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The Future of Food: Home-Grown Meat. Stem Cell Burger’s Next Stage of Development

31 Mar

Professor Mark Post claims his stem cell burger could hold the solution to growing global meat demand. He explained how his scientists are trying to achieve that final elusive lab result – making it something people want to eat.

The nineteenth-century doom-laden Malthusian prophecy of global starvation due to population growth has still not come to pass. But today there is a major factor impacting world food supplies, and that is our nigh universal love for meat. Around 70% of arable farmland is dedicated to crops, not for human consumption, but to feed the cattle we serve up as steaks, sausages, mincemeat, burgers, kebabs…. To produce 15g of meat, an animal must be fed 100g of vegetables. That is not an efficient productivity ratio.

And because of the growing demand for meat in emerging market diets, the proportion of arable land used to feed these animals is on course to increase. The diet in developing economies is approaching the west’s trophic level of 2.3 (where a completely carnivorous individual would have a trophic level of 3, and a vegetarian one of 2). Some experts claim that at current rates of expansion, by 2050 all the world’s crops will be needed just to sustain production of the world’s meat products.

The solution coined by Mark Post, of the Department of Physiology at Maastricht University in the Netherlands, was to grow animal tissue using muscle stem cells. Stem cells are the components of body tissues that can differentiate to grow and replace damaged cells very fast. Every vertebrate has these stem cells in their muscle tissue.

Stem cells grow very, very fast. Given the right nourishment and environmental conditions, they double 35 times. One muscle extract obtained through a biopsy from a live animal can yield 10,000kg of meat. After differentiation, they merge to form a smooth wall of muscle. Still, the scale at which this growth occurs is small. The resulting rings of muscle cells are just 2.5cm long and 1mm in diameter. Further expansion is difficult, because they have no blood vessels to transport nutrients to cells in the centre.

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This is an area Post is keen to explore, and sees two possible solutions: either an “artificial channel system to mimic the blood vessel system”, or to grow a biological blood transport system, complete with tiny capillaries. It seems this could necessitate an artificial pump, but he suggested that “stimuli coming from the interior cells that drive growth and repair” could be sufficient to direct the flow of nutrients. His ultimate goal, he said, was to create an authentic T-bone steak, – without harming any animals in the process.

Post claimed his original idea was to make a sausage and “present it to the audience while the pig was running around honking.” But after he presented the proposal to Google founder Larry Page, his new patron insisted as a condition of his support that it was a burger, rather than a sausage, as Post had first envisioned.

“I wanted to produce a sausage, and present it to the audience while the pig was running around honking.” (Mark Post, Maastricht University)

Another way the professor proposes to enhance the technology is through tailoring the proteins and amino acids the meat contains. He states that in future, they might remove harmful proteins such as those which cause colon cancer. And that they would incorporate fat cells, which would serve the dual purpose of making the burger juicier, and of improving its nutritional content: the fatty acids, when separated from their respective glycerol molecule, are essential for bodily functions including steroid synthesis, and in the phospolipid bilayer which forms a part of the plasma membrane in all body cells.

Fun Fact:

A number of other important biological molecules are also lipids. Vitamins A, E and K are terpenes, compounds similar to steroids but somewhat smaller. Steroids, of which Vitamin D and cholesterol are two examples, are lipids consisting of four interlinked rings of carbon atoms. Other important steroids are derived from cholesterol, among them the sex hormones progesterone and testosterone, and the hormone aldosterone secreted by the adrenal cortex. Bile salts, such as glycocholate and taurocholate, are polar metabolic products of cholesterol necessary for functioning digestion of lipids.

 

Here comes the science…

Tests have been conducted as to the ideal solution to promote adipogenesis, adipose or fat stem cell replication. Post cites Lin et al, ‘Tissue Engineering A,’ 2011, as having demonstrated the effectiveness of ADSC in collagen gel for this purpose. The expression of fatty acids Rosi, Phytanic and Linoleic acids were especially boosted, and to a lesser extent myristoleic and elaidic acids.

The optimum condition to enlarge and increase muscle cells is achieved through subjecting them to tension (“Muscle cells are exercise junkies,” says Post), so stretching them between two points gives them an effective workout that could also increase the muscle mass. It has been found that electrical currents stimulate muscle activity, but over time this wears them out rather than building them up.

In addition, the team is experimenting with the solutions it will use on the muscle tissue as it is being incubated. By coating the cells with a substance such as Matrigel, at a concentration of 1:200, you create an immersive 3D culture environment. In contrast, a petri dish donates nutrition via a flat, 2D surface. Matrigel was the most effective coatings tested, causing the highest relative expression of stem cells. Other coatings trialled in the experiment were laminine (concentration 1:10) and biolaminine (concentration 1:25).

A potential obstacle to sustainability is that, in addition to the original biopsy, calve serum is used to deliver vital nutrients. Eventually if cultivation of muscle cells can be scaled up, it would be possible to grow new cell populations out of cells already synthesised in the laboratory. But to maintain a supply of calve serum would necessitate diverse herds of livestock; something Post wants to phase out, as an inefficient use of land and corn. They have had promising results with a few non-serum media.*[1]

The first three stem cell burgers were served up live on TV last August to notable food critics, author Josh Schonwald and Hanni Ruetzler of Future Food Studio, who gave the home-grown dish what Post calls a polite but honest reception. The cost of this particular menu item was in total €250,000 in equipment, materials and labour. In order to make the process efficient and cost-effective, the team would have to expand production to a commercial scale. The task of modelling how to achieve this was contracted to J.Rowley, allegedly the world’s largest supplier of stem cells for laboratory purposes.

J. Rowley’s model did not account for all the further enhancements envisioned for the process. It made a number of technical assumptions: that 52 population doublings were possible; that the achievable cell concentration in the microcarrier culture would be 7.0e6 cells/ml; and the microcarrier concentration 10g/L. Consultants at J.Rowley mapped out a method by which cells were conveyed from plates to flasks, to a cell factory to a cell culture, via a mixing facility to a filling facility, and culminating in a discrete freeze drier. The final cost per kg of beef production? An average of $65.57, which at current exchange rates is £39.33. At the current retail price of meat, this seems on a par with livestock farmed the traditional way.

