Are more #HedgeFunds going to become #FamilyOffices?

We think you know the answer...This from Family Capital 

Are more hedge funds going to become family offices - yes

Hedge funds aren’t doing well in terms of performance - that will just increase the number of family offices.

A recent report
by Citi, a US bank, on the global hedge fund industry found that assets
in the sector fell in August this year by $78.4 billion, the biggest
fall since October 2008 when the financial crisis was at its most
potent. Hedge funds, set up originally to “hedge” against falling
markets, don’t seem to like volatile markets like the ones of the last
few months. But maybe there is something more fundamental happening.

Because
bad performance, coupled with regulatory pressures, will likely see
more hedge funds turn themselves into family offices, as they seek
refuge in family-only investments, where regulatory and client pressures
are pretty much absent.

The latest hedge fund manager to convert
his fund into a family office is John Brynjolfsson, the chief investment
officer of Armored Wolf, a California based hedge fund. Brynjolfsson
said he is closing his hedge fund to outside investors and converting it
into a family office to manage his own money.

In an interview with Bloomberg,
Brynjolfsson added that he was looking forward to a sabbatical and that
the five-year bear market in commodities had made the decision easier.
Numerous hedge funds managers have already converted their funds into
family offices; notable investors who’ve made the move include George
Soros, Carl Icahn,  John Thaler and Stanley Druckenmiller.

As Family Capital reported
recently, a number of other hedge fund managers might not have quit
their day jobs running hedge funds but have set up family offices.  This
has led to some questions about a possible conflict of interest in
terms of the advice they’re giving their hedge funds clients and what
they’re investing in at their  family office. The US Securities and
Exchange Commission seems to be aware of the problems and may crackdown
soon, say people close to the regulator.

Given performance
pressures and potential regulatory difficulties more hedge fund managers
may also be thinking about following the herd and moving all their
investments into their family office - and saying goodbye to the
wonderful world of hedge funds.

Are more hedge funds going to become family offices - yes — Family Capital

Bank of China looking to set up a Trade & Commodity Finance operation in Geneva Agefi.com

Wang Min, responsible for international trade services at Bank of China, said they are looking to set up once more in Geneva.  Read the whole article on the Agefi.com website - in French.

Les synergies sino-suisses | Agefi.com

Active fund managers are finally making a comeback.

Who are the hottest active fund managers?

Migration from actively managed mutual funds to passively managed ETFs and index funds hasn't abated, but not every active asset manager is affected.

Read more on the CNBC website here: http://www.cnbc.com/id/103078207

#Switzerland Offers Counterpoint on #Deflation’s Ills @WSJ

Switzerland is seeing steady economic growth and low jobless rate despite deflation. 

Switzerland Offers Counterpoint on Deflation’s Ills

Here, the Alpine country’s famed Matterhorn. Photo: Fabrice Coffrini/Agence France-Presse/Getty Images

By

Brian Blackstone

Oct. 18, 2015 1:34 p.m. ET

It’s as close to an economic consensus as you can get: Deflation is bad for an economy, and central bankers should avoid it at all costs.

And then there’s Switzerland, whose steady growth and rock-bottom unemployment is chipping away at that wisdom.

At a time of lively global debate over low inflation and its ill effects, tiny Switzerland—with an economy 4% the size of the U.S.—offers a fascinating counterpoint, with some even pointing to what they call “good deflation.”

Consumer prices in Switzerland have fallen on an annual basis for most of the past four years. They hit a milestone last month with an annual price drop of 1.4%, the biggest in more than five decades. Even after food and energy prices are stripped out, core prices fell 0.7%.

“It’s hard not to call that deflation,” said Jennifer McKeown of Capital Economics, referring to the technical term for a sustained slump in consumer prices.

And yet evidence of deflation’s pernicious side effects—recession, weak employment, rising debt burdens—is pretty much nonexistent in Switzerland. Its economy is expected to expand this year and next, albeit slowly, in the 1% to 1.5% range. Unemployment was just 3.4% in September. Government debt is low.

“Usually people associate deflation with depression,” said Charles Wyplosz, a professor at the Graduate Institute in Geneva. “In the Swiss case, the economy is doing OK.”

Some of that success is due to the shattering of another long-held maxim: that central-bank policy rates can’t go negative to offset the effects of falling prices.

Switzerland, in a bid to sap demand for the franc and drive down the currency’s value, has a -0.75% rate on certain deposits parked its central bank, meaning financial institutions pay to keep their money there. This effectively amounts to a negative real, or inflation-adjusted, policy rate because core inflation is typically a good indicator of underlying price pressure. Denmark and the European Central Bank have taken a similar path with their deposit rates.

Although wage growth has slowed in Switzerland, it was 0.6% on an annual basis in the second quarter, which combined with falling prices means strong real pay gains, boosting spending power. Meanwhile, the rate on a 10-year mortgage is only around 2%. 

