Category: Markets

Unisys Wins Passport Office Contract
Capital Markets (stocks and bonds)Markets

Unisys Wins Passport Office Contract

Worldwide information technology company Unisys Corporation has been selected by Her Majesty’s Passport Office (HMPO) to implement its new Facial Recognition System (FRS).

The FRS will increase efficiency within the application process by automating manual operations to analyse facial biometric data and quickly identify issues associated with passport applications.

Under the terms of the five-year agreement, Unisys will provide systems integration services to implement its open standards LEIDA platform, which will manage identity verification for United Kingdom passport applicants based on their facial biometric data.

“We are excited to be chosen for this important project,” said managing director of Unisys UK, Nick Fraser. “Unisys has applied facial and other biometrics technologies to build leading-edge passport, citizen registry and land border control systems for the United States, Australia, Mexico and other countries around the world. We look forward to applying our expertise to help the UK manage the throughput of travellers.”

Unisys provides a portfolio of IT services, software, and technology that solves critical problems for clients, specializing in helping clients secure their operations, increase the efficiency and utilization of their data centres, enhance support to their end users and constituents, and modernize their enterprise applications.

Need for Precision Military Strikes Driving Navigation Systems Market
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Need for Precision Military Strikes Driving Navigation Systems Market

Ongoing operations, force modernisation efforts, and the rising importance of precision strikes in contemporary military conflicts are driving the demand for global navigation satellite systems (GNSS), according to new analysis from global growth consulting firm Frost & Sullivan.

Military end users are gravitating towards these solutions as a single strike of a 155mm GNSS-guided artillery can cause more impact than a dozen unguided rounds.

Frost & Sullivan’s research finds that the market earned revenues of $1.98 billion in 2013 and estimates this to reach $2.18 billion in 2022 at a compound annual growth rate of 1.1%. The study covers receivers, data applications, and services. North America is the biggest market for military GNSS while Central Asia, Asia-Pacific, and the Middle East represent the fastest growing markets.

The launch of major projects such as the European Galileo and Chinese Beidou/Compass, as well as the introduction of two new regional navigational systems – Indian Regional Navigational Satellite System and the Japanese Quasi-Zenith Satellite System – is increasing the availability of GNSS solutions. These new developments are also intensifying competition between solution providers, in turn decreasing the cost of GNSS and attracting more end users.

“Another initiative that is likely to aid market growth is the implementation of commercial off-the-shelf (COTS) GNSS solutions,” said Frost & Sullivan Aerospace & Defence Industry Analyst Dominik Kimla. “COTS GNSS will benefit both industry players and military end users – while it gives the former a chance to implement solutions developed and verified in the civil sector in military projects. The latter as well gets access to mature and robust products at low prices.”

However, the increase in deployment rates of non-satellite-based navigation systems and alternative systems due to their ability to function without interference in dense urban areas and deep canyons is disrupting market momentum. Past incidents of successful cyber-attacks on military GNSS data applications despite encryption is also weakening the case for these solutions.

“Solution providers should focus on boosting the cyber security of military GNSS receivers and data applications,” said Kimla. “They should also consider integrating military GNSS with alternative and non-satellite-based navigation systems to enhance their product offerings.”

UK Energy Big 6
CommoditiesMarkets

UK Energy Big 6 “to Lose Dominance in 2019”


The UK’s “Big 6” energy companies are losing customers to their smaller rivals at such a rate that they will control less than 50% of the residential market in 2019, according to energy price comparison site UKPower.co.uk.

The site claims that three quarters (74%) of switchers now choose a cheaper tariff from a smaller company – such as Ovo Energy or First Utility – rather than paying a premium to one of the more-established brands (British Gas, Scottish Power, Npower, E.on, SSE & EDF Energy). As illustrated in this table of switches taking place through the UKPower.co.uk website since 2011, the percentage of people opting for a smaller independent supplier has risen sharply from just 1% in just three years.

According to Energy UK, the trade association for the UK energy industry, over 250,000 people now switch their energy company or tariff every month, with the market share held by the major suppliers subsequently having dropped below 95% for the first time in January 2014.

Scott Byrom, energy expert at UKPower.co.uk, said: “Even with the current switching volume, the balance of power is shifting away from the Big 6 at an alarming rate. It’s about time they ditched meaningless claims about having the cheapest ‘standard’ tariffs and actually offered something competitive. Customers are clearly fed-up about being overcharged and are voting with their feet.”

