Otaviano Canuto on Commodity Price Cycles

Otaviano Canuto, Policy Center for the New South

Commodity prices go through extended periods during which prices are well above or below their long-term price trend. The upswing phase in super cycles results from a lag between unexpected, persistent, and upward trends in commodity demand, matched with a typically slow-moving supply. Eventually, as adequate supply becomes available and demand growth slows, the cycle enters a downswing phase.

The latest super-cycle of commodity prices, starting in the mid-90s, reaching a peak by the time of the global financial crisis, and getting to the bottom by 2015, can be seen as associated to the developments of globalization that we have already dealt with in this series. More recently, some analysts have spoken that we might be on the verge of a new cycle, super-cycle or not.

The Benefits to Renting Commercial Real Estate

It’s not a big surprise that the real estate market is hot right now, especially in key business areas like California. This applies to both residential and commercial real estate. As we’ve seen, rental trades adjust with the times, but until the bubble bursts, you should consider your options for commercial real estate in your area available for rent.

The Benefits to Renting Commercial Real Estate

There are many shared working spaces that can be home to your business for a while until you grow enough to be able to purchase your own commercial real estate property. Here are a few reasons as to why it could be the best option for you and your business until that time comes.

Flexibility

The world is uncertain, so it’s really important to be flexible, which is one of the major pros of leasing a commercial property. Renting office space allows you to be flexible without having to make any major commitments. If you need more space, you can seek it out, but if you need to scale back it’s easy to do that as well. If most of your staff is now working remotely, you can still have a space for them to go if they want to have a quiet place to work. Renting commercial office space can be flexible in a financial capacity as well, allowing you to pay based on space and duration.

Financially friendly

Buying office real estate can be quite expensive these days, so in real estate, “boring” is good, as is stability. The option to rent office space allows you to still have a location in a prime spot without footing a major bill for it. Renting also minimizes your financial burden, since you don’t have to pay for the other costs associated with running an office. You can then use the money you’ve saved from these costs to invest in growing other parts of your business, or creating a savings goal for eventually purchasing an office space.

Professionalism

Having a physical location for your business is huge in terms of your reliability and professional appearance. At first, you might think renting will reflect poorly on your business, but it’s a strategic plan that can help ensure a brighter future. No matter the arrangement, having office space looks more professional than meeting clients or employees in loud public places for meetings. Having a fully functioning office is the best way for your employees to focus and to show your clients and customers that you are serious about what you do, both now and in the future.

The world of real estate is difficult to navigate, and while it can be an extremely difficult task to find space that fits your exact needs, there are companies like Jeff Tabor Group that make it simple to find the right place for you and your employees. With prime, spacious locations and affordable options, there are many different opportunities for you to build your business for a successful future.

Top 8 Factors to Consider When Selecting Financial Advisors

Need a hand with setting financial goals? If so, if you’re really not alone, especially since there are almost $90 trillion of international assets under management right now. Not sure how to find an expert with financial advising experience? To tell you the truth, finding the right professional to help you handle your finances requires knowing your options. Take a look at a few factors to consider when selecting financial advisors below!

1. The Suitability Standard 

If you’re looking for a financial advisor who will put your needs first, consider this. Financial advisory firms that meet the suitability standard address and disclose any “conflict of interest” they may have when representing you. On the bright side, most financial advisory firms will put this down in writing for future reference.

Besides this, it’s also essential to think about whether or not your firm is an RIA, or Registered Investment Advisor. That’s because they are held to a higher standard as well!

2. Upfront and Clear Fees

Let’s be honest. No one wants to work with a financial advisor who isn’t clear about their fees. That being said, figuring out the total cost of getting your portfolio together can be a difficult and confusing task.

On the other hand, finding a financial advisor you can trust means that they will be more than happy to break down all of their fees for you.

This can include everything from:

  • Hourly financial planning fees
  • Fees for managing your portfolio
  • Other hidden fees

Once you’ve made sure that all of your financial fees are as transparent as possible, you should be good to go.

3. Accurate Performance Reports 

Now that we’ve got that covered, it’s also essential that your financial advisor of choice provides accurate performance reports. That’s because user-friendly transaction and holdings reports are the keys to managing your portfolio successfully.

To get started, you must decide whether you like to receive your reports on a:

  • Monthly basis
  • Quarterly basis
  • Semi-annual basis

We highly recommend that the more you review your financial portfolio, the better!

4. A Simple Investment Process

When you’ve found the right financial advisor for you, the next step is to ask them what their process for investments is. For instance, they may let you know which investment vehicles are products that will work in your favour.

In addition to this, your financial advisor should also let you know whether not you need to make any changes to your existing investment portfolio. Besides this, they may also ask you about your primary contact information.

