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Solutions
 

SOLUTIONS

The following briefly show examples of unique solutions designed by GRAVITAS to address individual client's situations.

Note: Any performance quoted or implied represents past performance and should not be viewed as a representation of future investment performance. The information here is not intended as a solicitation for investment.

Liquidity and Solvency for Regional Commercial Banks

Issue: A regional multilateral organization concerned with the liquidity and solvency of commercial banks in the region wanted to find a solution that would provide liquidity to the problem-banks and find a mechanism that would strengthen bank balance sheets and public confidence in them - thereby averting a run on banks. This crisis situation stemmed from the global financial crisis. The solution had to take into account divergent sovereign needs and bank governance problems that had led to the situation the banks currently faced.

Solution: GRAVITAS recommended the creation of a Special Purpose Vehicle (SPV) that would issue 10 year bonds backed by multilateral and sovereign guarantees. The capital raised would be used to provide liquidity to each problematic bank. The banks would exchange illiquid assets (Government bonds issued by the sovereigns over the past 5 years that had remained illiquid) for liquidity. To determine the exchange ratio - GRAVITAS suggested the creation of a synthetic yield curve that would be used to price the bond repurchase agreements for the illiquid bonds which would be exchanged for liquidity. In addition, the SPV, managed under the aegis of the multilateral organization and related entities, would provide Tier 1 capital to the banks in exchange for preferred equity and mandatory changes in governance. To achieve this the client would need to bring in the International Finance Corporation (IFC) to help structure the transaction, restructure oversight and good management at the troubled banks. Over time, the bonds held as liquidity collateral would be reverted back to the banks at a ratio favorable to the SPV, and the preferred equity would be liquidated, in an orderly fashion, at a profit.

Through creative structuring GRAVITAS proposed an elegant solution to its client that offered to avert a regional financial crisis, reintroduce best practices and realign incentives - while making the solution budget-neutral to its client.

For more information, contact us.

Biodiversity Conservation as a source of Job Creation

Issue: A global client wanted to create an investment mechanism that would enable it to make a one-time investment to protect biodiversity conservation in one of the conservation “hot spots”. The problem was twofold: firstly, maintaining the corpus of the investment ad infinitum while generating sufficient capital to finance conservation work and the creation of related new jobs and secondly, making sure local content is used while abiding by best practices.

Solution: GRAVITAS designed a locally registered conservation Trust Fund. As a means of providing transparency, the selected trustees were local, respected and knowledgeable in financial best practices. Using an endowment approach to trust fund management, all returns above inflation were disbursed into conservation projects. Capital preservation mechanisms were put in place to preserve the corpus of the fund ad infinitum. GRAVITAS designed a multi-fund, multi-strategy investment program that used local fund managers with public oversight. Results of the trust fund would be published in the local newspapers on a regular basis.

Through creative structuring GRAVITAS met the client’s specific requirements and achieved local financial objectives, as well.

For more information, contact us.

Risk Control, Positive Returns through Tailored Benchmarking

Issue: A central bank client wanted to create an investment benchmark which it would use to build in-house staff investment management capability. The client's return objectives were to generate consistent predictable returns.

Solution: GRAVITAS took stock of the client’s risk/return objectives and designed an investible benchmark portfolio with a calibrated risk profile. The key feature of the benchmark portfolio was that it was statistically calibrated to have a zero probability of generating negative returns in any rolling 12 month period. Furthermore, to facilitate the transition from benchmark replication to full blown portfolio management, GRAVITAS designed a risk-taking framework with oversight from the newly established Investment Committee. Moreover, GRAVITAS designed and installed a software program, the Benchmark Maintenance System �, to help the client easily replicate the tailored benchmark portfolio. Lastly, the firm designed and executed an in-house training program that involved setting up and using Bloomberg.

By understanding the client’s intrinsic objectives GRAVITAS was able to lead them to innovative solutions and the creation of new software.

For more information, contact us.

Securing Profitability via effective Liquidity Management

Issue: A commercial bank client was seeking a more efficient way to manage its asset-liability ratios. With growing liquidity and few investment options, the bank wanted to maintain high liquidity while meeting benchmark returns in order to remain in the black.

Solution: GRAVITAS developed an innovative liquidity management framework that facilitated the identification of excess liquidity and enabled the bank to more efficiently generate returns while meeting its liquidity and regulatory ratios. GRAVITAS furthermore developed a multi-strategy solution that increased the probability of consistently generating sufficient returns to meet financial hurdles. Moreover, the firm proposed and created a new set of financial products which the bank could sell to its retail clients.

GRAVITAS' solutions and products provided a profitable liquidity management framework and helped the client to reposition itself.

For more information, contact us.

Microfinance Guarantee Fund to spur SME lending

Issue: A multilateral organization was seeking to spur employment and regional growth by creating appropriate incentives for private banks to lend more to Small and Medium-sized Enterprises. However, the organization possessed limited resources and realized that a one time capital allocation to the project would not be sufficient. At issue was whether a mechanism could be developed to leverage the sponsor’s capital allocation ad infinitum.

Solution: GRAVITAS recommended the set up of a Fund that would manage the one time capital injection under predetermined guidelines that would permit the generation of annual returns at least equal to the annual default rate of SME loans in the region. The Fund would insure all loans made by local banks under strict guidelines, to prevent lax credit standards. The size of the guarantee would be directly proportional to the excess cumulative returns generated by the Fund. Therefore, the client could grow the insurance program as cumulative returns are generated annually.

The implications of this simple tool judiciously applied are significant in terms of credit availability and job growth. This is one way GRAVITAS adds value through in-depth understanding of client circumstance and innovative application of financial tools.

For more information, contact us

 


GRAVITAS Capital Advisors

WASHINGTON, DC OFFICE:

601 Pennsylvania Ave. NW, Suite 900 South
Washington DC 20004
Tel: (202) 434-8341    

Fax: (202) 234-6344

LONDON OFFICE:

Berkeley Square House, 2nd Floor, Berkeley Square, Mayfair
London W1J 6BD United Kingdom
Tel: +44 (0) 207 887-1940  

Fax: +44 (0) 207 887-6001

Copyright 2005 GRAVITAS Capital Advisors