At the time of writing, one of the “Big 6” companies appeared in the Top 10 Best Buy table for one year fixed tariffs: a hotly-contested battleground for customer acquisition with First Utility joining Ovo Energy in the past week to offer sub-£1,000 energy deals. This compares to an average annual bill of £1,198 – or £200+ a year more – for customers on a standard variable tariff from the “Big 6” suppliers.

“Switching sites are a pivotal platform for any smarter supplier outside of the ‘Big 6,’ enabling new entrants to get their brands off the ground with no upfront marketing costs,” said Byrom. “Meanwhile bigger suppliers are encountering very little engagement from consumers actively looking for a better deal, of which there is a rapidly growing number.”

UK GDP to Grow by Over 3% in 2014
Capital Markets (stocks and bonds)Markets

UK GDP to Grow by Over 3% in 2014

The UK economy looks set to expand by over 3% this year, according to the latest projections from economic forecasters the Centre for Economics and Business Research (Cebr).

Cebr’s latest forecasts show UK economic growth in 2014 and 2015 of 3.1% and 2.2% respectively, up from forecasts of 2.8% and 2.0% released at the start of the year. The upward revisions reflect a continued improvement in forward-looking indicators for the UK economy. In addition to record high business confidence, we have seen consumer confidence rising again in recent months after plateauing towards the end of 2013 (according to the YouGov/Cebr Consumer Confidence Index).

Households are likely to see their living standards improving, as earnings growth accelerates and headline inflation remains below 2% for the remainder of 2014. Declining unemployment is also likely to support household finances. Overall, Cebr expects real household disposable incomes to grow by 1.5% this year after declining by 0.6% in 2013.
Following concerns about the unbalanced nature of the economic recovery – consumer spending accounted for over 80% of the growth seen last year – growth should becoming more evenly spread as business investment grows strongly (by 10.1% in real terms this year) and the construction sector is supported by a robust pickup in housebuilding, especially in London. While household consumption accounted for 81% of the economic growth seen in 2013, this is expected to decline to 46% this year as the economic recovery becomes more balanced.

Beyond the short term, though, challenges remain. Economic growth is likely to peak this year and fall back in 2015 and 2016 as some of the factors driving economic expansion at present – such as reduced saving and a return to typical levels of consumer confidence – wear off. In addition, the UK still faces a huge challenge in improving its trade position. Cebr expects a record-high current account deficit of £79 billion this year, with the deficit remaining high throughout much of its forecast period. This deficit could lead to a depreciation of sterling going forward as markets becoming concerned about the persistence of this trade weakness.

Deep government spending cuts will also need to be implemented beyond 2015 if the Chancellor is to even come close to meeting his deficit reduction targets beyond this fiscal year. Despite much rhetoric about austerity and “savage” spending cuts, the incumbent government has made little process in bringing down the total amount of government spending. Real government spending in 2014 is expected to stand 1.8% higher than in 2010. Over the course of the next parliament, 2015-2020, we expect real government spending to decline by 2.1% as spending cuts kick in. This will weigh on economic growth prospects in the outer years of Cebr’s forecast horizon.

Scott Corfe, Managing Economist at Cebr and main author of the report, said: “The UK’s economic position has improved significantly since the start of 2013 and we expect solid growth of over 3% this year. However, challenges remain and economic growth is likely to fall back after 2014. There will be difficult government spending cuts to be made in the next parliament and the parlous state of the UK’s trade position could become a significant economic issue going forward.”

UK Must Adapt to Tap into Overseas Procurement Market
CommoditiesMarkets

UK Must Adapt to Tap into Overseas Procurement Market

Public procurement of goods and services in 12 key emerging markets will almost triple to £452bn by 2030, according to new CBI research. But the UK will only capture £11bn of this growth, if its market share stays
the same.

Procurement from overseas by developing countries has historically focused on sectors with no domestic equivalent, while other contracts have tended to go to domestic companies or public bodies. But research suggests that public sector organisations in these countries will rapidly increase their purchase of goods and services, driven by the needs of ageing populations and a growing middle class.

China will lead the growth in public procurement with its market increasing by 7.4% each year. Indonesia and Turkey will also rapidly increase their spending by 6.2% and 6% respectively.

The demand for services will grow at the fastest rate, by 6.1% each year, and will be worth £110bn in 2030.

Construction will grow by 5.9% each year and will be worth £97bn in 2030.

