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Gramercy Funds Management Hires Sovereign Economist

Gramercy Funds Management contrata a una especialista en análisis de riesgo soberano — Wikimedia CommonsPhoto: Colin. Gramercy Funds Management Hires Sovereign Economist

Gramercy Funds Management has announced the appointment of Sarah Glendon to the new position of Senior Vice President, Sovereign Economist. Glendon’s emerging markets sovereign risk expertise will enhance Gramercy’s ability to identify and interpret global market trends and movements, as well as their underlying influencing factors. Her addition brings the credit research team to 15 analysts.

“Sarah’s insight into the short- and long-term impact that global market trends have on emerging markets credit will strengthen our overall investment capabilities providing a measurable benefit to our clients,” said Robert Koenigsberger, Gramercy’s Managing Partner, Founder and Chief Investment Officer.

“I am delighted to be joining a leading emerging markets team that recognizes the importance of understanding sovereign dynamics when investing in emerging markets sovereign and corporate credits,” said Glendon.

Prior to joining Gramercy, Glendon was a Senior Analyst and Vice President in Moody’s Sovereign Risk Group where she served as a lead analyst on the Latin American Sovereign Team. In this capacity, she published research related to the credit quality of numerous sovereigns and travelled regularly to the countries within her scope of geographic coverage, meeting with government officials and private sector representatives.

“We are excited by the wealth of knowledge that Sarah brings to Gramercy and are confident that her public and private sector network within emerging markets will benefit our alternatives and long-only clients,” added David Herzberg, Partner and Head of Corporate Research.

Before Moody’s, Glendon was a Sovereign Analyst in both the Asset Management and Corporate R&D Groups at AIG. Glendon received her Bachelor’s Degree in International Studies from Middlebury College, graduating cum laude. She received her Master’s Degree in International Economics/Latin American Studies from Johns Hopkins University and she was awarded the G. Donald Johnston Fellowship for academic excellence in Latin American Studies.

The European Asset Management Industry Plays a Crucial and Growing Role in Financing the ‘Real Economy’

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Based on the staff costs, taxes paid and profits of the industry, it is estimated that the European asset management industry contributes an average of 0.35% per year to European GDP and has very significant potential to fill the gap left by banks in providing finance to European economy, according to Societal and Economic Impacts of the European Asset Management Industry, a report by Jens Hagendorff, Professor of Finance & Investment at the University of Edinburgh, sponsored by EY, and with contributions from EFAMA.

The European asset management industry is large, with assets under management of over 115% of European GDP (or nearly €17 trillion). It directly employs around 95,000 individuals across Europe and is estimated to indirectly employ 530,000 full-time equivalents. The value added is particularly large in the UK, where it contributes 1% of GDP per annum, and in France, where it contributes 0.5% of GDP per annum. In absolute terms, the figures are also large – across Europe the report estimates that yearly value added of the industry is €50b.

Roy Stockell, Wealth & Asset Management Leader for EMEIA at EY, says: “What makes the size of the industry particularly noteworthy is the rate at which it is growing. Comparing OECD data for the UK in 1980 against comparable data for today shows that the industry has grown six-fold in little more than 30 years. This is largely because populations have become larger, older and wealthier and this trend shows no sign of slowing. Asset management is a European success story. Policymakers need to recognize the potential of the asset management industry to play a larger role in financing the ‘real economy’.”

Asset managers are already key to the financing of the economy

In 2012, the asset management industry held debt securities issued by euro area residents worth €4 trillion. This amounted to 23% of all debt securities outstanding at the time and corresponds to 32% of the value of euro area bank lending. The ratio increases to 43% if mortgage lending is excluded from bank lending figures.

The figures are particularly high in the UK where the debt securities managed by the industry correspond to 26% of all debt securities, but 82% of bank lending and 87% of bank lending excluding mortgages.

The report also considers equity financing. In 2012, European asset managers managed equity values at €1,374b, which corresponds to 31% of the market value of euro area listed firms and nearly 40% of the free float of European listed firms.

