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European Commission president Ursula von der Leyen travelled to Kyiv on Friday to announce a multibillion EU loan for Ukraine as part of a G7 plan to raise $50bn on the back of future profits from frozen Russian state assets.

On her eighth visit to Ukraine, von der Leyen wrote on X upon arrival that she would meet leaders in Kyiv to discuss a range of issues from “winter preparedness to defence, to [EU] accession and progress on the G7 loans”.

The loan announcement comes at a time of additional and urgent need of Ukraine aid due to Russia’s repeated attacks on its energy infrastructure, and after months of negotiations with G7 partners about their share and structure of the loan.

“These assets should be used to protect lives in Ukraine against Russian aggression,” President Volodymyr Zelenskyy said on Thursday evening.

“There is a clear decision regarding $50bn for Ukraine from Russian assets, and a mechanism for its implementation is needed to ensure that this support for Ukraine is felt in the near future,” he added.

G7 leaders agreed in June to make $50bn available in loans to Ukraine and divide that according to their relative economic weight, which would have resulted in the EU and US covering $20bn each, with Canada, Japan and the UK making up the rest.

But the US conditioned its participation on legal reassurances that the assets would stay frozen for longer. The EU, where nearly €200bn of Russian state assets are immobilised, has however been unable to guarantee that, due to Hungary’s opposition to extending the sanctions regime against Russia.

To make up for American no-show and bypass Budapest’s veto, the commission sought to increase its share of the loan to up to €40bn, guaranteed against the bloc’s common budget. But EU capitals baulked at the figure, pressuring Brussels to get the UK, Canada and Japan to increase their share.

A majority of EU countries and the European parliament need to approve the EU loan before year’s end.

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Well that makes my katzenjammer even worse. On top of a cold, as well as a hangover from trying to match dad — who just landed from Australia — on the shiraz front, my portfolio now lags behind the 60-80 per cent equity index in the table below for the first time this year.

As wake-up calls go, less a splash of water on the face and more a slap. I had long ceased hoping to outdrink the S&P 500 in 2024 — the AI boom and strong pound ensured that. But beating a benchmark hand-chosen by me?

Two months ago my portfolio was 250 basis points ahead of the Morningstar index in the year to date. How did I stuff up? Well, for starters, it has slightly more equities than me and they continue to rally the world over.

But my 74 per cent weighting is my decision, so no excuse. Another reason I trail the benchmark is because well over half of its bond exposure is sterling-denominated. Only Treasuries comprise my fixed income fund.

While many saw entrenched US inflation, I was correct in thinking that short-end interest rates would eventually head south again. The Federal Reserve’s half-point cut in policy rates on Wednesday sits nicely with this view.

That said, I didn’t think through the purchase of a non-hedged exchange traded fund. If I were correct on lower short-term rates, the dollar would probably decline versus the pound. Thus my Treasury fund is only flat since January. And it’s in the red this week.

Two months ago my portfolio was 250 basis points ahead of the Morningstar index in the year to date. How did I stuff up?

Annoying or what? Especially as the returns this year from my UK and Asian equity funds are both in double digits. But a valuable lesson learnt. It is fine making currency bets but not if they are inconsistent with your core thesis.  

Finally, Japanese stocks are still reeling from the hiki-taoshi they received in early August. Like pulling an opponent to the floor in sumo, the Nikkei 225 index collapsed by a fifth under the weight of a strong yen and investor nerves.

Onward and upward, though! There is still more than a quarter to go until the year is done. So how do I rate the structure of my self-managed portfolio today — the existing positions as well as the gaps? On what am I focused?

It seems to me I have to answer three very important questions if I want to boost significantly the value of my pension pot before Christmas, let alone achieve an annual return commensurate with the goal of doubling my assets in the next eight years.

The first is: how much risk I am willing to take? Losing half of my chips on the first spin of a roulette wheel and then choosing correctly the next two times also doubles my money — green pocket excluded. But the trade-off between returns and volatility is terrifying (a Sharpe ratio of 0.5, in this case).

So yeah, I could own just one stock and be lucky. At the other extreme, an academic paper over the summer by Ronald Doeswijk and Laurens Swinkels — beautifully summarised by my colleagues on Alphaville — proves the value of extreme diversification.

Hypothetically a fund owning everything would not only have produced an excess return over cash of 0.3 per cent per month between 1970 and 2022, but a Sharpe ratio above each of the component assets too. A genuine free lunch.

It wouldn’t have my portfolio in seven figures by 60, however. So while I don’t want to put the lot on black, I know I need to take more risk in order to retire early. And that probably means the US government bond ETF has to go.

As an aside I may return to before November 5, if you think a razor-close US election may result in chaos or worse — and some experts fear as much — adding risk makes no sense at all. Indeed, 100 per cash is the way to go.

Either way, America is the second question I need a clever answer to. In summary, one of my first columns urged readers to always own US equities, but in a rush of blood last year I sold the lot when valuations got ridiculous. It was a mistake — as it usually is.

What do I do now? As my children know, I’m fine with losing face and would buy in again. Yet for me, the S&P 500’s forward price-to-earnings ratio of 24 times is still bonkers. Nvidia’s market cap is above 50 times its book value. I’ve seen this tech movie before.

