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Wealth Management

THE FUTURE OF INVESTMENTS & TRADING

By Seth Ward, Co-founder of PYNK

 

Even before Covid-19 began its global rampage, businesses, investors and traders were exploring new ways to deliver investment. Driven by environmental and social concerns, and sceptical of banks’ fees and integrity following the global financial crash, investors wanted more direct access to investments and businesses wanted to minimise transaction fees.

Following a slight wobble in 2008/9, global alternative investments began growing at seven times that of traditional asset classes, with a number of crowdfunding sites launched around the same time. Crowdfunding and alternative investment markets have continued to grow, reaching market caps of nearly £800m and £104bn, respectively, by the end of 2019.

Ever since coronavirus reached pandemic status, however, the markets have tumbled. Reduced or stopped trading has obliterated profits for the quarter while government bailouts are all that have been keeping some industries, such as airlines, afloat. Fortunately, activity is expected to rebound quickly, with the anticipated transaction value for crowdfunding in 2021 topping £818m.

A recent survey of PYNK members found that 38% predicted that the Dow had already reached its lowest point and 31% predicted that the lowest point would come before August. As such, 45% said that they think now is the best time to invest in startups, providing an opportunity to rapidly grow as the world exits lockdown.

How has coronavirus impacted the investment market? 

Diversification of markets, investment vehicles and investors is, in general, good for the economy. More people have access to investments leading to a more diversified shareholder base. A diverse shareholder base means more reliable and robust financing ‒ no longer do businesses need to bend to the will of a single large investor or risk a run on their shares.

That being said, the coronavirus lockdown has made everything a bit weird and surreal. Now there are anecdotal reports of a 10-year-old struggling to play Fortnite as half his squad are off day trading on Robinhood.

However, trading platforms, like the crowd-led Robinhood, are creating large markets of unsophisticated investors. These investors are then having the wool pulled over their eyes by less-than-scrupulous CFOs, such as the recent case of Hertz.

The car rental company recently declared bankruptcy due to a rapid fall in revenues, yet then sold $1bn in equity to independent investment bank Jefferies who in-turn began selling it on Robinhood, effectively transferring that money from daytraders to impaired debtors.

This led to a jump of over 100% in Hertz share price after the company declared bankruptcy. That means those shares may end up worth 35 cents on the dollar or even completely worthless, with unsophisticated investors bearing the brunt of the losses.

Where will the future of investments and trading take us?

Clearly, in a world where 10-year-olds are taking long positions on bankrupt stock, some strange bubbles are going to appear. Traditional investment intelligence is struggling to adapt, adding more hot air to the bubbles. So how can traders be confident in their investments?

Our answer at PYNK is to turn to the power of AI and Crowd Wisdom. For some years now, AI has been heralded as the answer to accurate investment analysis. The ability of AI to identify patterns in large data sets makes it good at anticipating future events/movements and at making decisions.

AI has already been used to provide automated insights, alternative datasets, growth opportunities, improve risk performance, generate reports and much more besides. This makes information gathering and analysis much quicker and more accurate, yet it lacks the human element.

That’s why, at PYNK, we combine our AI algorithm with the power of crowd wisdom. The idea behind crowd wisdom came about in 1907 when a statistician named Francis Galton asked people to guess the weight of an ox. Galton found that, while individual guesses varied wildly, the median guess was within 1% of the ox’s actual weight.

Since then, statisticians have been finding ways to minimise participant bias and improve the accuracy of crowd wisdom. We incorporate our learning into our AI algorithm, using machine learning to improve results over time.

The results have been startling. One market we’ve been tracking the longest ‒ Bitcoin ‒ is notoriously unreliable and tempestuous. Yet, using the power of crowd wisdom and AI, our platform anticipated every single major movement!

With that in mind, we decided to survey PYNK members to apply the power of crowd wisdom to broader market categories. Key results of the survey include:

  • Energy (24%) and HealthTech (20%) are predicted to be the most promising sectors over the next 5 years
  • 45% said that now was the best time to invest in startups
  • 38% predicted that the Dow has already hit its lowest point
  • 31% predicted that the Dow would hit its lowest point by July-August
  • 34% said that Asia and Australasia was the most overvalued regional market

Source: Survey of 1,471 PYNK members between 27th March and 10th April


Combining the power of crowd wisdom and AI with the rise of a diversified investor base, it seems clear that the future of trading and investment will be much more globalised, democratised and personal. Individual day traders will end up having access to the same information and marketplaces as large banks and financial institutions, while social media and other digital communications platforms will organise traders into nebulous groups.
Ultimately, it will be these crowds which fund the future.

 

Wealth Management

DON’T RISK IT ALL WITH NON-COMPLIANCE

By Paul Sleath, CEO at PEO Worldwide

 

Did you know non-compliance costs more than twice the cost of maintaining or meeting compliance requirements?

Yet, companies continue to overlook proper compliance procedures, choosing to ‘wing it’ or do it on a shoestring budget instead.

