This document discusses investors' increasing focus on yield in light of historically low interest rates. It outlines two key considerations when evaluating yield-generating investments: 1) current market conditions have pushed yields to low levels, making high past yields difficult to achieve; and 2) pursuing higher yields often requires taking on greater risk. The document emphasizes balancing yield objectives with the associated risks and volatility to avoid chasing returns without understanding risks.
This document defines key investment terms related to objectives, risks, asset classes, and strategies. It discusses basic investment goals, factors to consider when choosing investments, and types of risk like financial, market, interest rate, and purchasing power risk. It also outlines rates of return calculations, capital gains advantages, diversification methods, common stock valuation measures, and real estate investment concepts. Fixed income investments, options, futures, and bonds are also defined.
Capitalizing On The Crisis: Strategic Decision-Making in an Uncertain Economyskaf777
Strategic leaders must make difficult decisions under conditions of extreme uncertainty due to the current economic crisis. They should reassess risk and returns of their portfolio, develop contingency plans to maximize upside and limit downside, and maintain strategic flexibility. Opportunities exist for companies that understand value and risk to acquire distressed assets, engage in mergers and acquisitions, and take industry leadership. Building cash reserves and access to credit provides flexibility to capitalize on attractive deals as conditions evolve unpredictably.
IBM Global Finance - Building strong IT Business Cases in the New Economic WorldVincent Kwon
This document discusses how IT projects can be approved in the new economic world. It outlines the challenges facing CFOs, including constraints on access to credit and the need to prioritize short-term financial matters. It then provides advice on addressing the priorities of finance departments by cutting costs, increasing productivity, and seeking alternative financing such as leasing. The document recommends focusing business cases on metrics like ROI, clarity on benefits, and clear execution plans to gain project approval from CFOs.
Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other financial institution insurance, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal. Raymond James is not affiliated with the financial institution or the investment company. Material prepared by Raymond James for use by its advisors.
The document discusses a new technique for nonprofit financial reporting that separates capital funding from operating revenue. Under the conventional reporting method, capital is treated as regular revenue, obscuring the organization's true operating picture. The proposed method reports capital separately from revenue to show whether capital investments are resulting in increased revenue to cover ongoing costs. It recommends presenting capital releases separately below the change in net assets line for improved transparency. This allows leaders and funders to assess progress toward financial sustainability goals.
New Oak Creating An Effective Risk Modeling Framework (Pensions Risk Manage...Ron D'Vari
The document discusses various approaches to liability driven investing (LDI), including:
1) Different styles of LDI ranging from basic cash-flow matching to more sophisticated asset allocation strategies. Effective LDI also requires ongoing risk management and reporting.
2) Modern portfolio theory that ignores liability risks, while LDI focuses on optimizing relative to liability benchmarks and measuring inter-temporal risk relative to liabilities.
3) The impact of market conditions on LDI, as liability benchmarks outperform in down markets but market benchmarks work better in up markets, influencing sponsor preferences and contributions.
If you’re like many Americans, you’ve been setting aside money for your retirement. Now that you’re nearing retirement age, it may soon be time to start drawing money from your qualified retirement plans. When it comes to taking distributions, you face a number of important decisions, including which money to use first.
This document defines key investment terms related to objectives, risks, asset classes, and strategies. It discusses basic investment goals, factors to consider when choosing investments, and types of risk like financial, market, interest rate, and purchasing power risk. It also outlines rates of return calculations, capital gains advantages, diversification methods, common stock valuation measures, and real estate investment concepts. Fixed income investments, options, futures, and bonds are also defined.
Capitalizing On The Crisis: Strategic Decision-Making in an Uncertain Economyskaf777
Strategic leaders must make difficult decisions under conditions of extreme uncertainty due to the current economic crisis. They should reassess risk and returns of their portfolio, develop contingency plans to maximize upside and limit downside, and maintain strategic flexibility. Opportunities exist for companies that understand value and risk to acquire distressed assets, engage in mergers and acquisitions, and take industry leadership. Building cash reserves and access to credit provides flexibility to capitalize on attractive deals as conditions evolve unpredictably.
IBM Global Finance - Building strong IT Business Cases in the New Economic WorldVincent Kwon
This document discusses how IT projects can be approved in the new economic world. It outlines the challenges facing CFOs, including constraints on access to credit and the need to prioritize short-term financial matters. It then provides advice on addressing the priorities of finance departments by cutting costs, increasing productivity, and seeking alternative financing such as leasing. The document recommends focusing business cases on metrics like ROI, clarity on benefits, and clear execution plans to gain project approval from CFOs.
Securities are offered through Raymond James Financial Services, Inc., member FINRA/SIPC, an independent broker/dealer, and are not insured by FDIC, NCUA or any other financial institution insurance, are not deposits or obligations of the financial institution, are not guaranteed by the financial institution, and are subject to risks, including the possible loss of principal. Raymond James is not affiliated with the financial institution or the investment company. Material prepared by Raymond James for use by its advisors.
The document discusses a new technique for nonprofit financial reporting that separates capital funding from operating revenue. Under the conventional reporting method, capital is treated as regular revenue, obscuring the organization's true operating picture. The proposed method reports capital separately from revenue to show whether capital investments are resulting in increased revenue to cover ongoing costs. It recommends presenting capital releases separately below the change in net assets line for improved transparency. This allows leaders and funders to assess progress toward financial sustainability goals.
New Oak Creating An Effective Risk Modeling Framework (Pensions Risk Manage...Ron D'Vari
The document discusses various approaches to liability driven investing (LDI), including:
1) Different styles of LDI ranging from basic cash-flow matching to more sophisticated asset allocation strategies. Effective LDI also requires ongoing risk management and reporting.
2) Modern portfolio theory that ignores liability risks, while LDI focuses on optimizing relative to liability benchmarks and measuring inter-temporal risk relative to liabilities.