US medium-cap stocks offer a better storyline, perhaps, being 25 per cent cheaper relative to forward earnings than the S&P 500. Margins have held up OK too, as me old mucker Robert Armstrong pointed out this week.

But I worry about the index’s preponderance of banks. Sure, their real estate loans are less likely to implode as rates fall, as Robert argues. But if the US economy stays robust, lenders prefer higher rates as they mean wider spreads.

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Still, I noticed recently that large US companies are investing more again, with the S&P 500’s capex-to-sales ratio back to pre-Covid levels. AI spending within the Big Tech sector has a lot to do with it, but this money will eventually flow to mid-caps too.

My third mega-question is China, the topic of a whole column soon. The word “Japanification” is now being whispered among professional investors. Will China repeat Japan’s lost decades, with low growth, a falling population, high debts and real estate woes?

I need three mega-answers soon. Should have taken a summer break after all.

The author is a former portfolio manager. Email: stuart.kirk@ft.com; Twitter: @stuartkirk__

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Private equity firms are aggressively pushing to include language in loan documents that could give them room to pay themselves larger dividends from the companies they have bought, drawing a sharp rebuke from lenders.

In the past, loan documents usually capped exactly how much money a private equity firm could extract from one of its portfolio companies. Over time, those fixed amounts became malleable and were based on a percentage of a company’s earnings.

But in recent weeks, private equity firms have been attempting to take things one step further with the so-called high-water ebitda provision, which allows a company to use the highest earnings it generates over any 12-month period for critical tests that govern how much debt the company can borrow or the size of dividends it can pay to its owner, even if the business’s earnings have slid since reaching that high point.

KKR, Brookfield, Clayton, Dubilier & Rice and BDT & MSD Partners have all attempted to work the clause into loan documents, according to people briefed on the matter. All four firms declined to comment.

The terms have received intense pushback from would-be lenders, and in almost every case the language has ultimately been stripped out of the loan documents. But the fact that private equity-backed companies continue to push for the inclusion of the language has lenders on edge, with some fearful rival creditors will buckle and accept the provision.

According to lenders who saw drafts of the loan agreements, the terms were included in provisional loan documents backing KKR’s buyouts of asset manager Janney Montgomery Scott, valued at roughly $3bn in the deal, and $4.8bn purchase of education technology company Instructure, as well as Brookfield’s $1.7bn acquisition of a unit of nVent Electric. The clause was also put in provisional documents for refinancings by Wesco, which is owned by BDT & MSD Partners, and CD&R’s Focus Financial.

“It’s a really aggressive term,” one creditor said. “It’s a tough time to say, ‘I’m going to push the envelope further.’”

In one deal, RBC, which was lead underwriter on the $900mn term loan Brookfield was raising for its investment in nVent, told an investor that the bank had strong demand and if the language was an issue they should “vote with [their] feet”.

When enough investors passed, the high-water language got pulled from the loan document.

RBC did not immediately respond to a request for comment.

The fact the language is being tested is one sign of a potential imbalance in the loan market, a critical source of funding for private equity buyouts. With buyout volumes still down from the 2021 peak, investors have had fewer new deals to spread their funds across, leading to heightened competition around some loans.

“When you’re in a strong market, it’s usually harder to push back against” these terms, one banker involved in the Instructure financing said. But, he added, “they’re not surviving.”

The language has made it into at least one deal, a $2.1bn term loan for a commercial laundry operation known as Alliance Laundry, according to two people briefed on the matter. The company planned to use the proceeds to refinance debt and pay a $890mn dividend to its owner, BDT & MSD, according to S&P Global and Moody’s.

The provision reads that “the borrower may deem Ebitda to be the highest amount of Ebitda achieved for any test period after the closing date . . . regardless of any subsequent decrease in Ebitda after the date of such highest amount”, text seen by the Financial Times showed.

“If you didn’t ask for those terms in a negotiation you didn’t do your job,” one private equity executive said. “You always want to give maximum flexibility to your businesses.”

The high-water concept is not foreign to creditors; it is far more prevalent in European leveraged finance markets. And some bankers and lawyers argue the idea is rooted in common sense.

In certain loans, the amount of future debt a company can borrow or the sums it can dividend out to its owner is set as a percentage of earnings. Companies like that flexibility, because if they are growing they do not have to keep amending their loan documents if they would like to borrow or distribute more cash. Investors said savvy lawyers decided to push that concept one step further.

The high-water provision creates a threat for would-be investors, particularly if a business begins to slow before a loan matures.

“Over time the protections that were built into credit agreements by commercial banks have deteriorated,” said Tom Shandell, Investcorp Credit Management’s head of US CLOs and broadly syndicated loans. “Private equity [firms], which can afford the best and brightest attorneys, have little by little put terms into credit agreements that weaken the protections.”

The ebb and flow of the global economy means that, as some people migrate to the UK, others leave it, creating opportunities for international financial advice.

The new Labour government has confirmed that the current tax regime for non-UK domiciled individuals will be replaced with a residence-based test from 6 April 2025, so international advice firms can expect more enquiries.

