Otaviano Canuto: Are We on the Verge of a New Commodity Super-Cycle?

Commodity prices have recovered their 2020 losses and, in most cases, are now above pre-pandemic levels (Figure 1).

[caption id="attachment_20277" align="aligncenter" width="589"] Figure 1: Commodities Price Indexes, Monthly. Source: World Bank (2021), Commodity markets outlook, April.[/caption]

The pace of Chinese growth since 2020 and the economic recovery that has accompanied vaccine rollouts are driving demand upward, while supply restrictions for some items — oil, copper, and some food products — have favoured their upward adjustment.

Some analysts have started to speak of a new commodity price “super-cycle” after the downturn that started in 2010 (Holmes, 2021; Sullivan, 2020). There is an expectation that Chinese growth will eventually return to the levels of its “rebalancing”, below those rates that sustained the global demand for commodities in the previous long price upswing.

But there is the perspective of a strong macroeconomic acceleration in the US — and possibly in Europe — driven by public spending packages in green infrastructure.

Why are Commodity Prices so Cyclical?

Commodity prices go through extended periods during which they are well above or well below their long-term trends. The upswing phase in commodity super-cycles occurs when unexpected, persistent, and positive demand trends contrast with typically slow-moving supply. Eventually, as more supply becomes available and demand growth slows, the cycle enters a downward swing.

Individual commodity groups have their own price patterns. But when charted together, they display extended periods of price trends known as commodity super-cycles.These are different from occasional supply disruptions, because high or low prices persist over time.

Four distinct commodity price super-cycles since the end of the 19th Century can be linked to dramatic structural changes and corresponding growth periods in some regions of the planet.

1899 to 1932 — with up and down phases — that coincided with the industrialisation of the US

1933 to 1961, the upswing phase of which reflected the onset of global rearmament before World War II

1962 to 1995, with the boom period associated with the reindustrialisation of Europe and Japan in the late 1950s and early 1960s

Finally, the current cycle which started in the mid-1990s, mostly related to the rapid industrialisation of China up to its re-balancing phase.

The pattern of high growth of the global economy in the current period saw fast-growing countries generating higher proportions of GDP from natural resources and commodities.

Figure 2 depicts the latest super-cycle, as measured by the S&P GSCI spot index, which tracks price movements for 24 raw materials. The abrupt decline in 2015 mainly reflected a sharp drop in oil prices, as US shale gas and oil altered the supply landscape. After the impact of the pandemic in 2020, the index has risen by close to 25 percent in 2021.

[caption id="attachment_20278" align="aligncenter" width="588"] Figure 2: The Latest Commodity Super-Cycle.
Source: Homes, F. (2021). A New Commodities Supercycle Could Be Powering Up After A Long Freeze, Forbes, February.[/caption]

Some Commodities are More Equal than Others

It should be recalled that different groups of commodities have their own histories, reflecting their own conditions of demand and supply. Although it is always possible to find moments of joint fluctuation, in which commodities remained for a long time above or below their long-term trends, constituting commodity price super-cycles, there are differences.

Take the case of oil, the price of which plunged in 2020 when mobility restrictions directly impacted demand. Oil’s recent recovery happened at record pace, helped by production cuts in the Organisation of Petroleum Exporting Countries (OPEC) and partners. But the recovery in demand has been gradual, and is expected to remain steady over the course of 2021, especially in advanced economies. However, the global level of idle oil production capacity remains high.

Agricultural prices, on the other hand, are 20 percent higher than a year ago, reaching levels not seen for almost seven years. Price increases have been driven by declines in the supply of some food commodities, especially corn and soybeans, strong demand for feed in China, and the devaluation of the US dollar. Soy has recently hit its highest price in eight years.

A report from the Eurasia Group (Food inflation and rising political risk, May 7, 2021) has called attention to rising political risks associated with recent food inflation in emerging markets. Several factors have accounted for that, including exchange rate depreciation, shipping constraints, logistical difficulties, and weather events.

Figure 3 shows the normalised food inflation rate on the World Bank’s measure of food prices for low- and middle-income countries over the last 30 years. According to this index, food inflation for developing countries was above 37 percent year-on-year in March 2021, or more than 2.3 standard deviations above the 30-year mean. In the past three decades, the index has matched or exceeded this level only twice, during the food price crises of 2007-08 and 2011.

[caption id="attachment_20279" align="aligncenter" width="588"] Figure 3: Emerging-market food prices are rising at a rate matched only twice in the last 30 years.
Source: World Bank; Haver Analytics (extracted from Eurasia Group, Food Inflation and rising political risk, May 7, 2021).[/caption]

In its April 2021 report on commodities, the World Bank suggested factors that could stabilise food prices starting next year. According to the US Department of Agriculture's survey of planting intentions, the land allocated for corn, soybeans and wheat in America is expected to increase next season — especially in the case of soybeans and wheat. This will follow supply growth below long-term trends during the last harvests. Given the weight of the US in these commodities, if intentions are followed-through, increased planting will help stabilise global food commodity markets.

Agricultural prices are expected to stabilize in 2022, after a 13 percent increase this year. However, developments will also depend on the trajectory of energy costs in the short term and biofuel policies in response to the energy transition in the long term. Some analysts go as far as saying that the elasticity of agricultural production has become such that it makes cycles more a matter of quantity than prices.

Copper is King!

It is in metals that a strong bullish cycle is most evident. Prices currently on the rise reflect strong demand in China, the ongoing global recovery, and interruptions in the supply of some metals. In March 2021, copper, tin, and iron ore prices reached 10-year highs (Figure 4).

[caption id="attachment_20280" align="aligncenter" width="587"] Figure 4: Copper prices and global manufacturing PMI. Sources: Haver Analytics; World Bank. Note: The PMI (Purchasing Managers' Index) is a leading indication of global manufacturing sector activity. Readings above (below) 50 indicate an expansion (contraction). Last observation is March 2021.[/caption]

In the years ahead, the infrastructure spending package proposed by President Joe Biden and the global energy decarbonisation will impact demand and prices of commodities in different ways. Biden's infrastructure package will favour renewable energies, associated with the use of electric vehicles and batteries. The raw materials needed for batteries and electric vehicle engines — lithium, rare earths — are already experiencing market euphoria. Copper, because of its conductivity, tends to be used four or five times more in electric cars than in conventional combustion engine cars. Oil, of course, will not be in line with the green recovery.

Nicholas Snowdon, commodities strategist at Goldman Sachs Research, argues that because it is “the most cost-effective conductive metal [for] capturing, storing [and] transporting electricity”, copper will be key in the green transition. “Copper is the new oil,” he says. Lithium, niobium, and rare earth metals will also star.

As it is typically the case under classic super-cycle conditions, there will be a delay in the supply response. It is only now, with the return of the US to the Paris Agreement and the Biden programme, that the infrastructure greening is being taken seriously. No major copper investment project has been approved in the past 18 months, and such projects take four to five years to become fully operational. Investment losses at the start of the downturn in the past decade have led investors to hesitate to embark on new ventures.

Three things to note:

First, even copper scraps are going to be valuable in the near future.

Second, it will be interesting to see how copper mining projects that respect environmental, social, and governance safeguards are put together.

Third, the next time you hear about commodity super-cycles, ask what the commodity is.

About the Author

Otaviano Canuto, based in Washington, D.C, is a senior fellow at the Policy Center for the New South, a nonresident senior fellow at Brookings Institution, a visiting public policy fellow at ILAS-Columbia, and principal of the Center for Macroeconomics and Development. He is a former vice-president and a former executive director at the World Bank, a former executive director at the International Monetary Fund and a former vice-president at the Inter-American Development Bank. He is also a former deputy minister for international affairs at Brazil’s Ministry of Finance and a former professor of economics at University of São Paulo and University of Campinas, Brazil. Otaviano has been a regular columnist for CFI.co for the past nine years.

Follow him on Twitter: @ocanuto


Book Review: Numerology, Mystery, Romance… and the Development of an App

7 Unicorn Drive: From Start-up To A Billion Dollar Sale In 7 Years by Dani Polajnar

This book is a sorta-kinda business guide, but it has fictional elements and a jot of mysticism thrown-in. That may not sound like an appealing mix, but somehow it works.

7 Unicorn Drive tells the true story of Slovenian couple Iza and Samo Login, and their journey of starting a company from scratch – and selling it for $1bn seven years later.

The Logins and their team left their previous jobs with no clear idea of what they were going to do. There was simply faith in Samo and Iza’s assertion that they were going to start a company in which everyone would have a share – and which would make $100m profit within five years.

Samo was a programmer and part-owner of an internet search company in Ljubljana; he and five colleagues left to set up the new enterprise (later named Outfit7).

All the team members invested; they had skin in the game. The Logins’ stated motivation was to make money for a cause: to fight for green issues. In Samo’s own words, “Our planet’s years are numbered. But we can do our part to fight against that.”

For the others, the aim was to “elevate the craft of programming beyond what had been done to date and to plough the furrow of the mobile app market and take it to a new level”.

Iza Login was one in the group who was not a programmer. Strongly influenced by things spiritual and mystical, she had embarked on a less worldly enterprise, offering crystal healing sessions. But from the start, her esoteric guidance came into play. The company name was chosen using numerology, and the launch date chosen according to planetary alignments. Not all the hard-core geeks were convinced at first, but most came to show an interest in Iza’s infectious brand of mysticism. When revenues were “manifested” and the universe began to deliver, even the most sceptical of the programmers came around.

