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Gamechangers Magazine NINE / EIGHTEEN

CORPORATE

WHY POTENTIAL IS

MORE IMPORTANT THAN EXPERIENCE IN LEADERSHIP ROLES

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THE BARRIERS AND OPPORTUNITIES FOR WOMEN ANGEL INVESTING IN EUROPE

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MAKING THE MOST OF TAX ADVANTAGEOUS VENTURE CAPITAL SCHEMES TO ATTRACT

HOW TO COMBINE FOUR PRINCIPLES IN BRAND-NEW WAYS TO CREATE GREAT RESULTS FOR MANAGERS, CO-WORKERS AND THE WHOLE FIRM Our readers have decided that Martin Lagerstrรถm at Statistics Sweden should win the ACQ5 Global Award for the second time in a row!

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BUSINESS INVESTMENT

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CONTENTS 7 11

INTL FCSTONE LTD’S GLOBAL PAYMENTS DIVISION INTRODUCES FXEPRICE WEB-BASED PLATFORM FOR INSTANT FX TRADING NPIF - MAVEN EQUITY FINANCE INVESTS £12 MILLION SINCE INCEPTION SUPPORTING THE CREATION OF OVER 200 NEW JOBS

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‘PROFIT WITH PURPOSE’ FUND SEEKS £5M TO BACK HIGH IMPACT ENTERPRISES

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AQUILA CAPITAL ENTERS FINNISH WIND ENERGY MARKET WITH 14.4 MW PROJECT

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PROLABS WELCOMES MATT MCCORMICK AS CEO OF HALO

AKD APPOINTS THREE NEW PARTNERS

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MAVEN CAPITAL PARTNERS EXPANDS LOCAL TEAMS TO MANAGE TWO DEBT FUNDS FOR THE MIDLANDS ENGINE INVESTMENT FUND WHY POTENTIAL IS MORE IMPORTANT THAN EXPERIENCE IN LEADERSHIP ROLES

HISTORIC ALL-TIME HIGH IN BRAND ACQUISITIONS

REPUTATION OF UK COMPANIES IN DECLINE FOR THE FIRST TIME SINCE 2008 FINANCIAL CRASH, REVEALS UK’S BIGGEST ANNUAL REPUTATION RANKING PIERCING THE CORPORATE VEIL

MAKING THE MOST OF TAX ADVANTAGEOUS VENTURE CAPITAL SCHEMES TO ATTRACT BUSINESS INVESTMENT

66 R E P O R T S

GameChangers™ welcomes news and views from its readers. Correspondence should be sent to gamechangers@acq5.com For more information about GameChangers™ visit www.acq5.com/posts/gamechangers/ GameChangers™ Copyright © 2018 GameChangers™ No part of this magazine may be reproduced, stored in a retrieval system or transmitted in any form without permission. SAFE HARBOR The interviews in this publication may contain certain forward looking statements with respect to the financial condition, results of operations of the businesses profiled. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future. There are a number of factors which could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements and forecasts. The statements may have been made with reference to forecast price changes, economic conditions and the current regulatory environment. Nothing in these announcements should be construed as a profit forecast.

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16 The barriers and opportunities for women angel investing in Europe

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COVER

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HOW TO COMBINE FOUR PRINCIPLES IN BRAND-NEW WAYS TO CREATE GREAT RESULTS FOR MANAGERS, CO-WORKERS AND THE WHOLE FIRM

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28 TEAM

David Rogan - President & Editor-In-Chief Jon Van Dyke - Editorial Director James Wiltshire - Publisher EDITORIAL J Robson - Editor-At-Large L. B. Kooler - Deputy Editor P Ramone - Senior Editor J LaRusso - Copy Chief M-C Fisher - Editorial Assistant B Sancheze - Senior Staff Writer ADVERTISING A Bott - Digital Advertising Director J Downey - Advertising Director Z Wolfel - Business Development Director C Thomas - Account Executive H Smith - Account Executive ADMINISTRATION A Kessler - Finance & Admin Director T Dolby - Technology Manager P Hughes - Operations Coordinator T. A. Black - Office Manager J Aaron - Design Assistant

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BRIEF

Morgan Stanley survey finds sustainable investing momentum high among asset owners Institutional investor survey shows 70% of investors have already implemented ESG strategies; 84% of asset owners are pursuing or actively considering ESG integration in their investment process A majority of institutional asset owners are now pursuing sustainable investing to manage risk and drive returns, according to a new survey published by the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Investment Management. The new survey polled 118 public and corporate pensions, endowments, foundations, sovereign wealth entities, insurance companies and other large asset owners worldwide, 60% of which had total assets over $10 billion. The survey gathered insights about trends, motivations, challenges and implementation approaches in sustainable investing. By rounding out the sustainable investing landscape with the views of asset owners, this work builds on Morgan Stanley’s previous Sustainable Signals studies focused on individual investors and asset managers. “As interest in sustainable investing continues to rise, we see investors pursuing a range of approaches with their assets,” said Rui de Figueiredo, Co-Head and CIO of the Solutions and Multi-Asset business at Morgan Stanley Investment Management and Head of the Division’s Sustainability Council. “The growing sophistication among asset owners about when and how to integrate ESG into the investment process creates opportunities to tailor strategies and provide customized portfolio solutions that help investors meet their financial and impact goals.” Asset owners cite risk management and potential for returns as top drivers of interest in sustainable investing. But despite the recognition of these opportunities, asset owners still highlighted the need for better data and investment information as a challenge to greater uptake. “The survey results identify a strong commitment to incorporating ESG criteria into investment strategies among asset owners. However, there is still a gap between interest and implementation – with investors citing access to quality ESG data as a top concern,” said Hilary Irby, Co-Head of Global Sustainable Finance at Morgan Stanley. “With this growing momentum in sustainable investing, third-party managers have an opportunity to increase implementation by improving reporting tools and education, and developing capabilities to align portfolios with owners’ unique objectives.”

Morgan Stanley Headquarters, New York

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“The increased uptake of ESG is particularly notable because it is not a reversible trend. Every new instance of ESG adoption creates a new high watermark for the industry,” added Paul Price, Global Head of Distribution at Morgan Stanley Investment Management. “The global results are significant, but it is important also to understand how clients are adopting ESG regionally. Every investment market has its own drivers and barriers, and as a business, our policy is to orientate our solutions around our clients’ needs, so understanding those differences is key for us.” Results from the survey identify sustainable investing trends reflecting the increasing growth in the impact-investing sector as a whole. Key findings include: •

Momentum is high in sustainable investing

84% of asset owners are pursuing or actively considering pursuing ESG integration in their investment process Of those, 60% began implementing ESG strategies in the last four years and 37% within the last two years 70% of asset owners have already implemented ESG strategies; 49% of those have implemented ESG across their entire portfolio and 21% have implemented them in a portion of their portfolio

• •

Increased sophistication and adoption of multiple approaches

78% said risk management was an important factor driving sustainable investing at their organisations, and 77% said return potential was important Asset owners are pursuing multiple approaches to sustainable investing, led by ESG integration 78% seek to align their investments with the U.N. Sustainable Development goals or are considering doing so

• •

Still room to grow

77% of respondents agree they have a responsibility to address sustainability through their investments, yet; Proof of market-rate financial performance remains the top challenge Lack of tools and data is a barrier –only 42% feel they have adequate tools to assess

• •


BRIEF

INTL FCStone Ltd’s global payments division introduces FXePrice - Web-based platform for instant FX trading Portal provides electronic FX pricing and trade execution for 140+ currencies during and after market hours INTL FCStone Inc. (NASDAQ: INTL) has announced that its London-based subsidiary, INTL FCStone Ltd’s Global Payments Division (“the Company”), has introduced FXePrice, a proprietary webbased platform allowing the Company’s local currency liquidity providers to streamline executable prices in 140 currencies and 175 countries. The Company has released the platform to select members of its global network of more than 300 correspondent banks, to obtain feedback and incorporate recommendations. A full roll out to its entire network of counterparties is planned for later in 2018. FXePrice will be free of charge for banks in the Company’s network. With FXePrice, correspondent banks will be able to feed the Company with local currency live prices electronically. The Company will have the capability to execute a large number of transactions instantaneously with multiple counterparties. Traditionally, FX price discovery in the developing world has occurred manually via phone, email or messaging. FXePrice automates this process and facilitates instant electronic price discovery via both streaming and request-for-quote (RFQ) functionality, which significantly reduces the time and cost of execution, as well as errors associated with manual processes. Critically, the platform allows banks on the Company’s network to submit prices even during off-market hours for certain currencies, maximizing their abilities to capture flows by showing overnight interest and participate in the global marketplace. Carsten Hils, Global Head of INTL FCStone Ltd’s Global Payments Division commented on the news:

“Our trusted global network of more than 300 correspondent banks is a foundation of our business, and we are excited to offer them an innovative, electronic FX pricing and trading solution with FXePrice. The platform revolutionizes the Company’s price discovery and execution process and adds a whole new level of transparency to the process.

FXePrice gives banks in the developing world easier access to the latest technology...

“FXePrice users can stream foreign exchange prices through the web-based platform, which reduces latency and ensures efficiency by integrating with counterparties’ straightthrough-processing (STP) systems. All prices posted on the platform, including after-hours prices, are executable and verifiable. The accurate pricing provided through the portal is especially valuable for the currencies used in the developing world, for which traditional methods of price discovery lack transparency and are often unreliable.” Francois Beau Yon de Jonage, SVP at INTL FCStone Ltd’s Global Payments Division, who designed the platform, concluded: “FXePrice gives banks in the developing world easier access to the latest technology and allows for better transparency with the local currency price in country. Given our position in the marketplace, we are uniquely positioned to provide a single solution to the local banks. We believe this to be especially valuable for those counterparties who may not otherwise have sufficient resources to adequately streamline their local currency rates. We have currently released the platform to select members of our correspondent banking network in order to source their feedback and integrate them into the system, after which time we will roll out the platform for our entire global network. I look forward to providing updates to our counterparties throughout this process.”

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BRIEF

Russia is ready for large scale legal Bitcoin mining operation market needs – hence the idea was born to build a comprehensive infrastructure, providing high-efficient, powerful, stable electricity supply for our investors, ensuring smooth operation of their mining businesses. “

Russia will become home to one of the biggest in the world legal mining operations, located in Siberia. Two Russian businessmen Ilya Bruman (London Metropolitan University, MBA Finance) and Alexey Paikin (Lomonosov MSU Business School, MA, Management) are building in the Irkutsk region the largest legal platform for crypto currency mining in Russia – Minery. 5 mining complexes with a total capacity of 55 megawatts and the area of 59,200 square feet will launch in Autumn of 2018 and will allow to mine legally at the lowest electricity rates in the Russian Federation. As bitcoin popularity is rising worldwide, mining farms, home units and massive mining operations appear. In Russia, with its energy resources and climate making some of the best conditions for crypto mining, this led to more than 1.5 million Russians being engaged in home mining (solo-mining). Such type of mining has yet a number of restrictions: noisy, unproductive, firehazardous, requires constant attention, time and maintenance costs. What’s more important, it is not always legal. The bigger farms are often located in abandoned factories and buildings and depend on electricity from subsidised sources, which is prohibited and leads to Russian authorities shutting them down. In June 2018, when Russia adopts the law on the regulation of the crypto currency, the majority of such businesses will become illegal. Ilya Bruman, co-founder and CEO of Minery commented: “Having been mining since 2016, we have encountered restrictions of home mining. We thought on how to scale the business and use electricity legally to act in the legal field. Having found a solution for our business, we tried to satisfy all

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Minery is an absolutely legal solution for “turnkey mining” – the company will procure the equipment, install and configure it, and in case of breakdowns – repair it right on the spot. Such solution has a number of advantages comparing with cloud mining, pools or third-party hosting, according to the project’s WhitePaper. Having signed long-term legal contracts, Minery granted stable uninterrupted power supply and rent of premises for the next 30 years. The partner and power supplier is Bratsk Electric Grid Company JSC (BEGC) – one of the biggest in the Irkutsk region which has been supplying it with electricity for more than 42 years. Mining complexes are located in several cities of the Irkutsk region (Siberia) – Bratsk, Irkutsk and UstIlimsk. The optimum climate conditions and average annual temperature of 28.4 F (-2° Celsius) allow to effectively organise the heat transfer and cooling system for miners, which reduces hosting expenses. The project relies on renewable electricity from highpressure hydroelectric power plants – the Bratsk Hydroelectric Power Station, the Irkutsk HPS and the Ust-Ilimsk HPS. The plants are located on the Angara River that drains the lake Baikal – the largest freshwater lake in the world. The total territory of 59,200 square feet (5,500 square meters) gives opportunity to place about 45-55 thousand of mining devices (with the average unit consumption of 800-1500 Watts), supplied directly from the major manufacturers in China. Alexei Paikin, co-founder and managing director of Minery commented: “Some of the most important tasks for miners wishing to achieve the maximum

profit from the crypto currency mining is the reduction of energy costs and maintenance of mining equipment, as well as ensuring optimal working conditions and timely repair of equipment in case of its failure. This goal is achieved by placing mining facilities near the sources of the cheapest and most eco-friendly electricity – hydroelectric power stations. This approach reduces not only the cost of generation, but also minimises the cost of delivering electricity to the point of consumption.” The main advantage of the project for miners and investors will be favorable conditions for mining, available for MNRY token holders. All tokens are backed by real electrical power and allow using the complex’s capacity rent-free for 30 years. Purchasing 1 MNRY token, the customer gets the right to use 1 Watt of facility’s power when placing their equipment at one of the lowest electricity rates in the world (the final price per kWh is 0.04 USD, including VAT). Token holders may use this power capacity to install their own miners or they may rent it out to other users by renting out MNRY tokens. In addition to Bitcoin, token holders will be able to mine other popular cryptocurrencies: ETH, ETC, LTC, DASH, ZCASH, XMR and others. 100% of all mined coins remain in miners’ wallets with no extra commissions and fees. Kirin Sorokin, co-founder and technical director of Minery commented: “Minery is the entrance to the professional mining market without the unnecessary “headache”. The concept of the project assumes the best conditions for MNRY token holders: the cheapest power socket in Russia + service and hosting for any modern mining equipment. All communications, starting from security and ventilation to fire-extinguishing and dust removal systems, are made available for Minery clients. We want to make sure that by going to our website, anyone without a technical background could become a full participant in the mining business in just two clicks.“


“A Gamechanger changes the way that something is done, thought of or made; they transform the accepted rules, processes, strategies and management of business functions. They shift behaviour, shape culture and make clever happen.�

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IDEAL BRIEF

Bowmark Capital backs buy-out of The Instant Group Bowmark Capital, the mid-market private equity firm, has backed the buy-out of The Instant Group, a global leader in independent flexible workspace solutions. Founded in 1999, Instant provides alternative methods of office procurement and management, with specific focus on flexible workspace and medium-term lease solutions, employing 250 people in 11 cities around the world. Its market-leading digital platform for flexible office procurement (www.instantoffices.com) and innovative managed office solutions provide an end-to-end service with fixed payment terms, cost certainty and simplicity. This allows clients to rethink workspace as helping their growth rather than just as an overhead. Instant has delivered compound annual revenue growth of 30% over the past four years, rapidly growing its international footprint to serve its client base. The company has also recently featured in the ninth annual Sunday Times HSBC International Track 200. Bowmark managing partner Charles Ind said: “We are delighted to be supporting chief executive Tim Rodber and his team in the next stage of growth. With highly differentiated service offerings, market-leading data, a high proportion of long-term contracted income and deep client

Sherpa Capital reaches an agreement to sell Indo to Ergon Capital Sherpa Capital reaches an agreement to sell Indo to Ergon Capital • •

Indo is the leading Spanish company in the manufacture of ophthalmic lenses and distribution of medical equipment for the ophthalmologic sector The firm Oquendo and the company’s management team will also be part of Indo’s shareholding

relationships, we believe that Instant will continue to lead the way in the fast-growing flexible workspace market.” Bowmark is acquiring its interest from MML Capital Partners which, alongside management, is also re-investing in the transaction. Tim Rodber said: “Instant’s independence and client-centricity has always allowed it to stand apart in the flexible workspace market giving our clients the best advice on the right solution for their business. “The investment from Bowmark will allow us to retain our independence and scale the business globally to take advantage of the vast potential of the international flex market. Bowmark’s sector knowledge was clear from the outset and we look forward to working with its team to realise our ambitions for the future.” Luke Jones, partner at MML Capital Partners, said: “During our period of investment, Instant has become a leading and innovative provider of outsourced property services, driven by an outstanding management team. We are pleased to continue our association with the business in its next stage of development with Bowmark.”

consolidated presence in North Africa for more than two decades, mainly in Morocco, a market with great potential. Indo operates in a sector in constant expansion due to a growing demand, anchored in solid fundamentals and, thus, the Company offers significant future growth potential, both organic and through corporate acquisitions. Speaking about the transaction, Jean-Luc Morabito, CEO of Indo, said: “The management team is delighted to have Ergon as a new investor and looks forward to pursuing opportunities for organic and inorganic growth. Ergon, as an equity investor with an exceptional international reach, is the right partner to further develop Indo’s project”. Emanuele Lembo, Managing Partner of Ergon Capital Advisors Spain, remarked about the acquisition:

Funds advised by Sherpa Capital Management Company SGEIC S.A. (“Sherpa”) have reached an agreement with Ergon Capital Partners III (“Ergon”) to sell a majority stake in Indo Optical S.L.U. (“Indo”). Sherpa will maintain a minority stake in the Company along with Ergon, Oquendo III (SCA) SICAR (“Oquendo”) and the management team.

“We are excited about the possibility of helping the management team with its growth plan and we look forward to working with them to further expand the Company both in Spain and internationally in the following years”.

Founded in 1937, Indo is the leading independent Spanish manufacturer of ophthalmic lenses and one of the largest distributors of medical equipment for the optical and ophthalmologic sector. In addition to its position in the domestic market, the Company has sustained a

“We are convinced that Indo has great potential and that Ergon is the right partner to take the company to the next level. Indo has a unique strategic positioning in a very attractive sector and we are delighted to work together with Ergon and Oquendo in this new stage “.

