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Before starting to invest in stocks and shares it’s as well to decide why and how. The right strategy can help investors through thick and thin because no one said stock market investing was an easy ride.

In our first two articles we looked at why the stock market exists, what the costs and benefits are, how to go about researching stocks and how to get to grips with some of the key terms and concepts. But why invest at all? What is your goal?

A key reason that investors have returned to the stock market after the crash of 2008 is that leaving their money with a bank or a building society yields them nothing. In fact worse than nothing, because even the best savings rates at around 3% produce a loss in real terms with inflation running at a higher rate than that. So investing in stocks that produce dividend income at more than 4% looks attractive and they may also produce capital growth if their share price rises.

But remember “caveat emptor,” the motto of the London Stock Exchange – “the buyer beware.” Neither the dividend nor the capital gain are certain. So it is worth considering which investment strategy to use to lower the risk and/or increase the return.

Day trader
For some, stock market investing is a sort of sport. They engage in it with great intensity, prepared for the thrills and spills of fluctuating prices. Sometimes they win and sometimes they lose. There are plenty of people who claim to have made money buying and selling shares in quick trading, holding their shares for a few days, hours or even minutes before selling to reap a profit as the price rises. There have also been plenty of people who have lost money too. Day trading is a strategy requiring great dedication and plenty of research and analysis of the market and the trends that affect it. This may be for you or it may not be.

Investing for income
Investors in search of a steady stream of income and with less of an appetite for trading may choose to invest in stocks that pay a steady half yearly or quarterly dividend. They are not kept awake at night worrying whether share prices will move against them but they also need to be aware that dividends can be cut or cancelled altogether. Recent investors in BP, Royal Bank of Scotland, Lloyds Banking Group and Northern Rock know this only too well.

Investing for income is a valid strategy but it is as well to hold a variety of stocks to spread your risk. Indeed one way to do this is to buy a tracker fund, one that invests in stocks within a particular stock market index such as the FTSE 100 or the FTSE All share. And a good, cheap way of doing this is to buy shares in an exchange traded fund or ETF. These are quoted on stock exchanges just like the shares that these funds invest in. It’s important to read the prospectus for the ETF you’re considering investing in, to make sure of its terms and whether it provides income or whether the dividends on the fund are reinvested. An appealing aspect of ETFs is that shares in them can be bought and sold at any time the market is open and apart from the dealing costs, there are no other fees to pay. Managed funds incur management charges and need studying carefully. They are valued much less frequently and getting out of a fund is not as quick.

DIY or employing a manager
Whether to buy individual stocks or funds is an important decision to take and you can of course buy some of each. But it also raises the question of whether it might not be better to hire someone else to manage your money for you.

Stockbrokers, independent financial advisors (IFAs), banks and fund managers offer such services in one form or another. Stockbrokers in particular may offer “discretionary” services. If they are “execution only” they merely carry out instructions that you give them, buying, selling and holding the stock for you. A discretionary service is one where you agree with the broker his terms of reference – how much discretion you want him or her to use - and they report back to you periodically on the results they have achieved from investing your money for you. Make sure you understand their charges and when they are payable. Inevitably there are able brokers and not so able ones. It’s as well to research them in advance by searching the web, speaking to friends and reading their prospectuses and reports.

Tax
It’s also worth spending time thinking about how to avoid paying tax on your hard earned investments. After all, most people will be investing income on which they have already paid income tax and national insurance contributions. So what are the options and allowances?

Firstly, remember that each individual has a capital gains tax (CGT) allowance of £10,100 each year. So if your gains from buying and selling shares are lower than this figure in any tax year then you can avoid paying CGT.

Stocks and shares ISAs are a second option. The over all ISA limit for this year is £10,200, which can be invested in a cash ISA up to £5,100 with the balance in stocks and shares. Alternatively the entire allowance can be invested in stocks and shares. Again, stockbrokers, banks and IFAs will all advise you or offer you stocks and shares ISA arrangements. Go to a comparison web site such as www.moneysavingexpert.com or www.moneysupermarket.com and do your homework or terms, conditions and costs. The great thing about ISAs is that you (and also your partner) get a new allowance every year and they save you paying income tax or CGT on your profits.

Lastly, consider a SIPP. Self invested personal pensions insulate you from taxes and also benefit from receiving a cash tax credit of 25% of the amount you invest. If you’re a higher rate taxpayer you will also get an additional tax break via your tax return.

Unlike ISAs however, although you can trade in and out of stocks within a SIPP you can’t take your money out until you retire. There are also management and dealing charges to take into account. There is a lot that is good about opening a SIPP, but just make sure you read the terms and conditions carefully so you understand the restrictions they impose as well as the benefits they offer. The investment options of buying individual stocks, funds, ETFs and discretionary investment services are usually available to SIPP investors

Above all, once you have digested the possible choices, checked the prices and charges and considered your strategy, take your time. Yes you may miss some investment opportunities but the chances are you will be able to seize others as they come along. Some of the most successful investors, such world famous Warren Buffett, take their time and invest long term in companies they understand and which have scope for growth over the long term.

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Building BRICS: India
The numbers, skills and hard work of its people have driven India’s emergence as a major global economic force. This looks set to continue, positioning the country as an investment destination with distinct attractions.

While European and North American economies have struggled to achieve growth, India has been a consistently high performer over recent years. Economists at Moody’s, the rating agency, log India’s record of growth since 2006 as falling in the range of 6.7% to 9.6% annually, with the lowest of these figures covering the period from 2008 to 2009, when the western world was plunged into ␣nancial crisis. Looking ahead, Moody’s projects 8.8% GDP growth this year and 8.1% next year. HSBC Global Asset Management expects growth of at least 7% of GDP over the decade to 2020 in the Indian economy (compound annual growth rate – the year-on-year increase over the period).

Not everything in India’s economic garden is rosy, however. For the last three years, the country has been wrestling with government debt at around 77% of GDP.* Public sector ineciency, particularly in gathering taxes, is rosy however. For the last three years, the country has been wrestling with government debt at around 77% of GDP.* Public sector ineciency, particularly in gathering taxes, is not helping matters. Generally, income levels among India’s vast population are low, and “inadequate physical and social infrastructure,” as Moody’s puts it, could hamper economic development going forward.

But then, this is an emerging market. What attracts investors to India are its prospects for growth and development. One of the key features of India, versus other emerging economies such as China and Russia, is the rapid development of its internal market rather than its exports: thisisgeneratinghugeamountsofincomeforsomeofits growing domestic businesses.

“The rise of the consumer in India – there’s a lot of demand due to higher incomes and aspirations – is a key driver of economic growth,” explains Sanjiv Duggal, manager of the HSBC GIF Indian Equity Fund.

“For example, a particular pocket of opportunity is in passenger car sales… in the financial year ended March 2010, passenger car sales in India grew at their fastest pace in six years, up 25% to 1.53 million units. In addition, the housing market is forging ahead, enjoying strong demand due to a major shortage of quality housing, and we are continuing to find opportunities amongst the under- owned real estate sector. There is also a strong government focus on improving healthcare, education and training, and physical infrastructure.”

Sanjiv Duggal adds: “Growth in per capita income means that India is near the point where we can expect consumption to take o sharply. The nation’s demographics, with its young population, will also continue to bolster economic growth.”

NEW GLOBAL CHALLENGERS
In this regard, the country has a rapidly increasing, affluent middle class that now numbers around 200 million; roughly equal to the entire populations of Germany, France and the UK added together. And these people are buyers of goods and services that are sourced or delivered from overseas, as well as from the domestic market: indeed India is now reckoned to be among the ten largest retail markets in the world and growing fast.

At the same time, the Boston Consulting Group (BCG) has pointed out in its latest New Global Challengers report that India is home to 20 of 100 companies that are based in rapidly developing economies but are contending for global leadership in their fields of operation. They include firms such as United Spirits, the world’s second largest forging business, Tata Consultancy Services (TCS), Asia’s largest services and business process outsourcing company, and Bajaj Auto and Mahindra & Mahindra the automotive equipment makers.

HOW CAN YOU SHARE IN INDIA’S SUCCESS?
So the question facing investors is how to share in the growing prosperity of such Indian companies. HSBC’s Sanjiv Duggal is cautious: “We believe when it comes to investing in India, a strict and disciplined approach is a must. Like any emerging economy, while the potential for growth is robust, investors should be prepared for some volatility, which can be caused by a number of factors.

“For example, the government’s approach is one of many layers, peppered with bureaucracy. The reforms that are needed become a tug-of-war between vested interests, slowing down badly-needed progress, and any potential reforms could be a potential threat to markets in the short term. In addition, rising prices of commodities such as crude oil and fertilisers, on which it is heavily dependent, could have a negative impact on the economy, while the nation’s monsoon season can always have a negative economic impact by slowing progress.”

Sanjiv Duggal describes buying individual shares in Indian companies as “a high-risk strategy.” He says that the Indian market can be highly volatile, but should be a core part of any growth portfolio: “By going for a professionally-managed portfolio of shares, investors are giving themselves the best opportunity of making decent returns over the long term, with far less risk than if they were to buy into individual companies. For example, the HSBC GIF Indian Equity Fund typically holds between 50 and 70 stocks, and has significantly outperformed the market since its launch in March 2006.”

This fund, incidentally, currently holds almost US$6.4bn (£4bn) in assets under management, making it the largest offshore Indian fund in the world.

The emerging market opportunity ffered by India is considerable. Given the still very low level of per capita income of the Indian population in general, and the scale of poverty and lack of infrastructure across the massive sub-continent, this opportunity is likely to remain attractive for some time to come. The risks involved are also significant, so investors face the challenge of balancing the risks versus the potential rewards on offer.

Turkey: Forfaiting market saviour?

Amid the gloom that has shrouded the forfaiting market for much of the time since September 2008, Turkey has consistently proved to be a source of optimism and deals, writes Richard Willsher

The main drivers for the country’s popularity have been its economic fundamentals. In short it is a classic emerging market. This year it is expected to achieve GDP growth of 6.5%. Although inflation is stubbornly pegged at a little above this level, the country is sucking in foreign direct investment at the rate of $20bn annually.

A recent report by The Economist noted that Turkey is now the world’s biggest exporter of cement, the second-largest exporter of jewellery and is “Europe’s leading maker of televisions and DVD players, and its third-biggest maker of motor vehicles.” While it exports mostly to European countries, it is rapidly expanding export markets throughout the Middle East, Russia and Central Asia.

In October 2010, Moody’s revised Turkey’s sovereign Ba2 local and foreign currency government bond ratings from ‘stable’ to ‘positive’. In November, the rating agency issued a credit opinion that concluded: “The Turkish economy has experienced a V-shaped recovery after the 2009 recession and is currently the fastest-growing economy in the OECD.”

Furthermore, and of particular interest to the western banking and forfaiting community, Moody’s added on 22 November an improved ‘stable’ outlook for the Turkish banking system, stating, “Turkish banks have shown resilience during the recent global financial crisis, as evidenced by their balance-sheet strength, which has been supported by appropriate loan-loss provisioning, a solid capital base, and recurrent earnings generation. Financial sector reforms that were enacted following the 2000-2001 financial crisis set the foundations for the stability of the banking system today.”

Perfect match
Pretty glowing stuff. And it is easy to appreciate that in order to achieve its export led economic growth, the country’s manufacturers have needed to import capital goods, particularly production machinery, as well as raw materials such as minerals that it cannot produce itself. Moreover, Turkey imports substantial quantities of oil to power its vibrant economy. All of these lend themselves to import financing on credit terms that can typically be provided by the forfaiting market.

“Turkish banks are quite used to the forfaiting product,” says IFA board member Sema Zeyneloglu of Rabobank. “They have been involved on the primary side of market for many years and are accustomed to use alternative forms of forfaiting to provide their clients with funding. In addition, many of those banks have their secondary market operations outside Turkey, so they are also familiar with how that side of the market operates. Meanwhile, the volume of trade finance in Turkey has held up well even in the crisis. It may have decreased somewhat, but deals continued to be done.”

Deferred payment letters of credit (LCs) probably account for the largest value and deal volume, in particular big ticket Middle East oil import LCs and those relating to steel and scrap metal. Inevitably these are short term, varying from 30 days to one year in duration.

However Muzaffer Aksoy of ABC International Bank in Istanbul notes that his bank is financing imports of capital goods with tenors of up to 36 months at present. He expects that terms are likely to push out to five years before too long, with traditional ‘10 x 6’ promissory note structures being used.

Capital-goods imports typically originate from Germany, Italy and Switzerland and bankers and brokers in those countries confirm that Turkey has been a main source of new trade business over a number of years. In terms of guarantors or issuers of notes, the government-owned banks, such as Halk and Vakifbank, and the private banks Akbank, Isbank, YKB, Garanti are popular.

Risk and pricing
As yet, the market is very limited for the corporate risk, but Akbank’s Istanbul-based Vice President for financial institutions, Altug Ülker, confirms that some Italian exporters have accepted short-term notes issued by strong corporate names without the support of a bank guarantee. These are, however, likely to be sold back to Turkish banks in the secondary market, it ought to be said.

One very large feature of the primary and secondary market in Turkish risk is bank fund raisings via syndicated loans. Some argue that this sort of financial transaction is not ‘real’ or ‘pure’ forfaiting. Nonetheless, it represents an elephant in forfaiting’s parlour that can’t be ignored.

And, in many ways, trade in syndicated loans conditions the pricing of trade deals and vice versa. Altug Ülker notes that lately, following the Irish crisis, Turkish pricing has increased as holders of Turkish bank loans aim to sell before their year-end. However, he expects pricing to tighten in the new year.

All agree that the outlook for Turkish paper is quite buoyant for the foreseeable future. Zeyneloglu is confident that Turkey will remain a mainstay of the forfaiting market. “It is one of the traditional markets from which I would expect to see a continued, regular flow of business. The banking system is quite sophisticated and Turkish banks are very well known in the international banking environment and there are always buyers that are happy to buy Turkish bank risk.”

ABCIB’s Muzaffer Aksoy expects pricing to come down as more banks become buyers of paper, a view shared by Akbank’s Altug Ülker, especially as the country’s sovereign credit rating continues to strengthen.

In summary, with uncertainty over the Irish crisis and widespread fear of contagion from the sovereign debt crisis in Europe, markets may not yet be ready to branch out to embrace more exotic country risk, longer credit terms and tighter pricing.

But in credit terms as well as geographically, Turkey sits between Europe, the Middle East and the CIS countries. For this reason, it is well placed to continue supporting the forfaiting market with both trade deals and syndicated loans for some time to come.

Deals are definitely back

It’s been a long haul but 2010 has seen the return of mergers, acquisitions and buy-outs and the outlook for 2011 is positive, writes Richard Willsher.

In the ␣rst nine months of the year the global volume of announced mergers and acquisitions totalled jus over US$ 2 trillion (£1.24 trillion), according to research from Dealogic. That was 22% ahead of the same period in 2009. But signi␣cantly both in the bigger picture and locally, it was in the third quarter of the year that the market really began to be con␣dent. Worldwide, Q3 saw announced deals amounting to US$792 billion, (£492 billion) 55% up on the third quarter of 2009.

Closer to home the UK accounted for 24% of all European M&A during the ␣rst nine months of the year, which may have been boosted by the weakness of Sterling versus the Dollar and the Euro. Also, out of a UK total of US$140 billion (£87 billion) however, US$21.5 billion (£13.34 billion) was accounted for by GDF Suez’ bid for British company International Power.

More striking is the volume of UK buy-out activity. “The overall value of UK buyouts in the ␣rst nine months of 2010 reached £13b,” reports Nottingham University’s Centre for Management Buyout Research (CMBOR). “[this was] more than double the total value of buyouts for the whole of 2009 (£5.6b).”

