RIIP Reflections on Institutional Investment

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Indians flock to US... to buy Louis Vuitton handbags
2007-09-27 12:31:00
Okay, yawn, just another "shocking" story about globalization and the rise of Asia. But still... it is a bit startling, no? Vacationers head to US as rupee appreciates (LiveMint.com) The drop in the cost of travel has led to an increase in the traffic headed to the US
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Subprime tsunami hits Japan's shores: Banks tighten RE credit and foreigner
2007-09-27 12:19:00
The following is from NikkeiNet. This is the first I have heard of foreign investors selling Japanese RE and I'm not aware of any specific examples. Appears to be a sort of global credit crunch. Subprime tsunami hits Japan's shores<!--EH1--> <!--SH2--><!--EH2--> <!--SBL-->YASUO OTA Senior staff writer <!--EBL--> <!--SBT-->The recent problems in the U.S. mortgage market have cast a pall over
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CDOs: The Emperor has no underwear on
2007-09-26 02:36:00
Marvelous couple of paragraphs in last week's Economist piece on securitization: Steven Schwarcz, a professor at Duke University and writer on securitisation, has come across contracts which are so convoluted that it would be impractical for investors to try to understand them: they would have to spend more money hiring experts to deconstruct them than they could ever hope to earn in extra
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Indian BPO industry suffering from cost pressures
2007-09-25 19:02:00
The following from India's Business Standard warns the easy growth is over for India's BPO industry: Rising costs, Re make IT chiefs nervous IT AT THE CROSSROADS Ishita Russell / New Delhi September 25, 2007 Raman Roy is the original poster boy of the Indian information technology industry. After working with GE Capital, he had set up Spectramind with help from private equity funds, and
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ING has 28.7 bln euros of Alt-A mortgage exposure: This is not over yet by
2007-09-25 14:05:00
Wow, that's a lot. Time for write-downs!
More About: Mortgage , Exposure , Euros , Alt-A , Mort

Beijing Releases Pigs From Central Reserves: Pigs ask for directions
2007-09-24 14:15:00
A pig reserve? Really? Live pigs? Whaddya know... China Moves To Head Off Surge In Prices For Pork Beijing Releases Pigs From Central Reserves As Inflation Worsens By J.R. WU September 24, 2007 BEIJING -- China has begun releasing pigs from its central reserves into the domestic market in a bid to head off surging pork prices that have helped boost inflation to 11-year highs. While the
More About: Directions

Dollar Should Hold Its Own Against Yen: Miracles DO come true!
2007-09-24 12:59:00
Another headline from the WSJ (see article below) that makes it sound as though the dollar is hanging on by a thread. Yes (they say) it is virtually worthless against the Euro but fear not - at least it will "hold it's own" against... the world's most pathetically weak currency, the Yen. What a relief to know the dollar isn't going to zero. Although I'm not sure I believe it because
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Singapore Bank has $4 billion in sub-prime CDOs
2007-09-21 19:53:00
This is a bit odd to say the least. OCBC has $4 billion in CDOs backed partly by sub-prime and has been one of the bigger CDO issuers among Asian banks. So positive has this experience been that they are ready to begin issuing again... Singapore 's Bank s Stage Cautious Return to CDOs By PATRICIA KOWSMANN September 21, 2007; Page C2 SINGAPORE -- With investors world-wide still recoiling from
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Who are these guys? Great list and description of the biggest CDO issuers
2007-09-20 16:43:00
From eFinancial News, a who's who of CDO issuers.
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Managing decline? Japan under Yasuo Fukuda
2007-09-18 13:32:00
With the demise of the hapless Abe, Japan will now return to power a man who at first glance appears to be a classic old guard politician. Based on his public comments his primary concern (in addition to cleaning up the various messes created by Abe) are foreign policy - especially in terms of improving relations with other Asian nations even at the expense of ties with the US. In terms of
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Benefits of investing in timber: low returns and no inflation protection
2007-09-13 15:53:00
Institutional investors continue to be fooled into thinking that high returns in the past for timber assets are somehow indicative of fundamental characteristics - when instead they are simply a function of lots of dollars flowing into a very small asset class. This article from FundFire describes increased interest from public pension funds based on a study from Merrill Lynch. The study says
More About: Inflation , Investing , Benefits , Timber , Flat