We get it. Today’s business owners have a multitude of priorities to juggle, top of which is turning a profit and growing. When you’re focusing on driving success, compliance can easily fall by the wayside.

But success is of little consequence if a government entity dissolves your company because you failed to comply with certain legal requirements.

Keeping on top of regulations

In the corporate world, compliance involves adhering to a wide range of laws and standards designed to protect your employees, customers and other stakeholders — and generally making sure you “do the right thing”.

No matter what industry or type of business you work in, compliance is a big deal. But when you’re looking to expand your operations into markets all over the world, it’s an entirely different ballgame.

As you grow and move into new jurisdictions, you’ll encounter a whole host of new regulations — from tax returns and statutory filing to international employment rules about payroll — and face much higher compliance costs than operating solely in one location.

Many countries require that filings and contracts are made in the local language and change their regulations frequently. Without a contact on the ground, it can be difficult to keep up. Each country will also have its own authorities and governing bodies to deal with.

For example, in the US, you have the Occupational Safety and Health Administration (OSHA) to contend with while companies operating in the UK will need to comply with the Health and Safety Executive’s (HSE) standards.

 

Compliance across borders

The point is, no two countries are the same, and when you’re trying to operate across multiple locations, things can get messy.

Late filing in Denmark could lead to your company being dissolved within a few months. In Serbia, the tax regulations are so confusing that many companies have taken to paying extra tax where they have no liability just to ensure they don’t get stung with any penalties.

If you’re expanding into Spain, it’s worth knowing that terminating employee contracts is notoriously tricky, and you’ll have to budget for a severance fee (which equates to 33 days of salary per employment year).

In Singapore, you’ll be responsible for sending the monthly payment (including both yours and the employee’s respective contributions) to the Central Provident Fund (CPF) — a key pillar of the country’s social security system. This payment has to be sent by the 14th of the following month.

A couple of notable points to bear in mind if you’re expanding into Germany is that employees can only be leased for a maximum of 18 months. After this, you must hire them permanently or let them go. Chain leasing is also prohibited, meaning the company holding the licence must contract directly with the party receiving the labour.

And if you’re global expansion journey is taking you down under to Australia, you’ll need to pay a Fringe Benefit Tax (FBT) if you’re providing certain benefits to your employees — even if a third party provides them.

Without this knowledge of local regulations, you quickly (albeit unintentionally) run the risk of non-compliance and find yourself on the wrong side of the law.

So, what could happen if you don’t comply?

There’s no way around it, if you fall foul of compliance, you’ll end up paying for it — one way or another.

Penalties come in multiple forms. The most common penalties for non-compliance are fines, which may be levied against the company or individual directors.

However, one of the most financially damaging events a company faces is having their products blocked at the border or being forced to destroy merchandise due to compliance issues. In some cases, non-compliance can even result in the mandatory closure of ALL operations within that country or imprisonment of the directors.

Even if your organisation is not given an actual penalty, the inconvenience and costs of righting the mistake, damage to the company’s reputation and possible loss of contracts could prove disastrous.

But the highest cost of non-compliance is business disruption. When found to be non-compliant, you may be forced to implement changes before business can resume, which can have a knock-on effect on other areas of your organisation.

Whether you’re looking for a PEO in the UK, US, Spain or Singapore, compliance should be your top priority. So, it’s worth seeking the help of a Global PEO with local knowledge of your chosen country to ensure you always remain on the right side of international employment laws.

That’s where we come in. At PEO Worldwide, we ensure you remain compliant at all times by taking full responsibility for hiring, contracts, employee benefits, payroll and termination if needed. To find out more about our global employment services, don’t hesitate to get in contact.

 

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Wealth Management

FOR PE TO SNAP UP “GOOD” COMPANIES, THEY MAY NEED TO WADE INTO “BAD” ECONOMIES

FINANCIAL MARKET

By  Martin Soderberg, Partner at SPEAR Capital

 

There’s no shortage of global challenges for investors currently, especially for those concerned with private equity (PE). PE and risk managers with their fingers on the pulse are turning to often overlooked opportunities in emerging markets. As Martin Soderberg discusses, while there are arguably higher levels of risk associated with such investments, the key is being able to identify good companies – and some of these may be found in bad economies.

While the current state of global markets and the enduring pandemic are anything but favourable for fundraising, some estimates indicate that up to $2.5 trillion in unutilised capital was sitting in PE houses globally earlier this year, simply waiting for the tide to turn. The McKinsey Private Markets Review 2020 reveals that $1.47 trillion of investor capital was deployed through the PE asset class globally in 2019. This represents impressive growth of private market assets under management by 10% for the year, on the back of total growth of 170% for the past decade. While, as any risk or asset manager will tell you, past performance is no guarantee of future results, the existing levels of available capital (if prudently allocated) have the potential to extend this decade of growth through the COVID-19 storm.