In exchange, we encourage you to ask your financial advisor about their professional credentials and experience as well.

5. An Independent Custodian 

Additionally, you should ask your financial advisor if they use independent custodians like:

  • Charles Schwab
  • Fidelity
  • TD Ameritrade

In case you didn’t know, independent custodians are great for providing additional asset reviews and records aside from your financial advisor. They’re also helpful in protecting your account from any fraudulent activity! 

6. Honest Offerings and Services

You should also clearly understand the level of service that your financial advisor will offer. For instance, email and ask them if financial planning is included in their initial package. Also, find out what kind of financial planning software they use and whether or not you will have access to it. Believe it or not, this can potentially make or break your deal as well.

To get the ball rolling, here are a few more questions that you should ask your financial advisor:

  • Do they schedule weekly, monthly, quarterly meetings?
  • How long will it take to hear back from them?
  • Do they provide investment offerings for beginners?

Once you learn more about the financial services that you are looking for, picking the best financial advisor for you should be a piece of cake.

7. Events and Education 

Another important thing to consider is whether your financial advisor provides any educational events. This is particularly helpful if you’re interested in learning and understanding your overall financial portfolio.

To get started, be sure to ask your financial advisory firm if they will take the time to answer any questions you may have during your regularly scheduled meetings. Also, you can ask them if they will continue to educate you on your financial portfolio as time goes on. Finally, covering complex topics such as asset management is vital to your success as well.

8. Life Transitions

Last but not least, do your best to choose a financial advisor who puts your life transitions as their top priority. This can include common event such as:

  • Getting married
  • Having children
  • Getting divorced
  • Losing loved ones

Ask your financial advisor if they have any experience dealing with customers who are going through difficult life changes. 

If so, what did they do to help them? As long as you feel comfortable opening up to your advisor, you should be in a good position to put your finances in their hands!

Why Hire a Financial Advisor?

Sometimes, going through a major life event is enough to make you want to rethink your personal finances. Typically, this type of event will include some sort of major gain or loss of money.

So that’s why it’s important to seek a financial advisor if you are:

  • Close to retirement age
  • Receiving an inheritance
  • Getting married soon
  • Going through a divorce
  • Lost a partner
  • Helping your parents with their finances
  • Unsure of how investing works
  • Looking for a “second opinion”

Now that we’ve got that covered, choose your advisor wisely!

Selecting Financial Advisors Is Simple 

Having a hard time finding the perfect financial advisor for you?

Here’s the thing: When it comes to selecting financial advisors, the process shouldn’t be complicated. Fortunately for you, we are here to help.

From comparing advisor fees to reading references and reviews, we’ve got everything you need to succeed. If you’re finally ready to talk to your advisor, don’t forget to read our handy guide first!

Looking for my financial and banking help?

If yes, don’t hesitate to read more of our blog right away.

Région Ile-de-France is the first European Sub-Sovereign to issue an ESG benchmark bond with a negative yield on the financial markets

In order to fund its annual investment programme, in particular its regional recovery plan (€6.8bn between 2020 and 2022), Région Ile-de-France issued a new €500mn public bond on 12 April 2021.

Région Ile-de-France becomes the first European Sub-Sovereign issuer to print an ESG benchmark bond with a negative yield (-0.12%).

Investors demonstrated a massive support for this transaction, despite a negative yield, highlighting their confidence into the Région Ile-de-France’s credit. Indeed, the issuance attracted up to €3.5bn of interests, i.e. 7 times the amount announced, with a total of 114 orders. As a reminder, the previous record for the Région was €1.3bn in 2018 (in comparison, the raised amount was also €500mn). This record is now exceeded by +€2.2bn.

The Région keeps on diversifying its investor base with 16 jurisdictions participating in this new transaction. France, Germany, Italy and Switzerland accounted for more than 60 % of the interests. The bonds were allocated to buy and hold investors committed to sustainable financing.

This strong success confirms the Région Ile-de-France’s position as a European leader in sustainable financing. Since 2019, the Région is committed to issuing 100% of its funding programme in sustainable format, representing 80 % of its outstanding debt versus 35 % in 2015.

This is the first transaction of the Région issued under its updated framework for Green, Social and Sustainable bond issuance, aligning with the European taxonomy. In its Second Party Opinion, Vigeo ranked the use of proceeds, the selection and evaluation process, as well as the management of funds as “best market practices”.

Région Ile-de-France is also the first European Sub-Sovereign issuer to have engaged in the alignment of its framework to the upcoming European standards, contributing to the success of the transaction.

