Archive for the 'Hedge Funds' Category
July 26th, 2012 by Tom Minney
Lots of useful commentary is published this week about what’s going wrong with the world’s leading capital markets and finance. This new bout of soul-searching follows the publication of Prof John Kay’s “The Kay Review of UK Equity Markets and Long-Term Decision Making” on 23 July and available here (and the Interim Report, published in February, with much of the evidence is available here.
The Prof says that equity markets are not working as effectively as they could. “We conclude that short-termism is a problem in UK equity markets, and that the principal causes are the decline of trust and the misalignment of incentives throughout the equity investment chain”. He says that successful financial intermediation depends on: “Trust and confidence are the product of long-term commercial and personal relationships: trust and confidence are not generally created by trading between anonymous agents attempting to make short term gains at each other’s expense.”
He blames the prevailing culture and says that people don’t only work for financial incentives, as widely promoted in current City culture – “Most people have more complex goals, but they generally behave in line with the values and aspirations of the environment in which they find themselves.” Prof Kay puts forward a series of 17 recommendations on how to make things better and this could be useful reading for anyone involved in developing capital markets with an aiming to help grow savings and create better performing businesses. This includes fiduciary standards of care if you manage other peoples’ money, diminishing the current role of trading and transactional cultures, high-level statements of good practice, improving the interactions of asset managers and other investors with investee companies, and tackling misaligned incentives in remuneration, and reducing pressures for short-term decision making. The Guardian newspaper’s Nils Pratley has a useful summary of some of the best recommendations here, ironically coupled with a beautiful rosy photograph of the City!
One background comment is by Evening Standard columnist Anthony Hilton here. He says “The behaviours that led Deputy Governor of the Bank of England Paul Tucker to use the word “cesspool” when giving evidence to the Treasury Select Committee on Libor come in a straight line from the reforms imposed on the Stock Exchange by the then Prime Minister Margaret Thatcher in 1986 when she forced it to open up membership to all comers, and in particular to abolish single capacity — the arrangement under which firms had to confine themselves to a single activity in which they acted for themselves or for the client, but not both… From being a servant of the real economy, finance began its journey towards becoming an end in itself, with deals done not because they had economic rationale but because they made money for bankers and costs, both direct and indirect, that impose a colossal and unnecessary burden on that real economy.” He adds that this kept the system honest “or rather it was dishonest in a less poisonous way. Until Big Bang, the problems came from dishonest people working in honest firms; today the problems are caused by honest people working in dishonest firms. The culture is rotten.” This brought world-beating businesses low “by policies designed to pander to the stock market rather than secure the businesses’ long-term future for its customers, employees and indeed the country.” He says the rewards of finance should belong to customers, not their advisers.
Kay also notes that index investing, as growing popular in some African markets with the rise of ETF (exchange-traded funds) and other derivatives, may not represent a strategy for representative returns, see this Financial Times summary. He also urges less securities lending.
Most of the leading commentators though conclude that the view is rather rose-tinted, and not in touch with the real world. The Financial Times Lex Column says (unfortunately this link may be subscribers only, but you did not miss much if you don’t find a way around): “Dig a little deeper though and this vision – which includes an attack on the efficient markets hypothesis – is flawed”. It says although investors should engage more with companies a falling share price is better incentive for a manager to perform well than a phonecall and that quarterly reporting helps people see what’s going on and reduces insider trading. It points to the UK’s “shareholder spring” in which investors forced change at companies such as Aviva and AstraZeneca. Another Financial Times summary of reaction is that Kay is “no silver bullet” and while people may agree with his views “some.. may prove challenging to implement in practice”. Some recommendations can be implemented by the industry, including investors’ forums for collective long-term engagement and good stewardship, others such as calls for asset managers to disclose all costs, including transaction costs and performance fees charged to funds, may be carried out voluntarily. Only a few may be carried out through legislation, and many others (apart from Lex) support removal of obligations for quarterly reporting and argue that managers’ time could be better spent elsewhere.
It’s a week of interesting reading for people, including many in Africa, building capital markets that are meant to serve economies, the creation of business growth and jobs, and also to encourage more long-term savings.
Discussion is very welcome!
