Asset Managers Pose Systemic Risk — It’s Time To Recognize It By Colin McLean, FSIP

Asset Managers Pose Systemic Risk — It’s Time To Recognize It | Enterprising Investor

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Is printing money creating new systemic risks for the world economy?

As stock markets move to new highs, asset managers are booming, with vast inflows into bond and equity funds alike. The IMF has pointed out the potentially systemic risks created by concentrated pools of inflated and increasingly correlated assets. It is now time for regulators around the world to recognize the risks inherent in asset managers and funds that are too big to fail.

The financial crisis highlighted risks in banks and insurance, but other areas have been overlooked until now. Finally, the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) are beginning to recognize risks in the investment sector and are turning their attention to some of the largest managers. In Washington, D.C., this month, European Central Bank (ECB) vice president Vítor Constâncio warned of the build-up of leverage and the growing exposure to illiquid assets in the asset management sector. But there seems no hurry to plug the gaps.

More Urgency Is Needed

The risks in big bond, equity income, and emerging market funds must be addressed. Asset managers reject any suggestion that they might represent a threat to the financial system and are quick to point the finger at banks. But globally, the top 10 asset managers have a market share of almost 30% of their sector, much more than the top 10 banks represent in banking. Assets managed globally are estimated to exceed $80 trillion. Looking at it another way, BlackRock (the world’s largest asset manager) managed roughly $4.7 trillion in assets at the end of 2014, while the Industrial and Commercial Bank of China (the world’s largest bank) had “only” $3.28 trillion in assets on its balance sheet.

Quantitative easing (QE) has spurred growth in the investment sector since the crisis, contrasting with shrinkage in banking. Asset managers might not have leveraged balance sheets, but they are globally interconnected. The IMF noted this month that “correlations among major asset classes have risen markedly since 2010. Worryingly, concentration is not decreasing as the industry grows. Yet central banks seem unaware they might have exacerbated risks, creating asset bubbles with easy money policies. Why have regulators been slow to act?

Might the regulatory burden itself be a key driver of these concentration risks? The industry is being forced to improve its offerings for consumers, but there is little sign that competition itself is increasing. Cost and security seem to have become priorities for investors and their advisers, even above performance. Large funds offer apparent ease of dealing — in terms of investor subscriptions and redemptions — but underlying portfolio liquidity is likely to be deteriorating as they grow.

Undoubtedly financial advisers believe they are opting for safety. The virtuous cycle of success and fund growth gets regulatory encouragement. Many advisers find that larger funds reduce the compliance burden, in addition to being easier to explain to retail clients. Name recognition, perceived liquidity, and cost have become bigger factors than performance.

But in Aggregate, Systemic Risk May Be Growing

Overall stock market trading volumes are declining, with less capital now involved in market making. Big portfolio positions might be liquid enough for normal day-to-day dealing, but could be left stranded if investors make any significant rush for an exit. Regulation directs advisers to look at the apparent liquidity and security benefits of scale, but what is missing is a test of how this might work in a crisis.

New factors have been driving this fund concentration. Some star managers have attracted an enormous following, encouraged by the emphasis on brands and personality. The industry has always enjoyed good operating leverage, but strategy now seems focused almost entirely on scale. Scale offers great commercial advantage, with profitability improving as funds grow. Fortunately there are incentives for the best managers to limit fund growth to a level that still leaves opportunities for genuine performance.

But, increasing concentration points to the dominance of scale as a factor.

The recent acceleration in scale and concentration has, to date, seen only limited tests. Moves of star managers, such as Bill Gross, CFA, have triggered significant but orderly fund flows. Yet, it is possible in some less liquid asset classes — such as emerging markets and corporate bonds — for investor liquidity demands to exceed realistic liquidity in a sell-off. A fund’s scale can create an illusion of safety that may not be understood by private investors.

The regulatory problem is that managers are typically required only to test liquidity on open-ended funds at the margin — whether subscriptions and redemptions over a period of weeks should be at bid or offer prices. They must consider whether fund inflows or outflows might compromise fairness for ongoing fund investors. And, if mutual funds are very small, managers must consider an orderly plan for protecting residual investors and ensuring orderly liquidation.

No Symmetry

While regulators worry about investors in small funds, there is no symmetry in the approach to the risks of the largest funds. Managers should be required to demonstrate the implications of a significant withdrawal: how they might achieve price discovery and liquidity. If their only plan is gating investors, the systemic risk could simply be pushed elsewhere. Investors would scramble for liquidity in other assets if their largest investments were locked-in for a period.

