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After Mercari – Japanese asset managers see new era in venture capital investing

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By Tomo Uetake

TOKYO (Reuters) – The hugely successful IPO by online marketplace Mercari in June was a bonanza for its shareholders – and may transform lukewarm attitudes among mainstream asset managers about investing in startups, according to major Japanese institutional investors and industry officials.

Mercari <4385.T> became Japan’s first home-grown unicorn, with a pre-IPO valuation of more than a billion dollars in early 2016. Its value increased further and led to rich rewards for early backers who had invested in the firm either directly or through venture capital (VC) funds. The stock soared on its Tokyo market debut on June 19, doubling at one point.

“Venture capital used to be the ‘ugly duckling’ of private equity in Japan. Now we are seeing way more interest from institutional investors,” said James Riley, head of startup accelerator 500 Startups Japan. “Thanks to Mercari for making a big splash noticeable on a global scale.”

The large gains recorded by Mercari, which operates a popular smartphone app that allows people to trade used items online, should encourage more institutional players to look to domestic startups and other firms at an early stage of their development as a viable investment option despite the risks, especially given razor-thin returns on domestic bonds.

“Not only VCs but also other institutional people took part in Mercari’s late stage pre-IPO fundraising rounds. It was a big success for them,” said Soichi Kariyazono, chairman of the Japan Venture Capital Association (JVCA), referring to the unicorn’s debut on Tokyo’s Mothers market.

Its pre-IPO shareholders included Development Bank of Japan and Japan Post Capital. Neither will talk about how much they still own.

“When many institutional investors have a target annual return of 4 percent or so, Mercari’s late-stage investors had their funds more than double in just 1-2 years,” added Kariyazono.

In addition, its pre-IPO backers – through money they had in VC funds – included wider institutional investors, from insurance companies and banks to domestic pension funds, said Shinichi Takamiya, partner at Globis Capital Partners. He declined to name them citing confidentiality agreements.

Takamiya said Mercari was a potential game changer in Japan’s nascent venture industry, with “before-Mercari” and “after-Mercari” buzz phrases.   

Among the other recent unicorns was MTG <7806.T>, a manufacturer of beauty and workout products. It became the second Japanese unicorn to go public as the firm’s value soared above $1 billion shortly before its IPO last month.

And one of the next could be Sansan, a company that offers an app for managing business cards or business contacts. It has been attracting increasing interest from venture capitalists and other investors and its value has been growing.

In the pre-Mercari era, because Japanese startups were too small to attract big players, Japanese investors interested in the sector mostly looked to foreign ventures, primarily those in Silicon Valley.

GATEWAY TO PARTNERSHIPS

Nippon Life, a prominent Japanese investor in VC, had invested 60 billion yen ($540 million) in venture capital assets as of March 31, with half of that amount invested in domestic startups. The firm says it intends to increase its VC allocation but cannot say by how much.

In recent years, the insurer has wanted to increase its VC investments as it represents a fraction of its total assets of 66 trillion yen, but it has been difficult in practice because of the limited size of the domestic market, said chief investment officer Kazuhide Toda.

Nippon Life now sees venture capital not just as an investing route but also a gateway to finding possible partners in technology sectors it is keen on developing, such as FinTech or InsurTech – the use of the latest technology to transform the banking and insurance sectors.

“We plan to increase our exposure to venture capital assets, both domestic and foreign. We are keen to find opportunities that are attractive not only in terms of return but also help our core businesses,” said Toda. The Government Pension Investment Fund (GPIF), the world’s largest pension fund, is also looking to start investment in the domestic VC market, its officials said.

The Pension Fund Association of Japan, another big pension fund which manages 12 trillion yen on behalf of corporate pension funds, says it has invested in the sector for 4-5 years and plans to seek further opportunities.

“Japan’s startup ecosystem is evolving, with more institutional players participating in late-stage pre-IPO funding rounds,” said Shuzo Takahashi, head of private equity at the PFA. “We welcome it as a much-needed development to the industry.”

Their stance could lead smaller institutional investors to follow suit.

