The Transfer of Family Businesses Can Vary by Millions of Dollars Depending on Location

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For many business families, sustaining prosperity for the long run depends on how well they plan for transfers of business assets and family wealth from one generation to the next, according to the KPMG Private Enterprise Global Family Business Tax Monitor. The report advises business families with footprints in multiple jurisdictions to monitor potential new or increased taxes and consider taking action in advance.

The report has been a go-to source for family business tax planning for almost a decade, comparing the vastly different tax liabilities among jurisdictions on the transfer of family business through gifting during the owners’ lifetime (including on retirement) and through inheritance.

Among the 57 jurisdictions covered in the report, some have geared their tax policies in ways that recognize how a thriving family business sector contributes to a vibrant economy. Others give no special tax exemptions for intergenerational family business transfers, increasing tax costs and likely reducing the family’s ability to compete with business families in more tax-friendly jurisdictions.

“Location can make a world of difference! Tax-efficient transfers between generations can leave wealth in the hands of entrepreneurial families to invest in profit-producing activities — and that can help stimulate job creation and innovation for future generations,” says Tom McGuiness, Global Leader, Family Business, KPMG Private Enterprise, KPMG International

KPMG Private Enterprise’s report found that globally, South Korea, France, the US and the UK impose the highest tax rates for transfer of a family business valued at EUR10 million by inheritance, before any tax breaks are accounted for. After exemptions, South Africa takes the biggest bite from family business inheritances valued at EUR10 million, followed by Canada and Japan. For inheritances of family businesses over EUR100 million, the most expensive taxing jurisdiction is South Korea after exemptions, with South Africa and the US coming in second and third.

For transfers during the owner’s lifetime (gifts) of family businesses valued at EUR10 million, Venezuela imposes the highest taxes globally before exemptions, followed by Spain, South Korea and France. After exemptions, South Africa and Japan come second and third behind Venezuela as the jurisdictions imposing the highest tax costs on business transfers by gift. These comparisons are similar for family businesses valued at EUR100 million before and after exemptions.

Top priorities for today’s business families

The report also provides insights on what business families consider their biggest priorities and risks and calls attention to three emerging trends — branching out, building up and giving back. The trends crucially reveal an increase in business families and their assets becoming more global, a rise in the importance of governance and a renewed focus on the management of family wealth and the notion of giving back with philanthropic activities commanding more time.

“Amid rising geopolitical tension and unparalleled economic uncertainty, the leading business families that we work with are diversifying globally and putting more focus on the sustainability of their businesses, their wealth and their communities,” says Tom McGuiness, Global Leader, Family Business, KPMG Private Enterprise, KPMG International. “By doing so, they can position their families for sustainable success down the generations. As a result, we are seeing more business families around the world that are focused on branching out, building up and giving back.”

To download the full report, please click on the following link.

Mapfre Acquires 51% of La Financiere Responsable’s Share Capital

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Photo courtesyJosé Luis Jiménez, Mapfre Chief Investment Officer

Mapfre AM has acquired a further 26% equity stake in French ESG specialist mutual fund boutique La Financière Responsable (LFR), taking its total holding to 51% as it targets growth of SRI derived strategies and seeks to boost its international footprint into the French fund market.

The Group previously acquired 25% of LFR in 2017 to adopt its proprietary ESG-focused stock selection process, which aligns with Mapfre AM’s strategic approach to responsible investment and economic, social and environmental (ESG) commitments. At the time, this was the first transaction involving a Spanish asset management company buying into a foreign firm in the industry.

The deal secured MAPFRE AM access to an exclusive strategy and methodology for selecting investments and applying ESG criteria to new products, as well as to the rest of the Group’s range of funds and balance sheet.

Business upsides flowing from that initial stake and the positive ongoing relationship between MAPFRE AM and LFR has led to growing the stake.

José Luis Jiménez, Mapfre Chief Investment Officer, commented: “Since 2017, we have been committed to sustainable investment, and LFR has nearly 25 years of such experience in this industry. In the past five years, we have jointly launched SRI products, which have the peculiarity of having their own methodology for the final selection of the securities that make up the funds’ portfolios, something that is highly appreciated by our clients.”

An example of synergies seen at the product level is the Mapfre AM Inclusión Responsable fund, which has been cited by the United Nations Global Compact as an example of best practice. The fund’s portfolio encompasses those companies most committed to labour inclusion of people with disabilities.