ENLARGE

For years, central banks from Japan to Europe and the U.S. have been fighting mightily to buck up their inflation rates and escape the deflationary trap. The concern: that falling prices will prompt consumers to spend less—based on expectations that prices will continue to decline—and businesses will delay investment amid uncertainty about revenues.

The Great Depression and, more recently, Japan’s two-decade struggle with deflation, are typically cited as Exhibits A and B on why central bankers should do all they can to avoid the trap.

The Federal Reserve spent trillions of dollars from 2008 to 2014 on government bonds and mortgage debt to combat this risk. More recently, it opted to keep interest rates near zero six years into an economic recovery with the unemployment rate barely above 5%, in part because inflation is so low—unchanged over the year ended Sept. 30. 

Major central banks prefer annual inflation of about 2% to provide a cushion against deflation.

Faced with stagnant consumer prices, the ECB is in the midst of a €1.1 trillion ($1.249 trillion) bond-buying program. The Bank of Japan has purchased broad swaths of public and private assets, too. The reasoning behind all these moves is that once deflation becomes entrenched, it is difficult to reverse.

But in Switzerland’s case, falling prices, brought on in large measure by what most analysts see as a significantly overvalued franc, has generated some positive fruits. It has forced companies to raise productivity and stay competitive in global markets, particularly compared to the rest of Europe.

Despite the franc’s strength, Switzerland’s trade surplus was nearly 5% of gross domestic product last year, suggesting its products are still competitive globally. Consumer spending continues to grow, albeit at about half the rate of three years ago.

“You have to distinguish between good and bad deflation,” said Alexander Koch,economist at Raiffeisen Schweiz in Zurich. “There’s no crash, no strong increase in unemployment in manufacturing and as there are no bursting bubbles in other sectors, domestic demand and the labor market are quite resilient.”

Maybe it’s the Alpine air, but economists at the Basel, Switzerland-based Bank for International Settlements—a consortium of central banks—have also challenged some of the conventional wisdom on deflation’s pernicious effects.

It may have negative consequences, but “on the other hand, deflation may actually boost output,” they wrote in a March report. “Lower prices increase real incomes and wealth. And they may also make export goods more competitive.”

So why aren’t central banks embracing the Swiss example? Analysts note that it’s difficult to distinguish between good and bad deflation until it’s too late.

Nor is Switzerland without its own struggles. To keep the franc in check, the central bank may be forced to cut the deposit rate even further, analysts say, particularly if the ECB eases policy more. Super-low rates on mortgages and other forms of debt could create housing and other bubbles. An abandoned effort to cap the franc’s value to the euro led the central bank to book a loss of 50 billion francs ($52.45 billion) for the first half of the year. And average consumer price levels are still quite high compared to the rest of Europe despite declines in recent years.

But, says Jörg Krämer, chief economist at Commerzbank in Frankfurt, Switzerland’s deflationary experience shows that for some, it’s “not as harmful as most people think.”

Switzerland Offers Counterpoint on Deflation’s Ills - WSJ

#Solar & #Wind Reach a Big #Renewables Turning Point : BNEF - Bloomberg @Business

"As more renewables are installed, coal and natural gas plants are used less...[and] the cost of using them to generate electricity goes up. As the cost of coal and gas power rises, more renewables will be installed. "

The virtuous cycle has begun.

This from Bloomberg:

Solar and Wind Just Passed Another Big Turning Point

Wind power is now the cheapest electricity to produce in both Germany and the U.K., even without government subsidies, according to a new analysis by Bloomberg New Energy Finance (BNEF). It's the first time that threshold has been crossed by a G7 economy.

But that's less interesting than what just happened in the U.S. 

To appreciate what's going on there, you need to understand the capacity factor. That's the percentage of a power plant's maximum potential that's actually achieved over time.

Consider a solar project. The sun doesn't shine at night and, even during the day, varies in brightness with the weather and the seasons. So a project that can crank out 100 megawatt hours of electricity during the sunniest part of the day might produce just 20 percent of that when averaged out over a year. That gives it a 20 percent capacity factor.

One of the major strengths of fossil fuel power plants is that they can command very high and predictable capacity factors. The average U.S. natural gas plant, for example, might produce about 70 percent of its potential (falling short of 100 percent because of seasonal demand and maintenance). But that's what's changing, and it's a big deal. 

For the first time, widespread adoption of renewables is effectively lowering the capacity factor for fossil fuels. That's because once a solar or wind project is built, the marginal cost of the electricity it produces is pretty much zero—free electricity—while coal and gas plants require more fuel for every new watt produced. If you're a power company with a choice, you choose the free stuff every time. 

It's a self-reinforcing cycle. As more renewables are installed, coal and natural gas plants are used less. As coal and gas are used less, the cost of using them to generate electricity goes up. As the cost of coal and gas power rises, more renewables will be installed. 

The virtuous cycle has begun.