Manufacturing will remain by far the largest component of demand in absolute terms, at £242bn in 2030, growing at 5% each year.

The three fastest growing areas of overseas procurement spend will be: health infrastructure (predicted to increase by 351% by 2030), transport services (254%) and recycling equipment (250%).

Among the measures the CBI is recommending to tap into this growth are the establishment of UK Government contracting agencies. The CBI also calls on the Government to support UK public services firms, including through overseas trade missions, and to stop using rhetoric which could damage the sector’s reputation.

Katja Hall, CBI Chief Policy Director, said: “The size of the exports prize for public services firms in emerging markets is growing at a rate of knots, driven by a ballooning middle class and an ageing population.

“This is a huge opportunity for UK businesses, which have an established track record in many key growth areas like health, transport and recycling. But winning public contracts in these countries is often an uphill battle, so firms need a leg up.

“To boost opportunities for our exporters, we want the UK Government to set up contracting agencies with priority markets, to help them navigate the procurement maze. We also want the EU-US trade talks to prioritise public procurement.

“Politicians must guard against using rhetoric which could damage the reputation of the UK public services industry overseas. I want to see Ministers championing this important economic sector and to get to a point where CEOs of public services firms are just as readily invited on trade missions as manufacturers.”

The CBI research shows that the UK has a strong track record in many of these growth areas but without Government and EU support it will miss out on market share.

Barclays W&IM Triples Asian Structured Products Business
Derivatives and Structured ProductsMarkets

Barclays W&IM Triples Asian Structured Products Business

The wealth and investment management division of Barclays has seen tremendous traction in its Asian structured products business, with volumes tripling from 2010. Asia now accounts for 50% of structured products sales in the private bank globally.

It has also seen strong growth in its Structured Products business in the Middle East, with increasing interest from the region’s high net worth individuals in short-dated notes (from one to twelve months maturities) and focused underliers for wealth accumulation. This is a shift from longer-dated notes spanning three to five years with principal protection features and diversified underliers for wealth preservation.

“While there have been negative connotations around structured products post the financial crisis in the minds of investors, increasing the simplicity and transparency of our product offering have helped in making investors more comfortable with these investments. As investors look to increase returns in a low-yield environment, structured products offered value in helping generate targeted returns and reducing risk exposure as part of a diversified asset allocation portfolio strategy,” said Ms. Irene HY Chen, Head of Structured Products, Asia Pacific, Middle East and Africa.

The success in both Asia and the Middle East has been driven by a growing appetite for equity, commodity and currency-linked products, as investors searched for yield while seeking to manage downside risk. The common theme among popular structured products is that of simplicity and transparency, with short tenors, enhanced yield and early redemption options. The main trends in 2013 are expected to continue to drive demand in 2014. These include:
 
– The dominance of equities as an asset class in Asia: A couple of evergreen equity linked structures continue to be strongly favoured by investors, including Index Linked Rate Notes and Fixed Coupon Notes of blue-chip stocks and major indices in Asia, the US and Europe.

– Currency plays: The renminbi remains the darling in Asia in terms of currency-linked notes, with digital options or participation options forming the bulk of structured products with FX underliers.

– Commodity-linked structures: Amid the volatility in oil prices, oil-linked notes remain popular in the Middle East, with fixed coupon notes, step-down autocallable notes and twin-win notes in demand.

– Simple vanilla options: The OTC business across asset classes such as bonds and equities continues to be well received by investors for its efficiency, effectiveness and simple investment rationale.

“With the current market uncertainties, it is timely to look at vanilla options as basic building blocks to tailor the risk vs. return balance in one’s investment portfolio. For instance, investors with a bearish view on a specific market can buy a put option on the market index which can help with hedging. Investors who are bond advocates can sell a put option and gain access to the secondary market at an advantageous purchase price, while enjoying an upfront premium if they are committed to own the bond in their portfolios. These simple vanilla options help investors better manage their risks even as they remain invested in the market,” concluded Ms. Chen

Genomic Vision Celebrates Euronext Paris Listing
MarketsStock Markets

Genomic Vision Celebrates Euronext Paris Listing

EnterNext, the Euronext subsidiary designed to promote and grow its market for SMEs, has congratulated Genomic Vision, a biotechnology company specialising in molecular diagnostics for genetic diseases, on its successful listing in compartment C of Euronext’s regulated market in Paris.