Despite the Covid-19 related economic crisis, the Région’s financial ratios will stay on a more favorable track in 2021 compared to 2015. The current margin rate would stand at 32.1% in 2021 (vs. 20.5% in 2015). The self-financing capacity doubled compared to 2015.

At the end of 2021, the outstanding debt will be in line with the 2015 level. As a reminder, between 2004 and 2015, it increased by an average annual rate of + 10 %. At the end of 2021, the debt payback ratio should amount to c. 4.5 years, way below its late 2015 level (7.5 years).

Thanks to a tight operational expenditure control since 2016 (- €2bn in multi annual expenditures), the Région Ile-de-France was able to face the Covid-19 crisis with a solid financial position.

The Région has received the best rating possible at this time in France, in line with the Republic of France (Fitch “AA” and Moody’s “Aa2”). Fitch affirmed its rating on Friday 9 April, highlighting that: “Ile-de-France has tight control of expenditure, as reflected by a continuous decline in operating expenditure in the last years” […] “Ile-de-France’s liabilities carry little risk” […] “[its] debt payback ratio remained sound in 2020” […] “despite the impact of the pandemic” […] “In 2020, net adjusted debt declined for the third year in a row”

In March 2021, Région Ile-de-France received the Capital Finance International – CFI.co – « Best sustainability bond issuer – France » award.

7 Invaluable Benefits of a Financial Planner

If you are serious about managing your money and accumulating wealth, the benefits of a financial planner can take all the stress and burden away from doing it yourself.

Sure, you could feel competent at investing and money management, but do you really have the time to go in-depth? 

Yet, opting to work with a financial planner won’t suit everyone. There are pros and cons when using a financial planner or adviser, but we do think the benefits we’re going to discuss are well worth considering.

So let’s check out seven benefits of a financial planner.

1. Full-Time Professionalism

The first and obvious benefit of choosing to work with a financial planner is that they are full-time professionals, making investment decisions day in day out.

They will have a wealth of knowledge and plenty of tips about where to invest money. Plus, they can prove to you with past clients the sort of returns they achieve. 

With all their training and know-how, it would be hard to compete with what they are capable of in terms of investing and managing your money wisely year on year. 

Keep in mind, however, just because someone is a qualified and experienced financial adviser, it still doesn’t give you any solid guarantees that you won’t lose money. Going with a financial adviser is always a risk.

But typically, a financial planner will run you through different investment options with varying calculations of risk attached to them. Ultimately, you will be the decision-maker in the process. Your financial planner just handles the more technical aspects of your investments, as well as offering tips and advice.

2. Tax Advice

When anyone invests their money and makes capital gains on their wealth, tax is always an issue. In some cases, taxes can destroy the point of investing as they can simply erode away your gains to a pittance.

A financial planner should be experienced enough to know how to navigate the tax realm in your favor. They will tend to let you know various options you can choose to help reduce your tax burden, and they’ll be up-to-date on new regulations and changes in the law.

3. Objectivity

One key benefit of a financial planner is that they are likely to be a lot more objective than yourself when investing your money. 

This benefit is strongly linked to the professionalism of a financial planner. They are just doing their job investing your money – they don’t have emotional attachments as you may have. 

When emotions get in the way of investing, you’re treading on a pathway to ruin. Objectivity is essential to make wise investment decisions, and a financial planner will give you that.

They can either consult with you about investment decisions they’d like to take for you and explain them clearly.

4. Partnership

A financial planner doesn’t just get the keys to your car to drive off alone into the sunset. They will be available to discuss things with you and keep you updated on what’s going on with your hard-earned cash.

A financial planner is someone you can collaborate with, they’ll listen to you, and they’ll try their best to understand your wants and needs.

As well, the communication aspect of your partnership can be extremely beneficial. By speaking out ideas and strategies allowed, they can become more obviously viable, or conversely, something to avoid.

Plus, there are plenty of tips out there that will help you monitor your financial adviser. 

5. Proactivity

This benefit is linked in a sense to the points of objectivity and professionalism.

A financial planner will be poised and ready to anticipate almost every eventuality that could happen in the markets and with your money. They don’t let their emotions get the better of them, which is easier for them since they are trained professionals.

They will also seek out new investment ideas that you might be aware of and get you tied up in some lucrative opportunities ahead of the curve.

Furthermore, they can implement any ideas that you may have with speed, which you might not be capable of doing yourself.

6. Organization

For many of us with busy schedules and limited time, managing the flow, saving, and investment of our money can become overwhelming.

It may be that you’re losing money that can be easily kept if your finances and payments are restructured in a more organized and logical manner. 

Having control over your finances can relieve a lot of stress, and it could even be the case that you save more money by actually paying for the services of a financial planner. 

