Global Investing

from DealZone:

R.I.P. Salomon Brothers

It's official: Salomon Brothers has been completely picked apart.

Citigroup's agreement to sell Phibro, its profitable but controversial commodity trading business, to Occidental Petroleum today puts the finishing touches on a slow erosion of a once-dominant bond trading and investment banking firm.

When Sandy Weill (pictured left) staged his 1998 coup -- combining Citicorp and Travelers, Salomon Brothers was a strong albeit humbled investment banking and trading force. Yet little by little, a succession of financial crises, Wall Street fashion and regulatory intervention has whittled away at the once-dominant firm.

Not long after the Citigroup was formed, proprietary fixed income trading --  once the domain of John Meriwether, was shut down after the Asian debt crisis fueled losses that Weill could not stomach.

The Salomon name disappeared long ago as investment bankers and underwriters were rebranded Citigroup Global Markets.

Now Phibro, the former Philips Brothers that merged with Salomon in the early 1980s, is to be cast off because its energy traders made too much money when the rest of the bank suffered losses and required a $45 billion of taxpayer bailout.

from MacroScope:

SWFs by the Caspian

The world's leading sovereign wealth funds are gathering in Baku, capital of Azerbaijan, for a two-day inaugural meeting which ends on Friday.

A year after adopting the Santiago Principles of best practice guidelines, they are meeting next to the Caspian sea to review investment activities and assess how regulation and efforts to open up are helping them gain wider acceptance in a still-sceptical world.

The participants include SWFs from China, Kuwait, Azerbaijan, Australia, Libya, Ireland, Singapore and New Zealand. The meeting is hosted by the State Oil Fund of Azerbaijan - which made a record (and rare for SWFs) profit last year thanks to a conservative investment strategy.  The $11-billion fund, which made a record profit of around $300 million, or 3.7-3.8 percent in 2008, has said it wants to add riskier assets back onto the portfolio gradually.

from Summit Notebook:

Tax evaders on the run

  By Neil Chatterjee
    The U.S. has promised it will hunt down tax evaders.
    And it seems tax evaders are on the run.
    DBS bank, based in the growing offshore financial centre of
Singapore, told Reuters it had been approached by U.S. citizens
asking for its private banking services. But when told they would
have to sign U.S. tax declaration forms, the potential clients
disappeared.  
    Swiss banks also approached DBS on the hope they could
offload troublesome U.S. clients to a location that so far has
not been reached by the strong arms of Washington or Brussels.
    DBS said no thanks. In fact many private banks and boutique
advisors now seem to be avoiding U.S. clients.
    Will this spread to other nationalities, as governments
invest in tax spies and tax havens invest in white paint?
    Is this the end of offshore private private banking?

Equities: risky assets or return assets?

Are equities risky assets, or return assets? Watch Mark Tinker, Fund manager of the AXA Framlington Global Opportunities Fund, who talks about how the market has more room for an upside now that distressed sellers are gone.

Sustainable investing and SWFs

Government-owned institutions are becoming big drivers of sustainable investing — or buying firms which are socially and environmentally responsible, or sectors which tackle climate change or resource scarcity.

Norway’s $400-billion-plus sovereign wealth fund, which is the world’s second largest, is a big advocate of “green” investing, naming and shaming companies which do not fit the investment guidelines set by the government.

The guidelines rule out holding investments in certain firms,  for instance those that produce nuclear arms or cluster munitions, or that damage the environment or abuse human rights.

Cheers to double digit real returns

It’s good to drink it, but it seems good to sit on it too.

Fine wine, yielding double-digit returns, is low risk and good diversifier given its weak correlation to the return of asset classes — according to a fund which invests in fine wine.

The Wine Investment Fund says investors are receiving returns (after all fees and expenses) equivalent to 13.01% per annum over the last 5 years.

“This year’s payout represents a real return in excess of 70% or 10% per annum when allowing for inflation.  By comparison, over the same period the FTSE’s real return is -3.5% and a typical savings account would have generated a real return of less than 10%.  Fine wine has produced positive and consistent returns for decades now.  It really is proving its worth and we see more professional investors using it as a valuable diversification tool within a properly managed investment portfolio,” says Andrew della Casa, director of the fund.

from FaithWorld:

Indonesia’s sharia push may scare investors, moderates

indoensia-shariaRecent moves in Indonesia, including plans by one province to stone adulterers to death, have raised concerns about the reputation of the world's most populous Muslin country as a beacon of moderate Islam.

The provincial assembly in the westernmost province of Aceh -- at the epicenter of the Indian Ocean tsunami that killed 170,000 people there nearly five years ago -- this week decreed the ancient Islamic penalty of stoning to death for adultery. (Photo: Indonesian Muslim women support sharia, 19 Sept 2006?Supri Supri)

The decision could still be overturned once Aceh's new parliament is sworn in next month. But many, including Aceh's governor, the central government in Jakarta, and local businessmen, are concerned about the impact a broadcast public execution by stoning could have on Indonesia's international reputation.

Good-bye babyboomers, good-buy Generation Y?

London’s premier department store Selfridges has already opened a Christmas shop with festive decorations and accessories (Christmas comes 141 days early), so it is no surprise that some fund managers are already looking ahead for next year onwards.

David Miller, head of alternative investment at Cheviot Asset Management, thinks investment in the period 2010-2012 will be driven by the impact of demographic trends, such as Generation Y — those born since 1978, all of whom grew up with the Internet.

However, as far as investment markets are concerned Baby Boomers (1946-1964) are still in the driving seat both as spenders and savers.

The case for active/passive investment

Fund managers come back to this recurring question — is it better to invest passively, tracking benchmarks, or manage your money actively, taking risks?

Standard & Poor’s five-year data shows the S&P 500 index — a plain vanilla bet on U.S. stocks — outperformed 62.9 percent of actively managed large cap funds.

The S&P Midcap 400 index outperformed 73.4 percent of active mid-cap funds and the S&P SmallCap 600 outperformed more than one in two actively managed small funds.

Is it time for a Scottish wealth fund?

Oxford SWF Project, a university think tank on sovereign wealth funds, is looking at reports that the latest entry in the field could be Scotland. The project has a new post about the Scottish government floating the idea of an oil stabilisation fund to use oil and gas revenues.  It cites Scottish cabinet secretary for finance John Swinney looking abroad gleefully:

“We want to harness the benefit of oil revenues now for future years. An oil fund can provide greater stability, protect our economy and support the transition to a low carbon economy. Norway’s oil fund is worth over £200 billion – despite the first instalment being made as recently as the mid 1990s – and Alaska’s oil fund even gives money back to its citizens every year.”

The SWF project reckons the idea is a good one, but wonders if something other than meets the eye is at play. It had two questions.