Friday 31st July 2015
NEWS TICKER, Thursday, July 30th:Standard & Poor's Ratings Services said today that it has assigned its 'B' long-term issue credit rating to the senior unsecured Eurobond issued by the Republic of Zambia (B/Stable/B). The bond issue totals $1.25bn and carries an interest rate of 8.97%. Coupon payments will be made bi-annually, and principal repayments will take place in three equal payments, due in 2025, 2026, and 2027. The bond will be Zambia's third international placement following its debut $750m bond in September 2012, at 5.375%, and a $1bn bond issue in April 2014 at 8.5%. Zambia will mainly use the proceeds of the eurobond for budgetary and project financing – ESMA, the European markets regulator has published responses to its consultation on virtual currencies and distributed ledger technology. The responses can be viewed on the regulator’s website -The second phase of Zambia's $828m Maamba power station project is close to being finalised according to trade press reports. The project sponsor is Maamba Collieries Limited (MCL), the largest coal mining company in Zambia. In 2011, MCL appointed SEPCO Electric Power Construction Corp (China), a large supplier of power generating plants, substations, and transmission lines, for implementation of the power project. The power will be sold to Zambia Electricity Supply Corporation (ZESCO) Limited. The 300 MW plant is planned for operation by 2016.

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Positioning your firm with investors

Wednesday, 06 June 2012 Written by 
Positioning your firm with investors The evidence keeps mounting that operational risks can lead to poor returns on investment and even cause a firm’s failure. A new study to this effect has just been published in the Journal of Financial Economics (February 2012, Trust and Delegation by Stephen Brown et al.). Based on data from 444 hedge funds’ due diligence reports from 2003 to 2008, Brown and his team conclude that “high operational risk can potentially destroy investor value.” They write, “operational risk as we define it leads to direct and indirect losses that can be measured in terms of diminished performance. In extreme circumstances, operational failures can lead to fund failure.” http://www.ftseglobalmarkets.com/

The evidence keeps mounting that operational risks can lead to poor returns on investment and even cause a firm’s failure. A new study to this effect has just been published in the Journal of Financial Economics (February 2012, Trust and Delegation by Stephen Brown et al.). Based on data from 444 hedge funds’ due diligence reports from 2003 to 2008, Brown and his team conclude that “high operational risk can potentially destroy investor value.” They write, “operational risk as we define it leads to direct and indirect losses that can be measured in terms of diminished performance. In extreme circumstances, operational failures can lead to fund failure.”

Interestingly, during the pre-financial crisis time period reviewed in the study, there appears to have been no correlation between investor behavior and an awareness of operational risk.  However, in light of recent high-visibility blow-ups reflecting inadequate internal processes investor behavior has changed considerably. 

In fact, a recent study by Citi Prime Finance focusing on more current investor behavior concludes that day one and early stage allocators to hedge funds are acutely aware of operational risk. In that study, the investors’ top three concerns – track record, previous experience working together and investment team stability – were followed by a concern with the fund's operational infrastructure. (See Day One and Early Stage Investor Allocations to Hedge Funds, Citi Prime Finance, February 2012.)  The study notes, “[t]here is growing sentiment that managers need to be more ‘institutional’ at launch to reflect a changing investor base.”



Given the results of these studies, an important way to set your firm apart from the rest is to highlight the quality of your firm’s governance structure and its related business functions and operational processes. Despite the concerns of potential clients, many managers mistakenly shy away from discussing operational risks, including compliance and regulatory issues. Instead, this calls for a proactive approach that differentiates the manager from the pack and allays concerns, which would otherwise delay an initial allocation, reduce its size, or prevent it altogether. Address this in an early page in your pitchbook. From then on, an investor should be primed to focus on your performance, your unique strategy, and your investment personnel. 

Deborah Prutzman

Deborah Prutzman is the founder and CEO of The Regulatory Fundamentals Group (RFG), a New York-based firm that designs and implements business and risk solutions for alternative asset managers and institutional investors. RFG's senior-led team employs a robust suite of tools, including practical alerts on new and potential industry developments and its powerful RFG Pathfinder® knowledge management platform which simplifies the challenges of operating in a regulated environment.  To learn more about The Regulatory Fundamentals Group call (212) 537-4058, email a representative at Information@RegFG.com or visit RegFG.com

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