Showing posts from September, 2009

Have Global Financial Risks Subsided?

Chris Giles of the FT reports that the IMF warns on further institutional losses:
Banks around the world still have to reveal about half their likely losses resulting from the financial and economic crisis, the International Monetary Fund said on Wednesday, warning there was still a “significant” risk of another downward lurch in the global recession.A failure to reveal the true scale of the losses they are likely to face and boost capital held in the banks would undermine the economies of the US, the UK and the eurozone and could generate a renewed vicious spiral where weak banks damage economic prospects, raising default rates and further threatening the health of banks, the IMF said.
José Viñals, the Fund’s head of monetary and capital markets, said: “In order to provide the credit that the economic recovery will need, you need to have some muscle as a bank – that means having, among other things, sufficient capital. “Banks need more capital – they need more capital in Europe; they n…

Are Hedge Funds Worth It?

Gregory Zuckerman of the WSJ writes that Pessimism Exacts Price on Skeptics:
Hedge-fund manager Peter Thiel is suffering, not because he lost money in the downturn, but because he missed the rebound.Mr. Thiel, a billionaire co-founder of online payment company PayPal and an early investor in Facebook, thinks the economy is far from recovered and has bet with the bears amid the relentless rally. His fund has seen double-digit declines as other hedge funds have racked up gains."The recovery is not real," he says. "Deep structural problems haven't been solved and it's unclear how we will create jobs and get the economy growing again -- that's long been my thesis and it still is."The contrarian view puts Mr. Thiel among a group of investors with impressive track records who are holding out, unwilling to buy into the notion of the economy's rebound.In London, the largest fund of John Horseman's $4 billion hedge-fund firm is down 20% this year; "i…

Banker-Bashing or Plain Old Common Sense?

David Stringer of the Associated press reports that U.K. to scrap annual bonuses for bankers:
British Treasury chief Alistair Darling said Monday that automatic annual bonuses for banking executives will be outlawed in an attempt to curb excessive risk taking in the country's huge financial sector.Mr. Darling told the governing Labour Party's annual conference that new legislation to scrap the payments will be put to Parliament within weeks.Leaders of the G20 rich and developing countries agreed last week to limit executive bonuses, but didn't set specific caps. Mr. Darling said bankers in Britain will in future be offered bonuses for their performance over several years, rather than over 12 months.“We won't allow greed and recklessness to ever again endanger the whole global economy and the lives of millions of people,” Mr. Darling said.He told the rally that new laws would include a claw-back provision and help to “end the reckless culture that puts short term profits…

Does Asset Allocation Still Work?

Richard Bookstaber, author of A Demon of Our Own Design, recently wrote an excellent piece in Seeking Alpha, Why I'm Skeptical About Asset Allocation:
I appeared last Friday on a the PBS program WealthTrack, where the topic was asset allocation, in particular, as host Consuelo Mack put it, how to build an all weather portfolio. I was the skeptic of the group. I don’t think there is some magic asset allocation that protects you from the buffetings of financial storms without it also trimming your sails during fair weather.Here is an encapsulation of my views from the program.

Asset allocation and risk appetite

One of the participants, asset allocation guru David Darst of Morgan Stanley (MS), proposed various portfolios to protect against a 100-year flood, 30 to 70-year flood, a 25-year flood, etc. Those portfolios boiled down to putting less in risky assets and more in bonds; the more severe the flood you anticipate, the less risk you take. Of course, that will do the trick. If by a…

Who Is Eyeing Clean Energy?

Reuters reports that Barclays pension fund eyes clean energy:
The 15 billion pound ($24 billion) defined-benefit pension scheme of UK banking group Barclays Plc is poised to make a foray into clean energy investments, its chief investment officer said.Tony Broccardo said the pension scheme was considering alternative energy investments, including via private equity firms which finance green energy projects."Clean technology is an area that could be a big allocation for us in the future," Broccardo told Reuters.Broccardo, appointed last year as the fund's first chief investment officer, said the fund will seek exposure to alternative energy as part of its "opportunistic" investment program.Last year, the strategy prompted allocations to corporate credit in the United States and Europe, which increased its overall risk profile but netted 20 percent returns.Broccardo said the fund had about 500 million pounds annually to investing opportunistically. Combined with e…

The Last Hedge Fund Hurrah?

Bloomberg reports that hedge-fund assets increased by $21.4 billion in August:
Hedge-fund assets increased by $21.4 billion in August as managers completed their best year- to-date return in almost 10 years, driven by rising stock markets amid signs of economic recovery, Eurekahedge Pte said. Assets grew for a fourth straight month, adding about $100 billion, the largest sustained growth period since the end of 2007, the Singapore-based research firm said in a report posted on its Web site. Net inflows into the industry totaled $12.6 billion in August, while gains through performance were $8.8 billion, bringing total assets under management to $1.38 trillion, the firm said. A rebound in global stock markets has helped hedge funds record their best first eight months since 2000, after managers posted their worst year on record in 2008. The Eurekahedge Hedge Fund Index, tracking more than 2,000 funds, gained 1.3 percent in August, as the MSCI World Index of 23 developed n…

Private Equity on the Cusp of Golden Age?

A senior private equity manager sent me an article from Andrew Ross Sorkin of the NYT,A Financier Peels Back the Curtain:
“We all had too much money. It was just too easy.”That’s the unvarnished appraisal of the private equity business by Guy Hands, perhaps best known for his unfortunate $4.73 billion purchase of the record company EMI in March 2007, the peak of the buyout boom — a bet that will almost certainly lose his investors and his firm, Terra Firma, a fortune.That ill-timed acquisition aside, Mr. Hands’s surprisingly candid assessment of the private equity industry is worth sharing. He was in the midst of the industry’s growth to dizzying heights during the debt-fueled boom, and he is now having to deal with the aftermath of its shopping spree. Like others, he is desperately trying to keep businesses afloat and pay off the equivalent of huge monthly mortgage payments to the banks that financed them.Mr. Hands, a large man with unruly hair who is a name-brand financier in his hom…

Rating Public Pension Funds?

Last week Tara Perkins of the Globe and Mail reported that rating agencies are at the crossroads:
Just like the investment portfolios of most Canadians, Walter Schroeder is a shrunken version of his former self in the wake of the financial crisis.The 67-year-old founder of credit rating agency DBRS Ltd. has lost a noticeable amount of weight, something that acquaintances point to when speaking of the stress he and his team have endured over the past couple of years.More than three decades after conceiving a brazen business plan for a Canadian credit rating agency during a family road trip in his Volkswagen Beetle, Mr. Schroeder succeeded in building DBRS into the country's pre-eminent rating agency.But a year after Lehman Brothers imploded, DBRS, along with other credit raters, is battling the fallout of having given high ratings to a number of securities that cratered. Now, the agencies are under fire from investors, regulators and politicians who are introducing new rules for the…