28JAN09:
Q1-09 DOW: 8900
Q2-09 DOW: 7250
Q3-09 DOW: 5810
Q4-09 DOW: 3960
CITI NATIONALIZED
OBAMA GETS SICK 27AUG09:
Mini Crash 21SEP09 Predicted correctly:
Bailout=Bonuses
Demise of Bear Stearns
Demise of Lehman Bros.
Demise of AIG
Subprime would cause problems
Date of 2007 crash
CRAs were to blame
G20 riots were a party
Northern Rock run
Northern Rock Nationalization
HBOS and RBS demise
UBS really was Useless
Mrs Taggit has thrown my Blackberry out. Apparently the weekends are for family time and not being hunched over a mickey mouse keyboard fending off the virus that is email.
Thank you to those who became my friends after my pleas on Friday of not wanting to be a Facebook hermit.
The UK Commercial Property market is tipping into a crash as property hedge funds spring up everywhere to exploit the 20% down turn.
GLG returns climb as it heads towards US listing (financialnews-us) The flagship $2.4bn (€1.7bn) European long-short fund run by GLG, the UK hedge fund that is soon to become a US-listed company, had a strong start to this year, showing returns up 13.4% for the 12 months to June 22, according to investors.
Since inception in October 2000, the European long-short fund, which is run by founding partner Pierre Lagrange, has generated an annualised net return of 14.4% with an annualised volatility of 8.5%.
The credit fund, which is managed by Cyril Armleder, was up 15% for the year to June 22 and 15.6% on an annualised basis since launch in September 2002, according to investors.
Separately, documents filed last week to the US Securities & Exchange Commission by Freedom Acquisition Holdings, the shell company GLG is reversing into to secure a US stock market listing, showed the $2.3bn market neutral fund to be its best long-term performer to the end of April.
The fund has made an annualised return of 21.2% since launch in January 1998, compared with a 5% gain for the MSCI World index.
GLG in January appointed Perella Weinberg as financial adviser. It then met several, mostly US-based, financial services institutions to discuss a transaction. In February, founder and co-chief executive Noam Gottesman was approached by Nicolas Berggruen, president and chief executive of Freedom Acquisition, about the deal, which was announced in June and valued GLG at $3.4bn.
The proxy documents for the transaction show the three top executives at GLG earned less than $15m in combined compensation last year.
Lagrange was the best paid partner, earning $4.78m. Co-chief executive and founder Gottesman was paid $4.75m and co-chief executive Emmanuel Roman earned $4.74m. The individuals did not receive a discretionary bonus.
The three will each be paid a base salary of $1m a year for the rest of this year, and in 2008.
Fintag says We all look forward to see how this listing fairs, given the IPO appetite seems to be waning. For the record, I am not a principal or employee of GLG. However, if this newsletter stops being published after the IPO then you know I was lying as there is no way I want to be caught out as being another blogging CEO doing film reviews and boasting about my golf handicap.
Many fear that a large number of important financial institutions in the United States, Europe, and elsewhere have taken inordinate risks that could damage the pension funds and insurance annuities that so many people rely on for a comfortable retirement - and maybe even hurt the broader economy.
"There is plenty of room for shocks ahead," says Harald Malmgren, a veteran economic consultant in Washington. "Volatility is coming back to the [financial] market. We could see crackups of some household names," that is, well-known financial firms.
Already, Wall Street has been troubled by recent events. In late June, a prominent investment bank, Bear Stearns, came under pressure to rescue one of its failing hedge funds. (Hedge funds are loosely regulated private investment pools that cater to wealthy people and institutions.) The fund had made bad bets on collateralized debt obligations (CDOs). In this case, these complex financial instruments were invested in mortgage securities.
As interest rates have risen and home prices have slipped, some homeowners (especially those with subprime mortgages) have fallen behind on loan payments. Foreclosures have surged.
Bear Stearns had to offer $3.2 billion in loans to prevent the fund's creditors, such as Merrill Lynch & Co., from dumping the CDOs in what could have amounted to a fire sale, a disruptive liquidation of the fund's assets. It was the biggest Wall Street rescue since that of Long-Term Capital Management in 1998, a hedge fund that lost $4.6 billion in less than four months.
Last week, two major debt-rating companies, Standard & Poor's and Moody's, revealed plans to downgrade many mortgage-backed bonds. Prices for stocks and low-quality bonds plunged for a day.
The action was particularly disturbing to some on Wall Street because S&P, Moody's, and a third rating agency, Fitch, have been charging large fees to help banks and other financial institutions put together collections of debt obligations of varying scale and risk. They include CDOs and Collateralized Loan Obligations (CLOs), packages of commercial bank loans. Both are sold to institutions such as pension funds seeking higher returns.
Mr. Malmgren sees a conflict of interest. "It is really hard to assign a 'poor' rating when the rating agency has helped put it together," he notes.
The safety of CDOs has become "a major concern," says David Hale, of Hale Advisers Inc., a Chicago economic consulting firm. The "perception of risk" in the financial community has risen.
Last year, $470 billion in CDOs were sold, according to the Bank for International Settlements, a central bankers' institution in Basel, Switzerland.
