GFF Podcast
The Global Funding and Financing (GFF) podcast is Clearstream’s podcast series for the funding and financing industry, releasing monthly episodes with senior leaders in the space of secured finance covering all major topics shaping the world of collateral, securities lending, repo and OTC derivates leading up to the 2022 edition of the GFF Summit in Luxembourg. Stay connected with the GFF community across the globe and subscribe to our show. Each of the 30 minutes of lively episodes are hosted by Andrew Keith Walker, Finance and Tech Journalist and Christian Rossler, Senior VP, Securities Lending and Borrowing Products at Clearstream. Legal Information here - https://www.clearstream.com/clearstream-en/imprint-1277756
GFF Podcast
Fostering New African Repo Markets with David Escoffier & the COP26 Liquidity and Sustainability Facility
David discusses the mechanics of the LSF's plans to build a $20Bn plus repo market within 5 years, and James discusses the role that Clearstream's Triparty Repo solutions can play in these new Eurobond-backed repo markets - plus we consider the vital role of the private sector, Sovereign Wealth Funds and large financial counterparties to reaching Africa's climate goals and net-zero targets.
Plus we have a little time to celebrate Bastille Day and discuss our holiday plans before the August break.
Welcome back to the GFF podcast for a very special show. This month we're here with David Escoffier, who is the CEO of the LSF Secretariat. We'll be coming to David soon to talk all about a very exciting new development developing secondary markets for repo in Africa. But before we get to that, we need to do our regular catch up with my co-host, a man who needs no introduction Senior Vice President for Central Banks and Sovereign Wealth Business Development at Collateral Liquidity and Lending Solutions at Clearstream. That is a long job title for a man who should just be known as everybody's BFF of GFF. It is, of course, Mr Christian Rosler. Christian, welcome back.
Christian Rossler:Well, I'm lost in all those acronyms Hi, andrew.
Andrew Keith Walker:You have a long job title, christian, because you're an important man. We know this. I'm going to say the most important job is the fact that you're the co-host of the GFF podcast. There you go, you, me and, of course, penny, the podcasting dog, who misses you. You have to come back and do a live show again in the studio, like we did with episode one back a couple of months ago. Also joining us, of course, this week is James Cherry, who is the global head of business development at Collateral Liquidity and Lending Solutions.
Andrew Keith Walker:We're going to be talking about a really interesting show. We're in another continent, isn't that right, christian? We started in Europe, we were in Canada last month and now we move to Africa. It is a hot topic this week, quite literally, obviously, because we've just had the hottest week on record, confirmed by the United Nations. This is a hot topic for you, isn't it? Because, as our central bank and sovereign wealth fund expert, this is a great opportunity to turn that spotlight onto sovereign wealth funds and their relationship with very high quality counterparties within their various areas, the pivotal role that they're all playing now in greening finance and affecting change in high priority climate change destinations like Africa, asia and Latin America. Christian, you were just over in Washington and meeting with the Fed and also meeting with the IMF in New York about climate change issues and about green finance. I'm going to hand this over to you. Tell us more about this week's show and why it's so important.
Christian Rossler:Well, it's really spot on this week, I think. To come back to the global aspect, I think I look at my screensaver here and I see still the picture where David was together with other representatives at the GFF Summit in February this year on the global debate on Net Zero. That leads also to the topic of today. I think Net Zero was actually defined by the network for greening the financial system, which is the central banks, in 2017. It was actually People, bank of China, bong De Fonse and Bank of England that started this. So, by 250, they would like to see Net Zero.
Christian Rossler:That means that reaching global carbon net zero will stop the process of the global warming of the planet.
Christian Rossler:Now, in order to get there, we need climate finance, and so we need two things climate adaptation for those countries that suffer from climate change and climate mitigation for those countries that actually produce the climate change. And so the main issue for Africa and David will most probably lead us through that is adaptation more than mitigation. Africa has a lot of issues, I think, linked to food, water and health, with a growing population. You know, demographically speaking, it's the growing part of the world. Now there's a global effort to reach the United Nations Sustainable Development Goals, also known as SDGS, and today, I think, the global bond market represents something like 127 trillion of dollars, and only a portion, a really small portion, of that is in green, social and sustainability bonds, and Sub-Saharan Africa represents only 0.7% of that small portion. So we talk about investors' appetite for sustainable investment opportunities, and therefore organizations like the LSF have an important role to play, and I'm really, really delighted to have David on the show today.
Andrew Keith Walker:Indeed. Well, I think it's time actually for us to turn to David and introduce him to our audience. He probably needs no introduction to most of our listeners. But, david, and bear with me here because I'm going to just give a little brief CV for you here, because it's a pretty stellar record.