Making money started, of course, with an app. Several of them. Some were mystical, for wealth affirmations and healing. There was an interactive tourist guide to Iceland and a Save The World one that aligned nicely with the group’s environmental objectives.

The breakthrough finally came via an animated character: a kid-friendly cat named Tom. The first app in the series, Talking Tom, is still available – and it’s easy to see how it became a viral success. It initially gave Outfit7 two income streams: advertising and in-app purchases. As time went on, the company added new characters and games, building a media empire with films and books to justify the company’s final price tag.

There are lessons, here: how putting purpose before profit, and cultivating a “people-first” leadership structure, can be paths to success. Samo and Iza’s overall purpose lay beyond profit, and stands as a pioneering example of the “triple bottom line” (profit, people, planet). At the start, “The idea of a new company alternately made Samo feel a rush of self-confidence and a freefall of self-doubt”; something which must surely be true for many entrepreneurs. Another interesting insight is their “flashlight model” (no spoilers here).

7 Unicorn Drive reads like a novel, and is actually two stories in one. The chapters alternate between Slovenia — beginning in 2009 with the company starting up — and San Francisco; here it begins in 2014 with the story of “Danny”, a Californian business journalist who you feel is eventually going to break the Outfit7 story. I recommend 7 Unicorn Drive as a good read for anyone interested in how a company can grow from nothing into a real-life unicorn, with aspects of an entertaining novel. The story of Samo, Iza, Andrej and the rest, plus their animated friends Tom and Angela, is captivating.

Dani Polajnar is a writer, keynote speaker, trainer and coach, as well as founder of Teambuilding Academy (TBA), an organisation devoted to building and strengthening team bonds through corporate events, training and consulting.

Published in 2021 by Login5 Aphrodite Ltd, available from Amazon in paperback and on Kindle. Paperback £28.00, Kindle edition £7.50.


OECD: Business as Usual? Forget About That, and Prepare for Novel and Impactful Variations on a Theme

As we turn our attention towards the imperative of “building forward greener” post-pandemic, there can be no more business as usual.

This was Sir Ronald Cohen’s message at the OECD Blended Finance & Impact Week in February. During his keynote speech, he highlighted the growing public appetite for sustainable and responsible products informed by the now-tangible consequences of climate change. In the US alone, climate-related costs doubled in 2020 alone, reaching $95bn.

The consensus is that the pursuit of profit at the expense of people and the planet is no longer a viable business model. New evidence even suggests that the trade-off itself is an illusion, with the Global Impact Investing Network (GIIN) annual survey reporting that 67 percent of its investors target market returns or better.

Keeping pace with the change in public opinion on sustainability, there has been an increased adoption of ESG factors and due diligence throughout the investment process. Potential investors are going beyond financial analysis to assess a company risk profile in relation to sustainability issues such as carbon emissions, fair tax, corruption, and child labour.

Several key international actors are moving to shape the emerging agenda. The European Union recently introduced its new sustainable finance disclosure regulation, a key tenet of its Green New Deal. Asset managers now need to consider both financial and sustainability risks. They are obliged to disclose the relevance of this risk and a proposed management plan to investors.

The new regulation specifically targets the environmental aspect – the “big E” of ESG. To be considered sustainable, an investment must meet at least one of the six specified environmental objectives, and do so without significantly falling short of any of the five remaining objectives.

While new regulation is an important first step in the right direction, there is still potential to go beyond ESG due diligence and actively invest in organisations whose business models have clear and measurable environmental and social targets.

The OECD-UNDP Impact Standards for Financing Sustainable Development (IS-FSD) provide a framework that supports investors to integrate ESG due diligence considerations — and to manage for impact. The standards provide a shared platform designed to help donors, development finance institutions (DFIs) and asset managers to integrate impact management into investment practice and decision-making.

Approved by the OECD Development Assistance Committee on March 26, the standards are based on four dimensions of managing for impact: impact strategy, impact management approaches, transparency and accountability, and governance. They embed the shared norms of the Impact Management Project, facilitate high-level principles (including OPIM and EDFI), and provide an operating system for the application of tools and frameworks including impact metrics and taxonomies.

The IS-FSD are the product of 10 months of intensive consultation with donors, DFIs, asset managers and CSOs, as well as impact management and measurement experts. This wide-ranging and comprehensive consultation process has helped anchor the standards in previously overlooked donor priorities. It ensures that the framework gives equal weight to social and governance themes as well as the environment. Human rights considerations, transparency, and the need for local stakeholder involvement feature prominently.

This is the beginning of a holistic system that connects public and private actors through shared conventions, language, and a harmonised approach to impact management.
Over the next two years, the OECD will work on mainstreaming adoption of the standards through detailed guidance. This will provide insight into what compliance looks like, using best-practice examples. It will also work towards uniting theory and practice via dedicated pilot studies across different geographies, sectors, and investment types and sizes. i

About the Authors

Priscilla Boiardi is a policy analyst in the Financing Sustainable Development Division at the OECD. She has over 10 years of research experience in private finance and social investment, and was previously director of the Knowledge Centre and policy director at the European Venture Philanthropy Association (EVPA), leading research, training and policy.

Esme Stout is a junior policy analyst in the Financing Sustainable Development Division at the OECD. She has previously worked for the UK Foreign, Commonwealth and Development Office in Paris and Brussels. She holds a Master’s Degree in International Security from Sciences Po, Paris, and a Bachelor in History from the University of Oxford.


Green Bonds: How Active Management Aims to Make the Most of a Dynamic Sector

[caption id="attachment_20312" align="alignright" width="213"] Author: Johann Plé, Senior Portfolio Manager, AXA IM Core[/caption]

The market for financing linked to environmentally friendly projects and companies has already reached $1trn by some measures and we expect will move swiftly past that landmark during 2021. This, alongside growing policy support in Europe, the US and China, has helped make the green bond sector a powerful draw for investors. Increasingly, they are aware that climate change is a threat to our economic well-being, and that green bonds can potentially be a crucial part of addressing that threat.

In our view, it is one of the most dynamic areas on the path towards a sustainable global economy, and a sector where in-depth active management can help deliver financial returns alongside genuine environmental impact. As with any dynamic asset class, the evolution can be dramatic. Green bonds have moved on from a focus on Sovereign-related issuance and a few utilities, towards a better-balanced mix that draws in far more diversified sources of credit.

Active management can enable us to adapt to the pace of market changes and allocate to the most defensive/expensive parts of the universe when needed, and its most attractive, higher yield parts when opportunities arise. Another potential advantage for active investors lies in access to primary issuance – which provides liquidity and avoids the additional transaction costs in the secondary market faced in a passive/exchange-traded fund (ETF) approach.

Delivering Impact

Perhaps the most common question when investors consider green bonds centres on how they can be sure what is green and what is not. The market may be growing every year, but regulation has not yet emerged that allows for consistent definitions of environmental goals and parameters, or which ensures consistent transparency around issuance. Again, an active approach is crucial to ensure the selection of credible green bonds across the universe in a way that is clear and straightforward for clients. We believe it is important for large players in this market to not only enjoy the potential financial returns, but to support truly meaningful environmental projects from companies whose strategies are aligned with the energy transition.

An active approach can enable investors to focus on issuers that provide the most transparency about the projects they finance and about their potential impacts, such as tonnes of CO2 avoided. This kind of information allows investors to understand the true nature of green bonds, to know precisely how their money is financing a change and by how much it is contributing. This is a fundamental aspect of green bond investing that a passive approach would simply miss.

Active, and Engaged

To truly be a part of the energy transition demands more than simply buying green bonds. We have a deep commitment to stewardship across all our assets and believe this helps to keep us close to the heart of the green bonds market. We think it makes sense to maintain a continued dialogue with existing and potential issuers about how they might start, continue or increase their commitment according to their specific economic activity.

Our analysts have met with close to 90% of the issuers we hold in our green bond strategy, and more broadly, our membership of the ICMA’s Green Bond Principles Executive Committee affords AXA IM and its clients a voice in the push for industry guidelines to improve transparency and disclosure. We also closely monitor the market, so that we might reward issuers with allocations when they improve their standards, or to review investments which fail to meet our standards.

Putting It to Work

Our green bonds strategy seeks to deliver impact alongside returns, but how can asset managers make sure issuers meet those standards when building a strategy?

Before assessing the credibility of a green bond issuance, our approach is to first filter the universe to reflect our group-level exclusions policy and to remove any possible controversial activity, sector, or issuers that could be associated with poor environmental, social or governance (ESG) practices. Our ESG scoring system helps identify poor ESG issuers.

But what really makes the difference is our proprietary green bond framework. This is the tool with which we seek to overcome the lack of common measures in the market, by setting clear and consistent standards which issuers – and clients – can understand. The framework is the engine for our active strategy.

It is designed to deliver an over-arching assessment of each bond under consideration and aims to ensure projects earmarked for funds by a company reflect a wider commitment to tackle climate change. We assess the issuer’s sustainable strategy, the demonstrable environmental benefits of the projects to be financed, the management of the bond proceeds and the issuer’s impact report. The framework also demands a high level of transparency.

