AssetBacked Finance for Risk Managementt

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Asset-Backed Finance for Risk Managementt
David Korowicz Feasta Comhar Workshop on
Financing the Green New Deal Friday 17th July,
2009
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Why Risk Management?
Humans are not good at it! Our views of the
future are shaped by the past Tendency to the
status quo confirmation bias, anchoring..... Hig
h cost for defection
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Because we face imminent systemic risks that
are not being accounted for.
Why Risk Management?
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The reason is our Energy Supply
Growth complexity of global economy is
dependent upon increasing energy flows
(EIA data)?
Our societies, culture, institutions,
infrastructure, food production, financial
system, economic system, and monetary system are
dependent upon such increasing flows We have
become habituated to such dependencies
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Peak oil and soon peak energy
US Peak 1970
UK Peak 1999
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When?
(Source ASPO)?
Risk F( probability x consequence)?
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Consequences
Economy cannot grow, 'contraction' Collapse in
debt market Collapse in monetary
system Collapse in financial system Supply-chain
fragmentation / collapse Dis-economies of
scale Infrastructure degradation Opaque
money Peak Food Stochastic uncertainty
Which are interacting and mostly re-inforcing
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Decline is a re-inforcing (positive) feedback on
decline Decline undermines the tools,
resources, and infrastructure needed to adapt to,
or mitigate decline
Clarification
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We are, with high probability, not coming out of
this recession, ever A massive loss due on paper
assets, a dearth of real, robust productive
assets First mover gets advantage, second gets
crumbs Assets based upon real bedrock production
likely to hold relative value Units of energy/
food more secure than money The issue is not
what makes sense financially now, but
what residual value will be left in your
portfolio in 5, 10 years time It's a good
infrastructure market now, compromised by lack
of credit, low profitibility, low and volatile
energy prices.
What this means for investors
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Asset-Backed Finance
Def An asset-backed security is a security
whose value and income payments are derived
derived from and collateralised by an underlying
asset. Legal Structure Limited Liability
Partnership Examples OpenHydro,
Scotland Hilton Hotels, 350m, 27 year deal AIM
listed Numerica
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Asset-Backed Finance
From derived assets to real assets Energy, food
primary
Users
Securitised output
Use
Payment
Custodian
Assets
Investors
Staff
Stakeholders
New form of equity a) Equity Units (Kwh, of
land output)? b)Units can be traded
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Conclusion We are not in a crises, we are at
the edge of one. It must be risk-managed Asset-b
acked finance is a way to manage such risks But
the window is closing
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Thank you
David Korowicz 14 St Stephens Green, Dublin
2. Email dkorowicz_at_yahoo.com Tel 00353(0)85
7356636