(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)

By Richard Beales

NEW YORK, May 21 (Reuters Breakingviews) – Temasek’s
[TEM.UL] roughly $500 million investment in Markit looks timed
just so. Financial “Big Data” and the potential in the Asian
market aren’t necessarily new themes. But with Bloomberg on the
defensive, it’s a good moment to suggest there’s potential for
another competitor – perhaps, before too long, another publicly
traded one.

The deal values Markit at something around $5 billion. That
compares with General Atlantic’s investment of $250 million for
a 7.5 percent stake in early 2010, which gave the private
financial information and services firm a price tag of $3.3
billion. Markit, a pioneer in areas like credit derivatives
pricing, has grown on the back of data and related products that
both complement and compete with services provided by higher
profile organizations like closely held Bloomberg and publicly
traded but family controlled Thomson Reuters (TRI.TO: Quote, Profile, Research)(TRI.N: Quote, Profile, Research),
the parent company of Breakingviews.

The investment has several underpinnings, including a
growing need by worldwide institutions to manage and mine
mountains of information and the potential for Markit to expand
in Asia. The $160 billion Singapore government fund’s contacts
at places like China Construction Bank (601939.SS: Quote, Profile, Research) and DBS, in
which it owns big stakes, are obvious potential sales targets in
the region.

But the announcement also happens to coincide with a moment
of embarrassment for Bloomberg following a recent furor over
journalists having access to customer data. If banks and other
users start to shift their loyalties – or even if they simply
spread business around to ensure they have another option
available – that should benefit Markit. According to news
reports this week, the firm has already teamed up with banks and
Thomson Reuters to provide a messaging service that could rival
Bloomberg’s popular version.

There’s a final twist. Temasek likes to take anchor stakes
in companies before they go public. On the one hand, buying
existing shares allows Markit employees and other shareholders
to sell, making an initial public offering a less important way
of providing liquidity. Then again, the Singapore government and
General Atlantic are now the biggest holders. They tend to be
more patient money, but they’ll also be sharply attuned to the
market for Markit.

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CONTEXT NEWS

– Markit, a London-based financial information and services
provider, said on May 21 that Temasek had made a significant
investment in the company.

– Reuters reported earlier in May that Temasek, the
Singapore government investment company, was in talks to buy a
stake for around $500 million. Temasek is buying an
approximately 10 percent stake, according to a person familiar
with the transaction.

– Markit has teamed up with banks and Thomson Reuters, the
parent company of Breakingviews, to develop a new messaging
service to challenge the offering from Bloomberg, the Wall
Street Journal reported on May 20.

– Markit release: link.reuters.com/jyj38t

– Reuters: Temasek in talks to buy stake in Markit
Group-source [ID:nL3N0DK1L8]

RELATED COLUMN

The other foot [ID:nL2N0DU27N]

– For previous columns by the author, Reuters customers can
click on [BEALES/]

(Editing by Jeffrey Goldfarb and Martin Langfield)

((richard.beales@thomsonreuters.com)(Reuters messaging
richard.beales.thomsonreuters.com@reuters.net))
Keywords: BREAKINGVIEWS MARKIT/

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and the Reuters sphere logo are registered trademarks and trademarks of
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(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)

By Richard Beales

NEW YORK, May 20 (Reuters Breakingviews) – SAC Capital
Advisors may have exhausted its reserves of investor loyalty.
The U.S. government’s intensifying legal onslaught at the $15
billion hedge fund firm probably will force the remaining
outside investors, responsible for about $6 billion of the
assets, to run. Even Cohen’s legendary 25 pct annual returns at
some point aren’t worth the risk.

The latest developments include news that Cohen and
colleagues have been subpoenaed to testify before a grand jury
and SAC’s decision late last week that it would no longer
cooperate “unconditionally” with a federal insider trading
investigation. The government’s efforts have already ensnared a
clutch of former SAC employees, though neither Cohen nor his
firm has been accused of wrongdoing.