Another is the Mapfre AM Capital Responsable fund. Qualified as an EU Sustainable Finance Disclosure Regulation (SFDR) Article 8 mutual fund and holding a ‘Label ISR’ from the labeling scheme supported by the French government, it recently was awarded a Five-Star rating from Quantalys, the independent fund data and analysis provider.

LFR, which has assets of nearly 650 million euros, will maintain operations with its customers and retain the brand.

Olivier Johanet, President of La Financière Responsable, commented: “Since 2017, the Mapfre and LFR teams have been working together in order to develop an excellent relationship and cooperation that benefits the clients of both companies. We very much welcome this closer relationship, which is a very important step in broadening the scope of our partnership.”

Mapfre AM is renewing its confidence in the current teams at LFR to continue to build its investment capacity and grow in the European market with institutional investors, IFAs and other asset managers.

Polen Capital Opens Hong Kong Office to Expand Emerging Markets Capabilities

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Polen Capital announced the expansion of its Emerging Markets franchise, hiring LGM’s core Emerging Markets and China  Equity investment teams. The agreement sees an additional six investment  professionals joining Polen Capital, bringing the expanded franchise to now include six strategies and 10 investment professionals, based in London and Polen’s newly launched Hong Kong office.  

The LGM teams, which were previously part of Columbia Threadneedle Investments, will enhance Polen’s capabilities and expertise in emerging markets and China as clients increasingly seek exposure to these markets. Polen will onboard and rebrand the team’s core emerging markets  strategies and products including Emerging Markets Growth, China Growth and Emerging Markets Small Company Growth.  

“Our expansion into Asia, and emerging markets overall, represents an attractive opportunity for Polen and our clients that will increase our exposure, people and capabilities in the fastest growing  parts of the world,” said Stan Moss, CEO of Polen Capital. “The LGM team is aligned with Polen  strategically and culturally, and mirrors our client-centric focus on long-term outcomes. Having a  consistent, sustainable operating model and robust, centralized infrastructure will support the  team’s ability to do what they do best.” 

This expansion reunifies a historically effective team as several members of Polen’s Emerging  Markets Growth team joined Polen from LGM. It also marks a meaningful expansion of its global  research capabilities, now with on-the-ground professionals in Hong Kong, enhancing Polen’s ability  to identify companies that can deliver sustainable, above-average earnings growth.  

“We are excited our former LGM colleagues are joining us here at Polen. The team brings deep experience and a long track record building concentrated, quality growth portfolios in emerging  markets, which aligns well with Polen’s focused investment philosophy,” said Damian Bird, Head of  the Polen Emerging Markets Growth team. “Broadly speaking, most investors are vastly  underexposed to emerging markets. We think their long-term economic growth potential will fuel  attractive investment opportunities for the foreseeable future, and we are pleased to offer clients  best-in-class emerging markets capabilities.”

San Francisco Takes Top Spot in Schroders Global Cities Index

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San Francisco has this year secured the top spot in Schroders Global Cities Index, boosted by its world-leading venture capital industry. The Golden Gate City’s east coast counterpart, Boston, took second spot with London ranked third.

The elevation of San Francisco follows the introduction of a specific venture capital score to the Index. In short, the Innovation measurement, which previously assessed the strength of universities in a city, now also monitors the amount of venture funding directed to businesses in a specific location. 

San Francisco as the heartland of technology innovation, and Boston, as a biomedical innovation centre, have seen their rankings improve as a result of this score being introduced.

Schroders’ Global Cities Index seeks to rank global cities across four key criteria: Economic, Environmental, Innovation and Transport. It also aims to identify the cities which combine economic dynamism with world-class universities, forward-thinking environmental policies and excellent transport infrastructure.

In addition to London’s top three ranking, the next best-placed UK city was Manchester in 28th.

Hugo Machin, Portfolio Manager, Schroders Global Cities, said:

“San Francisco’s rise to first place as well as the strong performance of a number of US West Coast cities such as Seattle and Los Angeles, may come as a surprise given the net migration towards the US’ ‘Sun Belt’ cities that has been widely reported. However, the introduction of a venture capital score has significantly boosted their positions. 

“Today’s index shows that, despite the impact of the Pandemic and remote working, cities remain the economic drivers of the world economy. Their ability to provide collaborative spaces for work and deliver fantastic restaurants, theatre and retail experiences cannot be replicated online.

“In this context, cities will need to be armed with excellent transport links, affordable housing, green space and strong educational institutions to remain relevant. Furthermore, government policy will need to support the development of buildings that have excellent sustainability credentials.”