Rheos Capital Works’ president Hideto Fujino, a well-known fund manager whose Hifumi Fund <LP62006808> is the largest among all Japanese stock toshin funds, told Reuters he was considering starting a venture capital arm.

Even the Japanese government is stepping up support. The Ministry of Economy, Trade and Industry (METI) launched the “J-Startup” project in June as it seeks to breed 20 unicorns by 2023.

(Reporting By Tomo Uetake; Editing by Martin Howell)

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More young people investing in the stock market – Fiji Times

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THE South Pacific Stock Exchange recorded 13 new/first time investors who entered the trading market during November.

Meanwhile eight existing investors re-entered the market either increasing their existing shareholdings in listed companies and/or in some cases diversifying their investment portfolio by investing in additional companies.

According to the SPSE’s monthly stock market trading report for November, on a year-to-date basis, 181 new investors have now entered the stock market over the eleven months of 2018 — an increase of 35.07 per cent in comparison with the same period in 2017 when the number of new investors stood at 134.

It was also highlighted that over the 11 months of this year, 79.01 per cent was represented by individual investors which included private and public sector employees, farmers, students, retirees and investors who were self-employed.

Joint/family type of investors came second standing at 13.26 per cent which is then followed by institutional investors tallying at 4.97 per cent over the eleven month period.

A review of the new investors by type of employment indicates that 57.46 per cent of the new investors entering the stock market are those employed in the private sector.

The report stated that those employed in the public sector rank second which is followed by others (includes minor investors, institutions, domestic workers, trusts, provinces, mataqali and those in self-employment).

In terms of age, the analysis of new investors seeking investment in the stock market shows that majority of the new investors fall between the age range of 26 years to 35 years. According to the SPSE this is followed by those between the ages of 36 years to 55 years which is showing a rapid increase.

The exchange also highlighted that overall it can be witnessed that 66.07 per cent of new investors fall between the age ranges of 26-55 years collectively.

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Do those who work with a financial planner get better results? – The Globe and Mail

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An advisor should have the ability to refocus a client during market turbulence to make sure that they are not reacting emotionally, but remain focused on their financial plan, says Bev Evans, portfolio manager at Evans Wealth Management Team, Richardson GMP Ltd., in Mississauga.

A new report from Charles Schwab shows that U.S. investors with self-directed brokerage accounts (SDBAs) who work with advisors see greater portfolio diversity and higher returns than their non-advised counterparts.

The SBDA Indicators report, published Nov. 27, sampled 137,000 retirement plan participants who currently have balances between $5,000 and $10-million in their Schwab Personal Choice Retirement Account in the third quarter of 2018.

According to the report, only 19 per cent of SDBA participants chose to use an advisor. But this small percentage saw far better results than non-advised participants. The former category showed an average balance of $449,552 – almost double the average balance of non-advised accounts, which came in at $234,643.

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The report also found that advised participants had greater diversity in their investment portfolios.

When comparing equity holdings, both advised and non-advised participants held Apple, Amazon and Berkshire Hathaway as their top three holdings; however, non-advised participants’ positions in Apple and Amazon were nearly double compared to participants who used an advisor,” the report reads. “Additionally, advised participants invested in more blue-chip, value companies, whereas self-directed investors allocated to more growth stocks.”

Advised accounts sampled also averaged 9.5 trades in the third quarter of 2018, while non-advised participants averaged 5.5 trades. The former category also displayed more frequent rebalancing, according to Larry Bohrer, vice-president, corporate brokerage retirement services at Charles Schwab.

“In addition, advisors typically rebalance a portfolio more often and keep their clients invested,” Mr. Bohrer said in the report.

Bev Evans, a portfolio manager at Evans Wealth Management Team, Richardson GMP Ltd., in Mississauga, says the report’s results ring true to her personal experience. Ms. Evans has advised a number of formerly non-advised investors and has helped them to achieve improvements in their returns.

She says the primary mistake that non-advised clients make is to drastically change their investment portfolio at times of market turbulence. Working with an advisor, who serves as a “behavioural coach,” can help prevent investors from making these drastic, sometimes harmful, changes.