Source: Bloomberg

Wind and solar have long made up a small fraction of U.S. electricity—about 5 percent in 2014. But production has been rising at an exponential rate, and those two energy sources are now big enough to influence when coal and natural gas plants are kept running, according to BNEF.

There are two reasons this shift in capacity factors is important. First, it's yet another sign of the rising disruptive force of renewable energy in power markets. It's impossible to brush aside renewables in the U.S. in the same way it might have been just a few years ago.  "Renewables are really becoming cost-competitive, and they're competing more directly with fossil fuels," said BNEF analyst Luke Mills. "We're seeing the utilization rate of fossil fuels wear away." 

Second, the shift illustrates a serious new risk for power companies planning to invest in coal or natural-gas plants. Historically, a high capacity factor has been a fixed input in the cost calculation. But now anyone contemplating a billion-dollar power plant with an anticipated lifespan of decades must consider the possibility that as time goes on, the plant will be used less than when its doors first open. 

Capacity Factors Take a Sharp Turn

Source: Bloomberg, Data: BNEF

Most of the decline in capacity factors is due to expensive "base-load plants that are being turned on less because of renewables," according to BNEF analyst Jacqueline Lilinshtein. Plants designed to come online only during the highest demand of the year, known as peaker plants, play a smaller role. In either case, the end result is that coal-fired and gas-fired electricity is becoming more expensive and the profits less predictable.

The opposite is true of wind and solar, as well as new battery systems that can be paired with renewables to replace some peaker plants. Wind power, including U.S. subsidies, became the cheapest electricity in the U.S. for the first time last year, according to BNEF. Solar power is a bit further behind, but the costs are dropping rapidly, especially those associated with financing a new project. 

Latest Solar Costs by State

Source: BNEF, Annotated by Bloomberg

The economic advantages of wind and solar over fossil fuels go beyond price. Still, it's remarkable that in every major region of the world, the lifetime cost of new coal and gas projects are rising considerably in the second half of 2015, according to BNEF. And in every major region the cost of renewables continues to fall. 

http://www.bloomberg.com/

latest publication from @EY_MiningMetals on the Business risks facing #mining & #metals in 2015–2016-Moving from the back seat to the driver’s seat

The latest publication from @EY_MiningMetals on the Business risks facing #mining & #metals in 2015–2016-Moving from the back seat to the driver’s seat @EY_MiningMetals

 http://www.ey.com/Publication/vwLUAssets/EY-business-risks-in-mining-and-metals-2015-2016/$FILE/EY-business-risks-in-mining-and-metals-2015-2016.pdf

#Glencore just the tip of the iceberg? @Zerohedge takes a look at #Trafigura, #Mercuria coming next....

Financial Crisis Alert: Black Swans Are Circling The Commodity Pits

Back in July, long before anyone was looking at Glencore (or Asia’s largest commodity trader, Noble Group which we also warned last month was due for a major crash, precisely as happened overnight) which everyone is looking at now that its CDS is trading points upfront and anyone who followed our suggestion last March to go long its then super-cheap CDS can take a few years off, we had a rhetorical question:

Which will be first: Trafigura, Mercuria or Glencore

— zerohedge (@zerohedge) July 22, 2015

Judging by what happened less than two months later, it appears that we have our answer: for now at least, Glencore, which is now flailing and which Bloomberg reported moments ago is set to meet with its bond investors tomorrow (supposedly to allay their fears of an imminent insolvency), is firmly the “answer” to our rhetorical question.

And yet, something stinks.

First, a quick look at Trafigura bonds reveals that the contagion from the Glencore commodity-trader collapse, which “nobody could possibly predict” two months ago and which has rapidly become the market’s biggest black swan, has spread and we now have a new contender. And while Trafigura’s equity is privately held, it does have publicly-traded bonds. They just cratered:

… sending the yield soaring to junk-bond levels.

As discussed below, this may just be the beginning for the company which, because it does not have publicly traded equity – but has publicly traded debt – has so far managed to slip under the radar.

But who is Trafigura? Only the world’s third largest private commodity trader after Vitol and Glencore. 

From the company’s own description:

Trafigura is one of the world’s leading independent commodity trading and logistics houses. We’re at the heart of the global economy. Every day and around the world, we are advancing trade – reliably, efficiently and responsibly. We see global trade as a positive force and we go further to make trade work better.

More important than some pitchbook boilerplate, is the company’s history: Trafigura was formed in 1993 by Claude Dauphin and Eric de Turckheim when It split off from a group of companies managed by Marc Rich, aka “the king of oil” in 1993.

Who is March Rich? Why the founder of Glencore of course who as a reminder, was indicted in 1983 on 65 criminal counts including income tax evasion, wire fraud, racketeering, and trading with Iran during the oil embargo. Upon learning his prison sentence may be as long as 300 years, Rich promptly fled to Switzerland; he was so afraid of US authorities, he even skipped his daughter’s funeral in 1996.

