Foto: Flazingo. GAM, propietaria de Julius Baer Funds, compra Taube Hodson Stonex
GAM, the pure-play asset manager that owns Julius Baer Funds, is to acquire THS, a global equity investment firm based in the UK, renowned for its successful, thematic, bottom-up and benchmark-agnostic investment approach.
At completion, the THS investment management business will transfer to GAM. The acquisition is expected to close in the third quarter of 2016, pending customary regulatory approvals. The investment team, led by the four principals Cato Stonex, Mark Evans, Robert Smithson and Ali Miremadi, will subsequently relocate to the GAM offices in London and their strategies will be marketed under the GAM brand. THS currently manages approximately GBP 1.78 billion of assets (CHF 2.5 billion) as at 31 March 2016
THS has a long track-record managing institutional mandates investing in global and European equities, following a long-term, unconstrained and active investment approach based on proprietary company research. THS has also been the sub-advisor to one of GAM’s oldest global equity strategies, launched in 1983.
Group CEO Alexander Friedman said: “With their proven track-record and deep expertise, the THS team is a great strategic and cultural fit for GAM and we are delighted that they have chosen to join us. We have a multi-decade relationship with the founders and this acquisition is consistent with the growth agenda we set out in 2015, which includes targeting opportunities that substantially deepen our global equity capabilities.”
THS Founding Partner Cato Stonex said: “We are excited to join GAM – one of our oldest clients and a firm with such an impressive track-record as a home for active investors. We think this is an excellent deal for our clients. GAM’s global client network and its operational infrastructure will allow us to remain focused on our investment priorities and to build on our strengths. We look forward to joining the team.”
According to Chi Lo, Senior Economist, Greater China, Hong Kong at BNP Paribas Investment Partners, concerns that an economic hard landing in China could force Beijing to massively devalue the renminbi have receded since the start of the year but remain in the background. “Such a development would send shockwaves through global financial markets. Some investors continue to wonder whether Beijing is losing control of its economy and currency.” He writes on his blog.
Lo mentions that traditional macroeconomic indicators, such as growth in industrial output, electricity consumption, freight volume and steel and cement output, do paint a hard-landing scenario for China by showing either anaemic growth rates or outright contraction. However, the new economy, represented by the service-based tertiary sector became the largest category of GDP in 2013. “This development suggests to me that creative destruction is underway. The traditional macroeconomic indicators have failed to capture the structural changes. The fact that China is going through a difficult transition from the old to the new economy with some setbacks in financial reforms does not necessarily spell an economic crisis.”
While the new economy is neither large enough nor strong enough to offset the contraction of the old economy, electricity consumption and railway transport have been growing in the new economy. Lo argues that there should be a policy-easing bias until economic momentum stabilises. He also mentions the setbacks in China’s financial reform, “notably the bursting of asset bubbles and a clumsy renminbi policy shift. All this has led to an exodus of capital recently. However, setbacks do not mean crises. Beijing is walking a fine balance between sustaining GDP growth and implementing structural reforms. The resultant creative destruction is dragging on growth and creating volatility. This situation should not be seen as a sign of Beijing losing control of the economy.”
What about the currency? Some market players have used the Impossible Trinity theorem to argue that with capital fleeing China, it is not going to be possible to maintain a stable renminbi and ease monetary policy at the same time. If Beijing wants to cut interest rates to stabilise domestic GDP growth, it would have to allow a sharp devaluation in the currency, the pessimists argue.
“However, the application of the Impossible Trinity analysis to China is flawed. I do not see signs of capital flight. Otherwise, one should have seen a significant depletion in domestic deposits, which has not been the case. More crucially, the Impossible Trinity is not as pressing a constraint on China as many have claimed. Despite the seemingly big strides that China has taken in recent years, its capital account is still relatively closed. Most of the liberalisation measures have been aimed at institutional and official institutions’ investments. Beijing has only been opening up the capital account in an asymmetric fashion by allowing capital inflows but still restricting capital outflows.”
