them.”

Understanding the changing needs of customers and making sure every interaction with a company is positive is both difficult and rewarding. Luukkanen explained that a brand is no longer something you project through advertisement, but something you co-create as an experience in interactions with the customer. He said: “At Nordea Life, just as at Nordea, this primarily means using each and every interaction to support our strategic intent of being easy to deal with. Studies indicate that simplicity is a factor that customers value in their service providers – for instance, the customer effort score has been proven to be a better indicator of customer satisfaction than the net promoter score.”

Ironically, being easy to deal with has never been so hard, as Luukkanen observed: “We are living in the era of the customer, and companies are continuously making their services better and better. Therefore, from the customer’s perspective, something that was considered easy yesterday is considered outdated and difficult today.” He added: “At Nordea Life, we want to be the best in supporting our customers’ day-to-day lives, which means we need to understand our customers’ true needs and create products, services and ways of operating that cater to those needs.”

One way this can be achieved is through digitalisation, allowing customers to perform insurance tasks anytime, anywhere. This requires a careful simplification of services to ensure that they are easy to use. Successfully doing so can allow for personalised services, the likes of which were not possible before. “Digitalisation creates the expectation of the possibility for customers to personalise the service experience, which means we are no longer able to serve customers with exactly the same concept, as many companies have done with traditional service models in the past,” Luukkanen said. Nordea’s digital development allows the company to achieve its mission of fostering outstanding, lifelong relationships with customers.

Doing so will ensure Nordea Life Assurance can face the challenges that are not directly within its control. Luukkanen explained that, in general, it can be said that the prolonged period of low interest rates is making it harder to gain returns in the investment markets with high capital efficiency, forcing many insurance companies to develop their operations and expand their business into new areas. He said: “Challenges to our operations are posed by stricter regulation which, despite its commendable aims, does not always improve the protection and service experience of the customer but instead makes operations more complex, increasing costs for insurance companies.”

Demographic factors, such as an ageing population and longer life expectancies, also have an effect on operations. “This, coupled with the sustainability gap in public finances, will increase demand for risk life assurance policies and the indemnity costs for certain types of cover,” Luukkanen explained.

But in terms of the factors that are within Nordea Life Assurance’s control, keeping customers pleased with simple yet dynamic products, and maintaining a satisfied workforce, will let the company keep its competitive edge. Its digital transformation is at the core of this. Luukkanen observed: “Life business is IT business. Players that really understand the meaning of that phrase will win. The implementation of increasingly complex regulatory requirements is a huge challenge for all players in this sector. But in this race, the size of the company together with a simple and agile operating model are key competitive advantages for Nordea Life.”

Foreign investment is carving out a new landscape in Pakistan

Posted on by Max Tomlin

The Pakistani property market has seen growing interest in recent years, largely due to close international ties between China and Pakistan. In 2013, Chinese President Xi Jinping announced the China-Pakistan Economic Corridor (CPEC), a $62bn project to develop Pakistani infrastructure and energy. With better access to cities across Pakistan, investors are seeing more opportunities to build on the land near these new developments. CPEC projects include the $2.8bn Peshawar-Karachi Motorway, set to open in August 2019, and the construction of the East Bay Expressway in Gwadar Port in the south, due to be completed later this year. Both will dramatically help to facilitate real estate developments on previously barren land.

With a population of almost 200 million people, Pakistan is suffering a shortage of 12 million houses

Rather than building in megacities like Karachi, investors are taking their money to more peripheral locations in order to create urban clusters on formerly agricultural ground, which is known as ‘peri-urbanisation’. “The landscape has visibly changed with the proliferation of housing societies and gated housing enclaves moving along highways towards secondary cities,” according to Anjum Altaf from the Lahore University of Management Sciences. As a consequence, investment in residential property increased from five to seven percent between 2015 and 2016.

Luxury appetites
Pakistan’s growing middle class is a major driving force in the rising popularity of these gated housing communities. Luxury development projects, carried out by companies like Bahria Town, DHA City and the Fazaia Housing Scheme, for instance, are some of the most sought-after by those who can afford them.

The rising number of luxury developments, however, is not solving the housing gap currently bedevilling Pakistan. With a population of almost 200 million people, Pakistan is suffering a shortage of 12 million houses. Karachi, with its behemothian population of 16.6 million, has an annual shortage of 300,000 houses. “It’s not about the catering to actual demand or housing shortages. It’s much more about the tastes of richer Pakistanis,” Aisha Ahmad, a research student from the University of Oxford, told World Finance. 

Lucrative real estate
Real estate has become an attractive option for investors: numerous housing schemes are launched with the promise of 10 to 40 percent returns. Meanwhile, FDI has also been made easier as a result of measures introduced by the government in 2013. These include a new open entry system, which waivers pre-screening and government permission for investment into real estate. Furthermore, investors are no longer limited on the transfer of ownership or entitlement to lease land unless they breach Federal or Provincial regulations.

