#VC Funds’ Hunt for Fresh Capital Continues Unabated

Venture capital groups are trying to raise larger sums at an even faster pace to plough into technology start-ups, despite the high-profile struggle of Uber and the near collapse of WeWork.

Kleiner Perkins, which provided early backing to Amazon and Google, is hoping to raise up to $700m this quarter, roughly one year after tapping investors for its previous fund, said two people familiar with the plans.

Other blue-chip companies including General Catalyst and Khosla Ventures are in the market for billion-dollar funds after previously raising money in 2018, investors said. 

The fundraising push follows a frenzied stretch for start-up investment, amplified by non-traditional backers such as the $100bn Vision Fund raised by Japan's SoftBank Group three years ago. 

Last week, London-based venture capital firm Atomico raised a new $820m venture fund, three years after its previous raise. It is the largest of its kind to be raised by a European venture firm, even after a record-breaking year for funds in the region last year. Atomico was founded by Niklas Zennstrom, who also co-founded Skype 

See the whole story on the FT here:  https://www.ft.com/content/338773ec-5440-11ea-90ad-25e377c0ee1f?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content

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#PrivateEquity Capital Raising for #Mining falls to 8-year low

Only four unlisted funds closed last year, raising a combined $300 million for investing in the mining sector. That's down from $2.5 billion in 2018 and nowhere near the peak of 2012, when eight funds procured a combined $4.2 billion

Tembo Capital's second mining fund accounted for the bulk of last year's fundraising. The London-based fund, which focuses on junior and mid-tier mining projects primarily in Africa, closed on $177 million in March. 

There are currently 14 funds in the market targeting the mining sector, seeking a combined $7 billion in capital. 

#FamilyOffices Stockpiling Cash as Recession Fears Grow

• About 42% of family offices say they're raising cash reserves
• 
  
  
  
  Majority surveyed by UBS expect a global recession by 2020
  
  

  • Family offices are also increasingly focused on a different kind of potential disruption: succession planning. This year, 54% of those surveyed said they have a succession plan in place, up from 43% last year.
    
    

https://www.bloomberg.com/news/articles/2019-09-23/world-s-wealthiest-families-stockpiling-cash-on-recession-fears

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#Switzerland Votes ‘Yes’ to Staying the #Tax Home for #Commodities #Traders & #Multinationals

Geneva votes to lower its Cantonal Tax Rate to 13.99%, confirming its willingness to be a home for Multinationals and Commodities Trading Houses

Switzerland Votes 'Yes' to Staying the Tax Home for Multinationals 

https://www.bloomberg.com/news/articles/2019-05-19/switzerland-votes-yes-to-being-tax-home-for-big-business

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Hard Choices: The importance of thoughtful deliberation—and its implications for the future of capitalism Seth Klarman

This is a great piece by Seth Klarman of Baupost. Unlucky with the recent PG&E investment, but a smart man notwithstanding.  He makes some great points that many of us likely share, yet we seem to see so little of in today's world. 

He gave this speech last October when inaugurating a "convening"(?) center he endowed at HBS. 

Highlights are my own. 

Hard Choices:

The importance of thoughtful deliberation—and its implications for the future of capitalism

by Seth Klarman (MBA 1982)

Dear alumni and friends,
We celebrated the opening of Klarman Hall on October 1 and used the occasion to spark discussion and spur thinking on important issues of the day. Beth and Seth (MBA 1982) Klarman, in providing the gift for this remarkable new building, had this very idea of convening as their aspiration. Over dinner, Seth spoke passionately to the group about capitalism and the responsibilities of business leaders. His words resonated with many and I am delighted to share them here, for all the School's alumni, with his permission. May we each be inspired to think carefully about the choices we face.
Regards,
Dean Nitin Nohria

Photo by Susan Young

I suspect there's a great deal that most of us can agree on about capitalism. The free enterprise system, of which HBS is an essential part, has lifted billions of people around the world out of poverty. It provides the backdrop for unleashing boundless human potential. It has made the US an economic powerhouse. It has played a major role in capital being allocated to the most productive uses. Free enterprise has led to the creation of a staggering number of jobs that support families and the invention of a wide range of innovative and affordable products that make people's lives easier, safer, and more enjoyable. In many capitalist economies in 2018, and especially in our own, innovation is unending, and its pace may even be accelerating. The creative destruction of capitalism gives it a remarkable advantage over other systems. You sometimes have to be willing and able to tear down in order to build up. The old and proven and venerable must sometimes give way to the new and innovative and transformational.

But we should also note that capitalism is far from perfect. While it's superior to any other system yet devised, it's subject to sometimes intense cyclicality that can result in turmoil and hardship for many. And we interfere with that cyclicality at our peril, as pent up economic forces will eventually be unleashed with far greater ferocity. Still, under capitalism, markets and economic activity can easily overshoot, in both directions. Fads can be mistaken for trends; the flavor du jour can masquerade as a time-tested recipe. An ephemeral stock price can be made to seem a permanent achievement, an unwavering final verdict. The temporary opinion rendered by the market can be easily confused with actual business success. And those mercurial capital flows, as welcome as they are when they're inbound, can wreak havoc when they reverse, or as they attract undisciplined competitors and drive excess supply at the worst possible moments. Moreover, the aforementioned creative destruction may in aggregate leave society considerably better off, even as it creates both winners and losers, and the losers often suffer through no fault of their own. A capitalist economy should be judged not just on the aggregate economic improvement driven by its innovation but also on the design and strength of the social safety net that cushions the ill, or disadvantaged, or those who simply fail to thrive in their particular setting, geography, industry, or trade. After all, creative destruction is still destruction, even if inevitable and in the service of a net gain to society.

These downsides of capitalism are among the reasons that the system is today less popular than it once was. There are other reasons, as well, that could be covered in a different, longer speech. But we should all keep in mind that the benefits of capitalism are not so obviously and directly attributable to the system the way the adverse side effects and increasing societal inequality are. The invisible hand is, by definition, invisible.

