Global Banking and Finance Review interviews Dr Elizabeth Stephens, Head of Credit & Political Risk Advisory at JLT Specialty. We discuss the benefits of the investor’s tool, “The World Risk Review Roundup”. Dr. Stephens outlines the benefit of this tool with regards to country risk analysis, the benefits and time saving uses of employing it and cites two examples of how the system works to benefit trading decisions.
Explain a little bit about JLT Specialty’s World Risk Review Roundup to our readers.
The World Risk Review Roundup is a new, regular publication from JLT Specialty’s World Risk Review (WRR), which is our in-house country risk analysis tool. We founded the WRR in 2006 to extend the capabilities of JLT’s Credit, Political and Security risk broking team. Often, political, economic and security risks, which can be broadly categorised as ‘country risks,’ are misunderstood to be ‘catastrophic’ risks, in that many investors and multinationals trading in emerging market territories believe that these risks cannot be mitigated or managed. We wanted to illustrate that not only can these risks be insured; but there is in fact a clear risk management process for country risks that can, if implemented in a strategic and robust fashion, actively reduce the likelihood of a loss from a country risk incident. It is the initial identification and analysis steps of that risk management process that can be the most challenging, on account of the fluidity of global trends and risks, however, tools like the WRR can assist with that process in terms of highlighting changing risk trends, but also providing a quantitative method for benchmarking country risk. The new WRR Roundup is a quick overview of the most important topics that we have been analysing and monitoring on WRR and that we want to highlight as ‘up and coming’ risk trends.
How do the reports help with investment decisions?
The difficulty for those trying to make investment decisions in the face of increasing levels of geopolitical risk is that the risk environment in any country, be it the economic, security or political risk environment, can change extremely rapidly. For time-pressured professionals with a global portfolio, there simply is not enough time in the day to dedicate sufficient time to read and analyse pages and pages of country risk reports. Indeed, the primary reason why JLT developed the World Risk Review was to provide our clients with a strategic decision-making tool for country risk. Using our country risk ratings, anyone that needs to quickly and succinctly benchmark country risk can do so – even without any prior knowledge about the countries in question.
The WRR round-up is an evolution of that objective; it seeks to cut through the sea of information that is available to professionals to highlight several key topics requiring greater attention. Those needing to make investment decisions can check our roundup and then carry out far more focused and detailed research to understand these highlighted risks if there is a possibility that these risks might impact on that proposed investment. Alternatively, readers can contact us if they want us to give them advice on these risk issues in respect of a specific investment.
Where and from whom do you collect the areas and advice you choose to focus on in the reports?
The WRR Roundup is edited by JLT’s country risks analysis team and the subjects of focus are chosen for a variety of reasons. The WRR’s ratings and analysis are always forward looking, so where possible, we seek to select those trends that may not yet have hit the news headlines, and we seek to identify risk ‘triggers.’ Other subjects are centred around those countries where our Credit, Political and Security risks broking team have seen an uptick in insurance enquiries, which is always an indication that the investment community is noticing changes ‘on the ground’ in respect of a country’s risk environment. Finally, we also take into consideration the views of our WRR Advisory Board, a group of leading economists, academics, security and NGO specialists, journalists and corporate leaders. This board acts as a check to what is otherwise a very quantitative-driven analysis process; they have specific regional and industry knowledge which can give WRR a clearer insight into the true risk environment of any given country and how risk developments may impact investors.
I understand the reports can be personalised to specifically benefit individuals’ particular investment areas, how does this work and do you have any future plans to further increase the benefits of the service over 2014?
JLT has always prided itself on its country risk consultancy capabilities, which are underpinned by the WRR. In the past we’ve carried out a variety of consultancy projects for investors in a variety of industries, from banking, to mining, to telecoms, to logistics. We use the WRR country ratings as a starting point, and then adjust them to reflect the specific nuances of the region, country, industry, project and company in question as country risk is always project-specific. These bespoke ratings are then complemented by a variety of services, always including written analysis, depending on the needs of the client and their risk management strategy; some services are designed to act as a check on a company’s existing risk management strategy, where advanced processes for identifying, analysing and managing country risk are already in place, while other clients secure our services when they are embarking on designing and implementing a new risk management strategy for country risks. Later this year JLT will be launching a brand new WRR website platform which will over time showcase a variety of features designed to support professionals that are managing country risk and throughout 2014 we will also be expanding our consultancy practice.
