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Emerging Market CDO Risk Management
EMA has advised hedge funds in New York and London on the construction and maintenance of emerging market CDO debt portfolios. Our analysis provided insights into the country-specific political, economic and policy dynamics impacting the pricing of sovereign and sovereign-supported debt in secondary markets and considers regional and global developments affecting external competitiveness, exchange rate stability and future external borrowing requirements. Individual ‘internal’ country ratings were assigned to enable ongoing portfolio rebalancing and justify buy, hold or sell recommendations.
Country Risk: Russia
In 1997/98, Paul Pannkuk’s analysis of Russia’s fiscal and external balance indicated an unsustainable accumulation of domestic and foreign currency debt. He advised Morgan Stanley to reduce its proprietary exposure from $200 million to zero, and to avoid a large investment banking risk exposure to Gazprom. These measures saved the firm in the range of $400-500 million when the ruble devalued and Russia defaulted in 1998.
Sovereign Wealth Fund Asset Allocation
EMA developed an innovative asset allocation framework for countries with, or having the potential to create, sovereign wealth funds for a New York based asset manager with a $500 billion capital base. EMA created a robust formulation of ‘excess’ reserves based on sources of funds, long-term sustainable balance of payments positions, a fiscal trajectory and expected investment returns to guide choices on investment into the domestic economy alongside more traditional external reserve asset classes. EMA defined appropriate stress tests and risk parameters to support asset management advisors and authorities in setting a path towards a broader asset allocation capable of enhancing domestic economic growth and the accumulation of additional reserve assets while maintaining external sector stability.
Ratings and Policy Advisory
EMA principals have worked with client governments and financial institutions around the globe. In Asia, clients have included the governments of the People’s Republic of China, the Bank of China and Construction Bank of China, the SAR of Hong Kong, India, Indonesia, Korea, Malaysia, Thailand and the Asia Development Bank. In Europe we advised the European Bank for Reconstruction and Development, the Czech Republic, Hungary, Italy, Norway, Portugal, Turkey and the Black Sea Trade and Development Bank. In the Americas, we worked with the IFC and the governments of Brazil and Canada. In Africa, we have worked with governments, central banks, and banks in Nigeria, Tanzania, Rwanda, and Uganda.
Ratings Criteria
Helena Hessel has developed a Composite Index of Country Risk to account for factors that can not be expressed in terms of traditional quantitative financial and economic indicators. The assessment frameworks used are influenced by a variety of independent organizations, including Transparency International, the U.N. Development Program (UNDP), the World Bank, the World Economic Forum (WEF), and the eStandards Forum. This methodology is applied specifically to oil producing countries.
Structuring Investment Deals
Worked on behalf of an international private equity group client on a $60 million manufacturing startup in Nigeria. Led sell-side deal team for valuation and due diligence, including market sizing, competitive landscape, business plan, financials, and execution risks. Assisted in managing execution risk by advising on arrangements with technical partners. Negotiated valuation, term sheet, and shareholder agreement with a leading Africa-focused private equity group and local bank.
Managed a redevelopment deal for a portfolio of significant properties in the Lagos central business district, Apapa. The development value was $200 million. Drafted umbrella MoU. Structured and negotiated
shareholder agreements for three SPVs signed July 2009.
Worked as part of advisory team guiding the Government of Rwanda Steering Committee on the privatization of two banks. Evaluated financial bids, worked with counsel on terms and conditions of purchase and sale agreement, participated in negotiations with buyers. Worked with legal teams in
US and Kigali on documentation and closing. |
