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All the latest news regarding events, articles and reports..

AGP - Latest News Bulletin

Following the AGM held in February, we would like to take this opportunity to advise you of some recent changes that have taken place at Arkus Governance Partners. At the AGM we were pleased to welcome Ion Florescu to the Partnership and appointed Graham Goodhew as Managing Partner. At the same time Benoit Paquay and Christoph Justen stood down from the Partnership and we would like to thank them for their service. Full details of the Partners may be found at http://www.arkus-gp.com/directors

 

In these challenging times where most of us are having to embrace new methods of working utilising perhaps unfamiliar technologies and different ways of communicating with our Boards, work colleagues and clients it becomes even more important to keep a strong focus on good governance. There can be no doubt that these changes, which are also taking place within our outsourced service providers and delegates, and the volatility within markets are significantly changing the risk profiles of our companies and the funds that we may manage.

 

Many of the changes which we see introduced overnight would in more normal times be implemented only after detailed risk assessments, documenting policies and procedures and training of staff, all overseen and subject to supervision and oversight from Conducting Officers and the Boards.  The reason for such speed of change is fully understood and indeed is essential for the continued operation of companies and the protection of clients. However, we at AGP would like to stress the importance of Boards keeping themselves fully informed and involved as they will always remain in the eyes of regulation and the law the party with ultimate responsibility for overseeing the management of the company and the adequacy of its risk management and policies & procedures.

New Majority Shareholder for Arkus Financial Services

Arkus Financial Services S.A., Luxembourg (Arkus) is pleased to announce that the Swiss Profidata Group AG (Profidata) has entered into an agreement with Independent Risk Monitoring Ltd, the London parent company of Arkus, to become its majority shareholder, subject to the regulator’s approval.

 

Arkus is a “Risk As A Service” provider of portfolio monitoring solutions for the asset management industry. Profidata Group is a Swiss provider of investment and wealth management software solutions and services for the financial industry, headquartered in Zurich with subsidiaries and representative offices in Frankfurt a.M., Saarbrücken, Luxembourg, London and Singapore.

 

Arkus will expand its current services range and further develop its risk monitoring solutions for Private Equity and Real Estate funds in cooperation with Profidata and its development teams.

 

Arkus will continue to operate under the Arkus brand and extend its current joint venture initiatives in Paris with Rsquare and in Dublin with Bridge Consulting Ltd.

 

"Profidata brings outstanding experience in the investment solutions market as well as significant competence in IT development to Luxembourg. Arkus together with Profidata will extend their product offering and market presence in Europe. I am delighted that Arkus and Profidata will together form a strong partnership", said Mr. Yves de Naurois, Chairman of the Board of Arkus and IRML.

 

Christian Widmer                                                        Yves de Naurois

Profidata Group                                                          IRML

Chairman of the Board                                              Chairman of the Board

The latest deadline impacting the UK asset management industry is drawing near.

A UK authorised fund must now have a minimum of two independent non-executive directors on the board of its authorised fund manager (AFM) by 30th September 2019.  This reflects similar requirements in Luxembourg and Ireland. Please find a link here<https://www.fca.org.uk/publication/policy/ps18-08.pdf> for the final FCA rules and feedback paper. [Note: is this the most recent document from the FCA on this subject?]

Arkus specialises in independent regulatory and investment risk management services across Luxembourg, France, Ireland, and the UK, and we can help you to find a suitably qualified and experienced independent director. Arkus’ governance page provides a description of directors who currently act in this capacity, supported by our regulatory and investment risk services: https://www.arkus-gp.com/directors

The US economy grew at 4.2% in Q2, accelerated by the Trump government’s tax cuts. There is a big danger in our view that the US is getting a “sugar high”: being stimulated when spare capacity is already getting tight. The S&P500 made new record highs, driven in large part by the FANGs (Facebook, Apple, Netflix and Google/Alphabet). The performance of this segment of the market has been exceptional, and there is a danger that (especially with the large level of index funds) that valuations have run ahead of themselves. It wasn’t that long ago that the BRICs (Brazil, Russia, India and China) were the runaway stock market winners. There is always a a risk in concentration; can you imagine a world where investors started losing money in Apple and Amazon?

This article follows a first article of December 5th 2017. We explored the impact of Corporate Social Responsibility (CSR) on businesses and found some indications at the micro level that CSR has a significant correlation with the economic performance of companies. We had also noted that there were fast growing accelerators of change both from pressure group/NGO’s as well as from the information technology revolution and the way it impacts public opinion and consumer behaviour which makes the issue difficult to avoid. And although there are strong doubts regarding the impact of CSR at the macro level we could not rule out a more prescriptive approach from government and regulators.