The headline figure is that a single bioreactor, incorporating 13 cycles per year, could feed a population of 10595. Each batch of cells yielded by the chain of production would yield 35000kg of meat, without endangering the life of a single cow.

That’s 175,000,000,000,000 individual, artificially synthesised cells, for those of you who are impressed by big numbers.

And why stop there? Post jokingly hypothesised about the creation of ‘animal hybrids’, meat containing components for two or more different species. Pick and Mix…He theorised that technically, it would be possible for people to grow meat at home in domestic incubators, provided they tended their incubator with the same care and patience as a garden or allotment.

Hey, it sounds fantastical. But five years ago, what would you have said in response to someone who claimed they could ‘grow meat’?

[1] If you are interested, results for the solution 6% Xerum free + Mix +1% P/S/A ingevoren aliquots suggested it could be a viable alternative.

‘Learn to trade Forex like a pro’, they say. Is it all too good to be true?

12 Mar

A four-day course on forex spread-betting for beginners is one of several ventures purporting to endow amateur investors with the skill to take on institutional traders.

Opes Academy’s self-described “private fund owner and city trader”, Paul Bentley, told the motley group of recruits the sales team had scraped together for Saturday’s presentation that spread-betting was not a form of gambling (though technically being classified as gambling is what exempts it from capital gains tax).

It was, rather a series of calculated risks where you tried to maximise gains despite an uncertain outcome; an explanation strangely similar to the Oxford dictionary’s second definition of gambling.

Spread-betting has earned its moniker by virtue of the fact that winnings are proportionate to the distance a stock must move before investors reap the rewards: say, £1 for every basis point. Like in a betting shop, the smaller the probability of the outcome, – or the slimmer the odds, – the higher the reward.

However, the margin ‘stake’ you put down when placing a bet can be lost at the same rate. That is, unless you have set a ‘stop losses’ limit below which your chosen security cannot fall, before the broker automatically stops the trade and cuts your losses. Although you can lose more than your initial stake if you bet on an underlying moving in the wrong direction, the yield on your position can be three times the value of your initial investment.

The popularity of spread-betting, and its status as an over-the-counter (OTC) contract means that host exchanges sometimes go beyond the facilities offered by traditional exchanges, providing guaranteed stop-loss agreements. This was a facility that Opes Academy invoked as a privilege allowed by its partner exchange.

For a mere £2,500, the course offers four days of technical training which teaches you a Forex trading system incorporating four key indicators: relative strength index; moving average – exponential; Fibonacci retracement and extensions; and stochastic. While these principles form a sound grounding in trading theory, I was dubious about the group’s ability to master them over two one-and-a-half days’ teaching sessions – and two half-days’ of practical work, placing trades under supervision in the classroom.

An exponential moving average in price is widely recognised (see Prof. Sornette on the Log-Periodic Power Law) as an indication that investor sentiment has become the predominant driver of price movement. The Fibonacci number sequences widely found in naturally-occurring patterns of expansion are also used as a barometer of investor sentiment (see investopedia definition, and official site’s description of founding principles of Elliott Wave Theory.) Another facet of the course is learning to identify false signals, manipulation by market makers through iceberg trades or dark pools.

Stochastic calculations are used to project possible outcomes within a system, according to the probability of chains of events. Monte Carlo methods are stochastic techniques – meaning they are based on the use of random numbers and probability statistics to model derivatives pricing and value at risk. The method involves running multiple trial runs, called simulations, using randomly generated sequences of outcomes.

Though technical instruction was reserved for those who subscribed to the course, Bentley offered his audience some casual throwaway gems of advice. First, to “Wait for the ripples” from major institutions’ block currency trades and capitalise on the resulting price movement. “Amateurs want to dive in,” he said. “In fact, you will walk away from more trades than you take.”

He cautioned that prices on average fall five times quicker than they rise, so to watch out for when a price chart hits a ceiling, i.e. the level at which on previous occasions, the trend has started to reverse. This precipitated the traders’ maxim, “Bulls go up the stairs, bears jump out the window.”

Another popular preoccupation he warned against was ‘impact news’, like press releases about newly pegged central bank interest rates, or the US non-farm payroll figures announced on the first Friday of every month. Traders’ immediate reactions and attempts to pre-empt market movements trigger high volatility, with unpredictable outcomes. For this reason he advised to stay clear of trading an hour before, and the hour after, impact news releases. Bentley assured us that he personally spends two hour in the pub on non-farm Friday, so as to resist the temptation to speculate.

Bentley conveyed the impression of being an experienced and knowledgeable trader – though still young, at under 35. The problem with the ‘system’ that Opes Academy indoctrinates its credulous subscribers with is that, by only investing one percent of your portfolio at a time, in a maximum of three open trades, it could take some time to make back the cost of the £2,500 course fee if you make a lot of early mistakes. This is even accounting for the £10,000 opening account you are allocated to trade. Opes Academy take 30% of whatever profit you make, leaving you with 70%. After the quarterly assessment of your capital gain, the total in your fund returns to £10,00.

And you are only supposed to place a trade if it is certain the circumstances meet the stipulated criteria. In fact if you break the system’s rules at any point, the Opes Academy team, who continually monitoring all trades placed with their account, will suspend your account.

Bentley explains, “If you break the rules of risk management, we pull your account. You are not liable for any losses, provided you follow the rules. We monitor you constantly with a traffic light system – green, amber and red, depending on your percentage losses… If you are consistently losing money, we won’t suspend your account immediately but we will have strong words with you.”

My burning question, sitting through the initial hour-and-a-bit-long sales pitch, was ‘But how do you make money out of this?” Evidently the elephant in the room, the subterranean bombshell, was the course price, which was not revealed until the last five minutes. A concerted effort was made to persuade us that this was almost a philanthropic exercise, that they were teaching us a ‘life skill’; that our social network would broaden, as we students engaged in avid discussions on trading technique over Skype.

I did some sketch calculations to ascertain how likely you were to make back your £2,500 investment under this system. Let’s say you had other time commitments, and in each quarter were only able to place around one trade a week, but all were successful. The first three yielded a 3% return, then one 2% trade, a 3% trade, a 2% trade, 3%, 2%, a couple of minor 1% yielding positions, then another 3 and 2% yields. You would end up with£13,184.59. Minus the £600 you lost through four bad trades – which figure, based on Bentley’s screen capture of his own trading history for a month, is optimistic: the net gain is £2,584.