Commenting on these numbers Christiian Marriott, a Director at Barclays Private Equity, said, “Con␣dence is returning to the private equity buyout market with private equity deal ␣ow dominating the overall M&A market in the UK in the ␣rst half of this year and an increase in consumer-related transactions. With several large deals in the pipeline, we might see the year ending at near 2008 buyout levels.”

If this is the overall picture, how has this been re␣ected in the activity in the South East of England? We asked several local deal doers for their perspective.

“It has been a year of two halves in many ways,” says Andrew Clayton, Reading-based head of corporate and structured ␣nance for the Thames Valley and South East for RBS. “In the ␣rst half we saw several deals in the upper mid-sized corporate market. These included Pets at Home, Card Factory and Camelot that were all quite substantial. It wasn’t until later in the year that deal ␣ow in the mid-market, in the £25 million to £75m range, really developed momentum. For example we’ve seen deals for United House, the social housing ␣rm, which we funded with Lloyds Development Capital and Leaders, the lettings business where we worked with Bowmark Capital. Now, with six weeks to go to the end of the year I would say that our work in progress is now as strong as its been for the last two or three years.”

Nonetheless advisors such as accountants and solicitors say that deals are still taking a long time to complete. Bank approvals for funding propositions are taking longer and the processes are more rigorous than prior to the 2008 credit crunch and the collapse of Lehman Brothers. But at least the system isn’t as petri␣ed as it was.

“We are now seeing a lot more activity,” says Richard Somerville, a director of Rice Associates, the Wokingham-based accountants and business advisors. “There are a lot more exit strategies for business owners who are talking about buy-out possibilities whereas a year ago there was no point in even talking to the banks.”

At solicitors Charles Russell, Oxford- based partner William Axtell says, “We have de␣nitely seen an upward trend in terms of corporate ␣nance activity this year. Charles Russell have seen a decent amount of sell and buy side M&A, private and public fundraisings including three initial public oerings (IPOs) earlier this year. However, in relation to M&A, the availability of funding is still problematic and there is often a mismatch between sellers and buyers in terms of value.”

But taking a rather dierent tack Andrew Killick of accountants Baker Tilly points out that banks are “now doing their job properly in the way they assess risk.” He stresses the importance of understanding how to present a case for funding to a bank or private equity house. “You need to look at it from the funder’s point of view rather than just the perspective of the business that is seeking the ␣nance.”

This approach has stood Baker Tilly in good stead and has enabled them to complete a number of deals in the year to date. He says that there is no shortage of cash, for example among private equity houses and that good businesses with strong propositions will always be able to ␣nd the funds that they need.

Looking ahead to next year there is general optimism among the corporate ␣nance community. RBS’ Andrew Clayton says, “While we may complete two or three more deals before Christmas, because processes are taking longer I’m expecting more completions in Q1 next year. I think it will be quite busy but also it is likely that some of those transactions which we’ve been discussing this year may come to the market in the ␣rst and second quarter.”

Jonathan Hughes of Leumi ABL, the asset based lender believes that in 2011 there are likely to be more non-core disposals and strategic acquisitions now that the cycle looks as though it has reached the bottom.

At Charles Russell, William Axtell’s view is cautiously optimistic. “We think that 2011 will continue on the same upward trajectory that we have seen in 2010. Although global economic conditions remain choppy, recent GDP ␣gures suggest that a steady recovery is underway. As con␣dence grows along with the recovery we see corporate ␣nance activity increasing and we are well positioned as a ␣rm to capitalise on this.”

At Rice Associates, Richard Somerville says, “I think the banks are going to need to get back to lending next year. They’ve weathered storm, beefed up their balance sheets, garnered their deposits and will be keener to lend. Yes, I’m optimistic.”

All in all not a bad outlook. It’s been a rough ride but 2010 may go down in corporate ␣nance annals as the year the recovery really took root. If so, 2011 ought to be the year when deals ␣ourish and bear fruit, despite all the talk of double dip and austerity.

Stock Market Investing 101 part 2

“At close the FTSE was up 100 points on the day. Blue chips held up well despite profit taking and gilts taking a bashing.” Any the wiser?

As with most matters connected with financial services, when you invest in stocks and shares you find that relatively simple concepts are wrapped up in jargon that seems designed to cloud and confuse.
A good lesson to take on board therefore, is not to invest in anything you do not understand, or which has not been properly explained to you. However, at the same time, it is important to make the effort to get to know the language and do the research, in order to be well enough informed, to be able to make an investment decision.

Companies quoted on the stock exchange are broadly grouped together for ease of reference and comparison. For example health care, industrials, oil & gas and utilities among others. If we take a look at the banking sector, it does not take long to figure out which of the major high street banks’ shares are worth more and which pay dividends.

But share prices are just the tip of the iceberg. Unless we are going to take a complete shot in the dark we need to reach an understanding of the company we are considering investing in. First stop is the company’s annual report.

These are mines of information about what companies do, where, how and why they do it. Bear in mind that they only provide a picture of the company as it stands at the end of the company’s financial year. Quoted companies are also obliged to produce half yearly and quarterly results as well; these are worth looking at too. The key financial reports are: the balance sheet which records what a company owes or is owed, and how much cash it had in the bank at the end of the period; the profit and loss account or income statement, which shows how much money it earned and spent in its activities; and the cash flow statement, which shows what the company did with its cash during the year.

Reading and understanding financial statements takes time and practice. However, looked at in conjunction with the written statements in the annual report and especially the notes to the accounts, it should not take too long to figure out what the company does and how it is faring. Remember that apart from being a document required by law, an annual report is also a sales document for the company. For this reason it should only ever be one source for our research, especially as it is largely backward looking and therefore out of date by the time it is produced.
Fortunately there is a vast amount of other information available in print and online such as, Interactive Investor http://www.iii.co.uk/ Citywire http://citywire.co.uk/ http://www.ft.com and a great many others whose job it is to generate new stories about companies. There is also a lot of research produced by stockbrokers, rating agencies and banks; all useful as sources to a greater or lesser degree. However, all should be treated with scepticism because none of them get all of it right all of the time and usually they have some kind of agenda. But if you research enough, and keep up-to-date with the latest news on the companies you are interested in, you will be in a better position to decide what is in your best interest as an investor.

Reading through the research, some terms and ratios come up repeatedly. What do they mean? “Earnings per share” (EPS) is a common one. It is arrived at by dividing the net profit, the “bottom line” shown in the profit and loss account, by the number of shares in issue. This indicates how much money the company is generating for its shareholders. “Price/earnings ratio” or PE, another measure, is arrived at by dividing the current price of the share by the EPS. This number, also referred to as the multiple of earnings, alongside EPS, is useful to compare with those of other companies to see which is producing the best result for the investor.

This does not mean that companies with low EPSs or PEs are necessarily bad investments. Perhaps they have room for growth, perhaps companies in their sector tend to have low EPS and PE ratios. If the PE is very high it suggests that the company’s shares are expensive, some hi-tech stocks are like this, but their potential for growth may be very great, like a Google or an Apple for example.
There is no substitute for getting to know a company, its products, how it conducts itself, whether it values shareholders, how it behaves towards its other stakeholders, whether it pays its management in proportion to their abilities and what its strengths, weaknesses, opportunities and threats are. But, other important considerations are things like the state of the economy as a whole, inflation, unemployment and, if they buy or sell goods or materials abroad, the effect that exchange rates may have on their costs or revenues.

For example, if you were to look at a graph of the share price for just about any company quoted on the London Stock Exchange covering the last five years, in almost every case you would notice a massive price fall following the collapse of Lehman Brothers, the New York investment bank, on 16th September 2008. It was a moment of panic in the financial markets when investors sold their shares to salvage their cash. Fortunately disasters of this sort do not happen too often, but this example does show how factors outside a business can radically affect its share price. No company is an island. All companies ply their trade within local, national and international economies, which affect them for better or for worse.

The same approach should be taken with all companies; do your research. Spend time studying the investment opportunity until you understand it and feel confident that you have reviewed as far as possible the risks involved and whether or not the likely return is fair compensation for taking that risk. No one can read the future with any great degree of certainty. So at times, as with any investment, even leaving your money with the building society, you have to make your decision. Because stuffing your cash under your mattress is probably not a worthwhile option!

Stock Market Investing 101 part 1

Richard Willsher shows, how with a little homework and a bit of cash, anyone can learn how to trade.

On 6th March 2007 Royal Bank of Scotland shares were worth 602 pence each. By 20th January 2009 their price had fallen to just 10 pence and the government had had to step in and rescue the bank.

Lesson number one, investing in shares can be a rough ride. On the other hand, if you had bought your RBS shares on the day they bottomed out then by now, as the price sits at 49p, you would have more than quadrupled your money in not much more than 18 months.

Why have a stock market?
This may not be quite as dumb a question as it sounds. The original reason is to enable businesses to raise money though issuing shares. By buying them, investors become owners of these companies, in exchange for various benefits, which we’ll look at in a moment. However if the management of the business you invest in does not do a good job, does not make profits or grow the business, the shareholders may receive no benefits at all and may lose their money.

Therefore a key concept is that owning shares means sharing risk. And that is also why companies issue shares on public markets; to get shareholders to share risk or reduce their own. When a company issues shares it may use the capital it raises to grow its business. But it may also represent a big payday for the existing shareholders of the company, a time for the existing shareholders to cash in their chips. For them the stock market represents an“exit.” The new investor needs to decide if this means the company has really run out of steam and that its best is already behind it.

Some shares pay no dividend at all. Take a look at BP in this table. It formerly paid dividends at roughly the same rate as Royal Dutch Shell but because of the explosion at its Macondo well in the Gulf of Mexico it suspended its dividend payments. Others pay no dividends because they have no profits or they prefer to retain profits to grow their business. If their businesses do grow and there is demand for their shares then their shareholders may be well compensated by….

Price growth; the reason many investors choose to invest in shares. Let’s look at the same shares again:

Not very impressive. In fact, in the case of BP shares, pretty disastrous. Other, faster growing companies may see their share prices grow very rapidly in a short space of time. But there are several lessons to learn from this. Firstly, this is only a snapshot of the price progression since the beginning of 2010. If, for example, the similar snapshot were taken for the first 9 months of 2009 the result would be quite different, because the stock market as a whole reached its nadir in March of 2009 following the financial crisis. Secondly, prices go down as well as up. Thirdly, buying and selling shares at the right times is vital for achieving profits. Fourthly, it pays to invest in companies you understand and can reasonably expect to do well but… The unpredictable happens.

Costs
Buying shares involves costs as well as benefits. Firstly, dealing costs. These vary depending on which broker you use and can be as low as £6 per trade but as much as £15. Use comparison sites such as www. moneysupermarket.com and www.which.co.uk/money/ savings-and-investments/ guides/stockbrokers- explained/the-cost-of- stockbrokers-compared/ to check on this. Such sites will also indicate administration charges payable to brokers for looking after your shares.

There will also be stamp duty to pay at a flat rate of 0.5%, which will be deducted by the broker. Then dividends will be taxed at 10%, 32.5% or 42.5% depending on your over all taxable income. Capital gains tax is payable on gains above the annual personal CGT allowance, which is currently £10,100. All told it can be expensive as compared with the profits made, although if the shares are held in a Stocks and Shares ISA or a Self Invested Personal Pensions, at least the investor can avoid the income and capital gains taxes. Charges are also disproportionate for smaller deals. The bigger the
trade, the lower the percentage cost.       

What Do share prices mean?
What moves a share price up or down can be divorced from the performance of a company. For example, in the case of Royal Dutch Shell, its business has not changed much since the beginning of the year yet its share price has been affected by events over at rival oil major BP.

Press reports, notes put out by stockbrokers’ analysts, the buying or selling behaviours of large shareholders, the general state of the economy and sentiment can all affect prices; quite apart from any positive or negative news from the company itself. The investor has to make up his or her own mind about an investment and not be swayed too greatly by the views of those who provide the noise surrounding the stock market. In a later article we will look at how to analyse stocks, what various ratios mean and how to arrive at buying or selling decisions.

One early decision to take is whether to invest in individual company shares, buy a basket of shares in the form of an index tracker or whether to let a fund manager look after your stock market investments for you. We will look at these in a later article too but for the time being something you might like to try is running a dummy or virtual portfolio. There are a number of websites, publications and iPad or phone apps that let you play around without having to spend any money. Try looking at The Financial Times www.FT.com, Interactive Investor www.iii.co.uk The Share Centre www.share.com or Hargreaves Lansdown www.h-l.co.uk. This is fun but don’t forget that unless your goal is to be a day trader, buying and selling shares all day long, with all the stress that that involves, you will probably
be better off taking it slowly, analysing carefully what you want to invest in and waiting till the time is right to make your purchases or sales. There is no hurry. If you miss one opportunity,
there’ll be another along sooner or later; just keep your (virtual) cash and wait.

Next month Richard Willsher breaks through stock market jargon and examines how economy, inflation and exchange rates affect share prices

Diamonds are Forever
by
Richard Willsher

When the media spotlight fell on the recent war crimes’ trial of Liberia’s former president Charles Taylor it illuminated ethical concerns over the origin of diamonds. Has it made their sparkle much less attractive?

“Blood”, “conflict”, “war”, “hot” or “converted” diamonds are those used to finance war and conflict. Angola, Ivory Coast, The Democratic Republic of Congo (formerly Zaire), The Republic of Congo (Congo Brazzaville), Sierra Leone and Zimbabwe are all countries that have been reported to be sources of such stones. Until 2003 when the Kimberley Process Certification Scheme (KPCS) was introduced under United Nations General Resolution 55/56, there was no system to assure buyers of rough diamonds that they did not originate from war zones.

The KPCS set out a series of warranties for consignments of stones and established principles by which the diamond industry was to regulate itself. These include, among others, only trading with counterparties that provide KPCS declarations on their paperwork; not buying diamonds from suspect sources and not assisting in buying or selling diamonds from such sources. But while the KPCS has been largely successful, with the exception of two Canadian brands, Polar Bear and CanadaMark, which carry a minute laser engraved serial number, the origins of diamonds cannot be proved.

What of those which came to market before 2003? And how ethical do we want to be? People who dig for precious stones, gold and many other commodities, including oil are often in remote, lawless regions of the world. If human rights, health and safety, the environment and local political regimes are issues we care about, then we would need to examine our conscience before engaging with any of these substances, that are woven into the fabric of most lifestyles across the globe.

Investment
Diamonds remain objects of desire and perhaps also worthwhile investments. As Michael Wainwright one of the latest generation of the family that owns Boodles, the 200 year-old London based jeweller puts it, “Items of diamond set jewellery are beautiful things to own and wear and may turn out to be not a bad investment.” He adds that no rate of return can be placed upon such “investments” though the better the colour and the quality the better they fare. That is consistent with other collectable investments such as art, wine and furniture.

There is evidence, published by Antwerp diamond dealers Ajediam that over a period of 50 years the price of wholesale diamonds has consistently risen and produced quite reasonable returns. A visit to www.ajediam.com is essential however to grasp the detail and very strict definitions of the diamonds which fall within their price trend graph.

Four Cs
Buying cut diamonds boils downs to “four Cs”. The “cut” or quality of craftsmanship used to shape the stone. The colour. White diamonds are most common but as Jason-Paul Hirsh of London jewellers Hirsh points out, other natural colours such as pink, blue and yellow are rarer and can be extremely valuable.

Clarity is the third C and refers to whether there are blemishes within the stone. Fourth is carat, the weight of the stone. One carat equals 0.2 grammes. While it is generally true that the bigger the stone the higher the price, there are certain key price points. A one-carat stone is likely to cost significantly more than one weighing fractionally less than one-carat.

