Commodity Derivatives in a Rapidly Changing World

I just got invited to speak at another conference. This one is about commodities and will be held in April next year. The organiser is Marcus Evans.

My topic will be something along these lines - "The Global Regulatory Landscape: Developments for OTC Commodity Derivatives".

I'll be speaking on recent developments in the U.S., and then I will move on to talk about Europe. Finally I'll wrap up by discussing a few countries in the Asia-Pacific region.

I will probably have just one hour to cover all that. So the talk is going to be quite "big picture" and "high-level".

I used to do a lot of legal work relating specifically to commodities - oil, gold, sugar, steel and coal, for instance - but I haven't done much of it in the past year. However, I have been doing plenty of work relating to the G20 commitments made in September 2009.

The G20 commitments aim to revamp the derivatives industry worldwide. To a greater or lesser extent, they will affect all classes of derivatives, including commodity derivatives. And for the purposes of my April conference, the commodities angle is what I'll be focusing on.

From a career perspective, many people in the derivatives industry are worried about the G20 commitments. Potentially, the changes might greatly benefit the exchanges (such as SGX). But they will hurt many bank employees currently working in derivatives-related jobs. I predict that many of those jobs will eventually disappear, perhaps by as soon as the end of 2012.

As for myself, well, I too am a bank employee working in a derivatives-related job. So I think that I am at some risk too. But for at least the next two years, I should be okay. That's because with a little luck and strategising, I've managed to position myself as an expert on the legal issues arising out of the G20 commitments. In other words, I'm still needed to guide and advise my employer - on those very same developments that will eliminate many other people's jobs.

In fact, because the legal developments from the G20 committee are so new and complex, there are still relatively few lawyers who know them well. That's why I even get invited to be a conference speaker on such topics.

What Shall I Do With This Blog?

I really don't know. I do know that I am not interested in blogging about social issues and political stuff anymore. On the other hand, I'm also not the kind of person who will blog freely about my private life, for anyone in the world to see.

I could blog about my various interests. On the other hand, I have many varied interests, more than most other people. Over time, this blog could grow rather incoherent and messy, just because my interests are so varied.
Then again, since I am not aiming to make a living from Google Adsense, do I care if my blog grows incoherent and messy? Probably not.

I thought I might use this blog as a platform for my creative writing. Some draft poems, some excerpts from draft short stories and so on. The first problem is that I don't do much creative writing anymore. The second problem is that I have to get used to the idea of putting draft work out into the world. Most writers don't like to show their raw, unfinished pieces to the world.

One possibility I am considering is writing reviews about the books I read. "Reviews" may be an overstatement - I don't want to write real, heavy-duty reviews - it's more just like sharing some observations and thoughts and excerpts about any interesting books that I come across.

Mmmmm, with a bit of work, that might get me to the point where publishers send me free books, to entice me to give them some publicity. Done some of that in the past, but I didn't quite sustain it long enough to get that many free books. I did get a couple though, hahaa.

Investing in Death

One year ago, I engaged a financial adviser. We had a review of my portfolio this week. The portfolio has done well. I made about 8% over one year, which is very good, considering how disastrous the year 2011 has generally been, for stock markets around the world.

This performance has been possible, because a good part of my portfolio was not in the traditional sort of equity funds. In fact, a good part of the portfolio was not in equities at all. The advantage of being an accredited investor is that I get to invest in more esoteric instruments that may not be accessible for ordinary retail investors.

Of course, this doesn't mean that esoteric instruments always make money. They can lose money too. However, they do significantly broaden your diversification options.

My financial advisor is now recommending that I consider a life settlement fund. I already know about these. I've never invested in these before, but I've read about them. In principle, they make sense to me. However, they have been the subject of some controversy in the US (which is also the only major market for such investments). How do they work?

A life settlement fund invests in life insurance policies. Where do they get these policies? They buy them from the policyholders. Who are these policyholders? Typically, they are people with a low life expectancy. They could be very old, or they could be suffering from some terminal illness such as AIDS or cancer.

So let's say you have a life insurance policy that promises to pay $1,000,000 when you die. And you happen to be very ill. You can't get the money while you're alive. And the money will be useless to you, when you die. You would rather have the money now, which you can immediately use either for your medical treatment, or just to enjoy what's left of your life.

In that case, the life settlement fund could buy the policy from you for, say, $800,000 (I have no idea what the typical pricing is like - I'm just using the $800,000 figure as an example). You get $800,000, to spend as you please. Two years later, you die.

The life settlement fund then gets to collect $1,000,000 from the insurance company. So essentially, over a two-year period, the life settlement fund has made a $200,000 profit, out of its $800,000 investment (less the premiums that the fund paid over that period).

This is the kind of investment that a life settlement fund makes. Of course, it does not just invest in one or two policies. Instead it invests in large numbers of life policies.

It's rather morbid. The faster these people die, the more money the life settlement fund makes. Conversely, the longer these people live (and who knows, a few people may even manage to recover from their supposedly terminal illness), the less profitable the fund will be. A "good" investment is someone who is very ill, has high chances of dying soon and owns a policy with a large payout.

For the investor, what are the advantages of investing in a life settlement fund? Well, it is excellent for diversification purposes. There is very little correlation to equity markets, or bond markets, or commodities, or other more-traditional classes of financial investments. Thus your investment could continue generating good returns, even if stock markets collapse badly.

The way they did, this year.

The Children's Poem

So I did write that poem for the Straits Times (they wanted a children's poem). I still don't know whether they will select it, but chances should be reasonably good.

The Straits Times is increasing its fee to $300. This is for wider copyrights to the poem. They want permanent copyright to the poem, which means that they can use it as many times they like and they can publish it in other SPH publications too.

Oh well, whatever. I'll take the $300.

It was an enjoyable experience - writing a poem for kids. I wrote one that had plenty of action, drama and sound effects. It would be fun for kids to read and act it out in a kindergarten class. My poem is entitled "The Monsters Under My Bed". I would like to reproduce it here on this blog, but I think I'm not supposed to.

Anyway, I tested it out on my kids and the response was good. My son kept laughing out, as he read it, which meant I achieved the desired effect (it's supposed to be a humorous poem).