After the financial community weathered quite successfully the brief US recession in 2001, fears of financial risk declined. Financial institutions, such as hedge funds, regarded more and more leverage (using borrowed money to buy assets) as acceptable in the effort to improve investment results. They were more willing to buy risky CDOs, even though the quality of the mortgages behind them was not fully known. They relied on credit-rating agencies to assess the risk in a package of investments, a process that often involves complex mathematical models and historical experience that may or may not be repeated.
The Federal Reserve has been "overly lax" under both Chairman Alan Greenspan and his successor, Ben Bernanke, in its regulation of the US financial markets by allowing them to become "increasingly opaque and private," charges Tom Schlesinger, executive director of Financial Markets Center in Howardsville, Va. He holds that hedge funds and private-equity funds should be obliged to disclose more.
The financial innovations initiated by such funds can shift risk from the bankers (who put together CDOs and other complex financial instruments) to the buyers, such as pension funds, Mr. Schlesinger says. Households become "the shock absorber of last resort."
A few days ago, the Fed issued stricter mortgage-lending guidance to banks, notes Malmgren. The Fed "has proven itself to be too slow and timid in responding to fundamental shifts in financial market behavior, even when the dangers were fully recognized by regulators."
Part of the problem, Malmgren says, is a lack of financial fear among investors. That, combined with greed, "bred fraud, which began to spread ... as mortgage originators lied to home borrowers and underwriters, and banks misled investors about the quality of mortgage-backed securities."
If there are more financial casualties on Wall Street, in London, or elsewhere, there could be both a flight to quality (better investments) and a flight to liquidity (investments that can be sold easily), warns Malmgren. The secondary market for outstanding CDOs is very limited, partially because the value of their underlying assets is often mysterious.
The financial damage from future shocks, says Malmgren, could stretch over the next three or four years as the CDOs mature. Many Americans may find it harder to get a mortgage or home equity loan, and interest rates may rise. Home appraisers may find themselves instructed by banks to lowball their valuations. "Everybody is in a state of anxiety in the financial sector," he says.
Fintag says Good. Without risk and volatility we might as well all buy index trackers.
WIZARD OF OZ
Hedge funds count cost of playing the generation game (ft) Talk about a one-man band. Buried in the risk factors of Och-Ziff's initial public offering prospectus are warnings of what could happen if founder Daniel Och "dies or ceases to perform his duties" at the hedge fund. That would trigger a special redemption right for investors in the funds that "could, therefore, ultimately result in a loss of substantially all of our earnings".
That nuclear warning, injected into the prospectus by fastidious lawyers, is presumably an exaggeration of the group's reliance on Mr Och. But it underlines how the hedge funds and private equity groups rushing to go public in the US still depend heavily on their founders. And what challenges could emerge when the time comes for a generational change.
The latest crop of alternative asset managers going public still have their founders' names above the door. KKR is dominated by cousins Henry Kravis and George Roberts (the second K and the R respectively). GLG Partners is run by Noam Gottesman, who founded it alongside Pierre Lagrange and Jonathan Green.
Even Blackstone, a seemingly generic name, is no such thing. Founders Steve Schwarzman and Pete Peterson more subtly stamped their identities and family roots on the business through a name that combines Schwarz (German for black) and Petros (Greek for stone). And, of course, Mr Schwarzman has recently become increasingly synonymous with the private equity group during the wave of publicity surrounding its initial public offering.
In a sense, that cult of personality is reassuring for shareholders. They know that the individuals who successfully built the businesses are still in charge of keeping them on track. With big ongoing stakes in the management companies, at least until they decide to sell, they remain highly incentivised to keep earnings and hence share prices strong.
But that is also a risk. Coupled with their big stakes and dominant characters, the founders have often structured the voting power in their companies in a way that ensures they retain pretty much total power. Shareholders, or unitholders as they are known in the case of KKR and Blackstone because of the convoluted structures, are basically along for the ride. More than most companies, they are putting absolute faith in the decisions of a few, or even one, top executive.
It increases the importance of what happens when the next generation takes over. After all, a big reason for the IPOs - particularly at the private equity groups - is to make sure that the groups continue as real institutions and there is a smooth transfer of power when the top dogs stand down and reduce their ownership stakes. Mr Peterson, 81, has already cashed out most of his Blackstone stake. Mr Kravis, Mr Roberts and Mr Schwarzman, all now over 60, will presumably not go on working for ever.
Any sign they are ready to step down will focus attention squarely on the capabilities of the next tier of management. The structure of the private equity groups in particular is such that full control over running the business will remain within the partnership group - even though the proportion owned by ordinary external unitholders is likely to increase over time as the founders sell their shares.
Partners at Och-Ziff have a slightly less rigid lock on control into the future. But a change of generation at the top will accentuate a different issue.
After the IPO, Mr Och and his key lieutenants will not be paid in a way that shows up fully in the company's profit and loss account. Instead, they will enjoy the distributions they receive from significant stakes they have in the business. That will help boost operating margins in the short term. When they move on, however, the new chiefs will presumably expect either handsome equity grants or more cash each year to keep them incentivised. Both of those would be expensed through the profit and loss account.