Jens Hagendorff, Professor of Finance & Investment at the University of Edinburgh and author of the report says: “Long-term savings and risk management are at the heart of what the industry provides, which makes it suitable to provide long-term finance to European corporations. As such, the industry provides a crucial link between investors and the needs of the real economy.

“It also should be noted that the European asset management industry does not attract a costly bailout guarantee and can therefore offer financing services in a more cost-efficient way than banks, generating a large saving for society.”

The industry acts as a steward of Europe’s corporate landscape

The report estimates that nearly €500b of the value of the European equity market is due to the role European asset managers play in improving the corporate governance of the firms they invest in.

Christian Dargnat, President of European Fund and Asset Management Association, commenting on the report, says: “We are very supportive of research initiatives such as the one carried out by this report, as they are crucial tools to communicate better on how our industry meets important needs of European societies.

“The evaluation of how we, asset managers, have a significant and positive impact on the European economy bears strong significance for the role we have to play in the financing of this economy.

“Policymakers, the media, peers and the public equally need to be made aware of the potential we can bring to this crucial goal —which ranks high in the agenda of both international and European top-level regulating bodies.”

You can access the full report here.

BNY Mellon Highlights Differences Between Deflation, Disinflation and Lowflation

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Despite sluggish economic growth in recent years, BNY Mellon’s 2015 Outlook is for a prolonged global and U.S. economic expansion, according to BNY Mellon Chief Economist Richard Hoey. Stronger future growth should reflect a fading of drags on growth rather than new sources of strength says Hoey in his Economic Update entitled, “Outlook 2015.”

“Following three years of global growth near 3% on the IMF measure, we expect a somewhat faster pace of global growth in 2015, given the lagged benefit of low interest rates and the effect of low energy prices,” Hoey says. “Given the downward shift in trend growth in China, we expect the developing economies to expand at about the same pace in 2015 as in 2014.”

“With the fiscal drag fading, the cyclical pace of U.S. economic expansion is now shifting higher,” Hoey continues. “A somewhat similar pattern has emerged in the UK, although more fiscal tightening lies ahead. It is notable that the labor markets of these two countries are among the most flexible in the developed world, which appears to have fostered a combination of strong job growth and postponed wage inflation.”

Hoey cites that due to the slow pace of global growth, there has been concern about deflation, disinflation and lowflation. (Deflation is a pattern of declining prices, disinflation is a downward shift in the pace of positive inflation and lowflation is positive inflation persisting at a pace only slightly above zero.)

“We make a distinction between ‘bad deflation‘ due to a collapse in demand, ‘capacity hangover deflation‘ due to past overexpansion of capacity and ‘good deflation‘ attributable to successful technological innovation,” Hoey says. “We believe that the oil and gas sector is an instance of ‘good deflation,’ as technological innovation has sharply reduced the cost of producing oil and gas in the U.S. The U.S. energy service companies are global leaders of technological innovation in the energy sector. We regard the recent weakness in energy prices as a symptom of successful technological innovation rather than as a signal of a weakening global economy.”

Other report highlights include:

Japanese Expansion Sustainable but Sluggish– Stating that Japan was “caught in a stagnant equilibrium for two decades,” Hoey says that Japanese policy should stimulate a moderate cyclical expansion through low real interest rates.
China Economy a Crucial Uncertainty for 2015 – Hoey states that the deceleration in Chinese economic growth is not cyclical but structural, due to the combination of a slowdown in the growth of its labor force and the need to correct past credit and property excesses. Hoey thinks that China is beginning a transition from a double-digit trend growth rate in the past to a sustainable growth rate near 6% in the future.
Sustained European Expansion in 2015, 2016 and 2017 – While Hoey cites adverse demographics and relative energy prices, as well as a badly designed euro currency system contributing to a sluggish long-term outlook for Europe, Hoey is cyclically more positive about European prospects for the near term and expects moderate but sustained European expansion in 2015, 2016 and 2017.
U.S. Economy “Three-for-Three” Growth Acceleration – Hoey believes that the U.S. economy has just made an upward shift from a half-decade of expansion at a real GDP growth rate slightly above 2% to three years of 3% real GDP growth. “This new “three-for-three” growth acceleration should be due largely to a fading of the persistent drag from the government sector over the last half-decade,” Hoey says. Hoey also says that over the next three years, he expects U.S. real GDP growth to accelerate to about 3% and nominal GDP growth (real GDP growth plus inflation) to accelerate to about 5%. He also expects this acceleration of real and nominal economic growth to contribute to a multiyear uptrend in U.S. interest rates.