Sure, China lost about USD 700 billion in currency reserves last year, despite a surplus in its basic surplus (current account balance + net foreign direct investment inflows). But a big chunk of the decline came from the valuation effect, Chinese companies repaying their foreign debt and a one-time transfer to recapitalise the policy banks (three new “policy” banks, the Agricultural Development Bank of China (ADBC), China Development Bank (CDB), and the Export-Import Bank of China (Chexim), were established in 1994 to take over the government-directed spending functions of the four state-owned commercial banks). “There is no denial that there are capital outflows from China, but they do not signify Beijng losing control of the renminbi. Since there is still no full capital account convertibility, China’s monetary policy will only be partly compromised if the People’s Bank of China wants to keep the control of the renminbi in the medium-term.” Lo concludes.
Advent International, one of the largest and most experienced global private equity investors, announced that Enrique Pani has joined the firm as a Managing Director in its Mexico City office. Enrique Pani will work alongside Luis Solórzano, head of Mexico for Advent, and 12 other investment professionals in the office. Advent has the largest dedicated private equity team in Latin America, with 41 investment professionals working from offices in Mexico City, Bogotá and São Paulo.
Prior to joining Advent, Enrique Pani was a Managing Director and Head of Investment Banking for Mexico at Bank of America Merrill Lynch (BAML). There he was responsible for managing the investment banking coverage and execution team based in Mexico City and was also a member of the BAML Management Committee.
Enrique Pani started his career as an equity research analyst and has over 20 years of investment banking experience in Mexico and New York. He established and was responsible for investment banking operations in Mexico at Deutsche Bank, BTG Pactual and, most recently, BAML. He has advised clients in the financial services, healthcare, retail and infrastructure sectors across Latin America and has raised more than USD 20 billion in capital for his clients.
“Enrique is a great addition to our firm as his broad experience and deep relationships in a number of our target sectors will benefit Advent as we continue to build on the local team’s achievements”, said Luis Solórzano, a Managing Director and Head of Mexico for Advent. “We have a 20-year presence in Mexico and continue to believe it is an attractive market for private equity. We look forward to welcoming Enrique to the team.”
Since opening its Mexico City office in 1996, Advent’s local team has invested in 25 companies in Mexico, the Caribbean and other Latin American and global markets. The team focuses on buyouts and growth equity investments in the firm’s five core sectors: business and financial services; healthcare; industrial, including infrastructure; retail, consumer and leisure, including education; and technology, media and telecom. Recent Mexican investments include; Viakem, a Mexico-based manufacturer of fine chemicals for the global agrochemical industry; Grupo Financiero Mifel, a Mexican mid-sized bank serving the mass-affluent retail segment and small and medium-sized companies; and InverCap Holdings, a Mexican mandatory pension fund manager.
“Advent is one of the leading private equity firms in Latin America, and I am excited to begin working with Luis and the team in Mexico as well as with Advent professionals throughout the region and worldwide,” said Enrique Pani. “Advent has a differentiated approach to investing and building value in Latin American companies, and I believe my prior experience and existing relationships will be quite complementary to this large and talented group.”
In the 20 years it has been operating in Latin America, Advent has raised more than USD 6 billion for investment in the region from institutional investors globally, including USD 2.1 billion raised in 2014 forLAPEF VI. LAPEF VI is the largest private equity fund ever raised for the region. Since 1996, the firm has invested in over 50 Latin American companies and fully realized its positions in 35 of those businesses.
Foto: Biblioteca nacional de España, Flickr, Creative Commons. Capital Group lanza su estrategia de renta variable estadounidense, Investment Company of America, en Europa
Capital Group, an active investment management firm with US$1.4 trillion of assets under management, has announced that it plans to launch its longest-established strategy, Investment Company of America (ICA), in Europe. Consistent with the plan announced in 2015 to provide European investors access to some of its most successful investment strategies, and following the launch of Capital Group New Perspective Fund (LUX) last year, Capital Group will make its flagship strategy from the US available to European investors in June 2016.