Andrew Keith Walker:You were born in Africa. You're French, but you were born in Africa. You started in the 90s with credit Lyonnais and then with Sok Gen. Working in the 90s, you moved on to become the global CEO of New Edge, financing and clearing projects across over 70 global markets. You've held senior positions within industry bodies like the GFMA and the FIA, the finance one sadly not the Formula One but also as a partner in 18th capital. You're now working with the UN Economic Commission for Africa and now, of course, you're the CEO of the LSF Secretariat, and that's, if you don't know, that's the liquidity and sustainability facility which was established at COP26. Now the question I've got for you after all of that is you started out very much on the commercial side and now you are a big part of public policy and global climate change policy. So what made you swap Wall Street and the city for the UN and a much more global green outlook?
David Escoffier:So, first of all, good morning everybody. It's great to be here. Hi, christian, long time no see. Good to meet you, andrew and the gems. Actually, you are in my office not so long ago, so you're no stranger. I'm very happy to be here.
David Escoffier:Just before we're replaying to your very interesting question, of course, andrew, I just want to go back to what the question was saying. You know, about the greening of the economy and the greening of the finance, because the LSF was precisely set up for two missions One is to help lower the burden of financing costs of African governments, and we go back to that. But the second one was specifically to promote and to help promote green finance in Africa. And today, if we look at the GSS issuances, it's not only that Africa is less than 0.7 percent of the new issues, it's that Europe is 71 percent of the new issuances. So it shows that currently, for emerging market, there is a total lack of support for investors to focus and to be able to invest much more into the transition, the green transition of the economies. So, you know, I think it's important that we see that there are public initiatives that have been developed to tackle that, and that's where I can maybe answer your question. And how did they get there?
David Escoffier:First of all, I've been blessed. There is a very long career in finance, as you mentioned, from Wall Street to the city, you know, via Paris also, and as global head of large institutions, have been able to travel the world and to take care of many different types of clients. I was always on the commercial side, as you mentioned, because you know I love discussing with clients about projects, structuring, finding solutions, et cetera. After a long career, I was able to basically recoup and see where I could use these expertise, community leaders, those connections, those great contacts that I have and this knowledge in finance to maybe try to have my two sons stopped, you know, making fun of me being a banker with a W then and being more, you know, someone who is part of the solution. So, you know, I'm very, very happy to be where I am.
David Escoffier:I've been blessed with a great partnership with the United Nations and we have done a stellar job at, you know, creating all this. But along the way, you know, I met great people and I want to mention two of our directors First of all, our chairwoman, dr Vera Sangui, who was also the Secretary General of the UNECC and secondly, president Benedict Orama, who's the president of the Affracking Bank. Affracking Bank has been our main support, you know, from the start, together with the United Nations, so it shows that it only takes a few good people to be able to do things. But, last but not least, I will then let you go back to your questions.
David Escoffier:It's a lot of effort to move anything in our world, and Christian and James know that, because what we do is very technical. We need to be at the top of our game, but it's the same with all the other processes within financial institutions. It takes time, and the NSF was created at COP26. We did our first transaction at COP27, a hundred billion dollar repo based on four different Euro bonds from Africa. We are working on number two and number three right now and onboarding clients left and right. But it's a lot of effort, it's a lot of time and we are very, very thankful for the support that we are getting from all our partners, including, of course, kerstram and the Schaburster Group.
Andrew Keith Walker:Well, this is for us, I think, a really interesting step, because we have had a few shows over the last three years where we've talked about primary markets and the principles of issuance of different colours of bond, different flavours of bond. Of course, we'll remember us talking to Jean-Marie Mass about sustainability, link bonds and, of course, with Sean Kidney about blue bonds and the Climate Bond Initiative. We've talked a lot about ESG, of course, with different partners from the World Wildlife Fund and from ISS ESG, but we haven't talked so much about secondary markets and actually how you build the infrastructure to support a thriving bond market and also support those commercial functions that need to happen beneath it to make this commercially viable. So I want to ask you more about that.
Andrew Keith Walker:Your current focus at LSF is creating secondary markets, repo markets, within Africa, and this is an interesting sort of chance to get into the hands-on mechanisms that will deliver the headline goals. So, as an African-led solution, the LSF has got a dual mission to reduce borrowing costs for African sovereigns and increase the private capital investments in Africa, increase global flows of capital into the right places to hit net zero goals and what have you? I'm guessing that's a lot more complex than I've just made it sound. There's probably more steps to it than that, so tell us about it. What is the fundamental business model that you're pursuing there?
David Escoffier:So, first of all, when I hear you describing the business model, I think it's complex already, so I'm not sure that it's here for everybody, so it's important that we label the point. Let's go back to why the NSF was created and then I think it's going to be more logical for the audience. The NSF really was initiated by a discussion between the doctor Sanguwe, then Secretary General of ECA at the UN, and the CIO at PIMCO, scott Barre, basically as CIO. What Scott was telling Dr Sanguwe is that if his investment in African fixed income so in African sovereign euro bonds were more liquid, he would double or triple or quadruple the size. As simple as that, and it did resonate with Dr Sanguwe, and that's where basically the whole discussion started.
