Archive

from Global Investing:

A scar on Bahrain’s financial marketplace

Bahrain's civil unrest -- which had a one-year anniversary this week -- has taken a toll on the local economy and left a deep scar on the Gulf state's aspiration to become an international financial hub.

A new paper from the Sovereign Wealth Fund Initiative, a research programme at Center for Emerging Market Enterprises (CEME) at the Fletcher School at Tufts University, examines how the political instability of 2011 is threatening Bahrain's efforts in the past 30 years to diversify its economy and develop the financial centre.

Asim Ali from University of Western Ontario and Shatha Al-Aswad, assistant vice president at State Street, argue in the paper that even before the revolt, Bahrain lagged in building the foundations of a truly international hub in the face of competition from Dubai and Qatar.

Unlike DIFC (Dubai International Financial  Centre) and QFC (Qatar Financial Centre), Bahrain insists upon local labor; currently 70% of employees in its banking and financial services industry are Bahrainis.  Bahrain’s reluctance to hire non-resident  talent  has made  Dubai...an alternative for those investors looking for a centre with more flexible labor practices such as DIFC provide...  The constraints  – a lack of formalized institutional and regulatory structure, along with an ad hoc business environment, underdeveloped infrastructure, and under-supplied skilled workforce – have negatively affected its growth and  potential to become the financial gateway in the Middle East.

Then came the crackdown of protesters.

Its ruling Al-Khalifa family unleashed  a ferocious extra-judicial crackdown against the opposition. It appeared the standard axiom of Gulf ruling families – securing legitimacy and counter-acting political opposition through redistribution of oil wealth – was sorely insufficient to address  citizens’ grievances.  These led not only to international opprobrium of  the  Bahrain government but also made foreign businesses reconsider Bahrain as a financial center – with many foreign business shifting  workers and operations to Dubai... Indeed, confidence in Bahrain as a financial hub took a major blow along with its image as a stable, tolerant and liberal state.

It remains to be seen what impact last year’s pro-democracy uprising will have on the state of Bahrain and its  ambition as a regional financial gateway– especially at a time when Dubai (DIFC) and Qatar (QFC) remain serious contenders to become dominant financial centers in the Middle East.

Bahrain had shown perseverance and strength in building its financial center, but democracy efforts and human right violations were able to  threaten the hard work of more than 30 years.

Bahrain's sovereign wealth fund Mumtalakat, which is leading the country's efforts to diversify its economy away from the hydrocarbon sector, suffered a series of ratings downgrades last year as a result of sovereign downgrades. Mumtalakat is rated triple-B.

from India Insight:

Civil society points finger at PM in 2G scandal

By Annie Banerji

He can run, but he definitely cannot hide. The Central Information Commission (CIC) has ordered the Prime Minister's Office (PMO) to release information regarding correspondence between Prime Minister Manmohan Singh and former telecom minister A Raja related to the 2G spectrum allocation scandal, which caused a loss of up to $39 billion to the national exchequer, in response to an applicant under the Right to Information (RTI) Act.

The prime minister has seen his popularity slump since he first came to power in 2004 with a downpour of high-profile corruption scandals, paralysed policymaking and a slow paced economy due to high inflation and interest rates. He finds himself under the scrutiny of not only opposition parties, but also civil society.

A civil society movement against corruption headed by popular Gandhian social activist Anna Hazare received nationwide support in April proving to the government that the masses do not treat corruption with nonchalance.

Now, the government is trying to avoid a repeat of April's anti-graft protests by talking to a panel of civil society activists, including Hazare, who had forced it to fast-track a decades-old proposition for an independent ombudsman to investigate graft cases in high places. But the negotiations have seen divergent views emerge over the contents of the legislation, most importantly whether the prime minister should be investigated by the ombudsman.

Keeping this in view, the prime minister's address to electronic media editors in February regarding his exchanges with A. Raja, the prime accused in the 2G scandal, comes to light.  With no threat of an authoritative body to investigate his suspected role in the spectrum situation, Manmohan Singh had timidly refuted all claims of being in the wrong of matters.

"Who got the licences... how first-come-first-served was implemented...this was never discussed with me nor was it brought to the Cabinet. This was exclusively telecom minister's decision," he was quoted as saying in the interaction with the editors.

from Funds Hub:

Morning Line-Up: CIC told to buck up; brisk bidding for Buffett

News and views on the hedge fund industry from Reuters and elsewhere:

China SWF put under pressure to post better returns - Reuters

Pictet unveils High-Dividend Selection portfolio - Fund Strategy

Buffett lunch bid tops $900,000 - Reuters

Which Investment: Commodity futures or producers? - Morningstar

UBS faces Lux probe over Madoff funds - Reuters

from The Great Debate UK:

Time to turn our attention to the needs of the bully?

