We are often discussing about the future, how we need to shape it, read it, anticipate it. Today, I would like to pay tribute to 2002. I suppose my life changed that year. At this time I was a trader in London, selling and buying currencies from dawn to dusk–and often longer–since the sun in London starts setting at 2:00pm in winter. In 2002, I decided that not only I needed to give a boost to my career, but I also needed to think about my old days, so I chose to join the Executive MBA of the IUM to tick the first box, and to buy an apartment to tick the second one.
Back then, I didn’t know how such a decision would be of paramount importance for my future: these two – very plain – facts would have a tremendous impact on my professional life.
IUM allowed me to land a thrilling position as Global Head of Capital Markets for Société Générale Private Banking in Asia. I was given the responsibility and a relative freedom to develop what was only a project for the Societe Generale. I spent 5 years in Singapore, built a team of 12 international people: our project was a fantastic success despite the 2008 financial crisis we have all heard about and felt.
While in Singapore, I bought a few apartments in France under a “viager” contract. In a nutshell, a “viager” contract allows elderly people to sell their property while keeping the right to use it for the rest of their life. The financial model is also different from a traditional property sale: the seller gets around 30% of the value of the house upfront and tax-free, then a lifetime annuity. This goes with a legal protection which entitles the seller to get the property back in case the buyer doesn’t pay the annuity. The buyer faces several risks, on top of not being able to use the property. To compensate such risks, the sum of all expenses over the residual expected life of the seller allows an estimated 50% discount on the regular property price.
So, on one hand I was buying properties in “viager” from motivated sellers, and on the other hand, I was on the phone with fellow investors who were losing sleep, spending day and night in communication with their banks to limit their loss in the financial crisis. So I thought there was room for an investment tool which would have a very low risk profile, a very low volatility, which was transparent, simple and understandable: the opposite of a black box. Then I just had to connect the dots: if you buy one apartment in “viager”, you may have – as an investor – to carry it for a long period of time. What if you buy 500 of them? Your longevity risk is mutualized, then you can extract the risk premium as your constructed portfolio is able to average out, and therefore reduce such risk.
The idea of Fundageo was born. An investment for people who want to protect their wealth, a tool to mitigate other riskier investments, an exposure on real estate acquired at half the price.
Today we are advising key institutional investors such as Caisse des Depots in France, and we are working on a growing sector – more and more people sell their property in “viager” to increase their purchasing power.
In other terms, we managed to find a balancing point between the expectations of investors and the needs of an ageing population, and being efficient while being useful is probably what our team is the most proud of.
2002, the Year of the Horse in the Chinese Calendar, was a key year for me. And guess what? The Horse is coming back in a few months, I can’t wait!
I wish you all a thrilling 2014 !
Written by Jean-Christophe Lega, EMBA’05, Managing Director FUNDAGEO
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