Tag: Private Equity

February 27, 2018


Visual Capitalist – How Money is Spent by Different Income Groups – Jeff Desjardins 2/25

WSJ – Daily Shot: U.S. Racial / Ethnic Demographics 2/26

WEF – Business Insider: Gun control in four countries around the world – Chris Weller 2/21

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Now & Then – Ben Carlson 2/25

Bloomberg Businessweek – In Exile, Bannon Sounds the #MeToo Alarm – Joshua Green 2/13

  • “He sees female empowerment as the next great political backlash, which means trouble for Republicans.”

Economist – Why Cape Town is running out of water 2/15

  • “The politics of drought.”

The Registry – Is the 1031 Exchange Panacea or Placebo? – John McNellis 2/26

Markets / Economy

WSJ – Have We Seen Peak Prices for Smartphones – Dan Gallagher 2/25

WSJ – Playing With $100 Billion, Warren Buffett Is Giant Trader of U.S. Treasury Bills – Nicole Friedman and Daniel Kruger 2/23

Real Estate

FT – JPMorgan plans to build massive HQ tower in New York’s Park Ave – Ben McLannahan 2/21

  • “JPMorgan Chase has given a big boost to the old business heart of midtown Manhattan, agreeing a deal to tear down its 60-year-old Park Avenue headquarters and replace it with one of the tallest towers in New York City.”
  • “The biggest US bank by assets had been considering a move from its 270 Park Avenue location to the west side of Manhattan, as an anchor tenant of a new development known as Hudson Yards. But on Wednesday the bank said that it had struck a deal with Mayor Bill de Blasio to stay put, moving staff from several buildings in the Park Avenue area into a new, 2.5m sq ft tower.” 
  • “At 70 to 75 floors, it should be the tallest bank building in the country upon completion in 2024, topping Bank of America’s 55-floor tower a few streets away, on the north-west corner of Bryant Park. It will also surpass BofA’s 60-floor headquarters in Charlotte, North Carolina, which looms over the 42-floor Wells Fargo Tower.” 
  • “Stuart Saft, head of the New York real estate practice at Holland & Knight, described the deal as a ‘fabulous’ one for midtown Manhattan, likening the threat from Hudson Yards to the development of Canary Wharf in London in the late 1980s. Already, white-shoe law firms such as Milbank, Tweed, Hadley & McCloy and Boies Schiller Flexner have agreed to move to the complex emerging by the Hudson River.” 
  • “JPMorgan will expand its floor area by buying unused development credits, known as ‘air rights’, from landmark properties in the area such as St Patrick’s Cathedral, St Bartholomew’s Church and Central Synagogue.”

SF Chronicle – Google’s Bay Area real estate empire equivalent to 14 Salesforce towers – Wendy Lee 2/23

WSJ – Tough Start for Housing – Justin Lahart 2/21

  • “Homes sales slowed in January, even before higher rates and the tax law hit the market.”


FT – Private equity ‘secondaries’ deals hit record $58bn – Chris Flood 2/25

FT – Blockchain ‘could save asset managers $2.7bn a year’ – Attracta Mooney 2/21

  • “Blockchain could save asset managers $2.7bn a year if the investment industry shunned the laborious manual practices involved in buying and selling funds in favor of using online ledger technology, according to research published on Thursday.”
  • “Technology company Calastone said blockchain, which is a giant online ledger, could revolutionize the processes involved in buying and selling funds, generating large savings for investors in the process.”
  • “It estimated that based on daily trade volumes of funds in the UK, Ireland, Luxembourg, Hong Kong, Singapore, Taiwan and Australia, £1.9bn — or $2.7bn — in savings was possible.”
  • “Earlier this year, BNP Paribas Asset Management said it had successfully completed a full end-to-end fund transaction test using blockchain technology. The project involved a tie-up between BNP Paribas Securities Services’ blockchain program, Fund Link, and FundsDLT, a blockchain-based decentralized platform for fund transaction processing.”

WSJ – Daily Shot: Goldman Sachs – ICOs outpacing Venture Capital 2/26

Asia – excluding China and Japan

FT – Top Indonesian bank eyes $50bn of assets stashed in Singapore – Wataru Suzuki 2/25

  • “Indonesians declared more than 750tn rupiah ($52.5bn) worth of assets in Singapore during Indonesia’s tax amnesty program — which gave immunity from prosecution to those who came clean about untaxed wealth and paid a small penalty — ended last March. That is more than the combined total they declared in the next four top destinations — British Virgin Islands, Hong Kong, Cayman Islands and Australia.”