This combined approach refines the investment universe to strip out about 25% of issuers. The goal is to minimise the risk of “green washing” while building a diversified strategy that avoids "extreme" positioning and ensures consistency over time.

Transparency is vital from our side too. We believe a green bond strategy must be able to measure and report its environmental benefit to investors. This is why we produce a monthly impact report that includes specific indicators – such as emissions avoided – as well as details of the environmental projects financed. We also map investments to the UN Sustainable Development Goals.

It is impossible, we think, to deliver this depth of management without an active approach. Since we first developed a green bonds strategy we have sought to be a pioneer and a benchmark for the sector, taking care to burnish its credibility and support its growth. Only with high standards, careful research and a commitment to good stewardship can we genuinely limit concentration risk, weed out controversies, prevent ‘green-washing’, improve access to the primary market and shape the nature of issuance. By doing all this, we believe an investment manager should be able to generate more attractive returns and limit downside, while delivering genuine impact in the fight to take on the challenge of climate change.

This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalised recommendation to buy or sell securities.

Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

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In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

© 2021 AXA Investment Managers. All rights reserved


Zoscales Partners: Invest Where It matters

Impact is embedded in the DNA of Zoscales Partners. Since its founding in 2014, the private equity firm has not only delivered competitive financial returns but has generated measurable impact and contributed to sustainable economic growth and quality job creation in East Africa – a region characterised by many high-growth, high-impact investment opportunities.

The positive impacts brought by Zoscales Partners’ investments in East Africa are easy to spot. The firm has channelled $75m to the region and created more than 800 quality jobs in Ethiopia and Kenya via its portfolio investments in local small and medium-sized companies.

“In East Africa, it is easy to deliver impact without compromising financial goals. Our focus area is small- and medium-sized enterprises, as they are the catalysts of local economies and generate 7 out of 10 formal jobs in emerging markets,” says Co-Founder and Managing Partner of Zoscales Partners Ashenafi Alemu and adds:

“Many SMEs in East Africa have tremendous potential but limited availability of capital. By availing equity capital to local SMEs, we have the opportunity to generate outsized impacts, both financially and non-financially.”

 SDGs are Part of Investment Strategy

Zoscales Partners operates from its local offices in Addis Ababa and Nairobi with an on-the-ground focus and a strong emphasis on hands-on investing. They have a proven track record of taking active ownership of their portfolio companies and implementing strict Environmental, Social and Governance (ESG) criteria. In 2019, Zoscales also started working under the umbrella of the United Nations Sustainable Development Goals (SDGs) and has delivered measurable results linked to SDGs 3, 4, 5, 6, 8, 11 and 13. Notably, Zoscales also improved its commitment to gender equity, and the female employee proportion of Zoscales’ portfolio rose from 37% in 2019 to 58% today – in fact, Zoscales’ entire portfolio meets the Gender 2X criteria.

“Our investment thesis is founded on strong financial principles, and we believe that our close adherence to best practices in ESG and impact is a key driver of long-term performance and a way of controlling risks,” says Co-Founder and Managing Partner of Zoscales Partners Jacop B. Rentschler.

In 2021 alone, Zoscales Partners created 337 new quality jobs in Ethiopia and Kenya, ensuring that all workers benefit from health and accident insurance cover and are given access to labour unions. Consequently, all portfolio company employees earn above their respective industries’ minimum wage. Zoscales has a stated goal to create an additional 300 jobs by the end of 2022, bringing the total number above 1,100 since 2017.

Zoscales Partners Investing in East Africa’s Underserved Healthcare Sector

Huge strives were made in Ethiopia in recent years in terms of access to quality healthcare services in East Africa, another core focus area for Zoscales Partners. The fund invested in Pioneer Diagnostic Center (PDC) in 2020 and has brought cutting-edge diagnostics to Ethiopia. Zoscales’ investment has helped PDC upgrade its existing facilities and double its CT scan capacity to serve an additional 10,432 patients per year.

Moreover, Zoscales Partners has invested in a secondary private hospital in Kenya, Premier Hospital located in Mombasa, with a plan to build a premium multispecialty hospital network that is well-positioned to service the growing middle-income population across the region. This is expected to catalyse the provision of affordable, high-quality healthcare in East Africa.

 The Next Fund is Open for Investments

Witnessing also an increasing investor demand for sustainable investments, Zoscales Partners will continue its impact journey as it is raising its second fund, with a $200m target size and continued focus on SMEs within core industries. The strategy is widely unchanged – concentrating on quality deals in industries with high growth and impact potential – but with an aim to expand into more markets in the region.

“Zoscales Partners is entering an exciting new chapter, and we are highly motivated to continue our efforts to invest in the improvement of life and environment for the people of East Africa,” says Managing Partner Jacop B. Rentschler.

“We ensure that profit-seeking never comes at the expense of positive outcomes for society,” concludes Jacop B. Rentschler.

About Zoscales Partners

Witnessing the high growth potential of local small and medium-sized enterprises across East Africa, Managing Partners Ashenafi Alemu and Jacop B. Rentschler founded Zoscales Partners in 2014 to give international investors access to the rapidly growing East African markets that offer a wide range of investment opportunities. With local offices in Ethiopia and Kenya, Zoscales combines its international investment experience with its deep local knowledge and extensive network to deliver sustainable and long-term returns with positive impacts on society. Due to their growth potential and promising exit paths, Zoscales focuses on the consumer goods, healthcare and materials sectors.

Zoscales has undertaken six investments across Ethiopia and Kenya via Zoscales Fund I, a $75m fund launched in 2017 and backed by a mix of commercial investors and development financial institutions. Fundraising is now underway for Zoscales Fund II.


The Zoscales Partners Management Team: Ashenafi Alemu, Jacop B. Rentschler and Frederick Kambo

It all started in 2000 when co-founders Ashenafi Alemu and Jacop B. Rentschler met in a cafe in Denmark while Ashenafi was a foreign exchange student. Ashenafi and Jacop became good friends and remained close over the years as they graduated and worked professionally in finance and infrastructure investing across Europe.

It was when Ashenafi returned to Ethiopia to start a management consulting firm that he saw the high growth potential of local small and medium-sized enterprises across East Africa. As a result, Ashenafi and Jacop founded Zoscales Partners with offices in Switzerland and Ethiopia to give investors access to these rapidly growing economies. Frederick (Fredd) Kambo later joined the team to help the firm expand its footprint into Kenya and across East Africa, and Zoscales’ third office was established in Kenya in 2019.

Ashenafi Alemu

Co-Founder and Managing Partner Ashenafi Alemu brings more than 16 years of experience in management consulting and private equity. As Managing Partner, Ashenafi provides the overall strategic leadership, investment origination, structuring and value creation for investee companies and serves on the board of three portfolio companies of Zoscales Fund I: Ethio-Asian Industries, Ahadukes Food Products and Premier Hospital. He also sits on the Investment Committee of Zoscales Partners. Ashenafi completed his MSc in Economics from Aarhus University (Denmark) and his BSc in International Business from Addis Aarhus School of Business (Denmark) and Addis Ababa University (Ethiopia). Before founding Zoscales, he held a senior consulting role at E-Bridge in Germany and Energinet – the largest infrastructure company in Denmark.

Jacop B. Rentschler

[caption id="attachment_20340" align="aligncenter" width="500"] Jacop B. Rentschler[/caption]

Jacop is Co-Founder and Managing Partner of Zoscales Partners and sits on the Investment Committee of the firm. Before establishing Zoscales, Jacop held senior portfolio management roles at Rothschild Bank, UBS and Nordea Asset Management, where he managed private equity and multi-asset class investment portfolios for international investors. Using his 20 years of investing experience, Jacop provides strategic leadership for Zoscales through investment origination, structuring and value creation for investee companies. Jacop currently sits on the boards of CGF Crown Cork, Africa Jobs Network and Pioneer Diagnostic Center, portfolio companies of Zoscales Fund I, as well as the board of the African Private Equity & Venture Capital Association (AVCA). Jacop holds a CEMS Master’s in International Management from HEC Paris (France), a MSc in Applied Economics and Finance from Copenhagen Business School (Denmark) and a BSc in International Business from Aarhus School of Business (Denmark).

Frederick Kambo

[caption id="attachment_20341" align="aligncenter" width="500"] Frederick Kambo[/caption]

Fredd is a Partner at Zoscales Partners and focuses on deal origination, execution and portfolio company value creation. He also sits on the Investment Committee of Zoscales Partners and serves on the boards of Pioneer Diagnostic Center and Premier Hospital, portfolio companies of Zoscales Fund I. Before Zoscales, Fredd was the East Africa Director for The Abraaj Group’s USD 1bn healthcare fund and was responsible for origination, execution and management of investments across Kenya, Ethiopia, Tanzania and Uganda. Fredd also led the deployment of USD 130m into leading regional healthcare assets, while serving on their boards in various capacities. Before his time at The Abraaj Group, Fredd was a Principal at 46 Parallels, a pan-African private investment fund, and he began his career in London where he worked in M&A for Royal Dutch Shell and J.P. Morgan. Fredd holds an LLB (Law, Honours) from the University of Nottingham (UK) and an MSc in International Business from Nottingham University Business School (UK).

