Archive for the ‘News’ Category

Nordica Balanced Fund

Friday, October 10th, 2014

Investment Objective Long-term capital appreciation with moderate volatility, primarily through a blend of equity and bonds funds managed by external asset managers.

Nordica Balanced Fund (NBF) offers a portfolio that is diversified to varying degrees between equities and fixed income funds, with further diversification achieved across sectors and countries. Varying degrees of exposure to equities and fixed income within the same portfolio can reduce volatility as equities and bonds generally do not move in tandem.

Manager Selection Manager selection is certainly the foremost area of expertise of the NBF. A well structured due diligence process, financial and operational understanding and access to the World’s top fund managers are the core competences of NBF.

NBF strive to select fund managers that generate superior returns for their investors in their respective industry segment. Although diligent fund selection should certainly limit the downside of a private equity portfolio (‘avoid accidents’), most of our clients choose to pick NBF for the upside potential through manager selection.

Portfolio Diversification for the Purpose of Risk Reduction No risk-averse long-term investor would pick only one fund in a sub-segment (such as US venture capital, vintage 2004), but choosing all conceivable funds in a sector may circumvent top quartile returns (‘levelling’). Analysis (see Chart 1) shows that investors need approximately 15 funds for a life cycle of three years in a given sub-segment (eg US buyout) in order to diversify the unsystematic risk.

Basically, one can more than halve the volatility of the final outcome with the appropriate diversification. Given the broad range of funds available, this number of funds can nowadays be chosen without compromising on returns. Many investors, however, lack the necessary size for appropriate diversification, and NBF will allow these investors to reduce manager specific risk in selected segments.

Chart 1: Volatility Reduction

The above illustration is based on a historical simulation using Thomson Venture Economics data for US buyout funds. The volatility of a FoF’s final performance can thus be significantly reduced.

Are your investments safe?

Sunday, March 10th, 2013

Quite recently we experienced some incredible changes to the American financial system. Lehman Brothers collapsed and filed for bankruptcy protection. Fearing the same fate, Merrill Lynch agreed to be acquired by Bank of America. Not to mention that Fannie Mae and Freddie Mac were “nationalized”. And – perhaps most importantly – the U.S. government bailed out AIG. While all these events serve to remind the world of just how uncertain the future is, the AIG debacle certainly hit closest to home. The failure of America’s largest insurer is leading everyone to think twice about where they get their insurance and where they make their investments. This is especially true if you have been building an annuity or other insurance policy for your long-term needs with an American insurance company.

With an unstable financial system and media sources that cannot be trusted to report what is really going on in the American economy, it is impossible to know whether your insurer or bank is safe from the threat of insolvency.

But it is not the end of the world. On the contrary, it can be the beginning of a whole new world of opportunities. And that is because this crisis has definitely shifted Americans’ perspective on asset protection and foreign investment.

The playing field has changed. American financial institutions – particularly insurers – may or may not be safe, and it seems like there is no way to tell. So what is the alternative?

Offshore Insurance Companies
In jurisdictions like Switzerland and Liechtenstein insurance companies are among the safest in the world. In the entire history of almost 160 years in the industry, no life insurer has ever failed to meet its obligations. The same safe history applies to insurance companies domiciled and operating out of Isle of Man. A jurisdiction which has been awarded an AAA rating by Standard & Poor and Moody’s for its economical and political stability.

The security of these institutions is due in large part to the conservative regulations they are forced to live up to. They are much more limited than American companies in terms of the guarantees they can give and how they are allowed to invest. Unlike their American counterparts, the supervisory authorities carefully monitor and constantly supervise the insurers.

But even if the impossible were to happen and a Swiss, Liechtenstein or Isle of Man insurer becomes insolvent, your money is still safe. An insurance company located in these jurisdictions has, as a part of its general insurance law, a “separate account” statute which provides legal protection for your offshore investments. A separate account statute stipulates that, when a policy is issued, the investment assets are maintained in a separate segregated account and the assets can only be used to satisfy the policy obligation.

This means your annuity assets are completely separate from the insurer’s balance sheet. So even if the insurer fails, your assets will remain protected. This is a promise that American insurers really cannot make at this point.

Furthermore, for life assurance companies, the Isle of Man has the only statutory compensation policyholder protection scheme offered by any offshore financial centre. The Life Assurance (Compensation of Policyholders) Regulation of 1991 provides up to 90% of an insurer’s liability to the policyholder in the unlikely event that a local insurance company should become unable to meet its obligations. There is no upper limit to the amount of this protection.