Also, tragically, in a capitalist society (but really in any system), individual or corporate greed can run amuck. Simply put, some will choose to cut corners or cross a line. It's inevitable that laws will sometimes be skirted, frauds sometimes perpetrated, society's resources misallocated, and the environment sometimes damaged. Managements are sometimes tolerated or even embraced who should not be—managements preoccupied with self-interest, managements blind to their own ethical lapses, managements with a record of racist or misogynist or homophobic tendencies. Boards of directors afflicted by conflict or indifference will sometimes look the other way at the actions of their management teams. All of this, of course, is unacceptable. And, nonetheless, it will sometimes happen. Proper governance and regulation are essential to limit the harm, as well as the reputational and financial damage. But governance and regulation exist on pendulums that swing to and fro, and may overshoot in one direction and then in the other.

One of society's most vexing problems is the relentlessly short-term orientation that manifests itself in investing, in business decision-making, and in our politics.

There is, and has always been, a gap between what business is and what it can be, the actual versus the ideal. Every one of us can contribute to widening that gap, or to narrowing it by raising the bar. We will have countless opportunities to choose.

That is really what I want to talk about this evening—choices and the act of choosing. And the way I want to discuss it is by asking questions. They may sometimes seem rhetorical, but they're not. They may sometimes seem straightforward, but they're not. Because these choices are usually hard ones, and tests not just of intellect but of character. They are shaped not just by strategy and analysis but by values.

Chainsaw Al Dunlap, a real person with a Hollywood moniker, told us that a dollar earned by killing a job was just as valuable as one earned by producing a valuable product, and Wall Street was seduced, even though it's obvious that you can't cut your way to prosperity. It's also apparent that a dollar of earnings generated through business expansion may be an annuity, and perhaps even a growing one, while a dollar gained from cost savings is a one-time improvement, an incremental cash flow that is not replicable and one that may even come at a greater cost—short and long term, financial and otherwise—than is readily apparent.

All of us can get carried away with a seemingly good idea taken to excess. Everyone knows the famous movie line, when Gordon Gekko told us that "greed is good." Do any of us really think that greed alone is what motivates a capitalist to strive, invest, and dream, or that it always leads to the best possible outcome? If greed is good, is greedier better? If I were greedier, if I paid my people less and demanded more from them, if I raised the fees I charge and cut my costs, would that make me and my company better off? Certainly not.

Business schools have sometimes taught that shareholder-value maximization is the holy grail, the sole proper focus of corporate managements. So I ask, should managements be focused solely on a company's share price, which itself is ephemeral, and do everything within their power to levitate it? What longer-term good would this possibly accomplish? Isn't it clear that Wall Street goes through mood swings, that what might float the market's boat this week might sink it the next? And might not an artificially inflated stock price tempt management into acutely short-term-oriented and potentially, even value-destructive practices in order to maintain it or inflate it further? And does anyone really believe that shareholders are the only constituency that matters: not customers, not employees, not the community or the country or planet earth?

Of course, every businessman and woman has the right to decide that their business exists solely to maximize profits. But let's stop to examine what that even means. What are those things that cause profits to be maximized? And should we be aiming to maximize them this year, or next year, or only over the fullness of time? Is short-term optimizing a waypoint on the road to long-term maximization, or could it be anathema to the achievement of that goal?

So let me ask, does paying employees as little as you can get away with serve to maximize profits, or does treating them fairly and respectfully, and even generously? Maybe it's not just society that should offer a safety net, but also companies, where they recognize that employees are, first and foremost, people who must manage through the volatility we all experience over the course of our lives. Employees are there every day working hard to serve their employer, and I believe it's very much in the employer's interest to also be there for them.

I ask you, does it maximize profit to treat customers well by selling them products that represent good value for the money, or is it best to charge them as much as you can while providing them as little as you must? Doesn't reputation matter as well? What kind of corporate citizen you are, what kind of employer you are, whether you are a steward of and not a destroyer of the environment, and of your communities? Don't people prefer to work for and do business with a generous company? A company with sound values that every day chooses to live up to them, one that thoughtfully positions itself within the greater landscape of business, government, and society at large. Doesn't that motivate employees to be at their best?

Companies face choices, and their managements must choose. It's a choice to do things that "maximize profits," to pay people as little as you can, or work them as hard as you can; it's a choice to maintain pleasant working conditions or, alternatively, particularly harsh ones: to offer good benefits or paltry ones.

It's also a choice to try to win every business negotiation, to squeeze out every dollar of profit, to crush your counterparty. It's a different kind of choice to not do that, to aim for "win-win" outcomes, to leave the other side with profit and dignity and goodwill, to build relationships that last not for a single deal, but for a lifetime of them. It's a choice to always keep your word, even when that is costly or difficult or unpopular.

It's a choice to leverage up your company to the hilt, to pile on nonrecourse debt to pay special dividends to the owners and then walk away if the business falters and the debt comes due. Just because you can do something definitely doesn't mean that you should.

Consider corporate time horizons. It's a choice to attempt to maximize corporate results over the very short run and a different and sometimes harder decision to take a longer-term view. I'm convinced that one of society's most vexing problems is the relentlessly short-term orientation that manifests itself in investing, in business decision-making, and in our politics. Educational and philanthropic endowments, for example, with institutional time horizons that necessarily span centuries, invest their funds with monthly performance comparisons. Jeremy Grantham (MBA 1966), cofounder of the global investment firm GMO, recently observed in the context of governmental inaction on climate change, "We face a form of capitalism that has hardened its focus to short-term profit maximization with little or no apparent interest in social good."

Politicians who represent cities, states, and countries—entities that aspire to go on forever—must nonetheless run for reelection every few years. In some cases, they no sooner win one election than they are forced to run for reelection. Fearing loss of their seats, they become almost paralyzed into inaction. Politicians tend to follow the polls instead of their hearts or brains. They listen more to political consultants than to voters. Our short-term-maximizing politicians fail to tackle longer-term societal challenges such as climate change or unaffordable entitlement programs and the resultant on-and-off balance sheet liabilities. They never even bring these vexing issues up for debate. And of course, the best hope for dealing with such problems is to tackle them early, when there may be time to deal with them somewhat gradually, before things reach crisis proportions.

