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Wealth Management

WHY IMPACT INVESTING COULD BE MORE IMPORTANT THAN EVER

By Dan Somers of Boundary Capital

 

The current pandemic is alarming, but the data suggests that an increase in crises will be the new norm. Climate, Disaster and Development Journal predicts that intense floods and storms around the world could double in frequency within 13 years, as climate breakdown and socioeconomic factors combine. Pandemics also are predicted by some to increase more and more from urbanisation, resistance to drugs, and also indirectly from climate change. According to the newest data, more than 2.8 million people in the United States experience an infection from antibiotic resistant bacteria each year. Moreover, these “superbugs” cause 35,000 deaths per year in the country. The Washington Post cited research looking at the spread of disease carrying vectors such as mosquitos (notably spreading the Zika virus) as well as the encroachment of humans and animals for the same resources e.g. bats in West Africa having their climates destroyed by climate change, forcing them to hunt nearer humans which led to the Ebola outbreak of 2014. The U.S. intelligence community’s bottom-line assessment of the risk is plain: “Over 20 years, the net effects of climate change on the patterns of global human movement and statelessness could be dramatic, perhaps unprecedented.”

It’s not all doom and gloom however: There is a groundswell of popular mainstream opinion now demanding that Governments and businesses do more to help the environment and sustainability. Action is being taken by Governments and businesses, and indeed voters, consumers and investors all now voting with their feet to drive more businesses to adopt “ESG” policies.

Last year, flows into U.S. sustainable funds more than tripled, marking the fourth year of record flows. Talking about sustainability “is a way to build better relationships with clients. In 2019, according to the Global Impact Investing Network, assets in this market totalled around $500 billion, based on surveys with 1,300 impact investors.

Investors no longer want to be associated with or contributing to companies to may harm society, on the wrong side of new sustainability guidelines or going against popular consumer views and trends.

As a result the climate solutions market could double from $1 trillion a year now to $2 trillion a year by 2025, says BofA.

Ironically, what the recent Covid-19 ‘lockdowns’ have shown is that environmental pollution can drop dramatically in coordinated activities (planned or unplanned). Recent satellite images from NASA of China also showed less air pollution amid the country’s economic shutdown, due to less transportation and manufacturing. Nitrogen oxide pollution above major cities has decreased by 30% to 50% compared to the corresponding period of last year. And since the lockdown in Italy and the drastic reduction of water traffic and tourism, residents have observed the usually muddy canals run with bright, clearer water with swarms of fishes and the canal bottom clearly visible. More and more people are looking for ways to create such impact, without the reverse consequences of course.

This is where impact technologies come in. Impact technologies are those which provide a meaningful benefit to people’s lives directly or indirectly. This might be improvements in batteries and Electric Vehicle (“EV”) technology to reduce environmental pollution, improvements in drugs and medical devices which improve life quality, AI which helps to empower ordinary citizens transparently to take decisions and improve their skills and productivity. It is only changes in the ways we do things that can have a meaningful impact and with a viable approach to economic sustainability too. Many of these technologies have a high positive social or environmental impact as well as a medium and long-term economic advantage to make a strong financial return. However, like all technology development and adoption, there are many associated risks bringing a new technology to market and productising it, particularly when the market doesn’t yet exist or is nascent.

Boundary Capital is one of a number of innovative investment firms that are trying to change the rules around impact investing. Rather than investing in ESG public companies or impactful businesses, it focuses on investing in early-stage private “B2B” (Business to Business) technology companies that have the potential to enble and transform markets to make the most impact. So rather than investing in EV charging infrastructure, it invests in the technologies that it believes will make the most difference to accelerating the adoption of EVs by improving battery life and longevity. Similarly, it doesn’t invest in tertiary healthcare, but in oxygenated wound care devices that reduces the time and cost of wound healing (and hospital beds) by over 70%. The partners are all experienced technology investors and entrepreneurs who can bring more than just finance to impact businesses to help them succeed and deliver on the promised societal or environmental benefits.

