Author: World Finance

Simulation helps risk managers in a time ‘with no historical precedence’

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Over the last 10 years, risk management has changed from a measure of statistical, historical measures of risk; to a simulation of how macroeconomic factors affect underlying asset prices and probability of default. Martin Zorn, President and COO of Kamakura Corporation, explains the skills that risk managers need today, and how Kamakura Risk Information Services can help. In the other half of this interview Martin discusses Kamakura’s Troubled Company Index, and the trends it’s revealed through 2018.

Martin Zorn: Over the last 10 years, risk management has changed from a measure of statistical, historical measures of risk; to a simulation of how macroeconomic factors affect underlying asset prices and probability of default.

While history is important, we are living in a time that really has no historical precedence. So, history doesn’t help us understand what does Brexit mean. History doesn’t help us understand what does it mean for the European Central Bank to stop their quantitative easing. Because those situations have never occurred before.

So what it really tells us is that a risk manager, or an investor, must be very good at financial simulation. Because they need to simulate events that have never occurred before, and not rest their decisions upon what their statistical history shows them.

KRIS is our Kamakura Risk Information Services. It’s our subscription product: it’s a risk portal that provides clients with multiple models of different asset classes. And it allows them to take a look at the counter-parties within their portfolio, and get early warning indications of potential financial distress.

It’s a… what’s known as a reduced-form model, which is a fancy way of saying it’s a multiple factor model, which incorporates financial information on the counter-party. So their net income, their balance sheet information. It includes macro-economic data such as GDP or unemployment rates. It includes market data such as interest rates, foreign exchange rates. And the clients basically get a measure of default probability, which ranges from zero to 100 percent; and they also get a term structure. And by that, what I mean is that they can take a look at a one month default probability, a one year default probability, all the way out to a 10 year default probability.

The way that risk managers use this data is really one of two forms. One is looking at emerging patterns of where there’s increasing risk; that could be on a sector basis, it could be on a country basis, or it could be on a company basis. They could, for example, upload their portfolio and take a look at the relative change in the default probability of all of the investments or loans that they have in the portfolio on a daily basis; and see if the default probability is increasing or decreasing.

The second way they could use it is from an opportunistic standpoint. Because if you are investing in securities, the market is not always efficient, relative to the risk-adjusted return. So one of the other things that clients can do is, they can take a look at mis-pricings in the market, where a yield on a certain instrument may be higher or lower than it should be on a risk-adjusted basis, so they could have a good measure of relative value.

A good example is a company that trades on the Singapore Stock Exchange – Noble Group. Noble was one of the largest commodity traders in Asia.

Two years ago, we were at a conference of fund managers in Berlin, and we had three different fund managers come up to us and say, ‘Could you show us what your system says about Noble Group?’

And what had happened was that Noble Group was in discussions to renew a line of credit with their banks, and as a result of the uncertainty, the price of their bonds crashed. So they wanted to see what our system said. And our system showed a significantly high risk of default, and a risk of default that had been increasing for some time.

Noble Group filed bankruptcy in March of this year.

So going back to thinking about that conference; basically our system would have provided two years advance warning of the default that happened this year.

Digital transformation demands faster, more adaptable business banking

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Technology has had such a huge impact on the economy – and it’s also changing the way commercial banks are serving their clients. Businesses need to get to market faster, which means they need a banking partner that can keep pace, says Dev Srinivasan, Head of Canadian Business Banking for BMO Financial Group. He explains how BMO Business is adapting – including the launch of business express, which can auto-adjudicate loans of up to $1m.

In the second part of this interview Dev discusses the customised approach that BMO Business takes to serving clients in the agriculture, healthcare, and technology sectors; then in part three he explains BMO’s five business beliefs and how they’ve improved client relationships.

Dev Srinivasan: Technology has had such a huge impact on not only our overall economy, but the businesses that we’re serving in the commercial bank right now. So, if you think about the speed with which our clients are getting to market right now, how there’s a shift from people doing labour towards machines, and that sort of thing. It’s a massive impact, change in cost. You can be global no matter where you’re located now. It is really changing the industry.

The technological advancements that have occurred in the industry are really changing the dynamic in terms of what banks need to bring to the market right now, in that… if you think about the speed with which we need to respond to our clients, if you think about the type of structures that are needed to support this new industry, and the new way of doing things. Clients really need more adaptability now from their banks. And we believe that we’re bringing leadership on that front.

One of the bigger advancements that we feel is leapfrogging us in the market right now is the launch of business express. So to give you an idea of what this is, for small business clients – so, clients borrowing less than $1m – we now have the ability to auto-adjudicate. So using technology to essentially determine the risk and grant the loan in under 30 minutes.

So if you think about the impact that has on a business, that is perhaps maybe cashflow tight. The ability to go talk to suppliers and say, we have a loan committed to us, in that short a period of time, is a huge value-add.

I think the biggest thing that the bank can do to support clients in this environment is to really understand. Understand the differences in the economy today, in business today – versus even 10 years ago. If you think about banking as an old industry – many hundreds of years old – and the changes that have happened in the last 10 years are significant.

So, making sure that we’re understanding the pressures that our clients are facing, and also what the industry is doing, is hugely important.

‘Being a pure banker doesn’t work’ to service ag, tech and health sectors

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The Bank of Montreal takes a customised approach in industries such as agriculture, healthcare, technology and innovation, explains Dev Srinivasan, BMO Financial Group’s Head of Canadian Business Banking. These are industries where clients value – and demand – a high degree of specialisation. He explains what makes these sectors unique, and how BMO Business has adapted its service model to meet and exceed client expectations.

This is the second part of a three part interview: in part one Dev explains how BMO Business is accelerating its services to match pace with a digitally transformed environment; then in part three he talks about BMO’s five business beliefs, and how they’ve improved client relationships.

Dev Srinivasan: BMO Business banking really takes a customised approach in industries where our clients value and demand that type of specialisation.

