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Volume 9 www.iaireview.org Number 1 January - March, 2012

Joseph E. Stiglitz The Perils of 2012

Nouriel Roubini The Straits of America

Christine Lagarde Reinvigorate the Rich to Help the Poor


Contents 4 WORLD NEWS HEDGE FUNDS 8 Looking for talents in the Hedge Fund Industry Interview with Jonathan Buffa, Managing Partner at Tyler Capital Group by Claudia Chiari

10 Unsolicited Book Review, another point of view. Interview with Christoper L. Cruden, CEO of Insch Capital Management AG by Virginia Landoni

14 Looking back at the Callanish Standing Stones to find hedge fund solutions Interview with Jonathan Eoin Murray, Partner & CEO at Callanish Capital Partners by Claudia Chiari

FAMILY OFFICE AND WEALTH MANAGEMENT 56 The Family Office Fund Manager Selection Process by Richard Wilson

16 Networking and education: how to develop hedge funds Interview with Mark Shore, Chief Investment Officer at Shore Capital Management by Claudia Chiari

ASSET MANAGEMENT 20 A platform to make it easy for the investors Interview with Irina Zeltser, Founder at AARM Corporation by Scarlett Williams

24 The Asset management Spain Scenario through the words of Eusebio Diaz Morera by Virginia Landoni

ETFS 58 ETFs: a look “under the bonnet” to see how they work Interview with Francis Groves, Author of Exchange Traded Funds, A Concise Guide to ETFs by Alessia Rosa

FOREX, CFD AND FINANCIAL SPREADBETTING 62 Looking for low risk and transparency in the FX Market Interview with Claes-Henrik Claesson, Managing Director at Claesson Capital Introduction by Scarlett Williams

GLOBAL ECONOMY 64 The Straits of America by Nouriel Roubini

26 EVENTS AND CONFERENCES

66 “Trust. Has It Become A Curse Word?”

32 IAIR LEGAL AWARDS

by Michael J. Weiner

ISLAMIC FINANCE 36 The Global Financial Crisis and its implication on Islamic Finance by Aly Khorshid

REAL ESTATE 46 Canada as a profitable investment for the future by John O’ Hearn

68 Reinvigorate the Rich to Help the Poor by Christine Lagarde

70 Message to Europeans: View Africa’s challenges and barriers as investment opportunities. Interview with Jacqueline Chemhanzi, Africa Leader at Deloitte Consulting by Alessia Rosa

74 The Perils of 2012 by Joseph E. Stiglitz

50 Self Storage Real Estate Investments are a stable investment during this forever recession

76 JOB & CAREERS 78 DIRECTORY

by Darell Austin

52 Hawaii Real Estate: a “unique” way of life Interview with Katie Minkus, Real Estate Broker and President at West Hawaii Association of Realtors by Alessia Rosa ®

Head Office Editrice Le Fonti S.r.l. Via R. Franchetti, 1 20124 Milan, Italy Tel. +39 02 8738 6306 Fax +39 02 7063 5839 E-mail info@iaireview.org www.iaireview.org

Pubblisher/Director Guido Giommi Editor, Europe Stephanie Lang Editor, America Scarlett Williams Editor, Asia Eric Davide Editors Claudia Chiari Virginia Landoni Alessia Liparoti Alessia Rosa

International Subscription Kate Rios Graphic Design Simona Gregoriani Art Director Gloria Lancellotti

Jan. - Mar. 2012 - International Alternative Investment Review

International Alternative Investment Review Volume 9, Number 1 January - March 2012 ISSN 2037-5735 Copyright © 2012 International Alternative Investment Review. All Rights reserved. Reproduction in whole or in part is prohibited without prior written permission of IAI Review. Information is based solely on sources believed to be reliable, though the accuracy has not been verified by IAI Review. Neither the information in IAI Review nor the opinions expressed should be taken as a solicitation for investment. IAI Review accepts no liability for actions based on the information herein.

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WORLD NEWS

World News JP Morgan presents new portal for fund admin clients JP Morgan Worldwide Securities Services (WSS) has presented the Fund Reporting and Media Exchange Site (FRaMES), which provides Mutual Fund Administration regulatory services clients with real-time access to a secure, collaborative work environment for fund administration activities. The FRaMES portal is the newest component of JP Morgan ACCESSsm, the firm’s web-based platform for multiple information, compliance and portfolio management applications. M&A outlook varied across the EMEA region as businesses continue to be affected by the sovereign debt crisis and ongoing instability London, 14 February 2012: The full-year 2011 edition of EMEA Deal Drivers, published by mergermarket in association with Merrill DataSite, provides an extensive review of M&A activity in the EMEA region, offering a detailed analysis of specific sectors and regions and identifying emerging trends in deal flow for the upcoming year. Across the EMEA region, 2011 was split between an encouragingly busy first half followed by a slump in M&A activity triggered by the eurozone debt crisis and political upheavals. Year-on-year M&A activity is still up, however, with 10% more deals announced this year than last and aggregate deal value up 1%. Some key findings in the report include: • TMT has provided a reliable stream of high-profile, high value transactions over the past year, such as the €7.2bn purchase of UK-based software company Autonomy by HP and the €2.4bn purchase of US cloud computing business SuccessFactors by German SaaS specialist SAP. • Across the EMEA region, the Consumer space has stood out as one of the most resilient sectors for M&A, and after the recent dip in activity, expectations point towards the second half of 2012 witnessing a resurgence in deal making. • Healthcare and nutrition is currently a hot subsector, driven by the increasing sophistication of consumers in growth territories and the attractive margins that follow. • The outlook for EMEA in 2012 varies significantly between countries. Germany has already demonstrated that it is poised to build a strong economic future come-what-may, and so it is not unreasonable to expect more deals to take place there this year than last. • mergermarket’s Heat Chart, which is based on proprietary news intelligence tracking prospective company sales, indicates the second half of 2011 saw an 18% reduction in the number of ‘company for sale’ stories as tracked by mergermarket compared with the first half. This represents a considerable correction after the optimism seen early in the year, and is reflective of a difficult six months that has damaged the overall deal making outlook. To view the full report, visit http://www.mergermarket.com/pdf/EMEA_Deal_Drivers_FY2011.pdf Pakistan to host an International Conference on Islamic Funds The Financial world is banking upon the Islamic Finance

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and Shariah Compliant Investment Funds, in the backdrop of the current global financial crisis, which in turn is bringing a boost to the Islamic Funds and Sukuks. Considering the healthy global growth in this sector, an International Conference is being organized on April 23, 2012 in Karachi in order to strengthen the Islamic finance sector in Pakistan. Research papers will be presented and productive discussions will be undertaken to highlight the role of Pakistan in the global Islamic finance market. Islamic finance is making healthy growth in Pakistan which now stands over 1000 Islamic banking branches from 05 Islamic Banks and 13 Conventional Banks with Islamic finance operations. In addition, we have good support from 05 Takaful Companies, Mudarabah Companies, 20 Islamic Microfinance Institutions, over 30 Sukuk issues and 15 fund managers have launched their Islamic Funds, which have made prominent role of Pakistan in the global Islamic finance canvas.The organizer of this International Conference and Chief Executive Officer, AlHuda-Centre of Islamic Banking and Economics, Mr. Zubair Mughal while declaring the objectives behind this conference, highlighted the valuable contribution by Pakistanis in research, Shariah and skilled professionals bringing strong alternative in a difficult financial situation faced by the world.Mr. Zubair added that Islamic funds are rapidly gaining popularity in US$1.3 Trillion worth of global Islamic finance market gaining 6.1% share from over 650 funds spread all over the world, of which the highest 230 is in Saudi Arabia while Malaysia has 172, Cayman Island 59, Bahrain 46, Luxemburg 29, Dubai 16, Singapore 11 are the prominent players in the world. Zubair Mughal further informed the media that a healthy number of participants from different countries will be attending in this conference which will be followed by a Two Days Specialized Workshop on the Shariah and Regulatory Framework for Islamic Funds on 24th and 25th of April, 2012 to be conducted in Karachi, Pakistan. Three new UBS equity index ETFs launched on Xetra with focus on growth stocks Three new exchange-traded equity index funds issued by UBS Global Asset Management – MSCI USA Growth TRN Index SF A-acc (USD), MSCI USA Growth TRN Index SF Iacc (USD), and MSCI EMU Growth TRN Index SF, A-acc (EUR) – have been tradable in Deutsche Börse’s XTF segment since Tuesday. The MSCI Daily TR Net Growth USA USD Index includes all companies domiciled in the United States that are part of the companies that represent 85% of market capitalisation in the US and in addition are defined as growth stocks. Growth stocks are characterised by a higher price/earnings ratio. The index currently contains 374 companies. Two of the UBS ETFs reflect the performance of this reference index with the difference that unit class I is primarily aimed at institutional investors and unit class A at private investors. The MSCI Daily TR Net Growth EMU Local Index also focuses on growth stocks, but in the euro zone. The third UBS ETF enables investors to invest in the performance of a current total of 149 companies which have demonstrated continual high growth. The product of-

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fering in Deutsche Börse’s XTF segment currently comprises a total of 936 exchange-listed index funds with an average monthly trading volume of more than EUR16 billion. Horizons Gold Yield Fund announces conversion into ETF The Horizons Gold Yield Fund will, subject to regulatory approval, convert into an open-end exchange traded fund and be renamed the Horizons Gold Yield ETF after the close of business on 27 February, 2012. Upon completion of the Conversion, the Class E units of the ETF (the “Class E Units”) will, subject to regulatory approval, begin trading on the Toronto Stock Exchange (“TSX”) on 28 February, 2012, under the symbol HGY. Concurrent with, but unrelated to, the Conversion, the ETF will begin issuing Advisor Class units (the “Advisor Class Units”) which will, subject to regulatory approval, also begin trading on the TSX on February 28, 2012, under the symbol HGY.A. U.S. Bancorp presents first ETF MST U.S. Bancorp launches first ETF MST U.S. Bancorp Fund Services has launched its first exchange traded fund (ETF) multiple series trust (MST) and a partnership with Exchange Trade Concepts (ETC). This newest trust, called ETF Series Solutions (ESS), extends the benefits of a shared trust model to one of the industry’s fastest growing segments. AlphaClone, LLC and Zacks Investment Management will be the first two funds for the trust. AlphaClone will be offering one fund and Zacks Investment Research will be offering two funds, all with unique strategies. AIMA ANNOUNCES AIMA BRAZIL NETWORK The Alternative Investment Management Association (AIMA), the global hedge fund association, has announced the formation of its AIMA Brazil Network. The AIMA Brazil Network will feature a series of networking events for AIMA Brazil members and guests. A working lunch series in Sao Paulo has already commenced, with subjects such as fund regulation, shareholder activism, operational due diligence, AIFMD and international investments being discussed. AIMA announced the launch of its Brazil initiative and the appointment of a local representative, Michelle Noyes of BRZ Investimentos, last year, saying that it saw its role as opening up an international channel of communication so that the Brazilian industry could engage in dialogue on key industry issues with their counterparts internationally. “There has been a tremendous appetite for AIMA’s networking events in Brazil, said Michelle Noyes, AIMA’s Brazil representative. “It’s very heartening that some key members of the Brazilian industry have already joined AIMA. We are liaising closely with the Brazilian industry, the Brazilian authorities and with the Brazilian trade body ANBIMA, whose work we very much support.” “We see tremendous interest from the Brazilian industry in engaging and thinking globally,” said Andrew Baker, AIMA’s CEO. “And there is considerable international interest in Brazil, for understandable reasons from investors, from managers and from service providers. We have a role in facilitating the dialogue taking place.” CREDIT HEDGE FUNDS ARE NOT ‘SHADOW BANKS’ - AIMA Credit hedge funds should not be considered part of the ‘shadow banking’ sector, according to a new paper by the

Alternative Investment Management Association (AIMA), the global hedge fund trade association. AIMA’s research paper* highlights crucial differences between the key functions of a traditional bank and those of credit hedge funds and other non-bank financial institutions. Credit hedge funds do not take deposits, do not offer daily liquidity nor otherwise hold themselves out as guaranteeing the return of the invested principal. They manage their liquidity profiles by agreeing investor redemption terms which correspond to the liquidity profile of the underlying investments. They therefore do not engage in significant maturity transformation. Crucially, hedge funds do not benefit from implicit or explicit taxpayer guarantees. Andrew Baker, AIMA CEO, said: “Credit hedge funds – and hedge funds in general – do not operate in the shadows. Managers are extensively regulated, are subject to reporting requirements and do not engage in any significant sense in credit, liquidity or maturity transformation, so their activity is not ‘bank-like’. Credit hedge funds do not belong in the same category as banks, let alone ‘shadow banks’.” The G20 mandated the Financial Stability Board (FSB) to develop recommendations to strengthen the oversight and regulation of the ‘shadow banking’ system in November 2010, but there has been considerable debate about what constitutes a ‘shadow bank’. Recent G20 language referred to ‘money markets funds, securitization, securities lending and repo activities, and other shadow banking entities ‘ Credit and credit-related hedge funds comprise up to onethird of the global hedge fund industry and use a very diverse range of investment strategies, ranging from fundamental credit analysis and arbitrage to the trading of complex derivatives. * The Role of Credit Hedge Funds in the Financial System: Asset Managers, Not Shadow Banks

VITAL EIB SUPPORT OF EUR 130 MILLION FOR ENERGY PRODUCTION IN CYPRUS The European Investment Bank provides EUR 130 million to the Electricity Authority of Cyprus for a new production unit to enhance electricity supply in Cyprus. The finance documentation was signed today in a public ceremony at the Ministry of Finance in Nicosia in the presence of Mr. Kikis Kazamias, Cypriot Minister of Finance. The finance contract was signed for the EIB by Vice-President Plutarchos Sakellaris and for the Electricity Authority of Cyprus by the President of the Board of Directors, Mr. Harris Thrassou. EIB Vice-President Plutarchos Sakellaris, whose responsibilities include EIB’s lending activities in Cyprus as well as energy issues, said on the occasion in Nicosia today: “In 2011 our aggregate lending in Cyprus totalled EUR 180 million. It was for roads and education. I am delighted to sign today a vital finance contract for energy production at the Vassilikos power plant in Cyprus. This is our sixth loan with the Electricity Authority of Cyprus. Through our long-lasting and good cooperation we were able to provide significant support to the generation, transmission and distribution of electricity in Cyprus. This loan comes in good time to cater to the urgent need for energy production in the country after the explosion at the adjacent Mari Naval Military Base last July.” The EIB has supported a number of energy projects in

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Cyprus, mostly in cooperation with the Electricity Authority of Cyprus. This includes loans totaling EUR 330 million for the upgrading of the electricity transmission and distribution network, and EUR 30 million for a new internal combustion engine power plant at the Dekeleia power station in the district of Larnaca in Cyprus. A further EUR 200 million has gone to the Vassilikos electricity power plant, one of the largest investments undertaken in Cyprus. Both electricity production plants can be retrofitted to natural gas, once this becomes available on Cyprus. Electricity demand in Cyprus is rising and plants of this type provide a rapid response to load changes, which makes them suitable for generation of electricity during peak demand This will help meet demand changes in particular during the summer months, when cooling and electricity needs are highest. FUND MANAGERS TURN POSITIVE ON GREATER CHINA EQUITIES *** Over half of fund managers overweight Greater China equities*** ***Positive outlook on Asian bonds and global emerging markets/high yield bonds*** Global fund managers are most optimistic about Greater China1 equities with 56% holding an overweight view in the first quarter of 2012 as they look to move away from cash to equities and bonds this quarter, according to HSBC’s latest Fund Managers’ Survey. Over a tenth of fund managers shifted from neutral to overweight views towards Greater China equities in 1Q 2012, one of the worst performing asset classes last year that started to turn around in 4Q11. MSCI China and Hang Seng Index fell 18.2% and 17.3% in 2011, versus a 2.1% gain for Standard & Poor’s 500 in the U.S. and a 10.5% drop for MSCI Europe. The performance reversed in the last quarter as Chinese equities recovered by 8.1%. Malik Sarwar, HSBC’s Head of Wealth Development, Group Wealth Management, said: “Greater China equities are trading at a price-to-earnings ratio of nearly 12 times for 2012. With an attractive valuation, Greater China equities may offer potential wealth opportunities. China’s recent monetary easing measures such as cutting the reserve ratio requirement also improved market sentiment. Investors expect further easing which will continue to support the Chinese equities market.” 1Q 2012 asset allocation strategies As equity markets rebound, fund mangers are less bearish on equities with 50% and 30% of respondents holding neutral and overweight views, respectively (vs 20% and 30% in 4Q 2011). Only one-fifth (20%) of respondents hold an underweight view in 1Q 2012, dropping significantly from 50% in the previous quarter. Apart from Greater China equities, an increasing number of fund mangers favour emerging markets equities (55%) and Asia Pacific ex Japan equities (40%) this quarter, compared with 27% and 20% respectively in 4Q 2011. Over four in ten (44%) fund managers favour bonds as an asset class (vs. 22% in 4Q 2011). As many companies have solid fundamentals and are supported by relatively strong Asian economies, the majority of respondents are bullish on Asian bonds (88%) and glo-

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bal emerging markets/high yield bonds (78%) while bearish on European bonds (89%). More fund managers are underweight towards cash (44% this quarter, compared with 22% in 4Q 2011. “While the survey shows a continued and increasing preference for bonds as investors look for yield in a prolonged low interest environment, fund managers are looking at riskier assets again on the back of improving economies, resilient corporate earnings and attractive valuations,” said Mr Sarwar.

4Q 2011 global fund flows Funds under management (FUM) across the 13 of the world’s leading fund management houses2 polled reached US$3.81 trillion3 at the end of 4Q 2011, up by 3.7% from the previous quarter. Reflecting investors’ conservative outlook amidst a volatile market, money market funds contributed 36.2% of the increase in FUM. The survey recorded a net outflow of USD42.2 billion for equity funds in 4Q 2011 as investor sentiment was dampened by the European debt crisis. As investors continued to search for safe havens, bonds fund recorded a net inflow of USD19.7 billion last quarter, particularly US bonds. Net fund flows4 (as a percentage of FUM):

Market performance 4Q 2011 vs 3Q 2011 The majority of equity and bond funds recorded positive returns in Q4 2011. Greater China equities posted one of the largest rebound, becoming the second best performer in Q4 2011 (+8.1%) from being the worst performer (25.2%) in Q3 2011. Emerging markets equities and Europe including UK equities also showed a strong turnaround from -22.6% to +4.4% and from -22.6% to +5.1% in Q3 2011 and Q4 2011 respectively. Mr Sarwar added, “This quarter, there are signs of improved investor outlook, with selective prospects in equities and bonds. In a dynamic market, retail investors should review their asset allocation strategies regularly and re-balance their portfolios to tap investment opportunities aligned with their risk appetite.” Notes to editors: Footnotes 1: Greater China includes mainland China, Hong Kong and Taiwan 2: The 13 participating fund managers in the survey are: AllianceBernstein, Allianz Global Investors, Baring Asset Management, BlackRock, Fidelity Investment Management, Franklin Templeton Investments, HSBC Global Asset Manage-

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ment, Invesco Asset Management, Investec Asset Management, J.P. Morgan Asset Management, Prudential, Schroders Investment Management and Société Générale. 3: Funds under management of fund managers polled in 4Q 2011 reached US$3.81 trillion, accounting for about 16% of global funds under management. According to the Investment Company Institute, total global FUM at the end of 3Q 2011 was US$23.13 trillion 4: Net fund flows are derived by subtracting market change from funds under management (FUM) change during 4Q 2011. More details of the survey Please see the attached report HSBC’s Fund Managers’ Survey: Tracking Global Money Flows for more information. The survey was conducted in January and February 2012. The Hongkong and Shanghai Banking Corporation Limited The Hongkong and Shanghai Banking Corporation Limited is the founding and a principal member of the HSBC Group which serves around 89 million customers through four global businesses: Retail Banking and Wealth Management, Commercial Banking, Global Banking and Markets, and Global Private Banking. The HSBC Group’s network covers 7,200 offices in 85 countries and territories in six geographical regions: Europe, Hong Kong, Rest of Asia-Pacific, Middle East and North Africa, North America and Latin America. With assets of US$2,556bn at 31 December 2011, HSBC is one of the world’s largest banking and financial services organisations.

Lyxor presents new smart commodity ETFs Lyxor Exchange Traded Funds has launched a new range of ‘Smart’ Commodity ETFs on the London Stock Exchange. The new Optimix TR and Momentum TR indices use rule-based, enhanced beta strategies which aim to optimise roll yields across contracts and seasons, or to generate absolute returns from a universe of 24 commodities. Professional investors can gain intelligent access to a diverse basket of commodities, which look to take advantage of the shape of the forward curve and momentum trends. Allianz Global Investors appoints Jill Lohrfink as head of US institutional Allianz Global Investors has hired Jill Lohrfink to lead the firm’s institutional client business in the United States. In this role, Lohrfink will serve on the US Executive Committee and will have primary responsibility for leading institutional business development, service and overall strategy for the US institutional market. She will officially join the firm on 2 April and will report to Brian Gaffney, CEO of Allianz Global Investors US. Amundi Real Estate acquires stake in 5 Canada Square, Canary Wharf Amundi Real Estate has acquired a stake in the “5 Canada Square” building in Canary Wharf, London, through its retail OPCI. The building is in the centre of Canary Wharf, London’s major business and shopping district and is managed by EvansRandall, the London based investment banking and private equity group, specialising in prime commercial real estate investment across major European centres. The asset is fully rented and its current lease is due to expire in 2027.