Suitable products for the U.S. Investor
International fund managers normally do not accept U.S. investors as clients, due to onerous regulatory and reporting requirements by the U.S. authorities.

However, one of the most common vehicles for U.S. investors to access these funds is via an offshore annuity or life insurance. Clients are already aware of the advantages of insurance products – these include tax efficiencies, estate planning, asset protection and the various types of investments which qualify within life insurance products and annuities. Offshore investing can also be one of the most effective ways of transferring financial assets to family and dependents, including estate planning.

Furthermore insurance companies domiciled and operating outside of the United States can provide a wealthy and sophisticated investor access to reasonably priced variable annuity contracts and life insurance policies. These companies are not subject to the massive overhead typically associated with U.S. life insurance companies, such as large distribution systems and multiple layers of government regulations.

Depending on the policy amount (minimums starting at US$500,000), a large number of investment opportunities are available. A client will certainly find attractive non-U.S. dollar related investments, which are ideal as a hedge against potential dollar weakness and to further diversify the investment portfolio.

Based on expectations of return, risk tolerance, currency preferences, investment horizon, etc., a suitable asset allocation will be tailor made to fit the needs of a client.

Conclusion: Investing in the global markets via a safe and cost efficient vehicle such as an insurance contract, underwritten by a well-known international insurer, will bring you peace of mind plus the extra benefits of diversification, asset protection, privacy, investment flexibility and estate planning.

Principal Protected Note (PPN)

Thursday, March 10th, 2011

The PPN is, for practical purposes, a zero-coupon bond with a link to an equity market. It offers a way to participate in the investment return of a risk-related asset class, at a reduced level of risk.

The market for PPNs has existed since the late 80’s. It is a global market, but the focus seems to be on European banks (issuers) and brokers (arrangers). The US market is limited, primarily because of tax considerations in non-deferred accounts and onerous legal documentation requirements, since the structure includes a derivative.
Throughout the unpredictable and volatile market conditions that characterized the late 1990s and early 2000s, investors increasingly sought out new approaches to investing that offered both security and potential growth.

100% Principal Protection
A typical PPN could be a 3-5 year structure which tracks the performance of a basket of Asian stock market indices. At maturity, the return on the PPN will be the accumulated return on the basket. If the return on the basket is negative, the investor still receives 100% of his nominal investment (principal protection). This is possible because at issue the bulk of the investment is allocated to a zero-coupon bond and the rest is allocated to a derivative which tracks the performance of the indices. Over the life of the PPN, the part allocated to the zero-coupon bond grows enough to guarantee the repayment of 100% of principal.

High Growth Potential
The value of the derivative will generate the positive return at maturity, should the markets appreciate in value. The structure will typically generate 100% of the actual return of the linked asset (if positive). Sometimes we will accept a risk capped at 5-10% of nominal amount, in order to invest in a structure which yields 150-300% of the actual return of the linked asset.

Security and Liquidity
All the PPNs Nordica will consider for clients are:

1. Issued by large, well-known international banks which carry at least a single A credit rating.
2. Listed on a recognized stock exchange.
3. Liquid, with a possibility to sell at any time (not just at maturity)
4. Competitively priced with compelling terms of participation.

Please note that the guarantee, offered by the issuing bank, is valid at maturity only. If an investor decides to sell in the secondary market, it will be done at a trade price, which may be higher or lower than the initial issue price.

Profit Lock-in Feature
Typically, Nordica will utilize the secondary market to lock in a profit, by selling a previously issued PPN and rolling the money into a new structure.

As an example, recently we sold a 5-year PPN linked to a basket of international stock market indices which had been issued by UBS during 2009, at a price of 130% of nominal investment. The money was rolled into a new, similar structure. This has created a floor at 130% of the original investment, since the new investment also carries 100% protection of nominal amount. The alternative was to wait up to 4 years on the original investment and, potentially, risk losing the 30% un-realized profit.

Personalized and Exclusive
Nordica is continuously invited to participate in offerings of publicly issued PPNs. In addition, we are able to shop around for terms on a proprietary “Nordica PPN”, whenever we decide to invest at least $3M at one time. Such a structure will of course still be issued by a single A rated bank and carry the same features as above. The advantage is that we are able to come up with a unique structure, to meet the individual needs and preferences of our clients, at that time.