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Eduardo Navarro, CEO of Sherpa, said:


IDEAL BRIEF

NPIF - Maven Equity Finance invests £12 million since inception supporting the creation of over 200 new jobs NPIF - Maven Equity Finance, managed by Maven Capital Partners and part of the Northern Powerhouse Investment Fund, has invested £12 million in dynamic growth businesses across the Northern Powerhouse region since it launched, driving economic prosperity and supporting the creation of over 200 jobs. Appointed by the British Business Bank in February 2017, Maven manages £57.5 million worth of equity finance for NPIF, a £400m fund for SMEs in the North. Working with 10 Local Enterprise Partnerships (LEPs) and Combined Authorities in the North, as well as local accountants and banks, NPIF provides investment capital to support the growth of innovative and ambitious businesses across a wide range of sectors and in a variety of funding scenarios. Maven has completed investments ranging from £50,000 to £2 million and has also successfully leveraged an additional £4 million in private sector debt finance for local businesses. Many viable, dynamic SMEs with innovative products and services, strong business plans and highly capable management teams are struggling to access the funding that will allow them to develop their businesses and market offering. NPIF is addressing that

situation with a particular focus on supporting the growth aspirations of high-potential SMEs that contribute to regional economic development, job creation and innovation. NPIF is already producing greater levels of investment in smaller businesses and increasing flexibility in the type of funding available to those businesses. NPIF was launched as a partnership between the British Business Bank, 10 Northern England Local Enterprise Partnerships, the European Investment Bank and the European Regional Development Fund, NPIF has completed over 260 investments, investing £50 million with an additional £38 million in private sector finance in its first year. Primarily investing across Lancashire, Greater Manchester, Liverpool, Cumbria and Cheshire, NPIF – Maven Equity Finance is also working with MSIF, to deliver funding for businesses based in the Liverpool City Region. Ryan Bevington, Investment Director at Maven, said: “NPIF – Maven Equity Finance’s positive impact on businesses in the North of England is already evident, fuelling the growth of ambitious SMEs across a wide range of industries, and supporting a

significant number of jobs. Our local investment team works closely with the businesses we support to provide flexible funding to suit a wide range of scenarios. Reaching this key milestone demonstrates the need for this type of equity finance and we look forward to working with more innovative, fast growing small businesses to help them achieve their growth plans.” Grant Peggie, Director at British Business Bank, said: “NPIF – Maven Equity Finance has been critical to the successful delivery of the wider Northern Powerhouse Investment Fund since being launched last year. Having already made a significant impact on job creation in the North, the Maven team continues to support the North’s innovative, growing small businesses boosting economic prosperity. We look forward to continuing our successful partnership with Maven as it achieves its next significant milestone.” The Northern Powerhouse Investment Fund project is supported financially by the European Union using funding from the European Regional Development Fund (ERDF) as part of the European Structural and Investment Funds Growth Programme 2014-2020 and the European Investment Bank.

(Left to right): Ryan Bavington with Andy Round and Karen De Meza.

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IDEAL BRIEF

KPMG Sweden sells ‘Profit with Purpose’ business accounting fund seeks £5m to back high impact enterprises services division to IK Investment Partners Impact First will aim to generate both financial and social returns SIS Ventures is launching its first £5 million fund to back Scotland’s high impact enterprises.

IK Investment Partners (“IK”), a leading Pan-European private equity firm, have announced that the IK VIII Fund has reached an agreement with KPMG Sweden (“KPMG”) to acquire its division for accounting, payroll and related advisory services (“Business Accounting Services”). Business Accounting Services is a leading provider of accounting, payroll and related advisory services with approximately 300 employees across Sweden. The transaction represents an attractive opportunity for both employees in accounting and payroll administration and for KPMG as a whole. In February 2018, IK announced the acquisition of Aspia, which operated as a separate division within PwC, supporting over 27,000 small and medium-sized enterprises (SMEs). Aspia is one of the leading companies in accounting, payroll and related advisory services with 71 offices and approximately 1,100 employees across Sweden. The transaction is expected to close 2nd July 2018. The plan is to integrate Aspia and Business Accounting Services, and the combined entity will operate under the brand name of Aspia. Together, the two businesses had a turnover of more than SEK 1.25 billion.

Benefiting from both Enterprise Investment Scheme (EIS) relief and Social Investment Tax Relief (SITR), Impact First will offer investors a portfolio of between six and twelve high-growth potential, high-impact enterprises which aim to tackle a clearly identifiable social problem with a scalable and disruptive business solution. The first close seeks to raise £2m from UK-based private investors, with the capital targeted for deployment over 12-18 months. Investments will target EIS (equity) or SITR (debt) qualifying companies. Entrepreneurs with an ambition to make a difference whilst growing their business, will have access to mission-aligned investment through debt and equity investment delivered by SIS Ventures, the mission-led investment arm of responsible finance provider Social Investment Scotland (SIS). A recent market study by SIS revealed that entrepreneurs feel that existing early stage investors often overlook social impact and values are not always aligned. It is hoped that Impact First will provide capital to fuel a growing desire by these entrepreneurs to develop and grow their business with a mission-led approach.

Magnus Eriksson, Service Line Leader at PwC and Incoming CEO of Aspia commented: “Aspia and Business Accounting Services share similar expertise, service offering, customer base and presence as well as cultural heritage. Both companies have a vision to innovate and create new ways of working for SME businesses, especially through our strong digital service offering, and we can’t wait to welcome our new colleagues.” Alireza Etemad, Partner at IK Investment Partners commented: “The acquisition of Business Accounting Services marks an important milestone for Aspia, and we at IK are incredibly proud to be part of this combination of two great businesses.” Magnus Fagerstedt, CEO of KPMG Sweden added: “Aspia will give our employees in Business Accounting Services a new home where their expertise is a core skill, with good opportunities to be competitive as well as resources to develop staff skills and drive technology development in the sector. At the same time, KPMG will strengthen its audit agenda and free up resources for strategic efforts in the digital arena and recruiting key employees.” The terms of the transaction were not disclosed. The transaction is subject to customary approvals.

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Thomas Gillan, SISV Director


IDEAL BRIEF

The fund is the first to be established by SIS Ventures, since its recent formation, under the Chairmanship of experienced Scottish investor Bill Crossan. Thomas Gillan, director, SIS Ventures, said: “Creating a fund which offers a portfolio of both debt and equity provides investors with a unique vehicle to invest in high growth potential, socially-focused businesses offering both a financial and social return. We know there’s appetite on the part of investors and early stage enterprises for such a fund, and we’re confident we’ll receive significant interest. Investors now have a chance to become part of something truly ground-

breaking and really move the needle for social impact investing.” Bill Crossan, chairman, SIS Ventures. said: “The world of business and, particularly enterprise, has evolved in recent years. A new breed of entrepreneur has emerged looking to make money but also, more importantly, looking to make a difference. The main problem to date is that there has been very little investment capital available for such enterprises. With our new fund, social entrepreneurs will have the opportunity to access both debt and equity funding, with the aim of scaling up their operations and maximising their social impact.”

Global equipment rental sector bolstered by nearly 80 M&A transactions since the start of 2017 •

61 transactions completed in 2017, an increase of 65% compared to 2016

2018 continuing upward momentum, with 18 deals finalised to date

Standout examples include Boels’ acquisition of Supply UK and Already Hire, and United Rentals’ acquisition of H&E and Neff

The global equipment rental market has seen a large uptick in deal activity, with 79 transactions announced since the beginning of 2017, according to the latest research from international M&A and debt advisory, Livingstone released. Of the 79 deals, 19 took place in the UK, making it second only to the United States in terms of deal activity and accounting for more transactions than the rest of Europe combined. These latest findings show that the equipment rental market is continuing to gather pace, with deal numbers in 2017 outstripping 2016 by 65%, at 61 compared to 37. This momentum has continued into 2018, where 18 deals have been completed to date. Within the UK, there is evidence for increasing consolidation amongst domestic players, for example: Vp’s recent acquisition of Brandon Hire. As well, there is a growing trend of overseas buyers entering the UK market, with

examples including Dutch-owned Boels’ acquisition of Supply UK and Already Hire, and French-based Loxam’s acquisition of Lavendon. As well, there has been a noticeable appearance of Original Equipment Manufacturers (OEMs) in the rental market. The takeaway being that manufacturers and distributors are preparing for the market heading towards a rental model, and are entering the market as soon as possible. Examples of this include Ingersoll Rand’s acquisition of ICS Cool Energy and Carrier’s acquisition of Watkins Hire. M&A activity has also been boosted by the ready availability of equity and debt finance, demonstrated by the increasing interest of private equity firms in the sector, particularly towards specialist assets. Key acquisitions by private equity houses include Primary Capital’s purchase of Readypower, Connection Capital’s buy-out of Carter Accommodation and Alinda Capital’s acquisition of Kelling Group. Looking ahead, plans laid out by the Trump administration that could stimulate $1.5tn of spending on US infrastructure over the next decade, along with strong infrastructural development pipelines in the UK such as HS2 and Heathrow, will likely result in further buoyant levels of M&A activity globally.

The equipment rental sector is well-developed in the UK... Alex John, Partner at Livingstone, comments: “The equipment rental sector is welldeveloped in the UK, with penetration of rented versus owned equipment amongst the highest globally. However, rental continues to infiltrate new, often more specialised areas of the market. This has resulted in many rental companies pursuing growth strategies in niche product categories such as modular accommodation and powered access, often in non-construction related end markets. “Inevitably there have been successes and failures across the industry. The likes of Ashtead, Vp and GAP have delivered strong growth, margins and returns for their shareholders whereas the downfall of Hewden was not a good advert for the benefits of private equity investment. However, it’s clear that the positive examples continue to outweigh the negative in this vibrant sector.”

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IDEAL BRIEF

Aquila Capital enters Finnish wind energy market with 14.4 mw project • •

Transaction is part of the expansion strategy into Nordic onshore plants Project benefits from state-guaranteed feed-in tariff for twelve years

The investment company Aquila Capital – a specialist in alternative investments – is acquiring the “Ykspihlaja” project, an onshore wind park close to the Finnish town of Kokkola. The wind farm has four Nordex N131 turbines with a capacity of 3.6 megawatts (MW) each. The location has average wind speeds of 7.3 m/sec at the hub height of the turbines, thus allowing for a capacity factor of 41 percent. This is the first wind energy investment by Aquila Capital in Finland. The project supplements the company’s extensive existing wind energy portfolio in Scandinavia. Roman Rosslenbroich, co-founder and CEO of Aquila Capital commented: “The move in to the Finnish wind energy market is a logical step for us and an important element in our expansion strategy in the field of renewable energies – particularly in northern Europe. Thanks to its natural features and stable political framework, the region is key to the success of the Europe-wide energy transition.” The transaction follows just a few months after the acquisition of three Swedish wind energy projects with a total capacity of more than 580 MW, including one of the largest onshore wind projects in Europe. Project benefits from twelve-year state-guaranteed feed-in tariff The plant in Kokkola was completed in March 2018 and is already connected to the Finnish electricity grid. “Ykspihlaja will profit in full from the state-guaranteed feed-in tariff for a period of twelve years, thus ensuring long-term profitability. This sustainability is extremely important to our investors,” explains Susanne Wermter, Head of Investment Management Energy & Infrastructure EMEA at Aquila Capital. The developer OX2 will continue to be responsible for the ongoing technical and commercial management of the wind farm. “We are pleased that we have the opportunity to realise what is now the fourth joint project with Aquila Capital. Above all we appreciate the reliability and long-term investment prospects associated with our partnership,” says Paul Stormoen, the managing director of the Swedish developer OX2.

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“Gamechanger, what we define as an individual or business that aims to create a new model that leaves the older model obsolete. Gamechangers impact how the game is played from one objective and ruling model to a completely new vision – changing the face of how we know something.�

15


MOVES

Eight Advisory hires two senior partners in continued UK office expansion Tim Wainwright, Head of Operations and IT Due Diligence at Eight Advisory:

Eight Advisory, a leading financial and operational consultancy firm specialising in transactions, restructuring and transformation, has hired two senior partners in its UK office. Tim Wainwright and Dean Lake join from EY to develop the operational due diligence and transaction tax practices respectively. Tim joins as Head of Operations and IT at Eight Advisory having spent nearly 20 years as a management consultant and formerly head of the industrial sector transaction services at EY. Tim has also held roles at IBM where he was recognised through the Top Talent Programme (top 5%). Tim’s focus will be on private equity and corporate clients to ensure they receive maximum value during acquisitions, divestments and in post-merger integration. Dean is a transaction tax specialist and former EY Associate Partner with nearly 20 years’ experience. He joins to expand Eight Advisory’s tax practice where he will be responsible for all aspects of tax in transactions including, UK and international structuring, due diligence

“I’ve been watching the expansion of Eight Advisory with much interest and am thrilled to be joining the growing team in London. Value Creation is a crucial component in most situations and I will build our expertise in this area to ensure clients maximise returns from transactions.” and deal support. Dean will lead on private equity, infrastructure and corporate clients to provide domestic and cross-border advice. Justin Welstead, Managing Partner, Eight Advisory UK said: “As we continue to expand our UK office, we are delighted to be joined by Tim and Dean who have significant experience and expertise in their respective practice areas. Both will bring a new dimension to the team with their breadth of knowledge and we look forward to working with them as we continue to grow the UK business.”

ProLabs welcomes Matt McCormick as CEO of Halo McCormick brings over ten years’ experience in the compatibles industry to Halo Technology Optical transceiver specialist, ProLabs has announced the appointment of Matt McCormick to CEO of Halo Technology, a group recently formed after the forces of ProLabs and AddOn came together in mid-2017. Joining AddOn in 2005 as a sales associate, McCormick gained invaluable expert knowledge in the generation and development of products and education in the market and

Dean Lake, Head of Transaction Tax Strategy at Eight Advisory said: “I am really looking forward to being part of Eight Advisory UK. Justin and the team are well regarded in the industry and I’m excited to be part of this rapidly growing firm and expanding the tax offering. We believe that proactive tax advice is critical to protecting transaction values and maximising future performance. With increasing levels of cross-border transactional activity, coupled with a changing geo-political landscape, a coherent tax strategy and advance planning is crucial.”

proved to be a major asset to the AddOn team. Moving up the ranks to VP of Sales in 2011, his knowledge of the industry, products and impact the business had on the continued interest and development of optical transceivers was unparalleled. As VP of Sales, McCormick was responsible for the continued promotion and development of the company’s high-quality solution portfolio, ensuring it was at the forefront of technology trends and developments and overseeing global sales. Striving to create a goal-oriented team environment, McCormick pioneered the optical transceiver business for AddOn, which directly lead to the reshaping of the business from re-seller of other network accessories to the current business model. He also developed the white label service offering and continues to drive the initiative.


MOVES

Now the biggest provider of optical transceivers in the market today, Halo hopes to change the current mindset of customers when they are looking for connectivity solutions as well as challenging OEM (Original equipment manufacturer) dominance in the market. Matt McCormick commented: “Our goal and aspirations for ProLabs is to make our mark on the optical connectivity industry by challenging the mindset of customers when it comes to the compatibles market. In doing this, we aim to bridge the current gap between OEM and midtier retailers and to continue to provide our loyal customers with world-class connectivity solutions. “Through our technical intelligence, sector specialists and expertise, we are on our way to being the recognised provider of compatible products that surpass quality and speed standards of the market.” Not only specialising in compatible transceivers, ProLabs are working hard to provide future-proof complete solutions from 100mb to 100G and offer a number of network interconnect and active network solutions. He added: “ProLabs is an ambitious industry challenger and I am looking forward to spearheading our global compatible connectivity mission. Ultimately, our products are tried, tested and ahead of the curve thanks to our on site, state-of-the-art facilities. Compatibility is our middle name but it’s not our end-game, and with the support of the Halo group, our presence is only set to expand.”

Maven Equity Finance – Growing investment portfolio supported by hire of senior investment professionals Adds to Maven’s strong presence across the North of England with two recent senior hires helping to identify innovative companies in the Northern Powerhouse region Maven has strengthened its team with the appointment of senior investment specialists Andy Round and Karen de Meza to increase the level of support to local companies across all stages of the investment process and for ongoing business support. Andy Round joins Maven’s Manchester office as Investment Director, bringing close to 20 years’

Ryan Bevington, Investment Director

experience of investing and advising SMEs. Most recently, Andy was managing regional funds for SPARK Impact and MSIF and has previously worked for IP-Group investing in a range of early stage University companies across different sectors. He holds a PhD in Biochemistry from the University of Leeds. At Maven Andy is responsible for execution of new investments across Maven’s funds in the North West. Karen De Meza joins Maven’s Manchester office as Portfolio Manager, bringing around 30 years’ experience advising companies on their financial, commercial and strategic management. Most recently, Karen was Group Finance Director for the Bowden Group, which held a portfolio of investments in the engineering services sector. Karen qualified with KPMG in Manchester and is a Fellow of the Institute of Chartered Accountants in England & Wales. In the early part of her career Karen worked in Corporate Finance and for RBS in Specialised Lending, covering the Yorkshire and Humberside region. She has also held a number of executive finance roles across a variety of sectors in plc businesses and privately owned companies. At Maven, Karen will be responsible for supporting portfolio companies across the North of England. Ryan Bevington, Investment Director at Maven, said: “We are delighted that NPIF – Maven Equity Finance has reached such a significant milestone and that we have been able to support the creation of so many jobs across the region. In particular, we welcome Andy and Karen to the growing team, which strengthens Maven’s presence and will help us continue to identify highgrowth, innovative businesses as potential investments.”

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MOVES

AKD appoints three new partners Leading Benelux law firm AKD has appointed Laura de Jong, Erik Koster and Vivian van der Kuil as partners as per 1 June 2018. “AKD’s international litigation and M&A practice is growing, as part of our Benelux strategy. The three new partners that we have appointed all have a strong international profile and proven track record. They are an excellent addition to our current team of partners,” says managing partner Erwin Rademakers.

and regulatory matters within the context of corporate law, as well as matters related to the M&A practice in general. She focuses in particular on the hospitality, leisure and entertainment industries, and also concentrates on French and Spanish-speaking regions.

Laura de Jong (1982) is a lawyer at our M&A practice group. In particular, Laura assists foreign-based clients in strategic acquisitions in the Netherlands. Her expertise also covers other areas of law

Erik Koster (1981) is an experienced litigator who focusses mainly on international litigation and arbitration. He litigates cases before Dutch courts and courts of appeal, and has considerable experience with complex international arbitral proceedings before various institutes (including the ICC, SCC and NAI). Erik advises and litigates in matters relating to corporate law and

Laura de Jong, Partner, AKD

Erik Koster, Partner, AKD

general contract law, mostly commercial and shareholder disputes. Vivian van der Kuil (1975) is a litigation specialist at our Transport & Energy practice group. She has ample experience in dealing with complex proceedings before the Dutch civil and criminal courts as a former judge and public prosecutor. Vivian specialises in emergency response in the shipping and energy sectors, including collisions, salvage and wreck removal, with a special focus on limitation of liability. Vivian also assists clients in issues relating to public international law including the law of the sea (UNCLOS III).

Vivian van der Kuil, Partner, AKD

Geoff Pullen joins State Street Alternatives team Geoff Pullen has joined State Street as managing director, alternatives sector, EMEA at State Street. Based in London, he will report into Maria Cantillon, head of sector solutions for EMEA, and his responsibilities will include driving the execution of the team’s regional sales strategy across hedge and private equity fund clients. With 16 years’ experience, he joins State Street from Standard Chartered where he led the transaction banking & securities services sales to European alternative and traditional asset managers. Prior to this he held senior sales roles at both HSBC Securities Services and BNP Paribas. Geoff Pullen, State Street Managing Director

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He holds a BSc (Hons) in Communications & Information Systems from Cranfield University and an MBA from Cass Business School.


MOVES

Business Development Director with LSE experience to drive corporate growth at Hawksford Hawksford has appointed a corporate business development director with over 20 years’ experience in the financial services industry, most recently focussing on clients within the corporate finance and equity capital markets arenas.

of the most high profile flotations listing on the London Stock Exchange, whilst leading successful business development campaigns to attract blue chip clients.

Danny Curran, who will be based in the UK, will be responsible for securing and developing new business in Hawksford’s corporate services division by identifying and evaluating new client and market opportunities in the UK, Europe and Asia. He will work closely and collaboratively with the corporate services team on the strategic development of the offering.