3) The impact of market conditions on LDI, as liability benchmarks outperform in down markets but market benchmarks work better in up markets, influencing sponsor preferences and contributions.
If you’re like many Americans, you’ve been setting aside money for your retirement. Now that you’re nearing retirement age, it may soon be time to start drawing money from your qualified retirement plans. When it comes to taking distributions, you face a number of important decisions, including which money to use first.
Participating Life Insurance - Balancing To Reduce RiskLawrence Cole
This document summarizes the benefits of participating life insurance as a unique asset class. It notes that participating life insurance provides guaranteed cash value growth, tax advantages on cash value growth, flexibility of access to cash value, and a tax-free life insurance benefit. The document highlights London Life's participating account, which provides professionally managed investments, low expenses, and historically strong and stable returns compared to other asset classes. An example shows how participating life insurance can outperform taxable investments on both cash value and death benefits over a 20-45 year period. The document promotes participating life insurance as a way to enhance net worth and estate value through its blend of benefits.
This document summarizes information presented by Taoufiq LAHRACH at a global conference on guarantee schemes for SME financing in Tallinn, Estonia. It outlines challenges facing Morocco's central guarantee institution, Caisse Centrale de Garantie (CCG), including a need to rationalize the national guarantee system. It then describes CCG's new strategy to address these challenges through a revised guarantee offer tailored to SME lifecycles, streamlining application processes, and increasing regional representation. The goal is to better support SMEs and have a greater economic impact through a more accessible, efficient guarantee system.
This document defines financial terms from A to G. It provides definitions for terms such as gamma, Garmen-Kohlhagen option pricing model, gearing, general cash offer, and generally accepted accounting principles (GAAP). The document also defines terms related to government securities, gross domestic product, and growth stocks.
The document discusses consumer mindsets in the context of the UK credit crunch and recession of 2008-2009. It identifies four main consumer typologies - Recreational, Reserved, Retrenchers, and Reality - and describes the characteristics, perspectives, and consumption behaviors of consumers in each group. It also provides insights into how different consumer segments have approached specific spending categories like utilities in the challenging economic environment.
The document discusses working capital management. It defines key concepts like working capital, current assets, and liquidity. It analyzes different policies for managing current asset levels and their impact on liquidity, profitability, and risk. Specifically, it finds that greater current asset levels increase liquidity but decrease profitability while lower levels have the reverse impact and increase risk. The document also covers classifying working capital components and financing current assets using either a short-term or long-term approach.
Banking credit concentration management -limiting setting Eric Kuo
The document discusses concentration risk management through implementing credit limit boundaries based on a bank's risk appetite. It proposes that credit limits should be set not just based on expert judgment but also using risk metrics like PD, LGD and EAD. Concentration risk can arise from large exposures to individual counterparties, related groups, or from concentrations in specific industries, regions or activities. Banks tend to have exposures concentrated in their largest customers and industries, so limits are needed to control this risk and protect banks from unexpected losses that could threaten their credit ratings and market capitalization.
The document discusses FDIC-insured deposits as an investment opportunity with higher yields than Treasuries. It notes the full faith and credit guarantee by the US government for deposits up to $250,000 per depositor per institution. It also discusses the challenges institutional investors face in taking advantage of these higher yields, including sourcing deposits from many banks, tracking insurance limits, and liquidity issues. The document proposes a structural platform to source, screen, and construct portfolios of FDIC-insured deposits to help institutional investors overcome these hurdles.
Financial stability, structure and credit enhancement mr. noranuarUmer Ahmed, CIFP
This document summarizes a presentation on financial stability structures and credit enhancement in Islamic finance. It discusses key aspects of financial stability such as monetary stability and confidence in financial institutions. It also examines case studies of financial crises and focuses on credit enhancement mechanisms in Islamic finance, including margin maintenance structures using Mudharabah, Wadi'ah and Qardh contracts. The presentation aims to understand how regulators, financial institutions and consumers can work towards financial stability.
Financial Stability, Structures & Credit Enhancement in Islamic Financial...anuar_ceo
This document summarizes a presentation on financial stability structures and credit enhancement in Islamic finance. It discusses key aspects of financial stability such as monetary stability and confidence in financial institutions. It also examines case studies of financial crises and how regulators, financial institutions, and consumers can promote stability. Additionally, the document outlines various Shariah compliant credit enhancement mechanisms used in Islamic finance, such as margin maintenance structures based on Mudharabah, Wadi'ah, and Qardh contracts to mitigate risk.
This document discusses credit risk economic capital modeling. It provides an overview of the role of bank capital in absorbing unexpected losses while maintaining solvency. It then interprets Basel 2's capital equation, which incorporates factors like the Vasicek model, correlation, expected loss (EL), and tenor adjustment. The document introduces a model that follows Basel's approach while also using simulation to measure economic capital (EC). It discusses key applications of EC in areas like risk governance, external communication, and internal management. EC reflects a bank's risk appetite by indicating how much unexpected loss the bank is willing to absorb with its capital reserves.
This is a presentation by Anjali Kumar, Lead Economist in the World Bank Group's Independent Evaluation Group (IEG) on the World Bank Group's response to the global economic crisis.
Northwestern Mutual has a unique investment approach that contributes to strong financial performance. They invest across all major asset classes including fixed income, equities, real estate, and private investments. This diversification helps reduce volatility while still achieving competitive returns. Over the past 20 years, their portfolio has averaged an annual return of 8.24% while exposing assets to less risk than stocks alone. Their balanced approach provides policyholders with consistent, reliable growth of their life insurance savings.
The document discusses capital risk management issues for fixed indexed annuities (FIAs) and variable annuities (VAs) in a low interest rate environment. For FIAs, low rates pose challenges for new products and lapse-supported products. Carriers are enhancing assumptions, hedging programs, and pursuing new reserving regimes. For VAs, low rates impact reserve levels and capital requirements. Carriers are refining projections of hedging, reserves, policyholder behavior, and product designs.