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Looking for talents in the Hedge Fund Industry Interview with Jonathan Buffa, Managing Partner at Tyler Capital Group Claudia Chiari

Tyler Capital is dedicated to Hedge Fund executive solutions - what is your method and approach to identify the right opportunity for the right investment professional? The approach may be simple, but the method, not so much. I’ll start with our approach: we begin by making a few quick calls or shooting off a brief email describing professional strengths of the candidate, along with a summary of a few metrics (performance, concentration levels, time horizons, etc). This goes to clients who we know share a similar methodology, and is done to protect identity and not waste anyone’s time. Ultimately, we are gauging their temperature at the given moment. Regarding our method: Timothy, my partner, is responsible for the algorithms powering our ‘SpotAlpha-Metrics.’ This is a powerful data mining engine, which continuously scans the web, retrieves data, and then syncs with our database to produce a suggested course of action. The model executes various actions upon identifying a match. Timothy leads our team of developers responsible for the quantitative model offered to several asset managers and institutional investors, by Dowhower Capital. Can you describe the hedge funds industry’s conditions at the moment? Contrasting. A few larger shops continue to hire, while the even larger are not. Market uncertainty continues to refocuse of investments, implosions, new launches, new breeds of quants and increasingly more fundamental in-

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vestors are testing ways to quantify qualitative data. Many supported my comment about how all fundamental investing will eventually be quantitative. That is of course once they shift away from machine learning and into machine teaching -teach it to act as you would act. *ANY PORTFOLIO MANAGER RESPONSIBLE FOR 135**Technology (enterprise, software, Internet) **TMT **Media (standalone book) **Industrials Consumers (discretionary & staples) Healthcare and REITS (These are 2 areas which I don’t usually see many mandates for. That said, we placed 1 portfolio manager and 1 senior analyst in healthcare in the 2nd quarter of 2011) What are the difficulties that you come across to achieve excellence results? Sometimes, especially in new relationships, the difficulties stem from the highly confidential nature in which funds operate. Building relationships takes time. Be attentive, study your actions, and relationships, most of all, and encourage feedback. How has the hunting to build investment teams changed through the last two years? The social media landscape is reshaping the world. However, building investment teams has not chan-

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ged. While these media offer great advantage to all (who use them), hunting is not throwing darts at a board. Hunting requires you to carefully understand each professional in order to accurately represent their candidacy. To quickly walk you through the past 24 months – we began 2010 on a high, and while some were increasing their focus, actively staffing and building up on their distressed strategies, others were aggressively pursuing capital. We all knew of the mass exodus approaching and were waiting for investors to get bored on the sidelines waiting to put their money back in. This continued until January 2011, when Bloomberg Television announced that 100% OF CAPITAL REENTERING THE MARKET IS GOING TO FUNDS OF 5BN OR MORE. Ouch! 100%?!? Needless to say, many funds put a freeze on all mandates and soon thereafter, we began receiving calls from our clients with direct and urgent needs. Now, funds are launching new teams or increasing size and capital allocation to the following sectors ̶ Industrials, Technology, Media Telcom, Oil Exploration and Production (all upstream), and even a few generalists with sub-sector strengths were requested. Differently from other head hunters, you ask for a fee to your candidates. Why this choice? Back to the Quant- Well… it started when I was presented with 4 “perfectly” matching CV’s. These CV’s had all of the key strengths. Timothy later informed me they also had identical originating IP addresses. While he completed his research, I uploaded a fee page to our site. Nothing remotely similar ever took place from that point on. In short, I don’t charge, but - by posting that - I have managed to ward off those who aren’t serious and any future phishing expeditions. I don’t feel it deters anyone. Besides, finding the right candidate is what WE do. We were never entirely sure of who on 18th street was responsible. We wish them all the best! n

Jonathan Buffa is the Managing Director of Tyler Capital Group and Founder of Leading Alpha, Spot Alpha, HedgeShort News Tracker and 10X Hedge Fund Initiative, a technologydriven global network of companies and industry professionals focused on building investment teams and analytical solutions for hedge funds, headquartered in New York City. Mr. Buffa previously served as a Managing Partner, Co-Founder and CTO of 10X Partners, a leading hedge fund consultant located in New York City. At 10X Partners, Mr. Buffa designed the Search-Model-Solution (SMS), developed a powerful Mandate-Matcher (M2) and was responsible for the “Agent” approach, widely known today as Leading Alpha. In April 2010, Mr. Buffa was invited to serve as official voice and resident guest speaker at the Global Finance Job Conference, an annual affair held in New York City and hosted by former Goldman Sachs’ Amy Parvaneh. Throughout his career, Mr. Buffa has designed software applications, data management systems, search model solutions, suggestive and predictive analytical data-mining/reporters and in 2005 led the development of communication solutions utilizing GSM & CDMA networks. This technology and its principles have transformed sourcing, vetting and fund infiltration for the hedge fund industry. Mr. Buffa studied Finance at the Tobin College of Business at St. John University as well as Computational Mathematics and Linear Programming at The University of Massachusetts. Moreover, he is a CFA Level 2 candidate and received the Chartered Hedge Fund Professional (CHP) designation in 2010.

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Unsolicited Book Review, another point of view Interview with Christoper L. Cruden, CEO of Insch Capital Management AG Virginia Landoni

Can you talk about Unsolicited Book Review, a Review of the recent book “The Hedge Fund Mirage” by Simon Lack? Where to begin? There are some reasonable chapters in the book and others that deliberately court a copy-selling headline. Ultimately, there is very little that is new in this book and even less that bears real, informed scrutiny. The book contains highly selective numbers and time-periods that are just a teensy-weensy bit misleading but good enough for the Journos to get giddy over. Apparently, if investors had put all their money in treasury bills, they would have done twice as well as HFs. Leaving aside the fact that his math is wrong (the use of asset weighted returns for example), I would like to know if that’s if that’s what he was advising JPM clients to do for the 23 years he was there. If you already believe - or want to believe - that HFs are crooked and offer a bad deal, then parts of this book will be of enormous help in confirming your views and providing you with all the ammo you need to be even more boring at the next dinner party. And what about the costs argument? Basically, HFs take a management fee and a performance fee. There are other costs too: brokers, administrators, auditors, custodians, lawyers, compliance consultants and an assorted rag-bag of other “service providers” (parasites?). Why all these extra costs? Well,

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basically, because (we are told) investors demand all of these things. It’s a funny old world but these people don’t work for free. So investors have to pick up the tab. Fancy that. Have you ever tried to figure out what the overhead costs and expenses of the average S&P500 company are? Is it more or less than 2/20%? (At a guess, I’d say it’s more. Much more.) In any case, whatever it is, shareholders pick up the tab. Another old-saw that these kinds of books drag out is the “Survivor Bias” of the Hedge Fund industry indices. This is hardly a new discovery and hardly an original premise. - All the more reason to present it fairly. Can anyone think of another index with survivorship bias? How about the best known and biggest Big Daddy of all of them: The S&P500... Or for that matter, any other stock market index. Are Enron and WorldCom still in the S&P500? Is Lehman? Could that be because of survivor bias? Then of course, there is the “fraud / miss-management” allegation. Hmmmm.... An interesting one this and, yes, there have been frauds. Is this also true of stocks? How about the aforementioned Enron and WorldCom? Is there anyone out there who took up the RBS rights issue in 2008? This book will be devoured by the Traditional Asset Management industry. It confirms EVERYTHING they KNEW about HFs. They will send it to all their sales people and all their best clients. - Just until they are able to launch their own ran-

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ge of Hedge Funds. (Remember, as Lack points out, it pays better.) When they do, just as with this book, caveat emptor... What kind of needs did you try to fulfill writing this Review? I was intrigued by Lack’s lack in comparing like with like. Using the IRR to compare returns with different risk profiles – specifically treasuries with stocks and hedge funds, but forgetting about traditional funds – where the financial scandal actually is. There is one other thing that Mr. Lack seems not to dwell on: the reason that hedge funds have been so disappointing in recent years. Because of the financial crisis and the resultant lay-offs, many asset managers have sought to transport their obvious genius into the HF industry. In consequence, far too many HF strategies have ceased being alternative and have become correlated with (mainly) equity markets. Investors are misled to believe that hedge funds are expensive while mutual funds and stocks are not. We aimed to correct the biased public perception by launching our “Risk To Revenue” at the beginning of February. The R2R analysis is basically a performance and risk report on traditional funds, where by performance we mean both investor and fund manager profits. What we find out from the R2R analysis is that traditional asset managers are better at marketing themselves than they are at managing investors’ money. The R2R online registration is quick, easy and available for external users on our company website. Your company, Insch, has a meaningful logo: Innovation in Investment. Which are the main innovations in the Investment field? Insch has novel products in alternative asset management: For example, Insch Insight Ltd is an innovative, hybrid investment vehicle: This investment approach may be defined as an “En-

Upon leaving University, Christopher attended The Royal Military Academy, Sandhurst and was commissioned into The Gordon Highlanders in 1975. In 1980, he began his business career as a gold analyst with an investment bank in South Africa. In 1983 he joined Dean Witter, Reynolds Inc. as a securities salesman based in the U.S. and it was during this period that he became involved in the Alternative Investment Industry. In early 1988, he returned to the U.K. and became Director of Adam, Harding and Lueck Asset Management Ltd (AHL). This Company is now amongst the largest and best known systematic, trend-following hedge fund management companies in the world. After the sale of this Company to Man International in 1990, he became Head of Managed Futures and Options for a major U.S. investment bank in London and founded the Derivative Strategy Group within the ASH Group of Prudential Securities in New York. Mr. Cruden became the Managing Director of Tamiso & Co. LLC in New York in 1993. He was responsible for currency management products, research and trading. During this period he substantially enlarged the Company’s foreign exchange activities and co-developed the Currency Overlay Program. In 1999 Tamiso and Man International established a joint venture based on the currency trading system of Tamiso. He set up Insch Capital Management SA in Switzerland in 2004. Mr. Cruden is featured in the highly regarded books ‘Trend Following’, Covel, 2004 and ‘Investing with Hedge Fund Giants’, Chandler, 1998 and a number of other publications. All in all, Mr. Cruden has been actively and continually involved in the Alternative Investment Industry for over twenty-five years.

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hanced Structured Portfolio” (ESP). Enhanced Structured Portfolios may offer 90% to 95% capital protection and retain attractive and unlimited upside potential. Two years ago we launched Goldilocks, an innovative hybrid investment tool: 80% of the Principal is allocated to 5 Year Gold Notes, with a bullish view linked to the GOLDLNPM Index. This is combined with a 20% allocation to an actively managed Currency Enhancement Program. The investor obtains full capital protection on the Gold Notes component (80% of Principal) and seeks extra absolute returns from the price appreciation of gold. The currency component aims at consistent growth from the 20% invested allocation but only exposes a maximum of 10% of the Principal to risk due to a 50% Stop-Loss system. For this reason, the investment offers 90% capital protection. We currently plan launching a (similar) product to counterbalance and reduce the enormous risks of a rise in interest rates. While we do not necessarily predict a specific time-frame for such an occurrence, it will happen. When it does, it will be sudden and severe and the damage to bond portfolios will be very considerable. We think such a product will help mitigate the effect and offset losses from such an event.

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Within a short period, we will also be announcing a 5 year, secured, commodity backed “income” opportunity. We anticipate a yield of approximately 9% to investors. This is a particularly interesting strategy due to its low risk and high return. Which are the main goals of Insch in medium and long term? Insch has become a leader in the Alternative Investment Industry by developing strategies and investment opportunities that offer superior absolute returns commensurate with an acceptable level of risk. This has been achieved through detailed quantitative research, exhaustive systems testing, robust portfolio construction and thorough due diligence. We can see no reason to veer from this path. Can you describe to us what requests from investors you usually receive? Most of our clients already know what we do in terms of our own investment products and strategies. I think we have a good name and a relatively high profile. Other than “direct investors”, our clients come to us to research an idea for them. In these instan-

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ces, following the initial research, we are usually asked to develop and test a strategy for them. The markets could be commodity, debt or equity. The instruments may be derivative or cash, long or short. The objective could be growth, income or capital protection. These projects are always challenging and of interest to us whether or not the client moves forward to actual implementation. Nowadays, the client’s primary interest is always to know what the ultimate downside risk is. And it is ours as well. Gone are the days when investors were blinded by high returns and unconcerned by the risk. How do the investment strategies change because of the crisis? More and more, investors are willing to use an outside boutique, like Insch, than to keep the faith with some of the bigger institutions that have so badly mislead them and let them down in the past. Over the last decade or more, investors seem to have lost faith in stock markets. This is hardly surprising. More to the point, most sophisticated investors know that the current low yields on bonds are an accidental aberration. They know this cannot last. The fact is, traditional investments such as stocks and bonds are no longer winners in the hearts, minds or portfolios of investors. In truth, except for limited time periods, they never really have been. Most investors have learned that making back lost money is (mathematically) harder than making new money. More investors are aware of the need for bi-directional strategies than ever before. – Many have seen the debasement of currencies and the manipulation of financial assets. Consequently, many now look to the commodity markets. They also know that an intelligent investment requires making use of derivatives and hedging against losses. Unfortunately, many have learned the hard way about over-leverage. – Either in their own portfolios or as victims of the over-leverage that many financial institutions have employed. We would expect, especially in the current environment of slow growth and quantitative easing, this to remain the case. n

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Looking back at the Callanish Standing Stones to find hedge fund solutions Interview with Eoin Murray, Partner & CEO at Callanish Capital Partners Claudia Chiari

The name of your company looks back at the Callanish Standing Stones. What are the reasons that led you to choose this name? The reason is that Lewis in the Outer Hebrides of Scotland is where my family hails from. Lewis coincidentally happens also to be home to the stones. Dating back to around 3000 BC, the Callanish Standing Stones are regarded as one of the most spectacular and complete historic stone circles in Europe. Theories abound as to their purpose but it is thought that the alignments of the various stones were used to mark significant points in the lunar cycle. Some believe that the alignment of the stones points to nearby hills where, man-made or otherwise, there is a clear profile of a female outlined on the horizon. It is at this point that that the moon joins the earth once every 18.61 years - completing the full lunar cycle. Irrespective of their original purpose, Callanish and the Standing Stones have come to signify strength, stability and longevity, traits with which we were keen to associate the partnership. Building quantitative hedge fund solutions is Callanish Capital Partners’ objective: which approach do you use to exploit market inefficiencies in different markets? Like the majority of managers, Callanish aims to generate positive long-term returns while protec-

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ting capital on the downside. The Fund employs a systematic global macro strategy which seeks to achieve absolute returns by investing in the global equity, bond, commodity and currency markets, using a disciplined investment process. Our alpha signals, which generate long and short exposures within each of the four asset classes, are based on an economic or intuitive investment principle that is exploited in a systematic way. We look at macro data, fundamental information, technical signals and sentiment patterns, akin to a multi-strategy approach to investing. By using information from this variety of sources and exploiting it within a range of signals and uncorrelated asset classes, we end up with a portfolio that is diverse and fluid, enabling it to adapt to varying market conditions over time. The foundation of the experience of the investment team was the development of risk models for various trading teams. What have you learnt from this experience? Our principal learning experience has simply been that sound risk management practices require an open mind on risk modeling. There is no one absolutely full-proof approach, so a deep understanding of a plethora of risk techniques seems to us to be the best solution – our objective is maximizing the probability of achieving certain return objectives for our clients.

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Callanish Capital Partners was established in 2008 with the objective of becoming a leading provider of quantitative hedge fund solutions for institutionally-minded clients. We focus on return generation and capital protection, using a systematic approach to exploit market inefficiencies within a risk-controlled and operationally robust framework. Ultimately, we aim to provide clients with diversified sources of alpha. Callanish Capital Partners is the investment manager of the Callanish Global Macro Fund, a systematic fund investing across a broad range of uncorrelated asset classes to provide investors with a diverse and liquid global portfolio. The Fund launched in May 2010 with the backing of APG, the world’s second largest pension asset manager.

Our investment philosophy centres on risk management and control. The risk budget of the portfolio is set first and then the leverage employed in the Fund is deduced from the level of risk targeted. This allows risk to be controlled and the leverage managed directly, rather than the other way around. This has the attractive feature that, other things being equal, it is expected that as risk rises, leverage will fall, and vice-versa. How do you develop and manage bespoke products to meet different risk objectives? The portfolio is constructed using systematic investment models to generate long or short positions in equities, bonds, commodities and currencies. Underlying each of the four asset class models is a number of alpha signals, each designed to be uncorrelated and to provide diversification by return and risk profile. The asset class models and the investment signals can be used in virtually any combination that an investor would choose for their own account, and then equally managed to whatever risk level that the investor feels is more appropriate to them. We are also nearing completion in the development of a tool that would allow us to customise portfolios towards investors’ unique risk-reward preferences – we hope to be able to formally roll out this piece of research early in 2012. Transparency is your philosophy for what you do. How do you realize that? The transparency in our process comes from having a very detailed database of information that includes all sorts of different metrics regarding portfolio composition and performance that we can share with investors. Not all information will be interesting to everyone, but we’d rather be in a position to empower our investors so that they can enhance their own decision-making. n

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Networking and education: how to develop hedge funds Interview with Mark Shore, Chief Investment Officer at Shore Capital Management Claudia Chiari

After more than 20 years of investment, research and futures experience, you founded Shore Capital Management LLC in 2008. What was your vision at that time? With my background, expertise and skills in alternative investments (global macro/managed futures), the overall vision of the firm in 2008 was alternative investments. The vision of the firm was to be parsed into market research & commentary, consulting, educational workshops/presentations and a little into real estate investing. Has the crisis had an impact on your original vision? If so, please explain how. As the financial crisis and recession evolved in 2008/2009 and the correlation of many strategies and assets moved towards 1.0, I developed a much stronger vision for the demand of alternative investments, especially global macro strategies/managed futures. I decided to focus exclusively on the managed futures/global macro space. In recent years, some institutional investors and investment consultants have mentioned that the 60/40 model of stocks and bonds is no longer enough as they seek greater diversification of their portfolio and reduction of tail risk. In the post-crisis period, I’ve found the demand for education and research of alternative investments growing quickly, especially for managed fu-

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tures/global macro strategies. According to Barclays Hedge, AUM in the managed futures space increased from $267 billion in 2010 to a current estimated $320 billion. To put this in perspective, in 2000 managed futures had an estimated $38 billion AUM and eventually reached $100 billion in 2004. While some hedge fund strategies experienced a reduction of assets in 2008 and 2009, managed futures continued to grow. In 2011 I spoke at an institutional investors conference on commodities and found many old myths were still alive in the mindset of many investors. The conference inspired me to write a paper called “Decoding the Myths of Managed Futures”. Within four days of publishing the article, it received over 700 hits from around the world. I realized the article hit a nerve in the investment community and a demand for quality education. The article can be found at http://www.shorecapmgmt.com/research.html. As the demand for education as to alternative investments increased, in 2011 I became an Adjunct Professor at DePaul University’s Kellstadt Graduate School of Business in Chicago, where I developed a 10-week course on managed futures/ global macro strategies. Many universities teach futures for pricing theory and hedging, but teaching managed futures as a potential asset class to invest in is very different. The course includes discussion of asset allocation,

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risk management, evolution of modern portfolio theory and due diligence of managers. DePaul may be the only university offering a graduate level course on managed futures. Many of my students thank me for developing the course, as they are able to utilize the concepts in their current jobs and for career development. Shore Capital has three different business components: research, consulting and publishing: what’s the main business and how is it growing? Consulting in alternative investments with a focus on managed futures/global macro strategies is the major focus of the firm. However, the consulting umbrella includes due diligence of managers, publishing research on asset allocation, portfolio construction and market commentary, and educational workshops for investors, financial advisors and other industry professionals. My business compliments a wide spectrum of the industry. I can assist investors, futures clearing merchants, introducing brokers, commodity trading advisors, commodity pool operators, exchanges, investment advisors and educational organizations. Besides teaching at DePaul University, I recently became an Adjunct at the New York Institute of Finance where I developed a workshop on managed futures. Some of my peers in the industry mentioned that I’m blazing a high quality research/educational trail in the managed futures/global macro space at a time when the demand for research and education is increasing very quickly and there is a shortage of supply. Let’s focus on the investors. What do they look for? Since 2008, there has been a major shift in the mindset of investors. In all of my years in the industry, I don’t remember the phrases “risk management”, “correlation risk” and “tail risk” being used more than they have been in the last few years. I wrote a paper in 2005 called “Skewing Your Diversification”, which can be found on my websi-

Mark Shore has more than 20 years of investment, research and futures experience. He is the Founder and Chief Investment Officer of Shore Capital Management LLC. Mr. Shore is an Adjunct Professor at DePaul University's Kellstadt Graduate School of Business and a Contributing Writer for Reuters HedgeWorld. Mr. Shore has published several papers and articles on alternative investments, macro economics, behavioral finance, commodities and asset allocation. Mr. Shore is a frequent speaker at alternative investment events including events hosted by Goldman Sachs, Merrill Lynch, Morgan Stanley, Institutional Investor, International Association of Financial Engineers (IAFE), the University of Chicago, the Illinois Economics Association, the Illinois Institute of Technology and the New York Institute of Finance. Prior to founding Shore Capital, Mr. Shore was Head of Risk for Octane Research Inc. in NYC from 2007 to 2008, where he was responsible for quantitative risk management analysis and due diligence of Fund of Funds. He chaired the Risk Management Committee and was a voting member of the Investment Committee. Prior to joining Octane, Mr. Shore was at VK Capital Inc. from 1997 to 2006, a wholly owned Commodity Trading Advisor subsidiary of Morgan Stanley. As Chief Operating Officer, Mr. Shore provided research and risk management expertise on portfolio issues, product development and business strategy. Before becoming Chief Operating Officer, he was a Senior Research Analyst at VK Capital where he developed and enhanced systematic trading models and developed a due diligence platform to test trading strategies. Mr. Shore received his MBA from the University of Chicago with concentrations in Finance, Behavioral Science and Econometrics.