Economist – China is trying new ways of skimming housing-market froth 2/15

  • “The party wants people to rent.”

FT – Chinese embrace digital red envelopes for lunar new year – Louise Lucas 2/21

  • “Tencent, a Chinese technology group with an equity value greater than Facebook’s, said 768m people sent and received hongbao, the red packets stuffed with cash, over Weixin Pay, its third-party payments business, during the six-day holiday period. Typically people will hand out scores or even hundreds of hongbao: according to Tencent, one person sent 2,723 while another received 3,429.”

South America

Economist – Fending off the flood from Venezuela 2/17

  • “The rise in migration has alarmed Latin American governments.”

January 24, 2018


A Wealth of Common Sense: 180 Years of Stock Market Drawdowns – Ben Carlson 1/22

  • “A reader sent me a link to a video of a presentation given by former hedge fund manager and quant Robert Frey (whose firm was actually bought out by legendary hedge fund manager Jim Simons in the 90s) called 180 Years of Market Drawdowns.”
  • “Frey discusses the many changes that have taken place in the stock market over the years — the creation of the Fed, monetary policy, fiscal policy, the end of the gold standard, tax rates, valuations, the industry make-up of the markets and a number of other things.”
  • “But there has been one constant going back all the way to the early 1800s — risk. More specifically, drawdowns or losses. Frey presented a couple of different charts on the market to make his point. First, here’s the long-term growth of the stock market with losses shaded in red:”
  • “Now here are those losses visualized in another way without the benefit of a log scale chart:”
  • “Obviously, the crash during the Great Depression stands out here, but look at how consistent losses have been over each and every decade or economic environment. Losses are really the one constant across all cycles.”
  • “Frey says in his talk that in stocks, ‘You’re usually in a drawdown state’.”
  • “Stocks don’t make new highs every single day, so most of the time you’re going to be underwater from your portfolio’s high water mark. This means there are plenty of chances to be in a state of regret when investing in stocks.”
  • “This makes sense when you consider that stocks are positive just a little over half the time when looking at returns on a daily basis, but it can be difficult to wrap your head around this fact.”
  • “I used monthly total returns on stocks for these numbers and found that an investor would have been down from a prior peak over 70% of the time. The majority of your time invested in stocks could be spent thinking about how you coulda, shoulda, woulda sold at that previous high price (which of course gets taken out to the upside eventually).”
  • “Over the last 90 years or so the market have been in a bear market almost one-quarter of the time. Half the time you’re down 5% or worse. It’s difficult to appreciate this fact when looking at a long-term log scale stock chart that seems to only go up and to the right.”
  • “This is why stocks are constantly playing mind games with us. They generally go up but not every day, week, month or year.”
  • “No one can predict what the future returns will be in the market. No one knows what the future holds for economic growth. And we certainly can’t predict how investors will decide to price corporate cash flows at any given point in time out into the future.”
  • “But predicting future risk is fairly easy — markets will continue to fluctuate and experience losses on a regular basis. As an investor in stocks you will spend a lot of time second-guessing yourself because your portfolio has fallen in value from a previously seen higher level.”
  • “Market losses are the one constant that don’t change over time — get used to it.”

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – A Goon Squad of Charlatans, False Prophets and Mercenaries – Anthony Isola 1/23

NYT – What if a Healthier Facebook Is Just … Instagram? – Kevin Rose 1/22

Markets / Economy

FT – No stealth taper from Bank of Japan – Robin Harding 1/23

  • “BoJ governor says bank has not started thinking about exit from monetary easing.”

FT – High-spirits as Bacardi swallows Patron tequila for $5.1bn – Jude Webber 1/22


FT – Trump’s 30% tariffs on solar imports anger global sector – Ed Crooks 1/23

  • “The Solar Energy Industries Association said it expected the tariffs to cost about 23,000 jobs, based on modeling by IHS Markit, the research group. That is about 9% of the estimated US solar workforce of about 260,000.”

FT – Trump raises temperature with new tariffs in China trade battle – Shawn Donnan and Ed Crooks 1/23

  • Beijing and Seoul are not happy.