It’s funny how they don’t properly teach us the ins and outs of taking care of money and investing at school. Now you have the opportunity to see your financial planner, not only as a money manager but a teacher of investing and finance too. 

7. Relaxation and Free Time

Wouldn’t it be amazing to have all your financial worries set aside and dealt with by someone you can trust?

Most of us have enough on our plates already with work, family, and other commitments. Choosing a financial planner’s expertise will surely give you the peace of mind you deserve and some much-needed relaxation. 

The Benefits of a Financial Planner

We’ve just mentioned only seven benefits of a financial planner. There are loads more benefits to take advantage of if you decide to take the leap and regain control of your finances.

It will be like starting off on a new journey into the unknown at first, but once you get your bearings and develop a rapport with your financial planner, we think you’ll be surprised at the positive changes that will occur.

Please check out our blog for more financial advice and wisdom.

8 Tips for Improving Your Credit Score Rating

Your credit score can have a major impact on what you can and can’t achieve in your life. In these modern times, your credit score rating can determine whether or not you get a car loan, a mortgage, an apartment, or even a job.

If you’ve got a less than perfect credit score, you don’t have to fret. While rebuilding your credit won’t happen overnight, you can take steps that will help increase your score over time.

Are you wondering what you can do to boost your score so it stops limiting you?

Let’s take a look at eight tips for improving your credit score rating.

1. Reduce Your Credit Utilization Ratio

There are a number of different factors that determine what your credit score is. 30% of your score reflects your credit utilization ratio. This ratio signifies the total amount of credit you have access to and how much of that credit you are using.

Basically, if your total credit limit is $10,000 and you have charged $2000 to your credit cards, you have a 20% credit utilization ratio.

In general, it is recommended to not use more than 30% of your credit card limit. Some experts even suggest keeping your utilization ratio under 10%.

Are you trying to learn more about credit in general? Check out the different types of credit here.

2. Fix Any Credit Report Errors

Occasionally, credit report errors can occur that can hurt your credit score. This means that even if you are doing everything right, you should review your credit report periodically.

If you do find any errors on your credit report, you will need to contact the credit bureau and file a dispute.

3. Request an Increase to Your Credit Limit

It is a good idea to periodically request a credit limit increase. Different credit card companies will have methods for this process, but it is usually a quick and easy thing. In fact, most companies will allow you to request an increase online.

The reason that this can help to improve your credit score rating is that it lowers your utilization rate.

There are a couple of things that you will want to keep in mind when you do this, though. For one, don’t request an increase on a new credit card, as many companies won’t give increased credit limits for new cards.

Secondly, you want to make sure your request does not require a hard inquiry on your credit report. Relatively small increases can typically be approved automatically. If the company asks for more information, declined the request, as they will likely do a hard inquiry which can negatively impact your credit score.

4. Make Your Payments on Time

The most influential factor that determines your credit score is your payment history. This means that it should be your highest priority to make your payments on time.

One of the best ways to ensure that you are never missing payments is by setting up automatic bill payments. This way, the money is withdrawn from your bank account on a specific day every month to ensure that you never have late payments.

5. Be an Authorized User on Someone Else’s Credit Card

Do you have a family member that has a higher credit score and you? If so, they can add you as an authorized user to their credit card. This can help to boost your credit score if they have made on-time payments, have a low credit utilization ratio, and the account history is long.

6. Use “Dormant” Credit Cards Every Once in a While

Over time, as you build your credit history, you will be able to qualify for cards that have better interest rates and better rewards. However, it is not usually a good idea to close your first credit card. Instead, make occasional purchases with that in order to keep it active.

If you completely stop using a credit card, the bank might close the card or reduce the credit limit. If you receive a credit line decrease than your credit utilization ratio will also go down.

It can also hurt your score to close an old credit card account. The only reason you might want to close an old credit card that you no longer you as if it has an annual fee. Even so, though, you might be able to downgrade the card to want without an annual fee without closing the account.

7. Diversify Your Accounts

It can be beneficial to your credit score to have a number of different credit accounts. Of course, you should only borrow money when it is necessary. However, it can demonstrate to lenders that you can manage credit responsibly when you have a variety of credit accounts.

This might mean having a home mortgage, a credit card, and a car loan.

8. Negotiate With Creditors With Whom You Have Outstanding Debts

Paying off debt will help to lower your credit utilization ratio. However, if you have been missing payments than your credit score can be negatively affected. You can often negotiate with credit card companies to have the negative hit removed from your credit report in exchange for paying off your debt in full.

If you go this route, remember to get the agreement in writing.

These Steps Can Help Increase Your Credit Score Rating

Boosting your credit score rating takes time, organization, and commitment. That being said, you can help to increase your number over time in a way that can offer serious benefits to many aspects of your life.