“As a results driven individual, I’m looking forward to expanding the current portfolio and services offering at Hawksford. My industry expertise, particularly within the corporate finance and equity markets, will help build on the current impressive client base and support Hawksford’s strategic growth plans.

Before joining Hawksford, Danny worked at Equiniti (a FTSE250 financial services provider) heading up their boardroom business development team. Danny provided support and guidance to some

Danny Curran commented:

“Hawksford’s independence, entrepreneurial attitude and ambition has really impressed me. The direction the business is taking is very exciting and I am relishing being part of the next stage in its journey.”

Danny Curran, Business Development Director Michel van Leeuwen, CEO of Hawksford, said: “Danny is an excellent addition to the corporate services team. With his extensive background in business development and experience advising LSX listed companies, he will be able to drive the generation of new business with a core focus on our key markets of UK, Europe and Asia.”

Investcorp appoints Heinrich Riehl as Managing Director for European Sales and Marketing Investcorp, a leading global provider and manager of alternative investments has announced the appointment of Heinrich Riehl as Managing Director in its European Sales and Marketing team. Heinrich will be based in London and will oversee fundraising and investor relations’ functions in Europe for Investcorp’s Credit Management (ICM) and Alternative Investment Solutions (AIS) businesses. He will report to Jeremy Ghose, Head of Investcorp Credit Management. Heinrich joins Investcorp from TCW Europe where he most recently led the business as CEO for 4 years having joined in 2011 as Managing Director in international marketing. He has over 25 years’ experience in global capital markets leading business development and sales teams at BlackRock, Société Générale Asset Management, REFCO Securities, and he has also held senior sales positions in cash equities with J.P. Morgan, Exane (Groupe BNP Paribas) and Credit Agricole. Commenting on the appointment, Jeremy Ghose, Head of Investcorp Credit Management, said: “Heinrich Riehl joins at an important time as we continue to expand our platform and product offering. We look forward to the substantial sales and marketing experience he will bring to Investcorp, while his strong business and product development skills will support and enhance our offering in line with the firm’s longterm growth strategy.”

Heinrich Riehl, Managing Director, Investcorp

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MOVES

Maven Capital Partners expands local teams to manage two debt funds for the Midlands Engine Investment Fund Appointment of senior investment professionals adds to Maven’s strong presence across the Midlands Maven Capital Partners (“Maven”), one of the UK’s most active private equity houses, has further strengthened its Midlands team with the appointment of senior investment specialists Chris Rogers, Richard Altoft and Graham Hall, to increase the level of support to local companies across all stages of the investment process and for ongoing business support. Based in Birmingham, Chris has responsibility for new MEIF investments and will work closely with investee companies throughout Worcestershire. Chris joins Maven after a 22year career in commercial banking with RBS, as a Senior Relationship Manager, providing structural guidance and financial analysis to SMEs. Working across Greater Lincolnshire, Richard has joined Maven following a long career in banking, most recently as Corporate Manager at Handelsbanken, where he was responsible for building relationships with new-to-bank corporate clients and successfully managing a corporate portfolio of customers, consistently delivering strong growth. Graham brings over 40 years’ extensive experience to with a proven track record of success having worked as a Senior Business Manager with Lloyds TSB and Business Adviser advising SMEs with turnovers up to £10m on best business practice and effective financial management. He will focus on the South East Midlands area, which includes Luton, Milton Keynes and Northamptonshire. The increased recruitment drive across the Midlands represents the final round of appointments following Maven’s appointment to manage £90m MEIF debt funds, focused on providing debt funding to high-potential growth businesses located across both the West Midlands and the East and South East Midlands regions. Composed of two separate funds, £50m

for SMEs located in the West Midlands, and £40m for businesses in the East & South East Midlands, the Fund provides finance of between £100,000 and £1.5million. Andrew Ferguson, Partner at Maven, said: “We are delighted to welcome Chris, Richard and Graham to the team to further strengthen our presence across the region. All three already have considerable in-depth knowledge of the local SME market, and a range of specialist knowledge allied to the national resource of Maven’s UK business. The Midlands has a welldeserved reputation as a centre for pioneering growth companies of tomorrow that help drive the UK economy. We are pleased to have expanded our MEIF debt fund team further and look forward to continuing our support for SMEs across the region to help them grow, access new markets and prosper.” Commenting on the recruitment, Grant Peggie, Director, at the British Business Bank, said: “Our Fund Manager partners play a crucial part in the Midlands Engine Investment Fund’s commitment to regional business growth and work closely with SMEs throughout the finance application process and beyond, providing advice on how to use investment to scale effectively. “By making additions to its team, Maven is not only reaffirming its commitment to the MEIF but increasing the amount of expertise available to the region’s SMEs. I look forward to seeing how these new team members contribute to ensuring that Midlands businesses can access the finance they need to facilitate their growth ambitions.” The Midlands Engine Investment Fund project is supported financially by the European Union using funding from the European Regional Development Fund (ERDF) as part of the European Structural and Investment Funds Growth Programme 2014-2020 and the European Investment Bank.

Chris Rogers, Richard Altoft and Graham Hall – Senior Investment Specialists, Maven Capital Partners (all above)

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“Gamechanger: A visionary strategist bringing fresh and unique ideas to the table, an individual or business that stands out from the crowd with ideas that inventively change the way a situation develops.�


PARADE

THE ROBOTS TO

WATCH OUT FOR

Aeolus Bot

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PARADE

LG Cloi All part of LG’s new CLOi robot brand, the Serving Robot, Porter Robot and Shopping Cart Robot follow in the footsteps of the Airport Guide Robot and the Airport Cleaning Robot that recently completed successful trial runs at Korea’s Incheon International Airport. The Lawn Mowing Robot and the affable Hub Robot, which recently participated in a trial at one of Korea’s largest financial institutions providing information and servicing customers at the bank’s branches, are also part of the CLOi family.

Sony Aibo Sony has announced the launch of a new Aibo model eleven years after the robotic dog companion was discontinued. As in previous models, the dog will learn from its owners and environment to build it’s develop its own unique personality. It will move and act more like a real dog and will incorporate fish eye lens cameras, WiFi connectivity as well as location and mapping software.

BUDDY BUDDY is the revolutionary companion robot that improves everyday life. Open source and easy to use, BUDDY protects your home, entertains your kids and helps you stay connected with the ones you love. Not content with being just a companion, BUDDY is also democratizing robotics. Currently an open-source technology platform for developers, the robot that connects, protects and interacts with each member of your family is accessible to everyone.

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PARADE

Kuri

Kuri is a first-of-its kind home robot. Designed to delight, Kuri is an interactive and mobile videographer who captures each day’s best moments around your home. Packed with a playful personality and cutting-edge technology, Kuri can’t wait to become the latest member of your home.

“Sophia” the Robot As a social humanoid robot, Sophia was developed by Hong-Kong-based company Hanson Robotics. Being one of the first of its kind, camera and computer algorithms based technology enables Sophia to follow faces, sustain eye contact and recognize individuals. She is able to process speech and have conversations using a natural language subsystem, whilst also having the ability to walk. Her purpose? Sophia is fit to serve healthcare, customer service, therapy and education – running on artificially intelligent software that is constantly being trained in the lab, her conversations are improving weekly.

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“Gamechanger, what we define as an individual or business that aims to create a new model that leaves the older model obsolete. Gamechangers impact how the game is played from one objective and ruling model to a completely new vision – changing the face of how we know something.�

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PARADE

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Cover

How to combine four principles in brandnew ways to create great results for managers, co-workers and the whole firm Our readers have decided that Martin Lagerström at Statistics Sweden should win the ACQ5 Global Award for the second time in a row! Once again, our voters gave his work top-score ratings. Comments in the poll this time were: “Martin´s tailor-made support walk its talk when it comes to going from what, how and how to achieve excellent outcomes. His support has vastly improved our results for our users, management teams, managers and co-workers. Moreover, our results have improved with reduced costs and higher joy of work at the same time”. We invited Martin to tell us more.

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HOW DOES IT FEEL TO WIN TWO TIMES IN A ROW? I am honored that so many of your readers have voted me game changer and strategic advisor a second time in this field. I just realized that if I win the ACQ5 Global Award again 2019, I will have a hat-trick in ACQ5 Awards. The interview from last year (https://lnkd.in/gXqRq2D), which contains results others have achieved, has increased interest for my tailor-made support a lot. Firms from Sweden, Europe, and Africa now want this support. WHAT HAS HAPPENED SINCE YOU RECEIVED THE ACQ GLOBAL AWARD LAST YEAR? So many good things have happened since I won last year. One example is that I have won several other awards such as e.g. the Award “Statistician of the Year” given by the Swedish Statistical Society. I won this for helping leaders on how to use statistical methods to improve results, reduce costs and boost joy of work. I feel honored to receive the same Award as Professor Hans Rosling. Managers from other countries have asked me if I could add english text to the presentation, which I did, in relation to this award. It can be viewed here: https://goo.gl/3LnEMj Other examples are that many more firms from Sweden, Europe and Africa want me to help them with my tailor-made support. They too want to achieve the same outcomes that others have achieved. Knowledge that is not put into practice well is not true excellence. It is mediocrity at best. It is important to measure the effects on several levels, and in the right way. That is why they want me to teach them how to measure the effects on several different levels, and in the right way. You need to know how to transition well from knowledge and skills to abilities. You also want to know if the benefits exceed the costs for training, and by how much.

“I am honored that so many of your readers have voted me game changer again...”

I have also been invited as head speaker to several new events. For example, recently I was invited to the Stockholm Criminology Symposium where I spoke about “Culture eats strategy for breakfast, lunch and dinner” https://goo.gl/UkFiF8 To be brutally honest, I did not think I would be so happy with all these Awards. Those who know me, know that this is true. I am so passionate about just doing this work, that I have never ever thought about receiving any Awards for it. What makes me most happy still is to see the joy and great improvement in the people I support. CAN YOU TELL MORE ABOUT YOUR TAILOR MADE SUPPORT ? The process for my tailor-made support is briefly described in the interview last year. Instead here, I will elaborate the different parts of it a little more.

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The figure below shows the essence of my tailor-made support over time for organizations, management teams and managers. The essence of the support is my adage “As managers lead themselves, they lead their co-workers. As they lead their co-workers, they lead their groups. As they lead their groups, they lead teams. As they lead teams, they lead entire businesses and organizations”. It is like the links in a chain. It hangs together. My tailor-made support creates excellent results for all links or quadrants in the chain.

THE ESSENCE OF MY TAILOR- MADE SUPPORT OVER TIME FOR ORGANIZATIONS, MANAGEMENT TEAMS AND MANAGERS “As managers lead themselves, they lead their co-workers. As they lead their co-workers, they lead their groups. As they lead their groups, they lead teams. As they lead teams, they lead entire businesses and organizations”. It is like the links in a chain. It hangs together. My tailor-made support creates excellent results for all the links in the chain.”

Lead Self Competencies & Approaches • Why • What • How • Results Personal Traits & Approaches • Why • What • How • Results

1. LEAD SELF

2. LEAD CO-WORKERS Lead Co-Workers Competencies & Approaches • Why • What • How • Results Personal Traits & Approaches • Why • What • How • Results

LeadGroups, Lead Teams Competencies & Approaches • Why • What • How • Results Personal Traits & Approaches • Why • What • How • Results

3. LEAD GROUPS LEAD TEAMS

4. LEAD BUSINESS Lead Business, LEAD ORGANIZATIONS Lead Organizations Competencies & Approaches • Why • What • How • Results Personal Traits & Approaches • Why • What • How • Results

CO-WORKERS

GROUPS TEAMS

BUSINESS

MANAGERS

“Power is organized effort.” Henry Ford.

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“My tailor-made support is applied as a system, i.e. the quadrants affect each other. That is due to how the competencies and traits that you will learn in each quadrant are combined and used. What and how this is done is why it creates such powerful results.”

My tailor-made support is applied as a system, i.e. the quadrants affect each other. That is due to how the competencies and traits that you will learn in each quadrant are combined and used. What and how this is done is why it creates such powerful results. First, managers need to develop the right type of competencies and approaches for achieving great outcomes in each quadrant. Second, they need to develop the right type of personal traits with the right types of approaches. The subheadings under each of the two main areas in each quadrant (Why, What, How and Results) illustrate why certain approaches work and others don´t, what approaches to use, how to use them and expected results. Improving all these quadrants or links in the chain as a system takes a concerted, well-planned, usually cross-functional effort. My tailor-made support achieves this end with excellent outcomes. HOW CAN YOU IMPROVE TO LEAD YOURSELF? In order to improve how managers lead themselves in excellent ways many competencies and personal traits need to be developed, changed and improved. The wider and deeper skills you have about how to manage yourself, the better your well-being, performance and outcomes will be for yourself and others. The first quadrant is about going from words, action to results when it comes to these issues. It gives know-how in such questions such as e.g. How do you learn better, faster and easier than

others? What drives and motivates you? What is stressing you? What are your strengths and natural talents? What do you need to develop? What limits you? What are your blindspots? How do you improve your mental strength? How do you use these things to develop goals that steer and motivate you to action and better results? How do you use it to prepare, execute and follow up changes for improvements? For your personal growth? For your management? Your leadership? Your groups? Your teams? Your business? Your organization? How can you combine and use these abilities, approaches and traits in an excellent and proven system for personal achievement to feel and perform better results in all aspects? The next focus area is how to apply these competencies and traits to lead your co-workers in a better way. HOW CAN YOU LEAD CO -WORKERS IN BETTER WAYS? Managers need to apply the competencies and personal traits from the first quadrant well to sharpen how they lead their co-workers. In addition, they need know-how about their staff. Some samples are •

What motivates your co-workers? What stresses them?

What are your different co-workers strengths? What limits them?

What do they need to develop, change and improve?

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How can you use this information to make them feel and perform better results?

My tailor-made support doesn´t develop goals in the usual way for the stakeholders in the chain. They learn how to combine and use coaching with Integrated Mental Training, which in turn helps them achieve goals with less effort, create flow on commando, increase mental strength, and cope with stress.

“A leader gets results by others. Leader and co-workers are two sides of the same coin.”

HOW CAN YOU ENHANCE GROUPS AND TEAMS? To improve outcomes for groups and teams you need to combine and use the information from the first two quadrants. They will also learn many new abilities and traits and knowhow approaches in this quadrant. One common example is how to develop, change and improve group and team culture for better performance. Some of the things they learn in this quadrant are: •

What is group and team culture? Why is this culture important to understand?

How does a group and team culture occur? What are the benefits of different cultures? What are the disadvantages?

How do you get hard facts about your group and team culture? Which approaches should you use? How do you use them to improve the daily work?

How can you use them to develop, change & improve culture for better well-being and performance? How can you use it to develop groups into high performing teams? What results can you expect? How do you measure the effects of it in the right way?

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HOW CAN YOU ELEVATE RESULTS, REDUCE COSTS AND BOOST JOY OF WORK? The fourth quadrant combines and uses the output from all of the previous quadrants. Besides that, better ways in how to manage and lead is new learning in this quadrant. How well this type of management could be applied depends on the width and depth of the abilities acquired in the previous steps. A leader gets results by others. Leader and co-workers are two sides of the same coin. To make this happen a leader needs to use other management processes. That is to say, how to lead, govern, develop, follow up, and constantly improve the entire business and organization for your stakeholders in a different and much better way. My clients are better to tell you about the results they have achieved. The last page in the interview from last year (https://lnkd.in/gXqRq2D), contains sample results for each part of the chain. For much more detailed results I refer to my clients. Several of my clients want me to write more about my tailor-made support. Both the whole chain and its links, so that these approaches are spread to more managers. Magazine´s have asked me the same, so maybe I will start to do that soon too.


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WORLD VIEW

ALMOST HALF OF EUROPEAN ASSET MANAGERS LACK CONFIDENCE IN TRANSPARENCY AROUND BOARD LEVEL DECISION MAKING

New research has highlighted how European asset management professionals have major concerns about the transparency required to satisfy regulators, with 43% admitting they are not completely confident there is adequate transparency around their board level decision-making. The study, conducted by online board portal provider eShare with delegates at the recent ALFI European Asset Management Conference 2018 in Luxemburg, also revealed the on-going importance of governance and compliance. 91% of asset management professionals said governance and compliance are among the top priorities for their organisation. “Both Priips and Mifid II were designed to provide greater transparency into how FS firms deliver services, but they have undoubtedly introduced a great deal of complexity too, as asset managers struggle to meet the new regulatory requirements,” said Alister Esam, CEO, eShare. “This complexity means board decisions are in the spotlight more than ever and so transparency into that decisionmaking is essential. Could asset managers be doing more to demonstrate how they arrived at certain decisions?” The research was intended to gauge the overall mood of the European asset management sector, and the findings highlighted the doubt felt by many in the industry around Brexit. 48% of asset management professionals say their organisation is highly concerned about the uncertainty and lack of clarity over Brexit.

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In February 2018, the European Commission wrote to asset managers to warn them of the “legal repercussions that need to be considered” should the UK leave the EU with no firm withdrawal agreement. The letter described potential scenarios of market shutout for UK fund companies, and possible requirements for asset managers to review disclosures and eligible investments. “With a complete lack of clarity over what will occur in the asset management sector when the UK leaves the EU in 2019, it is no surprise that so many asset managers are concerned about what the future will hold,” continued Alister Esam. “It makes preparation that much harder, but also highlights the need for transparency into decision making, with some potentially far-reaching decisions to be made over the coming 12 months.” Such uncertainty has created a window of opportunity for fintech providers to engage with asset managers to deliver smarter approaches, yet 36% of asset management professionals say that so far, the impact of fintech on European asset management has been overstated. “Digital innovation is a vital response to the challenging market conditions – an increasing regulatory burden, Brexit uncertainty – asset managers are facing,” concluded Alister Esam. “But essential as digital technology is becoming, it is more important to continue to develop and define better human-centric experiences. It’s an industry still based on relationships, and technology should support that, not try and change it.”


WORLD VIEW

The barriers and opportunities for women angel investing in Europe UKBAA and Business Angels Europe release groundbreaking study – women investors suffer inferior advice but still overwhelmingly back female founders over male investors

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WORLD VIEW

Exclusive pan-European study, led by the UKBAA and supported by the European Commission, analysing sentiments of sophisticated and HNW women investors across six countries 96% of women say that their financial advisors fail to mention angel investing as an investment option for them, focusing on “safe” options such as stocks and shares 54% of women have invested in at least one company founded by women, compared with only a few leading male angels investing in women founders

The study is compiled from 640 high net worth and sophisticated women, of which 310 were already investing and 330 not yet investing, across the UK, France, Italy, Spain and Belgium analysing the comparative sentiments of women investors across Europe towards angel investment. Supported and part-funded by the European Commission, the report reveals a concerning trend across Europe of gender-skewed advice, a lack

of confidence and a dearth of senior female role models. The report also unveils an acute requirement for more women investors due to the propensity with which they invest in women entrepreneurs, with nearly 20% having invested in 3 to 10 women founders compared with only a few leading male angels investing in a significant number of women founders. In an industry first, the UKBAA leads a network of business, investment and academic organisations including Business Angels Europe, Angel Academe, Femmes Business Angels, IBAN and IESE Business School – to determine why there is a grave lack of women angel investors across Europe. Most notably, the research serves as a catalyst for the relevant actions needed to aid the recruitment of more women into the European investment arena, with a firm directive to identify and address the barriers that exist around females who are, or wish to, angel invest. Across the 640 verified women investors and noninvestors who participated in the study, 83% were High Net Worth and 17% of them were classed as sophisticated.