Marc Rich got a presidential pardon from Bill Clinton in a decision which was blessed by the kingpin of corruption, former DOJ head Eric Holder.  Clinton himself later expressed regret for issuing the pardon, saying that “it wasn’t worth the damage to my reputation.”

But back to Trafigura, whose summary financials reveal that the company – with $127.6 billion in revenues in 2014 and $39 billion in assets – is absolutely massive. In fact, in terms of turnover, it is virtually the same size as Glencore.

But the most important and relevant numbers are on neither of the pretty annual report grabs above. They are highlighted in red in the excerpt from the company’s interim report: the $6.2 billion in non-current debt and $15.6 billion in current debt for a grand total of 21.9 billion in debt!

Now, this is less than Glencore’s $31 billion (the implication being that Trafigura has a solid $6 billion equity cushion although judging by the bond plunge the market is starting to seriously doubt this) but the problem is that Trafigura’s EBITDA is lower. Much lower. 

According to CapIq, Trafigura had $1.8 billion in LTM EBITDA, suggesting a debt/EBITDA leverage ratio of a whopping 12x. If one wants to be generous and annualizes the company’s disclosed 6-month EBITDA (for the period ended 3/31/2015) of $1.1 billion, the EBITDA grows to $2.2 billion. This lowers the debt/EBITDA for Trafigura to “only” 10x.

Indicatively, Glencore’s own debt/EBITDA, and the reason for so much conerns about the company’s solvency, is about half of Trafigura’s.

At least on the surface, it appears that Trafigura, which is as reliant on the ups and down of commodity trading as Glencore, is far more levered, and exposed, to any commodity crush than the Swiss giant.

But what really set off our alarm bells, is that a quick skim through the company’s annual report reveals something disturbing: a commissioned report titled “Too Big To Fail: Commodity Trading Firms and Systemic Risk” whose purpose was to explain why, as the title implies, commodity trading firms are not systemically important. The timing, just months before a historic rout for commodity traders, is odd to say the least.

As a general take, any time someone first brings up, and then tries to talk down the impact of something as being “Too Big To Fail”, run.

More seriously, there are two problems with this analysis: as events in the past week have shown, commodity trading firms clearly carry a systemic risk: after all, one after another news outlet rushed to explain why yesterday’s market plunge was the result of Glencore fears. It would have been the same with Trafigura’s equity plunge… if the company had publicly-traded equity instead of just debt.

The second problem is the subheader to the paper:

Trafigura commissioned a white paper this year on commodity trading firms and systemic risk. Its author, Craig Pirrong, explains why he believes these firms are unlikely to have a destabilising effect on the global economy.

The paper’s conclusion: “Commodity trading firms are not a source of systemic risk.”

Oops.

Who is Craig Pirrong? As the NYT explained in a 2013 article titled “Academics Who Defend Wall St. Reap Reward“, Pirrong, a University of Houston professor, is just a member of that all too pervasive “paid expert for hire” group, academics without actual credibility inside their own circles, and who as a result will “opine” on anything and everything – usually involving Wall Street regulatory and “risk” matters, just to get paid.

This is precisely what Trafigura did when it commissioned him to “explain” why Trafigura is not systemic. Ironically it did so in August, just as all hell was about to break loose for the commodity traders, especially the most systemic ones.

And while the market has shown how the paid opinions of such “experts for hire” should be completely ignored, the question remains: just what was Trafigura so concerned about when it commissioned a well-compensated study meant to goal-seek the company’s explicit conclusion: that it is not systemic, when it obviously is.

Opinions aside, at the end of the the market will decide just who is systemic and who isn’t. One look at the price of Trafigura’s bonds above has given us the answer: it is a move comparable to what happened to Lehman bonds – if not equity – the day after the bankruptcy filing.

Clearly the Lehman bonds could not believe what just happened until it was too late. For Glencore, and increasingly Trafigura, the bond price is finally signalling the realization that “this is indeed happening.”

* * *

We’ll save our discussion of Mercuria for another day.

Source: Forget Glencore: This Is The Real “Systemic Risk” Among The Commodity Traders | Zero Hedge

#Swiss watchdog #WEKO says opens #preciousmetals collusion probe @Reuters

Better late than never?

Swiss watchdog says opens precious metal collusion probe

ZURICH (Reuters) - The Swiss competition regulator said on Monday it had opened an investigation into possible collusion in the precious metals market by several major banks.

Switzerland's WEKO watchdog said its investigation, the result of a preliminary probe, was looking at possible collusion in setting bid/ask spreads in the market by UBS (UBSG.VX), Julius Baer (BAER.VX), Deutsche Bank (DBKGn.DE), HSBC (HSBA.L), Barclays (BARC.L), Morgan Stanley (MS.N) and Mitsui (8031.T).

"It (WEKO) has indications that possible prohibited competitive agreements in the trading of precious metals were agreed among the banks mentioned," WEKO said in a statement.