As well as six themes derived from the UN’s Sustainable Development Goals, Boundary only invests in businesses that affect 100m lives or more in a meaningful way, based on a proprietary methodology measuring the lives impacted over a long-term period. These goals are also underpinned by an overall economic return for investors of 3x overall over 5 to 7 years.

Their latest investment is in Cambridge based Inotec, is a fast-growing medtech business that has developed a novel device capable of healing complex chronic wounds. The business has developed a world leading medtech product, called NATROX® Oxygen that generates pure humidified oxygen to treat a range of chronic wounds, from diabetic and venous ulcers to non-healing surgical wounds.

Dan Somers, Managing Partner at Boundary Capital says: “Impact investment has mostly been socially-driven up until now. There is now the real opportunity for investors to make a return as well as optimising the impact that their investments can make on human lives.”

Daniel Rodwell, Chief Executive of GrowthInvest adds: “We are seeing the market moving increasingly towards responsible investing, driven by a rising commitment to sustainability and a next-generation approach to wealth management.”

As long as we have an eye on medium term and place our support in the right places, we can all do our bit to mitigate some of the future crises and enjoy profitable and impactful lives.

 

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Wealth Management

WILL WORKING FROM HOME BE GOOD FOR ALL INSURANCE STAFF & CUSTOMERS IN THE LONG TERM?

Keith Stonell, Vice President, EMEA, Guidewire Software

 

“Work from home if you can,” may be today’s maxim, especially with the pandemic’s second wave hitting our communities. This guideline cannot be argued against if we are to control coronavirus and confirms how home working is becoming a permanent way of working for millions, even after some offices were re-opened briefly this summer.

People have wanted more flexibility in their lives for some time and the largely positive experiences many businesses have reported in the move to home-working means that flexibility is likely to be the norm once this pandemic recedes.

For a sector like insurance which can be conservative and slow to adapt, sometimes, the sudden pivoting and then permanency of working from home could have been expected to have been difficult to do and sustain.

In fact, insurers have adapted to the new normal with alacrity. Centuries old institutions, like the London Market and Lloyd’s of London, have discovered that the world has not fallen apart following the adoption of radical new processes and they have been very successful in doing so.

Keith Stonell

As it turns out, there are plenty of tools available for insurers to do their jobs from home. And for many insurance companies, such as Direct Insurance Group and Zurich UK, the working from home model has real potential to become a more permanent fixture.

The maturity of cloud adoption and hybrid environments in the insurance industry has also come at just the right time. Considering brokers and claims handlers specifically, it is reassuring that many have not experienced problems with accessing customer information or being able to model risks properly, thanks to the fact that they are not chained to the legacy systems and green screens that were once commonplace.

But that is not to say that we are entering a new nirvana. Working from home is a great boon for those lucky enough to have access to high quality internet connections and enough space at home to have a dedicated office or workstation. For others, like the younger workers who are so critical to the future of insurance, the experience can be a disadvantage.

This reality was brought home to me when I recently spoke to my own insurance broker. There were several domestic interruptions to our call: she apologised and was certainly uncomfortable with the disruptions. It made me think that, if her company adopted a long-term work from home policy, it would make her job a far less easy experience for her and perhaps her clients.

The people who directly interact with customers in this industry typically live in pricey, inner-city environments. They find themselves living with friends, partners, or their families, in small homes where dedicated space to work is a luxury. There is noise, people in the background of video calls, internet service interruptions, and Zoom fatigue.

Undoubtedly, working from home models have some major upsides for insurers. They can shrink their building and operations costs, which with harsh recessionary economic headwinds forecast is attractive to CEOs and CFOs everywhere. Some forecasts suggest that as much as one fifth of all office space could be abandoned across all businesses, and insurance organisations will certainly be included in this figure.

Yet, corporate decisions to move to flexible and remote working practices must be people-centric in terms of both customers and employees. Whether my broker or claims handler is in the office or at home should be invisible to me as a customer because, frankly, I do not want to be discussing the specifics of a sensitive claim or disclosing personal information if I can see or hear someone in the background of the video call.