Zoscales Fund I is a $75m fund launched in 2017 and backed by a mix of commercial investors and development financial institutions. Via Fund I, Zoscales Partners has undertaken six investments across Ethiopia and Kenya within healthcare, FMCG and materials sectors. Fundraising is now underway for Zoscales Fund II, with a $200m target size and continued focus on core industries.


KPMG: Local Governments Becoming More Digitally Enabled, Data-Driven and Community-Focused

[caption id="attachment_20345" align="alignright" width="342"] Ismail Daham Alani: Head of Government and Public Sector, KPMG in Saudi Arabia[/caption]

Local government organizations are becoming more digitally enabled, data-driven, agile, and customer-centric, concludes a new and wide-ranging publication of KPMG. Based on research on eight major global economies including Saudi Arabia, “Future of local government - Embracing connectivity and customer centricity” presents key trends that shape local government in today’s hyper-connected reality.

The publication, which takes from Forrester Consulting research commissioned by KPMG, states that government organizations at the local level – and the cities and rural localities they oversee – now find themselves poised to drive progress for a new era of customer-centric public services.

The study examines the future of the local government sector from an array of key perspectives to trace the path forward into a bold new reality of predictive capabilities and unprecedented customer centricity.

Among these trends, the firm lists personalized services for every customer and the redesign of these services through the eyes of the customer.

In Saudi Arabia, for example, innovative customer-centric applications such as Amana 940, developed by the Ministry of Municipalities, Rural Affairs and Housing (MOMRAH), are transforming public services at the “street level.”

The Amana 940 app lets concerned residents report to authorities any violations they see that affect or disrupt regular municipal operations in neighborhoods and along roadways. Users can submit a digital photo to local authorities using a convenient phone application for quick follow-up and remedial action by local services. Such application fits the global trend for local governments to strive for citizen-centricity and creating value.

“Local governments in Saudi Arabia traditionally have different, more granular responsibilities within the government compared with the countries in this study, but in years we have seen an important shift towards the establishment of royal commissions and other highly empowered authorities to elevate work on city planning, community development, and promotion of historic areas,” commented Ismail Daham Alani, Head of Government & Public Sector, at KPMG in Saudi Arabia.

The study also noted that entities are shaping workplaces to reflect the values of today’s emerging workforce, emphasize to act with a sense of purpose and new levels of agility. One of the new governing entities in Saudi Arabia, the Royal Commission for AlUla (RCU), empowered with developing and governing a historic region in the Kingdom, has taken large steps in this direction.

RCU’s Hammayah Programme is a social responsibility initiative to encourage community engagement and provides 2,500 employment opportunities for AlUla governorate locals and inspires them to become representatives of the region’s historical heritage. The program is structured such that locals have a say in protecting and promoting the archaeological and heritage sites in AlUla. This empowers them to take ownership over their livelihoods, spread awareness within their community while also promoting AlUla as a tourist destination for regional and global visitors.

Lastly, the study emphasizes that the path to a greener and more sustainable future can begin with local authorities playing a critical role in driving progress on the environmental, social and government (ESG) front. As part of the Kingdom’s efforts to increase environmental protection and improve general livability in its cities, the $11 billion “Green Riyadh” project was launched.

The mega project aims to plant 7.5 million trees and develop more than 3,300 new parks and gardens to improve air quality and reduce the average ambient temperature, while increasing the city’s per capita green space. In addition, the Green Riyadh promotes the preservation of natural areas and biodiversity within the city and spread awareness among its constituents about sustainability.

“A fully connected government organization is important in enabling and supporting the shifting role of the government leadership, ideally extending the government’s arsenal of capabilities, capacity and reach, and ultimately helping to ensure inclusion, prosperity, and resilience,” Alani concluded.

[caption id="attachment_20346" align="aligncenter" width="900"] Riyadh city towers in Saudi Arabia[/caption]

News Highlights

KPMG New Report Presents Key Trends Shaping Local Governments in a Hyper-Connected Reality.

Personalized Customer Service Stands Key Trend.

Saudi Arabia Transforming Customer Services Through Amana 940 App, Developed by Ministry of Municipalities.

Saudi Royal Commission for AlUla (RCU) has Taken Large Steps in this Direction where ‘Hammayah Programme’ is a CSR initiative to Encourage Community Engagement.


World Bank on Sustainable Recovery: The Need for Long-Term Financing

[caption id="attachment_20349" align="alignright" width="300"] By Anshula Kant Managing Director and Chief Financial Officer, World Bank Group[/caption]

The COVID-19 pandemic is affecting every country's health system and economy to a degree not seen for a century or more. In developing countries, mounting an adequate response to address these simultaneous shocks has created fiscal challenges, especially for those that were already experiencing high levels of debt and that are unable to access funding on reasonable terms from international capital markets.

To obtain the financing they need to shore up their health systems, boost incomes, support businesses, and improve nutrition for poor and vulnerable households, developing countries have turned to the World Bank Group and other multilateral development banks. As in past crises, institutions like ours have responded promptly by substantially scaling up financial and technical support to help countries get back on their development path.

At the World Bank Group, over 15 months, through June 2021, we are making available up to $160 billion in financing to client countries. These resources are ensuring significant net positive flows to the world’s poorest countries; they are supporting governments’ policies and actions to address the health crisis, respond to the needs of households and firms, and build the foundations of a green, resilient, and sustainable recovery. Our financing is coupled with technical support, based on the best available analysis and drawing on international experience, lessons from evaluation, and cooperation with partner institutions.

The World Bank is financing its portion of the Bank Group’s scaled-up response by turning to international capital markets, raising low-cost, long-term funds that can be channeled to client countries. The World Bank offers investors safe-haven, liquid assets, with its triple-A credit ratings supported by strong balance sheets and shareholder support. In fiscal year 2020 (July 2019–June 2020), the World Bank issued a record $75 billion equivalent to support sustainable development projects and programs, a 40% increase over the previous year. In the spring and summer of 2020, as the World Bank accessed the markets, it also raised awareness for projects and programs that help countries address the health, social, and economic impacts of COVID-19.

With interest rates at historic lows—especially at the shorter-end of the maturity spectrum, where investors find themselves considering investments offered at negative yields in some markets—investors are seeking out longer-dated investments. This demand presents institutions like ours with new opportunities to tap long-term global savings to fund sustainable development. For example, the World Bank's 10-year bond issue in February 2021 raised US $3.5 billion from over 115 investors with a coupon of 1.250% p.a. Similarly, in January 2021, the World Bank issued its largest bond at the long end of the maturity spectrum—a Euro 2 billion, 40-year sustainable development bond with a coupon of 0.200% p.a., which received over 110 orders totaling more than Euro 3.6 billion.

The World Bank’s financing to help countries respond to COVID is also supporting major trends in global investing. The recent bonds attracted substantial interest from pension funds, insurance companies, and asset management firms, many of which are new to the institution’s funding program and have helped diversify its investor base. All World Bank bonds are sustainable development bonds: as such, they provide an additional benefit to investors who seek to align assets with best practices on environmental, social, and governance (ESG) standards.

Investors are also looking for floating rate products that offer an alternative to LIBOR. The World Bank is responding to this demand while supporting initiatives that establish robust alternatives to LIBOR, as illustrated by the first SOFR-linked benchmark in its peer group in 2018. Subsequent issuances added liquidity to the market and extended the yield curve up to 10 years with the recent SOFR benchmark transaction.

For client countries, more efficient and transparent debt management is one way that the pandemic crisis can help reduce debt vulnerabilities and rebuild their economies in a more resilient and sustainable way. The World Bank tailors its product offerings to meet their demand for variable or fixed-rate funding over a wide range of maturities. While some countries prefer variable rates within their debt management framework, others choose to fix the interest rates to achieve more predictable cash flows and benefit from low interest rates.

The COVID-19 crisis response offers many opportunities to rebuild stronger, greener, and more equitable institutions and development programs. The World Bank is committed to working with member countries to achieve these goals. Meeting ambitious investment objectives will require countries to mobilize significant resources, including development financing, private sector funding, and domestic resources. The pressure that the COVID-19 response has put on government balance sheets makes this even more urgent. But the pandemic has also created an opportunity for developing countries to optimize financing by securing the low rates and long-term financing that will be key to a lasting recovery, greater resilience, and progress on sustainability.

By participating in the World Bank's funding, private investors are playing a critical role in reigniting economic growth. The response to the pandemic gives them an opportunity to step up a positive economic and social impact in the developing world—ultimately helping pave the way for a green, resilient, and sustainable future.


YOA Insurance Brokers: Changing the Insurance Narrative — and Upscaling Professionalism

YOA Insurance brokers started out over 20 years ago with the mission to provide risk management services in Nigeria’s oil, gas, and energy sectors.

[caption id="attachment_20386" align="aligncenter" width="900"] Managing Director: Enitan Solarin LLB, BL, ACII[/caption]

The company has expanded its expertise to cover other sectors of the economy, including manufacturing, engineering, aviation, agriculture, retailing, logistics, and transport.

As the first ISO 9001:2015 certified broker in Nigeria, YOA adheres to global operating standards. It has gained global brand recognition and reputation from its partnerships with international organisations.