This document provides information on various sources of finance including venture capital, retained earnings, equity shares, preference shares, deep discount bonds, certificates of deposit, trade credit, debentures, and commercial paper. It defines each type of financing, describes their key features and terms, and notes some advantages and disadvantages. Venture capital finances startups and risky businesses. Retained earnings come from profits not paid as dividends. Equity and preference shares represent different types of company ownership. Deep discount bonds pay no interest until maturity.
A New Arrow for The Pension Practitioners Quiver: Pension Risk TransferJay Dinunzio
Webinar Presentation Slides
Gone are the days of group annuity contracts only being able to satisfy the plan termination objectives of a pension plan sponsor. Today, there are a wide variety of useful applications for guaranteed institutional annuity contract structures to provide an alternative to traditional fixed income investments. Are you or your pension clients:
•Struggling with cost and volatility issues surrounding a defined benefit pension plan?
•Considering a liability driven investment strategy that will de-risk the plan investment and allow for stable, predictable funding?
•Limited by fixed income funds that only allow for simple duration matching, and expose the plan to cash flow mismatch risks?
•Unaware of the variety of customized institutional insurance contract structures available?
•Lacking a fiduciary process for evaluating and monitoring the attractiveness of insured pension solutions?
Asset intensive reinsurance has been a hot topic in the marketplace, in particular reinsurance for fixed annuities, variable annuities and indexed annuities.
With variable annuities in particular, the products have been written recently specifically combat the difficulties posed by the low interest rate environment. With GAAP ROEs as healthy as ever, solution providers (banks/reinsurers) are looking to enter into the variable annuity reinsurance market to get their "share of the pie".
The asset intensive reinsurance world is evolving rapidly, and I will be presenting this evolution for certain high-profile products during the Valuation Actuary Symposium on 8/31 at 10:00 AM.
Hope to see many of you friendly faces there!
The IDB provides loans, grants, advice and technical assistance to governments and organizations in Latin America and the Caribbean to promote sustainable development. It offers various financial products including A/B loans to mobilize private sector funding. Through B-loans, the IDB shares project risk with private investors while providing benefits like preferred creditor status, longer tenors and exemption from mandatory risk provisions. B-loans help the IDB fulfill its role of spreading risk and mobilizing additional resources for development initiatives in the region.
- Inflation has remained moderate at around 3.8% annually on average over the past 20 years. GDP growth in Q2 2011 was a lackluster 1.0% annualized, lower than expected. Unemployment remains stubbornly high despite government efforts to create jobs. Volatility surged in Q3 due to uncertainty in Europe and other factors. Commodities retreated with oil at its lowest levels in 2011 and gold finishing the quarter positive but down in September.
Hedge Funds: A Look Back and A Look Ahead - Dec. 2011RobertWBaird
Hedge funds have proven to be worthy financial instruments over the past 20 plus years, and have contributed to the growth of the modern financial industry. The addition of a well diversified group of hedge funds to a traditional portfolio has been shown to be an effective way to potentially increase returns, while also preserving capital during adverse market environments. Going into 2010, the hedge fund industry appears to be healthier than it has been in more than a decade, albeit much smaller in terms of assets than it was at its peak two years ago.
The document discusses how many private foundations focus primarily on the tax benefits of philanthropic giving and the logistical requirements of setting up a foundation, rather than clearly defining their mission. It argues that this lack of mission focus is influenced by the IRS requirement that foundations pay out 5% of their assets annually in grants. To maximize their impact, foundations should separately define their mission, create spending policies aligned with the mission, and set investment strategies accordingly, even while meeting the 5% requirement. Clearly communicating the mission can help foundations avoid unclear donor intent derailing their goals.
2012 Economic and Stock Market Outlook - Dec. 2011RobertWBaird
Risk on S&P 500 to 1000, reward to 1400. Election and European debt uncertainties are dominant risks in first half. Headwinds could abate later in year. GDP outlook limited to 2% growth due to lack of income gains. Europe in recession. Volatility unlikely to decrease; manage portfolios for risk and return.
Participating Life Insurance - Balancing To Reduce RiskLawrence Cole
This document summarizes the benefits of participating life insurance as a unique asset class. It notes that participating life insurance provides guaranteed cash value growth, tax advantages on cash value growth, flexibility of access to cash value, and a tax-free life insurance benefit. The document highlights London Life's participating account, which provides professionally managed investments, low expenses, and historically strong and stable returns compared to other asset classes. An example shows how participating life insurance can outperform taxable investments on both cash value and death benefits over a 20-45 year period. The document promotes participating life insurance as a way to enhance net worth and estate value through its blend of benefits.
This document summarizes information presented by Taoufiq LAHRACH at a global conference on guarantee schemes for SME financing in Tallinn, Estonia. It outlines challenges facing Morocco's central guarantee institution, Caisse Centrale de Garantie (CCG), including a need to rationalize the national guarantee system. It then describes CCG's new strategy to address these challenges through a revised guarantee offer tailored to SME lifecycles, streamlining application processes, and increasing regional representation. The goal is to better support SMEs and have a greater economic impact through a more accessible, efficient guarantee system.
This document defines financial terms from A to G. It provides definitions for terms such as gamma, Garmen-Kohlhagen option pricing model, gearing, general cash offer, and generally accepted accounting principles (GAAP). The document also defines terms related to government securities, gross domestic product, and growth stocks.
The document discusses consumer mindsets in the context of the UK credit crunch and recession of 2008-2009. It identifies four main consumer typologies - Recreational, Reserved, Retrenchers, and Reality - and describes the characteristics, perspectives, and consumption behaviors of consumers in each group. It also provides insights into how different consumer segments have approached specific spending categories like utilities in the challenging economic environment.