Boom. In your first quarter of trading, you have made back your initial investment and more. All thanks to the magical mathematical combination of compound interest on a large sum of capital. There are many companies out there trying to capitalise on the growing trend of casual traders, non-professional investors who want to ride the stock market to augment their existing capital: Forex Trade School, Amplify Trade School, Agora Trading, one-day event Alpha Trading Floor, to name just a few.

IG in a 2013 report stated that 0.18% of the UK population engaged in spread betting, higher than the numbers in France (0.04%) and Germany (0.06%); though still some way behind Singapore where 0.55% of the population actively participate. It is still an elitist pursuit, but with access widening through beginner trading courses, what are the odds that these percentages will start to compound?

High-yield bond issuance by UK mortgage loans company scheduled, January 30

30 Jan

The Paragon Group of Companies plc, which provides buy-to-let mortgage loans to landlords and property investors, has revealed it will release £1billion in senior unsecured debt over 2014. Several different note tranches will be made available under its year-long Euro Medium Term Note Programme.

With a fixed 6.125% coupon rate, payable semi-annually, the notes will only be permitted to trade on the regulated market of the London Stock Exchange; and on the Electronic Order Book for Retail Bonds (ORB). Canaccord Genuity Ltd will be appointed a registered market maker over the ORB when the notes are issued.

The first date of unconditional trading is 30 Jan. 2014. Books opened to the primary market, in advance of margin trading on the secondary market, for a £2000 minimum subscription. But advance bidding has now closed.

The Paragon Group of Companies, until 1997 known as National Home Loans Holdings, justified its expansionist borrowing scheme by describing the upward trend in its area of operation, stating that although “The Council of Mortgage Lenders (CML) reported that activity in the UK’s housing market,” (number of house sales) “has decreased significantly from £362 billion of transactions in 2007 to £141 billion in 2011… rental demand has grown significantly… CML reported that the value of buy-to-let (BTL) advances increased by 23.6 percent to £15.7 billion during 2012 versus £12.7 billion in2011 (September to September).”

The note issuer continued with a market forecast: “As a consequence of the high level of demand, recent Royal Institution of Chartered Surveyors (RICS) UK Residential Lettings Survey surveys indicated that rental yields are expected to increase. Data from the Association of Residential Letting Agents (September 2012) supports this trend, with the majority of agents reporting an increase in achievable rents over the six months to June 2012.”

However in view of the high 6.125% coupon, it is necessary to bear in mind the company’s risk disclaimer, which  warns first that “Adverse changes in the credit quality of the Group’s borrowers could result from a general deterioration in UK economic conditions or increases in the interest rates and borrowing costs.” And furthermore, that because the majority of the group’s loans charge a floating interest rate, “Increased borrower default risk can result from an increase in interest rates after an initial concessionary period.”Both the inherent credit risk in the group’s lending activities, and the uncertainty around continued real estate market growth, are potential deterrents to investors.

Selected financial information in the prospectus summary shows the Paragon Group of Companies’ assets exactly match its liabilities. And vitally, that its total operating income increased from £150.9 million to £170.2 million between 30 Sept 2011 and 2012; its profit showed a similar trend, growing from £59.6 million to £72.2million from 2011 to 2012. It remunerated its shareholders accordingly, with a dividend that was raised from 4.00p to 6.00p over the same period.

Renumeration on the notes will be denominated in sterling, and the issuer accepts no responsibility for exchange rate fluctuations which might affect the security’s value for subscribers whose domestic currency might have increased or decreased in relation to GBP.

 

 

Swiss HSBC bank’s master plan for evasion of European savings tax (translated, Le Monde)

28 Jan

There is not just one, but two HSBC affairs. After a long inquiry, Le Monde reveals, Monday 27 january, the underside of an incredible episode which has poisoned Franco-Swiss relations for five years, and gives cold sweats to the French establishment.

The 26th December 2008, the computer programmer Hervé Falciani  sent to French tax investigators four DVDs containing about ten giga-bytes of raw data, encrypted, analysed over the course of long nights of work in Geneva, and concerning two years: 2005 and 2006. This HSBC employee is in flight, suspected of having wanted to sell the data to Libyan banks. The Direction national des enquêtes fiscales (DNEF) – national head of tax inquiries – with the aid of the Direction générale de la sécurité extérieure (DGSE), re-transcribed and then reconstituted a listing containing, in total, 2,846 identities of tax evaders.

The 20th January 2009, the courts in their turn went into action. They seized the computers of Hervé Falciani, and they too processed the raw data. A second listing was established through police investigation, harbouring for its part 2,956 names of suspects. A preliminary inquiry was ordered, much to the annoyance of the Swiss. There would be traps, checks, attempts to obstruct the work of the inquirers, and even the ousting of the head of the DNEF, whose file is sensitive.

600 Prominent Figures in the Listings

Le Monde has also had access to these two lists. The identities are often the same, and, in cross-referencing the information, certain categories materialise. They are traders, chemists, lawyers, comedians, singers, antiques dealers, sportsmen. A precious resource for the investigators, letting them establish a typology documenting the French holders of Swiss accounts.

In the majority of cases, the taxpayers found at fault have already regularised their situation. On examining the listings, one thing is obvious: the different circumstances. Around 600 prominent figures feature there. We have contacted them and listed those who permitted it. The first category, is those incumbents whose affairs are perfectly in order. For example the French residents in Switzerland. Among them is the footballer Christian Karembeu, the brothers Christian and François Picart (founders of the restaurant chain Buffalo Grill), or even Alain Affelou. In contrast to their treatment, the investigators interrogated a former teammate of M. Karembeu in the French team, who was also a world champion in 1998, holder of 1.6million euros with HSBC, as well as two superstars of French cinema, a famous comedian, a popstar, a former Miss France. And finally, a senator (UDI?) They did not respond to our inquiries.

The film-maker Cédric Klapisch figures on the list. “The tax authority contacted me the same moment I had started to regularise my affairs,” he revealed. “My father lives in Switzerland, he had opened an account in Geneva, he did not have an enormous amount of money under it (247,000 euros according to our information). I did not know that it was illegal. I regularised everything in 2012, and I don’t have money over there any more.” Gérard Miller had a similar experience. His testimony echoes that of lawyer Michel Tubiana, or of Richard Prasquier, ex-president of the Conseil representative des institutions juives de France (CRIF). Paul Bocuse is not in the same class. The celebrated chef pleads a thoughtless mistake. He held an account well stocked with 2.2 million euros.