David Escoffier:And then, of course, experts came in to actually precise what is liquidity, and one of the most important tenets of liquidity is the ability to refinance your position, and that's why we have repo markets. Another way to understand why repo markets are so key is maybe we can quote the BIS, the International Bank for Settlement. After the big financial crisis issued many, many reports, but one of which is just explaining that we start functioning repo markets, basically financial markets, equilibrium at stake, but I think that the best example that we can find is the Federal Reserve of New York two years ago, who created two standing repo facilities In order to support the liquidity of the what is already the most liquid market in the world, the T-Bond market. So if you think that a central bank like one for the US deem important to support the bond market by creating repo facilities which allow for better pricing of the T-Bonds and of the government bonds, you can imagine the impact it can have for emerging market.
David Escoffier:And what we have in emerging markets, especially in Africa, is cost of borrowing that has historically been always very high, much higher than similarly rated countries from other regions, and academic studies put this African premium around 290 basis point average, which is quite significant.
David Escoffier:The LSF estimate that we did at the time with PIMCO shows over five years, that we could reduce the financing cost for African government by $11 billion. Just once the LSF is up and running, we see efficient funding. So the stakes are high, and that's by compressing this 290 basis point premium. The thing is that since then that was three years ago since then, what we have had is what your friends journalists, friends love to call the pony crisis. I'm not sure that it's like the concept, but basically many very different meaning of big crisis, from geopolitical to financial and, of course, communities, which means that today, african governments are actually borrowing at extremely, extremely elevated rates, but the main reason behind it actually now is the tapering done by central banks in the developed world to tackle this massive inflation that we have been facing. So lots of challenges, but all those challenges end up with the same issue, which is a very, very large and hefty financing cost bill for African governments, just at the wrong time, of course.
Andrew Keith Walker:And on that, fran, just as a follow up there, one of our earliest shows actually talking about Clistream's ASL products with Alexander Roque, who runs the securities lending desk in London. He was saying back then the challenge was there was a compression of spreads between different bonds across Europe and actually that was making the securities lending business that much harder. Now it feels like the reverse is here, that actually spreads are widening again and there's a lot of money in the system. We have these issues of excess liquidity. So are these things really negative factors for trying to develop the repo markets in Africa as well?
David Escoffier:So what's interesting where I sit today and that's where it's different from what I used to do is what we're creating with the LSF is a public good institution.
David Escoffier:So this initiative basically works. Whether the markets are tight, whether the spread in equity finance are in, the repo markets are large, a lot, volatile a lot, I mean we don't really care at the LSF. What we care about is just to be able to provide stable funding for investors in Africa, to make sure that the markets are functioning all the time, and that's why, also, it's a very relaxed conversation now with all my partners, because we are not competing, and actually I was extremely pleased by the reception, of course, from people like Kirsten. We work also with back of New York as big partners, but even more by Wall Street and the city Banks. Get it commercial banks. They do understand that by supporting the LSF, basically they are pricing at market, so they are not losing any opportunities from other potential trades they could do, but at the same time they are helping Africa. They are helping focusing investors in Africa, and so it's, for once, true win-win in finance.
Andrew Keith Walker:Well, this seems like the perfect time to bring on a man who is known for his goodwill in finance, of course, james Cherry, james Frederick Cherry, I hasten to add in case you get confused. There was a pop star, james Cherry, as well, that I found on Google, by the way, when I was looking for your LinkedIn profile earlier. James and I'm going to say now obviously, james, as you know, an old friend of the show, has been with us many times is the global head of business development for collateral liquidity and lending solutions, and this feels like the perfect time to bring you into the conversation because, of course, you are part of an organization that provides market infrastructure, that operates CSDs, icsds. It's not purely a commercial entity. It plays a role really at the heart of European movement, of collateral movements and repo. You are, of course, as well with a suite of products like GC pooling, like Oscar and a triparty repo and all sorts of interesting developments like that.
Andrew Keith Walker:Now, we've always talked in our last show I remember we talked about repo being the Swiss Army knife of liquidity and risk management unless, of course, you're in Switzerland, in which case it's just an Army knife. Tell us about Clearstream's role here. You're making Eurobonds a greater part of the African repo market. With your tools, with the flexibility you can offer, tell us more about what Clearstream can do with the LSF.
James Cherry:Thanks, andrew, it's great to be back as well.
