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Previously, he’s served as the President of SPP Hambro, the US subsidiary of Hambros Bank plc. Prior to his tenure at SPP, Mr Shaffer was Vice President in the Private Placement Group at Bankers Trust Company. He began his professional career as an attorney with the White & Case law firm. We caught up with Mr Shaffer to discuss raising debt and equity in the private capital markets.

Tell us a bit more about SPP Capital Partners and the typical transactions you work on.

For over 28 years, SPP Capital Partners has maintained a consistent and active practice structuring and raising private debt and equity for our corporate and equity sponsor relationships.

Over the course of our history, we have completed approximately 500 transactions, representing more than $23.6 billion of capital. During the last twelve months alone, we have been mandated on and/or closed more than $1 billion of capital.

We maintain extensive relationships with more than 700 institutions that span every major lending and investing constituency in the private capital markets and source capital through professionally managed, competitive auctions that are tailored to achieve the client’s particular capital objectives.

We believe the consistency of our deal flow and our extensive relationships with a wide variety of capital providers offers our clients:

Since 2010, we have tracked each bid we’ve received on every deal the firm has marketed. Today, the SPP analytics database is comprised of approximately $15 billion of bid data. The strong reliance on empirical data has resulted in an average oversubscription rate in excess of 6.0x for SPP led transactions, which provides our clients with both certainty of closing and an extensive menu of options on any given capital raise.

Over the course of our history, we have completed approximately 500 transactions, representing more than $23.6 billion of capital.

In addition to our Investment Banking practice, we have a direct lending platform, SPP Mezzanine Partners. SPP Mezzanine Partners is a privately-held investment management firm founded in 2003 to provide subordinated, second lien, and unitranche debt, along with equity co-investments, for established lower middle market companies with proven business models, stable cash flows and strong management teams.

What business sectors have you worked with in 2019?

SPP’s practice covers consumer goods, restaurants and retail, business services, industrial goods, basic materials, financials, healthcare, manufacturing, conglomerates, technology and utilities.

Our practice over the course of the last decade has become increasingly equity sponsor centric. To date, we have raised debt and equity capital for more than 60 leading private equity firms and their portfolio companies. Our successful transaction history and demonstrated value proposition have often led to multiple transactions with these clients. In some cases, equity sponsors have executed “Omnibus Agreements” with SPP to manage 100% of their financing needs ranging from existing portfolio companies to acquisition candidates.

Most of the deals we worked on in 2019 included restaurant groups, aeronautics component manufacturing, commercial flooring, charter schools, medical products, industrial transportation and staffing.

What projects is SPP Capital Partners working on in 2020?

We are starting the new year with transactions in cellular services, and healthcare transportation services.

The banking world has undergone some significant shifts in the past decade, precipitated by the global financial crisis of 2008-09. The pre-crisis period was characterised by heavy trading by investment banks with a rich cash reserve, exotic financial instruments which were too complex for many to understand and hence magnified risks, and loose regulatory policies and authority.

However, the collapse of the financial system forced many industry executives, and policymakers, to reign in the ‘profit-at-any-cost’ attitude of the big banks (often termed ‘too-big-to-fail’) and made them accountable for their actions.

Banking is one of the world’s oldest professions and has constantly evolved itself, to not only survive but thrive, in any environment. Now the question is can the banking sector withstand the renewed pressure and obstacles to its growth it faces?

Today, there are fundamental shifts which are disrupting the banking industry; the entry of technology in the traditional working of banks is arguably the biggest. FinTech companies are seen as a significant threat, and like incumbents in every other sector, banks who are accustomed to their old ways of business are in a position to lose a lot. Through mobile and digital payments, traditional sources of earnings are under threat from big technology companies, the likes of Alibaba, Amazon, Facebook, and Tencent. This would directly impact the return on equity generated by banks as retail and corporate customers adopt new technologies and switch their banking to digital businesses.

Moreover, newer companies are focusing on specialised services, in contrast to a range of services offered by traditional investment banks. This helps new entrants, FinTech, to focus on efficiency and create a niche market for their products and services.

Governments, in general, are increasingly promoting FinTech companies with strong innovation cultures into the realm of traditional banks, increasing competition and putting pressure on margins.