“My financial advisor assumed, as a woman, I was risk averse and I should look at safe options. He never mentioned Angel investing or the EIS tax relief scheme.” – UK woman investor

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WORLD VIEW

“The angel process is not accessible. There’s a different process, language and knowledge and there’s an assumption among men that everyone gets this and many of us don’t.” – UK woman non-investor

Serving as the most authoritative voice on inequality in the UK investment landscape, Jenny Tooth, CEO of the UKBAA, would be keen to discuss active and future measures to tackle gender disparity in the investment arena. Featuring in-depth interviews with women investors across Europe, the report reveals: • • •

54% of investors had previously founded, co-founded or run at least one company Nearly 80% of women investors were putting in less than £20,000 per funding round 47% of women invest between £5,000- £10,000 per company/ funding round, reflecting a low risk approach, while only 11% are putting in between £20,000 and £50,000 UK has the lowest percentage of women angel investors across the six countries

• •

Only 14% of women investors have been informed by advisory sources about relevant tax breaks or funds enabling them to invest in small businesses The majority of women were instead directed to stocks and shares firstfollowed by bonds, pension funds, assets under management and property before being made aware about EIS and VCTs 78% of women investors only found out about relevant investment opportunities because of their own professional groupings and networks Over half the women non-investors (54%) thought that life stage and other priorities prevented them from angel investing 40% of non-investors identified angel investment as too risky Two thirds of non-investor women don’t know what angel investing is

37


WORLD VIEW

Adapt or Die INADEQUATE TECHNOLOGY CAUSES WEALTH MANAGERS TO MISS BUSINESS OPPORTUNITIES

43% of respondents have missed out on a business opportunity because of a lack of adequate systems Research findings from Compeer show a lack of adequate technologies is holding wealth management firms back. A study – published by the business performance-benchmarking firm – surveyed wealth management firms collectively managing £150bn. It showed that although 86% of respondents believe technology can provide firms with a competitive advantage, nearly 40% thought their current IT setup was a barrier to scalability. From an IT perspective, the most important challenge for the majority of respondents was digitalisation with nearly a third (31%) of respondents listing it as the most important challenge their firm faces. Amplifying this, 43% of respondents could recall an instance where the lack of a system which would help them to better understand their clients caused them to miss out on a business opportunity. Only a quarter (25%) of respondents are currently using a Customer Relationship Management (CRM) system, although more are considering going down this path.

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James Brown at Compeer says of the report: “Investing in key technology is vital to put wealth managers ahead of their competitors. It enables wealth managers to free up time to actually service their clients, reducing the amount of missed opportunities. This need becomes painfully clear when you consider that two out of five respondents could name a concrete example of missing out on an opportunity because of their current IT system.” 63% of those surveyed envisage their assets under management growing by over 50% in the next 5 years and no respondents expect a decrease in technology spend. In fact, 75% of those asked said they had a good awareness of current systems available that would help them know their clients better. So, the potential exists to sharply reduce those missed opportunities in the near future.


WORLD VIEW

Why potential is more important than experience in leadership roles New ways of working require leadership skills that are more important than experience, says Dr. Riitta Lumme-Tuomala, Head of Growth at Aalto University Executive Education. Organisations in rapidly expanding sectors are wrongly prioritising experience over potential – components of which include adaptability and high learning agility – when deploying leaders. Dr. Lumme-Tuomala studied the humanitarian aid sector, where highly experienced managers are often favoured despite new crises, such as those caused by climate change, requiring new ways of decision-making and leadership. She says: “NGO managers, as in a number of other industries, typically spend their entire career in an organisation, working their way up from technical roles to management. Yet as sectors expand, particularly as we have seen in humanitarian aid, more leaders are recruited externally. Despite this influx of new talent, highly seasoned individuals continue to be deployed to increasingly complex operations which require new ways of working and new types of mindsets.

Strong leadership is important in this context, as decisions made

“Strong leadership is important in this context, as decisions made, often based on incomplete information and in rapidly changing situations, affect lives. Not only that, but leaders must build and maintain long-term relationships with various stakeholders, ensure livelihoods of survivors, and build resilience in communities in the long run.” The humanitarian aid sector’s ‘heroic and macho’ leadership style of the past is being replaced by the need for managers to demonstrate emotional intelligence, including selfawareness, self-regulation and high levels of influencing skills. Lumme-Tuomala continues: “Historically, leaders and founders of NGOs have been known to operate with a paternalistic management style. Often leaders of this type demonstrate drive and commitment, as well as an ability to mobilise people and resources. However, they can also dominate organisations, be unaccountable and fail to adapt their ways of working to changes in the context of their sectors. “This is further proof that the skills and competencies which guaranteed success in the past are not always adequate today, and that leadership roles are changing. Talent management initiatives now, in humanitarian aid and sectors beyond, should prioritise problem-solving, strategic decision-making, goal and direction-setting, and understanding operational context in managers, rather than relying on high levels of – often outdated – experience.”

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WORLD VIEW

The tech trends transforming the hospitality industry Over the past decade, hospitality operators have embraced innovative uses of technology. It is no longer the privilege of a few big companies, with operators of all sizes now using tech as a way of attracting new customers and streamlining operations. Customer experience has always been crucial in this sector, and tech offers a way to find new solutions to customer pain points, from managing queues to taking payments. Steve Cordiner gives his point of view on current and emerging tech trends in the industry.

The future of customer interaction Even in a tech-driven world, customers will continue to be swayed by hospitality operators that offer good service. What is likely, however, is that they will expect that service to include some element of technology. Restaurant 2025, a report released earlier this year by Oracle Hospitality, which surveyed 250 restaurant operators, and customers, showed that 66% of operators believe guests paying by wearable technology will be mainstream by 2025. The report also revealed that half of the customers surveyed believed facial recognition technology would improve their experience1.

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The evolution of payments It has been a decade since contactless payment was first introduced into the UK market and four years since the introduction of Apple Pay. A recent GO Technology report from CGA and Zonal reveals that 67% of 25-34yr olds would spend more cash and buy more drinks if they could order and pay from their mobile device2. The next step is likely to be more innovative ways of paying the bill, whether that’s payment solutions such as Yoyo Wallet, which enables secure mobile payments, automated loyalty and digital receipts, or operatorrun apps used by the likes of GBK, which offers pre-ordering and loyalty points. Looking across at the retail world, whether it’s the Amazon Go Store or Barclaycard’s planned grab and go technology, it is clear customers aren’t looking to hang around, whether it’s in a queue or waiting for the bill. Transforming bookings and customer dialogue

The technological innovation is certainly ready when hospitality brands are. Tesco has started to use facescanning technology to deliver personalised offers to customers when they reach the cash register, Paypal is now using voice technology as a new way to send payments, and Disney is using augmented reality to allow fans to hunt for their favourite characters at merchandise launches.

Back in 2016, Facebook announced the launch of its ‘chatbots’ which allow companies to deliver automated customer support via its ‘Messenger’ service. Since the announcement, brands have explored ways in which the technology can work for them. The software enables operators to have a simulated conversation with prospective customers. The technology has now gone one step further, not only allowing operators to converse with customers but also performing functions such as booking a table, with PizzaExpress’ booking bot launched in 2017. This chatbot technology can free up front-of-house time, but also open up a potential new customer stream by targeting them on their social platforms.

For hospitality operators, the future will stay customer-first, so the key question will be how can businesses best utilise this tech to deliver memorable customer service?

These tools also provide allimportant ways of generating customer feedback and usable metrics. Bistrot Pierre have pioneered the use of real-time customer response survey


WORLD VIEW

technology to gain immediate insight into their guests’ experiences3. The immediacy of such feedback offers the unique opportunity to respond before the guest’s experience ends. This means businesses can promote loyalty and rectify any negative experience immediately. In addition, this technology collects customers’ emails, leading to a far more direct dialogue with customers. Do you need assistants? From Siri to Alexa, the nation has readily adopted assistant technology, whether in their homes or on their handsets. The technology is evolving at a fast pace, and we have already seen it used by brands such as Just Eat. Customers can already order a takeaway via their assistant and then simply request “Alexa, ask Just Eat to reorder my last Chinese” for future takeaways. They can even check the delivery status of their dish by requesting “ask Just Eat: Where’s my meal?”. Facebook’s AI assistant, M, is likely to be another channel in the future. Although not yet universally rolled out, it can automatically complete tasks for users, such as purchasing items, arranging deliveries, reserving restaurant tables, and even arranging travel. But it doesn’t stop there. M can also interject into a chat on Messenger where you’ve stated you’re hungry, to suggest ordering some food. For brands that can be recognised by these tools as an individual’s preferred restaurant, bar or takeaway there is a fantastic opportunity to generate repeat sales from customers. How social media is changing the customer experience Whilst hospitality operators have had a social presence for a number of years, more are now recognising how tapping into their customers’ social activity can have a huge impact on their brand exposure. According to a study by Zizzi, people aged 18-

35 reportedly spend five days a year browsing food images on Instagram, and 30% would apparently avoid a restaurant if its Instagram presence was lacklustre. Zizzi even hired an influencer to train its staff to teach diners how to capture the perfect photo. Operators are already trying to make their restaurants and bars more shareable, with the likes of Peggy Porschen’s flowery entrance helping the café bring in the selfie crowds. Operators will need to use tech to effectively capture and analyse their social status. From social media management platforms such as Hootsuite to tools like Crimson Hexagon, which offers detailed and segmented analytics providing live social monitoring, keyword and hashtag comparisons with interactive graphs and charts to illustrate an operator’s basic social metrics. The benefit of customisation Something that will encourage customers to share about you socially is if they feel they’ve had a customised experience, and an area where this is particularly relevant is around dietary requirements. In 2017, operator Vita Mojo announced the launch of a flagship site in London which offers diners the opportunity to adapt their meals via iPads to suit their dietary needs. With veganism having increased by 360% over the last decade in Great Britain and the healthy-eating lifestyle trend generating diets ranging from Paleo to DASH4, allowing customers to choose their own version of an adaptable menu is a logical next step. In conclusion, the use of technology across the industry is vital for an operator to be able to offer a customer experience that outperforms competitors. This year is set to be tough for the sector, however I believe if operators truly adopt and implement the right technologies that help the business to adapt and grow, they can drive footfall to sites and ultimately generate more revenue.

Steve Cordiner, Investment director, Livingbridge

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WORLD VIEW

Historic all-time high in brand acquisitions In early 2018, British American Tobacco (BAT) filed their annual report for 2017, including the valuation of the assets purchased with their acquisition of Reynolds American on July 25th, 2017. With this report, accounting for brands experienced a historic moment with the reporting of the brand value of US$ 93.6 billion acquired with Reynolds American by BAT. The portfolio of acquired brands includes Newport, Pall Mall, Camel, Natural American Spirits, Grizzly and Kodiak. This new all-time high more than doubles the previous record high of Kraft Foods (2015, US$ 41.3 billion).

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WORLD VIEW

The brand value embedded the acquisition of Reynolds American is remarkable in three aspects: 1.

It is the most valuable brand portfolio ever acquired.

2.

The ratio brand value / brand revenues is amongst the highest ever reported.

3.

The ratio brand value / enterprise value of 89% shows that there were hardly any other assets than brand within this acquisition.

The valuation and accounting of brands dates back to the mid eighties when British and Australian companies like NewsCorp, Reckitt & Coleman, GrandMet and Ranks Hovis McDougall pioneered the valuation, auditing and reporting of some of their brands in their financial statements. According to new accounting standards, all acquired brands have to be valued and reported separately since 2000 in the

US and since 2004 in most other countries. A first record was the brand value of US$ 4.8 billion reported by Grand Met with their acquisition of Pillsbury in 1988. By 2000, the record figure had increased to US$ 11.7 billion with the acquisition of Nabisco by Philip Morris. Five years later, in 2005, the acquisition of Gillette by Procter & Gamble marked another record high with a reported brand value of US$ 25.6 billion.

Exhibit 1 illustrates the all-time highs of brand values acquired in M&A

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WORLD VIEW

Table 1: Top20 Most Expensive Brands Acquired since 2000 Acquirer

Business

British American Reynolds AmeriTobacco can Kraft Heinz Co

Kraft Foods

Reynolds AmeriLorillard can Procter & Gillette Gamble

Brand(s) Newport, Pall Mall, Camel, Natural American Spirits, Grizzly, Kodiak Kraft, Oscar Mayer, Philadephia, ..

Year

Brand value Enterprise US$ bn value US$ bn

Revenues US$ bn

2017

93.6

105.4

12.5

2015

41.3

61.6

18.2

Newport, Kent, …

2015

27.2

28.7

7.0

Gillette, Duracell, Oral B, Braun

2005

25.6

53.4

11.2

InBev

Anheuser-Busch

Budweiser, Michelob, Busch

2008

24.2

65.8

17.4

Volkswagen

Porsche

Porsche

2012

17.8

50.4

14.0

AB InBev

SABMiller

Castle, Carling, Aguila, Poker, Cristal, Pilsner, Carlton, …

2016

15.4

95.2

12.2

Heinz, Quero, ..

2013

12.1

30.0

11.5

2000

11.7

19.2

8.3

2010

10.3

20.0

10.0

2009

10.2

79.8

23.3

2008

9.4

20.2

6.1

2016

9.4

18.3

7.7

2015

9.2

9.6

2.8

2009

9.1

11.6

2.0

2016

8.6

19.9

9.7

2005

7.8

18.1

3.1

2014

7.3

12.6

6.2

Berkshire HathaH.J. Heinz way / 3G Philip Morris / Nabisco Kraft

Oreo, Ritz, Nutter Butter, Planters, .. Cadbury, Trident, Hollywood, Kraft Foods Cadbury Halls, .. Wyeth, Efexor, Prevnar, Pfizer Wyeth Enbrel, Gold, Protonix, Zosyn, Torisel, .. Gauloises, Gitanes, Fortuna, Imperial ToAltadis Montecristo, Dutch Masters, bacco Cohiba, .. Coors, Miller, Blue Moon, KeyMolson MillerCoors stone, Leinenkugel's, Hamm’s, Icehouse, … Novartis OTC Voltaren, Excedrin, Otrivin,, GlaxoSmithKline Consumer busiTheraflu, Nicotinell, Lamisil, ness Fenistil, Maalox, … US Smokeless To- Copenhagen, Skoal, Red Altria bacco Seal, Husky, .. First Essentials®, Lehigh®, Mapa®, Millefiori®, NUK®, Spontex®, Yankee Candle® Campingaz®, Coleman®, Newell RubberFenwick®, K2®, Marmot®, Jarden maid PENN®, Rawlings®, CrockPot®, FoodSaver®, Holmes®, Mr. Coffee®, Oster®, Sunbeam®, … Ballantine's, Beefeater, MaPernod Ricard Allied Domecq libu, Kahlúa, Stolichnaya, Mumm, Hiram Walker, Dunkin' Burger King / 3G Tim Horton's

Tim Horton's

Bayer

Merck's consumer Claritin, Coppertone, MiraLAX, care business Afrin, ..

2014

7.1

14.9

2.0

Walgreen

Alliance Boots

2014

7.1

30.5

33.5

Boots, Alliance Healthcare

Source: Financial Statements, MARKABLES database

Table 1 lists the 20 most expensive brands acquired since 2000

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WORLD VIEW

Main Office, Winston-Salem, NC

Thereafter, the market for brand-centric mergers flattened out. Between 2004 and 2014, the share of acquired brands in the total deal value declined steadily from an average 17% to 12% between 2004 and 2014, while customer relations increased from 8% of deal value to 18% during the same period. But 2014 seems to be a turning point in the appreciation of brands as strategic and financial assets. 10 of the 20 most valuable brand acquisitions reported since 2000 happened in the 4-year period between 2014 and 2017. 2015 saw another all-time high with the acquisition of the brand portfolio of Kraft Foods, which was

wiped out in 2017 by the acquisition of Reynolds American. One reason for this revival is certainly the low cost of capital. Another is the attractive tax benefits resulting from the tax deductibility of (often indefinite lived) brands at very stable and low-risk returns. It is no surprise that the US dominates the ranking of the Top20 most valuable brands ever acquired. Most of the top positions in the Top20 list – 13 of 20 – are domiciled in the US, including the Top5. Sector wise, the list carries four cases in tobacco, four in drugs, three in beer, three in drugs, two in durable consumer goods, and one each in spirits, cars, restaurants and retail.

Some firms appear as repeat attenders over time: •

Kraft (back then part of Philip Morris) acquired Nabisco in 2000, Cadbury in 2010, and was acquired by Heinz / Berkshire Hathaway in 2015

Reynolds American acquired Lorillard in 2015, and was acquired by BAT in 2017

Interbrew/InBev acquired Anheuser-Busch in 2008, and SABMiller in 2016.

They would certainly not, had their previous acquisitions been underperforming. On the other side, such expensive acquisitions are often the basis for restructurings, be it for antitrust reasons (i.e. the takeover of SABMiller) or for accretive portfolio restructurings.

For now, the all-time high with Reynolds America seems to be out of reach and difficult to top. But nobody can tell for sure what corporate finance and investment banking will come up with in the next years.

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WORLD VIEW

Reputation of UK companies in decline for the first time since 2008 financial crash, reveals UK’s biggest annual reputation ranking •

Major drop in the levels of trust and confidence in UK companies. 10% fall in consumers’ willingness to trust, invest in or endorse companies

Poor communication drives reputation decline. 69% don’t know what companies’ corporate governance practices are

Only a fifth of Brits believe companies communicate in a way that is relevant to them

Rolex takes the number one spot in the UK RepTrak ranking followed by Lego and Bosch

Uber, LinkedIn, Ryanair and 888 amongst those with greatest reputational decline

L’Oréal, Merlin Entertainments Group, Amazon and Sports Direct have biggest reputation improvements

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WORLD VIEW

olex, Lego and Bosch have topped the UK RepTrakÂŽ 150 ranking for the most reputable companies among the UK general public, Reputation Institute announced today, based on more than 31,000 ratings collected in the first quarter of 2018 from members of the UK general public. See the top ten ranking, and biggest winners and losers in tables below.

Support for UK companies tumbles

The reputation of companies operating in the UK has declined for the first time since 2008, when the financial crisis destroyed the reputation of financial services and big business in the UK. From 2017 to 2018, the 2018 UK RepTrak reveals there has been an overall decline in supportive behaviour expressed by consumers for UK companies. The most significant drop is the UK’s willingness to provide companies with the benefit of the doubt (-13%) followed by a 11% decrease in consumers saying something positive about an organisation and a 10% decrease in their views around companies’ investments and trust to do the right thing. Supportive behaviour

2017

2018

Change

Benefit of doubt

40%

27%

-13%

Say positive

48%

37%

-11%

Invest

34%

24%

-10%

Trust to do the right thing

47%

37%

-10%

Work for

37%

28%

-9%

Welcome to neighbourhood

47%

38%

-9%

Recommend Company

47%

38%

-9%

Buy

52%

45%

-7%

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!!