April 2nd, 2012 by Tom Minney
This morning (2 April) South Africa’s securities exchange, the JSE Ltd, announced a revised strategy to attract more listings from African countries, as they say international interest in investing into the continent’s growth story continues to soar. The JSE is closing its Africa Board and moving the 2 listed companies onto the Main Board (listing requirements for the Africa Board are the same as for the Main Board) or to Alt-X if they are growth companies. The JSE is also stepping up trading in depository receipts (DRs) and offering a broader range of exchange-traded funds and debt instruments.
Siobhan Cleary, Director of Strategy and Public Policy at the JSE, said in a press release: “The JSE’s existing African offering includes 12 African companies. In future, there will be no differentiation (for listing purposes). For equities, this will mean that we will list the companies on the Main Board or AltX as applicable. We will also actively market and profile the African companies that are already listed.”
She says the move is driven by demand for capital and also by the increasing supply of capital from investors. African consumer markets are increasingly being targeted by local companies and companies from overseas, including a growing wave of foreign direct investment activity. Other very active channels for investments are private equity funds, hedge funds and other investors. “We think it is time that stock exchanges started to play an appropriate role in channelling the investments.”
In October 2011 South Africa’s National Treasury announced that companies previously viewed as foreign listings would in future be treated as domestic and this makes it easier for South Africans to invest in JSE-listed African stocks and makes it easier for foreign companies to raise capital. South African institutions will apparently be able to include JSE listed companies among their domestic asset holdings. Second, the JSE has developed good relations with several stock exchanges on the continent through the African Stock Exchanges Association and the Committee of SADC Stock Exchanges. Third, there are increasing investment flows into the continent’s markets and more funds focused on the region, seen as high growth compared to many world markets.
Nathan Mintah, Chairman of the JSE’s Africa Advisory Committee, commented: “This evolution in JSE’s strategy is a step in the right direction in the quest to increase capital flows into the rest of Africa. Offering issuers and investors the ‘whole JSE’ market platform for access to instruments across the capital structure in equities, mezzanine, and fixed income combined with the JSE’s liquidity will clearly benefit all stakeholders and serve as a catalyst for product innovation in areas such as exchange traded products for the rest of Africa.”
The JSE is diversifying the instrument range it offers investors from the rest of the continent. Cleary says: “We already have four interest-rate instruments from the rest of the continent, as well as an African exchange-traded product. We will give increased focus to listing further debt and quasi-equity products in future. These will also include DRs, which are traded like shares and offer investors the same economic, corporate and voting rights as holding underlying shares directly. DRs enable issuers to reach investors located outside their home markets while reducing the risk of cross-border investment.” The JSE altered its listing requirements last year to accommodate DRs, which will provide a way for African companies to raise capital on the JSE without requiring a secondary listing. DRs are applicable for African companies regardless of whether they have an existing listing on an African exchange or any other exchange. Freely traded in South African Rands, this will allow African companies to market themselves to both South African and international investors.
Cleary says there is a pipeline of companies interested and she expects more African listings this year. The JSE is competing with international exchanges such as London and New York for key listings, and also with Australia and Toronto for mining listings. Recently Nigeria’s Aliko Dangote said (see article in Financial Times, for instance) he would take the $11bn Dangote Cement for a London listing in 2013, and last year Zambia’s Zambeef also opted for London.
The two listings on the JSE Africa Board, launched in February 2009, were Trustco from Namibia and Wilderness Safaris from Botswana. The JSE says both prefer to be ranked with their sector peers and in industry sectors. Quinton van Rooyen, Trustco Group MD, commented: “This repositioning of Trustco allows the company, whilst keeping its African identity, to be benchmarked against its peers, on a world-class platform. This can only be beneficial to Trustco and the extensive African investment community.” The JSE is also pledging roadshows and analyst events to highlight the African companies from outside South Africa.
The JSE believes that its approach provides a workable solution to the sometimes complex issue of investment on the continent. The JSE’s approach also contributes to the development of markets within their own economies. Cleary added: “There is an opportunity for the JSE to work with these exchanges and various development institutions to build capacity on the continent. It also gives the JSE the opportunity to evolve its Africa strategy. This has meant looking critically at what issuers – companies, governments and others – from the rest of the continent are looking for, and aligning their needs with the JSE’s objectives,” says Cleary.