FT – Private equity: flood of cash triggers buyout bubble fears – Javier Espinoza 1/22

  • “The buyout sector is on a tear as investors hunt for higher returns. But as competition and valuations increase, some fear a dangerous new cycle.”


Bloomberg Businessweek – Startups Are Raising Billions Using Initial Coin Offerings – Yuji Nakamura 1/22

FT – The $3bn ICO question – Don Weinland 1/23

  • “Where has the $3bn raised in ‘initial coin offerings’ over the last year and a half actually gone?”
  • “A group of academics led by experts from the University of Luxembourg and the European Banking Institute, have been pondering that very question for months. And what they found out could alarm investors who have been buying into companies using an instant digital ledger (aka blockchain) and cryptocurrencies instead of investing on the stock markets with hard cash.”
  • “On the crucial question of who is ‘behind’ an ICO, the researchers found that 21% of the 300 ICO deals in their database ‘failed to convey any information at all about the issuing entity’. About 52% of the issuers did not provide valid postal addresses.” 
  • “The authors stress that they have only looked at 300 ICOs, and therefore their findings should not be taken as ‘any more than very broadly indicative, given that the total universe of ICOs’ is more than 1,000.”
  • “Regulators around the world have found ICOs’ rise troubling, especially since the rewards promised by ICO issuers are often obtuse and can range from use of their product (in exchange for the tokens investors buy) to a share in profits. In some cases, investors hold on to the tokens hoping for a Bitcoinesque rise in value.” 
  • “Despite the high level of regulatory uncertainty, most issuers have so far done little to make things clearer for buyers.”
  • “Nearly 83% of the ICOs give no regulatory status for the offerings, the report says. That means the buyer does not know under what laws the ICO is regulated, or what their legal rights are after making a purchase. The researchers could not determine in what jurisdiction 93 of the ICOs, were based.”

WSJ – The Programmer at the Center of a $100 Billion Crypto Storm – Paul Vigna and Jim Oberman 1/23

  • “How a top source of bitcoin data contributed to a sudden plunge in digital currencies.”

WSJ – Daily Shot: Bitcoin 1/22


FT – WeChat launches alternative to Apple App Store – Yuan Yang 1/9

  • “WeChat, China’s most frequently used mobile app, today started offering ‘miniprograms’ within the app from third-party developers. Users can now book a shared ride with Didi, order a gift from JD.com, or rent a bicycle from Mobike — and use over 100 other ‘apps within the app’ — without leaving the WeChat platform.”
  • Note that WeChat now has over 580,000 apps within its universe – up from 100 when it started.
  • “The new miniprogram function makes WeChat, or Weixin in Chinese, the first big platform to provide an alternative to the App Store from Apple, which has tightly controlled what programs can be installed on an iOS device.”
  • “The miniprograms can be used almost instantly and provide stripped-down functions compared to the original full apps.”
  • “Rather than the 30% cut that Apple takes from App Store purchases, developers have not been asked to give any cut to WeChat, according to Matthew Brennan of the tech consultancy ChinaChannel.”
  • “In addition, miniprograms are ‘device-neutral’, meaning they will run in exactly the same way on Android and iOS.”
  • “WeChat’s captive audience makes it a more plausible candidate to crack open in-app app distribution. The platform accounts for 35% of all time spent on mobiles in China, according to QuestMobile, the tech research lab. More than 750m people log into WeChat daily, and half of them use it for more than an hour and a half each day.”
  • “’Tencent is winning the mobile war. Miniprograms will come to have a material impact on Apple’s App Store revenues; around 15% of China’s mobile market are iOS users. Tencent is Apple’s number one source of income from the App Store globally,’ said Mr Brennan.”

Health / Medicine

WSJ – Why Our Mental Health Takes a Village – Elizabeth Bernstein 1/22

  • “Different people can help us manage different moods. Psychologists explain how to build a portfolio of supportive allies.”