James Cherry:Maybe I'll split that into three. So Feaststream's role in making Euro bonds a greater part of the African repo market, euro bonds themselves I think it's probably important to say a few things on and the role of repo as a product, but actually I'd like to start by picking up on something that David said, because it's a comment that I think probably resonates with a lot of us bankers, and it's important sometimes to remind ourselves of the benefits that us much maligned bankers actually do bring to humanity, and I think bank abating as a sport has grown immeasurably in popularity since the financial crisis and, in many respects, justifiably so. So I probably couldn't argue with David's son on a lot of the points that he may make towards me and us as a breed. However, we should take some time to remember the multitude of benefits that capital markets do deliver to humanity, and efficient capital markets are one of the most powerful drivers of economic growth and wealth creation, and capital markets obviously have a really important role to play in lifting billions of people globally out of poverty, and this is something that Feaststream actually is a part of post trade infrastructure is really proud of. So Feaststream for those of us who are familiar with our business models, certainly on the post trade space, we offer plumbing to capital markets and we see ourselves as having an absolutely crucial role to play in helping to build and manage the pipes that allow for capital to be directed across the globes from investors seeking return Fundamentally, that's what investors do to those emerging economies that are in need of capital, and this capital is, in turn, used to support the vital development of infrastructure products and, like I say, to lift billions of people around the globe out of poverty. I think sometimes, the bank of bashing aside, sometimes post trade can be regarded as a particularly unsexy corner of capital markets, but actually we at Feaststream are pretty proud of the work that we do in helping to direct capital around the globe and we are incredibly proud of our partnership with the LSF, and I think this is a really great example, actually this conversation that we're having today of you know finance as a force for good.
James Cherry:Euro bonds probably important to mention. So Euro bonds themselves, as an asset class, are hugely important and they have become a really important component of an issuer's financing toolkit. Particularly, euro bonds provide a means of international diversification for investors and not only offer attractive risk return trade off, but also a level of liquidity and transparency that some smaller, more fragmented domestic markets aren't able to offer. So, essentially, the Euro bond market can bring emerging market sovereigns access to a broader range, a broader investor base, and make it easier for them to manage their debt portfolios in a more flexible fashion. So the Euro bond market as a whole is a really important channel again for debt capital flows to and from emerging and developing markets. So I think it's really great that Euro bonds are playing such a central role and the opportunity that Euro bonds as an asset class have to really drive initiatives like these forwards is really important. Euro bonds offer essentially a more homogeneous market, one in which the patchwork of individual sovereign issuers can perhaps off on their own.
James Cherry:From a clickstream perspective, euro bonds obviously are a really important market topic element of the markets for us, and we really do consider ourselves to be the beating heart of Euro bonds. For those suggesting that, I have a memory to remember this, but I do read our corporate literature and for those interested, it was actually the Luxembourg stock exchange 60 years ago this year that was the first to issue a Euro bond. So from a clickstream perspective and from a Luxembourgish perspective, we really do think that we have an important role to play here and again, we're very happy and proud to be part of this conversation, and it may be briefly on the role of repo markets you ask as well. So Clearstream and their TriParty repo in particular product in supporting this conversation? As we all know, repo markets already play a key role in facilitating the flow of cash and securities around the financial system and, like I say, clearstream has a hugely important role to play in building and maintaining the pipes that support the flow of this capital via repo as a tool alongside others, and TriParty repo in particular, we would say, offers a number of distinct advantages in many ways over the bilateral market, and the ICSD model, in particular, is truly an international one and again helps towards reducing this idea of fragmentation and increasing liquidity, which, for African debt, I think is going to be really important, and this is something that David speaks very eloquently about himself.
James Cherry:But there is clearly demand for African debt.
James Cherry:I don't have the figures to hand, but essentially, to allow international investors to step in at the scale that we would want, they need to be given the confidence in the markets that they are investing in, and this is something probably that we take for a little bit for granted in certainly the US and Europe, where we have longstanding, well-established repo markets, deep liquid markets in which private investors can take their bonds and monetize them, liquidize them, transform them to cash very, very easily.
James Cherry:I think the US repo market, at last count, is probably four or five trillion dollars inside. Globally, repo markets are 13 trillion. Africa just doesn't yet have a share of that, and this is something as we look to connect the issuance of African debt via the Euro bonds market, we will allow African sovereigns to be able to benefit from these liquid secondary markets, which in turn, helps to make African bonds, african securities, more attractive to investors by increasing their liquidity, and this is a virtuous cycle. Increased liquidity itself results in lower borrowing costs, lower costs for the issuer of that debt, and then, in turn, helps to integrate Africa itself into global financing markets. So I really do think that Tri-Party repo has a crucial role to play in this and some really important advantages to help accelerate some of these conversations, voila.