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HEDGE FUNDS

te, http://www.shorecapmgmt.com/skewing-yourdiversification.html. The paper discusses the use of alternative investments within a portfolio but the paper drills deeper and discusses how volatility is similar to cholesterol. There is good volatility and bad volatility, and it addresses how this concept works in conjunction with the skewness of the return distribution. Ultimately, this could mean a manager utilizing good risk management may have a large positive volatility and low negative volatility and yet the investments could be considered risky because the standard deviation is high. But once investors parse the positive volatility from the negative volatility, they begin to understand the utility of portfolio co-skewness. It’s the negative volatility and tail risk the investors tend to be concerned with. This is why I don’t like the Sharpe ratio, as it assumes normal distribution of returns and implies the investor is indifferent between positive and negative volatility. Consider how often an investor gets nervous due to positive returns versus how often he or she gets nervous due to negative returns. In the late 90’s, many investors were seeking returns from equities and were not as interested in asset allocation and diversification. Between 2000 and 2003, the demand for greater diversification was seen. However, from 2004 to 2008, the demand diversification slowed, but has reappeared much stronger since 2008. Overall, one can say investors are seeking greater portfolio diversification, reduction of tail risk, reduction of correlation risk and increased education in those areas. One other increased demand from investors is due

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diligence. This has always been important, but in the post-Madoff era, the due diligence of managers has become even more important and more so with the operational side of the manager. You may see a manager with a well performing strategy, but if it is not running its business well and/or it is not willing to be transparent, the investor may decline to invest due to potential operational risk and/or headline risk. A very easy example I’ve noticed on occasion, for example, is that a manager may have typos on its website or disclosure document. The investor may ask, “if these simple details are missed by the manager, could more complicated details be missed?” Or has the manager developed a back-up plan or facility in the event it have issues at its office? Post9/11 has caused this topic to be a standard question. Risk management is not solely focused on returns of a strategy, but due diligence is an important component of risk management that I discuss with my students. You are currently developing hedge funds and networking events. Is that going to be another business component of Shore Capital? In a word, yes! The idea is to engage the investment community with a focus on alternative investments for networking and education. I got the idea when I was the President of the University of Chicago’s Booth Graduate School of Business New York Alumni Club. During my term as President, we developed several events that engaged the alumni community with networking and educational events. I’ve always believed in the added benefits of networking and educational events. n

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A platform to make it easy for the investors Interview with Irina Zeltser, Founder at AARM Corporation Scarlett Williams

Irina Zeltser is President & EVP Marketing of AARM Corporation. Prior to founding AARM, Irina was with Tishman Speyer, where she was involved in acquisition and development of commercial and residential real estate projects in India. Irina has also worked in the corporate restructuring and investment banking group at Rothschild and at J.P. Morgan Chase, with tenures in New York and London, where she was responsible for sourcing, structuring and executing structured finance transactions and trading structured credit instruments. Irina is a board member of the India Schoolhouse Fund, a non-profit organization that builds and operates schools in rural India. She received her BA in Economics/Mathematics from Columbia University and her MBA from Harvard Business School.

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Ms. Zeltser, you are one of the founders of AARM Corporation: what were your visions and your ideas when you started up the company? We started AARM as a result of a class project that my co-founders, Gitanjali Swamy and Prof. Daniel Bergstresser, completed at the Harvard Business School (HBS). We approached Prof. Nitin Nohria, the current Dean of HBS with a business plan and he was kind enough to see the vision & opportunity and became our founding board member and investor. Alternative investment markets fascinated us because, despite their considerable size (in trillions of US Dollars), there was a decided lack in transparency, methods for risk assessment and management and, more basically, best practices for measuring and evaluating performance. For example, benchmarking is a very important process in asset allocation, investment selection and portfolio monitoring. In public markets, indices need to conform to a defined set of standards in order to be used by investors for these purposes. In private equity, a variety of indices have been used, but none have essentially conformed to best practice principles for marketable indices. AARM has led an initiative to create a set of guidelines for creation of private equity indices. While Prof. Nohria coached us to think about indices & establishing a common frame of reference for

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the private equity market, it was our work, undertaken in association with Prof. Hossein Kazemi of CAIA Association and Edward Szado of The Institute for Global Asset and Risk Management, that has been published in the paper “Setting the Benchmark: Spotlight on Private Equity” and used to create AARM-FOIA™ Global Private Equity Benchmarks, the first fully transparent, framable and appropriate benchmarks for the private equity market. Our benchmarks represent sophisticated global institutional portfolios and are available for public use on AARM’s website at www.aarmcorp.com. We continue to work with leading industry organizations and investors to create and promote best practices standards. Our next paper, focused on ways to understand, measure and present private equity performance, is coming out in Q1 2012. When we began exploring investment and risk management solutions in the private equity space, we realized that there was a dearth of products available for investors. There was really no highquality, cost-effective solution for investors looking for meaningful investment insight. That’s were AARM comes in. In addition to its leadership in creating and promoting best practices for the private equity market, our vision was to create a comprehensive, unbiased product that supported investors’ decision-making processes that complements their in-house or outsourced investment and portfolio management teams. AARM Corporation provides a risk management platform to help investors in alternative assets: how does it help them to make their investment decisions? At AARM, we are committed to bringing structure, objectivity and transparency to the private equity investment and risk management processes. Our solutions help investors in that (a) they are based on a comprehensive risk framework, developed specifically to evaluate and address risks relating to the private equity asset class; (b) they use a consistent set of methodologies to identify and compare critical performance characteristics; and (c) they synthesize information to produce meaningful investment insight.

I have already talked about our benchmarking solutions, which provide the only fully transparent, framable and appropriate benchmarks for the private equity market. In addition, we provide a variety of tools to help investors assess and create investment strategies. For example, AARM produces a set of Dry Powder Indices, which can be used in strategic allocation decision-making. Dry Powder, in the private equity market, refers to the amount of committed, but uncalled capital. Dry Powder measures capital overhang and can be used by investors to analyze specific market opportunities and evaluate sector trends and dynamics. Another example of value-add to investors is a set of diligence tools, which help investors identify best performing managers, filter recommendations, understand fund or manager exposures and evaluate the strength of the management team. Our tools allow for comprehensive portfolio evaluation and monitoring capability, and are available to investors looking to proactively evaluate and re-balance their portfolios. Finally, AARM’s platform is interfaced with a powerful statistical engine, which allows users to leverage AARM’s extensive data schema to create and run custom market and fund performance analyses. What’s the typical investor that uses your platform and why? Our customers are multi-family offices, investment advisors and consultants, high-net-worth individuals and institutional investors who are looking to generate superior risk-adjusted returns in their private equity portfolios, cost-effectively and without the need for an army of research analysts, either internally or outsourced. Our vision was to create a product that would make it easier for investors to make, monitor and report on their investments. Our clients use AARM products because they enable them to systematize processes and information flow by integrating value-added tools with existing core capabilities. For example, multi-family offices can create customized portfolio so-

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ASSET MANAGEMENT

lutions, while best leveraging the technology and directing their internal resources to support client interactions and not to manually create client reports. Our clients are also using our solutions to automate part of their diligence and research processes. For example, an investment consultant organization can use AARM diligence tools to screen opportunities because AARM provides a standard way of packaging and processing market and performance information, making this assessment independent of an individual analyst biases. Investment advisors who create fund of fund offerings can use AARM to craft new products and monitor and report client exposures. Another important use of our products is to communicate, both to external parties, via customized portfolio or fund reports, and internally, while conducting diligence or periodic monitoring. AARM customized reports can be used to create scenario

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analyses, share investment ideas and manage expectations. You have recently launched a limited edition of AARM AssetStar for the private equity market. What’s the value added of this tool? AARM AssetStar™ Reports is a pioneering offering for private equity, which is akin to a stock or mutual fund research report. In the private equity market, information about private equity funds is typically made available by general partners. However, investors need to contextualize performance of their private equity holdings to understand the impact of these investments on the overall portfolio as well as to assess follow-on offerings. Pre- AARM AssetStar™, an independent source of private equity performance evaluation available in a report format didn’t exist. AARM AssetStar™ Reports present unbiased, com-

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to make relevant apples-to-apples comparisons (the current alternative being getting information from different GPs, consultants or database companies, re-engineering data sets to a conforming set of characteristics, setting up relevant experiments to run meaningful investment analysis). AARM AssetStar™ Reports make it easy to assess consistency of performance, identify relevant peer universe and assess strategy fit.

prehensive investment risk assessment. They are interactive, contextually relevant, and are available on demand, in an electronic format. AARM AssetStar™ can serve a variety of different purposes. For an investment advisor or consultant, who reviews thousands of opportunities on behalf of their clients, AARM AssetStar report can serve as a first level filter. A report provides a convenient summary of manager strategy, an extensive review of track record, and relevant industry trend statistics. For a high-net-worth individual, AARM’s consistent approach in evaluating and displaying private equity fund or manager information, can be used to validate recommendations or get an unbiased assessment of an investment opportunity. AARM AssetStar™ Reports use a consistent methodology to calculate and present industry, performance and general fund, manager or portfolio information. This makes it easy for investors

What kind of other tools do you provide for investors’ need? AARM’s signature product is AARM AssetAnalytics™. AARM AssetAnalytics™ is a comprehensive investment and risk management platform, which supports lifecycle investment review and allows for critical measurement and evaluation of a broad set of risks and performance measures. AARM AssetAnalytics™ brings powerful investment insights backed by a comprehensive risk framework. It addresses the shortcomings of traditional private equity reporting and performance analysis, enabling investors to allocate, evaluate, manage, and report on their private equity investments in a structured, objective, and transparent manner. AARM AssetAnalytics™ has four different modules, which enable investors to complete a strategic assessment of their existing portfolios and create an investment thesis, conduct sourcing and diligence, and support portfolio management activities with complete set of reporting, benchmarking and cash risk management tools. AARM AssetAnalytics™ is a solution for sophisticated investors who make significant allocations to private equity and rely on it to be an important driver of returns. Our clients use AARM AssetAnalytics™ to increase their team’s efficiency and cost-effectiveness, create new revenue streams and enable communication. For example, clients can seamlessly create customized investment strategies for each one of their clients, monitor allocation limits, screen for best performing opportunities and create on-demand reports. AARM AssetAnalytics™ can be easily integrated into custodial and general ledger platforms.  n

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ASSET MANAGEMENT

The Asset management Spain Scenario through the words of Eusebio Diaz Morera

Virginia Landoni

Eusebio Díaz-Morera, 66. EXECUTIVE CHAIRMAN and FOUNDER of EDM Asset management. Graduated in Economics from Barcelona University and received an MBA from IESE (Barcelona). Before founding EDM in 1989, he was General Director of PAS (Fund Management and Corporate Finance), Chairman of Caja de Barcelona (Savings Bank), Chairman of Banca Catalana, and Chairman of Tunel del Cadí (tollway concession). EDM is a leading independent wealth & asset manager. Its capital is wholly owned by the members of its management team. Our strategy has always been focused on our clients’ performance since EDM was founded 23 years ago. Since its foundation, EDM AM has been managing funds and SICAV of varying investment purposes and based in different countries. Their recorded performances now go back a very long way; this is quite unusual among independent managers, but highly valuable to institutional investors.

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What about the Asset Management Spain scenario? And how the international situation is going to reflect into that? 2011 was a difficult year. Investment funds in Spain suffered as a result of difficult conditions that prevented growth in collective savings. Competition in banking deposits and a lack of confidence in the markets came as additional negative factors. Despite this and the declines from equity markets, the level of assets managed by EDM Group held largely unchanged. In terms of asset management, the main challenge in 2011 was for fixed-income securities, in being able to appropriately read the impact that the European crisis would have on prices and selecting assets based on prices that proved to be highly volatile throughout the year. In terms of equities, it was essential to hold positions in companies with business models or geographic exposure that provided resilience against the adverse climate. However, our management style is based on carefully selecting companies, and therefore we simply had to remain true to our approach. We do not expect 2012 to be very different. Selection will remain key. Risk-on/risk-off periods will come, and towards the end of the year visibility will probably have improved, even if the crisis is not yet resolved. This should mean improved confidence and a more favourable climate for fund managers to attract savings.

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Which are the main goals of EDM Asset Management in the medium and long term? We believe that offering healthy levels of accumulated returns over the long term is the best strategy and the best way of achieving a portfolio of clients that will grow at a sustained pace over time. Our objective is to increase AUM at a pace compatible with high levels of service to our clients (currently â‚Ź1.2 billion) For 2012 we remain ambitious. We expect our track record of good results and the quality of our service to attract investors who are unsatisfied with other operators. Likewise, extending the spectrum of our client base will allow us to achieve stronger growth rates. With this in mind we have embarked on significant growth projects in terms of geographic coverage and client types. Can you describe to us what are the requests from investors that you usually receive? - Direct investment in our mutual funds - Institutional mandates for European equities, Spanish equities and corporate bonds (Euro) How is asset management changing in your area because of the global financial crisis? The market will continue to discriminate between asset and security types. Attractive returns

can be generated by knowing how to select them, despite it being a difficult year in general. Our approach remains founded on selecting securities. In fixed-income markets, this selection may have to adapt to the impact that the crisis has on asset prices. We doubt that there will be any clear trend and therefore selections will not be valid for the entire year. We continue to see very solid fundamentals for corporate debt at many companies, but prices must be monitored very closely. In terms of government bonds, yields from some periphery countries will remain attractive compared to the USA or Central Europe, but relative prices must be handled competently to respond to conditions. There is a greater visibility in equity. We can still identify enough companies to build a fund portfolio with positive growth prospects for 2012. This means profit growth of around 12%. With the appropriate valuations that we now have, this growth should mean good returns. The market can be shaken and there may be episodes of volatility driven by macroeconomic events. There is even the possibility that the banking sector, penalised so heavily in recent years, may experience a significant recovery if the outlook for non-performing loans and capitalisation improves. We continue to focus on quality and solid growth. n

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EVENTS AND CONFERENCES

Events and Conferences New York Private Equity Forums March 1st 2012, New York Have you considered attending or presenting to the 150+ investors who will be at the upcoming private equity conference at The Yale Club New York on March 1? Benefits of Attending: Improve the likelihood of your getting funded soon; Network with 150+ investment professionals, top venture capitalists, business leaders and successful entrepreneurs; Find out what angel investors, venture firms, and private equity funds are looking for today when making new investments; Deliver your vision to a captive audience of receptive investors and direct funding sources; Enjoy Being Part of a World-Class Event for the Investment Community; Benefit from the network that we have developed with our 10 year plus history and 36 consecutive fully-booked events. For more information, please visit: http://www.starlightinvestments.com/default.asp?ID=316# Investment Consultants Forum March 2nd 2012, The Crowne Plaza Times Square, New York, NY Opal Financial Group’s investment consultants conference provides a unique environment for developing dialogue between plan sponsors, managers and consultants. The role of the institutional consultant is more important than ever in making investment decisions, often being asked to take on more than just the evaluation of investment managers. This event will feature panel-driven discussions focused on specific investment techniques of fixed income and hedge fund managers, the evolving role of institutional consultants, the manager evaluation process, transition management, investing in global markets, and more. For more information, please visit: www.opalgroup.net/trk/icfc1205.html Trust, Tax & Estate Planning Forum March 2nd 2012, The Crowne Plaza Times Square, New York NY A part of the Private Wealth Series, Opal’s Trust, Tax, and Estate Planning Forum is designed to cover timely and relevant topics affecting trust, tax, and estate planning professionals. This forum will address issues relevant to family offices and those who support their day to day operations. The forum will bring together representatives of family offices, non-discretionary consultants, attorneys, accountants, life insurance firms, trust companies, investment banks, estate and tax planners, actuarial firms, life settlement companies, hedge funds, private equity firms, real estate firms, and financial planners. For more information, please visit: www.opalgroup.net/trk/ttec1202.html Drilling Operations; Completions and Work.-over March 4 – 7, 2012, Doha, Qatar Trainer: Dr. Hussain H Ahmed The candidates will receive instruction on planning and evaluating both directional and horizontal wells. We will discuss and clarify issues related to well completion and completion fluids. The course will cover in details all work-over operations with procedures and problem solving. The basic applications and techniques for multi-lateral wells will be covered in this course. Additionally, the learners will become familiar with the tools and techniques used in both horizontal and directional drilling such as survey instruments, bottom-hole assemblies, motors, steerable motors and steerable rotary systems. The course will provide a good opportunity for the learners to predict wellbore path based on historical data and determine the requirements to reach the target. To Register, Email to: Aurang.ali@fleminggulf.com http://fleminggulf.com/oil–gas/drilling-operations-completions-and-workover!e72 Strata Control and Risk Assessment in Mining March 5-6, 2012, Zambia Trainer: Mr. Andre Hugo At a time of growing uncertainty in global markets, learn how to add substantial value and significantly impact your company’s projects and bottom line by utilising strategic mine planning under uncertain conditions and global optimisation methods Upon completion of the course, candidates should be able to have a better understanding of “Back to Basics” in the Risk Management field, Legal compliance & worker motivation in the daily production operations. To Register, Email to: priya.narayan@fleminggulf.com http://fleminggulf.com/cross-industry/strata-control-and-risk-assessment-in-mining!e70 Behaviour Based Safety March 5-7, 2012, Mumbai, India People behave unsafe because it saves their time and effort (taking short cuts, not using PPE). Environmental solutions don’t work as effectively as people may remove guards and work in bad housekeeping. Punishment may lead to negative effects. Attitude change does not help much, as it does not really convert into behavior. So behavior-based safety (BBS) can be tried for still better safety results. BBS emphasizes that take active responsibility for safety of each other. Target observable behavior, focus on positive consequence we expect to receive i.e. change unsafe to safe behavior; monitor behavioral trends of each individual or group everyday / week / month in order to understand percentage of safe and at-risk behaviors across departments during the years. Total safety culture encompasses that safety mechanisms are in place and active, and then implementing BBS gives wonderful re-

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EVENTS AND CONFERENCES

sults. According to a senior safety professional, “punishment never works for sustainable results for safety in organizations”. Another safety professional added, “BBS is going to be one of the best components of safety in the years to come”. For more information, please visit: https://www.fleminggulf.com/training-hse-sec/training-hse-sec/behaviour-based-safety Safety, Audit and Plant Inspection - Arabic March 7–10, 2012, Tripoli, Libya Trainer: Mostafa Dawood This course has been developed by professional educators using instruction techniques and audio-visual materials specifically designed for adult learners. There is a focus on developing a practical understanding of what it takes to plan and lead a successful study and on practicing new skills. The course is designed to raise the competency level of the participants in the conducting of safety, audit and inspection techniques. To Register, Email to: priya.narayan@fleminggulf.com http://fleminggulf.com/hse–security/safety-audit-and-plant-inspection—arabic!e64 Tel Aviv Annual Institutional Investment Conference March 12, 2012, David InterContinental Hotel, Tel Aviv The Tel Aviv Institutional Investment Conference brings approximately 550 investment managers and investment committee members of pension, provident and mutual funds, nostro managers at the local banks and insurance firms, CFOs of large cap firms and private institutional investors with approximately US$350 billion under management. The event will be held at the David InterContinental Hotel, Tel Aviv This year, the agena explored asset allocation in the following areas: commodities, infrastructure, real estate, forex, asset allocation strategies, risk management, equities, fixed income, global private equity strategies, ETFs, green energy projects, Chilean pension system based investment vehicles, institutional credit loans and other related topics. For more information, please visit: http://www.tlvii.com/ Commercial Litigation Funding & Investment 2012 March 14–16, 2012, Digital Sandbox, New York, NY Commercial litigation finance is an emerging multi-billion dollar market in the US where the level of current investment is outstripped by potential needs of litigators, SMEs and corporations involved in lawsuits. This asset class is yielding highly attractive returns for pioneering investors, and new funds are emerging seeking investments from institutional investors, family offices and other prospects. However, most lawyers do not know the sources for third party finance, how it can be ethically employed, and how to communicate its risks and benefits to clients. Likewise, most potential investors do not fully understand how to assess the outcome of litigation, or the business models of litigation funds. Only those investors and lawyers who fully understand commercial litigation finance can successfully navigate through the legal and financial complexities to profit. Infocast’s Commercial Litigation Funding & Investment Summit 2012 provides an unprecedented opportunity to meet the most experienced commercial litigation fund managers, investors and litigators, and gain an invaluable introduction to this emerging asset class. Major law firms and corporate counsels will discuss the use of third party capital in commercial litigation and how outside funding can help with alternative billing and customer retention in today’s legal economy. Leading litigation investment managers will explore the potential risks and rewards of various business models and investments in this asset class. Finally, investors will give their perspectives on the risk and reward profiles they find attractive. Attend to learn how you can profit from commercial litigation funding. For more information, please visit: http://www.infocastinc.com/index.php/conference/litigation12 Private Equity Summit for Institutional Investors March 25–26, 2012, Hyatt at Fisherman’s Wharf, San Francisco, CA 6th Annual Private Equity Summit for Institutional Investors is designed for institutional investors to address current trends in Private Equity, Venture Capital and Leveraged Buyouts. Set to take place in San Francisco, CA this private equity conference will investigate a variety of investment avenues and the most effective strategies for investing in each by calling upon leaders across the industry from investment advisory firms, private equity funds and PE advisors within institutions including but not limited to: • Public and Corporate Pension Funds • Family Offices • Insurance Companies • Fund of Funds • Endowments • Foundations • Sovereign Wealth Funds For more information, please visit: http://www.opalgroup.net/conferencehtml/current/private_equity_summit/private_equity_summit.php Process Safety Management March 25–26, 2012, Muscat, Oman Trainer: James M.Watterson F.I.O.M. F.R.G.S., M.B.I.M., C.M.I.L.T The course provides an introduction to the PSM standard for Managers of health and safety, environmental departments who are involved in overseeing implementation of PSM. Facility operations and maintenance employees who are charged with implementing PSM elements. Mechanical engineers who are directly involved in the technical aspects of the standard, research and development,quality assurance, and purchasing departments which need to become familiar with the standard and possible effects of PSM policies on their job responsibilities and functions.