Risers and fallers

San Diego and Berlin were the only other two cities to have any meaningful movement in the top 30. Both scored well on venture capital funding and environmental policy.

Four Chinese Cities were also in the top 30, in spite of the well-documented lockdowns challenges. The index found that these cities’ strong Chinese universities and successful tech industries have sustained their rankings.

Indian and Indonesian cities also rose rapidly up the rankings. Cities such as Mumbai, Kuala Lumpur and Jakarta have benefited from an increased focus on technology and innovation, as well as highly-educated workforces. 

Is there a financial instrument that protects investors in the face of rising inflation?

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In a period such as the current one, where there are high levels of uncertainty with a latent recession, investors are searching for financial instruments that provide above-average returns but with protection against market volatility.

 

At the end of January of this year, inflation stood at an annual rate of 6.4%, higher than expected and only slightly below the previous month’s rate, 6.5%, which confirms the slowdown in the rise of prices. However, not at the desired rate, so the Federal Reserve has yet to rule out the possibility of continuing to raise rates. Nonetheless, this may be lower since continuing to push with moderate levels could trigger the U.S. to enter a recession.

 

According to the U.S. Securities and Exchange Commission (SEC), structured notes are securities issued by financial institutions whose returns are based on, among other things, equity indexes, a single equity security, a basket of equity securities, interest rates, commodities, and/or foreign currencies. Thus, your return is “linked” to the performance of a reference asset or index. Structured notes have a fixed maturity and include two components – a bond component and an embedded derivative.

 

Structured notes were introduced in the United States in the early 1980s and gained notoriety in the mid-1990s as a result of the crisis generated in the fixed-income markets during 1994, when the Fed raised interest rates by 250 basis points, generating heavy losses for fund managers with positions in structured notes issued by agencies.

 

According to a report by The Wall Street Journal, around US$73 billion in structured notes had been issued in the U.S. as of November of last year, getting very close to the record of US$100 billion in 2021.

 

According to Monex, structured products are generally created to meet specific investor needs that cannot be met with standardized financial instruments available in the markets.

 

Typically, structured notes are used by different market participants as:

 

– an alternative to direct investment

– a part of the overall asset allocation

– a risk reduction strategy in a portfolio

 

Just as stocks and bonds serve as essential components in the foundation of a well-diversified portfolio, structured note investments can be added to an investor’s portfolio to address a particular objective within an investment plan.

 

During periods of inflation, investors are turning to structured notes as a financial instrument to obtain above-average results thanks to the combination of elements of both fixed and variable investments, i.e., if used correctly, this instrument can offer specific protection against a downfall in the assets in which it invests. 

 

For the above reasons, using structured products as investment vehicles provides a possible system for regulating risk exposure, making it possible to adapt it to the investor’s profile, considering their profitability objectives.

 

An investment vehicle is a mechanism by which investors obtain returns; structured notes can be cataloged as one since they are hybrid investment instruments that allow the design of a tailor-made portfolio, which can have guaranteed capital.

 

Some specialists believe structured notes in uncertain conditions can improve the risk-return ratio since they can encompass many assets. This instrument also facilitates access to specific markets or financial assets that do not have sufficient transparency, liquidity, or accessibility.

 

How to do it in 5 simple steps:

 

At FlexFunds, we are specialists in the setup and issuance of investment vehicles through exchange-listed products (ETPs), for which we have designed a 5-step process that simplifies it:

 

Step 1. Customized assessment and design of the ETP:

A detailed study and data collection of the desired investment strategy is carried out.

 

Step 2. Due diligence and signing of the engagement letter:

Once the product structure is defined, the client’s due diligence is performed, and the process continues with signing the engagement letter. 

 

Step 3. ETP structuring:

The portfolio manager’s onboarding is performed in this step, and the essential documents, such as the “series memorandum,” are reviewed.

 

Step 4. Issuance and listing of the ETP:

The investment strategy is repackaged as a bankable asset thanks to generating an ISIN code that facilitates its distribution.

 

Step 5. The ETP is ready for trading through Euroclear:

Investors can access the ETP through their existing brokerage accounts from many custodians and private banking platforms.

 

Thanks to the features of instruments such as structured notes, FlexFunds can offer innovative, customized solutions that can allow you to diversify your investment portfolio and facilitate access to international investors.

 

Emilio Veiga Gil, Executive Vice President, FlexFunds 

 

Apex Group Appoints New Head of Dallas Office

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Pamela Goldminz, Head of Apex Dallas Office

Apex Group announces the appointment of Pamela Goldminz as Dallas Office Head.

