In this article, we outline a number of private investment fund models, both traditional and nontraditional, that new or emerging fund managers may wish to consider in determining which model is right for their needs and those of their investor base. From deal-by-deal financings (aka independent sponsors), pledge funds, "committed" independent sponsors and single-investor funds to traditional private equity and hedge funds and permanent capital vehicles, there are a number of structure options for a manager to consider and explore. In many cases, emerging managers will be targeting family offices, high-net-worth investors, funds of funds and other investors who are accustomed to emerging-manager investing but reluctant to invest in a traditional committed capital fund with an unproven manager.
The CSSF issued on 23 August 2018 a new circular 18/698 regarding the authorisation and organisation of Luxembourg investment fund managers (the Circular). This Circular entered into force with immediate effect and replaced and superseded the CSSF circular 12/546
In the past year, the U.S. Securities Exchange Commission (SEC) and Chairman Jay Clayton have repeatedly cautioned the cryptocurrency and initial coin offering (ICO) industries about the securities law implications for digital assets. On February 6, 2018, in testimony before the Senate Banking Committee, Chairman Clayton notably asserted that “[e]very ICO I’ve seen is ‘a security.’”
Sponsors who wish to establish investment funds in Hong Kong will soon have the choice of a new investment structure, the open-ended fund company (OFC). The introduction of the OFC is designed to boost Hong Kong’s development as a fund manufacturing hub. It is part of the Hong Kong government’s commitment to enhance Hong Kong as an asset management centre.
The State Duma, the lower chamber of the Russian parliament, has recently approved in the ‘first reading’ three draft laws that address the use of cryptocurrencies, mining, token offerings, and crowdfunding. Existing Russian laws do not directly regulate these matters, and the use of cryptocurrency in Russia is currently subject to legal uncertainty. This LawFlash summarises key provisions of the draft laws as well as information on likely future legislative action.
In regard to the structure, set up and launch of innovative investment fund structures with specialization in investments in blockchain, ICO and cryptocurrency assets, this article includes a pragmatic list of fifty considerations and frequently asked questions for those interested in setting up a Cayman investment fund to invest into these asset classes.
Guernsey has a thriving insurance linked securities (ILS) sector. As described in Carey Olsen's ILS briefing , Guernsey is home to an abundance of ILS structures
Issuing an initial coin offering (ICO) is a new and innovative way for companies to infuse capital into their enterprise. However, several regulatory agencies have increased their scrutiny of ICOs, including the U.S. Securities and Exchange Commission (SEC).
The Council of Ministers' decision no. 2018/11662, published in the Official Gazette on 5 June 2018, paved the way for the Undersecretariat of Treasury ("Treasury") to invest in venture capital funds ("funds").
In late April, the Department of Labor (“DOL”) released FAB 2018-01 addressing and clarifying previous guidance concerning economically targeted investments (“ETIs”), shareholder engagement and proxy voting
Currently under EMIR the clearing obligation only ceases to apply if a NFC+ no longer exceeds the relevant clearing threshold for a period of 30 working days.
The Canadian mutual fund market, like the markets for European Alternative UCITS, and US ’40 Act Liquid Alts before it, is on the verge of historic change with proposed amendments to National Instrument 81-102 (the “Proposal”), which introduces a framework for offering greater choice to retail investors. This innovation is an extremely positive outcome for all participants, and should the proposals put forth by the Canadian Securities Administrators (“CSA”) be adopted, strategies, that were not readily accessible to retail investors will become available.
Launching a cryptocurrency typically involves an initial fundraising process followed by a public sale process, by way of initial coin offering or token sale (“ICO”). In addition to providing the means to the issuer to pursue initial development, offset development costs and fund future projects, an ICO allows a large pool of interested parties to buy (and subsequently trade) the new cryptocurrency. Creation of a diversified and sufficiently large pool of cryptocurrency holders is key to creating an interest and market for the newly launched cryptocurrency. However, in order to reach the ICO, pre-ICO fundraising may also be required. This is where proceeds of pre-ICO fundraising will be used to pay for the final development steps and for it to operate successfully on a cryptocurrency exchange. Pre-ICO fundraising should also help ascertain (and generate) interest prior to the ICO.
The fund industry is permanently evolving, but incremental changes are hardly noticed. Sometimes however, industries undergo radical changes, where the process of evolution is significantly disrupted by outside technological, demographic, regulatory, and economic forces.
As offshore funds counsel in the Cayman Islands, it may come as no surprise that, for me, 2017 has seen a distinct rise in requests to establish bespoke private equity and real estate funds for US managers and sponsors who have been successful in attracting investments from large Japanese institutional investors.
With 2017 (“The Year of Crypto”) in the rearview, business owners, financial advisors, estate planners, legislators, and any individual in regular contact with a millennial is likely asking this progression of questions: “What is Bitcoin? Is it a fraud? How can I invest in cryptocurrencies? How can I invest other people’s money in cryptocurrencies?” This article will largely focus on the final question, paying particular attention to unique risk factors that should be included in a cryptofund’s Private Placement Memorandum.
The Australian Government has targeted the use of Managed Investment Trusts (MITs) by foreign investors in a reversal of original policy objectives to the introduction of MITs, while couching the proposed package in terms of levelling the playing field.
This alert highlights important changes to the regulatory and compliance regime for the Cayman Islands investment funds industry in 2018
In the latest of a series of articles commenting on global regulatory developments in cryptocurrency, this client alert explores recent regulatory engagement with the token market (with a particular focus on Europe) and looks ahead to proposals for 2018. Gibraltar’s ICO regulations, as well as the Swiss regulator’s publication of ICO guidelines have arguably set the tone for an interesting year in the developing regulatory landscape.
As with a number of other developed economies which are ‘developing nations’ in the world of Islamic finance, Australia is all about opportunities and what could be. The difficulty is determining whether these opportunities will be seized and what will be.
Cryptocurrency is digital "money" that utilises encryption techniques to regulate the issuance of units and verify their transfer. Cryptocurrency operates without the participation of a central bank or other government agency.
As the payments system continues to evolve, the RBA’s Governor considers the pros and cons of a digital dollar.
The Tax Cuts and Jobs Act (the New Tax Law), signed into law in late December by President Donald Trump, makes major permanent and temporary changes to the US federal tax system. The changes will have a significant impact on the structuring of US and foreign investments.
Touching the borders of Asia and Europe, Turkey is a splendid country full of God’s blessings that include its amazing geographical location. Its shoreline is a bridge between Europe, Asia & Africa, considering multiple factors including its important role within the region and its geographical conditions, it’s not wrong to say that the prospects of Turkey to become Islamic banking and finance hub is very high, due to different financial, economic and other regional issues in emerging Islamic finance centers.
Eurekahedge’s European hedge funds infographic sums up the industry as at December 2017. Find out more about European hedge funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Eurekahedge’s Latin American hedge funds infographic sums up the industry as at November 2017. Find out more about Latin American hedge funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Eurekahedge’s North American hedge funds infographic sums up the industry as at October 2017. Find out more about North American hedge funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Eurekahedge’s Asian hedge funds infographic sums up the industry as at September 2017. Find out more about Asian hedge funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Eurekahedge’s global hedge funds infographic sums up the industry as at August 2017. Find out more about global hedge funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Eurekahedge’s European hedge funds infographic sums up the industry as at July 2017. Find out more about European hedge funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Eurekahedge’s UCITS hedge funds infographic sums up the industry as at July 2017. Find out more about Latin American hedge funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Eurekahedge’s Latin American hedge funds infographic sums up the industry as at June 2017. Find out more about Latin American hedge funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Eurekahedge’s global funds of hedge funds infographic sums up the industry as at May 2017. Find out more about Global funds of hedge funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Eurekahedge’s Asian hedge funds infographic sums up the industry as at April 2017. Find out more about global hedge funds assets under management (AUM), asset flows into strategic and regional mandates, launches and closures, fund size, head office locations and the best and worst performances of the year.
Eurekahedge’s North American hedge funds infographic sums up the industry as at March 2017. Find out more about North American hedge funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
Eurekahedge’s long-only absolute return funds infographic sums up the industry as at February 2017. Find out more about long-only absolute return funds' assets under management (AUM), asset flows into strategic and regional mandates, strategy returns, fund size and geographic AUM, head office locations and the best and worst performances of the year.
New Ocean Capital Management Limited is a Bermuda-based asset manager with expertise investing in reinsurance risk products. New Ocean is focused on providing investors with risk-adjusted returns in the insurance and reinsurance convergence market. Chris McKeown has 30 years of experience in the reinsurance industry, including six years managing a traditional reinsurance portfolio (ACE Tempest Re), five years actively managing capital invested in alternative reinsurance risk structures (CIG Re/New Castle Re). Mr. McKeown also spent 15 years in the insurance brokerage business, in both business production and senior management roles (Guy Carpenter).
Private investments in public equity, also known as PIPEs, enable both smaller and larger companies to raise capital on a shorter timeline, and more confidentially, often with fewer transaction costs than with a traditional underwritten public offering. PIPEs, in turn, offer investors such as hedge funds and private equity investors the opportunity to tailor an investment in a public company that has both downside protections and upside rewards.
An increasing number of employers are looking at the possibility of creating investment vehicles to allow their employees to make investments in the employer corporation or a portfolio managed by the employer that will qualify for inclusion in, inter alia, registered retirement savings plans (RRSP), registered retirement income funds (RRIF), registered education savings plans (RESP) and tax-free savings accounts (TFSA) (collectively referred to hereinafter as the ‘Registered Plans’).
As family office executives set up a family office or review an existing family office, it is important to make sure the privacy and cybersecurity concerns are addressed and the governance and information security infrastructures are set up to get it right from the start. Working with a family office means personalised and tailored services are delivered that take into consideration a family’s entire situation, including their assets and liabilities, as well as wealth transfer, intergenerational and philanthropic objectives.
The benefits and uses of Bermuda segregated accounts companies (SACs) to ring-fence assets and liabilities in insurance and investment fund structures are well-known and well-tested. The Bermuda Supreme Court has consistently upheld confidence in, and strength of the statutory segregation and ring-fencing of assets and liabilities in a SAC.
The European Securities and Markets Authority (ESMA) published on 19 July 2016 its final advice to the European Commission (the Commission) on the extension of the marketing passport under the Alternative Investment Fund Managers Directive (AIFMD) to 12 non-EEA countries, including the United States. This note is intended to highlight ESMA’s advice to the Commission and set out the steps firms would need to consider when applying for a third country passport.
The year has been exceptionally volatile not only for equities but also for the VIX itself fluctuating between 13% and 24% since the start of 2016. MMA Pan Asia Fund I Management believes the volatility is a result of bond investors driven to chase risk and yield in equities, and shares with us their market commentary for June 2016.
The Market Abuse Regulation (MAR) will take effect on 3 July 2016. MAR contains the rules on insider dealing, unlawful disclosure of inside information and market manipulation that will apply throughout the European Economic Area (EEA). It updates the existing market abuse regime, adding a great deal more detail to the existing rules and widening its scope to a range of financial instruments traded on venues other than the main EEA exchanges.
The Grand Duchy of Luxembourg (Luxembourg) has been at the forefront of the financial markets’ and the structured finance’s trends and evolutions. Over the years, it grew to become a hub for securitisation and structured finance transactions with one of the world’s safest business environment, notably as a result of its financial, political and social stability and innovative approach towards the financial sector. Issuers and investors in Luxembourg benefit from strong and stable regulatory and tax frameworks, in line with European Union directives and regulations.
King & Wood Mallesons recently launched its five annual DealTrends report (Report) for private M&A in Australia. The Report draws off actual private M&A deal data in the Australian market and is the only one of its kind currently being produced for the Australian market. The Report gives insight into the changes in market practice for private M&A and the data collected allows us to differentiate for a variety of factors, including deals involving PE sponsors. Below we highlight the standout trends in private M&A over the last five years, recent material developments and areas in which PE sponsors are significantly diverging from the broader M&A market.
There has been much discussion about possible consequences for UK pensions should the public vote to leave the EU in June. We discuss the main strands of this debate, both legal and concerning the wider pensions environment, and start by confirming our view that Brexit would not mean an immediate change to the regulatory and legal arena of UK pensions.
Good or bad, European law has had a bearing on some of the most challenging themes of UK pensions law. In particular, for equal treatment and the valuation of benefits, as well as in the transactional sphere, EC legislation has had a marked influence on our domestic law.
Perhaps in contrast to other investment strategies, discretionary global macro (macro) managers cannot be easily categorised into homogeneous groups. Macro funds will vary by a number of characteristics, including but not exclusive to, asset-class focus, geographical focus, trading style (thematic versus idiosyncratic), investment horizon and structuring sophistication. The focus for a particular manager will of course be influenced by the skill set and experience of the portfolio managers and their team.
Noemi Holecz, a risk and portfolio manager of Loyal Explorer Fund shares how the fund stands out from competition through advanced quantitative methodologies utilised by Colombus Investment Management.
What's happening on UCITS V? Where are we on implementation? Are we nearly there yet? Yes and no. The UCITS V directive comes into force on 18 March 2016. But additional implementing rules (known as 'Level 2') on the duties of UCITS depositaries and management companies dealing with those depositaries have yet to be finalised and will not come into effect until (at earliest) the third quarter of 2016. ESMA has consulted on but not yet finalised its additional guidelines ('Level 3') on sound remuneration policies for UCITS and AIFMD managers. There are various transitional arrangements affecting management companies' remuneration and fund disclosure requirements. There is likely to be further guidance from the FCA once Levels 2 and 3 have been finalised.
In early 2016, popular opinion on the utility and function of offshore centres (OFCs) or, to use the more inflammatory term, tax havens, must be close to an all-time low. The general view, stirred up by cash-strapped governments and the media, is that the vast majority of the world’s wealth is hidden away in secret island jurisdictions, controlled by shady businessmen and inaccessible to the common man. Hamish Masson writes.
For many years, the private fund industry and the securities bar have called for a limited rule set to govern broker-dealers solely engaged in raising capital for private funds or other issuers of unregistered securities or in merger and acquisition advisory activities. These broker-dealers would share several common traits: they do not execute securities transactions, accept orders to purchase or sell securities, introduce or carry customer accounts, handle customer funds or securities, or participate in principal transactions or market making activity.
Singapore’s prowess as a global financial hub is undeniable and while there have been efforts made to position itself in the Islamic financial markets, these have not translated into the success story many have hoped for. Vineeta Tan provides a breakdown of the Lion City’s Islamic finance ecosystem.
Dominic Wheatley explains the island’s popularity as a destination for family offices. There is growing appreciation of the products and services that international finance centres such as Guernsey can provide to high-net-worth individuals, particularly as regards family office solutions.
The Grand Duchy of Luxembourg has a long-standing reputation as being one of the foremost financial centres for the international community and building on its solid repertoire, enabling regulations and strong political will, also made a name for itself in the Islamic finance universe. Vineeta Tan provides an overview of the country’s Shariah finance terrain.
In a recently released Chief Counsel Advice Memorandum (the “CCA”), the Internal Revenue Service broadened its scrutiny of so-called ‘barrier option’ transactions, which tax-payers have used to defer recognition of income and to convert ordinary income and short-term capital gain to long-term capital gain. The government had previously announced that it would scrutinise these transactions in guidance released in 2010 and in July of this year. The CCA is consistent with the previous guidance, and expands upon it in two ways:
The Council of the EU formally adopted the Securities Financing Transactions Regulation (SFTR) on 16 November 2015, which will form part of the EU’s package of legislation targeted at reforming shadow banking and aims to improve transparency in the securities financing transactions (SFT) market. The SFTR is expected to be published in the Official Journal of the EU shortly and will enter into force 20 days after its publication. Set out below is an outline of the SFTR’s scope, its requirements and the dates by which those requirements are to take effect.