ICA will be launched in Europe as a Luxembourg-domiciled fund (UCITS) and will follow the same active, time-tested investment approach that has proved successful for more than 80 years. The new fund will be managed by the same investment team that manages the US strategy. Since its launch in 1934, the Capital Group ICA strategy has achieved a return of 12.9% per annum, compared with 10.7% for the S&P 500.
“The strategy’s research-driven, fundamental investment philosophy has remained consistent for eight decades with long-term investment horizons, valuation discipline and a focus on seasoned companies with an emphasis on future dividends. This has provided growth over different market cycles and has typically offered downside protection in depressed or volatile market conditions,” said Richard Carlyle, Investment Director.
“The ICA strategy can therefore be an attractive option for investors looking for long-term active exposure to US equities as part of a core equity portfolio, or looking to manage downside risk versus a passive investment approach.”
Hamish Forsyth, European President of Capital Group Companies Global, said “This new fund launch represents a further stage in our strategic plan to make available the best of Capital to European investors and to support the growth of our business activities across the region. We have had a very positive reaction from both institutions and financial intermediaries for our Capital Group New Perspective Fund (LUX), and believe that providing European investors with access to one of our largest and longest-standing strategies provides an important next step in this process.”
Capital Group has been serving investors in Europe since 1962, when the company opened its first ex-US office in Geneva. Capital Group employs more than 500 associates in Europe. It has offices and sales branches in Amsterdam, Frankfurt, Geneva, London, Luxembourg, Madrid, Milan and Zurich.
La gestora seguirá teniendo su sede en Róterdam.. Robeco da autonomía a su gestora separando sus actividades de las del holding financiero y con cambios en su cúpula
Robeco Groep N.V. will separate its activities into Robeco Institutional Asset Management B.V., which will have its own Supervisory Board and executive management to emphasize its position as an autonomous global asset manager, under the name Robeco, with its headquarters in Rotterdam, preserving the strong name and history, and Robeco Group (“RG”). The latter will be transformed from an operating company into a financial holding company.
The new corporate governance structure will further separate the holding activities of RG, and the asset management businesses of its subsidiaries: Boston Partners, Harbor Capital Advisors, Transtrend, RobecoSAM and Robeco. The new structure reflects current global industry and market trends, guaranteeing continued expertise in investments, distribution and client servicing.
Robeco will get its own dedicated Supervisory Board. The Supervisory Board of Robeco will consist of the following members: Jeroen Kremers (chairman), Jan Nooitgedagt and Gihan Ismail. Further members of the Supervisory Board will be announced in the near future. Both Jan Nooitgedagt and Jeroen Kremers serve as members of the Supervisory Board of Robeco Groep. Gihan Ismail has 20 years’ experience in the financial services sector and is currently executive director at Marine Capital Limited.
Day-to-day management remains with Leni Boeren, Roland Toppen, Peter Ferket, Ingo Ahrens and Karin van Baardwijk, who form the Executive Committee of Robeco. Leni Boeren will lead the transition to the new governance and remain a member of the team until the transition is completed. The executives all have deep roots and experience within the asset management sector and all members have served Robeco for many years already, ensuring stability and continuity for the new Robeco, meeting the challenges of the future in the best interests of our clients.
Makoto Inoue, President and Chief Executive Officer of ORIX Corporation: “Robeco employs absolutely world class investment talent. All members of the Executive Committee of Robeco have developed themselves through the ranks of Robeco, which clearly underpins the quality and talent available at Robeco. This new structure will allow for this talent to flourish and help Robeco to further expand on its strong foundation.”
Leni Boeren, who has been a member of the Management Board of Robeco Groep since 2005, will leave Robeco Groep once the transition is completed. Currently Leni Boeren is vice-chairman of the Group Management Board and holds several board positions at Robeco’s subsidiaries Boston Partners, Harbor Capital Advisors, Transtrend, Robeco Institutional Asset Management and RobecoSAM and is Vice-Chairman of the board of the Dutch Fund and Asset Management Association.