Some cracks started to appear in the otherwise happy world of capital markets. Tech stocks sold off sharply on little news other than valuations had become stretched, and government bond markets sold off sharply on some more hawkish comments from central bankers, but again without clear macro drivers. On the positive side economic growth remains solid (and also not so strong as to lead to concerns of rising rates), corporate profitability remains high and unemployment low and yet there are almost no signs of inflation. We still have potential stumbling blocks ahead: German national elections, another go at the US debt ceiling, Middle Eastern geopolitics, and further fallout from the lower oil price in oil producing countries as deficits remain high.....

Some cracks started to appear in the otherwise happy world of capital markets. Tech stocks sold off sharply on little news other than valuations had become stretched, and government bond markets sold off sharply on some more hawkish comments from central bankers, but again without clear macro drivers. On the positive side economic growth remains solid (and also not so strong as to lead to concerns of rising rates), corporate profitability remains high and unemployment low and yet there are almost no signs of inflation. We still have potential stumbling blocks ahead: German national elections, another go at the US debt ceiling, Middle Eastern geopolitics, and further fallout from the lower oil price in oil producing countries as deficits remain high.....

Evolution, not revolution.
Disruption» is probably one the most used buzz words over the past few
years. Disruption of business models, disruption of traditional market segments, and disruption in finance is a common subject of many articles and conferences. In that respect, disruption is often associated to radical innovation. But is it really the case? Is radical innovation the only way to innovate? And what is the aim of innovation, disrupting or brings progress? And for entrepreneurs and even well-established companies, how to handle this fast-moving environment and take advantage of it?

Evolution, not revolution.
Disruption» is probably one the most used buzz words over the past few
years. Disruption of business models, disruption of traditional market segments, and disruption in finance is a common subject of many articles and conferences. In that respect, disruption is often associated to radical innovation. But is it really the case? Is radical innovation the only way to innovate? And what is the aim of innovation, disrupting or brings progress? And for entrepreneurs and even well-established companies, how to handle this fast-moving environment and take advantage of it?

Towards the end of last year we had a list of near-term events which had significant impact but mostly binary outcomes, as with the Brexit vote. These included the US election, Greek debt renegotiation, US debt ceiling and the French election. Whilst the outcomes haven’t always been as expected (see President Trump), without exception the market reaction for each has been positive for risk assets. Admittedly our worst fears for some of the alternatives weren’t met, but we do wonder about the reactions. Was so much downside priced in? Were the results really that surprising? Or was it that a lot of cash was sitting on the sidelines waiting for clarity? We sense the latter might be the most significant.

New office in London!

Arkus is pleased to announce the opening of its new London office, located in the heart of the City of London and just five minutes walk from Bank station. The drive behind the move is to reinforce our brand's presence within the UK fund industry and to enable us to be closer to our existing clients in order to meet their needs and demands from a prime location. We are excited to announce the opening of the new office on 16th April 2018 .
You can contact us there on 02072642029 or by email at info@arkus-fs.com . We look forward to working more closely with our existing clients and hope to welcome new clients who can benefit from the cost-saving and efficiency benefits we can deliver for investment risk reporting and oversight.

Our New address is at: 150 minories, London, EC3N 1NS.

Should we worry about the flattening of the yield curve?

It's still a much more interesting year from a volatility perspective at least than last year.
Watch the 2Y US bond yield! Cash is becoming more and more compelling an investment than risk assets...

Wake-up call

Last month we previewed the extraordinary impact of forcibly winding down inverse VIX strategies; a reminder here:
The S&P broke its record-breaking run, and markets have had a huge shake-out, much as we had been warning (possibly for too long?). The taking away of the punchbowl from the party (i.e. ending of QE) may have been too late to avoid a hangover. What happened? Our take is as follows. The average hourly earnings data surprised on the upside (we have been suggesting for some time that the very low levels of unemployment would eventually lead to wage inflation; we’ve just been surprised it’s taken this long). This led to a sell-off in markets, and a consequent spike in the VIX volatility index. Over the last few years shorting implied volatility has been a winning trade, as realised volatility has consistently run below implied for quite some time. As a result a large number of funds and strategies have been built on this trade. However as implied volatility spiked, there were large losses in this trade, which had a “negative gamma”, meaning the more markets fell the more the strategies needed to sell. Couple this with thin trading volumes late in the day and the result was a sharp sell-off, accompanied by unprecedented intra-day moves in the VIX index.
Although we still see the shock to (equity) markets as technically driven, we would still suggest that there has been a wake-up call, and markets are likely to be more sensitive to future inflation surprises. Cash, at least in USD, is looking increasingly less unattractive; the US 10 year government bond yield is now close to 3%, and the 1 year yields more than the S&P500. If labour markets remain so tight and economic growth strong, it seems unlikely to us that there won’t be further upside inflationary pressures, and eventually cash will look a better bet than risk assets. It feels we are getting closer to that tipping point.