YOA Insurance brokers has maintained its enviable status in the industry thanks to its differentiation strategy. Insurance penetration in Nigeria has been consistently low, as a result of low acceptance levels and a lag in harnessing the potential of data and technology. “We are constantly engaging digital and technological channels to collect consumer and industry data that guides us as we work with industry stakeholders to develop and market new and existing products,” says managing director Enitan Solarin.

“Wider finance and insurance inclusion will enable more insurance penetration in Nigeria. We segment customers (insurance users and non-users) demographically and take the time to study consumer behavior. Afterward, we go ahead and initiate product development with underwriters, to address these segments that are left out.

“For our corporate clients, beyond being their brokers we are also their risk management partners.”

Educating, Not Selling

YOA is aware that knowledge gaps exist in the Nigerian insurance sector, negatively impacting policy uptake. “We’re plugging in communication executions that shed more light on the schematics behind how insurance works for specific areas in businesses and lives,” adds Solarin.

“We use thought-leadership articles to highlight the benefits of insurance. Webinars and podcasts are interactive channels we use to hear from the audience, identify their pain points, and advise accordingly.
“Internally, we have an academy aimed at tutoring young graduates, upscaling ourselves, and improving our knowledge base.”

YOA is driven by innovation and a thirst for excellence. In every area of the business, it explores improvements and new approaches to create risk solutions. “The limitations of the industry do not affect our passion for being innovative,” says Solarin. “This has given us the reputation of ‘outside-the-box’ thinkers. Our culture is one of excellence and innovation.”

Enitan Solarin

Managing director Enitan Solarin has three decades of experience in insurance — locally and internationally. Her leadership has propelled the organisation to attain a spot in the country’s top five Insurance brokers. She is a firm believer in challenging the status quo and has agility embedded in her way of working. She is also playing a leading role in the drive for gender balance in the industry.


Platinum Groupe Shows its Mettle by Growing In-line with its Clients

Zimbabwean investment banking firm Platinum Groupe specialises in creating relevant solutions that meet the needs of institutional, corporate and individual clients.

[caption id="attachment_20389" align="aligncenter" width="1000"] Chairman: Exodus Makumbe[/caption]

The group operates through its licensed business units: Platinum Investment Managers, Platinum Securities, Platinum Financial Solutions and Platinum Microfinance.

The Platinum Groupe brand emerged in 2010 from the restructuring and consolidation of separate business units. The streamlined operations have earned it an enviable reputation for integrity, consistency and performance over the past 10 years. “We value strong client relationships and consistent service delivery to our clients,” says chairman Exodus Makumbe.

Platinum Securities, operating since 1999, is a registered member of the Zimbabwe Stock Exchange, licensed by the Securities Commission of Zimbabwe in terms of the Securities Act.

Platinum Securities offers an efficient platform for investors to execute trades in stocks listed on the Zimbabwe Stock Exchange and the Victoria Falls Stock Exchange, as well as in fixed income securities such as corporate bonds and Treasury bills and bonds. Platinum Securities has developed a reputation of executing major transactions in the Zimbabwean market.

Platinum Investment Managers (PIM) dates back to April 2010, when fund and wealth management company MBCA Capital Management (Private) Ltd rebranded as Platinum Investment Managers (Private) Ltd. The company had been founded in 1999, as the asset management division of MBCA Holdings Zimbabwe (a subsidiary of Nedbank SA). It is registered in terms of the Asset Management Act and regulated by the Securities and Exchange Commission of Zimbabwe.

For the past 22 years, PIM has stayed in the top 10 in Zimbabwe in terms of Funds Under Management. It has striven to remain in the first quartile in terms of long-term investment performance — in line with its long-term view of the investment markets.

“This has been achieved on the back of a solid foundation of investment expertise, professionalism and trust,” says Makumbe, “generated from reliability and transparency of investment processes and strategies and the assurance of safety on client funds.”
The Funds under Management for PIM have grown from US$4.5million in 2010 to US$100 million in 2020 while market share for the same period has risen from around 0.25% in 2010 to 6% in 2020.

PIM offers investment services to private, corporate, pension fund and unit trust clients supported by the overriding principle: clients take the lead in setting objectives for PIM to meet.

The group has strengthened its position in investment banking by anchoring its business on corporate and financial advisory services. Platinum Financial Solutions (PFS), formed in 2007, has provided these services over the years.

PFS understands that business needs are diverse, and adds innovation and customisation to generic products to serve capital raising, private placements, business valuations, M&A, joint ventures, takeovers (management buyouts and leveraged buyouts), due diligence and tax compliance and administration.

Platinum Microfinance (PMF) is a licensed institution in Zimbabwe. It started out in 2019 to consolidate financial services with lending activities and to leverage on various group opportunities. It is regulated by the Reserve Bank of Zimbabwe. PMF provides a tailored range of lending services to clients — even those who may not have access to mainstream commercial banking.

Its product offering has grown to include salary-based loans, civil servant loans, SME lending, invoice discounting, micro-housing loans, agriculture loans and more.

“My team will build on this momentum to do even better and break new barriers. Platinum Groupe, as an integrated Investment Banking outfit, will have its fair share of contribution when the recovery story of Zimbabwe is written’’, says Makumbe.


OctaFX Launching in Europe: A Global Forex Broker that Means What it Says and Sticks to its Word

OctaFX brand has been established in 2011, provides a state-of-the-art online trading experience to seven million accounts.

The company is well-known for its competitive spreads and transparent approach. Even non-clients are familiar with the brand thanks to its community and charity activities. It makes sizeable donations, several times each year, to support infrastructure and humanitarian projects in joint ventures around the globe.

Since entering the European market, the company has followed the same client-centric philosophy that has worked so well internationally.

OctaFX goes the extra mile in several ways. It provides protection to ensure that traders with losing positions don't end up with a negative balance. It has full transparency, with no hidden fees — and "no hidden fees", it stresses, means exactly what it says.

The company offers no-swap fees, which accommodate long and short positions when trades extend overnight; clients aren't charged for swaps. OctaFX also champions commission-free transfers, with no fees on withdrawals or deposits.

OctaFX clients gain the ability to trade one of 28 different pairs with leverage up to 1:30, the most popular indices along with gold and silver up to 1:20 leverage, and oil with 1:10 leverage.

OctaFX uses the MetaTrader5 (MT5) platform, a feature-rich mechanism that provides streamlined access the foreign exchange market. Clients can enhance their trading experience by adding their preferred Forex Signals, or by customising their user interface. Mt5 users can embed different tools and use the built-in calendar and Stop-Limit orders.

OctaFX brand has won more than 40 awards since its foundation. Most recently, its CySEC licensed broker in Europe took CFI.co's “Best FX Trading Experience Europe 2021” honour.


PSP Places Responsible Investment at the Core of Its Investment Strategy

When the pandemic hit, the Public Sector Pension Investment Board (PSP Investments) was one of the first employers in Montreal to send its entire employee base to work from home.

[caption id="attachment_20363" align="aligncenter" width="900"] PSP Investments. Photo taken before the COVID-19 pandemic.[/caption]

It did so overnight — and with the full support of its people. In a year that challenged many financial institutions, PSP’s employees rallied around their new reality — and the organisation came out on top.

In fiscal year 2021, PSP achieved an 18.4 percent one-year return and net AUM reached a record high of $204.5bn, up from $169.8bn at the end of the 2020 fiscal year.

“While we focus on the long term, this past year demonstrated the strength and resilience of our portfolio through exceptionally turbulent times,” says president and CEO Neil Cunningham. “We also showed versatility and adaptability in managing the operational challenges of the pandemic, and in responding to some of the deeper social, economic and environmental issues that emerged.”

One of the long-term trends that has accelerated during the pandemic is the investor focus on ESG, including climate change. PSP sees significant investment opportunities in this space, notably in the transition to a low-carbon economy.

The pension fund manager integrates ESG risks — and opportunities — into its decision-making process for all active investments. “Once PSP makes an investment, it monitors and manages the associated risks and uses its ownership position to encourage responsible corporate conduct,” says Cunningham.

The aim is to protect and enhance the long-term value of its holdings. “PSP’s in-house responsible investments group employs a robust ESG integration framework, which it continually strengthens,” says Stéphanie Lachance, managing director of Responsible Investment. “As the world looks to rebound and recover from the pandemic, PSP remains committed to ensuring that its operations and investment strategies promote positive environmental, social, and governance outcomes.

“In this decisive decade for the planet, we see it as more important than ever that all segments of society work together to unlock a better future for people and the planet.”

In November 2020, Cunningham joined the CEOs of Canada’s eight leading pension plan investment managers — jointly representing over $1.6tn in AUM — in calling on companies to provide consistent and complete ESG information. “It will strengthen investment decision-making, and better assess and manage collective ESG risk exposures,” he says.

PSP is one of 14 global investment firms to join the Investor Leadership Network and contribute to the 2020 report Climate Change Mitigation and Your Portfolio: Practical Tools for Investors. It provides guidance for investors on strengthening climate-related disclosures, focused on decarbonisation scenarios in line with the Paris Agreement.

PSP Investments believes that taking ESG factors into account in the firm’s portfolio construction and investment decisions enhances performance and protects value in the long term.