But besides the identity of the tax evaders, which will all be known by the police, the biggest impact of this inquiry will be when it moves onto leaning on the internal practices of HSBC. When contacted, the bank assured us it is combating tax evasion and adheres to the laws. The information confided by the judges Renaud Van Ruymbeke and Charlotte Bilger suggests the contrary.

The investigators have seized the visitors reports of account managers at HSBC, when advising their clients. First, a certainty. According to the public prosecutor in Paris, François Molins, contacted by Le Monde, “nothing leads us to think that the files have been manipulated to give a false impression.” Et donc voila the protests of the Swiss authorities, who maintain the files have been altered.

The police, in a report of the 1st August, want to “direct the investigation towards the system put in place by HSBC to bypass the ESD tax.” The ESD tax derives from a European directive on the taxing of savings, applied to bank accounts from 2005. According to the inquirers, in view of the reports on the visits of 239 French clients, “the bank proposed in systematic fashion diverse evasion tactics in order to avoid the levy. Even worse, the bank also offers its services for setting up a company.”

The judges have already prepared precise testimonials. Like those of Parisian lawyer Laurent Azoulai. He, who wanted to standardise his affairs in Switzerland, – almost a million euros – was faced with the opposition of HSBC. He cites in defence of his view the case of a manager, who “tried with insistence to dissuade me from standardising my accounts.” And explains, “He told me that there were these stolen documents and that to try and regularise my situation, I would have to go up against the wrath of the French tax authorities. In a word, he was trying to make me afraid.” The investigators have also obtained extracts indicating that the bank would have recommended to certain of its clients to destroy their files…

The magistrates now have to try and identify the people eligible for numerous offshore companies, but also the true beneficiaries of the accounts attributed on the listings, the “HSBC employees” without doubt to blame, who could not use anything but fake names. The French establishment has not yet stopped quivering.

(link to original article, http://www.lemonde.fr/societe/article/2014/01/27/evasion-fiscale-les-secrets-des-fichiers-suisses-de-hsbc_4354900_3224.html)

Group of investors request SEC to exempt them from regulations over new Investment Complex

15 Jan

9/01/14

A group of institutional investors has requested numerous exemptions from the SEC’s regulations over funds of funds to extend the remit of three feeder funds, enabling collective ownership by said investors in a complex of Affiliated Funds.

The investment group invoked the ‘public interest’ in support of most of their requested exemptions, arguing in depth that the violations Act 12(D)(1), 17(B) and 6 (C) were intended to prevent were either not relevant in this case, or that the group had taken sufficient precautions to prevent abuses of shareholder interests.

The funds established by the applicants comprise The Advisors’ Inner Circle Fund, The Advisors’ Inner Circle Fund II and Bishop Street Funds. From December 10, 2012, AIC offered shares of 45 series, AIC II offered shares of 36 series and BSF offered shares of 4 series;  “each pursue different investment objectives and principal investment strategies.” All three trusts are registered in Massachusetts, each as an open-end management investment company.

The investors making the application incorporate Citigroup First Investment Management Americas LLC, Cornerstone Advisors Inc., PNC Capital Advisors LLC, Frost Investment Advisors LLC, and GRT Capital Partners, LLC. All act in an advisory capacity over other specialist funds within their company group, with extensive oversight over their investment approaches. GRT currently serves as investment adviser for two series of AIC II: the GRT Value Fund and the GRT Absolute Return Fund.

The applicants first laid out how their proposal complied with existing SEC requirements. Their current arrangement was classified as an Affiliated Fund of Funds Arrangement (under Section 12(d)(1)(G), which allows a registered open-end fund or unit investment trust (UIT) to acquire an unlimited number of shares in other registered open-end funds and UITs that are part of the same “group of investment companies”. This collective is commonly known as a “fund complex”. The fund which capitalises on this exception, an “affiliated fund of funds” is limited in the forms of other securities it can possess as well as its shares of registered funds in the same group of investment companies.

These restrictions at times give birth to master-feeder arrangements, where an Affiliated, Underlying or ‘feeder’ fund is created solely for the purpose of investing in its ‘master’ fund, which orchestrates a diversified portfolio and strategy. Those investing in the ‘feeder’ fund must be part of the investment group constituting the ‘master’ fund, in order to be permitted to gain a sufficient, significant interest in the underlying fund’s common stock. To reduce transaction costs and to bypass the aforementioned controls on the type of security held, a distributor fund of funds is incorporated to periodically redistribute assets between complex members’ portfolios.

SEI Investments Distribution Co. was the designated ‘Distributor’. The distributor serves as principal underwriter and distributor for the shares of the trusts’ funds. Acting as co-advisers to the proposed fund of funds are Abbot Downing Investment Advisors, Bishop Street Capital Management; Abbot Downing is a distinct identifiable department of Wells Fargo Bank, N.A. and presently serves as investment adviser for AIC II series, the Clean River Fund series.

Previously, the Securities Act under the stipulations of Section 12(d)(1)(A) restricted investment by open-ended funds or unit investment trusts in other funds. The measures “were designed to prevent fund of funds arrangements that have been used in the past to enable investors in an acquiring fund to control the assets of an acquired fund and use those assets to enrich themselves at the expense of acquired fund shareholders,” explains the SEC (http://www.sec.gov/rules/final/2006/33-8713.pdf).

Investment was capped at 3% in the acquired fund’s outstanding voting securities, and the buyer was prevented from investing 5% or more of its stock in any one fund; or investing more than 10% of its stock in total in other funds. Under Section 12(d)(1)(B), an investment adviser or dealer-broker of the company whose securities are being acquired cannot sell more than 10% of its outstanding stock to other funds.

Due to the subsequent difficulty for some funds in sourcing adequate finance, an amendment to the act enabled unlimited numbers of positions in ‘unaffiliated funds,’ with the same 3% cap on the size of the stake in the fund. The buyer was also prevented from influencing shareholder votes, and is restricted in its ability to exchange shares of the acquired fund. The only way of bypassing these rules is by claiming the interested parties are part of the same ‘investment group,’ and thus affiliated funds.