NYT – China’s Housing Market Is Like a Casino. Can a Property Tax Tame It? – Keith Bradsher 1/22

  • “Now the Chinese government is considering adopting something that, while familiar to homeowners in the United States and elsewhere, could dramatically reshape the world’s second-largest economy: a property tax.”
  • “Living in a place without property taxes may sound appealing, but a growing number of experts and policymakers in China say the absence of one has helped destabilize a vast and crucial part of the Chinese economy.”
  • “Many investors snap up homes — in China, they are mostly apartments — hoping to ride a price surge. In the biggest cities, property prices on average have at least doubled over the past eight years. But vast numbers of apartments in many cities lie empty, either because the buyers have no intention of moving in or renting out, or because speculators built homes that nobody wants.”
  • “A property tax could have a profound impact on a crucial part of the nation’s economy. Real estate makes up nearly three-quarters of the assets of Chinese households, according to the Survey and Research Center for China Household Finance, an academic institute in Chengdu, in southwestern China. That compares with a bit more than one-third for United States households. Roughly a fifth to a quarter of China’s annual economic output comes from property and related industries, like furniture making.”
  • “But housing is also the source of some of the country’s biggest booms and busts. Local investors — many of whom do not trust the country’s stock markets and are forbidden by Beijing to move most of their wealth abroad — simply throw money at housing. Real estate broker fees, often as low as 1%, are a small fraction of the typical 6% in the United States. Mortgage lending has leapt over the past two years, adding to the potential for financial turbulence.”

December 6, 2017


Visual Capitalist – Visualizing the 4,000 Year History of Global Power – Nick Routley 12/2

The Verge – The Winklevoss twins are now Bitcoin billionaires – Thuy Ong 12/4

WSJ – Daily Shot: Global Market Cap as % of GDP 12/5

Worthy Insights / Opinion Pieces / Advice

FT – The Republicans’ faith-based tax plan – Rana Foroohar 12/3

Bloomberg Gadfly – 98,750,067,000,000 Reasons to Be Worried About 2018 – Mark Gilbert and Marcus Ashworth 12/4

Markets / Economy

Axios – The U.S. companies with the most cash parked overseas – Bob Herman 12/4

WSJ – Daily Shot: S&P 500 Relative Monthly Performance 12/5

  • “The S&P 500 has not had a down month this year.”


FT – Bitcoin: an investment mania for the fake news era 12/1

Bloomberg – BlackRock and Vanguard Are Less Than a Decade Away From Managing $20 Trillion – Rachel Evans, Sabrina Willmer, Nick Baker, and Brandon Kochkodin 12/4

FT – Private equity investors are paying through the nose for midsize companies – Matthew C Klein 12/4


FT – China banking regulator targets ‘invisible shareholders’ – Gabriel Wildau 12/1

WSJ – How China’s Migrant Crisis Could Hit Alibaba – Jacky Wong 12/5

South America

FT – Maduro’s purge – Gideon Long 12/1

  • “New appointment at state oil company is designed to keep the military sweet.”

October 2, 2017

If you were to read only one thing…

Reuters – Chaos and hackers stalk investors on cryptocurrency exchanges – Steve Stecklow, Alexandra Harney, Anna Irrera and Jemima Kelly 9/29

  • “Online exchanges for trading bitcoins and other virtual currencies can make fortunes for their owners. But they are largely unregulated, besieged by hackers and thieves, and fraught with risk for consumers.”
  • “Cryptocurrencies were supposed to offer a secure, digital way to conduct financial transactions, but they have been dogged by doubts. Concerns have largely focused on their astronomical gains in value and the likelihood of painful price crashes. Equally perilous, though, are the exchanges where virtual currencies are bought, sold and stored. These exchanges, which match buyers and sellers and sometimes hold traders’ funds, have become magnets for fraud and mires of technological dysfunction, a Reuters examination shows, posing an underappreciated risk to anyone who trades digital coins.”
  • “Huge sums are at stake. As the prices of bitcoin and other virtual currencies have soared this year – bitcoin has quadrupled – legions of investors and speculators have turned to online exchanges. Billions of dollars’ worth of bitcoins and other cryptocurrencies – which aren’t backed by any governments or central banks – are now traded on exchanges every day.”
  • “’These are new assets. No one really knows what to make of them,’ said David L. Yermack, chairman of the finance department at New York University’s Stern School of Business. ‘If you’re a consumer, there’s nothing to protect you.’”
  • There have been at least three dozen heists of cryptocurrency exchanges since 2011; many of the hacked exchanges later shut down. More than 980,000 bitcoins have been stolen, which today would be worth about $4 billion. Few have been recovered. Burned investors have been left at the mercy of exchanges as to whether they will receive any compensation.”
  • “Nearly 25,000 customers of Mt. Gox, once the world’s largest bitcoin exchange, are still waiting for compensation more than three years after its collapse into bankruptcy in Japan. The exchange said it lost about 650,000 bitcoins. Claims approved by the bankruptcy trustee total more than $400 million.”
  • “So-called ‘flash crashes’ – when cryptocurrencies suddenly plummet in value – are also a threat. Unlike regulated U.S. stock exchanges, cryptocurrency exchanges aren’t required to have circuit breakers in place to halt trading during wild price swings. Digital coin exchanges are also frequently under assault by hackers, resulting in down times that can sideline traders at critical moments.”
  • Caveat emptor.