A WEKO spokesman said the investigation would likely conclude in either 2016 or 2017, adding that the banks were suspected of violating Swiss corporate rules.

The WEKO investigation is the latest in a string of probes into manipulation of the precious metals and foreign exchange markets.

ADVERTISEMENT

Last year, Switzerland's financial regulator FINMA said it had found a "clear attempt" to manipulate precious metals price benchmarks during a cross-market investigation into trading at UBS.

In May, four major banks pleaded guilty to trying to manipulate foreign exchange rates and, with two others, were fined nearly $6 billion in another settlement in a global investigation into the $5 trillion-a-day market.

A spokesman for Zurich-based UBS declined to comment. The other banks were not immediately available for comment.

(Reporting by Joshua Franklin; Editing by Miral Fahmy and Louise Heavens)

http://mobile.reuters.com/article/idUSKCN0RS0DX20150928

Swiss watchdog says opens precious metal collusion probe | Reuters

The #Mining Industry will need a lot of #ActivistInvestors to get their houses in order.

"It's like a bear that stumbles into a honey factory"

A note from Mineweb on the build up of a position in Freeport-McMoran by Carl Icahn. 

What does Carl Icahn want with Freeport-McMoran?

Mining finance and investment 

The activist investor has taken a big slug of the company’s shares. 

Kip Keen | 28 August 2015 09:44 

HALIFAX – It must have been an interesting exercise for a billionaire that has made a name as an activist shareholder to tackle the mining industry now. To make a list of mining targets in a decimated market with resources meaningful enough to raise the spectre of a serious shake-up at one of the world’s largest mining companies.

It’s fair to simply step back and chuckle for a moment. For a whole lot of miners are so creamed, so loss-making for so many, that an activist raider surveying the field of options must be like the bear that stumbles into a honey factory after a hurricane.

Where to start? Who can I lean on? Which shareholders will treat me sweetest? Would Barrick have been on that list? Teck? Anglo American?

Yee Gads. You wonder if some mining heads might have muttered under their breath Thursday afternoon, Thanks be to Freeport. Icahn leaves us alone.

For ultimately Icahn chose Freeport to assemble an eight-percent-plus shareholding, promising in an SEC-filing-sort-of-way to rattle Freeport management and directors.

It happened on an interesting day for Freeport. Its shares popped 30%. It announced a significant cost reduction strategy and the spot price of copper flicked back over $2.30/lb. Connected? Maybe.

Of course, there’s little official to know about what Icahn wants, or how Freeport will respond to Icahn as a shareholder, assuming, given his history, he tries to force change.

I left a message at Icahn Enterprises to seek his view of Freeport. I also asked a Freeport spokesperson how it would respond to Icahn. I haven’t heard back this evening.

But one possibility is a break-up. John Tumazos, over at John Tumazos Very Independent Research, sees it that way.

For it’s no secret there was grumbling by some shareholders over the marriage of mining and oil & gas assets back in 2012, with FCX’s takeover of Plains Exploration & Production Company and McMoRan Exploration Co. (Subsequently the company was renamed Freeport- McMoRan.) This has made Freeport one of the most indebted miners in the world – with $20 billion in long-term debt, or twice its recent market capitalization.

With this discontent, Tumazos wonders if Icahn might angle for a Freeport break-up, putting the mining and oil and gas units into separate companies. Then the oil and gas assets – considered high cost – might become a compelling target for an oil and gas company, he thinks.

Tumazos thinks it might also make sense from a taxes point of view. Talking with me Thursday night, Tumazos notes that Freeport stands to write-down assets by as much as $3 billion in September in large part owing to the decline in oil and gas prices, by his calculation. “There’s a lot of value in the losses in the oil and gas,” Tumazos says.

And there’s unhappy shareholders to sway. Tumazos hit Freeport hard saying Icahn speaks for a silent majority of shareholders who want change in the company. Freeport’s office of the Chairman has been “slow moving and wrong-minded,” he said, adding, “investors will cheer decisions that create value and cause Freeport to react quicker.” (Disclosure: Tumazos owns Freeport shares.)

Who knows what will transpire? Icahn and Freeport haven’t disclosed or discussed publicly (as far as I know) what he may want to see happen at Freeport. But he must want to make money. And he isn’t close to that point yet. He and his partners, according to SEC filings, bought shares at prices between $9.50 and $16 averaging about $13/share in the past couple months.

Freeport, surging 30% Thursday, only just clawed back over $10/share, making Icahn – like many other shareholders in most major mining companies – still very much underwater. But hold on tight.

 

Read the article online at Mineweb here: What does Carl Icahn want with Freeport-McMoran? - Mineweb

There's a wholesale clean up going on in Wealth management. 