On August 25, 2015, the Financial Crimes Enforcement Network (FinCEN) proposed rulemaking that would require registered investment advisers, including certain hedge funds and asset managers, to establish antimony laundering (AML) programs and monitor and report suspicious activity. In 2003, a similar rule was proposed and later withdrawn, and this new proposal comes amid an increasing focus on criminal and regulatory enforcement actions for AML, Office of Foreign Assets Control (OFAC), and Foreign Account Tax Compliance Act (FATCA) violations.
There are often articles written on the Islamic finance sector highlighting the exponential growth in the market, but are we paying enough attention to the range of products being offered to institutional as well as retail users? There seems to be little reference to the product range, which could potentially add value to the real Islamic economy by way of providing efficient methods of managing risk, saving, investing and borrowing. Jamil Mufti writes.
Saemor Capital is a specialist in quantitative investment management, focused on absolute return generation. The company was founded in 2008 with the backing of insurance company AEGON as a cornerstone investor. The team consists of award-winning equity managers with vast experience in European equities. The majority of the investment team has worked together for over eight years. Managing approximately US$600 million, Saemor Capital is AIFMD-regulated and eligible to passport its distribution activities across Europe.
As debt and other credit funds continue to increase their share of the lending market, we have seen fund managers diversifying their fund terms through the use of leverage. Whilst investor call bridges, subscription or capital call facilities are used by the majority of funds, permanent leverage has traditionally been trickier to incorporate in funds’ investment strategies, being limited both by funds’ constitutional documents and managers’ relationships with their investors.
As the Islamic investing industry is flourishing, the focus on re-assessing asset allocation strategies, development and strategic thinking would be critical to achieving the right outcomes. According to Thomson Reuters, global Islamic funds under management are expected to reach US$77 billion by 2019. Mohamed Hage highlights the importance of selecting the right Islamic fund manager and describes a robust selection process in determining which Islamic funds to invest in.
The Alternative Investment Fund Managers Directive (Directive 2011/61/EU) (AIFMD) brought with it significant changes for the regulation of the funds industry in Europe and here we take a look at events since implementation twelve months on from the close of the transitional period, focusing on the AIFMD regime in Ireland.
For most family offices, engaging in direct investment PE deals really means finding the right partner, and the diligence required to find the right PE partner for direct deals is much more involved, and probably less of a metric-based exercise than selecting a good asset manager.
Narendra Modi, the prime minister of India, in a public rally in New Delhi on the 4th February 2015 observed: “Pradhan Mantri Jan Dhan Yojana is a reflection of how rich India’s poor are at heart. Without any obligation to put any money in the zero balance accounts, they didn’t open an empty account”. This statement communicates a lot about the healthy and visionary present status of the Indian economy. Tushar Garg writes.
On 17 July 2015, the Inland Revenue (Amendment) (No.2) Ordinance 2015 (Amendment Ordinance) was published in the Gazette. The Amendment Ordinance, which takes effect retrospectively from 1 April 2015, extends the existing profits tax exemption benefiting non-residents (offshore funds) to effectively allow offshore private equity funds to take advantage of the exemption.
Several years ago, around 2008, the writer was asked by industry commentators whether the classic Sukuk structures common in the market would finally evolve from ‘asset-based’ structures to ‘asset-backed’ structures that were true securitisations and thus limited in recourse solely to the performance of the assets underpinning them. At the time, this writer thought that such progress was inevitable, particularly given that the move to asset-backed would follow more closely the concepts that were promulgated by the scholars when structuring Shariah compliant issues. Flash-forward to 2015, the industry has not moved on very much from the asset-based structures still dominating the market and asset-backed structures are very few and far between. This raises the fundamental question why such asset-backed structures are still very much a minority and also why the industry has not evolved notwithstanding the continued pressure from scholars to do so.
On July 23, 2015, the Internal Revenue Service (IRS) issued long-awaited proposed regulations discussing the taxation of management fee arrangements commonly used by private equity funds and their management. The proposed regulations address the tax treatment of disguised payments for services under Section 707(a)(2)(A) of the Internal Revenue Code (the Code) where a partner has rendered services to a partnership in a capacity as other than a partner. By specifically classifying certain fee arrangements, including particular carried interest mechanisms, as disguised payments for services, the proposed regulations target purportedly abusive situations where private equity funds use management fee waivers to convert services income, taxable at the ordinary rates, into income items meriting capital gain treatment.
Following the implementation of the EU Alternative Investment Fund Managers (AIFM) Directive (2011/61/EC) and associated legislation, Cyprus now lays claim to being a growth jurisdiction within the European Union for the establishment and servicing of boutique and low cost alternative investment funds based locally or offshore. The choice of fund administrator is of paramount importance to the set-up of any hedge fund and in Cyprus there are many reasons to use or establish locally-based operations.
Ireland enacted legislation earlier this year which provides for a new type of corporate fund – the Irish Collective Asset-management Vehicle (ICAV). The ICAV is an innovative corporate structure specifically designed for use as an investment fund. It features a number of specific advantages when compared to previous corporate structures available for use as funds in Ireland, one of the primary jurisdictions for domiciling investment funds in Europe. This article outlines the salient features of the ICAV, highlights its differentiating characteristics and explores the instances where it is most likely to be of assistance to fund promoters in both the traditional and alternative spaces.
In Korea, it has been a very frustrating and painful experience for a market participant with a keen interest having to wait for any significant developments to introduce Islamic finance (in particular, Sukuk) transactions because there has been no public debate or discussion of the bill to amend the Special Tax Treatment Control Act (STTCA) since 2011. This is so true especially after witnessing each successful issuance of sovereign Sukuk by the UK and Hong Kong governments in 2014. Yong-Jae Chang writes.
There has recently been a wave of global regulatory reforms which affect fundraising. These changes are far-reaching and can impact how fund managers structure funds, their proposed investor base, how and where funds are marketed, the remuneration that may be received, registrations that may be required and dealings with investors.
In new guidance published on 1 June 2015 the AIM Regulation team has clarified its approach to the free float requirement for AIM companies and reminded nominated advisers of the steps they are expected to take to ensure that a company seeking to join AIM has proper policies and procedures in place to enable it to comply with its financial reporting and other obligations under the AIM Rules.
Six things every investor, start-up, financial institution and payment processor should know about the future regulation of Bitcoin and other cryptocurrency derivatives. This article considers the current U.S. derivatives regulatory regime of the CFTC and its applicability to Bitcoin, other cryptocurrencies, and the blockchain protocol. We also discuss practical considerations for those entering the market and what future CFTC regulation of cryptocurrency derivatives and blockchain technology may look like.
As recent figures have shown, after a two-year slump, Asia Pacific’s private equity (PE) sector registered its best-ever performance in 2014, with both deal values and exit activity soaring to a new record of US$81 billion and US$111 billion, respectively (Bain & Co Asia Pacific PE Report 2015).
Playing a role in the Islamic finance sector under the headings of structured products, treasury products and risk management, derivatives are financial assets that derive their value from the performance of another underlying entity such as an asset, interest rate or index. Common forms of derivatives include forwards, futures, options and swaps and they are widely used as a means of efficient hedging and for quick and easy access to a market. However, despite their widespread use in the conventional industry they remain a divisive topic in Islamic finance. A consensus of opinion among Shariah scholars regarding the validity of derivatives under the tenets of Islamic finance has yet to be reached, despite the growing volume of regulation assigned to this particular product.
The SEC signals continued scrutiny of asset management firms for all manner of violations — including technical violations first identified in exams. On February 26, Julie Riewe, the Co-Chief of the SEC’s Asset Management Unit (AMU), delivered a speech to the IA Watch 17th Annual IA Compliance Conference that could fairly be described a “state of the unit” address. Titled “Conflicts, Conflicts Everywhere,” Riewe’s speech highlights the AMU’s focus on what the SEC views as conflicts of interest in all shapes and sizes.
New rules effective from today in the U.K. are likely to have material impact on the tax treatment of payments by a fund to its U.K.-based management executives and service providers. The rules cover many areas of fund manager taxation that previously have not been specifically legislated for in the U.K. Given the haste with which the new rules were constructed and passed into law, it is not surprising that many situations are now being analysed with a degree of concern, in particular where the rules have had some unexpected, and in some cases, potentially negative effects.
The Hong Kong government has announced in its latest budget a planned extension of the existing offshore funds tax exemption to bring offshore private equity funds investing in or through Hong Kong, within its scope. The scope of the amendment will not only bring private companies within the exemption, but will also include SPVs which may be Hong Kong incorporated provided they are owned by an offshore person. This is a significant and welcome development for private equity funds investing in or through Hong Kong (typically into China) that will put private equity funds on a par with hedge funds when investing in Hong Kong. It is expected that the government will introduce the draft legislation in the first half of 2015.
Conventional asset management has seen impressive growth over the last few decades and funds have become a well-established financial product. However, Shariah compliant asset management remains a niche within conventional asset management. Why is Islamic asset management, Pierre Oberlé asks, still small and how can it further develop?
Shareholder activism has increased significantly over the past several years, and many companies who once believed they were too small to attract the attention of activist shareholders more and more frequently find themselves in the middle of a proxy contest or responding to shareholder proposals, among other things.
Though relatively underdeveloped compared to some other Western jurisdictions, namely the UK and the
US, Islamic finance is making small but steady strides in the Canadian market. Rehan Huda discusses the
correlation between the growth in size and affluence of the Canadian Muslim community and growth in the level of observance, leading to more vocal demand for Islamic fi nancial products and services.
Week two of the new year marked a significant step in the development of the European Private Placement Market. The Loan Market Association (LMA) launched template documents for use in European private placement transactions. The development of standardised documentation will improve the visibility and perception of the product and might provide the European private placement market with the potential to grow, in time, into a notable competitor to the US market.
Switzerland has always been an attractive and relatively easily accessible market for the distribution of foreign funds. As at end-November 2014, the total volume of funds registered for sale to retail investors (including institutional share classes) amounted to more than CHF 850 billion. This is not the total market picture, however, as according to the Swiss National Bank, at the end of 2014 another approximately CHF 800 billion have been privately placed into securities accounts of Swiss and foreign private HNWI'’s and institutional clients held with banks in Switzerland.
Enormous, diverse, rich in resources but historically underserved and overlooked by the financial services sector, Africa has a Muslim population of over 400 million. A nascent Islamic finance industry is gradually emerging across the continent, invigorated by the strengthening of economic links and increased trade between Africa and the rest of the world. – with the Middle East especially playing an important role in bringing vital investment into rapidly developing countries. Patrick Colegrave and Joanna Hossack look at the current climate for the industry, and how this can continue and increase in the coming years.
Last year at about this time in December, we were still working our way through the final Volcker Rule. A year has passed and we are still attempting to understand the exceptions that may be available in connection with hedging of exposures arising in connection with the issuance of structured products. We anticipate that there will be additional regulatory guidance on the Volcker Rule. In fact, in their public statements, Federal Reserve representatives have alluded to possible changes relating to the metrics and compliance policy requirements.
In recent years and in the wake of the global financial crisis, international financial centres (IFCs) such as the British Virgin Islands (BVI) and the Cayman Islands (Cayman) have faced unprecedented political and regulatory pressure from governments and international organizations to open up and become more transparent in their business practices. Louise Groom, Joanna Hossack and Ian Montgomery discuss the implications for their position as domiciles for Shariah compliant SPVs.
On August 21, 2014, China Securities Regulatory Commission (CSRC), the Chinese securities regulator, promulgated the Interim Regulations on the Supervision and Administration of Private Investment Funds (the CSRC Regulations). These new regulations became effective on the same date.
There is significant potential for alternative investment fund managers (AIFMs) to access Germany's large base of institutional investors. Despite the recent post-AIFMD challenges — including the abolition of Germany's pre-AIFMD private placement regime (NPPR) and BaFin's (the German supervisory authority) restrictive interpretation of reverse solicitation practices — Germany is far from the 'impenetrable' jurisdiction for marketing purposes under AIFMD or the KAGB (Kapitalanlagegesetzbuch, the 2013 German implementing legislation) that many clients assume. Not only is it possible for a non-EU fund to become authorised for marketing in Germany to professional and semi-professional investors under the KAGB, it is in fact not as difficult as previously assumed.
Singapore is the only country with a non-Muslim majority in the top 15 countries for Islamic finance according to the Monetary Authority of Singapore (MAS), and is ranked first by the World Bank on its Doing Business Ranking 2014. Rebecca Simmonds assesses the opportunities for the city state’s development of Islamic finance.
The recent surge in attention being given to ‘activist shareholders’ in Australia has seen them getting a more sympathetic ear from fund managers. Previously low profile funds are now showing a willingness to engage with activists to understand their proposals for improving share price performance rather than necessarily siding with the incumbents.
Although the Foreign Account Tax Compliance Act (FATCA) went ‘live’ July 1, 2014, guidance continues to fall into place. On July 16, the IRS issued instructions for the requester of various Forms W-8 and continues to update its FAQ website. The Cayman Islands Tax Information Authority issued regulations effective July 4, 2014 addressing the implementation of the Cayman IGA, and on July 22 issued the first official version of its FATCA Guidance Notes.
The European Union's Alternative Investment Fund Managers Directive (the ‘Directive’) provides for comprehensive changes in the regulatory framework applicable to alternative investment fund managers (AIFMs) that manage or market alternative investment funds (AIFs) within the European Union.
In a recent speech to the Practising Law Institute’s Private Equity Forum, Norm Champ, Director of the SEC’s Division of Investment Management, discussed the SEC’s increasing attention to the growth in ‘alternative mutual funds’, or open-end mutual funds that feature investment strategies more typically seen in private funds. Similar to recent speeches and discussions related to the SEC’s oversight of hedge funds, previously discussed in this newsletter last November, Champ’s speech contained useful guidance about the types of risks the SEC is monitoring in the alternative mutual fund space, but it also conveyed that the SEC will be ramping up inspection into whether investment advisers to these funds are fully complying with their duties.
With expansion plans charted beyond core market horizons in the Middle East and Malaysia, Islamic finance is setting its sights on finding a safe haven to dock in southern waters. Banco do Brasil, Latin America’s biggest bank by assets, is ready to welcome these explorers with the launch of Brazil’s first Shariah compliant equity fund. Alexandre Ferreira Lopes guides us through these new waters.
We recently conducted a survey of superannuation members. Admittedly, this survey was limited to a small sample size consisting of people the authors know and work with.
The World Cup was fantastic and surpassed all expectations. It is a shame that England could not also have surpassed expectations. Amidst all the coverage of the event, there was one interesting article in the press, which did not cover the usual ground of match reports, injury updates and post-mortems of England’s or Brazil’s performance – it was an article on how hedge funds are investing in the football sector and will continue to do so. The interest generated by the World Cup is only likely to whet the appetite of such investors even further.
Despite the introduction of an act relating to Islamic finance in 2002, the industry in Thailand has seen little developmental progress over the years, due to minimal support from the Thai government for a comprehensive legislative and regulatory system for the sector. As the country’s sole Islamic bank, the Islamic Bank of Thailand, recovers from a particularly tumultuous 2013, Rebecca Simmonds explores the current condition of Thailand’s Islamic finance offering.