The document discusses working capital management. It defines key concepts like working capital, current assets, and liquidity. It analyzes different policies for managing current asset levels and their impact on liquidity, profitability, and risk. Specifically, it finds that greater current asset levels increase liquidity but decrease profitability while lower levels have the reverse impact and increase risk. The document also covers classifying working capital components and financing current assets using either a short-term or long-term approach.
Banking credit concentration management -limiting setting Eric Kuo
The document discusses concentration risk management through implementing credit limit boundaries based on a bank's risk appetite. It proposes that credit limits should be set not just based on expert judgment but also using risk metrics like PD, LGD and EAD. Concentration risk can arise from large exposures to individual counterparties, related groups, or from concentrations in specific industries, regions or activities. Banks tend to have exposures concentrated in their largest customers and industries, so limits are needed to control this risk and protect banks from unexpected losses that could threaten their credit ratings and market capitalization.
The document discusses FDIC-insured deposits as an investment opportunity with higher yields than Treasuries. It notes the full faith and credit guarantee by the US government for deposits up to $250,000 per depositor per institution. It also discusses the challenges institutional investors face in taking advantage of these higher yields, including sourcing deposits from many banks, tracking insurance limits, and liquidity issues. The document proposes a structural platform to source, screen, and construct portfolios of FDIC-insured deposits to help institutional investors overcome these hurdles.
Financial stability, structure and credit enhancement mr. noranuarUmer Ahmed, CIFP
This document summarizes a presentation on financial stability structures and credit enhancement in Islamic finance. It discusses key aspects of financial stability such as monetary stability and confidence in financial institutions. It also examines case studies of financial crises and focuses on credit enhancement mechanisms in Islamic finance, including margin maintenance structures using Mudharabah, Wadi'ah and Qardh contracts. The presentation aims to understand how regulators, financial institutions and consumers can work towards financial stability.
Financial Stability, Structures & Credit Enhancement in Islamic Financial...anuar_ceo
This document summarizes a presentation on financial stability structures and credit enhancement in Islamic finance. It discusses key aspects of financial stability such as monetary stability and confidence in financial institutions. It also examines case studies of financial crises and how regulators, financial institutions, and consumers can promote stability. Additionally, the document outlines various Shariah compliant credit enhancement mechanisms used in Islamic finance, such as margin maintenance structures based on Mudharabah, Wadi'ah, and Qardh contracts to mitigate risk.
This document discusses credit risk economic capital modeling. It provides an overview of the role of bank capital in absorbing unexpected losses while maintaining solvency. It then interprets Basel 2's capital equation, which incorporates factors like the Vasicek model, correlation, expected loss (EL), and tenor adjustment. The document introduces a model that follows Basel's approach while also using simulation to measure economic capital (EC). It discusses key applications of EC in areas like risk governance, external communication, and internal management. EC reflects a bank's risk appetite by indicating how much unexpected loss the bank is willing to absorb with its capital reserves.
This is a presentation by Anjali Kumar, Lead Economist in the World Bank Group's Independent Evaluation Group (IEG) on the World Bank Group's response to the global economic crisis.
Northwestern Mutual has a unique investment approach that contributes to strong financial performance. They invest across all major asset classes including fixed income, equities, real estate, and private investments. This diversification helps reduce volatility while still achieving competitive returns. Over the past 20 years, their portfolio has averaged an annual return of 8.24% while exposing assets to less risk than stocks alone. Their balanced approach provides policyholders with consistent, reliable growth of their life insurance savings.
The document discusses capital risk management issues for fixed indexed annuities (FIAs) and variable annuities (VAs) in a low interest rate environment. For FIAs, low rates pose challenges for new products and lapse-supported products. Carriers are enhancing assumptions, hedging programs, and pursuing new reserving regimes. For VAs, low rates impact reserve levels and capital requirements. Carriers are refining projections of hedging, reserves, policyholder behavior, and product designs.
This document provides information on various sources of finance including venture capital, retained earnings, equity shares, preference shares, deep discount bonds, certificates of deposit, trade credit, debentures, and commercial paper. It defines each type of financing, describes their key features and terms, and notes some advantages and disadvantages. Venture capital finances startups and risky businesses. Retained earnings come from profits not paid as dividends. Equity and preference shares represent different types of company ownership. Deep discount bonds pay no interest until maturity.
A New Arrow for The Pension Practitioners Quiver: Pension Risk TransferJay Dinunzio
Webinar Presentation Slides
Gone are the days of group annuity contracts only being able to satisfy the plan termination objectives of a pension plan sponsor. Today, there are a wide variety of useful applications for guaranteed institutional annuity contract structures to provide an alternative to traditional fixed income investments. Are you or your pension clients:
•Struggling with cost and volatility issues surrounding a defined benefit pension plan?
•Considering a liability driven investment strategy that will de-risk the plan investment and allow for stable, predictable funding?
•Limited by fixed income funds that only allow for simple duration matching, and expose the plan to cash flow mismatch risks?
•Unaware of the variety of customized institutional insurance contract structures available?
•Lacking a fiduciary process for evaluating and monitoring the attractiveness of insured pension solutions?
Asset intensive reinsurance has been a hot topic in the marketplace, in particular reinsurance for fixed annuities, variable annuities and indexed annuities.
With variable annuities in particular, the products have been written recently specifically combat the difficulties posed by the low interest rate environment. With GAAP ROEs as healthy as ever, solution providers (banks/reinsurers) are looking to enter into the variable annuity reinsurance market to get their "share of the pie".
The asset intensive reinsurance world is evolving rapidly, and I will be presenting this evolution for certain high-profile products during the Valuation Actuary Symposium on 8/31 at 10:00 AM.
Hope to see many of you friendly faces there!
The IDB provides loans, grants, advice and technical assistance to governments and organizations in Latin America and the Caribbean to promote sustainable development. It offers various financial products including A/B loans to mobilize private sector funding. Through B-loans, the IDB shares project risk with private investors while providing benefits like preferred creditor status, longer tenors and exemption from mandatory risk provisions. B-loans help the IDB fulfill its role of spreading risk and mobilizing additional resources for development initiatives in the region.