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EVENTS AND CONFERENCES

To Register, Email to: Aurang.ali@fleminggulf.com http://fleminggulf.com/hse–security/process-safety-management!e65 Real Asset Investing Forum March 26–27, 2012, Hyatt at Fisherman’s Wharf, San Francisco, CA The Real Asset Investing Forum is designed to help investors use real assets to generate alpha and guard against inflation. In-depth discussions offer strategies and solutions that will help investors integrate real assets and create a complete institutional portfolio. Experts and industry professionals from across the country will travel to San Francisco to speak on the hottest topics in the industry, including: • Gold • Timber • Real estate • Infrastructure • Inflationary investing• Green technologyand many more! Networking events offer managers a chance to exchange ideas with investors face-to-face, including representatives from: • Public and Corporate Pension Funds • Family Offices • Insurance Companies • Fund of Funds • Endowments• Foundations • Sovereign Wealth Funds For more information, please visit: www.opalgroup.net/trk/raifc1206.html Corrosion and Corrosion Control in Oil and Gas March 26–28, 2012, Accra, Ghana Trainer: Mr. Willem Nel The aim of this course is to provide sufficient information for engineers and managers to identify and apply corrosion control and materials selection procedures to overcome corrosion issues. An in-depth understanding of corrosion is not required to effectively prevent untoward corrosion in 80% of problem areas. Upon the successful completion of this course, the participant should have a high quality and in-depth understanding of the corrosion monitoring methods available. The advantages and limitations of each method are detailed and the methods of analysis to convert raw data to useful information are included. To Register, Email to: priya.narayan@fleminggulf.com http://fleminggulf.com/oil–gas/corrosion-and-corrosion-control-in-oil-and-gas!e73 Waste Management and Recycling Conference and Exhibition “SAVE the Planet!” March, 28-30, 2012, Sofia, Bulgaria The renewable energy and waste sectors in South-East Europe are in need of expertise, technology and equipment. In view of the global changes, the Forum will outline good business opportunities in the Region and promote best environmental practices, the implementation of which will decarbonise the local economy. It includes a Congress and Exhibition on Energy Efficiency (EE) and Renewable Energy (RES), SEE Solar Exhibition and Conference and Exhibition on Waste Management, Recycling and Environment – ‘Save the Planet’. Over 50 % of the exhibition area in 2012 will be covered by foreign participants from Austria, China, France, Germany, Italy, Poland, Romania, Spain, Switzerland, UK, etc. The exhibitors will be able to create close ties with new partners – over 7 000 professional visitors are expected to get involved. High-level speakers from 20 countries will present good practices and new technological developments. pvXchange and Via Expo organize the 1st PV Discussion Forum ‘Photovoltaics’. A workshop ‘Italian Integrated Waste Management Experience’ will be held on the first event day. The great business atmosphere will generate professional contacts and knowledge transfer which will turn good ideas into real results. Organizer: www.viaexpo.com Reactive Power Management and Power Factor Correction April 8–10, 2012, Al Khobar, Saudi Arabia Trainer: Mr. Colin Spicer Substation electrical equipment plays an important role in the safe distribution of electrical power. The electrical equipment needs to be operated in a safe manner securing continuity of supply. This requires the equipment to be designed, installed, commissioned, operated, and maintained in a satisfactory manner within a management system that is effective in meeting the reliability goals within budget targets. To Register, Email to: Aurang.ali@fleminggulf.com http://fleminggulf.com/cross-industry/hv-electrical-equipment-maintainence!e54 Pipeline Integrity Management April 15–17, 2012, Al Khobar, Kingdom of Saudi Arabia Trainer: Dr Hussain Ahmed Being able to manage the integrity of a pipeline system is the primary goal of a pipeline system operator as this enables safe and reliable product delivery. The aim of the course is to provide attendees with a common awareness of Pipeline Integrity Management and also the tools and techniques for producing integrity management plans. To Register, Email to: Aurang.ali@fleminggulf.com http://fleminggulf.com/oil–gas/pipeline-integrity-management!e87 Hazop to Lopa and verification of SIL April 16–19, 2012 – Dubai, UAE Trainer: Mr. Johan Taljaard

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This course introduces the semi-quantitative risk analysis methodology called layer of protection analysis or LOPA that will help you to further analyze the existing safeguards from your HAZOP, in the form of layers of protection against an identified hazard in an objective and systematic way. When safety alarms, safety procedures, and physical safety devices are insufficient protection, safety instrumented systems are implemented as an additional layer of protection. The integrity of safety instrumented functions is further analyzed by SIL analysis for which LOPA is one of the intermediate steps. This course covers HAZOP, LOPA and SIL methodologies per international industry standards. To Register, Email to: priya.narayan@fleminggulf.com http://fleminggulf.com/hse–security/hazop-to-lopa-and-verification-of-sil—dubai-uae!e66 Wealth Management & Private Banking: Russia & CIS April 17–19, 2012, Moscow, Russia Adam Smith Conferences’ Wealth Management & Private Banking: Russia & CIS conference will be held on 17-19 April 2012 in Moscow. This conference is now in its third year and has already established itself as a MUST ATTEND EVENT in the spring calendar of the wealth management and private banking professionals. The conference offers 40+ presentations from top industry professionals and it regularly attracts local and international private banks, wealth management companies, family offices, private investment offices, fiduciary companies, trusts, and tax and law firms that work with private clients. SOME OF THE KEY TOPICS FOR DISCUSSION INCLUDE: • What is most important to PRIVATE BANKING CLIENTS? • How to establish and successfully MANAGE A FAMILY OFFICE? • How are MULTI-FAMILY OFFICES developing in Russia? • Which MARKETING METHODS work in the industry? • Which INVESTMENT STRATEGIES / PRODUCTS have performed well? • Investment in NON-LIQUID ASSETS (financial and non-financial) • REAL ESTATE as a popular type of private investment • HEDGING RISKS while forming clients’ portfolios • TAX PLANNING and asset protection for HNWIs Read about these topics in more detail by downloading the conference programme on: http://www.adamsmithconferences.com/en/wealth-management-private-banking-russia Join our CIS Wealth Management Forum LinkedIn group to read and discuss important industry news http://www.adamsmithconferences.com/xr43lnmp ! Cap Intro: Credit / Fixed Income Alternative Investing April 23rd 2012, Harvard Club, New York City Cap Intro: Credit / Fixed Income Alternative Investing is a highly focused capital introduction event bringing together active investors and successful, growing alternative investment managers focusing especially on opportunities in Credit and Fixed Income strategies. At the Cap Intro: Credit / Fixed Income Alternative Investing, investors and investment managers get what they seek: targeted private meetings. It is an extraordinary opportunity to get first round or continued meetings with your potential investors/investment managers underway. For more information or to register contact us on: info@catalystforum.com +1 212 966 2993 www.catalystforum.com Alternative Investing Evening Mixer April 23rd 2012 . Harvard Club, New York City This is a highly focused, semi-structured, investor event designed for allocators, advisors and investment managers in the alternative investing space to do some serious networking. The event starts late afternoon with some introductory talks, followed by networking and light entertainment into the evening. Drawn from Catalyst Financial Partners’ wide industry network, participants will be vetted investors, advisors and alternative investment managers only. We expect 100+ attendees. No service providers admitted. For more information or to register contact us on: info@catalystforum.com +1 212 966 2993 www.catalystforum.com Global AgInvesting 2012 April 23–25, 2012, The Waldorf Astoria, New York City, NY Global AgInvesting SM 2012 New York promises investors the opportunity to evaluate the global agriculture investing landscape and meet the managers with investable product that are helping to shape the burgeoning space. The two-day conference will include panel discussions on responsible investment, illiquid vs. liquid ag investment styles, palm oil production investments and worldwide farmland conditions that will provide a broad base of understanding of the ag sector. For more information, please visit: http://www.cvent.com/events/global-aginvesting-2012/event-summary1a3b2be8ff70454686a0dfa53a2af0fe.aspx Real Estate Investors Summit: Dealmakers Conference April 25-27 2012 – Gansevoort Miami Beach, Miami, Florida Network with the industry’s leading experts as they analyze the opportunities and challenges in the real estate market! Our 2011 event was a tremendous success, with hundreds of delegates at the Gansevoort in Miami, Florida. Opal’s 2012 real estate investors

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EVENTS AND CONFERENCES

conference will focus on the latest developments in the marketplace. It will analyze the opportunities and challenges in the real estate market; examine best practices and explore new deal making strategies. Opal’s Annual Real Estate Investors Summit: Dealmakers Conference promises to be 2012′s leading conference and exposition for real estate professionals, hedge fund managers, private investors, family offices, pension funds and other institutional investors. It will provide various networking opportunities along with an educational platform. For more information, please visit: http://www.opalgroup.net/conferencehtml/current/real_estate_investors_summit/real_estate_investors_summit.php Cap Intro: Emerging Markets | Macro Alternative Investing June 25th 2012, New York City Cap Intro: Emerging Markets | Macro Alternative Investing is a highly focused half-day capital introduction event bringing together active investors and successful, growing alternative investment managers focusing especially on opportunities in emerging markets and macro strategies. At the Cap Intro: Emerging Markets | Macro Alternative Investing, investors and investment managers get what they seek: targeted one-on-one private meetings. It is an extraordinary opportunity to get first round or continued meetings with your potential investors/investment managers underway. For more information or to register contact us on: info@catalystforum.com +1 212 966 2993 www.catalystforum.com Cap Intro: L/S Equity | Event Driven Alternative Investing October 22nd 2012, New York City Cap Intro: L/S Equity | Event Driven Alternative Investing is a highly focused capital introduction event bringing together active investors and successful, growing alternative investment managers focusing especially on opportunities in L/S equity and Event Driven strategies. At the Cap Intro: L/S Equity | Event Driven Alternative Investing, investors and investment managers get what they seek: targeted private meetings. It is an extraordinary opportunity to get first round or continued meetings with your potential investors/investment managers underway. For more information or to register contact us on: info@catalystforum.com +1 212 966 2993 www.catalystforum.com Cap Intro: Emerging Markets Alternative Investing December 10th 2012, New York City Cap Intro: Emerging Markets Alternative Investing is a highly focused capital introduction event bringing together active end-investors and successful, growing alternative investment managers focusing especially on opportunities in emerging markets strategies. At the Cap Intro: Emerging Markets Alternative Investing, investors and investment managers get what they seek: targeted one-onone private meetings. It is an extraordinary opportunity to get first round or continued meetings with your potential investors/investment managers underway. For more information or to register contact us on: info@catalystforum.com +1 212 966 2993 www.catalystforum.com

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IAIR LEGAL AWARDS

IAIR LEGAL AWARDS 2011 The winners of IAIR LEGAL AWARDS 2011 have been finally announced on December 15th 2011. The IAIR (International Alternative Investment Review) winners and nominees were selected through an independent survey of readers covering different key practice areas. The online survey was conducted through the IAIR’s readership, an international editorial staff, reporters and global opinion leaders. According to Alexa – Amazon in terms of international ranking and number of readers, IAIR is one of the leading and fastest growing alternative independent investment magazines worldwide. In fact, IAIR has recently surpassed well known international magazines like Euromoney, Institutional Investor, Reuters Hedgeworld, Financial Time Wealth Monitor. The online survey showed how our readers and also senior in-house lawyers, former managing and senior partners and other senior business figures viewed the law firms in terms of performance in management and leadership in the legal profession. Among Law Firms awarded can be found: in the USA Butera, Beausang, Cohen & Brennan Professional Corporation, Kirkland & Ellis, Willkie Farr & Gallaghe, Thompson & Knight and Kaye Scholer. In the United Kingdom Allen & Overy, Arnold & Porter (UK), Herbert Smith, SJ Berwin and CMS Cameron McKenna. For the complete list of the winners, five in each country, in more than 40 countries all over the world please see the following pages. You can also find some comments of these prestigious winners. n

The full list of winners for the 2011 Legal Awards ARGENTINA Marval O’Farrell & Mairal Alfaro-Abogado Estudio Alegria, Buey Fernández, Fissore & Montemerlo Bruchou, Fernandez Madeo & Lombardi Estudio Beccar Varela AUSTRALIA Gadens Lawyers Clayton UTZ Minter Ellison Corrs Chambers Westgarth Blake Dawson AUSTRIA BMA Brandstätter Rechtsanwälte GmbH Werner Minihold, Saxinger, Chalupsky & Partners Rechtsanwaelte GmbH Griss & Partners Konrad & Justich, Attorneys at Law Kaan Cronenberg & Partner BELGIUM Foley & Lardner LLP McGuireWoods LLP

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Finnegan, Henderson, Farabow, Garrett & Dunner LLP McKenna Long & Aldridge LLP Covington & Burling LLP BERMUDA Trott & Duncan Mello Jones & Martin Cox Hallett Wilkinson Marshall Diel & Myers Appleby BRAZIL Tozzinifreire Advogados Corrêa da Costa Advogados Machado Associados Advogados e Consultores Mayer Brown LLP Lanna Peixoto Advogados CANADA Lavery, de Billy, LLP Borden Ladner & Gervais Lawson Lundell LLP Ocana Law Group Pierre Bienvenu, Ogilvy Renault LLP

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IAIR LEGAL AWARDS

CAYMAN ISLANDS Thorp Alberga Finab Legal Ltd Turner & Roulstone Giglioli & Company J Barry Smith

FINLAND Procopé & Hornborg Attorneys at Law Ltd HH Partners LMR Attorneys Attorneys At Law Borenius & Kemppinen Wrede & Co

CHILE Carey Y Cia Abogados Alcaíno Rodríguez Sahli Puga Ortiz Carey Y Cia Abogados Cariola Díez Pérez-Cotapos & Cia Ltda

GERMANY Hemmelrath & Partner /Marccus Partners Michael Owens Buse Heberer Fromm Gibson, Dunn & Crutcher LLP

CHINA Vivien Chan & Co Foo and Li HJM Asia Law & Co LLC Ng & Co Kao, Lee & Yip COSTA RICA Pacheco Coto Gianfranco Rodriguez Bovieri, C & S Law Group Central Law Gutierrez Hernandez & Pauly CROATIA Divjak, Topic & Bahtijarevic Law Office Zuric i Partneri LLC Ana Sihtar, Ana Sihtar Attorneys at Law Vukic, Jelušic, Šulina, Stankovic, Jurcan & Jabuka Babic & Partners Law Firm Ltd CYPRUS Patrikios Pavlou & Associates LLC Christophoros Christophi, Christophi & Associates LLC Areti Charidemou & Associates LLC Andreas Sofocleous & Co Anastasios Antoniou LLC DENMARK Logos Legal Services Nielson Norager Rønne & Lundgren Norsker & Co Jonas Bruun EGYPT Al Tamimi & Company Shalakany Law Office Hafez Karim Adel Law Office ESTONIA Borenius, Attorneys at Law Lextal Law Firm Gencs Valters Law Firm Rödl & Partner

GREECE Koutalidis Law Firm Ballas, Pelecanos & Associates KLC Law Firm Bahas, Gramatidis & Partners Sarantitis Law Firm INDIA Amarchand & Mangaldas & Suresh A Schroff & Co Brus Chambers Patrick Mirandah Co Advaya Legal R Bhargavan & Associates ISRAEL Gornitzky & Co S Horowitz & Co Moshe Kahn Advocates Yehuda Raveh & Co KUWAIT Al Markaz Law Firm Abdullah Kh Al-Ayoub & Associates ASAR Al Ruwayeh & Partners AlBisher Legal Group Anwar AlBisher, Talal AlBisher & Partners Attorneys at Law LATVIA Lawin Gencs Valters Law Firm Borenius, Attorneys at Law NETHERLANDS Greenberg Traurig LLP Boekel De Nerée NV Van Mens en Wisselink Russell Advocaten BV NORWAY Bull & Co Advokatfirma AS Haavind Vislie Odd Wisløff, Raeder Advokatfirma DLA Piper PERU Duany & Kresalja Estudio de Abogados Marroquin & Merino

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IAIR LEGAL AWARDS

Francisco Espinosa Bellido, Espinosa Bellido Abogados Estudio Mario Castillo Freyre Lazo, De Romaña & Gagliuffi Abogados POLAND Kochanski Zieba Rapala & Partners Marek Wierzbowski and Partners Artur Rogozik, TGC Corporate Lawyers Soltysinski Kawecki & Szlezak Kubas Kos Gaertner PORTUGAL J A Pinto Ribeiro & Associados Pedro Pinto Reis & Associados Luiz Augusto Teixeira de Freitas, Teixeira de Freitas, Rodrigues e Associados Gouveia Pereira, Costa Freitas & Associados SRS Advogados REPUBLIC OF IRELAND William Fry Holme Roberts & Owen Solicitors Dillon Eustace Duncan Grehan & Partners Mason Hayes & Curran ROMANIA CHSH Gilescu & Partenerii SCA Cerha Hempel Spiegelfeld Hlawati Stoica & Asociatii Attorneys at Law Pachiu & Associates Radu Taracila Padurari Retevoescu SCA in association with Allen & Overy LLP RUSSIA CMS Russia Russin & Vecchi LLC Ackermann Bellmer Smirnov Davydov & Susskind Law Offices Haynes and Boone, LLP SAUDI ARABIA Toban Law Firm EK Partners & Al-Enezee Legal Counsel Attayyar Law Firm in Association with Alem & Associates Law Office of Hassan Mahassni Al-Jadaan and Partners SINGAPORE Duane Morris LLP Shook Lin & Bok LLP Arthur Loke & Sim LLP Ali Budiardjo, Nugroho, Reksodiputro Allens Arthur Robinson SOUTH AFRICA Edward Nathan Sonnenbergs DLA Cliffe Dekker Hofmeyr Dewey & LeBoeuf LLP

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Deneys Reitz Inc Routledge Modise Attorneys SPAIN Dr Frühbeck Abogados, SLP Alemany, Escalona & Escalante Abogados, SLP José Ignacio Alemany Bellido, Alemany, Escalona & Escalante Abogados, SLP Mariscal y Asociados Abogados SWITZERLAND Schellenberg Wittmer Homburger AG Tavernier Tschanz Bihrer Attorneys at Law Ltd meyerlustenberger attorneys at law TURKEY Hergüner Bilgen Özeke Esin Law Firm ADMD Law Office (Alkan Deniz Mavioglu) Cerrahoglu Law Firm Curtis, Mallet-Prevost, Colt & Mosle LLP UK Allen & Overy LLP Arnold & Porter (UK) LLP Herbert Smith LLP SJ Berwin CMS Cameron McKenna LLP UKRAINE Asters Ilyashev & Partners Inyurpolis Peterka & Partners LLC Integrites International Law Firm URUGUAY Posadas, Posadas & Vecino Patton, Moreno & Asvat (South America) SA Guyer & Regules Olivera & Delpiazzo Abogados Estudio Dr Mezzera USA Butera, Beausang, Cohen & Brennan Professional Corporation Kirkland & Ellis LLP Willkie Farr & Gallagher LLP Thompson & Knight LLP Kaye Scholer LLP VENEZUELA De Sola Pate & Brown Imery Urdaneta Calleja Itriago & Flamarique Travieso Evans Arria Rengel & Paz Abogados Klemprer Rivàs Perez Trujillo & Asociados AKRPT & Asociados Rodriguez & Mendoza

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IAIR LEGAL AWARDS

CAREY Y CIA – CHILE CAREY Y CIA ABOGADOS was awarded as winner of IAIR Legal Awards 2011 (Chile). Since its foundation (1905), Carey y Cìa has been committed to professional excellence. It is a core conviction of the firm that the practice of law is an honorable and enriching activity, which carries with it the responsibility of following the highest ethical standards. “We are very pleased to have won an award from IAIR – said Jorge Carey, Senior Partner of Carey y Cìa – and very much appreciate the honor and we hope to continue recognized as being one of the leading full service law firms in Chile.” What are the goals of your law firm for 2012? “We look forward to continue expanding and strengthening our practice areas and to continue being able to recruit the best law graduates in our country.”

