25 March 2013

Impact Investing: Making a Financial and Social Return

By
Dr. Harry Hummels

All investments can have a positive impact on society and the environment, but what distinguishes impact investments is their disclosed intention to make a positive impact and the fact that their impact is measured. This is how Dr. Harry Hummels, professor of ethics, organisations, and society at Maastricht University and managing director at SNS Impact Investing, explained impact investing to an attentive audience of investment professionals at the CFA Institute Middle East Investment Conference in Dubai on 20–21 March 2013.

Dr. Hummels stated that impact investments are “made into companies, organisations and funds with the intention to generate measurable social and environmental impact alongside a financial return. They can be made in both emerging and developed markets, and target a range of returns from below market to market rate.”

He emphasised that impact investing is not philanthropy; it is about making both a financial return and a positive impact. This is why it is not confined to religious foundations and charities but is also appropriate for institutional investors, like pension funds and insurance companies, seeking competitive returns. Some of the recurring sectors invested in are agriculture, microfinance, renewable energy, small and medium enterprises (SMEs), healthcare, green real estate, and community development. Some of the recurring asset classes are private equity, venture capital, private debt, and real estate. Having said that, he clarified that impact investing is also not confined to any particular investment sector or asset class.

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22 March 2013

Malik and Awadallah: Economic Fragmentation of the Arab World

By
Adeel Malik and Bassem Awadallah

At the recent CFA Institute Middle East Investment Conference, hosted in the modern economic miracle that is Dubai,Adeel Malik from the University of Oxford and Bassem Awadallah, founder and CEO of Tomoh Advisory, analysed the deep roots of the relative economic failure of the wider Arab world. Their diagnosis and proposed reform held the audience spellbound.  Against the backdrop of the Arab Spring and the tragic implosion of Syria, their message held an urgency.

Their argument, based on their paper “The Economics of the Arab Spring“, is that the political economy of the Middle East and North Africa (MENA) region has allowed the centralisation of much political and economic power, leading to a weak private sector, low productivity, and anaemic intra-regional trade. Combined with a population spurt, this mix has led to high youth unemployment and the pressure for social unrest.

Malik and Awadallah believe the source of the malaise lies in the centralisation of the state, with its interests served by a strong public sector, and that the state became the “provider of first and last resort” for food, housing, utilities, and jobs. A stream of external revenues through oil, aid, or remittances funded such a structure, with little need to develop the private sector. They stated that these rents have distorted economic incentives so that returns to patronage are higher than returns to production.

While such a situation was maintained for a long time, they argued that a new factor has made it more precarious.  The resources of the state are being stretched by a fast growing population.  The public sector cannot create the extra jobs needed, nor provide the expected subsidies. As a result, they think the prevailing economic model is not sustainable.

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21 March 2013

Anil Gaba: How to Make Better Investment Decisions under Uncertainty

By
Anil Gaba, chaired professor of risk management at INSEAD

Anil Gaba, chaired professor of risk management at INSEAD, gave the CFA Institute Middle East Investment Conference a range of practical pointers to help navigate the difficult process of making decisions under conditions of uncertainty.

Gaba began by questioning popular usage of the expression “black swan,” the term coined by Nassim Nicholas Taleb to mean a rare event that is not only completely unexpected but also difficult to imagine in advance, in other words, suggesting we could be forgiven for failing to forecast it. Gaba is not so convinced that some events are totally unpredictable. Instead, he says he finds predictability everywhere, especially in finance and financial models, which he is almost weary of poking fun at. Complex models regularly have less predictive power to interpret uncertainty than even simple judgments.

Gaba argues that much uncertainty can be usefully reduced to “subway uncertainty” or “coconut uncertainty.” Subway uncertainty captures that part of uncertainty that is fairly predictable — for example, the quantity of water that will be used by Dubai or London between certain hours of the day or the prospects of catching a subway train on time. Statistical properties in subway uncertainty are well-known and fall into specified limits.

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20 March 2013

Arnab Das: We Are Caught in a Trap of Excessive Debt

By
Arnab Das, managing director of research and investment strategy at Roubini Global Economics

Arnab Das, managing director of research and investment strategy at Roubini Global Economics, began his speech at the CFA Institute Middle East Investment Conference in Dubai, United Arab Emirates, by outlining a global debt crisis in which we are all caught in “this trap of excessive debt”.

Das argued that the most important parallel issues are the distribution between creditors and debtors and the balance between future and present economic activity. Central banks have sought a way out of the macroeconomic crisis by smoothing consumption through expanding public sector balance sheets. But debt, defined as spreading the cost of current investment over the future, has, as Ken Rogoff and Carmen Reinhart have pointed out, brought too much future activity to the present.