Hirsh goes on to say that diamonds are not like any other commodity; the market has characteristics that do not commend it for investment. “There is a massive stock of diamonds that is not being released. In other words it is being held to keep the price inflated.” The control of the market is largely in the hands of the Diamond Trading Corporation, formerly De Beers, which has agreements in place with producer countries such as Russia, Canada and Australia. “The second reason is that diamonds have been artificially made since the 1960s and the manufacturers are getting better at it. This will also have an effect on the market that no one can really predict.” He adds however, that those rarer pink and other natural coloured diamonds can produce good investment returns as supply cannot meet demand.

The investor still needs to square his or her ethical concerns. A jeweller with a specialist, ethical approach is Ingle & Rhode, based in London’s West End. This firm uses fair trade gold and buys its diamonds direct from producers rather than through wholesalers.

David Rhode points out that the greatest investment returns are likely to come from diamonds that form part of highly collectable pieces of jewellery. Such pieces might be from a well-known designer such as Cartier and may have been owned by celebrities in the past. Such jewellery fetches high prices at auction.

Investing in diamonds is highly subjective and requires a lot of background knowledge and good advice. Diamonds do not pay interest and need to be securely stored and insured, both of which cost money. But they can be passed from generation to generation and they are also easily transported. This explains why refugees have often taken their stones and jewellery with them and left their more cumbersome possessions behind. Diamonds have many appealing features and are an asset class that many treasure, despite the uncertainty of their origin and of the investment returns they may produce.

Golden Opportunity?
by
Richard Willsher

It is easy to invest in gold. Knowing whether now is the right time to do so, is not quite so clear.

Over the last month the price of gold has set a series of new records. At the time of writing, the price set daily in London is US$1,341 or £852.78 per ounce. Looking at the bigger picture, research from the World Gold Council (WGC), which represents the world’s leading gold mining companies, suggests that the long-term trend for the price of gold is upward. However, as the graph shows, it is not necessarily a smooth ride. Between 1980 and 2000 the price shows a marked downward swing.

Given the rate at which the gold price has risen lately, investors may be asking themselves whether they should buy some; but why would one want to? Charles Morris, Head of Absolute Return at HSBC Global Asset Management (UK) Ltd has some answers. “You don’t buy gold to become rich,” he says. “You buy it to preserve wealth. At a time when we are in a wealth destruction cycle, gold comes into its own. The case for gold is that it is real money and if there is any problem in the financial system then that gold will become very valuable indeed. There are lots of things to worry about out there and there are still some long-term problems in the economy and in the financial sector. We want to own things that can survive these environments; and gold is a very liquid asset.”

How to invest
The easiest way to invest is to buy either coins or small bars. Coins include South African Krugerrands, British Britannias or American Eagles for example. These vary in price depending on the size of the coin and the state of the market at any time. Coins range in size from one twentieth of an ounce to as much as 1,000 grammes, with various sizes in between. They can be purchased from bullion dealers and should not be confused with numismatic coins collected by coin collectors.

Bullion dealers also sell bullion bars, which range from as little as one gramme to 1,000 grammes. A good source of information on this is www.goldbarsworldwide.com which lists the details of accredited gold bar manufacturers. To find a bullion dealer for coins or bars, a good place to start is the WGC’s directory at www.invest.gold.org.

The WGC adds this useful advice, “Bullion bars and coins are priced on the basis of their fine gold content. However, different premiums may be charged by the same dealer, depending on the availability of each type of bar or coin. You may also want to check, at the time of purchase, how much commission would be charged to buy back any bars or coins should you wish to trade them in the future. Apart from your individual preferences for the way bullion coins and bars look, the premium charged over and above the gold price would probably be the deciding factor.”

Gold accounts and funds
Other ways to invest in gold include opening a gold account. The investor buys gold through a bullion brokerage, which is then held by a bank. These accounts are termed “allocated” or “unallocated,” with an allocated account, the bank stores the gold and the investor has title to it. The bank will charge a fee to cover storage and insurance. Unallocated accounts do not hold specific pieces of gold bullion allotted
to particular clients but clients hold part of a larger quantity. These accounts do not incur the same charges but the bank may reserve the right to lease out the gold.

A third and increasingly popular route to owning gold is to buy a share in a fund that has invested in gold. These can include unit trusts and investment trusts but these invest in the shares of gold mining companies whose prices tend to be influenced by the rises and falls of the gold price. However, as with other share prices, they are also affected by factors that may have little to do either with the price of gold or the performance of particular funds.

Buying shares in exchange traded funds (ETF), which are quoted on the Stock Exchange, provides a more direct link to the price of gold. These track a gold price index and apart from normal share trading costs do not bear any other management charges or commissions which unit trusts and investment trusts typically do.

One of the downsides with investing in gold is that while you hold it, it provides no income; no interest or dividend for example, which other investments do. Therefore whether or not gold is good to invest in will depend purely and simply on its price. Looking at the graph shown above, one question sticks out like a sore thumb: is this the time to invest? Some commentators argue that in real terms, allowing for the rate of inflation, gold is still a good buy. Others, who have charted the gold price in relation to previous recessions, say that the price tends to bubble in these periods and then fall back and that this may be happening now.

For sure there will be price fluctuations whenever you buy. Gold is an ungoverned market where supply and demand determine the price. Right now there is plenty of demand but how long this may persist is anyone’s guess. In the final analysis a couple of facts about gold are enduring, one is that it has been prized by human beings for millennia and this looks unlikely to change just yet. Moreover, gold is generally in short supply and becoming increasingly difficult to mine or recover by recycling. These support the case for investing in gold, but as with so much successful investing, timing has a very big part to play.

Powerhaus
Berlin may have been the venue for this year’s annual IFA Conference, but Germany has even bigger matters to celebrate. Richard Willsher speaks to German bankers about the country’s spectacular export-led growth and the role of trade finance.

On 9 November 1989, the checkpoints along the Berlin Wall were opened for good, followed by the signing of the Treaty of Unification on 3 October 1990. Since then, 3 October has been celebrated in Germany as Tag der Deutschen Einheit – German Unity Day.

It has been a long haul, but the German government has succeeded in carrying through a major, long-term vision for the future of a united Germany.

The same, perhaps, can be said of their economic management. Despite bearing the pains of integration and, more recently, the financial crisis, bank rescues and being called upon to play the lead role in bailing out the Greek economy, Germany has been working hard at its recovery that has been largely, though not entirely, export-led.

The result: in the second quarter of this year the economy grew 2.2%, the fastest quarterly rise since reunification. And as The Economist reported on 13 August, it is China, among other emerging markets, that is buying a lot of German products. For example, sales of Mercedes cars to China tripled in the year to July and ThyssenKrupp, the steelmaker, has raised its outlook for year after better than expected demand from the automotive and engineering sectors.

Germany’s trade finance bankers have played their part. In fact, they have been rushed off their feet. “The German banks are doing fantastic business,” says Silja Calac, Head of Trade Risk Management at Unicredit in Munich.

“Our forfaiting volume has grown. It began with the crisis. The years 2008 and 2009 were good for us. First, income increased considerably because the pricing went much higher and now the pricing is going down but the volumes are over-compensating for this decline,” says Calac.

She adds: “Our volumes have continued to grow in 2010. In the first half of the year, bank guaranteed forfaiting increased much more compared to the first six months of 2009. Small and medium-sized enterprises (SMEs) in Germany were hit by the crisis and feel a greater need to make their businesses safer and get cash immediately, and forfaiting can provide that.”

Fortunately, many German corporates have a long familiarity with forfaiting, which therefore forms part of their financial planning.

Volume and profits
Former IFA board member and senior specialist in trade finance at Commerzbank in Frankfurt, Waltraud Raderschall, agrees. “I don’t think that any of us can complain about the volume and profits in the business. I wouldn’t say that it is booming but we can see any amount of business, any time of the day.”

She goes on to describe the state of the market: “From the larger firms there is a huge request for supplier credits down to the smaller SMEs. Then there are the government programmes with the German export credit agency (ECA) providing plenty of insured possibilities. There has also been a change in the policy of the private risk insurance companies. The self-retention portions have often improved, depending on the risk covered. Then there are the risk limits within the banks to cover political and commercial risk. Combine all of these and we are at a very interesting moment because everything is emerging at the same time.”

Supporting the export-led recovery has not been all plain sailing for German trade financiers however. “Trade finance is essential, even for SME business,” says Bernd Sooth, Vice President of Financial Institutions Trade and Commodity Finance at IPEX Bank in Frankfurt, “but there is a gap between the potential of the market and the willingness among the banks to provide support,” says Sooth.

He adds: “Businesses need more from the banks, but they can’t provide all the services that customers need. This is due to the risk policies of the banks due to the fact that there have been huge mergers and much consolidation within the banking sector…. That is a problem for the SMEs that are looking for new partners in trade finance business because they prefer to work with German banks rather than to seek out
partners in other countries.”

Stephan Schneider, who heads structured export finance at BHF Bank in Frankfurt, notes that there are currently discussions ongoing in Berlin to try to alleviate the problems faced by SMEs. One proposal, for example, is that insurers and ECAs could improve insurance provisions for small companies’ trade debts, which would enable them to more easily discount them with banks that do not have banking lines in place for such small firms.

The consolidation of the banking market and the stringent controls on lines and limits has created space for other players to enter the market – not just smaller, non- bank forfaiting houses, but also firms keen to structure asset-backed securitisations (ABS). “We see new products which are competing, but which are not really different from forfaiting. Since I would call forfaiting a technique to liquidate illiquid assets, such new products are variations of forfaiting. ECA-covered supplier finance, electronic platforms and non-guaranteed supply chain finance are all part of the ‘German way of forfaiting’,” says Calac.

“Forfaiting has evolved a lot over the last few years adapting to the more sophisticated requirements of our customers and to new technological possibilities,” she continues, “supply chain finance structures through electronic platforms are such a variation of forfaiting. However, since the beginning of this year we have seen growing competition from ABS structures for our supply chain finance products. As this activity had been very strongly deleveraged following the financial crisis, securitisation teams are now looking for new and relatively safe assets. They seem to find them in trade finance, offering structures to the bigger corporates whereby they buy up all of their trade related assets, put them in a conduit and by this method offer corporates cheaper funding.”

Meanwhile, Raderschall says that banks are trying to learn the lessons of the crisis, though some things have been adjusted. “There is confidence here. In the old days a client would just show you the deal. They wouldn’t consider any other alternative; they would just do it. But now people shop around and they are met with different policies, different possibilities. That is why we say that there is an increase, but also change, in the way business is being done.”

Looking to the future, Calac concludes: “I think German industry has a good time ahead of it. There is strong technical knowledge and excellence that goes into German exports. Germany has benefited from increased investment in heavy equipment by overseas customers after a reduction in investment in various markets during the crisis… We will continue to expand our trade finance activities to support exports and imports. We hope regulators will appreciate the importance of trade finance for the German economy and will accept the argument for preferred capital allocation rules for trade finance, which is jeopardized by the new regulatory environment of Basel II and III.”

Sooth agrees: “For the future I think there will be growth, but I think it will be tight.”

For the time being, there is plenty of business to go around and the traditional trade finance banks can celebrate the country’s 20th anniversary and its strong export-led economic performance. Longer term they have to grapple with the consequences of Basel III and come to terms with stringent profitability criteria, but that will be another story.

Sconto Pro Soluto*

You don’t need to be around for long before you become aware of how influential Italian forfaiters are in the forfaiting market. The obvious question to ask is, why?
by
Richard Willsher

These are not great days for Italian forfaiting, but the market could be on the turn. “A fair percentage of the Italian exports of capital goods is made up of machinery and equipment, supplied by medium-sized companies to medium- sized buyers in emerging markets,” says Giancarlo Parente of Simest, the Italian government entity that provides export-credit interest support programmes. “The average size of export contracts does not lend itself to the use of syndicated buyer credits, which are too complex to structure and to handle. The simplicity and speed of forfaiting is, therefore, particularly welcomed by Italian businesses,” he adds.

Enrico Seralvo, Managing Director of Intesa Soditic in Milan, adds that forfaiting has been in use in Italy for decades and remains as relevant as ever. He recalls a time when accessing export credit insurance cover through Italian export credit agency (ECA) SACE was much less efficient than it is today. Moreover, in those days it was not possible to assign SACE policies without recourse. Therefore forfaiting, especially involving banks operating outside of Italy, was the most efficient way of ensuring Italian exporters could avoid the payment risks of offering medium-term credit in support of their equipment sales.

Troubled times and changing terms
A lot has changed since those golden days when interest rate subsidies were richer than they are today, but forfaiting remains relevant, says Parente. “Over the past decade the forfaiting scheme has supported roughly a yearly average of €2.3bn of business,” he says. Yet Italy has been through troubled times over the past couple of years, along with all of the other major economies of the western world.

The years 2008 and 2009 both witnessed declines in exports of Italian capital goods. This year has seen a modest increase, although the strength of the euro against the US dollar is not helping. Paolo Jelmoni of Treviso, Veneto-based brokers and advisors Reginato & Mercante is moderately optimistic that this will improve, as is Raffaele D’Alo of Eufintrade in Lugano, Switzerland.

“Today the market is very depressed,” says D’Alo. “However, it seems that something is moving and there is some increase in exports to China, Turkey and elsewhere in the Far East, albeit that these transactions are supported by short-term letters of credit. And I have to say that there are a lot of requests for ‘silent confirmation’ or discount of usance letters of credit issued by Iranian banks.”

This represents a general shift away from traditional discount of promissory notes and bills of exchange in favour of deferred payment letters of credit (LCs). Many of these are simply discounted by local Italian banks and held in their books until maturity.

Paolo Jelmoni says that banks in some of the larger emerging markets have plenty of liquidity and are therefore tending to assist their importing customers with local facilities. This means that Italian exporters may simply be paid at sight, without the use of LCs or medium-term financing.

In addition, he notes that Italian exporters are increasingly requesting capacity to discount corporate names without the support of bank guarantees. This also tends to impair the liquidity of the market, as there are fewer counterparties to buy such paper. In particular, banks are increasingly constrained by tightening capital and liquidity regulation.

Moreover there is increasing competition from SACE. Jelmoni notes that it has become much more efficient and aggressive. It can now give approval for medium-term credit cover in the space of a week, which makes it a staunch competitor for traditional brokers of forfaiting deals.

New demands
Nevertheless, Eufintrade’s Raffaele D’Alo says that he remains optimistic about the future development of forfaiting. “Based on my own experience, I have personally seen several crises in the market. Each time the question arises, ‘will forfaiting survive?’ But we are still here talking about this product and the number of participants at the IFA Annual Conference increases year after year. I do believe, however, that the market should change its approach towards corporate risk transactions, because they represent the highest percentage of the enquires that we see from Italian exporters.”

So while it looks as if the nature of the demand for forfaiting support has changed, the forfaiting technique itself remains as popular in Italy as ever. There, as in the rest of the international banking and trade finance community, the long shadow of the 2008 crisis still darkens the picture. Whether tighter credit terms will now be a fact of life as the demands of Basel III take hold, or whether forfaiters will find new ways to do business, we will have to wait and see.

But the chances are that Italian forfaiters, and transactions structured to support exports of Italian goods, will continue to be significant features of the international forfaiting market, as ever.

Richard Willsher is a financial journalist and trainer, perhaps best known for the seminars that he conducts with the IFA. He can be contacted by emailing rdw@richardwillsher.com.

For more information about the International Forfaiting Association see: www.forfaiters.org or e-mail info@forfaiters.org.