KIRKLAND & ELLIS – USA KIRKLAND & ELLIS was awarded as winner of IAIR Legal Awards 2011 (USA). Kirkland & Ellis has a 100-year history of providing exceptional service to clients around the world in complex litigation, corporate and tax, intellectual property, restructuring and counseling matters. The groundwork has been established for another century of superior legal work and client service. “We are honored to be recognized by IAIR as among the top USA law firms for alternative investment managers – commented Scott Moehrke, Partner -. Over the last few years, Kirkland has increased its commitment to growing the hedge fund practice. We believe our efforts have been successful, as evidenced by the growing number of hedge fund formations and related projects on which we have been retained. This award is a testament to those efforts.” What are the goals of your law firm for 2012? “We hope to continue gaining market share with large hedge fund managers in 2012. Over the last two years, we have steadily gained market share in this area. We believe this growth is fueled by the desire of large hedge fund managers to have one law firm that can handle their global needs for fund formation, regulatory compliance and, if needed, litigation and enforcement cases. We believe this trend will continue, and with a dedicated team of investment management attorneys and private funds lawyers offering creative solutions and superior service to clients across the range of investment and advisory services, we are well-positioned for continued success.”

DILLON EUSTACE - Ireland Dillon Eustace is one of Ireland’s leading law firms focusing on financial services, banking and capital markets, corporate and M&A, litigation and dispute resolution, real estate and taxation. Headquartered in Dublin, Ireland, the firm’s international practice has seen it establish offices in Tokyo(2000), New York (2009) and Hong Kong (2011). In tandem with Ireland’s development as a leading international financial services centre, Dillon Eustace has developed a dynamic team of lawyers representing international and domestic asset managers, investment fund promoters, insurers, banks, corporates, TPAs and custodians, prime brokers, government and supranational bodies as well as newspapers , wind energy companies, aviation and maritime industry participants and real estate developers. For all these reasons Dillon Eustace won IAIR LEGAL AWARDS 2011. David Dillon, Senior Partner, commented the Award: We are delighted to receive the award from IAIR. Our Financial Services practice and particularly, our achievements in the Investment Funds Alternative Investments is something we are very proud of. It is an area of practice which is consistently changing and with the anticipated impact of EU and US Global legislation on this area …. there will be many challenges ahead. This will of course create opportunities as well. It is a situation in which Dillon Eustace is well placed to further expand its practice.

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ISLAMIC FINANCE

The Global Financial Crisis and its implication on Islamic Finance Aly Khorshid

The global financial crisis shook the international financial system around the globe, and its repercussions are still being felt globally. Owing to its severity, it has been labeled as the worst crisis since the Great Depression. It is now, more than ever before, clear that the current financial system is not stable and that the invisible hand is not doing what its proponents claimed. The prolonged period of “the great moderation”, together with runaway credit growth, paved the way for the current crisis. Easy money, uncontrolled growth of credit and debt, lax regulation and supervision, innovation of complex and opaque financial products, mismanagement of risks involved, lack of disclosure and transparency, predatory lending and high leverage – among other factors – are thought to be the main culprits behind the crisis. The current global financial crisis brought the Islamic financial industry (IFI) into the limelight as a possible alternative. However, IFI has not been totally immune to the crisis; it has been hit as well, although to a much more moderate extent. This may indicate a possible correlation between IFI and its conventional counterpart, as it lives under the same umbrella and is governed by the same rules of the game. Being a niche industry, Islamic finance faces considerable challenges. The way the industry responds to these challenges will determine whether it will become “a significant alternative to the conventional system in global financial markets” (Karuvelil, 2000). Moreover, lack of an efficient legal fra-

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mework and of standards and procedures, qualified manpower and effective government support exacerbate the risk exposures of IFI (Khorshid, 2009). There are many lessons that should be learned from the limited impact of the global financial crisis on IFI, and commensurate steps must be taken within IFI in order to make it more resilient to similar shocks. One of the steps necessary for strengthening the resilience of Islamic finance, according to Bank Negara Malaysia, is the assimilation of Shari’ah values in the realization of benefits to the relevant stakeholders. Islam stands for justice, fairness, cooperation and shared responsibility. Its goals go far beyond monetary indicators and growth as it promotes ethics, responsibility and market discipline (Aziz, 2008; Chapra, 2008). This is an opportune time for IFI to reduce reliance on debt-like products and move closer to equity-based, risk-sharing instruments. However, whatever choice is made by the industry, there is a need for an efficient regulatory and supervisory framework that will stay ahead of the market so as to prevent regulatory arbitrage from making significant inroads in the market (Aziz, 2008; Mirakhor and Krichene, 2009). An effective system of checks and balances has to be constructed that will help avoid making mistakes similar to those which led to the current crisis. Social interest: Among the Islamic countries, Malaysia has had by far the greatest success in crea-

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ting a flexible, innovative environment with the potential to provide both the incentive structure as well as the administrative apparatus to allow steps towards developing new risk-sharing instruments under an effective regulatory structure. The country’s courageous step of unifying the Shari’ah-ruling framework, as well as its long-standing commitment to provision of human capital to IFI and its encouragement of innovation, gives it a leadership position that can serve to strengthen the progress of Islamic finance. Islamic finance is a limited niche activity, while international financial markets are dominated by Riba-based activity. There are significant pressures from international organisations such as the IMF and the WTO for Muslim countries to open up their financial markets to multinational banks. International rating agencies such as Moody’s and Standard & Poor’s classify Muslim government debt and rate commercial banks, and even some Islamic banks, which affects the terms on which they can conduct their business. The Basle-based Bank for International Settlements has capital adequacy guidelines that pose significant challenges for Islamic banks and Islamic finance more generally. Islamic finance has become a worldwide industry, with assets under management in accordance with the Shari’ah law valued at over $1.4 trillion US Dollars. Within individual countries, especially in the Muslim world, Islamic finance plays a significant role, with the financial systems of

Dr Aly Khorshid has been involved with Islamic financial institutions for over two decades and has comprehensive skills in and knowledge of Islamic finance. He is a recognised expert on Shari’ah-compliant finance, within the Islamic law, Islamic Muamalat, and Islamic contracts. He has extensive consultancy experience in the department of Islamic Finance at Elite Horizon Economic Consultancy, most of it focused on economics, finance, Islamic capital market products, alternative finance, structuring, endorsing and advising on Shariah-compliant products with particular experience in capital and stock market products. Dr Khorshid has served as a consultant at the highest level of banking and has been instrumental in establishing Islamic banking and corporate governance policies at the national level. He has worked on structuring Islamic home purchase schemes. He is an expert in waqf (trust), family trusts, and inheritance in accordance with Islamic principles and is experienced in conducting comprehensive due diligence on financial institutions to identify potential investment opportunities. Dr Khorshid started his career in international marketing and trade. His first Shari’ah board membership was with Bank AlBaraka (the first Islamic bank in the UK). He served as a Shari’ah board member in selected Islamic institutions. He is a board member with Excellencia Capital Luxembourg. Dr Khorshid has a PhD in Islamic studies and economics from the University of Leeds (UK), he studied fiqh and Shari’ah at AlAzhar University (Egypt), and has a Masters degree in management (UK). His publications include Islamic Insurance: a modern approach to Islamic banking, the Encyclopaedia of Islamic Finance, Dictionary of Islamic Finance 2011, and the forthcoming Corporate Governance of Islamic Finance (expected in 2012). He has also contributed to numerous other publications, including Islamic Wealth Management: a catalyst for global change and innovation and Islamic Investment Banking: emerging trends, developments and opportunities. He has also had many articles published on Islamic finance. Dr Khorshid is a trustee member of Academy UK, a member of the Institute of Management Consultancy (UK), a visiting fellow in ICMA Henley’s Business School, University of Reading, UK, and a former visiting lecturer at El-Azhar University, Egypt. Dr Khorshid was nominated for the King Faisal International Prize in 2006 and also nominated for the Mubarak Prize on Islamic Studies in 2010. He is a regular speaker on Islamic finance issues at conferences and on TV.

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countries such as Malaysia, Pakistan, Iran and the Sudan operating under the Shari’ah law. In other countries, such as the Gulf States, Islamic banking is playing an increasingly significant role, accounting for over 40 percent of deposits in Kuwait and Qatar. Bahrain has become a major regional center for Islamic finance. At the same time many major multinational banks including Citibank, HSBC, ABN-AMRO and Deutsche Bank are offering Islamic financial products, while in Malaysia a sophisticated market in Islamic securities has developed, and Bahrain is providing money management instruments that comply with the Shariah law. The Muslim world was exploited in the 19th cen-

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tury and for much of the 20th century with the penetration of western capital, but in its early years, Islam itself promoted globalization through the transmission of its value system, a process that has been reinvigorated in recent decades. Contemporary globalization involves not merely freer trade and capital movements, but also the communication of ideas by new methods, including the Internet. Indeed it is the advance in information and computer technologies that is one of the major forces driving globalization, which makes it possible for market participants and regulatory bodies to collect and process the information they need to measure, monitor and manage financial risk and to price and trade complex new financial instruments. Islam, and Islamic finance in particular, has a message to spread, and global networks are arising for this purpose. It is the spread of ideas rather than mere money that is the greatest challenge, but one that presents hopes for Muslims. To some extent these views of globalization may reflect disciplinary biases rather than different strands of Muslim thought, this in itself demonstrating the dynamic interaction of western ideas with modern Islamic scholarship. These ideas can be applied to Islamic finance, which facilitates the creation of Muslim wealth that can be used for social purposes. The role of Islamic banks and financial institutions can enable this process. In contrast, the hoarding of personal riches, even in Muslim countries, makes those that hoard subservient to and dependent on global secular capitalism with its corrupting influences. Within international financial organisations there is considerable interest in Islamic banking, and it would be wrong to see those organisations associated with the “Washington consensus�, notably the IMF and World Bank, as being antagonistic to Islamic economic ideas. Indeed the IMF sponsored a study back in the 1980s on Islamic banking that was seen by many as an important contribution to the growing literature at that time, and a work that helped bring Islamic finance to the attention of a wider non-Muslim readership. At the macroeconomic level there has also been a willingness by the IMF to encourage inve-

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stigation of how monetary policy can operate and debt management handled in compliance with Islamic principles. The World Bank has had close relations with the Islamic Development Bank for a long time and both organisations have co-funded projects in a number of Muslim countries. There are also a number of Muslims working for the World Bank who are enthusiastic about Islamic finance, and keen to point out the merits of such a system. Within the Islamic financial community only limited attention has been paid to the issues of international banking competition. The majority of middle and high-income Muslim states are World Trade Organisation (WTO) members, including Malaysia, Turkey, Egypt, Jordan, Tunisia, Morocco and five of the six GCC states. This membership not only has implications for trade, but for financial services through the GATS provisions for the opening up of markets for banking and insurance. In some Muslim states such as Egypt and Syria the banking system is largely state owned, while in other states, notably Kuwait and Saudi Arabia, there are limitations on the share that foreign institutions can hold in the ownership of local banks. Privatization of the state owned banks, and the removal of ownership restrictions, is likely to result in the take-over of local banks by multinationals. The issue for Islamic banks is whether they are also vulnerable to foreign take-overs, especially as most are relatively small in size. There have already been some attempts at consolidation in Islamic banking, notably the proposed merger of the Institutional Investor of Kuwait and the Al Baraka Islamic Bank in Bahrain, although negotiations were suspended in 2002. The Faysal Bank in Bahrain was merged with other group affiliates to form the more adequately capitalized Shamil Bank. The Al Ahli Bank of Bahrain merged with the London based United Bank of Kuwait, including the Islamic banking unit. So far, however, no major multinational providing Islamic treasury or asset management facilities for Islamic banks or high net worth individuals have shown much interest in getting involved in Islamic banking at retail level in the Muslim world, although HSBC seems to have ambitions in this respect.

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Even if the markets for financial services are opened up in Muslim countries as a consequence of GATS, the Islamic banking sector may still be protected by its knowledge of Muslim clients and its unique product offerings. Muslim countries can open up their conventional banking sector under GATS while still protecting their Islamic finance sector using infant industry arguments. In the January 2002 Trade Policy Review of Pakistan, the review team noted Pakistan’s commitment to liberalisation under GATS in forty seven activities including banking, insurance, business and communications. Pakistan requested and received GATS exemptions under the most favored nation clause (MFN) in financial services where there were reciprocity agreements and in Islamic financing transactions. This ruling by the WTO should help the position of Islamic banks in Pakistan, demonstrating that a sympathetic treatment of globalization issues can prove beneficial to those seeking to ensure Shari’ah-compliant financing facilities are offered to potential Muslim clients. As financial systems become more open, national discretion in the determination of interest rates is reduced, since if money flows freely, differentials in inter-bank rates between currencies will largely reflect exchange rate expectations in relation to a dominant currency, usually the United States dollar. If expectations remain unchanged, and dollar interest rates rise, local inter-bank rates will also rise. The close correlation between the London Inter-bank Offered Rate (LIBOR), which refers to Euro-Dollar transactions, and for example, the Saudi Inter-bank offer rate on Riyals Singapore Interbank Offered Rate (SIBOR), is not surprising given that the exchange rate between the dollar and the riyal is fixed and that international inter-bank transactions can be freely substituted for domestic transactions. As returns on Islamic investment deposits and the costs of Islamic financing in Saudi Arabia are related because of competitive pressures and client expectations to SIBOR, it could be argued that Islamic banking activities are indirectly affected by what is happening in western, secular money markets. Hence Islamic financial institutions, and even less so the Islamic branches, counters and windows of

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conventional banks, are not seen as autonomous. Most Muslim countries apart from the GCC member states maintain controls over capital movements and some payments restrictions for import transactions. IMF structural adjustment policy encourages member states to eliminate multiple exchange rates and float currencies so that an equilibrium currency rate can be determined in the foreign exchange market, potentially facilitating the reduction of external deficits. In practice the results of such policies have been mixed in the Muslim world, but in the longer term the dismantling of foreign exchange controls seems likely for most countries. This will create additional opportunities for Islamic banks to offer Murabaha trade financing facilities as well as leasing, Ijara, and project financing, Istisna. With foreign exchange liberalisation the pricing of Islamic financing products has to be internationally rather than simply nationally competitive. The Basel Accords, the rating of Islamic banks and FSAP financial monitoring: like conventional banks, Islamic banks are not only regulated by the central banks of the countries in which they are based, but they are also potentially subject to the scrutiny of international monitoring agencies, no-

tably the Bank of International Settlements (BIS) in Basel. National regulation by central banks is also subject to international inputs, an example of this being the IMF and World Bank intervention through the Financial Sector Assessment Program (FSAP), which was started as a response to some of the issues raised by the Asian financial crisis of 1997. The annual reports of Central Bank Governors of Asian countries such as Malaysia and Indonesia are monitored and disseminated by the BIS, including their reviews of Islamic banking developments. In addition there is also continuing assessment of both Islamic and conventional banks by other commercial financial institutions, a process facilitated by the work of the rating agencies. Although there is no obligation to adhere to the BIS minimum requirement of eight percent of capital to risk weighted assets, Islamic banks that are seen as being adequately capitalized are more likely to have their trading instruments recognised, and can negotiate better terms for their assets which are managed by other banks. Capital therefore can be a constraint on Islamic bank growth, especially when the bank has been successful in rapidly building up its deposit base. Of-

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ten it has taken longer for Islamic banks to identify profitable lending opportunities than build up their deposit base, which implies lower initial profitability. This may delay stock market quotation to increase the capital base, or where the bank is already a quoted company, it may preclude rights issues to raise additional capital. The IFSB is to serve as an association of institutions that have responsibility for the regulation and supervision of the Islamic financial services industry. The aim is to set and disseminate standards and core principles as well as adapt existing, mainly AAOIFI, standards. Adoption of the standards will be voluntary, but banks and countries that adhere to the standards are likely to be more favorably rated. The IFSB is also responsible for liaison and cooperation with other standard setters, including central banks and security market regulators, in the area of monetary policy and financial stability, opening up the possibility of the adoption of Shari’ah law in this area for the first time. In addition the IFSB is responsible for the promotion of good practice in the area of risk management through research, training and technical assistance. The major challenges facing the IFSB are likely to involve benchmarking. The differences between Fiqh scholars in the Gulf and Malaysia over what constitutes the acceptable working of financial instruments are difficult to resolve. Malaysia’s pragmatic attitude to Islamic banking is in part driven by the objective of Bank Negara to see Islamic assets account for 20 percent of all bank assets in the country by 2010. This is encouraging conventional banks to offer Islamic financing facilities that conform to the letter of local Shari’ah interpretation by devising products with Islamic names. The actual working of the products is little different from their conventional equivalents, however, raising doubts about the meaningfulness of the exercise. Malaysia, for example, has an inter-bank market in Islamic debt securities but the returns in the market move in line with interest rates. The Public Bank’s Islamic overdraft scheme seems to differ little from conventional overdrafts, and its offer of long term housing finance through al bai bithaman ajil rather than Ijara leasing seems questionable.