Following organic growth and acquisitions in the Texas market, Apex Group is now one of the largest independent fund services providers by headcount in the State, according to the company’s release.

Goldminz joined Apex Group in Dallas in 2022, following the acquisition of Texas-based SandsPoint Capital Advisors LLC a provider of advisory and consultancy services to alternative asset managers, with specialism in the Real Estate market. Outsourced services include Fund Administration, Property Administration, Investment Accounting, Portfolio Analysis, Treasury Services & Expense Processing, and are supplemented by Consulting and Strategic Advisory across projects and business processes.

She was Managing Director at SandsPoint, having held senior roles during her nine years at the firm in Dallas and Irving, TX. She has over 20 years of experience in private equity, real estate and the financial services industry. Working for both private equity firms and private equity service organizations over the course of her career has given her a unique perspective and level of understanding of clients’ needs and challenges, along with the viable solutions to fulfil those needs.

Her previous experience includes JPMorgan Alternative Investment Services and JPMorgan Partners. Goldminz started her career in audit at KPMG and Ernst & Young.

Pamela Goldminz, Office Head, Dallas at Apex Group comments: “I look forward to leading Apex Group’s Dallas team as we continue to value our client relationships, supporting our long-term clients, and bringing our single-source solution to new clients. We continually evolve our solutions, to ensure that we can support our clients through one efficient and convenient relationship throughout their continued success and growth.”

Euronext Launches a Proposed Public Offer for Allfunds

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Allfunds Group plc confirms that it has received an unsolicited, indicative and conditional public offer proposal from Euronext N.V. for the entire issued and outstanding share capital of Allfunds Group plc at an offer price of EUR 8.75 for each Allfunds Group plc ordinary share payable as follows: EUR 5.69 in cash plus 0.04059 new Euronext N.V. shares.

Under the proposal, the number of new Euronext N.V. shares for each Allfunds Group plc ordinary share would be set by reference to the 1 week volume weighted average price of Euronext N.V. shares on the last trading day before the date of formal announcement of the offer in order for the price per Allfunds Group plc ordinary share to be EUR 8.75.

In addition, as part of the proposal, Euronext N.V. would also pay to Allfunds Group plc shareholders who tendered their shares in the offer a ticking fee per Allfunds Group plc share, corresponding to 5.5% per annum applied to the offer price from the date of the formal offer announcement to the earlier of: (i) the first settlement date of the offer (both inclusive); and (ii) 31 March 2024 (both inclusive). Under the proposal, the ticking fee would be payable in cash, Euronext N.V. shares or a mix of cash and Euronext N.V. shares at Euronext N.V.’s option.

Allfunds Group plc has been informed by Euronext N.V. that Euronext N.V. has been in discussions with Hellman & Friedman and BNP Paribas, together owning 46.4% of Allfunds Group plc’s share capital, to obtain their support for the offer. Allfunds Group plc has not been party to such discussions.

The Allfunds Group plc board is currently evaluating the offer proposal, which would be subject to a number of conditions. There can be no certainty that any transaction will be forthcoming nor as to the terms on which any such transaction may occur.

Further announcements will be made if and when appropriate.

This is a public announcement by Allfunds Group plc pursuant to section 17 paragraph 1 of the European Market Abuse Regulation (596/2014) and article 5, paragraph 1 of the Dutch Decree on Public Takeovers.

This public announcement does not constitute an offer, or any solicitation of any offer, to buy or subscribe for any securities.

 

Barclays Appoints New Co-Heads of Investment Banking

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Barclays announced that Taylor Wright and Cathal Deasy have been appointed Co-Heads of Investment Banking, effective 27 March and subject to regulatory approvals.

In their new roles, Mr. Wright and Mr. Deasy will jointly manage the business across coverage and product groups and will be tasked with deepening client relationships and dealmaking efforts around the world. They will report to Paul Compton, Global Head of Barclays’ Corporate & Investment Bank and President, Barclays Bank Plc, and will join the CIB Management Team.

“In their expanded and new roles, Taylor and Cathal will make a formidable team as we continue to progress building a resilient and diversified Corporate and Investment Banking franchise,” commented Compton. “Our strategy is fundamentally grounded in delivery for clients, and their leadership will best prepare Barclays for the coming decade of investment banking.”