July 6th, 2011 by Tom Minney
The dynamic Stock Exchange of Mauritius (www.stockexchangeofmauritius.com) is pushing ahead with a wide range of activities aimed at building its role as a secure base for international funding transactions and an African alternative to international listing venues. It is moving to becoming a multi-product exchange aimed at the international market, through rapid development from its origins as an exchange focused only on the domestic market.
According to the website: “In the years to come, the split of listings on SEM is expected to overwhelmingly consist of international funds, international issuers, specialized debt instruments, Africa-focused Exchange-traded funds and other structured products. As SEM also aspires to emerge as a capital-raising platform for Africa-focused investments routed through the Global Business Sector, the SEM platform will growingly (sic) be used to channel investment flows from SA/Europe/Asia into Africa and from USA/Europe into Asia.” Mauritius combines good regulation with flexibility and has been a key base for funds including private equity funds investing into Africa and into India.
The bourse is aiming for a wide range and growing numbers of issuers, players and investors, increasing the breadth and depth of the Mauritius market and integrating the Mauritius financial services sector within the international financial system.
It made major changes to the Listing Rules (early 2010) to align them with the government’s Collective Investment Schemes Regulations 2008, positioning SEM as an attractive venue for listing Global and Specialised Funds, in line with the strategic shifts. The Listing Rules are more flexible to reflect the specific attributes and characteristics of the specialised funds to be listed. SEM aims to be platform of choice for listing a wide variety of funds such as Specialised Collective Investment Schemes, Professional Collective Schemes Export Funds, Global Schemes as part of diversifying product offerings and emerging as an international exchange. The management also commits to aggressive timing in processing listing applications and a competitive listing fee structure. In May 2011, SEM introduced Chapter 18 in the SEM’s Listing Rules, to cater for the listing of specialist companies and specialist debt instruments, targeted at qualified investors.
It is one of the African leaders in multi-currency trading and (since 2010) can trade and settle equity and debt products in Euro and GBP. From June 2011 it was the first exchange in Africa to list, trade and settle equity products in USD.
It supplies real time data through top global vendors such as Thompson Reuters, Financial Times and Bloomberg (since early 2010). The data coverage by global vendors is a powerful marketing medium to enhance SEM’s visibility internationally and put the exchange on the radar screen of a wider spectrum of international investors, thus attracting more foreign investor interest on our market. Mauritius is one of the few African exchanges to be connected to Bloomberg and Thompson Reuters real-time. Growing interest from international investors has prompted index and data providers including Standard & Poors, Morgan Stanley, Dow Jones and FTSE to include SEM in new indexes recently launched to track the evolution of key frontier emerging markets.
Over the last 10 years, the Mauritius Bourse has attracted strong foreign investor interest, generating positive investment inflows into many listed companies. 2010 was a record year for net foreign investment inflows. “For 2011, we are already stepping up our efforts via international conferences and roadshows, to place the SEM on the radar screen of institutional investors who are keen on frontier emerging markets that are well regulated and adhere to international best practice”, says the website.
SEM also has ambitions to contribute more broadly to the development of the Mauritian economy and to help grow capital market activities nationally and throughout Africa.
Highlights of recent history
SEM became a full member of the World Federation of Exchanges (WFE – www.world-exchanges.org) in November 2005. This is a high standard and shows that SEM is in the top rank in terms of stringent standards and market principles required to be accepted to this status by the WFE, which sets the standards for registered securities markets worldwide. The standards are recognized by industry, regulators and supervisorss. The WFE membership helps ensure that foreign investors play a growing role – “in a typical year, foreign investments represent 25–35% of trading activities on our market” according to the website.
The Development & Enterprise Market (DEM) was set up in 2006 This is the market for small and medium-sized enterprises (SME’s) and newly set-up companies with sound business plans and showing growth potential. Companies can use the advantages and facilities of an organised and regulated market to raise capital for growth, to improve liquidity in their shares, to obtain an objective market valuation and to enhance their corporate image.
Since March 2010, the SEM was designated by the Cayman Islands Monetary Authority (CIMA) as an “Approved Stock Exchange” by virtue of its membership of the WFE for the purposes of CIMA’s Mutual Funds Law, Banks and Trust Companies Law, Insurance Law, Companies Management Law and Securities Investment Business Law. This raises SEM’s profile as a well-structured and properly regulated exchange and enhances SEM’s position as an attractive listing venue for global and specialised funds.