Many of these restrictions do not apply to affiliated funds, or groups of investment companies, under Section(d)(1)(G) of the act, provided the aggregate sales and distribution-related fees of the acquiring company and the acquired company are not excessive. And, the applicants explain in their own words, that:

“the acquired company has a policy that prohibits it from acquiring securities of registered open-end management investment companies or registered unit investment trusts in reliance with Section 12(D)(1)(F) or (G) of the Act.”

And additionally, if you are still following these gymnastic contortions in legal parlance, that “the acquiring company holds only securities of acquired companies that are part of the same ‘group of investment companies,’ government securities, and short-term paper.”

The Underlying Funds whose shares are being acquired by the investment trusts within the complex will have a severely restricted choice of investment policies, their major purpose the transfer of capital to unit and open-ended investment trusts and companies in the investment group. Investment Advisers acting for the funded funds will be licensed to accept capital transfers in their role as Affiliated Parties. Naturally there are constrictions too which limit the size of monetary transfers and exchanges, even between affiliated companies. The applicants detail how they intend to bypass these rules below:

Section 17(b) of the Act authorizes the Commission to grant an order permitting a transaction otherwise prohibited by Section 17(a) if it finds that (a) the terms of the proposed transaction are fair and reasonable and do not involve overreaching on the part of any person concerned; (b) the proposed transaction is consistent with the policies of each registered investment company involved; and (c) the proposed transaction is consistent with the general purposes of the Act.

Section 6(c) of the Act permits the Commission to exempt any person or transactions from any provision of the Act if such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. Because multiple transactions could occur between a Fund of Funds and an Unaffiliated Fund, and because the Commission may interpret its authority under Section 17(b) as extending only to a single transaction and not a series of transactions, Applicants are also seeking relief pursuant to Section 6(c).

And the list of proposed exemptions from the Act goes on, evoking Section 12(D)(1)(J) as grounds for immunity from the requirements of Section 12(D)(1). The provisions of Section 12(D)(1) prevent a registered investment company from purchasing or acquiring a security or business interest from someone who is a broker, dealer, underwriter, investment company adviser or investment adviser.

The 12D-1 limit allows registered investment companies, on a case-by-case basis, to purchase securities from other firms engaged in the business activities prohibited under Section 12(d)(3) of the Investment Company Act: namely, small loan, factoring and finance companies. Securities can only be purchased from companies which derived no more than 15% of their total gross revenues over the previous three fiscal years from the businesses listed above. Furthermore, the registered investment company and all affiliated companies must not own more than 10% of the total outstanding voting stock of the portfolio company immediately after the securities acquisition. The proposed immunity from these universally applied limits is again justified on the basis of shareholders’ and the public’s interest.

They give due credence to the Commission’s autonomy of judgement, while implying that the rules may not apply in this particular case, stating that: “The Commission should consider… the extent to which a proposed arrangement is subject to conditions that are designed to address conflicts of interest and overreaching by a participant in the arrangement, so that the abuses that gave rise to the initial adoption of the Act’s restrictions against investment companies investing in other investment companies are not repeated.”

Finally, they detail the precautionary measures they have taken to prevent the potential abuse of the management fee structure; or of holding undue sway over one of the underlying companies’ management policy, purely by virtue of the fact it is directly answerable to the master companies’ investment advisors. The first condition will be forestalled by establishing a Board of the Fund of Funds, including a majority of the trustees who are not “interested persons”, as described in Section 2(a)(19) of the Act, who will rule that the advisory fees charged under advisory contracts for the principal investment funds are “in addition to, rather than duplicative of, services provided pursuant to any Underlying Fund’s advisory contract(s).” And moreover, that it is equal to the fee that would have been exacted by an Unaffiliated Investment Company for the same services.

The section condition will be met through a clause stipulating that if either an Advisory Group or Subadvisory Group becomes a holder of over 25% of the outstanding voting securities of the Unaffiliated Fund, the group nominally in charge of policy direction will vote its shares of the Unaffiliated Fund in the same proportion as the vote of all other holders of its shares. For reasons unknown, this contingency will only be triggered in the case of a 25% majority interest occurring “as a result of a decrease in the outstanding voting securities of an Unaffiliated Fund, an Advisory Group or a Subadvisory Group.”

One final exemption requested from the existing law is the proposal that the applicants be permitted to buy shares directly from ETFS of registered investment funds, rather than by the secondary market.

To sum up, an impressive intellectual case has been made by the applicant parties (Citigroup First Investment Management Americas LLC, Cornerstone Advisors Inc., PNC Capital Advisors LLC, Frost Investment Advisors LLC, and GRT Capital Partners, LLC., SEI Investments Distribution Co, Abbot Downing Investment Advisors and Bishop Street Capital Management). It is based on the assumption that they have enough safeguards in place to prevent the abuse of acquired investment funds’ shareholder interests that necessitated the Act’s relevant provisions in the first place. But considering that the acquired funds in question seem to have been created purely to serve the interests of the firms which will act, through the distributor, as both their investment advisers and managers, it seems their essential premise of the ‘public interest’ might be a shaky one. Will this consideration be outweighed by the possible benefits of such a large, balanced and diversified pool of investments?

Spain’s expenses scandal unfolds

1 Feb

Over on the Iberian peninsula, the Spanish government is facing embarrassing questions over its account-keeping. This time the discrepancy was found, not at a national level, but in the expenses roster of the ruling political party, the Partido Popular (PP). The episode evokes memories of the UK’s ‘expenses scandal,’ with MPs making claims for non-essential items like second homes, housing renovations, TV licences, and one multimillionaire member having a septic tank cleaned. Twice.

El Pais has obtained several secret accounts ledgers of the Lapuerta and Barcena, Treasurers of Spain’s ruling political party, Partido Popular (PP). The notebooks contain records of donations by various entrepreneurs, a number of whom have publicly denied contributing to the party; and of salaries and payments to PP members, some of which diverged substantially from officially disclosed accounts. Sources close to the Treasurers say the alternative ‘dome’ payment system was used in order to avoid taxation at the Treasury.

Inflated paychecks?