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Standardisation of Islamic financial products can come about by adhering to international regulations, whether from secularist institutions such as the IMF or BIS or from designated Islamic international institutions such as the IDB, AAOIFI or the IFSB. It can also result from the interchange of ideas by national Islamic banks at international conferences, which encourages the spread of “best” practice. Even more influential in standardisation has been the emergence of major multinational banks and fund management groups as providers of Islamic financial products either directly to their own clients, or indirectly to those of the national Islamic banks. As HSBC Amanah Finance typifies this type of initiative by a major multinational bank, it is perhaps instructive to examine its experience. Despite its size as the largest United Kingdom based bank, with a significant presence in many Muslim countries from the Middle East and the Gulf to Malaysia, HSBC was a relatively late entrant to Islamic finance. Banks such as Citicorp, ABN AMRO, Deutsche Bank and some of the British merchant banks were involved from the 1980s, but HSBC only established its Amanah Finance division in 1998. In its mission statement, HSBC Amanah Finance stresses its respect for the sanctity of the Shari’ah, its professionalism, uncompromising integrity and strong customer focus. The aim is to build Amana’s reputation amongst Muslim clients of HSBC who already use its financial products and potential internal and external clients. Initially the emphasis has been on cross selling Amanah products to existing HSBC Muslim customers who use its conventional financing facilities, the internal clients, rather than reaching external clients of other banks through marketing and advertising the Islamic products. Direct cross selling is cheaper, and usually more effective given the captive nature of the market. For an international bank such as HSBC, product development is usually undertaken centrally, and then the products are distributed through national subsidiaries. In the case of Amanah finance, the initial offerings were developed in London where the bank was based, but the intention was always to focus on HSBC clients in Malaysia and Saudi Arabia where the Saudi British Bank is 40

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percent HSBC owned. For Malaysian and Saudi Arabian retail clients the leading products are those involving wealth management, in practice Islamic managed funds. Three Saudi British Bank branches have been initially designated as outlets for Amanah products, with local staff given appropriate training. For the United Kingdom and the United States the leading products are Islamic

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mortgages, but in 2002 the Programme had only just started in the United States, and in the United Kingdom, because of the unfavorable tax treatment of Islamic mortgages and capital adequacy issues, the Programme was still to be launched. Credibility with Muslim communities internationally rather than within single countries is important for multinational banks such as HSBC. Reputations can be enhanced internationally by having Shariah committee members accountable who combine academic scholarship with practical work on the Shariah committee and understand the Western economics system and Islamic economics. Towards a pluralist international financial system: far from being a threat to Islamic finance, globalization provides an opportunity. Islamic finance extends choice, and enables Muslims internationally to conduct their financial affairs in a manner that is consistent with their beliefs and values. Many non-Muslims are concerned with the ethics of how their money is utilized and their financing derived, hence the rise of the ethical finance industry encompassing some western banks and many mutual funds. Western and Eastern nonMuslim clients have shown their willingness to use Islamic financing when it is attractive. HSBC Amanah financing, for example, has found that 20 percent of their Malaysian clients are non-Muslim Chinese. Islamic finance adds value to the international financial system and encourages nonMuslims to think more seriously about debt issues, from the injury caused by lending sharks in the consumer loan market to the issue of developing country debt. The challenge of globalization is both to regulation and to markets. Islamic finance should not only be judged by its quantitative impact on global markets, which though increasing, remains small, but more importantly by the quality of the service and its effect on the perceptions and thinking of global financial players. Ultimately finance is more about values than the mere accumulation of money. Finance is also concerned with social responsibilities, including that of the wealthy towards the less fortunate in an often too selfish global economic order based on greed rather than economic justice. n

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Canada as a profitable investment for the future

John O’ Hearn

John O’Hearn a seasoned Canadian banking professional now in the private sector, owner/investor in various real estate properties in British Columbia, Alberta and Ontario Canada. Hands on, active real estate ownership brings success. My company “Invest1” – has experience that is built upon sound research & decision-making and the outstanding service delivered by a team of real estate experts and financial professionals who understand how to transform statistics and data into market insight. At the core of it all is a strong commitment to total client satisfaction. Our clients may come from all walks of life but what they all have in common is the desire to build wealth and achieve long-term financial security so they can focus on their own personal objectives. (Invest1@hotmail.ca ) It is important to reinvest in communities. My good friend Maria Hinojosa: intellectual, teacher, advocate, has allowed me to donate to special projects that are administration cost free Why Buy Real Estate? Canada Investing Advice Toronto/Vancouver/Calgary investment properties are now, and will continue to be, a very wise choice when deciding how and where you should invest. Real estate in Toronto, investment properties across Canada, and indeed real estate in general, should be the cornerstone of your investment portfolio. Of course, this advice is not only for those in Toronto. Real estate investing is recommended for

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anybody looking to make the most out of their investments in any market. Real Estate Is Less Complex Than Other Investments For the novice investor and experienced investing aficionado alike, a great advantage of real estate compared to other investment instruments is its simplicity. Market factors that shape the performance of real estate values are pretty basic. Space is limited and population is growing. As more people a competing to find living space in a finite supply of property, values will rise. Compare this to other complex investments. The factors that determine the rise and fall of stocks and bonds and mutual funds are plentiful and very difficult to forecast. And do not even bother trying to wrap your head around derivatives and credit default swaps. If the world’s largest financial services firms cannot foresee major market calamities, it means there is trouble to be had that is often unavoidable. As compared to other investments, less misadventure is involved in a real estate property. Real estate investments are traditionally considered a stable and profitable investment, provided it is taken seriously and with expert assistance. The reasons for the real estate investments becoming less risky adventure primarily relate to various socio-economic factors, location, and mar-

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ket behaviour. Understanding these is the hallmark of an experienced and respected company like High Gate Property Investments. The uncomplicated nature of real estate investment is a major reason why it is such a consistent and stable investment option. An experienced property investment consultant can guide an investor through the process with great success and clear counsel. You can and will be confident in your investment. Real Estate Consistently Outperforms Inflation Other Investments One constant in the economy is inflation – the increase in average prices. Simply put, over time a dollar is worth less; its purchasing power diminishes as prices grow. To apply the power of inflation to an assessment of your investments, you must realize that your assets or investments need to appreciate at a greater rate than that of inflation. The average rate of inflation since 1913 has been about 3.5% per year. That means if you are getting a return on an investment lower than this, you are actually losing money. Historical trends have real estate appreciating approximately 5% to 6%. As for other investment options such as stocks, bonds and mutual funds, if your investment portfolio has been appreciating greater than 3% per year, you are doing better than most Canadian investors. To see how real estate has been doing compared to stocks, check out the comparison below of Toronto Real Estate Investing compared to the Toronto Stock Exchange. Canada Real Estate Investment vs. The Stock Exchange This chart is a great example proving the above points and showing how real estate holds up in an economic downturn. It is worth noting that historical trends are also teaching us that economic downturns like the great recession we just went through will continue to happen more, and wreak greater havoc on our markets.

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This data tells us some valuable things about the stock market and how it compares to Toronto real estate investing. Two and a half years following the economic troubles at the end of 2008, we see the stock markets have yet to regain all that was lost. GTA real estate values returned to their high levels in one year. It is also worth noting that the impact of the losses in the stock markets was strong compared to the relatively minor blip taken on by real estate. In short, the major economic crisis of 2008 revealed the instability of stocks vs. real estate and the quick rebounding power of property investments compared to the more speculative stock markets. Real Estate = Equity. Equity = Leverage Opportunities With real estate as the cornerstone of your investment portfolio, you are in a great place to take your financial stability and wealth growth to the next level. Diversification is the most effective strategy to develop a low risk investment portfolio. If you are heavily invested in real estate, it is wise to diversify your holdings; include different types of property or properties in different markets. If you are investing in the stock market, explore many different industries and levels of risk. And of course, don’t rely solely in real estate, or stocks and bonds, or any other investment group. Diversify. Real estate is once again the best weapon to have in your arsenal to tackle this challenge. The great thing about real estate holdings is the equity it provides investors. If you invest, say, $25,000 in a property investment, you will also be getting a mortgage to complete the purchase of, say, a $150,000 property. Over time, as the mortgage gets paid down, the equity you hold will be growing. What was $25,000 worth of equity becomes $30,000, then $40,000. With this equity you will qualify for large low interest loans. Therefore, as your original investment property continues to appreciate in value, you have access to more capital to invest in other wealth generating instruments. It is this dynamic – leveraging your home equity – people are talking about when they say, “It takes money to make money.”

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Tax Advantages of Real Estate Investments Some of the nicest advantages about real estate investment are the tax exemptions on your principal and investment income property. There are more tax exemptions available in real estate property investment than any other investment. If your real estate investment is your principal residence, the appreciation the property has gained is yours, tax-free. No other investment has this golden benefit. Non-residence investment properties are taxed at the standard capital gains rate, but like with an RRSP, you can defer taxes owing on the value appreciation of your investment property until you sell. This means your investment value grows taxfree year after year giving you the benefit of taxfree compound growth. This means that 75 percent of your capital gain is taxed at your marginal tax rate, while 25 percent of the gain is tax-free! This 25 percent tax-free profit can quickly add up when you own multiple properties. For residents of Canada, including those in Toronto, investment real estate comes with several opportunities for lucrative tax deductions. Most people know that for rental properties, mortgage interest, property taxes, property management, maintenance and repairs can all be deducted from the owners income tax. But, there are many other tax exemptions and advantages. Real estate is no longer just an alternative, but a strategic core investment that can help you stabilize returns in your overall portfolio and take advantage of investment opportunities that complement the fixed income and equity markets. Whether you are considering entering the real estate market for the first time or are an experienced investor in the asset class, we will provide you with strategies and techniques to profit from a maturing real estate market. Canada has a responsible banking community as a result of decades of government control of capitalization requirement and certain changing investment requirements; abundant natural resources such as fossil fuels, timber, water, un-crowded landscape, make Canada a responsible investment now and into the future. n

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Self Storage Real Estate Investments are a stable investment during this forever recession Darell Austin

Darell Austin is a seasoned financial analyst in the financial services industry. Over his extensive career in the finance service industries, Darell has worked in capacities ranging from Property & Casualty, Consumer Finance, and Financial Advisory. Darell worked for the Mortgage Industry Advisory Corporation (MIAC) as an analyst in the Capital Markets Group as well as for US HUD as a government financial analyst/consultant. Darell brings extensive experience in complex financial analysis and forecasting, market and balance sheet valuations, financial systems administration, and business strategy advisement. He also has many years of hands-on experience and has valued some of the largest global investment banks and regional banks including Barclays Capital, Fifth Third Bank, and Goldman Sachs. Darell is currently pursuing a Masters in Management Systems from New York University. In addition, he earned his MBA from American Intercontinental University and also holds a Bachelor of Arts degree in English from Livingstone College and an Investment Banking certificate from the Investment Banking Institute.

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Although the latest Jobs report shows that there have been more than 200K plus jobs that have been added in January 2012 and unemployment just slightly dented, there are still millions of people unemployed and living in unstable situations. With the housing market still recovering, more and more people globally are becoming renters as well as newly minted university graduates moving back home with their parents. With that said, Self storage companies are thriving in this chaotic market. The key drivers for investing in self storage real estate are consumer spending, population growth, high occupancy rates. These are just some of the high level metrics that should be analyzed before diving into this investment opportunity. With foreclosures still looming, someplace has to store their personal belongings. This is evident based on the growth rate forecasted to grow at an annual compounded rate of 4 percent between 2011 and 2016. In addition, the occupancy rates for self storage units are currently hovering around 80%. In addition, apartment rental occupancy remains extremely high due to families losing their homes and having to move into apartments for shelter. Currently, there are some industry opportunities that are assisting with the stableness of self storage.

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Providing Containerized Storage Portable containerized storage, which consists of delivering a container to a customer's home or business for loading, then leaving the container at the customer's site or taking it to a secure location for long-term storage, has increased in popularity. Some self-storage services companies are working exclusively with portable containers. For traditional self-storage companies, offering portable storage can create new sources of revenue without the construction expense associated with a new fixed storage facility. In some cases, traditional self-storage operators have partnered with portable storage providers to offer containers as an option. Entering Niche Markets Specialty storage facilities often cater to upscale customers with more valuable goods to store. Storage for wine and cigars, business records, collectibles, and family heirlooms are some of the more popular offerings. Specialty storage facilities may have advanced security systems and more fashionable interiors, in addition to temperature and humidity control. Expanding Service Offerings Adding products or services ancillary to self-storage can give a company new revenue streams and a competitive edge. Tenants are responsible for moving items in and out of storage units; many need to rent or buy equipment to do so. Sovran Self Storage supplies items such as boxes, tape, loading equipment, and renters insurance through a third party carrier. These are just some of the emerging trends for self storage units within the real estate industry. Even recently, the Wall Street Journal just published an article about storage REITs enjoying a boon. The article stated that storage REITs as well as stocks have become a great hit with investors and also the popular TV show storage wars. So a not glamorous real estate asset has garnered attention worldwide due to the forever recession. Make sure to keep an eye on self storage investments as they will be here for the foreseeable future. n

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Hawaii Real Estate: a “unique” way of life Interview with Katie Minkus, Real Estate Broker and President at West Hawaii Association of Realtors Alessia Rosa

Please introduce yourself, your professional career and your company. My name is Katie Minkus, R(B), I’m the Brokerin-Charge for Hawaii Life Real Estate Brokers on the Big Island of Hawaii. I started my real estate career in 2003, and worked for the local Sotheby’s affiliate until I left to start my own brokerage, Lava Rock Realty in 2006. I sold Lava Rock to my business partner, Peggy Yuan, R(B) in 2009 when I joined Hawaii Life. We started Hawaii Life Big Island with only myself and one other Broker, Lucy Clark, R(B), and it grew to over 30 REALTORS, plus support staff, and 211 transaction sides in 2011, putting us at #5 office on the island, out of 262 offices. If you want to see more, please look at my LinkedIn Profile: http://wwwlinkedin.com/in/katieminkus Hawaii Life Real Estate Brokers is statewide - providing solid representation and smart marketing on every island, and every market in Hawaii, with over 135 agents and brokers. www.hawaiilife.com What about Hawaii Real Estate scenario? What are its peculiarities? Hawaii is unique in that we are a resort community, with the exception of a few places such as Honolulu, Hilo, Kahului, etc. which are small cities and towns (and operate more like a mainland real estate market). Resort community means that we have visitors and property owners from all over the world, and owning property in Hawaii is highly desirable. The population is transitory,

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so they come and go. Some owners and visitors are ‘snowbirds’ - they come every winter and leave during the summer. Some people move to Hawaii thinking it’s paradise and when it’s ‘harder’ than they thought, they move back to the mainland. Some own multiple vacation homes and only come to Hawaii every few years, for a week or two. Property always needs to be sold and there are always buyers wanting their own piece of paradise. Real estate is a relationship business, and Hawaii is a relationship culture, that’s why both of them go very well together. What this means on the Big Island is that life moves slower than many other places, because we make time to stop and talk story with the people in our lives. Thus, it’s crucial to be more efficient and effective in other parts of business, such as paperwork and client communication - especially because the vast majority of our clients live elsewhere and expect our business together to move at the same fast pace their business and lives move on the mainland. What are people more interested in when they look for a house in Hawaii? In your profile, I read that “Katie is living proof that real estate in Hawaii does not have to be stuffy, unnecessarily formal, or pretentious”… Similar to my answer above, I think there’s an introduction process that people need to go through when they’re considering Hawaii. Part of that in-

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troduction has to do with the relationship culture, and not taking everything so seriously. It doesn’t mean that we’re not professional (in fact, I’d argue that we actually have to work harder), but we don’t compete on the basis of trying to ‘oneup’ our competition, or who has the flashier cufflinks. There’s no Aloha in that. On the mainland, the real estate industry seems to be stuck in this identity crisis of trying to prove itself. We don’t have that challenge. We’re tasked with the extraordinary job of being the liaisons for Hawaii to people from all over the world. It’s very obvious that people need our service, whether buying or selling. Selling real estate today is a bit like buying a commodity - black socks. Or let’s say floppy disk drives, which I sold as a manufacturer’s rep from 1992 - 1994. Yes, there are some differences between properties - but in context, those differences are not that great - what people are really buying is lifestyle. In Hawaii, real estate’s big “secret” at work (location, location, location) becomes obvious enough that we experience multiple-offer scenarios regardless of what type of overall market conditions we are experiencing. So it doesn’t matter if it’s a buyer’s market or a seller’s market, we still have multiple offers on properties, that’s just the way it works. The law of supply and demand at its most raw, and a reminder that flexibility is key in this business. When people are looking to buy a house in Hawaii, the first question is always: “Which island?” Each island has its own unique flavor, and often a buyer feels more ‘drawn’ to one island than another. On the Big Island, we then narrow it down further by price, type of property, and preferred weather. These are not choices based on a type of house or a zip code for a school district; these are lifestyle-based choices.

As Hawaii Life’s Broker-In-Charge on the Big Island of Hawaii, Katie Minkus is responsible for hundreds of transactions a year, as well as over 30 brokers, sales people, and support staff. After co-founding Lava Rock Realty in Waimea, Katie joined Hawaii Life Real Estate Brokers in 2009. Even before Hawaii Life opened its first office on the Big Island (now in Puako Beach), Katie and her team were responsible for over $40 million in sales. By the end of 2011, they were ranked the number 5 office in total sales volume out of 262 offices on the Big Island of Hawaii. Katie currently serves as the President of the West Hawaii Association of Realtors, a post she’s held since the beginning of 2011. For the Hawaii Association of Realtors, she is a graduate of the 2010 Leadership Academy and currently the Vice President, Liaison to Committees. In 2011, the West Hawaii Association of Realtors awarded her as Broker of the Year. Despite her workload, and her adamant stand for professionalism in the industry, Katie is living proof that real estate in Hawaii does not have to be stuffy, unnecessarily formal, or pretentious. She’s committed to “living her best Hawaii life” and encourages us all to relax, go to the beach, get in the water, and enjoy the incredible lifestyle that Hawaii has to offer. She practices yoga on a regular basis and is a self-described “recovering Type A personality”. Katie and her husband Dave live in Puako Beach on the Big Island’s Kohala Coast.

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You currently also serve as the President of the West Hawaii Association of Realtors. What are you dealing with in the Association? In 2011, you were awarded “Broker of the Year”… Association work is all voluntary and has provided me with some of my most challenging - and most rewarding - moments in Real Estate. WHAR has just emerged from a time of serious financial problems, and we are focused on steering the Association forward in the right direction. We just hired a new Association Executive, we hope to finalize our Sentrilock Electronic Lockboxes program this year, and possibly bring our membership an additional MLS choice. Broker of the Year is typically an award that goes to a Broker who has done a lot of work for - and given a lot of volunteer time to - the Association. I’m humbled to be the winner for 2011. Serving the greater Real Estate community (our members) is an honor and a responsibility and in truth it feels like I’ve received so much more from my participation than I’ve given by my leadership. On West Hawaii Association of Realtors’ website I see that every Thursday morning you meet in Kona to network with each other and preview new property listings. What are the specific objectives of these meetings? These are property caravans that are conducted in different ways, in different parts of the Big Island,

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and also differently on the other islands. The Kona caravan specifically conducts a 30 minute meeting where new listings and other community items are announced, and then the REALTORS go see the homes that are open in a specific area. The objective of these meetings is to connect in person (relationship culture) and communicate with the larger REALTOR community - whether it’s the Association announcing an event, or a REALTOR announcing a new listing or price reduction. The other objective is to get to know the inventory of homes for sale in a specific market. What are the best strategies that Real Estate Brokers have to know? In Hawaii, I believe it’s a combination of “back to basics” sales skills, and cutting edge technology. Brokers have to know how to “sell” - how to close, how to follow up prospects, how to create new business. They also need to know how to electronically communicate with their clients in the best way ever, how much time to spend on social media, how and why to blog and that personal branding is impractical and increasingly unimportant in today’s wired world. Most importantly, they need to know “the big why” - why do they get up in the morning and do their job? It can’t be just for the money - that tends to be a hollow, shortsighted and short-lived goal. We do it for the people, for the relationship, in order to help them. n

International Alternative Investment Review - Jan. - Mar. 2012


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FAMILY OFFICE AND WEALTH MANAGEMENT

The Family Office Fund Manager Selection Process Richard Wilson

Family offices and other qualified investors employ a sophisticated, consistent process for selecting fund managers. I have created the following diagram of this process based on my work with family offices and through the 36 interviews I conducted for my upcoming book on family offices. The diagram breaks down the selection process into six macro-steps and serves as a collective view of what the industry is currently employing around the world at the 1,000 foot level.

The Six Steps of Fund Manager Selection: 1. The first step is typically to review what is called the one-pager or tear sheet of a fund manager. This is a very brief 1-2 page PDF document which contains the fund’s investment performance, team, investment process, disclosures, and complete contact details. It is meant to explain the investment strategy to the investor and present a 10,000 foot view of what the fund offers. Typically, these are reviewed very rapidly, for just 5-10 minutes by investors who decide whether the rest of this process should be followed or whether the fund is not a good match. 2. The second step in the process takes place when the investor has some interest in the fund and would like to have more details. The investor is then sent a PowerPoint presentation on the fund

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manager sometimes referred to as a “deck” or “pitch book.” The pitch book is typically 15-80 pages long and reviews the fund's team, unique edge in the marketplace, investment process, risk management procedures, operations, service providers, investment examples, and future plans. 3. If the pitch book is well received, most investors will then want to move to the third step and setup a phone call to discuss the materials of the presentation. These calls typically last between 30 minutes and an hour and consist of the management team walking the investor through each page of the presentation, stopping for questions and fielding additional questions at the end of the phone call. During these phone calls analysts, investment committee members, or the chief investment officer of a family office may start asking tough questions about style drift, the effect of a key executive leaving the team, or how why and for how long they may have “gone to cash” in the last recession. It is during these phone calls that investors get a feel for where the strengths and weaknesses of a fund manager lie. 4. The fourth step of the fund manager selection process involves the completion of a due diligence questionnaire or DDQ, as they are often called. These DDQs can include anywhere from 25 to150 questions and can often be 50 to over 100 pages in length once fully completed by the fund manager. The point of the DDQ is to dig

International Alternative Investment Review - Jan. - Mar. 2012


FAMILY OFFICE AND WEALTH MANAGEMENT

Richard C. Wilson provides institutional best-of-breed fund manager ideas to family office investors. Richard wrote the #1 most popular book on hedge funds, which has been read by over 100,000 people. He runs several associations including the 40,000+ member Family Offices Group and a pair of alternative investment associations, the Hedge Fund Group and Private Equity Investment Group with over 200,000 members in total. He is a leading global speaker on family offices who has spoken at and chaired over 50 industry conferences and summits in Zurich, Monaco, Singapore, New York, Liechtenstein, Brussels, Sao Paulo, Tokyo and the Cayman Islands. Richard has been named one of America's Premier Experts, and recently has appeared on the Brian Tracy TV Show that is shown on ABC, NBC, and Fox affiliate channels around the United States. Richard has written several books in the past, including a bestselling book last year on hedge funds called The Hedge Fund Book: A Training Manual for Capital Raising Executives and Professionals. It has since sold several thousand copies in hardcover format and has been rated the #1 investing book on the Kindle platform. (ISBN# 978-047052063) Richard's educational background includes earning a Bachelors in Business from Oregon State University and an M.B.A. from the University of Portland. He has also completed masters level coursework on the Psychology of Influence studying under Dr. Wolman and the research of Dr. Cialdini.

into the granular details of the fund's operations, legal structure, compensation structure, portfolio of investments, future plans for growth, etc. This combined with the PowerPoint, one-pager, and phone call is the bulk of what many analysts and investment committees use to review fund managers in a relatively comprehensive manner. Sometimes this step in this process is required before step three and that is important to note. Most of the other steps will not change order very often. 5. The fifth step which most family offices complete while selecting a fund manager is to conduct an on-site visit. Occasionally, due to geographical distance, the fund manager will come to the offices of the family office, but this is an exception and not the rule since it is more valuable to see the real office of the fund. A lot can be learned by seeing how a team works together, trades, selects investments, and treats each other on a day-to-day basis. Almost all of the family offices I have spoken to and worked with require a faceto-face meeting, but some will rely on a third party investment consultant or compliance team to do this for them. 6. Typically the final step in the selection of a fund manager is further research, analysis, and deliberation by the analyst, investment team, chief investment officer or investment committee or even all of the above. In some cases a unanimous agreement is required to invest in a fund manager, in other cases only the chief investment officer has the authority to select a fund manager for an allocation. Every family office has slightly different processes for what is needed before a new fund manager is selected. Again, the family office fund manager selection process that I just outlined is only an example of the process which many of these sophisticated investors use to evaluate prospective funds. n

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ETFS

ETFs: a look “under the bonnet” to see how they work Interview with Francis Groves, Author of Exchange Traded Funds, A Concise Guide to ETFs Alessia Rosa

Introduction, career and current work My background is in online information services for professional subscribers, working for Reuters, the FT and LexisNexis. More recently I have become interested in providing sound information to private individuals, especially investors, something that the Internet has facilitated enormously while at the same time throwing up a number of

Francis Groves studied modern history at the London School of Economics and has many years of experience working for legal and financial publishers including Reuters, Financial Times Electronic Publishing and LexisNexis UK. He has written on overseas property investment and created financial literacy training materials. The interaction of politics and finance is of particular interest to him. In the ETF field he has written for MotleyFool.co.uk and contributed to MyPrivateBanking.com. His book, ‘Exchange Traded Funds, A Concise Guide To ETFs’ was published by Harriman House earlier this year.