“I think if they have a good knowledge of the clients’ priorities, goals, concerns and they also understand the emotional triggers that many investors often get caught up in times of market turbulence, then they have the ability to just refocus a client or an investor client and make sure that they are not prone to reacting emotionally, but rather that they stay focused on the plan,” Ms. Evans said.

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“Non advised investors … are prone to making the mistakes that go along with typical situations that prompt emotional responses,” she added. “That can be for down markets and for up markets as well.”

Ms. Evans has also helped formerly non-advised investors diversify their portfolios and reduce the risk level of their investments. This type of guidance is uniquely valuable, and difficult to find beyond the help of a planner.

“Investors who were following the ‘old school’ [method of] just buy bank stocks and let them run, where they had found that may have served them well in the past, we were able to educate them about the importance of diversification,” Ms. Evans said. “Even though they were what they might’ve considered blue-chip stocks, it was really at a risk level that was beyond what was suitable for them.

“The results from transitioning them to a more diversified portfolio and a more balanced, or risk-suitable, portfolio was that they did see better returns and they had a better experience as well.”

Beatrice Grant, certified financial planner at HollisWealth, in Surrey, B.C., says working with an investment advisor is primarily beneficial for clients because it helps them to stay on track to reach their financial goals. For clients who lead busy professional and social lives, this is essential. Managing investments can be a hefty commitment.

Ms. Grant says that advised investors who set up a plan which is periodically reviewed and adjusted do benefit. “Otherwise, people today are so busy, they forget about it, they have tons of money there and they just forget about it. And it’s not good.”

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Ms. Grant also notes that advisors are useful for investors who experience major life changes – especially those that may affect their ability to reach their financial goals.

“Things don’t stay the same, new tax things come out. Goals change … new members of the family, there’s all kinds of things that come into play there, and doing it by yourself, you don’t have the time, unfortunately,” Ms. Grant said.

Both Ms. Evans and Ms. Grant agree that non-advised investors commonly opt to work alone in order to avoid the fees of hiring an advisor. Yet, they both say that the value of working with an advisor goes far beyond this initial fee.

“One common misconception that non-advised investors might have is that by not paying a fee, they are ahead of the game,” Ms. Evans said. “I don’t think they have the proper understanding of what getting the value for that fee looks like. And that’s from both translating investment advice from a technical point of view, as well as beyond the numbers, from the relationship and the financial planning point of view.”

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A Win-Win: How Saxo Bank's Open Approach To Investing Duly Delivered – Forbes

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Saxo Bank launched its third investor platform, SaxoInvestor, at the end of November. User-friendly SaxoInvestor aims to make investing accessible to the general public.Saxo Bank

With an average daily turnover of $12 billion and thousands of customers using its products daily, it is fair to say that Saxo Bank is an overwhelming Danish success story. Operating as an investment bank, Saxo offers consumers a number of online trading platforms, tailored to their experience and a choice of asset class and tradeable instrument. From humble origins – the bank was set up in Copenhagen in 1992 by Kim Fournais and Lars Seier Christensen with roughly $80,000 of capital – the bank now has a firm global presence, with clients in 180 countries.

Prolific Partnerships And Open Banking

According to Fournais, the key to Saxo’s success has been its ability to combine cutting-edge in-house innovation, such as its SaxerTraderGO platform, and collaboration with other banks and investors. The bank now has 120 partnerships with other financial institutions across the globe, including 20 firms that use Open APIs to trade data with Saxo.

Certainly, the bank can rightfully claim to have been ahead of the curve when it comes to the current Open Banking revolution. In 2013, for example, Saxo made the decision to offer its trading platforms to the public via HTML5 and an OpenAPI.

“One of the great things about Saxo is that we have a very tech-savvy leadership and a culture which allows you to try new ideas and if they fail you have the opportunity to try again,” said Benny Boye Johansen, the Head of OpenAPI at Saxo. “If there is an industry where that is important it is within fintech because we are continuously having to balance the needs of real people, real money and manage risk. For example, we started looking at Open Banking in 2013, when many companies would have dismissed the opportunity. Even though we are great at what we do, however, we recognize that we shouldn’t be trying to do it all ourselves. Every time there is a demand we make a conscious and considered decision; we ask ourselves is this product available in the market, is it something that can be bought to support what we do or do we need to build it ourselves.”