Investors are also becoming increasingly wary of the cost and proportional benefits from investing in active funds and are, therefore, increasingly looking to park their money in passive funds which carry a lower return, mostly managed through software. Demand for products which involve automated trading has also increased, further eating into the profits of investment banks and investment management companies.

There have been talks of remittance through other sources and increased traction gained by crypto and online currencies. New payment systems like Bitcoin and Libra are looking to upend the conventional structures of transferring payments, characterised by high inefficiency and exorbitant charges. Since remittance of funds is a big source of income for commercials banks, they would have to update and evolve their practices to keep abreast of new technologies. There are many other changes which would keep bankers on their toes too, which can alter the course of a bank’s future, if not the industry itself.

If this wasn’t enough, the divergence of regulations amongst developed countries is also a challenge for financial institutions, requiring them to spend big in order to comply with the much-extended number of rules. Governments, in general, are increasingly promoting FinTech companies with strong innovation cultures into the realm of traditional banks, increasing competition and putting pressure on margins. Revenues from underwriting Initial Public Offering (IPO) have been a big source of revenues for investment banks in the past, but this has also come under threat.

In 2004, Google had criticised the secrecy maintained by banks during the launch of IPOs; this frustration has evolved into launches where companies opted for direct listing instead of choosing the traditional method. Investment banks, therefore, stand to lose a significant amount of earnings due to changes in capital markets, advances in technology and mounting frustrations with the entire process.

Over the past decade, forced by regulations, the scale and scope of trading activities by banks (including proprietary trading for their own accounts) have been cut by most of the world’s largest institutions, putting a dent on a major source of income. Cumbersome regulation post-crisis has also impacted the growth trajectory of the industry.

The Dodd-Frank Act (Wall Street Reform) was enacted in 2010 and contained numerous provisions, including forcing banks to increase their reserve requirements and the authority to break up banks considered to be too large, posing a systemic risk. In Europe, the implementation of Markets in Financial Instruments Directive II (MiFID II) and the General Data Protection Regulation (GDPR) have put European banks at a disadvantage compared with their international peers. The MiFID II regulations have hit investment banks’ equity research divisions as it requires the completely unnecessary unbundling of the cost of research from trading fees, leading to a fall in demand for equity research reports.

Banks have started to embrace, rather than fight, new technological advances.

But the attitude of governments has begun to change. The US Congress, in 2018, rolled back some of the restrictions imposed by Dodd-Frank Act through a new law. Regulators are also expected to overhaul the Volcker Rule which will allow banks to trade securities with their funds.

Banks have started to embrace, rather than fight, new technological advances. In 2017, Goldman Sachs’ CEO Lloyd Blankfein stated his business was a technology firm, showing the growing importance of technology in traditional banking companies. Many banks have put aside venture capital to associate themselves with FinTech companies or have a start-up programme to incubate them. In fact, to advise the Board on the strategic application of new and emerging technologies, ANZ Bank appointed an international panel of technology experts while Barclays is creating a global community for FinTech innovation.

Global investment banks like Deutsche Bank, Citigroup, Société Générale, Barclays and HSBC have laid-off almost 30,000 personnel since April 2019. Collectively, the industry has sought to shed tens of thousands of jobs amid a brutal summer for the sector, likely the result of the march towards automation, weak trading volumes and falling interest rates.

Trading desks have been hit the hardest due to consolidation of volumes by the most prominent players, passive investment and automated strategies. HSBC cited an increasingly complex and challenging global environment as the reason for it announcing the exit of 5,000 employees, while Citigroup described job cuts as a function of market dynamics.

Banks are also looking to combine their strengths by merging operations to fight recent trends and survive in this cutthroat competitive environment. In mid-June 2019, it was reported that UBS Group and Deutsche Bank were in talks on combining businesses to form an investment banking operations alliance. This came at a time when banks are trying to fend of challenging business conditions in the region and compete against their American counterparts seeking to win market share in Europe.

Investment banks are aggressively diversifying their operations and seek to push into other areas of operations too. For instance, Goldman Sachs recently bought California-based investment adviser United Capital as the company speeds up its operations in the US’s wealth management market.