The use of established third-party platforms has become increasingly popular for asset managers launching UCITS-compliant funds in recent years. The indicators are that this trend is likely to be even more pronounced among managers seeking to establish alternative funds in compliance with the EU Alternative Investment Fund Managers Directive (AIFMD). This article provides an overview of some of the key considerations when negotiating the on-boarding of an asset manager onto an existing third-party platform in either the UCITS or AIFMD environments.
Increasingly, some activist hedge funds are looking to sell their stock positions back to target companies. How should the board respond to hushmail?
Brazil already boasts a good level of trade flow with Islamic countries. Trade flow growth over the last 10 years has been above 400%. A good example of this is the export of Halal certified chicken. According to the Brazilian Aviculture Union (Ubabef), Brazil exported 1.48 billion tons of chicken to Middle Eastern countries in 2013. The good results are the consequence of a partnership in which the Brazilian market respects and complies with the requirements of the Islamic market.
On June 8, 2011, the European Parliament and the European Council issued Directive 2011/61/EU on alternative investment fund managers (the AIFM Directive). The AIFM Directive applies to alternative investment fund managers that manage and/or market alternative investment funds (AIFs)—investment funds other than UCITS funds—in the EU and lays down a set of harmonised rules regarding authorisation, operation, and transparency. The managers of real estate funds, private equity funds, venture capital funds, infrastructure funds, and hedge funds fall within the subjects to whom the provisions of the AIFM Directive apply.
Eurekahedge was commissioned by AIMA (Japan) to conduct a survey of Japanese investors. The survey itself was conducted from end of March to April 2014 to gauge important insights into market sentiment, investment trends and key regulatory challenges facing the Asian asset management industry, with a particular emphasis on the outlook for Japan. The key findings from this survey are presented in this paper based on responses submitted by a total of 131 survey participants. As for the investment advisors who participated in the Survey, they are collectively advising and/or managing assets in excess of US$3.8 trillion.
Technical factors are broadly supportive. Sovereign issuance is relatively low net of coupons and amortisations and, in terms of valuations, EM debt looks reasonably attractive versus developed market corporate bonds following the yield spread widening that occurred over the summer.
Hedge funds are a touchy subject in Islamic finance, with scholars widely disagreeing about the Shariah compliance of various strategies. Irfan A Naheem talks us through the key concepts and controversies.
With little more than five months to go before alternative managers active in Europe must be fully compliant with the European Union’s Alternative Investment Fund Managers Directive, Luxembourg is perfectly positioned to accommodate fund firms, from global investment houses to specialist boutiques, eager to exploit the potential of a passport to an EU-wide market.
A new era of economic and policy stability has created a benign and improving macroeconomic environment in Vietnam, and is driving significant changes in the country. Investor recognition of these advances is largely responsible for the outperformance of Vietnam’s stock markets relative to regional bourses and frontier peers over the last two years or so. Having learnt a number of lessons, the hard way, through the global financial crisis and on into 2011 Vietnam is now three years into a new stage of its development.
The rules governing the asset management of Swiss pension funds, including the use of derivative instruments, are set out in the Federal Act on Occupational Benefit Plans and the Federal Ordinance on Occupational Benefit Plans. Further, the Federal Social Insurance Office, as the federal supervisory authority of pension funds, published professional recommendations for the use of derivative financial instruments (October 15 1996).
There have been no legislative changes affecting Islamic finance in Russia over the last six months, with providers of Islamic financial products operating within the country’s existing regulations. However the main financial regulator, the Central Bank of Russia, has made recent enquires with financial institutions in the country currently offering Islamic finance products regarding their facilitation and implementation under the existing legislation.
As every year ends there is usually an assessment of who were the winners and losers in the world of global financial trading and investments. We want to know who made the best bets and invested in the right companies. And we want to know who had that particular insight which enabled them to realise that, although everyone was optimistic about a particular stock, the fundamentals did not add up, and as a result decided to short the stock and invest in another company everyone had underrated.
The use of offshore companies in Islamic finance is driven by many of the same factors as in conventional banking, as tax efficiency, bankruptcy-remoteness and privacy are considerations common to most cross-border transactions. Louise Groom and Joanna Hossack write on how the Cayman Islands are in a fortunate position as the preferred jurisdiction for Islamic financing structures originating in the Middle East and the UK.
On December 12, 2013, the Canadian Securities Administrators (CSA) published CSA Notice 81-324 Proposed CSA Mutual Fund Risk Classification Methodology for Use in Fund Facts. The CSA propose to mandate (or adopt as guidance only) that all Canadian mutual funds use standard deviation as the measurement of risk and for risk classification purposes. Once a fund’s standard deviation has been calculated, the fund manager will be required to slot the fund into one of six standardised risk bands proposed by the CSA for the purposes of the simplified prospectus and Fund Facts disclosure. Notably, the CSA have not published proposed rule amendments – the Notice describes the CSA’s proposed methodology, including its proposals for enhanced disclosure, and is designed to elicit feedback on the proposals in advance of rule-making.
An increasing number of Muslim high net worth individuals are exploring legal options and structures that help them achieve strategic objectives and optimal arrangements in asset management, planning and distribution. Aida Othman explores the options.
It seems that change is the new norm in many areas of the financial services world, largely as a result of the current challenging economy in which legislation, regulation and risk management are all shaping the way in which we work and advise our clients.
The offshore world is no exception to this and there are a number of developments that are exercising family offices and their offshore providers or partners.
The Islamic debt capital market covers multiple asset classes including asset-backed financing, capital loans, repos, term financing, Sukuk and syndicated finance. While some areas (such as asset-backed financing and repos) are still small, sectors such as Sukuk and syndicated financing have found a keen and growing audience around the world. Rebecca Simmonds explores the current state of the market.
Emerging markets have performed poorly in recent years with moderating economic growth and disappointing earnings. However, frontier markets have outperformed as investors have recognised that robust domestic economic growth can be translated into strong earnings growth at a company level. Frontier markets have outperformed global and regional emerging markets in three of the last five years. African and Middle Eastern markets have been the main drivers of this outperformance, while Asian and Latin American frontier markets have lagged. In fact, in economic terms Africa today is similar to the emerging markets of Asia and Latin America fifteen years ago (Figure 1).
Loans secured by interests in hedge funds and, to a lesser extent, private equity funds have been a staple of many banks’ credit offerings for years. However, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203, H.R. 4173) (Dodd-Frank) in general, and the part thereof known as ‘the Volcker Rule’ in particular, have raised a basic question: “Can a banking institution subject to the Volcker Rule (which is virtually every banking institution in the U.S.) continue to make and enforce hedge fund and private equity fund secured loans?”
Brazil is a predominantly Catholic country, but has carved a niche for itself in the Halal market. One of the largest suppliers of Halal goods to the GCC and the most promising opportunity for Islamic finance in Latin America, Rebecca Simmonds investigates Brazil’s promising future.
Over the last few years, we all have become fairly adept at expecting and addressing the unexpected; however, it still remains useful at year-end to consider what’s on the horizon. Here are our thoughts on what to expect in the structured products area in 2014.
Though relatively underdeveloped compared to some other western jurisdictions, namely the UK and US, Islamic finance is making small but steady strides in the Canadian market. Rehan Huda discusses the increasingly attractive Islamic market in the country.
On October 23, 2013 the Securities and Exchange Commission (the ‘SEC’) proposed Regulation Crowdfunding (Regulation CF) to implement the Crowdfunding provisions of Title III of the Jumpstart Our Business Startups Act of 2012 (the ‘JOBS Act’). The new rules mirror the provisions of Title III, expand the scope and requirements of the exemption in several key respects and establish the guidelines for issuers, intermediaries and investors in the Crowdfunding space. To be clear, Regulation CF addresses the on-line based issuance of securities to the general public without registration and represents a sea-change in the past 80 years of securities regulation.
For years, the Chinese private fund industry has operated in regulatory limbo, but a recent series of legislative and regulatory actions should provide greater certainty and help create a more favourable environment for the incipient hedge fund industry in the People’s Republic of China (“China” or the “PRC”). Please note that these changes, which are summarised below, apply only with respect to domestic PRC private funds, although non-PRC private fund managers may wish to bear them in mind as they seek to access China’s burgeoning investor base.
Islamic microfinance, still a nascent industry, has the potential to help alleviate poverty in an ethical way and empower Muslim and non-Muslim micro-entrepreneurs. Said Qaceme looks at how setting up a microfinance investment vehicle may help realise this potential.
On August 12, 2013, the Commodity Futures Trading Commission (the “Commission” or “CFTC”) issued final rules (the “Final Rules”) with respect to certain compliance obligations for commodity pool operators (“CPOs”) of investment companies registered under the Investment Company Act of 1940 (the “Investment Company Act”) that are required to register with the CFTC due to the recent amendments to section 4.5 of the regulations under the Commodity Exchange Act (the “Regulations”).
With the FATCA Model Intergovernmental Agreements in place and European countries welcoming the initiative, will FATCA provide a global framework to achieve greater tax transparency?
The securitisation market faces tougher regulation. Clifford Chance experts outline the current regulatory landscape and assess what may lie ahead.
Emerging markets are attracting greater attention from investors as they become a more important part of the global economy. However, optimism about the opportunities that economic development could bring is usually accompanied by concerns about the corporate governance standards of companies in those markets.
In an effort to reduce the industry’s reliance on a limited range of Shariah compliant instruments, Jalal Khan Momand discusses the IIFM’s new risk-sharing Interbank Unrestricted Master Investment Wakalah Agreement, which the IDB hopes will meet the deficiency of instruments in the investable Islamic liquidity management market.
On 26 June 2013, the European Commission issued draft regulations (Regulations) that proposed a new type of collective investment framework allowing investors to put money into companies and projects that require long-term capital. The European Commission proposal seeks to achieve the general objectives of (i) increasing the means for long-term financing across all sectors of the European economy and (ii) improving the coherence of the single market.
The Islamic finance industry has seen exceptional growth over the past decade and many optimistic predictions have been made regarding the enormous potential for future development. But Cedomir Nestorovic explains why in his opinion, Islamic finance will never be able to replace conventional finance.
The European Securities and Markets Authority (ESMA)'s consolidated Guidelines on ETFs and other UCITS issues (Guidelines) entered into force on 18 February 2013. On the same day, the Commission de Surveillance du Secteur Financier (CSSF) published its Circular 13/559 incorporating the Guidelines into its supervisory practice. In addition, ESMA published Questions and Answers (Q&A) om 15 March 2013 (updated on 11 July 2013) on the practical application of the Guidelines.
In considering the future economic potential of the catastrophe reinsurance market, I will examine current issues including rate adequacy, uninsurable and indirect losses, as well as the use of vendor models. I will discuss how new ideas, regulation and a new breed of scientists are changing the industry and conclude that the market will only be profitable in the long-term for a select group of leading reinsurers.
Despite being one of the biggest economies in the region, Saudi Arabia has yet to fulfill its true potential within the Islamic economy. Dr Ahmed Al Ajlouni explores the opportunities and challenges facing the kingdom in its quest to develop a functional and accessible Islamic capital market.
Bermuda may not be the first place one thinks of for offshore investment funds, but it ought to be.
Bermuda’s global pre-eminence in the reinsurance industry is undisputed - it is currently home to 1,291 insurance companies which generated a gross premium of US$107.7 billion as at the end of 20101. Recent figures show that Bermuda is the pioneer offshore hedge funds jurisdiction. In fact, Bermuda’s registered funds have increased from US$159.51 billion of total net asset value2 in 2011 to US$185.39 billion in Q3 of 20123.
The European Directive on Alternative Investment Fund Managers (AIFMD)1 came into force on 21 July 2011. It is now required to be implemented into the national laws of the 27 Member States of the European Union (EU) and the 3 additional European Economic Area (EEA) states (Norway, Iceland and Liechtenstein) by 22 July 2013.
As from July 1, 2013, fund managers who wish to set up, manage or market alternative investment funds in the EU must be compliant with the Alternative Investment Fund Managers Directive (AIFMD). The date is fast approaching and managers who wish to set up base in Europe ahead of this important date must be prepared. Malta has all the legal infrastructure in place to help them get AIFMD-licensed from day one. For some, the re-domiciliation route could be their best option in the present circumstances. Malta’s tried and tested re-domiciliation procedures for both funds and fund managers, and the guiding approach the domicile is renowned for, could indeed be the best proposition.
Singapore has already developed an enviable reputation as a global fund management hub. Yeo Wico and Suhaimi Zainul-Abidin discuss the new regulatory and tax approaches being adopted to encourage the growth of Islamic funds in the country
New clearing, risk mitigation, and reporting obligations imposed on certain derivative contracts.
On 15 March, the first six implementing measures of the European Market Infrastructure Regulation (EMIR) entered into force, marking the beginning of the gradual implementation of EMIR over the next two years. EMIR applies widely to both financial and nonfinancial counterparties to derivative contracts, including energy derivatives. In particular, new clearing and risk mitigation requirements for uncleared trades will apply to over-the-counter (OTC) derivative contracts, and a new reporting requirement will apply to both OTC and exchange-based derivative contracts. Some of these requirements are already in force.
One of the primary stated aims of the Alternative Investment Fund Managers Directive1 (AIFMD) was to increase investor protection2. A key step in this regard was the imposition of a standard requirement that alternative investment funds managers (AIFMs) falling within the scope of the AIFMD and marketing their funds into Europe ensure each relevant alternative investment fund (AIF) which they manage appoints a third party depositary with respect to its underlying assets3.
In March, the SEC settled two enforcement actions involving private equity. The two actions are just the latest indicators of the SEC’s wide ranging and close scrutiny of the private equity industry, which has been ongoing for some time. We are hearing multiple speeches by SEC Staff focused on perceived compliance problems in the private equity industry. Focusing on both registered and unregistered investment advisers, the SEC has expressed concern with virtually every type of violation, large and small, of which a private equity investment adviser is capable. From the manner in which the offering is conducted to violations of fiduciary duties - improper valuations of portfolio assets, conflicts of interest, favouring some clients over others, improper use of unregistered broker-dealers and finders, general solicitation in private placements, inaccurate disclosures – nothing is being overlooked.
While not the first location that springs to mind when thinking of Islamic finance, Guernsey has developed its legal, tax and regulatory frameworks to a point where many Islamic players are now attracted to the island’s well-developed financial industry. John Richardson discusses the steps Guernsey is taking to encourage this trend.
The Chancellor's Budget rhetoric emphasised the UK's commitment to being a world leader in the asset management sector: the Chancellor stating that "in places like Edinburgh and London, we have a world beating asset management industry. But they are losing business to other places in Europe. We act now with a package of measures to reverse this decline".
The sixth-largest global economy, Brazil represents a very real opportunity for Islamic finance to spread its wings in a hitherto relatively untapped region, while Shariah compliant finance offers Brazil an exciting source of funding to boost development. Alexandre Lopes discusses the opportunities and challenges involved.
On February 6, 2013, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) issued CVM Instruction No. 531 (CVM Instr. 531/2013), amending: (i) CVM Instruction No. 356, of December 17, 2001 (CVM Instr. 356/2001), which regulates the incorporation and operation in Brazil of credit rights investment funds (fundos de investimento em direitos creditórios – FIDCs) and investment funds which invest in units of such credit rights investment funds (fundos de investimento em cotas de fundos de investimento em direitos creditórios – FICFIDCs); and (ii) CVM Instruction No. 400, of December 29, 2003 (CVM Instr. 400/2003), which deals with securities’ distribution public offerings.