WORLD VIEW

* UMZT!WAW.T*AW1*.R7R[TW8\RJ*.!,.RAQ*6M!*A*UMM1*!TJ,7A7RMW<*?,7*?A1Q]*.MCC,WR.A7T1* *9/! MDBN! =>! $/<*?3@! 53;3! 3.7-! ?/:/3.7! ;93;! 38?-77! ;9/! I-3?51! G/GI/?7! -F! ;9/! 2/4/?3.! <HI.E8 E48?/37E42.J![4/H;?3.R!E4!;9/E?!</?8/<;E-4!-F!8-G<34E/7R!8-?<-?3;/!2-:/?4348/!345!8E;E\/479E<!<?38;E8/7] Governance and citizenship crucial for a good reputation, but badly communicated The 2018 UK RepTrak data also reveals that across the board, members of the general public are increasingly ‘neutral’ in their perception of companies’ corporate governance and citizenship practices:

^/?8/4;32/!;93;!8.3EG!;-!I/!4/H;?3.!-?!H48/?;3E4!3I-H;! 8-G<34E/7R!2-:/?4348/!345!8Ef\/479E<!<?38f8/7R! QeU! QWU! QMU! QDU! eNU! eeU! eWU! eMU! eDU! CNU!

QWU! eYU! eQU! eWU!

MDBQ!

MDBN! `-:/?4348/!

ZEf\/479E<!

* )7!;9/!;3I./!I/.-P!9E29.E29;71!2-:/?4348/!345!8E;E\/479E<!3?/!LH3.E;E/7!;93;!93:/!;9/!IE22/7;!EG<38;!-4! ?/<H;3;E-4!3F;/?!<?-5H8;7!345!7/?:E8/7]! As the table below highlights, governance and citizenship! are !"#$%&%'()*E4'="40* 75"'4*'/#&2%*()*4"#$%&%'()* qualities that have the biggest impact on reputation after ^?-5H8;7!_!,/?:E8/7! products MDOKU! and services: `-:/?4348/! BQOMU! ZE;E\/479E<! BCOCU! Harry Foster, Reputation Institute %44-:3;E-4! BMOWU! Reputation drivers Their impact on reputation Director of Consulting, comments: +/35/?79E<! BMOMU! “Neutrality or uncertainty around Products & Services 20.3% X-?@<.38/! BBOMU! companies’ governance and ^/?F-?G348/! BBOBU! citizenship initiatives means that Governance 17.2% despite significant investment ! in this area, these programs and Citizenship 15.5% a3??J!"-7;/?1!$/<H;3;E-4!%47;E;H;/!(E?/8;-?!-F!Z-47H.;E421!8-GG/4;7]!bc/H;?3.E;J!-?!H48/?;3E4;J!3?-H45 initiatives are not resonating with 8-G<34E/7R!2-:/?4348/!345!8E;E\/479E<!E4E;E3;E:/7!G/347!;93;!5/7<E;/!7E24EFE834;!E4:/7;G/4;!E4!;9E7!3?/3 people. In addition, the growing Innovation 12.4% ;9/7/!<?-2?3G7!345!E4E;E3;E:/7!3?/!4-;!?/7-43;E42!PE;9!</-<./O!%4!355E;E-41!;9/!2?-PE42!</?8/<;E-4!E7!;9 perception is that companies 8-G<34E/7!3?/!4-;!8-GGH4E83;E42!-F;/41!-?!<?-:E5E42!7HFFE8E/4;!E4F-?G3;E-4!3I-H;!P93;!;9/J!3?/!5-E42 are not communicating often, or Leadership 12.2% providing sufficient information %;R7!93?5/?!;-!7;345!-H;!F?-G!;9/!8?-P51!345!93?5/?!;-!3<</3?!2/4HE4/!3I-H;!P93;!J-H!73J!345!5-dO! Workplace Performance

!

48

11.2%

* *

* 11.1%

!!

about what they are doing. It’s harder to stand out from the crowd, and harder to appear genuine about what you say and do”.


WORLD VIEW

UK corporates communicate poorly with consumers

Brand â&#x20AC;&#x2DC;expressivenessâ&#x20AC;&#x2122; has experienced the most noticeable decline across all other metrics since 2017, with consumers stating that companies do not communicate effectively or stand out from the crowd. There has been a significant decline in the beliefs of respondents in the following areas:

Statement about UK companies

2017

2018

Change

Welcomes open discussion with outside audiences about its activities

28%

15%

-13%

Provides sufficient information about its activities

35%

22%

-13%

Communicates often

31%

19%

-12%

Stands out from the crowd

46%

34%

-12%

Appears genuine about what it says and what it stands for

48%

36%

-12%

Delivers a consistent experience

54%

42%

-12%

Conversely, we can see in the below graph how those with the top 10 reputations are significantly better communicators:

Harry Foster, Reputation Institute Director of Consulting

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WORLD VIEW

The top 10 companies in the 2018 UK RepTrak®, who are all considered to have an “Excellent” reputation Companies are scored between 0-100 points and are grouped as Excellent (80+), Strong (70-79), Average (60-69), Weak (40-59) or Poor (Below 40). There has been a substantial change at the top of the rankings with 50% of the top ten companies different to last year. Swiss watch maker Rolex has stormed into first place, beating Lego to the top spot by 0.7 points. Bosch (85.1), Nintendo (84.9), Amazon (83.1) and The Walt Disney Company (82.4) also made the top 10 for the first time, knocking the likes of Michelin, Intel and PayPal off the list.

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WORLD VIEW

Rolex

51


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LEGO Group

52


Bosch

Dyson

Nintendo

53


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Rolls-Royce Aerospace

Sony

54


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Amazon.com

Samsung Electronics

55


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The Walt Disney Company

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WORLD VIEW The RepTrak® system measures both the emotional connection a consumer has with a company (RepTrak Score) and a company’s ability to deliver on stakeholder expectations on the seven key rational dimensions of reputation: products and services, innovation, workplace, governance, citizenship, leadership and performance.

Biggest movers of all companies polled The following companies have seen the largest improvements from 2017 to 2018. The below companies have seen the largest declines from 2017 to 2018:

L’Oréal

(+10.9)

Merlin Entertainments Group

(+9.7)

Nintendo

(+8.6)

Amazon.com

(+8.3)

ASDA

(+8.1)

Wickes

(+7.8)

Severn Trent

(+7.3)

EE

(+6.8)

Greggs

(+6.7)

Sports Direct International

(+6.7)

The below companies have seen the largest declines from 2017 to 2018:

Delta Air Lines

(-11.4)

Uber

(-11.2)

Ryanair

(-10.6)

LinkedIn

(-10.3)

888 Holding

(-10.1)

Sanofi

(-8.8)

RSA Insurance

(-8.7)

Whirlpool

(-8.7)

Intel

(-8.1)

Vodafone

(-7.9)

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WORLD VIEW

Harry Foster comments:

“It is fascinating to see companies like Merlin Entertainments Group (in the wake of the Alton Towers ride injuries), Amazon (following a data breach scandal in 2017), and Sports Direct (following the ‘Victorian workhouse’ scandal) be amongst this year’s biggest movers. “For those including Uber, Ryanair and betting firm 888 who were amongst

those to have suffered the greatest reputational declines since 2017, following well-documented leadership and abuse-of-trust issues, it should be something of an inspiration. Where companies are prepared to make genuine change to better themselves, and communicate this effectively through the right channels, they can rebuild their reputations and rebuild consumer trust.”

Why reputation matters

Harry Foster added:

Reputation Institute’s research reveals that reputation drives business results. The better the reputation the more support a company receives. For companies with an average reputation only 18% would buy the products; this grows to 33% if the reputation is strong, but increases to 72% if the reputation is excellent.

“Our data indicates that corporate reputation has a strong impact on business success – those companies who actively manage reputation do better. A strong to excellent reputation yields significantly more stakeholder support for a company, which translates into competitive advantage in the marketplace.”

...companies are prepared to make genuine change to better themselves...

UK companies’ reputations must be considered “excellent” by consumers to have more than 50% of those surveyed claim that they would say something positive about a company, recommend its products, trust it to do the right thing, welcome it into the local community, work for or invest in it:

A strong to excellent reputation yields significantly more stakeholder support for a company support for a company...

2018 - Reputation drives supportive behavior

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ARISE T O C O M E I N T O B E I N G ; O R G I N AT E

61

Anne-Marie Winton, ARC Pensions Law: Piercing the Corporate Veil

62

Clive Hyman, Hyman Capital: Making the most of tax advantageous venture capital schemes to attract business investment


ARISE

Piercing the Corporate Veil Pensions Regulator intruding in corporate activity The Pensions Regulator (TPR) has attempted to flex its muscles by raising public concerns about the hostile bid for British engineering firm GKN by US company Melrose. Though whether it will actually do more and throw a regulatory punch is yet to be seen. TPR said it is “concerned that the increased leverage involved in the proposed takeover by Melrose is likely to have a detrimental impact on covenant”, affecting GKN’s ability to meet its pensions obligations to defined benefit scheme members. With GKN still trying to fend off the advances of Melrose, negotiations are set to run and run and TPR will no doubt play a significant role in the completion or otherwise of the deal – even though it currently has no power to veto it. But what can TPR do here? Given GKN’s situation and that of others recently hitting the headlines, businesses need to be on the front foot in terms of understanding what might give rise to such a regulatory intervention. In certain circumstances, typically involving schemes in significant deficit (GKN’s scheme is facing a deficit of upwards of £1bn on a self-sufficiency basis and £1.9bn on a solvency basis), TPR has powers to pierce the ‘corporate veil’, and force liability on shareholders on a non-fault basis. TPR was set up under the Pensions Act 2004 to essentially act as a ‘referee’, as opposed to a ‘player’ in relation to the UK’s workplace pension scheme. It enforces compliance with statutory ‘moral hazard’ requirements that can operate to impose joint and several group-wide liability for pension scheme underfunding – without any question of fault or bad faith arising. However it threatens to use these moral hazard powers far more often than its uses them (not least as the cost of regulatory action could run into £millions). In general, there is no legal obligation on an employer’s wider group, whether in the UK or otherwise, to make good the deficit in that employer’s UK defined benefits pension scheme. It is only when they enter into a direct obligation to support the scheme – e.g. through a parent company guarantee, or other contractual promise – that they are liable to do so. But crucially, TPR can impose statutory liability where none otherwise exists, including on companies and, in some cases, individuals who fall within the statutory tests for being connected or associated with the scheme employer. The regulator has a wide discretion in deciding use of its powers. But intervention is far more likely to take place behind closed doors rather in public over a period of months if the regulator realises this is necessary to fulfil its statutory duty to protect members’ benefits. Although

through the intervention of the Work and Pensions Select Committee, private commercial discussions are being dragged into the public domain. What kind of corporate activity piques TPR’s interest? Primarily, it is any activity that means the sponsoring employer is less able to meet the payments needed for the underfunding in the scheme – i.e. an act or failure to act that has “detrimentally affected in a material way the likelihood of the accrued scheme benefits being received”. Clearance Guidance provided by TPR outlines a list of corporate events, known as ‘employer-related Type A events’, which could have the effect of weakening the financial support provided by the scheme’s sponsoring employer. If a Type A event is being considered, it is important to examine any impact it could have on a defined benefits pension scheme, and companies should establish how to mitigate any detriment caused. If it comes to it, an audit trail of this process could provide a statutory defence against the use of some of the regulator’s powers. A test of the theoretical recoveries to the scheme on employer insolvency before and after the Type A event can be a way to determine whether that commercial action (which could simply be paying dividends) means that scheme benefits are less likely to be received. If this detriment is not fixed voluntarily, TPR may step in to strongly suggest or require it to be fixed, if it is reasonable to do so. So why would a business choose to voluntarily pay up and write a cheque to the pension scheme in this situation? After all, there is no legal liability here. Investigations are confidential at the time, but can be made public if TPR considers this appropriate, and reputational damage will naturally result. Moreover, TPR has statutory powers to compel the production of information to help it carry out its work, using fines and criminal convictions. And a pending White Paper on pensions, expected to be heavily influence by recent corporate failures, may push to give TPR increased powers to intervene in commercial activity. It follows that it is better to anticipate issues of any Type A event and act accordingly, all the while engaging proactively with scheme trustees. Anne-Marie Winton, Partner, ARC Pensions Law

Anne-Marie Winton, Partner, ARC Pensions Law

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Making the most of tax advantageous venture capital schemes to attract business investment The UK has attractive start-up investment tax relief schemes, including the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). These provide investors with up to 80% protection, taken as a tax relief on your income tax bill, against an investment made into a UK start-up. Why do these schemes exist? Essentially, they are there to help businesses raise funds by reducing the investor’s risk. They do this by offering the investor tax relief. EIS was introduced in 1994 as the successor to the Business Expansion Scheme. The Seed Enterprise Investment Scheme (SEIS) debuted in 2012, to attract investors to start-ups that may have otherwise have been viewed as too risky - rightly or wrongly. EIS and SEIS are two of four venture capital schemes. The other two are Venture Capital Trusts (VCTs) and Social Investment Tax Relief (SITR). Her Majesty’s Revenue & Customs (HMRC) stresses it is important to check which one is appropriate both from a company and an investment point of view. In this article, I am focusing on only SEIS and EIS. What’s the difference between SEIS and EIS? SEIS is designed to help a company raise money when it is starting to trade, or one that has been trading for less than two years, whereas EIS helps an earlystage company raise funds to help grow the business. Businesses raising money under SEIS can receive a maximum of £150,000 through the scheme, offering private investors 50% up front tax relief – hugely attractive although the amount of investment is relatively small. The businesses must have assets of no more than £200,000 and have fewer than 25 employees.

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The company must be based in the UK. HMRC says proof of a company’s permanent establishment in the UK includes having an office of factory or one of the following: • • • • •

a place of management a branch a workshop a quarry, mine, oil or gas well, a building site, such as a construction or installation project.

This is not an exhaustive list, but the type of business a company carries out will be the deciding factor in what premises and facilities are required to meet the conditions for investment. EIS is for those seeking funding of up to £5m and gives investors 30% upfront tax relief and must have less than £15m of assets and up to 250 employees and therefore is open to far more companies than SEIS. The same qualifying factors on UK residency above apply. Companies cannot raise more than £5m each year and more than £12m in their lifetime, from the four venture capital schemes

that currently exist. Individuals cannot invest more than £1m each year. Any gains from SEIS and EIS investment are 100% exempt from inheritance tax, capital gains tax and income tax. HMRC stresses that tax reliefs will be withheld or withdrawn from investors if companies do not follow the rules for at least three years after the investment is made. What’s the difference between ‘approved’ and ‘unapproved’? Two types of fund invest in companies seeking SEIS and EIS money – HMRC “approved” and HMRC “unapproved”. Both spread the risk over numerous companies which is important. Unapproved does not mean the fund is dodgy. All it means is that HMRC has not given its structure prior approval. Approved does not mean “protected” or that HMRC has approved the quality of the investments – but there are tax planning differences between the two. With approved funds the ability exists to “carry back” for income tax relief


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Clive Hyman, Chairman and CEO, Hyman Capital

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purposes and treat the investment as if it had been undertaken in the previous tax year. Money raised by a new share issue must be spent within two years of the investment or, if later, the date the company started trading. It must be used to grow or develop the business and must not be used to buy all or part of another business. Will my company qualify for SEIS or EIS? Most trades qualify but there are exceptions if most of a trade includes coal or steel production, for example, farming or market gardening, leasing activities, legal or financial services, property development, running a hotel or nursing home, and electricity, heat, gas or fuel generation. Apart from being established in the UK, they must not be trading on a recognised stock exchange at the time of the share issue and they must not have any arrangements in place to become quoted. For start-ups, SEIS is an attractive way to target much needed funding. Just because a company has availed of SEIS funding does not mean it cannot go on to raise further funding from an EIS, although the amount it can raise from this will be reduced to up to ÂŁ4.85m.

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Companies raising money under EIS must do so within the first seven years of its first commercial sales. If you did not receive investment within the first seven years, or now want to raise money for a different activity from a previous investment, you will have to show that the money is required to enter a completely new product market or a new geographic market and that the money you are seeking is at least 50% of the companyâ&#x20AC;&#x2122;s average annual turnover for the last five years. What are the practicalities of SEIS and EIS? If you are an investor, you have to source the entity or entities you are going to invest in which you might do through a trusted fund manager, or you might find a corporate finance house that has an opportunity. You would need to get out into the market and network, and identify what it is you would like to invest in. Investors need to look at the investments and make sure they are sound. It is all too easy to get distracted by the tax relief. The tax relief is great to have; it is obviously hugely advantageous. But what is the point of tax relief if the investment is rubbish? The business still has to have the necessary fundamentals. You still have to assess it. Is the management team any


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good? Are the businesses you are investing in worth it? Remember it is your cash you are going to have to invest. The tax relief should not blind you to good common-sense investment practice. If you are a company seeking investment, you have got to get a specialist tax adviser to help you acquire the necessary approval to do so, the tax relief accreditation letter and advance assurance. You have either got to market it through a fund manager or a corporate finance house to high-net-worth individuals who are qualified to look at it. There are various platforms people use to market investment in their companies – not crowdfunding ones, however. For most of the EIS opportunities you need an introducer or specialist finance companies that will manage everything and probably have a roster of companies for which they want to raise money. You must complete a separate application for each share issue and if your application is successful, HMRC will confirm the decision and send you compliance certificates to give to your investors. Your investors cannot claim the tax relief until they receive their compliance certificate.

Do these schemes actually work? Both schemes are success stories. The latest available HMRC statistics show that since EIS was introduced, 26,355 companies have received investment and almost £16.2bn of funds have been raised. In 2015-16, 3,470 companies raised a total of £1.89bn of funds under EIS and in 2014-15, 3,370 firms raised £1.92bn of funds. London and the South East accounted for the largest proportion of investment. Companies registered in these regions received 67% of investment in 2015-16. In 2015-16, 2,360 companies received investment through SEIS and £180m of funds were raised – similar to 2014-15, when 2,365 companies raised a total of £180m. More than 1,800 of these companies raised funds under SEIS for the first time in 2015-16, representing £154m in investment. The HMRC statistics show that in 2015-16, companies from the hi-tech and business services sector made up 68% of the amount of SIES investment received.

What other venture capital schemes are available? Social Investment Tax Relief (SITR) allows individuals to claim relief on £1m of annual investment and provides 30% of income tax relief. VCTs allow an annual investment of £200,000 on which they can claim 30% tax relief. With VCTs no tax is payable on dividends where it is on SITR, SEIS and EIS. Investors can get capital gains tax relief on any profits they make under all four of the schemes. With SITR there is also the option to invest through a debt instrument. The rules of VCTs might be a little complex to navigate for both company and investor if new to these kinds of arrangements. In conclusion? These schemes are attractive and can help a company attract investment and an investor mitigate some of their risk – but it is easy to come unstuck. Therefore, whether you are looking to invest or looking to raise funds, it is advisable to seek expert guidance to help you through the process.

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REPORTS A P R E S E N TAT I O N O F FA C T S O R F I N D I N G S

A document containing information organised in a narrative, graphic, or tabular form, prepared on ad hoc, periodic, recurring, regular, or as required basis. Reports may refer to specific periods, events, occurrences, or subjects, and may be communicated or presented in oral or written form.