“We believe that U.S. monetary policy will be very supportive of economic expansion for the next several years,” Hoey says. “With inflation below the Fed’s target and some slack remaining in the labor market, both parts of the Fed’s dual mandate support stimulative monetary policy.” “Since we believe that the U.S. economy is not currently very inflation-prone, we would expect a monetary policy fully supportive of economic expansion in 2015 and 2016, with the need to shift to a truly restrictive policy postponed until 2017 or 2018, after the Presidential election of 2016,” Hoey concluded.

Gramercy Property Trust Closes a €350mn Venture for Single-Tenant Net Leased Assets in Europe

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Gramercy Property Trust has announced, along with several of its investment partners, the closing of a €350 million venture targeting single-tenant net leased assets and sale-leaseback opportunities across Europe, and the simultaneous acquisition of ThreadGreen Europe Limited, an existing property investment and asset management platform.

Gramercy Europe is a joint venture among the Company and investment entities managed by EJF Capital LLC, Fir Tree Partners and Senator Investment Group LP, along with certain other investors. Gramercy Europe will invest predominantly in single-tenant industrial, office and specialty retail assets in Germany, the Netherlands, the Nordic region, the United Kingdom and other targeted European countries. The total equity capital available to Gramercy Europe is €350 million, comprised of an initial commitment of €250 million of equity from Gramercy and the Founding Investors as well as an additional capital accordion of €100 million. Gramercy has a total commitment of €50 million to the venture. Simultaneously with the closing of the venture, Lindsay Sparacino of EJF, Jarret Cohen of Fir Tree and Michael Simanovsky of Senator will join the board of directors of Gramercy Europe, together with certain representatives appointed by Gramercy, including Gordon F. DuGan.

Simultaneous with the closing of Gramercy Europe, the Company is purchasing all of the assets of ThreadGreen Europe Limited who will provide the day-to-day management of the investment vehicle. With the ThreadGreen purchase, Gramercy has a fully-integrated presence in Europe, including investment personnel, asset management capability as well as all support functions in those areas. Principals of the Company and ThreadGreen worked together for a number of years at W. P. Carey & Co., where Alistair Calvert, Managing Director of ThreadGreen, along with Michael Heal, Director of ThreadGreen, ran the London office of W. P. Carey from December 2004 to June 2006. ThreadGreen currently manages approximately €210 million in single-tenant industrial and office assets located in Germany, Finland and Switzerland. Gramercy’s management along with the ThreadGreen principals have overseen investments in excess of $3 billion of single-tenant properties in Europe over a greater than 10-year period.

Gordon F. DuGan, Chief Executive Officer of Gramercy Property Trust, stated, “We are very excited about the opportunity to buy single-tenant assets with long, inflation-indexed leases throughout Europe at high current yields. We believe this new investment vehicle gives Gramercy shareholders access to European net leased assets in scale and in partnership with deep-pocketed and sophisticated partners. Gramercy will have a fully-integrated team on the ground that we have worked with in the past and a strategy that I have many years of experience with. We hope to replicate the success we have had with Gramercy Property Trust with our effort on Gramercy Europe.”

Morgan Stanley & Co. LLC served as the Company’s financial advisor in connection with the transaction.

Germany Leads European Mutual Fund Inflows

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The European funds industry enjoyed net inflows of only €0.4bn into long-term mutual funds for October 2014, according to Lipper Thomson Reuters.