So in areas such as agriculture, healthcare, technology and innovation – we take a specialised approach where we have bankers and credit officers who are very deep in the space, to ensure that one: we’re serving clients in the way they want to, giving them the type of service they need; and also structuring deals in a way that is relevant in their market.

So in terms of how we’re servicing these clients in each of those sectors, there’s many commonalities. I’ll start with agriculture though. Just being a pure banker doesn’t work in that industry. So our clients in the ag sector really want someone who is one, knowledgeable about the industry, for sure; but also two, is local in the community. We’re fiercely local. We give back to the communities, which our clients value. We also understand the dynamic in the local industry. It’s not about the macro in a lot of cases, it’s about understanding the local market. That’s a huge differentiator for us, and a reason why we are the number one agriculture bank in Canada.

In areas like healthcare and technology and innovation, which are less asset-rich, it’s all about: okay, what are the structures that are appropriate for these industries? And what is the risk associated with it? Because certain areas are higher risk, so you need to structure differently; others are lower risk.

So, really understanding the nuances, and getting that structure right, to ensure that you’re pushing up to our risk appetite, in terms of how we’re dealing with these clients is incredibly important and a differentiator in the market.

BMO Business banking absolutely sees its clients as partners. We have a mantra within the bank, that the Bank of Montreal is an incredibly strong partner for our clients. And we really view it as, we’re jointly looking to make sure our clients succeed.

Another thing that we really stick true on is, we’re great in good times; but we’re even better when challenging times arise.

We’re not the bank that goes away when cashflow is tight. We’re the bank that leans further into that, and really supports our clients. Once we’re committed to you, we’re definitely committed to you.

‘Owning a business is an act of courage’ – BMO’s beliefs drive its service

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BMO Business banking sees its clients as partners, says Dev Srinivasan – and to deliver best service, the bank’s relationship managers need to consistently put themselves in their clients’ shoes. To help connect with clients and reinforce relationships, BMO developed five business beliefs – Dev explains what these are, and how they’ve helped build stronger partnerships.

This is the final part of a three part interview: in part one Dev explains how BMO Business is accelerating its services to match pace with a digitally transformed environment; then in part two he discusses the customised approach that BMO takes to serving business clients in the agriculture, healthcare, and technology sectors.

Dev Srinivasan: The Bank of Montreal has five business beliefs that we adhere to. And the five business beliefs are:

One – owning a business is an act of courage. We understand that it’s a lonely process, and taking that leap, to go out and do something on your own, is a huge step that we admire, and we look to support.

The second is that the choice of bank can be one of the most consequential a business owner can make.

If you think about it, a strong bank, a strong relationship manager, can be the difference between outsize growth or stagnant growth. The difference between bankruptcy and continuing on and passing the business on to your children.

The third is – a relationship manager that acts as an order taker is short-changing their clients.

We want our relationship managers to add value in every situation. It’s not about just taking orders, running back and processing the deal. This is all about challenging – in a constructive way – our clients, and ensuring that we’re bringing the best solution forward for them.

The fourth business belief that we have is – that clients hate surprises and silence. One of the things that I live by, and I know a lot of people in the business bank do, is: if a client is asking you, ‘Hey, just checking in on where this is at?’ you have failed as a banker.

This is all about ensuring that you’re proactively communicating with our clients, ensuring that they’re up to speed, and that they’re comfortable with where we’re going.

Finally, the fifth belief that we have, is that – earlier conversations lead to better options and outcomes.

So great for instance in this is that we have brilliant clients, who have driven huge success in their business. But typically, we often see that they haven’t thought about business succession. So, what do they do when they want to step back from the business? Do you pass it on to your family, are you looking to sell it?

Having that sort of discussion in terms of succession, passing the business on, is something you need to have five or 10 years in advance to truly prepare well for it. It’s actually a gap that we’ve seen, so we really encourage our relationship managers and our clients to have those conversations early, making sure that they’re best prepared to maximise value, ensure their family is well taken care of, and ensure the business remains as an ongoing concern.

These beliefs have really changed the way we work with our clients in a number of ways. One, it ups the bar. It sets the bar in terms of what the standard is for a great client experience. What is the BMO standard for a great client experience – and we’re able to deliver that consistently throughout the country.

In terms of our clients, it really explains to them why banking is not a commodity. It’s easy to look at products and services and say they’re all the same. The way we deliver it, the way we’re able to articulate our value proposition is a true differentiator for us, and our clients have really responded to that.

Tecnoglass: Our employees are our best and most important stakeholders

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Tecnoglass is a leading manufacturer of high specification architectural glass and windows, based in Colombia. Andrea Zambrano is its Head of Legal and Corporate Affairs – she discusses the business’s structure, its principles of quality and ethics, and its evolving governance and strategy.

World Finance: Tecnoglass is three companies in one; tell me about your origins and vertical integration.

Andrea Zambrano: We started back in 1984 as a solar heater company. It was called Energia Solar, and it’s still part of our structure today.

In 1988 we went out of business, because gas-producing companies were selling gas heaters way more cheaply than ours. So: we had aluminium, we had glass, and we reinvented ourselves for the first time.

We started fabricating and manufacturing Colombia Windows; and by 1994 we were selling approximately $50m, and thought that it was a very good opportunity to do some vertical integration, and started our own transformation glass company. Which is Tecnoglass.

In 2007 we saw another business opportunity, and started our extrusion plant. And we were doing the aluminium profiles for ourselves, the transformated glass for ourselves as well. And we were having a lot of cost efficiencies in our structure.

World Finance: You have said that Tecnoglass lives quality in everything that you do; that’s clearly true in your products, but what about your corporate ethics and your stakeholder relationships as well?

Andrea Zambrano: Certainly – our vision has always been quality. As a Colombian company exporting to the US, quality control measures were more stringent for us. We were getting looked at with a magnifying glass. So that led us to be more strict with our quality procedures and the products that we were exporting.

But our corporate ethics have never been in question. Our employees are our best and most important stakeholders. For them we have certain benefits, and we have been working to surpass their expectations for 30 years. We have a university scholarship programme for our employees and their children as well. We have a home grant for them to acquire new homes or to remodel their existing ones. We have Tecnoglass Foundation as well, which works with local communities to transform lives – through school recycling programmes, and even infrastructure development. We recently donated a fire station, for example, to a local community.

