State vs entrepreneurial capitalism
The post-crisis world has been in part shaped by the growing presence of sovereign wealth funds, which have become an important source of funding with their $4 trillion assets, replacing private equity and hedge funds. But some people are wondering whether state capitalism really is the way forward, to boost the potential growth rate of the post-crisis world.
Robert Litan, senior fellow at the Brookings Institution, believes that in fact it’s entrepreneurs who would play a key role, and it’s important for policymakers to come up with a mechanism to help them.
Litan estimates that the United States needs 30-60 new “home-run” firms a year with annual sales of $1 billion to boost U.S. growth rate by one percentage point beyond its post-war average of 3 percent. This is double the past 150-year average of 15 firms a year.
“Enterpreneurial capitalism is the defining concept of 21st century economics. The state firm model might work for countries that are behind, but at some point we need entrepreneurship,” Litan told a briefing hosted by Legatum Institute, an independent public policy think tank.
Litan, who is also vice president for research and policy at Ewing Marion Kauffman Foundation, says “crowd funding” is one innovative way to help entrepreneurs.
Currently popular with film, tech and art start-ups, crowd funding is a new capital-raising technique that allows investors to take small equity stakes in new firms over the Internet.
from Summit Notebook:
Being socially responsible investor in the Gulf
Socially responsible investing, which takes into account social, environmental and governance risks, is arguably still in its infancy in the Gulf, where the enormous wealth created by hydrocarbons sometimes flows into extravagant projects like an indoor ski resort.
But Mustafa Abdel-Wadood, managing director of Abraaj Capital -- the Middle East's biggest private equity firm -- sees SRI as enlightened self interest and the firm puts its own money where its mouth is.
Fred Sicre, executive director of Abraaj, told us the firm -- which signs up to United Nations Principles for Responsible Investing (UNPRI) -- has a 5+5+5 plan, where it encourages employees to donate 5% of bonuses to a charitable pool, 5 days for community/charitable work and the firm itself gives 5% of net revenues to a charity. Sicre himself taught at the first class yesterday on entrepreneureship.
"When we invest for pure business reasons into an education business or a hospital group, in a certain sense, we are looking at this also from a sustainable investment (point of view) for this region because the competitiveness of a country is directly linked to the health of the population," Sicre says.
"We feel we have great opportunities and responsibilities to bring portfolio companies to adhere to sustainble investment practices, whether its security or health standards... It's just about being good human beings and doing good practical businesses."
Watch a clip below for Sicre talking about this 5+5+5 plan.
from MacroScope:
Tale of two SWFs
As the world moves closer to the end of the credit crisis, sovereign wealth funds around the world are experiencing mixed fortunes.
Good news comes from Singapore's SWF Temasek, which springs back into gains with its portfolio climbing 32 percent between April to end-July after a 30 percent loss in the year to end-March.
Announcing its annual performance report (which should please the country's taxidrivers), Temasek said it is open to investing in financials and resources in the long term and it has bought stakes in South Korea's ENK, cylinder suppliers, and Brazil's oilfield services firm San Antonio.
Moving towards the Middle East, Dubai World, a state-owned holding company, is struggling to restructure its subsidiaries.
It has moved several executives to its Istithmar unit, which owns struggling high-end retailer Barney's New York, from its real estate unit Nakheel, which is trying to refinance $3.52 bln Islamic bonds maturing in December.
Istithmar is seen as sovereign private equity, which takes a high leverage to invest in firms, with some estimates that the capital was levered up up to 7-10 times.
Real-estate investors go back to schools
The old adage – there is no better time to go back to school than during a recession – seems to ring true for real estate investments as well.******With recession-wary workers and rising international interest driving up university applications, student home operators in the UK are enjoying near 100 percent occupancies, with rents predicted to go up 10 percent this year.******In contrast, other property classes in the UK such as offices, shopping malls and factories have seen values plunge a startling 45 percent since mid-2007. And the recession means rents are forecast to fall as much as 15 percent this year as landlords face the rising threat of tenant defaults.******As I wrote earlier, investors such as pension funds that were burnt by traditional commercial assets are now turning to the student accommodation market for the projected growth and steady returns other parts of the market aren’t delivering.************Student homes specialists King Sturge estimates that average rents jumped 7 to 10 percent annually in the last five years and can go up 10 percent this year, although it sees the yearly increase moderating to 5-7 percent for the next few years with new entrants to the market.******Branded student housing can be very pricey and the best stuff are a far cry from crowded, slum-like dorms that some of the world’s students have to put up with: high-end versions in London that offer en-suite bathrooms, flat-screen TVs and laundry services cost up to 300 pounds a week.******With the belt-tightening that comes with a recession, parents may groan about the higher costs of student housing for their university-bound offspring.******But operators expect there will be those who are still willing stump up the cash, if only to ensure their children make it for classes.******”First year students usually can’t find housemates to rent with, and there is no guarantee the flat will be near to school,” says Gabriel Behr of the University Partnerships Programme, a student homes operator owned by funds under Barclays Private Equity, which is developing over 700 new rooms for King’s College London.******”Are parents willing to stick their kids somewhere five miles away from class?” he asked me.