From 31 January 2011, SEM has been designated by the United Kingdom tax authorities, Her Majesty’s Revenue and Customs (HMRC), as a “recognised Stock Exchange” under section 1005 (1) (b) Income Tax Act 2007. This means that securities admitted to trading and listed on the Official Market of the SEM will meet the HMRC interpretation of “listed” as set out in section 1005 (3) (a) and (3) (b) Income Tax Act 2007 and for Inheritance Tax purposes. This designation confers potential benefits such as permitting UK pension schemes to hold securities listed on the Official Market of SEM, giving companies and funds listed on SEM access to a larger market of sophisticated, well-capitalised investors. The designation reinforces SEM’s attractiveness as a listing venue for global funds and specialized products. Securities listed on the Official Market of the SEM may be held in tax advantaged Individual Savings Accounts (ISAs) and Personal Equity Plans (PEPs) by UK investors. Holders of debt securities satisfying the Eurobond exemption and listed on the Official Market of the SEM are exempted from withholding tax on distributions underlying these debt securities. Inheritance tax advantages may accrue to UK holders of securities listed on the Official Market of the SEM.
November 30th, 2010 by Tom Minney
Many financial institutions are gearing up their staffing as they start to roll out their African operations. These include banks, stockbrokers and others. African Capital Markets News interviewed Frank Behrendt, of recruiter Clement May (http://www.clementmay.com), on the trends and the opportunities.
ACMN: Do you think Africa is a growing opportunity?
FB: I had spent 3 years in Singapore recruiting bankers for Asia. Upon my return to the UK I realised that Africa is on the move, and decided to get involved. That was March 2010. At Clement May we have built a good network of bankers – on the continent and in the hubs of London, New York, Johannesburg and Hong Kong (and Moscow) – who are focussing on Africa.
There is a great need for real talent in the African banking sector, and although there are some recruitment firms that focus on Africa, it is a very underdeveloped market in terms of quality recruitment firms (as always, the recruitment sector follows the banking sector in that regard). It has therefore been relatively straightforward to establish ourselves as an African specialist.
ACMN: What are the changing trends in African investing?
FB: Up until last year, the active players in the secondary markets of Sub-Saharan Africa were mainly boutiques. That has changed. More and more international “bulge bracket” banks are eyeing up Africa and including it in their growth strategies. Already counting some of these banks as our clients in Europe and Asia, this puts us in a strong position to address their growth plans and further extend our reach into Africa.
ACMN: Is a lot of new market infrastructure being built? Are new fields of activity opening up?
FB: Stock exchanges on the African continent are improving their services through collaboration with the big international exchanges and improved technology. Local banks are commanding a bigger portion of the volume going through the system and it seems this development is on the rise. As international bulge bracket interest in Africa is on the rise, the share in market volume that these banks can win is dwindling due to the rise of local players.
Global banks are taking a very active interest across disciplines. While the primary markets have gained in strength over the last number of years, the real evidence of increased activity is in the secondary markets. Liquidity has improved immensely over the last year or so and trading in African equities has also increased significantly, both on the ground in Sub-Saharan Africa and around the world.
ACMN: What do you see of Hedge Funds/institutional investors?
FB: More and more Hedge Funds focus on SSA. More international Asset Managers increase the portion of funds invested in SSA. More local fund houses are opening up. The appetite for SSA equities is growing exponentially as a result.
ACMN: Is there a marked increase in the number of jobs available?
FB: Definitely, yes! As the international bulge bracket banks are expanding their businesses, jobs are available on the ground and in the hubs (i.e. Johannesburg, London, Hong Kong and New York). This in turn is spurring greater hiring activity by local firms as well, and so on. Jobs in secondary markets are growing more than primary markets headcounts.
ACMN: What sort of jobs are available?
FB: Private equity jobs are and have through the last 5 years been the most abundant. M&A and corporate finance jobs have been pretty constant over the last few years, but a new surge is ongoing. In secondary markets, research teams are being built both on the ground across SSA and also in the hubs (as above). Sales and execution teams are in the pipeline. I anticipate there being a surge in Sales, Sales Trading and Trading hires in mid-2011. Most of these jobs will be based in London, Johannesburg and New York servicing the international institutional client base. But there are also many headcount needed for positions on the ground in SSA. Of these, most are in Nigeria, then Kenya.