* In English: ‘discount without recourse’

Lending to SMEs
There is plenty of evidence to show that businesses are seeking out alternatives to bank funding, writes Richard Willsher

In its August “Trends in Lending” report the Bank of England states: “Contacts of the Bank’s network of Agents [throughout the UK] noted that credit conditions for smaller businesses remained tighter than for larger corporates…” A two-tier market in bank funding is very real. “Some major UK lenders,” the Bank adds, “reported that spreads on lending to larger corporates continued to fall, but by a diminishing amount. Spreads on lending to small and medium-sized enterprises were little changed.”This explains why small businesses are finding their funding where they can, away from traditional overdrafts and term loans.

A spokesperson for the Federation of Small Businesses says that many smaller businesses are put off going to banks for credit because of extra charges that may be levied, such as arrangement fees or set up charges. This serves to increase the real cost of borrowing. “Our members [also] say that they fear that if they go to their bank to ask for a new loan or an extension to their overdraft it may trigger a review of all of their financing arrangements.”

Keeping it personal
Instead, small businesses often fund their businesses out of personal savings, with many new businesses being set up with redundancy money. This is a trend that may well increase in coming months of austerity. In a recent episode of BBC’s Dragons’ Den one of the founders of Zigo, a bicycle- mounted baby carrier business, said he had invested $1.3 million of his own money in the business. The Dragons were dumbfounded. Not every entrepreneur has that much personal wealth to put in, most need to look elsewhere, but where? The FSB says that friends and family are a very common source of working capital as well as equity. Credit cards are also commonly used as a ready source of cash, though it can turn out to be very expensive.

Joining the crowd
Another small scale source of borrowing, though that is not what it was set up to do, is the online lending and borrowing exchange Zopa, http:// uk.zopa.com/ZopaWeb/. Giles Andrews Zopa’s CEO says: “It is almost certain that some borrowers are using their Zopa borrowings in this way.” He adds that that is not necessarily of great importance to Zopa because borrowers are assessed on their ability to repay the debt, regardless of what they are going to do with the funds. The attractions of Zopa are easy to see. The borrower can probably borrow the funds more cheaply than through a bank, although only up to £15,000 and they may like the idea that the funding….is directly supplied by a range of small depositors, not by a large bank.

There is definite appeal to what in the US has come to be called “crowd- funding.” Zopa-like but recently set up to provide business funding is Funding Circle, http://www.fundingcircle. com/. It provides unsecured loans of between £5,000 and £50,000 at fixed rates for up to three years.

Traditional but alternative
Although invoice discounting and factoring accounts for something in region of £14 billion of outstanding advances at any one time, as Kate Sharp, chief executive of the Asset Based Finance Association, the invoice discounters and factors trade association, explains it is still perceived as being an “alternative” source of business funding especially among those “brought up on overdrafts and business loans.” However she goes on to point out that in providing finance directly linked to the sales of a business, invoice discounting maps the ebbs and flows in fortunes of a business.

Another source of financing is Finance South East (FSE). With offices across the South East of England, chief executive Sally Goodsell explains, “Many of our borrowers are young entrepreneurial companies and technology businesses that are looking to grow. We are open for business and we do some of the lending that the banks have simply stopped doing; for example, cash flow lending to growth hungry businesses. We are not here to finance lifestyle or steady state businesses. We are looking to lend to and invest in companies that are ambitious… They are often knowledge based business that are scalable and are looking to expand beyond their home markets.” Such funding may also attract additional funding from the banks once FSE is seen to be involved.

Don’t forget the angels
Although they are mainly interested in equity investing, business angels often provide more than just that. Angel investing expert Chris Clegg, who provides training for business angels, notes that many provide debt as well as equity. Indeed when a BBC Dragon says he is prepared to put a sum of money into a business, those funds may be partly in the form of equity and partly in the form of debt. Angel debt
funding may take the form of preference shares or may be convertible to equity under given circumstances.

There are several non-bank sources of funding which can suit the circumstances of particular business. What may worry the banks is that when a business taps such alternative sources of funding its managers may question just how much they really need banks involved in their business in the future, when the price can be so high and the terms so onerous.

Modernising IFA – interview with IFA chairman Paolo Provera
by
Richard Willsher

In his day job Paolo Provera is General Manager of ABC International Bank in Milan and sits on the bank’s management committee. As IFA Chairman he is leading the association towards a challenging future.

Richard Willsher IFA is now 10 years old and you have been associated with it during much of that time. Could you explain how its role and character has changed during the past decade?

Paolo Provera     I first became a member in 1999 with my previous employer. Since then I have been chairman of the Southern European Regional Committee, then when I joined the Board in 2005, I acted as Head of Regions, then Treasurer and now Chairman of IFA itself. During that time IFA has been through a great deal of change, reflecting change in the forfaiting market but also in the wider trade finance and banking sector. We’ve always changed with the times and are now facing new challenges.

Richard Willsher What are those challenges?

Paolo Provera At the same time as I became Chairman at last year’s Annual Conference, four new members joined IFA’s board. It was important that we guaranteed the policies and direction set by the previous board and carried on their good work.

As a trade association we do not want to grow, as other associations do, by allowing non-trade finance members to join IFA. We recognise however that over the last 10 years forfaiting as a discrete activity has diversified and, thanks to the initiatives taken by IFA, forfaiting has become more familiar to all the trade financiers. Now many, and probably most of our members are involved in wider trade finance business of which forfaiting techniques play an integral and important role.

Consequently, while retaining our brand and identity, we will be announcing at this year’s conference an expanded role for IFA together with a new message to support our familiar logo. The main thrust of this is that IFA will recognise more fully its place in the broader, global trade finance community rather than be limited to forfaiting only. One example of how the IFA’s role has evolved is the way it dealt with the Kazakhstan banking crisis. The involvement of Sean Edwards, for example, demonstrates that IFA is not only about forfaiting.

Richard Willsher Is IFA’s proposed co-operation with BAFT-IFSA part of this strategy?

Paolo Provera BAFT-IFSA is the global financial services association formed by the merger of the Bankers’ Association for Finance and Trade (BAFT) and the International Financial Services Association (IFSA). The co-operation that we hope to establish with them would be, hopefully, a big step forward for us, as we move from strength to strength. We will also be fortunate enough to have Donna Alexander, Chief Executive Officer BAFT-IFSA, speaking at the IFA Annual Conference in Berlin in September, when members will be able to learn more about the organisation and its position on trade finance including forfaiting.

Richard Willsher In setting the agenda for this year’s Conference you’ve taken a different tack than in previous years. What was behind this?

Paolo Provera Bearing in mind the crisis which we’ve all been through and which is still very fresh in our memories, the board wanted to make this Conference one that would address some of the practical issues that confront forfaiters and trade financiers in their day-to-day working lives.

So, for example, for the first time there will be a presentation giving valuable tips on how to formulate a credit application. For many attending the conference, especially after the crisis, making an application to gain credit committee approval for a new transaction can be a daunting and perhaps disappointing experience. Therefore this presentation will therefore address an issue of direct, practical relevance to the way we do our jobs.

Another of the presentations will deal with issues of funding and pricing transactions. Again, the crisis has radically affected the funding environment in a way that none of us have experienced before or even imagined prior to the collapse of Lehman Brothers in September 2008. And yet, without funding, transactions can’t happen.

Indeed one of the main reasons that clients come to banks to do trade finance transactions is to obtain funding. The other principal reason is to gain coverage for their trade finance risks and our ability to help with this is dependant on the pricing we can obtain. So funding and pricing are both critical factors in members’ ability to get deals done.

A third presentation and the following panel discussion will deal with export credit agency (ECA) coverage versus that offered by the private insurance market. This will also include case studies on both ECA and private market deals. Again this addresses the practical issue of risk coverage and is another example of the practical approach we are taking in setting the agenda for this year’s Conference.

Richard Willsher Finally, looking to the future of forfaiting in the context of the wider picture of financing global trade, how optimistic are you about IFA’s role and future?

Paolo Provera As I’ve said before IFA has to move with the times and that is what we are doing. Our possible co-operation with BAFT-IFSA and also our work with the International Chamber of Commerce on preparing the new Forfaiting Rules make our future an exciting one as we ensure our relevance to the global trade finance community. So we are committed to ensuring we remain worthwhile to our members as well as true to our origins.

The West side story
As a business location West London is bigger and more powerful than you may think. Richard Willsher of The Business Magazine explains

The next time you rail into Paddington or drive the M4 or M40 you might like to consider this. The six London Boroughs of Brent, Ealing, Hammersmith & Fulham, Harrow, Hillingdon and Hounslow with their 1.4 million people have a population greater than Birmingham’s and an economy bigger than Frankfurt’s. Three quarters of a million people work there at 67,000 businesses and the region contributes £32 billion each year to the nation’s economy. Within the area lie Heathrow, the world’s busiest international airport and Park Royal, which is Europe’s largest industrial estate. Vital statistics to die for if you’re looking to attract businesses and investment to your backyard.

Yet the noise surrounding London as an investment location is dominated by Docklands’ towers, the City’s financial services hub, the East End’s Olympic ambitions and the West End’s swanky squares. But if travelling to meet your colleagues or business associates in, say, Hong Kong, New York or Silicon Valley is important to you, where would be a more convenient location for your office, Hackney or Hillingdon? Just for the record, you can’t fly directly from London City Airport to any of these places but Heathrow serves 160 destinations around the world and offers 23 flights a day to the Big Apple alone.

Closer to home business organisation West London Business (WLB) calculates that within a 150-mile radius of West London there is a market of 20 million people. It is not surprising that many of the companies that are located in its 20 or so business parks or along the main transport arteries are service businesses that supply this population. Heathrow Airport alone through which more than 67 million passengers move annually provides jobs for 70,000 according BAA, which owns the airport.

Ian Nichol, director of the West London Alliance, which aims to promote the economic, environmental and social well being of the West London community, says: “West London offers businesses a range of unique strengths and particularly interconnectivity with national, European and international markets. Which is why many company headquarters or other office investments have been made in West London. It is also increasingly attractive to high-technology companies including IT and biomedical businesses because of its skilled labour force and locational advantages.”

WLB’s deputy chief executive and head of investor development Russell Harris says: “West London continues to attract new international investors from Europe, North America and Asia, whilst many of its existing major businesses have committed their future to the area. Just look at the Canon Europe decision to grow their HQ presence at Stockley Park. In the past few months we have also seen a number of high profile moves from central London to West London. These include, shopping channel QVC moving to Chiswick Park, the drinks company Diageo moving its London HQ to Park Royal, and GE Capital moving to its own building, the Ark in Hammersmith, following in the footsteps of media company Open TV, who moved there last year. To support future investment in West London, we will launching a number of area and sector investment propositions at MIPIM 2010, the world’s largest property and investment show in Cannes in March, where West London will have a presence on the London stand. These will help remind people of the strength and momentum we’ve always had in the West London economy. They will outline how strong the creative and media, ICT, bio/pharma, food and drink, transport and logitics sectors are, as well as giving vital information to potential occupiers, and investors and developers considering new opportunities”.

Although large and well-known companies like GlaxoSmithKline, Heinz, Adobe, IKEA and many more have premises in West London, perhaps what is not so well appreciated is just how many small business are located there. Roughly a third of the jobs, that’s 250,000 of them, are at SMEs.

All told, West London presents an impressive business case and has a critical mass of economic activity that on its own dwarfs that of many of Europe’s major cities. So the next time you scythe your way from the west toward central London spare a thought for the economic miracle that you are passing through. Without it London would be a very different city indeed.

Useful contacts:
The West London Investor Development Team:
Russell Harris 020-8607-2500 russell.harris@westlondon.com

The West London Alliance
http://www.westlondonalliance.org

Business banking in a time of change

Ten years ago the Cruickshank Report looked at competition in the banking industry and concluded that there was ‘market concentration in favour of big banks’ in respect of SME banking services. Has anything changed? asks Richard Willsher of The Business Magazine

Well not much according to the Federation of Small Businesses. They quote research from late last year that says that 83% of small business banking is in the grip of Lloyds, RBS, HSBC and Barclays. This leaves a variety of much smaller providers sharing the remaining 17%. The effect of Lloyds’ acquisition of HBOS was to concentrate the picture further, removing Bank of Scotland from the list of also-rans.

This is something that concerns the current Lib-Con coalition, and in particular Vince Cable’s Department for Business, Innovation and Skills. “We remain steadfast in our position that businesses should be treated fairly, charged appropriate terms and have reasonable conditions associated with borrowing,” the Department commented to The Business Magazine. “It is absolutely crucial to the economy that banks rebuild relationships with their customers and restore confidence to the market that they are able and willing to lend.”

The Department continued, “The Government has set up the Independent Commission on Banking, headed by Sir John Vickers, to consider the future of banking. This commission will consider the structure of the UK banking sector, and look at structural and non-structural measures to reform the banking system and promote competition with a view to ensuring that the needs of banks’ customers and clients are efficiently served.”

Meanwhile banks say they are willing to lend but that many smaller businesses are not willing to borrow. Larger corporates are borrowing, according to the Bank of England but many of those also have access to the wider capital market, which is denied to smaller businesses so their funding needs may not be as desperate.

It is against this background that either through government intervention or through new competitors coming to the market we may see developments in business banking over the coming months and years. One direction that this may come from could be Santander. With Abbey and Alliance and Leicester - both with business banking offerings when separate banks - now under its wing, it is keen to make its presence felt. “Our business is to understand our customers’ business as this is the only way we can provide real shape and real substance to the offer we make,” says Vanessa McCormack, Santander’s regional director “We respect the unique nature of each and every business in the Thames Valley region and we believe that developing strong long-term relationships is mutually beneficial. That’s why our relationship directors maintain an ongoing dialogue with their customers in order to provide bespoke support when it is required, both through the good times and the bad.” This, in urbane banker-speak, may well be fighting talk.

Santander will not be the only bank looking to grow its share of the market but it is, remember, one of Europe’s largest and has the resources as well as a significant and growing footprint in the UK.

Businesses will be watching this space with a keen interest to see how the battle shapes up. Added to the likely deflationary effects of the Government’s austerity measures which may adversely affect a large number of businesses and their bankers, a new shake out in the banking sector may well be just around the corner.

In brief: how cloud computing can be used by different types of businesses, including two case studies.

One of a series of four BRIC investment articles to appear in HSBC’s “Liquid” client magazine.

This article is a summary of the state of play in the setting up of the Single European Payments Area.

Deals and lending are slow to recover

While there is widespread acceptance that higher taxes and public sector spending cuts are on the way, the big issue worrying businesses right now is constrained bank funding, writes Richard Willsher.

It all depends who you are. The Bank of England’s April 2010 Trends in Lending publication and its Credit Conditions Survey for the first quarter of this year indicate that bank lending to larger businesses is increasing and the cost of borrowing falling. This is corroborated by the Association of Corporate Treasurers’ spokesman Martin O’Donovan who says that bigger company credit spreads have fallen and well-rated businesses have been tapping the bond markets successfully for some time now.

However for SMEs the reverse is true. Demand and the cost of borrowing are both increasing while terms are tightening. This is worrying for small businesses because it may inhibit their ability to grow and it was listed among the major concerns of business owners in Baker Tilly’s Owner Managed Business Report published last month.

Across the corporate finance scene as a whole, deals are being done. Researchers Dealogic point out that globally mergers and acquisitions have risen by 15% as compared to first quarter last year. In Europe transactions are being announced although much reduced in number and value as compared to 2006, 2007 and the first part of 2008.