Leni Boeren: “It has been a privilege to have been with Robeco for almost twelve years. The company has an impressive 87 year history and I am confident that these changes mean that Robeco is well-placed to continue to meet clients’ needs by delivering superior investment returns. It was a great pleasure to work with so many passionate professionals worldwide. I also want to express my appreciation to our clients for the trust they have put in me over all these years.”
Makoto Inoue: “I am grateful to Leni for her commitment to Robeco Groep and the valuable contribution she has made to the strong growth of the company and its subsidiaries. She also has successfully led many transitions within the group over the years.”
As a financial holding company, RG will not perform any asset management activities. Subject to final regulatory approval, the Supervisory Board and the Management Board will be replaced by a simplified financial holding board chaired by Makoto Inoue.
As part of the new governance structure, the outgoing chairmen of the two boards, Bert Bruggink and David Steyn respectively, have stepped down and will join ORIX Group. The other members of the Supervisory Board of Robeco Groep will step down once the transition to the new governance is completed.
Ken Hsia, Investec - Foto cedida. Investec: “En Europa el viento de frente ha virado hasta convertirse en viento de cola”
Investec’s European Equity team is a part of the broader 4Factor investment team, one of seven distinct investment capabilities at Investec Asset Management. The 4Factor team is responsible for between $30-35 billion dollars of client assets. Ken Hsia, Lead Portfolio Manager of the European Equity Fund, summarized this investment process during his recent visit to Miami.
“We believe that equity markets are inefficient by definition, but the level of efficiency varies depending on the headlines,” he explains. Right now, investors are hearing news on the slowdown, the United States’ presidential election, or the referendum in the UK, the type of news that grabs their attention and which has created volatility in recent times, causing major inefficiencies in the markets. “As securities’ selectors, our job is to be able to exploit these inefficiencies.”
Why do these inefficiencies exist? “Due to market participants’ behavior errors; there are certain patterns that, when it comes to investing, cause investors to buy expensive and sell cheap” replies Hsia, adding: “We believe that by doing things right you can achieve better results consistently over time.”
To achieve this objective, they apply− from a benchmark, style, and capitalization agnosticapproach− their “4Factor” process, which leads them to analyze four different aspects: high quality− those companies that have created value for their shareholders in the past−, attractive valuation−, those that are cheaper than the average in terms of cash flow return on investment and asset based valuations−; improved operating results−, those that are seeing their profit forecasts revised by analysts−, and increasing attention from investors−those starting an upward trend−.
The first two, both traditional ones, are the ones which help to find high quality corporations at attractive valuations, and the last two, related to behaviors, the ones which help to choose the right moment to take or leave positions and to avoid behavior errors.
Why Europe, and why now?
Corporate revenues and profits will grow, thanks to commodities.
European markets, which Hsia considers to be at an early stage of the profit cycle, have not had any returns in recent months to evidence the start of the recovery to which the fund manager refers, but he explains that the fall in commodity prices during the last 12-to 18 months (e.g. oil has dropped from more than $ 100 a barrel to oscillate between 35 and 45, and iron has dropped from over $ 100 per ton to between $40 and $50) is weighing heavily on the ROEs. And whether or not they appear in his own portfolio, Royal Dutch, Total, BHP Billiton, or other securities with exposure to commodities, weighed on the fund’s benchmark- the MSCI Europe.
“The two most interesting facts are that for 2017 analysts expect an increase in earnings in European corporations of an ample double-digit, and that commodities will shift from curbing their growth, to propelling it,” while during 2014 and 2015, the underlying trend in earnings per share (EPS), excluding commodities, approached 5%, and for 2016 the general consensus places it at between 4 and 6%.
There are signs of recovery.
“We have identified two cyclical sectors that provide some recovery signs”. On the one hand, car sales, which are a clear indicator of the confidence of investors, have been recovering since 2013, and in Europe grew by 8% in the first quarter of this year, although with differences between countries. Although still at a level of 15% below their previous highs, the fund manager is confident that these will once again reach their previous peaks, as car sales have done in the US during this recovery; the other sector with telltale signs is the cement industry. For example, the greatest difference between this product’s peak and lowest consumption rates in Spain was 80%, and 50% in Italy, both of those markets are now in recovery.