Taking away the punchbowl

It's almost out of date as soon as it was written! Although inflation expectations are still low, the US wage number spooked the markets and led to a feedback loop.
that technical trade is now mostly over. but it remains to be seen whether it's left a scar on investor sentiment.
It's like the old days again!

A hard act to follow

2017 was a year of positive surprises. All major economies showed good, improving and synchronised growth, unemployment plummeted, but despite this inflation didn’t appear. Even politically almost everything went right.

2017 will be a hard act to follow, and 2018 is likely to be a more difficult year. But, as with 2017, the very benign economic backdrop combined with still subdued inflation could continue for some time, driving asset prices further up and keeping volatility low.

But at some point economies are likely to either get too hot (leading to rising inflation and/or rates) or cool (leading to lower corporate profits and rising defaults). Higher levels of volatility are very likely to return at some point in the next year.

Happy New Year 2018

New Year, new chances and fresh starts! On behalf of the AGP members, we would like to wish you a Happy and Prosperous 2018!

Arkus Focus - December 2017

All is calm, all is bright

The “Goldilocks” scenario continues: growth remains firm all around the world, but not so hot that inflation starts rising. Volatilities remained mostly low or medium, although they were slightly up on last month.

We still believe that investors for too long have become used to inflation and rate rises constantly undershooting estimates, and hence bond, and then equity, markets only going upwards. And we still see that the market has more and more similarities to both 2007 (good economic growth, rising markets, unusually low volatility and a hunt for yield) but also shades of 1999/2000 (a tech bubble). The times are good. But good times inevitably lead to complacency. How long it takes before the spell is broken remains to be seen. But in the mean time, we wish you all a very merry Christmas and a calm and bright new year.

CSR in Risk Management Framework by Yves de Naurois

The topic of Corporate Social Responsibility (CSR) increasingly impacts the board rooms of our
clients. The idea of writing an article on CSR, when it was suggested, appealed to me as we continue to engage in dialogues to develop practical frameworks to apprehend these dimensions not only from a risk point of view, but also from a strategic one.

We all manage risk since the very beginning of humanity. In times past, risks were directly related to rewards that would enable an individual and the tribe to survive. Nowadays, the situation is roughly the same. People take risks, hopefully reasonable ones, for a reward and intuitively compare the respective levels of risks and rewards to assess whether it is worth taking the risk. It is in everyone’s nature to do so but hopefully tools can help people in general and specifically directors and executives of companies in the difficult exercise of risk management.

As with many risk related matters, operational risk is not a new notion nor a new practice. Identifying operational risks, their likelihood, their potential impact and assessing mitigation factors is a common practice across many industries particularly well illustrated in the energy or transportation sectors.

This practice is more recent in the financial sector. In that respect, banking and insurance sectors were pioneer, in particular following the Barings bankruptcy; investment management and fund industries followed.

Arkus Focus - November

2000 * 2007 

 

The year that was all set to see the return of volatility has continued to tease us. Volatility is stubbornly low, and in many cases at 12-month lows. (Implied volatility is comfortably higher, so it's expensive to hedge downside risk). I'm more and more convinced downside risk is at similar levels to 2000 or even 2007, although the risks and mechanisms are different to either of those. But valuations are toppy, and many metrics stretched. Fascinating to watch though.

Arkus Focus - Octobre 2017

Phillips curve.

 

Newsflow was relatively light in September, with politics dominating but North Korea moving out of the spotlight. Continuing good economic growth and still no real signs of inflation proved positive for equities, slightly less so for bonds. But Mark Carney’s warning that rate rises are coming should be seen as a warning sign. US and UK unemployment are at multi-decade lows, and eventually inflationary pressures will appear as per the historic Phillips Curve. Why they haven’t already is the real mystery. Investors for too long have become used to inflation and rate rises constantly undershooting estimates. The reversal of this could prove to be a large source of future volatility.

Arkus Focus - August 2017

Does it look like 2007 again?

There are currently many parallels with the situation preceding the last financial crisis 10 years ago (record high stock markets, record low volatility, record consumer debt, record M&A, big current account deficits etc…). Banks and corporate balance sheets are clearly stronger, not a  problem this time. But like in 2000, valuations of many stocks and bonds seem high.

The catalyst for a sell-off is almost impossible to predict and of the  few candidates lurking in the background, if one discards political skirmishing, our preferred one would be the record number of zombie corporates and that is at the current low level of interest rate.

Niall O' Connor

Arkus will be one of the main sponsors at the next Leading Edge Conference in London.

Martin Ewen, Chief Operating Officer, will be one of the speakers and would be delighted to meet you on-site

New regulatory requirements aim to monitor and ultimately reduce risks for investors.

For the past 14 years, Arkus Financial Services has been analyzing and mitigating those risks.

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Arkus Governance Partners

 

6b route de Trêves

L-2633, Senningerberg

Luxembourg

agp@arkus-fs.com

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