Locally, corporate finance adviser Charles Whelan of HW Corporate Finance says: “We saw a pick up in deals in the first quarter. There is a realisation that we are not going to go back to the heady days of 2007 in terms of pricing and business owners are realising that life has to go on.” He points out that uncertainty surrounding the election has not helped in getting deals done and also there is genuine concern among some entrepreneurs about a potential rise in capital gains tax.

Management buyouts have staged a modest recovery, according to Nottingham University’s Centre for Management Buy-out Research, although secondary and even tertiary buyouts dominate the activity. This suggests private equity and bank funders are merely trading extant deals between themselves rather than putting new money into new buyouts. Christiian Marriott, a director of Barclays Private Equity, comments with some caution: “The strong start to the year ... may not necessarily signal a sustained resurgence in the UK buyout market, rather a more gradual recovery over the next few years as confidence returns.” A widely held view is that private equity houses are flush with cash raised for investment in 2006 and 2007 but are either not yet sufficiently confident to invest or unable to raise the leverage that they need to fully fund new deals.

There is some positive news from the banks themselves however. “There were not many [merger and acquisitions] transactions last year though we saw quite a few refinancings,” explains Mark Frettingham, HSBC’s head of corporate banking at the bank’s South Corporate Banking Centre. “Now most of those have been done and we are seeing more buoyancy on the M&A side .... We are seeing more players coming back into the market as confidence and optimism improves.” He says that vendors are less inclined to hang on to get top pricing for their businesses and that transactions are happening where there is a compelling imperative for them to do so. He does however sound a note of caution over those businesses that are dependent on public sector contracts where the outlook may be uncertain.

At Lloyds Banking Group, Andrew Fish, corporate finance director for the Thames Valley and the south east, says that although credit decisions on transactions are taking longer to come through, loans are now beginning to be made against cashflow. This is in contrast to the secured lending that many banks have insisted on since the financial crisis. “What I’m finding is that well-managed businesses have managed to maintain their profitability throughout the downturn and are now pretty well placed .... If they have managed to maintain their profitability and cashflow over the past three years then we can have confidence that they can carry on over the next three or four years.”

In late April Lloyds announced that it had provided a £4 million loan facility to AIM-listed Alliance Pharma to assist the firm growing organically and through acquiring additional product lines. But while doing such deals Fish says post- election uncertainty and the sovereign debt concerns could still knock business confidence.

For smaller firms the going is particularly hard. Adrian Alexander, Mazar LLP’s corporate finance partner, notes that bank lending usually has to be secured and leverage ratios have fallen. Banks, he says, won’t look at buyouts at the moment. “As far as M&A is concerned there are more buyers than sellers but strategic trade buyers with cash to spend are in a strong position.” He says that despite the recession there are fewer distressed businesses for sale than expected.

Alexander’s colleague Andrew Baxendine who covers the south coast including Southampton, Poole and whose territory stretches as far as Bristol reiterates that secured lending is certainly the flavour of the month. Generally lenders are looking for long-term contracts in industries such as property maintenance, the health sector and environmental testing, where cashflow looks certain for several years ahead. Businesses that tender for one-off contracts, healthy and well run though they may be, are finding it very tough to raise funding from banks. On the whole acquisitions have been small and few and far between but he emphasises that he frequently comes across well-managed businesses that are doing well despite the difficult trading conditions of the past couple of years. “On the whole the business climate is not too bad in our area”, he concludes.

All in all corporate finance in the region is emerging from a period in the doldrums. The larger, more creditworthy businesses are finding it easier to raise funding and buy businesses but for SMEs it is much more difficult. Banks and advisers are reasonably positive in their outlook but uncertainty over what the new government might bring and how business will be affected suggests that transactions are unlikely to pick up significantly until 2011.

THE BUSINESS MAGAZINE – THAMES VALLEY – JUNE 2010

No investment is entirely free from risk, and the size of the potential reward is usually determined by how much risk an investor wants to take. So have you thought about how much risk you might want to shoulder with your current and future investments?

A discussion of the importance of funding in the forfaiting market in the wake of the 2008 / 9 financial crisis.

The article discusses the importance of training in the rapidly changing global forfaiting market.

The outlook for business and for restructuring and recovery in the 2010.

In brief:
Recession formally ends • General election to determine the course of government tax measures • Rates of inflation, interest andgrowth all low in 2010 • More insolvencies, more
unemployment likely

Report overview
A majority of owner-managed businesses expect to increase sales in the next 12 months. They are confident, for the most part, that they can maintain their gross margin and increase operating profit.

This demonstrates a distinctly more optimistic outlook than our last report 12 months ago when the economy was in the depth of the recession. This seems to suggest a consensus view that the worst is over now.

However, business owners and directors have some very real concerns, particularly surrounding the risks of a downturn in demand, a lack of credit to support their business plans and that increased tax, tax complexity and regulation may damage their businesses.

Therefore while they are generally positive and upbeat about their business prospects for the next year, they remain apprehensive about how the economic climate may yet impact them. They are also concerned that government may pose new challenges for them in the act of cleaning up the debris, after the worst financial crisis to strike the business environment in the last three quarters of a century.

One step closer

Uniform Rules for Forfaiting have moved a step closer following the third meeting of the Drafting Group in late January.
by
Richard Willsher

Following a third meeting of the Drafting Group in London in January, Uniform Rules for Forfaiting (URF) are a step closer. Dubbed the
UCP of forfaiting, the new rules are likely to affect everyone involved in the market.

Although a delivery date for a set of global rules to act as a standard for forfaiting is not cast in stone, the committee has in mind a broad target date of autumn 2011. However, Drafting Group Chairman Don Smith emphasises that, “We are working towards a quality product, not to a predetermined deadline just for deadline’s sake.”

The Drafting Group is comprised of ten members, five each from the International Forfaiting Association (IFA) and the International Chamber of Commerce (ICC). The ICC is the body which, among other things, publishes the Uniform Customs and Practice (UCP) for Documentary Credits, which has been the bible for letter of credit (LC) transactions since it was first conceived in 1933, and which has been though a series of revisions since then.

Based on market practice
URF does not have more than three-quarters of a century of evolution to build upon, but it does have as its basis three documents produced by the IFA over the past six years that were firmly grounded in long-term market practice.

The Introduction to the Primary Forfaiting Market, the IFA Guidelines [for the secondary forfaiting market], and the User’s Guide to the IFA Guidelines form the foundations for the rules, which will be quite different in style. This is because the Drafting Group has decided at the outset that they will not be written as an educational document, nor will they take the form of a commentary on the previous documents. Moreover, it is worth bearing in mind that they will be rules, not law, the same in status as UCP.

The aim is to keep it simple, using language that will enable words and concepts to be easily translated. “It comes down to a question of the language of the business,” says Smith. “This is one of the things we’re focusing on. As we work through writing the rules we use the language of the business. We want to ensure that we are not creating new terminology; that we are working with things that are acceptable to users in the business already. And while this is aimed at those already involved in the business, it will also be of great assistance to facilitating the future development of those new to it.”

In addition, the aim of the rules is to be of use to all market participants. “We are taking an approach of one set of rules for both primary and secondary markets. So the secondary market should benefit from having rules for the primary market. and the primary market should benefit because it will make instruments more readily saleable in the secondary market,” adds Smith.

Disputes
Another of the key benefits the rules can bring is in the context of disputes. Although they are not laws and transactions will continue to be subject to governing law, they can provide direction to regulators and to courts. “Courts are generally willing to lookat rules of practice, particularly if those rules of practice have been incorporated into the transaction,” says Smith. “So if there is a transaction and it says ‘subject to Uniform Rules for Forfaiting’ and there is a disagreement and this ends up in litigation, I would expect that courts would look for assistance and guidance wherever they can find it. And if a transaction subjects itself to the URF, that they will go to the URF to see what it has to say.”

Looking ahead to the conduct of the market itself, it was one of the clear intentions of both The Guidelines and the primary market documents to provide guidance to newcomers to the forfaiting market. The Rules will codify market practice just as UCP has long done for LCs.

Smith believes that they will help facilitate a degree of standardisation of transactions that derive from areas such as the emerging markets of the Far East and elsewhere and so enable them to be structured and sold into the secondary market more easily.

He adds: “A good, solid set of rules should also lead to improved pricing for clients because not every deal has to be a one-off, start-from-scratch deal. This provides the facility to bring new products to the market in a regular, standardised manner, and the market will know that it is subject to URF and that a number of points have already been considered by the primary forfaiter.”

Certainty
Another key benefit will be certainty. Removing uncertainties from the way in which transactions are structured, where risk lies and who is responsible for it, will promote the adoption of forfaiting by a wider banking community that is concerned with risk management. This may, in the long term, mean that larger transactions can be constructed with confidence and that turnover in the market will increase.

This is why URF will be welcomed by forfaiters and those who make use of the market to provide or receive medium-term trade credit. And this also suggests that, therefore, everyone in the market is likely to be affected by new rules of the type that have long lent discipline to the large, global LC business that is a well-tried and tested staple on the trade finance menu.

Richard Willsher is a financial journalist and trainer, perhaps best known for the seminars that he conducts with the IFA. He can be contacted by emailing rdw@richardwillsher.com

For more information about the International Forfaiting Association see: www.forfaiters.org or e-mail info@forfaiters.org

Forfaiting -  the last ten years

Richard Willsher looks back at the events and challenges of the past decade in forfaiting.

The International Forfaiting Association’s (IFA’s)Rome conference from 2nd to 4th Septembert coincides with the Association’s 10 anniversary. It also coincides with the current financial crisis. But the history of forfaiting over the past decade has been one of encountering and overcoming one predicament after another.

“Every crisis has had an impact on the market,” says Waltraud Raderschall of Commerzbank AG. “For example, major events or reschedulings led to definite changes in documentary requirements for deals originated in the area concerned. They may also be the reason why market participants sometimes would look twice at documentation evidencing the claims they intend to purchase on a discount without recourse basis.”

These are just two examples Raderschall refers to from a forfaiting career that spans more than 20 years. As she prepares to step down from the IFA’s Board at this year’s conference after a six-year stint, she notes that the result of dealing with each period of turbulence in the market has been one of learning and adapting to new aspects of the business.

It became clear, however, with the arrival of new market participants who did not necessarily appreciate the way business had traditionally been carried out, that the forfaiting community had to decide whether it would become externally regulated or whether it would do the job itself. This led to the secondary market IFA Guidelines being drawn up. And though, adds Ms Raderschall, they are not used as they were originally intended, they have become a valuable point of reference.

IFA’s influence
The IFA itself has achieved much of what it was established to do ten years ago. Among other things, Article 2 of its 4th August 1999 Statute lists the aims of the Association as being to, “promote good relations amongst its members and to provide a basis for joint examination and discussion of questions relating to the forfaiting business; to issue rules and make recommendations regarding the conduct of such business; to provide services and assistance to participants in the forfaiting business”. All of these things it continues to do.

Market participants note that over the years the forfaiting market has seen a variety of instruments become popular and then lose their appeal. A number of standard instruments, including supplier credit structures, discounted letters of credit and promissory notes, book receivables, promissory note facilities and bundling transactions have came into vogue – and subsequently waned in popularity. But in the current crisis, there has been a definite withdrawal from more creative structuring and a return to letters of credit (LCs), once again. Some see this as a negative development.

Sal Chiappinelli, CEO of SFC Swiss Forfaiting, based in Zurich, laments this change in the market place. As he also prepares to bring to an end his six-year IFA Board term, he says that the move has enabled large banks to dominate because they can act as issuers or confirmers or advisors of credits. Their fees are assured and there is less scope for smaller, more agile and, perhaps, more creative players to perform a role in the market.

Meanwhile, he adds that the insidious influence of injunctions preventing payment being made under LCs has had the effect of weakening the strength and integrity of the credit instrument, as a number of forfaiters are currently finding to their cost. In this regard, he supports the recent co-operation between the IFA and the International Chamber of Commerce, which may lead to the establishment of rules for conducting forfaiting including, hopefully, receivables arising from deferred payment LCs.

Global reach
Geographically, forfaiting has continued to spread and embrace new areas of the world. There has been a continuous stream of new risk countries, additional sources of transactions and budding local forfaiting marketplaces. It has, for example, been ten years since Charles Brough, who heads forfaiting and trade finance in Asia/Pacific for UniCredit Markets and Investment Banking, moved to Singapore to start a forfaiting desk. Since then, Singapore has steadily grown into an active marketplace in its own right, spanning the Asian theatre.

Brough notes that in his early days in South-East Asia, half of the business he saw derived from financing Japanese exports to neighbouring countries. South Korea became an active market but then waned, as did Japan. But Chinese exports then became the principle driver for the market from about 2002 onwards.

He confirms that, for the time being, new business in the region, as in other parts of the world, almost exclusively takes the form of deferred-payment LCs. And he and others watch the current developments in both Kazakhstan and the Middle East with some concern as the consequences of the most recent crisis buffet the market.

But some things have remained constant throughout the past ten years. According to Waltraud Raderschall, the market remains small, but by no means exclusive. And it is still the case, in her view, that market participants are willing to help each other with education, in sharing information and getting through difficult times.

The IFA’s education seminars and annual conferences have extended this trend by enabling networking and new contacts to be made. This bodes well for the future and, as happened over the past ten years, the market will continue to adapt to events on the world stage and learn to do business in the changing environments they bring about.

What a difference a year makes

RICHARD WILLSHER looks back on a traumatic year for forfaiting and trade finance – and to the challenges that lie ahead.

There has rarely been a more difficult start to a year. 2009 opened in the aftermath of the collapse of Lehman Brothers and the paralysis of the financial markets that followed. Those first months of the year were very difficult ones for trade finance in general and for forfaiting in particular, yet, as the year closes, the picture seems much brighter.

It is noteworthy that during the year, the forfaiting market has shown an overwhelming preference for deferred, trade letters of credit. Financial, non-trade transactions with innovative structures and non- traditional documentation took a back seat. Trade finance was the name of the game.

“Although the deep crisis in the banking sector appears to be over, many banks are still going through difficulties, even now,” says International Forfaiting Association (IFA) Chairman Paolo Provera. “However, turnover in trade finance at a lot of institutions has increased during the year. While trade finance staff have, in general, been reduced across the board there has quite clearly been a need for banks to support their trade finance customers. Consequently, trade finance specialists are now in demand to support exporters. There is a demand for know-how. For these reasons 2009 has turned out, in the end, to be a good year for trade finance.”

The bounce back has been more pronounced in North America. “In the New York market we’ve had a terrific year,” says Brendan Herley, President of The Association of Trade and Forfaiting in the Americas (ATFA). “In this hemisphere in general, the leading banks, such as Bank of America, Bank of Montreal, TD Bank, Banco do Brasil, Itau and Santander, have beaten their budgets.

“Even the medium-sized players such as Mashreq Bank and National Bank of Pakistan have had a good year in the US by servicing their trade finance clients. Overall, a number of players have come back into the market as liquidity has increased. And they’ve started to fund transactions again, rather than being unfunded participants. In the past few months the liquidity premium that all banks were confronted with has reduced to almost insignificant levels,” he says.

In Asian markets it has been a similar story. “Margins are falling, especially in Singapore,” says IFA board member Charles Brough, Director and Head of Forfaiting & Trade Finance (Asia Pacific) for UniCredit. “There is a general view that Singapore margins are lower than other places because there are too many banks here, competing with each other for a limited amount of business. During 2009, the situation has loosened up and people have come back to doing trade finance. More banks are prepared to take trade risk now than they were.”