This time it's RBC that's in the mix. This from the Wall Street Journal 

Inside Royal Bank of Canada’s Latin Misadventure

 ENLARGE

Brazilian authorities in 2012 charged then-Royal Bank of Canada client Gilberto Miranda Batista with offering bribes to government officials to occupy public land on Goat Island, above. Photo: Juca Varella/Folhapress

By

Alistair MacDonald and 

Rita Trichur

Updated Aug. 5, 2015 10:38 p.m. ET

MIAMI—As Royal Bank of Canada mounted an aggressive campaign to reel in business from Latin America’s growing class of superrich, a Miami-based banker made a big catch: Gilberto Miranda Batista, a former Brazilian senator with a $500 million fortune, three houses, four farms and a Rolls Royce.

While some bankers celebrated, RBC’s compliance department soon raised a warning flag. Worried that Mr. Miranda’s accounts might attract scrutiny from global regulators over potential money laundering, some compliance officers began recommending that the accounts be shut down around 2007, according to people familiar with the episode.

But the Miami banker, Dirceu Magalhaes, successfully argued against axing the prize client, even after Brazilian prosecutors charged Mr. Miranda with corruption in 2012, these people say.

In 2013, Mr. Miranda’s accounts attracted the attention of a U.S. banking regulator, the Office of the Comptroller of the Currency, which that year deemed RBC’s anti-money-laundering controls unsatisfactory, according to people familiar with the matter.

The tensions between compliance and business officials at Canada’s largest bank, revealed in internal company documents seen by The Wall Street Journal, underscore the dilemma faced by many of the world’s financial giants as they balance the promise of lucrative accounts in emerging markets against the increased risk of regulatory action.

Banks from Standard Chartered PLC to HSBC PLC have been pulling out of serving the wealthy in some developing markets, in one of the unintended consequences of a crackdown by global regulators on money laundering and terrorist financing.

For RBC, which weathered the financial crisis to become one of the world’s largest banks, the OCC’s negative review was one in a long line of brushes with regulators and prosecutors over anti-money-laundering controls in its Latin America and Caribbean wealth-management businesses.

RBC moved to close down this business late last year after facing government investigations in several countries, including the U.S., Uruguay, and France. Just as it was unwinding its operations, RBC was contacted by the Department of Justice and by the Department of Homeland Security about separate Venezuelan accounts, according to people familiar with the matter. Those people said the Venezuelan accounts had, like Mr. Miranda’s, been previously flagged by internal compliance officers.

“There is always a war between compliance and bankers,” said Kim Manchester, whose Manchester CF advises banks on anti-money-laundering but who wasn’t commenting specifically on RBC. “Where banks get into trouble is when the banker wins again and again.”

A spokeswoman for RBC said that, due to client confidentiality, it wouldn’t comment on any individual or account, even to confirm or deny that they were customers. The spokeswoman said the bank has a strong record of global regulatory compliance. “RBC works within the legal and regulatory framework of every country in which we operate,” she said in an email.

The Justice Department declined to comment.

Mr. Miranda declined to comment for this article. A lawyer for Mr. Miranda said that his client hasn’t received any formal request from Brazilian courts to present his defense on the pending corruption case and declined further comment.

In a phone call, Mr. Magalhaes said that he had “no concerns” about allegations contained in this article, but declined further comment.

Star client

Much of the RBC drama has played out in an office on Brickell Ave. in Miami’s financial district. That office, where Mr. Magalhaes was based, acted as a U.S. hub to service rich clients across Latin America and the Caribbean as RBC opened offices in Brazil, Chile, Panama, Mexico and Uruguay in 2008 and 2009.

Among Miami’s star clients was Mr. Miranda, who had made a fortune of over $500 million helping companies obtain licenses to set up in the Amazon city of Manaus, according to an internal RBC note seen by The Wall Street Journal. The former senator came from humble origins; some four decades ago he drove a Volkswagen Passat and had a net worth of $10,000, according to the document.

By 2008, Mr. Miranda owned real estate worth $5 million on Ilha das Cabras, or Goat Island, off the coast of São Paulo; three houses worth $10.5 million; a Learjet; four farms; and eight cars, including a Rolls Royce, the note said.

But RBC’s compliance department didn’t share the bankers’ enthusiasm for Mr. Miranda.

Some compliance officers were agitating for the account to be closed around 2007, soon after it was opened, because as a former politician he was viewed as a higher risk, a person familiar with the matter said. In August 2009, an article in Brazilian newspaper Folha de S. Paulo said a company held by Mr. Miranda’s family, KKW do Brasil, made a donation to the foundation of former Brazilian President José Sarney. The article didn’t accuse Mr. Miranda, his family or Mr. Sarney of wrongdoing. Still, press coverage in Brazil reminded compliance officials at RBC of how Mr. Miranda’s political past and connections would be scrutinized by regulators, according to two people familiar with the matter.

                             ENLARGE

Surge in appetite for alternatives among Swiss selectors | Citywire

Like their counterparts in Geneva, selectors in Zurich said they are looking for managers who offer stability, consistent performance and limited downside risk rather than simply high returns.