Mr Och is only 46 and the other partners are even younger. When he does decide to go, it is highly unlikely that funds under management will evaporate with him (as the risk factors warn).
However, external shareholders could be faced with more than just a new individual, or team, running the show. They might also have to stomach a hit to margins as new salaries kick in for the next generation of hedge fund bigwigs.
Copyright The Financial Times Limited 2007
Fintag says Many of my investor agreements have a keyman provision that work in the same way. If I go mad, or worse die, then investors can redeem. This is why I and many of my peers want to escape this prison that is known as Hedge Fund management.
Hence our obsession about IPOing.
I'm a Hedgie, Get Me Out of Here!
DOT COM
M&A volumes expected to hit $5 trillion (financialnews-us) Global mergers and acquisitions volumes are expected to exceed $5 trillion (€3.6trillion) this year, as analysts forecast no let-up in the pace of activity, despite investor concerns about an overheating market.
Describing the current M&A cycles as the “biggest arbitrage trade in history” Citi analyst Robert Buckland said there was no reason deal volumes in the second half of this year would not exceed the record level of the first half.
In a report published last week, Buckland argued the present debt-financed M&A market bears few similarities to that of 1999 and 2000, when companies used their highly rated equity to take over rivals.
Cash bids, financed with cheap debt, are predicted to make up more than 80% of the $5.4 trillion of transactions expected to be completed by the end of the year, compared with 1999 and 2000, when all-share deals comprised just under half of all transactions.
Buckland wrote: “We think that this current cash-financed M&A boom reflects an undervalued global equity market, particularly relative to debt.
“If jittery equity market investors want to sell, then corporates and private equity investors are likely to remain ready buyers.”
Citi's report also said M&A as a percentage of stock market capitalisation was at 9.3% last year and is predicted to reach 10.7% this year, below 2000's high of 12.7%. The size of the stock market means M&A volumes would have to exceed $6.5 trillion this year before they hit the level of seven years ago.
By the end of the first half this year, $2.7 trillion of M&A deals had been completed, three quarters of last year's record total of $3.6 trillion.
However, figures from data provider mergermarket show that second half volumes have tended to exceed those in the first half. Second half global M&A deal volumes have exceeded first half for every year since 2003, and in the US this has been the case in four out of the last six years.
Dresdner Kleinwort analysts are less bullish. In a report published two weeks ago, equity strategist Philip Isherwood said while M&A volumes this year were likely to exceed last year's, there was “abundant” evidence of late-cycle behaviour.
Fintag says It is true the markets are undervalued in many areas, but that doesn't mean this debt fuelled M&A activity is the way to pull up market prices. Markets are run by people and computers who make trading decisions on volatility and market confidence and a few big deals doesn't mean the markets will reach their optimum fair values. Still, the bankers have made another dot-com killing and the rest of us will pay in the coming years. Interest rates and inflation will soon sort that out. Here is a simple economics lesson as to why the party has almost ended.
The US economy is worth nearly USD 14 trillion. It is the biggest and dwarfs the second highest, Japan by nearly USD 10 trillion. So if the US struggles the rest of the world will tumble too.
The signs: Increasing US trade deficit Weakening USD Falling house prices Household debt as a percentage of US GDP increasing Inflation moving above 5% in many countries Flight from equities to bonds Shrinking disposable income Shanghai index on p/e multiples of 50
The causes of a world wide crash: The collapse of the Chinese stock market Refinancing of a highly geared private equity vehicle Banks increase lending restrictions Banks call in loans Collapse of commercial property yields
The downturn would threaten the savings of hundreds of thousands of people who have been lured into commercial property funds in the past few years.
The schemes, including those run by New Star and Norwich Union, were the most popular Isas by far last year and the sector as a whole took £2 billion in the six months to April, the height of the Isa season.
However, the funds have been losing money since January as five interest-rate rises have taken their toll on the sector.
New Star, Norwich Union, Standard Life and M&G, owned by Prudential, have been forced to impose exit charges to stem a wave of selling as disappointed investors dump their funds.
The firms said last week that the value of the shops and offices in their portfolios had not in fact fallen; returns are down because they also hold some commercial-property shares, which have plunged by more than 20% this year.
Many analysts think it is only a matter of time before the value of bricks and mortar falls too, though. Capital Economics, a con-sultancy, predicts that prices will slide 12% over the next three years, with a slump of 20% a distinct possibility.
Even the most optimistic forecasters predict that returns will be little better than those from savings accounts by next year.
Mark Dampier at Hargreaves Lansdown, an adviser, said: “I have been saying for some time that commercial property is overvalued and returns will be low over the next few years. There's a danger of a huge spiral if people pull out. Fundamentally there is nothing wrong with commercial property, but if people lose confidence it could get messy.”
The sell-off comes amid fears of a global property crisis. America is suffering a sub-prime mortgage meltdown, with nearly 2m people behind with their repayments. Last Tuesday the FTSE 100 index shed 100 points on fears it could spread to Britain - though it ended the week up 0.4% at 6,717.