As a new ‘regulation light’ fund manager regime is launched in the British Virgin Islands, eligible fund managers can now count on a simpler application process. Philip Graham of Harneys provides an update.
This briefing explains the attractions for international managers, sponsors and investors of the Cayman Islands as the jurisdiction in which to domicile a private equity fund.
The deal to effectively haircut Cypriot deposits is an unprecedented move in the Euro crisis and highlights the limits of solidarity and the raw economics that somebody has to pay. It is also the most dangerous gambit that EMU leaders have made to date.
Muslims comprise around 15% of the Russian population and the country has vast potential for Shariah compliant finance across its multiple and varied territories. Vladislav Zabrodin and Anna Leksashova discuss the increasing level of Islamic activity occurring across its retail, capital and corporate finance markets.
The delegation model of fund management, whereby self-managed investment vehicles or their management companies appoint third party investment managers and advisers, has been a key basis upon which the success of the funds industry in Ireland has been built. There are currently in excess of 5,000 Irish domiciled funds and sub-funds, with assets in excess of 1 trillion euro, which have been established by over 400 fund promoters based in over 50 countries.
Australian managed investment trusts (MITs) (as defined for tax purposes) are eligible for the following important tax concessions:
(a.) MIT withholding: that is, a concessional rate of withholding tax applies to 'fund payments' made to foreign investors who are tax resident in a country that has an information exchange agreement with Australia1; and
(b.) MIT capital account safe harbour: that is, the MIT may elect to apply the capital gains tax (CGT) provisions as the primary code for taxing gains and losses on the disposal of eligible assets (namely a share in a company, non-share equity, a unit in a unit trust, land - including an interest in land and a right to acquire or dispose of any of these assets)2
On January 17, 2013, the Internal Revenue Service issued final regulationsthat provide guidance on the ‘Foreign Account Tax Compliance Act’ (FATCA) provisions contained in sections 1471-1474 of the Internal Revenue Code.
With the platform for an Islamic finance offering in Hong Kong almost complete, what are the prospects for the growth of the Islamic finance sector in Hong Kong? Bryant Edwards, Craig Nethercott and Nomaan Raja ask whether the region has the capacity to foster an Islamic finance sector.
For most of the past two decades, private equity (PE) funds have had only two types of competition: strategic investors and each other. Special purpose acquisition companies, business development companies and hedge fund side pockets all emerged during this period, but none have really challenged the primacy of PE funds. In the past few years, however, a new form of competitor has emerged: their own limited partners (LPs). To be more specific, the threat is coming from high net worth (HNW) families that used to form the backbone of many PE funds, before institutional money came pouring in.
Draft legislation (the Draft) issued by the Ministry of Finance on December 4th 2012, and designed, inter alia, to implement the AIFM-Directive into German tax law, will make significant changes to both the scope of the German Investment Tax Act (InvTA) and the taxation of German investors under InvTA. This note explains recent developments in connection with these proposed changes and their potential impact on funds not established under German law. In particular, investors in certain non-German funds may in future cease to qualify for tax transparent treatment and, instead, be subject to a less beneficial lump-sum tax regime.
The British Virgin Islands (BVI) is the world’s second largest offshore fund domicile with close to 3,000 registered funds and growing. The global recession affected the industry, with most funds during that time looking at their balance sheet and redemption issues. In some cases, funds were taken to court by investors for a variety of reasons directly caused by the impact of the recession on some funds. That scenario is almost behind us and what we are now seeing is a resurgence in the set up of new funds. More managers have now also seen some of the benefits offered by BVI funds and have, or are ready to make the move to a BVI fund. With the updating of BVI funds legislation in 2010 through the passage of the Securities and Investment Business Act, 2010 (SIBA), the BVI is well poised to continue on this path of growth.
Aarij Wasti and Peter Hodgins explore the continued debate around regulatory frameworks for Islamic financial institutions, and discuss whether conventional financial institutions should be allowed to operate Islamic branches and windows.
Hong Kong has yet to make its mark on the Islamic finance sector, with limited interest from industry practitioners. However, taking a page out of Malaysia in terms of education and training could provide new impetus to the sector. Amirullah Haji Abdullah discusses.
Islamic finance continues to grow as a prudent alternative to conventional debt-based structures. Financial assets total more than US$1.3 trillion and instruments are expanding into new countries beyond its traditional markets in the Middle East and Malaysia. At its core, Shariah principles favour the development and sharing of risk in physical assets, which contribute to the economic growth of society. There is therefore a natural match between the Islamic finance model and the acquisition and development of real estate assets. Moreover, Islamic finance is a flexible tool which can be used for a wide range of real estate financings.
More than two years after the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), regulations under Title VII of that legislation have reached a sufficiently advanced point that end-users of derivatives will soon be required to take action to ensure their compliance with the regulatory scheme and their continued access to the derivatives market. In this article, we review the current state of play for end-users, the actions they must take or should consider taking, and the likely time frame for the relevant regulations’ implementation.
Over the last years, private family funds have developed significantly. Whereas offshore or Luxembourg funds may be considered as natural first choices, Swiss collective investment schemes offer specific opportunities. Families must ensure that they are in a position to meet the requirements of the Swiss regulatory framework and should analyse possible tax benefits.
This edition of our update on the pan-European short selling Regulation focuses on the implications of the Regulation for market participants in the United States (US). In particular, we focus on market participants whose trading activities are conducted in the US in financial instruments that have a nexus with the European Union (EU), such as a parallel EU listing of a financial instrument or an EU listing of the underlying financial instrument. Such activities, which may subject the market participant not only to the US short selling regime, but also to the Regulation,3 include short sales of (i) certain American Depositary Receipts (ADRs) of EU-listed issuers, and (ii) dual listed securities of issuers that are concurrently listed on one of the EU and US trading venues.
Islamic finance has a long history. However, it has only developed on a global scale over the last 30 years. In that relatively short space of time the industry has grown rapidly and the global market now exceeds US$1 trillion.
As previously described in our Client Alert on the pan-European short selling regulation, the European Commission (the Commission) adopted a proposal on September 15, 2010 to harmonise the regulation of short sales and credit default swaps across the European Union. On March 14, 2012, the European Parliament and the Council of the European Union (the Council) each voted to adopt the proposed regulation, after including a number of significant amendments (the Regulation).
Despite its leading position as a western Islamic finance hub, the UK Islamic finance industry faces growing challenges including the lack of a lender of last resort and the absence of a UK sovereign sukuk. Jan Dinger explores.
The capital markets are heating up, and as a result we are seeing increased interest in raising private capital for early-stage and private equity transactions. Because the private capital market is so inefficient, the use of ‘finders’ to secure capital is increasing.
The German Ministry of Finance (BMF) on 20 July 2012 published the draft of a bill (Draft AIFM-Act) to implement the Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD) into German law. Within the framework of implementing the AIFMD, the Draft AIFM Act provides, in particular, for the repeal of the German Investment Act (Investmentgesetz – InvA), which implemented the UCITS Directive 2009/65/EC (UCITSD) among other things.
The basic proponents of Islam, which include socio-economic justice, equitable distribution of wealth and so on, have trickled down to the financial system as well to ensure religiously legitimate financial operations, giving the world a whole new distinctive and fast-growing segment in the international banking and capital markets.
While there are many challenges posed by the EU’s directive on alternative investment fund managers (AIFMD), the ones that everyone seems to focus on are those regarding the AIFMD’s depositary requirements. This note looks at these requirements in more detail and considers the extent to which they are relevant to EU managers of non-EU AIFs and non-EU managers of AIFs.
Following recent trends in the world’s advanced economies for increased regulation of alternative investment funds (AIFs), on May 21, 2012, the Securities and Exchange Board of India (SEBI) issued the SEBI (Alternative Investment Funds) Regulations, 2012 (the “AIF Regulations”) to provide a comprehensive framework for the regulation of AIFs in India. SEBI seems to have adopted many of the suggestions and comments it received from stakeholders when it released a draft of the AIF Regulations back in August 2011.
Eleanor De Rosmorduc and Jean-Nicholas Durand question why success in the retail market is necessary for Islamic finance to reach a viable scale in Europe.
One of the sensible things that emerged from the recent financial crisis is a more realistic approach to estimating the growth rate of Islamic finance. Indeed, the 2012 Global Islamic Finance Report foregoes the temptation to make any global predictions at all.
Directive 2011/61/EU on Alternative Investment Fund Managers, known colloquially as the ‘Alternative Investment Fund Managers Directive’ or the ‘AIFMD’, will overhaul the pan-European regulatory regime applicable to the managers of hedge funds, real estate funds, private equity and other collective investment schemes containing, what is loosely being described as, ‘alternative investments’.
A founder member of the European Union benefiting fully from free movement of capital and freedom of establishment within the EU, Luxembourg is also one of the largest global financial centres, benefiting from flexible and attractive legal, regulatory and tax regimes and a significant concentration of professional service providers to the financial services industry.
The Sri Lankan economy is considered as one of the emerging economies in Asia with GDP growth exceeding 8% in 2011 and per capita incomes doubling from US$1,062 in 2004 to over US$2,800 in 2011. The positive economic outlook has created opportunities in varied sectors and has resulted in an influx of foreign direct investment to the country. Sri Lanka’s predominant services sector, which accounted for 59% of the GDP in 2009, was one of the key contributors to the economy as companies recorded strong financial performance in the recent financial year and the negative effects of the global recession subsided.
According to the Federal Aviation Administration’s ? ‘FAA Aerospace Forecast (Fiscal Years 2011–2031),’ the commercial air carrier industry will grow by a remarkable 3.7% over the next five years. System capacity in available seat miles – the overall yardstick for how busy aviation is on a global scale – will increase 4.5% in 2011 and is expected by the FAA to grow thereafter at an average annual rate of 3.6% through 2031.
European financial markets have experienced volatility and have been adversely affected by concerns regarding rising government debt levels, credit rating downgrades, and possible defaults on or restructuring of government debt of various countries, most notably Greece. These events have affected the value and exchange rate of the euro and have had varying impacts on fund strategy, performance, investments, operations, liquidity and counterparties.
A founder member of the European Union benefiting fully from free movement of capital and freedom of establishment within the EU, Luxembourg is also one of the largest global financial centres, benefiting from flexible and attractive legal, regulatory and tax regimes and a significant concentration of professional service providers to the financial services industry.
On 24 March 2012, the European Parliament’s Regulation on “short selling and certain aspects of credit default swaps” (the Regulation)1 came into force.
As the Islamic finance industry strives to drive forward and out of the global financial crisis, the roles of offshore jurisdictions continue to grow exponentially. Caroline Barton analyses.
With mounting competition on the ground, Brazil-based fund managers are increasingly looking to attract international investors, giving rise to the rapid growth of the offshore Latin American asset base.
The Alternative Investment Fund Managers Directive (Directive 2011/61/EU) (AIFM Directive) sets out new rules that are being introduced in the European Union (EU) in respect of the authorisation, operation, and ongoing reporting for managers of alternative investment funds (AIFMs) which manage and/or market alternative investment funds (AIFs) in the various member-state countries of the EU.
Raymond Davern, Dennis Ryan and David Pytches look at the ways in which the various types of trust products in each jurisdiction may be of interest to MENA families as succession planning vehicles.
The recent economic landscape has seen a significant regulatory overhaul of the financial services sector in Europe. This article highlights the impact of the European Union Directive on Alternative Investment Fund Managers (AIFMD) and how it will affect Australian fund managers seeking to undertake capital raising activities in Europe.
With the 22 June 2013 deadline for the implementation of the Alternative Investment Fund Managers Directive (Directive 2011/61/EC) (the Directive) fast approaching, fund managers based outside the EU need to consider how prepared they are for its introduction
Since December 2002, foreign institutional investors have been permitted to invest in China A Shares listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange through the Qualified Foreign Institutional Investor (QFII) programme. The QFII programme allows licensed foreign investors to invest in China A Shares in the local currency provided that certain minimum criteria are met. The return on the investment, including dividends and capital gains, can be legally exchanged into foreign currency and repatriated
Recognition of ‘UCITS’ as a global brand for funds continues to go from strength to strength. In the years following the introduction of the potential for such funds to take advantage of additional investment options more typically associated with the alternative industry and hedge funds (in particular further to the ‘UCITS III’ regulatory
The time is right for New Zealand to structure a more focused economic engagement with the Muslim world. Mohamed Nalar provides an insight into the current landscape.
A number of private equity funds and hedge funds are structured as limited partnerships that are governed by the terms of a limited partnership agreement (an ‘LPA’). A recurring theme in private equity fund investing is the use of ‘side letters’ between individual limited partners and the general partner of the fund. Side letters can range in scope from administrative matters to providing substantive rights to limited partners. Questions and issues inevitably arise as to the type of provisions that can be included in a side letter (which, in most cases only benefit the recipient of the side letter) as opposed to being incorporated into the limited partnership agreement itself (which generally benefit all limited partners of the fund).
This briefing note provides a short overview of the regulatory requirements imposed by the Office of the Securities and Exchange of Thailand (SEC) for THB bond/debenture offerings in Thailand (Offering) by foreign issuers or any special purpose vehicle established by a foreign government organisation/entity or by any foreign entity, for the purpose of securitisation in Thailand (collectively, the ‘Issuer’). It is not intended to be comprehensive and should not be used as a substitute for taking legal advice in the context of a particular transaction.
Yeo Wico and Suhaimi Zainul-Abidin discuss Singapore as a case study offering the potential for Islamic finance to flourish in a predominantly non-Muslim country.
Basel III is unlikely to materially change the existing challenges faced by Islamic banks. However it is expected to dominate the agenda of many conventional financial institutions. Mike Kennedy discusses.
Infrastructure funds are widely recognised as innovative financing tools that support economic expansion and long-term national competitiveness in many countries. By leveraging private capital and government support, infrastructure funds allow countries to finance the large infrastructure projects essential for their development. For project developers and investors, infrastructure funds provide opportunities to participate in infrastructure projects with varying levels of risk and return.
Basheer Oshodi believes that the Islamic finance global growth of over 15% per annum may not make much impact in Africa if the continent is unable to solve its poverty challenges.
There has been much talk of the poor performance of Africa’s development and governance indicators when compared to other regions. Attention has also been focused on Africa’s poor performance in meeting the Millennium Development Goals and the inability of the region to meet its 2015 targets. Others have stressed the national economic empowerment and development strategy: designed to implement economic and institutional reforms, poverty alleviation, wealth creation, employment generation and value reorientation.
The outstanding performance of the art market over the past 10 years, coupled with the trepidation many have about financial markets post-2008, has led to growing interest in art as an investment and increased dialogue about art fund vehicles.
Microfinance could be one of the ideal approaches to alleviate poverty in the Islamic world. Moinuddin Malim questions why there have as yet been no significant attempts or successful implementations in the sector.
Years of financial discipline, sound macroeconomic policies and an Asia-led commodity boom have given key Latin American countries several years of robust economic growth expanding local investment funds. To guard against concentrated local risk and global market contagion, Latin American institutional investors are developing event-sensitive portfolios that seek to diversify risk and mitigate market turbulence.
A number of years ago, in order to further enhance the growing financial service sector in The Bahamas, which has contributed significantly to the country’s developmental progress, the government enacted legislation that would cater to the investment needs and interests of sophisticated investors interested in a stable economy. The proposed legislation was designed to allow considerable flexibility for its promoters but with an appropriate level of governance. The platform, the Investment Fund Act 2003 (IFA), created four classes of funds, including the Specific Mandate Alternative Regulatory Test Fund, hereinafter referred to as ‘SMART Funds’.