The International Monetary Fund (IMF) has already announced that it expects global growth to contract by 3% for 2020, representing a revised downgrade of 6.3 percentage points from January 2020. The IMF concluded that a revision of such magnitude over such a short period is an indication that the world is in the midst of the worst recession since the Great Depression and in a far worse position than during the Global Financial Crisis of 2009. While some would argue that investment in any country is potentially unstable in the current recession – evidenced by prices in investor safe havens such as gold skyrocketing to all-time highs, almost testing the $2,000 level this week – stability exists within key sectors such as healthcare and fast-moving consumer goods (FMCGs). This was exemplified late last year through Nigerian edtech learning platform uLesson’s closing of a $3.1 million seed-level round led by TLcom Capital, to address infrastructure and learning gaps in Africa’s education sector.

Martin Soderberg

Population growth and urbanisation typically drive consumption in these and other sectors. Sub-Saharan Africa has experienced growing numbers of first-time migrants into cities and leading economic nodes, with pre-COVID estimates that 50% of Sub-Saharan Africa’s population will be living in cities by 2030. In addition, burgeoning middle classes and the younger populations of developing nations is resulting in increasing levels of disposable income. At a media briefing in June, however, the IMF projected that Sub-Saharan Africa’s economy will contract 3.2% in 2020 – double the contraction forecast earlier in April. FMCGs will have taken a knock across all markets and varying recovery periods, which also ought to be borne in mind. So PE firms need to revise their approaches to investor engagement, strategy and transparency to convince, secure and guide investor capital into emerging markets presently.

 

Finding the right quality asset

There is of course a definite need for macro analysis of the country your investment or acquisition target is stationed in. Along with the six different forces macro environments typically consist of – namely Demographic, Economic, Political, Ecological, Socio-Cultural, and Technological – under the current coronavirus circumstances additional consideration by investors and risk managers also needs to be given to the COVID-19 policies and responses being implemented by the countries these companies operate within, as well as the fiscal measures being implemented. Although these are particularly complicated and extraordinary variables to attempt to measure, their impact on GDP contraction as well as debt-to-GDP ratios within the countries concerned can potentially be forecast in the short- to medium term.

With this in mind, it’s worth identifying scalable entities with realistic potential for regional expansion where instilling a balanced measure of operational and strategic influence is possible at management and board levels. A recent example is PE firm Mediterrania Capital Partners, which focuses on growth investments in SMEs and mid-cap companies in North and sub-Saharan Africa, acquiring a stake in Akdital Holding, which operates five clinics in Morocco.

It’s important that liquidity management takes precedence over solvency, which often serves as an indication of top line growth. At the same time, one must also take into account worst-case scenarios within the markets one is investing in and plan accordingly for crisis scenarios, such as debt, liquidity options and operational costs that can be scaled back.

In addition, micro and macro risk management should be thorough, particularly in light of escalating trade wars between developed nations and instances of seemingly nationalistic legislation being passed that may be unfavourable to specific emerging markets and spur further GDP contraction. Furthermore, evaluation of local political risk and the potential for obstruction or intrusion at investment and operational levels should be borne in mind.

The lockdown conditions associated with COVID-19 have also significantly impacted logistics planning and provision, across borders to neighbouring states as well as overseas. Furthermore, we’re in a period of increased currency volatility which has a knock-on effect on export and import potential. However, such limitations create broader opportunities for PE firms to generate further value by concentrating greater focus on ESG in the markets in which they already operate. Such focus is typically undervalued, yet has the potential to generate greater revenue while ultimately attracting further investment – providing firms are willing to transparently evidence tangible progress..

 

PE and foreign direct investment scepticism

When entering and engaging with companies that have scalable investment potential in emerging markets, one should expect varying degrees of caution by companies in emerging markets, which is sometimes misinterpreted as protectionism. Historical injustices in many Sub-Saharan nations have understandably dented local confidence in foreign direct investment. Furthermore, companies will be wary of recurring instances where opportunistic investments by PE entities rendered relatively worthwhile returns for investors but created debt rather than any genuine value for the company concerned.

Therefore transparency and the ability to wear your PE credentials on your sleeve is paramount, such as evidence of accelerated revenue growth, increased capital expenditures and expanded profit margins in the financial reporting of your existing portfolio. If your portfolio is little more than smoke and mirrors designed to conceal debt as well, slowing revenue growth or capital expenditure as a percentage of sales declined and little evidence of revamped strategies and additional management perspective, then you’re setting yourself up to fail.

There will be continuing debate for some time to come as to whether reluctance to invest in emerging markets will be a PE stumbling block, given the hunt for yield. Thoroughly investigated company investment opportunities have to be afforded genuine investment value in terms of expansion and enrichment, not only for yields to materialise but also for the yields to be worthy of the investment itself. While now is the time for PE firms to begin putting in the groundwork, as much as an additional year, by conservative estimates, may need to be factored in before capital can realistically be deployed. But for those who carefully identify unwavering trends in emerging markets over the next six to 12 months and articulate genuine opportunities to investors, there is scope for the PE asset class to exhibit substantial growth over the course of the coming decade, while capitalising on the “good” companies blooming in “bad” economies.

 

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