Well there’s the solution to the vacancy problem, rent the property out to students and wait till the worst of the recession is over and then put it up for sale again.
from Summit Notebook:
Signs of life in Japanese private equity
The conventional wisdom is that private equity is comatose in Japan, at best, with some major firms leaving Tokyo, deal numbers sliding and even old Japan hands like Advantage Partners seen as looking to exit mature investments.
Yet Richard Folsom, Representative Partner of Advantage, tells a very different story with deals in the pipeline, finance on tap and some ripe fruit about to be picked -- even if his firm has yet to announce a new investment deal this year.
Private equity in Japan is just over 10 years old, after a rule change in 1997, and makes up about 3-4 percent of merger deals, by Folsom's math.
That may seem low, but he says the private equity business in Germany and the United States was similarly small at the same stage of their development -- suggesting fund buyouts might leap to 10 or 20 percent of deals over the next five or ten years as Japan follows the path set by others.
But he is not just talking theoretically. After the financial crisis made deals hard to value, he sees increasing pressure for hard-hit companies to sell non-core assets as competition increases pressure on them to raise cash to invest in their core businesses.
If they are not getting it from earnings and not getting it from the credit markets, that leaves them looking at divestments, he told the Reuters Japan Investment Summit.
Falling on deaf ears
The European private equity industry today published its response to the proposed Alternative Investment Fund Managers directive that seeks to place controls on the industry.
In what it must hope will be seen as a carefully considered and constructed response to the European Commission’s hastily drafted and ill-thought-out proposed directive, the European Private Equity and Venture Capital Association — the voice for private equity in Europe — calls for the threshold for reporting on its companies’ activities to be lifted to 1 billion euros assets under management from 500 million.
It argues that private equity firms smaller than that specialise in managing small and medium-sized companies and should be subject to national legislation.
EVCA also wants a grandfathering clause introduced so firms existing funds that use no leverage and have no redemption rights (the vast majority of all unlisted private equity funds) would be exempt from the directive. It argues that failing to do this could result in termination of these funds “with disastrous consequences for the industry and its portfolio companies”.
The big question is who in Europe is listening?
Having already gained a surprise concession in the published draft, which lifted the reporting threshold to 500 million euros from an expected level of 250 million euros, private equity may be seen as pushing its luck by asking for further leeway.
While the Socialists lost ground to the Conservative right in the recent European Parliament elections, it would be a mistake to think that the left wing coalition leader Poul Nyrup Rasmussen will be any less strident in his call for stringent legislation on private equity and hedge funds alike. The right wing Governments in France and Germany have been just as loud in their demands for legislating of the industries.
from DealZone:
“Tourists” arrive in private equity
Opportunistic buyers, lovingly dubbed "tourists" by those in the industry, have moved into the secondary private equity market. They're looking for positions in brand-name private equity funds at knock-down prices. As I wrote in a DealTalk today:"Pension funds and wealthy middle-east sovereign wealth funds are buying up investments in private equity funds, pushing up prices and sidelining secondary firms that specialise in acquiring the assets."The market for second-hand private equity assets -- where private equity investors offload assets to specialist buyers -- has mushroomed as the credit crisis has intensified. And increasing numbers of cash-strapped investors are concerned about meeting their future commitments to buyout funds."New investors have been attracted to deals by steep discounts to net asset value, forcing up prices for specialist buyers, such as Goldman Sachs (GS.N) and HarbourVest Partners (HVPE.AS) that last month closed secondary funds after reaching their $5.5 billion and $2.9 billion targets respectively."Read the full piece here.
Lambs to the slaughter
The mood was not so much one of indignant fury but quiet disappointment in Founders Hall for the Candover AGM yesterday.
A contrite and clearly uncomfortable chairman Gerry Grimstone took the stand – looking like a schoolboy caught with his hand in the biscuit tin, wishing he could be anywhere else.
He said he had lain awake at night re-examining the decisions that have devastated the share price and brought the company to the brink of sale. And it was easy to believe him.
It was a very polite meeting. The shareholders were quite clearly angry but they were more of a crowd to tut and shake their umbrellas than throw rocks.
from Funds Hub:
Watch Pi Capital CEO David Giampaolo give his investment outlook
Giampaolo was speaking today at the London leg of the Reuters Hedge Fund and Private Equity Summit.
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from Funds Hub:
Watch hedge fund manager Colin McLean give his market outlook
McLean was speaking today at London leg of the Reuters Hedge Fund and Private Equity Summit.