Genomic Vision is a molecular diagnostics company that develops and markets diagnostic tests and research tools based on analysing individual DNA molecules. To do so, it uses the “molecular combing” technology discovered by Aaron Bensimon, Chairman of the Executive Board and co-founder of Genomic Vision, who was working at the time at the Institut Pasteur’s Unité de Stabilité des Génomes unit in collaboration with a research team from Ecole Normale Supérieure. This cutting-edge technology detects quantitative and qualitative variations in the genome and establishes their role in a given pathology. The company focuses primarily on oncogenetics, the main market for genetic testing.

Genomic Vision was listed through a Global Offering. Given very strong demand — a total €93.9m — the company decided to fully exercise the extension option. The admission and issue price of Genomic Vision shares was set at €15.00, in the middle of the indicative price range.

Altogether 1,533,332 shares were issued, raising a total of €23m before any exercise of the over-allotment option. Based on a total 4,266,907 shares admitted to trading at €15 per share, Genomic Vision’s market capitalisation stands at €64m.

The settlement and delivery of the Offering occurred on 4 April 2014. From April 2 through April 4, Genomic Vision shares were traded on an “as-if-and-when-issued” basis.

“We would like to extend a warm welcome to Genomic Vision, and are proud to help raise capital for a growth company specialised in diagnostics for genetic diseases and cancer. Its listing testifies to the very dynamic market for IPOs.

Genomic Vision will be able to draw on EnterNext’s advice and services as it makes the most of its presence on the stock market,” said Eric Forest, Chairman and CEO of EnterNext.

Aaron Bensimon, Genomic Vision’s co-founder and CEO, added “We are delighted to join Euronext’s Paris market. We would like to thank all of our shareholders, old and new, who helped us achieve this milestone — and who will now be accompanying us as we roll out our technology in Europe and expand its scope to new pathologies.”

To celebrate the continuous trading in its shares that started today, Aaron Bensimon and his team rang the bell marking the opening of Euronext’s financial markets.

Investors to Profit Strongly From IPOs
Capital Markets (stocks and bonds)Markets

Investors to Profit Strongly From IPOs

 

With the IPO market bursting into life in 2014, new research from Capita Asset Services, which provides expert shareholder and corporate administration services, shows investors who buy into an IPO would see their returns outstrip the wider market.

Detailed analysis of 10 years of UK IPOs shows that in their first month, new listings outperformed the FTSE All Share 7.0% on average. After six months, they are 11.5% ahead. After a year, the average listing has outpaced the index
by 10.5%.

Not only that, but the all-important first day bounce, necessary to give investors some instant gratification, is alive and well. On average, new listings rise 5.7% on day one, outperforming the market by 5.4%. But this is not just the result of a minority of companies seeing strong gains. On the first day of trading, investors stand a 70% chance of seeing a price rise.

Outperformance

Equally, 70% of companies analysed ended their first month of public trading with greater gains than the FTSE All-share, while a majority (53%) still outperform a year on.

Over the longer term, while the probability of a company outperforming the wider index inevitably falls, the gains made by those that outperform outweighs the losses by those that see worse growth than the FTSE All-Share. 57% of companies see slower growth than the index after two years, although across the board, there is an average outperformance of 7.6%.

Five years from IPO, the trend persists. Although the number of companies outperforming the market falls to a third (32%), on average there is still an outperformance of 3.7%, even accounting for companies that went into administration or were bought out.

The prospects for a PLC

The 10-year analysis also highlights the prospects of a newly listed company. Following an IPO, an average of 77% of companies are still listed on the London Stock Exchange 10 years on. Of the 23% that are no longer listed, around 18% have either been acquired or involved in a merger, with the remainder going into administration. However, it is worth noting that often an acquisition or merger can be as a rescue or means to prevent administration.

Justin Cooper, CEO of Shareholder Solutions at Capita Asset Services, said: “The IPO market has been reaching fever pitch so far this year, with a steadily increasing queue of companies looking to take advantage of strengthened market conditions. As things stand, our preliminary forecast made last summer that the value of IPOs would increase by 50% this year is already looking conservative. IPOs perform a vital function, bringing fresh life to the market, boosting the variety for both retail and institutional investors in light of the long-term attrition that takes place on the market as companies go through their life cycles. For issuers, listing presents a key exit opportunity for owners, or a means to raise new capital for investment.