David Escoffier:I mean, you know, james Federick Cherry, you did a great job explaining exactly why the USF was set up and it's very purpose. And what's amazing is that and that's always the case when I was with my friends from the financial world you understand and you get it perfectly. You can imagine also that you know to explain that to maybe politicians around the world or some of the decision-making decision-makers. It's actually. It takes actually quite a bit more time and efforts because repo markets are conceptually a bit complex for people to understand. Now that's used to it and even in finance for a long time. You know, as you mentioned, repo, where you know something for the back of this mostly your father's treasury that no one really understood. It was, like, you know, dark science. But if you look at the mini crisis of the gilt market, you know, with the famous budget that we had in the autumn, well, I think then people can really relate to the key importance of having a functioning repo market in order to make sure that borrowing costs and actually in our case in the UK, pension funds, you know remain solvent and the borrowing costs don't go high I mean, it's just carrot don't skyrocket. So you know, for Africa, that's exactly what we want to provide and why it is key for investors but to have this concept. But I would like to say that it works only if you provide investors with the best quality of service, because if you do something that is not on par with international standard, with the best financial market around around and basically you will offer degraded solution that will solve absolutely no issue. And that's why, from the start, you know, when we worked on structuring the LSF with a white and case, you know we worked very, very hard on finding the right jurisdiction. So we choose Ireland and the right format as a DAC to make sure that the vehicle is not busy, remote and, you know, is using basically or providing the safe, the safeguard that investors will be looking for. But, very importantly, from the start, we wanted to provide investors with a try party solution, by lateral, of course, as it's needs.
David Escoffier:But that's not why the LSF is set up. The LSF is here to provide the best possible framework for functioning with the market and so that, as you know, still today many investors and we are talking with the largest one in the world, the largest asset managers are not yet fully set up in the try party world, both because the banks to the largest banks are very helpful for us. But we are working hard and you know it's great to have your help to to convert some of those asset managers towards the beauty of a try party in order to continue to grow this market and I think that's one of the key effort we have to make in the months to come and years to come. The global euro bond market for African sovereign is today is around 130 billion US dollar and it's actually going down because there's a wall of reductions coming and the new issues are difficult at the current level.
David Escoffier:That's why you know the LSF has a lot of work to do Still and you know our work is cut out for the coming years, you know, not really to help reduce a growing cost and promote new insurance. So not to mention green, of course, where at 0.7% of the global difference is obviously there is a big, big mismatch, because this figure has to be contrasted with the fact that Africa today is roughly 21% of the only project that for the green transition, that did silencing for the green transition. So you know, on one end you have, you know, almost a quarter of the global projects in the world in terms of financing needs for the energy transition and the green recovery and, on the other hand, you have just 0.7% of the financing the green financing. So there's a long-distance balance here that will take time and effort and, you know, many different efforts joined in order to solve this puzzle.
Andrew Keith Walker:Well, at this point I'd like to come back to Christian here, because, Christian, you were just in the USA with the IMF. You were talking about green funds. You've worked very closely with central banks and sovereigns over the years and, of course, you have a very keen interest in bond issuance and in the ways that we can increase capital flows into green bonds, sustainability link bonds, blue bonds, and it's an interesting topic in many respects because of course, we also know, as David said, the African bond issuance is less than 0.7% and yet that doesn't map on to the sheer scale of projects that are taking place there. So I want to ask you do you think we're seeing a shift from the developed world financing primary markets and issuances in ESG that winds up on balance sheets and locked up and looks very good to the shareholders to have all your green collateral when you finalise your balance sheets at the end of the year? Do you think we're seeing a shift from that towards more money going into supporting green development where it's needed most?
Christian Rossler:Yeah, I think it's what I said in the beginning. Let's look at the numbers and also the timeline. I think then we get a bit of a clearer picture. So I said it 127 trillion is invested today by institutional investors in the global bond markets. Climate finance needs 20 trillion. We are far from there. We are hovering around 3 to 4 trillion for the time being Now, and you mentioned organisations like the IMF I think you mentioned NSF, david the secondary market.
Christian Rossler:Now, when it comes to your question of channeling money from developed countries to emerging market countries, the green bond, the use of proceeds bonds, which was actually at first the green bond, was termed by the World Bank actually in 2007. They issued the first green bond, which is the use of proceeds bonds, where you actually have to prove to a third party that the money goes to a green, climate friendly, environmental friendly usage. Now that has been enacted by the COP in Paris to become the vehicle for this transition to a green finance. Now we're talking and that makes the link to the meetings also ahead in Washington we talk about blended finance. Blended finance is that you need to have private institutional investors channeling their money into the issues that are green, social, and so blended finance is a structuring approach it's actually not an investment approach, because it will actually enable the investor to invest into a sovereign bond of a country which is below investment grade, through a mechanism with the first credit loss protection, and that first credit loss protection comes with the collateralisation, and so the issue is actually backed by collateral, which is triple A rated collateral. If they show a default, the investor gets always money back because he's sitting on the collateral. And that's the concept of blended finance, because talking about the World Bank, talking about the European investment bank, the multilateral development banks, that's public sector, but what the world needs is private sector to move money into those green social bonds.