Operational risks continue to grow within the financial sector, what are the key factors affecting both companies and their employee’s?
The main operational risks affecting companies within the financial sector is ever increasing regulation, sanctions and directives like the 2010 Bribery & Corruption Act. Increased onus is put on employees to ‘know their clients’, their ownership structure and business dealings. It can be challenging to obtain this information and the oversight and conduct of these functions adds to operational costs. Greater emphasis has been placed on
employees to declare client entertainment and gifts and likewise entertainment and gifts received to avoid charges of bribery and to facilitate internal monitoring.
Extra territorial sanctions like those imposed by the US on Iran create significant operational risks for companies. While it is relatively straightforward not to trade with Iranian entities it is more challenging to guarantee no financial transaction flows through a third party institution that also does business with Iran.
Basel III will tighten capital adequacy requirements for banks and financial institutions, impacting on available funds for investment and thereby curtailing potential returns.
In the February issue you cite two examples our readers have shown a particular interest in at the moment, “the unrest in Thailand” and “the Economic Slump in Turkey”. Can you expand on the impact to inward investors and what should be watched for?
Thailand – the impact for inward investors depends on type of sector and asset class. The overall risk is that continued protests and political instability will depress the economy, thereby lowering investment returns. The value of the currency is susceptible to downward pressure as investment sentiment diminishes, lowering the value of returns in hard currency. Protests have the potential to disrupt business operations either directly or indirectly.
Turkey – For the Gulf sheiks Turkey remains a safe investment haven and it is Arab money that has flooded into the country, fuelling a financial bubble and high inflation. These investors are unlikely to be concerned about the tactics Erdgoan employs to quash protests and will continue to view Turkey as a safe investment haven after the Arab Spring as they are wary of investing in Western countries because if unrest breaks out, their assets could be frozen.
Western investors have a different view – partly driven by concern over returns – and partly by the reputational risk that could arise from investments in Turkey if protests escalate and Erdogan instigates another crackdown against them. The financial outlook is also worrying.
Turkey has seen its risk premia narrow in recent years. Capital inflows have almost offset the current account deficit which has narrowed to some 6% of GDP from the alarming 9.6% recorded in 2012. The banks are in good shape and, despite incoherent use of monetary policy tools, the financial system is stable. Inflation has receded, to some 6% from over 9% last year, though unemployment has only nudged lower, and remains high, at 9%, as GDP growth is still only moderate, albeit stronger than last year’s feeble 2.2%. With its favourable structural dynamics of a growing middle class and a young, decently educated workforce, observers had reappraised the outlook and after Turkey secured two investment grade ratings, many were expecting another ratings upgrade.
Political stability played a part in this improvement, but recent events have undermined the optimism, leaving the economy vulnerable at a time when the liquidity emerging economies have benefited from as a result of quantitative easing in the US, may be coming to an end. The absolute size of the current account deficit and its majority financing by portfolio inflows makes the lira vulnerable to shifts in market sentiment.
Protests continue and the state continues to round up those it considers responsible. Intimidation of journalists has risen from an already high level – Turkey imprisons more journalists than Iran. This will further harm relations with the EU at a time when the organisation has already postponed the latest round of membership talks with Ankara to October.
Q&A with Clare George-Hilley, co-founder, Centropy PR
Clare George-Hilley is the co-founder of Centropy PR
Global Banking and Finance Magazine recently caught up with Clare George-Hilley, co-founder of fintech and financial services specialist PR agency Centropy, as the company toasts to three years of trading. We asked Clare about what life is like running an agency in the city, the trends she is seeing in the financial services space and what the future holds following the Covid-19 outbreak.
Why did you decide to set up Centropy PR?
I was looking for an opportunity to launch my own agency, both my husband and I had been in the public affairs and public relations industry for over a decade and we thought the time was right to go out on our own.
We could see that the financial services industry was surging, with challenger brands and new technology transforming traditional banks and setting new standards of customer service. There was a huge market opportunity to create and launch a PR agency that could provider first class comms support, alongside a deep understanding of complex regulations such as AML, KYC, and the GDPR. Likewise, many traditional technology firms are diversifying their offerings, to tap into the growing market opportunity posed by the fintech boom.