Many feedback loops reinforce today's short-term business and financial-market orientation. Louis Gerstner Jr. (MBA 1965), former CEO and chair of IBM, has written that you always get more of whatever you measure. Certainly, the constant measurement of professional money managers pressures them to perform well over the shortest measurement horizons. The more pressure you put on money managers for near-term performance, the more short-term their focus becomes. And the more pressure Wall Street puts on corporate America to deliver strong short-term performance, the more myopic the underlying businesses become.

A big part of leadership is deciding, and good decision-making benefits from intelligence, thoughtful deliberation, and experience, but also, as i hope you agree, from sound values.

No one in the investment business wants to be fired for poor performance (what Jeremy Grantham calls "career risk"). No money manager wants to lose their clients. No corporate CEO wants to be terminated. And as a result, few are willing and able to invest for the long run, to make long-term-oriented decisions, to put aside the short-term performance pressures and personal career or compensation considerations to do the right thing for the business. With excessive short-term pressure, even the wisest and most capable fiduciaries can bend and even break.

As human beings, we experience time quite differently from the institutions we create, populate, and lead. Even when we want to do the right thing, there are bosses, clients, and markets overtly or subliminally pressuring us to take the short view. As John Maynard Keynes famously noted, "In the long run we are all dead." It might be tempting to believe that the long run is simply a series of short runs, but the reality is that immediate pressures can overwhelm the long-run view, and even cause us to take actions that are the opposite of what a truly long-term orientation would produce.

We must all be more aware of the distortions and outright mistakes that can arise from too much focus on the near term. But simply extending your focus to the temporal horizon is insufficient. Have you really inoculated your decision-making just by shifting from short-term greedy to long-term greedy? David Brooks was on the right track when he observed: "The things that lead us astray are short term. …The things we call character endure over the long term––courage, honesty, humility."

Corporate managements are employed to navigate, to steer the ship, to set a course, and then to make regular midcourse corrections. They are there to decide. And in business, you must often decide quickly, without complete information or the time to consider every alternative or resolve every uncertainty. Because, of course, to decide slowly is sometimes to decide too late, to miss opportunities rather than seize them. Harvard Business School's case method compresses many hundreds of real-life decision-making constructs into a two-year academic experience. HBS students learn to build decision-making teams, assess problems, gather information, debate, and decide, hopefully wisely. And then take responsibility, learn from mistakes, reset assumptions amidst a rapidly evolving world, and decide some more. A big part of leadership is deciding, and good decision-making benefits from intelligence, thoughtful deliberation, and experience, but also, as I hope you agree, from sound values. Choosing what to maximize, how, and over what time frame, is an expression of those values. The commitment to reconsider, evaluate, question, and modify your decisions in light of your values is an expression of character.

With an overly narrow focus on the near-term maximization of corporate profits and share price, business leaders leave themselves vulnerable to criticism and harsh regulation. When business owners and business schools fail to regularly ask hard questions about capitalism and its impact on people of every skill set and background, we increase the chance that when these questions are asked, they will be asked by ideologues seeking to point fingers, assign blame, and make reckless changes to the system. One US senator recently unveiled the Accountable Capitalism Act, which requires corporations of a certain size to procure a federal charter that would require 40 percent of corporate boards to be composed of employees. This seems both ill-considered and unlikely to work. I doubt this bill will become law. But when capitalism goes unchecked and unexamined, and management is seduced by a narrow and myopic perspective, the pendulum can quickly swing in directions where capitalism's benefits are discounted and its flaws exaggerated, thereby leaving its future even more clouded and uncertain. While it's hard to see how this proposed regulation would solve the problems that I've raised tonight, it's exactly the kind of proposal that business will have to contend with when complex issues go unexamined, and when character, sound values, restraint, and long-term thinking fail to gain the upper hand.

To move society forward, complex and challenging issues must be addressed. This new convening center can and must be part of the solution. Beth and I sincerely hope that people will convene here, respectfully debate the most challenging issues here, and identify potential solutions here. With HBS faculty and students driving the conversations, we are optimistic that HBS and Harvard can be at the forefront of new conversations, fresh ideas, and innovative solutions.

The speech can be found online here: https://www.alumni.hbs.edu/stories/Pages/story-bulletin.aspx?num=6818

 

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#HedgeFunds Held Close to 20% of $PCG stock. That Bet Flopped #PGandE

"Some hedge funds be­gan buy­ing into PG&E in late 2017 af­ter the wine-coun­try fires in­tro­duced un­cer­tainty around the com­pany and drove down its stock price. By the third quar­ter of 2018—the most re­cent quar­ter for which such data is avail­able—PG&E was one of the hedge-fund in­dus­try's most widely held stocks. About 19% of PG&E stock was held by hedge funds at the end of the third quar­ter, up from 3.4% a year ear­lier, ac­cord­ing to Fact­Set."

In­vest­ment funds in­clud­ing Av­enue Cap­i­tal Group, El­liott Man­age­ment Corp. and King Street Cap­i­tal Man­age­ment LP on Mon­day were buy­ing PG&E bonds, ac­cord­ing to peo­ple fa­mil­iar with the firms. Sev­eral traders said they ex­pected a bank­ruptcy set­tle­ment would re­pay bond­hold­ers in full, based partly on ex­pec­ta­tions that PG&E would set­tle its wild­fire li­a­bil­i­ties for less than ex­pected. As a reg­u­lated util­ity, PG&E also still has cash flow to pay cred­i­tors, and an­a­lysts said Mon­day's clos­ing share price of $8.38 re­flects the po­ten­tial for some kind of res­cue by Cal­i­for­nia law­mak­ers or reg­u­la­tors lead­ing up to the ex­pected bank­ruptcy fil­ing."

Read the full story on The Wall Street Journal here: 

PG&E Was a Hedge-Fund Darling. That Bet Flopped.