Stricter regulations, along with other factors, resulted in freefall in the price-to-book ratio of banks, with banks recording average ratios of less than 1 in the most advanced economies, against around 2.0 reported prior to 2008. Return on equity (ROE) for banks in advanced economies has fallen by more than half in the past decade, with European institutions coming under greater pressure as their ROE lagged that of their competitors across the Atlantic. Tighter rules have meant banks have had to put more resources aside to cover regulatory requirements regarding reserves, which has made them safer but also resulted in lower assets available for lending.

While the importance of the safety of banks and their underlying assets cannot be discounted, governments in the developed world need to undertake a cost-benefit analysis to study which rules and regulations are pertinent to the changing environment. Also, in the post-crisis era, banks that have built up risk management and compliance staff, and dramatically cut operational costs, have performed best. This explains the outperformance by American institutions.

Technology can provide the productivity boost they need by offering better efficiency instead of being seen as a threat. However, investment banks need to focus on specialised services to ensure operational efficiency and would be wise to localise their operations, as the era of international but traditional banks looks set to end.

We’ve all heard of the so-called ‘war-for-talent’ within the US’s Investment Banking and Financial services field. In fact, it’s no secret that there’s an ever-increasing demand for specific and niche skills, but short supply of the requisite talent.

According to EY, over the next two to three years, machines will be capable of performing approximately 30% of the work currently done at banks: yet the ability to attract technology experts into investment banking is arguably presenting the greatest challenge for many employers.

Regulatory changes, coupled with digital advancements, mean that business models are adapting at a rapid rate. Today, automated electronic trading powered by AI and machine learning mean that the skills of the top traders of yesteryear are quickly becoming obsolete. However, the data scientists and programmers needed to drive today’s systems are in short supply. And with increasing reports of tech firms such as DeepMind, the Google artificial intelligence division, stealing top tech talent from the world of investment banking, this is only going to get more difficult in the coming months and years.

Today, automated electronic trading powered by AI and machine learning mean that the skills of the top traders of yesteryear are quickly becoming obsolete.

Furthermore, recent research from Accenture has found that just 7% of US graduates see banking and capital markets as a top industry to work for. However, by predicting both the behaviors of internal employees and market demand fluctuations, investment banks can map out a coherent plan to overcome forecasted skills gaps and bring in expertise to guarantee future growth and profitability.

Despite the clear benefits of implementing an effective strategic workforce plan, a 2014 Workday/Human Capital Institute survey of 400 HR professionals revealed that 69% consider the function either an “essential” or “high” priority, but that only 44% actively engage in it. This is not because there are not tools available – there are. Both internal data and industry trends are usually an excellent source of knowledge of individual jobs’ attrition rates, which can lead to a surprisingly detailed forecast of skills needed for the future. Technological tools can also be used to predict the likelihood of employees jumping ship, including through social media monitoring applications. So why is this disparity in numbers?

Although increasing percentages of businesses are recognising strategic workforce planning’s place within their growth plans, it can still be difficult to implement and sustain effectively. As well as needing the support of a CEO – or at least, a board member – to drive the initiative and free up resources, HR departments must also be star players in its success. This is because they can provide reliable data regarding which employees are eligible for up-skilling/re-skilling, helping to predict gaps within the workforce – although these may open and close as market demand fluctuates. In this way, the data can also be used to implement a policy of growing your own internal talent, which can subsequently help to close projected managerial gaps in the future. You can see that it is important to remember that technology is just a support tool and should not overshadow the input of your stakeholders – they also have real insight in the business’ needs.

The traditional trading desks of Wall Street in the early 80s are now well and truly a thing of the past.

One common misconception about a successful workforce plan is that it is rigid and set in stone when in fact, almost exactly the opposite is the case; what might be needed for a financial institution now may be totally different in five years’ time. Naturally, it is important to address the organisation’s most critical needs first, and not rush to implement an overarching strategy. This allows for progression and, critically, facilitates the avoidance of paying premium rates whilst trying to fill immediate skills gaps.

The traditional trading desks of Wall Street in the early 80s are now well and truly a thing of the past. But just as open outcry and hand signals have been replaced by predictive analytics and machine learning, no one knows what the future will hold for the profession. With this in mind, an effective plan must be adaptable and almost constantly fine-tuned in order to stay in line with market demand, new platforms, emerging markets and regulatory change – especially when reacting to or predicting competitors’ moves.