Single fund market flows for long-term funds showed a mixed but positive picture for October; 22 of the 33 markets covered in Lipper’s report showed net inflows. The single market with the highest net inflows for October was Germany (+€2.4bn), followed by Italy (+ €1.9bn) and Belgium (+€0.8bn). Meanwhile, the international fund hubs Luxembourg and Ireland (-€5.8bn), France (-€1.5bn), and Denmark (-€0.5bn) stood on the other side.

Mixed-asset products—with estimated net inflows of €7.7bn—were the best selling asset class overall for October.

BlackRock, with net sales of €4bn, was the best selling group of long-term funds for October, ahead of Vanguard (+€2.2bn) and Pioneer (+€1.6bn).

Provisional figures for Luxembourg- and Ireland-domiciled funds suggest equity funds, with estimated net inflows of around €17.6bn, will be the best selling products for November.

Man Group Announces Acquisition of Silvermine Capital Management

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Man Group plc announced this week that it has entered into a conditional agreement to acquire Silvermine Capital Management LLC, a Connecticut-based leveraged loan manager with $3.8 billion of funds under management across nine active collateralised loan obligation (“CLO”) structures as of 30 November 2014. The acquisition is expected to complete in the first quarter of 2015, subject to certain approvals being obtained.

Silvermine is wholly-owned by the firm’s founders and senior staff members and is based in Stamford, Connecticut. The team of 17 focuses exclusively on managing US levered credit portfolios and, since inception in 2005, has executed 16 separate transactions totalling $6.7 billion.

Upon completion of the Acquisition, Silvermine will be integrated into Man GLG and will operate under the Man GLG Silvermine name which will complement Man GLG’s existing credit business. Silvermine’s team will remain in place under the leadership of two of the firm’s founders, G. Steven Kalin and Richard F. Kurth, who will continue to work alongside the other co-founders Aaron Meyer and Jonathan Marks.

The Acquisition follows Man Group’s recent acquisitions in the US of Pine Grove Asset Management LLC, Numeric Holdings LLC and the Merrill Lynch Alternative Investments LLC fund of hedge fund portfolio.

The regulatory capital requirement associated with the Acquisition is expected to be approximately $45 million. As of 30 November 2014, Silvermine’s run rate management fee revenues and PBT were $17 million and $8 million respectively, based on $3.8 billion in funds under management.

Mark Jones, co-CEO of Man GLG, stated, “The acquisition of Silvermine will transform our existing credit business and position us to benefit from strong demand for US CLOs and other credit strategies. Silvermine is a highly respected, specialised business with an excellent track record of outperformance. As part of Man Group, Silvermine will benefit from our world class infrastructure, distribution and access to capital and we are confident that this acquisition will bring meaningful advantages to our investors by further diversifying our offering.”

Steven Kalin and Richard Kurth, Managing Directors of Silvermine, commented, “We’re excited about the opportunities that joining Man Group will bring to us and to our investors. We have always been focused on identifying opportunities in the credit space that, given their risk/return proposition, deliver attractive performance for our clients. We are pleased to be joining forces with an organisation that not only embraces our firm’s entrepreneurial spirit, but plans to help foster that spirit and collaborate with us to further grow the business”.

DAB Bank Acquisition: a Major Step in the Development of BNP Paribas in Germany

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BNP Paribas has closed the acquisition of 81.4% stake in DAB Bank AG from Unicredit AG, together with the voluntary offer to minority shareholders. Following this step, BNP Paribas now controls 91.7% of DAB Bank’s capital and announces its intention to perform a squeeze-out on the remaining shares. Through this acquisition BNP Paribas strongly boosts its retail presence in Germany.

With DAB Bank and Consorsbank, BNP Paribas ranks fifth digital bank in Germany serving 1.4 million clients and first online broker with 8.7 million executed trades for the first nine months of the year. This acquisition also provides foundation for retail business in Austria, where the Group intends to develop direktanlage.at into a full-blown digital retail bank. Overall, at the end of September 2014, the total deposits of Consorsbank and DAB Bank reached 17Bn EUR and total assets under management 47Bn EUR.