Are you looking for more resources to help you navigate the complicated world of finances? If so, check out the rest of our blog for more informative articles!

Self-Employment Tax Tips: 6 Important Things to Know

Are you dreading tax time and don’t know where to start? You’re not alone. According to the Federation of Small Businesses (FSB), it takes small business three weeks every year in order to comply with tax rules. You’ll find that preparing ahead of time by doing research and budgeting will help you pay self-employment taxes easily without the stress. The confusion comes from how much you have to pay depending on different percentages of your earnings. We’re here to help cut down on the time and smooth away some of the confusion. Read on for our top six self-employment tax tips so you’ll know how to do taxes correctly once the time comes! 

1. Budget for Taxes

If you were working on a side-hustle and didn’t earn over £1000 throughout the year, you’ll be happy to know that you don’t have to tell the HMRC that you’re self-employed. You also don’t have to pay taxes for the first £12,500 you earned. 

If you make more than this, however, it’s important that you plan ahead and budget for taxes. According to UK tax laws, you’ll need to pay 20% for income between £12,500 and £50,000. This bumps up to 40% for income between £50,001 and £150,000. 

Lastly, it increases to 45% for income of over £150,000. This also includes your income if you rent out properties. 

We recommend setting some money aside in a separate savings account every time you’re paid. This will help you keep track of what you owe and also help you remember that not all the money you earn is yours–even if it feels like it! 

2. National Insurance

It’s also important that you budget for the National Insurance payments that need to be made. If your profits from self-employment are greater than £6,475, you have the pay a rate of £3.05 a week for Class 2 National Insurance. This is paid through direct debit to HMRC. 

If you’re making between £9,500 and £50,270, you’ll also need to pay 9% of your income for Class 4 National Insurance as well. For profits greater than £50,270, you’ll have to pay 2% of your profits. What you have to pay for National Insurance will also show up in your Self Assessment tax return. 

3. Payments on Account

Even if you budget ahead of time, you may find that the HMRC is asking for a task bill that’s higher than you predicted. One reason could be because they’re asking to collect taxes that are due in the current year as well. They calculate this based on your earnings from the last year. 

You’ll need to make your payments on account in two instalments: before midnight on 31 January and 31 July. Budgeting ahead of time will help for your first payment, as this is where you’ll find that for your first year, you’ll need to pay 1.5x more. 

4. Claiming Mileage

It’s important to remember that you don’t have to pay based on your entire profits. You can claim expenses that you used for business in order to cut down on what you owe come tax time. If you use a vehicle for business, this is one of the easiest ways to claim some expenses. 

Here are the mileage rates that you need to remember: 

  • For the first 10,000 miles in the tax year, 45p per mile
  • 25p per mile above 10,000 miles
  • 24p per mile for motorbikes 
  • 20p per mile for bikes 

The easiest way to keep track of these miles is to use an app that can automatically log your route and do the mileage calculations for you throughout the year. Many of them allow you to name and categorize your trips.

If you take frequent trips to the same location, you can even have the app automatically categorize the trip based on the route so that you don’t have to always manually input the information. 

5. Claiming Home as Office

If you work from home frequently, it’s also important that you also make note of this on your Self Assessment. If you’re a sole trader or partnership, the easiest way to do this is through the simplified expenses rules.

Depending on the hours you work from home, you’ll be able to claim a flat rate. For instance, if you work for 25 to 50 hours, you’ll be able to claim £10 per month. If you work 101 or more hours, you’ll be able to claim £26 per month. 

6. Find a Bookkeeper and Accountant

It’s important to remember that you don’t have to suffer through taxes alone. As your business begins to grow, there’s no shame in finding the help of a bookkeeper as well as an accountant. A bookkeeper will help keep all of your records organized and up-to-date so that they’re easier to compile during tax time. 

An accountant can help you through the process of doing your taxes. Even better, throughout the year they can help you make smart business decisions. They’ll analyze the data and help you find ways to maximize profits and minimize expenses. 

Self-Employment Tax Tips: Preparing Ahead of Time

When it comes to self-employment tax tips, our best piece of advice is to begin preparing as soon as you begin your small business. Keep track of your income and expenses so that you can predict how much you need to pay and how much you can deduct.

Then, create a separate savings account so that you can funnel a percentage of your earnings away. That way, you won’t become attached to the income you earn that still belongs to the government. 

There’s also no shame in asking for help–bookkeepers and accountants are professionals that work with small and large businesses each day. They’ll help you explain the tax rules and procedures better as well as provide ways to keep your income organized. Even if you’re not looking for tax advice, accountants can help you make better business decisions. 

Ready to stay in-the-know when it comes to financial news for SMEs? Take a look at our finance archives to stay on top of the latest developments throughout the world! 