So, we worked on a business plan, designed a strategy for winning clients and officially launched in September 2017. Within a few months we had a growing portfolio of clients and a thriving business, since that point, we have never looked back!
How is Centropy doing now and what are you plans for growth?
The last three years have flown by and our client portfolio has grown and diversified quickly. We now manage PR campaigns for clients on everything from cryptocurrency, wealth management to payments and trading software.
We’ve also hosted parliamentary debates with key industry figures, including Members of Parliament (MPs) on topics such as the future of the financial services industry and the impact of challenger banks on traditional providers. The team is expanding quickly and we’re investing heavily in the latest training and support to ensure our team members are equipped to reach their full potential.
How do you see the next 12 months?
The Covid-19 outbreak has crippled the economy, forcing millions of people to work from home due to the very serious health risks. The knock-on effect of this crisis will lead to companies cutting costs where possible to save jobs, so tech will play a vital role in ensuring many businesses stay afloat.
We are already working with contactless payments specialists and other fintech companies that offer solutions to help companies survive and thrive despite the inevitable challenges ahead.
We aim to continue building our portfolio of expertise, testing ourselves with new challenges and delivering the best possible service to clients
This is a Sponsored Feature.
Lessons from past recessions and advice for business owners during the coronavirus pandemic
By Neil Davis, managing director and co-founder of Sterling Networks
What is Sterling Networks?
“Sterling Networks is a professional organisation founded in 2014 which facilitates networking events for businesses across the Midlands, Oxfordshire, Wiltshire and the South West. Over 300 members attend our fortnightly breakfast and lunchtime meetings.”
What is your background prior to establishing Sterling Networks?
“During the 1990s, I worked in the corporate team for Halifax. My wife, Tracey, and I went onto own a manufacturing business, which was also called Sterling, and produced a range of gifts, merchandise and promotional items.
“We soon realised tradeshows were a great way to meet distributors and clients. From there, the business grew exponentially, and we managed to build a network of around 500 distributors. Eventually, we became ground down by the manufacturing business – in part because the local manufacturing sector was being devastated by competition from China – and took the decision to sell the business and relocate to Spain.
“After spending several years living abroad, we moved back to the UK to set up Sterling Integrity (EXPO’S) & Sterling Networks (Networking) We were inspired by a desire to help businesses make meaningful connections with one another, and we haven’t looked back since.”
The UK has recently entered a recession, brought about by the coronavirus pandemic. What have you learned from past recessions and how are these experiences helping you to navigate the current crisis?
“I’ve lived through a number of recessions and have seen the pain that insolvency causes companies on a large scale. It’s taught me that there are those who win and sadly those who lose, and that businesses must adapt to a rise in demand for certain products or services at a time of financial crisis.
“Given the nature of what Sterling Networks offers [an opportunity for business owners to connect and grow together] I decided we could build upon the brand due to the demand for new business during the pandemic. We therefore moved our networking events from face-to-face to virtual via tools like Zoom and have gained a steady stream of new members in recent months, reaching an overall total of well over 300.
“On top of that, we’ve taken new staff on during the crisis and have launched a number of new regional groups across the country. I was determined that Sterling should come out of the pandemic with a head start, so my attitude to the recession has been much more positive than those who are forecasting nothing but doom and gloom.
“We can’t pretend high street retail wasn’t suffering long before the pandemic came along, and thousands of new businesses are sure to start up to meet the demand for the products and services that people require at a time such as this. In order to develop and grow businesses need to focus on where changes need to be made to meet this demand.”
Sterling Networks has been providing emotional support to its members throughout the pandemic. What advice have you been giving to members that could be useful to other business owners?
“I try not to be too opinionated and respect other people’s views when giving advice to members, as there are always two sides to every circumstance. I’ve been careful not to say to people that they should be doing one thing or another, as I don’t know their business and its needs quite like they do. The only thing that I have been telling members is the importance of setting up one-to-ones with one another. By doing so, they can listen to the needs and concerns of other, like-minded business owners and work out ways that they might be able to help one another.
“The pandemic has meant we all have a bit more time on our hands, so the advice I would give to people is to use this extra time wisely. Not having to travel physically from one meeting to another means there is a greater opportunity to connect with more people. It’s important to remember that individuals outside of your business can be just as valuable as those within it.”
What makes you hopeful for the future and are there any words of encouragement you can give to budding entrepreneurs?