The Royal Institution of Chartered Surveyors (Rics) also reported the first real signs of a housing slowdown in this country, when it said price growth halved in June.
Advisers are drawing parallels with the tech boom of 2000, when investors were lured in just as returns peaked - although property funds are unlikely to suffer such a severe fall.
Justin Modray of Bestinvest, an adviser, said: “We see it time and time again. A sector produces great returns, so it is an easy sell for the investment companies. However, savers can get in at just the wrong time.”
Until recently, the commercial-property market had seen impressive growth. The average annual return over the past three years has been 18.5%, according to the Investment Property Databank.
However, many commentators, including Sunday Times Money, have been warning that the party would come to an end as rising interest rates took their toll. Commercial-property funds buy shops and offices and let them to businesses. When interest rates rise, demand from tenants falls and returns drop.
Andrew Jackson, who runs Standard Life's Select Property fund, said: “We expect total returns - capital growth plus income - to average between 3% and 5% over the next year or two, but that will mask significant price falls in some sectors. Retail will suffer most. Shops in some towns could fall in value by more than 10%.”
This will be bad news for thousands of buy-to-let investors who have moved into high-street shops, often with flats above, to add spice to their portfolios.
Last year, auction rooms were buzzing with individuals snapping up retail outlets, pubs and even bank branches, but activity has fallen off a cliff. A new fund, Invista Opportunity, is hoping to cash in by buying from individuals who are forced to sell.
Duncan Owen, chief executive of Invista, said: “Individuals and syndicates of pension investors have bought high-street retail outlets at ambitious prices with a high level of debt. We have seen examples where investors have been in negative equity and if prices move down it will break sentiment.”
Most analysts are not as bearish as this, but the consensus is still that prices will fall and that total returns, once rental income is included, will barely cover the costs of buying bricks and mortar.
The Investment Property Forum, which polls property advisers, fund managers and brokers, is forecasting a total return of 9.1% for the sector this year, 5.4% in 2008 and 4.7% in 2009 - down from 18.1% in 2006.
Once you strip out rental income, capital values are forecast to grow just 4% this year and by 0.5% in 2008, and they could fall 0.2% in 2009.
New Star Property, which was advertised by giant billboards around the City of London and was taking £100m a month at its peak last year, is down 5% this year, while the rival Norwich Property Trust has slipped 4.6%.
They have slashed the value of their units by 4.4% and 4.9% respectively to stop investors pulling out. Anyone selling will get back less then they would have done; on the other hand, buyers get in at a lower price.
However, advisers have urged people not to panic and to stick with their funds unless they absolutely have to sell.
Justine Fearns at AWD Chase de Vere added: “Recent investors who got in at the top need to stick with it for the long term and not move in and out. Over five to ten years, your investment should come good even if in the short term returns are poor.”
While the double-digit returns of recent years will probably not be repeated for the foreseeable future, analysts do not believe the sector is about to implode.
John Buckley, a property economist at Mor-ley, which runs several Norwich Union funds, said: “Property in the best locations with quality tenants, such as London offices, could continue to make double-digit returns.”
Amanda and Tony Fitzgerald, pictured with their five children, have decided to stay put. The couple, from Melksham in Wilt-shire, have money in New Star Property.
Amanda said: “I'd have preferred not to have read the news about falling returns over the past week, but I invested in property for the long term.
“As with any investment, I know there are going to be ups and downs and I intend to ride out the storm.”
What the slowdown means for you
THE sell-off in commercial property funds, coupled with the crisis in the American mortgage market, has sparked fears that the global property market is heading for trouble, writes David Budworth.
We answer questions for investors and homeowners.
What has sparked the crisis? A dramatic rise in interest rates around the world has increased the cost of borrowing for businesses and consumers.
The Bank of England has raised rates by one and a quarter percentage points in the past two years from 4.5% in August 2005 to 5.75%. In the US rates have risen 17 times since June 2004 from 1% to 5.25%.
While rates were low investors borrowed cheap money and ploughed it into property, pushing up its value to record levels. Now borrowers are having to pull in the purse strings as they find it harder to pay off their debts.
How has this affected America? There has been a huge upturn in loan defaults as borrowers fall behind with their repayments. Defaults have been particularly bad in the sub-prime market, where lenders offer mortgages to people with poor credit records.
Lenders sold billions of dollars of these mortgages to people with weak credit ratings on the basis that rising house prices would allow them, if necessary, to remortgage their property to meet repayments.
Instead, house prices have fallen in some states. Standard & Poor's is predicting that US house prices will be down 8% on average by the year-end.
Millions could see the value of their houses fall, leaving them with “negative equity” - meaning their mortgages are greater than the value of their property.
Growing numbers of borrowers have been missing payments and hundreds of thousands are expected to lose their homes altogether.
Mortgage banks are expected to foreclose - a legal process that often leads to repossession - on 1.8m loans this year: a 44% jump on the 2006 figures. Some states have even been talking about raising funds to bail out struggling homeowners from their mortgages.
Will the problems spread here? In Britain a housing market slowdown is expected, but nothing like as severe as in America.