The European Securities and Markets Authority (ESMA); the successor of CESR, has been assigned with the mandate of providing the European Commission with proposals regarding the AIFMD implementing measures (i.e. implementing acts and delegated acts). ESMA has published a Consultation Paper (CP) containing its draft proposals which shall be finalised in the light of the feedback received and be subsequently submitted to the European Commission by 16 November 2011.
Recent research shows that the number of alternative managers utilising UCITS as their fund structure is growing steadily, with the overall number of ‘newcits’, or alternative UCITS, now in excess of 1,000, of which nearly 700 were established since the financial crises of 2008. However, following the successful implementation of the UCITS IV regulatory updates earlier this year, increased attention is now focusing on how best to capitalise on the international restructuring opportunities available for UCITS in this new environment.
The market share of participation banks in Turkey has increased since the 2001 crisis. Ali Ceylan and Burak Gencoglu delve into the banking laws in the country and discuss how it may affect the Islamic finance industry.
Bermuda’s tax neutrality and favourable yet robust regulations make it an ideal location for Islamic finance investment. Cheryl Packwood and Belaid A Jheengoor explore the advantages of the jurisdiction.
The last few years have seen an upsurge of interest in the theme of the so-called “emerging markets” (EM). For most of the past decade, sentiment towards EM has been generally bullish, but there are moments when perceived excessive euphoria leads to talk of “bubbles” and the like. This happened to some degree ahead of the first Fed rate hike in 2004, and it happened much more dramatically in the aftermath of the global financial crisis of 2008.
During the course of discussions with fund promoters, many different queries are posed on how alternative investment funds; referred to as Professional Investor Funds (PIFs) in Malta, may be set-up and structured. Such queries usually revolve around the financial services regulator Malta Financial Services Authority (MFSA), time to licence, the need of service providers (including Directors) to be established/based in Malta and their availability on the island, taxation issues, and obviously cost. Malta has been building its reputation as a flexible yet onshore EU domicile and is competing well with its larger and more established European competitors, which begs the question - why are fund promoters choosing Malta?
Pierre Oberlé looks at the special benefits Luxembourg offers to Shariah compliant fund promoters, and reviews the latest developments in this area.
Luxembourg’s strengths in conventional investment funds make Shariah compliant investment funds a natural next step. Over the past 20 years, the Grand Duchy has become the leading centre for global fund distribution and Europe’s number one fund domicile in terms of assets. It now also ranks in the top five domiciles for Islamic funds.
The key role Ireland plays as an administration and servicing hub for funds domiciled in offshore jurisdictions continues to grow. The latest industry figures show that an incredible 43 per cent of global hedge fund assets are now administered in Ireland. This amounts to some €987 billion held in over 6,000 non-Irish funds which together represent almost 50% of the total assets under administration in Ireland.
Shadow banking is one of those terms, along with bail-ins, living wills, CoCos and alternative investment funds, which has crept into our vocabulary since the onset of the global financial crisis. Like many of these terms, it can mean different things to different people. As regulators begin to consider what regulatory measures to put in place to address the perceived risks arising from shadow banking, we consider how funds and fund managers may be caught up in the rush by regulators to close a perceived regulatory loophole and how the funds industry might respond to proposals specifically designed to regulate shadow banking.
All involved with Cayman’s hedge fund industry have ‘lived in interesting times’ over the past few years. What developments have there been and how do things stand now? Paul Scrivener and Jonathan Fitzgibbons give their insight ‘from the trenches’.
The drift of funds from offshore jurisdictions to Ireland is continuing, with further asset managers announcing they are to take advantage of Ireland’s streamlined redomiciliation regime to move existing funds to Dublin.
A recent example was the Sarasin Guernsey fund range, which has been active in Guernsey for 20 years but recently announced that it is redomiciling to Ireland in order to enable the funds to be registered as UCITS.
The social investing fund industry has seen phenomenal growth in recent years The accelerating growth of asset inflows through 2010 and 2011 demonstrates strong demand for the industry. The Eurekahedge Socially Responsible Investments (SRI) database contains more than 1000 SRI funds with total combined assets of more than US$200 billion.
Cyprus is a cost-effective EU, OECD, FATF and Euro Zone jurisdiction with the lowest corporate tax rate in the EU. Its business and commercial law is based on English law. It offers platforms for pursuing alternative investment strategies both through Cyprus UCITS and through Cyprus alternative investment funds. Cyprus has also reputed professionals regarding investment fund administration and taxation; e.g. 90% of Cyprus accountants hold one of the two top UK professional qualifications and have acquired significant experience in the financial centre of London.
Siripen Kaodara and Stephen Jaggs discuss the Thai laws that have brought advancement in the country’s Islamic finance industry.
Thailand has a Muslim population of approximately nine million and an Islamic banking system which dates back to 1998. However, it previously lacked the necessary legal infrastructure for high profile Islamic products such as sukuk. Today, Thailand has advanced a few further steps into the growing Islamic finance market by developing its laws.
The USD-INR exchange rate is an important indicator of investor sentiment and can significantly impact not only the fortunes of individual firms and sectors but also the government. While this exchange rate has been very stable overall for the last five years, there have been periods of significant volatility. For example, USD-INR moved from 40.0 to 51.5 from March 2008 to March 2009. We believe there is a significant downside risk to USD-INR exchange rate and will explore some of the risk factors here.
Under the auspices of UCITS III, management companies (“ManCos”) and self-managed investment companies (SMICs) have been organised and maintained in accordance with the requirements of the Management Directive (Undertaking for Collective Investment in Transferable Securities Directive 2001/107) such that the board of directors are required to carry out eight key functions, being: decision taking, monitoring compliance, risk management, monitoring investment performance, financial control, monitoring capital, internal audit and supervision of delegates in the course of their management of the relevant UCITS.
Managed Futures as an asset class, has been gaining attention and popularity. This class of investments offer returns that have little or no correlation to the equity and fixed income markets.
A result of this increased popularity is the proliferation of investment vehicles that allow access to this unique asset class. The different programs that are available are designed to make entry into this group considerably easier than what historically has been an investment reserved for the wealthy investor.
Although equities are the most popular and natural choice for retail products, commodities are a good niche choice for two main reasons. First, when the increase in value of commodities is very strong, and second as a diversification from equities. Because commodity prices often exhibit complex pricing patterns driven by supply and demand, many commodity indexes have been created in order to provide a more reliable measure of commodity price performance.
The introduction of the first draft of the Sukuk Islamic Financing Law of 2011 marks a welcome change in the Jordanian financing industry, particularly for Shariah compliant companies and entities. Khaled Saqqaf explains.
Recently in Japan, Islamic finance has been attracting the attention of many potential market players. In December 2010, the Financial Services Agency of Japan officially announced its aim to ’promote the development of an environment for the issuance of Islamic bonds in Japan’ in its action plan for a new growth strategy.
The search for appropriate alternative assets to be used to diversify investment portfolios has created a demand for ‘financial engineers’ to design and bring to the market a wide range of instruments that are promoted as the tool to use.
Liquidity is defined as the ability of a bank to fund increases in its assets and to meet its obligations as they come due, without incurring unacceptable losses.
The raison d’être of a bank in an economy is in the role of maturity transformation of its short term deposits; which appear on the right hand side of its balance sheet, into long term loans; which appear on the left hand side of the balance sheet and to make a return for shareholders.
While almost all retail structured products are linked to equities, those linked to commodities or commodity indexes have been slow to be introduced to retail investors. In many markets, commodities are a natural alternative. Over the long term, the prices of commodities can be expected to increase as they provide a natural hedge against inflation, and typically they also have low correlations with equities, making them an excellent diversification tool in any portfolio. But perhaps most importantly, they represent a straightforward investment story for retail investors, who often hear about rising commodity prices, particularly oil and gas.
World financial markets are back at or ahead of levels last seen in 2008 before the credit bubble burst. This surge has somewhat eased the liquidity woes of hedge funds and private equity managers, as well as their investors. The question now is how much more is there to go?
In the aftermath of the financial crisis, demand on the part of institutional investors for more regulated, transparent and liquid collective investment schemes, and continuing uncertainty over the impact of the Alternative Investment Fund Managers (AIFM) directive on their marketing activities in Europe, have led to increased interest on the part of Asian hedge fund managers in so-called "Newcits" – UCITS (Undertakings for Collective Investment in Transferable Securities) funds which pursue hedge fund type strategies and invest in derivatives for speculative purposes as opposed for efficient portfolio management.
Recent industry statistics show increased interest from alternative investment managers in basing their funds in onshore-regulated jurisdictions and as a result of this trend, Ireland recently overtook both Bermuda and the BVI as a domicile for hedge funds for the first time.
In Islam, money is not a commodity and cannot be traded for profits. It is just a medium of exchange and it stores value. Money, therefore, must be invested in projects and ventures for the generation of activities, for the benefit of mankind and in the process, for profit.
As the hedge fund industry has become more institutionalised, requests for enhanced liquidity and/or transparency have become increasingly common and increasingly demanding. This article reviews the options available to an FSA-authorised hedge fund manager (assuming that it manages funds structured as Cayman companies) and the main issues surrounding each option.
Strong growth in Latin America is catching the eye of many business and investors. But when it comes to decision time, Brazil is often the only financial market big and sophisticated enough to make a trade worthwhile. However, three of Latin America's smaller but most dynamic economies plan to combine forces to offer a viable alternative and open up their markets to local and international investors.
Real estate private equity funds have a big issue: They need more capital, and it's not that easy to get, at least not anymore. A mere three years ago, capital was abundant. Between 1999 and 2008, investors filled real estate funds' coffers with equity capital totalling some $420 billion, nearly 80% of which was raised in the relatively short period between 2005 and 2008. During the same period, debt became overly abundant and very inexpensive, and underwriting standards became very loose. Nearly half of the approximately $1 trillion in commercial mortgage debt that has been originated since 2002 was issued in the two-and-a-half-year period between 2005 and 2007, right at the peak of the market.
The recent global financial crisis has shown us the critical importance of having equity participation, risk sharing and fair dealings in all banking and financial services. Internationally, trillions of dollars in wealth was wiped out in the crisis.
The application of ESG issues to the design and implementation of property investment strategies is complex, given the ever-changing kaleidoscope of interests and stakeholders involved at different stages of the life of a real estate asset.
The European Parliament adopted the Alternative Investment Fund Managers Directive (the 'Directive') on 11 November 2010. The Directive contains new rules on the marketing of alternative investment funds in the EU by both European and non-European managers. This paper considers the impact of the provisions of the Directive, the opportunities afforded by this new European 'passport' for alternative funds and sets out the timeline for implementation of the new framework.
An investor considering an allocation to managed futures recently asked me if the Lehman Brothers' bankruptcy and the collapse of Bernard Madoff's fraudulent investment firm had been good or bad for the futures industry. There is no single or easy answer to that question.
In a typical hedge fund structure, the board of directors will delegate the different functions necessary to the day-to-day activities of the fund to a selection of third-party service providers. In practice, the directors, too often, are selected at the very end of the fund's creation process and therefore usually have little to say in the final choice of the service providers. The hedge fund managers, especially the start-up ones, could gain by reversing the selection process on his head and bringing in the independent directors early on. By doing so, the manager will be able to benefit from the experience of the directors, demonstrate his commitment to strong corporate governance and bring some independence in the pre-launch phase.
Trading currencies has become a very popular investment activity over the past few years. Many have determined that the medium is either too high risk or too stressful for their tastes, but a relative few have invested the time required to learn the craft, have felt a personality match with the rigorous trading regimen, and have achieved a level of success and consistency over time. As the word has gotten out regarding their prowess, friends have come forward with funds to add to the pool. Success breeds growth, but at some juncture in the timeline, the successful trader may soon want to formalise the informal arrangements at hand.
Getting access to a loan to invest in a start-up venture can sometimes be daunting.
This is because many lending institutions, especially commercial banks, are leery of lending to start-up ventures, terming them as mere conceptual business ideas yet to be proved feasible and therefore full of potential risks.
Instead, most banks are comfortable lending to individual entrepreneurs against their personal assets or regular income than to extend a loan facility to a new business venture against its projected cash inflows.
Who will provide the dynamics for an 'idea system' that creates and innovates the processes in 2011 and beyond?
While there have been formal discussions held within the Islamic ?nance community over the past year regarding product development, acceptable investment practices and execution applications, several key issues remain to be primary topics for exploration. The most critical is, who will take on the leadership role and for what purpose?
As many institutional investors, seemingly disillusioned with traditional equity markets, turn to the alternative investment industry in search of better performance and risk diversification, their demands for institutional grade controls, increased transparency, more liquidity and flexible product strategies are helping to drive fundamental changes.
For years, hedge funds were well-served by these various categories of administrators who were able to co-exist due to the seemingly endless supply of new fund launches and increases in assets. They seldom competed for business among administrators in different categories. Today, the relatively low number of new funds, the liquidation of funds and asset flight to the top hedge funds has resulted in overlapping competition among the administrators at all levels. It is inevitable that we will see a reduction in the number of administrators in the coming years.
The prime brokerage industry has undergone an unprecedented rate of change in recent months. With overall trading volumes lagging and a heightened focus on compliance and risk controls, prime brokerage firms have either chosen or been forced to change their longstanding business models. This is especially true when it comes to the smaller introducing prime brokers. Some of these small firms have merged or exited the business altogether; some have opted to save costs by consolidating their custody and clearing relationships, while others have been acquired by larger firms looking to increase their product offerings and shore up their balance sheets.
To incentivise prior investors to participate in a current round of financing, many financing transactions in the current capital raising environment employ a 'pay-to-play' mechanism, whereby prior investors who do not participate in the current round of financing suffer a punishment.
This paper provides an overview of global and corporate sustainability trends in emerging markets and describes environmental, social and governance (ESG) risks and opportunities for investor seeking long-term returns in such regions.
For a number of years, the utilisation of Islamic financing methods and practices has been discussed as one of the next significant trends in the Japanese financial market. This has yet to be the case unfortunately, largely because of the prolonged downturn in Japan's economy following the global financial crisis.
FMCs are currently divided into two categories: licensed FMCs and exempt FMCs. All FMCs must apply to the MAS for a capital market services (CMS) licence, unless they fall under an exemption in the regulations under the Securities and Futures Act (SFA), which is the principal legislation governing FMCs and other financial institutions in Singapore. A key exemption that is frequently used caters to FMCs with no more than 30 qualified investors. If an FMC is unable to qualify under an exemption, it will have to obtain a full CMS licence; a boutique CMS licence or a start-up boutique CMS licence
In response to the significant financial distress experienced since late 2007, in connection with the global financial crisis, lawmakers and regulators (particularly in the US and Europe) are in the midst of efforts to effect comprehensive reforms to their respective financial regulatory systems.
"To BP or not to BP?", a frequently asked question in recent months, was being debated in the socially responsible investment space long before the major oil company's spill in the Gulf of Mexico. Some SRI asset managers had already distanced themselves from the company given BP's fossil fuel focus, poor safety record and retreat from a previously strong commitment to sustainability.
The period since September 2008 has focused attention on the ability of investors in investment funds to influence or direct the manner of operation of the fund in which they are invested (or the lack thereof). Investment funds facing decreasing liquidity in their portfolios and a significant increase in redemption requests (and potential difficulty in obtaining accurate net asset valuations for certain portfolio assets) used a variety of techniques to prevent significant redemptions.