Given the slow recovery process−which frustrates some investors− and to provide depth to the study, the team looks at each sector in detail, therefore, Hsia speaks, of commercial real estate, for example, which, especially in southern European countries, is in the hands of private families or insurance companies, which have received no incentive to reinvest. “Energy efficiency in Italy or Spain is not optimal, as only 15% of office complexes obtained the highest (“A”) rating, while in France and Germany more than 30% have achieved that rating, with up to 40% in the United Kingdom, so it is necessary to improve the system” But we’re also seeing actions that will change the sector, such as that regulation in Italy is shifting from favoring property owners to favoring tenants, and the emergence of REITS in Europe, which are facilitating the inflow of capital to carry out these improvements in the sector.
These are just some examples showing recovery, says the fund manager, who admits to having mixed feelings, because, while he wishes improvement for that environment, which in turn favors the whole world, he believes that it’s best for investors if recovery doesn’t come too fast because “when economic growth is very strong there is more competition.”
Balance sheets are growing.
Corporate balance sheets are in recovery and much healthier than in 2008-2009, thanks to improved operating cash flows that the gradual growth of the economy and strengthening demand have brought about, as well as the fact that some companies no longer rely on high future economic growth and are streamlining their costs and cleaning up their balance sheets, which will also create more value. Should we expect more mass layoffs? Not necessarily, says the strategist, cost rationalization can also be achieved by an improvement in the production process, acquisitions, etc. We think that unemployment should fall.
Valuations remain attractive
With a cyclically adjusted P/E ratio 15x earnings and a historical average of between 20 and 21, the opportunity seems clear, and the strategist is confident that it will return to maximum levels. Another favorable factor is the lack of issuance of sovereign bonds by the ECB, which will cause the flow of investment into other types of assets, such as equities.
“In short, there are signs of growth, sometimes frustratingly slow, but that is what increases the difference between winners and losers.”
“In an environment such as this, we see that there are sectors whose indicators improve, such as the industrial, although in our portfolio it remains underweight in relation to the benchmark; in this, we have included Siemens, which is shifting from obsolete businesses to creating a new supply line more tailored to current consumer requirements. Other sectors we like are information technology, the most overweight in our portfolio, and consumer discretionary. Not so with consumer staples, where we don’t see any value, or healthcare.”
Regarding the financial sector, adds Hsia, in which we are overweight by 2% in relation to the benchmark, we are pragmatic about its enormous volatility, but we like FinTech, banks focused on retail business in countries where consolidation has already occurred, such as France, Benelux and the United Kingdom, and not so much in those in which there is still much fragmentation− Germany, Italy and Spain−, because, although we see some consolidation, we can’t see any creation of shareholder value. Nor do we like investment banks in Europe and we are underweight in insurance and real estate.
By country, the UK, which although accounting for 24.7% of its assets− with much diversification−, is 5% underweight; France is 6% overweight, and Germany, by slightly higher than 6%, is the one he likes best. “When we saw the first ECB rate cut, we believed that there would be opportunity in Germany, but then Japan, its largest competitor, lowered rates and this was circumvented. However, we do find good ideas now.
Seizing the opportunity that Hsia lives in London, we asked about the sectors which could be most affected if the referendum to be held in June in UK propels a “disengagement” from the EU. He doesn’t seem worried about this and points out that, large corporations have a “B” plan and perhaps one of the most affected would be agriculture, but neither banks nor other big companies worry him because “they hopefully will have enough time, and have the resources to prepare their structure for an environment which could change.”
Once again, he summarizes: “The biggest driver of European equities will be corporate earnings, as the headwind has turned to become a tailwind”.
April was far from the cruelest month for investors. Most will have felt sentiment improve behind equities, high-yield bonds, emerging markets and commodities. But did they also notice how well European assets performed?
