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Making the most of the Asian funds goldrush

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Mark Neary
By Mark Neary and Phil Cook, Milestone Group
For retail funds, Asia is a prospective gold mine.A brief glance at the headline figures goes a long way to explain the explosion of interest. According to figures issued by the National Mutual Fund Associations,the region has approximately 13 percent of global funds under management, but 60 percent of the world’s population. Its middle class has increased by 25 percent in the past 20 years (Asia Development Bank), matched by rapid growth in GDP. And,as noted by the World Bank, at 10 to 15 percent of all working age individuals, pension coverage is still significantly lower than that seen in the US or Europe. This is a market with a low starting point but huge potential.Mark Neary

The emergent middle class is driving demand for pension funds, and both Singapore’s Central Provident Fund (CPF) and Hong Kong’s Mandatory Provident Fund (MPF) are likely to be replicated across Asia, albeit at various speeds and at various levels of contribution, over the next decade. At the next level up, more and more individuals are engaging with investments via premier level banking relationships, and as the number of high-net-worth and ultra-high-net-worth individuals in the region continues to grow, so too does private banking.

If we look behind the headlines, the picture is more complex. In real terms, the target market beyond the 1.4 billion in mainland China is tiny. There are fewer people living in Hong Kong than in Greater London and of those, less than three million work fulltime. The absolute amount of money in the MPF is very small. It is even smaller in Singapore: the city-state may be able to boast more millionaires per square foot than anywhere else on the planet, but it still only has a small number of square feet to count. Savings rates, as a percentage of income, are far higher in Asia than anywhere else; but that doesn’t negate the fact that average income is still significantly lower.

Ultimately though, the market has huge potential, and that is why retail fund managers – and their distributor partners – have been staking their claim across different countries to solidify their position for the future. Much of this activity has been acquisition or joint venture based, with banks acquiring branch operations or even entire institutions as a quick route to securing the necessary licence to operate.

The acquisition spree has created a situation where in many cases and a single institution will have in place multiple platforms, multiple core banking systems and even multiple private wealth systems with uneven coverage over numerous countries. Add to this the fact that levels of automation are often very low and the opportunity for leverage can be seen as less compelling.Given that the end game of the acquisition strategy must be scalable growth, the arguments to establish a streamlined operational foundation are very compelling.

Looking the other way, growth in the overall Asian economy shows signs of coming off the spectacular highs of the past decade, and the prospect of downward pressure on margins is also driving demand for greater operational efficiency.  The current climate accelerates the need for businesses to be operating as efficiently and flexibly as possible, to mitigate the danger from potential revenue shocks.

Managing an array of disparate systems is a significant barrier to the creation of lean, streamlined and efficient funds processing operations. It is also precludes true scalability where unit costs decrease proportionally and predictably in line with volume increases. Without scalable systems infrastructure, increased revenues are simply matched by increased costs.

There are more immediate drivers for streamlined and efficient operations too. For example, the industry is starting to see funds look at real-time reporting of deal and rebate capture as a means of improving intelligence on their distribution arrangements and enhancing their position for negotiating rebates. Custody arrangements are also being seen as fertile ground for margin improvements, with funds looking to replace multiple custody arrangements across the region with centralised booking capabilities. Again this improves negotiating position, which helps control costs, but it also reduces the number of nominee structures involved, meaning there is less to reconcile and process. However, if these types of efficiencies are to be achieved, then funds themselves will need to centralise internal booking controls, exception management and other essential back-end processes.Phil Cook

However, cost control and financial efficiency are not the only concerns for funds operating in the region. The Asian markets might be experiencing a land grab, but they are not immune to the growth of national and international regulation that characterises global financial markets. Growing demands for transparency and the availability of data in a timely fashion are driving middle-and back-office automation in Asia just as it is elsewhere.

What makes this a particularly Asian issue, however, is the value that is attached to a strong brand – to the point that it can outweigh performance in the retail investor’s decision making. The financial consequences of incorrect fund pricing or transactions entering the system thanks to manual error, and then being replicated across multiple funds and multiple investors, can be huge. While financial losses can be significant, damage done to reputation and potentially funds inflows, is both time consuming and expensive to repair.