Surge in appetite for alternatives among Swiss selectors

By Luca Rossi
on 11 June 2015

The appetite for alternative investments has grown significantly among Swiss professional investors in the past couple of years.


That is according to a poll of top investors at the Citywire Alternative Ucits Forum in Zurich on Thursday.


The poll showed that 69.57% of selectors believe this trend has made
significant strides recently, while the remaining 30.43% disagreed.


Quizzed on how much cash they are currently holding in their
portfolios, almost the half of selectors (45.45%) said less than 5%,
while the 36.36% of the audience responded between 5% and 10%.


This is while 13.64% of the attendees is holding 15% of cash or higher, and 4.55% between 10% and 15%.

Consistency rather than high returns

Like their counterparts in Geneva, selectors
in Zurich said they are looking for managers who offer stability,
consistent performance and limited downside risk rather than simply high
returns.


In response to a question on which term was most apt for the managers
they are investing with, the majority of attendees (82.61%) voted for
the more conservative profile, while the 17.39% opted for a selection
based on high returns.



Expressing their views on gold, the majority of Swiss selectors said
they are holding either zero exposure, which was picked by 36% of
voters, or between 3-5% of the bullion in their portfolios, which was
chosen by 36% as well.


This compared to 23% who said they had 1-3%, while those holding more
than 5%, which would reflect the historical view of gold being popular
among the Swiss investment community, was picked by just 5%.



Finally, in response to a question on who has the most challenging job
over the coming year, exactly half of the audience said the toughest
challenge was faced by European Central Bank head, Mario Draghi.


He was followed by the next FIFA president (36.36%), while chair of
the Federal Reserve, Janet Yellen, received 9.09% and the head of the
Swiss National Bank accrued 4.55%.

See the article online here:  Surge in appetite for alternatives among Swiss selectors | Citywire

Two Deals Bring Attention to Banking’s Safra Family - NYTimes.com

Two Deals Bring Attention to Banking’s Safra Family

On a single day last fall, two deals were coming together that would draw unusual attention to a banking family that prefers to remain in the shadows.

In London, 30 St. Mary Axe — a pickle-shaped office tower known as the Gherkin that was designed by Norman Foster — was on the brink of changing hands for $1.1 billion. And in New York, shareholders of Chiquita Brands International, the banana producer, were finally leaning toward selling the company, for $1.3 billion.

The buyer for both of these assets was the Safra Group, the investment arm of a storied financial family that strives for secrecy.

Today run by Joseph Safra, the last surviving son of the patriarch who built the family’s initial fortune, the Safra Group manages billions of the family’s personal money. Worth an estimated $14.5 billion according to Forbes, Mr. Safra, 76, is the world’s richest banker.

In addition to the family’s vast and growing real estate holdings, its fortune is bolstered by a network of international banks, including Banco Safra in Brazil, J. Safra Sarasin Holding in Switzerland and Safra National Bank of New York. In total, the family and its banks have more than $200 billion under management, and stockholder equity of more than $15 billion.

With the latest deals, the Gherkin became the face of a Safra real estate portfolio, which includes over 100 properties around the globe, including the 660 Madison Avenue office complex in Midtown Manhattan, and several prime locations in SoHo in Lower Manhattan.

“Their real estate philosophy is very similar to their banking philosophy,” said a person who has worked with the Safra family on property deals and spoke on the condition that he not be named because he did not want to jeopardize his relationship with the family. “It’s really about the preservation of wealth. They look to buy to hold, rather than to sell.”

Indeed, the family has not sold any major real estate assets in decades.

In Chiquita, the Safra Group saw the opportunity to diversify its revenues with a similarly long-term, and public, bet. Demand for bananas, a popular fruit worldwide, is unlikely to subside. And by joining with the Cutrale Group, owned by a Brazilian family with expertise in agriculture that it knew well, Safra was able to branch out without taking on too much risk.

His penchant for privacy aside, Mr. Safra has emerged as a powerful philanthropist in Brazil. Both São Paulo’s Jewish hospital, Albert Einstein, and the hospital founded by the city’s large Arab community, Sírio-Libanês, list Mr. Safra among their largest donors.

Among close associates, Mr. Safra is known to be kind and humble, cooking meals for family and calling on confidants regularly.

“He thinks about his business 24 hours a day, but he found time to call me every day when I was in the hospital after heart surgery,” said Jack Terpins, president of the Latin American Jewish Congress.

Others, who spoke only if they were not identified by name because of Mr. Safra’s power in São Paulo’s financial community, describe an impatient side and a quick temper.

“He likes problems to be solved immediately. You don’t want to disappoint or cross him,” a former employee said.

Yet for his private nature, Mr. Safra has maintained and added to a family fortune that is poised to survive for another 100 years, or more.

“They have a multigenerational time horizon,” said a senior banker who has worked closely with the family. “Not many people have that.”