Followers of CIO Perspectives will be used to our “show-me-the-money” theme—the difficulty of building conviction on big market exposures until the fundamental picture clarifies. The global economy is in “two steps forward, one step back” mode, and no one region can establish clear leadership. The rising dollar made life tough for companies in the U.S. even as its data strengthened. Now that economic releases appear to be softening, it may be time to look more closely at Europe.
Time to Dig Below Europe’s Headlines We’ll turn to performance later. For now, let’s acknowledge how easy it is to focus on headlines and imagine Europe is in permanent crisis, awash with geopolitical risk. Dig a little deeper, however, and you can find positives in its economies and favorable positioning among its companies.
Last week saw rare good news around Greece, for example. Its parliament approved reforms with little drama, triggering a bailout review that should release needed funds and potentially open up discussions on debt relief.
A week earlier, Eurozone GDP growth surprised on the upside just as the U.S. posted its slowest quarterly growth for two years. On Friday, Germany gave us a strong GDP print. Manufacturing data out of Europe has been mixed, as it has from the U.S., but it’s encouraging to see Italy and Spain exceeding expectations. Europe’s unemployment problem remains severe, but recent jobless claims, participation rates and non-farm payrolls data remind us it’s not all clear sailing in the U.S., either.
Of course, this is all relative. Europe’s 0.5% growth in Q1 was the same as the U.S.’s. The appetite to restructure Greek debt still isn’t there. Industrial production in Germany, France and the U.K. is weakening. Inflation is nonexistent.
But the European opportunity isn’t really a big macro call. It’s about a series of factors lining up behind the investment case for corporate Europe.
European Companies Appear Well Positioned
European companies tend to benefit from lower oil prices. They have more exposure to emerging markets, where sentiment may be improving. Eurozone money supply has been growing strongly, and there was further stimulus from the ECB this year.
That stimulus included a commitment to buy corporate bonds, which is creating a wave of new euro issuance: Almost €19 billion came to market last Wednesday alone. That leverage could be problematic in the long term, but in the meantime it sends a message that liquidity is abundant and profitable investments may be available.
That would be encouraging because European companies have much more room to improve earnings than their U.S. counterparts. Corporate profits are back where they were in 2010, having never regained pre-crisis levels. By contrast U.S. profits peaked in 2014 and have declined ever since.
Performance in April Was Encouraging
The turnaround isn’t underway yet: With the Q1 earnings season almost done, S&P 500 earnings per share are down just over 5% year-over-year; in Europe, the Stoxx 600 EPS is down 21%, and the consensus for 2016 EPS growth is weakening.
Nonetheless, my equity-focused colleagues are looking beyond the U.S. for good reason. Let’s look at those performance numbers.
Year-to-date, the worst-performing markets still include the Stoxx 600, European banks, and Italian and German equities (alongside China and Japan). But the story was very different in April, when Spain was up 4%, Italy 3%, and the S&P 500 was flat. For U.S. dollar investors, the results were even better—in fact, Spanish equities ended April in positive territory, year-to-date, against the greenback.
In a world where clear opportunities are few and far between, European stocks could well be a source of compelling long-term value—and markets may now be recognizing some of that value.
Neuberger Berman’s CIO insight column by Erik L. Knutzen
CC-BY-SA-2.0, FlickrFoto: fielperson / Pixabay. Maitland: Para algunos contribuyentes el CRS ya está "vivo"; para otros es inminente
The Common Reporting Standard (CRS) is a new international system for the automatic exchange of tax information promoted by the Organisation for Economic Cooperation and Development (OECD) and modelled on the United States’ Foreign Account Tax Compliance Act (FATCA). For some taxpayers the CRS is already “live”; for others it is imminent.
While FATCA focused, and continues to focus, only on US taxpayers, the CRS potentially involves reporting on residents of any country that has signed up to the CRS where those residents, or an entity deemed “controlled” by them, holds a “financial account” in another country that has also signed up to the CRS.