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empea: 1Q 2018 European PE Breakdown PitchBook: 1Q 2018 European PE Breakdown Info-Tech Research Group: CIO Trend Report MARSH: TDemand for transactional risk insurance at record high: Marsh eFront: Western Europe leads the world in private equity returns Bureau van Dijk: North American M&A volume increases in May, despite decline in value


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Global Limited Partners Survey Investorsâ&#x20AC;&#x2122; Views of Private Equity in Emerging Markets 2018

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About EMPEA

EMPEA’s Board of Directors

EMPEA is the global industry association for private capital in emerging markets. An independent, non-profit organization, the association brings together 300+ firms—including institutional investors, fund managers and industry advisors—who manage more than US$5 trillion in assets across 130 countries. EMPEA members share the organization’s belief that private capital can deliver attractive long-term investment returns and promote the sustainable growth of companies and economies. EMPEA supports its members globally through authoritative research and intelligence, conferences, networking, education and advocacy.

Robert Petty (Chairman)

Editor Jeff Schlapinski, Director, Research

Runa Alam

Lead Contributor Rae Winborn, Manager, Research

Thomas C. Barry

Additional Contributors Luke Moderhack, Manager, Research Isabelle Diop, Senior Research Analyst Kevin Horvath, Senior Research Analyst Sabrina Katz, Research Analyst Production Assistance Zelnar Zingale, LLC

Managing Partner & Co-Founder, Clearwater Capital Partners

Teresa Barger (Vice Chair) Co-Founder & Chief Executive Officer, Cartica Management, LLC

Rebecca Xu (Vice Chair) Co-Founder & Managing Director, Asia Alternatives Management LLC

Mark Kenderdine-Davies (Secretary) General Counsel, CDC Group plc

Co-Founding Partner & Chief Executive Officer, Development Partners International (DPI)

President & Chief Executive Officer, Zephyr Management, L.P.

Fernando Borges Managing Partner & Co-Head of Carlyle South America Buyout Group, The Carlyle Group

Torbjorn Caesar Senior Partner, Actis

Drew Guff Managing Director & Founding Partner, Siguler Guff & Company LLC

Maria Kozloski Global Head & Chief Investment Officer, Private Equity Funds, International Finance Corporation

Andrew Kuper Founder & Chief Executive Officer, LeapFrog Investments

Tope Lawani Co-founder & Managing Partner, Helios Investment Partners

Jeffrey Leonard President & Chief Executive Officer, Global Environment Fund

Piero Minardi Managing Director, Warburg Pincus

Sanjay Nayar Member & Chief Executive Officer, KKR India, KKR India Advisors Pvt. Ltd.

Ziad Oueslati Founding Partner, AfricInvest

Nicolas Rohatyn

© EMPEA 2018. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system or transmitted in any form or by any means—electronic, mechanical, photocopying, recording or otherwise—without the prior permission of EMPEA. Please contact Holly Radel at radelh@empea.net or call +1.202.333.8171 for more information or to obtain permissions.

2600 Virginia Avenue NW • Suite 500 • Washington, DC 20037 USA Phone: +1.202.333.8171 • Fax: +1.202.524.6130 • Web: empea.org

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Chief Executive Officer & Chief Investment Officer, The Rohatyn Group

Maninder Saluja Partner & Co-Head, Emerging Markets Private Equity, Quilvest Group

Yichen Zhang Chairman & Chief Executive Officer, CITIC Capital

To learn more about EMPEA, or to request a membership application, please send an email to membership@empea.net.


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2018 Global Limited Partners Survey Executive Summary The 14th annual edition of EMPEA’s Global Limited Partners Survey features the views of 107 limited partners (LPs) on the current conditions and future outlook for emerging markets private equity (EM PE). This study aims to shed light on the evolution of LPs’ investment plans; the issues affecting their decision-making; their return expectations; the factors that LPs believe will drive future performance; and the geographies, fund strategies and sectors that they view as attractive. Institutions participating in the 2018 survey include pension funds, development finance institutions (DFIs), funds of funds, private markets advisors, family offices, endowments, foundations, banks, asset managers, insurers, government agencies and sovereign wealth funds. These limited partners are based in 36 different countries, and they collectively represent global PE assets under management (AUM) of approximately US$358 billion and total AUM of US$5.7 trillion. Additional details regarding survey respondents are available on page 17.

Key findings from the 2018 Global Limited Partners Survey include: ▻

A higher proportion of respondents* plans to increase the dollar value of their commitments to EM PE than in any edition of the survey since 2014, suggesting cautious optimism may be in order for EM-focused fund managers.

LPs’ reasons for increasing their commitments to EM PE appear to be evolving. When asked why they plan to commit more to EM PE opportunities, 58% of survey respondents indicated they are seeking greater diversification in their PE portfolio, up from 38% of respondents in the 2014 survey. In contrast, half of respondents in the 2015 survey planned to increase their commitments because they expected PE to outperform other EM investment opportunities, but the corresponding proportion in this year’s survey was just 32%. The latter trend may reflect the strong performance of EM public equities in 2017.

Reflecting the strong growth in fundraising for EM venture capital and EM private credit documented in EMPEA’s Industry Statistics, the percentage of LPs planning to begin or expand investing via funds employing these strategies has increased over the last two years. While the majority of commercial investors** take environmental and social impact into account when making investment decisions, most do not maintain a dedicated allocation to impact investing opportunities.

Southeast Asia has regained the top spot in EMPEA’s market attractiveness rankings, followed by India and China, forming a top three exclusively comprising markets in Emerging Asia. Despite its relative stability at the top of the rankings, Southeast Asia has failed to attract more capital than many markets ranked much lower, though LPs are likely accessing the region through commitments to pan-Asia funds.

For the first time, EMPEA asked survey respondents to indicate the return premium that would justify their decision to commit to PE funds focused on various emerging markets. The results reveal that higher levels of perceived political risk and currency risk—as indicated by the percentage of LPs citing these factors as deterrents to investing—are associated with larger return premiums.

© EMPEA 2018. All rights reserved.

Two-thirds of survey respondents plan to form between one and five new EM PE fund manager relationships over the next three years, in line with last year’s findings. The majority of respondents may be pursuing fewer new relationships, but LPs appear more likely to expand commitments to sector-specific and country-dedicated fund managers than to multi-strategy GPs, even though the latter would seem better positioned to absorb commitments from institutions writing fewer, larger checks.

After declining over the last few editions of the survey, the proportion of respondents indicating that EM PE returns have met or exceeded their expectations increased in 2018. Likewise, the proportion of LPs expecting returns of 16% or more from current-vintage funds increased for both emerging markets overall and for each individual EM geography included in the survey. Despite the year-on-year increase in 2018, over a longer timeframe, return expectations have cooled for all EM geographies except for markets in Emerging Asia.

Higher fundraising for emerging markets in 2017 may have been driven by US$1 billion-plus funds, but LPs expect middle-market vehicles in the US$250 million to US$499 million range to generate the highest net returns in the 2017 vintage.

LPs expect GPs’ ability to drive operational improvement at the portfolio company level to have the biggest impact on the performance of 2017-vintage EM PE funds, followed closely by overall economic growth in emerging markets and entry multiples. However, despite the perceived importance of operational skills in generating returns, nearly half of survey respondents feel EM PE fund managers’ value creation abilities are behind those of their developed market peers.

E-commerce and fintech represent the most attractive technology areas for investment in emerging markets over the next two years, according to this year’s survey respondents. * Excludes institutions with EM-only mandates, including DFIs, EM-focused funds of funds and others legally mandated to invest in emerging markets. ** Excludes DFIs, government agencies and LPs exclusively focused on impact investment opportunities.

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Year-on-year Increases in Planned New Commitments and Allocation Levels Call for Cautious Optimism The results of EMPEA’s 2018 Global Limited Partners Survey point to a marginal improvement in overall LP sentiment toward emerging markets private equity. As currencies, economic growth rates and levels of deal activity climb back from recent downturns in many regions, 88% of survey respondents—excluding investors with EM-only mandates—expect to maintain or increase the dollar value of their commitments to EM PE over the next two years. This represents the highest share since the 2014 edition of the survey. Furthermore, the number of investors planning to decrease the pace of their new EM PE commitments dropped slightly from 17% to 13%. While the number of respondents increasing the dollar value of their new EM PE commitments has risen overall, a breakdown of respondents by PE assets suggests that larger institutions with global PE allocations of more than US$10 billion appear the most likely to decrease their dollar commitment levels and the least likely to increase them. Conversely, three-quarters of survey respondents with PE assets under US$100 million plan to increase the value of their commitments to EM PE. The contrast between the larger and smaller ends of the investor spectrum may indicate that less capital overall may flow to emerging markets. On the other hand, it may merely reflect the fact that some large LPs are less likely to increase commitments to EM PE funds (specified in the question) and are finding alternative means of deploying capital (see Pages 10-11). At any rate, the influx of interest from smaller investors is likely good news for newer fund managers, which are typically smaller in size.

Exhibit 1: Anticipated Level of New Commitments to EM PE Funds Over the Next Two Years, 2014-2018*

Exhibit 2: LPs’ Planned Changes to Proportion of Total PE Allocation Targeted at EM PE Over the Next Two Years, 2014–2018* 100%

80%

18%

60%

36%

23%

40% 20%

39%

0% 20% 40%

2014

15%

9%

9%

80%

36%

39%

60%

24%

25%

38%

38%

38%

39%

12%

12% 9%

8% 9%

11%

2015

2016

2017

2018

% of Respondents

% of Respondents

100%

41%

33%

29%

36%

46%

38%

25%

26%

2017

2018

40% 20% 0%

46%

45%

13%

22%

2014

2015

20% 40%

n No change planned n Slightly higher n Significantly higher n Slightly lower n Significantly lower

31%

n Increase

56%

13%

2016

n No change planned

n Decrease

*Excludes investors with EM-only mandates.

*Excludes investors with EM-only mandates.

Exhibit 3: LPs’ Proportion of Total PE Allocation Targeted at EM PE*

% of Respondents

30%

20% 26%

24%

10% 15%

0%

No allocation

19%

18%

17%

12%

11% 1-5%

6-10%

11-15%

n Now *Excludes investors with EM-only mandates.

2

EMPEA

70

9%

n In 2 years

7%

11%

16-20%

17%

11% 6% 21-30%

More than 30%


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EM PE Commitments and Allocation Levels, continued Along with a higher share of LPs maintaining or increasing the dollar value of their commitments to EM PE, a higher percentage of respondents plan to increase the proportion of their total PE allocation targeted at emerging markets over the next two years. The share of LPs’ planning to increase their allocations has risen from 29% in 2017 to 36% this year. However, 26% of respondents expect to decrease the share of their PE allocation directed at emerging markets, a slight increase from last year’s survey and the highest proportion within the last five years. As EMPEA has previously argued, the findings suggest that even if LPs are putting or intend to put more capital to work in emerging markets, the pace of growth may not exceed that of commitments to alternative investments globally. The thinking behind LPs’ decisions to begin or increase the value of their commitments to EM PE funds has changed over the last five years. The number of respondents indicating that they expect EM PE to deliver high returns relative to other EM investment opportunities has declined. Most of this drop-off has occurred in the past two editions of the survey, which may reflect the broad gains enjoyed by EM public equities since the beginning of 2017. In contrast, the number of respondents citing greater portfolio diversification or a better risk-return profile relative to developed markets as reasons for increasing their commitment levels has increased. As stories documenting increased competition for PE deals in the United States and Western Europe continue to fill the financial press, some investors may be looking to emerging economies to avoid overexposure to frothy conditions in core markets. While the improvement in sentiment revealed by LPs’ plans for new commitments to EM PE funds and percentage allocations to EM PE is fairly modest, this may be partially due to the composition of institutions included in this year’s sample. Survey respondents without a current allocation to EM PE accounted for 15% of respondents (excluding EM-only participants), almost double the percentage of previous years.

Exhibit 4: Anticipated Level of New Commitments to EM PE Funds Over the Next Two Years – By PE AUM*

Exhibit 5: LPs' Reasons for Beginning or Increasing Commitments to EM PE Funds Over the Next Two Years, 2014-2018* 70%

22%

US$1B-US$10B

33%

16%

US$100m-US$1B

60%

37%

10%

Under US$100m

% of Respondents

Above US$10B

60% 75%

40%

20%

0% 20% 40% % of Respondents

n Lower

60%

80%

50% 40% 30% 20% 10% 0%

n Higher

2014

2015

2016

2017

2018

___ The risk-return profile of emerging markets has improved

*Excludes investors with EM-only mandates.

relative to developed markets

___ We expect EM PE to deliver high returns relative to other

EM investment opportunities

___ We are seeking greater diversification in our portfolio *Excludes investors with EM-only mandates.

Emerging markets are attractive compared to the United States, where purchase multiples are high.” –Family office

The more attractive emerging markets possess a combination of large opportunities supported by accommodative political and regulatory bodies. These markets are still very inefficient and provide growth that developed markets do not.” –Endowment

© EMPEA 2018. All rights reserved.

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Venture Capital and Private Credit Gain Prominence in LPs’ Future Investment Plans For over a decade, EMPEA has tracked the shift in capital raised for EM-focused private capital vehicles from predominantly growth and buyout funds to a broader mix of strategies, including venture capital and private credit. Responses to this year’s survey reflect the growing importance of these segments in LPs’ investment plans. Over half of respondents (52%) plan to begin or expand investment via venture capital funds over the next two years, more than any other strategy included in the survey. In 2016, the last time EMPEA asked LPs about their investment plans by fund strategy, just 29% of respondents indicated they plan to begin or expand investing in venture capital. Similarly, the percentage of LPs who plan to begin or expand investing in private credit has increased from 40% in 2016 to 47% in this year’s survey. EMPEA’s fundraising totals mirror this increase in investor interest in credit strategies, with EM private credit fundraising in 2017 surpassing all previous years on record. While interest in private credit is evident across all types of investors, 72% of DFIs and government agencies indicated they plan to begin or expand investing in private credit, the highest proportion of all institution types. At the other end of the spectrum, banks, asset managers and insurers collectively demonstrated less interest, with only 18% planning to begin or expand investing in EM private credit. Finally, for private credit GPs looking to secure new commitments, the diverse staffing arrangements of LPs in the sample point to the potential difficulty of getting in front of the right decision makers. Across all institutions responding to this year’s survey—regardless of whether they maintain set allocations to emerging markets—only 24% have a dedicated private credit division, with the remainder employing private equity, fixed-income or multi-asset class teams to allocate to private credit.

Exhibit 6: Planned Changes to EM PE Investment Plans Over the Next Two Years – Fund Strategies

Venture capital

8%

Growth equity

15%

37%

5%

46% 13%

Private credit 6%

Infrastructure Buyout

10%

6%

20%

10%

25%

2%

9%

Real estate

34%

26% 7%

0%

15% 10%

20% % of Respondents

n Decrease or stop investing

Exhibit 7: Team or Department Responsible for Private Credit Investment Decisions

24+19+818130A 24%

30%

19%

18%

4

EMPEA

72

8%

30%

n Begin investing

40%

50%

n Expand investing

Exhibit 8: Planned Changes to EM Private Credit Investment Plans by Institution Type

DFIs and government agencies

n Dedicated private

credit team n Private equity team n Fixed income team n Multi-asset class team n Other (unidentified) n Not invested in private credit

60%

72%

Endowments, foundations and family offices

59% 45%

Pension funds Banks, asset managers and insurers

18% 20%

0%

20% 40% 60% % of Respondents

n Begin or expand investing n Decrease or stop investing

80%


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Most LPs Consider Social and Environmental Impact When Investing, but Dedicated Allocations to Impact Investing Are Much Less Common EMPEA has long argued that EM PE holds the potential to generate attractive returns for investors and contribute to the development of emerging economies. Moreover, many long-standing investors in emerging markets, such as DFIs, have taken the social and environmental impact of their investments into account since the inception of their PE programs. However, only in recent years has a wider swath of commercial investors explicitly acknowledged the importance of social and environmental factors in their investment decision-making. In an effort to quantify this change in thinking, this yearâ&#x20AC;&#x2122;s survey included questions centered on impact. Excluding DFIs and investors with impact-only mandates, more than three-quarters of respondents take social or environmental impact into account when making investment decisions. Though consideration of environmental and social impact when making investment decisions is now apparent, dedicated allocations to impact investing are much less common. The majority of respondents (70%) that take environmental and social impact into account have no dedicated allocation to impact investing. Respondents demonstrate a growing consensus around three key criteria necessary for investments to be considered impactoriented: the development of a clear thesis at the outset of an investment, measurement of environmental and social indicators and reporting of this data back to stakeholders. However, less than half believe that commercial returns are necessary for a strategy to be considered impact investing. EMPEA has previously argued that the full institutionalization of impact investing demands that equal emphasis be placed on market-based financial returns. The diverse opinions of this yearâ&#x20AC;&#x2122;s survey respondents suggest that such a consensus is yet to be achieved.

Exhibit 9: Does Your Institution Take Social or Environmental Impact into Account When Making Investment Decisions?*

Exhibit 10: Percentage of PE Portfolio Dedicated to Impact Investing*

77+23+A 69+15+824A 4%

8%

23%

n Yes n No

15%

70%

77%

*Excludes DFIs, government agencies and investors with impact-only mandates.

n No allocation n 1-5% n 6-10% n 11-20% n 21-30% n More than 30%

*Excludes DFIs, government agencies and investors with impact-only mandates.

Exhibit 11: Criteria That Must Be Met for an Investment to Be Considered an Impact Investment

Measure environmental or social impact (at any stage of investment)

73%

Develop a clear thesis for impact before an investment is made

73%

Report on social and environmental performance to stakeholders

70%

Actively manage investments to increase environmental or social impact

58%

Target investments directly catering to underserved communities or in high-impact sectors

52%

Aim for commercial returns (in line with traditional, non-impact funds)

45% 0%

Š EMPEA 2018. All rights reserved.

20%

40% % of Respondents

60%

80%

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Investors Remain Bullish on Southeast Asia, but Will Greater Commitments Follow? Private capital fundraising and investment in Emerging Asia reached US$50 billion and US$38 billion, respectively, in 2017, their highest levels since the inception of EMPEA’s research program in 2006. These figures are impressive in their own right, but also in comparison to private capital activity in other EM regions. This dichotomy is reflected in EMPEA’s 2018 market attractiveness rankings, which capture LP views on the appeal of ten emerging markets for GP investment over the next 12 months. The three Asian markets included in the survey outranked all others. Southeast Asia recovered its spot at the top of the list, pushing India down to second place. China, which for the past five years has held steady at either fourth or fifth place, jumped up to third place in this year’s rankings. Below the top three, Latin America (excl. Brazil) fell to fourth place while Sub-Saharan Africa has continued its slide from first place in 2013 to fifth place in 2018. This drop-off in perceived attractiveness follows macroeconomic downturns and heightened currency volatility in key African markets. However, as documented in the EMPEA Brief, The Road Ahead for African Private Equity, many fund managers investing across Africa are adopting new approaches to value creation in order to adapt to tenuous economic conditions, volatile currencies and increasingly competitive deal origination. The lower rungs of the rankings remained stagnant, with little movement from the prior edition of the survey. Brazil, MENA and Central and Eastern Europe all maintained their positions from 2017. Once again, Turkey and Russia swapped places at ninth and tenth, respectively.