The Hong Kong Inland Revenue Department (IRD) recently issued Departmental Interpretation and Practice Note No. 46 (DIPN 46), which may affect the arrangements used by fund management groups to minimise tax on management fees and performance fees. In this article, we examine the current taxation position and set out defensive steps which fund management groups may take to minimise the risk of tax enforcement.
This SOPA is specific to commodity investing dominated by an environment of global public policy extremism and nationalism. This environment appears in the form of wild liquidity variables, extreme levels of public debt, new infrastructure spending, competitive currency devaluation and increased regulation. Commodities must be viewed as an important piece of the global policy chess game that will separate the economic winners from the losers. This puts us in the price of power phase. It is the last of the phases of the commodity super cycle and it can last a decade.
When Hugo Boss took the decision to close its Brooklyn, Ohio-based factory on the grounds that it was 'no longer globally competitive', its owners, Permira, will have known that it was going to spark controversy. Despite talks with unions and discussions with the local governor, the company was unable to make the numbers work, making the factory's 375 employees redundant.
Increasingly, investors and their financial advisors are taking notice of green investing and are asking whether and how environmental criteria should be considered in their portfolios. I believe a global consensus is emerging that the challenge of our time is to achieve energy security and economic growth while minimising pollution and preventing irreversible damage to our ecosystem.
The month of May has been full of twists and turns in the financial markets and at the regulatory level on both sides of the Atlantic. Europeans began the “hostilities” on 18 May with the approval, by the European Parliament, of the draft text of the new Alternative Investment Fund Managers (AIFM) Directive. The Americans followed suit on 14 May 2010, with the Senate passing the Restoring American Financial Stability Act of 2010, following the Wall Street Reform and Consumer Protection Act of 2009 (HR 4173), which the US House of Representatives passed in December 2009.
Efforts to create green building REITs, brought to a grinding halt by the credit crisis and recession, are unlikely to resume until late in the economic recovery when new construction rebounds, but a number of existing REITs are already going a lot greener.
The difficulty in valuing underlying investments of funds has been one of the direct impacts of the unprecedented turmoil in the world economy resulting in a number of funds holding positions in investments which are increasingly hard to value or are illiquid. This has brought on the imposition of gates on redemptions or the indefinite suspension of redemptions.
It may be time to take a fresh look at funds of hedge funds. As investors seek avenues for diversification through alternative investment strategies, a fund of hedge funds in offshore funds may be a wise choice, despite some potential problems.
In the emerging sphere of supranational macro-prudential supervision, an important debate is progressing among global policy-makers. Throughout the G20, policy-makers and practitioners are attempting to solve one of the fundamental challenges posed by the recent crisis: how to construct a global system of oversight and supervision that is capable of identifying the build-up of excesses and stresses in the financial system, and how best to address such warning signs in a timely and effective manner.
The last 12-18 months have seen a dramatic rise in cleantech investments involving China. According to a Cleantech Group report issued in January 2010, Chinese companies raised $331 million in 2009 in venture capital investment in eight sectors: energy generation, materials, transportation, recycling, agriculture, energy efficiency, energy storage and wastewater. Nearly half (47%) of all the cleantech companies that went public worldwide in 2009 were in China.
Oaktree was formed in 1995 by Howard Marks, Bruce Karsh, Larry Keele, Richard Masson and Sheldon Stone. Their goal was to develop a pre-eminent organisation dedicated exclusively to alternative and non-mainstream investments focused on superior investment performance through risk control, loss minimisation and consistency. Prior to forming Oaktree, the founding principals worked together at Trust Company of the West (TCW) since the mid-1980s, where they established Oaktree’s oldest and largest investment strategies: high-yield bonds, distressed debt, convertible securities, principal investments and real estate.
For a while, hedge fund managers were the guys taking the blame for the financial crisis as banks plummeted amid short-selling. Once their bets turned out to be astute, we turned our attention to the bankers who broke their own institutions.
But the spivs of Mayfair have not been forgotten in Brussels and the future of the hedge fund industry – at least in Europe – is at the mercy of European Union horse trading as politicians consider the directive on alternative investment fund managers.
Sustainable investment, once the domain of tree-huggers and environmentalists, is being described as the biggest financial mega-trend for half a century.
But is anything new on offer or are the big beasts of the City simply hoping the “do good” image of such investments will help rebuild the tattered reputation of the Square Mile?
The 2008 crisis was substantially defined by investors rushing out of risk-based assets and into the safety of government securities and cash as the classic flight-to-safety. This shift out of risk assets put tremendous pressure on prices: sharp declines in equities, corporate bonds, commodities and all sorts of derivatives; volatility spikes to record highs; bid-offer spreads at unheard of levels and so on. By the end of 2008, it seemed as if the world would come to a screeching halt.
Cantab Capital Partners (CCP) is a systematic global macro hedge fund that manages assets in excess of $800 million. The firm is based in Cambridge, UK and it has close ties to the University of Cambridge. Founded in 2006, CCP is a team of 21 mathematicians, computer scientists and finance professionals. The firm’s success can be attributed to the high-quality team, robust models and institutional quality systems and software.
Investors and the fund managers they invest with have this year turned a sharper eye toward valuations. The spotlight is especially focused on over-the-counter (OTC) derivative valuations due to their complex combination of multiple pricing models and data sources compared to the transparency and observable pricing of exchange-traded securities. Transparency into the price determination process is now a requirement for every sophisticated investor.
There have been many casualties over the past year, in particular, investor confidence in economic and financial forecasts underpinning company valuations. While an economic downturn was not entirely unexpected, the sudden impact on international trade and the knock-on effects on overall demand have caught many by surprise.
Let us be clear: we do not genuinely expect our brainstorming laid out here to be taken up any time soon. The wide-ranging nature of the proposals make them hard to implement quickly anyway. But more importantly, there are too many vested interests to bog them down, and we are too politically naive to have left much room for horse-trading.
Tapping into the vast investor pool of money available in the Middle East is not an easy task. It is also not very different from marketing and selling funds anywhere else in the world, say the experts. While there is a debate about the merits and need for a local presence as well as the use and need of intermediaries, the majority of people in the fund industry working in the region agree that the approach will be roughly the same as anywhere else.
Emerging market sovereign debt spreads have rallied in the past few months, while emerging market equities and currencies have all bounced back from their significant lows at the tail end of last year. Inflows seem to be making a return to those markets that suffered repatriation of capital following the collapse of Lehman Brothers last September. While this recovery of risk appetite is encouraging and there seems to be a gradual merging of fundamentals and technicals again among some emerging market assets, we are still not entirely out of the woods.
The past year was replete with surprises – both pleasant and unpleasant. Indian companies made global headlines with landmark transactions such as Tata Motors, acquisition of Jaguar and Land Rover and Suzlon’s acquisition of REPower. These were considered very significant for an Indian company. Almost 80% of the Indian transactions of 2008 were cross-border in nature – which in a sense signalled a change in the dynamics of Indian business. Almost all sectors saw active M&A – from infrastructure, to telecommunications, consumer and retails and even transportation and logistics. However, how effective these transactions were remains a question, especially in the light of the experiences of companies that paid the top-dollar valuation and overleveraged themselves in order to fund ambitious expansion plans on the back of projected markets/order books that seem to have diminished significantly.
Here is one definition of the term “green building”, given in 2007 by Prof Thomas Lützkendorf at the University of Karlsruhe in Germany: “The broad term ‘green building’ today covers many different ideas, as it has evolved from a combination of varying concepts and trends. In German-speaking areas, these concepts were influenced by ecological and biological trends in building and construction and can be circumscribed, among others, with strategies for energy saving, environmentally friendly construction and administration that conform to health standards. Such a building then more than meets the criteria for reducing energy costs and the resulting environmental effects in the utilisation phase: the complete lifecycle will be included.”
Asset managers, whose fund sizes have shrivelled to a fraction of what they were before the international financial crisis, are capitalising on this unique window of opportunity to think out of the box. Maybe, even destroy it. They are looking for transparent innovative products with minimal risks, which guarantee capital protection and relatively good returns. It appears that these asset managers are putting into practice what economist Paul Romer once said, “A crisis is a terrible thing to waste.”
Investments made by private equity funds, hedge funds and other investment vehicles in companies that had been planning to raise money from the capital markets through initial public offerings (IPOs) have come back to haunt the founders of many such firms.
Companies owe their investors at least Rs4,000 crore for their inability to come out with IPOs within a specified time frame, a precondition for such investments, according to a Mint analysis of data provided by Nexgen Capitals Ltd, the investment banking arm of Delhi-based stock broker SMC Global Securities Ltd.
Writing from the nadir of the Allied war effort in 1942, Winston Churchill said: “Now is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.” In a similar vein, market observers today are starting to suggest that perhaps the “end of the beginning” is at hand in the struggle to place a floor under the global financial system.
A severe financial and economic global crisis is hitting all economies hard, particularly, those of developing countries. They are the first victims when exports decline and demand from industrialised and emerging economies contracts. Although this time Latin America and the Caribbean are not the centre of the crisis, the region is, unfortunately, being severely affected by it.
The latest twice-yearly survey of middle market merger professionals by the Association for Corporate Growth (ACG) and Thomson Reuters reveals the most negative outlook in the history of the survey, with 86% of dealmakers saying the current M&A environment is fair or poor. The percentage of those who say the current deal environment is good or excellent has fallen to 14% in December 2008, from a high of 93% in June 2007. The percentage has steadily dropped to 72% in December 2007, and to 43% in June 2008.
There were 13 buyout transactions in 2008 as compared to 11 in 2007. The average deal size in India has also increased sharply by 125% to US$36 million in 2008, from about US$16 million in 2005. The prominent buyouts include New Silk Route Advisors acquiring Dawanay Day AV; Future Capital Holdings acquiring Centrum Direct and Centrum Wealth Managers; ILabs Capital picking up a 60% stake in Lehren Entertainment Pvt Ltd; Navis picking up a 60% stake in Sah Petroleum Ltd; and RFCL (an ICICI Venture company) buying out completely Alved Pharma and Foods Pvt Ltd, and the medical diagnostic business of Godrej Industries Ltd.
ASIC said it would lift the current ban on short-selling of non-financial securities from opening of trading on 19 November 2008 but would continue the ban on covered short sales in financial securities.
ASIC put a 30-day ban on covered short-selling of securities on 21 September and extended this ban on 21 October as market conditions remained difficult.
The ban on short-selling of financial securities will remain in place until at least 27 January next year, consistent with many other jurisdictions, while ASX will maintain the ban on naked short-selling indefinitely. ASIC confirmed that financial securities would be those comprising the S&P/ASX 200 Financials (including property funds) plus five other APRA regulated businesses.
Buoyed by climate change and other issues, the socially responsible investment (SRI) industry in Canada has grown significantly in the last few years. New companies have entered the market launching new funds and other products and grabbing attention from the media, policymakers and financial heavyweights.
Viresco International Capital Management LLC is an alternative asset management firm dedicated to investing in the global clean technology sector, also known as substainable investment. Founded in 2008, the firm manages the Viresco Opportunities Global Fund LP, which consists of long and short strategies of publicly-traded equity, debt and derivative securities. The company is based in San Diego, California and has an office in Asia. In 2008, Eurekahedge interviewed the CIO and Partner of the Fund, Karim Salamatian.
As the threat of a recession looms and credit markets continue to tighten, the future looks increasingly promising for investors planning to take advantage of distressed and turnaround opportunities. Not surprisingly, the market has been awash with news of new funds gearing themselves up to take advantage of the large capital inflows expected to find its way into distressed investment strategies.
It’s like clockwork. Every few years, a news story comes along announcing the incipient burgeoning of the real estate secondary market. And while the real estate secondary market has increased in size, it has yet to fulfill the promise of really taking off – this time, though, things might be different.
We predicted that the influx of institutional money would have two effects on the marketplace – first, there would be a degree of polarisation towards the larger funds; and secondly, those funds and their managers attracting such money would come under increasing pressure to demonstrate that they operated robust systems and controls. This trend was validated to us, when we commissioned our recent EIU briefing “Transparency versus returns: The institutional investor view of alternative assets”.
Up until a few months ago, inflation was something mainly central banks in the developed world concerned themselves with. As Mervyn King and Ben Bernanke struggled to decide which was the lesser of the two evils – slowing economic growth or inflation – emerging markets (EM) looked like they were about to come out of the credit crunch relatively unscathed. However, fast-forward to July 2008 and inflation has become the biggest threat facing EM, driven in large part by skyrocketing food and energy prices. According to the Asian Development Bank, inflation in the Asian region is expected to reach a decade-high this year and is accelerating faster than anywhere else in the world. Inflation now exceeds targets in at least 19 emerging economies.
Venture capital investments in US cleantech companies grew by 41% to US$961.7 million in 2Q2008, up from US$683.5 million in 1Q2008, according to an Ernst & Young report based on data from Dow Jones VentureOne. This is the highest total cleantech investment on record, and comes amidst a quarter in which overall venture capital investment was down by nearly 8%. Year-on-year cleantech investment follows this upward trend, increasing 83% from 2Q2007.
Asia has experienced rapid growth in alternative investments in recent years, fuelled by investors’ search for increased alpha in emerging markets and by institutional players broadening their investment horizons to diversify geographical risk. Assets allocated to hedge funds, private equity and, increasingly, real estate and infrastructure funds have seen significant growth. This has led to alternative assets starting to become part of the investment mainstream.
Venture capitalists invested US$7.4 billion in 990 deals in the second quarter of 2008, according to the MoneyTree™ Report from PricewaterhouseCoopers (PwC) and the National Venture Capital Association (NVCA) based on data provided by Thomson Reuters. Quarterly investment activity was essentially flat compared to the first quarter of 2008 when US$7.5 billion was invested in 977 deals. Growth in the clean technology and Internet-specific sectors contributed to the solid level of investing seen in the quarter.
Civic Capital Group believes that many of the best future investment opportunities involve solving social problems. As a result, it invests in companies whose products or services have an immediate, positive impact on today’s major challenges in society, such as nutrition, education, medical care, environmental concerns, and the care and well-being of senior citizens. Investment decisions are driven by in-house fundamental and quantitative research with input from an advisory board of business and academic leaders. Rather than screen-out candidates for socially responsible investing (SRI), Civic is pro-active in identifying companies which address unmet needs of society.
Will 2008 be another bullish year for the emerging markets? It is too early to say, but the performance of the Dow Jones Islamic Markets (DJIM) Index family reflects the continuation of last year’s positive trend in the BRIC (Brazil, Russia, Indonesia and China) countries, Southeast Asia and the Middle East.
In the summer 2007 issue of this publication, I wrote an article ("From SRI to Sustainable Investing") arguing that sustainable investing is the next stage in the evolution of socially responsible investing (SRI). This shift from SRI to sustainable investing is not only taking shape in the real world, but the interest in and uptake in sustainability is accelerating. I think it's also true that whereas SRI has always been understood more as an "alternative" investment strategy, sustainable investing has the potential to be a transformative investment strategy. Thus, the change is more than just semantics; it is fundamental, both stylistically and substantively.
What was considered by some as a niche approach to investment is developing into a set of sophisticated, integrated and influential strategies adopted by a wide range of investors. The public's broader awareness of sustainable development issues, and the growing number of initiatives encouraging greater corporate transparency and accountability on CSR issues, have supported demand for the creation of new SRI investment products.