“This operation once more confirms our strategic ambition to build a long term franchise in Germany, in line with our development plan in the Retail, the Corporate and the Institutional segments. DAB now joining our set-up in Germany represents a key contribution to grow our clients’ and deposits’ base serving the German economy. The combined client base puts us in a position to come close to the top 3 online banks in the country.” says Camille Fohl, Head of BNP Paribas Germany and Chairman of the Management Board in Germany.

Kai Friedrich, CEO of Consorsbank and coordinator of the BNP Paribas Retail activities in Germany, confirms: “the clients of DAB Bank and Consorsbank will both benefit from this operation. We intend to offer to all our retail clients a fully-fledged banking offer and services, while maintaining state of the art platforms for active traders. At the same time, we will speed up the development of the B2B activity for the professional segment”.

“We welcome the employees and clients of DAB Bank to the BNP Paribas Group. This acquisition is a crucial strategic move, both for our development in Germany and to further grow our digital bank in Europe. BNP Paribas, with already 1.3 million digital clients through Hello bank!, will become one of the leader in Europe in this field, adapting to changing needs and behavior of our clients” concludes François Villeroy de Galhau, COO of BNP Paribas and Head of Domestic Markets.

Founded in 1994, same year as Consorsbank, DAB Bank has been experiencing rapid growth in its direct banking business, in particular recently since 2012. The Munich-based company is expanding its business with private clients, as well as through its B2B offer to the professional segments such as Independent Financial Advisers. DAB Bank in Germany and direktanlage.at its subsidiary in Austria, serve 575,000 and 68,000 clients, respectively. Their total deposits reached 5bn EUR and securities accounts stood at 31bn EUR end of September 2014.

In Germany, BNP Paribas already covers a broad range of client segments from retail to corporate and institutional with 13 businesses lines and more than 4,000 employees. Germany is a key market for BNP Paribas’ expansion in Europe, committing additional means and workforce with strong growth targets in terms of revenues.

Anne Tinyo to Lead Life Management Services for Wells Fargo Private Bank

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Wells Fargo Private Bank announced Anne Tinyo has been named head of its Life Management Services group. This program integrates life and wealth management solutions to help clients plan for their future. Its services assist with the challenges of life transitions and maintaining their personal and financial independence. In her role, Tinyo will be responsible for national leadership of the program, which

Prior to joining Wells Fargo, Tinyo served as senior vice president of operations for 11 years at Los Angeles-based LivHOME Inc., a provider of at-home caregiving and geriatric care management services.

“Anne Tinyo brings tremendous experience working with older adults and helping them maintain independence, financial stability and quality of life,” said Jeff Savage, head of Specialized Wealth Services at Wells Fargo Private Bank. “Her passion working with clients, along with her practical experience in this field, makes her a perfect match to run this important business for Wells Fargo.”

Wells Fargo Life Management Services is one of nine lines of business that comprise Specialized Wealth Services, a part of Wells Fargo Private Bank’s Investment and Fiduciary Services. Life Management Services serves clients in 32 states and more than 100 markets nationwide.

“Within the next 20 to 30 years, more than 75 million baby boomers will surpass the age of 60, and people aged 90 and above are the fastest growing segment of our population today, according to the U.S. Census Bureau. Despite these statistics, there is still a lot of evidence that people fail to consider how they will manage their health and finances, and maintain their lifestyles as they age. I look forward to having a meaningful impact on our clients,” said Tinyo.

A native of Windsor in Ontario, Canada, and a graduate of the University of Western Ontario with a bachelor’s degree in social sciences, Tinyo will be located in Los Angeles.

Capitulation Out of Energy and Materials to the Benefit of the Dollar

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Foto: Doug8888, Flickr, Creative Commons.. Trump en la Casa Blanca: impacto en las materias primas

Global investors are keeping faith with equities while raising cash as markets enter the volatile year-end period, according to the BofA Merrill Lynch Fund Manager Survey for December. Asset allocators have hiked their cash holdings to an average 5 percent. Moreover, a net 28 percent are now overweight relative to their benchmarks. This is the survey’s highest reading on this measure since June 2012.