Exhibit 12: The Attractiveness of Emerging Markets for GP Investment Over the Next 12 Months

Less Attractive

More Attractive

Rank

2014

2015

2016

2017

2018

1

LatAm (excl. Brazil)

LatAm (excl. Brazil)

Southeast Asia

India

Southeast Asia

2

Southeast Asia

Southeast Asia

India

Southeast Asia

India

3

Sub-Saharan Africa

Sub-Saharan Africa

Sub-Saharan Africa

LatAm (excl. Brazil)

China

4

China

India

LatAm (excl. Brazil)

Sub-Saharan Africa

LatAm (excl. Brazil)

5

Brazil

China

China

China

Sub-Saharan Africa

6

MENA

Brazil

Brazil

Brazil

Brazil

7

CEE

CEE

CEE

MENA

MENA

8

India

MENA

MENA

CEE

CEE

9

Russia/CIS

Turkey

Turkey

Russia/CIS

Turkey

10

Turkey

Russia/CIS

Russia/CIS

Turkey

Russia/CIS

In Southeast Asia, demographics power consumption. There are opportunities to leapfrog to internet-enabled solutions, as well as huge scope for health care investments.” –DFI

6

EMPEA

74

We are attracted to the continued growth in Brazil and other Latin American countries. Political instability in certain geographies like Turkey may make for attractive valuations.” –Pension fund


reports

Market Attractiveness, continued While the top spot in the market attractiveness ranking may seem to be an enviable position, investor sentiment does not always translate into actual capital raised. Southeast Asia has held the first or second spot in the rankings for the last six years, but annual fundraising for private capital vehicles dedicated to the region has actually declined over the same time period, leaving it far behind single-country totals for China and India. Pan-Asia funds may play a role in this story, however. Many fund managers could be expected to allocate a portion of such vehicles to Southeast Asian companies. Whereas Southeast Asia has experienced relatively little variance in perceived attractiveness on the part of survey respondents, India’s position has proven more volatile. The country held the number two spot in 2008 and dipped down to eighth place in 2014, only to jump back to first position in 2017. Unlike Southeast Asia, India has seen influxes in fundraising corresponding to its ranking, with fundraising peaks in 2008 and 2015, respectively. Similarly, Sub-Saharan Africa, Brazil and Latin America have also seen peaks in fundraising in the years at or around their ascent to the top of the market attractiveness list. China, which attracted the most fundraising for private capital vehicles from 2008 through 2017, has held relatively steady in the middle of the market attractiveness rankings. MENA and Russia/CIS have moved little and remain mired in the lower end of the rankings. In earlier iterations of the survey, Central and Eastern Europe and Turkey fared better in terms of perceived attractiveness, but have since languished in the bottom half of the rankings. For all four of these markets, their position may result more from LPs’ institutional mandates or perceived political risk than from fundamental investment potential (see Page 8).

Exhibit 13: Market Attractiveness Rankings Historical Analysis – Mean, Dispersion and Total Capital Raised 1 2

Southeast Asia

China

Mean Ranking, 2008-2018

3

Latin America (excl. Brazil)

4

Brazil

India

Sub-Saharan Africa

5 6 CEE

7 8

MENA

Size represents total capital raised, 2008-2017

Russia/CIS

9 10

Turkey

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

Standard Deviation in Ranking, 2008-2018 Note: Southeast Asia was classified as "Other Emerging Asia" in 2010 and 2011 (and prior to that, not included in the survey). Sub-Saharan Africa was classified as "Africa (excl. South Africa)" from 2008 through 2010 and MENA as "Middle East" from 2008 through 2010. Turkey replaced South Africa (subsequently omitted) in the 2011 survey. "Total capital raised" figures are drawn from the EMPEA Industry Statistics (data as of 31 December 2017).

Better growth opportunities, more exits taking place and improved choices in fund managers make China, India and Brazil very attractive.” –Fund of funds

Central and Eastern Europe is relatively undervalued. Growth rates in these markets are higher than in developed markets, and exchange rates are expected to be stable over the next two years relative to the euro.” –DFI

© EMPEA 2018. All rights reserved.

7

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LPs Are Most Likely to Be Deterred by Political Risk, Demand the Highest Return Premiums for Investments in Russia and Turkey The relative importance of political risk in an LP’s decision to invest or not to invest in any given emerging market can vary widely from year to year based on perception of recent domestic events, as well as developments beyond a country’s borders, as this year’s survey results demonstrate. Turkey and Russia/CIS once again received the highest share of responses citing political risk as a deterrent for investing, which is largely unsurprising considering their prevailing regimes have long provoked caution among many international investors. However, other markets have been more strongly impacted by headlines since the last edition of the survey. Following a disputed election in Kenya last summer and the protracted resignation of President Jacob Zuma in South Africa, a higher percentage (61%) of LPs cited political risk as a deterrent to investing in Sub-Saharan Africa than in the 2017 survey (51%). While Chinese domestic politics have proven more stable, the ongoing trade dispute between the country and the United States may be responsible for the percentage of LPs citing political risk as a deterrent moving from 27% in 2017 to 36% in this year’s survey. LP concerns around currency risk appear to be most acute in Latin America. A higher percentage of respondents cite currency risk as a deterrent for investing in Brazil and Latin America (excl. Brazil) than for any other EM geography at 59% and 53%, respectively. Moreover, the share for both markets increased compared to 2017’s results. Nonetheless, when EMPEA asked how many basis points over the developed market PE returns respondents would need to earn to justify the decision to commit EM PE funds targeting these geographies, the mean return premium for Brazil and Latin America (excl. Brazil) was lower than all other markets with the exception of the three survey choices from Emerging Asia.

Exhibit 14: Factors Likely to Deter LPs from Investing in Individual Emerging Markets/Regions Within the Next Two Years* Prefer Scale of Oversupply Limited Challenging exposure via Entry opportunity of funds number of Already at to invest is too valuations are Weak exit regulatory/tax other asset (too established recommended Historical classes issues too high environments small exposure performance fund managers competitive)

Political risk

Currency risk

China

26%

5%

5%

19%

2%

14%

10%

31%

21%

36%

17%

India

24%

17%

17%

7%

5%

24%

24%

24%

17%

10%

29%

Southeast Asia

15%

6%

42%

3%

15%

9%

18%

24%

15%

18%

30%

Russia/CIS

9%

11%

21%

0%

11%

0%

18%

36%

12%

70%

33%

Turkey

7%

7%

21%

0%

14%

2%

18%

26%

16%

72%

42%

Central and Eastern Europe

15%

10%

27%

0%

27%

0%

17%

15%

24%

22%

17%

Brazil

27%

15%

12%

7%

2%

5%

17%

29%

15%

39%

59%

Latin America (excl. Brazil)

13%

13%

34%

0%

25%

3%

25%

25%

16%

34%

53%

Middle East and North Africa

11%

15%

41%

0%

26%

0%

24%

24%

15%

50%

37%

SubSaharan Africa

10%

12%

44%

0%

29%

0%

34%

37%

15%

61%

51%

*Indicates percentage of respondents answering for each region/market.

8

EMPEA

76


reports

Deterrents and Return Premiums, continued When considering China and India, which regularly attract the largest annual totals in disclosed private capital invested among all emerging markets, LPs are most likely to be deterred by the perceived competitiveness of their local investment environments. China stands apart from other emerging markets in terms of the percentage of LPs’ indicating an oversupply of PE funds as a deterrent at 19%. Meanwhile, the proportion of respondents citing high entry valuations as a deterrent to investing in India doubled from the 2017 survey, overtaking China. Given India’s rapid rise in EMPEA’s market attractiveness rankings from eighth in 2014 to first in 2017, it is perhaps unsurprising that country’s popularity may prove a double-edged sword. India also received the highest percentage of respondents citing historical performance as a deterrent to investing, demonstrating that some LPs retain concerns over how Indian PE’s previous boom era before the Global Financial Crisis unfolded. Sub-Saharan Africa's perception issues appear to go beyond political risk. More respondents cited the limited number of established managers; weak exit environments; the small scale of opportunities to invest; and challenging regulatory and tax issues as deterrents to investing in Sub-Saharan Africa than for all other markets. Higher growth forecasts for many of the region’s economies may alleviate some of these pressures, but the range of deterrents indicated by survey respondents captures the difficulties facing managers on the continent. Central and Eastern Europe is an outlier in this year’s survey with respect to the deterrents named by respondents and the return premium they demand for investing in the region. While only 22% and 17% of respondents cite political risk and currency risk, respectively, as deterrents to investing in CEE—among the lowest for emerging markets—investors expect the fifth highest return premium for commitments to funds focused on the region. As explored in the EMPEA Brief, The Case for Private Capital in CEE, the region may lack a natural home among the investment teams and divisions typical of many institutions, and DFIs often prioritize lower-income regions and countries. In essence, Central and Eastern Europe may be too developed to be attractive as an emerging market, but too risky or sub-scale when compared to Western Europe. Respondents expect a lower return premium for emerging markets as a whole than for every individual EM region and country included in the survey, which at first glance appears somewhat anomalous. However, survey respondents may have considered the concentrated risk of investing in specific regions or countries when completing the questionnaire. The return premium for any given market generally aligns with investors’ perception of an EM region’s levels of political risk and currency risk.

Exhibit 15: Return Premium over Developed Markets That Would Justify Decision to Commit to EM PE Funds (Mean Respondent)

764

Russia/CIS Turkey

687

Sub-Saharan Africa

678

Middle East and North Africa

649

Central and Eastern Europe

545

Latin America (excl. Brazil)

502

Brazil

496

Southeast Asia

463

India

463

China

413

Emerging markets overall

364 0

© EMPEA 2018. All rights reserved.

100

200

300

400 500 Basis Points (Premium)

600

700

800

900

9

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While Evidence of Relationship Consolidation and Disintermediation Remains, LPs Are Also Looking for Country- and Sector-specific Opportunities LP responses to this year’s survey questions on manager selection and the use of intermediaries to access EM PE opportunities provide further evidence that many institutions are employing highly selective approaches to backing new managers and expanding their co-investment and direct investment programs. In line with last year’s findings, approximately two-thirds of survey respondents plan to form between one and five new EM PE fund manager relationships over the course of the next three years. Pension funds, in particular, appear more likely than other institutions to pare down relationships, as 26% of pension respondents expect their total number of active EM PE relationships to decline. Another factor at play in LP decision-making may be the growing maturity of survey respondents’ EM investment programs: more than 78% of the full sample have been investing in EM PE for at least six years, and fully allocated institutions may be less likely to pursue commitments to new GPs. In addition to forming fewer new GP relationships, LPs appear as committed as ever to expanding their co-investment and direct investment programs in emerging markets. Just under 60% of survey respondents plan to begin or expand EM PE co-investment activities over the next two years while 41% plan to begin or expand direct investment programs. These shares are up from 52% and 35%, respectively, in the 2017 edition of the survey. The results suggest that GPs will need to develop approaches for giving their investors access to co-investment opportunities, at least to the extent that their size and deal pipelines allow.

Exhibit 16: Number of New EM PE Fund Manager Relationships Expected in the Next Three Years

More than 15 11-15

3+33+37918A

7%

18%

3%

6-10

17% 42% 26%

1-2

10%

n More likely to commit n Neutral n More cautious, but not a dealbreaker

n Would not commit n Not sure

37%

5% 0%

35%

8%

3-5

0

Exhibit 17: Effect of an EM PE Fund Manager's Use of Subscription Credit Lines on Decision to Commit

20% 30% % of Respondents

40%

50%

Exhibit 18: Expected Change in Total Number of Active EM PE Fund Manager Relationships

DFIs and government agencies

68%

Endowments, foundations and family offices

69%

Pension funds Funds of funds and private markets advisors All respondents

26% 13%

61%

13%

44% 63%

10

78

EMPEA

13% 21%

% of Respondents

n Stay the same

n Decline

19% 26%

44%

n Increase

5%

16%


reports

Manager Selection and Means of Access, continued Fund managers looking to employ more creative approaches to investing beyond the constraints of the conventional fund model may be heartened to learn that 31% of survey respondents plan to begin or expand their investments via alternative or non-traditional fund structures. In the 2017 survey, just 18% of respondents indicated they would expand use of such vehicles. To many observers, survey findings regarding LPs’ plans for new relationships would seem to privilege the largest and most experienced EM PE fund managers—those who can accept large checks, perhaps even across multiple products or strategies. Indeed, just over one-third of respondents either do not invest in first-time EM PE fund managers or plan to decrease or stop investing in first-time funds. Yet a sizeable minority of survey respondents appears poised to expand their commitments to sectorspecific and country-dedicated fund managers, who often raise smaller pools of capital. Just over 37% of surveyed LPs plan to begin or expand investing via sector-specific fund managers over the next two years while the corresponding figure for countrydedicated fund managers is 32%. In contrast, just 15% of respondents plan to begin or expand investing via multi-strategy fund managers, and 9% plan to decrease or stop commitments to such managers. Beyond the number of new relationships LPs expect to form, with this year’s survey EMPEA sought to better understand LP sentiment toward a tool that has gained prominence across the industry: the use of subscription lines of credit at the fund level. Over two-thirds of respondents are neutral or cautious, but not opposed to EM PE fund managers’ use of fund lines of credit. Of the 8% of respondents who would not commit to an EM PE fund manager using such a facility, all are either development finance institutions, government agencies or based in emerging markets, suggesting that acceptance of such facilities is not uniform at the global level.

Exhibit 19: LPs' Planned Changes to Means of Accessing EM PE Investment Opportunities over the Next Two Years

5%

Consultants/gatekeepers* Separate accounts* Funds of funds*

15%

3% 9%

10% 4%

18%

Co-investment*

9%

Direct investment

4%

Non-traditional or alternative fund structures 8%

Multi-strategy fund managers**

9%

Country-dedicated fund managers

51%

4%

37%

3%

First-time EM PE fund managers

Sector-specific fund managers

13%

11%

20%

8% 5% 2% 5%

13% 10%

8%

29%

7%

25% % of Respondents

n Begin to use

n Expand use

n Decrease or stop use

*Responses exclude funds of funds and private markets advisors. **Multi-strategy fund managers includes GPs with multiple funds dedicated to different asset classes and/or geographies.

© EMPEA 2018. All rights reserved.

Global Limited Partners Survey

11

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After Declining for Four Consecutive Years, Return Expectations for Emerging and Developed Markets Increase in 2018 A slightly higher percentage of respondents to this year’s survey indicate that their portfolios have performed better than expected or in line with expectations, bucking a four-year trend in which satisfaction with the performance of EM PE portfolios waned. Overall, 73% of respondents indicated that their EM PE portfolios had performed better than or in line with expectations. Pension funds were more pessimistic than the full sample, with 42% of pension respondents indicating their portfolios had performed worse than expected, compared to 27% for all respondents. LPs also appear more optimistic in their expectations for future returns than in the 2017 edition of the survey. After declining for four consecutive years, the proportion of respondents expecting overall EM PE to generate returns of 16% of greater increased to 54% in 2018. This year-on-year increase also applied to all individual EM geographies included in the survey and to developed markets overall. However, some historical perspective is in order. A closer look at LPs’ return expectations across the last five editions of the survey suggests that LPs’ outlook has remained more bullish for some markets than others. Despite a year-on-year increase, the proportion of LPs expecting returns of 16% or more from funds focused on Latin America (excl. Brazil) and Sub-Saharan Africa is actually well below the level in 2014, perhaps reflecting greater currency volatility and economic uncertainty in these regions.

Exhibit 20: EM PE Portfolio Performance Relative to Expectations, 2014-2018* 100% 16%

14%

13%

10%

11%

57%

59%

62%

% of Respondents

80% 60%

62%

61%

40% 20% 22% 65%

0%

2014

25%

30%

31%

27%

2015

2016

2017

2018

n Performed better than expected n Performed in line with our expectations n Performed worse than expected *Excludes LPs that felt it was too soon to assess the performance of their portfolios.

Exhibit 21: Net Return Expectations of 16% or More for Select Markets, 2014-2018 70% 60% % of Respondents

50%

LPs on 2017-vintage EM PE funds’ potential for outperformance:

Assets are overpriced in the United States, so opportunities to add further value are restricted.” –Pension fund

It’s difficult to tell given emerging markets have greater unpredictability vis-à-vis currency, politics, exposure to energy prices, etc.” –Fund of funds

Emerging markets will perform significantly better overall, primarily due to the opportunity set and ability to buy assets at a much lower price.” –Endowment

40%

The EM track record for returns is poor, but the amount of dry powder that has accumulated for DM funds makes me feel like it could be a wash.” –Pension fund

30% 20% 10% 0%

2014

2015

2016

___

___

___

___

Developed markets overall Emerging markets overall ___ Southeast Asia

12

80

EMPEA

2017

2018

Russia/CIS Latin America (excl. Brazil) ___ Sub-Saharan Africa

Emerging markets should be in the advantageous part of their economic cycle relative to developed markets. Growth has remained very strong, managers are better and capital markets are more supportive.” –Fund of funds


reports

Net Return Expectations and Performance, continued In contrast, return expectations for Emerging Asia lead all other EM geographies in the 2018 survey and may be contributing to LPs’ buoyant outlook for emerging markets overall. In line with EMPEA’s market attractiveness rankings (see Page 6), LPs expect the highest returns to come from Southeast Asia, with 64% of LPs expecting returns of 16% of greater from 2017-vintage Southeast Asia-focused funds. India and China follow at 59% and 49%, respectively. While a lower proportion of survey respondents express confidence in the ability of GPs to deliver high returns in geographies beyond Emerging Asia, comparing 2018 results with last year’s survey reveals the tide may be turning, at least for some LPs. In the 2017 survey, the proportion of respondent expecting returns of 16% or greater for Russia- and Turkey-focused funds was 10% and 12%, respectively. In this year’s survey, this proportion has risen to approximately 24% of all respondents for both countries. A substantial share of LPs still expects returns of 10% or less for Russia/CIS (53%), MENA (43%) and Turkey (43%). However, at the more optimistic end of the spectrum, a higher proportion of surveyed LPs expect returns of 16% or higher for these geographies than for all DM geographies. This disparity points to continued confidence on the part of many investors in the potential of these underserved markets.

Exhibit 22: Distribution of Net Return Expectations from 2017-vintage Funds

7%

Southeast Asia

28%

India China

21% 4%

Emerging Markets

Latin America (excl. Brazil)

5%

Sub-Saharan Africa

8%

Central and Eastern Europe

9%

Turkey Middle East and North Africa

Developed Markets

Western Europe North America (U.S. and Canada)

36%

22%

38%

7%

13%

27% 29%

28% 26%

33%

35%

33% 36%

38%

27%

47%

21%

54%

15% 17%

9%

14%

10%

16% 24%

35%

9%

15%

38%

16%

5%

10% 27%

32%

3%

9% 38%

13%

8%

7%

49%

37%

17%

Russia/CIS

Japan, Australia and New Zealand

20%

10% 13%

Brazil

57%

8%

13%

11%

18%

5%

18% 15%

% of Respondents

n 5% or less

n 6-10%

n 11-15%

n 16-20%

n 21% or more

EM PE funds will underperform because:

There are a few pockets of excellence and many mediocre funds.” –DFI

© EMPEA 2018. All rights reserved.