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#Blockchain-based #Gold tracking coming to the #LBMA

London Bullion Market Association (LBMA) to create a set of standards for blockchain-based gold tracking, as well as an oversight committee to approve and monitor technology providers

London is the largest hub in the world for OTC gold trades and clearing. Wholesale gold trades across London's five precious metal clearing banks, overseen by the LBMA, reached a value of $6.7 trillion in 2017.

https://bitcoinist.com/blockchain-could-track-the-globes-gold-bullion-by-2019/

Blockchain Could Track the Globe's Gold Bullion by 2019

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Ethical sourcing is becoming critical in such a high-value sector as precious metals. It will become even more important as reserves of metals such as gold diminish and scarcity develops.

Proving the origins of gold could prevent smuggling from developing countries where mining practices can threaten lives and damage the environment. It ensures that everyone involved in the supply chain, including miners, are rewarded and reassures gold buyers and consumers that both people and the environment are being protected.

The tracking of gold bullion from its origin through its ownership and use cycle could prevent theft. It could also prevent illegal sales, smuggling, and use funding conflict and terrorism. Blockchain technology presents a way to remove illegal or unethical gold from the markets.

Achieving a Credible Blockchain Solution

The LBMA is a global authority on gold and the international trade association for the over-the-counter (OTC) gold bullion market. Its members include the largest gold miners, refiners and traders of gold.

The LBMA asked its members for proposals in March 2018 regarding how to track gold and prevent forgery. According to Reuters reporting, the LBMA received 26 proposals, including pitches from technology startups, and also from IBM. Out of the 26 proposals, 20 incorporated blockchain technology.

The authority will now create a set of standards for services, whilst understanding what a "credible blockchain solution" is, said LBMA's executive board director Sakhila Mirza who added:

Once those have been appropriately established, the result would be a selection of service providers that meet the minimum standards.

Tracking a Trillion Dollar Industry

Selecting service providers is likely to occur in 2019. The successful blockchain developer would be responsible for a system that provides tracking and transparency to a trillion dollar industry.  

London is the largest hub in the world for OTC gold trades and clearing. Wholesale gold trades across London's five precious metal clearing banks, overseen by the LBMA, reached a value of $6.7 trillion in 2017.

The estimated implied market capitalization for gold is over $7 trillion. It is an implied capitalization as it includes gold already mined, in circulation, and potentially still in the ground. London's gold vaults contain around 8,000 tonnes of gold bullion, second only to the gold held by the U.S government.

What are your thoughts om blockchain-based gold tracking? Let us know in the comments below!

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Bank of China looking to set up a Trade & Commodity Finance operation in Geneva Agefi.com

Wang Min, responsible for international trade services at Bank of China, said they are looking to set up once more in Geneva.  Read the whole article on the Agefi.com website - in French.

Les synergies sino-suisses | Agefi.com

Chandler is at it again: Singapore Billionaire Bets Big on #Energy in #Africa, #Asia @Businessweek

Here's a piece on the secretive New Zealand investor from BusinessWeek.


Singapore Billionaire Bets Big on Energy in Africa, Asia

In September 2007, almost a year after New Zealand–born billionaire Richard Chandler founded investment firm Orient Global in Singapore, he made a rare appearance at a forum on social responsibility. Abandoning his penchant for privacy, Chandler outlined the link between giving and investing.

“We start to ask the question, where would the incremental dollar achieve the greatest return?” said Chandler. “Charity is good, performance philanthropy is better, and social investment is best.”

Chandler attended the global executive summit in Singapore again the following year -- and then dropped back out of public view, Bloomberg Markets magazine will report in its July/August issue. He doesn’t speak to the press. Current and former employees of his firm, now called Chandler Corp., don’t talk about him, citing nondisclosure agreements. Executives of most companies in which Chandler invests deal only with his staff.

“I never met him and I don’t know him,” says Indian billionaire Malvinder Singh, whose Fortis Healthcare Ltd. sold its entire stake in Vietnamese hospital company Hoan My Medical Corp. to Chandler Corp. for $80 million in August 2013, according to Fortis’s statement.

Behind the silence, Chandler, 55, is amassing a fortune that the Bloomberg Billionaires Index estimated at $3.7 billion on June 18. Energy-related companies account for at least $1.2 billion of his wealth.

Far-flung Locales

Chandler is betting on gas and oil in far-flung locales from Papua New Guinea to Kenya and Ethiopia, banking on demand from Asia’s growing middle class.

The firm invested in InterOil Corp., which has offices in Singapore and Port Moresby, Papua New Guinea. InterOil controls 35.5 percent of the exploration license that contains Papua New Guinea’s Elk and Antelope fields -- the island nation’s biggest undeveloped gas plays, according to InterOil. Chandler Corp.’s 19.6 percent InterOil stake was valued at $639 million on May 30.

Chandler Corp.’s investments in Southeast Asia extend beyond energy to consumer goods and financial services. The firm holds a $366 million stake in Vietnam’s Masan Group Corp. The company makes foods and beverages, offers banking services and mines tungsten and bismuth. In health care, Chandler Corp. owns a minority share of Medical City, a network of three hospitals and 23 outpatient clinics in the Philippines.

Chandler Corp. says its companies deliver health-care services to more than 2.5 million people in Vietnam and the Philippines each year.

‘Social Value’

“We look to invest in businesses that create social value and drive national prosperity,” Chandler Corp.’s website says.

Chandler is building on a fascination with emerging markets that began with Hong Kong in the 1980s and extended to Brazil, Russia and India. He remains famous for his campaign at SK Corp., South Korea’s largest oil refiner, says Seo Jae Hyeong, chief executive officer of Seoul-based Daishin Asset Management Co.

“People still have vivid memories of how an obscure fund waged a war against the SK chairman,” he says.

Chandler and his younger brother, Christopher, bought 14.99 percent of SK from March 26 to April 11, 2003. The shares had plunged 63 percent in five days earlier that March after SK reported it had misstated 2001 earnings at its trading arm by about $1.5 billion.

The Chandlers fought to oust Chairman Chey Tae Won, who’d been convicted of accounting fraud. Investors bought the shares over two years as the battle intensified, and SK boosted outside directors to 70 percent of the board from 50 percent.

By the time Chey defeated the Chandlers’ bid to remove him, in 2005, the stock had soared more than fivefold from the average 9,293 won per share the brothers paid. They walked away with more than $700 million in gains, calculations based on regulatory filings show.