- Inflation has remained moderate at around 3.8% annually on average over the past 20 years. GDP growth in Q2 2011 was a lackluster 1.0% annualized, lower than expected. Unemployment remains stubbornly high despite government efforts to create jobs. Volatility surged in Q3 due to uncertainty in Europe and other factors. Commodities retreated with oil at its lowest levels in 2011 and gold finishing the quarter positive but down in September.
Hedge Funds: A Look Back and A Look Ahead - Dec. 2011RobertWBaird
Hedge funds have proven to be worthy financial instruments over the past 20 plus years, and have contributed to the growth of the modern financial industry. The addition of a well diversified group of hedge funds to a traditional portfolio has been shown to be an effective way to potentially increase returns, while also preserving capital during adverse market environments. Going into 2010, the hedge fund industry appears to be healthier than it has been in more than a decade, albeit much smaller in terms of assets than it was at its peak two years ago.
The document discusses how many private foundations focus primarily on the tax benefits of philanthropic giving and the logistical requirements of setting up a foundation, rather than clearly defining their mission. It argues that this lack of mission focus is influenced by the IRS requirement that foundations pay out 5% of their assets annually in grants. To maximize their impact, foundations should separately define their mission, create spending policies aligned with the mission, and set investment strategies accordingly, even while meeting the 5% requirement. Clearly communicating the mission can help foundations avoid unclear donor intent derailing their goals.
2012 Economic and Stock Market Outlook - Dec. 2011RobertWBaird
Risk on S&P 500 to 1000, reward to 1400. Election and European debt uncertainties are dominant risks in first half. Headwinds could abate later in year. GDP outlook limited to 2% growth due to lack of income gains. Europe in recession. Volatility unlikely to decrease; manage portfolios for risk and return.
Extension of Tax Cuts, Estate Changes Highlight Final Bill of 2010RobertWBaird
The Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010 extended several expiring tax provisions, including extending the 2001 and 2003 tax cuts through 2012. It also increased the estate tax exemption to $5 million per individual for 2011-2012, reduced the top estate tax rate to 35%, and made the exemption portable between spouses. Additionally, it reduced the employee portion of the payroll tax from 6.2% to 4.2% for 2011 and extended Alternative Minimum Tax relief for 2010-2011.
The Truth about Top-Performing Money Managers - Dec. 2011RobertWBaird
Virtually all top-performing money managers experience periods where they underperform their benchmarks and peers, especially over periods of 3 years or less. The study found that 85% of top managers underperformed by at least 1% over a 3-year period at some point, and 81% fell below their peer median as well. However, sticking with top managers pays off long-term - investors who abandon managers after short-term underperformance miss out on future gains, as many managers recover to outperform again. The study shows investors would have earned higher returns by staying invested after periods when managers fell from high ratings, rather than abandoning them.
Demystifying the Role of Alternative Investments in a Diversified Investment ...RobertWBaird
Alternative investments can potentially improve the risk-return profile of investment portfolios by increasing diversification and enhancing returns. They invest in less traditional assets and strategies than stocks and bonds. While alternatives may boost portfolio performance, they also carry higher fees and less liquidity, transparency and tax efficiency than traditional investments. For most investors, allocating 10-20% of a portfolio to alternatives can provide benefits while balancing their risks.
This document discusses Ecolab's financial performance in 2000. Key points include:
- Net sales reached nearly $2.3 billion, a 9% increase over 1999, due to business acquisitions, new products, and growth in core businesses.
- Operating income was a record $343 million. Excluding unusual items, operating income rose 12% to $324 million, or 14.3% of net sales.
- Net income was $206 million. Excluding unusual items, net income increased 13% to $198 million, or 8.7% of net sales, reflecting strong operating income growth and a lower tax rate.
- The company continued its trend of strong financial results and
In search of yield market perspectives september 2012Rankia
The document discusses how investors are searching for yield in a low interest rate environment. It notes that while yields are low globally, equity dividend yields remain relatively high compared to historical standards and fixed income alternatives. Specifically, developed international markets and select emerging markets offer reasonably valued markets with attractive dividend yields above 3%. While dividend paying equities present opportunities, some defensive sectors like US utilities appear overvalued given their popularity for yield seeking investors. The document recommends considering reasonably valued international markets and sectors like energy that offer both yield and potential upside.
This document provides an overview and analysis of Ecolab's financial performance in 2001. Key points include:
- Net sales reached $2.4 billion, a 4% increase over 2000, despite negative impacts from currency exchange rates and economic conditions.
- Operating income decreased 7% to $318 million due to higher raw material costs, sales mix changes, and general cost increases.
- Net income per share decreased 7% to $1.45, partly due to unusual gains in 2000 that did not recur in 2001.
- The company met two of its three long-term financial objectives for the year.
Paradigm Shift Investing In Illiquid Assets Nov 2008Xavier_Timmermans
This document discusses the advantages of investing in illiquid assets. It argues that illiquidity can provide higher returns through an illiquidity premium. During times of crisis, like the current credit crunch, the illiquidity premium increases significantly as investors demand liquidity. The document examines why some investors accept restricted liquidity in hedge funds, private equity, and credit markets to target higher returns. However, it also notes that illiquidity can increase risks for hedge funds during periods of market stress when liquidity is needed.
This document discusses a new technique for nonprofit organizations to separately report capital and operating revenue in their financial statements in order to provide more transparency. Under the current reporting standards, capital is often mixed in with operating revenue, obscuring the true financial performance and health of the organization. The proposed technique separates capital from revenue to show how capital is being used to fund planned deficits as an organization undergoes changes. It also allows organizations and funders to track progress toward the goal of achieving net operating revenue. The document provides examples of how the capital and operating revenue would be reported separately using this new technique.
