Long considered a notorious tax haven, the Cayman Islands once conjured up an image of sunny skies and shady finances. But that reputation wasn’t enough to dissuade Loretta Chiu from the idea of moving there. “I was looking to work overseas and KPMG in the Cayman Islands came up. I was intrigued because everyone’s heard of the place but you don’t know much about it. People generally relate it to something negative – a tax haven that’s like a country on paper,” says Chiu, Associate Director at global financial services company Barings (U.K.), and a Hong Kong Institute of CPAs member.
After a phone interview, she was offered a job at the firm as an auditor, and moved to the British overseas territory in the Caribbean in January 2009. “Before I got the job, I was working in external audit in Hong Kong for telecommunication companies. In the Cayman Islands there’s one main industry – financial services,” she says. “So that offered me the opportunity to get my foot into corporate finance.”
Indeed, Chiu’s go-for-it personality and willingness to try new things has opened doors for her throughout her career so far. Another important part in her international career mobility is her CPA training, she says. “After around three years in an accounting firm, and getting your CPA qualification, it’s like you are given a ticket to go anywhere.”
Trouble in paradise
Chiu specialized in structured finance vehicles at KPMG. Structured finance is a term referring to financings that are more complicated than traditional lending, such as bank loans. Types of structured finance transactions include interest rate swaps, which can be used to help lower corporations’ funding costs by converting floating rate obligations to fixed rate obligations. A cross-section of the international financial services sector also use special purpose vehicles (SPVs) for structured finance. Investment funds, the aircraft leasing sector and insurance companies all use SPVs to hold certain types of assets as part of their risk management strategies.
“As an auditor of structured finance vehicles, I would mostly audit onshore investments in the United States because of the close proximity,” she says. “Over there, you see a lot of hedge funds and aviation finance, where you have to set up a SPV on day one to borrow money, as well as captive insurance companies [subsidiaries used by companies to provide insurance].
When I audited telecommunication companies, it was more operations-focused, like purchase and sales, inventories, expenses etc. These areas are absent in SPVs. A lot of the work is about the valuation of the underlying investments.”
She says people working in the Cayman Islands – mostly expatriate finance professionals and lawyers – “work hard and play hard. In terms of work, there’s a lot to do, but you’re also 15 minutes away from the beach and people know one another as it’s such a small island with a population of around 60,000. It’s a relaxing place to live.”
Despite the white-sand beaches and the opportunity of working in a different industry, Chiu decided it was time to leave the island after two and half years. “It was a fast route into corporate finance but I felt that compared to Hong Kong, my home city, the place was quite detached from the real world because you’re in the middle of the Caribbean sea – you have to fly to Miami to get back to the real world. Some people like it but I didn’t want to stay there forever.” The next stop for her was the United Kingdom.
The big move
London had long been on Chiu’s mind. “When I first thought about working overseas, London was the place I wanted to go but it was the financial crisis back in 2008 when I made my decision, and there were not many job opportunities there,” she says. After leaving the Cayman Islands in 2011, a headhunter approached her about a role at asset management company Babson Capital Management, now Barings. “I joined Babson Capital as a finance executive in 2012, working in the in-house accounting function for the funds,” she says. “Why London? A lot of Hong Kong people have some sort of connection with Britain because of history. Also, when you’re working in the finance industry, London is the European finance hub so you can’t go wrong. So far, I’m enjoying my life here.”
In 2016, Babson Capital and its subsidiaries Baring Asset Management, Cornerstone Real Estate Advisers, and Wood Creek Capital Management merged into one company under the Barings name. “So now, Barings has become a global financial services firm offering comprehensive suite of solutions to clients with over US$338 billion assets under management with more than 2,000 associates across North America, Europe and Asia Pacific as of December 2019,” says Chiu.
As a finance executive, Chiu worked with the third-party administrator for Barings’ quarterly management accounts. She was also the first point of contact at Barings for audit queries. “Quite common in the funds world, the third-party administrators are the corporate administrators. Their financial accounting team prepare the statutory financial statements. My role was to provide information at the capacity of the investment manager, like assets and liabilities pricing, trading process controls etc.,” she says. “Most funds were domiciled in offshore jurisdictions like Netherlands, Ireland, Luxembourg. I built up my knowledge in both Dutch and Luxembourg Generally Accepted Accounting Principles while working on these funds.”
World of CLOs
Chiu now works at the collateralized loan obligations (CLOs) desk at the company, which is part of the global investment services department. CLOs pool together multiple loans, such as business loans, as investment products. Loans are repackaged into tranches based on the level of credit risk assumed by the investor.
CLOs have in recent months been hit by negative headlines because of widespread stress in the leveraged loan market, and looser deal documentation in both the underlying loans and CLO structures. Barings argues that while CLOs are subject to relative bouts of volatility, as with any asset class, they have also continued to deliver impressive risk-adjusted returns and low defaults over time.
“The main idea of setting up a CLO is to repackage a pool of assets risk and rewards allowing investors to take the appropriate level of risk and reward for their appetite and any bespoke needs the investors may have. Our investors are mainly professional investors – typically able to take large positions of risk – like mutual funds, commercial banks, pension funds and insurance companies,” Chiu explains. “Our CLOs are actively managed cash flow CLOs, which are securitizations backed by a pool of senior secured corporate loans and bonds. Most of the collaterals are first-lien leveraged loans and bonds [that are secured and the first group to be repaid if a loan is in default]. A small allocation of high-yield bonds, second-lien loans and revolvers are also allowed. These loans and bonds are typically rated below investment grade and are more risky. On the other hand, the CLO vehicle issues rated note tranches with a priority of payment and the unrated equity-like tranche. It’s called the waterfall structure. The CLO collects interest and principal proceeds from the collateral pool, and makes interest and principal payments to the various CLO debt tranches. Any excess typically goes to the CLO equity tranche, subject to conditions. This is a game of arbitrage to the investors. Barings, as the investment manager, earns management fees and incentive fees from managing these CLOs.”