A good example of Fournais’s ‘facilitator model’ is that Saxo Bank initially wrote its own Customer-Relationship Management (CRM) system. However, is now uses Microsoft’s CRM offering instead, believing that this is not only cost-effective in the long-run but also is superior, allowing Saxo to focus elsewhere. It is this blueprint that the bank’s co-founder and CEO believes will ensure Saxo also remains at the forefront of investment.

“The notion that someone should do everything, everywhere for everyone just doesn’t work and I think that because of all these global trends that have been discussed, people want more for less,” says Fournais. “That means if everyone builds the same solutions, it becomes too costly, hence partnerships and technology sharing are important.”

SaxoInvestor Launch

As Fournais sat down to speak with this contributor, it is evident that his philosophy was bearing fruit.

At the end of November, Saxo Bank launched its third investment platform, SaxoInvestor, which aims to complement its existing offerings, SaxoTraderGO and SaxoTraderPRO. Built on the same technology as the previous two platforms, SaxoInvestor aims to provide a simpler interface for a prospective investor who is apprehensive about parting with their money due to a lack of experience or a limited market-knowledge.

“It is going to cater to a different target market [to that which we already have], the mass audience type of investor, which is a whole new segment for us,” said Kieran Phyo, the Manager of SaxoSelect, the bank’s online portfolio management services. “It is designed for your average man or woman on the high street to navigate and choose an investment, not just for your hard-core pro trader.”

SaxoInvestor gives access to solely cash products and contains a new feature called ‘investment themes’. Responding to consumer feedback, the ‘investment themes’ software will highlight long-term investment trends to the consumer that they may have been unaware of, such as in robotics or cybersecurity. It will also then put together a list of relevant stocks, mutual funds or ETFs that are likely to provide best returns in the long-term. Initially launched in Denmark, the platform is expected to be rolled-out to Saxo’s partners via its OpenAPI in the first quarter of 2019.

“With SaxoInvestor, we make it much simpler to build a diversified portfolio across markets and offer high-quality inspiration on the major investment themes that shape the future of this world,” Fournais said, following its launch.

Kim Fournais, the Co-Founder and CEO of Saxo Bank, has championed a collaborative approach to investmentSaxo Bank

Whilst SaxoInvestor is an exciting addition to Saxo bank’s platforms, it is not the only new exciting development that the bank has announced this year. An online joint brokerage venture with the Italian Banca Generali, which has 2,000 financial advisors, has also been given the go-ahead by the European Commission. “We have a great partner in Generali,” explains Fournais, “we will work together to make our relationship a success. We could never build like they have in Italy so this is a win-win, this is an obvious way to grow our distribution.

Phyo echoes this ‘win-win’ mantra. “This shows how the value chain is “debundling” as we can now honestly bring the best technology and platforms to them,” he says. At the same time, it allows us to get scale and distribution in Italy.”

Financial Facilitator

Saxo Bank has certainly come a long way from 1992 and its inauspicious roots. Originally a phone-based brokerage service, Fournais believed that the internet could be used to democratize investment and trading. He found that trading over the telephone was not only unreliable but also neither efficient nor conducive to transparent price discovery.

So, in 1998, Saxo launched its first online platform before evolving from brokerage to bank in 2001 – becoming a financial institution totally focused on technology. Aiming to act as a ‘facilitator’, the bank gives its clients the opportunity to access the varied global markets and investment tools they need, via Open API. Its partners no longer need to build their own platforms or rely on their old machines or processing systems to access the capital markets as they can use Saxo’s technology stack instead.

In addition to SaxoInvestor, SaxoTraderGO and SaxoTraderPRO, the bank also runs a robo-advisory platform, SaxoSelect. SaxoSelect employs strategy managers to put together alternative investment portfolios for investors, depending on their preferred needs from those looking for volatility to opportunistic trades. For example, the Global StockPicker is a long-term strategy of 20 to 25 stocks, using CFDs to modulate exposure.