At the same time, the traditional means of managing rapid growth – the deployment of relatively cheap labour – is becoming less readily available. This is something of a circular problem. Higher costs of living are driving up labour costs in more sophisticated markets. Qualified, experienced staff will also arbitrage any wage differentials, creating a high staff turnover. Without strong, automated processes, dependence on single individuals is much higher. It is also potentially destabilising – further enhancing operational and reputational risk.

In any gold rush there will always be prospectors who come back empty-handed, having spent a great deal in the process.Retail funds and fund distributors have staked their claim in Asia’s high-potential markets; now it is time to ensure they have the tools, the processes and the operational strength to turn a ‘gold strike’ of new business in Asia into a long-term and profitable reality.
 
 
 
 
 
 

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Climate extremes seen harming unborn babies in Brazil’s Amazon

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Climate extremes seen harming unborn babies in Brazil's Amazon 1

By Jack Graham

(Thomson Reuters Foundation) – A new study that links extreme rains with lower birth weights in Brazil’s Amazon region underscores the long-term health impacts of weather extremes connected to climate change, researchers said on Monday.

Exceptionally heavy rain and floods during pregnancy were linked to lower birth weight and premature births in Brazil’s northern Amazonas state, according to the researchers from Britain’s Lancaster University and the FIOCRUZ health research institute.

They compared nearly 300,000 births over 11 years with local weather data and found babies born after extreme rainfall were more likely to have low birth weights, which is linked to worse educational, health and even income attainment as adults.

Even non-extreme intense rainfall was linked to a 40% higher chance of a child being low birth-weight, according to the study, published on Monday in the Nature Sustainability journal.

Co-author Luke Parry said heavy rains and flooding could cause increases in infectious diseases like malaria, shortages of food and mental health issues in pregnant women, leading to lower birth weights.

“It’s an example of climate injustice, because these mothers and these communities are very, very far from deforestation frontiers in the Amazon,” Parry told the Thomson Reuters Foundation.

“They’ve contributed very little to climate change but are being hit first and worst,” he added, saying he had been “surprised by just how severe these impacts are”.

Severe flooding on the Amazon river is five times more common than just a few decades ago, according to a 2018 paper in the journal Science Advances.

Last week, Brazilian President Jair Bolsonaro visited the neighbouring state of Acre in the Brazilian rainforest, which is under a state of emergency after heavy flooding.

Parry said local people had adapted their lifestyles to deal with climate change, but that “the extent of the extreme river levels and rainfalls has basically exceeded people’s adaptive capacities”.

The negative impacts were even worse for adolescent and indigenous mothers.

The study said the “long-term political neglect of provincial Amazonia” and “uneven development in Brazil” needed to be addressed to tackle the “double burden” of climate change and health inequalities.

It said policy interventions should include antenatal health coverage and transport for rural teenagers to finish high school, as well as improved early warning systems for floods.

(Reporting by Jack Graham; Editing by Claire Cozens. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)

 

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Energy leaders grapple with climate targets at virtual CERAWeek

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Energy leaders grapple with climate targets at virtual CERAWeek 2

By Ron Bousso and Jessica Resnick-Ault

NEW YORK (Reuters) – Global energy leaders and other luminaries like incoming Amazon Chief Executive Andy Jassy focused on the tough road to transforming world economies to a lower-carbon future at the kickoff of the world’s largest energy conference on Monday.

Numerous speakers at CERAWeek were prepared to talk about the energy transition and the need for future investment in renewables. But many oil and gas executives were vocal about the need for more fossil-fuel investment in coming years, even as a way of leading the world to a lower-carbon future.

“One of the most urgent things we can do to combat global warming is to back carbon-emitting companies that are committed to get to net zero,” said Bernard Looney, CEO of BP Plc, one of several European oil majors to have committed to ambitious targets of cutting emissions to reach net zero carbon by 2050.

CERAWeek was canceled last year due to the coronavirus pandemic, which stopped billions of people from traveling and wiped out one-fifth of worldwide demand for fuel.

The U.S. fossil fuel industry is still reeling after tens of thousands of jobs were lost. The pandemic has instead accelerated the transition to renewable fuels and electrification of key elements of energy use. Global majors have been playing catch-up, responding to demands from investors to lower production of fuels that contribute to global warming.