- Libby Payne is an executive committee member of the Employee Assistance Professionals Association and clinical director of CiC.  She has more than 20 years experience in the provision of workplace counselling and psychological support, specialising in the management of crisis interventions and complex personnel issues within organisations. The opinions expressed are her own. -

Bullying is a fact of life in many organisations, regardless of size or industry sector. And in recent days – for the right or the wrong reasons – the subject of workplace bullying has been thrust into the media and public spotlight. But beyond the headlines, bullying is a problem that organisations need to address and do so in a way that focuses on a positive solution, not a public battle to attribute blame.

To achieve this, greater consideration needs to be given to the bullies themselves. All too often they are positioned as the ‘evil perpetrators, reeking fear and havoc on their team or department without a thought or care for the impact they’re having on their victims’ personal or professional lives.

In most cases of workplace bullying, though, the opposite is true. The bully is often a victim of his or her unmanageable stress and pressure that causes their behaviour to cross the line. Such realisation doesn’t make their behaviour right, tolerable or acceptable, but it does start to offer some explanation for the circumstances victims find themselves in.

Employee assistance programmes are often the first port of call for managers who find themselves accused of bullying their people or have a ‘light bulb moment’ that they need to change their management style and behaviour.

The support available from this type of intervention – as well as other techniques such as workplace coaching – enables the bully to finally realise that their management style and behaviour is not acceptable and needs to change.

Perhaps the bully has never received any formal management training or has come from an industry where ‘command and control’, dictatorial leadership is the unchallenged and accepted norm. Or, as floated earlier, they may feel powerless in their role and as a victim of stress themselves find their only means of coping is interpreted by others as bullying.

from Breakingviews:

China’s sovereign fund may bet more on resources

China's sovereign wealth fund is to have its coffers restocked possibly with as much as $200 billion. This could end up being a further boost for the global commodities sector.

China Investment Corporation had $297 billion of assets at the end of 2008. Now its cash reserves need replenishing after a spending spree this year, according to people close to the fund. CIC invested as much overseas each month in 2009 as it did in all of 2008. Investments included a further $1.2 billion in Wall Street bank Morgan Stanley , and a spate of resources deals in Canada, Indonesia, and Mongolia.

The recent investment boom in resources has served CIC well, with global commodity prices jumping 39 percent this year. CIC's $1.5 billion investment in Canada's Teck Resources has appreciated more than 120 percent since July.

CIC's early investment success probably makes China more eager to diversify away from U.S. Treasuries in the search for better returns. Still, about 10 percent of the new funds are set to be earmarked for recapitalisations of China's domestic banks, in which CIC has stakes. Chinese banks are under pressure to raise as much as 400 billion yuan ($58.6 billion) of fresh capital, said one banking regulator. That means CIC could have to pay $20 billion to prevent its holdings from being diluted.

As for the rest, the focus is likely to be strategic sectors. One possible target is new energy, such as solar and wind technologies. But China's appetite for investments in oil, metals and mining seems far from being sated judging by recent activity.

The move may also take some hot air out of the domestic economy. The funding for CIC does not come directly from the foreign reserves, but from domestic debt issuance, thus more money for CIC means less liquidity sloshing around in the domestic system. But elsewhere, CIC's second wind looks likely to be a positive force for the resources sector.

from Breakingviews:

When China is allowed to sell, it buys instead

from DealZone:

CIC braves U.S. distressed assets

China is no stranger to rolling the dice on risky U.S. investments. But like most big investors, it has been staying away from the tables for a while. Now we have word that its $200 billion sovereign wealth fund is pouring $2 billion into three funds focused on U.S. distressed assets. The funds are run by Goldman Sachs, Oaktree Capital and a third, as yet unidentified manager.

At only 1 percent of its portfolio, the balance of risk to Chinese wealth is small. CIC has pumped up its investment volume recently, buying a 14.5 percent stake in commodities trading firm Noble Group for $850 million just last week. Resources may seem like a better investment for a Chinese state-linked fund than distressed U.S. assets, given the country's gaping hunger for commodities. But China's macroeconomic exposure to the U.S. economy is at least as important to its future as its ability to source foreign raw materials. And with the dollar against the ropes, distressed U.S. assets may offer China a better bang for its buck.

CIC made a profit of $10 billion last year as it benefited from staying largely in cash and avoiding new investments in Western banks, a source close to the fund told us in February. But it lost over half of an initial $8 billion it ploughed into private equity firm Blackstone and Morgan Stanley when the fund was set up in September 2007.

