Friday 17th January 2014

Wind Watch

There’s a lot to be said for keeping things simple. But for industry, that doesn’t always bring in the returns that are needed.

It’s why the global financial services sector offers so much more than just vanilla products and investments. Derivatives, futures and options have all provided the means and opportunity for the banking industry to attract new investors and increase returns.

But as we saw in 2008, it only needs some miscalculation (and the wrong regulatory environment) for the wheels to come off.

With the wind industry still fairly young, we are yet to see a widespread climate of financial innovation.

But there are still some in the sector who have tried. And for German wind farm operator, Prokon, this week, the results of the experiment weren’t looking too rosy.

Prokon, for those not familiar with the firm and its business model, took the decision to provide a number of profit performance certificates that promised investors a return, set at 8%, from their initial investments.

In reality, what happened was that the firm found itself having to pay out on its certificates earlier than anticipated, as investors clamoured to collect the returns they had been promised.

Some of this perhaps lies in the rumoured enthusiasm of the firm to entice investors with heavy marketing campaigns, which reportedly brought in 2 billion Euros.

In the eyes of the law, the firm has done nothing wrong. Profit performance certificates are entirely legal – even though they essentially mean that investors have none of the rights of shareholders, and collectively will have to shoulder the losses of the business.

There are many of course who will consequently say that the investors knew the risks. But that doesn’t exculpate Prokon entirely, as, according to some sources, the firm was warned that the returns it was offering were unrealistic.

Even if Prokon manages to convince its investors to hold off from trying to collect their returns, and consequently pushing the firm into insolvency, there will be many questions asked.

The risk to the wider industry is one of reputation. There are many that try to paint the sector as an enormous scam. Prokon will have done little to convince them otherwise.

Wind Watch

There’s a lot to be said for keeping things simple. But for industry, that doesn’t always bring in the returns that are needed.

It’s why the global financial services sector offers so much more than just vanilla products and investments. Derivatives, futures and options have all provided the means and opportunity for the banking industry to attract new investors and increase returns.

But as we saw in 2008, it only needs some miscalculation (and the wrong regulatory environment) for the wheels to come off.

With the wind industry still fairly young, we are yet to see a widespread climate of financial innovation.

But there are still some in the sector who have tried. And for German wind farm operator, Prokon, this week, the results of the experiment weren’t looking too rosy.

Prokon, for those not familiar with the firm and its business model, took the decision to provide a number of profit performance certificates that promised investors a return, set at 8%, from their initial investments.

In reality, what happened was that the firm found itself having to pay out on its certificates earlier than anticipated, as investors clamoured to collect the returns they had been promised.

Some of this perhaps lies in the rumoured enthusiasm of the firm to entice investors with heavy marketing campaigns, which reportedly brought in 2 billion Euros.

In the eyes of the law, the firm has done nothing wrong. Profit performance certificates are entirely legal – even though they essentially mean that investors have none of the rights of shareholders, and collectively will have to shoulder the losses of the business.

There are many of course who will consequently say that the investors knew the risks. But that doesn’t exculpate Prokon entirely, as, according to some sources, the firm was warned that the returns it was offering were unrealistic.

Even if Prokon manages to convince its investors to hold off from trying to collect their returns, and consequently pushing the firm into insolvency, there will be many questions asked.

The risk to the wider industry is one of reputation. There are many that try to paint the sector as an enormous scam. Prokon will have done little to convince them otherwise.

Wind Watch

There’s a lot to be said for keeping things simple. But for industry, that doesn’t always bring in the returns that are needed.

It’s why the global financial services sector offers so much more than just vanilla products and investments. Derivatives, futures and options have all provided the means and opportunity for the banking industry to attract new investors and increase returns.

But as we saw in 2008, it only needs some miscalculation (and the wrong regulatory environment) for the wheels to come off.

With the wind industry still fairly young, we are yet to see a widespread climate of financial innovation.

But there are still some in the sector who have tried. And for German wind farm operator, Prokon, this week, the results of the experiment weren’t looking too rosy.

Prokon, for those not familiar with the firm and its business model, took the decision to provide a number of profit performance certificates that promised investors a return, set at 8%, from their initial investments.

In reality, what happened was that the firm found itself having to pay out on its certificates earlier than anticipated, as investors clamoured to collect the returns they had been promised.

Some of this perhaps lies in the rumoured enthusiasm of the firm to entice investors with heavy marketing campaigns, which reportedly brought in 2 billion Euros.

In the eyes of the law, the firm has done nothing wrong. Profit performance certificates are entirely legal – even though they essentially mean that investors have none of the rights of shareholders, and collectively will have to shoulder the losses of the business.

There are many of course who will consequently say that the investors knew the risks. But that doesn’t exculpate Prokon entirely, as, according to some sources, the firm was warned that the returns it was offering were unrealistic.

Even if Prokon manages to convince its investors to hold off from trying to collect their returns, and consequently pushing the firm into insolvency, there will be many questions asked.

The risk to the wider industry is one of reputation. There are many that try to paint the sector as an enormous scam. Prokon will have done little to convince them otherwise.