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November Headlines
Special Topic: Investment and the Economics of Climate Change
International Trends
Investment Trends and Issues
Issues For The Private Investor in Private Equity
Global REIT Report
Integrated Planning
Managing Risk and Liability Exposure
Business Owner Issues
Family Continuity & Governance
Family Education
Strategic Philanthropy
Family Office Practice Management
Lifestyle Management
Technology Trends
Special Topic
Investment and the Economics of Climate Change
As climate change moves up the political agenda, investors are becoming increasingly aware of their responsibilities to the environment. FCI rounds up a number of contributions relating to investments and the economics of climate change.
Sir Nicholas Stern, Head of the Government Economic Service in the UK and former World Bank Chief Economist, recently presented what was billed as the most comprehensive review ever carried out on the economics of climate change. His conclusion was essentially optimistic. There is, according to Stern, “..still time to avoid the worst impacts of climate change, if we act now and act internationally”. However, he also cautions that the task is urgent, and a delay of even one decade will take the world into dangerous territory.
- Click here to read an executive summary of the Stern Review
- Click here to read the full Stern Review
- Click here read a critique of the Stern approach, in a review of the global warming by former UK Chancellor of the Exchequer Lord Lawson, published in The Spectator
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The Institutional Investors Group on Climate Change recently published a statement of intent describing its view on how investors can respond to climate change. Over 15 institutional investors, managing assets worth #850 billion, have reportedly so far signed the statement.
- Click here to read “Investor Statement on Climate Change”
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A paper by New Energy Finance examines trends and issues in the financing of renewable energy and low-carbon technology. It describes how all financial asset classes are seeing rapid growth in this area, particularly IPOs / Secondary Offerings, venture capital, private equity and project finance. Also details ten areas for action to ensure investment continues to grow.
- Click here to read “Global Clean Energy Investment Overview”
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Despite an improvement in openness and macro-economic stability over the past decade, reforms have not helped Latin America fulfil its potential. A working paper by the IMF asks why, and examines the prospects for future reform and growth in the region.
- Click here to read “Growth and Reforms in Latin America: A Survey of Facts and Arguments”
A report by Hammond Associates points out investment opportunities for family offices arising from growing imbalances in the global supply and demand of conventional energy supplies (primarily oil and gas). It describes a number of institutional energy investing strategies, the main vehicles and some of the tax benefits arising from direct energy investments.
- Click here to read “Private Wealth Focus: Energy Investing For Family Offices”
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International Trends
World Competitiveness League Table
An annual study by the World Economic Forum, based on economic data and the forum's annual Executive Opinion Survey, provides a ranking of the competitiveness of countries. Its rankings for 2006 see Switzerland taking the leading position, overtaking Finland and Sweden, and overtaking the US, which dropped to sixth position.
- Click here to read the executive summary of the Global Competitiveness Report 2006-07
- Click here to read more detail about its findings and methodology
- Click here to listen to a webcast interview with Michael Porter, co-author of the Report
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Investment Trends and Issues
Open Architecture
Open architecture has strong intuitive appeal among investors, offering as it does the prospect perhaps of more objective advice. But what impact does it have on the financial services industry? A white paper by Greycourt examines its influence, and questions whether it is a “disruptive business model”—or one that catches out incumbent players, meaning they cede leadership to a new generation of firms. Concludes with suggestions to investors on how best to navigate an industry in a state of flux.
- Click here to read “Open Architecture as a Disruptive Business Model”
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Global Economy 2007—Growth, Stasis or Crisis?
A special report by Deloitte examines the likely impact of continued long-term global imbalances—notably relating to budget deficits, interest rates and currency valuations—on the global economy. Is the world economy in for a hard landing in 2007, or are such imbalances more manageable than previously thought? While unwilling to commit to a firm prediction, the authors recommend preparing for the worst.
Giles Keating, Head of Global Research at Credit Suisse, offers his views on the short-term prospects for the global economy, as well as thoughts on implications for investors. Featured in the Credit Suisse e-magazine, he describes a slowdown led by the US housing and auto sector, spreading to China and possibly to Europe in Q1 2007. However, Keating does not see the slowdown as pronounced, and forecasts a reacceleration by next spring.
