A Brief History
When we think about technology making a significant impact in the financial world, we may think of the introduction of the internet and e-commerce business models in the 1990s, or even the banking computer systems of the 1980s. However, a few decades before that, technology in the 1950s was used to improve efficiency and costs when credit cards were being issued to aid non-cash transactions. Fintech already has a long history, and it continues to play a big part in how the financial sector operates.
The Rise of Fintech
There is no question that fintech is taking centre stage. Q2 in 2017 saw global fintech investment more than double to $8.4bn – showing no sign of slowing down. Furthermore, earlier this year, Barclays announced that it wanted to launch Europe’s largest coworking space for fintech start-ups in the heart of London. The multinational bank said its aim was to enhance Barclay’s customer and business opportunities and to “help create the future of financial services”.
- Source: Money of the Future Report
Advanced technology provides a great opportunity. Robots are quite literally changing the way hedge funds are managed. The hedge fund model is under assault with more investors perhaps preferring a more passively managed portfolio than the more traditional and actively traded funds. Last year, The Guardian found that the 25 best-paid hedge fund managers pocketed $13bn in 2015, with more of them relying on secret algorithm boxes to gain more promising returns. It came at a time when manager Bill Ackman had a “disastrous” year due to his poor bets on the pharmaceutical company, Valeant. It begs the question whether investors will now start to prefer funds that are showing more strengths than faults, alongside potentially lower operational costs.
New Technology, New Questions
While the majority of people see fintech changing the sector in countless and novel ways, a large number have not identified the questions that have to be addressed in order to fully adopt such a technology driven industry. Here are just a few examples:
An algorithmic hedge fund that deals in DAX futures must report trades for regulatory requirements. It is not immediately obvious whether the box or the manager executes trades. A manager might say that they have the ultimate decision on all trades based on their computer system set-up, but having to accept or reject hundreds of possible trades per day might be laborious. Moreover, should the clients be entitled to know how the algorithm(s) operate in order for them to make appropriate risk assessments?
Suppose the same fund has a series of unfortunate IT systems failures. If all trades for a billion dollar fund are based on a small black box , should the firm be considered as having a higher operating risk?
Conflict of interest is also an issue. Could an entirely algorithmic-based fund have a lower chance of having conflicts of interest if trades are determined by computers, not by personal opinions?
Another potential issue is telephone recordings. In light of MiFID II, phone calls are starting to be recorded (in particular those that lead up to trades and execution). If technology is starting to make compliance reporting easier (Natwest is testing AI compliance technology), it may be expected that more firms will incorporate state-of-the-art software to record and analyse conversations. Will some people object because they can never know what calls should be recorded and analysed in advance? If technology completely takes charge, can the software ever be 100% efficient? Is the only fool proof solution to separate business phone devices and personal phones devices?
As always, the development of technology is fascinating. With unchartered territory come novel questions – questions that some people may not be aware of, or even be concerned about. Above are just a few problems within a long list of complex issues. In 10 years time, the very technology that society has developed may pose the world very unexpected questions.
Saved: Emirates Places Order for Airbus A380
The Dubai-based airline, Emirates, has announced an order for 36 A380s worth $16bn, saving the superjumbo after Airbus threatened to stop production. The deal places a firm order for 20 planes with the option of ordering another 16. Deliveries are scheduled for 2020.
The two-decked superjumbo has faced declining sales as more airlines opt for smaller, cheaper aircraft.deal is said to be worth $1.6bn. Emirates is by far Airbus’ largest customer, with Thursday’s order taking their commitment to 178 aircraft.
Financing for Green Sustainable Development
Green sustainable development has been on multiple discussions channels. Talks, seminars, workshops, you name it. However, financing it has not been thoroughly discussed. How do we finance sustainable green development? Is it profitable for companies who do so? Is the rate of return high enough to cover the cost of investing in green technologies?
No doubt, green sustainable technology is an expensive technology with no clear ROI. Venturing into green technologies may be a blind-man guided only by a voice in his head. Yes, green sustainable technology yields a significant Marginal Social Benefit (MSB). But often, MSB is non-quantifiable.
Leading this social-technology movement, Jeffrey Sachs, with the support of foundations such as the Jeffrey Cheah Institute, established the Sustainable Development Goals (SDG) centre in the backdrop of academics – Sunway University.
The aim is to directly address the issues for SDGs and to ensure the goal set in the Paris Climate Agreement is able to be achieved successfully.
Now, as mentioned, private firms are both afraid and pessimistic about green sustainable development. Many do not see the outcome of this initiative and are not concerned about the environment. The technology is costly, and some firms are even struggling to break-even at their current costs. Lack of momentum from firms involved in similar industries and lack of financial support has made venturing into green technology unattractive.
On 14th of January 2018, pioneers and advocates from across the globe were invited to join a workshop at Sunway University. The idea was to bring together a group of academics, from the Asian Development Bank Institute to representatives from New Zealand and Austria, to discuss how to finance green sustainable developments. It attracted a number of firms involved or who wanted to be involved in this movement.
Financing models such as the SIB model and the Yozma model were introduced by Dr Hee Jin Noh. Papers on the theoretical relationships between a firm, a bank, and households were presented by Dr Maria Teresa Punzi. And the outcome of these series of workshops will be a book, which aims to provide a better insight and guideline for green financing, written by Dr Hee.
Also presented was a case study, comparing different countries. Associate Professor Ivan Diaz-Rainey had made comparisons on some successful countries, looking at European countries versus New Zealand and Australia. In the case study, countries were compared, and recommendations were made on how to make green financing successful. Though the definition and KPIs of a successful green development country are still vague, countries from Europe are exemplary on the ‘theory to practice’ phase.
While there is a significant increase in awareness and wanting to be involved by private firms, it needs to be supported by the government more. Regulators need to provide sufficient information to assist private firms venturing into green technology or green development. A healthy government support will increase the chance of a firm venturing into green development being successful. And these are the baby steps needed in order for transformation at city-scale or nationwide-scale.
Carillion: Funds Buy Debt for Peanuts
Distressed debt investors are reportedly buying up debt in the collapsed construction company, Carillion, for as little as 2% of their face value, with private notes exchanging for as little as 5%.
Distressed debt investors normally buy up bonds in companies facing liquidation on a hunch that their value will increase. Often they will buy a small amount that allows them access to company records before deciding on whether to place a larger bet. If Carillion retains its public contracts, in schools or hospitals for example, then investors can expect a return by buying up bonds now.
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