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Archive for December, 2013

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Posted On 13  Dec  2013  

Pensioners – be aware of being mugged by annuity providers

In recent weeks I have been approached by annuity providers, which pay guaranteed income for a fixed period or for as long as I remain alive in return for a lump sum upfront payment or a series of payments over a period. I have been astounded by the amount of capital annuity providers deplete for the assurance of a guaranteed income. Some providers take out close to 1/3 of the capital in fees for forward date annuities. Of course they can do that simply by using the money for corporate purposes and giving back a returns that are close to sub or close to the risk free rate. Most don’t give rates of returns that are better than the risk free rate. No one provider gives “fair” prices when it comes to index linked annuities. The participation rates are very low compared with what one consider reasonable pricing – by

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Posted On 12  Dec  2013  

Algoam (USA) LLC

RJ Thompson, J. M. Huisinga, and Paul Thind, all former ABN AMRO executives, have joined forces to set up Algoam (USA), LLC. This new venture will develop the North American market for Algoam’s customized indices, as well as other investment solutions, and anticipates becoming a CFTC registered Commodity Trading Advisor (CTA) in 1Q14. Both RJ Thompson and J. M. Huisinga have extensive experience in financial markets, private banking, and the asset management sector, collectively gained with major international banks in London, Chicago, Boston, Dubai, and Singapore.  Both are industry leaders with a thorough knowledge of financial products, who have managed teams and high profile client relationships globally.    

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Posted On 08  Dec  2013  

Currency – How does currency affect returns?

The reality of international investing is that when investing in foreign assets the returns in your home currency are impacted by exchange rates. Thus a UK investors buying US government bonds will have exposure to USDGBP exchange rate risk which will translate to gains or losses on the bond coupons as well as the final principle received at maturity. The impact will be over the investment horizon, but especially on the coupon dates and the end final maturity date. Currency exposure does not have to be accepted. It can be hedged. If unhedged  the UK investor’s returns consist of the income from the bonds and movements in exchange rates. Completely hedging the currency exposure at the time of the purchase usually removes all gains that could have resulted from exchange rate movements. The cost of the hedge would be the present value of the interest rate differentials between USD and

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Posted On 04  Dec  2013  

Liability driven asset allocation

Not all asset allocation investments need to be driven by or matched to liabilities. Certainly for high net worth individuals and cash-rich corporations optimization of assets can be the primary goal. Pension funds, on the other hand, can end up having serious crisis caused by deficits and should not take risks with their liabilities. For pension funds and individuals with limited resources, liability focused investing is a good way to discipline the investment process. Volatile market conditions can play havoc with asset values and mismatches between liabilities and assets can have severe long term consequences, particularly when short-term measurements of deficits can lead to problems in funding and further liquidations. It pays then to closely match assets and liabilities in a dynamic way through risk reduction, sometimes capital protection and changes in asset allocations in times of high volatility. Peer group benchmarking has been a norm for pension funds. This