Despite this defensive move, respondents show renewed confidence in the global economy. A net 60 percent now expect it to strengthen over the next year – up almost 30 percentage points in two months. Against this constructive background, they are also more confident that corporate earnings will rise.

At the same time, inflation expectations have fallen to their lowest level since August 2012. Commodities are a significant factor in this. A net 36 percent of fund managers view oil as undervalued following its recent price fall. This reading is up over 20 percentage points since October and represents its lowest level since 2009.

In addition, expectations of European economic performance have improved. This reflects the likelihood of the European Central Bank beginning a program of quantitative easing next quarter – as 63 percent of respondents now expect, compared to November’s 41 percent. This translates into higher appetite for eurozone equities, notably banks, revealed in the survey.

“We are seeing capitulation out of energy and materials to the benefit of the dollar, cash, eurozone stocks and global tech and discretionary stocks,” said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Research. “The prospect of ECB QE has brought growing consensus on European equities, but the weakening business cycle and falling commodity prices are working against true earnings recovery,” said Manish Kabra, European equity and quantitative strategist.

Benign inflation ups growth expectations

A growing number of investors now anticipate a favorable scenario of above-trend growth and below-trend inflation over the next 12 months. While this is still a minority view (with the majority anticipating that both growth and inflation remain below-trend), its reading has jumped five percentage points month-on-month.

A net 20 percent now expect higher global consumer prices in the next 12 months. This is down from last month’s net 35 percent.

In this environment, respondents view global fiscal policy as too restrictive. This month’s net 26 percent is the survey’s highest reading on this measure since July 2012.

Commodity collapse

Commodities have fallen sharply out of favor. A net 26 percent of fund managers are now underweight the asset class. This is up from November’s net 18 percent and marks the survey’s lowest reading on this measure in a year. This shift is also evident in strong moves in investors’ positioning. Both the energy and materials sectors saw 19 percentage-point month-on-month increases in net underweights.

Commodities’ fall has intensified bullishness on the U.S. dollar. While funds continue to view long exposure to the U.S. currency as the most crowded trade in financial markets currently, they still regard the dollar as significantly undervalued.

Europe finds favor

Appetite for eurozone equities has risen to a net 26 percent overweight, up from November’s net 8 percent. Intentions to own the market have also risen, with Europe now the region fund managers are most likely to overweight over the next year. A net 19 percent regard eurozone equities as undervalued. This reading is up from November’s net 12 percent.

Regional fund managers have raised their exposure to European banks in particular. A net 13 percent are now overweighting the sector, compared to last month’s net 3 percent underweight.

In contrast, investors have less conviction towards U.S. and Japanese stocks. With the U.S. market appearing overvalued to a strong majority of the panel, a net 10 percent now intend to underweight it in the coming 12 months.

Crime, Corruption, Tax Evasion Drained a Record US$991.2bn in Illicit Financial Flows from Developing Economies in 2012

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A record US$991.2 billion in illicit capital flowed out of developing and emerging economies in 2012—facilitating crime, corruption, and tax evasion—according to the latest study released Tuesday by Global Financial Integrity (GFI), a Washington, DC-based research and advisory organization. The study is the first GFI analysis to include estimates of illicit financial flows for 2012.

The report—GFI’s 2014 annual global update on illicit financial flows—pegs cumulative illicit outflows from developing economies at US$6.6 trillion between 2003 and 2012, the latest year for which data is available. Titled “Illicit Financial Flows from Developing Countries: 2003-2012,” [PDF] the report finds that illicit outflows are growing at an inflation-adjusted 9.4 percent per year—roughly double global GDP growth over the same period.

“As this report demonstrates, illicit financial flows are the most damaging economic problem plaguing the world’s developing and emerging economies,” said GFI President Raymond Baker, a longtime authority on financial crime. “These outflows—already greater than the combined sum of all FDI and ODA flowing into these countries—are sapping roughly a trillion dollars per year from the world’s poor and middle-income economies.”