History is the leading indicator, and I don't see any changes to conclude otherwise.” –Pension fund

Global Limited Partners Survey

13

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reports

LPs Expect Sub-US$500 Million Funds to Generate the Highest Net Returns Fundraising for US$1 billion-plus funds, especially in Emerging Asia, drove much of the increase in capital raised for EM private capital funds in 2017. However, the majority of respondents to this year’s survey expect smaller vehicles to generate the highest net returns. Just over 43% of LPs expect 2017-vintage EM PE funds in the US$250 million to US$499 million range to generate the best returns, and approximately one-third of respondents expect the highest net returns to come from slightly smaller funds in the US$100 million to US$249 million range. Very large (US$1 billion-plus) and very small (less than US$100 million) funds, at least by overall EM standards, attracted the fewest respondents. Many of the country-dedicated and sector-specific funds that LPs are expanding commitments to would likely fall in the midsize range (see Page 11). Not all LPs may find it easy to invest in funds in the US$100 million to US$499 million range, however. In this year’s survey, EMPEA asked respondents to provide additional information on the ticket sizes they could write for EM funds. The results of this exercise suggest pension funds may have the most difficulty in accessing middle-market funds. The median minimum and maximum commitment sizes for pensions in the sample—at US$25 million and US$75 million, respectively—are noticeably higher than for other institution types. In recent years, the traditional fund of funds model, which has historically enabled larger LPs to access smaller funds, has received more scrutiny from some LPs due to the layering of fees it entails. Moreover, as this year’s survey results indicate, LPs are under pressure to consolidate relationships, which may mean larger commitments to a smaller number of GPs. This confluence of factors suggests more creative solutions may be needed to enable the largest pensions to access middle-market opportunities in emerging markets.

Exhibit 23: Minimum and Maximum Commitment Sizes to EM PE Funds by Institution Type 80 Max. commitment (median respondent)

70 60 US$ Millions

50 40 30 20 10

Min. commitment (median respondent)

0

n All respondents n Fund of funds n Endowment/foundation/family office

n DFI or government agency n Pension fund n Bank/asset manager/insurer

Exhibit 24: 2017-vintage Fund Size Segment Expected to Generate the Highest Net Returns

6+33+43153A 15%

6%

33%

43%

14

82

EMPEA

n Less than US$100m n US$100m-US$249m n US$250m-US$499m n US$500m-US$999m n US$1B or more

“ “

We’re looking for fund managers with the ability to deploy capital at scale.” –Pension fund Fund managers need to be able to invest and operate at all points in the economic cycle.” –DFI


reports

GPs’ Operating Skills to Have Highest Impact on Performance of 2017-vintage Funds LPs expect GPs’ ability to drive operational improvement at the portfolio company level to have the biggest impact on the performance of 2017-vintage funds, followed by overall economic growth in emerging markets and entry multiples. Future exit conditions—in the form of appetite from strategic buyers and public market investors—rank relatively lower, and just 1% of respondents expect the use of leverage, or perhaps its unavailability, to have the biggest effect on performance. Higher economic growth in emerging markets has long been cited as a potential source of outperformance over PE in developed markets, but LPs’ focus on operational improvement as a return driver may reflect the more volatile economic outlook that has prevailed in many emerging markets since 2014. A GP’s ability to implement operational improvements is crucial for bolstering returns in otherwise adverse economic conditions. While LPs are increasingly concerned with EM-focused GPs’ operational skillsets, approximately half of respondents believe EM PE fund managers’ value creation abilities are behind those of their developed market counterparts. In open-ended feedback, LPs cite talent acquisition; the ability to source add-ons; the use of dedicated teams with local knowledge; the application of replicable strategies; currency hedging; and the ability to manage environmental, social and governance interventions as key parts of an EM PE fund manager’s value creation toolkit.

Exhibit 25: Return Drivers Expected to Have the Biggest Effect on the Performance of 2017-vintage EM PE Funds

17%

GPs' ability to drive operational improvement Overall economic growth in emerging markets

21% 23%

Entry multiples

20%

25%

Appetite from strategic buyers at exit

19%

13%

Public market conditions at exit

11%

Use of leverage

18%

9%

16%

11%

12%

10%

20%

n Most impactful

Exhibit 26: EM PE Fund Managers' Value Creation Abilities in Comparison to DM Peers

15+34+246714A 34%

24%

© EMPEA 2018. All rights reserved.

30% 40% % of Respondents

50%

n 2nd most impactful

n 3rd most impactful

60%

70%

GPs need to show active involvement on the back of a clear plan or strategy. Dedicated resources also serve as a key differentiator.” –Pension fund

15%

6%

12%

1% 0%

7%

14%

19%

11%

Exchange rates

15%

25%

n Far behind n Slightly behind n About the same n Slightly better n Significantly better n Not sure

We want to see the same tools used by DM PE fund managers and possibly more, as emerging markets pose more challenges.” –Pension fund

Global Limited Partners Survey

15

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Investors Rank E-commerce and Fintech as Most Attractive Technology Verticals for Investment in Emerging Markets Recognizing growing investor interest in supporting technology-enabled business models in emerging markets, this year EMPEA asked respondents to assess the attractiveness of specific technology areas for investment in emerging markets rather than larger industry groups. The results suggest that LPs are keen to access consumer-driven opportunities in the digital economy. Respondents rank e-commerce and fintech as the most attractive technology areas for EM investment over the next two years. These were followed by life sciences and cleantech, respectively, with the latter inclusive of renewable power and energy storage. LPs’ interest in e-commerce and logistics largely mirrors trends in private investment activity in emerging markets. In 2017, private capital fund managers completed 176 deals and deployed US$5.8 billion in the e-commerce segment in emerging economies, according to EMPEA’s Industry Statistics. The number of deals completed was down from 349 in 2015 as GPs backed a more concentrated group of companies. However, bigger-ticket investments in the likes of Poland-based Allegro and China’s Koubei drove disclosed capital invested in the segment to its highest level since EMPEA’s research program was established. When respondents ranked the top three most attractive technology areas for investment in emerging markets, e-commerce garnered the most interest. However, a slightly higher percentage (28%) of respondents ranked fintech as the most attractive area for investment among all choices. As new platforms compete with traditional financial intermediaries for the attention of emerging market consumers, the appeal of this space is likely to continue to grow.

Exhibit 27: Most Attractive Technology Areas for EM Investment over the Next Two Years

E-commerce and logistics

27%

Fintech

22%

28%

Life sciences and health technology

16%

14%

Cleantech*

19%

13%

Agtech

3%

Big data and cloud services

3%

Edtech

8%

3%

Machine learning and automation

3% 0%

8% 3% 4%

11% 7%

7% 4% 10%

20%

n Most attractive

84

EMPEA

12% 16%

*Includes renewable power and energy storage.

16

11%

13%

10%

4%

Social media and entertainment

7%

9%

30% % of Respondents

n 2nd most attractive

40%

n 3rd most attractive

50%

60%


reports

Respondent Profile and Survey Methodology In February and March 2018, EMPEA surveyed 116 representatives from 107 different institutions to gather their views on private equity in emerging markets. The institutions included in the survey are based in 36 countries and collectively represent more than US$5.7 trillion in total assets under management. Pension funds, development finance institutions and funds of funds constitute the majority of the sample included in this year’s survey, with the balance comprising endowments, foundations, family offices, banks, asset managers, insurers, government agencies and sovereign wealth funds. In cases where multiple responses from the same institution were received, only one response has been included for questions pertaining to institutional policies, current allocations and future investment plans. More than 90% of institutions surveyed are currently invested in at least one EM PE fund, and 78% have been investing in EM PE funds for more than five years. EM investments constitute 20% of the current overall PE portfolio of the average surveyed institution (excluding development finance institutions, EM-focused funds of funds and others legally mandated to invest in emerging markets).

25+21+181098432A 42+25+975A Exhibit 28: Respondents by Institution Type

n Pension fund n Development finance

4%

institution (DFI) n Fund of funds/private markets advisor n Endowment/foundation n Family office n Bank/asset manager n Insurance company n Government agency or fund n Sovereign wealth fund

25%

8%

Exhibit 29: Respondents by Headquarter Region

9%

10%

21%

18%

5% 5%

7%

7%

42%

9%

n North America n Western Europe n Emerging Asia n Developed Asia n Latin America and Caribbean n Africa n Middle East

25%

Exhibit 30: Disclosed Distribution of Current Committed Capital in Global PE Portfolio*

Emerging Asia 10% North America 51%

Developed Asia 9%

Western Europe 19%

Pan-EM 4%

LatAm 3%

SSA 1%

CEE 0.7%

MENA 0.4% CIS 0.2%

*Excludes investors with EM-only mandates.

Survey Definitions Emerging markets (“EM”) includes all countries outside of the United States, Canada, Western Europe, Israel, Japan, Australia and New Zealand (developed markets, or "DM"). Private equity (“PE”) encompasses (leveraged) buyout, growth/expansion, venture capital and mezzanine investment strategies. Emerging markets private equity (“EM PE”) funds are PE funds that principally target investments in emerging markets. © EMPEA 2018. All rights reserved.

Limited partners (“LPs”) are investors in PE funds. General partners (“GPs”) are PE fund managers. Development finance institutions (“DFIs”) are independent, governmentbacked or multilateral financial institutions that promote private sector development in developing countries. Note: In some exhibits, percentages may not sum due to rounding.

Global Limited Partners Survey

17

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2600 Virginia Avenue NW • Suite 500 • Washington, DC 20037 USA Phone: +1.202.333.8171 • Fax: +1.202.333.3162 • Web: empea.org © EMPEA 2018. All rights reserved.

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1Q 2018 EUROPEAN PE BREAKDOWN Following three consecutive years of strong activity, European PE deal flow declined substantially in the first quarter of 2018. However, that could be a temporal anomaly – a flurry of announced deals have yet to close. In our 1Q 2018 European PE Breakdown, our analysts delve into what is behind the decline in dealmaking on the continent, analyzing activity by region, size, sector and more, including a spotlight on the Nordics. Key highlights: Just 690 deals totaling €62.5 billion were completed across the region, representing 7% and 21% quarter-over-quarter declines, respectively. Though completed deal flow was stagnant, a flurry of deals announced in 4Q 2017 and 1Q have yet to close, which should aid deal counts through the remainder of the year.

European PE Breakdown 1Q 2018

The UK and Ireland accounted for 36% of completed deals in 1Q 2018, having grown from 33% last year and 30% in 2016. GBPdenominated assets are currently viewed by outside investors as temporarily on sale, with the hope that prices will bounce back once the UK economy reestablishes itself outside the EU. Despite just 15 funds closing in 1Q, total fundraising came in at €28.8 billion as the median fund size leapt to €410.6 billion. The migration to larger vehicles is occurring in other regions as well, but the trend is particularly strong in Europe. Report: https://goo.gl/6H82vk

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CIO TREND REPORT HOW CAN THE BUSINESS IDENTIFY AND SEIZE RELEVANT TECHNOLOGY AT THE HEIGHT OF ITS PROMISE?

Make no mistake; in 2018 the CIO is a business partner. The pressure is on to move beyond supporting operations to become a driving force behind business growth. In the sea of emerging tech, you are the business’ navigator. Do you know where your business needs to go? Let business outcomes be your compass.

CIO Trend Report Info-Tech Research Group Inc. is a global leader in providing IT research and advice. Info-Tech’s products and services combine actionable insight and relevant advice with ready-to-use tools and templates that cover the full spectrum of IT concerns. © 1997-2018 Info-Tech Research Group Inc.

A strategic direction is essential to making the right technological investments. Not every trend is worth pursuing, but missing the ones that are can be costly. An outcomes-focused approach gives you a framework to strategically evaluate emerging technology’s alignment with your business’ direction. Use a businessoutcomes-centered outlook to effectively separate opportunities from distractions. Go from browsing to doing. Learn what is driving each trend and how it has evolved from previous years. Most importantly, use the business outcomes framework presented in this report to create the foundation for your adoption strategy. Determine which trends are worth your attention, chart an adoption course, and build a business case for your stakeholders. Report: https://goo.gl/6f915f

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DEMAND FOR TRANSACTIONAL RISK INSURANCE AT RECORD HIGH: MARSH

In its Transactional Risk 2017: Year in Review report, Marsh states that it placed 28% more transactional risk insurance policies globally compared to 2016. Average limits placed also increased, rising 38% in 2017, driven by the size and number of transactions in which insurance is being used, Marsh said.

Corporate buyers continue to increase their use of transactional risk insurance, and now represent 50% of the policy purchasers, which once was almost exclusively the domain of private equity firms. • Demand for both traditional and innovative transactional risk products is increasing, particularly for contingent tax risk. • The global insurance marketplace for transactional risk insurance is becoming more competitive in terms of price, deductibles, and terms and conditions.

MAY 2018

Transactional Risk 2017: Year in Review M&A Snapshot Global mergers and acquisitions (M&A) activity remained robust in 2017, marking a third consecutive year with transaction volumes in excess of US$3 trillion (see Figure 1).1 Capital availability was strong — in the form of uninvested funds raised by private equity firms and robust corporate balance sheets — while the low interest rate environment continued as did the corresponding credit availability. Competition for assets by corporate and private investors somewhat reduced the number of deals closing in 2017, while simultaneously encouraging asset sales.

FIGURE

Transactional risk limits climb in 2017; M&A activity stays strong

1

SOURCE: M&A VALUE: Mergermarket TR INSURANCE: Marsh.

3,875

4,000

3,500

25

3,267

3,221

3,132 20

3,000

2,500

15

2,238

2,000 10

1,500

TR LIMITS PLACED (US$B)

Other findings from the report include:

INSIGHTS

VALUE OF DEALS (US$B)

Strategic investors and private equity firms around the world turned to transactional risk insurance in record numbers in 2017 to reduce deal risk in a highly competitive merger and acquisition (M&A) environment, according to a new report published by Marsh, a global leader in insurance broking and innovative risk management solutions.

1,000 5 500

0

2013

2014

North America

2015 Europe

Central and South America

2016

2017

0

Asia-Pacific Middle East and Africa

Transactional risk 1“Five M&A Trends Investors Should Watch in 2018,” Morgan Stanley, Feb. 6, 2018; https:// www.morganstanley.com/ideas/5-acquisitiontrends-investors-should-watch-in-2018

Karen Beldy Torborg, global leader for Marsh’s Private Equity and M&A Services practice said: “In the current M&A environment, transactional risk insurance has become an essential part of the deal process, enabling acquisitions and exits. We expect the demand for transactional insurance solutions will continue and our clients will expect a greater level of innovation from insurers in response to this demand.” Report: https://goo.gl/LRtHfV

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Global Private Equity Performance Series

An international comparison of major markets May 2018

WESTERN EUROPE LEADS THE WORLD IN PRIVATE EQUITY RETURNS Data from eFront, covering 4,000 funds globally, shows that Western European private equity funds showed the best returns globally, at the same time as delivering robust performance on the VC side. Global Private Equity Performance Series report highlights: •

Western European private equity funds achieved an overall return of 1.68x (TVPI total value to paid in), ahead of the US on 1.56x. On an IRR (internal rate of return) basis, the figures were 14.32% for Western Europe and

90

• •

12.17% for the US. The performance was led by Nordic funds on 1.91x, Benelux funds on 1.85x, and the UK on 1.62x. On the VC side, Western Europe delivered 1.34x, led by the UK on 1.37x and Italy on 1.35x. On a combined basis, Western Europe was the second best performing region for PE and VC globally, recording 1.65x – just behind China on 1.67x. Other regions, including Russia / CEE, Southern Europe and Latin America, saw markedly lower returns.

eFront’s Global Private Equity Performance Series research, which analyses to all-time returns achieved by around 4,000 funds globally from 1991 to present, supports the thesis that those countries and regions that have experienced higher productivity growth offer the best private equity returns. This explains the divergence in performance between the UK, Nordic and Benelux countries on one side and Southern European countries on the other. Another source of difference in performance between the UK, Nordic and Benelux countries with respect to Southern Europe, and France to a lesser extent, is the asymmetric exposure to the sovereign debt crisis during the period 2013 to 2015, when the exit market was at a an historic peak in terms of activity. This resulted in lower company valuations, and therefore returns, in countries with more severe public debt issues. Tarek Chouman, CEO of eFront, commented: “When analysing private equity and venture capital, forming a sophisticated understanding of the characteristics of specific geographic markets is of crucial importance. Our Global Private Equity Performance Series represents, to the best of our knowledge, the most comprehensive publicly available analysis of returns, risk and liquidity among private equity’s main geographies. Private markets do not offer precise or timely information, and the nature of closed-ended funds introduces other complexities. These challenges are opportunities for those willing to invest the time in truly understanding the idiosyncrasies and stages of evolution in different geographic markets.” Report: https://goo.gl/ZceUPG


reports

NORTH AMERICAN M&A VOLUME INCREASES IN MAY, DESPITE DECLINE IN VALUE PE and VC volume and value both up month-onmonth and year-on-year

Lisa Wright, director at Bureau van Dijk, commented: “Although North America’s result for May is not particularly encouraging in terms of value, some comfort can be taken from the fact that Canada performed well. The value of deals targeting companies based in the country reached its highest level since January 2018. It is also encouraging to note that two deals broke the USD 10,000 million-barrier in the month under review, meaning that, even if dealmaking has not quite kept pace with previous months, buyers are still willing to pay high prices for companies in the region.” Report: https://goo.gl/Ctn9dY

There were 2,037 mergers and acquisitions (M&A) worth an aggregate USD 146,217 million targeting North American companies announced in May, according to information collected by Bureau van Dijk, a Moody’s Analytics company, and the leading publisher of company information. In terms of volume, this represents a 4 per cent increase over the four weeks under review, while value declined 4 per cent from 1,956 deals worth USD 153,054 million in April. The trend was reversed on a 12-month comparison as volume fell from 2,315 deals, while value improved on USD 133,997 million in May 2017. Bureau van Dijk’s research shows the majority of the top 20 deals by value featured US-based businesses. Two deals exceeded USD 10,000 million during May and together accounted for 15% of total value. The largest of these involves Westinghouse Air Brake Technologies acquiring General Electric Company’s transportation business for USD 11,100 million. This was followed by the Williams Companies, a crude oil transportation service provider, buying the remaining stake it did not own in its US natural gas pipeline operator, Williams Partners, for USD 10,500 million. Canada’s largest deal placed ninth overall as Canadian Natural Resources sold an 8 per cent stake to undisclosed acquirors for USD 3,412 million, in a bid to raise proceeds to offset debt. Bureau van Dijk’s data shows that both the volume and value of private equity and venture capital (PE and VC) investment in companies based in North America increased in May to 1,390 deals worth USD 41,232 million. In terms of volume, this represents a 7 per cent increase on 1,300 deals in April and a 2 per cent improvement on 1,368 deals in May 2017. Value was up 11 per cent from USD 37,054 million month-on-month and 3% year-on-year from USD 39,957 million.

North America M&A Review May 2018

Zephyr Quarterly M&A Report Global, Q3 2015

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