PSP’s 2021 Responsible Investment Report can be found at www.psp.com

See more: In Conversation with Eduard van Gelderen, CIO at PSP Investments: Connecting to What Matters


In Conversation with Eduard van Gelderen, CIO at PSP Investments: Connecting to What Matters

Eduard van Gelderen, PSP’s CIO since 2018, leads the organisation’s Total Fund Strategy Group — overseeing multi-asset class investment strategies, total fund allocations, and exposures in terms of asset classes, geographies and sectors. He is also in charge of responsible investment, government relations, and public policy functions.

[caption id="attachment_20365" align="aligncenter" width="900"] Senior Vice President and Chief Investment Officer, PSP Investments: Eduard van Gelderen[/caption]

What’s your view of this year’s return?

It was a good year for PSP Investments, with a one-year net rate of return of 18.4 percent — the best in 10 years. Public equities recorded very strong performance amid the recovery that followed the COVID-19-induced decline in global equity markets at the end of the previous fiscal year.

A comparison over PSP’s longer investment horizon is also particularly meaningful. PSP’s return of 8.9 percent over the past 10 years exceeds the Reference Portfolio’s 8.2 percent return, which indicates that we continue to fulfil our objective of adding value through portfolio construction and active investment activities.

What impact did COVID-19 have on investment deal making and due diligence?

Interestingly, it didn’t slow us down. It simply challenged us to be more creative and find different ways to get things done. Our teams adjusted quickly to the new reality of remote working and were able to continue doing business. When they couldn’t travel to conduct due diligence on an investment, they relied on trusted partners.

What steps have you taken to embed responsible investment into PSP’s investment process?

Responsible investment has been an integral part of our investment process for many years — every transaction submitted to our investment committee includes an ESG assessment. For private markets, we assessed more than 140 direct investment opportunities from an ESG perspective — focusing mainly on employee health and safety, labour practices, business ethics, cybersecurity and climate change risks.

For public markets, we supported more than 150 ESG assessments, with proxy voting and engagement activities related to listed companies continuing to be an important area of focus too. I am very impressed that we were able to do all this in a work-from-home environment.

A significant part of our work is developing tools to harness and capitalise on the increasing amounts of ESG data available to us. This data will enable our ESG activities to become more fact-based. These new tools not only improve our capacity to assess risks but are also being used to help identify investment opportunities that arise in an ever-evolving landscape. This is a second important shift in our ESG approach. Our climate change toolkit helps our investment professionals assess climate-related risks and opportunities in all our private market investment opportunities. We are very keen to understand and adequately assess the investment opportunities and assets related to the energy transition, as well as low-carbon assets.

This is why we assembled a multi-asset class deal team — the Climate Working Group — to determine actionable investment opportunities and to start due diligence on a select number of them.


In Conversation with Vector Group’s Bryant Kirkland: Still Crazy (About Work) After All These Years — Fun Factor Is Running Strong for Kirkland

Bryant Kirkland is senior vice-president, chief financial officer and treasurer of Vector Group. He held the same roles at New Valley Corporation prior to its merger with Vector Group in December 2005. He was made Vector Group's CFO in 2006, and says arriving at work every day is fun — even after 29 years.

[caption id="attachment_20369" align="aligncenter" width="900"] Senior Vice-president, CFO, and Treasurer: Bryant Kirkland[/caption]

What excites you about the business world in general?

In a constantly evolving business world, what I enjoy most is the ongoing opportunity to learn and apply new skills. Our management team is intellectually curious, and we enjoy the entrepreneurial aspect of our jobs.

Every day is different and exciting, because we’re a dynamic company that demands our people continuously consider new ideas and concepts. We are constantly meeting new people who present the latest ideas or trends. And it’s exhilarating to see the final product and the long-term value built from applying a trend in an unrelated industry to one of our businesses.

What lessons did you learn from your earlier career experience?

Early in my career, I was fortunate to work with Ben LeBow, Vector Group’s founder, and Howard Lorber, our CEO since 2006. Ben taught me to always think outside the box by questioning, literally, every norm in the business – Liggett being the first tobacco company to settle litigation is the perfect example of Ben’s ability to see what others miss.

"Act decisively: once a decision is made, move forward with it and be accountable."

From Howard I learned three important lessons: building a business network is fundamental to professional growth; to achieve long term success, it is crucial to always pay attention to the smallest of details; and the value of iconic brand names.

As the son of an English teacher who taught with the Socratic method, I know the importance of deep and critical listening — and applying what I’ve learned. Listening skills, and knowing the right questions to ask, have been paramount in my development as a business leader.

What motivates and enthuses you about the business you now lead?

My involvement with Vector Group began in 1987; first, as an auditor and later as a tax advisor at Coopers & Lybrand. Over the past 29 years, it has been amazing to be part of a business that is constantly evolving and innovating to protect, grow and diversify revenue streams.

Vector Group is a holding company that has owned many businesses over the course of my tenure, but the one constant has always been a highly focused and intellectual management team.

I am proud to have been part of a leadership team, led by our founder, Ben LeBow, and our CEO, Howard Lorber, that has generated above-market total shareholder return over the past 25 years. What continues to motivate me is the potential for the future and thinking about the platform for growth in 2021 and beyond.

Our real estate business has shown significant growth over the past two years. That growth caused us to think about what comes next for our industry, and we have made some exciting strategic investments in young and early stage PropTech companies. Our stakeholders will gain access to fast-changing and industry-leading technology.

We’ve leveraged our institutional real estate knowledge and experience to invest in technological tools that we believe will provide real benefit through digital capabilities and data that enhance the real estate experience.

And, as Vector Group’s CFO, I’m also excited about the potential of our technology investments to improve our efficiencies and financial reporting.

What is special about your organisation’s management style?

Our core financial management team has worked together for much of the past 26 years. Over that time, we have developed a lot of trust and cohesion, built on a foundation of honest and open communication.

The collaboration within our C-Suite during the pandemic was an overriding factor in our financial performance in 2020. Every day, Howard Lorber, Richard Lampen, our COO, Marc Bell, our general counsel, and I faced unprecedented challenges and we collaborated to navigate them. We thank CFI.co for recognising our performance and are honoured to receive this award.

What are the key strengths of the team you lead?

I have come to understand how important chemistry is when building a team. It’s crucial to find a group of people who recognise your strengths and make up for your weaknesses, and who won’t be afraid to challenge your thinking.

In addition to smart thinkers, there is great value in continuity, and my team has worked together for many years. Debbie Fasanelli, our holding company’s VP of finance, and Fred Schmid, our holding company’s VP and controller, have worked in our finance department for 15 and 13 years, respectively. Two members of Liggett’s three-person executive cabinet — Nick Anson, president and COO, and Frank Wall, executive vice-president of manufacturing — began in finance, and I’ve worked with each of them for more than 20 years. And our group has worked closely with Marc (Bell) for many years, as well as the Douglas Elliman management team.

And while tenure is valuable, it has always been important for our team to be open to new ideas and fresh ways of thinking.

In terms of my personal growth, Ben and Howard, Dick (Lampen) and Ron Bernstein, who is non-executive chairman of Liggett, have all been great mentors throughout the years. They have set a great leadership example.

The challenges of the pandemic have made me a better leader and increased my daily interaction with our staff members. Our team’s resilience has strengthened significantly.

What are the key traits of a good corporate leader?

Establish a strong team built on trust, and when making big decisions, be sure to listen to all sides. The most effective leaders know what questions to ask, and how to ask them. Focus on how you ask questions and how the decisions you make will impact your company’s customers.

Seek new ideas and trends by participating in outside organisations to enhance diversity of thought. That’s important in a small-cap company, and our management team and the Audit Committee of our board of directors have supported and encouraged this.

Then, act decisively: once a decision is made, move forward with it and be accountable.

Bryant Kirkland holds a BSc in Business Administration from the University of North Carolina at Chapel Hill, and an MBA from Barry University. He is licensed as a Certified Public Accountant in Florida, New York, and North Carolina. He is also a licensed real estate broker in Florida.


Vector Group’s Solid History and Sound Strategies Stand It in Good Stead Across Decades and Sectors

Vector Group is a holding company whose strategy for the past 30 years has been to maximise stockholder value by increasing the profitability of its subsidiaries.

The group’s total shareholder return over the past 25 years, including reinvested dividends, is 17.1 percent per annum — compared with 9.7 percent for the S&P 500 and 11 percent for the S&P 600.

The group controls two iconic brands: the Liggett tobacco business and the Douglas Elliman real estate company. “Our exceptional stockholder returns over the past 25 years are the best evidence of our focus on maximising stockholder return,” observes Bryant Kirkland, Vector Group’s senior vice-president, CFO and treasurer. That is the result, he believes, of lateral thinking and a focus on the power of the brands Liggett and Douglas Elliman.

“The mission statement of our Liggett tobacco business is to offer consumers the best value propositions in the US cigarette industry,” says Kirkland. “The business has quadrupled its profits over the past 20 years.”
From March 2010 to March 2020, Liggett was the only US cigarette company to grow volume in an industry that declined by some 3.5 percent per year over that time.

Liggett broke ranks with the tobacco industry and was the first to settle smoking-related lawsuits brought by states Attorneys General in the mid-1990s. By being the first to settle, Liggett was able to negotiate a significant cost advantage.

This, combined with a reputation for offering the best value propositions in the US tobacco industry, enabled Liggett to quadruple profits — from tobacco operating income of $71m in 2000 to $331m over the 12 months ending March 31 this year.