CIC Chairman Lou Jiwei (pictured above) said in Hong Kong last December that he was "not brave enough" to invest in financial institutions at that time. He seems to have found his nerve.

from Changing China:

“Leasing” bankers to CIC

Since late last year, China's $200 billion sovereign wealth fund, China Investment Corp., has "borrowed" more than a dozen Morgan Stanley investment bankers, mostly from its Hong Kong office, to give advice in various areas ranging from real estate to debt trading.

Cost to CIC? Nearly Zero.

Benefit to Morgan Stanley? Priceless.

The banker exchange is an outgrowth of the investment bank's relationship with CIC, in which CIC took a stake in Morgan Stanley. While CIC has taken a loss so far in that investment, it has paid off in other ways.  

While remaining on the Morgan Stanley payroll, the bankers were relocated to CIC's Beijing head offices to work there for different kinds of temporary jobs, acting like consultants with no power to make decisions on deal-making.   During the bankers' "lease period" at CIC, Morgan Stanley paid their salaries, although the fund might have offered some non-cash benefits, such as free public transportation cards or lunch coupons to such special expat staff.   In fact, it's not just Morgan Stanley. Many other fund houses, asset managers and even law firms are happily lending talent to CIC for free in the hopes that they can build solid and long-term partnerships.

Even if China Investment Corp. paid these bankers and experts, it wouldn't come near what they are already making. For a monthly salary, a vice-president level job at CIC can only match the monthly housing allowance for an entry-level investment banking analyst in Hong Kong, roughly between HK$20,000 and HK$25,000.   Some in the financial industry describe the value of such "lease" arrangements as offering unique opportunities to gain a clear picture of what CIC wants and how the fund works or even what the top executives' personal preferences are -- German beer or French wine, for example. That goes beyond market knowledge but is highly valued intelligence.

Who knows? It might pay off one day with a billion-dollar deal or two.

from MacroScope:

SWF 2.0

The easing of the credit crisis is giving way for a new generation of sovereign wealth funds.

Japan, Taiwan, Thailand, Bolivia, Nigeria, Canada are just some of the places where a public debate has begun on establishing some form of sovereign wealth fund. And even Scotland is now looking at establishing such a fund to manage oil wealth.

China is also close to launching an agency to restructure and consolidate state-owned enterprises -- dubbed by Chinese media as CIC 2.0 in reference to the country's $200 bln SWF China Investment Corp.

Ashby Monk, expert on SWFs and research fellow at Oxford University, says the crisis may have highlighted the importance of having SWFs and having extra cash to deal with the emergency.

"There is this appetite for governments to set up new SWFs. Certain countries have taken considerable utility from having SWFs and a pool of cash during the crisis," he says.

"Coming out of this crisis, we are going to see SWFs increase in the same way central bank reserves increased coming out of the 1997 crisis. All these new funds may be the conduits for a real dramatic ramp-up of sovereign wealth funds."

from DealZone:

Taking the Wall St bypass

Remember early last year and the year before, when the U.S. financial system won huge investments from Asian sovereign wealth funds? Those investments seemed so rich at the time, offering conversions into shares at deep discounts and the kind of interest rates banks had demanded from subprime borrowers. The biggest fear anyone on Wall Street had was some vague sense that foreign ownership of U.S. financial institutions might be somehow un-American or a threat to national security.

Nobody talks about those days much anymore. Merrill Lynch, the recipient of billions of expensive sovereign wealth fund support, was swallowed up by Bank of America. Talk of nationalization swirls around Citigroup, another sovereign wealth fund investment target throughout the stunning collapse in its share price.

Our correspondent George Chen reports China's $200 billion sovereign wealth fund, China Investment Corp, is shifting to natural resources, fixed income and real estate after taking big haircuts on the U.S. financial sector. The fund, headed by former Vice Finance Minister Lou Jiwei, "has drawn criticism at home over large paper losses on its combined $8.6 billion investments in U.S. private equity giant Blackstone Group and Wall Street bank Morgan Stanley," Chen says, citing people familiar with the matter.

Sources of sovereign wealth from Singapore, Abu Dhabi and South Korea have all been burned by bad bets on a recovery in the U.S. finance sector.

Lou is in Washington and New York this week and is scheduled to meet top executives of Wall Street firms including Blackstone, Morgan Stanley and Carlyle Group, all of which are keen to attract CIC investments. But Chinese government and financial sources familiar with Lou's thinking tell Chen that chances of fresh bailout investments are slim, at least for 2009.

Other Deals News

* Thai broker BFIT Securities said it received a merger proposal from a Thai unit of Singapore's UOB Kay Hian Holdings.