‘Corporate Governance’

“The Chandler brothers contributed greatly to Korea by raising the awareness of corporate governance and provided an impetus for big companies to change,” Seo says.

Christopher Chandler, 54, now owns Dubai-based investment firm Legatum Group. Last year, his Legatum Foundation started the $100 million Freedom Fund with two partners to combat modern-day slavery. Christopher, like his brother, declined to comment for this story.

Sino-Forest

Richard Chandler stumbled in 2012. Chandler Corp. started buying Chinese timber company Sino-Forest Corp. after the company’s shares, which traded on the Toronto Stock Exchange, plunged 84 percent in two days.

Short seller Carson Block’s research firm said in a June 2, 2011, report that Sino-Forest was overstating the value of its assets. Hedge-fund firm Paulson & Co. sold its entire stake after the report and lost C$462 million ($426 million).

Chandler Corp. continued buying until the Ontario Securities Commission halted trading in August 2011. Chandler Corp. amassed a 19.5 percent stake as Sino-Forest’s biggest shareholder.

Sino-Forest filed for bankruptcy protection in March 2012, and the company has since been taken over by bondholders, according to Chandler Corp. David Walker, a forestry expert who’d been hired to lead a turnaround at Sino-Forest, was named Chandler Corp. CEO in January 2013. Chandler Corp. says Walker no longer works there because the firm isn’t involved with Sino-Forest.

Gas Fortune

One of Chandler Corp.’s current emerging-markets bets is liquefied natural gas. Last year, Asia accounted for 75 percent of global LNG demand of 236.9 million tons, according to the Paris-based International Group of LNG Importers.

Africa is growing as a gas supplier. More than 14 trillion cubic meters (500 trillion cubic feet) has been discovered in Angola, Ghana, Mozambique, Nigeria and Tanzania, according to Seah Moon Ming, CEO of Pavilion Energy Pte, the LNG unit of Temasek Holdings Pte, Singapore’s state-owned investment company.

“You can make a fortune in Africa if you can find oil and gas and if it’s economical to get it out of there,” says Jim Rogers, chairman of Singapore-based Rogers Holdings, who correctly predicted a commodities rally in 1999.

Asia’s deep-pocketed investors are expanding globally by acquiring LNG assets. Pavilion Energy said in November it had invested $1.3 billion in Tanzanian gas blocks. In May, Cheung Kong Group, owned by Li Ka-shing, Asia’s richest man, agreed to acquire Envestra Ltd., an Australian natural gas distributor, for A$2.4 billion ($2.2 billion).

‘Seismic Shift’

“LNG is the future,” says Chua Ma Yu, executive chairman of CMY Capital Markets Sdn. in Kuala Lumpur. “Throughout Asia, governments are building LNG terminals and gas pipelines as they respond to this seismic shift.”

Chandler is hunting for further riches in Africa’s petroleum reserves. Chandler Corp. holds a 9.9 percent stake, valued at $220 million, in Africa Oil Corp., a Canadian company that discovered Kenya’s first crude with a partner, Tullow Oil Plc, in 2012.

Africa Oil is a logical choice for bargain hunters such as Chandler, says Stuart Amor, London-based head of oil and gas research at RFC Ambrian Ltd., a natural resources adviser and broker. 

Recent crude discoveries in Kenya may generate about $10 billion in revenue in three decades of production, London-based GlobalData said in May. In Nigeria, the continent’s biggest oil producer, Chandler Corp. owns 13.4 percent of Union Bank of Nigeria Plc. The lender has more than 350 branches that offer credit to a rising middle class.

“This should enable businesses and entrepreneurs to flourish, supporting and accelerating Nigeria’s economic growth,” Richard Chandler said in an Oct. 19, 2012, statement.

Geothermal Energy

Chandler Corp. is also pursuing geothermal energy through Orka Energy, which operates in China, Iceland and the Philippines; coal-bed methane gas in China via Hong Kong–based Green Dragon Gas Ltd.; and natural gas and power in Indonesia and the Philippines with Energy World Corp.

As Chandler cultivates his empire, he has funded artists and activists who aid the disadvantaged. In 2007, he formed Freedom to Create to encourage change in developing countries. In 2011, the foundation honored Sister Fa, a musician from Senegal who raises awareness about female genital mutilation.

“Mr. Chandler is an incredibly talented investor with a deeply embedded moral purpose,” says Priti Devi, who headed the foundation from 2010 to 2012. Devi says she didn’t find Chandler to be secretive. Instead, she says, “he has adopted what he believes is the most effective operating style for him.”

‘Your Investor’

Chandler isn’t shy about revealing his aspirations on his website.

“My passion is my art -- allocating capital to the world’s best investment opportunities,” he writes.

Newcastle University education policy professor James Tooley recalls Chandler’s commitment to scholarship. After the Financial Times published Tooley’s essay titled “Low-Cost Schools in Poor Nations Seek Investors” in September 2006, Tooley received a voice mail from Chandler.

“Professor Tooley, I’ve read your article,” it said. “I’m your investor.”

Tooley joined Chandler’s Orient Global investment firm in April 2007 as president of its $100 million Education Fund. The fund sought to combat global illiteracy by enhancing education for low-income communities in developing countries. Its Hyderabad, India–based Rumi Education collaborated with more than 100 schools. Chandler dismissed Tooley in 2009; Tooley declined to discuss the circumstances. Rumi Education has since been sold to its management team. Chandler’s education initiatives now involve philanthropic grants, according to Chandler Corp.

New Zealand

Chandler draws inspiration from his mother, Marija, employees who have worked at Chandler Corp. say. A native of Croatia, Marija met her New Zealander husband, Robert Chandler, in 1955. Robert and Marija founded New Zealand luxury department store Chandler House in 1972, according to Chandler Corp.’s website.

As she scoured the world to stock the shelves, Marija instilled an appreciation for hard work, entrepreneurship and creativity in her boys: George, the oldest; Richard, the middle; and Christopher, the youngest. The couple sold Chandler House and gave the proceeds to their sons. The family moved to Monaco, where Richard and Christopher started Sovereign Global Investment in 1986. The brothers split amicably in December 2006. Christopher founded Legatum Capital in Dubai, and Richard set up Orient Global in Singapore.

