The Growing Importance of Transparency in Capital Growth Investments

Success in capital growth investments can’t be achieved without transparency.

Scandals and fraud in financial markets and alternative investments undeniably happen. But transparent companies with smart strategies still achieve capital growth.

Institutional and private investors, including endowments of major universities, have been piqued of late because of their land investments in Africa. Many of these investments as “land grabs” according to Oxfam, the nongovernmental organization that works on global food issues. Land grabs occur when developing nations trade land for cash with buyers from Europe, the US and Asia. Private companies purchase huge swaths of agricultural property, then convert it to uses that do not benefit local populations – for example, when food crops are converted to biofuel crops.

Oxfam’s advocacy chief, Max Lawson, told The Telegraph, “We want higher standards to govern these investments to ensure that the deals are transparent and that the people on the land can give their free, prior and informed consent.” The matter is slated for the G8 group of nations meeting in 2013.

Indeed, it’s transparency that investors want as well. Individuals and institutions often wish to put their money where their conscience is, but the distance between financiers and the investment is often considerable. Agents of the investment serve as information intermediaries, therefore trust needs to be built between investors and fund managers, for example.

Another reason why transparency is top-of-mind with investors comes in the wake of scandals such as Bernie Madoff in the States, the opaque worlds of derivatives, Parmalat, Barings Bank, BRE-X and BCCI. Simply put, trust left the room but skepticism stuck around. Investors should demand to know how their money is working to make sure it fits their moral sensibilities and meets their financial objectives.

More and more, the need for transparency is becoming part of the financial services culture. One firm trading in traditional securities, Schroder UK Growth Fund, invests in what it considers “quality” UK companies. The definition they provide for quality is in three parts:

• A strong product or service

• Companies with credible management

• A sound and transparent business strategy

The emphasis on each of these, especially the importance of credible management and transparency, should be the guiding light for all investors in all types of instruments.

As a Christmas present to the world on December 24, 2012 – unexpected and perhaps not entirely appreciated – none other than Bernie Madoff wrote a letter to the American financial news station CNBC. He said the types of scandals seen in the past few years, including his own, are nothing new. The notion that insider trading is a recent phenomenon is “false,” he says. “It has been present in the market forever, but rarely been prosecuted.” In other words, someone is deciding not to share information with those on the losing side of insider trading. That’s not very transparent.

Land investments experience a bifurcated perception: Good capital growth can be achieved in well-managed, transparent strategic land investments. Yet highly publicized, fraudulent enterprises that target less sophisticated investors – often through telephone solicitations – create a much different impression. One ruse is the sale of property in far off lands: it usually exists, but offers no economic value (e.g., land located on steep hillsides).

Individuals and institutions find legitimate land investment a smart alternative to market traded securities. In anticipation of a strong housing surge – to meet a shortage in the face of a growing UK population – undeveloped property is being purchased for planning redesignations (rezoning). The price of entry in a land capital growth fund ranges between £10,000 and £25,000 investment.

Instead of offers to buy land in Turkey or Belize or Morocco, investors are advised to look for properties in the South and East of England, where population growth is strong.

Any kind of alternative investment requires close study. For a full analysis of risk, as well to learn how certain investments fit within your portfolio, speak with a personal financial advisor.

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