The high-risk sub-prime loans that are at the centre of the crisis in the US make up a much smaller part of the mortgage market here.
Last year, $600 billion (£295 billion) of sub-prime mortgages were agreed in the US, 20% of the $2,980 billion total.
Britain has its own problems. The Financial Services Authority has criticised firms for offering mortgages that customers might not be able to afford. But here the deals account for just 6% of sales and lenders have generally been more cautious.
In America about 15% of mortgages are 100% loans, while in the UK most providers require a deposit of at least 5%.
However, higher interest rates are starting to have an impact, as the turmoil in the commercialproperty sector shows.
Why have stocks been hit? Investors are worried that strife in the mortgage market could drag down the wider American economy, which would hit company profits and stock markets worldwide.
Rising defaults by borrowers have already forced dozens of sub-prime firms to file for bankruptcy, put themselves up for sale or shut down. The turmoil has even hit British banking giants such as HSBC, which have exposure.
Pension funds, insurance companies and hedge funds have also run into trouble after investing in bonds exposed to sub-prime loans. Known as collateralised debt obligations or CDOs, these invest in securities, such as bonds, that are backed by sub-prime mortgages. As mortgage defaults have risen the value of many CDOs has plummeted.
Two hedge funds run by Bear Stearns nearly collapsed in June, in part because of struggling CDO investments, sparking fears of falling prices and panic selling. This explains why the FTSE 100, Britain's index of leading shares, fell nearly 100 points last week after Standard & Poor's and Moody's, the ratings agencies, warned that losses from CDOs would be greater than feared.
Fresh bouts of turmoil are likely until the outlook for the US housing market brightens. However, unless the crisis worsens, many analysts think stock markets will be higher by the end of the year.
Shares still look good value on the whole and takeover activity is expected to continue to buoy the markets. The Footsie had recovered its losses by Friday to finish the week up 0.4% at 6,717.
Any effect on bond funds? High-yield bond funds, such as M&G Optimal Income & Baillie Gifford Corporate Bond, have some exposure to CDOs in their portfolio. As a result, returns are likely to be hit. Investors in bond funds are already suffering losses after a dramatic sell-off last month sent yields soaring. When yields rise bond prices fall to compensate.
America was once again the trigger. That time it was because of fears that the US economy was growing too strongly, which could push up interest rates. Many commentators believe a rate cut is more likely if the turmoil in the housing market continues.
What's the outlook for UK residential property? Most analysts expect price growth to slow, although they do not see a crash. The worst they predict for the housing market is several years of stagnation, where prices rise in line with earnings at about 4%.
Fintag says We have been shorting REITS and property companies for sometime now but the real action is being able to trade swaps on underlying properties which is hard to do as there are few opportunities; hence we and many others are setting up property hedge funds to short the IPD index and create structured products to enjoy the downturn.
Young Adults Are Giving Newspapers Scant Notice (nytimes) With the United States military fighting a protracted war in Iraq and a wide-open presidential campaign already making headlines daily, Americans of all ages are interested in current affairs and are consuming news like never before, right?
Not so, especially not teenagers and young adults, according to a report released last week by the Joan Shorenstein Center on the Press, Politics and Public Policy at the John F. Kennedy School of Government at Harvard.
In fact, most teenagers and adults 30 and younger are not following the news closely at all, the report, titled “Young People and News,” concluded. It is based on a national sample of 1,800 Americans that included teenagers, young adults aged 18 to 30 and older adults.
Thomas Patterson, a professor of government and the press at Harvard who conducted the survey, said that young people today do not make an appointment with news every day the way older adults do.
“We found that most young adults don't have an ingrained news habit,” he said. “Most children today, when watching television, are not watching the same TV set that their parents are watching. So even if their parents are watching the news every day, the children are likely to be in another room watching something else and aren't acquiring the news habit.”
The survey went a step further to see what the respondents meant when they said that they did pay attention to the news. Those results, especially among the younger groups, were equally discouraging for the news industry, said Alex S. Jones, the director of the Shorenstein Center.
“What we found is that what people mean when they say they are engaged in the news has much more of a glancing, superficial basis than anything we would have hoped,” he said. “Young people seemed to think that just listening to the radio in the background was listening to the news.”
The results were especially grim for newspapers. Only 16 percent of the young adults surveyed aged 18 to 30 said that they read a newspaper every day and 9 percent of teenagers said that they did. That compared with 35 percent of adults over 30. Furthermore, despite the popular belief that young people are flocking to the Internet, the survey found that teenagers and young adults were twice as likely to get daily news from television than from the Web.
Despite this, some in the industry say the situation is not hopeless.
Jane Hirt, the editor of RedEye, a free daily newspaper that is published by The Chicago Tribune specifically for young, urban professionals, said that her publication had succeeded and had even expanded its audience by adopting some of the lessons learned from television and the Internet and by experimenting with ways to tell stories.
“We may have a short face-off with two sides of an issue,” she said. “We believe it is a way of delivering content in a form like younger people are used to getting on the Internet.”
She said that she reminds her editors that their younger readers are used to customizing their lives. “They pick and choose what they want on their iPods, what to TiVo and watch whenever they want, and so forth,” she said. “Therefore, because we are targeting that niche audience, we make story selections to really connect with them, and we can do that because we are thinking about them all day.”