The FSB, chaired by Governor Mark Carney of the Bank of England, recently warned that it would move to address any too-big-to-fail problems among entities that are neither banks nor insurers. But it is still consulting and has not yet spelled out what new rules are necessary. There is an urgent need for research and analysis to develop a working definition of systemic risk. And, it would be best if this were harmonized globally so that global asset managers know where they stand.

Together, the FSB and IOSCO aim to look at the potential for size, complexity, and interconnectedness to impact the wider financial system through disorderly failure. The new consultation will likely focus on managers with AUM exceeding $1 trillion and funds of over $100 billion, but it is easy to see that smaller funds than this could raise systemic issues, particularly when considering that some may employ leverage. The asset managers likely to be affected have not yet been named, and this consultation will continue until 29 May 2015.

This approach may not capture risks to individual national or regional finances. If concentration might be a risk globally in asset managers, the risk to individual exchanges and asset classes should surely also be looked at. National regulators should ask managers to be more explicit in explaining the risks of scale to investors. More detailed attention to funds below $100 billion that might dominate their asset classes is needed. And a broader set of policy tools is necessary to address the risks stemming from financial firms at large.

It is time for regulators to move from their narrow focus on banks and insurers to recognize wider systemic risk.

Social Business Summit Hoping to End Poverty with Innovative Ideas by Amber E. Box

Be A Social Entrepreneur Social Business Summit Hoping to End Poverty with Innovative Ideas » Be A Social Entrepreneur

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On October 2nd of this year, the second annual Social Business Summit will convene in the Philippines. This year’s meeting will focus on rebuilding provinces of the country affected by Typhoon Yolanda, also known across the rest of the world as Typhoon Haiyan. The struggle that many parts of the country are facing on a daily basis is poverty and the inability to combat it, especially in the face of such disasters as Yolanda/Haiyan. The summit is sponsored by Gawad Kalinga, a social entrepreneurship project already working on rebuilding communities in the Philippines. Gawad Kalinga’s founder, Tony Meloto, recently talked to Rappler about the Social Business Summit, describing the issues they hope to address.

Be A Social Entrepreneur Social Business Summit Hoping to End Poverty with Innovative Ideas » Be A Social Entrepreneur

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According to Meloto, the “goal is to really address the two major reasons why we cannot achieve prosperity: loss of our human capital due to poverty…and the abandonment of land.”

With the meeting this week, Meloto and his team members are hoping to attract social entrepreneurs and innovators from around the world. The idea is to capitalize on the assets available within the groups attending in order to capitalize on the assets of those living in poverty conditions by way of ideas that will help rebuild stronger and more sustainable communities. The communities are already being built by Gawad Kalinga, but the summit will provide a platform to discuss the ability to develop and hone ideas to can make these new communities be as strong as they can in order to maintain and sustain their viability, hopefully allowing areas across the Philippines to rise out of poverty.

In addition, the summit is teaming up with the School for Experiential and Entrepreneurial Development (SEED Philippines) which are local high school students who will not have the opportunity to go to college. By doing so, the event hopes to foster the entrepreneur ideas into these younger generations, who are the future of the Philippines.

Be A Social Entrepreneur Social Business Summit Hoping to End Poverty with Innovative Ideas » Be A Social Entrepreneur

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Taking place over three days, the event will put great minds from across the world together to achieve the same goals, “building a kinder, fairer, better and safer world that we can build together,” according to Meloto

The Pig Idea By Diane Walters

Be A Social Entrepreneur The Pig Idea » Be A Social Entrepreneur

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A slide appeared, on the screen on TED.com, of a dumpster full 13,000 bread crusts as social entrepreneur Tristram Stuart mused about never being able to get a sandwich from a retail shop that was made from bread crusts. Where do all the bread crusts go? From this single bread factory (shown on the slide), 13,000 bread crusts are dumped into the trash every day.

This food waste expert explained that in America, and other well-developed nations, grocery stores usually carried double the inventory it expected to sell. And, if you add in the food that is fed to livestock, there is up to quadruple the amount that is needed to feed the masses. In his further investigation of food waste, Stuart visited a farmer who was letting 16,000 pounds of spinach die because there were some blades of grass growing here and there. It was not suitable for market. It is quite common for farmers to throw out 1/3 to 1/2 half of their crops due to imperfect sizes, shapes or color that would be turned away at market.

In Europe, in 2001, feeding regular unprocessed food to livestock became illegal because of the foot and mouth disease epidemic. Because of the ban, soy has since become a major crop in South America. Due to the expansion of this commodity, forests are being cut down in places like Argentina, Bolivia, Brazil, Paraguay and Uruguay to grow soy. From 1965 to 2004 soy production rose from 29 to 200 million tons, most of which is used for livestock feed after the oil is extracted. For 9,000 years, pigs had been fed with the surplus food products and refuse that people did not eat. Presently, people throw away this human grade food by the ton every single day — and pay to have it hauled away to rot in landfills. Then, they buy pig food.