Business, Art

Marija melded business with art. She began painting and adopted her mother’s name, Ana Tzarev. She also traveled. One YouTube video shows her visiting schoolchildren in Africa. In another, she talks about her billionaire sons at her father’s grave in Trogir, Croatia.

“They thank you for your philosophy on commerce,” she says to her father, “for they’re helping the world because of you.”

Chandler described his business approach to philanthropy at the Singapore forum.

“It’s very much a balance of science and art,” he said. “It’s a capital allocation process. It’s based on information. It’s based on common sense. Think strategic and, above all, sustainability.”

RFC Ambrian’s Amor, who has followed Chandler since the 1990s, offers this assessment of the billionaire investor’s current emerging-markets forays: “It would not be wise to bet against him now.”

To contact the reporters on this story: Yoolim Lee in Singapore at yoolim@bloomberg.net; Netty Ismail in Singapore at nismail3@bloomberg.net

To contact the editors responsible for this story: Michael Serrill at mserrill@bloomberg.net Gail Roche, Jonathan Neumann

http://www.businessweek.com/printer/articles/752717?type=bloomberg

Singapore Billionaire Bets Big on Energy in Africa, Asia - Businessweek

Everyone recommends investing in #HedgeFunds. Nobody is providing the opposite view.” @NewYorker

The results don't justify the hefty fees. 

Everyone—consultants, advisers, funds of funds, capital introduction groups of prime brokers—recommends investing in hedge funds. Nobody is providing the opposite view.”

HOW DO HEDGE FUNDS GET AWAY WITH IT? EIGHT THEORIES

The other day, I asked how hedge funds manage to bestow such great riches on their managers despite the fact that, in many cases, their performance seems pretty ordinary. That got quite a reaction. The responses ranged from claims that hedgies are remunerated perfectly appropriately to charges that they are outright crooks who prey on gullible and greedy investors. Because the industry has grown enormously in recent years—according to one industry source, hedge funds now manage about $2.1 trillion of capital, a good deal of which comes from pension funds and charitable endowments—it’s not a trivial matter which of these explanations is the most accurate.

The crux of the issue is the industry’s two-tiered fee structure, which includes a hefty management fee (two per cent has long been the standard) and a big performance fee (twenty per cent is the standard). Here, again, is the question I posed. “Why do investors in hedge funds—the people whose money is at risk—continue to allow the managers of the funds to dictate such onerous terms to them?” I will consider various theories in order of plausibility, starting with the one that I consider least persuasive. Along the way, I’ll deal with some details that I didn’t have space for in my previous post.

1. They deliver superior returns. Several commenters said that it wasn’t fair to single out last year, when hedge funds generated a return of 7.4 per cent (net of fees), according to Bloomberg, and the S&P 500 produced an over-all return of about thirty-two per cent. Fair enough: let’s look at how investors in hedge funds have fared over a longer period.

According to the industry’s own figures, over-all returns have been falling steeply over the past decade or so. A study by KPMG, which was commissioned by the Alternative Investment Managers Association, an industry trade group, found that, between 1994 and 2011, hedge funds, on average, generated an average return of nine per cent. But Simon Lack, a financial consultant who used to work for J.P. Morgan and has written a skeptical book about hedge funds, points out that this figure disguises a sharp deterioration in recent years. Between 1994 and 1998, Lack points out in a presentation that is available online, the average return made by hedge funds was twelve per cent; between 2007 and 2011, it was just two per cent.

Even these figures aren’t necessarily reliable. They are calculated on the basis that each investor buys into a fund, or a range of funds, at the beginning of the period under study and holds on until the end, rebalancing his or her portfolio along the way so that the stake remains constant. But that isn’t how things work. Most investors buy in late, deploying and withdrawing big chunks of capital at irregular intervals. To take account of this behavior, Lack and others have redone the figures, calculating “dollar-weighted” rates of return, which provide a more accurate picture of how hedge-fund investors actually fared than the traditional “value-weighted” figures.

The difference this makes is quite substantial. According to Lack’s figures, between 1994 and 2011, hedge funds generated an annual return of six per cent rather than nine per cent. They did about the same as the stock market, which produced an annual return of 5.8 per cent, but not as well as bonds, which generated an annual return of 7.2 per cent.

An older study by Ilia D. Dichev and Gwen Yu, two academics who were then at the University of Michigan, produced broadly similar results. Dichev and Yu found that, between 1980 and 1992, when the hedge-fund industry was still very small, it generated an annual (value-weighted) return of 19.8 per cent—a very impressive figure. But, between 1993 and 2006, the annual rate of return fell to 11.1 per cent. These figures are for unadjusted value-weighted returns. When the authors converted them to dollar-weighted numbers, they found that hedge funds produced an annual return of twelve per cent between 1980 and 2006. That’s less than the annual return of 13.5 per cent that the S&P 500 produced over the same period.

The message from both studies is clear: hedge funds, on average, don’t outperform the stock market. In what sense, then, can their returns be considered superior? The next theory provides a possible answer.

2. They deliver superior risk-adjusted returns. O.K., an embattled consultant might say, hedge funds don’t necessarily beat the stock-market index over the long term, but they are much safer. They do, after all, have the word “hedge” in their names, and offer, as well as a sense of safety, decent returns.

The short answer to this is “2008,” when hedge funds, as an asset class, lost more than twenty per cent of their value. Some individual funds, such as Ray Dalio’s Bridgewater, which I wrote about at length in 2011, did well, but the industry as a whole did terribly. Just how terribly? According to Lack’s figures, hedge-fund losses in 2008 came to about four hundred and fifty billion dollars. That was considerably more than all the profits that the industry had generated in its entire history.

A statistician might argue that this isn’t a winning argument because, again, it focuses on one bad year. But that, surely, is the point. If hedge funds really are a hedge, rather than a way of trying to buy above-market returns, they should perform well precisely when everything else is going to pot. But they didn’t.