World Finance: You’ve been listed on NASDAQ since 2013; how has your transparency and governance changed over the years?

Andrea Zambrano: Since 2012, when we started the process of getting listed on NASDAQ, there were a lot of things that changed; that were lived before in the culture, but that were not materialised, or very formal.

So what we started working on was a very strong, reliable, and replicable ethics and compliance programme. And strengthening our entity level controls. In that way what we were trying to generate is a culture where transparency comes in naturally to all our employees.

We have a code of conduct that is like our constitution. That is: train our employees, divulge to our suppliers and to our clients, and people have to actually know what they’re capable of doing, what they’re allowed to do, and what are the procedures to take this in place.

We’re training our employees – we work like an octopus with lots of hands – and in that way we’re trying to reach everybody from different angles, and make them live the culture of the company.

World Finance: You put a real emphasis on reinvesting in the company to improve your products. What technologies are you exploring, and how has this strategy impacted your shareholder value?

Andrea Zambrano: Well we have more than 30 years of track record, of innovation in technology and investment in technology.

We started tempering and laminating glass only. And today we have curved glass, which is a very exotic way of fabricating glass. We have hurricane resistant windows. And recently we have a soft-coat plant, which produces low-emissivity glass.

So we’re reinvesting in ourselves, and we reinvent ourselves according to our clients’ and the market’s needs. The last couple of years, capex has been about $200m in reinvestment. In 2015 we got a new solar tech plant, which has these low-emissivity glasses. We additionally finished the installation of 15,000 solar panels, which are generating 4.8MW of energy for our consumption.

So we’re there. We’re reinvesting in ourselves all the time, and we’re trying to be a vanguard about it.

World Finance: And what’s Tecnoglass’s strategy and ambition for the next five years?

Andrea Zambrano: Oh, we want it all! The global construction industry was valued in 2016 at $86bn a year. We want to increase our market share in existing markets, where we’re currently selling – we had several recent acquisitions that have helped us permeate further the market in the US. And we have established new branches in Latin America. We have a new branch in Bolivia, another one in Paraguay, and we opened offices last year in Italy as well.

But we also want to expand into other markets. Global trends are different today, and we have to adapt to those global trends. So our research and development department is constantly trying to innovate high-end products that will grant end-to-end solutions to the construction industry.

We’re also always looking for M&A opportunities. They are always on the table. There are several opportunities on the market that might work, that we’re exploring right now. But we always think in the long-run. We’re here to stay.

World Finance: Andrea, thank you very much.

Andrea Zambrano: Thank you Paul.

Immedis: Payroll software in the cloud; payroll experts on the ground

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In the first half of our interview with Immedis, directors Patricia Khalifa and Barry Flanagan explained the complexities that global payroll departments face, and how the iConnect dashboard can help. Now they dive deeper into how: by leveraging robotic process automation they can reduce the amount of manual collection, inputting, checking and verification of payroll data every month, and give departments two days of time back every payroll cycle.

Patricia Khalifa: Immedis is the fastest-growing global payroll technology company in the world. We provide multinational organisations with a secure, cloud-based payroll management platform called iConnect: providing a single global oversight of what’s happening on a payroll basis around the world, giving CFOs real-time information on what’s happening with gross-to-nets, and also with employer costs, pensions and healthcare contributions in each country.

World Finance: And you’re also bringing automation into this process.

Patricia Khalifa: Yes – in payroll there’s a lot of tasks that are quite repetitive. Data is collected, it’s input, it’s checked and qualified and verified in the system. And this can be quite manual, and it is a repetitive process each payroll cycle.

What we have done is introduce robotic process automation into the software, so that these checks and validations of data happen instantly once a client sends through their data to Immedis.

This speeds up the overall payroll cycle, and allows the payroll team more time to actually verify and check their information every month, so that the payroll cycle improves in accuracy and the overall speed is improved also.

World Finance: So what effects does that have on the payroll cycle?

Barry Flanagan: Effectively what it allows us to do is to elongate the time for the collation of data. So we’re getting a higher quality, later data feed in from our clients. Then we are compressing the payroll processing time, which then allows for our clients greater time for checks. So we’re getting better quality information up front, and we’re allowing a lot longer period of time for them to validate the results that we send them out, pick up on any errors, and therefore you’re getting a better quality output – which of course reduces the amount of time you need to spend next month on fixing the previous month.

They’re then able to spend it on a value-add activity. So instead of spending time reviewing, they can actually spend their time much more on data analytics and reporting. So effectively we’re equipping the payroll specialists in our client companies with the ability to produce bespoke, well-designed digestible board-of-director level reports. So we’re moving them away from retrospective reporting, and into much more progressive and prescriptive analytics.

World Finance: While you can achieve all of this through software, it’s important that it’s backed up by international, expert understanding of employment taxation and regulation.

Barry Flanagan: Yes; while we’re extremely proud of our tech, we’re not a tech company. We are a service company that has the best technology. So this tech has enabled our teams, rather than replaced them.

I think that most people who work in global payroll will know that you’re never going to replace the skill and expertise that a global payroll experienced professional will bring. So while we have our software in the cloud, we have made sure that we retain our experts on the ground.

In every jurisdiction that we operate in, we have local, qualified experts who are performing qualitative reviews on all outputs, to ensure compliance.

Skilled, qualified experts are at the heart of everything that we do.

World Finance: So what does the future of a global payroll operation look like?

Barry Flanagan: The future is in effect already here; a best-practice global payroll function is a service-led function, enabled by technology. It has multi-jurisdictional reporting capabilities, and it has to be instantly and efficiently scalable. So if they are the elements that you’re looking for, you’ll find them with Immedis.

World Finance: Barry, Patricia; thank you very much.

Patricia Khalifa, Barry Flanagan: Thank you.