In fact, it is intrinsically important to keep your competition at the very front of your mind when constructing a workforce strategy. It is highly likely that you will be fishing from the same talent pool down the line, and predicting skills gaps means that your business will be able to create pipelines and contacts within these areas long before anyone is needed on board. This provides the best chance of winning the top talent – and these acquisitions can be the difference in staying a head and shoulders above the rest.

 

About Nicola Hancock:

Nicola Hancock has over 15 years’ experience in resourcing for financial services organisations. During her time with Alexander Mann Solutions, she has led a number of key clients globally, including RBS, Deutsche Bank, HSBC and BAML and has built extensive experience and understanding of financial services and the challenges and opportunities this brings to talent acquisition and management. 

Alex Zeeh is the Chief Executive Officer of S.E.A. Asset Management in Singapore and Chairman of the Board of S.E.A. Alex has more than 20 years of industry experience both in investment banking as well as in private banking. He gained his work experience in the USA, Switzerland and Germany before moving to Singapore. Alex and his colleague Gallen Tay (Chief Investment Officer of S.E.A. Asset Management) look after the funds’ investments and monitor its asset allocation.

 

What are the key sectors that S.E.A Asset Management provides asset management services to? What are the unique challenges of each sector from an asset management perspective?

S.E.A. primarily manages two Luxembourg UCITS compliant SICAV funds besides segregated accounts. Our specialty are Asian small midcap equities as well as Asian short duration high yield bonds. To discover under-researched and overlooked equities that have quality management and strong market positions or niche products is always a challenge. Bonds require even more in-depth research including company visits and thorough scrutiny of financial reports given that many of the issues we look at do not bother to obtain credit ratings and hence often secondary research is not an option. And with Asian credits you need to do a lot of fundamental analysis. That is why our approach to credit selection is fundamentally driven. We buy to hold until maturity so repayment ability at maturity is the top priority. We try to avoid defaults at all costs and have had none so far. However defaults can still happen for reasons beyond our control so we maintain a high level of portfolio diversification to lessen potential impacts and still achieve positive absolute returns on an annualised basis. Investors like alternative investments as they tend to be uncorrelated to more traditional asset classes.

 

As a thought leader, what strategies do you implement to ensure that your clients’ goals and objectives are achieved?

Clients struggle to protect their capital, let alone get decent returns given low or even negative interest rate environments in many parts of the world. I personally believe that large parts of the world’s economy will continue to linger in a “lower for longer” interest rate environment. Often the low rates have driven them into long-dated investment grade bonds or even high-yield bonds. The risk is now that US interest rates rise and investments in longer dated bonds - including high-yield bonds - will suffer price declines that may not be compensated by coupon payments anymore. The only choice they have is to retreat into short duration bonds that are protected from rate hikes in terms of price volatility. This is where our short duration high-yield strategy comes into play. We target 6-10% net returns p.a. which is achievable less so from credit spread tightening but more from oversold bond price levels and high coupons as well as special situations. With such high absolute return potential we do not add FX risk and always hedge non-USD currencies back into the fund’s reference currency. Underlying fundamentals in Asian economies are also good. Over the past 10 years many Asian economies have seen rating upgrades from the major credit rating agencies and have achieved investment grade while many developed nations have dropped dangerously close to being downgraded to non-investment grade ratings.

 

What cost improvement initiatives does your company offer and work on with your asset clients?

Regulations and costs involved with implementing them are on the rise not only in Singapore. This impacts us as well in areas such as AML/KYC or outsourcing only to name a few. We are trying to keep compliance costs as low as possible without compromising strength of internal policies and procedures. We do so by outsourcing to highly competent external providers to keep non-core know-how outside of the firm as we want to run a lean cost structure. This is the most efficient way to do what we are best at in-house and keeping costs for clients in check.

 

What lies on the horizon for S.E.A. Asset Management in 2017?

We are continuing to increase the assets under management from internal sources and seeders to reach a more significant level of at least 50 mln USD on an individual fund level at which smaller institutions, wealth managers and family offices can make allocations when we have our first three years track record completed.

 

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