Christian Rossler:Well, so there are some initiatives going on, but there's loads which needs to be done, and David can definitely tell why there's so many obstacles on the road. I think it's not only the repo market that's missing in the secondary market in Africa, but there's also some on the primary market. There's education missing and, in the end, imf is pushing with a project which is the resilience sustainability trust. It's a pot of money which comes from the special drawing rights of the member countries, where the IMF would like to channel money into emerging market countries, and so this is one of those initiatives which is supposed to be based on blended finance.
Christian Rossler:And so, yes, there's there's a shift, but it's a long way, and I think we need people like David, and I think, for me, david incarnates the perfect Person of the industry that is actually leading by example, and that and I said it when he was on the panel in In January, february I said to him you, the one who's doing more good than harm, because actually it's the more harm than good principle which is actually, in the industry, the issue, because I mean, if you look at the main investment banks today, they still doing most of their money on the origination of fossil and and brown energy. So I think it's also that we need to move into, we need to move out of brown as much as we need to move into green. You know so, and that's the entire challenge that we're having. So everybody who's moving Into that direction is, for me, is leading by example, and David is definitely such, a such a carry.
David Escoffier:I have to intervene, christian, because you know it's notice embarrassing on this occasion, and this postcast all your compliments that it was on the floor of the Luxembourg, so please stop. I mean, that's what what? Well, you know I will agree with you is yes, yes, we can. So, you know, with our knowledge, with the power that our industry Can, you know that we can harness. Well, we can do many things and we can do things that First of all we may have thought not possible but, more importantly, that very few people around the world can do. And that's what she realized is that you know it's, it's very motivating and Obviously it's something, a message that we should spread. But I'm gonna give you an example.
David Escoffier:You mentioned the IMF. Yes, the IMF, of course. You know he's set up to help with the stability of the financial world and finance, you know the buy, the balance of payments between the nation, and it has many different trust. You know, over the years and when it was called is called a PRGT, which is specifically set up to address poverty for setup. You know, I think 30 years to 20 years ago, when the IMF Wanted to the IMF shareholders wanted to support the transition, and you know Private investments, basically for development. Well, they decided to with the show to create this new trust, this RST. What's interesting? That the RST, I think after three years, is still not really disbursing money, that the amounts are relatively small compared to the IMF expectations. So I just want to take this example, because we work very closely with the team that the IMF and those are great people with great support.
David Escoffier:But even for an institution like the IMF, textile it's complicated and or the way our world Function means that everything is highly technical. When you move one piece you may move another piece, etc. Etc. Etc. So Even for them it's difficult and I think we, with a commercial banking background where basically we, we know a lot of things and there's a lot of Knowledge that other part of finance may not have, we have a role to play and you know, even in solution like the IMF benefits, you know from the insight from institution, like a QS stream or others, and it's something that those bridges, I think don't exist enough and something that could be pushed because you know.
David Escoffier:The last thing I would like to to maybe a Insist on it's, it's. It's a very competitive world out there and we know that on the private side, that's on the public side also, when you think about a sovereign government's borrowing money. It's one of the most competitive market in the world, right, because everyone wants to have cheaper rates than the other country next to them, which is why they all, over the years, created those nice facilities to promote their investment To investors and facilitate the flow of money towards their treasury. So what we're trying at the NSF is simply to level the playing field so that, you know, african nation also have access to the best tools of modern finance, nothing else. And Thanks to large institutions like a clear stream, well, a small Team back by great people and great intuition like the NSF can actually make it happen. So thank you guys.
Andrew Keith Walker:Well, on that front, james, I want to come back to you, because a lot of what we're talking about requires some pretty serious plumbing, doesn't it, underneath. You've got to be flexible. Christian has mentioned special drawing rights. There's a whole bunch of complex, so legal contracts that you know apply to that, because it's kind of a credit credit product. As I understand it, you've you've also, of course, got different kinds of securities. You've got commodities, all kinds of different assets that potentially could be coming into play here. How do you Flex enough to make sure that you've got all the right pipes in place to to give that sort of big transparency, accountability, compliance, assurances, regulatory Compliances, of course, very important to a diverse set of sovereign's, high-quality actors, insurance companies, banks, pension funds, asset management firms, investment funds. This is a massively complex job, isn't it?
James Cherry:It is, and I think the complexity shouldn't be underestimated, but it's. It's also Bread and butter for a tripod agent. I mean, this is exactly what we do. The advantage of outsourcing some of the legal complexity, operational complexity, to a neutral third-party agent is a very well established, tried and tested model. This is something we've been doing for a number of years and there should be no reason why this New market segment should not dovetail Perfectly into the existing international, well Regulated, well established framework that we have as an ICST. So the ICST triparty model, stl, is an interesting one as well.