How to unify global payroll reporting in a single secure dashboard

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As companies expand overseas, it’s not uncommon for local payroll departments to be working to completely different reporting and compliance standards, using widely divergent systems and processes. Immedis helps businesses get a global understanding of their payroll and employment tax obligations with its cloud-based payroll management software iConnect; directors Barry Flanagan and Patricia Khalifa discuss the complexity that businesses face, and how iConnect can help. Watch the second half of this interview to find out how Immedis can give payroll departments two days back every payroll cycle.

World Finance: Barry, just how much can payroll requirements vary from country to country?

Barry Flanagan: Well the basics remain fundamentally the same; you usually have a gross pay, deductions, and then net pay. However once you get into the detail, there is just a huge variety.

So you go from regimes which actually don’t deduct tax at all like Saudi Arabia, to regimes that have a flat tax like Bulgaria. In Belgium for example, accountancy firms won’t actually process a payroll because it is so complex: there are such a huge amount of social insurance deductions there you have to go to a very specialised firm.

France is just about to bring in a system whereby they actually withhold at source. Previously it was quarterly withholding in arrears, and Singapore would have also had arrears – but it’s the following year that you pay your tax.

So while broadly they all follow the same pattern, the variance between jurisdictions is enormous.

World Finance: And with all these varying reporting and compliance standards, there’s no easy way for companies to get a global understanding of their payroll.

Patricia Khalifa: Exactly. I mean, typically what we see is that organisations deal with multiple vendors or suppliers in each different country that they operate in. And what that brings is a lot of complexity. Each different country and each vendor that they work with will have different reporting formats, different standards of how they supply information.

While that may be okay on a local level, for regional or global level directors it’s a real headache to make any sense of that information. And what happens is, the payroll team then has to spend huge amounts of time unpicking that information to make sense of what’s actually happening at a company level.

This is a big issue because the payroll team has a finite amount of time to play with. The payroll calendar can’t change – information has to be supplied at a certain time, it has to processed and reviewed and checked, and payments need to be made to people’s bank accounts at the same time every month because they’ve got their bills to pay.

So a lot of time being spent trying to make sense of information from lots of different countries is just time that payroll teams don’t have.

World Finance: So how does Immedis unify all of this data and give companies a centralised, global understanding of their payroll?

Patricia Khalifa: Our global payroll platform iConnect is a cloud-based platform, and it integrates with organisations’ HR and finance systems so that data flows securely into our software to manage the payroll.

The platform is a payroll-management software tool, but it’s also a business intelligence platform. And what it does is, it consolidates global payrolls across the world into one single view, giving single oversight into what’s happening in any country around the world.

What that means then for a CFO is that on a single dashboard they can see the overall company’s gross to net pay, they can see employer contributions, pensions, and healthcare at a global level. And what that really allows you to do – because it’s standardised on a single company currency – a CFO can actually see in real time what’s happening in the business from an employee and payroll perspective.

Unifin’s strong corporate governance ensures its sustainability, says CFO

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Operating leasing firm Unifin went public in 2015, with a highly successful IPO on the Mexican Bolsa. But in preparation for this, the company radically enhanced its board, and made sure to adopt best corporate governance practices. CFO Sergio Camacho discusses this process, as well as how Unifin ensures good transparency with its shareholders, and its outlook for the years ahead. Watch the first half of this interview, where Sergio discusses Unifin’s success supporting Mexico’s SMEs.

Sergio Camacho: Unifin is the leading independent leasing company in Latin America. We are a public company; we made our IPO in 2015. And since then the company has shown tremendous growth.

World Finance: And why has corporate governance become so important to Unifin?

Sergio Camacho: We need to analyse corporate governance prior to doing the IPO, and after doing the IPO. When Rodrigo Lebois decided to go and make Unifin public, he started to enhance its board. He asked very well respected entrepreneurs in the country to join the board. And now we have 50 percent of that board to be independent.

When we did the IPO, that was one of the key questions that we received from investors. How’s your corporate governance? Who is on your board? Because being a new company into the market, for a leasing business, posted a real challenge to have a very successful IPO – which, by the way, it was. And corporate governance played a very very strong point for getting the trust of investors.

World Finance: How has your corporate governance changed over recent years, and do you have further improvements planned?

Sergio Camacho: Whatever is released as best corporate governance practice, we for sure are going to be implementing that.

Particularly when you hear many many things on Latin America, and some often think Mexico needs to comply even further – that will be the US, in this matter.

In Mexico, the business council release their best corporate governance practices, and we comply 100 percent with those.

We are subject of course to the banking commission supervision, and we’re a very transparent company. We have put a lot of effort in enhancing corporate governance, because of this.

So whatever is released, or suggested to be a best corporate governance practice in the future – for sure we’re going to implement in the company.

World Finance: How do you make sure that you are as transparent as possible with your shareholders?

Sergio Camacho: Well we have on a quarterly basis our press release and our conference calls. We attend, perhaps twice a quarter, different conferences or do these non-deal roadshows. And that’s a way that we communicate to our shareholders and to our bondholders. Because one of the most important ways that the company has financed itself over the last years has been issuing in the public markets.

So Unifin is in the spotlight in that regard – we have accessed over the last 24 months more than $1.2bn in the international markets. So the trust is there – we need to fulfil that trust now, so we need to continue, keep working. Because these are things that matter, and matter a lot to our, either shareholders or bondholders.

World Finance: And what would you say is the investor outlook for Unifin?

Sergio Camacho: I would say it’s very strong, very positive. If we analysed the numbers of Unifin over the last three years, we have had compounded annual growth rate of 50 percent, at revenues and profits. Since the IPO the stock has more than doubled its value.

So the outlook for the company looks promising. Of course it’s going to be driven by the political views and the economic policies to be implemented in the coming years. We have the threat of Nafta – there is a lot of uncertainty right now, what is going to be Nafta.

But no matter what the outcome of those two major events are, Unifin is very strong. Unifin has been in the market through difficult times, and has been successful going through. So we’re confident that we’re going to be capable of addressing good results, good numbers, in the upcoming years.

World Finance: Sergio, thank you very much.