Vox – What every American needs to know about Puerto Rico’s hurricane disaster – Brian Resnick and Eliza Barclay 9/29

  • “3.4 million US citizens live in Puerto Rico, and they are entitled to the same government response as any state. But half of Americans don’t even know that.”
  • “Puerto Ricans have been citizens of the United States since 1917, when President Woodrow Wilson signed the Jones-Shafroth Act. Citizens mean citizens. Puerto Ricans can travel freely to and from the continental United States without a passport. They’re protected by the same Bill of Rights as anyone else born in the United States. They vote in presidential primaries.”
  • “The island does not get electoral votes in general presidential elections. It also does not have voting representatives in Congress. Jenniffer González-Colón serves as resident commissioner of Puerto Rico, a non-voting member of the US House of Representatives.”
  • “If Puerto Rico were a state, it would be the 30th most populated — with more people than Wyoming, Vermont, and Alaska combined.”
  • “This hurricane season has been punishing for Puerto Rico. First, it got clipped by Hurricane Irma, a huge Category 5 storm whose eye passed just north of the island. That storm — which had ravaged several Caribbean islands — left 1 million people without power on Puerto Rico. By the time Maria hit, 60,000 people were still without electricity. That means there are many people on the island who haven’t had power for 20 days (Irma passed by on September 7).”
  • “Maria was a slightly smaller storm, but it was far, far more devastating. That’s because it charted a course directly over Puerto Rico, hit near its peak intensity, and passed around 25 miles away from San Juan, the capital, which is home to about 400,000 people. No nation or territory could suffer such a direct hit without some damage.”
  • “’It was as if a 50- to 60-mile-wide tornado raged across Puerto Rico, like a buzz saw,’ Jeff Weber, a meteorologist with the National Center for Atmospheric Research, says. ‘It’s almost as strong as a hurricane can get in a direct hit.’”
  • “By the record books, it was the fifth-strongest storm ever to hit the US, and the strongest storm to hit the island in 80 years.”
  • “Exact figures on the extent of the damage and the costs of repairs on the island are not yet known. This is partly due to the fact that communications on the island are strained. But it’s also because many roads are damaged and it’s hard to get around. AIR Worldwide, a catastrophe risk consultancy, estimates the storm caused $40 billion to $85 billion in insurance claims throughout the Caribbean, with 85% of those losses in Puerto Rico.”
  • “It could be four to six months before power is fully restored on the island. That’s half a year with Puerto Rico’s 3.4 million residents relying on generators, half a year without air conditioning in the tropical climate, half a year that electric pumps can’t bring running water into homes, half a year when even the most basic tasks of modern life are made difficult.”
  • “PREPA, the electric company on the island, has a massive $9 billion debt, as Vox’s Alexia Fernández Campbell has explained, and in July it defaulted on an interest payment. For years, it hasn’t had the money to invest in modernizing Puerto Rico’s electrical systems. Even without hurricanes, power outages are frequent on the island. Making things worse: There aren’t enough workers to fix the infrastructure. Young people have been leaving the island in droves as the economy has tightened, and older workers have been retiring en masse, securing their pensions.”
  • “No electricity means no power to pump water into homes, no water to bathe or flush toilets. FEMA said Saturday that 55% of people on the island still are without potable water.”
  • “The storm knocked out 1,360 out of 1,600 cellphone towers on the island. Many communities have been isolated from the outside world for days, relying only on radios for news.”
  • It’s bad. And of course, Puerto Rico is not alone. “The island of Barbuda has been completely abandoned, and residents still can’t return home. Twenty-seven people died in Dominica. And 48,000 people are still without power in the US Virgin Islands.”