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problems such as information overload and the difficulty of verifying what one reads or hears. Apart from writing books, one on ETFs and an earlier one on corporate actions, I spend time writing a blog about ETFs from a private investor standpoint, called ETFStall, and I do freelance work editing and researching in areas such as reputation analysis and, most recently, Internet and social media for financial institutions. My aim for 2012 is to start providing training on ETFs. What’s your assessment on the current situation for ETFs in the European Union? Clearly, 2011 was a bad year for European domiciled ETFs. The ETF concept suffered damage to their reputations from regulators’ disquiet about swap-based ETFs, in particular, and we can see that investors have latched on to these concerns as a result of coverage in the general media. There was a bandwagon effect in criticising swapbased ETFs and solid information for private investors is trailing behind the experts’ debate. In particular, there has been a lot of confusion between the dangers that ETFs pose to individual investors and the threats that some regulators believe ETFs pose to the financial system as a whole. Regulators have to be concerned about these longer term dangers but private investor interest

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ETFS

in ETFs would have to grow much more than it currently is to represent a threat to financial stability. And, of course, we’re living through anxious times in relation to the European banking industry and most European domiciled swap-based ETFs have a single bank as their swap counterparty. In my opinion, single swap counterparties are a core concern that private ETF investors need to focus on for the next few months. What aspects of ETFs did you focus on in your book? What are, in your opinion, its strengths? My book is really aimed at private investors and financial advisers in the UK and Europe-wide. The aim of the book is to look ‘under the bonnet’ to show how ETFs work. What I wasn’t trying to do was to recommend a particular investing system such as fundamentals investing or sector rotation or whatever. I think too much writing on ETFs assumes readers know how ETFs work and omits that kind of information because writers are more interested in showing how you can use ETFs to implement specific investment strategies. That said, there’s no denying that my book has an underlying bias in favour of passive investing. For me the book’s strengths are the explanations of the different ETF methodologies (especially the difference between in-kind replication and the socalled synthetic variety), the focus on how indices work, the chapter on exchange traded in the commodities sector and the section on exchange rate exposure. In an interview, you said that you were ‘a fan of ETFs’: was this your primary reason for writing the Guide? To begin with, I was very pleased when Harriman House asked me to write about ETFs because I saw it as a superb opportunity to really examine this relatively new type of fund in depth. So I started by being favourably disposed towards ETFs but, above all, wanting to understand more about them.

My enthusiasm for ETFs grew while I was writing about them and, generally speaking, I’m still enthusiastic about them. What is the best investment approach towards ETFs? What essentials do private investors have to keep in mind when using them and what kind of mistakes do they usually make? Naturally, I’m in favour of learning about how ETFs work as your starting point. After that, I think one error that is easy to fall into is to start out experimenting with ETFs for an asset class – say large cap equities – that’s relatively familiar to you. Hopefully, that initial test gives you satisfactory results but then you need to be careful about branching out into other types of assets that are covered by ETFs but which you may be unfamiliar with. ETFs can be great for helping investors with their asset allocations but that doesn’t mean that they do away with the need to learn about the assets you’re planning to invest in and how exchange traded products track them. Let me share a personal example. I’ve read a lot about how ETCs (and ETFs tracking futures indices) work and I’ve been experimenting with them for quite a while now; but, I certainly don’t kid myself that I know exactly how – say – the oil markets work and how oil futures respond to changes in that market. So I’m still fairly tentative about using these funds. My second point is that private investors need to realise that the ‘tradability’ of ETFs can be a snare. The best way to look at this is to see tradability as an ETF feature to take advantage of when you need to but not to be tempted to trade more frequently than you have to. In other words don’t be tempted to become a frequent trader instead of a long-term one. That’s not to say that I believe in ‘buy and hold’ forever. There’s a lot to be said for portfolio rebalancing and there can be times when you realise that the ‘script’ you believe you’re watching being played out isn’t accurate in an important area. For example, I might have believed that European blue chip companies would survive the

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ETFS

Eurozone crisis unscathed but now I may be beginning to have second thoughts. Logically, changing your mind can or should lead to altering your portfolio but it becomes expensive if you do that too often. I would steer clear of leveraged or inverse ETFs and ETCs. The rationale for passive index investing is a belief in economic growth, that over time the cake will become larger. Leveraged and inverse ETFs don’t add anything to that picture and, besides, they’re such short term investments that using them becomes unduly expensive. Finally, it’s important for investors not to make mistaken assumptions about the tax liabilities that a particular fund will leave them with. For example,

UK ETF investors need to check that capital gains on an ETF will really be treated as such and not as taxable income and to be aware of the possibility that foreign withholding taxes may not be fully ‘off-settable’. You said in an interview that “..if investors could better understand not only the products but also the regulators’ thinking about the products, the standard of financial advice would probably improve as a consequence.” I believe that investor education is really very important indeed. If the number of well informed private investors grows, it should become more likely that private investors as a group will get good value from their advisers. In the long run savvy investors will test the mettle of the financial advice industry. Regulators, especially European ones, could do more to help this process of investor education but at present it’s as if regulators and industry insiders are conducting a debate (about ETFs) over the heads of private investors. What do you think the outlook for ETFs could be in 2012? Hopefully, bank (and therefore ETF sponsor) solvency concerns will be reduced as the year goes on. Regulators might insist on swap-based ETFs having more than one swap counterparty, but I think it’s more likely that regulators will try to make it more difficult for private investors to buy leveraged and short ETFs and even swap-based ones. Even though I don’t like leveraged or short ETFs, I believe that access to stock markets should be open for all investors for all types of listed securities. Also, we might begin to see more attention to how passive funds like ETFs carry out their responsibilities as shareholders in areas such as directors’ remuneration. And several European ETF sponsors have some catching up to do to bring their websites up to the level of the best; that’s an area where there may be a significant improvement in 2012. n

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International Alternative Investment Review - Jan. - Mar. 2012


WORLD TOP 30 ALTERNATIVE INVESTMENTS MAGAZINES Position

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Magazine’s name

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85.259 97.335 101.322 221.039 245.605 257.689 282.938 341.879 354.125 386.767 470.174 485.938 488.897 524.172 557.890 586.675 761.138 876.439 990.897 1.026.102 1.067.789 1.328.787 1.432.456 3.500.879 3.567.900 6.319.897 6.832.670 9.241.431 13.234.567 14.704.000 (updated: 17th May 2011)

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FOREX, CFD AND FINANCIAL SPREADBETTING

Looking for low risk and transparency in the FX Market Interview with Claes-Henrik Claesson, Managing Director at Claesson Capital Introduction

Scarlett Williams

Claesson Capital Introduction is a financial advisor focusing on the marketing of FX Managed Accounts to institutional Investors. Can you discuss your goals for this year? My goals for the year are to continue to add institutional investors to the strategies of the managers in my program. I am also about to add a few new

Claes-Henrik has over ten years of experience in business strategy and business development tasks working for the Swedish bank SEB. His last position at SEB was as Head of FX Prime Brokerage. Claes-Henrik has a law degree (juris kandidat) from the University of Uppsala and a Master of Law and Economics from the University of Utrecht.

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managers to my program, as investors are asking for more choices. It is also good to be able to work with managers who have different trading styles in order for the investors to find the managers that will fit into their overall portfolio. What about the geographic area where you operate in? My marketing is focused on the Nordic region but, depending on the specific case, my market is global. I travel a lot and I attend various conferences worldwide. I have also been a speaker at several conferences and, in some cases, I have been the chairperson. This is a great way to develop relationships with banks, brokers, managers and investors. Increasing return without any significant increase in risk with total transparency and daily liquidity: that’s the philosophy of Claesson Capital Introduction. Can you explain us how it is possible? Foreign Exchange as an asset class of its own is becoming a staple of any institutional investor’s portfolio. Claesson Capital Introduction offers in-

International Alternative Investment Review - Jan. - Mar. 2012


FOREX, CFD AND FINANCIAL SPREADBETTING

vestors the possibility to invest in currency managers through managed accounts in the Claesson FX Managed Account program. Actively traded FX can be a highly uncorrelated asset in relation to equities and bonds, hence the possibility “to move the efficient front” and increase return without any significant increase in risk from a portfolio perspective. Managed accounts will give the investor total transparency and daily liquidity and the investor will be the owner of each individual position. Acting as an introducing agent, Claesson Capital Introduction has selected a few high quality currency managers to add to its program. What’s the difference between FX Managed Account and mutual funds? Unlike mutual funds or hedge funds which commingle the funds with funds of other investors, a FX Managed Account is in the Investor’s name and all or part of the funds can be redeemed within a short period of time. The Managed Account is held within a Prime Broker who also acts as clearer of the relevant FX trades. The Managed Account holds the Investor’s positions and allows

him or her to follow profit/loss development for each of the currencies in the account. Based on the Investor’s long-term goals, risk tolerance and time horizon, the investor can select a Currency Manager with the appropriate trading strategy to actively manage the portfolio. FX trading is widely used to improve the overall performance of an investment portfolio. What are the advantages? FX is the world’s most liquid market and a great source for investors seeking alpha. Many different strategies can be expressed in an FX trading strategy which gives the investor many choices and opportunities when it comes to optimization of the performance of the portfolio. For an investor to have increased possibility of positive return without any significant increase in risk, external mandates for active FX trading is widely used to improve the overall performance of an investment portfolio. Claesson Capital Introduction has introduced the concept of FX Managed Accounts in the form of the Claesson FX Managed Account program. Through this program, an investor can achieve exposure to the currency markets. n

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GLOBAL ECONOMY

The Straits of America Nouriel Roubini

NEW YORK – Macroeconomic indicators for the United States have been better than expected for the last few months. Job creation has picked up. Indicators for manufacturing and services have improved moderately. Even the housing industry has shown some signs of life. And consumption growth has been relatively resilient. But, despite the favorable data, US economic growth will remain weak and below trend throughout 2012. Why is all the recent economic good news not to be believed? First, US consumers remain income-challenged, wealth-challenged, and debt-constrained. Disposable income has been growing modestly – despite real-wage stagnation – mostly as a result of tax cuts and transfer payments. This is not sustainable: eventually, transfer payments will have to be reduced and taxes raised to reduce the fiscal deficit. Recent consumption data are already weakening relative to a couple of months ago, marked by holiday retail sales that were merely passable. At the same time, US job growth is still too mediocre to make a dent in the overall unemployment rate and on labor income. The US needs to create at least 150,000 jobs per month on a consistent basis just to stabilize the unemployment rate. More than 40% of the unemployed are now long-term unemployed, which reduces their chances of ever regaining a decent job. Indeed, firms are still trying to find ways to slash labor costs. Rising income inequality will also constrain consumption growth, as income shares shift from those with a higher marginal propensity to spend (wor-

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kers and the less wealthy) to those with a higher marginal propensity to save (corporate firms and wealthy households). Moreover, the recent bounce in investment spending (and housing) will end, with bleak prospects for 2012, as tax benefits expire, firms wait out socalled “tail risks” (low-probability, high-impact events), and insufficient final demand holds down capacity-utilization rates. And most capital spending will continue to be devoted to labor-saving technologies, again implying limited job creation. At the same time, even after six years of a housing recession, the sector is comatose. With demand for new homes having fallen by 80% relative to the peak, the downward price adjustment is likely to continue in 2012 as the supply of new and existing homes continues to exceed demand. Up to 40% of households with a mortgage – 20 million – could end up with negative equity in their homes. Thus, the vicious cycle of foreclosures and lower prices is likely to continue – and, with so many households severely credit-constrained, consumer confidence, while improving, will remain weak. Given anemic growth in domestic demand, America’s only chance to move closer to its potential growth rate would be to reduce its large trade deficit. But net exports will be a drag on growth in 2012, for several reasons: - The dollar would have to weaken further, which is unlikely, because many other central banks ha-

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GLOBAL ECONOMY

ve followed the Federal Reserve in additional “quantitative easing,” with the euro likely to remain under downward pressure and China and other emerging-market countries still aggressively intervening to prevent their currencies from rising too fast. - Slower growth in many advanced economies, China, and other emerging markets will mean lower demand for US exports. - Oil prices are likely to remain elevated, given geopolitical risks in the Middle East, keeping the US energy-import bill high. It is unlikely that US policy will come to the rescue. On the contrary, there will be a significant fiscal drag in 2012, and political gridlock in the run-up to the presidential election in November will prevent the authorities from addressing long-term fiscal issues. Given the bearish outlook for US economic growth, the Fed can be expected to engage in another round of quantitative easing. But the Fed also faces political constraints, and will do too little, and move too late, to help the economy significantly. Moreover, a vocal minority on the Fed’s rate-setting Federal Open Market Committee is against further easing. In any case, monetary policy can address only liquidity problems – and banks are flush with excess reserves. Most importantly, the US – and many other advanced economies – remains in the early stages of a deleveraging cycle. A recession caused by too much debt and leverage (first in the private sector, and then on public balance sheets) will require a long period of spending less and saving more. This year will be no different, as public-sector deleveraging has barely started. Finally, there are those tail risks that make investors, corporations, and consumers hyper-cautious: the eurozone, where debt restructurings – or worse, breakup – are risks of systemic consequence; the outcome of the US presidential election; geo-political risks such as the Arab Spring, military confrontation with Iran, instability in Afghanistan and Pakistan, North Korea’s succession, and the leadership transition in China; and the consequences of a global economic slowdown. Given all of these large and small risks, businesses, consumers, and investors have a strong incentive to wait and do little. The problem, of course, is that when enough people wait and don’t act, they heighten the very risks that they are trying to avoid. n Nouriel Roubini is chairman of Roubini Global Economics and Professor at the Stern School of Business, NYU. ©Project Syndicate, 2012

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GLOBAL ECONOMY

“Trust. Has It Become A Curse Word?” Michael J. Weiner, President/CEO, PreConstruction Catalysts Inc.

There was a time, perhaps you remember, when you could look at someone in the eyes and decide if you could trust them or not. Business was done on a handshake, and relationships always preceded some kind of deal. A relationship based on ‘trust’ was paramount. Even banks used this word in their names. Then the Internet came along. All of a sudden, anyone could get online. A double-edged sword, the Internet allowed us to communicate with people all over the world, in ways we could not imagine before. The other side of the sword has been the incredible amplification of those who are up to no good practice, and using the Net for bad purposes. Last decade saw such a deafening volume of people trying to lie, cheat and steal, most of the genuine people who are building relationships and working together to accomplish mutual goals that had disappeared, like the head of a tortoise pulling into its shell. It wasn’t long before the amount of ‘noise’ reached epic proportions and drowned out all semblance of reality, to be replaced by wishful thinking, unrealistic expectations and parasitic personalities pouring forth from all corners of the earth. With this background, it is no wonder why investors have clammed up, and became hyper-suspi-

Michael Weiner is President and CEO of PreConstruction Catalysts, Inc., a business development firm for project funding, Private Placement Programs, and other niche Alternative opportunities outside-the-box.

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cious about dealings with people who claim to be one thing, yet turn out to be another one. The stories about alternative investments and the ‘opportunities’ have resembled just enough truth to make it look real. In reality, the smokescreen is nearly impossible to pierce without a lot of wasted time chasing down genuine from fake. Trust and the Internet have seemingly become mutually exclusive of the other. Yet there are indeed genuine, authentic people who are also using the Internet as a tool for creating new relationships that are honest and filled with possibilities, in ways that establish the foundation of a relationship. As an investor, what are some of the signs you should look for, before you think about trusting a new connection. First, what have you found out about the person? Do they appear on the Internet in a favorable way? Do you have a feeling of open-mindedness when you read some of their writings? Is the person approachable, and do you get a feeling they know what they are talking about? Will this person call you on the phone, or if convenient, meet you in person? What is the person offering, and does it make sense? Authenticity is easy to spot once you have done some homework, and had a conversation. It isn’t practical to meet in person all the time, but among the positive aspects of the Internet, there is the possibility to meet face to face with tools like Skype, for example. You do need to be careful as you pick your way through the noise, and there are ways to learn more about a person if you feel you can trust them. Ask questions, listen carefully to the answers, and then decide if you wish to cultivate something more, which will lead you to a successful investment. It also never hurts to listen to your gut. n

International Alternative Investment Review - Jan. - Mar. 2012


GLOBAL ECONOMY

Reinvigorate the Rich to Help the Poor Christine Lagarde, Managing Director of the International Monetary Fund

WASHINGTON, DC – For the third time in five years, the world’s poorest countries are at risk of being hit by a crisis not of their making – a prospective downturn brought on by financial turmoil in the world’s most advanced economies. Having gone through the food and fuel shock of 20072008 and the global financial crisis that followed, low-income countries may now face even larger disruptions in 2012. And, given the interdependence of today’s globalized world, poor countries’ distress will invariably have unwelcome consequences for everyone, rich and poor alike. At the height of the global crisis in 2009, many low-income countries experienced a slowdown in growth marked by falling exports, lower remittances from expatriate workers, and subdued foreign investment. The social consequences were severe: the World Bank estimates that an additional 64 million people were left in extreme poverty by the end of 2010. Yet it could have been much worse. Thanks to greatly improved policy performance over the previous decade, low-income countries entered the crisis far better positioned to withstand shocks than in the past. They had smaller fiscal and current-account deficits, lower inflation, larger international reserves, and – thanks in part to debt relief – lower debt burdens. As a result, most countries were able to maintain or even increase spending, despite lower revenues, and allow fiscal deficits to widen. This propped up economic growth, while also boosting outlays for critical investments and social programs nee-

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ded to lessen the hardships faced by the poorest people. The downturn was also relatively short-lived, partly as a result of the greater openness to world trade that lower-income countries have embraced over the past decade. But these countries are still highly vulnerable. Many have not had sufficient time to rebuild the policy buffers that served them so well. There is less ammunition left in the fiscal arsenal, currentaccount deficits have widened, reserves have declined, and debt levels have risen significantly in some countries. Moreover, with the advanced economies facing budgetary pressures, foreign aid may be severely constrained for some time to come. Under these circumstances, it is by no means certain that low-income countries will have access to additional concessional financing. As a result, a new global downturn would hit lowincome countries hard. Simulations by the International Monetary Fund suggest that a decline in global growth of 1.5 percentage points could, owing to its impact on trade and financial flows, generate a $27 billion gap in additional external financing in 2012 alone. That would also push 23 million more people – most of them in Sub-Saharan Africa and Asia – into poverty. What can countries do to help themselves? The scope for fiscal stimulus is more limited than in 2009, but countries with sufficient fiscal room and available financing should maintain spending levels and preserve critical social and infrastructu-