If UK advice firms want to develop a global presence, how should they go about it?

Working out the options

Branching out internationally is not something that can be achieved on a whim. Advisers must obtain the relevant permissions to advise in different parts of the world, and know how to navigate the quirks of various tax jurisdictions.

We’ve all heard horror stories of people moving out [of the UK] and it not being what they expected

Qualifications and regulatory requirements can vary greatly between countries and the location in which an adviser is based will also have practical implications for the areas they can cover.

“If I wanted to live in the US, doing a load of Australian exams would be pointless,” says Chris Ball, co-founder of international advice firm Hoxton Capital Management.

“It would be impossible — or at least very difficult — to be on the same time zone. But I could do the UK and Europe from there.”

One way for UK firms to start out is by partnering another firm that is already established in the international advice market. But this market comprises a wide range of businesses, with varying reputations and ways of operating, which means that, to do it properly, there is no fast-track entry.

A basic UK Level 4 qualification would be expected by most companies now

“You’ve got companies that are very commission and sales driven; then you’ve got companies that are fee based and more financial planning focused,” says Ball.

Being selective

Ball says UK advisers should ensure they do their homework on prospective partners and be wary of whom they get into bed with.

“I think a lot of people do that, but we’ve all heard horror stories of people moving out [of the UK] and it not being what they expected,” he says. “No one wants to be in that position.”

According to Academy of Life Planning chief executive Steve Conley, the advice industry in some countries resembles that of the UK as it was 20 years ago, with product sales being incentivised by commission, and ‘bad apples’ appearing in different guises through phoenix firms.

You’ve got companies that are very commission and sales driven; then you’ve got companies that are fee based and more financial planning focused

Conley believes international advice firms should charge fixed fees for financial planning to “eliminate conflicts of interest, promote trust and advocate market integrity”. He suggests UK advice firms seek to partner a well-established firm that has highly qualified advisers and good, independent customer reviews.

“Don’t go by the awards they have won because there are a lot of vanity awards in this industry. They can be paid for rather than be voted for by the public,” he says.

A question of quality

Diane Bentley, a former nurse, lost half her pension when an international advice firm advised her to transfer her National Health Service pot to an overseas Qrops pension scheme when she moved to France. Now back in the UK, she runs a Facebook group providing support to others who have experienced bad offshore advice.

Bentley says that, because the international advice market is commission led, the incentive to get more UK pensions offshore becomes extremely risky.

The stereotype of a second-hand car salesman going to Dubai to become a financial adviser is pretty much gone

“It is poorly regulated and the advisers are badly trained. We want them trained to the UK standard — a minimum of Level 4,” she says.

“Why shouldn’t we expect the same standards as people onshore are getting?”

Ball acknowledges that the international advice market has had its problems, but says it is cleaning itself up.

“A basic UK Level 4 qualification would be expected by most companies now,” he says.

“And the stereotype of a second-hand car salesman going to Dubai to become a financial adviser is pretty much gone. The quality of people here in the Middle East and in Australia advising British expats is really good.”

This article featured in the September 2024 edition of Money Marketing. 

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The Taiwanese government has said components in thousands of pagers used by the armed group Hezbollah that exploded in Lebanon earlier this week were not made on the island.

The comments come after Taiwanese company Gold Apollo said it did not make the devices used in the attack.

The Lebanese government says 12 people, including two children, were killed and nearly 3,000 injured in the explosions on Tuesday.

The incident, along with another attack involving exploding walkie-talkies, was blamed on Israel and set off a geopolitical storm in the Middle East.

“The components for Hezbollah’s pagers were not produced by us,” Taiwan’s economy minister Kuo Jyh-huei told reporters on Friday.

He added that a judicial investigation is already underway.

“I want to unearth the truth, because Taiwan has never exported this particular pager model,” Taiwan foreign minister, Lin Chia-lung said.

Earlier this week, Gold Apollo boss Hsu Ching-Kuang denied his business had anything to do with the attacks.

He said he licensed his trade mark to a company in Hungary called BAC Consulting to use the Gold Apollo name on their own pagers.

The BBC’s attempts to contact BAC have so far been unsuccessful. Its CEO Cristiana Bársony-Arcidiacono told the US news outlet NBC that she knew nothing and denied her company made the pagers.

The Hungarian government has said BAC had “no manufacturing or operational site” in the country.

But a New York Times report said that BAC was a shell company that acted as a front for Israel, citing Israeli intelligence officers.

In another round of blasts on Wednesday, exploding walkie-talkies killed 20 people and injured at least 450, Lebanon’s health ministry said.

Japanese handheld radio manufacturer Icom has distanced itself from the walkie-talkies that bear its logo, saying it discontinued production of the devices a decade ago.

Iran-backed Hezbollah has blamed Israel for what it called “this criminal aggression” and vowed that it would get “just retribution”.

The Israeli military has declined to comment.

The two sides have been engaged in cross-border warfare since the Gaza conflict erupted last October.

The difficulty in identifying the makers of the devices has highlighted how complicated the global electronics supply chain has become.