Sid Klein began in the securities industry as a stockbroker in 1982, focusing on large-cap US value stocks and derivatives. Following Brault Guy O’Brien, Sid joined Midland Doherty in 1984 and then Prudential Bache Securities in 1987. By 1989, his focus had shifted to Japan. Actively trading long-term euro-put warrants from the peak, Sid became acquainted with the OTC derivatives business, as a result of which he began structuring long-term warrants on baskets of stocks. The focus was those stocks whose long-term performances he expected to be in-line with equities whose volatilities in the shorter run were much higher, thus causing higher volatility premiums.
The issue of so-called “alpha and beta separation” has come to dominate almost every discussion of asset management trends in the US, and to a lesser extent, the European and Asian markets. This development has mirrored the rising interest in, and availability of, alpha-generating hedge funds on the one hand, and beta-tracking exchange-traded funds (ETFs) on the other.
Socially responsible investing (SRI) is an investment process that considers the social and environmental consequences of investments, both positive and negative, within the context of rigorous financial analysis. Social investors include individuals, businesses, universities, hospitals, foundations, pension funds, corporations, religious institutions and other non-profit organisations that consciously put their money to work in ways designed to achieve specific financial goals, while pursuing a future based on sustainability and the needs of multiple stakeholders, including employees, their families and communities.
The masters of the universe in New York and London, who paid themselves many hundreds of millions, or even billions, each, for their efforts in 2007, have managed to create quite a financial mess over the past year. And it will take the aforementioned masters several years to work their way out of the mess.
The Australian Securities Exchange (ASX) is addressing transparency and settlement risk issues associated with short-selling of listed securities in several ways. These issues are more acute in times of market volatility. In the current environment, ASX takes this opportunity to remind market participants of the requirements existing under a combination of current legislative provisions and ASX market rules.
New alternative energy and green funds fuel expansion of socially responsible investing; climate change is pushed to the forefront; community development organisations flourish despite the subprime mortgage debacle; consumers demand healthy products and work environments; and SEC limits shareholder rights.
It has been a volatile 2007 for the stock markets, and perhaps not a good start to 2008. But one certainly can’t say the same of Singapore’s policies towards the fund management industry. The policy has been stable and consistent in wooing fund managers to set up shop here. The government has adopted a proactive approach in building its position as a key fund management centre in Asia.
A few weeks after the unusually large drawdowns attracted everyone’s attention to the perils of “quantitative” investing, the popular opinion of what may have happened, has been formed. The answer, apparently, lies in the quantitative space becoming overcrowded, with most models generating similar forecasts and thus similar portfolios. Losses began with the rapid unwind of a large market-neutral equity portfolio and have generated ripples throughout the quant world.
There were a lot of reasons to dislike riskier credit in the second half of last year. The subprime mortgage fallout, tightening credit markets, an increasing backlog of postponed new issues in the high yield space and growing concern over the economy were enough to make even the most seasoned distressed investors re-evaluate their portfolio strategies.
When a problem occurs, regardless of the originating cause, all roads tend to lead to the directors, who, individually and collectively have unlimited personal liability and stand to lose everything if things go wrong.
Those who focus on alternative investments devote significant effort to accumulating net worth, yet how much effort is devoted to protecting it? The everyday risks, such as car accidents, are covered by insurance; the concern of the affluent focuses on the aggressive litigation that can claim a large part of their asset base. Even when there was no intent, liability is often based on net worth rather than wrongdoing; few juries relate to a defendant with a Greenwich address. Our legal system makes it easy for a plaintiff to bring a large lawsuit and thus it has become increasingly important for those of substance to protect their wealth.
The first few months of the year were fairly uneventful for most asset classes. Equity markets continued their uptrend with only a brief hiccup in late February and early March. The first signs of a weakening US housing market emerged when several subprime lenders went out of business or had to declare bankruptcy in March and April. At first, financial markets deemed the problems were isolated in the subprime segment. Most equity indices continued to rise until July as the news outside the housing sector remained positive.
As institutional investors seek new ways to capture excess returns, they are increasingly considering active extension strategies for their portfolios. These strategies, based on decades-old short-investing techniques, offer the potential for improving the magnitude and efficiency of the alpha that’s being generated.
What exactly is “active extension”? In brief, it’s a relative return strategy that combines a traditional long-only active portfolio with the ability to short selected stocks within an established structure. Proceeds from the short are reinvested into long positions within the portfolio.
Institutional investors represent an ever-increasing share of hedge fund assets, bringing about a sea-change in the way hedge funds – and hedge fund administrators – do business.
“Investors are demanding more frequent reporting and greater transparency, and that’s the biggest change I’ve seen in the industry,” Christine Waldron, vice-president of alternative investment products at US Bancorp, says. “Institutions are driving great accountability and frequency of reporting.”
High-conviction funds, beta-one funds, short extension funds, limited-shorting funds, long-enhanced funds, active extension funds, hedge-fund lite: there is a wide range of terms for what is most frequently called 130/30. Broadly, this strategy initially invests 100% in an index, sells short 30% and uses the proceeds from the shorts to buy an additional 30% likely to beat the benchmark.
Do institutional investors who want to do well while doing good need to make a tradeoff between investment performance and a social mission? Whereas first-generation socially responsible investment (SRI) products focused primarily on meeting social objectives, second- and third-generation products are being structured and marketed as vehicles allowing investors to meet both goals.
Trendy money managers and brokers take on the role of chief cook and bottle washer when they opt to be all things to all clients. In the context of this article, we are interested in those situations when they opt to be their client’s broker (or introducing broker) and investment adviser (either to a fund or private client). By becoming a broker, the money manager can significantly increase his bottom line as he is now entitled to sales commissions, third-party selling fees and in some cases increased access to margin (a key point if the manager runs a hedge fund or a proprietary trading firm).
Arif Imam was with Morgan Stanley (New York and Tokyo) from 1997 to 2006, most recently as managing director, global head of distribution and marketing (Japan). He was responsible for Japan equity distribution, corporate marketing, product development and alpha strategies teams. Arif started out as a systems engineer at Eckert Research Int’l (Tokyo) before joining Deloitte & Touche, CS First Boston and Smith Barney.
Timing is everything when you’re taking a long/short or event-driven approach to Asia’s banking sector. Get your short timing right when the market hits a wall, and even if the authorities play the moral hazard card in order to keep the institution’s doors open, the value of stockholder equity can go to zero, and your fund emerges the winner from everyone else’s misfortune.
Within the equity risk sub-module of the third Quantitative Impact Study (QIS3) undertaken by the Committee of European Insurance and Occupational Pension Supervisors (CEIOPS), a preamble to the Solvency II supervisory standard, all alternative investments are subject to a capital charge of 45%, nearly 50% higher than the 32% applied to regular equity exposures.
It is well known that the private equity industry is in the midst of a dramatic evolution in size and influence. Less well appreciated is the beginning of a sea change in transparency and corporate governance. This will transform it from a low profile, private industry dominated by a deal-making culture into one that conforms to a far greater extent with the norms of the public-listed markets.
Venture capital firms, led by Silicon Valley’s best of breed, have raised close to US$2 billion (Rs8,000 crore) for investment in India since January 2006, according to informal industry estimates.
The money will be invested in seed and early-stage companies over the next four to five years. This is indeed small compared with the estimated US$10 billion that private equity firms have allocated for India during the same period, but an important step towards reviving start-up funding in the country. Start-up funding almost disappeared after venture capitalists burnt their fingers in the 2000-01 Internet bust.
The conventional wisdom is that this is not a good time to be invested in distressed debt given historically low levels of default rates, ample liquidity in the capital markets and a robust mergers and acquisitions environment. Yet distressed funds were one of the top returning asset classes in 2006, returning 15.8% in 2006 as measured by the Eurekahedge Global Distressed Debt Index. Through this series of questions and answers, we assess the various strategies employed by distressed managers, the current market environment for distressed investing and where the opportunities will be in the next cycle.
Has the continued asset flow into commodity-based products simply been another case of institutional investors seeking higher, uncorrelated returns, or is there a deeper economic story?
In today’s globalised markets, a bad name spreads at the blink of a cursor. Professor Ingo Walter of Stern School of Business, New York University and Visiting Professor at INSEAD takes a close look at reputational risk and its adverse impact on financial firms.
In the investments world today, it's becoming fashionable to argue in favour of emerging fund managers, as more professionals in the industry – fund managers included – are realising the potential contribution that emerging funds can add to an investment portfolio.
In his book, Only the Paranoid Survive, former Intel Corp President and CEO Andrew Grove highlights what he calls a ‘strategic inflection point’, or ‘a time in the life of a business when its fundamentals are about to change'. These can either herald future success for the firms who adapt, or the imminent demise of those who do not.
Over the last 5-10 years, investors – private as well as institutional – have increasingly turned to ‘alternative investments’. Having lost confidence in traditional stocks and bonds, and hungry for returns and/or diversification, investors have allocated over US$2 trillion to hedge funds, private equity, commodities, etc. Given the amounts involved and the sophistication of many of the players, one would expect these allocations to have been made after thorough analysis.
Real estate in India is a classic bubble, even though the real estate folks might not want to believe this. Like in the last days of the dot.com boom, real estate developers tend to dismiss you and say ‘you don’t get it’ if you ask them tough questions.” This is the view of Gaurav Dalmia, founder and chairman of Landmark Holdings, who interestingly enough is a financial investor in real estate projects.
Although commodity markets have been around for centuries, investors’ interest in them has always been quite limited. Over the last few years, however, this has changed completely. Commodities have very quickly become very popular and investment in commodities is growing at an unprecedented rate. It is estimated that over the past few years (institutional) investors have poured US$75 billion into commodities and according to a recent institutional investor survey by Barclays Capital, many institutions expect to significantly increase their commodity exposure further over the next three years.
The ramifications of the Asian financial crisis were many, but high on the list was the creation of an unprecedented volume of bad debt.
Although specific estimates vary, it is largely accepted that almost US$2 trillion worth of non-performing assets (NPAs) sat on balance sheets – which at the time represented almost a third of Asia’s GDP.
Economic growth was impeded by the weight of this bad debt – since the capital badly needed to help rebuild economies was tied up with defaulted borrowers.
As always, adversity promotes opportunity. Distressed debt workout specialists, primarily the larger international investment banks – such as Citigroup, Deutsche Bank, Goldman Sachs and Morgan Stanley – became successful at turning the region’s bad debt into a lucrative business.
The increasing appetite for real estate has fuelled strong performance over recent years, and has led to a sharp increase in cross-border investment activity. For a number of years, larger investors in Canada, Germany, Netherlands and the US have pursued active global real estate investment strategies. More recently there has been an increase in cross-border activity within the Asia-Pacific markets (Figure 1) and this has involved both global investors and an increasing number of regional investors such as those from Australia, Hong Kong, Japan and Singapore.
MFC Global Investment Management (MFC Global) is the brand name for the diversified investment management group of Canadian-based Manulife Financial Corporation. MFC Global consists of several companies with investment offices in Toronto, Boston, London, Tokyo, Hong Kong and Southeast Asia. It has more than 100 years of experience managing portfolios for The Manufacturers Life Insurance Company, John Hancock Life Insurance Company and other major clients.
The objective of an event-driven investment strategy is to profit from investing in securities that are subject to corporate events. Significant corporate events can cause inefficiencies in the pricing of securities issued by companies undergoing such events (particularly in respect of the probability and timing of the event), which event-driven funds then seek to exploit. Such corporate events include mergers and acquisitions (M&A), capital-management initiatives, directors’ trades, earnings surprises and corporate distress.
Forex (or currency) funds have enjoyed a huge surge in popularity. From a forex trader’s perspective, it's perfectly clear as to why forex funds are so popular: a skilled forex fund manager can rake in a substantial income and continue to trade his own cash. While starting and managing a forex fund isn't for the inexperienced forex trader, it's not as tough or complicated as it may seem. These funds woo investors who want to participate in the forex markets but who know that they do not have the time or expertise to trade their own accounts.
The environment for activist-oriented strategic investments continues to evolve rapidly in Japan, where vocal shareholders have gained considerable clout vis-à-vis other Japanese corporate stakeholders over the past few years. By far, the biggest change enabling this has been in the mindset of senior managers at publicly-traded companies. As recently as three or four years ago, many executives in Japan spent more time chasing profit or revenue growth than managing their companies’ balance sheets. Nowadays, thanks in part to the role played by activists, concepts such as return on equity (ROE), return on assets (ROA) and return on investment capital (ROIC) are at the forefront of senior managers’ minds. Moreover, leaders of companies with underperforming stocks now know their firms may become takeover targets.
In today’s global marketplace, real estate is coming of age as an asset class, alongside stocks and bonds. It also corresponds to a period in which real estate returns generally exceeded those of stocks and bonds, with real estate offering stable returns in a period of stock market weakness and volatility. Investors have been asking themselves, “Why International?”. They normally look at various factors and have allocated their investment funds based on returns or diversification of their portfolios. Investors (from both the United States and Asia Pacific) have a wealth of opportunities available in their domestic markets and thus investing in foreign assets has been largely discretionary.
With between 15% and 20% of all hedge fund assets coming from structured product providers, the alternative investment market is fast catching on to the benefits of attracting such institutional clients. Up until now, most of these assets have been directed at funds of hedge funds (FoHFs), but single-manager funds are beginning to jump on the bandwagon too. Yet despite the allure of ‘sticky’ money, some hedge funds remain dubious of such clients.
Some participants in the Japanese stock market cite significant improvement in Japanese corporate governance as a motive for increased foreign participation. Perhaps, however, the causal relationship is really the reverse, that is, increased foreign ownership of Japan, Inc has forced improvements to corporate governance.
Latin America as a region has profited from commodities’ apparently relentless bull-run. However, managers have noted much of the region stands at the brink of potential transition, as a slew of elections take place during 2006.
With European retail investors still looking for indirect real estate investments, there are good reasons for investment managers to launch real estate certificates. These structured products have been popular vehicles for gaining exposure to hedge funds and private equity, so why not real estate?
Growing interest in indirect real estate investments European retail investors continue to show great interest in indirect real estate products. In Germany, for example, some investors are, rightly or wrongly, disappointed by the performance of some of the more traditional open-ended fund products and are looking for greener pastures.
What we believe has a bearing upon what we do. This is no less true for investment managers, which is why all introductory meetings between investment managers and prospective clients begin with the customary statement of investment philosophy. Specifically, whether or not a manager believes that the pursuit of alpha is a zero-sum game or not will influence the decision about what alpha he pursues and how he pursues it.
History repeats itself - only differently. This contradictory phrase notes the inherent difficulty in forecasting the future. More often than not the soothsayers get it wrong. The comment making the rounds is that fund of hedge funds (FoHFs) have seen their day and will be replaced by multi-strategy funds. Should one believe this to be correct? Any trend forecasted indefinitely into the future is incorrect in its assumptions. Does a 7% growth rate in public sector jobs imply one day in the future everyone will be working for the government?)
In the Korean investment management market, the proportion of funds investing in offshore securities to the market size has grown, up from 2.2% to 4.8% and to 5.6% at the end of 2002, 2003 and 2005 respectively.
The Eurekahedge database has now grown to cover over 200 long-only absolute return funds (ARFs) that together represent in excess of US$27 billion in managed assets.