Insurers must think about what their staff need to do their jobs effectively, regardless of where they are, and the move to working from home is throwing up some difficult questions. For example, if people now need the space and resources for an office space at home, who, in the long term, should benefit from the money saved on rent, energy bills and office technology? Plenty would argue it should not be shareholders or company bosses. Yet it also could be argued that employees should see at least some of the benefit either in salaries or allowances for working from home equipment.

While the second wave of the pandemic means home-working continues, it seems likely that flexible hybrid working practices will emerge that combine home and office. Either way it will be vital that employers support their staff with the right tools and resources they need, so they can operate sustainably and continue to deliver the vital services they provide to businesses and individuals alike.

 

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Wealth Management

UNDERSTANDING THE RISKS INVOLVED IN TRADING FOREX

The foreign exchange market attracts numerous traders every day because penetrating the market is easy. To venture into trading forex, you only need some capital, a computer, and a reliable internet connection. You will also need a basic understanding of the forex trading industry.

While trading with a forex MetaTrader trading platform is easy, it comes with various risks. As a foreign exchange trader, the risk is interpreted as a loss of money. Read on to understand these risks.

 

The Market Risk

Market risk or systematic risk affects the whole market, unlike the unsystematic risk that influences a certain market, asset, geographical region, or sector. While unsystematic risk can be reduced with the change, systematic risk cannot.

Market risk in the foreign trading market is affiliated with anything that can affect the financial value of your preferred currency pairs. Market risk is the most essential for a trader that is the type of risk that you want to be exposed to.

To make profits in the forex market you want prices to fluctuate so that you can leverage the price difference when selling or buying. This process is called market volatility.

Volatility is the element that allows traders to open profitable trades. It is a risk seeing that you might lose money should the markets go against your expectations. However, volatility can also help you open winning trades. Numerous systematic risks can influence prices. These include:

Growth, inflation, and employment figures, as they can affect Central Bank resolutions regarding monetary policy, such as interest rates.

  • Political events such as elections
  • Economic and financial announcements
  • Changes in legislation, regulations, and tax policy
  • Geopolitical conflicts, strikes, terrorist attacks, wars, and natural disasters

 

Liquidity risk

Liquidity means that a market opens and closes your trading positions fast and easily at your expected price. The reason for this is that there are numerous sellers and buyers in the market today. While the foreign exchange market is among the most liquid financial markets across the globe, there are some low liquidity periods.

Often, these occur outside the European and American trading sessions, or during the weekends or holidays. Every trader should understand the low liquidity risk, especially because it can increase the cost of trading.

·Consider the spreads

Low liquidity often causes an increase in the size of spreads. A spread is the difference between the buying price and the selling price. It is the commission a trader pays to the broker to enjoy his services.

An increase in trading costs is an occurrence that happens if a broker provides variable spreads that change based on the trading and market conditions. Some brokers may offer fixed spreads, especially if you understand the behavior of a particular currency pair.

You may also receive fixed spreads if you plan to use an active and hostile trading method like scalping amid news releases.

 

Counterparty risk

The counterparty in the foreign exchange market is the body with which a trader launches and closes trading positions. That is your broker. The risk you are likely to face here is a situation where the counterparty does not pay you due to:

  • Poor enforcement of regulations
  • Bankruptcy

Measuring the counterparty risk is a difficult task for an individual trader which is why they depend on regulatory entities. You can avoid this risk by choosing a reliable broker that is regulated by a reputable organization.

 

Leverage Risk

Leverage is among the biggest benefits of forex trading. However, it deepens the other forex trading risks as we shall see below:

  • Should you take huge market risk with no stop loss then any big losses triggered by sudden fluctuations will be leveraged upwards
  • To acquire unlimited leverage you may have to find a broker within a poorly controlled jurisdiction. However, doing so increase your counterparty risk.
  • If liquidity crush triggers ballooning of your trading costs you will experience high leverage because the spread is an action of your full position.

It is worth mentioning that even if leverage is readily available you do not have you use it.

 

Finally

While trading comes with various risks, you can counter them by adopting effective risk management strategies.

 

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