Budgeting for Beginners: The Ultimate Guide

Creating a budget is one of the best things you can do for your financial health. Budgets are like road maps giving you direction. To help you manage it all, we’ve rounded up the ultimate budgeting for beginners guide.

We’ll go over how to make a budget, where to start, and budgeting tips to help keep you on track. Here’s your go-to guide to creating a budget. 

Where to Start

When creating a budget, you’ll want to start with your goals. Your goals could be anything from building up your emergency fund to saving for a home. Thinking about your goals will help you better understand where you should put your money.

If your goal is to retire early, for example, a good portion of your budget will go towards retirement savings. If your goal is to pay down debt, you’ll focus your efforts on reducing your credit card bills.

One helpful tip is to set small, attainable goals that will help you reach your larger goal. Let’s say your end goal is to pay off your debt.

Start with the low-hanging fruit and pay off your smallest or highest interest debt first. Paying off a small credit card, for example, will leave you with a few hundred extra pounds each month to pay off a larger card.

Write Out Your Income and Expenses

After you’ve set your goals, you’ll want to write out your income and expenses. You can’t make a plan for what’s coming out if you don’t really know what’s coming in. Write out any income sources you have.

Next, you’ll need to write out all your expenses. Separate your fixed expenses as well. Fixed expenses are expenses you have to have or pay such as rent and electricity.

Non-essential expenses include gym memberships, music subscriptions, and the money you spend on clothes. These are all expenses you can trim if the money in your budget becomes tight.

Check your bank statements for anything you may have missed. Go back a few months so you can see anything that’s paid quarterly. The more detailed you are, the more accurate your budget will be.

Where to Make Cuts

Once you see how much you have coming in versus what you’re spending, it’s time to make some cuts. Be realistic here. If you cut too much, you won’t be able to stick to your new budget.

Look at anything that’s non-essential. If it isn’t being used, cancel it. You may be surprised by all the subscription services you have that you aren’t using.

If you have three group fitness class memberships, for example. Choose your favourite and stick to one.

If you’re spending more than you’re bringing in, cutting items will help you get back on track. Keep your goals in mind here. If it isn’t helping you reach your goals, cut it.

Making a Budget

To start writing out your budget, begin with your fixed expenses. Rent, student loan, and your car payment are examples of fixed expenses. You need to pay for these each month.

Next, look at your utility payments, cell phone, and grocery bills. Groceries are one you can be flexible with if you need to. If you’re eating out for three meals a day, cut this down and increase your grocery budget to save money.

When you’re assigning items a budget, be realistic. If you’re used to spending £500 a week on groceries for a family of six, start by cutting that down to £300. If you try to live off £50, you’ll probably end up ordering takeaway and blowing your budget.

The next part of your budget should include reaching your goals. Remember to work on small goals to help you reach your larger one.

Carve off any disposable income towards reaching your goals. If these aren’t included in your goals, make room for saving for emergencies as well as retirement.

What to Use

Your budget can go on anything from a piece of paper to an online app. A spreadsheet that you can access online and from your phone is also helpful. You want to be able to see your budget whenever you need to.

There are a number of helpful budgeting apps as well. These often synch with your bank accounts, so your income and spending are tracked.

Cutting Down Fixed Expenses

Fixed expenses are harder to cut down. Rent, for example, has to be paid. If rent is too expensive, this is where getting a flatmate is helpful. You can split the rent, utilities, and even some groceries. You two can also share a car.

If you live in an area that’s walkable, you can also sell your car. You’ll use less petrol, save on car payments, and insurance.

The more you save and pay down, the less fixed expenses you’ll have. With budgeting, you can go from paying three credit cards to one.

Have Weekly or Monthly Meetings With Yourself

Once your budget is in place, you’ll want to make sure you’re staying on track. Host weekly or monthly meetings with yourself to make sure you’re staying on budget. It’s so rewarding to see yourself meeting your goals.

If a goal is to pay down debt. Pull up all your accounts online and check on your progress. When you see that debt number go down, put that money towards your emergency fund or another goal.

Budgeting for Beginners

Budgeting for beginners starts with accountability. You need to hold yourself accountable for your spending.

The only way a budget works is if you keep it realistic and set small, attainable goals. For more money advice, check out the finance section.

6 Types of Private Equity

We live in an unstable financial world. This has meant that those seeking to invest are desperate to know where they can find a safe bet. As a result, interest in the different types of private equity (PE) has gone up.

Private equity is an investment made by funds who are not listed on the public stock exchange. Companies use the funds for a range of different things but the end goal is the same for any investor, a return on investment. 

So how many different types of private equity are there?