“Most troubling, however, is the fact that these outflows are growing at an alarming rate of 9.4 percent per year—twice as fast as global GDP,” continued Mr. Baker. “It is simply impossible to achieve sustainable global development unless world leaders agree to address this issue head-on. That’s why it is essential for the United Nations to include a specific target next year to halve all trade-related illicit flows by 2030 as part of post-2015 Sustainable Development Agenda.”

Findings

Authored by GFI Chief Economist Dev Kar and GFI Junior Economist Joseph Spanjers, the study reveals that illicit financial flows hit an historic high of US$991.2 billion in 2012—marking a dramatic increase from 2003, when illicit outflows totaled a mere US$297.4 billion. Over the span of the decade, the report finds that illicit financial flows are growing at an inflation-adjusted average rate of 9.4 percent per year. Still, in many parts of the world, the authors note that illicit flows are growing much faster—particularly in the Middle East and North Africa (MENA) and in Sub-Saharan Africa, where illicit flows are growing at an average annual inflation-adjusted rate of 24.2 and 13.2 percent, respectively.

Totaling US$6.6 trillion over the entire decade, illicit financial flows averaged a staggering 3.9 percent of the developing world’s GDP. As a share of its economy, Sub-Saharan Africa suffered the largest illicit financial outflows—averaging 5.5 percent of its GDP—followed by developing Europe (4.4 percent), Asia (3.7 percent), MENA (3.7 percent), and the Western Hemisphere (3.3 percent).

“It’s extremely troubling to note just how fast illicit flows are growing,” stated Dr. Kar, the principal author of the study. “Over the past decade, illicit outflows from developing countries increased by 9.4 percent each year in real terms, significantly outpacing economic growth. Moreover, these outflows are growing fastest in and taking the largest toll—as a share of GDP—on some of the poorest regions of the world. These findings underscore the urgency with which policymakers should address illicit financial flows”.

Trade Misinvoicing Dominant Channel

The fraudulent misinvoicing of trade transactions was revealed to be the largest component of illicit financial flows from developing countries, accounting for 77.8 percent of all illicit flows—highlighting that any effort to significantly curtail illicit financial flows must address trade misinvoicing.

The US$991.2 billion that flowed illicitly out of developing countries in 2012 was greater than the combined total of foreign direct investment (FDI) and net official development assistance (ODA), which these economies received that year. Illicit outflows were roughly 1.3 times the US$789.4 billion in total FDI, and they were 11.1 times the US$89.7 billion in ODA that these economies received in 2012.

“Illicit financial flows have major consequences for developing economies,” explained Mr. Spanjers, the report’s co-author. “Emerging and developing countries hemorrhaged a trillion dollars from their economies in 2012 that could have been invested in local businesses, healthcare, education, or infrastructure. This is a trillion dollars that could have contributed to inclusive economic growth, legitimate private-sector job creation, and sound public budgets. Without concrete action addressing illicit outflows, the drain on the developing world is only going to grow larger.”

Country Rankings

Dr. Kar and Mr. Spanjers’ research tracks the amount of illegal capital flowing out of 151 different developing and emerging countries over the 10-year period from 2003 through 2012, and it ranks the countries by the volume of illicit outflows. According to the report, the 25 biggest exporters of illicit financial flows over the decade are:

China……… US$125.24bn average (US$1.25tr cumulative)
Russia…………….. US$97.39bn avg. (US$973.86bn cum.)
Mexico…………….. US$51.43bn avg. (US$514.26bn cum.)
India……………….. US$43.96bn avg. (US$439.59bn cum.)
Malaysia…………. US$39.49bn avg. (US$394.87bn cum.)
Saudi Arabia……. US$30.86bn avg. (US$308.62bn cum.)
Brazil……………… US$21.71bn avg. (US$217.10bn cum.)
Indonesia……….. US$18.78bn avg. (US$187.84bn cum.)
Thailand…………. US$17.17bn avg. (US$171.68bn cum.)
Nigeria…………… US$15.75bn avg. (US$157.46bn cum.)
A.E………………… US$13.53bn avg. (US$135.30bn cum.)
South Africa……… US$12.21bn avg. (US$122.14bn cum.)
Iraq…………………. US$11.14bn avg. (US$89.10bn cum.)
Costa Rica………… US$9.40bn avg. (US$94.03bn cum.)
Philippines……….. US$9.35bn avg. (US$93.49bn cum.)
Belarus……………. US$8.45bn avg. (US$84.53bn cum.)
Poland……………… US$5.31bn avg. (US$53.12bn cum.)
Panama…………… US$4.85bn avg. (US$48.48bn cum.)
Serbia……………… US$4.57bn avg. (US$45.66bn cum.)
Chile……………….. US$4.56bn avg. (US$45.64bn cum.)
Brunei…………….. US$4.30bn avg. (US$34.40bn cum.)
Syria………………. US$3.77bn avg. (US$37.68bn cum.)
Egypt……………… US$3.77bn avg. (US$37.68bn cum.)
Paraguay………… US$3.70bn avg. (US$36.97bn cum.)
Venezuela……….. US$3.68bn avg. (US$36.77bn cum.)

For a complete ranking of average annual illicit financial outflows by country, please refer to Appendix Table 2 of the report on page 28. The rankings can also be downloaded here.

GFI also found that the top exporters of illegal capital in 2012 were:

China………………………… US$249.57bn
Russia……………………….. US$122.86bn
India…………………………… US$94.76bn
Mexico……………………….. US$59.66bn
Malaysia ………………….. US$48.93bn
Saudi Arabia……………….. US$46.53bn
Thailand…………………….. US$35.56bn
Brazil…………………………. US$33.93bn
South Africa………………… US$29.13bn
Costa Rica…………………… US$21.55bn
Indonesia……………………. US$20.82bn
A.E…………………………… US$19.40bn
Iraq…………………………… US$14.65bn
Belarus…………………….. US$13.90bn
Philippines…………………. US$9.16bn
Syria…………………………… US$8.64bn
Nigeria……………………….. US$7.92bn
Trinidad & Tobago…………. US$7.41bn
Vietnam……………………… US$6.93bn
Lithuania………………….. US$6.45bn
Libya…………………………. US$5.40bn
Panama……………………. US$5.34bn
Aruba………………………. US$5.29bn
Egypt………………………. US$5.09bn
Chile……………………….. US$5.08bn

An alphabetical listing of illicit financial outflows is available by year for each country in Appendix Table 3 on pg. 30 of the report, or it can be downloaded here.

Policy Recommendations

The report recommends that world leaders focus on curbing the opacity in the global financial system, which facilitates these outflows. Specifically, GFI maintains that:

Governments should establish public registries of meaningful beneficial ownership information on all legal entities;
Financial regulators should require that all banks in their country know the true beneficial owner(s) of any account opened in their financial institution;
Government authorities should adopt and fully implement all of the Financial Action Task Force’s (FATF) anti-money laundering recommendations;
Regulators and law enforcement authorities should ensure that all of the anti-money laundering regulations, which are already on the books, are strongly enforced;
Policymakers should require multinational companies to publicly disclose their revenues, profits, losses, sales, taxes paid, subsidiaries, and staff levels on a country-by-country basis;
All countries should actively participate in the worldwide movement towards the automatic exchange of tax information as endorsed by the OECD and the G20;
Trade transactions involving tax haven jurisdictions should be treated with the highest level of scrutiny by customs, tax, and law enforcement officials;
Governments should significantly boost their customs enforcement, by equipping and training officers to better detect intentional misinvoicing of trade transactions; and
The United Nations should adopt a clear and concise Sustainable Development Goal (SDG) to halve trade-related illicit financial flows by 2030and similar language should be included in the outcome document of the Financing for Development Conference in July 2015.