“The key events that have happened to this country during my lifetime – whether wars, recessions, or the pandemic – have enabled me to take stock of things. While these experiences are certainly challenging, we all become stronger for living through them, and it gives me great confidence that the world will ultimately improve as a result of the pandemic.
“The whole world is effectively rebooting right now, as is the business community. I like to think entrepreneurs will recognise this opportunity to take better care of their peers, and this translates to greater collaboration between organisations. Speak to as many people as you can, ask all the questions that you need to and do your homework. This might well be a difficult time for us all but planning for the future must start now if it is to become as prosperous as I know it can be.”
Exclusive Interview with Ugo Loser, CEO of ARCA Fondi SGR
Arca Fondi SGR is a mid-sized Italian active asset management company. Founded in 1983 by a consortium made up of 12 regional banks, the company has grown in time, expanding its network of distributors and its client base. Nowadays Arca manages Mutual Funds, Pension Funds and Institutional Accounts with total AUM exceeding 30 € bln, reaching more than 100 banks and financial institutions and serving more than 800,000 final clients.
What are the key contributors to ARCA Fondi SGR’s success over the past 35 years?
Arca has always put clients and distributors first. That is to say we have always privileged fair pricing for funds and developing high quality products and services for our customers. This requires constant innovation as an objective and looking for people’s talent to be free to produce its effect
Why are people the founding element of ARCA Fondi SGR and how have you sustained this vision over the years?
We work in small teams, people are young and motivated and can perform duties with a high level of autonomy and responsibility. Innovation is asked to everyone, everyday
What makes Arca Fondi SGR different from other asset management firms in Italy?
Arca is a company focused on doing what it can do very well, that is to say mutual and pension funds, services for clients and banks. We never follow short term trends but always look for long lasting impact on the industry, like we’ve done may times in the past
What products/services has ARCA Fondi SGR pioneered?
Arca has been the inventor of “Arca Cedola”, fixed-horizon, coupon paying funds, which have been with no doubt the greatest product innovation of the past 12 years on the Italian market. This type of funds, at first strictly based on bonds and later as a balanced product, has encountered an enormous success both with clients and distributors due to its simple and effective value proposition. Arca is a market leader also in the “PIR” segment of funds, a range of product focused on mid and small sized companies, that have been the best performers in the Italian stock market for the last few years. In services, Arca is a leader in technology applied to asset management. Our website, app and digital services for clients and banks are award winning, state of the art combination of data, technology and channels, and the best is yet to come on this side.
What strategies do you have in place to sustain your market position and withstand professional competition in the country?
As I mentioned, we do not waste resources on projects with dubious results, instead we constantly invest on people, products and services. The high level of profitability that Arca has been able to maintain even in difficult years for the markets of the banking sector is a further testimony that this strategy works very well
How do you use technology to create meaningful experiences for your customers?
First of all, we have created a whole new division, Arca InnovAction Lab, dedicated to technology, data and processes. This ensures projects are delivered quickly and they are free to leave bad past practices behind. Arcaonline.it, Arca’s website, provides distributors with detailed information on clients’ portfolios, asset under management and subscription/redemption requests. It monitors aggregate selling data offering to our partners a suite functions and analytics to track commercial campaigns. And if the banks branches need assistance, they may ask Sara, our digital chatbot. A broad and timely multimedia production, covering exclusive reports, comments, presentations, videos, webinars and newsletters is also available on the website.
Customers, subscribing Arca’s funds through its distributors’ network, may access Arcaclick, a dedicated area on Arcaonline.it. With Arcaclick the client can easily browse through her portfolio of funds, analyze its characteristics, view transactions and historical funds’ performance in customizable views. Arcaclick is also a powerful source of information on Arca product range: Prospectus, KIIDs and other literature is easily accessible along with news, comments and reports. Arcaclick may also be accessed via Arca Fondi App, a free application for mobiles and tables, running on both iOS and Android. Available 24/7 and in mobility, Arcaclick gives clients the opportunity access information, news and details of their personal portfolio anytime and anywhere.
What key trends will drive pension growth in 2020 and beyond?
The Italian market for pension funds is still very small and therefore there is a great opportunity to grow. Arca Fondi manages the biggest open ended Italian pension fund and it’s been constantly at the top of its rankings. As people and workers are looking for yield and to weather short term volatility, the pension fund is very well poised to profit from this trend.
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