Approximately 100 countries have signed up so far. The full list can be seen on the OECD website. Approximately 56 of those who have signed up so far are so-called early adopters, which means that financial accounts held with financial institutions in those countries as of 31 December 2015, and new accounts opened after that date, will eventually be the subject of reporting. Although that reporting may only start happening in 2017 with reporting by later adopters starting a year later, residents of participating jurisdictions should already be taking steps to understand what the CRS will mean for them in concrete terms. Residents of countries that have not yet committed to apply the CRS should be considering the impact of their countries’ eventually doing so.
For example, it is noteworthy that despite Brazil not being in the group of Early Adopters, if a Brazilian has assets (bank accounts, investment funds, etc.) held in any jurisdiction of the Early Adopters group, their tax information will be reported in the first half of 2017.
The international political climate has been significantly affected by the revelations arising from the leak of the “Panama Papers”. In this environment, the reality is that every individual who has any international investment in any form and direct or indirect, needs to get to grips with whether or not they may be the subject of reporting and what the consequences would be.
One of the side-effects of the CRS has been the introduction by a number of countries of an amnesty or voluntary disclosure programme so as to enable their taxpayers to regularise their tax or exchange control position in relation to assets in foreign accounts. A number of people have embarked on such a regularisation process in advance of the inevitable flow of tax-related information to their tax authorities. One might be tempted to take the view that, having gone through such a process, or at least having committed to do so, the eventual reporting of financial information to one’s tax authority becomes of secondary importance. Taking such a view would be unwise as the level of reporting may well go beyond what is strictly necessary for purposes of tax compliance and have other consequences for the individuals concerned.
The trigger is the existence of “financial accounts” As the existence of a “financial account” is the starting point for potential reporting, the critical thing each resident of a CRS jurisdiction must understand is whether one is the holder of, or a person deemed to be controlling, a “financial account”. The term “financial account” is a much wider concept than perhaps one might imagine. Up until now, only US taxpayers have been obliged to get to grips with the full meaning of the term.
Even if a taxpayer successfully completes a particular regularisation process or even if their tax affairs always were entirely compliant, that does not mean that the impact of the CRS ceases to be of further concern. It will not be uncommon for information reported under the CRS to be surprising and irrelevant to a person’s tax affairs. Thus, in all cases it will be important to understand whether one will be treated as the holder or controller of a “financial account”.
“Financial accounts” in trust structures
It will come as no surprise for individuals holding a bank account or an interest in an investment fund in their own name that they hold a financial account. But individuals with some sort of involvement with a trust may find themselves subject to reporting as, believe it or not, a trust in many cases will be a financial institution and the following people will be regarded as a having a financial account with a trust:
Settlors, even if the trust is irrevocable – and, while we consider the position being taken by the OECD to be incorrect, the value of that account reported against the name of the settlor may be the entire value of the trust. In addition, the OECD has even indicated that it is considering whether a settlor who is dead should continue to be the subject of reporting!
Protectors, where their powers are such as to give them ultimate effective control over the trust, a not uncommon situation. Again, the value of the account reported may be the entire value of the trust, even where the protector is excluded from benefit. Let us consider the case of a person who, while living in the UK, was appointed as protector, and then takes retirement in France while remaining the protector. It is likely that the French tax administration will be very interested in someone who is considered to be in control of a trust that holds significant assets and whose value would give rise to a significant French net wealth tax charge.
Vested beneficiaries and, in the years in which a discretionary award is made, also discretionary beneficiaries. In the latter case, only the value of the award would be reported as the account value.
Underlying companies of trusts – another layer of reporting
The position is more complex where a financial account, such as a bank or investment account, is held by an underlying company of a trust. The existence of this additional financial account may result in another layer of reporting, in addition to the reporting on the trust. This is because the bank or investment fund may well need to identify the controlling persons of the underlying company and that in turn may require an examination of the controlling persons of the trust that is the sole shareholder of the company. The controlling persons are not the same as the financial account holders in the trust. The following are potentially affected:
Settlors – this time the reported amount will be limited to the value of the account of the underlying company in question; but it will mean that both the trust and the bank or fund will be reporting on the same person.