Another housing problem contained: sub-prime mortgages cause muni bond down
2007-09-12 12:54:00
Even in today's "anything is possible" world of chaos and hyper-correlation, you have to read it twice to really get it: ratings are being cut on $16 billion of municipal bonds because of the subprime disaster. The link? A muni insurer, Radian, also runs a mortgage insurance subsidiary. No bonus points for guessing what's happening to the CDOs insured by Radian. Radian insured munis are now
More About: Bond , Muni , Housing , Problem , Mortgages

Global Recession: Japan is an anchor not a life preserver
2007-09-11 19:21:00
Japan's economy SHRANK in the April-June quarter by 0.3% (real GDP), an annualized 1.2% drop. Ten year JGBs fell to 1.5%, an 18 month low. Not exactly boom-time in Nippon. The odds of a global recession are one in five in my view, and growing. Yes, I know, I am a humble non-economist blogger whilst those dazzling prognosticators (brokerage analysts) are all in agreement that even if (oops,
More About: Life , Japan , Global , Recession , Reserve

More towels getting thrown: US Venture model is "broken" according to - wel
2007-09-07 20:37:00
This from the PE Week Wire: Northwest Venture Associates will not raise another fund, according to the Seattle PI. NVA founder Tom Simpson channels Steve Dow, by saying that “the fund model is broken.”
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Too good to be true: China says zero FX reserves invested in sub-prime
2007-09-05 20:50:00
Nice post from Brad Setser's Blog: China says it has invested in NO sub-prime related securities in it's trillion dollars of reserves. How likely is that? Not very.
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Its only a matter of time: Money center banks slowly reveal off-balance she
2007-09-05 19:53:00
The WSJ reports that Citi has $77 billion in off-balance-sheet conduit "assets" (which, if not sufficient to cover conduit liabilities - i.e., commercial paper - Citi has obligation to fund) and in addition has $100 billion in affiliated SIV assets. JPM is reported to have $54 billion in conduits while SIV assets not disclosed yet (that I am aware of). Well well, these are no longer small
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Another reason to expect a recession
2007-09-05 19:49:00
Housing Slump Strains Budgets Of States, Cities
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Bad news for China growth PE: Beijing focused on improving credit to SMEs
2007-09-04 21:36:00
The dirty little secret of Chinese PE investing was the potential to invest in small and medium sized profitable and fast growing companies - more or less out of the spotlight of government regulators and bureaucrats - with no competition from either banks or large global PE funds! It's a brilliant opportunity but of course it will go away at some point. Both the large PE funds and banks will
More About: News , China , Credit , Beijing , Bad News

Barclays Capital doubles down: injects $1.6 billion into SIV
2007-09-02 15:00:00
It's bad luck for a bank to find itself exposed to one or even two parts of the credit crisis cum subprime mess, but when its got cannon-ball sized holes all over its hull from every single shot fired - well, then we have to wonder whether these geniuses have a clue. According to the WSJ, Barclays announced on Friday it will inject $1.6 billion into a mutant creature called Cairn High Funding I
More About: Capital , Billion