- Click here to read “World Economic Slowdown Spreads to China”
(Note: also available on video, viewable at the same page)
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Issues For The Private Investor in Private Equity
Private equity is a hot topic, owing to recent strong performance, the increasing size of deals, and the creation of publicly listed, retail vehicles in the US. However, for the private investor, there are a number of pitfalls. Pictet has written a newsletter advising private clients on the key issues relating to investing in private equity—not least wider discrepancies in performance between good and bad private equity managers than are seen in other asset classes.
- Click here to read “Private Equity For Private Investors”
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Global REIT Report
Ernst & Young recently published the inaugural edition of its Global REIT Report, providing a snapshot of the performance in REITS in 13 separate countries across four regions. The Report examines parameters including market size and depth, total return, balance sheet / income measures, and volatility. It also presents its research on the tax and regulatory regimes operating in various countries where REIT markets are established.
Integrated Planning
Lessons From The Top in Preserving Wealth
Research by JPMorgan Private Bank shows that the composition of the UK’s wealthy elite has changed dramatically over the past 17 years. The authors find that only one in five of the original 1989 Sunday Times Rich List are still in the top 200 today—a sobering thought for any wealthy family. A press release describes the findings, along with generic lessons on the difficulties in maintaining wealth over the long term.
- Click here to read “All Change at the Top. A Dramatic Change in the Fortunes of the UK’s Wealthiest People Since 1989”
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Back to the Future
An article by Bloomsbury explores parallels between today and the late 1960s / early 1970s. An unpopular US president spending money on a war he cannot win; a world awash with cheap money and asset price bubbles; inflation starting to rise and world growth slowing—common factors which could possibly suggest a parallel outcome to some three decades ago. Bloomsbury offers no concrete prediction, but does recommend a disciplined financial planning approach in uncertain times.
Canada—“Immigrant Trusts”
Canada is a vast country keen to attract wealthy, entrepreneurial families. By way of enticement, it is offering the ability to shelter assets from Canadian tax for five years by placing them in an offshore trust. A paper by Butterfield Bank describes the key issues, and should be of potential interest to any wealthy family considering relocation to Canada.
Managing Risk and Liability Exposure
Risk in the Hedge Fund Industry
In September this year, respected multi-strategy hedge fund Amaranth lost 65% of its $9.2 billion assets in little over a week. How could this happen, and what lessons can be learnt by prospective hedge fund investors? A report by Edhec argues that, while economically viable in providing liquidity to the natural gas industry, the magnitude of Amaranth's energy position-taking was inappropriate relative to its capital base. Also offers six key lessons for investors, risk managers, hedge fund managers and policy makers.
- Click here to read “Edhec Comments on the Amaranth Case: Early Lessons from the Debacle”
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In an effort to generate alpha, many hedge funds are turning to non traditional asset classes, including private equity investing. A paper by CTC Consulting explores the growing trend of convergence between hedge funds and private equity, with the aim of helping investors approach new opportunities with “tempered care”.
- Click here to read “Emerging Trends in the Hedge Fund Industry”
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UK Housing Market at Risk?
As UK house prices continue their vertiginous ascent—particularly in London and the South East—what are the future prospects for the market? Two contributions seek to understand risks and uncertainty relating to UK housing.
- In its latest economic review, PwC seeks to model UK house price uncertainty. It finds a one in three chance of house prices being lower in nominal terms by 2010.
Click here to read “UK Economic Outlook November 2006”
- A paper by PropertyVision examines prospects at the top end of the London property market, and finds a market with robust long-term potential.
Click here to read “Still Going Strong”
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Business Owner Issues
Family Business—The Positive Impact of “Familiness”
Recent research on family-controlled quoted companies, published by the Manchester Business School CIIM Business School, found that such firms in the UK outperformed the FTSE All-Share by 40% over the last six years. Quoted family firms are found to enjoy a positive impact (termed “familiness”) from mastering their long-term development, aligning the goals of owners and managers, building relationships with financial agents, mitigating risk and taking effective strategic decisions. A paper focusing on the UK, but of interest to family firms everywhere.
- Click here to read “The UK Family Business PLC Economy”
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Why Corporate Strategy Goes Wrong
A paper published by Knowledge@Wharton offers insights from Michael E. Porter into corporate strategy. Porter argues that errors in strategy are often self-inflicted, arising from an attempt to compete head-on with competitors, rather than seeking to define and develop their own unique position in the market. He also describes a singular focus on shareholder value as the “Bermuda Triangle” of strategy.