Among those in receipt of salaries by this payment method were the current PP Secretary General Dolores de Cospedal, and previous Secretary Generals Arenes and Aharez Cascos. They claim that everything the party had claimed was declared to the Treasury, a phraseology which leaves scope for many separate undeclared expenses within this net total. They also maintain they never cashed these payments; sources say that de Cospedal has privately claimed responsibility for putting an end to the practice.

Cross-analysis showed a paycheck, more than that officially declared, was awarded to one of the PP’s main political advisers, who oversaw opinion polls. Pedro Arriola received numerous payments of between €100,000 and €161,000. Miscellaneous party expenses included substantial payments to the head of its legal counsel, which are believed to have been used legitimately, to pay for external legal advice. Less easily explained is the €36,100 contribution to the owner of Internet Portal Libertad Digital, Federico Jimenez.

Shopping trips

Smaller items the notebook lists include bills for clothing: June 2006, €667 for “ties president”; December 2006, €9,100 for “Suits Mariano”; April 2008, €11,020 for an unnamed recipient, “MR Suits”. Because the figure believed to have been defrauded is relatively small, those involved will not be prosecuted for tax fraud, but may be accused of tax evasion. Investigators are still awaiting results of the external and internal audits commissioned on the public accounts.

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The businessmen and entrepreneurs who have been revealed to have made undeclared donations to the PP include an ‘Income’ entry for Pablo Crespo, who was high in the chain of command in a previous scandal, a kickback payment scheme to secure public contracts from the government. He and his co-conspirators Francisco Correa, construction director Alfonso Garcia Pozuelo, and head of Valencia-based Sedesa Service Juan Cotino, have already been successfully prosecuted.

Other donors who wished to remain anonymous were also predominantly from the construction industry. They run as follows: Luis del Rivero (known as R.L.), €120,000 in 2004, while Vice President of Sacyr Vallehermoso, and €260,000 in 2006 when President; ‘JM (Juan Miguel) Villar Mir, €100,000 in 2004, €180,000 in 2006, and €250,000 in 2008, as President of OHL; José Mayor Oreja, brother of the former Interior Minister, €90,000 and €70,000 in 2008 as President of FCC Construcción; ‘Mercadora,’ whose identity is unknown, €90,000 and €150,000.

So… make of that what you will. Let us hope there are no more holes in Spain’s treasury reserves, and that those responsible for the trick, if it is one, are made to pay for it.

Everything you wanted to know about fracking and its effects on the US water supply

12 Jan

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According to the U.S. Energy Information Administration (EIA), 33 percent of technically recoverable natural gas resources in the United States are held in shale rock formations. It asserts that in one decade, natural gas from shale has grown to 25 percent of U.S. gas production, and will be 50 percent by 2035. Yet the extraction process, of pounding tons of pressurised water and chemicals at the shale to crack it open, has been accused by environmentalists of contaminating drinking water surrounding wells. Footage seems to show locals setting light to tapwater because of high levels of methane.

The US Environmental Protection Agency has released its initial report on Hydraulic Fracturing’s possible contamination of the water supply, and highlighted key points in a webinar last Friday. Nine major oil and gas companies have provided details from 350 well files, from 50 randomly selected  but geographically representative sites. Some Confidential Business Information (CBI, subject to state legislation) was necessarily protected. It has also conducted a comprehensive review of existing studies, as well as whatever has been recorded in federal and state databases, which has proven somewhat piecemeal.

Finally, it reviewed data compiled from FracFocus, an online repository of information regarding the chemical compositions of fracking fluids used in specific wells. This joint project from the Ground Water Protection Council and the Interstate Oil and Gas Compact Commission has proved perhaps the most popular with oil and gas companies who seek to share selective disclosures.

Three of the participating companies, BJServices Company, Halliburton, and Schlumberger together performed approximately 95% of hydraulic fracturing services in the United States in 2003 (US EPA, 2004). The other six companies represent small and medium-sized companies performing hydraulic fracturing services between 2005 and 2009. Nevertheless, it is a lucrative industry.

The full list, together with their annual revenue for 2009 in millions, is as follows: BJ Services Company $4,122; Complete Production Services $1,056; Halliburton $14,675;  Key Energy Services $1,079;  Patterson-UTI Energy $782;  RPC $588;  Schlumberger $22,702; Superior Well Services $399;  Weatherford International $8,827.

These firms have contributed information on the chemicals most commonly used in hydraulic fracturing, which the EPA has cross-referenced with substances associated with the process already reported to the government, and monitored under the Safe Water Drinking Act (SDWA) or as Hazardous Air Pollutants (HAP). Top of the list is methanol, which is used in 342 products; ethylene glycol is also recognized as being a health risk, and is the fifth most widely used substance. Methanol is toxic, and when ingested can cause metabolic acidosis (excess acid), neurologic sequelae, which are the degenerative neurological symptoms also associated with lupus, and potentially death.

Hydraulic Fracturing Research Coordinator at the Office of Science Policy, Department of R&D, Jeannne Briskin, claimed that there were also unknown chemicals associated with the processs. While their chemical formula was the same, their structure or service numbers (CASRN) were often new to researchers. Because of the “different matrices which are often found in hydraulic fracturing situations,” they had recorded “1000 plus unique chemical substances either associating with fracturing or waste processes.”

Appendix A of the report contains the prurient information for all of the following: material Safety Data Sheets (MSDSs) for each fluid product; the concentration of each chemical in each fluid product; the manufacturer of each product and chemical; and the purpose and use of each chemical in each fluid product.

Of the four regions selected for retrospective study, pre-existing federal and state databases have yielded varying degrees of information. The report states that “there is no central database in Texas on hydraulic fracturing-related spills. Oil and gas operators are required to report spills to the Railroad Commission,” but because the dataset does not include chemical spills the EPA did not pursue it. Of the reported chemical spills investigated by Texas’ Commission on Environmental Quality, the reports are entered into to the state’s Consolidated Compliance and Enforcement Data System. However, said the EPA, “the investigation and inspection reports in this database are not available electronically on the Texas Commission on Environmental Quality’s website or at their Central Files Room.” Other attempts to access hydraulic fracturing-related reports by the Joint Groundwater Monitoring and Contamination Reports prepared by the Texas Groundwater Protection Committee were “unsuccessful in getting the relevant incident details.”