Sergio Camacho: Thank you.

Unifin CFO: Mexico’s thriving SME sector will continue to drive our growth

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Unifin is a leading financial services company in Mexico, offering leasing, factoring, and automobile credit services. Its CFO Sergio Camacho explains the key trends that have been affecting the business, how it has empowered its regional offices to capitalise on Mexico’s strong macro-economic growth – and what the next five years are likely to hold as Mexico prepares for its new president. Watch the second half of this interview, where Sergio discusses Unifin’s best corporate governance practices.

World Finance: Unifin is a leading financial services company in Mexico, offering leasing, factoring, and automobile credit services. Sergio Camacho is its CFO; he joins me to discuss the trends in the industry, and the company’s award-winning corporate governance.

But first Sergio, talk me through your business lines and how the company is structured.

Sergio Camacho: We have three business lines: operating leasing, factoring, and auto-loans.

Our main business is by far operating leases, in which we finance whatever asset an SME may need, providing full visibility on how much they need to pay on their initial down-payment, their monthly rent, and their residual value. So that is a very, very good financing alternative for the SME sector.

World Finance: What are the key trends that have been affecting your business?

Sergio Camacho: Well the key trends have been the growth, on a macro perspective. Mexico – even though it has not shown tremendous growth, like whatever you can see in other emerging markets – but it has shown steady growth. And the growth has been driven by investments, mainly by the SME sector. Which is a sector that we focus on. And that investment needs to be addressed by buying machinery or getting whatever you need to do on a production line.

The operating leases precisely solve that issue. Because we can lease whatever product – from an aeroplane, to a printer, or a camera like the studio we are in – and provide with the lease to the SME sector. And that’s a way that we are supporting the growth in the country.

World Finance: And how have you been capitalising on that growth?

Sergio Camacho: Well we have 13 regional offices. We do a lot of market research on what are the trends, on GDP per region, within Mexico. And based on that information, we put the regional office there, to be very close to our customers.

We hire local people, so these local people know the families, or know the founders, know the entrepreneurs that are within that city or within that region. And that posts a very good competitive advantage towards how to approach these people.

World Finance: Now, what impact is Mexico’s forthcoming new presidency likely to have on your business?

Sergio Camacho: Well, since we are focused on the SME sector – and it’s a very resilient sector within the Mexican economy – we do not expect any significant change in the trend.

However, whatever the public policies that this new president may impose to the country: that will have an impact on the macro growth, and of course that will have an impact on our clients and our customers, on their decision-making process for investments, for acquiring new machinery, or acquiring a new product or business line in their respective corporations.

So it will have an impact, but it will depend on how he’s going to be towards the public, fiscal, and monetary policies.

World Finance: So what would you say is your growth trajectory for the next five years?

Sergio Camacho: We will continue growing. This company was founded in 1993 – months before the Tequila Crisis. So within the company we have management that has been through the Tequila Crisis, through the Dot Com Crisis, through the Lehman Brothers Crisis. And Unifin continues to grow. So depending on how the macro is – thinking about a crisis, or whatever – we can capture that opportunity for growth. Because the traditional banks, whatever they do, they just reject and pull out from the country. Ninety percent of the traditional banks in Mexico are foreign-owned.

So we’re there. We’re very close to our clients. And that of course puts us in a very, very good position towards the potential growth of the company.

Compagnie Monégasque de Banque CEO: Listening is our key competence

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Werner Peyer is CEO of Compagnie Monégasque de Banque – a private bank in Monaco managing €12.5bn in wealth for its clients. He discusses the evolution in the private banking industry, how to strike a balance between service reliability and future-proofing function, and his strategy for the next three years.

World Finance: Monaco is renowned in the private banking sector; how has the industry changed in recent years?

Werner Peyer: Certainly there have been changes, but there also have been constant focuses and constant relevances to that business.

Yes, change has been brought onto our industry – mainly due to evolving regulations. I think what is important in Monaco is that Prince Albert, when he took over from his late father in 2005, gave a very clear vision of what the finance centre should be: transparent, and cooperating with the regulatory bodies all across the world.

And so today we have a fully transparent finance centre, and we are on no blacklist of whatever regulator that exists.

But it’s not all about change. I’m passionate about private banking, and I have been for the last 35 years. It’s all about accompanying families and private clients in their financial needs.

World Finance: How have you made sure that CMB has maintained what it needs to maintain, while also changing to keep up with modern trends?

Werner Peyer: Monaco is a very diverse international centre; out of the 38,000 inhabitants, we have 130 nationalities. And so I wanted to really reflect that diversity of international culture through the bank and its services offered.

My vision has always been to capture 100 percent market share. So we developed international cultures within the bank. We have today the largest Russian speaking desk, we have a very significant and the largest German speaking desk. And I’m very proud about the Anglo-Saxon desk as well, because we still have Anglo-Saxon competitors next-door to us, but increasingly English-speaking clients turn to us.

World Finance: And how has that strategy borne out in your returns?

Werner Peyer: Well it has been dramatic in certain ways, because it changed significantly the way we looked after clients. It changed the client base as well, from the traditional clients. And it has of course changed with this transparency the needs and requirements of the clients.

We now provide to all of our clients tax reporting, so that they can use it for their regulators and tax authorities in their countries of residence.

World Finance: Tell me more about the other ways you empower your clients. You created a Women and Finance academy programme, for example.

Werner Peyer: There are a lot of wealthy women living in Monaco; yet wealth management has been traditionally the domain for men within the families, because women are not empowered to do so. We do empower them.

All of our key specialists within the bank teach them. They also get a virtual one million pound – or dollar, Swiss franc, euro – portfolio to invest. And we then discuss how these portfolios move. And so they learn.

World Finance: You’ve also created a philanthropy academy.

Werner Peyer: Many wealthy clients want to do good, following the example of Prince Albert with his famous Prince Albert II Foundation. They want to be philanthropists, yet they don’t know exactly how to do it. So we’ve created an academy that within six modules tells them how to go from the vision, to realising projects with governance, with controls as well; so that they don’t lose enthusiasm and resources and waste them.

