Applying Financial Forensics to Non-Performing Assets at Heart of New Initiative
FMO has students reassessing its terminated investment projects within its portfolio, to identify if small remaining pockets of value can still be recovered, despite sometimes being written off the balance sheet decades ago. The proceeds will be used to fund the establishment of the FMO L-EARN For Impact Foundation. This Foundation intend to support the education of the next generation of impact investors, the bank’s recently appointed CEO said at the programme’s launch in The Hague on Tuesday.
FMO has almost 50 years of experience of investing in economic growth, job creation and climate action in developing markets. Despite a strong trackrecord in successful investments, in some occasions, investments do not proceed as planned and become a non-performing loan. These investments are transferred to FMO’s Special Operations department, where most loans go back to ‘performing’ status again after a certain amount of time and support. Only a very small percentage of FMO’s non-performing loans ends up as a write-off. Sometimes an unusual and unexpected situation occurs where a written-off investment is still able to successfully turn-around despite suffering heavy losses in the past and being unable to fulfil its financial obligations. This ‘hidden value’ found after reassessment of the portfolio is now used to fund the establishment of the FMO L-EARN For Impact Foundation.
Peter van Mierlo, FMO’s CEO, said: “Impact investing can be used to target solutions for the greatest challenges of our age such as climate change and reducing inequality, and it lies at the heart of FMO’s lending and investment business in developing countries. By mining FMO’s portfolio of written-off financial assets and also giving students the work experience of handling this process, we can recycle previously hidden pockets of value directly into human talent through the L-EARN For Impact Foundation.”
The concept of investing to achieve positive environmental and social outcomes alongside financial returns is relatively new. The global financial industry needs to support the education of the next generation of bankers and investment managers in impact investing to embed the approach at the core of these institutions. Impact investing would then become a natural consideration in every aspect of the work of the financial leaders of the future.
FMO intends that the L-EARN For Impact Foundation will develop to a sufficient scale to be able to fund scholarships in impact investing-related subjects for promising low-income young people from conflict zones, developing countries and deprived backgrounds in the Netherlands. The Foundation ultimately hopes to gain accreditation for its programme within degrees awarded by Erasmus University in Rotterdam - the business school providing the initial students for the L-EARN programme.
Huub Cornelissen, Director of Credit, Legal and Special Operations at FMO, the business line responsible for reviewing non-performing asset cases at the bank, sits on the management board of L-EARN, together with Gerard Meijer, a partner heading the Arbitration Practice of Dutch law firm NautaDutilh, which is supporting the educational initiative. Gerard Meijer is also Professor of Arbitration & Dispute Resolution at Erasmus University.
Professor Gerard Meijer of NautaDutilh and Erasmus University, said: “For my students and those of the Erasmus School of Law, this is a great opportunity to get hands-on experience and delve into the financial and legal details of the fascinating range of international projects FMO has been involved with over the years. The aim is to recover funds that will educate many more students from around the world.”
During the last couple of months, some students already explored parts of the portfolio of impaired assets earmarked by FMO for the L-EARN For Impact Foundation. The expected proceeds of these recovered assets will be used to fund L-EARN scolarships.
Adam Paschalidis, a student from Erasmus University and one of the first portfolio explorers, said: “My time with FMO has been a real life experience in financial forensics and getting to understand the legal and business constraints the bank has to operate within when it is trying to recover funds in sometimes very old cases. It has been much more interesting than standard work experience, because I feel I’m really making a difference in those areas such as sustainability and development finance that are key to the world the students of today will have to live in in the future.”
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