Still, her publication and newspapers in general may be facing an uphill battle.
“My sense is that newspapers in their traditional form are not going to be able to recapture this audience,” said Professor Patterson. “What's happened over time is that we have become more of a viewing nation than a reading nation, and the Internet is a little of both. My sense is that, like it or not, the future of news is going to be in the electronic media, but we don't really know what that form is going to look like.”
Fintag says I know who visits FiNTAG and so do my advertisers. What we do not know is how old the readers are?
Given the abusive emails I get (even more since my facebook profile is becoming better known) it is clear that many are under 35 because they have terrible spelling and grammar mistakes (just like me). Beyond that who knows.
If the Iraq war is of no interest to the Generation Xers then Hedge Funds must be an even bigger turn off. I guess watching celebs being punk'd and trailer trash types have sex on Big Brother is the new world order.
This explains why Russia abandoning its arm's treaty at the weekend, threats of UK expulsions of Russian Diplomats and talks about a new cold war have no bearing on the continuing rise in the markets.
How times have changed.
HOUSE OF CARDS
Dear Hector, what lies ahead is a big drag (times) Hector Sants is to take the top job as the head of the Financial Services Authority. The Times has purloined - or, at least, imagined - a copy of the letter that John Tiner, the outgoing FSA chief executive, left in the top drawer of his desk for his successor.
Hector, Sorry. If you're reading this, then you have the misfortune of being the next FSA chief executive. Bad luck.
You take the reins of the FSA just after the National Audit Office has hailed the work of the regulator and as the FSA's principles-based regulation is held up as the model for overseeing financial services everywhere. Unfortunately for you, this will not last. And, quite unfairly, you will come to be seen as the face of the FSA as its reputation declines.
Frankly, there is not much you can do about this. This is partly because, while I did a pretty good job, the current praise heaped on the regulator is undeserved. It is as much a measure of the rude good health of the financial markets as it is the fortitude of the Financial Services Authority. As, and when, the market dips, the FSA's halo will slip.
There will be some concern that your past lives running European investment banking at Credit Suisse and overseeing the wholesale and institutional markets at the FSA, mean that you will focus on the City rather than financial services on the high street. I know you wouldn't be so foolish. The FSA's credibility with politicians and the public depends on consumer protection.
The real challenge for you is going to be how far you are willing to see the FSA take responsibility for London as a modern, global financial capital. This will mean addressing issues that we have largely skirted:
–– the quality of the market: the FSA, under your leadership, is going to have to go beyond a consultation document and act to defend the reputation of London. This will mean making a judgment on whether it is good for the City for the likes of Kazakhmys, PartyGaming and SportsDirect to list, without qualification, on the exchanges.
–– the responsibility of ownership: the FSA is going to have to address disclosure of investors who buy contracts for difference and other derivatives and use them to pressure company management to change course. Indeed, it will have to look at the role of hedge funds and activist shareholders. And it will have to do so without intervening in such a way that it inhibits value creation.
–– alternative asset managers: your remit is going to have to stretch beyond Canary Wharf and the Square Mile and on to address transparency and ethical conduct among the private equity and hedge funds in Mayfair.
–– Mifid: Europe's new rules on markets in financial instruments come into effect on November 1 and they could well have a bigger impact on Big Bang.
–– syndication of risk: there has been such widespread dispersal of debt that we do not really know where it will surface when there is a crack in the market. And, by the way, there will be a crack in the market.
–– market abuse: we are going to have to land a successful conviction for insider dealing. To do that, we are going to need immunity from prosecution for witnesses. Otherwise, we will never catch canny operators in the market and the FSA's policy on insider dealing will continue to look like collective hand-wringing. All the best of luck and love to the family. John.
Fintag says I think the FSA should be concentrating on:
- Mortgage Broker abuse - Private Equity debt and tax abuse - Reducing its rule book to one side of A4 paper - Explaining why its Art collection cannot be seen by the public?
Hey buddy, can you spare a million? (observer) Rockefeller, Carnegie, Hohn, Cruddas. The first two are instantly recognisable as two of the most generous business philanthropists ever, but you may not have heard of the second two.
Yet Christopher Hohn and Peter Cruddas are already giving away amounts large enough to rival some of the great benefactors of yesteryear- and, at 40 and 53 respectively, have plenty of earning - and giving - time left to allow them to replace venerable names in the league table of corporate philanthropists.
Article continues Hohn and Cruddas are the more extreme examples of a growing trend in the City for charitable largesse. While their gifts were exceptionally generous - Hohn gave his Children's Investment Fund Foundation £230m last year alone, while Cruddas has just established his eponymous foundation with a £100m endowment - many others are also supporting organisations such as Ark (Absolute Return for Kids), the children's charity established by a group of hedge fund managers five years ago, the newer Private Equity Foundation, or arranging their own charitable projects.
The new philanthropy is driven by three things. First, among hedge fund managers, private equity executives and other City bankers, bonuses of £20m are commonplace and a good hedge fund manager can easily earn more than £100m a year. Once you have the yacht, the house in the Bahamas and the status cars, what are you going to spend it on?