Mr. Wright joined Barclays in 2019 as Co-Head of Americas Equity Capital Markets. He was appointed Global Co-Head of Capital Markets in July 2021, with shared oversight of and responsibility for the Leveraged Finance, Investment Grade Debt, Securitized Products, and Risk Solutions, Equity and Equity-linked businesses. Mr. Wright previously worked at Morgan Stanley.

Mr. Deasy was most recently Global Co-Head of M&A, and EMEA Co-Head of Investment Banking and Capital Markets, at Credit Suisse. During his tenure, he oversaw significant re-focusing and growth within M&A, particularly in Europe, where he was instrumental in leading some of the investment bank’s most important relationships. Prior to this, Mr. Deasy worked at Deutsche Bank and Merrill Lynch.

The Unified Managed Householding Is a Key Focus for Advisors in 2023

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As fee-based financial advice combined with financial planning becomes the industry standard for wealth managers, financial advisors must find new ways to differentiate their practice. According to the latest Cerulli Edge—U.S. Advisor Edition, aggregating client relationships on the household level is one way to achieve this objective, improving the client experience by creating more efficient tax outcomes and greater opportunities for portfolio customization.

The potential benefits of householding and the stronger outcomes it can create are apparent to wealth managers. According to Cerulli, 22% of wealth managers said consolidating to a unified managed household (UMH) is a significant priority, with half reporting it as a moderate priority for their firm moving forward. This comes as wealth managers continue to shift toward fee-based assets and away from transactional brokerage relationships and consolidate accounts from multiple sources.

The UMH is steps beyond the account-level aggregation of the unified managed account (UMA) and considers not just the client’s financial picture, but also that of their entire household. The UMH takes all assets, accounts, and holdings from a household and coordinates them to ensure the best possible financial return across the household.

“Householding gives financial advisors an additional opportunity for customization best suiting the needs of their clients while adding the tax savings clients desperately crave,” says Matt Belnap, associate director. “Advisors who can implement a household level view have a better chance of standing out from their peers and retaining client assets,” he adds.

The crux of the UMH is asset location, algorithmically determining the best place to allocate client assets. “This builds upon something many advisors already do in an ad hoc manner; for example, placing income-producing securities in qualified accounts to minimize taxes,” says Belnap. “By systematizing this process, and by combining that with other strategies such as tax-loss harvesting and intelligent rebalancing, householding through a UMH can create better outcomes for clients,” he concludes.

High yield fundamentals: weathering a slowdown

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Challenging economic conditions are setting the stage for an interesting year ahead. As the economy slows and the cycle ages, companies will likely face financial headwinds. Although firms are entering the year with solid balance sheets, can high yield issuers weather a downturn?

Solid fundamental starting point- while caution is warranted, we think many high yield companies are well-positioned to navigate a downturn given the solid fundamental starting point. In recent years, high yield companies diligently improved their balance sheets, resulting in the lowest leverage levels in more than a decade (Exhibit 1) and the highest interest coverage ratios in recent history. This fundamental improvement is further evidenced by the ongoing upgrade momentum with rising stars outpacing fallen angels. In addition, the credit quality composition of the market has improved, with the high yield market now being over 50% BBs and roughly 10% in CCCs and below. For context, prior to the great financial crisis, the high yield market included more than 20% in CCCs and below.

Heading into 2023, the global macroeconomic environment remains extremely uncertain. Higher and potentially rising interest rates, persistent inflation, elevated geopolitical risk, tight energy markets and the effects of an uncertain reopening in China are just a few of the top-of-mind worries.

These risks may well lead to further slowing of the US and developed market economies and create financial headwinds for many high yield companies. With a potential recession risk looming on the horizon, high yield companies will likely be facing slowing consumer demand and cutbacks in business investments—both of which could lead to declining revenues. Margins may contract as earnings come under pressure in the slowing economy. In addition, interest coverage ratios are likely to decline as coupon rates reset higher and interest costs increase, especially for issuers with floating rate loans. As a result, we believe fundamental improvement has peaked for many high yield companies.

Despite the cloudy macro outlook, we believe most high yield companies are well-positioned to navigate a slowdown. Balance sheets are generally in decent shape and credit metrics are not stretched for most companies. Additionally, there is no immediate maturity wall that presents a refinancing challenge to companies (Exhibit 2) and overall liquidity levels are good. During the year ahead, we expect that the high yield market will present compelling opportunities to invest in companies with attractive risk-return characteristics.

 

Tribune by Kevin Bakker, CFA and Ben Miller, CFA, co-heads of US High Yield at Aegon Asset Management.

 


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