Suparna Goswami Bhattacharya

July 6, 2016: Britain’s historic decision to leave the EU has sparked a period of volatility across the world’s financial markets. The pound sank to multi year lows against the dollar. David Cameron’s decision to step down has only added to its woes.

However, even the darkest clouds come with a silver lining. The deterioration will now allow investors from around the world, especially the Middle East, to invest in London’s residential property.

International real estate consultancy, Cluttons, states that for those invested in the property market, the deterioration in the value of the pound overnight will have erased any gains in recent years, particularly buyers from the Gulf, whose currencies retain a fixed peg to the US dollar.

Basically, any US dollar or UAE dirham investor will find the price of an average Central London residential asset cheaper by $96,000 (Dhs 350,000). “Gulf investors eyeing up a London residential asset will find it 31% cheaper than it was during the last market peak in Q3 2007, suggesting that we may be on the cusp of seeing a significant resumption in property investment activity in the British capital,” says Faisal Durrani, head of research, Cluttons.

Victoria Garrett, partner, head of international project marketing (MENA), Knight Frank, says, “For Middle East buyers, Europe is a key destination. Within Europe, UK is the primary market where Middle East investors like to put their money in. Hence, Brexit has only helped them go after the market they have been eyeing for a long time.”

A report by CBRE in January found that Middle East buyers invested £2.72bn on snapping up hotels in the UK in 2015. In fact, the UK was the biggest market for Middle East investors in the whole of Europe. Recent assets acquired by Middle East investors include Claridge’s, The Connaught and the Berkeley in London’s Knightsbridge. The report also stated that Middle East investors would soon account for up to 30 per cent of the sales of new prime London properties. For Middle East property investors, the top four locations are London, Paris, Milan and Lyon.

Garrett says, “UK remains a destination of choice for investors from the GCC who have been investing in the market for a long time. The fact that the market has a transparent legal system and property tenure is clear-cut and underpinned by the legal system makes it all the more attractive for buyers.”

In fact, from trophy assets to investment properties, not restricted to Central London, Middle East buyers cover the whole spectrum in terms of the type of properties they acquire. “The buyers are looking at areas like East London where they are finding very good value for money. We have also seen a drive for investment into areas such as Birmingham and Manchester where the entry points are much lower and the yields are higher,” says Garrett.

“There are Middle East buyers who are taking advantage of the current situation by converting their funds into sterling to show their readiness to buy. I will not be surprised if the second half of the year actually sees Middle East clients in the city hunting for properties,” says an expert from Jones Lang Lasalle (JLL).

Durrani says the longer term implications are too early to assess, but ‘we may start to see a change in London’s long stalled residential property market’. “This has the potential to free up much needed stock in the capital and allow the resumption of more regular levels of transactional activity,” he says.

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David Drake

July 20, 2015: Scott Purcell is a serial entrepreneur experienced in securities, banking, technology, internet infrastructure, publishing, social networking and music industry. He is best known for founding Epoch Networks, one of the first internet providers in the United States as well as the brain behind a trust company that exceeded 1 billion dollars in assets. Scott is a top capital raiser who has raised more than 140 million dollars in angel and venture investments. Today, he is the founder and chief executive officer at FundAmerica, a crowdfunding platform based in San Francisco. In addition, he serves in the Crowdfunding Intermediary Regulatory Association as a Board Member.

FundAmerica

Scott Purcell founded FundAmerica in 2011 with the aim to provide software, compliance management and technology systems to investment advisers, crowdfunding portals, broker dealers, and other entities that constitute online fundraising businesses compliant with Title I and Title II of the Jumpstart Our Business Startups Act (JOBS Act). The Act allows for small and newly established businesses to raise capital through crowdfunding. As an equity and debt-based crowdfunding platform, FundAmerica uses FinTech to deliver value to its customers as well as the crowdfunding industry. By 2013, FundAmerica had raised $1.4 million worth of investment in a single round from a team of angel investors.

This was the second round of funding raised by Scott Purcell, with the money raised going towards the improvement of FundAmerica’s crowdfunding platform. Initially, FundAmerica was called Arctic Island before it was rebranded.  FundAmerica applies an aggressive strategy that enables it to serve as a crowdfunding platform for accredited investors and companies, as well as a syndication platform for investment banks and brokers making it easy for accountants and lawyers to provide advice about client offerings.

According to Scott Purcell, there are numerous startups in the United States with little or no access to initial capital. At the same time, the United States has millions of big and small investors looking for opportunities to support startups so that they can grow and generate jobs. This is where FundAmerica comes in to provide a wide platform for these groups to interact.