Too little too late (thank goodness): Bush sends FHA squirt gun to put out
2007-08-31 14:36:00
Don't get me wrong, I don't think there is much that the Feds SHOULD do. Just want to say to those poor souls who are grasping at whatever shreds of hope that appear (like a mirage) in the distance - this ain't gonna work. From the Journal's piece on Bush 's "plan to rescue delinquent homeowners" (NOT): For now, the administration's primary vehicle to help homeowners will be the FHA, which
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How to invest in China
2007-08-30 04:06:00
Please note that the topic of this post is not “What to buy in China ” but “How to invest in China”. Many of the posts that I see on Seeking Alpha (China section) are about China ETFs. The ETFs seem to be of interest because they are a security which offers the buyer immediate “China exposure”. This is understandable. Any market that has tripled in 12 months as the Shanghai Stock Exchange A share index has is of course going to attract huge interest. Unfortunately, buying China ETFs is really not a very sensible way to invest in China. Yes, I know, I know, the ETFs have been tremendous performers (at least recently). But we can all think of securities which perform well for a period of time which are NOT necessarily smart investments (I seem to recall subprime backed CDOs were terrific performers for several years). The main reason not to buy the ETFs is that they are comprised almost entirely of SOEs (State Owned Enterprises). That is, the controlling shareholde...
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Carlyle to critics: "We can spend as fast as anyone!"
2007-08-27 17:16:00
Critics (clients?) of Carlyle 's uncertain efforts in Asia ex-Japan were informed by Carlyle that the firm had, contrary to what some may have thought, been ENORMOUSLY SUCCESSFUL at spending money.Carlyle defends its track record in Asia (FT)Carlyle Group, which has suffered high-profile setbacks in China, has issued a robust defence of its track record and predicted that private equity investment into Asia will flourish in spite of the global credit crunch.The US private equity fund struggled for 18 months to win approval for a sizeable investment in Xugong, China’s leading construction machinery maker, amid a nationalist backlash.This year it failed to secure approval for an 8 per cent stake in Chongqing Commercial Bank, a provincial lender.However, XD Yang, Carlyle’s most senior executive in Asia, told the Financial Times that the fund had closed 14 deals, with a total value of $800m, in China over the past year. All the investments were for minority stakes in companies in se...
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Global Liquidity Continues to Fall; Public Pension Funds Reverse Decision t
2007-08-27 16:32:00
Public pension funds are the mother load of new assets for hedge funds. With corporate defined benefit pension plan assets slowly dwindling away and what remains of corporate pensions going into to 401k plans which cannot invest in HFs, and with endowments and foundations already fully allocated for the most part, publics have been THE BIG opportunity for HFs. Especially for the $10 billion hedge funds that want to become $50 or $100 billion "asset management firms".Public pensions are notoriously slow off the mark but in recent years they've begun to notice that most other institutional investors, the world over, have 10, 20, 30% or more in hedge funds and private equity. And so the public funds set the wheels in motion (slow motion) to begin to invest. Now remember, these funds are elephants - large and slow. It can take them a year or more to make a decision, get approval, and then invest. And over the last year or so they have begun to put billions to work in HFs. Accord...
More About: Public , Global , Decision , Pension , Funds

India refuses to take its medicine; patience of MNCs apparently not unlimit
2007-08-24 19:51:00
Delhi scores own goalNovartis declares it will take its highly sought R&D dollars elsewhere after India n court rejects patent application on cancer drug. This is unusual because most MNCs, after getting slapped around by Indian courts, government officials, or NGOs, meekly ask forgiveness and walk away with their MNC tails between their legs. Not Novartis CEO Vasella who responded with the verbal equivalent of a nuetron bomb:This [ruling] is not an invitation to invest in Indian research and development, which we would have done. We will invest more in countries where we have protection. It’s not a punishment, it’s just a question of the culture for investment. Do you buy a house if you know people will break in and sleep in your bedroom?Novartis' country head, Ranjit Shahani, was equally blunt in an interview in Live Mint:The impression given is that we are not open for business, as a country. We are losing out on investment. It is not just about China (getting the R&D inve...
More About: Medicine , Patience , Medici , Appa