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re programs. Countries with moderate inflation could be more assertive with monetary and exchange-rate policy. A key priority for 2012 and subsequent years must be to build increased resilience against shocks. Low-income countries should boost their revenue bases to reduce reliance on external financing, while improving the efficiency of spending. In particular, improving the scope and targeting of social safety nets would go a long way toward protecting the poorest in the event of a further global downturn. Several countries, including Armenia, Burkina Faso, Sierra Leone, Ghana, and Kenya, have already made successful strides in this direction, using means-tested food-voucher programs, maternal and family benefits, school-based social services, and conditional cash-transfer schemes targeting the most vulnerable groups, such as orphans. Over the longer term, low-income countries would benefit from diversifying their economies and avoiding over-dependence on a few products and trading partners. More diversified economies are also likely to deliver more inclusive growth – growth that creates jobs for more people, and that distributes its benefits more widely. In order to boost long-term growth prospects and productivity, low-income countries will also need to meet huge infrastructure needs, especially in the area of electricity generation and transportation. What can we do to help? The IMF is ready to assist with policy advice, financial support, and technical assistance. We have boosted our concessional lending capacity to $17 billion through 2014, and doubled the amounts countries can draw. We have also cut interest rates on all concessional lending to zero through 2012. We have made our lending instruments more flexible, so that financial support can reach our members quickly, leaving sufficient room for high-priority spending to support growth and protect the most vulnerable. Ultimately, the best way that the international community can help the low-income countries is for the advanced economies to get their houses in order and restore strong and sustainable global growth. That will help to ensure that low-income countries remain on track to consolidate and extend the impressive achievements of the last decade. n Christine Lagarde is Managing Director of the International Monetary Fund. ŠProject Syndicate, 2011

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Message to Europeans: View Africa’s challenges and barriers as investment opportunities. Interview with Jacqueline Chemhanzi, Africa Leader at Deloitte Consulting Alessia Rosa

You are the Africa Lead at Deloitte Consulting. What is your role in particular? In this capacity, I am responsible for assisting South African companies and multi-nationals access opportunities across the continent in the following key sectors: Financial Services, Mining, Healthcare, Energy, Infrastructure, Oil & Gas, Agriculture and TMT. My role sits at the interface of industries and geographies. From an industry perspective, I work closely with our Industry Leaders in the sectors mentioned. From a geographical perspective, given that Deloitte has a presence in 34 African countries, my role involves collaborating with our various offices so that clients experience consistency in how they experience Deloitte. Since The Economist regrettably called Africa “The Hopeless Continent” a decade ago, an impressive change has taken place. What are, in your opinion, some of the factors behind this positive renaissance? While Sub-Saharan African countries have experienced a marked acceleration in economic growth since the mid-1990s, it was really not until 2009/2010 when the world realized this and Africa became the big media story and started attracting positive headlines. In 2010, we saw the Newsweek cover, “How Africa is Becoming the New Asia” and

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in 2011, the Economist’s “The Hopeful Continent: Africa Rising”, a complete reversal of tone from “The Hopeless Continent”. This African renaissance is the result of the interplay of a number of factors. Firstly, because Africa has not traditionally been intricately linked to global capital markets, the impact of the global financial crisis on the continent was minimal. So while Western economies were severly affected and, indeed, continue to be, Africa was insulated. The major and unintended consequence of Africa weathering the crisis, in my view, is that perceptions of risk shifted enormously. Africa is now not necessarily perceived as the riskiest place to invest in. Moreover, not only is it not very risky, but it also offers the highest returns on investment of any region in the world. Third, the continent is generally more peaceful than it has ever been. There are less wars and conflicts today and this bodes well for investment. There are also more peaceful transitions of power taking place on the continent. Finally, we are witnessing more investment climate reforms by various governments. So it really is the confluence of all these factors that has created the positivity that we are witnessing vis-à-vis the continent. The World Bank states “Africa could be on the brink of an economic take-off, much like China

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Dr Jacqueline Chimhanzi is the Africa Lead for Deloitte Consulting South Africa. In this role, she assists clients access opportunities across the continent in sectors such as Mining, Oil & Gas, Power, TMT, Financial Services, Healthcare, Agriculture and Infrastructure. Prior to this, she was a Manager in the Strategy Division and led project teams on diverse client engagements in sectors such as Oil & Gas, Power, Steel, Banking, Mining, Brewery and Agriculture. Jackie is passionate about Africa and is convinced that Africa’s development can only be fostered and sustained by involving more young people and women. She is a Fellow of the ArchBishop Desmond Tutu Leadership Programme run by the African Leadership Institute (AfLI) at Oxford University. This competitive Pan-African programme seeks to develop the next generation of leaders on the continent. On completion, she joined the AfLI board and is committed to the Institute’s vision of developing a critical mass of young African leaders. She is also a Champion of Africa 2.0 – a network of young Africans crafting Vision Africa 2020. Also, she is a founding member of New Faces New Voices – a network under the leadership and patronage of Mrs Graca Machel. The network advocates for African women’s greater financial access and innovative investments in African women so that they are empowered to meaningfully contribute to the sustainable development of the continent. She holds a BSc (Hons), MBA (with Distinction) and a PhD (Strategic Marketing) - all from Cardiff Business School, University of Wales. Prior to joining Deloitte Consulting, she worked at Added Value, a WPP subsidiary as Director: Brand Development. She was also Researcher/Lecturer in Strategic Marketing in the UK at the University of Wales. She has authored and co-authored papers in peer reviewed academic journals such as “Journal of Business Research” [US], “European Journal of Marketing”, Journal of Marketing Management [UK] and has presented her work at various international fora.

was 30 years ago and India 20 years ago”…. Do you agree? Why? Yes and no. On the one hand, on an intellectual level, just reading the statistics, it is clear that Africa is taking off. In my job, I track developments taking place across various sectors on the continent so I have a good bird’s eye view of the hive of business activity and it really is exciting. On a tangible level, visiting certain countries on the continent, the positive socio-economic change is visible. I lived in Ethiopia in the early ‘80s and witnessed the extreme poverty and the famine. I was in Ethiopia again in 2010 and 2011 and the transformation that the country has gone through is phenomenal and quite staggering. It is currently one of the fastest growing economies in the world with a GDP growth of about 12%. However, if we assess Africa against a strict definition of “economic take-off ” there remains much more to be done and I suppose that is why the World Bank qualified the statement stating “Africa could be on the brink of an economic take-off ”. According to Rostow’s Stages of Growth model (also called "Rostovian take-off model"), one of the major historical models of economic growth,

a precondition for take-off is a shift from an agrarian society to more commercialized and mechanized agriculture. The take-off stage itself is characterized by a manufacturing capacity that is export-oriented, akin to where China and India are today. Africa needs to address these two areas if she is to really take off: food security and job creation. Thus far, despite the rosy growth figures, there remains a weak relationship between per capita growth and poverty reduction. There is, therefore, a need for the structural transformation of African societies focusing on inclusiveness so that Africa’s growth begins to benefit Africans. While Africa is endowed with natural resources, for example, policies need to be put into place to beneficiate those minerals into higher value products in the countries where they are mined so that jobs can be created and export revenues are earned. Also, while Africa has significant arable and rich land, the continent still faces food shortages. What do you think the role of African governments should be in this challenge? Maybe they need to run their countries more efficiently…..

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Undoubtedly, African governments have a huge role to play in the regulatory and policy-setting space. I am a great believer in letting the private sector flourish – be it local or foreign investors. The private sector should, rightly, be viewed as a development partner in co-creating Africa’s destiny with governments. Sticking with the issue of food security, African governments need a policy response to the following issues: lack of security of tenure of land; small farmers’ lack of access to finance; small farmers’ lack of access to markets; capacitating small scale farmers to become commercial large scale farmers; women’s rights to land ownership, agro-processing, warehousing and setting up commodity exchanges. Having stated this though, I am also mindful of the progress that is being made. The agricultural sector is growing rapidly and starting to formalize. Previously, if an investor wanted to invest in the African agricultural space, it was difficult to even know where to go or who to approach. This is changing and vehicles are being set up that encourage investments and even PPPs in agriculture. Just in the last 8 months, there has been so much activity in this sector at national government levels but also through programmes of multilateral organisations such as the Comprehensive Africa

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Agriculture Development Programme (CAADP) and at regional bloc levels. In terms of job creation, the beneficiation and manufacturing dialogue has started between governments and the private sector. So, Africa is directionally correct but it will take time for the results of policy changes to manifest. What are the best markets that can give EU investors access to Africa? Different countries in Africa are attractive for different reasons and attractiveness is a function of what investors are seeking and their appetite for risk. Nigeria is attractive from the perspective of the sheer size of the market, although doing business there is considerably more difficult than other parts of the continent. East Africa is attractive from an ease of doing business perspective but it has smaller markets. However, the move towards an integrated East African Community market in 2014 will increase the size of the market with free movement of goods between borders for people and goods. East Africa and particularly Kenya is also impressive for the creativity and innovations that have emanated out of that region in the TMT space. Mpesa, for example, allows for the unbanked to become part of the mainstream

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economy by transacting through the medium of cellphones. Ghana is also attractive – it is stable and with its GDP growing at 14.2%, this gives rise to a middle class which bodes well for consumer goods. Ethiopia is very little spoken about but is the second most populous African country with 87 million people, combined with an economy growing at about 12% annually. From a sectoral perspective, mining, energy, oil & gas, infrastructure, healthcare and agriculture present great opportunities. Given the fast growth of many countries on the continent, questions remain as to how Africa will power this growth. However, Africa is endowed with natural resources such as water, sun, gas, wind and geothermal that can go some way in closing the supply gap while also allowing for a relatively easier migration to a cleaner energy mix. The real challenge is funding and developing models that allow for the average African consumers and industries to access this energy affordably. The funding gap, viewed conversely, however, presents an opportunity for greater private sector foreign involvement and gives rise to new energy ownership models on the continent. Infrastructure development is another area that presents massive opportunity, be it roads, rail or ports. Healthcare is attractive too, but the challenge, as with energy, is to find business models that are both profitable to the investor and affordable to the consumer (patient) in the absence of well-developed medical insurance schemes on the continent. Are you an Afro-optimist? Do you think foreign direct investment will rise again in 2012? Yes, I am an Afro-optimist but, interestingly, I haven’t always been. But there is so much happening on the continent that inspires confidence about Africa’s future, it would be difficult not to be an optimist! Africa has been called the “final frontier”, so I am confident that FDI will continue to rise in 2012. My message to Europeans is to view Africa’s challenges and barriers as investment opportunities, become part of the solution and make money too! As a further testament to Africa’s bright future, and this is important, we are seeing more intraAfrican business with African home-grown companies expanding outwards of their own base co-

untries – this is a relatively new phenomenon and points to the fact that Africans are themselves beginning to have faith in their continent and its potential. And I cannot emphasize how important it is for Africans to believe in themselves. There is a new-found confidence. Examples include the Dangote Group, Econet, Ecobank and Oando and several South African companies. You are also a Fellow of the ArchBishop Desmond Tutu Leadership Programme run by the African Leadership Institute (AfLI) at Oxford University. Could you explain this programme to us? What are its strengths? The ArchBishop Desmond Tutu Leadership Programme is phenomenal and life changing. It is pan-African and highly competitive. It is an unconventional leadership programme whereby participants are chosen on the basis that they are already leaders but may not be conscious of it nor aware of the significant role they could play in the transformation of Africa. The programme therefore does not aim to teach leadership but to raise participants’ level of consciousness to a more tangible and conscious level and equip them with the tools to harness it. The focus is on leading, not leaders; responsibility, not accolades. The programme acknowledges that people can lead in their spheres of influence, in whatever capacities they find themselves in and not just as positional leaders. They can equally lead as followers - from the back. It is such a critical mass of leaders derived from all spheres across the social strata that will energise African transformation. It also seeks to navigate the complexities and challenges of African leadership in a global context while appreciating the duality of perspective required of Africa’s future leaders. The experiential-based programme is premised on the notion that leaders need to be introspective, be self-aware, self-regulate and understand how followers experience them. So the experience is akin to an onion being peeled. With each layer gone, you are more exposed until you get to your very core and you have to decide how you harness that core. It actually gets painful and heavy at times and when you come back you are still processing and it takes a while to fully reintegrate with your environment. n

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The Perils of 2012 Joseph E. Stiglitz

KOLKATA – The year 2011 will be remembered as the time when many ever-optimistic Americans began to give up hope. President John F. Kennedy once said that a rising tide lifts all boats. But now, in the receding tide, Americans are beginning to see not only that those with taller masts had been lifted far higher, but also that many of the smaller boats had been dashed to pieces in their wake. In that brief moment when the rising tide was indeed rising, millions of people believed that they might have a fair chance of realizing the “American Dream.” Now those dreams, too, are receding. By 2011, the savings of those who had lost their jobs in 2008 or 2009 had been spent. Unemployment checks had run out. Headlines announcing new hiring – still not enough to keep pace with the number of those who would normally have entered the labor force – meant little to the 50 year olds with little hope of ever holding a job again. Indeed, middle-aged people who thought that they would be unemployed for a few months have now realized that they were, in fact, forcibly retired. Young people who graduated from college with tens of thousands of dollars of education debt cannot find any jobs at all. People who moved in with friends and relatives have become homeless. Houses bought during the property boom are still on the market or have been sold at a loss. More than seven million American families have lost their homes. The dark underbelly of the previous decade’s financial boom has been fully exposed in Europe as well. Dithering over Greece and key national go-

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vernments’ devotion to austerity began to exact a heavy toll last year. Contagion spread to Italy. Spain’s unemployment, which had been near 20% since the beginning of the recession, crept even higher. The unthinkable – the end of the euro – began to seem like a real possibility. This year is set to be even worse. It is possible, of course, that the United States will solve its political problems and finally adopt the stimulus measures that it needs to bring down unemployment to 6% or 7% (the pre-crisis level of 4% or 5% is too much to hope for). But this is as unlikely as it is that Europe will figure out that austerity alone will not solve its problems. On the contrary, austerity will only exacerbate the economic slowdown. Without growth, the debt crisis – and the euro crisis – will only worsen. And the long crisis that began with the collapse of the housing bubble in 2007 and the subsequent recession will continue.  Moreover, the major emerging-market countries, which steered successfully through the storms of 2008 and 2009, may not cope as well with the problems looming on the horizon. Brazil’s growth has already stalled, fueling anxiety among its neighbors in Latin America. Meanwhile, long-term problems – including climate change and other environmental threats, and increasing inequality in most countries around the world – have not gone away. Some have grown

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more severe. For example, high unemployment has depressed wages and increased poverty. The good news is that addressing these long-term problems would actually help to solve the short-term problems. Increased investment to retrofit the economy for global warming would help to stimulate economic activity, growth, and job creation. More progressive taxation, in effect redistributing income from the top to the middle and bottom, would simultaneously reduce inequality and increase employment by boosting total demand. Higher taxes at the top could generate revenues to finance needed public investment, and to provide some social protection for those at the bottom, including the unemployed. Even without widening the fiscal deficit, such “balanced budget” increases in taxes and spending would lower unemployment and increase output. The worry, however, is that politics and ideology on both sides of the Atlantic, but especially in the US, will not allow any of this to occur. Fixation on the deficit will induce cutbacks in social spending, worsening inequality. Likewise, the enduring attraction of supply-side economics, despite all of the evidence against it (especially in a period in which there is high unemployment), will prevent raising taxes at the top. Even before the crisis, there was a rebalancing of economic power – in fact, a correction of a 200-year historical anomaly, in which Asia’s share of global GDP fell from nearly 50% to, at one point, below 10%. The pragmatic commitment to growth that one sees in Asia and other emerging markets today stands in contrast to the West’s misguided policies, which, driven by a combination of ideology and vested interests, almost seem to reflect a commitment not to grow. As a result, global economic rebalancing is likely to accelerate, almost inevitably giving rise to political tensions. With all of the problems confronting the global economy, we will be lucky if these strains do not begin to manifest themselves within the next twelve months. n Joseph E. Stiglitz is University Professor at Columbia University, a Nobel laureate in economics, and the author of Freefall: Free Markets and the Sinking of the Global Economy. ©Project Syndicate, 2012

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JOB & CAREERS

Job & Careers Harris myCFO names Leslie Grant as VP for Capital Advisory Services and Custom Banking Solutions Harris myCFO, a part of BMO Financial Group, has appointed Leslie Grant as a Vice President. She will be located at BMO Harris Bank N.A. at 111 W. Monroe Street in Chicago and will be responsible for delivery of capital advisory services and custom banking solutions to clients. In addition to providing traditional banking services, the Capital Advisory and Custom Banking group advises clients on the effective management of liabilities and the financing or monetization of unique assets including real estate, aircraft, fine art and alternative investment assets.

Societe General hires Mazaud as head of private banking Societe Generale has appointed Jean-François Mazaud as Head of Societe Generale Private Banking. He joins the Executive Committee of the Private Banking, Asset Management & Securities Services division and reports to Jacques Ripoll, Head of the division. Jean-François Mazaud becomes a member of the General Management Committee of Societe Generale group. Jean-François Mazaud replaces Daniel Truchi, who has decided to pursue new opportunities in the financial sector outside Societe Generale group.

PIMCO appoints Geoffrey Johnson as next lead global equity portfolio manager PIMCO has hired Geoffrey Johnson as an Executive Vice President and Global Equity Portfolio Manager. He will begin with the firm in April 2012 and will be based in the Newport Beach office. “Geoffrey is an extremely talented equity investor with an established track record of success in the global long/short equity space,” says Neel Kashkari, Managing Director and Head of Global Equities for PIMCO. “His addition to our team is another important step in PIMCO’s build-out of our global active equity investing platform.” Nikko AM boosts Singapore senior team Joyce Koh has joined Nikko Asset Management Asia Limited (Nikko AM Asia) as Head of Marketing. Her appointment is effective immediately and is the most recent in a series of senior appointments at Nikko AM Asia, following Nikko AM’s acquisition of DBS Asset Management Ltd (“DBSAM”) in the last quarter of 2011. Koh will be responsible for Nikko AM Asia’s marketing activities and branding initiatives in Southeast Asia. She joins Nikko AM from Fidelity Singapore where she spearheaded the firm’s marketing efforts from 2006 as a member of the firm’s pioneering team in Singapore. Prior to Fidelity, Ms Koh oversaw marketing and brand development as Brand and Communications Manager at AVIVA Singapore from January 2003. Cordea Savills appoints Head of Luxembourg office Cordea Savills, the international property investment manager, has appointed Lorna Mackie as Head of the Luxembourg office. Mackie is responsible for fund corporate activities with a special focus on ensuring the highest standards of governance for the company’s Luxembourg-domiciled funds and business entities, and Continental European subsidiaries. She reports to Bill Hackney, Chief Operating Officer at Cordea Savills.

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DIRECTORY

Directory AARM Corporation Phone: 1-877-296-2276 E-mail: executive@aarmcorp.com Website: www.aarmcorp.com Academy UK 21 Weighhouse Street London W1K 5LY United Kingdom Mobile: +447944411777 E-mail: aly@academyuk.org. The Woodlands, 20 Woodlands Drive, Woodmead, 2052, South Africa Phone: +27 (0)11 806 5400 Fax: +27 (11) 806 5444 Mobile: +27 (0) 83 501 1078 Email: jchimhanzi@deloitte.co.za

Callanish Capital Partners LLP Kristy Barr, Partner, Investor Relations Phone: +44 (0)20 3178 8072 Email: Kristy.barr@callanishpartners.com Claesson Capital Introduction Norr Mälarstrand 86 11235 Stockholm Phone: +46 73 8054 777 Email: ch@cciab.com Website: www.cciab.com Darell Austin Phone: 1-646-374-8872 Email: da1224@nyu.edu Linkedin: http://www.linkedin.com/in/darellaustinjr EDM Asset Management Ignacio Pedrosa Head of Institutional Investors Pº de la Castellana, 78 28046, Madrid SPAIN Phone: +34 91 411 03 98 Fax: +34 91 411 21 06 Mobile: +34 636 814 186 Website: http://www.edm.es/en Website: http://es.linkedin.com/in/ipedrosa Jacqueline Chimhanzi Africa Desk Deloitte Consulting Pty Ltd Deloitte Place, Building 33,

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Katie Minkus 7 Puako Beach Drive, Kamuela, HI 96743 Phone: 1-808.895.4327 Email: katie@hawaiilife.com Website: www.hawaiilife.com Michael Weiner Phone: 202-657-6960 Email: mike@preconstructioncatalysts.com Richard Wilson Email: Richard@RichardWilsonCapital.com Shore Capital Management Mark Shore, Chief Investment Officer Email: info@shorecapmgmt.com Website: www.shorecapmgmt.com Mark Shore’s research can be found at http://www.shorecapmgmt.com/research.html Tyler Capital Group, LLC. Jonathan Buffa, Managing Partner 375 Park Avenue New York, NY 10152 Phone: 1-212 401 0913

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IAIR 1-2012