Stephen Rumsey of Permian Global speaking at last week’s MDO roundtable in Canach
Photo: MDO Services
MDO roundtable: The funds sector can help tackle climate change, explains Jim Kent.
Luxembourg fund professional debated some of the wider issues affecting their business at the MDO roundtable held in Kikuoka last week. This annual fixture gathered seventy decision makers from some of the leading service providers in the Grand Duchy to discuss subjects including expenses, risk, governance and branding.
The afternoon commenced with a presentation on reversing climate change through the pursuit of financial profit, made by Stephen Rumsey of Permian Global. He is known for creating the company that became Barclays Capital and growing the fixed income fund ECM to a $30bn operation. Specifically, he explained how his firm earns tradable carbon credits by working to prevent greenhouse gas emissions, using assets raised through a Luxembourg-based investment fund.
For example, they establish 50/50 joint ventures with local businesses, governments and social groups in Asia, Africa and South America to prevent the depletion of rainforest. This prevents the release of gigatons of carbon dioxide that has built up over centuries in the trees and below the forest floor. Carefully audited, this work is then translated into financial securities, which can be traded at a profit.
Rumsey added that the Permian team work to make these projects self-sustaining. “Five out of the first seven months of 2015 set global monthly temperature,” he said, so it is time to act.
Risk management for investment funds was a theme of one of the breakout sessions which followed. Most professionals recognised that risk measurement tools required by regulation were imperfect, with some saying many are a waste of time. Yet others argued that when used with care these measurements can help funds and investors make more informed choices.
Jerome Wigny, investment funds partner from EHP commented: “The regulation provides for an alignment of interests that encourages banks to take care of a fund’s assets as if they were their own. However this in itself may not be enough. Would planes crash less often should the CEO of the airline be on board? The cost of compliance must become the new norm in the same way the cost of airbags is no longer questioned by car buyers”.
Building brand-Luxembourg was also probed. A public private partnership is underway to define this country both for the outside world, but also for those who live and work here. Multiculturalism, multilingualism seem to be the leading traits.
Corporate governance is an important and ongoing challenge for the credibility of the sector. The panelists sparred over the ideal profile for board members and especially the chairperson.
John Li, partner at The Directors’ Office summed up the discussion by saying: “Corporate governance in Luxembourg is in its infancy and the process for appointing a chairman and other members of the board is not as clear in Luxemburg as in the UK. The role of the chairman is particularly important not just his/her seniority and leadership but his/her ability to relay between the board, the sponsor and shareholders.”
Another hotly debated topic was the impact of MiFID II on the Luxembourg fund industry and in particular the possible effects of the envisaged limitation on retrocession payments to distributors, many participants fear that the “ban” on retrocessions will have a significant effect on smaller asset managers and their capacity to successfully sell their investment funds to third parties and may bring the industry back to a guided fund architecture.
The panel was in agreement that this does not correspond with the original intention of the legislature.
MDO announced that their management company now manages assets of €22bn, making it one of the largest providers of third party “manco” services in Luxembourg. Their stable and consistent growth is making it the preferred choice for funds, with their scale enabling them to effectively manage the ever-growing regulatory burden. Martin Vogel, CEO of MDO Services said: “independent directors should add value. We only have high quality people who have a distinguished track record in the asset management business”.