Here’s another way to look at it. If somebody offered you a costly investment that combined the promise of safety with the lure of attractive returns, how would you assess it? Well, one way might be to compare it to a hypothetical “sixty-forty” investment portfolio—sixty per cent stocks, forty per cent bonds—of the sort that regular investment advisers have been recommending to their cautious clients since the year dot. Lack carried out this exercise, looking at figures going back to 1998. In 2000 and 2001, when the dotcom bubble burst, hedge funds did what they are meant to do, he found: they outperformed the sixty-forty portfolio. But, in every year since 2002, including 2011, when the stock market was flat, the sixty-forty portfolio, which can be constructed very cheaply, did better than the average hedge fund.

3. They deliver uncorrelated returns. This is supposedly the sophisticated defense of hedge funds. By using a variety of techniques unavailable to ordinary folk, such as momentum investing, long/short investing, and betting on global macroeconomic trends or the outcome of mergers, they generate a special type of return, known as “alpha,” which is quite separate from the gains that can be reaped from more straightforward investments in various markets, known as “beta.”

Here we get into some complicated, contested, and almost theological debates. Rather than delving into them at length, I’ll confine myself to discussing a 2010 study that Roger Ibbotson, a finance professor at Yale, and two of his associates carried out. Defenders of hedge funds often cite it because it concluded that the funds do generate alpha on a consistent basis. “The positive hedge fund aggregate alphas for the last eleven years in succession suggest that hedge funds really do produce value,” the paper says.

Ibbotson and his colleagues start out by looking at the over-all peformance that hedge funds deliver. They calculate traditional value-weighted returns, rather than dollar-weighted ones, but they adjust them for a couple of other problems that are known to afflict hedge-fund data—the “survivorship bias” and the “backfill bias.” When these adjustments are made, it turns out that, between 1995 and 2009, hedge funds produced an annual average return of 7.63 per cent. Over the same period, the S&P 500 generated an annual return of 8.04 per cent.

This confirms that hedge funds don’t beat the stock market. How, then, can they be said to generate alpha? Ibbotson and his colleagues use a statistical model that seeks to explain the variability in hedge-fund returns on the basis of several variables, the most important of which are the market returns yielded by stocks, bonds, and cash. Broadly speaking, any returns that these variables can’t explain are attributed to alpha, and are thereby assumed to be generated by the skill and expertise of the hedgies.

Rather than discussing the pluses and minuses of this methodology, let’s look at the results that it generates, two of which stand out. The first is that most of the returns that hedge funds generate aren’t alpha at all: they’re beta in disguise. Of that annual average return of 7.63 per cent, 4.62 percentage points come from beta, and just 3.01 percentage points come from alpha, according to Ibbotson and his colleagues. Contrary to their P.R. pitch, hedge funds aren’t operating oblivious to market conditions. Like ordinary investors, the returns that they receive mostly come from simply being exposed to the market.

The second striking, if unsurprising, finding is that the fees hedge funds charge swallow up much of the alpha they produce. Gross of fees, the annual return to investors over the period from 1995 to 2009 was 11.42 per cent. Management and performance fees reduced this figure by 3.79 percentage points. Even if hedge funds are generating alpha, they are keeping most of it for themselves.

4. Low interest rates. In order to remain solvent, many pension funds need to generate annual returns on their investments of six to eight per cent. With interest rates as low as they have been in the past few years, investing in government bonds and corporate bonds doesn’t produce a high enough return. And investing in the stock market is rightly perceived as risky.

This environment has generated a demand for high-yield, low-risk investments, even among investment professionals who understand, on an intuitive level, that the very phrase “high-yield, low-risk investment” may well be an oxymoron. Hedge funds have seized upon this opportunity to present themselves as the solution to an urgent problem. Even though the industry slipped up badly in 2008 and individual funds have an alarming tendency to blow up or get into legal trouble, it still portrays itself as a safer alternative to the stock market. This marketing strategy may be working: in the first quarter of this year, according to a news release from Hedge Fund Research, the amount of assets that the industry manages hit a new high of $2.7 trillion.

In an article posted at allaboutalpha.com, Dan Steinbrugge, a hedge-fund consultant, explains why this is happening:

Most institutions are currently using a return assumption of between 4% and 7% for a diversified portfolio of hedge funds which compares very favorably to core fixed income, where the expected return is only 2.5% to 3.0%. As long as the expected return is higher for hedge funds than fixed income, we will continue to see money shift from fixed income to hedge funds.

5. Lack of transparency.

The real titans of finance are no longer in the banks @FT

The great irony of the post-2008 regulatory clampdown is that by forcing
established banks to become safer, regulators have given wings to a
gaggle of new financial players – with potentially unpredictable
consequences. Call it, if you like, a triumph of Wall Street’s
entrepreneurial spirit; or testament to its unseemly ability to run
rings around rules. Either way, financial arbitrage is once again the
theme of the day, and it is producing the kind of profits that J
Pierpont Morgan would have savoured.

read the whole article from Gillian Tett on the Financial Times:  The real titans of finance are no longer in the banks - FT.com

Everyone is waiting for the PE guys to deploy their capital, don't hold your breath...

Everyone is waiting for the PE guys to deploy their capital, don't hold your breath...



Mining’s $8 Billion of Private Equity Seen Reviving M&A - Bloomberg

 

The
world’s mining assets may be the target of mergers and acquisitions as
an $8 billion pool of private-equity money that has lain dormant is
stirred this year by attractive valuations and predictions of resilient
demand for raw materials.

Some of the biggest names in the industry are keen to buy assets at the same time as the world’s largest producers including Rio Tinto Group are shunning unwanted mines. Former chief executive officers Mick Davis
of Xstrata Plc and Barrick Gold Corp.’s Aaron Regent are plotting a
return to the business by buying mining projects, backed by private
funds. Last week two new mining investment ventures were started, one
backed by Warburg Pincus LLC, the other founded by two former JPMorgan
Chase & Co. bankers.

While buyout firms have increasingly
targeted mining since 2012, only about 14 percent of the almost $10
billion raised in the last two years has been deployed, according to
data compiled by Bloomberg Industries. That could change if they face
pressure from their investors to act, Michael Rawlinson, co-head of
mining and metals investment banking at Barclays Plc.