James Cherry:I know this is something we sort of briefly chatted about before and I think it probably needs a little bit of thought before we really have an in-depth conversation from a triparty triparty repo perspective. But this we have a very, very flexible model and, for those who maybe aren't so familiar with str str Special drawing rights is a is essentially an international reserve Asset. It's not a currency but an assets Created by the IMF Based on dollar, euro, yan, chinese Yuan and the pound, and it's a way of giving IMF members access to additional liquidity. And it is something that I was interested in in thinking about in preparing for our discussion today because, like I say, please, you have a very Flexible model. We allow our clients to hold bonds, fixed income funds from anything from hedge fund units to ETFs, mutual funds, from over 250,000 investment funds alongside cash and other assets, all in all in one account. And, by the very nature of being able to hold those assets in a in an account at Clearstream to settle those assets, we are then able to allow our customers to mobilize them for use as collateral.
James Cherry:So when you look at something like SDR, it pops possibly actually looks a little bit like what we've done with gold. So the Deutsche Börse group and Clearstream is a little bit unique in that we have a product called Zetra Gold, which is essentially a note. The proceeds of the issuance of that note are used to procure physical gold that's held in the Deutsche Börse vaults in Frankfurt. So it's a securitized, physically backed note which is tradable and settable within the Clearstream infrastructure and therefore we allow our clients to utilize Physical gold as collateral through our triparty mechanism. And I wonder if perhaps and I'm theorizing slightly here I'm not committing to Develop a product in any particular direction, but I wonder actually if, if the SDR Topic looks a little bit like what we've done with physical gold and our Zetra products.
David Escoffier:I mean Surely does, because when you think about it as the artwork created to replace gold as the currency of exchange in between central banks. So so you know you go to something. One of the big difficulty, of course, that is the arc and only be held by eligible institutions, and there are very few around the world I think 15 or 16, and so you know it's. It would take time, but it's not impossible, I'm sure, for Clearstream to become an eligible holder. And then there's all the mechanism, of course, of a creation of SDR, which means that basically existing shareholders would be, would have to be involved. But what's interesting with this is the cost of SDR, the cost of funding of SDR, notably thanks to the weight of the Chinese UN. Actually it's low compared to US dollar today. So there are some obviously interest, but yeah, it's a Typical in the type of topics that people are not focusing enough on and where you're talented, teams and technical teams can work with the, the International institutions to make it happen. It's gonna take time.
Andrew Keith Walker:Let's get you heard to hear first everyone. I'm gonna call that a scoop. I'm gonna say, when it launches one day, whether we're securitizing SDRs or anything else, you know, I'm gonna call it the cherry instrument and Will I think there'll be bottles of champagne all around. James, that was a brilliant idea and you had it live on the show. That's why you need to listen to the GFF podcast, I hasten to add, and on that front, we are really having to start tying things together here, sadly. But, david, I want to come back to you for one last shot, because we we asked people to gaze into their, their crystal balls on the show and look down the line five years and See what their domain looks like. And I really want to ask you this one, because you know, five years from now, how much do you think we're gonna see an evolved secondary market, we're gonna see repos in Africa and this is gonna be aiding sustainable development.
David Escoffier:So you know, it's a very, very simple question for me to answer because you know, we had a board meeting not so long ago and when we set our goals, of course, for the LSEF, with all the directors, and in five years from now, we want to see the repo market for African bonds to be over 20 billion US dollar. That is, you know, in the tri-party system with the LSEF backing. So that's where we want to be, that's what we are working hard to manage. We know that the most difficult part is, of course, to start. So we've done hundred billion. We have, you know, 200 billion in the offering and another potential for half a billion. So, you know, once we will be over the crossing the one billion line, I think you know getting to the 20 billion line is gonna be actually quite easy, but that's where we want to be in five years. So hopefully we will still be there to be able to discuss around this very nice format and maybe, thanks to your help, it was at 30 billion, then 20 billion. Thank you.
Andrew Keith Walker:Good, okay, listen, let's aim for the 40. We'll ask you back in five years anyway to talk about it, but we'll ask you back before then to show us all how it's going. And before we get to that, though, we are coming to the end of the show. But there is one last question We've asked everyone on this season, because we all know how hard you have to work and how many hours go into it. We know, for example, the David Sorry that Michael Karanian From Vermeck isn't allowed to take a holiday until after the Big Bang next April, which point he's off to Monte Carlo to relax, well and break and actually get some sleep, because he's not allowed to sleep until April either.
Andrew Keith Walker:That's just the way the ECMS is working him, and apart from that, we know everyone works very hard and gets a good break. We know we've had people who are going trial biking in Montenegro and and holidaying in the lakes and Canada, doing a nice bit of camping there, or even something that doesn't sound like much of a holiday, but I know is spending a week at home with the children, and that's my holiday too. So I want to ask you both I'm gonna come to you first, james what are your holiday plans. August is upon us. Where are you going?
James Cherry:So I mean, I'm in a sense, proud to say that I'm keeping my carbon footprint lower. This year we will be at home, actually, so I have a couple of weeks at home with my children, so maybe we have this conversation again sort of late organists and I tell you how it went, andrew. But yeah, english Riviera Buckinghamshire.