All good news, but Bernd Sooth, who leads trade and commodity finance at Frankfurt-based KFW IPEX-Bank, strikes a note of caution. “2009 was a challenging year for trade finance. A few very important markets in Eastern Europe crashed and, therefore, the appetite of risk management reduced for trade finance. The most important example was the Kazakh situation where the trade finance ‘golden rule’ looked as if it would be broken. Fortunately, BTA Bank has granted preference to ‘true trade’ finance debt. This is good news for trade finance and, for the moment, the overall market has become less stressed.

“However, Dubai may cause us problems again. It could lead to a further crisis because a lot of money has been lent by the banks. The past few weeks have been better and margins have come down a little bit and the appetites of the international players seem to be increasing. But I’m not really sure how the events in the Middle East and North Africa region will affect this,” says Sooth.

The events in Kazakhstan have been closely monitored by the IFA. In particular, the IFA’s Deputy Chairman and Legal Advisor, Sean Edwards, has played a vital role tracking developments with Alliance and BTA.

The recent completion of the Alliance trade finance adjudication process and the publication of BTA’s restructuring term-sheet show differing approaches to the treatment of trade finance creditors, with BTA behaving arguably less favourably towards them.

But in both cases the emphasis has been on showing that the financing is attached to identified imports or exports. The protection of trade finance’s preferred status may well have far reaching and positive consequences for the way in which trade finance is regarded by banks and regulators in future. Nevertheless, Dubai now casts a shadow over the financial markets with consequences, as yet, unknown for trade finance in 2010.

“For trade and commodity finance, 2010 will also be a difficult year,” continues Sooth. “The market may still be limited, and the capital and availability of liquidity at some financial institutions may also be limited. They may have to do some provisioning again and raise a bit more equity to have a buffer next year. I think, therefore, that the market will remain tight. I think that the first half of the year will be tough again.”

However, Sooth foresees good structured-trade finance opportunities for exports of soft commodities from Brazil, in particular, and suggests that European Union exports to China and India could well make the second half of 2010 very interesting for banks involved in trade finance in the EU.

Interestingly, Brough’s UniCredit forfaiting and trade finance team is moving from Singapore to Hong Kong next year, endorsing the hopes and expectations of many surrounding increased trade flows in and out of the People’s Republic. He stresses that trade finance banks will continue to have strong interest, post- Kazakhstan, in financing real trade. ‘Synthetic’ trade transactions will play a more limited role than in the past, believes Brough.

Not surprisingly, Herley is also bullish about the outlook for 2010. “As far as ATFA is concerned, the market will grow. We’ve got a lot of momentum because more and more people in the mid-sized corporate world need trade finance solutions. So the number of players in the trade finance market will increase. I would also add that the Chinese [banks] are here to stay and people should take note if they haven’t done so already.”

IFA chairman Paolo Provera concludes by saying that he sees trade finance increasing in 2010 as confidence grows among exporters enabling them to grow their overseas sales. “2010’s Berlin conference in September will be the big IFA event of the year, the first since the end of the crisis. The outlook is positive for exports, if negative for credit. Trade finance and forfaiting are still alive, despite the crisis…”␣

This issue contains a description of this multi-asset, global fund. There are individual articles on Latin America, UK Property, Asia and France. The article entitled “Impossible Dream” was not written by Richard Willsher.

MEAG:  risk management culture par excellence

MEAG, winner of the SimCorp StrategyLab Risk Management Excellence Award, is a risk management firm both by design and by culture. We spoke to Dr. Peter Schenk, MEAG’s Head of Investment Controlling, to learn about its approach to risk
by
Richard Willsher

Among asset managers, MEAG may well be the envy of its peers. It manages more than €180 billion of assets, yet suffered no direct damage in the financial crisis.This is almost certainly due to the risk management culture at the firm and its heritage as part of Munich Re.
All but €8 billion of the assets under its management are from Munich Re companies and, as Dr. Peter Schenk explains, insurance companies do things differently. “The assets of insurance companies have to behave differently than assets belonging to other types of investors. The assets must back the liabilities of the insurance company. What is more, life insurance company assets have to be structured completely differently than those of a composite insurer or firms that reinsure storm risks. The risk content and asset behaviour mean that they have to match, or approximately match, this liability structure. Any deviation has to be de- liberate. This means that when you manage assets for insurance companies, you have to talk about risk. The liabilities are risks. Insurance companies deal with risk. Munich Re’s mission statement is ‘We turn risk into value’. So that’s where we start from. We have to understand the investor’s risk concept.”

PRIMARY FOCUS ON RISK
While many other fund managers may be under greater pressure to focus on return, MEAG’s primary focus is on risk. More particularly, it has to understand very clearly the ‘riskless position’ of the investor. But what is risklessness? “For a private individual it may mean cash in a drawer to pay for tomorrow’s pizza,”says Dr.Schenk. “For an insurance company that knows, or expects from its models, that it will have to be able to pay certain claims in a year’s time, or, in life insurance, in 10 or 15 years’ time, your riskless position will not be cash, because relative to the liabilities, the return is quite different. To arrive at this riskless position you have to do certain calculations; you need to look at the asset and liability values at risk. You need processes that will meet the liability structure when it changes. Insured events may or may not occur. Claims may emerge or not emerge.” Modelling but also preparedness for the unexpected are key ingredients of the process. As Dr. Schenk adds without any hint of complacency, “A financial crisis is just another event that makes you think about your risk profile.”

It follows, then, that understanding and calculating risk at MEAG starts at the top of the firm. As well as heading the risk management function at MEAG, Dr. Schenk also plays a role in the integrated risk management function of Munich Re as a whole, where he reports directly to its chief risk officer. As an indication of the scale of the Group-wide risk management task, it is worth noting that in the half year to 30 June 2009, Munich Re generated gross premium income of €20.7 billion. Any new investment decision that is taken involves the full participation of the risk management function; it has to pass the risk management test.

“It is very important to remember that there always are two perspectives in our decision processes: the front office per- spective and the risk perspective, which are taken equally into account,” explains Dr. Schenk. “In order to come to a well- balanced decision, the people with an allocation idea must know that they will be confronted with risk perspectives. An example where we see this working in practice is our ‘New Product Process’. When an attractive new investment idea comes out in the market, the front office may be thrilled with it. The investor may be thrilled as well, because it may be a good instrument to reflect its liability profile. But we will only take up on it if we on the risk management side agree. We have to be able to understand the product. We have to be able to adequately model it in our systems. We have be able to access the data we need to feed our models, so that the output they give us is in the form of useful information.”

BUSINESS ENABLERS
However, it would be a mistake to paint the risk management function only as an obstacle to doing business. The risk management culture has evolved much further than that and according to Dr. Schenk, “There are conflicts, but we have found ways to deal with them as a routine. What is necessary is intense com- munication and mutual respect. We work together in one building. We meet at lunch. Whenever issues arise, we sit down together and talk about them. We regard our role explicitly as business enablers. We supply the front office with tools that they can use for their allocation and try to assist in finding solutions when dealing with narrow risk limits and other restrictions. It helps if they see that we really do not want to hinder them and that we are not always risk averse, but that we also try to find ways for them to take on risk.”

Dr. Schenk sets out the first principles of MEAG’s risk management operation. The internal data has to be up to date and complete. It has to be stored correctly and securely so that all holdings are known at any time. The details of holdings must be transparent. The methods and processes for handling the data have to be able to transform it into information that is useful and can flow into the decision-making process. To achieve these things MEAG uses a centralised data backbone that includes SimCorp Dimension. These features are the basic building blocks, but it is dealing with the unusual situations that defines the risk culture at MEAG and tests how effective it is. As Dr. Schenk elaborates, “When special situations emerge, when there is a crisis or new business opportunities – something un- usual, you have to have all this data, and the processes and governance rules must be set up perfectly. And you need a risk culture that is able to change to another gear; to move into crisis mode, if you like. Then, when you do, the culture of the firm ensures that everybody really likes to work with each other. Everybody keeps a close eye on the risk system, but the gap between it and the special situation can only be bridged with communication and action, with everybody really doing not only what is in their job description, but whatever is necessary at that moment.” As Dr. Schenk adds, “This is a ‘top-down issue’ because everyone appreciates that understanding, managing and controlling risk is vital to our business and our decision-making process.”

MULTI-DISCIPLINARY TEAM
It is also key to the process that the risk management function is staffed in a way that matches the demands of the business in all its complexity. For example, Dr. Schenk himself has a background in mathematics and computer science and holds a doctorate in economics. He notes that his colleagues in the Risk Management department are an interdisciplinary team. There are econo- mists, people with technical computer science backgrounds, but also physicists. In addition, the company sponsors them to gain Professional Risk Managers’ International Association (PRMIA) qualifications. Intellectual rigour and professional competence are essential prerequisites.

However, part of MEAG’s success in the current financial crisis is owed to the 2000-2003 equity bubble, which sharp- ened the firm’s resolve to enhance its risk culture. As Dr. Schenk explains, “We looked at everything: at what worked and what didn’t work so well. The problem is always interfaces between different departments; between the asset manager and the investor. And there we learned some lessons. One was that we really intensified communication. We intro- duced a mandate management concept which ensures that the tactical asset allocation not only fits MEAG’s view of the market, but also the investor’s overall situation. One example of what this concept entails are the regular asset/ liability management meetings now held between investors and MEAG. Another is the elaborate risk management process with well-documented tasks and areas of responsibility. Every objective that an investor has is quantified and cor- responding risk triggers are defined. When a risk trigger is activated, a predetermined process starts. This process always has to do with distributing and exchanging information, meeting together and deciding. Our processes now encourage people to make decisions.”

Today, for example, risk modelling, stress testing and reviewing and revisiting the stress tests and models on a regular basis are vital processes. And transparency is the sine qua non. It is one of the chief reasons that MEAG avoided the worst of the crisis, as Dr. Schenk points out: “If you have transparency, you can quickly manage an asset’s risk. You can sell it or hedge it faster than your competitors perhaps. Nobody could ever understand what a CDO of CDOs was, because you couldn’t drill into the data that really exposed the risk. If we were to buy these products and somebody asked us, “What is your exposure to US real estate, or to British credit cards?,” we couldn’t see the answer. We wouldn’t have the data. So we either wouldn’t permit such instruments at all, or would at least classify them as ‘non- standard’, which leads to strict limitation in volumes and special pricing and reporting rules.”

GLOBAL PROSPECTS
So in the bigger picture, considering the raft of new controls and measures currently under discussion, and in light of MEAG’s experience, is Dr. Schenk optimistic that products that are not sufficiently transparent will be banned or sufficiently de-risked in the future, so as to not pose a threat?

“It is not black and white, but altogether I’m not optimistic. Buy-side needs and sell-side creativity will always lead tointeresting constructions that somehow manage to comply with existing regulation. So it will always be the task of individual companies’ risk management to make a judgement about the degree of transparency,” he says. “The other thing is systemic risk. To prevent this we would need a global risk management system. A global risk management system means global data pools, a global early warning concept and global risk management processes linked to these warnings. This is now being thought about and discussed in all kinds of forums, but the challenges are huge. I think the desire is there, as well as the basic willingness to collaborate, but it will be cumbersome to arrive at concrete decisions and to accept jointly shouldering the pains risk management brings with it. I think the train is moving in the right direction, but if it is to reach its destination, many components have to interlock, and many parties who have not worked together so far will have to do so in the future. It is complicated, global, and there are lessons to be learned along the way. It might take a long time.”

Dr. Schenk concludes by saying that while the world has probably learned how to avoid another sub-prime crisis, it is the unexpected we have to prepare for. “To deal with the unexpected you need global risk management systems, a global risk culture and global risk governance, so that the relevant key persons will sit down together and make decisions, fast.” This, he says, will be very difficult to achieve on a global scale, but for MEAG’s own business, with the highly evolved risk management capability that Dr. Schenk describes, there is plenty of cause for optimism.

Richard Willsher is a London-based financial journalist and former investment banker.

———————————————————————————————-

MEAG (Munich ERGO Asset Management GmbH) is part of Munich Re. It provides advice on strategic asset allocation, risk management and asset-liability management, combined with professional investment manage- ment. It manages approximately €186 billion worth of assets on behalf of Munich Re and for third parties, including other institutions and public funds.

Munich Re is the world’s largest reinsurance group. It conducts both insurance and reinsurance business in an integrated model, with premium income of €38 billion, net profit of €1.5 billion and 44,000 employees around the world. ERGO, the group’s primary insurance group, has 40 million clients in more than 30 countries and earned premium income of €17.7 billion in 2008. ERGO offers a range of insurance products and is Europe’s leading health and legal expenses insurer.

————————————————————————————————

The SimCorp StrategyLab Risk Management Excellence Award has been established by SimCorp StrategyLab for the purpose of rewarding and promoting best prac- tise within risk management in the global investment management in- dustry.
MEAG was named the 2009 winner by an international jury including Professor Caspar Rose of Copenhagen Business School, Professor Renée Adams of Uni- versity of Queensland, Professor and Director of SimCorp Stra- tegyLab Ingo Walter of Stern School of Business (NYU), and SimCorp‘s CEO, Peter L. Ravn. The assessment was based on MEAG’s achievements and devel- opments in the field of risk management in the period from 1 August 2008 to 31 July 2009.
SimCorp StrategyLab is the independent research arm of SimCorp. Read more about SimCorp StrategyLab and its Risk Management Excellence Award at simcorpstrategylab.com/riskaward

Credit ratings: IT in the spotlight

When Schroders Investment Management received a rating upgrade, the strength of its technology platform was a key factor in the rating agency’s opinion.
by Richard Willsher

In November 2008 Fitch Ratings revised the London-based asset manager’s rating from M2 to M2+. It noted, “The rating also factors in the extent of Schroders research resources and the solid risk management framework. The addition of the ‘+’ modifier emphasises strength in the company’s investment infrastructure and the technological platform with notable progress being made in data management and integration (...)”2.

Other recent upgrades where Fitch made specific reference to technology as a determining factor included Groupama Asset Management, RFM Investment Management, Rothschild & Cie Gestion and Robeco.

THE OXYGEN OF ASSET MANAGEMENT
That Fitch should include technology in its set of five rating categories3 - company & staffing, risk management & controls, portfolio management, investment administration and technology - is not altogether surprising. As Andrew Cox, partner, and head of regulatory capital at actuaries and consultants Lane Clark & Peacock explains, “Data and information is the oxygen of any kind of insurance or asset management business. If you don’t know what business you’re running then how can you expect to run it well or to react to changing environments and situations? The ability to know what your business is and to know what your business is doing quickly is, we think, vital. And that in the end comes down to IT systems, most of all because there arevast amounts of information that any asset manager will need about all the holdings of different individuals, contracts that they’ve got in place etc. So the ability to be able to turn that vast amount of very detailed information into usable and useful summaries in a matter of days rather than weeks is pretty important.”

Moody’s InvestorsService takes this into account when evaluating and assigning its Investor Manager Quality ratings. “Moody’s believes,” it explains, “that the successful operation of an investment management firm relies also on the ability of the firm to set up an appropriate investment infrastructure, including the use of real-time portfolio management systems and various external data service providers to deliver targeted levels of portfolio management, accounting, shareholder services, and legal/control functions. In this area, face- to-face discussions are reinforced by on-site reviews.

It is also recognised that the failure of IT operations could threaten an investment management company’s ability to manage and monitor efficiently its offerings and provide adequate client services. For this reason, while stopping short of an assessment of enterprise-wide operations risk, we review the content and frequency of back-up systems as well as the tests of reliability of the key information feeds.”4

A spokesman for Standard & Poor’s notes that, “For financial institutions ratings, technology is not a major area of focus [for us]. Rather, we are more interested in the broader enterprise risk management of the firm (risk governance, credit risk etc.) and the degree to which senior management can answer our questions and present credible, timely management reports. Within this, we do also focus upon operational risk, which is important to asset managers, for example disaster recovery, how management monitor operational risk etc.”