“Saxo Select provides digital portfolio management,” said Kieran Phyo. “Clients entrust us with their money and we invest it for them. Our platform is purely digital – everything can be done online including picking your portfolio, which in many ways is similar to today’s robo advisors. There are however some big differences. Instead of creating and running our own portfolios, we collaborate with the best investment managers across the globe and we provide their investment expertise through our portfolios.”

Geely: The Future?

Saxo Bank has long been held up as an example of what makes Denmark one of the world’s wealthiest countries in terms of GDP per capita  a combination of strong yet considerate leadership, transformative innovation and an enthusiastic, astute workforce. Eyebrows were therefore raised in October when it was announced that China’s Zhejiang Geely Holding Group would acquire a 52% stake of Saxo, and Sampo, the Finnish financial company, a 19.9% stake of Saxo. Fournais, who retains his 25.71% share of the bank, was quick to reassure consumers that its overall philosophy would not change.

Indeed, Fournais pointed out the increased opportunities in the Far East that ownership by Geely would bring.

“We would now like to promote the fintech thinking and our model into China as they are currently implementing a great number of financial reforms,” he said. “We are working closely with regulators, looking who we can work with on a win-win basis and what we can provide. The China partnership is super interesting and in ten years time we expect to have implemented many of our big plans and aspirations there.”

Chinese automotive group Zhejiang Geely Holding Group purchased a 52% stake in Saxo Bank in October Getty

Looking ahead, the Middle East is a further prospective region of growth for Fournais, with the bank aiming to ‘bulk up’ its presence there. Earlier this year Saxo hired Steve Weller, the former Global Head of Sberbank’s FX business, to become the CEO of its MENA region, an appointment which provided a clear indication of its intent to grow and develop its client base.

Fournais, though, is not looking to anywhere else anytime soon and chuckles when confronted with questions about retirement. “For me, it’s special that I’m still here after 26 years,” he muses, “I’ve had one job for a long time and I still like it very much. I don’t believe my job is done here, a lot has happened in 26 years but now we are at the point of maturing further and this is happening at a time when many things around us are maturing as well. When you think about regulation, new business models, technology, changing consumer behavior – there are many, many things that are now playing well into our business model.”

As a keen advocate for Open Banking within Saxo, Fournais was supportive of the European Union’s PSD2 regulation in January, believing it will increase competition and collaboration within the banking industry. “We need regulation, it is a good thing,” he said.

However, Fournais believes that regulation should be kept simple, arguing that the mammoth 5,000 page MiFID II document could be seen as a ‘little bit cumbersome’. Instead, he believes that concise, consumer-friendly regulation, combined with confidence in investors to use their common sense is the best way to prevent a banking crisis, like that seen in 2008.

Fournais also gave little credence to the argument that continued technological advancements could lead to job losses over the next decade. “Whatever a computer can do equally or better than a human it should do and that bar is raising all the time,” he said. “Artificial intelligence and machine learning are two of the biggest buzzwords out there with respect to job losses. However, I believe that technology and automation compliment our workforce and in this world, you have to constantly improve.”

Across Europe, it is clear that many banks are embracing both fintech and OpenBanking. The Spanish bank, Banco Santander has added eight new fintech investments to its portfolio since mid-2017 through its $100 million fintech venture capital fund Santander InnoVentures. French international banking group BNP Paribas has partnered with American accelerator Plug and Play to support emerging fintechs. Yet, few can claim to have been as ahead of the curve as Saxo Bank, in terms of implementing fintech, Open Banking and adopting its ‘win-win’ collaborative approach.

Certainly, the bank is not just ‘win-win’ in philosophy. In 2001, Saxo Bank’s total assets were $63.8 million. This figure has increased today, to a prodigious $17.5 billion.

“Time is the only resource we truly have and if you are wasting your time on something you are not passionate about, you are wasting your life,” concludes Fournais. “We have great investors, great technology, a great footprint, great people giving a lot for us which means we are making more impact than ever before. In the end, you cannot create something unique based on a win-lost approach, every great partnership in life is based on both parties winning. If you can find that balance, which isn’t easy but remains paramount, it is the best guiding principle.”

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