Real estate has shown significant growth in the past two years. Vector Group capitalised on the Douglas Elliman brand by expanding to, and investing in, Florida and California. “We continue to focus on its growth in those markets and others that are complementary to the New York City market,” says Kirkland, “where we have a leadership position.”
The sector is constantly evolving, which prompts out-of-the-box thinking. As a result, Vector Group has expanded into the emerging property technology (“PropTech”) sector. “We believe it will provide real benefit to Douglas Elliman’s agents and improve our efficiencies,” says Kirkland.

“Our approach is to invest strategically in young and early-stage PropTech companies so that our stakeholders gain access to fast-changing and industry-leading technology. We have significant institutional real estate expertise in making these investments, which will provide our agents with new tools and analytical data to enhance the real estate experience for home-buyers.”

Vector Group is proud of its pandemic response; it prioritised the health and wellbeing of employees while continuing to perform well by financial metrics.

At Liggett, the cigarette factory was pre-emptively closed, with strict safety protocols implemented before gradual reopening began just two weeks later. Liggett fulfilled all orders and shipments on schedule, and, at retail, continued to efficiently execute its two-brand strategy.

At Douglas Elliman, there was an initiative to foster relationships with employees and agents, and to address the social and economic impact of the pandemic. Douglas Elliman hosted — and continues to host — company-wide virtual town halls, podcasts and communication efforts across all regions. It also converted its training and educational course to an online format and continued to support diversity efforts, including Aspen Gay Ski Week, the NAACP Legal and Education Fund, and various health and social charitable organisations.

“The residential real estate business is built on personal relationships,” says Kirkland, “and Douglas Elliman’s team of 750 employees and 6,700 agents distinguishes it from the competition.”

Douglas Elliman has been recognised as one of America’s best employers. “As we move into the second half of 2021, we continue to engage and connect with our employees at Liggett and Douglas Elliman, as well as Douglas Elliman’s agents. We are building on the initiatives we began in the pandemic.”

Vector Group's financial management team’s long-term focus has led to a sterling financial performance during the pandemic. “We had built reserves of about $425m in available cash and investments before the pandemic, and that liquidity supported us during the adjustments we made. We invested in our businesses in 2017 and 2018 by implementing a long-term strategy to increase unit volume at Liggett, and invested in the growth of new markets at Douglas Elliman.”

Those investments, plus a strong balance sheet, provided a critical mass of revenues during 2020. The result was an increase in operating income, from $231m in 2019 to $340m over the 12 months ending March 31 this year — a 47 percent increase in 15 months.

“We identified and took the opportunity to refinance Vector Group's Senior Secured Notes in January 2021 for eight years.” This was opportune timing to secure favourable rates and optimise the group’s capital structure, while also working with Liggett to increase its borrowing capacity under its credit facility from $60m to $90m.

On to the real estate side of the business, since 2013 the Douglas Elliman brand name has been grown by focusing on markets complementary to New York City. Douglas Elliman’s name is associated with service and luxury, and markets synonymous with those values were selected. The company’s performance in Florida and California proved the worth of that strategy.

“That’s why we’re excited about the PropTech investments,” says Kirkland. “We believe they will deliver stockholder returns by providing real benefit to Douglas Elliman’s agents and customers, while also providing efficiencies to our administrative functions.”

The Vector Group management team has decades of experience in the sector, which brings obvious advantages in analysing investments. “Our agents are excited about the new tools and analytical data that this technology will deliver.”

Every corporation is rightfully addressing ESG issues now, and Vector Group is proud of its long history of doing things “the right way”. Liggett is the only major tobacco company to carry “Smoking is Addictive” warning labels and list ingredients on packaging. “We will continue to focus on ensuring the constituents of our supply chain are well-established, reputable organisations that respect the legal requirements of the jurisdictions in which they operate.”

All businesses face the challenge of complacency, but Vector Group's financial management team has demonstrated consistently creative solutions to maximize stockholder value.

Liggett has been a long-time disrupter in the market, being the first US company to settle smoking-related lawsuits in the 1990s and, more recently, addressing marketplace changes. “We’re well-equipped to navigate the challenges that come our way,” says Kirkland. “In real estate, our strategic technology investments will ensure our agents continue to deliver outstanding service to our customers — and make us more efficient as a business.”


Bank One: Supporting Mauritius' Efforts to Emerge as a Private Wealth Hub for Africa

[caption id="attachment_20375" align="alignright" width="300"] Author: Guillaume Passebecq Head of Private Banking & Wealth Management[/caption]

The last few years have been characterised by a number of initiatives to identify new areas of activity to allow Mauritius’ financial services sector to move up the value chain and increase its contribution from 12 to 15% of the GDP as well as double, in actual terms, its contribution to US$1.9bn by 2030.

The most noteworthy exercise in this space was the Blueprint for the Financial Services Sector commissioned by the Ministry of Financial Services and the Financial Services Commission (FSC), which highlighted Mauritius’ potential as a private wealth structuring jurisdiction. Published in June 2018, the Blueprint by global consulting firm McKinsey noted that offshore private banking and wealth management is the IFC's third-largest sector, with a banking revenue pool of US$94 million, Assets under Management (AuM) of US$8.2 billion, and approximately 300 full-time employees.

Within this, offshore private banking and wealth management for Africans was identified as a major opportunity, offering potential growth of 7 to 8% per annum to create a US$20 billion revenue pool by 2030. Indeed, the Blueprint found that the compelling value proposition offered by the island economy for private banks, wealth managers and High Net Worth Individuals (HNWIs) places Mauritius in an ideal position to capture a significant share of this market.

Evolving Private Wealth Landscape in Mauritius

Against this backdrop, the private wealth industry in Mauritius continues to experience significant transformation, driven by greater exposure to international standards both in terms of pure banking products and services as well as more sophisticated investment solutions, and also by the increasing trend towards digitalisation in a post-pandemic world.

When it comes to sophisticated investment solutions, the fact that Mauritius has historically attracted, and continues to attract, foreign investors is a key element of our business model at Bank One. We believe that such savvy investors look for a more holistic advisory solution that addresses their needs across a wide range of financial products and services.

In addition, alignment with international laws and standards has also contributed to making the Mauritian financial services sector more transparent and robust. Recent EU decisions are forcing Mauritius to reinvent itself as the industry’s development relies even more on internationalisation and its ability to adapt to these standards.

Last, but not least, the local private wealth landscape has also experienced significant digitalisation efforts in recent years, with the introduction of real-time digital access and a strong custody services offer. HNW customers are, in particular, looking for a hybrid approach as they expect both the personal touch from their relationship managers as well as a digital banking experience where advisory services can be provided remotely.

Changing Customer Expectations in a Post-pandemic World

Indeed, from a pure banking perspective, customer behaviour and expectations are constantly evolving. The pandemic has accelerated this evolution, with customers now demanding a seamless digital banking experience using mobile applications, as well as a digital-first communication model, from their financial service providers.

Furthermore, in every crisis, clients expect greater proximity from their banks and a close follow-up of their investments. The current period of financial stress has brought forward the resilience of Bank One’s Open Architecture model, as a multi-management investment solution for reducing performance volatility and providing best-of-breed products from multiple global providers.

The crisis has also placed greater emphasis on the security of clients’ assets amidst greater risk and volatility. At Bank One, our primary focus is the protection and growth of our clients’ wealth, and we make sure that their investments are kept off-balance sheet with a trusted depository like Euroclear - rated AA+ by Fitch Ratings and AA by Standard & Poor’s - acting as the provider for securities settlements. Thus, we support our clients to preserve, manage and grow their wealth optimally.

[caption id="attachment_20376" align="aligncenter" width="683"] Bank One: Head Office[/caption]

Staying at the Forefront of Digital Innovation at Bank One

At Bank One, we have been able to navigate through the crisis and ensure business as usual thanks to the digitalisation of our internal processes. We have invested in digital channels such as a revamped Internet Banking platform, a new Mobile Banking application and a full-fledged Custody platform.

Staying ahead in an ever-evolving landscape, we also founded the Investor’s Circle, a biannual networking event that brings together private investors, institutions, asset managers and service providers. Launched as the island’s first B2B platform for finance professionals, it allows players from our industry to connect, exchange ideas and address shared challenges.

We are also proud to be the first bank to have successfully on-boarded a Mauritian Rupee Fund on the Euroclear platform and executed a subscription order - an endeavour that has greatly benefited local fund management firms that can now target a wider range of investors across geographical locations who are keen to leverage Mauritius as a private wealth hub.

Africa Rising in the Private Wealth Space

If we look at opportunities in the private wealth landscape in Africa, it is extremely encouraging to note that, according to Knight Frank’s Wealth Report 2021, the African private wealth boom is second only to Asia. Indeed, the report forecasts that Africa will see the second biggest regional five-year UHNWI growth rate – 33% – led by Zambia (40%) and South Africa (32%). Furthermore, the outlook for households earning more than US$100,000 a year is even more positive according to Oxford Economics, which is forecasting 139% growth over the same period. Meanwhile, the Global Wealth Report 2021 by Credit Suisse foresees Africa growing robustly, and at roughly the same rate as the leading economies of China and India, when it comes to wealth gain by emerging economies.