Real estate has become an attractive option for investors, given that numerous housing schemes are launched with the promise of 10 to 40 percent returns

These measures have encouraged foreign investors, and Pakistani expats in particular, to pour money into the housing sector. At present, much of this FDI comes from Egypt. Serving as an example of this is a new $2bn real estate development just outside Islamabad – the first of its kind from Egyptian billionaire Naguib Sawiris. Once finished, the complex will cater to every need of its occupants, from luxury housing units and schools to hospitals. “That’s what every Pakistani housing scheme coming from FDI looks like. They all tout the same thing: the American dream for Pakistani citizens,” Ahmad explained.

Rocketing prices
In the past six years, average house prices in Pakistan have more than doubled. This exponential rise can be linked to file trading – the documentation of un-plotted barren land that does not give ownership rights. According to Ahmad: “Most real estate agents and property dealers are not selling people homes – they deal with each other. They sell each other files, and they’ll buy up an entire block in a housing scheme that’s yet to be announced, or even developed on. So when investors come in, prices are already pretty high.”

Consequently, foreign investors remain keen on Pakistan’s real estate sector. According to data from Business Recorder, FDI in Pakistan increased by 132 percent to $340.8m in February, compared with $146.7m 12 months prior. The largest segment of FDI – $86m, to be exact – was pumped into the construction sector, which is hardly surprising given the attractive returns on investment.

Thanks to Chinese funding in roads and motorways, investors now have access to untapped plots of land upon which residential property can be built. As such, this trend seems set to continue in the near future, thereby facilitating the continued growth of Pakistan’s burgeoning real estate sector.

Alecta recognises the benefits of actively managing institutional capital

Posted on by Max Tomlin

At present, there is a great deal of work being carried out by both national and international parties in a bid to achieve a more sustainable European economy. The EU has undertaken much of this work, with the commission’s High-Level Expert Group on Sustainable Finance (HLEG) being key in developing more sustainable financial markets in the region. Sweden, France and the Netherlands are early adopters of the development, but market stakeholders from various countries have been quick to catch on too.

There is no conflict between achieving higher-than-average returns and investing in a sustainable pension system

In recent years, there has been a significant increase in the number of sustainable investments being carried out. In 2015, the UN’s Principles for Responsible Investment Initiative announced that its signatory base represented $59trn of assets under management, marking a year-on-year increase of 29 percent. We’ve also seen increased interest in the sustainability initiatives and reporting of listed companies. Meanwhile, institutional investors are increasingly investing in green bonds, and impact investments are becoming popular with all investors. The most recent trend concerns social impact bonds; there have been some pioneering activities in the UK, and more regional attempts in Sweden, but that particular financial instrument is yet to mature.

Investor duty
One of the most important insights of recent years is that future pension systems must incorporate sustainability completely in order to procure maximum long-term value creation for beneficiaries. To achieve this, it is necessary to ensure that institutional investors, such as pension funds, fulfil their duty to beneficiaries, a responsibility known as ‘investor duty’. Before this can begin, such duties must be clarified and an active management model must be implemented.

At the beginning of the 20th century, Sweden’s white-collar workforce wanted to create a better future and ensure their financial security in old age through a pension system.

With this goal in mind, plus a strong understanding of what a sustainable pensions system really is, Alecta was founded in 1917.

Today, occupational pensions are one of the most important sources of pension benefits for Sweden’s white-collar workers. Consequently, capital from pension accounts form a substantial portion of institutional capital in the country. According to HLEG’s Financing a Sustainable European Economy report, the insurance sector is the largest institutional investor in Europe, accounting for roughly 60 percent of the EU’s GDP. The financial risks taken by pension funds must generate the highest possible returns without ever jeopardising clients. Therefore, investor duty must include sustainability.

Establishing a framework
In the HLEG report, it is stated that investor duty is often misinterpreted, with a common belief being that its sole focus is on maximising short-term returns. HLEG proposes that a single framework of principles should be established to outline what investor duty actually involves. It is equally important that regulatory authorities make clear to all involved in the investment and lending chain that the management of ESG risks is integral to fulfilling fiduciary duty, acting loyally to beneficiaries and operating prudently.

Future pensions are in fact a form of life insurance based on actuarial calculations. Collective belief and scalability is what makes pension capital different from any given savings account. As such, insurance risks need to be managed in a way that ensures insurance commitments can be fulfilled. That said, it is important to reiterate that there is no conflict between achieving higher-than-average returns and investing in a sustainable pension system. However, the investment model needs to be an active one.

At present, more players are advocating for passive management or index investments as a model for long-term asset management. In a conservative financial industry, it’s commendable to raise initiatives on sustainability. However, we need to depart from the idea that all sustainability initiatives should be praised and rewarded. Instead, we need to consider what kind of sustainability work is actually the most beneficial; this can only be done effectively through stock picking.