“I am responsible for the entire life cycle of a deal, which includes liaising with underwriters, investors, internal and external counsel, portfolio managers and trustees.”
Chiu works “more on the back-end, operational side” and closely with the portfolio managers. “Alongside my team members, I am responsible for the entire life cycle of a deal, which includes liaising with underwriters, investors, internal and external counsel, portfolio managers (PMs) and trustees. My day-to-day responsibilities include hypothetical trade testing, cash and position reconciliation, cash flow modelling, as well as ensuring ad hoc requests are dealt with in a timely manner.”
Her job requires her to be very detail-oriented and methodical, she adds. “These funds are all governed by an offering memorandum, or offering circular (OC), which tells you the detailed structure of the CLO, regulatory and reporting requirements, investment eligibility criteria, definition of various tests. It stipulates everything we need for a CLO from cradle to grave – from set up to redemption. This is our bible,” she explains. “We check the OCs back and forth because we always get questions from the PMs – we see what we can invest and what we can’t, and if the rating is below a certain point, we have to look at something else. I always have a stack of these bibles next to me at work.”
With the transition from working in the company’s in-house accounting function to CLOs, the learning curve for Chiu was steep. “In the past, I had to reach out to those people who actually work on the funds, which is my role now,” she says. “In the funds world, people are more concerned about the returns or how the funds perform rather than the accounting profit. So after transitioning to this role, I developed an in depth understanding of how the funds are performing, and I speak to the PM a lot more than I did previously.”
A global perspective
Chiu went to Diocesan Girls’ School before studying for her professional accountancy degree at The Chinese University of Hong Kong. During her second year at university, she studied at the University of California, Los Angeles as part of a six-month student exchange programme, which was what first exposed her to a world of different perspectives. “It definitely broadened my horizons,” she says. “I met different types of interesting people from all over the world. I said to myself, ‘wow this world is so big.’ The experience taught me that the road is not always straight. I met people studying completely different things, who had travelled around, and I remember back in Hong Kong it seemed like you had to follow a certain path that leads to success, and if you get sidetracked, it was seen as you going astray. But so many people around the world go astray. They are on their own path.”
She came back to Hong Kong with her mind made up – she was going to live and work overseas again, one day. “But I had to be realistic. I didn’t have any work experience. I was determined to finish my university degree.”
“When you take on an engagement, it may be something that you have never done before… Even though there are less surprises in my current job, I’m still applying these organizational skills.”
After graduating, Chiu joined PwC where she qualified as a CPA. She worked at the firm for four years, moving up from junior auditor to senior associate. “Those four years in audit were quite tough, I won’t deny it, but the training it gave me was priceless,” she says. “Working on one project after another gave me excellent training in project management and prioritizing tasks, especially when you reach the position of senior associate, where you have to lead the field job. You have to manage your own team, communicate with your client, satisfy your managers and partners, so it’s an excellent opportunity to learn how to cope with the work pressure and at the same time get the job done.”
It also taught her to be adaptable, and unfazed by unexpected tasks or sudden changes. “When you take on an engagement, it may be something that you have never done before, but you still have to do it. So it trains you to think ‘how do I accomplish this task?’ And when difficulties come up, ‘how do I cope?’ Even though there are less surprises in my current job, I’m still applying these organizational skills.”
Chiu works closely with portfolio managers at the collateralized loan obligations desk at Barings (U.K.)
Sound of success
Outside of work, Chiu likes to keep busy. Londoners, she says, have inspired her to rediscover and pursue her personal interests. “One thing I find quite interesting here is that the people around me, including my colleagues, work hard but they are also active and have a lot of interests. Many people go to the gym or they sing in choirs over the weekends. Even though they have their own families, they still maintain their own hobbies. This is something I didn’t really see before I left Hong Kong 10 years ago,” she says.
She practices yoga and is learning a new language. “I’ve been learning French for the past three years, yet I still can’t speak it properly,” she laughs. She also plays the violin in an orchestra through the East London Late Starters Orchestra, an organization teaching string orchestra for adult beginners. “I play four hours a week,” she says. “It was something I really wanted to do in the past but I never really had a chance. This orchestra ticked all the boxes – it’s for beginners, the people there are really passionate about music, so it was exactly what I wanted. Apart from playing in the orchestra I also write my own music and improvise with the keyboard – perhaps one day I will be able to perform them in public!”
With all the opportunities she’s had so far, Chiu says the anxiety and stress that came with her decision to move to a different environment was in the end worth it. “Moving between countries is life-changing. It contributed a lot to my personal growth,” she says. “But it wasn’t easy. I didn’t have any connections here, so looking back, it was a brave move. If I were to make a decision on whether to move abroad again, I’m not sure I would be making the same one. There’s too much uncertainty. But back then I was only 26 – so why not?”
This interview and photoshoot were conducted before the U.K. was put into lockdown.
In 2016, Babson Capital and its subsidiaries Baring Asset Management, Cornerstone Real Estate Advisers, and Wood Creek Capital Management merged into one company under the Barings name. This created an international, multi-asset investment manager with more than US$338 billion in assets under management.