Finance news - Financial industry, Business & Trading

NBAs Chris Paul, other celebrity athletes, invest for a cause

iving back to their communities has always been a challenge for pro athletes who get rich quick because they tend to lose the money even more quickly. But even those who manage to build a substantial amount of wealth have a hard time using it charitably in a way that truly has a long-term effect. Some celebrity athletes are turning to "impact investing," a growing niche of do-gooder strategies that aim to put money toward charitable causes but that would otherwise lack support. Fund managers, of course, also aim to generate income in the process. The Turner Multifamily Impact Fund, a private-equity style vehicle focused on preserving affordable housing, has lately drawn financial support from NBA All Star Chris Paul. He joins former World No. 1 tennis player Andre Agassi and Basketball Hall of Famer Magic Johnson, who have invested in other funds and projects run by the parent company, Turner Impact Capital and its founder, Bobby Turner. Their contributions work with dollars from hedge fund billionaire Bill Ackman, the Rockefeller Brothers Fund and actress Eva Longoria. In an interview with Reuters, Paul said he was frustrated by the feeling that giving away his own millions only "put a Band-Aid on a situation." As a point guard for the Los Angeles Clippers, he has earned money not just from the 5-year, $107.3 million contract he signed in 2013, but also from lucrative endorsements for companies like Nike and State Farm Insurance. Paul is worth an estimated $30 million, according to Forbes."We were doing basketball courts here or there, we'd always do giveaways during the holidays, and we did 10 computer labs," Paul said, referring to a few of the projects the Chris Paul Family Foundation has organized for disadvantaged kids. "But at times, philanthropy can be frustrating."Whether impact investing is more successful than pure charitable giving is unclear. Unlike simply giving money away, impact investing does provide a return, which could enable philanthropists to sustain or grow their charitable giving. But broadly speaking, impact funds have delivered lower returns than straightforward stock or bond market indexes, according to data from the Global Impact Investing Network, a trade group.

The funds also charge higher fees than traditional investment tools like mutual funds and index funds, because of the amount of work that goes into the investments, such as scouting apartment complexes for affordable housing funds. But impact investing proponents argue that analyzing financial returns alone is misguided. That is because they are more concerned with whether their money is achieving an outcome, like preserving affordable housing in a gentrifying neighborhood, than whether the investment generates a certain profit. Around 40 percent of impact investors polled by Global Impact said they seek below- market returns. Counter-intuitively, funds that deliver below-market returns may be the most successful because it indicates they would not otherwise receive funding, said Paul Brest, a professor at Stanford University who teaches courses on impact investing."That's the sweet spot for impact investing, because by definition, ordinary investors are not going to invest in that," he said.

REDUCED RENT FOR SERVICES There were over 400 impact investing funds and products, with $31 billion in committed money, in 2015, the latest year for which data is available from Global Impact. Run by former hedge-fund manager Bobby Turner, the Turner Multifamily Impact Fund launched in 2015 and raised $264 million in capital. It has so far acquired nine garden-style apartment complexes on the outskirts of cities like Dallas, Austin and Las Vegas, according to the fund's website.

"We're trying to give housing to people who make too much money for subsidized housing but do not make enough for luxury rentals or home ownership," Turner told Reuters. The apartments are mostly filled with tenants who earn up to 80 percent of an area's median income, and rent is no more than 35 percent of a tenant's salary. To make the investment sustainable, Turner said tenant turnover must be kept low. The fund tries to do that by providing additional services like community watch groups, free tutoring and on-site clinics run by other residents who work in law enforcement, healthcare or education and receive half-price rent for running these programs. At the Turner-owned Regency Pointe Apartments, a cluster of two-story red brick apartments 10 miles from Washington D. C., the typical tenant would earn $54,666 a year, according to U.S. Census data. Rent for a three-bedroom starts at $1,456 a month, according to the complex's website. The fund is aiming for 10 to 12 percent returns net of all fees over the next few years by keeping tenant turnover and insurance costs low. Turner's firm does not disclose fees, but generally speaking, industry sources said similar, private equity-style funds typically charge annual management fees of 1.5 to 2 percent of assets, plus 20 percent of profits. A benchmark generated by Global Impact Investing Network shows impact funds generated 5.58 percent returns over 15 years ending last June. The benchmark underperformed stock and bond market indexes across all timeframes it measures. But Paul says that earning a financial return is essential to the fund's success."That's the fuel we need to bring in investors and reach even more communities and families," Paul said. "When you combine a positive financial return with positive social impact, you can make a huge difference for people.