“Our research shows investors should be confident about buying into new issues, as long as they do their homework. Pricing is paramount. Leaving too large an upside for investors suggests companies have undersold themselves, which can be very politically sensitive if the owner is the taxpayer, as the Royal Mail example shows.

“On the other hand, overpricing means a bad start for the stock, alienating investors from the outset; a bad way to kick off your investor relations campaign. Broadly, companies seem to have been getting it right – even through the turmoil of the last few years. Over the longer-term, beyond the usual holding period of a typical institution, the IPO bounce subsides, and the chance any individual stock will continue to outperform reduces. But this is the same with any share, so investors must keep their portfolio under review.”

CGE Warns About Dangers of Derivatives
Derivatives and Structured ProductsMarkets

CGE Warns About Dangers of Derivatives

Following the release of an International Business Times report detailing how the dramatic crash of the gold price in April of last year, the Certified Gold Exchange is warning investors about the correlation between computerised trading of gold derivatives investments and the value of physical gold.

The IBT article stated that over 1,000 unique entities sold gold within a 10-minute window last April and that the gold spot price dropped US$24 per ounce due to the exchange of 2.4m ounces of gold.

“A US$50 shift in the gold spot price in one day is huge, and last April we saw gold fall more than US$200 in less than two trading days,” said Certified Gold Exchange spokesperson Janet Jones. “Many investors who buy physical gold do so for the safety aspect, but this does not mean that they will accept technological manipulation of the gold spot price.”

Futures markets are not controlled in the same manner as are stocks, and Jones says the Dodd-Frank Act, meant to regulate leveraged and non-physical gold investments, is a good start but not enough to protect the physical gold market. “We understand that ETFs and other derivative investments played a large part in last year’s crash, but for millions of ounces of gold to exchange hands in less than 10 minutes is unacceptable for investors who purchased physical gold to avoid the manipulation that is often found in derivatives exchanges.”

Never Too Late
Capital Markets (stocks and bonds)Markets

Never Too Late

 

As a product that is barely a year old, Accredited Investors High Yield Bond (AI HYB) funds are still in the process of gaining acceptance among investors in Thailand.

At present, these funds can only be sold to institutions and high-net-worth individuals, feeding their appetite for risk. The funds have also gained traction due to their short durations and exposure to global bond fund themes

The next step could be to widen the customer base to include retail investors. “With enough acknowledgement and acceptance from the public, the ideal development in the next stage is for AI HYB funds to be allowed for mass retail purchase,” says Alec Ng, an analyst with Cerulli.

Even if the customer base is not expanded to include retail investors, the high-yield bond market in Thailand is set to continue developing at a rapid pace in 2014. In January alone, 13 AI HYB funds were launched and there are even more funds being registered.

“This product could end up becoming a mainstay of the Thai mutual fund industry, like property funds and equity trigger funds,” says Yoon Ng, Asia Research Director with Cerulli.

LSE Sees Increase in Retail IPO Activity
MarketsStock Markets

LSE Sees Increase in Retail IPO Activity


The market has seen a diverse range of retail companies come to London, from well known domestic brands such as Poundland, Boohoo.com, Pets At Home, McColls and AO World, to international companies such as the Russian hypermarket chain, Lenta and the Indian online fashion retailer, Koovs.

The boost in retail listings this year has helped raise overall IPO activity to pre-2007 levels. Notably, the IPO market is providing viable exit opportunities for private equity and venture capital firms, with six private equity-backed listings on London’s markets year to date.

Key statistics:

– Five retail Main Market IPOs raise £1.78bn and two retail AIM IPOs raise £322m
– 70 retail companies currently listed on our markets – 23 AIM & 47 Main Market
– Six private equity-backed IPOs to date in 2014

Alastair Walmsley, Head of Primary Markets, London Stock Exchange Group, said: “The surge in retail IPO activity over the last few months can be attributed in part to a reawakening of investor appetite for equity.

“2014 looks set to be a strong year for London’s equity market, with a healthy number of UK and international companies seeing the opportunity offered by our markets as a platform for their future growth.

“The strength of our pipeline underlines the power of equity to enable companies to achieve their strategic ambitions and we look forward to welcoming more high quality and well known businesses to our markets in the coming months.”

Food Retailers Feel the Aldi/Lidl Squeeze
Capital Markets (stocks and bonds)Markets

Food Retailers Feel the Aldi/Lidl Squeeze

Ahead of Sainsbury’s full year results, Michael Hewson takes a critical look at its performance and how the new kids on the block Aldi and Lidl are affecting the big supermarkets market share.