ACMN: Is it hard to find the right people for the jobs?
FB: Not too hard. There is a huge community of very well-educated Africans around the world. Whereas, only a couple of years ago, very few of them would consider a return to their home country, these days, more and more are actively seeking to return, in order to contribute to society with their education and experience. This is obviously connected to the increased activity in the banking sector, and the remuneration packages now available.
ACMN: Are the jobs mostly being filled by Africans?
FB: The banks are mostly looking for natives of the country in which the hiring is taking place. Only for very senior positions will foreign candidates be considered. This does not stem from immigration policy only (although that can also be a consideration as visas become harder to obtain), but also from a desire to have fully culturally assimilated staff in place. Needless to say, jobs in the hubs of London, New York and others focussing on SSA are being filled by candidates from across the spectrum and regardless of nationality. I have seen quite a few bankers on Asian desks in London shift their focus to Africa.
ACMN: What skills/experience do job applicants require?
FB: Some sort of degree, preferably from an international university. MBAs are even more desirable (and a lot of professionals are taking this to heart). At least 3 years’ work experience with an international bank. As banking in Africa is still relatively vanilla and functions often overlap, specific skill sets are not as important as the desire to return home and contribute. I have seen examples of people hired for equity research, although their entire work history was in M&A etc.
November 24th, 2010 by Tom Minney
Liberia has reached a deal with 2 “vulture funds” who had taken it to court to repay debts incurred more than 30 years ago. According to a report on the BBC, Liberia is to pay just over 3% of the $43 million (£27 million) that they claimed it owed.
The companies are Hamsah Investment and Wall Capital, reportedly registered in the Caribbean although Hamsah is linked by the BBC to the boss of a US hedge fund. They had taken Liberia to court in New York and London, rather than join other creditors in accepting a debt write-off, although the final deal agreed seems close to the 3 cents in the dollar agreed with other creditors.
The BBC story says it is thought Liberia borrowed $6.5m (£4.1m) from the US-based Chemical Bank in 1978 and that debt may have been resold a number of times, but it says details of the debts are not clear. Another investor interviewed in an very watchable BBC film clip said he had bought debts from a bank that was not even aware that it had them. It is also not clear how the amount had soared to $43 million.
The 2009 London ruling ordered Liberia to pay $20m (£12m) – then equivalent to about 5% of the national budget. Liberia is still very poor and trying to rebuild after a 14-year brutal civil war ended in 2003. It is estimated that 250,000 people – one in 12 of the population – died. According to a report in the UK Guardian newspaper last year, average life expectancy is just 45, according to the World Bank. The money the two firms are claiming amounts to half the country’s health and education budget.
Liberia’s Finance Minister, Augustine Ngafuan, was reported as saying Liberia now had the structures in place to ensure that it did not rack up debts it could not afford to repay. At first Liberia wanted to challenge the court orders to repay the debt, but now seems to believe a settlement would be cheaper.
“Vulture funds” buy up the defaulted debts of poor countries and then demand swift repayment. Nick Dearden, of Jubilee Debt Campaign (www.jubileedebtcampaign.org.uk), was reported as telling the BBC’s Network Africa programme such funds worked by “harassing” poor, indebted countries: “They try to extract money from anyone trading with or investing in the country in question so, in the end, the country feels it doesn’t have much option.” He added that: “Liberia got a pretty big discount on the debt”.
Mr Ngafuan said: “We had to take extraordinary measures to ensure that monies coming to Liberia were not seized. It was a tough year.”
In September, the BBC reported that the 19-nation Paris Club of lenders pardoned $1.2bn (£764m) worth of debt owed by Liberia. At the end of June 2007, the country’s external debt was about $4.4bn and debt servicing took up a lot of the budget.
Mr Ngafuan said: “Since 2006, our government has not borrowed a dime from any country… In fact, we ran what is called a cash-based balance budget, meaning that Liberia lives within its means.”
On cancelling the debt, the Paris Club said it welcomed “Liberia’s determination to continue to implement a comprehensive poverty reduction strategy and an ambitious economic programme providing the basis for sustainable economic growth”.
The British Parliament passed a law in April that vulture funds should not be able to use UK courts again but there is a campaign underway at the Jubilee Debt Campaign that this should be extended beyond 1 year.