Second, these individuals are usually self-made. Hohn is the son of a Jamaican immigrant, Cruddas says his inner-city roots were a key factor influencing his choice of charitable projects to encourage children in similar positions, and Damon Buffini, the Permira executive who was heavily involved in establishing the Private Equity Foundation, is the son of a single mother from a Leicester council estate. While the 'old' wealthy see it as their duty to pass their money on to future generations, the new rich see no such obligation - Warren Buffett has said he wants to leave his children no more than they need for a comfortable life.
Third, the intense attention given to their wealth, alongside reports of famine in Africa, flooding in Asia and inner-city deprivation makes them more aware of their obligation to give something back. Ron Cohen, one of the founding fathers of private equity in Britain, and Richard Lambert, director-general of the CBI, have raised concerns about the impact of the growing wealth at the top on the public's perception of the City and industry. An active charitable strategy can help to deflect some of the criticism.
While individual amounts donated by City high-fliers may seem large, they have little impact on the overall figures: last year, according to the Charities Aid Foundation, £8.9bn was received by UK registered charities, up from £8.1bn the year before. But as a proportion of GDP it is still a minuscule 0.73 per cent - behind the US, with more than 1 per cent.
That may be because of the more generous tax breaks in the US, though charitable donations here are also treated well. Gift Aid, for example, means higher taxpayers can claim back the difference between the basic and higher rate of tax on the entire sum - which, assuming Hohn and Cruddas did that, could have meant a tax saving of £18m and £40m respectively.
Big Nights Out
Individual City donors may like to keep quiet about their generosity but, when the whole industry gets involved, it likes to make a splash. The gala dinner, replete with bidding wars for exclusive prizes such as a day on the set with Daniel Craig or dinner with Mikhail Gorbachev, have become de rigueur among private equity and hedge fund types.
Biggest, and longest-established, is the Ark dinner, run by Absolute Return for Kids, the hedge fund charity set up five years ago. Its most recent, held at Marlborough House on Pall Mall in May, attracted more than 1,200 City grandees, despite charging £100,000 a table, to hear speeches from Bill Clinton and entertainment from Prince. An auction of things like a trip for two to the Oscars helped it raise £26.6m.
But even that pales by comparison with the Robin Hood Foundation, the US organisation, which raised $71m (£30m) in just one evening.
The Givers
Anil Agarwal
The founder and chairman of mining group Vedanta Resources is giving £510m to set up the Vedanta University in Orissa, India, modelled on Harvard and Oxford, to take 100 students. Started as a scrap metal dealer, collecting scrap from cable companies across India and selling it in Mumbai. Vedanta is now one of the largest metals companies in the world. 'What is money for if not to be made and given back to society?' he asked last year after announcing the university gift.
Chris Hohn
Channels most of the profits from his Children's Investment Fund hedge fund business into his charitable activities. Last year's £23m donation follows the £50.4m donation in 2006. The fund is administered by his wife, Jamie Cooper-Hohn, whom he met while a student at Harvard. Publicity shy, but notorious in the City for corporate activist campaigns, involving Deutsche Borse and ABN Amro, his mechanic father came to Britain from Jamaica in the Sixties. The focus of the foundation is to 'demonstrably improve the lives of children living in poverty in developing countries by supporting strategies that will have a lasting impact on their lives and their communities'. Projects include work on Bill Clinton's initiative to improve access to anti-retroviral drugs for the fight against Aids.
Lord Sainsbury
Aims to be the first Briton to give away at least £1bn in his lifetime. Last year, he moved a bit closer with a £149m donation to his Gatsby foundation trust, which, fittingly given his previous role as science minister in the Labour government, provides grants for projects in science and engineering and plant science, as well as for disadvantaged children and local economic renewal. Aims to be actively as well as financially involved: 'If you really want philanthropic giving to make an impact, it's not just about signing cheques, you have to make a commitment of time and effort to make sure it runs effectively.'
David and Healther Stephens
The husband and wife team are the brains behind the motor insurance group Admiral, which floated three years ago. They put £100m of their proceeds from the sale into the Waterloo Foundation, providing support for projects that help build sustainable prosperity in poorer countries. It also supports projects in their native Wales. 'In countries where resources and money are scarce, even relatively small amounts can make a substantial difference to the happiness and prospects of a considerable number of people. We hope to give grants under this programme that will make life easier for some of the poorest people in the poorest countries of the world.'
Peter Cruddas
Founded financial trading group CMC Capital Markets 18 years ago with a starting capital of just £10,000 and now has a fortune of more than £1bn, making him (as far as we know) the City's richest man. His foundation, established last year with £100m, will channel money through organisations such as the Prince's Trust and Duke of Edinburgh award scheme to help younger people. 'I think it is quite obscene for one person to have such large amounts of money. From the ages of 11 to 14, I was a member of the Boy Scouts and used to go camping and that got me out of the inner-city environment. There are a lot of people going through what I went through. I want to help young people, give them a bit of a start.'