Creditor countries, such as Japan, Germany, China, and some Middle Eastern countries, are caught in the middle of this trap because their client states (countries they have lent money to) are so overleveraged. Yet money, Das says, is not the same thing as capital. Central banks have been “reflating assets as a way of maintaining wealth and mitigating liability problems,” but they are “unwilling to grapple with the fact that there is a liability problem because there is a redistributional problem”. This redistribution between creditors and debtors, between the present and future activity, has to be solved eventually.

Inflation is a key mechanism in this redistribution, but inflation is not about money alone: It is also about velocity and the multiplier. Das points out that over the financial crisis, the level of broad money has come down very sharply, along with velocity and the multiplier. Central banks have “smoothed out a drastic deleveraging that would otherwise have taken place,” Das said.

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Positive Change in the Investment Industry Must Start With All of Us

By
Nitin Mehta, CFA, speaking at the CFA Institute Middle East Investment Conference

Opening the Middle East Investment Conference in Dubai, Nitin Mehta, CFA, managing director of CFA Institute, EMEA; Yacoub Nuseibeh, CFA, president, CFA Society Emirates; and Obaid Saif Al Zaabi, Research Adviser, Securities & Commodities Authority, all spoke of the challenges facing investment professionals in the Middle East and the need for change.

Nitin Mehta, CFA, called on investment industry participants to drive a positive change in finance. Mehta stated that trust in the financial system has been badly broken and that change can start with the industry leaders, financial professionals, regulators, government agencies, and academics at the conference in Dubai. In fact, he argued change must start with all of us and quoted Mahatma Gandhi to reinforce this point: “Be the change that you want to see in the world.” Mehta encouraged the audience to engage with the “Future of Finance” project — a long-term global effort that CFA Institute has just launched to shape a trustworthy, forward-thinking financial industry that better serves society. And he emphasized the importance of the Middle East region as a financial hub in the global investment industry.

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Video: Yacoub Nuseibeh, CFA, on the Issues Facing Investment Professionals in the Middle East

By

In an interview at the kickoff of the fourth annual CFA Institute Middle East Investment Conference in Dubai, United Arab Emirates, Yacoub Nuseibeh, CFA, President, CFA Society Emirates, discusses the conference themes, some speakers, and the concerns on the minds of investment professionals in the region.

Nuseibeh highlights the key themes of the conference as being the economic outlook for the region, especially following the Arab Spring, Islamic finance, and also risk, which is an important topic for all investment professionals. Nuseibeh mentions he is looking forward to hearing Arnas Dab and the regulators’ panel, which he hopes will tackle the areas of regulatory enforcement and corporate governance. With political uncertainty in the region and global financial uncertainty, Nuseibeh believes investment professionals in the region face many issues, but he believes there will “always be opportunities and ways to navigate these storms.”

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19 March 2013

New Survey: Investment Professionals in MENA Favour Political Stability and Good Governance

By
Dubai

CFA Institute has released the results of a survey that gauges opinions on the key issues currently facing investment markets in the Middle East and North Africa (MENA). The results show that investment professionals believe political stability and good governance would have the most positive impact on MENA’s economy. In addition, respondents stated that freedom of labour and capital and regulatory alignment would help stimulate investment in the region; MENA’s securities regulators should primarily focus on investor protection; China will have the most positive economic influence in MENA; and Saudi Arabia and Qatar will experience the strongest economic growth in 2013.

CFA Institute, in collaboration with member societies in the Middle East, conducted this online survey from 19 February to 3 March 2013 to coincide with the Middle East Investment Conference being held in Dubai on 20–21 March 2013. The survey was distributed to members and candidates in 11 countries across the Middle East and Northern Africa and received 188 responses.

Stability and good governance were recurring themes throughout the survey. Half of respondents indicated that stability and good governance would have the most positive impact on the MENA economy in 2013 and 19% of respondents believed investment in infrastructure would. The importance of stability for investment professionals in the region probably explains why respondents seemed concerned and were divided about the possible effects of the Arab Spring on economic growth in the next five years: 49% thought the Arab Spring will decrease the economic growth rate whereas 38% thought it will increase the growth rate.

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18 March 2013

Ibrahim Warde Discusses Islamic Finance

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Ibrahim Warde is adjunct professor of international business at the Fletcher School of Law and Diplomacy at Tufts University. In this interview with Usman Hayat, CFA, he discusses Islamic finance and how the Islamic finance sector fared during the global financial crisis: Read More

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11 March 2013

8 March 2013

Islamic Finance: Dubai’s Economic Initiative

By
Dubai

While the global financial crisis left its mark on developed and emerging markets alike, Dubai has come through the ongoing financial storm in better shape than many had expected. Despite bleak initial forecasts, Dubai remains a tourism destination, a regional base for western companies, and a transport hub. Earlier this year, the emirate also announced a new financial initiative that could position it to become an economic world leader. Read More

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