Worthy Insights / Opinion Pieces / Advice

NYT – For Homeless Advocates, a Discouraging Lesson in Los Angeles: Money Is Not Enough – Adam Nagourney 9/29

Markets / Economy

FT – Value of private equity dealmaking at highest level since 2007 – Javier Espinoza, Robert Smith, and Arash Massoudi 9/28

Real Estate

WSJ – Daily Shot: UBS Global Real Estate Bubble Index 9/29


FT – South Korea joins global backlash against initial coin offerings – Bryan Harris and Edward White 9/29

  • “Country is latest to ban the fundraising platform involving digital currencies.”

Health / Medicine

Bloomberg – This State Has the Best Health Care in America – Vincent Del Giudice and Wei Lu 9/28

  • Hint, according to Bloomberg, it’s Hawaii.

Sovereign Wealth Funds

FT – SWFs pull money from asset managers for 12th consecutive quarter – Jennifer Thompson 9/29

  • “Sovereign wealth funds have withdrawn billions of dollars from asset managers for a 12th consecutive quarter as low oil prices continue to take their toll. The net amount repatriated in the past three years has reached $182bn.”
  • “The state-backed funds, which many oil-rich nations use to save for a rainy day or to provide money for future generations, withdrew a net $6bn in the three months to the end of June, according to eVestment, the data provider.”
  • “Redemptions by SWFs began in the latter half of 2014, shortly after a glut in oil supply, due to increased US shale production, triggered a sharp drop in the oil price.”
  • “However, disenchantment with high fees charged by fund managers as well as a desire by some state-backed vehicles to put cash to work themselves are additional inducements for SWFs to take back control.”
  • “There are signs of moderation. The net outflow in the second quarter of 2017 was below the quarterly average of the past three years, which has been around $15.1bn every three months.”

September 22, 2017


Economist – Daily Chart: Modern slavery is disturbingly common 9/20

Worthy Insights / Opinion Pieces / Advice

Economist – In Detroit, the end of blight is in sight 9/16

  • “What happens when a city accustomed to bad government elects a good one.”
  • A good test case for a city in transition from a larger population/footprint to a smaller one and what to do with all of that excess infrastructure.

Economist – Buttonwood: Initial Coin Offering means investor caution obligatory 9/16

  • A good primer on ICOs.
  • “Nothing makes individuals more willing to take risks than the sight of other people getting rich.”

Markets / Economy

FT – Toys R Us buckled under private equity ownership – Anna Nicolaou and Kara Scannell 9/19

  • “Retailer’s debts played a bigger role than Amazon or Walmart in its bankruptcy.”

September 20, 2017


Economist – Ryanair’s mass cancellations are a problem of its own making – Gulliver 9/19

  • “When Ryanair convinced many of its pilots to take fewer holidays during peak summer-travel season, it probably thought it was being clever. But poor planning and a bit of bad luck have left the airline with a shortage of working pilots, many of whom have now taken time off, for the autumn. The shortfall has forced Ryanair to cancel some 2,100 flights starting on September 16th and continuing through October.” 
  • “Ryanair’s woes were caused in part by a change in the way the airline determines employee leave. Previously, Ryanair counted holidays in the year from April. In 2016, under pressure from the Irish Aviation Authority, Ryanair adopted the calendar year instead. As part of the transition, it needed to allow its employees to take the entirety of their leave between April and December of this year, leaving it with a staff shortage. As a result, the airline will probably have to scrap around 50 flights every day until the end of October.”

Markets / Economy

WSJ – The Fed, a Decade After the Crisis, Is About to Embark on the Great Unwinding – Nick Timiraos 9/18