As a local Mauritian bank with two key shareholders, CIEL Finance Limited and I&M Group PLC, with both entities owning sizeable banking operations in Madagascar, Kenya, Tanzania, Rwanda, and Uganda, Bank One is among only a handful of banks in Mauritius to have a tangible presence in Africa. We aim to offer the Mauritius advantage to clients looking to invest or establish a foothold in Africa and have noticed increasing interest from African Institutions in using Mauritius as a global hub for their investment.

This, in turn, has spurred Bank One to launch a dedicated offer for institutional clients. Our innovative portfolio management services for institutional and private clients make it possible for investors to select the best Asset Management companies and investment funds, both local and international. Moreover, through our Securities & Custody Services team, we offer such clients core banking services and the security of a global custodian. We play an important role in enabling institutional investors and pension funds to give their members confidence that their assets are being kept safe, with our industry stringently regulated by the Financial Services Commission and the Bank of Mauritius. Finally, thanks to our vast proprietary network and I&M Group’s strong footing, our clients can leverage our negotiation skills and local market expertise to gain access to fast-growing economies in Africa such as Kenya and Rwanda.

Bringing the Best of Both Worlds to Africa: Personal Touch with an Innovative Mindset

Ultimately, when it comes to private wealth management, the importance of a personalised approach cannot be emphasised enough. As a boutique bank, we have relationship managers who take the time to understand our clients’ ambitions and risk appetite, before defining their strategy and creating a customised roadmap to achieve their goals.

Moreover, our Open Architecture model for Wealth Management and state-of-the-art Custody platform, coupled with a clear vision and a team of accomplished professionals, have allowed us to remain true to our commitment to customer delight, which underpins the strength of our operations.

Finally, our main shareholders – CIEL Finance and I&M Group – provide us with the added opportunity to diversify our client base even further, and we leverage on their sizeable banking operations in Madagascar, Kenya, Tanzania, Rwanda and Uganda towards positioning Mauritius as a private wealth hub for growing African economies.

About the Author

Guillaume is an International School of Management (IDRAC) graduate who has spent his entire career in the banking sector. He started off as a Portfolio Manager at B* capital Paris, the BNP Paribas brokerage house in 1999. In 2007, he was appointed as Head of Sales at BNP Paribas Personal Investors Luxembourg. He joined AfrAsia Bank in 2014 and was subsequently appointed as Head of Private Banking. Guillaume joined Bank One as the new Head of Private Banking in March 2017. He brought along the needed expertise to uplift the Private Banking offer. Following the setting up of an International Custody platform, Securities Services and External Wealth Managers Desk, our clients, both high-net-worth and institutional, now have access to the required tools for an optimal wealth management experience. The Bank’s array of clients has also been widened to accommodate Asset Managers, Financial Institutions, Investment Funds, Pension Funds and Family Offices through a one-stop shop and Open Architecture model.


Deutsche Oppenheim Family Office AG: Diversification During Financial Crisis Showing Dividends for Family Office

No investor could have foreseen the Covid-19 pandemic. Natural disasters are unpredictable events, and uncertainty is one reason for the premium involved in taking risk. Deutsche Oppenheim Family Office AG, one of the leading multi-family offices in the German market, believes investors can prepare for extreme scenarios by diversifying their portfolios.

There are many layers to optimal diversification. That investors should diversify across single stocks, regions and sectors is common knowledge. This eliminates idiosyncratic risk, making portfolios resilient to the performance of individual companies. But what about the performance of the world economy? Which asset classes provide a hedge for global shocks such as 2020?

Bad news first: many asset classes that promise diversification do not provide a hedge. Corporate bonds, for example, are – statistically speaking – a hybrid of equity- and interest-rate risk. The lower the rating, the higher the equity-risk. This is the reason why high-yield bonds mostly correlate with equities and less with interest rates. Similarly, hedge funds are a statistical combination of primary asset classes such as equities, bonds, FX rates, and commodities. Hedge funds like to sell their performance as market-neutral, but often fail in times of financial distress.

"Hedge funds like to sell their performance as market-neutral, but often fail in times of financial distress."

This is the primary reason that Deutsche Oppenheim Family Office believes none of these asset classes provide a real hedge in the case of a financial crash. From February to March 2020, broadly diversified European and US corporate bond indices lost eight percent in euros, and 12.4 percent in dollars. While corporate bonds reduced the 30 percent loss of a broadly diversified stock index, they did not provide a real hedge. A global high yield bond index was even less effective, by losing 22 percent in dollars. “Unfortunately, most asset classes failed to serve as a hedge: emerging market and convertible bonds also lost around 22 percent, a global commodity index fell by 19 percent, and a diversified hedge fund index lost almost 11 percent in dollar terms,“ says Deutsche Oppenheim’s director of quantitative investment solutions, Vladislav Gounas.

How about government bonds with low-default risk, currencies like the greenback, and commodities such as gold? These asset classes can provide a real statistical hedge since they approximate latent market-risk factors. “Suppose we ask a representative investor what risk factors drive global capital markets, that is, all equity, bond, FX, and commodity markets,” says Gounas. “Possible answers might include economic growth, monetary policy, and low interest rates. The good news is that there is a purely statistical answer to this question by combining the time series of all global equity, bond, FX, and commodity markets (as well as some macroeconomic variables such as inflation) and applying a “big data” concept called principal component analysis. This technique allows us to extract latent market-risk factors directly from financial time series.”

These purely statistical risk factors explain the movements of global capital markets by construction. The four most important risk factors already explain 67 percent of the movements of all equity, bond, currency, and commodity markets between 1999 and 2020. “The explanatory power increases to 77 percent when we look at the six most important risk factors,” says Gounas. “A handful of risk factors can explain the complex movements of global capital markets. Is that not surprising? These risk factors have the benefit of being perfectly uncorrelated with each other. Investors could construct perfectly diversified portfolios if they were able to directly invest in these statistical risk factors.”

While these perfectly diversified risk factors are not directly investible because they are purely statistical, one can sufficiently approximate them. It turns out that risk factor one mainly correlates with equities. Risk factor two has a high correlation to the USD/EUR rate, and risk factor three correlates strongly with government bonds. Finally, risk factor four exhibits a high correlation with gold. Summing up, by approximating the four most important risk factors with equities, dollar exposure, government bonds and gold, investors can construct efficiently diversified portfolios. This is an easy to implement result since all of these asset classes are investible via cost-efficient ETFs.

“Equities have the purpose to generate return during positive capital market scenarios,” says Gounas. “During less optimal scenarios, dollar exposure and currency-hedged US government bonds serve as a hedge. In extreme events such as hyperinflation, the best bet is gold.” Looking back at 2020, the greenback provided a hedge to equities when the panic in the market was largest (mid-March 2020). Currency-hedged US government bonds outperformed their European counterparts, and gold gained in value. Market scenarios where equities, bonds, the US dollar and gold all fail are unlikely – “and in that case, we should stay away from capital markets”. For most investors, this is not a valid option.


Vladislav Gounas: Whenever in Doubt, Choose Passive Over Active Investing

Vladislav Gounas, director of quantitative investment solutions at Deutsche Oppenheim Family Office AG, has years of experience in strategic asset allocation and risk-management.

[caption id="attachment_20395" align="aligncenter" width="900"] Director of Quantitative Investment Solutions: Vladislav Gounas[/caption]

Over his time with the family office, he has consulted with, and advised, high-net-worth individuals, foundations, and institutional investors on projects of varying complexity and size.

Gounas holds a PhD in Finance from EDHEC Business School, where he conducted research in the field of algorithmic trading strategies. “My day-to-day job consists of applying quantitative techniques and insights from academic research into practice,” he says. “The biggest challenge for investors is uncertainty. Quantitative models can provide them with the necessary tools to form an informed investment decision.”

Before investing real money, every Deutsche Oppenheim client undergoes an extensive process, starting with strategic asset allocation. That translates client preferences for return and risk-tolerance into a strategy.

“Strategic asset allocation is the most important step in every investment process,” Gounas believes, “because it determines the success or failure of strategies.

“In this step, only the client decides, while our function is to support them in formulating an investment decision by developing quantitative statistics of future opportunities and risks.”

Once the client has defined the strategic asset allocation, Deutsche Oppenheim offers a natural implementation with its PassivePlus concept. Exchange-traded funds (ETFs) form the core of the concept as evidence shows that passive investments outperform active ones in many markets.

According to Gounas, the US stock market provides the best example. “However, in a few markets, managers have generated persistent ‘Alpha’ over time, such as in European or emerging stock markets,” he says. “We invest resources and effort in differentiating whether markets provide that potential or not. When in doubt, we always choose a passive investment.”

If a market offers potential, the next step is to diversify across Alpha sources and management styles. “Diversification across managers is key, because it means we don’t need to be right about all the funds we choose,” says Gounas. “We need only be right about some of them — which makes a decisive difference, from an econometric point of view.”

Diversification across managers also reduces cluster risks, avoids implicit “style bets”, and produces an attractive risk-return profile relative to the strategic benchmark. “The key idea of PassivePlus is to start from a purely passive investment. Active funds are only taken into consideration if they can provide real value from a statistical standpoint.

“Even then, they serve the sole purpose of financing the costs of our passive investments.”

The PassivePlus concept has shown empirical success, consistently performing among the top 10 percent of funds of its Morningstar peer group.