Investment Management – a creator of value in an insurance companyFelix Schlumpf
Insurance companies generally recognise the importance of separating the responsibilities for managing their insurance businesses from managing the investments backing their reserves and capital. Due to the scale of investments in an insurance company’s balance sheet and the impact of investment results on its profitability, the management of these investments is a key function in an insurance company that can create significant value for the company’s policyholders and shareholders. To accomplish this value creation, Investment Management at Zurich uses a systematic and structured investment process focusing on the value drivers that matter most.
The document is a cheat sheet for hedge funds. It provides summaries of key information about hedge funds in 3 sentences or less:
1) The first page summarizes common characteristics of hedge funds, who invests in them, and why investors may choose hedge funds for diversification, downside protection, and an absolute return focus.
2) Page 2 defines differences between hedge funds and mutual funds, such as flexibility, paperwork requirements, liquidity, and an absolute vs. relative return focus. It also summarizes reasons to invest in hedge funds.
3) Page 3 summarizes common hedge fund fees including an annual management fee typically between 1-2% of assets and an incentive fee usually 20% of profits
1. High-yield bonds carry higher risk than investment-grade bonds because they have a higher chance of defaulting and their prices tend to be more volatile. While they may offer higher returns, the trade-off is higher risk.
2. The document recommends that high-yield bonds and funds not be considered as replacements for investment-grade bonds due to their higher risks and mixed long-term performance relative to lower-risk investment grade bonds.
3. For more aggressive investors, the document suggests allocating no more than 5% of a portfolio to high-yield investments, due to concerns about the current economic environment and increased volatility in high-yield markets.
High-yield bonds carry higher risk than investment-grade bonds in exchange for higher potential returns. The document discusses the risks of high-yield bonds, including higher default rates, price volatility, and reduced diversification benefits compared to investment-grade bonds. It recommends that individual investors limit high-yield bond exposure to 0-5% of their portfolio due to the risks. While high-yield bond funds provide diversification, they still carry significant risk and volatility. The outlook for high-yield bonds is uncertain given a weak economy, rising default rates, and reduced liquidity in the high-yield bond market.
This document discusses leverage in hedge funds. It defines leverage as using borrowed capital to amplify returns. While leverage can boost returns when asset prices rise, it also amplifies losses when prices fall. The author believes leverage is a valid tool when used judiciously but cautions against using too much leverage to boost low-return strategies. Typical leverage levels vary by strategy from 1x to 6x of gross assets. Analyzing balance sheets and understanding strategies is important for evaluating appropriate leverage levels.
This document summarizes a presentation on pricing guarantees for variable annuities given recent market conditions. It discusses how lower interest rates, lower expected equity returns, and higher realized volatility are challenging pricing assumptions. Many insurance companies have had to increase reserves, accelerate write-offs, and modify products with higher fees or reduced guarantees due to losses. Hedging guarantees is also very difficult in this environment of increased volatility, basis risk, and funding costs. Proper pricing now requires considering economics rather than just accounting impacts.
This document summarizes a presentation on pricing variable annuity guaranteed living benefits given in 2009. It discusses how recent market trends have impacted pricing, including large losses announced by insurers, increased reserves, and changes to VA product designs. It also examines factors affecting pricing, such as lower interest rates, higher volatility, increased hedging costs, and higher asset correlations. The presentation argues that pricing assumptions may need to be adjusted to account for these changes in the economic environment.
The document is a report from the Government Accountability Office that analyzes options for revising the long-term structures of Fannie Mae and Freddie Mac. It finds that the enterprises have a mixed record in meeting their missions and capital deficiencies compromised their safety and soundness. The report identifies options that range from reconstituting the enterprises as for-profit companies with more restrictions to establishing them as government agencies or privatizing them, and discusses trade-offs of each approach.
This document provides an overview of Regency Retail Partners, L.P., a proposed $500 million open-end retail real estate fund sponsored by Regency Centers. The fund will invest in high-quality stabilized community shopping centers owned by Regency with a focus on national/regional tenants. Regency will co-invest 20% and provide the fund an exclusive pipeline of over $900 million in new development properties to acquire. The goal is to generate a 6.0% average cash yield and 9.0%+ net IRR for investors through stable cash flows from a portfolio of dominant retail properties in desirable locations.
1) The document discusses various topics related to the financial sector including a Minsky moment, suspension of trading on stock exchanges, granting bank licenses to corporates, financial stability concerns raised by IMF, and risks of sector-specific investing.
2) It explains a Minsky moment as a tipping point when increased risk-taking by lenders meets a price slump, destroying asset values.
3) Suspension of trading is used as an enforcement action by stock exchanges against non-compliant listed companies to prevent further harm to minority shareholders.
4) IMF has warned against granting bank licenses to industrial houses, citing risks to financial stability, and suggested allowing greater private capital and competition in underserved
Disruptive Capital--analysis of performanceHenry Tapper
This document contains summaries of metrics and analyses related to the performance of Disruptive Capital's private equity funds. Some key details:
- Disruptive Capital's funds achieved a PERACS rate of return of 22.0% driven by a PERACS alpha of 14.7%. The majority of alpha came from "de-levered alpha" rather than sector choices or leverage effects.
- Disruptive Capital turned 92% of "downturn deals" into positive outcomes, significantly higher than the industry average of 65%, demonstrating success in difficult market conditions.
- Analysis found Disruptive Capital to be highly niche, concentrating investments in a unique area rather than taking a mainstream approach. The funds
Starting early and saving regularly provides substantial benefits over time. Delaying saving, even for just a short period, can significantly reduce the final fund value. For example, starting at age 30 instead of 35, saving $1,000 per month until age 55, results in over $250,000 more in the final fund value due to compound interest and time in the market.