“They’ve
all set up, no one’s done anything,” London-based Rawlinson said. “The
sand is going through the hourglass and the money is going to get taken
away if they don’t start spending.”

The optimism for a revival in
mergers and acquisitions this year comes as nearly 8,000 executives,
bankers and analysts descend on Cape Town this week for the annual
Mining Indaba conference.

Lower Prices

While valuations remain depressed, potential buyers are attracted by signs that the bottom might be near. At the same time, BHP Billiton Ltd. (BHP), Rio Tinto and Anglo American Plc (AAL)
are among major mining companies seeking to shed unwanted and
higher-cost assets as part of an industry-wide push to trim expenses and
bolster profits. This combination of reduced values and an influx of
mines for sale is luring private equity investors.

“Private
equity is now looking at the sector with stronger interest, which it
hasn’t really done before,” Raj Khatri, senior managing director, head
of metals and mining for Europe at Macquarie Group Ltd.’s investment bank in London,
said in an interview. “There’s an increasing wall of money now focused
on the sector. For the right assets at the right price, it’s a really
excellent time to buy.”

Ex-JPMorgan Bankers

Last month
Citigroup Inc. upgraded its 12-month view on the industry to bullish
from neutral, its first such call in three years. The bank cited rising
optimism that demand for raw materials from China,
the biggest buyer, will remain resilient. Improving growth out of the
U.S. and Europe may also support prices, Citigroup said.

M&A in the mining industry
last year slumped more than half to $81 billion compared with a year
earlier, data compiled by Bloomberg show. According to an Ernst &
Young LLP report today, private equity alone has the capacity to
complete $10 billion of mining deals this year.

Anglo American
has said it’s identified as many as 15 assets for divestment, while
Deutsche Bank AG has put the value of all projects that could be sold at
$35 billion. Mining companies are also looking for capital to fund new
mines.

Michael Scherb, a former JPMorgan Chase banker in London,
completed a $375 million fund last week, called Appian Natural Resources
Fund LP, to target mining assets including those being divested by the
majors.

‘Just Right’

“We’ve hit the timing just right,”
he said. “It’s mining companies and projects which simply can’t get
capital from traditional sources. We see a lot of value out there.”

Brookfield Asset Management Inc. (BAM/A),
which has about $180 billion in assets under management, is spending
more time looking at mining opportunities today than in the past five
years, said Peter Gordon, a managing partner in the firm’s
private-equity group.

“I’m hopeful and confident that we’ll be
able to transact on one or more,” he said in an interview in Toronto on
Jan. 8. “We’re prepared to do anything and be quite creative about the
situation.”

Former Barrick CEO Regent started investment company
Magris Resources last year, seeking mining assets mainly in the
Americas, with backing from institutional and private-equity investors, a
person familiar with the situation said in May.

Glencore Project

Magris studied a bid for Glencore Xstrata’s Las Bambas copper project in Peru
last year, a person with knowledge of the matter said at the time.
Investment bank Investec Plc said last week the project, which is still
for sale, may fetch $4.5 billion.

“2014 is a great time to be
buying assets,” Paul Gait, a mining analyst at Sanford C. Bernstein Ltd.
in London said. “Mining is still unloved.”

X2 Resources, led
byDavis and a team of former Xstrata executives, is seeking to raise at
least $3 billion from investors before it starts buying mines, people
with knowledge of the plan said last week.

Davis has so far raised $1 billion from Noble Group, Asia’s
largest raw-materials trader, and private-equity fund TPG. X2 is
targeting mines already in operation or close to producing, said the
people, asking not to be identified because the plans aren’t public. A
spokesman for X2 declined to comment.

Other new mining funds include Toronto-based Waterton Global Resources Management
and London-based Greenstone Resources, which was founded last year by
former Xstrata executive Mark Sawyer and former JPMorgan banker Michael
Haworth.

Deploying Funds

“Private capital funds spent
2013 raising capital and we expect that to be deployed in 2014,” Lee
Downham, global mining transaction chief at E&Y in London, said in
today’s report from the firm.

Warburg Pincus,
which has an $11 billion global private equity fund, is looking at
assets owned by small mining firms in addition to the unwanted projects
of the major companies, said Peter Kukielski, who was appointed
executive-in-residence at Warburg Pincus last week to focus on mining
investments. He previously ran the mining business of the world’s
biggest steelmaker, ArcelorMittal.

“There are a lot of smaller
companies who are unable to implement their development plans because of
their lack of access to finance,” he said.

Guinea Project

Alufer
Mining Ltd., a closely held company seeking about $305 million from
debt and equity investors by year end to build a bauxite mine in Guinea,
has been speaking to private equity funds, CEO Danny Keating said. The
influx of private money looking at mining and the dearth of transactions
to date may aid Alufer’s ability to attract finance, he said.

“The pressure will start to mount on them to deploy in some way,” Keating said in an interview in Cape Town
today. “We might see more pressure toward the second half of the year
if people haven’t been investing, which from our side works well in
terms of timing.”

Share sales of mining companies in Europe
raised $3.5 billion last year, less than half of 2011’s total, as
investors’ appetite for the industry declined, according to data
compiled by Bloomberg.

The influx of private equity follows
criticism of mining executives for swamping the world with an oversupply
of raw materials from copper to coal. Almost a year ago, Ivan
Glasenberg, the billionaire coal trader turned CEO of Glencore Xstrata,
said his CEO peers had “screwed up” up through years of over-investing
in mines that eroded prices and profits.

“There is a general hope
that deal flow from these private-equity houses will start to be seen
in the second half of this year,” Alexander Keepin, global co-head of
mining at Berwin Leighton Paisner LLP in London, said in an interview.

To contact the reporters on this story: Jesse Riseborough in London at jriseborough@bloomberg.net; Ruth David in London at rdavid9@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net; Aaron Kirchfeld at akirchfeld@bloomberg.net



 See the article online here: Mining’s $8 Billion of Private Equity Seen Reviving M&A - Bloomberg






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