  • “The central bank is likely to announce Wednesday it will start slowly shrinking its $4.2 trillion portfolio of mortgage and Treasury bonds purchased during and after the financial crisis. It will do so passively by allowing some bonds to mature without replacing them next month.”
  • “In June, the Fed said when it started to shrink its balance sheet it would do so by allowing a small initial amount of bonds—$4 billion of mortgages and $6 billion in Treasurys per month—to run off the portfolio without reinvestment. Every quarter, it will let a slightly larger amount do so, up to a maximum of $20 billion in mortgages and $30 billion in Treasurys per month.”
  • “For the next year or so, the Fed should still end up buying bonds in most months, since only a small fraction will mature and go not replaced, said Richard Clarida, an economist at Pacific Investment Management Co., or Pimco. He compared the start of the plan to losing weight by eating only two desserts a day instead of three.”
  • “One question the central bank hasn’t yet decided: How large should its balance sheet be at the end of the process?”
  • “Its holdings have swelled to $4.5 trillion from less than $900 billion before 2008. Though they will fall, the Fed will end up with more assets than it had before the crisis because its liabilities have grown—there’s more currency in circulation. The balance sheet size could settle out at between $2.4 trillion and $3.5 trillion sometime early next decade, New York Fed President William Dudley said in a speech earlier this month.”
  • “That would mean the Fed would end up allowing only around $1 trillion to $2 trillion in securities to mature, after having added $3.7 trillion between 2008 and 2014.”
  • “One reason markets have been relatively unfazed is that central banks in Europe and Japan are still purchasing assets. Mr. Spector (David Spector, CEO) of PennyMac expects the start of the Fed’s unwinding to have little effect on mortgage rates, which in early September hit their lowest levels of the year.”

FT – Private equity: wing and a prayer – Lex 9/18


WSJ – China’s Backdoor Real-Estate Bailout – Nathaniel Taplin 9/18

  • “Chinese property data out Monday showed housing prices weakening across the board in August. Usually this would be a good point to exit China growth plays.”
  • “But another 2015-style collapse in Chinese commodity demand remains unlikely. The reason? Slum clearance. Local governments are directly buying up large quantities of houses developers haven’t been able to sell and filling them with citizens relocated from what they call ‘slums’—old, sometimes dilapidated neighborhoods.”
  • “That helps explain why the drop in unsold inventories of apartments over the past year has been so sharp—down 22% on the year in August. That has helped prop up the market, especially in China’s smaller cities, despite more restrictions on housing purchases and slowing official figures on sales growth.”
  • “The scale of the program is large, accounting for 18% of floor space sold in 2016, according to Rosealea Yao, senior analyst at Gavekal Dragonomics, and is being partly funded by state policy banks like China Development Bank. That fits with Beijing’s broader strategy to head off a debt crisis by helping overextended property and industrial companies shift their debts and bad assets onto the government. Part of that is through a massive expansion of municipal debt and by getting consumers to carry more of the load through cheap mortgages. China Development Bank’s slum-redevelopment lending hit nearly one trillion yuan ($152.6 billion) last year, more than half of which went to purchasing existing commercial housing.”
  • “As a result, real-estate investment has held up reasonably well this year and inventories continue to fall: Vacant residential floor space was down another 10 million square meters in August, even though traditional sales have been lukewarm for months.”

September 11, 2017

Worthy Insights / Opinion Pieces / Advice

Mauldin Economics – Irving Fisher and Japan – Charles Gave 8/23

Oaktree – Yet Again? – Howard Marks 9/7

WSJ – Why American Students Need Chinese Schools – Lenora Chu 9/8

  • “After putting her son in an elite state-run school in Shanghai, an American mother finds that the U.S. education system could learn a few things from China – most of all that teacher knows best.”


FT – Red hot competition for private equity deals will hit returns – Chris Flood 9/9