World Finance: Your own mandate as CEO has been renewed through to 2021; what’s your strategy for the next three years?

Werner Peyer: First of all, I want to see that many, many of the ideas that we have developed as a team, that we can realise them and build on the evolution of what has already been put into place. And continue to adapt to the changing environment.

Then I also want to make sure that I can prepare the next generation of leaders in the bank, who will come in with new ideas and develop beyond what I have created.

And that’s all about the values that are based on four pillars. It’s focus on clients, listening to clients. The second value is innovation. Innovation, which can only happen when you’re competent. Third value is respect of diversity. And respect of diversity within CMB is not just about gender diversity; it’s about finding new solutions, thanks to that diversity. And the fourth value may sound trivial, but it’s the respect of rules. We have today a huge amount of rules imposed by the regulators, imposed by the bank itself, imposed by the shareholder. And we want to make sure we respect them all, because not respecting one single rule means the machine stops and you have to focus on repairing it. And we just can’t afford ever the machine to stop.

World Finance: Werner, thank you very much.

Werner Peyer: Thank you Paul.

ProInversión completes PPP roadshow to plug Peru’s infrastructure gap

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ProInversión is Peru’s private investment promotion agency. It recently completed an international roadshow promoting a portfolio of 50 public private partnership projects, to help plug Peru’s $160bn infrastructure gap. In the first part of our video roadshow, Executive Director Alberto Ñecco Tello explains what makes Peru an attractive and secure destination for international investment, and how ProInversión works with investors and government agencies to make investing in Peru’s PPP projects a simple and efficient process. The roadshow continues at European CEO with a breakdown of ProInversión’s portfolio, and at The New Economy with an exploration of ProInversión’s sustainability.

World Finance: Alberto Ñecco Tello is executive director of ProInversión, Peru’s private investment promotion agency. It recently completed an international roadshow, promoting a portfolio of 50 public private partnership projects, to help plug Peru’s $160bn infrastructure gap.

How do you work with international partners to make investing in Peru a simple and efficient process?

Alberto Ñecco Tello: We work very closely with investors; within the agency we have a whole division that is entirely in charge of investor outreach and investor relations. We are the point of contact – and I would even say the point of entrance for foreign investors that come into the country. We have a very friendly and supportive legal framework for investors to come in, and we have devoted professionals that develop a client relationship role with the investors, and guide investors in their way into the country.

Mostly investors for PPP or infrastructure projects, but also investors in general, who just want to bring capital to Peru.

World Finance: What makes Peru an attractive and secure destination for international investment?

Alberto Ñecco Tello: Peru has very solid foundations for investments; one of our main strengths is our macro-economic foundations. For the last 25 years we have been able to keep high growth numbers at low inflation rates, which is hardly seen around the world. We have been blessed in that way!

And that macro-economic foundation is one of the best in Latin America, in the region. Which should provide you with enough certainty regarding returns.

And in terms of the law – the legislation or the regulatory framework – for this, it is very important to highlight that according to the constitution of Peru, local and foreign investments must be treated equally. So there is no discriminatory treatment between the two.

Also, there are no capital controls or regulation regarding inflow or outflow of capital. So it’s a very friendly environment, and it’s a very open economy for foreign investors.

World Finance: What range of investment horizons are in your portfolio, and – you mentioned returns – what kind of returns can investors expect?

Alberto Ñecco Tello: Well, since our portfolio is mostly PPP projects, our horizons are mostly in the range of 20-30 year contracts. And in terms of return, they are usually market returns. I could not really pin a number, because it will depend on, you know: the industry, how regulated it is, the amount of competition. And financial models are kind of proprietary for each one of the bidders. But I would say they must be pretty decent, because we have increasing competition for each one of our projects!

World Finance: What other questions have you been addressing on your roadshow? What are the top three things that investors want to know?

Alberto Ñecco Tello: Well, investors are usually concerned about political risk. And for somebody that does not know the country, it is a fair concern.

It’s important to highlight that for the last 25 years, regardless of the ruling party, we have maintained a very stable and sound macroeconomic policy and economic policy. An open economy, a liberal economy, market-oriented. And in that sense, I guess it’s just about getting to know the political risk, and getting to know the country.

There are also questions around what kind of portfolio do we bring to the table? And I think that’s very interesting, because Peru has one of the longest and oldest PPP programmes in Latin America – and one of the broadest. I mean, we cover all sectors of the economy. We work in PPPs for transport, education, health, irrigation, and we even do mining concessions. So we have a very wide portfolio of investments to offer, and I guess – that should also be very appealing for investment funds or investors looking for diversification in their portfolio.

And I would lastly say, there is always a question around the capacity of the government to deal with private investors and private counterparties. And as I just said, Peru has a very long-standing PPP tradition, so there are a lot of PPPs already working in Peru. Spanish companies have been present for quite a long time now, and they are active and they are already operating projects in highways infrastructure, water and sanitation, etc.

So although that’s an ongoing concern, and I think the government and the agency are still working on continuously strengthening our capacity to deal with private counterparts; we have the experience, and we have the work done. So we are pretty much prepared to offer a stable and hopefully fruitful relationship.

World Finance: Alberto, thank you very much.

Alberto Ñecco Tello: Thank you.

‘Three pillars of citizenship’ driving investment immigration – CS Global

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Citizenship and residence by investment consultants CS Global Partners help high net worth individuals find the right investment immigration programme for them. Andres Gutierrez discusses the growing demand in the industry, why you might prefer a residence-by-investment programme over a citizenship-by-investment scheme, and what they future may hold as we change the ways we think about citizenship. In the first half of this interview he explains the history of the citizenship by investment industry, the importance of the due diligence process that countries go through when assessing their potential citizens, and how to work out which programme is the best for you.

World Finance: How has supply and demand in the investor immigration industry changed, and what’s driving those changes?

Andres Gutierrez: The demand is based on what we call the three pillars of citizenship, which is basically physical safety, financial security, and lifestyle and accessibility.