The Pig Idea was born from what Stuart had learned from the overwhelming food waste problem. He joined forces with other Londoners to create public awareness of food waste around the world with the hope that the animal food ban will be lifted. The idea is ecologically sound. Eliminating so much processed feed would save the planet about 20 times more carbon dioxide emissions. More of the rainforest in the Amazon would be saved, as not as much farmland would be needed. More farmers in Europe would be able to stay in business by saving the cost of the expensive grain they are forced to buy. The problem of the foot and mouth disease can be eliminated by cooking the food given to the pigs and chickens.

To bring awareness to this issue, Stuart and his colleagues — the hambassadors, seven of London’s best restaurants, and thousands of Londoners gathered in Trafalgar Square to enjoy over 5,000 portions of free food, including pork that had been raised on food that would have otherwise been wasted at The Pig Ideas’ Feast of 2013.

Stuart started studying food waste at the age of 15 when he raised pigs to supplement his income. He is a renowned author for his book “Waste: Uncovering the Global Food Scandal,” and has won numerous and prestigious awards for his dedication to preserving the planet as well as the pigs.

GOOD EGGS: A Grocer on a Mission : By Amber E. Box

Be A Social Entrepreneur GOOD EGGS: A Grocer on a Mission » Be A Social Entrepreneur

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Be A Social Entrepreneur GOOD EGGS: A Grocer on a Mission » Be A Social Entrepreneur

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Want fresh, local-grown, organic food delivered straight to your door? It’s no longer a pipe-dream, and Good Eggs is the one to make it happen. The company, based in California, works to implement a socially conscious business model while providing farmer’s market quality food in the form of an online grocery store. How do they achieve all of this? With one really good mission: to grow and sustain local food systems worldwide. Good Eggs believes that their mission is so important, in fact, that they value it over their profits; the profits are considered a “byproduct” and an “enabler” of their mission. This mission, while quite simplistic, is actually pretty complex.

According to their website, a “local food system” is a one that supports and sustains local food growers and producers- everything involved with the process of providing fresh food from the gardeners to the butchers to the bakers. The product is a natural and healthier food source for 

consumers. But their mission extends far beyond this. By growing and sustaining these systems, they are helping to financially support these food producers as well as create new jobs in the agricultural industry. In addition, they promote sustainability and environmental awareness, which means they don’t use chemicals or unnecessary waste; by cutting down on the byproducts of the food industry, they are promoting a healthier planet as well as healthier consumers. Good Eggs also requires that the businesses they work with employ fair labor practices. And finally, the food that you buy is traceable back to the original source, which also helps to promote awareness and pride in the products being sold and being purchased.

An online grocery store isn’t exactly what you might think of when you think of a social entrepreneur. But when you add up everything about Good Eggs, it’s clear that they do everything that defines what a social entrepreneur is. Isn’t it about time you put some Good Eggs into your basket?

 

#banking on #women

India has seen amazing development over the years says Candace Browning, who came to this country for the first time in 1984. Now the head of Global research, Bank of America Merrill lynch, she was back in India in october as part of a corporate social responsibility initiative begun by her bank.Each of the six participants in the programme, all women in senior positions, is mentoring on Indian woman in business related activity. “My mentee is trying to start a marketing project and the challenges she is facing are fascinating,” she says.Browning who loves India’s cuisine and its vibrant colours, also draws parallels between the experiences of her mentee, and women in south africa and Tahiti in the Pacific, where the first two phases of her bank’s project were held. “Women need to be clear both about the kind of people they hire, as well as the terms under which they  take up employment.” – Manasi Mithel

#entrepreneurial mindset todays #discussion

Everybody cannot become an entrepreneur.They are different and unique people altogether, can be easily identified for their traits which are impressive enough to the crowd. They are what they are meant to be.

They love what they do. Thats one of the main reasons many of us chose to go out on our own. We also like the flexibility, the opportunity to be creative & the possibility of shaping our own future.

Business owners fall into two categories-

1. self-employed

2. Entrepreneur

The self -employed are those who have a talent or skill & they know there are people willing to pay them for their time, product or service. So they employ themselves rather than work for someone else.

The entrepreneurs on the other hand are the business owners who seem to grow their business effortlessly, & maintain steady growth.

 A leader can be a manager but a manager can never be a leader there is a lot of difference. This thin line of difference distinguishes between a self -employed person and an entrepreneur.