Within the report Michael discusses:
• How the performance from supermarket contenders Aldi and Lidl are affecting Sainsbury’s, Morrisons and Tesco
• Morrison’s profit warning and decline in share price
• Whether Aldi and Lidl could replace one of the big four

If Sainsbury’s outgoing CEO Justin King were looking at an exit strategy he really couldn’t have timed it much worse. Having turned the supermarket chain around over the last few years, he is now leaving at a time when his managerial skills are probably likely to be most needed, particularly if last week’s share price declines are indicative of the challenges ahead.

Sector peer Morrisons profits warning last week pulled the rug from under the sector as it strives to take on the budget retailers Aldi and Lidl, and in the process slash their margins to the bone to arrest a sharp slide in sales.

Even Tesco last week gave up on sticking to a benchmark profit margin.

It would be all too easy to bracket Sainsbury in the same block with Morrisons and Tesco, but there is the potential for Britain’s number three supermarket to weather the competition from Aldi and Lidl better than its rivals.

For a start it is in much better shape than its other two rivals who bookend the supermarket sector, Tesco at number one, but on the slide and Morrison’s at number four, while at its last trading update in January, Sainsbury was the only supermarket to hang onto its market share, though its profit margin was already lower than Tesco and Morrisons and that could be a worry if they feel compelled to follow suit in implementing heavy discounting to compete.

While the decline in Morrison’s share price is more understandable given that it is playing catch-up with respect to its on-line presence, its decision to bring in a loyalty card is much less understandable given these cards are ten a penny. Tesco’s have Clubcard and their market share is declining while Sainsbury don’t have one and appears to be holding on to its share, though you can collect nectar points.

Morrisons also announced it would be selling off £1bn worth of property assets as well dispensing with its stake in US online grocer Fresh Direct, as it looks to become a “value leader” and take the fight to the young upstarts from Germany. The key question is will it be enough given that the shares are at 6 year lows and the fact that the super market chain is playing catch up from a long way back.

This week’s results could well give important clues as to how Sainsbury’s will perform going forwards after Justin King has gone, and whether it has the ability to take on the competition from the low cost budget retailers, while at the same time maintaining market share, at the bottom end as well as the higher end.

While there is no question that the emergence of Aldi and Lidl has shaken up the status quo with respect to the food retail sector, it may be overstating it to claim that they could replace the big four supermarkets in terms of market share, given the current limited nature of their product ranges.

Of all the four major supermarkets Sainsbury’s is probably best equipped to handle this threat given it has managed to not only close the gap on Tesco in the past few years, but has also been well managed under Justin King’s tenure.

Last week’s falls have seen the share price trade below its lows of last year and further declines could well bring it back to levels last seen in June 2012, but it would be a surprise to see it fall much further. 

Time to Buy Emerging Markets Again?
Capital Markets (stocks and bonds)Markets

Time to Buy Emerging Markets Again?


Following the recent sell-off in emerging markets, there is a view developing that now is the time to invest. The numbers certainly on the face of it look compelling: the MSCI Emerging Markets Index is trading at 1.5 times price-to-book value and poor sentiment has already resulted in outflows of over $30billion from emerging market equities so far this year.

However, we believe that it is still right to tread cautiously. Recent capital outflows and the past three years of market underperformance have not happened without good reason. The biggest challenge facing emerging markets is growth. Many emerging economies are not growing as fast as they were: China’s underlying growth rate continues to decline, while other large emerging economies have seen their growth rate plummet. Mexico recorded GDP growth of just 1.1% last year, while Russia grew by 1.3% and will struggle again in 2014.

The reasons for this are both structural and cyclical: a common issue is the need for further reforms to encourage growth and investment. This will be a slow process and so far the actions by policymakers in emerging economies have mostly lacked transparency.

Perhaps and more importantly, emerging economies continue to be vulnerable to external factors, while domestic political risk also has the potential to affect investor sentiment. One such external factor has been the US Federal Reserve’s move to reduce its quantitative easing programme; many emerging markets have faced heavy capital outflows and violent currency movements as investors have reacted to anticipated higher interest rates in the US.

Furthermore, a number of emerging market countries are also facing elections this year, which brings political risk into the picture. Civil unrest grips Thailand and Ukraine, and concerns about government corruption plague countries such as Turkey and Nigeria.