It was decided furthermore not to peruse Wyoming’s catalogue of incidents because of their failure to differentiate between their causes, meaning they were indistinguishable from other oil and gas incidents. Though the data is in this case publicly available. In New Mexico, release notifications are submitted to the Oil Conservation Division of its Minerals and Natural Resources Department which manages databases on spill incidents and water contamination. Investigators searched for the terms “acid in blowout”, “Frac tank”, “pit”, “Gelled brine (frac fluid), “natural gas liquids”, and “produced water.” They noted that the database does not list whether the company returned is engaged in fracking.

In Pennyslvania, the EPA tried to narrow database entries returned to those around the Marcellus Shale region which had not thus far, under inspection, resulted in violations of the Pennsylvania Department of Environmental Protection’s Compliance guidelines (so as not to cover ground previously investigated.) Whatever information was gleaned was pooled, and supplements reports contributed by the participating companies. The nine key stakeholders were sent information requests, and asked to participate in several technical workshops.

Issues under discussion included: “What are the identities and volumes of chemicals used in hydraulic fracturing fluids, and how might this composition vary at a given site and across the country?”. Or the less specific, “How effective are current well construction practices at containing gases and fluids before, during, and after fracturing?” The EPA inquired too about blowback: “What is currently known about the frequency, severity, and causes of spills of flowback and produced water?” and about the composition of backwaters, before and after treatment. The EPA notes that information concerning the composition of wastewater is organized according to geologic and geographic location, and time after fluid injection.

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And to conclude this expose, here’s a choice taster from the report itself… Unfortunately we will have to wait till 2014 until all its findings have been reviewed by the EPA’s Science Advisory Board and a final conclusion can be reached. I’m sure you will all be waiting with baited breath.

As of September 2012, the 52 Study of the Potential Impacts of Hydraulic Fracturing on Drinking Water Resources: Progress Report December 2012 EPA had extracted, and continues to extract, the following available information from all of the well files:

  • Open-hole log analysis of lithology, hydrocarbon shows, and water salinity
  • Chemical analyses of various water samples
  • Well construction data
  • Cement reports
  • Cased-hole logs, including identifying cement tops and bond quality

 

Other data to be extracted includes the following:

  • Source of water used for hydraulic fracturing
  • Well integrity pressure testing
  • Fluid volumes injected during well stimulation and type and amount of additives and proppant used
  • Pressures used during hydraulic fracturing
  • Fracture growth data including that predicted and that observed
  • Flowback and produced water data following hydraulic fracturing including volume, disposition, and duration

 

The EPA is creating queries on the extracted data that are expected to determine whether drinking water was protected.

 

The results may provide, but may not be limited to, information on the following:

  • Sources of water used for hydraulic fracturing
  • Vertical distance between hydraulically fractured zones and the top of cement sheaths
  • Quality of cementing near hydraulic fracturing zones, as determined by a cement bond index
  • Number of well casing intervals left uncemented and whether there are aquifers in those intervals
  • Distribution of depths of hydraulically fractured zones from the surface
  • Frequency with which various tests are conducted, including casing shoe pressure tests and casing pressure tests

The Future of Pensions re: Aberdeen Asset Management

11 Nov

The Pensions Intelligence Report is a government-appointed investigation into what the Minister of State for Pensions staunchly refuses to call the ‘Pensions Crisis.’ Aberdeen Asset Management presided over a summit on the major issues, at London’s Corinthian Hotel just off Whitehall. Suggested changes included auto-escalation, better gender equalisation, and more emphasis on workplace savings schemes that put employers and employees on a more equal footing.

Thanks to the introduction of auto-enrolment, by Christmas around 600,000 more people will have joined a scheme. For those who have opted out, or those for whom it does not apply, employer-subsidised ISA schemes based in the workplace can offer a viable alternative. Stephen Lefley, corporate distribution director at Zurich, suggested there should be a wider range of options which employees could directly invest their pot in, as at Microsoft which also offers a financial education programme to ensure workers made the right investment choices

Another suggestion was that executives could offer to have their benefits match the renumeration percentage of their employees, or perhaps just have a greater degree of equality in the way blue-collar workers are treated. The recent case of a company which offered cash incentives, or bribes, to employees to drop out of defined-benefit schemes is a case in point.

Steve Webb, Minister of State for Pensions, said there were a number of difficulties for trustees in the current economic climate. Number one was volatility, which has a very detrimental effect on compound returns. Other major problems are income, decumulation, volatility and employer risk. Smaller companies are still not fully trusted to invest contributions in a secure and profitable fashion.

“Pensioners are living longer and the birth rate is below the replacement rate.” He stated his concern about the consequences of this fact. The number of working people who will have to pay for pensioners’ benefits is projected to increase from four in 2010 to two by 2050. “You could argue this is the Mother of all Ponzi schemes,” he joked.

This makes it all the more necessary for employees to participate in private corporate schemes, and as soon as they can afford it. Steady payments from an early start prevent last-minute panic when workers reach middle age. Webb stressed, “We need to get across the message that it is socially acceptable to save.. It is socially irresponsible not to do it.”

Webb understood the legimitate concerns of those confused by the range of options available, or reluctant to add their accumulated benefits to a new company’s scheme if it was inferior: “I don’t want anyone auto-enrolled into a bad scheme.” Although he does not believe it is a problem for large companies, even the existing regulation is problematic. For example, it is currently illegal to offer a guarantee against inflation. A government commission on the effectiveness of the default state-run scheme NEST is in sitting, to try to identify, and remove, these bureaucratic constraints.

Lesley Alexander, who spoke for HSBC Bank Pension Trust (UK) Limited, avowed: “If the reforms go through that I know Steve Webb is championing, then I know we will get a decent flat rate state pension. Then once you have got a foundation, it is easier to build on top of it. But where you have got means-tested benefits and complications, whether their savings will ultimately be worth anything is questionable.”

Although most attendees believed that having the benefits threshold for pensions linked to the recipient’s income tax band provided a solid base of payments, many also wanted to explore the idea of auto-escalation. In America, this policy whereby pension contributions are increased automatically with a pay rise, is widespread. Another change the Pensions Minister is pioneering is for equalisation between genders, to be determined at the time of payment, with the end total being whichever of the two calculations is higher.