Let us show you and after reading you will see that there isn’t an area of business that doesn’t benefit from the various types of private equity.

Venture Capital 

Made famous with the tech boom of the late ’90s, venture capital funds invest in start-up, emerging, or small businesses. This is done with the hope of a return on investment should the company become successful. 

There is a clear risk in doing this as these companies don’t have a solid track record of turning a profit. However, the potential sizable windfall has made them very lucrative. 

Young companies on the market for the support of venture capital fall into two categories.

Early-stage funds focus on looking for budding enterprises with extremely capable leaders looking for capital to develop technologies etc. Later stage funds for emerging businesses that may have already exhibited a profitable business plan and may be looking to expand or step into new markets.

Examples: Whatsapp and Facebook started life being funded by VC’s. 

Leveraged Buy-Out

A leveraged buy-out is when a PE fund uses part of its capital as well as borrowed funds to acquire a controlling stake in a company. 

Operating similarly to a mortgage, capital is raised (up to 90% through loans) and the existing debt is offset by any profits gained by the company purchased plus any existing assets that they may have. 

The goal of any PF fund who performs a leveraged buyout is to stimulate the profitability of the newly acquired business. To do this they will reduce expenses or change their financial strategy via financial engineering. 

Mature, profitable businesses are prime candidates for LBOs due to the high levels of debt that are involved.

Examples: Heathrow Airport, Manchester United and Hilton Hotels are some famous examples that have been involved in LBO’s in recent history. 

Growth Capital 

At times a company may wish to expand or step into new markets in a way that they feel will be profitable long term. To do so however they need the money that they don’t have. In this case, a PE firm can choose to invest to stimulate this growth, which is the basis for Growth Capital.

Companies in this position are usually stable and financially secure. This means that although similar to VC, investors take minority stakes and leave the day to day running of operations to the business.

Growth capital funds are willing to invest in businesses that they see as reliable and profitable, even if at times the company in question doesn’t have a long track record. This means that they sit in the middle of VC’s who look for new blood and LBO’s who need a sure bet. 

Examples: Deliveroo is seeking to benefit from $180 billion received due to growth capital.    

Real Estate 

Investing in real estate is perhaps one of the most well-established types of private equity. This is likely due to the constant and steady cash flow investors enjoy over time as well as the potential of high returns. 

Commercial real estate is where most of the investment goes. This includes such things as office blocks, shopping centres, multi-family apartment buildings. Other areas such as land are also included however this is more speculative and therefore seen as more of a risk. 

Investing in real estate on this scale in the past has only been open to high net with individuals or institutional investors. The reason? The large amounts needed to contribute.

Examples: Blackrock is the biggest private equity firm in this sector with properties as diverse as the MGM Grand and Bellagio in Las Vegas to Center Parks in the UK.

Infrastructure

Investing in infrastructure involves three main areas of investment, utilities, social and transportation. 

Utilities include investing in the energy sector, water distribution and telecommunications. Social investments involve education facilities and hospitals and transportation can include toll roads, rail and airports. 

Why are these types of private equity desirable? 

Well as they are providing essential services, even though there is not much room for potential growth, it is a low-risk investment. This means you as an investor can rely upon steady and stable returns.

Additionally, infrastructure funds allow more flexibility in where your money lies, meaning it is better protected in an often volatile market.

Examples: Check out a good example of how this is being done during the current pandemic conditions in Nepal.

Distressed Private Equity

More and more on the news, we hear of companies facing hard times being bailed out at the last minute by private investors. 

These types of private equity are known as distressed private equity. 

Getting involved in distressed private equity will require a wide range of skills on the behalf of the private equity fund involved. Not only the standard business acumen is necessary but an understanding of bankruptcy laws and capital and credit structure among other areas of expertise may be called upon.

So why would someone choose to invest in a company going through major difficulties?

Mainly because the purchase value becomes so low that they can make a massive profit from turning fortunes around. Any future sale or even going public can make distressed private equity extremely lucrative. 

Examples: The trainer brand Converse filed for bankruptcy at the turn of the millennium and was saved by Footwear Aquisition Inc for $117.5 million. They later sold it to Nike in 2003 for $305 million.

Clarity on the Different Types of Private Equity

Deciding where to invest your money, is one of the decisions in life that can have the most ramifications for you or your clients future. 

For that reason, we hope that this deep dive into the different types of private equity has left you with a clear idea about the available options. 

If you would like further advice or you have a question that needs answering don’t hesitate to contact us!

Hedge Fund vs. Private Equity: Everything You Need To Know

Despite coronavirus-related struggles in other industries, UK asset management funds are thriving. Total assets under management hit £8.5 trillion at the end of 2019, up 10% from the year prior.