Long-only ARFs are a recent addition to the alternative investment landscape and have grown in both size and number only in the past few years. Their increasing popularity among institutional investors is driving more hedge funds – leveraging on their presence and experience in the equity markets – to launch long-only products. Also, over the years, huge capital inflows into hedge funds have brought on an environment of shrinking conventional opportunities, especially on the short side.
The recent outperformance of commodities versus equities has caused a positive re-evaluation of commodities by both retail and institutional investors. Since December 2001, the annualised performance of commodities as represented by the Goldman Sachs Commodity Index (GSCI) has been +26.2% while the annualised performance of equities as represented by the S&P 500 equity index has been +3.8%.
On 1 January 2006, the FSA will introduce a new regime governing the use of dealing commission by investment managers, which will have a significant impact on managers who currently make use of soft commission agreements and/or bundled brokerage. However, as is explained in Q1 below, the changes will also affect managers who do not currently make use of soft commission agreements.
Currency markets have probably been one of the more significant sources of disappointments and frustrations for economists. Witness to this higher degree of complexity relative to other markets are the comments made by Federal Reserve Chairman Alan Greenspan whilst speaking at the Senate Banking Committee on 16 July 2002: "We at the Federal Reserve have spent an inordinate amount of time trying to find models which could successfully project exchange rates, not only ours, but everyone else's. It is not the most profitable investment we have made in research time". It is clear that currencies are indeed very different when compared to other asset classes.
Hedge funds have led the charge in the alternative investment community as a viable and growing segment of the buy side/asset gathering industry. Some of the brightest and smartest people from the industry have not only started hedge funds, but lately have started large "institutional", multi-strategy funds that span the globe looking for opportunities in which to trade. However, lately, as a technology provider to this industry, we at Gravitas are noticing with increasing frequency, private equity firms "spinning out" of larger institutions and establishing their own identities. Furthermore, many "hybrids" have followed in their own rite.
Quantitative analysis of financial markets has a long and distinguished history that reaches back to the early 20th century with the publication of the groundbreaking paper "The Theory of Speculation" by Louis Bachelier in 1900. It was the first scientifically thorough study of statistical behaviour of stock prices. Unfortunately, his work did not receive the due attention it deserved. Bachelier was far ahead of his times. To a certain extent his misfortune was that his ideas lacked a practical catalyst: modern information technology. Ultimately the progress of modern finance and quantitative investing, in particular, has always been tied to the rapid advancement of computing power and development of comprehensive financial databases.
The most visible effect of the recent revaluation of the RMB was a dramatic increase in the volume of macroeconomic ramblings from financial analysts globally, and a rash of "special bulletins" in our in-boxes.
Our summary is that the revaluation is at the same time immaterial and massively significant. It's immaterial in that it was expected, it was small, and has few discernible short-term effects. It's massively significant as it's the watershed point at which the PRC begins its transition to the world's largest economy, by engaging with global capital markets.
The start of the new millennium has heralded significant change in investment management. Equity market falls and consequent solvency issues have focused investors' attention on their liabilities (as have the new risk-based capital reporting requirements for insurers).
There has been a considerable reorganisation of assets which has included significant reallocations to asset classes that generate lower fee revenues.
The past thirty years have witnessed an increased separation between the ownership and the control of financial wealth. The emergence of modern portfolio theory, the increased efficiency of markets, and the growing sophistication of financial instruments have convinced many, if not most, investors to delegate the management of their portfolios to professional asset managers and their collective investment vehicles. Investment advice is now becoming a commodity.
Toronto-based BluMont Capital is one of the fastest-growing alternative investment firms in Canada and is home to Veronika Hirsch, one of Canada's leading hedge fund managers.
In Canada, BluMont offers a wide range of funds, from single manager/open-ended products to multi-strategy/multi-manager structured products with principal guarantees. For international investors, BluMont has just launched an offshore version of its successful long/short fund. The fund duplicates a strategy that has been in existence since January 2001 and as of 28 February 2005 had an annualised return of 18.7% and an annualised volatility of 9.9%.
Alternative investments have become the fashionable asset class of choice for pension funds, charitable endowments and wealthy individuals. The initial attraction was the outsized returns of the 1990s, but the concept of being able to show positive performance in both favourable and unfavourable markets has proved equally compelling. Many hedge funds promise less volatility than long-only investors, and this is appealing to fiduciaries. After the collapse of Long-Term Capital Management, blow-up risk became a selection factor for institutions. Nobody wanted to lose significant capital with a single manager, especially one who promised a “market neutral” approach.
Put yourself in the CIO’s seat of a fund of hedge funds for a moment. Imagine describing to investors your risk-management process for existing and prospective investments. “Our risk-management process relies on the risk-adjusted returns listed on the major investors’ databases to which we subscribe. Key amongst these are the Sharpe ratios that we use to assess performance. In addition, all the funds in which we invest have an in-house risk manager and provide risk information via third-party independent providers. As we are invested in all the major strategies, we are comfortable with the diversification in our returns.” Sound familiar? Relatively standard pieces such as the one mentioned above have become familiar AI jargon.
Over the last 20 years, investors have come to approach investment decision-making in an increasingly mechanical manner. Optimisers are filled up with historical return data and the 'optimal' portfolio follows almost automatically. In this paper we argue that such an approach can be extremely dangerous, especially when alternative investments such as hedge funds are involved. Proper hedge fund investing requires a much more elaborate approach to investment decision-making than currently in use by most investors.
Due to previous years' shortfall of information and the relative youth of the industry, Islamic funds are only now receiving substantial inflows, considering the vast wealth of their potential client base, as discussed in last month's edition. Disconnect between the consumer and the product can be attributed to structural deficiencies in the market and informational gaps, as well as the historically oblique nature of Islamic finance. More transparency, as with any developing industry, is needed to earn investors' confidence.
There has been renewed discussion in the Hong Kong market recently on the possibility of expanding the securities borrowing and lending (SBL) facility provided by Hong Kong Securities Clearing Company (HKSCC), a subsidiary of HKEx. However, commentators have differing perceptions of the value of such service, and indeed different understandings of what SBL entails. This article seeks to clarify some of these perceptions.
Every hedge fund investment manager will, at some point, face the critical question of selecting an administrator to whom to award the administrative mandate for the funds.
Nowadays, finding the appropriate solution to this question is not always a straightforward task and many fund managers struggle to identify the best possible deal. As the demand for hedge and alternative investment products grows, so does the need for fund administrators capable of providing innovative outsourcing solutions and supporting increased product complexity and sophistication.
The modern Islamic fund management industry was born in the 1970s, when a new class of Arab investors, rich from oil profits and celebrating the 15th century of the Islamic calendar (Hijra) in 1976, sought a culturally-aware alternative to the "profit at all costs" mentality of western investing, particularly in interest-dealings. The industry has been growing ever since: Islamic banking is active in 75 countries and is growing at 15% globally, with an estimated $1 trillion waiting to be managed.
Since the mid-nineties, the Singapore Government has identified the investment management industry as one of the key financial sectors to develop. To this end, the Singapore Government, through the Monetary Authority of Singapore ("MAS"), has introduced various incentives and reforms to encourage the growth of the investment management industry.
If the first rule of portfolio management is diversification, why do most investors unwittingly concentrate their risks?
Many investors believe that a portfolio constructed with numerous stocks and bonds is diversified. That approach has its roots in the principles of Modern Portfolio Theory (MPT). Yet when MPT is misapplied, it does not provide the roadmap to secure investing and leaves investors vulnerable to substantial risk.
Explosive growth in the use of alternative investments and calls for greater hedge fund regulation have heightened the need for standards within the industry. In Amherst, Mass., a not-for-profit organisation known as the Chartered Alternative Investment Analyst Association, has taken steps to fill the need. Designed for alternative investment specialists, the two-level examination programme covers real estate, commodities, private equity, managed futures and hedge funds. Candidates for the CAIA designation are asked to analyse, differentiate and evaluate situations pertaining to the alternative investment markets, and to understand industry-accepted standards for professional conduct.
The Mutual Funds Law (the "MF Law") first enacted in 1993, provides for the regulation of open-ended mutual funds and mutual fund administrators. Closed-end funds are not subject to regulation under the MF Law. Responsibility for regulation under the MF Law rests with the Cayman Island Monetary Authority ("CIMA") (which also supervises banks, trust companies, insurance companies and company managers), a statutory government body established under the Monetary Authority Law.
Commodity futures and options are the oldest derivatives products. Producers and consumers need to hedge against fluctuations in the harvest, and even in early times farmers and merchants made informal agreements among themselves for delivery at pre-arranged prices. The first formal futures markets were the rice exchanges in eighteenth century Japan. Today, commodities are vital to the world economy, and the use of commodity futures continues to grow. However, since the introduction of financial futures in the 1970s, their relative contribution to exchange trading has diminished in importance.
Looking at the recent popularity of Asian-based strategies and the amount of money flowing into them, it is tempting to think that from Asia itself there is a lot of money going into, and about to go into, alternatives. In reality there is little correlation between the two investment flows.
Event driven managers seek to profit from security pricing inefficiencies that may occur when companies are involved in corporate events such as mergers, takeovers, restructures (including share buy-backs, spin-offs and capital returns) and capital raisings.
In December 2002, Mainland China introduced the Qualified Foreign Institutional Investor (QFII) scheme which allows for the first time the entry of foreign investors into the domestic A-share market. The first QFII investment took place in July 2003. With the QFII scheme in operation, there is an increasing discussion of a corresponding mechanism for overseas investment by domestic investors ¾ a Qualified Domestic Institutional Investor (QDII) scheme. It is believed that this could help utilise China’s large foreign exchange reserves and domestic foreign exchange savings, thereby helping to maintain a better balance on the capital account.
Choosing the right hedge fund administrator is one of the most important decisions that an investment manager can make and failure to do so could be costly to a fund. The administrator plays an invaluable role and will generally provide investment accounting and valuations, shareholder services, corporate secretarial services, domiciliary compliance, and assistance in the preparation of financial statements. A good administrator can remove all administrative headaches allowing the investment manager to focus on its trading activities. It is important to note that time spent on choosing the right administrator may save time in the long run.
Opposition is growing to the terms of proposed new legislation to exempt offshore funds from taxation in Hong Kong.
While the funds management industry welcomes the government's plans to implement an exemption, they are concerned that details of the legislation will drive business away.
The asset management industry is changing fundamentally, and aligning itself much more with investor needs. One facet of this is the increasing importance of absolute return managers providing a pragmatic mix of alpha and beta.
Conventional managers are tied closely to market risk ("variance" away from market risk is considered risky) and therefore by definition are precluded from generating much alpha. However, fees have historically defied the empirical and intuitive evidence, and have been high. Now they are falling rapidly.
Managed futures funds have experienced a steady influx of capital over the last decade, increasing from around USD 5 billion at the end of the 1980's to over USD 50 billion by the end of 2002.
CITIC Capital China Plus Fund, launched in August 2003, is a Greater China equity long/short fund that aims to achieve long-term, consistent capital growth, by investing in listed securities whose performance is linked to the economic growth of the Greater China region.
This inaugural edition of the Eurekahedge Absolute Return Fund (ARF) Directory contains information and data on more than 100 long-only alternative funds managed for absolute return that represent in excess of US$13bn of assets. These funds invest in securities domiciled or having primary operations in Asia-Pacific, inclusive or exclusive of Japan, and Global Emerging Markets, or otherwise derive significant earnings from Asia-Pacific, inclusive or exclusive of Japan, and Global Emerging Markets.
Distressed securities are bonds, shares and other financial claims on companies that are in, or about to enter or exit, bankruptcy or other financial distress. Distressed securities sell at discount prices and may offer substantial profit-making potential to investors who have the ability to understand and analyse them, with all the risks and values involved. Such securities can be bank debt, publicly-held debt or equity, or privately-held debt, including trade claims.
This chapter presents a general overview of the principal U.S. regulatory requirements that are applicable to private investment funds and their managers.
The last three years have seen extreme volatility in the global equity markets. Despite this volatility - or perhaps because of it - the offshore hedge fund industry continues to thrive. As investment managers have adjusted their strategies away from the traditional long/short model, they have found a willing pool of investors looking to diversify bruised portfolios with alternative investments.
In this brief note we argue that for investors that are serious about matching (the risks of) assets and liabilities, straightforward indexation is a doubtful proposition as significant autonomous changes may occur in the industry allocation and accompanying risk-return profile of the portfolio underlying the index. The name of the index may stay unchanged, but the underlying portfolio does not!
Compliance Consultant's newsletter on urgent matters and regulatory updates to FSA (UK) issues
Institutional portfolios seeking diversification are choosing Long-Only Absolute Return Funds, an actively managed alternative proven to generate real returns independent from any index benchmark.
"You can have any colour you like, so long as it's black!" Those famous words, imparted by Henry Ford almost a century ago, defined a time when products were being mass-produced with little regard to differences in the needs and expectations of individual consumer groups. The world at large was viewed as a much more homogeneous place than it is today.
Peter O'Neil Donnellon - Managing Director, Research and Investment, and Member of the ISA Board of Directors
Beleaguered Japanese Prime Minister Junichiro Koizumi marked the second anniversary of his appointment on the 26th April, but there was little celebration in the labyrinths of Japanese politics. Starting off with high ambitions of breaking the mould of the old way of Japanese political wheeling and dealing, he is currently adrift with little support from the notoriously factionalised ruling LDP.
How can a hedge fund measure the value of commission? Well, if the old adage is that if you put 100 economists in a room and ask them a question you get 101 answers, then the same may be true of this. Theoretically when a hedge fund pays commission they can receive a mixture of execution, full service research, and soft dollars in return. In practice, there are many other factors that are involved but we will just look into these three. One is clearly quantifiable; one is measurable in a variety of ways, depending on your yardstick; and one has proven over time to have no agreeable way to quantify its value. The validity of doing an exercise such as this is particularly important for hedge funds. In these volatile times, the ability to measure the cost of running the business is vital, especially for smaller organizations.
The sudden departure of Roger Ellis as Chief Investment Officer of JF Funds in Hong Kong jolted the local fund management community. Ellis insisted he was leaving the firm for personal reasons, but the rumour mill linked his departure with that of Blair Pickerell, who had exited as chairman just weeks before Ellis.
The following article was produced by Wayne Lau, a Director of the Leading Assets United Fund (LAU Fund). The LAU Fund is an equity long/short Asia excluding Japan Fund which focuses on value investments throughout the ASEAN and North Asian regions. Mr. Lau is based in Singapore
Tagged on the end of a proposal to issue ETFs in Taiwan was a hidden gem. The Securities and Futures Commission (SFC) for the first time indicated that they would examine and hopefully implement institutional stock lending and possibly borrowing through a yet-to-be-established clearing house. This change would be enacted through administrative amendments and not be required to touch the floor of the divided Legislative Yuan. The Ministry of Finance (MoF) would simply convene a committee to debate the changes and the SFC would announce the conclusion in the form of an amendment to the appropriate securities law.
The following article is written by Mike Roth, a founding partner of Stark Investments, as a response to an article on Convertible Bond Arbitrage appearing in Eurekahedge's October monthly issue. Stark Investments specialises in global multi-strategy arbitrage and is the manager of the Stark Japan Fund.
The convertible bond market in Asia is not so much in a perfect storm but in a perfect calm; new issues have dried up and there is an overall lack of liquidity in the convertible bond market. However, given the horrible state of the equity markets, it's a good sign that companies aren't issuing converts. If they were, it would be a sign of desperation; such as AMP's recent issue in Australia. Yet, this lack of liquidity and new issuance combined with distressed share prices has implications for some strategies.