RBS rising from ruins as shadow of former self

Nine years after the beginning of a 45-billion-pound ($56 billion) bailout by the British government, Royal Bank of Scotland (RBS. L) is emerging from its restructuring process a shadow of what was once the biggest lender in the world. RBS had a balance sheet of 2.4 trillion pounds in 2008 - almost double Britain's annual economic output at the time - having staged a meteoric rise from being a small Scottish lender in the early 1990s. Since the bailout it has offloaded billions of pounds of assets a week, as it tries to shrink down to being a simple UK-focused lender. Later this year RBS will shut its Capital Resolution division, which has sold off large chunks of its huge stockpile of unwanted assets. The closure will mark a milestone in the bank's road to recovery, with its balance sheet around 1.6 trillion pounds lighter than when its great sell-off began.  "For the first time in a long time there is a distinction between yesterday and tomorrow," Mark Bailie, who runs the unit told Reuters in an interview at the lender's lender's ultra-modern glass-and-steel offices in London's financial district. For a graphic on rise and fall of RBS assets, click RBS has undergone a huge asset sale, ranging from a fleet of aircraft in Beijing and the largest hospital in Sydney, to a golf course 110 km from the nearest road in Florida, and a graveyard in the U.S. Deep South. The steep and ongoing asset-shedding, plus the deep staff and IT systems overhaul still to come, mean the future shape of RBS and its growth potential are still unknown propositions for investors, according to shareholders and analysts."I think it is not investable at the current time. There is just too much more work to be done," said Julian Chillingworth, chief investment officer at Rathbone Brothers, which holds some RBS shares. Britain's government has ruled out reducing its stake in the bank until it resolves a multi-billion pound U.S. fine for mis-selling toxic mortgage-backed securities and resolves its state aid requirements. The bank's relatively small size now and the cost of its nine-year overhaul is raising questions from politicians and industry experts over whether taxpayers - who already face a paper loss of 29 billion pounds on their investment - will see the kind of stellar RBS growth needed to retrieve all their cash. Few in the banking sector or government believe rescuing and reducing RBS was the wrong decision, given the risks it posed to the wider financial system. A collapse could have triggered a run on every bank in Britain. Still, RBS's story illustrates the perils of bailouts at a time when state intervention is back in focus in Europe; while EU regulations have been tightened to make state bailouts a last resort, the Rome government is nonetheless seeking permission from European authorities to bail out debt-laden Monte dei Paschi di Siena and two smaller Italian banks. An RBS spokesman directed queries on whether taxpayers would retrieve their money to comments by Chief Executive Ross McEwan last year when he said it was possible the state would not get its full investment back. A spokesman for the Treasury said any future sale of its stake is dependent on market conditions, and that the government will seek value for money for taxpayers.

90 BILLION BILL It was three weeks after the collapse of Lehman Brothers crippled global credit markets in 2008 that Britain's then finance minister Alistair Darling had to make a snap decision to buy RBS. The giant bank was hurtling towards bankruptcy so fast no one in government had a chance to find out exactly what it owned or how to value it. Reuters calculations based on RBS's financial statements going back to the crisis show how extreme the turnaround has been since then.  RBS's management has been selling or running off on average 3 billion pounds worth of assets every week, according to the analysis which tracked the size of the bank's balance sheet from 2008 onwards. That's the equivalent of selling London's Shard – Western Europe's tallest skyscraper – every five days. In total about 1.6 trillion pounds of assets have been stripped out of RBS's balance sheet - equivalent to the economic output of Brazil.

Bailie, 44, a qualified accountant, was tasked with shedding much of these unwanted assets."You had an unsustainable balance sheet, an unsustainable culture and an unsustainable cost base and, therefore, I do think it will be the biggest turnaround ever done," he said. Much is yet to be done, according to the other senior RBS source who said the bank had three to four years of cutbacks ahead. Tasks range from reducing the number of payment systems from 140 to 10, and mortgage processing systems from five to one, to cutting thousands of back-office staff, said the source, who declined to be named as he is not authorized to speak publicly. Reuters calculations also put a final cost on RBS's lending losses in terms of write-offs, plus the writedowns on assets, as well as restructuring costs, legal bills and fines. It tops 90 billion pounds. That could rise further with the bank waiting to end a string of legal issues, including the U.S. fine and a lawsuit from shareholders over a rights issue it launched months before its bailout. Analysts say the bank's ongoing restructuring, legal issues and growth concerns, now it has shed assets in its lucrative investment banking business, U.S. and insurance operations, make it difficult to recommend investing in.

Of 23 analysts covering RBS stock, only two have a "buy" recommendation, according to Thomson Reuters data. "Someone looked at RBS and said it's a lovely piece of fruit but it has a brown rotten bit, let's cut that out," said Seb Walker, a managing director at data analytics firm Tricumen. "Then you always end up cutting deeper and deeper and you're left with a tiny core that no longer has much fruit on it." LAST ONES STANDING Bailie's office is on the 10th floor of RBS's London offices, where he commands a team of about 200 employees who are still selling soured loans, as well large stakes in companies amassed during the bank's years of rapid growth. They work beneath fluorescent signs that say "The Clearing Warehouse", "The Wind Down Merchants", "The Salvage Crew" and "The Last Ones Standing". Visiting the bank's branch in Chennai, south India, Bailie said local staff took him to a strong room to demonstrate one reason why closing the business might not be straightforward. He recalls a colleague opening a safe to reveal 1.2 million post-dated checks. They often perform the role of direct debits in India, with customers sending a series to their bank, which makes the payments to the relevant companies at the correct times. RBS had to find a new lender for each customer.  "That was an interesting moment when I thought, hmm, are we going to be able to do this?" Bailie said. Bailie's wind-down unit also contains smaller and more esoteric assets that are the legacy of RBS's expansion, including an abstract sculpture called 'Rock Form' by Barbara Hepworth housed in a shopping center owned by RBS. Bailie said this was among the hardest things the bank had to sell, because prospective buyers of the shopping center in the west of England didn't want to insure the artwork to keep it there. But it was precious to the local population. Bailie's hope is that RBS's problems are close to being resolved and that they can now spend more time talking about the smaller, safer, profitable business emerging from the husk of the former bank."This thing makes a billion pounds a quarter. You can see the light at the end of the tunnel."