Crowdfunding potential

For Scott Purcell, “crowdfunding is bigger than the internet” for different reasons because its implementation significantly affects businesses, culture and the economy. The internet allowed for the creation of new forms of art, transformed societies and created new industries like crowdfunding. For Scott, the revelation of the potential that crowdfunding holds came after reading the proposed legislation of the ‘Entrepreneurs Access to Capital’ that came before the JOBS Act in 2011. The idea evoked similar excitement in him as the graphical window that Marc Andreessen produced for the internet that made its innovation huge.

Scott holds that the impact of crowdfunding on the society, culture and economy is already being felt. With the approval of Regulation A+ in March 2015, the impact of crowdfunding will be felt even more as startups gain access to capital of up to $50 million. The new rules released by the Securities and Exchange Commission (SEC) also did away with the requirements for state compliance and extended the pool of investors not only from accredited investors but to non-accredited investors as well.

According to Scott Purcell, the space created by Reg A+ for unaccredited investors to participate in crowdfunding and the fact that the law created tradable security was a big plus. However, Reg A+ is more costly when it comes to legal and accounting costs as well as filing of annual reports compared to the previous 506(c). This means that issuers will require more time to get an offering out there.

How FundAmerica works

FundAmerica provides services that allow people to develop its technology on their platforms or websites using Application Programming Interfaces or widgets. Users can also use the forms directly from FundAmerica’s website. Initially, FundAmerica is offering backend services that are required by most participants in the market for which they cannot get done by themselves. Such backend services include broker-dealer services, escrow, electronic signing and storage of investor subscription agreements, checking for PATRIOT Act compliance, anti-money laundering background checks, disclosure template and payment processing. FundAmerica does not offer front-end UX design or web design for participants. This crowdfunding platform does not engage with investors or businesses directly as well.

In June 2015, FundAmerica introduced a new online service that enables participants to confirm accreditation of investors for 506(c) offerings. This service attracts a $30 fee for each investor per year irrespective of the number of investments they make. This service is built into the platform’s Invest Now Button.

Purcell was quick to point out that the interesting thing about this service is that they really did not want to do it; they thought other people should do it. “But we got so much encouragement/pushing from our platform customers that we ultimately caved in and built it.”

David Drake is an early-stage equity expert and the founder and chairman of LDJ Capital, a New York City-based family office, and The Soho Loft Media Group.

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May 26, 2015: International Finance Magazine has recognized licensed US brokerage WhoTrades as the fastest growing brokerage in Latin America in 2015. After six months of working in the region, the company’s turnover reached USD 10 bn, while its client base, which currently stands at 8,500 people, doubles each month. The company’s management says that this success is due to its focus on promotion of innovative products and provision of a wide range of investment services.

Latin America is a fast developing region, and the fact that it is of interest for brokerages is not surprising. The market is becoming increasingly competitive, and success of a European company, that proved to be a key player, deserves attention. WhoTrades entered the Latin American market in 2014, turning this region into one of the key regions in its development strategy. By that time, the company was a global player, present in 90 cities of Americas, Europe and Asia.

No matter how large-scale operations of a brokerage are, it is impossible to enter a highly competitive market and stay their without making a unique offer, which would sharply distinguish a new player from other market participants.

As for WhoTrades, it benefited from high technologies. The company offered Latin American traders its flagship product, ??? (Multi Market Account) service, which allows trading on various global venues – from Latin America, the US and Europe to Japan and Thailand – using a single account. The service provides access to 15 stock exchanges on various continents, and in the near term, the list of the venues will double: investors will have an opportunity to trade on stock exchanges of Australia, Canada, Singapore, South Korea and other countries. Hence, clients of the company may carry out operations and earn profit 24 hours a day all over the world without leaving their homes.

Investors have thousands of instruments at hand – shares, derivatives, currencies etc., which help them implement the most complex strategies. Trading from a single account, a trader does not need to open accounts with many brokers to gain access to various markets and does not need to use different trading programs. This service will interest many categories of traders, speculators and long-term investors, as well as traders that use arbitrage and hedging strategies. The important advantage of the company is that it provides support for Spanish-speaking users, making it easy even for neophyte traders to learn to use the services.