There’s never been a better time to place your money with an investment fund. But when it comes to a hedge fund vs private equity, which one should you choose?

Today, we’re helping you out with this guide to understanding hedge funds and private equity firms. Ready to learn more? Then you better keep reading because this one’s for you.

What Hedge Funds and Private Equity Funds Share in Common

Hedge funds and private equity funds are different. But they share in common their target investor, type of business partnership, and revenue streams. 

Check out the biggest commonalities between hedge funds and private equity funds below.

The Target Investor

Hedge funds and private equity funds have the same target investor. They both prefer high net worth individuals. Usually, that means investors must have $250k or more to invest. 

The Partnership Structure

Hedge fund companies and private equity firms tend to have the same business structure. Namely, they’re both limited partnerships (LPs). LPs consist of a general partner(s) (also known as managing partner(s)) and limited partners.

The general partner(s) run the day-to-day aspects of the business and have full liability for any debts accumulated. The limited partner(s) has a contracted limited liability for any debts and doesn’t partake in day-to-day operations.

The Profit Scheme

Hedge funds and private equity funds have the same profit scheme for partners. Both types of funds pay general partners a contracted management fee. Plus, they pay each partner a pre-determined percentage of annual profits.

Management fees tend to equal approximately 2% of the value of the asset under management. For example, a private equity fund manager might make 2% off the sale of one of his portfolio companies.

PE and hedge funds base performance fees on profits. For example, a hedge fund manager might receive 20% of gross profits after the sale of stock.

What Is a Hedge Fund?

Hedge funds are institutions that make investments with money pooled from high-net-worth individuals. Because they trade on borrowed funds, hedge funds are risky. This is especially true during times of economic downturn. 

Hedge funds tend to be less regulated than similar investment institutions. This has to do, in part, with the fact that hedge funds don’t work with smaller investors. You must be an accredited investor to invest in a hedge fund.

Keep reading for three additional factors that explain the hedge fund vs private equity distinction.

Hedge Funds Goals

A hedge fund’s goal is to make as much money in as short of a time as possible. This is called a short or short-term investment strategy. 

Note that the short-term nature of hedge funds’ investments means investors can cash out any time. 

Hedge Funds Investment Strategies

Because they’re short-term investors, hedge funds tend to only invest in strongly liquid products. These products can easily and quickly be turned around for a profit, which the hedge fund can then invest in new assets. 

Hedge funds are less picky when it comes to the specific type of investment they’ll make. Stocks (take a look at this S&P 500 heat map), futures contracts, currencies, derivatives, and bonds are all fair game for hedge funds. 

Hedge Funds Investment Structures

Hedge funds feature an open-ended investment structure. This means investors can not only take profit whenever they want, but they can also add more money into the fund whenever they want. 

This is due to the short-term nature of hedge fund investments.

What Is Private Equity?

Like hedge funds, private equity (PE) funds accumulate wealth from high-net-worth individuals. Firms then invest that money into privately held companies. This makes PE investments far more stable than hedge fund assets.

A PE fund can be made up of a pension fund, which is a company’s retirement fund. More commonly, it’s an actual PE firm. Accredited investors fund PE firms in a similar fashion to hedge funds. 

Here are three more factors that differentiate PE from hedge funds. 

Private Equity Firms Goals

A private equity fund’s goal is to curate an investment portfolio with the potential for profits in the next 4–7 years. This is called long or long-term investing.

As you can imagine, long-term investing makes it trickier to cash out. Most PE firms require investors to commit to 3–5 years at the least. Some firms require investors to agree to invest for 7–10 years before realizing profits. 

Private Equity Firms Investment Strategies

Private equity firms invest in private companies directly using one of two strategies. The first strategy is to purchase the company outright. This can be done either through a leveraged buyout (LBO) or a venture capital investment.

A less common strategy is to purchase controlling interest via a public company’s shares. When a private equity fund does this, it’s usually because investors plan to de-list the public company from the stock exchange.

Once a private equity fund acquires a company, it hands that account over to its fund managers. The fund managers monitor the company over time to ensure the investment will pay off in the long run. 

Private Equity Firms Investment Structures

Private equity funds use closed-ended investment structures. In the same way that investors can’t take profits for 3–10 years, they can’t add new money to the investment either. 

This is due to the long-term nature of private equity investment strategies. 

Hedge Fund vs Private Equity: The Bottom Line

When it comes to the difference between a hedge fund vs private equity firm, the biggest thing to consider is the investment strategy. 

If you want quick returns now, a hedge fund’s short-term investing strategy is for you. Meanwhile, investors in it for the long hall may benefit from investing with a private equity firm. 

Looking for more financial advice from Capital Finance International? Check out our finance blog posts right now!