George Weston
Son of Garry Weston, architect of Associated British Foods, the Allinsons to Twinings food group, which now also includes the discount chain Primark. Both company and family are publicity shy, but his £67.6m charitable donations last year went to projects in education, arts and medicine.
Joe Lewis
The international dealer and investor now lives in the Bahamas. Gave more than £51m last year, including funding a project to create a 'medical city' in central Florida, which will eventually house a medical school, hospitals and research organisation.
Sir Tom Hunter
Scottish financier, involved in bid battles ranging from Dobbies Garden Centres to House of Fraser. Gave £28.7m to his Hunter Foundation last year, which supports projects that span improving services in Ayrshire to working with Bill Clinton's foundation to help alleviate poverty in Africa. 'Our aim is to act as a catalyst for change by investing in pilot programmes with strategic partners and often alongside government that, if proven, are adopted by government or the community for embedding nationally where possible.'
Philip Richards
Founder of hedge fund RAB Capital, the former Merrill Lynch boss gave away £7.7m last year on projects including The Gateway, a Christian youth centre in Tonbridge, Kent. A committed Christian, he says: 'There is a dynamic where God blesses people who give. A lot of the men of God in the Bible were pretty prosperous.'
Stanley Fink
Just resigned as chief executive of hedge fund manager Man Group to concentrate on his charitable activities. Gave £7.1m of his £200m-plus fortune last year, funding projects for children and medicine. 'I was brought up in a poor home but my parents would give if there was a good cause. How much you give is a function of your wealth. Was it £10 or £50? Now its £1,000 or £100,000. I do it from common humanity and caring about fellow human beings.'
Fintag says You spend the first 40 years of your life fighting to get to the top and the next 40 years feeling guilty about having done so.
ASIAN TAKEWAY
London Hedge Fund Turns to Asia (wsj) Best-known for taking large stakes in small but fast-growing energy and mining companies, hedge-fund operator RAB Capital PLC is looking to build its reputation in another burgeoning area: Asia.
Through two acquisitions in the past year, including one late last month, the London-listed company has added about $1 billion in Asia-invested assets to its $6.3 billion total funds under management, and broadened its reach in the region with a 13-person Hong Kong office. RAB Executive Chairman Michael Alen-Buckley recently said the firm has "further ambitions" in Asia.
Expanding into Asia is proving to be a natural next step for European hedge-fund groups as they scour the globe for trading opportunities and new investor capital. Sharp rises in the region's stock markets mean Asian-focused hedge funds have outperformed their European and U.S. peers by more than five percentage points this year, hedge-fund indexes show. That has helped attract more money to Asia's fast-growing $150 billion hedge-fund industry. Barring a broad decline in Asian stocks markets, that total should continue to climb.
"RAB is a primarily London-based business....By buying a business with people on the ground, they have a springboard into the region," said Stuart Duncan, an analyst in London for ABN Amro Holding NV, who has a "buy" rating on RAB shares.
Asia has been fertile for asset raising by other hedge-fund groups. About 27% of the $67 billion managed by Man Group PLC, the world's largest manager of hedge-fund assets, comes from Asia-Pacific investors.
"We are seeing a lot of our clients undertaking more activity in Asia," said Stuart Martin, a London-based partner in law firm Dechert LLP's alternative-investment funds practice.
For RAB, the region presents a route to diversify its business from its flagship energy and natural-resources funds. While it has around 20 funds, about one-third of its assets are in RAB Energy fund and in RAB Special Situations, which invests in natural-resources companies. It was through identifying investments for the Special Situations fund that RAB first became interested in expanding its Asian business, said Rod Barker, RAB's director of business development and distribution. Many of the companies the fund invests in make their money from sales to China and other parts of Asia.
The firm's revenue, which comes from management fees it collects on the money it manages, and from performance fees, more than doubled last year to £118 million ($240 million). Its shares in the year until Friday were up 42% to 106.5 pence.
Although RAB started a Japan fund in 2004, its first big push into Asia came in September when it paid £20.5 million for London-based Northwest Investment Management and four funds investing in Asian stock markets. In June, it added Hong Kong's Pi Investment Management for £13 million, which came with two funds, 13 people and an office in the region.
"It's a very smart move for them to buy someone like Pi which has connections with the wealthy families and private banks that are allocating to Asian managers," said Pierre Prunier, director of business development at Eurekahedge, a hedge-fund research company and consultancy.
According to Eurekahedge, Asia's hedge-fund assets grew by about 15% in the first five months of the year to $151 billion. Globally, hedge-fund assets are estimated in a range of $1.5 trillion to $2 trillion. The Eurekahedge Asian Hedge Fund Index gained 12% in the first six months of the year, outpacing a 7.4% return on the North American index and a 7.4% gain in the European index.
RAB's best-performing Asian fund is the RAB-Northwest Warrant fund, which invests in a form of options on Asian stocks known as warrants. It was up 37% after six months.
Fintag says Asia is exhilarating, volatile and is more exciting to trade than the S&P500. The problem has always been its "emerging markets" status (excluding Japan) and so when Western markets boom, we all feel confident in tackling Asia. When the markets turn, we are out in a flash.
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