WhoTrades has another important instrument in stock that allowed it to rapidly increase its popularity among Latin American traders: this is whotrades.com site. This is a powerful means of communication, which unites a social network and trading opportunities. These opportunities promote mutual cooperation between experienced traders and novices. One of such cooperation model is Chain Trading service available on whotrades.com., which allows traders to automatically copy transactions of other market participants on their accounts. The service is easy to work with – a user has to choose a strategy, join in, and the system will automatically repeat trading steps of an experienced trader on its account. Experienced traders that have already developed an effective strategy may receive additional income: they may launch their own system, which will attract other participants and bring its owner profit. In addition, it is possible to join or quit any system at any time. Furthermore, clients of the brokerage may trade using a demo account, as well as enroll in numerous educational programs, depending on their level of experience.

One more competitive strength of WhoTrades is flexible and user-friendly tariffs. As a global brokerage, providing direct access to trading venues, the company has an opportunity to adopt an accommodative tariff policy aimed at cutting clients’ costs.

Adam Wang, CEO, WhoTrades

“We entered the Latin American brokerage services market only six months ago, but have already achieved success. Local customers have appreciated ample investment opportunities provided by WhoTrades, a high-quality informational, analytical and technical support, as well as affordable tariffs. As a result, the number of our clients and the turnover increased considerably in this quickly developing region with an evolving investment culture. I am confident that this prestigious award from International Finance Magazine will allow us to speed up expansion on the brokerage services market of Latin America Adam Wang, CEO, WhoTrades

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May 5,2015: Ethical investment in the UK continues to thrive and expand its reach as the Ecology Building Society has made an investment of £250,000 through Abundance, the UK’s leading online ethical investment platform. Both organisations have a long commitment to the spirit of democratic finance and this tie up between a building society and an ethical investment platform is a historic first. Ecology Building Society will invest on equal terms alongside the individual Abundance investors who invest from just £5 in each project.

After successful completion of an extensive due diligence process, Ecology selected the Oakapple Berwickshire project, currently live on the Abundance platform, to make its first investment.  The project involves installation of 749 roof mounted solar panel systems with a total capacity of 2,595 kW across homes owned by the Berwickshire Housing Association in locations including Duns, Eyemouth and Coldstream.

Investment in this project will produce an effective rate of return (IRR) of 7.5%, paid twice yearly to investors as cash payments over the 20 year term of the project.  Berwickshire Housing Association tenants living in the homes on which the solar panels are installed will enjoy a substantial drop in their energy bills – up to as much as a 30% reduction – without having to pay anything towards the project.

Oakapple Berwickshire is a perfect example of the Abundance mission in action; offering a low risk investment that pays an attractive return to investors, but also has wider positive outcomes – for the Berwickshire Housing Association residents, the UK’s international commitment to cutting its carbon footprint and the environment generally.

Bruce Davis, cofounder and joint MD of Abundance said, “We have always admired Ecology Building Society’s commitment to ethical and sustainable finance – they have been doing it successfully for more than 30 years – and feel genuinely proud that after a long period of due diligence they selected the Abundance platform and projects to make their first investment.  We hope this collaboration will help shape the future of ethical finance for the next 30 years.”

Paul Ellis, CEO of the Ecology Building Society said, “We’re pleased to be involved with the Oakapple Berwickshire project. It’s a great fit for us as it addresses our members’ desire to tackle fuel poverty, support social housing and add to the UK’s growing renewables capacity. We believe that investing via crowdfunding platforms allows institutions to stand alongside individual investors, and amplify the impact of their investments in a diverse funding package. We have been impressed by the rigour of Abundance’s underwriting, and expect to develop our relationship further”.

This first injection from the Ecology Building Society increases the total investment in Oakapple Berwickshire to more than £1.5 million, well past the minimum raise of £500,000. The target total raise remains £3.1 million.  Since launch, Abundance has raised more than £9.5 million of investment into its ethical projects.

Investment in projects offered by Abundance is made through the purchase of Debentures – official IOUs that commit to pay returns on top of the original capital.  Returns will be paid in single or twice yearly payments over the term of the project (depending on the project), although investors wishing to cash in early can sell their holdings on to others via the Abundance website.

Capital is at risk and returns are variable.  Investments are long term and not readily realisable.

Press Release

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Joel Kukemelk

February 11, 2015: As a Europe-based GCC equity fund manager, we are well-aware of the international investors’ views, questions, hopes and doubts when it comes to investing in the Arabian peninsula. So far, global investors have overlooked the fast growing Gulf region – partly also because over the last decade, energy rich Middle Eastern countries have built up a reputation as a source of funds for foreign companies, not as a place where foreign investors should invest themselves. But foreign investors are finally starting to notice the region. However, as the majority of the potential foreign investors don’t have any previous experience at all with the region, it’s a slow process and a lot of education has to be done.