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This document discusses thin capitalization and arm's length pricing. It begins by explaining capital structuring and the importance of determining an ideal capital structure for a company. It then defines thin capitalization as occurring when a company's capital is made up of a much greater proportion of debt than equity, creating risks. Various countries employ different approaches to thin capitalization rules, including fixed debt-to-equity ratios, subjective analysis of financing terms, and rules concerning hidden profit distributions. The document provides a brief comparative analysis of thin capitalization rules in countries like Australia, Germany, France, the US, India, and Japan.
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Year-End Tax Planning and Financial Planning Ideas - Dec. 2011RobertWBaird
This document provides year-end tax and financial planning ideas for private wealth management clients. It discusses reviewing capital gains and losses to realize losses to offset gains, considering realizing gains to use up losses, and avoiding wash sales. It also recommends ensuring adequate tax withholdings and payments to avoid penalties, accelerating or deferring income and deductions as needed, and completing charitable donations by year-end to take the deduction. The tax rates for 2012 are expected to remain the same as 2011 but could change significantly after that.
Health Care Act Includes Variety of Tax Changes - Dec. 2011RobertWBaird
The document summarizes key tax provisions and changes contained in the Patient Protection and Affordable Care Act (ACA). It outlines new taxes such as a 3.8% tax on investment income exceeding $250,000 and an additional 0.9% Medicare tax on wages over $200,000/$250,000. It notes these will significantly increase marginal tax rates for many and could incentivize Roth conversions. The ACA also increases penalties for non-qualified withdrawals from HSAs and MSAs, limits health FSA contributions, and penalties those without minimum health insurance as of 2014.
Estate and Gift Tax Laws: New Rules - Dec. 2011RobertWBaird
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2) Investors should find their "tax equilibrium" - a balance between tax considerations and other factors in portfolio construction.
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In a tight labour market, job-seekers gain bargaining power and leverage it into greater job quality—at least, that’s the conventional wisdom.
Michael, LMIC Economist, presented findings that reveal a weakened relationship between labour market tightness and job quality indicators following the pandemic. Labour market tightness coincided with growth in real wages for only a portion of workers: those in low-wage jobs requiring little education. Several factors—including labour market composition, worker and employer behaviour, and labour market practices—have contributed to the absence of worker benefits. These will be investigated further in future work.
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Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
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The Quest for Yield: The Roles of Dividend and Interest Income - Dec. 2011
1. The Quest for Yield
The Roles of Dividend and Interest Income
By Baird Private Wealth Management
Summary
Investment income has always been an important part of the total return for
investments: Total Return = Price Change + Investment Income. Income
can come in various forms, including the dividends associated with stocks
and the interest associated with bonds. For sake of consistency, we will refer
to investment income as yield. Yield is simply the income received stated as
a percentage of the security price. Traditionally, investors have sought price
appreciation from stocks and income from bond investments, though these
delineations are starting to blur.
Yield has become increasingly important to investors. Following the
extreme market volatility over the past few years, many investors have
allocated away from stocks and other risk assets, either to position
themselves more defensively in the face of uncertainty or to correct an
over-allocation to risky assets. However, while investors are taking on
less risk, it appears they have not ratcheted down their return objectives,
increasing the need for yield. Additionally, most would agree that the
outlook for the stock market over the decade to come is more muted than
the recent past. Whatever the driver, it is clear that yield is top-of-mind
for many investors.
As investors search for new and often less-traditional sources of income,
we remind our clients to put their decisions into context by answering
three important questions. What is the yield or income that is required on
a regular basis? What is the total return necessary to achieve my objectives?
What risks and volatility am I willing to tolerate to meet the yield and return
objectives? Investing involves a great deal of trade-offs, many of which we
will discuss later in this paper.
2. Key Considerations in the Chart 1 illustrates how the yields
Quest for Yield available on traditional income-
There are two key considerations oriented investments now stand at
to keep in mind when evaluating or near historic lows. The bellwether
different yield instruments: 1) how 10-year U.S. Treasury Bond, which
the current market environment has averaged a 5.2% yield over the
impacts the level of yield that can past 20 years, today stands at a yield
be expected, and 2) the trade-offs under 3.2%. Riskier high-yield bonds,
necessary to earn higher yields. which have historically averaged a
yield of over 10%, today offer less
Market Environment. The challenge than 7%.
facing yield-seeking investors today
is that the rates they have grown Investors commonly assess yield
accustomed to in the past are no based on expectations they have
longer attainable using the same formed from past experience.
investment vehicles. As a result of However, investors must recognize
monetary policy actions taken by that the current environment is
the Federal Reserve, coupled with different from what they have
a period of weak economic growth experienced in the past, and that their
and low inflation, the yields available yield expectations may need to be
on different asset classes have been adjusted accordingly. Achieving the
compressed across the board. yields investors have obtained in the
past might require utilizing different
asset classes, which will likely entail
increased risks, as discussed in the
CHART 1: remainder of this paper.
20-Year Historical Yield Range and Current Yield
Risk/Return Trade-Off. As investors
for Common Asset Classes
pursue yield opportunities, it is
paramount to factor in the risk/
Yield Range Over the Past 20 Years
25%
return trade-offs associated with
20%
various investments. Whether the
search for increased yield is driven
15% by a desire to offset lower expected
price appreciation or by unrealistic
10% expectations, investors must be aware
that higher-yielding investments
5%
are often characterized by higher
0% volatility and risk of loss. Though
U.S. Treasury Municipal Investment-grade High-yield Large-cap investors may be hesitant to accept
Bonds Bonds Corporate Corporate Value Stocks
Bonds Bonds lower returns, we caution not to chase
higher-yield opportunities without
20-Year Average Yield Current Yield full consideration of the risk/return
Source: Morningstar. For the past 20 years ending April 2011.
trade-offs, as they may be taking on
Refer to the disclosures section for category and index definitions. more risk than they are aware.