Will conduits sink banks? No. Will they (help) sink the economy? Yes.
2007-08-24 15:16:00
Today's FT has an nice article on the conduit, ABCP situation, as it relates to banks. I especially like the opening about the large UK bank, HBOS:HBOS’s annual report for 2006 covers almost 200 pages. But the document does not carry a single reference to Grampian Funding, the vehicle the bank uses to help lower its financing costs. So investors could be forgiven for expressing some surprise on Tuesday when HBOS announced that it would take direct responsibility for financing Grampian.Grampian, which has assets of about $37bn, is one of Europe’s largest bank conduits. These are funding vehicles usually kept off a bank’s balance sheets that have emerged as pivotal players in the current market turmoil. HBOS, the UK’s fourth-largest bank, is the largest financial institution so far to publicly admit the effects of the drought in the market for asset-backed commercial paper, which conduits such as Grampian rely on for funding. But other banks are suffering as well.The article...
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Remember, its a GLOBAL property bust
2007-08-23 14:17:00
Spain looks worse than South Florida...
More About: Property , Global , Bust , Prop , Pert

Bank of China Holds $9.7 Billion of Subprime Assets
2007-08-23 14:03:00
Now things are getting interesting! Bloomberg reports that BOC holds a whopping $10 billion in sub-prime MBS. This far exceeds amounts admitted to by any other global bank. Very little is know at this point about what types of securities are owned, are they CDOs and if so which tranches (presumably AAA). All that can be safely assumed at this point is that there will be losses and that they could easily amount to a billion or more. I would say this moves the sub-prime mess into a new chapter. Last week's headline was ABCP (not very catchy really). This week its:"Fort Myer's condo losses hit Beijing"
More About: China , Bank , Subprime , Prime , Asset

India to cut off nose
2007-08-23 12:45:00
Ah the India ns. The range of emotions one feels when watching events unfold in the country range from great optimism and admiration to feelings of sadness at the staggering and entrenched poverty. But often what one feels is amazement at how the bitterness and suspicion, a legacy of India's colonial past, combines with a political realm overpopulated by neo-Fabian socialist-communist nutters with a nostalgic fetish for non-alignment. Pardon my bluntness (if any neo-Fabian non-alignment nutters happen to be regular readers) but the truth must be told. There is a tragically strong and predictable tendency by the Indian body politic to speak rubbish and shoot themselves in the foot. Witness the crumbling support for the US-India nuclear deal.Headline from Hindustan Times:Nuclear deal standoff CPI(M) warns Govt of pulling back support The Central Committee of CPI-M authorises Politburo to take an appropriate decision at an appropriate time.Um, say there fellows... I have to ask......
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The US Slowdown and What does it mean for Asia? Part II
2007-08-23 02:21:00
Regular readers know I have for many months been of the view that the US economy is very likely to experience a slowdown if not outright recession as a result of the housing recession and the fact that the US consumer, prior to the housing meltdown, was in such a vulnerable state. Please don't talk to me about the low unemployment rate. Firstly it is lower than one might expect today not because of rapid job growth but because of sluggish labor force growth. Secondly, unemployment will certainly grow as the full force of the housing collapse works it's way through the construction, mortgage, banking, and other industries This week the number of announced layoffs is already in full swing. Anyway, the big question is not what will happen in the US, it is what will happen in Asia . For those of us who are long term bulls on Chindia, this is the big test we have been waiting for. In one sense, it is a good thing. Valuations - not to mention emotions - were getting crazy as doubl...
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US Manufacturing: Rumors of death greatly exaggerated
2007-08-20 16:30:00
According to the WSJ, many of the world's largest steel makers are adding capacity in the US. Yes, you heard that right. Contrary to the widely believed but largely unsupported view that the US manufacturing sector is doomed to oblivion, steelmakers are putting their money behind their view that the US is a great place to invest and produce.This latest wave of steel investment by both foreign and domestic companies represents a long-term bet on the health of the U.S. steel market and its manufacturing sector as a whole.The reasons for the renewed interest include:...transportation costs, which have more than doubled in the past decade to about $50-$70 a ton from $20 a ton, and it makes shipping steel to the U.S less attractive. Meanwhile, building in the U.S. has advantages beyond lower transportation costs. As U.S. manufacturing has become more sophisticated and customized, steel customers are demanding more technically challenging products that fetch higher profit margins. Some...
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