BASEL II / SOLVENCY II
The rating agencies then do not offer themselves as detailed analysts of data systems and technology platforms. It is quite clear however that they do attach a significant degree of importance to the technological underpinning of an asset management or fund management business when apportioning ratings. With hindsight it was inevitable that IT’s role in risk management and capital adequacy would become more important, even before the financial crisis beginning with the US sub-prime fiasco. Information and the efficiency of systems lie just below the surface of the criteria of Basel II for non-life business and Solvency II for insurance and asset managers with a life insurance aspect to them. There is a strong emphasis on risk management and controls and on operational risk in Basel ‘Pillar 1.’ And quality information and robustness of systems falls within the view of regulatory oversight in ‘Pillar 2.’

The stakes however have become considerably heightened in light of the recent volatility in financial markets. Anything other than a rapid response to marking assets to market and speedy quantifying of positions poses a reputational risk to an institution.

“Both Basel II and Solvency II are, in the end, about risk management,” says Andrew Cox, “and the first step to managing risk is identifying risk. The only way you do so is by knowing what your business is doing, what risks it’s running and what its exposures are and this derives from the IT system. There at the heart of it a good data system is a pre- requisite for good risk management.” He goes on to say that the UK’s Financial Services Authority is particularly keen to focus upon the integrity of data.

“From my personal experience in working with clients to help them with both regulatory capital and Solvency II,” concludes Cox worryingly, “it is remarkable how difficult it is to get information or even to find someone who actually understands what the information means. There is a lot of room for improvement. Different companies are at different levels. Above all people must not think that this is a solved problem.”

With the current pressure from regulators, pressure from markets and pressure on the models applied by rating agencies in arriving at their ratings, it looks inevitable that IT will be further thrust into the spotlight. Ratings criteria will have to place increased emphasis on technology, even more than they currently do and anything less will again draw criticism of the rating agencies themselves. In the rating process there will be winners and losers. Ratings will go up or down depending on how flexible, scalable, robust and quick their systems are in the way they respond to the stresses placed on their asset managers’ businesses.

Richard Willsher is a London-based financial journalist and former investment banker.

2     “...Schroders has achieved key milestones in its London operations with respect to its technological platform following implementation of SimCorp Dimension as the main accounting and repository tool. Risk management routines have been responsive to the volatile market environment and included heightened surveillance of certain risks…”.
3 ‘Reviewing and Rating Asset Managers,’ Fitch Ratings report, 29th May 2007.
4 ‘Approach to Evaluating and Assigning Investor Manager Quality Ratings to Asset Management Companies’, Moody’s Investor Service, 31st August 2005.

Preparing for UCITS IV

European Parliament approval for the Undertakings for Collective Invest- ment in Transferable Securities (UCITS) IV has been greeted with enthusiasm by trade bodies and the asset management industry as a whole. Now everyone is asking how it’s going to work. This article gathers views on what industry professionals think the UCITS IV future may hold. by Richard Willsher

If UCITS IV fulfils its promise then the package of measures it ushers in could make a very real difference to scope, scale and organisation of fund management in Europe. The European Funds and Asset Management Association has described it as ‘a new milestone in the creation of an effective single market for investment funds’. And its president, Mathias Bauer commented, “Efficiency and confidence are crucial if the investment fund industry is to remain competitive, in particular under thecurrent difficult market circumstances. UCITS IV will enable asset managers to deliver these efficiency gains, increase confidence in the existing UCITS framework and help promote the UCITS brand even more…”

Jarkko Syyrilä, of the London-based Investment Management Association is similarly upbeat. “The new directive,” he says, “will simplify the regulatory environment; create cost savings through economies of scale; give greater choice of investment funds to investors; and increase investor protection by making sure that retail investors receive clear, easily understandable and relevant information when investing in UCITS funds.”

Market practitioners agree that it will have significant effect on the market. “I think it will,” comments Adam Fairhead, global head of product development at HSBC Global Asset Management. “The master feeder arrangement could encourage a lot of consolidation of funds thereby cutting costs. The management company passport could lead firms to domicile all their resources in a single location instead of having them spread about. Fund mergers cross border should certainly be easier though there is no solution on the tax side, which is important.”

He adds that the structural change that UCITS IV will bring about will mean that businesses may alter the way they set up and organise their fund management operations though not what products they sell to investors or the way the sell them.

Jamie MacLeod CEO of Skandia Investment Group says that his firm “very much welcomes the variety of new initiatives being pursued with the development of the UCITS IV regime. However,” he continues, “while we have noted [a number of ] benefits… and the desire of regulators to work more closely together, there remains a lack of detail… The result is that we cannot make business decisions until these proposals have been fully worked through…”

Indeed many firms have a number of wide ranging business decisions to make regarding how they are structured, locally, cross border in Europe and globally. Aegon Investment Management among a number of others, is in the process of reorganising its business into a global asset management structure and Helen Webster Aegon’s head of products says that UCITS IV provides her firm with some of the tools to do so. At Standard Life Investments Phil Barker who is head of European Business Development adds that it will help reduce costs and help increase efficiency.

Richard Pettifer KPMG’s director of investment management identifies three key areas that firms will now be focusing on. The first is where to locate their principal management company. The second is where to put their master-feeder agreements and thirdly, where will fund administration be carried out?

Pettifer queries whether Luxembourg and Dublin will continue to grow as centres for all or some of these activities. Or will, for example, firms with head offices in say Frankfurt, London or Paris, place their management operations, and master-feeders in those centres and transfer fund administration to low cost centres elsewhere, such as, he suggests, Poland or India?

The counter to such suggestions lies in the deep pools of expertise and excellent regulatory environments that Dublin and Luxembourg already have in place. To replicate that elsewhere would take a great deal of time and cost. Moreover these two centres will compete tooth and nail to hold on to all aspects of asset management work because of their significance to their local economies both in terms of income and the employment of human resources.

Meanwhile before many firms can begin to address such issues KPMG’s Pettifer goes on to point out that they need to better understand their existing businesses especially where they are spread across several locations around Europe. “Just preparing an inventory and understanding their own cost structures will be a challenge for some firms,” he says.
In summary, UCITS IV’s impending implementation addresses a number of longstanding industry issues. But it also raises a number of structural and strategic questions that many firms are not yet necessarily well positioned to answer. Meanwhile those that are, could be best placed to seize valuable first-mover advantages in the new, Europe-wide investment management market.

UCITS IV – Key features
UCITS IV ushers in several measures intended to promote grater efficiency in pan-European management of funds:

␣␣ Management Company Passport – A management company located in one country will be able to set up and run a fund in another (A fund’s nationality will be determined by the country where it has been authorised);
␣␣ Supervision – a management company will be subject to the supervision and regulation of the country where it is based;
␣␣ Notification Procedure – quicker, more simplified regulator-to-regulator communication;
␣␣ Key Investor Information – to be simpler than the existing ‘simplified’ prospectus;
␣␣ Mergers – framework governing both domestic and cross-border mergers between funds;
␣␣ Master-Feeder Structures – allow funds to build economies of scale across borders.

UCITS IV – Timetable
Following approval by the European Parliament, the remaining timetable is clear and is unlikely to change:

␣␣ Level 2 detail is currently being worked through and Directive is due to be issued in summer 2010;
␣␣ Member states to adopt and implement rules which should be effective through the EU by 1 July 2011;
␣␣ Economies of scale across borders.

Richard Willsher is a London-based f inancial journalist and former investment banker.

Bookshelf: The highly improbable
Date: 11-Jul-07 Richard Willsher, World Business

The world is a risky place - but by using the right tools we can reduce the uncertainty.
The world is a risky place. Its very nature is that it is subject to unexpected and catastrophic events. Yet, by using the wrong tools to assess risk, we choose to convince ourselves that things are less risky than they are.

The great thing about Nassim Nicholas Taleb’s The Black Swan is that it teaches us to look at risk and uncertainty in a different way, using approaches that distrust standard means of calculating or estimating risk. The idea of the black swan is that once it had been discovered, it highlighted how fragile knowledge and information had been among those who thought swans were always and necessarily white simply because they had never seen a black one.

Taleb defines a black swan as “something that lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries extreme impact and third, in spite of its out-lier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”

Much of the early part of the book is devoted to attacking states of mind and, more particularly, statistical techniques that ignore or insulate us from black swan-like phenomena. These belong to the province of ‘Mediocristan’, which is “dominated by the mediocre, with few extreme successes or failures” where “no single observation can meaningfully affect the aggregate”. This is an unrealistic place: in reality, life in general and business in particular are located in another country altogether, one called ‘Extremistan’. Here, “the total can be conceivably impacted by a single observation”.

It may be a weakness of the book that the author spends much of his time reasoning in the abstract and that too many pages are devoted to close, bookish argument. The busy business reader may lose patience and cast the book aside. Instead, I recommend you just skip the bits that bore you (and Taleb suggests as much himself from time to time) and cut to the chase. Just think: 9/11, Katrina, tsunami, sudden death among people you know, and the dominance of a Microsoft or a Google in their separate fields - all phenomena that virtually no one saw coming and if they had, did little or nothing about.

The point about Microsoft and Google is that black swans are not just negative phenomena, but also positive ones. If you arrange your business or your investment portfolio in such a way that it can benefit from black swans, should one float into your field of operations, then you can achieve extraordinary results that are way off the radar of ‘business as usual’ if your bet comes off.

The author unleashes his eccentric wit on lesser mortals from time to time, including bankers (“we humans have the largest cortex, followed by bank executives, dolphins and our cousins the apes”), analysts, economists, other philosophers, journalists, book reviewers and business executives. “Being an executive does not require very developed frontal lobes, but rather a combination of charisma, a capacity to sustain boredom and the ability to shallowly perform on harrying schedules.”

This is one of those books that one is likely to go back to because it frees one from the shackles of standard thinking and institutionalised ways of estimating risk and reward. Moreover, the book’s disdain enables one to engage in healthy scepticism about the merits of being a corporate suit. The Catch-22, of course, is that black swans are unpredictable and so by definition we will never be able to anticipate their appearance and their impact. But this is to miss Taleb’s point. This is not a book about reading the future.

“We are quick to forget,” he writes, “that just being alive is an extraordinary piece of good luck, a remote event, a chance occurrence of monstrous proportions.” For Taleb, life itself is the result of a series of acts of chance, the outcome of a coincidence of uncertainties. So if in measuring uncertainty, you ignore accident and unpredictable - and sometimes very large - deviations from the norm, then it is “like focusing on the grass and missing out on the trees”.

This is an exciting and frightening state of mind to live with. It is not comfortable, but in business terms it is to live in the real world rather than that circumscribed by planning and risk analysis based purely on looking into a rear-view mirror.

The Black Swan: the impact of the highly improbable, Nassim Nicholas Taleb, Allan Lane, £20, ISBN: 0-71399-995-0.

Bookshelf: The highly improbable
Date: 11-Jul-07 Richard Willsher, World Business

The world is a risky place - but by using the right tools we can reduce the uncertainty.
The world is a risky place. Its very nature is that it is subject to unexpected and catastrophic events. Yet, by using the wrong tools to assess risk, we choose to convince ourselves that things are less risky than they are.

The great thing about Nassim Nicholas Taleb’s The Black Swan is that it teaches us to look at risk and uncertainty in a different way, using approaches that distrust standard means of calculating or estimating risk. The idea of the black swan is that once it had been discovered, it highlighted how fragile knowledge and information had been among those who thought swans were always and necessarily white simply because they had never seen a black one.

Taleb defines a black swan as “something that lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries extreme impact and third, in spite of its out-lier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.”

Much of the early part of the book is devoted to attacking states of mind and, more particularly, statistical techniques that ignore or insulate us from black swan-like phenomena. These belong to the province of ‘Mediocristan’, which is “dominated by the mediocre, with few extreme successes or failures” where “no single observation can meaningfully affect the aggregate”. This is an unrealistic place: in reality, life in general and business in particular are located in another country altogether, one called ‘Extremistan’. Here, “the total can be conceivably impacted by a single observation”.

It may be a weakness of the book that the author spends much of his time reasoning in the abstract and that too many pages are devoted to close, bookish argument. The busy business reader may lose patience and cast the book aside. Instead, I recommend you just skip the bits that bore you (and Taleb suggests as much himself from time to time) and cut to the chase. Just think: 9/11, Katrina, tsunami, sudden death among people you know, and the dominance of a Microsoft or a Google in their separate fields - all phenomena that virtually no one saw coming and if they had, did little or nothing about.

The point about Microsoft and Google is that black swans are not just negative phenomena, but also positive ones. If you arrange your business or your investment portfolio in such a way that it can benefit from black swans, should one float into your field of operations, then you can achieve extraordinary results that are way off the radar of ‘business as usual’ if your bet comes off.

The author unleashes his eccentric wit on lesser mortals from time to time, including bankers (“we humans have the largest cortex, followed by bank executives, dolphins and our cousins the apes”), analysts, economists, other philosophers, journalists, book reviewers and business executives. “Being an executive does not require very developed frontal lobes, but rather a combination of charisma, a capacity to sustain boredom and the ability to shallowly perform on harrying schedules.”

This is one of those books that one is likely to go back to because it frees one from the shackles of standard thinking and institutionalised ways of estimating risk and reward. Moreover, the book’s disdain enables one to engage in healthy scepticism about the merits of being a corporate suit. The Catch-22, of course, is that black swans are unpredictable and so by definition we will never be able to anticipate their appearance and their impact. But this is to miss Taleb’s point. This is not a book about reading the future.

“We are quick to forget,” he writes, “that just being alive is an extraordinary piece of good luck, a remote event, a chance occurrence of monstrous proportions.” For Taleb, life itself is the result of a series of acts of chance, the outcome of a coincidence of uncertainties. So if in measuring uncertainty, you ignore accident and unpredictable - and sometimes very large - deviations from the norm, then it is “like focusing on the grass and missing out on the trees”.

This is an exciting and frightening state of mind to live with. It is not comfortable, but in business terms it is to live in the real world rather than that circumscribed by planning and risk analysis based purely on looking into a rear-view mirror.

The Black Swan: the impact of the highly improbable, Nassim Nicholas Taleb, Allan Lane, £20, ISBN: 0-71399-995-0.

Exporting our way out of recession

It sounds like a plan. Seize the moment while sterling is weak and boost income to the nation’s coers, in this, our hour of need. But it takes more than ␣ne Churchillian sentiments to sell goods abroad, writes Richard Willsher

The plan itself was set out in the third report from the Business, Innovation and Skills Parliamentary Committee published on January 12 entitled “Exporting out of recession.”This resulted from the Committee’s enquiry begun in February 2009. One of the highlights of the enquiry was the submission of Lord Jones, formerly leader of the Confederation of BritishIndustry(CBI). Hesaid:“I will tell you that the only way this country is going to get out quickly is to trade its way out of it. If Britain was a company I would be saying, ‘The fundamentals are okay, you’re not going to go bust, but this is going to be bloody’.”

The report’s recommendations listed 22 dierent areas and initiatives from the public sector that together would create an “export culture”. Among these, UK Trade and Investment and the Foreign and Commonwealth Office were praised for their work but the gist of it was that they and other areas of government could do more.