The primary message on Monday, however, was that achieving net zero – where polluting emissions are offset by technologies that absorb carbon dioxide for the atmosphere – is going to be difficult.

“There just isn’t yet enough renewable energy to fuel all of the energy that people need. That’s in developed countries,” said Andy Jassy, head of Amazon.com Inc’s cloud division who will succeed Jeff Bezos as CEO this summer.

He said the company had announced its goal for net zero emissions at a time when it had not entirely figured out how to get there.

Since the 2019 conference, many of the world’s major oil companies have set ambitious goals to shift new investments to technologies that will reduce carbon emissions to slow global warming. BP has largely jettisoned its oil exploration team; U.S. auto giant General Motors Co announced plans to stop making gasoline and diesel-powered vehicles in 15 years.

Oil companies have come under increasing pressure from shareholders, governments and activists to show how they are changing their businesses from fossil fuels toward renewables, and to accelerate that transition. However, numerous speakers warned that the viability of certain technologies, such as hydrogen, remains far in the future.

Hydrogen “is a very small business at this point in time, it will scale up, and it will take a long time before it is a business that is large enough to start making a real difference on sort of planetary scale,” said Royal Dutch Shell CEO Ben van Beurden.

Other speakers expected to appear include several representatives from national oil companies along with CEOs of Exxon Mobil, Total, Chevron and Occidental Petroleum, though many are participating in panels focusing on the energy transition.

Mohammed Barkindo, secretary general of the Organization of the Petroleum Exporting Countries, was scheduled to appear, but backed out, citing a conflict.

Some CEOs said more oil and gas investment was necessary.

“We don’t think peak oil is around the corner – we see oil demand growing for the next 10 years,” said John Hess, CEO of Hess Corp. “We’re not investing enough to grow oil and gas in the future,” he said, explaining that prices would need to rise to support that investment.

(Reporting By Ron Bousso, Jessica Resnick-Ault and Marianna Parraga; additional reporting by Valerie Volcovici, Stephanie Kelly, Jeffrey Dastin and Gary McWilliams; writing by David Gaffen; Editing by Marguerita Choy)

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AstraZeneca sells stake in vaccine maker Moderna for nearly $1 billion

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AstraZeneca sells stake in vaccine maker Moderna for nearly $1 billion 3

(Reuters) – AstraZeneca sold its stake in rival COVID-19 vaccine maker Moderna for roughly $1 billion over the course of last year as the Anglo-Swedish drugmaker cashed in on the meteoric rise in the U.S. company’s shares.

London-listed AstraZeneca recorded $1.38 billion in equity portfolio sales last year, with “a large proportion” of it coming from the Moderna sale, according its latest annual report.

Shares in Moderna, which went public in 2018 at $23 per share, surged more than five times last year after it began working on a COVID-19 vaccine based on a new mRNA technology that won U.S. approval in December.

Its shot relies on synthetic genes to send a message to the body’s immune system to build immunity and can be produced at a scale more rapidly than conventional vaccines like AstraZeneca’s.

Last week, Moderna said it was expecting $18.4 billion in sales from the vaccine this year, putting it on track for its first profit since its founding in 2010.

AstraZeneca began investing in Moderna in 2013, paying $240 million upfront and by the end of 2019 had built up its stake to 7.65%.

That would be worth about $3.2 billion based on Moderna’s 2020 closing stock price of $104.47, Reuters calculation showed.

AstraZeneca’s vaccine being developed with Oxford University has not been authorized in the United States and uses a weakened version of a chimpanzee common cold virus to deliver immunity-building proteins to the body.

In December, U.S. drugmaker Merck & Co said it had sold its equity investment in Moderna, but did not disclose the details of the sale proceeds.

Asset manager Baillie Gifford on Monday disclosed in a separate filing it now held 11% passive stake in Moderna as of Feb. 26.

Moderna shares were down 5% at $146.62 in afternoon trading.

(Reporting by Ankur Banerjee, Pushkala Aripaka, Kanishka Singh and Maria Ponnezhath in Bengaluru; Editing by Jason Neely, David Evans and Arun Koyyur)

 

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