Tax havens

Following the G20 meeting and communiqué, OECD has provided a list (PDF file, dated 2 Apr 09) of countries which are classified into:

• "White list" - Jurisdictions that have substantially implemented the internationally agreed tax standard
• "Grey list" - Jurisdictions that have committed to the internationally agreed tax standard, but have not yet substantially implemented
• "Black list" - Jurisdictions that have not committed to the internationally agreed tax standard

The Jurisdiction inside "Black list" then were Costa Rica, Malaysia (Labuan), Phillipines, Uruguay.

Read from the PDF file: Wow, there are so many Tax Havens (in "Grey list").

Tax haven criteria are divided into 4 factors:
1. Jurisdiction imposes no or only nominal taxes
2. Whether there is a lack of transparency
3. Whether there are laws or administrative practices that prevent the effective exchange of information for tax purposes with other governments on taxpayers benefiting from the no or nominal taxation.
4. Whether there is an absence of a requirement that the activity be substantial

Announcement
On 7 Apr 09, it was announced that Costa Rica, Malaysia, Philippines and Uruguay (countries in the "black list") have committed to the tax standard on exchange of information and are moved to "Grey list" (meaning: no more in "Black list") !

There are lots of resources on tax evasion, exchange of information, harmful tax practices.

Question:

How big are the effects of regulation on tax havens ? How big will be the outflows, if any ?

Financial Modelers' Manifesto

Paul Wilmott and Emanuel Derman have come out with a Financial Modelers' Manifesto.
Financial Modelers' Manifesto document
This Financial Modelers' Manifesto is a great read, especially for investors who sometimes place too much confidence in using model to evaluate financial assets and predict financial outcomes.

Excerpt from the Manifesto:
[

The Modelers' Hippocratic Oath
~ I will remember that I didn't make the world, and it doesn't satisfy my equations.
~ Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.
~ I will never sacrifice reality for elegance without explaining why I have done so.
~ Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.
~ I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.

]

Before this Oath, there is a manifesto.
Among many things,
it talks about :
why CDO’s model went wrong; There is no right model; Examples of a good model (Black-Scholes model of options valuation); limitations of model.. etc..

Great read !

Sovereign Wealth Funds (SWF)

Sovereign Wealth Funds had grown in importance due to its size and closed link to government.

Some resources on SWF:

SWF Institute
website

A good resource on SWF. There are website links to various SWFs, fund rankings, statistics & research.

Some of the important parameters for SWFs are size, SWF-to-foreign-exchange-reserve ratio and transparency. The transparency index for SWF is called Linaburg-Maduell Transparency Index. We can find these parameters of SWFs from fund rankings.

Singapore’s SWFs are GIC and Temasek Holding (Temasek itself claims that it is not a SWF).
Malaysia’s SWF is Khazanah.

International Working Group (IWG) of Sovereign Wealth Funds (SWF) has published a set of 24 voluntary principles to ensure an open international investment environment.

Generally Accepted Principles and Practices (GAPP)for SWF (called Santiago Principles)
pdf file

SWF Radar:
website
We can look for updated SWF news here.

Corporate Governance, Shareholder’s Rights (1)

I have attended few shareholder’s meetings (AGMs) in Malaysia.

My general feel is that many, if not most shareholders,
do not uphold their shareholder’s rights.

In the AGMs, many shareholders merely attend to collect gifts, have meals,
become "Yes man" during votings and obstructing critical questions being asked in Q&A sessions. Unjustifiable praises are hailed on the management and Board of Directors even during cases when they should be criticised. Ridiculous questions are being applaused. Good, critical questions (sometimes being raised towards the end after finally getting their turns) are being jeered at.

One important concept is Board of Directors should act in the best interest of shareholders.
Shareholders pay them large sum of director’s fees to take care of shareholders’ interests and to act as check-and-balance for the management team. Need to make sure they do their jobs.

Hopefully this post can shed some lights on Corporate Governance and Shareholder’s Rights.

The Corporate Governance of Listed Companies: A Manual for Investors (from CFA Institute)
PDF file

One of the intangibles to look into a company when investing is Corporate Governance.

A number of studies show strong links between good corporate governance and strong profitability and investment performance (the studies are mentioned in above PDF file).
We need to pay particular attentions to the Board of Directors, Management and Shareowner Rights.

For Board of Directors,
take note of its independence, member qualifications, authority to hire external consultants, terms, related-party transactions and board committees.

For Management, take note of implementations of code of ethics, personal use of company assets and corporate transparency on executive compensation, share-repurchase and price stabilization program.

For shareowner rights, pay attention to shareowner voting and shareowner proposals.

The Manual is a great read !