Because at the end of the day, a person cannot be entirely happy if their family or their own personal safety is compromised, or they cannot do business properly. And they increasingly need to be doing business worldwide, from Asia to South America to North America, passing through Europe and Africa.

Obviously the countries has realised this, and they have been offering different solutions to this. We have the residence programmes and the citizenship programmes, and this is a way of enabling these applicants to have financial stability or further business prospects, but also drive foreign investment into their own economies.

World Finance: There’s been a rise in residence by investment programmes alongside citizenship by investment; what’s the difference, and why choose one or the other?

From a legal perspective, residence is the right, the legal right, to live in a certain jurisdiction. Citizenship on the other hand, is being a citizen of a nation, which obviously entitles the right to reside in that nation, but at the same time having the same rights and obligations and duties as the citizens of that nation. And the ability to apply for a passport.

This ability to apply for a passport, it translates into the ability of further travelling and doing business globally.

Why to choose one or the other? Again, we go back to the client’s needs. If the client wants to live in Spain for example, a Caribbean passport won’t be the solution.

World Finance: What is the profile of a typical citizenship programme investor?

Andres Gutierrez: Basically the profile is as we have discussed before, it is a person that is looking for the three pillars of citizenship: physical security, financial safety, and accessibility and lifestyle. And at the same time, access to other markets, which is something that, with these citizenships, can be achieved.

As an example of this, we had an applicant doing normal business with Europe and with many other countries. The problem is that from one day to another, this person wasn’t able to travel.

If a person is not able to travel, well perhaps it is fine. But for this particular business person, he was the only supplier of baby nappies and baby food and so on for his country. So it doesn’t affect only the entrepreneur, but it affects the entire population.

So, what this person did was basically he acquired a second citizenship, and with that citizenship was able to travel, was able to start that business going again, and that supply into the country again. So this is a triple-win situation: because this has allowed this person to travel freely on one side, to do business globally; that has allowed the country that gave him citizenship to receive his foreign direct investment; but at the same time the citizens of his country where he has his business have been allowed to start receiving nappies again.

World Finance: And what’s next in this rapidly evolving industry?

Andres Gutierrez: We see from our perspective for the future more programme offering, because at the end of the day it is the driver of foreign investment; together with a rise on advice like CS Global Partners. The need of having legal advice that basically understands not only the needs of the client but also understands the different options in the market, and can advise properly so the clients can make an informed decision.

This will lead at the same time to more regulation, more transparency, and to a final thing, which is nowadays we are looking, we are opting at one citizenship, two citizenships, but in five or 10 years it is not going to be about which citizenship do we hold but: how many citizenships do you think you would need in the next 10 years?

World Finance: Andres, thank you very much.

Andres Gutierrez: My pleasure, thank you.

 

Thanks for watching. Click through to watch the first half of this interview with Andres Gutierrez, discussing what makes a good citizenship by investment programme, and which country has the best. And please subscribe for the latest international business insights from worldfinance.com

CS Global Partners: Which citizenship by investment scheme is the best?

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Citizenship and residence by investment consultants CS Global Partners help high net worth individuals find the right investment immigration programme for them. Andres Gutierrez explains the history of the citizenship by investment industry, the importance of the due diligence process that countries go through when assessing their potential citizens, and how to work out which programme is the best for you. In the second half of this interview he discusses the growing demand in the industry, why you might prefer a residence-by-investment programme over a citizenship-by-investment scheme, and what they future may hold as we change the ways we think about citizenship.

World Finance: What does the investment immigration industry encompass?

Andres Gutierrez: Investment immigration encompasses the legal processes of either acquiring residence or a citizenship, either by making a contribution to a government fund, or an investment into real estate.

The global existence of the investor immigration market goes back 30 years; it started with the Canada residence programme in 1986, and then that has led to the St Kitts programme in 1992, then the Dominica programme. These programmes enable different applicants further travelling on their side, and business opportunities, as well as driving foreign investment into these countries.

World Finance: There is a public perception that these golden visa programmes or golden passport programmes are: you pay your money and you get your citizenship; but it’s more complicated than that?

Andres Gutierrez: Yes indeed it is more complicated than that. There is a very strong due diligence process after the application is submitted to each particular country. And that due diligence part of each particular application is the key of the entire investor immigration market.

It is so important because most citizenship by investment programmes do not require the applicant to have a residence in the country, or to visit the country itself. So a very thorough, a very complete due diligence process is done in order to ensure that the applicant basically is who he or she really says. And that serves first to protect the investment of all the applicants – because at the end of the day, what the government wants, what the countries want, is entrepreneurs, business people, of high moral standards – that they endorse with these passports. And at the same time it is a measure of protecting their programmes and the investor immigration market as a whole.

World Finance: What else makes a good citizenship by investment programme?

Andres Gutierrez: There are many different factors. The CBI Index published by the Financial Times has mentioned for example affordability, timelines to citizenship, ease of processing, residence requirements. The longevity as well: a programme that has been around for a very long time, that has been operating for a very long time, ensures that improvements have been made to that process. That fine-tuning to the operations have been made as well. And it is a warranty at the end of the day.

So yes: I think those are the key things. And just to mention as well, the Commonwealth of Dominica citizenship by investment programme was ranked first in the CBI Index of the Financial Times.

World Finance: So would you say that’s the best?

The best programme… it depends on each particular applicant. The Dominica programme was ranked number one in the CBI Index; however, perhaps it is not aligned with the interests of the applicant, because perhaps they want to live in Europe, for example. Perhaps they are not interested in Dominica. So we focus our attention on understanding what the client needs, because a person that wants ease of doing business globally perhaps will tend to go for a Caribbean citizenship; while a person that, let’s say, has two or three kids and wants to live in the UK or in Europe, perhaps they are looking at a European CBI programme such as Cyprus.

So as advisors, it is understanding the needs of the client, and where do they want to go.