The Safra family’s standing at the heart of the world’s elite private banking industry is a world away from its roots as traders with the camel caravans that passed through Aleppo, Syria.

It was there, more than 100 years ago, that the Safra family discovered its business acumen, first as merchants and then as amateur bankers. Mr. Safra’s father, Jacob, moved to Beirut and opened a formal bank after World War I, capitalizing on Lebanon’s emergence as a cosmopolitan hub of the Middle East.

After World War II the elder Mr. Safra moved his family to Brazil, and in 1957 established Banco Safra with seven employees. Today, Banco Safra is the eighth-largest bank in the country, with more than $56 billion in assets.

Despite the family’s prominence, Mr. Safra and his relatives are resolutely private. He does not appear in gossip columns and his name has not been associated with politicians or celebrities. In contrast to Brazil’s casual customs, he always wears a suit. Observant of his Sephardic Jewish roots, he keeps a strict kosher diet.

“For most Brazilians, he is a mystery,” said Paulo Feldmann, an economics professor at the University of São Paulo who studies Latin American business culture.

He is largely a mystery to the outside world, too. No member of the Safra family or its companies would comment for this article, following a longstanding policy of not speaking to the news media or making public appearances.

Privacy, however, has not inhibited the family’s ability to expand its reach, or increase its wealth. Several people who work closely with the Safra Group describe a family that measures success by decades and generations, not quarters and fiscal years, and possesses a single-minded focus on maximizing long-term returns for clients and family members.

“They are focused on very, very long-term investing, wherever in the world makes the most sense,” the senior banker said. “They are going to stick to extremely low volatility assets, and proven properties and companies that have meaningful long-term appreciation.”

Behind the philosophy is a maxim espoused by the patriarch, Jacob Safra, and internalized by his sons and grandsons: “If you choose to sail upon the seas of banking, build your bank as you would your boat, with the strength to sail safely through any storm.”

Mr. Safra’s older brother, Edmond, later left Banco Safra and established new banks in Europe and New York. In 1999, he sold Republic National Bank of New York to HSBC for $10 billion. Edmond died in a fire under suspicious circumstances later that year.

Joseph and his younger brother, Moise, ran Banco Safra together until 2006, when Joseph bought out Moise and became the sole owner of Banco Safra. Moise died last year, at 79.

Today, while Joseph remains at the head of the family, his three sons, Jacob, David and Alberto, are assuming more prominent roles. Jacob, the eldest, splits his time between Switzerland and New York, looking after J. Safra Sarasin and Safra National Bank of New York, and nonbank operations outside Brazil. David and Alberto, meanwhile, run Banco Safra in Brazil. Their father is often on the road, shuttling between Brazil, Switzerland and New York.

But success was not always assured. Postwar Brazil suffered first from political instability, then from hyperinflation. The economy lurched from one government plan to another that included capital and currency controls, and even a nationwide freeze of bank accounts.

In that volatile environment, fortunes were made and lost. Mr. Safra focused instead on asset management for wealthy individuals, and on loans to businesses and individuals who could offer solid collateral, such as real estate.

“He always worked on growing slowly and sustainably and keeping the bank very solid,” Mr. Feldmann said. “He looked to hire the most intelligent people, even if they had no experience in banking, trained them himself, and demanded complete loyalty.”

Mr. Feldmann said Mr. Safra was also unusual in wanting to keep his company relatively small so that he could keep a close eye on every aspect of it.

Mr. Safra soon started to buy other, smaller banks and to invest outside the financial sector. He acquired controlling stakes in major Brazilian textile and cellulose companies, and in 1998, in partnership with BellSouth, he founded a cellphone company, BCP, that became Brazil’s second largest.

Despite rapid growth, BCP turned out to be one of Mr. Safra’s few failures. The company racked up huge debts and was finally sold in 2003 at a bargain price to América Móvil, the telecommunications company of the Mexican billionaire Carlos Slim Helú. An earlier co-investment with BellSouth yielded a profit.

Mr. Safra paid $1.1 billion to buy a Swiss private bank, Sarasin, in 2011. The price was high, but Sarasin was a high-quality asset, and it permitted Mr. Safra to expand his asset management business beyond its core client base in Latin America to European and Asian investors.

What is more, it deepened the Safras’ exposure to asset management, traditionally one of the financial world’s most consistently lucrative niches: Year after year, whether markets rise or fall, clients pay a percentage of their assets in fees.

In recent months, however, Mr. Safra has branched out with back-to-back deals for well-known assets that thrust the family back into the headlines.





Mr. Safra believes the price he paid for the Gherkin was a bargain, according to people close to the family. The building was sold out of bankruptcy, and in a subtle change of tack, the Safras believe they have the opportunity to make improvements and raise rents, increasing profits from the building sooner rather than later.



Two Deals Bring Attention to Banking’s Safra Family - NYTimes.com