But even if all the suggested initiatives were to be put into action they wouldn’t bear export fruit overnight. And it is worth remembering that though the pound remained weak for much of 2009, the huge trade in goods de␣cit in November of £6.8 billion had worsened to £7.3bby the end of the year. Things had not it seems improved much by early February when David Kern of the British Chambers of Commerce was quoted in London’s Evening Standard as saying: “Given the favourable international environment for British exporters, with a competitive sterling exchange rate and global growth edging up, our overall trading performance is not strong enough…”

There have been some causes for optimism however. The ␣rst is that sterling has weakened further. As of March 8, it stood at 1.50 to the dollar and at 1.10 against the euro. A month earlier a survey from the CBI revealed: “Small and medium- sized manufacturers are starting to bene␣t from the relative weakness of sterling, with overseas orders stabilising after seven quarters of decline ...”

Further, a European Business Trends report compiled by BDO LLP found: “The weak pound has fuelled the UK’s export market to such an extent that British exporters are more con␣dent about future export growth than their counterparts in the Eurozone ...”

However as exporters have been telling us in the course of compiling this international trade feature, one weak currency doth not an export recovery make.

Many companies with overseas sales also have to shoulder increased input costs, for example from buying components or raw materials priced in dollars. The second issue is that if they are pricing their goods in sterling it is not easy to simply hike prices. Our largest trading partners, the EU in particular, have problems of their own to wrestle with. Invoicing in euros or dollars is more bene␣cial as it disguises the currency gains made by exporters when they translate those currencies into pounds. But as exporters will tell you, it’s swings and roundabouts. Over time margins can be richer or tighter, you have to go with the ␣ow to an extent and maintain reasonably stable prices in overseas markets.

A key misunderstanding is that exporting to the BRICs and other emerging markets is the great panacea. In fact UK exports to Brazil, Russia, India and China, though they are growing fast, do not account for much of the total. In the region of 75% of UK exports are sold to Europe and North America. That leaves a relatively small proportion to the rest of the world.

Another consideration is the fact that battered businesses need to recover their own balance sheets. As the BBC’s economics editor Stephanie Flanders points out in her “Stephanomics” blog of February 23, exporters are likely to be more inclined to earn fatter margins when they can rather than cut prices to boost sales. That makes good, more pro␣table, business sense.

Looking into the future, the big question mark hanging over UK trade is what will happen after the election. Though shadow chancellor George Osborne mentioned “exports” three times in his February 24, Mais Lecture at London’s Cass Business School there was no substance or detail. “We have to move to a new model of economic growth that is rooted in more investment, more savings and higher exports,” he said, but this sounds more like the starter to an A-level economics question than a policy statement.

What is clear from speaking to exporters is that instead of bluster and vague political statements, exporting our way out of recession is all about real companies selling real goods and working the hard yards to their overseas customers’ doors. That is what our export success stories demonstrate. Yes the weakness of sterling is helpful but it is by no means the whole story.

THE BUSINESS MAGAZINE – THAMES VALLEY – APRIL 2010

Small market enjoys global potential

Scientifica manufactures a specialised product that is arguably the best of its kind in the world. Consequently, although its market is niche, it is also global, writes Richard Willsher.

Its equipment is used in electrophysiology – the study of the electrical properties of cells and tissues. It measures minute changes in voltage or electrical current. This is of vital interest to medics and researchers working in neurosciences and investigating diseases such as Parkinson’s and Alzheimer’s or seeking to understand the functioning and processes of memory. But the measurements are exceptionally precise. The company’s equipment can direct a probe into a cell to an accuracy that is on the scale of 1/5,000th of the width of a human hair.

The company, with research, development and manufacturing operations in Maidenhead and headquartered in Uck␣eld, east Sussex, began manufacturing
its own equipment 10 years ago. Over the next several years it developed a customer base among the top universities and research establishments throughout the UK but took its time before entering the international marketplace.

“We wanted to make sure our market in the UK was stable and the products that we were designing and producing ourselves were long-term reliable,” explains Mark Johnson, Scienti␣ca’s joint managing director and co-founder. “That way we could ensure that we could sell them into distant markets and be con␣dent that we could provide the technical support and back up.”

But because scientists and medics from dierent countries are investigating similar problems, the demand among them for such equipment was bound to be pretty much the same.

“Researchers face the same challenges wherever they are in the world,”says Johnson. “We have designed our products with focused help from our customer base. We really involve our customers to produce equipment that is as near perfect to meet their needs as we can make it. Also being relatively new boys on the block as compared to some of our competitors, we’ve been able to see what they’ve done and learn from them.”

Therefore Scienti␣ca understands its market very well and also pays particular attention to the excellence of its equipment and the uniqueness of its capabilities. “Our market may be 100,000 people worldwide. This is quite small but because of this we can identify our potential customers quite easily. And because they often collaborate and are a very close community of people, if you do a goodjob–andwedoagreatjob– they recommend our products to their friends and colleagues in their own countries and in others,” he continues.

His company now exports 40% of its £4 million of annual sales. Last year turnover grew by 30% and Johnson expects that overseas sales will soon exceed those in the UK. While he is currently focusing on selling into USA, Canada, Japan, China and Australia, Scienti␣ca’s products have already found buyers in Belgium, France, Germany, Israel, Italy, the Netherlands, Portugal, Russia, Scandinavia and Spain.

Scienti␣ca has established itself as the supplier of choice to the world’s neuroscience research community, which is a considerable achievement. It has also demonstrated how a niche product can ␣nd a global market, provided it reaches a thorough understanding of its customers’ needs and aims with scienti␣c accuracy to meet those needs precisely.

Details: Scienti␣ca 01825-749933 www.scienti␣ca.uk.com

Digital efficiency grows worldwide
Post recession, many organisations around the world are cutting cost by being more efficient in the way they handle information. A Pangbourne- based business is helping them to do just that.

Winscribe provides Windows- based software for digital dictation, transcription, voice recognition and work␣ow management. The company is typical of many Thames Valley businesses. Its parent company is based elsewhere – in New Zealand in Winscribe’s case – but it handles its company’s sales to markets in Europe, the Middle East and North Africa (EMENA).

“The thing that sets us apart is the intelligent work␣ow,” explains Philip Vian, the company’s CEO for EMENA. “That’s what our software manages. When, say, a doctor dictates a patient’s notes, it’s what we do with the voice ␣le once he’s recorded it. Our system ensures that the voice ␣le is sent to the right transcription team, perhaps with the patient’s x-ray or other patient data, so that it needs the minimum amount of additional work and can be handled swiftly.”

The Winscribe system is used across a variety of dierent types of organisations in both private and public sectors. Healthcare is one, but also legal services, the police and law enforcement and various government departments. In addition to transmission of digital data, Winscribe has developed several speci␣c technical vocabularies so that it can apply voice recognition to the voice recording. This means that the recording is already transcribed enabling a secretary or assistant to merely edit it. This again increases efficiency.

The company has translated its software into French, Dutch, German, Polish and Spanish and has made inroads into those markets. But its big push at the moment is into the Middle East. It has also prepared an Arabic version, which is ␣nding many uses in the region, particularly in the healthcare sector.

“The Middle East is an emerging and very buoyant market for us,” says Vian, “because of the amount of money that most of the Gulf countries are now spending on healthcare. One of the best ways to improve healthcare is to reduce the document turnaround times so that the patients are seen much quicker by the next specialist or they are discharged much quicker.” He notes that “healthcare tourism” is now a booming business in some Middle Eastern countries
as an increasing number of patients from Europe and from Asian countries travel there for treatment. The company’s sales in the region have grown 30% year- on-year.

More than 350,000 people now use the Winscribe system worldwide and this is growing by leaps and bounds as whole organisations embrace more efficient ways to handle their data. In particular organisations emerging from recession are keen to become more efficient without adding sta to their payrolls. Vian says that in this way Winscribe is benefiting from the post-recessionary backwash and the business looks set to grow exponentially as organisations around the world see their peers and competitors becoming more efficient and buying Winscribe’s products in order to keep up with them.

Details: 0118-9842133 sales@winscribe.com
www.winscribe.com

THE BUSINESS MAGAZINE – THAMES VALLEY – APRIL 2010

Seabourne Express Courier – strength in breadth

The recession continues but bad news does not tell the whole story. In the latest in our series of monthly articles we highlight another of the region’s business successes. Richard Willsher of The Business Magazine writes

Some businesses owe their success to laser-like focus on a particular niche expertise or seg- ment of their market. With Seabourne Express Courier, it is almost the opposite.

Seabourne is a holding company for a small group of operations in international express courier and freight forwarding both by sea and air. With headquarters near Heathrow, it has annual revenues of around £30 million and employs 200 people, including at its offices in Belgium, France, Germany, Holland and South Africa. As courier and freight forwarding companies go it is not unique but it plays to its strength in a way that has enabled it to prosper while many of its competitors have struggled.

“We benefit hugely from having an overseas subsidiary in Holland,” explains Nigel Hudson, Seabourne’s finance director. “The Dutch market has always been very good .... There are many major international warehousing companies and central distribution operations there so there is a lot of movement of products. Another factor is that it is easier to employ and pay people in Holland than it is for example in France and Belgium. In that respect it is similar to the UK.”

He adds, however, that one reason why the recession may not have bitten until January this year as far as Seabourne was concerned was because it has such a wide spread of customers. “The courier business as a whole is quite for- tunate in that there is a wide demand to move product and the range of customers is a broad cross-section across all industries. We have cli- ents from printing and publishing, lawyers, the financial markets, IT, recruitment, advertising, marketing – all sorts of industries. Even post 2000 when the IT industry crashed we suffered but fortunately it was only a small element of the sales ledger; there were other customers still there… This time though the recession of the last few months has hit us across the board.”

However before the recession struck, the com- pany had been on the look out to acquire other businesses. On August 1, 2008, it bought the Air Action Group of Companies, which added scale because it operated in similar areas and had offices in other parts of the UK as well as at Heathrow. Here Seabourne played to another of its strengths. “We demonstrated to our ultimate parent, C J Bourne Asset Management, that we could make money. That was an advantage we had over our competitors, we have wealthy backers. However, the company’s bankers, Bar- clays Commercial Bank, has also provided facili- ties and finance when needed and often at short notice. The bank was again critical in the Air Action deal. Nigel Hudson has a strong working relationship with Richard Palmer, his relationship director at Barclays Commercial Bank, and both are in regular contact with regard to the growth and development of the group.”

The availability of finance was critical but it has not been all plain sailing. Hudson says that while the acquisition has enabled the combined operation to generate more cash, it took until January this year to get the two operations under one roof and then a further six months to get a group-wide computer system in place. In addition, management controls have been critical. “We are now more confident that we can fight our way through the recession… We keep an incredibly tight focus on cash through credit control. We make sure that the debtors don’t slip. And we keep a very tight focus on costs as well. This way we should be able to cope with the recession while for other businesses that were already on the brink at the start of the recession it would be a different story.”

He also says that a continuing sales effort has also been crucial. “We rely on sales calls. We see it as a numbers game. The more calls you make the more chance you’ve got. The key to the courier business is new sales and new custom- ers. We incentivise our sales staff so that they can do well if they bring in new business. The way to grow organically is to bring in new business and look after existing customers. Ours is a massive, almost infinite market but you have to get out there and find new clients. Emphasis on customer service and the development of IT has been part of that, making it easier for customers to book and track shipments they’ve made.”

Hudson notes that financial analysis can be key to the well being of many businesses, not just the markets that his company operates in. “You have to look behind the figures in the profit and loss account. Look at the way you do the busi- ness. Look at the margins you’re making. Is the margin the true margin? What other costs are
in there? In our business, can routes or vans be combined, are vans coming back fully utilised? Are they taking the right routes? What is behind the numbers? I think it’s important that the finance department looks at and understands these things and provides meaningful informa- tion to the business.”

For Seabourne Express Courier getting through the recession has been about making the most of its strengths and managing its business rigorously. Its business is not unique but its ap- proach to getting through the tough times sets it apart from its competitors.

Details:
Seabourne Express Courier Group International Distribution Centre 01784-222900 www.seabourne-express.com
Andy Simpson Head of Thames Valley Barclays Commercial Bank 07775-552125 andy.simpson@barclays.com www.barclayscommercial.com

THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2009

Centrix success based on principle of divide and rule

Despite some positive statistics, businesses are still suering and unemployment continues to rise. But bad news does not tell the whole story. In the latest in our series of monthly articles we highlight another of the region’s business successes. Richard Willsher of The Business Magazine writes

Newbury-based IT consulting firm Centrix decided to split its business in two in early 2006. This was an important move, especially as its products and services were well suited to the recession that was to follow.

Advising mostly FTSE 100 and S&P500 firms, Centrix Consulting helps its clients look at what their businesses want to achieve and what their IT operations can do to make
this happen. “It joins the two up,” explains Jon Fuller, joint founder and chief operating officer. “It’s about speaking to a business, finding out what they want to achieve
from the business and building the bridge between that and what they can get out of IT. How you plan it, how you organise it, how you organise your decision making and your governance, so you get the right decision made.”

A key aspect of what Centrix is able to bring to its clients is how to save money on their IT budget while making it more effective. “Some of our larger clients haven’t had to worry about money for many years,” Fuller explains, “but now they are thinking that they have to be a bit more practical. And the first thing they want is synergy across their operations and their IT across all parts of their businesses. It’s about IT strategy and at the moment it’s all about cost saving.”

In order to deliver the answers to these questions the firm devised some software that is able to discover and meter all of the IT applications that a firm has in its IT estate. And in larger firms there can often be many thousands of these. Many are often effectively dormant and unused. The software works out who in the firm is using the applications, when and for how long. Once this information is to hand it enables the costs of using the applications to be worked out and so provides the client with the opportunity to make better use of those that are useful to the firm and to discard those that have no purpose. The result is that the firm can prune back its computing usage, making it healthier in the process and cutting cost. The software also enables clients to cut their carbon footprint. Leaner computing means less heat generated and emitted.

Centrix was running its successful business when it decided to make the big split between consulting and developing and selling software. “Now, more than three years on, the consulting side focuses purely on consulting and the software side focuses on selling software,” says Fuller. “There is no confusion. People are not trying to do two things and doing them badly. They are now only focusing on one thing.” And as a package Centrix’ software offering offers two benefits which exactly match the needs of businesses at this very demanding time. On the one hand it saves them money and on the other it enables them to audit their IT operation which, across a number of sectors such as financial services and energy generation and distribution, is now coming in for increased scrutiny from regulators. Fuller says that of the 35,000 users that are now using the product a large proportion have bought it because of audit requirements.

Centrix’ businesses, both audit and software have grown rapidly over the last couple of years while many others have suffered. The company now has 80 employees and expects to take on another 40 in the next 18 months as it grows its sales in the UK and expands into northern Europe and then the United States. Fuller is confident that both sides of the business will do well and that now that Centrix’ software operation has been given its head as a separate firm it can fulfill its vast potential. But what does Fuller think has been the secret to Centrix’ success?

“I think it’s about standing in the shoes of your customer. What does that customer really need at the moment? You need to spend your time researching that. Get very close to your customers. We run executive briefings with the consulting side where people talk about what it is they want to talk about. So we learn more about what it is they need. And on the software side our customers come in to our customer councils and we ask: “What is it you need now? What is it you need next?” It’s like a focus group. We set this up straightaway with the first customers and they like to be a part of this. Once they’ve bought into it, they become advocates of the ideas they suggest and then they can help shape it in the future. It’s not us internally thinking it up and shaping it, it’s coming from the people who actually buy it.”

This sounds like advice that could benefit many firms at this time. It has certainly, according to Fuller, set Centrix on the right path, despite the suffering wrought by the credit crunch and the ensuing recession.
Details:
Centrix House 01635-239800 www.centrix.co.uk
Andy Simpson Head of Thames Valley Barclays Commercial Bank 07775-552125 andy.simpson@barclays.com www.barclayscommercial.com

THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2009
www.businessmag.co.uk