  • “Private equity managers have raised around $260bn so far this year and are on track to surpass the industry’s annual fundraising record of $369bn registered in 2007, according to Prequin. The data supplier reckons that 811 managers are currently on the road looking to raise a further $578bn. “
  • “As a result, competition for deals among private equity managers is red hot at a time when many equity markets are trading at or close to their all-time highs. This is fueling concerns that profitable deals are becoming increasingly difficult to identify for private equity managers, which are now sitting on a record $1tn of excess capital that they have been unable to put to work.”
  • “Thomas Toth, a managing director at Wilshire Associates, the consultancy, says the amount of excess capital is ‘very substantial’ and has helped push up prices paid for deals. He says assets are being acquired on multiples of 10 (measured as total enterprise value as a multiple of underlying earnings), beyond the previous peak of 9.7 times, registered in 2007 before the financial crisis.”
  • “’We don’t expect to see private equity managers generate the same levels of returns that investors have been accustomed to,’ says Mr. Toth.”
  • “Wilshire’s working assumption is that private equity managers, on average, will generate annualized returns of 9.4% over the next decade, down from its 11.2% 10-year estimate in 2009.”
  • “He says that any rush to put money to work by private equity managers will ‘further compress’ future returns.”
  • “But just 6% of private equity managers plan to invest less money over the next 12 months, while 62% plan to invest more, according to Preqin.”
  • As to whom is raising this money,
  • “Apollo Global raised the bar for private equity fundraising to a fresh high last month when the New York-based investment manager said it had gathered $24.7bn for its latest buyout fund, the largest of its kind.”
  • “CVC Capital Partners raised around €16bn while Silver Lake gathered $15bn for its fifth buyout fund. KKR attracted $13.9bn for its 12th Americas fund and a further $9.3bn for an Asia-focused fund, while 3G and Bain are looking to raise $10bn and $7bn respectively.”
  • “Jeffrey Hooke, a finance lecturer at Johns Hopkins Carey Business School, says that institutional investors, such as US public pension schemes, and their consultants feel more comfortable with established ‘name brand’ managers, even if smaller, lesser-known companies might offer better return prospects.”
  • “Mr. Hooke examined funds run by the 18 largest private equity managers and found that three-quarters, including some funds run by KKR, Silver Lake and Bain, failed to beat the S&P 500 consistently between 2006 and 2016.”
  • “Mr. Hooke says the lavish marketing budgets of large private equity managers entice potential clients and that institutional investors could achieve better results if they themselves acquired holdings in the types of companies targeted by buyout funds.”
  • Not surprisingly, “those funds that have performed better than average tend to launch during periods of notable equity market weakness.”


Reuters – Trust issues? China targets a $3 trillion shadow banking industry – Engen Tham 9/9

  • “The trusts, at the heart of a vast shadow banking industry, are being pressured to step up compliance and background checks, and are being pushed towards greater transparency.”
  • “But the fast-growing 20 trillion yuan ($3 trillion) industry, whose lending operations are cloaked behind opaque structures, will be tough to rein in, according to employees at some trusts.”
  • “One of the biggest challenges facing regulators is that many trusts employ a baffling array of structures, and funnel money through complex webs of beneficiaries, which makes untangling transactions extremely difficult.”
  • “The practices of the trusts, and the speed at which the industry is growing, have made them a target for Beijing as it tries to keep a lid on risky lending, cool overheated markets and control corporate debt.”
  • “In April, Deng Zhiyi, head of the CBRC’s trust department, warned of ‘severe risks’ from funds flowing into the real estate, coal and steel sectors through trusts.”
  • “The industry is now roughly a tenth the size of China’s commercial banking sector.”
  • “However, the regulator set out in detail in April certain structures that the trusts should not use, such as money-pooling schemes and structuring products to avoid restrictions on leverage.”
  • “That was ‘a signal for financial institutions that from a legal and enforcement perspective, we are entering a stricter period,’ said Armstrong Chen, financial compliance partner at King & Wood Mallesons.”
  • “Trust firms will also have to start registering the details of their products, identifying the ultimate borrower of funds, this year, said Chen, who is in regular contact with the regulators.”
  • “Chen said the requirement would improve transparency, but people at trust firms say it will still be difficult to detect the use of the under-the-table agreements typical of the industry.”
  • “Despite these changes, the government’s job managing the trusts keeps growing. In the first half of this year, trust loans increased by 1.31 trillion yuan, which compared with 279.2 billion in the period last year, according to central bank figures.”

Reuters – China studying when to ban sales of traditional fuel cars: Xinhua – Tom Munroe and Yawen Chen 9/9

  • “China has begun studying when to ban the production and sale of cars using traditional fuels, the official Xinhua news agency reported, citing comments by the vice industry minister, who predicted ‘turbulent times’ for automakers forced to adapt.”
  • “Xin Guobin did not give details on when China, the world’s largest auto market, would implement such a ban. The United Kingdom and France have said they will ban new petrol and diesel cars from 2040.”
  • “To combat air pollution and close a competitive gap between its newer domestic automakers and their global rivals, China has set goals for electric and plug-in hybrid cars to make up at least a fifth of Chinese auto sales by 2025.”
  • “Under the latest proposals, 8% of automakers’ sales would have to be battery electric or plug-in hybrid models by next year, rising to 10% in 2019 and 12% in 2020, but the rules would not be enforced until 2019, a year later than initially planned, the sources said.”