It is important not to discount changes to pensions policy because they are overly complicated, provided a concerted education campaign is made towards employees. One of the reasons often cited by workers for not enrolling is their fear of making the wrong decision. ‘Defined ambition’ is a potential solution, whereby employers and employees share the risk of performance in defined contribution schemes. Of those surveyed, largely employers, 54 percent believed such an approach could successfully encourage incremental savings for retirement.

‘Master trusts’ like the aforementioned state-run NEST have the advantage of a larger pool of capital to play with. Large professional schemes are also likely to have more inbuilt guards against risk, and to use techniques like hedging with derivatives and gold, and even to use passive as well as active investment approaches: if an asset is performing satisfactorily, wise investors feel it is better not to drop it in response to a volatility-induced blip in investor confidence. In order to out-perform standard indexes in the current economic climate, pensions need dynamic-run schemes, where assets’ performance are constantly re-assessed in line with market changes. People need to trust in their trustees, or find a scheme which a manager which does perform.Image

Aon Hewitt’s Ken Sperling talks to me about its revolutionary plans for US corporate healthcare

5 Nov

As a result of ‘Obamacare,’ the legislation which makes a level of private healthcare mandatory for all US citizens – and state provision of public ‘Medicaid’ for those at 133% or below the poverty line – many large corporations will have to take measures to improve the coverage they offer employees. Aon Hewitt has foreseen the niche that has arisen for one national forum, where employees can trade relative healthcare plans, and compare their relative merits.

Aon Hewitt’s  National Health Care Exchange Strategy leader, Ken Sperling, drew an analogy with Apple’s populist, universal exchange forum: “There are examples in every industry, including iTunes, Amazon.com and Orbitz, where the introduction of competition on a retail, consumer level has driven down prices and made the industry more efficient.”

The new Patient Protection and Affordable Care Act (PPACA) has laid out plans for public health insurance marketplaces, but for small businesses seeking to purchase coverage for their employees, these will only be operational from 2014; for larger corporations, from 2017.

When questioned, more than 562 of employees in 2012 than 40 percent of employers avowed that they expected to participate in a health care exchange in the next three-to-five years. Three of the corporations confirmed after the announcement of the scheme include Sears, Darden Restaurants and Aon’s U.S. colleagues.

Sperling declares the scheme is “the first multi-carrier, fully insured corporate health care exchange in the United States.” Its open and competitive structure enables employees “to select group health insurance plans and carriers that best meet their needs,” with a broader range of prices and options.

The range of possible choices includes 5 medical, 4 dental and 3 vision plans, with 5 medical carriers, and 3 each for dental and vision. Specialist advisers from the Advocacy Support team are on hand to help tailor a unique combination of benefits.

The insurance companies jostling to offer benefits under the scheme include nine national and regional carriers: UnitedHealthcare, Cigna and Health Care Service Corporation, to name but a few. The latter operates Blue Cross and Blue Shield plans for 14 million members. The number of employees already enrolled in Aon Hewitt’s composite scheme was 100,000 in the week it was announced. But economic and political conditions indicate that its popularity could spiral.

Sperling points to the fact that “Since 2006, large employer costs for health care have gone up 40 percent while employee costs (out-of-pocket expenses and payroll contributions) have gone up 82 percent…Cost pressure and volatility, health care reform, and population health concerns have made this a critical time in U.S. health care.”

Is there a lesson to be learnt for UK insurance companies? With consumers complaining about the spiralling costs of motor and home insurance, particularly after heavy rains made flood protection a greater concern, is it time one of the insurance giants stepped into the breach with a national car insurance exchange? There must be some way to differentiate now that recent legislation has made it compulsory to pay a premium on all vehicles – and now there is no longer grounds to discriminate on the basis of the driver’s sex. Forget gender equality and let the free market decide.

As a result of ‘Obamacare,’ the legislation which makes a level of private healthcare mandatory for all US citizens – and state provision of public ‘Medicaid’ for those at 133% or below the poverty line – many large corporations will have to take measures to improve the coverage they offer employees. Aon Hewitt has foreseen the niche that has arisen for one national forum, where employees can trade relative healthcare plans, and compare their relative merits.

Aon Hewitt’s  National Health Care Exchange Strategy leader, Ken Sperling, drew an analogy with Apple’s populist, universal exchange forum: “There are examples in every industry, including iTunes, Amazon.com and Orbitz, where the introduction of competition on a retail, consumer level has driven down prices and made the industry more efficient.”

The new Patient Protection and Affordable Care Act (PPACA) has laid out plans for public health insurance marketplaces, but for small businesses seeking to purchase coverage for their employees, these will only be operational from 2014; for larger corporations, from 2017.

When questioned, more than 562 of employees in 2012 than 40 percent of employers avowed that they expected to participate in a health care exchange in the next three-to-five years. Three of the corporations confirmed after the announcement of the scheme include Sears, Darden Restaurants and Aon’s U.S. colleagues.

Sperling declares the scheme is “the first multi-carrier, fully insured corporate health care exchange in the United States.” Its open and competitive structure enables employees “to select group health insurance plans and carriers that best meet their needs,” with a broader range of prices and options.

The range of possible choices includes 5 medical, 4 dental and 3 vision plans, with 5 medical carriers, and 3 each for dental and vision. Specialist advisers from the Advocacy Support team are on hand to help tailor a unique combination of benefits.

The insurance companies jostling to offer benefits under the scheme include nine national and regional carriers: UnitedHealthcare, Cigna and Health Care Service Corporation, to name but a few. The latter operates Blue Cross and Blue Shield plans for 14 million members. The number of employees already enrolled in Aon Hewitt’s composite scheme was 100,000 in the week it was announced. But economic and political conditions indicate that its popularity could spiral.

Sperling points to the fact that “Since 2006, large employer costs for health care have gone up 40 percent while employee costs (out-of-pocket expenses and payroll contributions) have gone up 82 percent…Cost pressure and volatility, health care reform, and population health concerns have made this a critical time in U.S. health care.”

Is there a lesson to be learnt for UK insurance companies? With consumers complaining about the spiralling costs of motor and home insurance, particularly after heavy rains made flood protection a greater concern, is it time one of the insurance giants stepped into the breach with a national car insurance exchange? There must be some way to differentiate now that recent legislation has made it compulsory to pay a premium on all vehicles – and now there is no longer grounds to discriminate on the basis of the driver’s sex. Forget gender equality and let the free market decide.

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