Protectors – this time it is irrelevant what powers of control are given to the protector in question as protectors are, by definition, controlling persons even if they do not exercise control.
Trustees – and if the trustee is a corporate trustee, this will involve a further enquiry as to who the controlling person of the trustee is, which may in turn result in the disclosure of its senior managing official.
Vested beneficiaries and discretionary beneficiaries – but in this case the latter may be treated as controlling persons even if they do not receive an award.
Potentially anybody else that the bank or fund might consider to be the beneficial owner for anti-money laundering purposes.
Bear in mind that the complexities of reporting will increase as the complexity of the structure increases, including where there are multiple trusts involved, as well as trusts with individuals or private trust companies as trustees.
The key for holders of financial accounts, and persons who may be regarded as “controlling persons” of a company, is to recognise well in advance where they may be subject to reporting. Based on that assessment, consideration can be given in good time to dealing with the consequences.
Column by Andrew Knight and Anthony Markham. If you have any queries about this column, please contact Benjamin Reid
Pro-invest Group, a Private Equity Real Estate investment firm, announced on Monday the signing of a fund administration agreement with global independent fund administrator, Apex Fund Services. The partnership will deliver Pro-invest Group with the specialist private equity real estate fund accounting, regulatory reporting and middle office support services required to provide the required infrastructure and support investments.
Apex’s global presence and breath of service capabilities spanning the full value chain of a fund will ensure Pro-invest is supported by administrative resources that enable them to deliver cross-border services to their clients. With $300m (AUD) in committed capital, Pro-invest’s vision to provide tailored products to clients from Europe, the Middle East, Asia and North America will be reinforced by Apex’s local office presence and expertise in these regions.
Ronald Barrott, Chief Executive Officer, Pro-invest Group said, “Pro-invest Group recently reached a significant milestone through the opening of Australia’s first Holiday Inn Express hotel in March this year. At this important stage in our growth and success, it is essential that we work with an administrator who understands our business model but also more importantly our guiding principles of trust, integrity and commitment. Apex and Pro-invest have a shared vision in this area and Apex’s approach to service provision echoes our core values. As we look to capitalise on unique investment opportunities for our clients, we need flexible service providers who can evolve along with us. This partnership will allow us to confidently focus on our investment mission, whilst being operationally supported by qualified experts to achieve our growth goals.”
Srikumar TE, Managing Director at Apex Fund Services APAC, said: “We are delighted to be working with Pro-invest Group at this time. The flexible nature of Apex’s approach to service provision makes us ideally suited to administer a private equity and real estate fund of this nature. We are fully invested in supporting Pro-invest’s mandate to deliver tailor-made services and investment opportunities to clients. As an independent provider we have the ability to align our solutions and support services to robustly support real estate investments. Apex has experienced 35% growth in private equity and real estate clients over the past year, and we now host eight private equity and real estate centres of excellence across the group. We have built a focused and flexible solution to support Pro-invest with strong internal controls and experienced staff to ensure their commitment to achieving success is continually realised.”
Foto: Windell Oskay
. UBS toma una participación en SigFig, con quien sella una alianza estratégica para desarrollar tecnología
UBS Wealth Management Americas (WMA) has made an equity investment in SigFig, an independent San-Francisco-based firm wealth management technology company. Also, they have agreed to form a strategic allianceto develop financial technology for UBS WMA, its financial advisors and their clients. Additionally, both companies will create a jointAdvisor Technology Research and Innovation Lab, where the companies will continually collaborate on new wealth management technology tools. The companies envision the lab as a forum where financial advisors, product experts and technologists can join with SigFig’s experts in digital technologies and design to develop leading technology capabilities for UBS WMA and its clients.
As part of this strategic alliance, the WM technology company will create and customize digital tools and services for the America´s division of the swiss bank´s 7,000 advisors that will complement their expertise and enhance their clients’ digital experience. This platform will improve the ability of the advisors to efficiently provide advice on assets held at the bank and other institutions, a critical factor in providing truly personalized financial advice across the complete range of client needs.