Andrew Keith Walker:We're here. That's nice, it's funny. Yes, a trip to Devon with the kids can't go wrong with that. That is always a winner, and a camping has been my favorite Choice. I have to say, camping with the kids is the most fantastic thing, and it allows you to be a big kid again as well, which I think you know. We all need a bit more of that in our lives. And, david, what about yourself? What are your plans this year?
David Escoffier:Well, you know, nothing very exotic, because I've traveled a lot. I'm just coming back from Ghana. Although it was for work, you know, I was lucky enough to be able to spend one day at the beach and it was super nice. So you know, I think a little bit like a gems gonna be staycationing this year. Unfortunately, the weather is turning for the worse In the UK, as usual after Wimbledon. You know the summer is actually off, but we will do the best we can On this side of the pond.
Andrew Keith Walker:I always make a point of saying that if it's not raining, you're not really enjoying yourself, not in Britain, especially post Brexit. We're not allowed to have too much Sun. Post Brexit Are we in the same way? We're not allowed to know foreign words or eat cheese. So we're Sorry, I'm sorry, I'll probably cut that bit out. No, actually, you know, I'm gonna keep it in. I'm gonna keep it in there you go. Nigel Farage, I've said it, come and arrest me in the meantime. I guess all that remains for us. I actually know, I, we know what Christian is doing. We've discovered that he has a secret lair high up in the mountains near Le Bon Provence, where he goes and Does. You know various sort of exciting international superhero things, sports wise, you're off on you tomorrow, christian.
Christian Rossler:Yeah, but it's not high up in the mountain, I mean, as David knows. I mean it's, it's in the, yeah, in the southern part of France and today, as David said, it's past the day, so it's a national day, and I'm taking the road on Sunday, so Hoping not to have too much traffic. I live in the middle of the night and so yeah.
Andrew Keith Walker:That sounds just to be clear. Christian has just said that his secret lair is not in the mountains, it's. It's somewhere else in the south of France. But he does leave in the middle of the night, which, I have to admit, does make you sound like a Bond villain.
Christian Rossler:You know what I'm. I'm attending a wedding of a good friend tomorrow at 3 pm, then we're going to the wedding and at 10 11 we're gonna leave right away for the south of France. So there you have it.
Andrew Keith Walker:Okay, that sounds very exciting. I should point out for listeners that when Christian said Bastille day, everyone put their fist in the air and gave a fist pump there. And for all our French listeners, I like to wish you although this will be a show coming out after the event a very happy, belated Bastille day to you, WALTER.
David Escoffier:AND THE BASTILLA.
Andrew Keith Walker:And that's it. That, sadly, is all we have time for on this special extended edition of the GFF Podcast. It's been a real tour de force and all that remains really is to give a huge thank you to our very special guests, and that is, of course, starting in no particular order with Mr James Frederick Cherry, who is the global head Of business development for collateral liquidity and lending solutions at Clearstream. James, thanks for coming back on the show, thanks. Thanks for that, andrew, I always enjoy it. And, of course, a huge thank you to Mr David Escofier, the CEO of the LSF Secretariat, who has taken us on a tour de force at high speed around the plans to develop a £20 billion repo market in Africa secondary market in the next five years and let's go for the 40. Let's make it happen, david, thank you very much for joining us.
David Escoffier:Thank you, Andrew.
Andrew Keith Walker:Last but not least, my long-suffering co-host, a man who puts up with some dreadful jokes all the way through rehearsals You've no idea how bad it gets for him. A man who keeps me on the straight and narrow and also has taught me everything I need to know about secondary markets and repo and African sovereigns and that is, of course, my co-host senior vice president for sovereigns and central banks at collateral liquidity and lending solutions at Clearstream, or as I like to call him. Everyone's a BFF, mr Christian Rosler. Always a pleasure.
Christian Rossler:Andrew.
Andrew Keith Walker:It's been a pleasure having you back on the show, christian. Have a fantastic holiday. I hope the Batmobile doesn't give you any problems. Yes, if you've ever wondered, christian is Batman and on that front, it's goodbye from me.
Andrew Keith Walker:Andrew, keith Walker here and everyone at the GFF podcast, and do join us, please, on our LinkedIn page that's linkedincom slash companies, slash Clearstream, and you can find out all about the work that David is doing there and you can network with the team, with James and with David and, of course, with Christian and even myself. And we'd love to hear from you any questions, any thoughts about the podcast. Do give us your feedback and, in the meantime, from all of us, have a good August, have a safe August. We'll see you in September. Bye-bye, and don't forget that this show was brought to you by Clearstream Banking, one of the main sponsors of the GFF Summit every year in Luxembourg, and features members of the Clearstream team and special guests expressing their personal opinions, not the opinions of Clearstreamers and organization. And remember, none of the information in this podcast should be taken as legal, tax or other professional advice. See you next time.