Taking all these factors together, it is difficult to hold a very optimistic view of emerging market assets at this time, even if lower valuations have made them appear more attractive. Emerging markets are not homogenous; we do see pockets of value appearing in some areas but a targeted approach is, we believe, a more sensible approach rather than making sweeping statements as to whether emerging markets as a whole are a buy or not.

Stephen Campbell on the Growth Capital Market
Capital Markets (stocks and bonds)Markets

Stephen Campbell on the Growth Capital Market

2014 – What is in store for the UK growth capital market?

“We think 2014 will be the year of the exit, which is good news because exits are the heartbeat of our industry: they increase the speed at which money flows round the system, benefiting everyone – funds, accountants, lawyers, listing brokers, management and even PR advisers.”

“The re-emergence of the Alternative Investment Market as a viable exit route, particularly for fast growth businesses, will encourage greater investment by funds in these types of companies.”

The general election is set for the first half of 2015. Will this have an impact on the market next year? What factors might influence activity?

“The build-up to the general election will affect our industry because it is likely to prompt closer scrutiny of investment practices – that may result in pressure for further regulation and oversight of the finance sector. For example, the current focus, quite rightly, on some banks’ treatment of SME customers is bound to lead for more calls for responsible investment practices.”

“In the short term, the Scottish independence referendum will result in some background noise but so far we have not seen any anxiety or concerns from either our portfolio companies or our investors. As a pan-UK investor, we do not expect the referendum to have any effect on our business.”

Where will the opportunities lie? Key sectors/regions of opportunity and why?

“As the economy comes out of recession, companies start overtrading. That’s where we see our opportunities lying – in good businesses that can’t service the rising demand for their goods and services with their present capital structure. In particular, we can step in where the banks won’t help.”

Do you see a trend for any particular kind/structure of deal – e.g. MBIs and why?

“MBIs have become viable once again after being completely out of favour. Debt funding has finally become available once more and we have seen a number of good backable candidates who are looking for businesses to buy.”

“MBOs are on the increase as rising house prices have given managers the means with which they can contemplate buying a stake in their businesses. We expect this trend to accelerate as larger companies look to divest non-core activities.”

What will the fundraising environment be like?

“The British Venture Capital Association says private equity funds raised an average of £28.5bn a year over the four years from 2005 to 2008, but in the whole of the four years that followed the total amount raised was just £20bn – an average of £5bn a year, which is 82 per cent down.

“Private equity funds that raised money during the boom period that ended in 2008 will now have finished investing the money, or be reaching the end of their five-year investment cycle. Demand for these funds is rising once more and the debt markets will not be able to fill that void, so this strongly suggests that fundraising will pick up again. And if, as we expect, there are more exits in 2014, this will also boost fundraising.”

What about the exit environment?

“Large companies are holding historically high levels of cash – one recent US Fed study showed companies were holding 12 per cent of assets in cash against a long run average of 6 per cent. Meanwhile, organic growth is still patchy and cost cutting has reached the point where there is nothing left to cut. All of this points to a great market for exits in the coming year.

“The growing understanding of the potential benefits of the UK’s Patent Box Regime, which offers very valuable tax concessions, will increase foreign interest in buying UK companies.”

Mindset of UK entrepreneurs – what are they most concerned about? Attitude to equity investment?

“The UK’s entrepreneurs continue to be cautious about diluting their own equity, but as opportunities that require capital present themselves, they generally have to make a judgement – do they avoid dilution and miss out on the opportunity or accept the investment and hope that the opportunity means they end up with a smaller stake in a much bigger business? As economic confidence grows this decision becomes easier.”

Is there any expected regulatory change that will impact your business?

“The renewables sector is one which we invest in and what is really needed there is a period of stability. If 2014 proves to be a year of limited regulatory change and consistency on policy, it would greatly help this industry.”

What would you call on Government to do to support investment into SMEs?

“Easing the administrative burden on SMEs is of paramount importance: for example, by making it easier to hire staff, or even incentivising companies to do this, the Government would create a significant economic boost.”

How is Panoramic placed for 2014? What’s in store for your portfolio companies?

“We are very excited about the opportunities that 2014 holds. We have two portfolio companies very likely to exit in 2014 at impressive multiples. The demand for our brand of responsible, involved SME equity financing will only grow in the months ahead as companies start thinking again about growth opportunities. We see an environment where companies are looking to thrive, rather than simply to survive as has been the prevailing mood over the last few years.”