- Click here to read “Michael Porter Asks, and Answers: Why do Good Managers Set Bad Strategies?”
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Focus on Business Aviation
Private air travel offers a range of conveniences to business and personal travelers, but aviation insurance suffers its limitations. HUB International Northwest offers a checklist to serve as a diagnostic tool in evaluating aviation insurance.
- Click here to read “Aviation Risk Management Checklist”
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Bombardier Flexjet has written a paper designed to help the reader understand the business aviation solutions available in the marketplace today, and to identify which may be of greatest interest.
- Click here to read "Understanding the Business of Business Aviation"
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Family Continuity & Governance
Affluence and Well Being
We live in a time of complexity and opportunity, with change being driven by globalisation, advances in technology, and improving human health and longevity. A paper by Raylign examines how, against this backdrop, families can seek to chart a course to multi-generational well-being—encompassing not just financial aspects, but also broader notions of happiness. It calls for clarity and continuity of purpose, careful stewardship of material and intellectual capital, and effective family leadership. Written from a US perspective, but with some points of interest for all families.
- Click here to read "Affluence and the Pursuit of Multi-Generational Well-Being"
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Family Education
A Guide to Parenting
A collection of essays gathered together by the Ackermann institute offers a wide range of perspectives on parenting—including how to talk to children about divorce; reducing stress; and collaborating with teachers and schools. Each essay includes a number of practical tips for families. Originally published in 2000, this remains a source of ideas and possible inspiration for families today.
- Click here to read "Family Matters: A Guide to Parenting"
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Strategic Philanthropy
The Power of Philanthropy
The Clinton Foundation is not a foundation in the traditional sense, because it has no funds of its own. What it offers is the motivational and "convening" power of the former President, coupled with a business-like, entrepreneurial approach to philanthropy. An article in Fortune takes a look at his unique approach to tackling global scourges including poverty, climate change and HIV/AIDS.
A report by the European HIV/AIDS Funders Group examines the contribution of European foundations, trusts and charities in confronting the global HIV/AIDS pandemic. The authors find evidence of significantly increased spending over the past two years, but question whether funds could be use to better effect through enhanced coordination, different geographical coverage (particularly in Eastern Europe) and a greater emphasis on prevention. Includes data on the nature and extent of the pandemic, as well as a review of the main European contributors.
- Click here to read "European Philanthropy and HIV/AIDS"
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Evidence of Renewed (But Not Recovered) Confidence in US Charities
Controversy surrounding the disbursement of September 11 relief funds led to a fall in confidence in charitable organizations in the US in the last five years. A survey conducted on behalf of The Wagner School of NYU finds that, while still not restored to pre-September 11 levels, there has been a recent rebound in confidence. An underlying scepticism towards charities remains, however, indicating an ongoing need to invest in performance and communication.
- Click here to read "Confidence in Charitable Organizations, 2006"
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Family Office Practice Management
An Heir and Practitioner Advises on Strategic Wealth Management
Stuart E. Lucas sees wealth management from both sides of the fence: an heir to the Carnation fortune, he also advises families on managing wealth. In an article published in Knowledge@Wharton, Lucas describes his eight guiding principles for effective long-term wealth management. A useful frame of reference for anyone seeking to safeguard and grow family wealth.
- Click here to read "Eight Principles of Strategic Wealth Management"
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Lifestyle Management
Seeking "Rhythms of Relationship"
Modern life is characterised by a lack of time, with resulting pressures on personal relationships. A presentation by Peter Fraenkel of The City College of the City University of New York examines the impact of time on couples. He concludes that couples need to create Rhythms of Relationship, or "regularly occurring periods of connection across days, weeks, months, years". These are, argues Fraenkel, different to schedules or routines—while the latter are linked to Industrial and Post-Industrial production, "rhythm" connotes music, the body, the seasons, and ancient traditions.
- Click here to read "Clocks, Calendars, and Couples: Time and the Rhythms of Relationships"
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Technology Trends
The Burdens of Data Aggregation
According to the Northern Trust 2006 survey of US family offices, more than half of family offices believe their greatest challenge is the volume of data required to compile, consolidate and produce month end financial statements. They spend an average 44 hours per month to produce a single net worth statement. A press release by Northern Trust outlines the main issues, along with a description of the practical IT tools deployed by its survey respondents. Written from a US perspective, but with generic points of interest for all family offices.
- Click here to read the press release
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