Active management
The asset management model used by Alecta is unique in the sense that it is based on active management of an equity portfolio of about 100 holdings and a corporate bond portfolio with equally few issuers. This means that the company has an in-depth understanding of every company it invests in. In addition, as it focuses its investments on just a few companies, it is able to influence their decisions in a sustainable way. A fund manager with a larger spread of holdings wouldn’t be able to achieve the same level of influence.

Alecta’s model allows an investor to assess the sustainability of a business model and its compliance with ESG criteria. At the same time, it allows an investment that might temporarily reduce the sustainability of the investment portfolio, say by increasing the CO2 footprint, if the company or industry is likely to disrupt unsustainable
business models in the long term.

Contrary to popular belief, active management doesn’t need to be more expensive. In fact, an in-house team dedicated to keeping costs at a minimum can achieve a sustainable portfolio that focuses on low fees and high returns. Today, Alecta is the third most cost-effective pension company in the world, as ranked by the Centre for Evaluation and Monitoring. Alecta manages its customers’ pension capital itself and only engages in active asset management. As such, it isn’t constrained by the need to track an index. What’s more, each investment is the result of thorough internal analysis. Alecta believes that clearing out hundreds of companies from an index is an ineffective and poor use of customer money.

The HLEG report states that the assets of pensions funds should be less prone to short-term financial risks. However, they are potentially more exposed to substantial long-term risks related to the real economy and the environment. It also states that the interplay between governance and sustainability is key to ensuring that those who lead institutions become fluent in sustainability risks and opportunities. While active responsible ownership is now being exercised by a growing number of investors, much more could be done.

Alecta’s vision for a future society is built on an inclusive society with safety and flexibility for all. It contributes to this vision by working for sustainable pensions so that people, the environment and society can thrive in the long term.

Taking shortcuts is never the sustainable option. Passive capital management can achieve excellent returns, but if the institutional capital wants to deliver on its fiduciary core duty, the solution is qualitative hard work – knowing your investments and respecting your beneficiaries – otherwise known as active management.

Cooperative model
A prime concept in the establishment of Alecta was that pensions should not be seen as a gift from management – a token of gratitude for long and faithful service. Instead, pensions should be a natural part of an employee’s compensation package. Around the same time that the business was founded, there were some far-sighted industrial owners and managers who understood the benefit of having a flexible solution that allowed employees to keep their pension benefits even after they changed employer. This counteracted the slow employee turnover in the labour market and made it easier for industrial companies to recruit the right talent.

Following Alecta’s inception in 1917, this smart concept spread quickly throughout Sweden. This model, which involves cooperation between the labour markets’ various parties, became a central aspect of Sweden’s economic success throughout the 1900s. Today, 2.3 million Swedish employees are beneficiaries of the pensions that Alecta manages. Through collective agreement, these individuals have a pension solution that provides them with security in the event of ill health and old age. In addition, they can also receive compensation for their family members in the case of death. For these reasons, the occupational pension is the most important source of pension benefits, and the very foundation upon which Alecta operates.

US and South Korea agree exemption from Trump tariffs

Posted on by Max Tomlin

The US and South Korea agreed to a revised trading relationship on March 26, in a deal that has been welcomed by both countries. Notably, the proposed changes to the US-Korea Free Trade Agreement (KORUS) will grant South Korea an indefinite exemption from President Trump’s recently announced steel and aluminium tariffs.

Although the renegotiated trade deal favours the US, South Korea will be delighted to become the first US ally to avoid Trump’s newly enforced tariffs

The concessions have come at a price, however, with the US imposing new quotas on South Korean steel exports. Shipments from the Asian country will now be limited to 2.68 million tons, a figure equivalent to 70 percent of the average annual Korean steel exports between 2015 and 2017. US tariffs on South Korean pickup trucks have also been extended by 20 years until 2041, while US carmakers have had their export quotas relaxed.

Although the renegotiated trade deal appears to heavily favour the US, the South Korean Government will no doubt be delighted to become the first US ally to avoid Trump’s newly enforced tariffs. The South Korean economy relies heavily on exports and benefitted from $119.3bn of bilateral trade with the US last year.

“We had heated discussions,” South Korea’s trade minister Kim Hyun-chong told a media briefing in Seoul. “The latest agreement removed two uncertainties,” he explained, referring to the steel tariffs and the revised KORUS deal.

Since its introduction in 2007, KORUS has had more than its fair share of critics. Recently, US opponents have been particularly vocal, with Donald Trump describing it as a “job killer” last year. Despite the fact that South Korea’s trade surplus with the US has declined slightly over the past 12 months, it still stands at around $18bn, with the majority stemming from the automobile sector.

Trump’s hardcore support may be disappointed that he has already begun granting exemptions to his protectionist policies, but close ties between the US and South Korea are of particular importance at this moment in time. Although Trump is set to meet North Korea’s supreme leader Kim Jong-un in the coming months, a strong relationship between Seoul and Washington remains crucial to maintaining civility in the region.