Global AUM to Exceed $100tn
CommoditiesMarkets

Global AUM to Exceed $100tn

Research from PwC predicts that global assets under management (AuM) will rise to around $101.7 trillion by 2020, from a 2012 total of $63.9 trillion. This represents a compound annual growth rate (CAGR) of nearly 6 per cent.

The report, Asset Management 2020: A Brave New World, also finds that assets under management in South America, Asia, Africa and Middle East economies are set to grow faster than in the developed world in the years leading up to 2020, creating new pools of assets that can potentially be tapped by the asset management (AM) industry. However, the majority of assets will still be concentrated in the US and Europe.

PwC predicts that assets under management (AuM) in Europe will rise to $27.9 trillion by 2020, from a 2012 total of $19.7 trillion. This represents a CAGR of 4.4 per cent.

Global AuM growth will be driven by pension funds, high-net-worth individuals (HNWIs) and sovereign wealth funds. At the client level, the global growth in assets will be driven by three key trends:

• The increase of mass affluent and high-net-worth-individuals in the South America, Asia, Africa and Middle East region.

• The expansion and emergence of new sovereign wealth funds (SWF) with diverse agendas and investment goals.

• The increasing defined contribution (DC) schemes partly, driven by government-incentivised or government-mandated shift to individual retirement plans.

In 2012, the AM industry managed 36.5 per cent of assets held by pension funds, sovereign wealth funds, insurance companies, mass affluent and high-net-worth-individuals. If the AM industry is successful in penetrating these clients assets further, PwC believes that the AM industry would be able to increase their share of managed assets by 10 per cent to a level of 46.5 per cent, which would in turn represent $130 trillion in Global AuM.

Rob Mellor, Asset Management 2020 leader at PwC, said: “Amid unprecedented economic turmoil and regulatory change, most asset managers have not had time to bring the future into focus. But the industry stands on the precipice of a number of fundamental shifts that will shape the future of the asset management industry.

“Strong branding and investor trust in 2020 will only be achieved by those firms that avoid making mistakes that attract the ire of investors, regulators and policymakers. Asset managers must deliver the clear message that they deliver a positive social impact to investors and policymakers. The efforts required to satisfy investors and policymakers cannot be left to others.

“The coming years will bring the industry higher volumes of assets than ever before which places more responsibility on firms to manage these assets to the best of their collective ability. Asset managers must clearly outline the value they bring to customers while being fully transparent over fees and costs.”

UK Investors are Underweight
Capital Markets (stocks and bonds)Markets

UK Investors are Underweight

The majority (50%) of UK independent financial advisers (IFAs) believe sophisticated investors are underweight in the venture capital sector according to new research commissioned by leading venture capital investor Albion Ventures.

IFAs estimate that less than a fifth (17%) of their clients’ currently have direct exposure to venture capital, with most of those surveyed (48%) believing that their clients’ exposure to venture capital will increase in the next five years. Just 3% expect a decrease. Only a handful of IFAs (2.2%) believe their clients are overweight in the sector.

Sophisticated investors can access the venture capital sector through venture capital trusts (VCTs), investment companies listed on the London Stock Exchange. VCTs provide investment for smaller companies and offer investors a range of incentives including: 30% income tax relief, tax free dividends and no tax on capital gains. VCTs have continued to grow in popularity in recent years. In 2012-13 £370m of funds were raised by VCTs, £45m more than 2011-12.3

Patrick Reeve, Managing Partner of Albion Ventures said, “IFAs recognise there is currently an investment gap in the UK venture capital sector. Most investors are not realising the potential benefits of investing through VCTs.
“Financial advisers need to explore alternative tax efficient methods to help their clients build up a suitably sized nest egg. VCTs are a great option offering investors significant tax incentives and long-term capital growth.

Investors in VCTs also benefit in the knowledge they are helping small firms grow and are supporting the wider UK economy.”

The research follows the launch of Albion VCTs Top Up Offers, which are seeking to raise up to £15 million across its six venture capital trusts. The Offers are targeting a monthly tax-free income of 5% (should investors choose to invest equally across all Offers), equivalent to 7.1% on the net cost of investment after up-front tax relief at 30%. Investors in the Offers also have the option to boost their capital growth by participating in the dividend reinvestment scheme (“DRIS”), under which dividends are reinvested in the form of new shares in Albion VCTs.