-2-
3. Chart 2 details the relationship between paying stocks, as well as less traditional
yield, risk and total return. Traditional vehicles such as preferred stocks, real
bonds (government, corporate, and estate investment trusts (REITs) and
high-yield) have historically provided master limited partnerships (MLPs).
average to above-average yields, lower
Each of these vehicles has a unique
volatility and moderate total return. Less
structure and a unique risk/return
traditional yield options (REITs, MLPs,
trade-off, described below. As such,
preferreds) generally have above-average
investors can benefit from having a
yields and total return potential, but
diversified portfolio of yield-focused
they also have higher volatility and are
investments across several of these
susceptible to periods of pronounced
categories.
negative performance.
Bonds. Bonds are among the most
common way that investors can add
CHART 2: yield to a portfolio. This yield comes
in the form of income that bonds are
required to pay on a periodic basis.
REITs Generally, these income payments
constitute a large percentage of an
MLPS
investor’s total return from bonds
Dividend-paying because price appreciation is not a main
Stocks
driver. The stability of income payments
Preferred makes bonds less volatile than other
Expected Yield
Stocks
yield-oriented options that have higher
High-yield potential for price appreciation.
Bonds
It is important to note that all bonds are
Corporate
Bonds not created equal. A bond offering
higher yields is a sign that investors
Treasury/
Government Bonds expect to be compensated for taking on
additional risk. That risk may stem from
concerns about the financial health of
the issuer or from the structure of the
Expected Volatility
bond itself. For example, bonds with
longer maturities are more susceptible to
For illustrative purposes only. Chart not drawn to scale. changes in interest rates and have greater
uncertainty that all future interest
payments can be made. Thus, these
Yield Opportunities bonds will often have a higher yield.
There are several investment vehicles The bond market is very diverse and
that offer the potential for income offers bonds with many different types
instead of, or in addition to, the of characteristics. Common classes of
potential for price appreciation. These bonds include government bonds,
include more traditional investment corporate bonds and high-yield (or junk)
vehicles such as bonds and dividend- bonds, among others.
-3-
4. Dividend-paying Stocks. Companies moderately positive, like the 1970s and
have choices on how to best utilize 2000s, dividends provide a valuable
earnings: paying down debt, reinvesting source of return.
in the company, buying back shares
Hybrids: Preferred Stocks and
and returning earnings to shareholders
Convertible Bonds. Preferred stocks and
through dividend payments are all
convertible bonds are hybrid securities
available options. More mature
that have characteristics of both bonds
companies that produce cash earnings
and stocks. Similar to a bond, a
in excess of growth needs often choose
preferred stock is issued with a fixed
to pay cash dividends. An attractive
value, and payments are made based on
feature of investing in dividend-paying
a percentage of that value. Preferred
stocks is that investors are able to share
shareholders have priority claim over
in a portion of the earnings and are
stockholders on a company’s earnings.
not reliant solely on price appreciation
In this sense, a preferred stock’s income
for returns.
stream is more dependable than a
Historically, dividends have made a dividend payment. Although the yield
meaningful contribution to the total premium for preferred stocks over
return of the stock market, at least in the Treasury bonds has fallen from the peak,
United States. Chart 3 breaks down the the asset class still provides an above-
S&P 500 return by decade into price average yield relative to Treasuries.
appreciation and dividend income. Since
On the downside, preferred shareholders
1970, dividend income has provided
give up voting rights and generally have
approximately one-third of the total
less of an opportunity for price
stock return. Note that dividend income
appreciation. Additionally, issuing
can only be positive. In periods where
preferred stock is a less common form
stock market performance is negative to
of financing, and not all companies will
CHART 3: have that option.
S&P 500 Return by Decade Convertible bonds are unique in that
they can be converted to a fixed amount
of equity. Whether or not a bond will
2.9%
be converted is at the discretion of the
5.0%
issuer. Issuers are most likely to force
a conversion if interest rates decline
significantly; note that forced
3.5%
15.3% conversions are generally detrimental
12.6%
4.3% to the holders of the security. Given
6.8%
the conversion potential, these bonds
2.4% 1.8%
present greater upside potential than
-2.7% most bonds, which can be important
1970s 1980s 1990s 2000s 1970–2011 for those seeking higher total return.
Dividend Income
Price Appreciation
Source: Standard & Poor’s; Morningstar Direct; Baird analysis.
-4-
5. However, in order to gain this upside considerations also exist. These
potential, convertible bonds typically securities have stock-like volatility
offer a lower yield than traditional and are often concentrated in narrow
bonds, albeit generally still higher than industry segments that may be subject
dividend-paying stocks. to periodic shocks. Also, any income
derived is subject to ordinary tax rates.
REITs and MLPs. What makes REITs
Due to these complexities, we
and MLPs attractive to income-
recommend consulting your Financial
seeking investors is the legal structure
Advisor before making an investment
of these securities. REITs and MLPs
in these areas.
are required to pay out 90% of their
taxable income to investors. As such,
Tax Considerations
above-average yields can be earned.
Additionally, both can add As always, the level of income earned
diversification benefits to a portfolio, after taxes is the most relevant figure
as they are often less correlated with to most clients. There are too many
the stock market. nuances to the tax code to list here, so
we recommend evaluating the merits
REITs provide investors with access to
of each option with your tax advisor.
a pool of real estate assets. These pools
may be specialized (commercial Conclusion
property, apartments, health care
facilities, etc.) or diversified. MLPs are Yield has historically accounted for a
commonly associated with the natural meaningful portion of total return,
gas and oil industries, though other especially in lower-return environments.
non-energy industries are slowly As such, adding different instruments
beginning to adopt the MLP structure. to access yield opportunities may
The goal is to assemble a portfolio of enhance a portfolio. The differences in
assets and revenue sources that provide yield between investments are a result
a steady income stream that can be of the risks that are associated with an
paid to investors. investment. Balancing the risk and
return trade-offs is an important step
Along with the unique benefits of in constructing a suitable portfolio.
REITs and MLPs, some unique
-5-