MSCI upgrade to the UAE and Qatar in 2014 has definitely helped to garner more interest for the region (combined weight of 1.6% in MSCI EM index). Dubai winning the opportunity to host EXPO 2020 (first time ever in the Middle East), its airport eclipsing London’s Heathrow in international passenger traffic, Qatar hosting the football World Cup in 2022 (first time ever in the Middle East) are small but necessary milestones in demonstrating to the world that this part of the Middle East has reached an inflection point.

With traditional big emerging markets – BRIC countries – struggling to show growth, international investors are more willing to look at alternative places for long-term investments. GCC’s strong economic growth numbers coupled with sound fiscal management grabs the attention of the new foreign investors.

But nothing comes easy or quickly. Many European investors have developed strong perceptions when it comes to the Middle East and these are related to war, unrest, instability, constant geopolitical tensions, different culture, harsh desert climate, huge oil revenue dependency etc. To make matters worse, many foreign investors put all the Middle East countries in the same regional risk basket despite countries being completely different from each other. To break these dogmas, asset managers need to spend a lot of time introducing the region, but of course the GCC countries could help as well by distinguishing themselves more from the broader Middle East region.

GCC has a lot to offer to foreigners Let’s look at the numbers. GCC countries have 10% of MENA population but 50% of GDP. They hold 45% of world oil reserves and 20% of gas reserves. They have current account and budget surpluses though it is true that the 40+% fall in oil prices in 2014 might force them to tap their huge $2 trillion reserves (more than 100% of GCC GDP) in 2015 for the first time in many years, strong reserves built from energy wealth revenues, fixed currency rates, fast economic growth, multi-year long investment programs, young and growing demographics are exactly what long-term investors are looking for.

Even better, GCC stock markets have low correlation to other world stock markets making them an ideal component to a diversifiedinvestment portfolio. The biggest risks are sudden unexpected energy price falls (unlikely, but for example the 40% oil fall witnessed in 2014 continuing at the same pace in 2015) and escalations in geopolitical tensions. Potential benefits, however, strongly outweigh these risks.

GCC stock markets are already sizeable. The total market cap exceeds $1 trillion, i.e. 2% of global stock markets. Saudi Arabia makes up half of that and with the Kingdom expected to open up its stock market to foreign investors in the first half of 2015, investors can’t turn a blind eye to the region any more.

Foreign investors’ exposure to the region is light years away from what it should be going by the market capitalisation. Some emerging and frontier markets that are smaller have managed to attract much more foreign investor attention. For example, stock markets in Russia, Turkey, Indonesia, Singapore, South Africa are all smaller than GCC combined stock market cap, yet foreign investors are much more familiar with those countries. Due to long-standing active interest, there are a number of international ETFs and country-specific mutual funds being offered in the market.

If energy rich GCC countries want to attract more foreign investors, then proceeding with the integration process within the union and distinguishing themselves more from the wider MENA region can make foreign investors look at the Middle East differently and unbundle some countries from the others. This would mean lower risk premiums for countries with stronger macro numbers and long-term prospects.

Foreign vs regional-based GCC fund managers

Joel Kukemelk	Should foreign investors prefer regionally-based funds or international funds? Practice shows that when we are talking about country-specific funds, usually preference is given to locally based funds. But for a regional fund, it becomes trickier.First of all, a fund with a regional mandate can’t be locally-based since it can’t be simultaneously present in all of the countries. Secondly, if a regional fund is based in one member country, the investment manager is likely subject to home-market bias.

Thirdly, practice has shown that for a regional fund being based in one member country doesn’t guarantee better returns compared to the funds that are run outside of the region.

And lastly, when international investors are investing money in a far-away region whee they don’t have experience with a local manager, they might feel considerably more unease than investing in an internationally-based regional fund where a fund manager understands the needs of the local investment climate.

For example, European asset manager might be willing to invest in the Middle East more willingly when they can deal directly with fellow European asset management companies who can demonstrate long-standing experience in investing in the region. In short, an unknown region with a known asset manager is better than an unknown region with unknown asset manager.

The market for regional funds based outside the region itself has existed already for a long time and for a good reason. With growing foreign investor interest towards the GCC stock markets, it’s possible that additional foreign funds will be launched but today’s investment climate also offers a valuable opportunity for all the existing GCC fund managers to market themselves and the long-term potential of the whole GCC region among foreign investors.

Joel Kukemelk is Fund Manager of LHV Persian Gulf Fund

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