 

Mexico’s largest pension fund expands alternatives portfolio

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Afore XXI Banorte is the largest pension fund provider in Mexico – and it plans to maintain its pole position, with a strategy focused on three targets: transforming the customer experience, technological innovation, and redesigning the investment process. In the third of three interviews with XXI Banorte executives, CIO Sergio Mendez Centeno explains how the Afore is redesigning its investment process to align with international best practices, and expanding its alternative investments portfolio. The first two parts of this interview series with CEO Juan Manuel Valle Pereña explore XXI Banorte’s renewed customer experience and the technological innovations the Afore is bringing to market.

World Finance: Sergio, we’ve heard from Juan Manuel about the first two pillars [of your strategy]; how are you redesigning the investment process?

Sergio Mendez Centeno: The way that we’re redesigning the investment process is trying to bring to the local markets the international best practices that we have found in the administration of pension funds.

This means that we are dividing the investment division in three basic silos, which are portfolio management, analysts, and execution and traders.

World Finance: We spoke last time about creating your benchmark portfolio; how has this approach performed?

Sergio Mendez Centeno: The approach has been very, very successful, I would say. It’s something that’s an ongoing process all the time, because you know, regulations are adapting, and the markets are moving, so we have to adapt.

Even though at the end, it’s the light that guides us through the long-term that we are focusing our strategy all the time.

So the benchmark came as a result of our econometric process, in which what we did basically, we tried to approach the most optimal portfolios, given the restriction of the regulation and the investment horizon for our clients.

At the end, it reflects how we approach investments, and how is the way Afore XXI Banorte approaches the balance between returns and risks – which is at the end what creates the best product abroad.

World Finance: You’ve also been expanding your presence in alternative investments.

Sergio Mendez Centeno: That is correct. It’s an option that we need to use, because at the end, part of our fiduciary responsibility is the use of the investment regime fully. And that part of the portfolio – the alternatives portfolio – is something that is an opportunity. Not only about the returns, but about the duration of the portfolio. These kinds of strategies are longer duration than we can have in fixed income and different kinds of assets. And the returns have proven very, very good. So we have been very active.

At the same time the portfolio regulation started to allow us to invest in international alternatives. So that’s something that we have been very very active, trying to find who to partner with in order to approach these new assets. And at the end it’s something that will be reflected in better returns for our affiliates.

World Finance: And how else have you been growing and improving your investment process?

Sergio Mendez Centeno: That’s something that we are constantly improving, let me put it that way.

We are increasing our team on the public side of the portfolio, the equities side. I think it’s quite important to have complete analysis, and to have the full grip of the strategies that we have, deviating from the index of the Mexican bolsa, and trying to approach the best companies and the best returns.

At the same, we are still incrementing and trying to fully utilise our international exposure. And part of that is not only the using of ETFs; it’s also using actively the mandates. The separate managed accounts that we grant to different managers abroad in order to have best of breadth for international markets to our affiliates in the local markets.

And in the end, what we are trying to achieve is the best returns. So for that, and for the best returns, this year we work to obtain the authorisation to trade options, which is quite important. Because again, it’s another tool that we have in order to protect our portfolio against the only constant that we have in the markets: volatility.

World Finance: Sergio, thank you very much.

Sergio Mendez Centeno: Gracias, thank you.

How machine learning helps Afore XXI Banorte anticipate customer needs

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Afore XXI Banorte is the largest pension fund provider in Mexico – and it plans to maintain its pole position, with a strategy focused on three targets: transforming the customer experience, technological innovation, and redesigning the investment process. In the second of three interviews with XXI Banorte executives, CEO Juan Manuel Valle Pereña discusses the technological innovations that the Afore is bringing to market, including deploying machine learning on social media to better understand its customers and anticipate their needs. Part one with Juan Manuel Valle Pereña explores XXI Banorte’s renewed customer experience, while part three with CIO Sergio Mendez Centeno discusses the Afore’s investment process.

Juan Manuel Valle Pereña: Afore XXI Banorte is a very professional team, capable of offering through innovative solutions a service of excellency to all our customers, and make their savings grow towards a better future.

The way we are doing this is by transforming customer experience, technological innovation, and by redesigning our investment process.

World Finance: We’ve talked about customer experience; what technological innovations are you bringing to market?

Juan Manuel Valle Pereña: Part of what we have been doing is to move into a more technology-oriented company, where any of our customers is available to reach us in any possible way.

Although the best possible scenario is to have everyone using the app, because it’s easier to contact them, and if we can contact them, we can provide them with information that they need. Or that they don’t know that they need, but we do know! By using machine learning in social media, we might be able to know what people of different profiles, of different ages, are looking after, and we can provide that information.

So, technology is a key element for us, and we have been working for more than a year in providing these kinds of solutions to our customers.

World Finance: How are you transforming your internal processes in order to enable this kind of digitisation?

Juan Manuel Valle Pereña: By moving everything into a customer centred organisation, what we are doing is concentrating first in those processes that are related to the customers, and once we are concentrated in those, taking away anything that is not required.

Just an example: we realised that a lot of people go in to our offices because they needed to start one of the processes. They usually came back two or three times, not only one. So one of the things we are doing is that, once you go, you download the app, and you can follow on that process from your house. You don’t need to go back; if you need to send some more information, you are able to do it through the app. So those kind of things will make everything easier for the customer, and once we have the simplest approach to any process, we will move that to our platforms.

World Finance: What feedback have you had from these improvements?

Juan Manuel Valle Pereña: It’s not so long that we started. But what we have seen, even in a few months: it’s a positive feedback. People going to our offices, people calling our call centre, people using the app; they are approached for a follow-on with the net promoter score, and we have seen a gradual improvement. And we expect that by the end of the year, the numbers are quite different from what we saw in the first month that we were doing this.

World Finance: And what’s next for XXI Banorte’s digital transformation?

Juan Manuel Valle Pereña: Well I think technology is a never-ending story. So we will continue improving the experience, introducing whatever new elements we believe will be helpful. Even in things we introduce that have been successful, we need to be adjusting things so that until we find the perfect way to address every single issue, every single topic, with our customers.

World Finance: Juan Manuel, thank you very much.

Juan Manuel Valle Pereña: Paul, thank you very much also.