SAC previously tweaked its rules to give investors more time
to decide whether to withdraw money. It couldn’t have been an
easy decision. On the back of his trading prowess, Cohen has for
years been able to charge investors at least double the
archetypal industry fees of 2 percent of assets and 20 percent
of gains. Blackstone Group’s (BX.N: Quote, Profile, Research) fund of funds unit, for one,
has taken a “wait and see” approach. The mounting legal
distractions make it difficult to see how Blackstone and others
can allow themselves to wait for much longer.

Prosecutors have been scrutinizing SAC’s activities for
almost seven years. A huge $616 million settlement with the
Securities and Exchange Commission in March resolved a batch of
civil allegations, but as it turns out the criminal authorities
didn’t back down. It now looks increasingly as though SAC is
squarely in their sights – and Cohen himself may end up there,
too.

Stellar returns, high fees, massive trading volumes, the
accumulation of billions of dollars in personal wealth and an
appetite for eye-catching expenditures have all probably
contributed to Cohen’s allure as a target. In fact, two big
purchases – a $155 million Picasso and a $60 million Hamptons
estate – were widely reported right after the SEC settlement was
announced. The pugnacious fund boss may yet escape further legal
trouble. Even if he does, though, SAC’s most optimistic future
looks to be as a family office.

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CONTEXT NEWS

– Steven Cohen has received a subpoena to testify before a
grand jury in a U.S. government insider trading investigation
into his hedge fund firm, SAC Capital Advisors, the New York
Times reported on May 19, citing lawyers and executives briefed
on the case.

– The $15 billion hedge fund told investors on May 17 it
would no longer cooperate “unconditionally” with the U.S.
government’s insider trading investigation.

– The government’s investigation into allegations of insider
trading at Cohen’s fund has been heating up over the past
several months. SAC and the U.S. Securities and Exchange
Commission in March reached settlements relating to some of the
allegations for a record sum of $616 million, but the judge on
the case did not grant unconditional approval to the deal.

– To date, nine current or former SAC employees have been
charged with or implicated in insider trading while working at
Cohen’s fund.

– Reuters:

SAC Capital won’t fully cooperate with govt -letter
[ID:nL2N0DY231]

SAC Capital’s Cohen gets subpoena to testify – NY Times
[ID:nL3N0E10MM]

RELATED COLUMNS

Cohen, Cohen, gone? [ID:nL1N0C7BKJ]

Not feeling so Wells [ID:nL1E8MS5GI]

Getting a nibble [ID:nL1E8MKEDE]

– For previous columns by the author, Reuters customers can
click on [BEALES/]

(Editing by Jeffrey Goldfarb and Martin Langfield)

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Keywords: BREAKINGVIEWS SAC/COHEN

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The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Ben Bernanke probably deserves a spot somewhere in New York’s Museum of Modern Art. A record $495 million sale at Christie’s on Wednesday evening set new highs for Jackson Pollock, Roy Lichtenstein, Jean-Michel Basquiat and other contemporary artists. More collectors than ever have $20 million to spend on a single work. The buoyancy of the market paints a picture of an art world indebted to the Federal Reserve chairman and his alternative asset-friendly monetary policy.

The $294 million sale at Sotheby’s a day earlier wasn’t quite in the same league. Works by one formerly red-hot living artist, Jeff Koons – a favorite of embattled hedge fund boss Steven Cohen – had a mixed experience across the two sales. But the overall impression is of private equity barons and hedge fund bigwigs jostling with the usual collecting suspects in what the Christie’s auctioneer called “a new era” of global competition.

Ultra-loose monetary policy, as practiced by the Fed and other central banks, makes the returns available on more traditional holdings like bonds unappealing and pushes up the value of other assets, from stocks to real estate and art. Throw in rising global wealth, a concentration of riches in the United States in particular, a return of better times for financiers and the allure of social bragging rights, and the ingredients exist for auction records.

It helps when the artists in question are in fashion or the works unique, as with last year’s $120 million sale of Edvard Munch’s “The Scream.” It was the only version of the famous image not in a museum. The anonymous buyer – widely reported to be Leon Black, founder of private equity firm Apollo Global Management – lent it to MoMA for six months, a period that ended in April.

If it’s a Fed-fueled bubble, at least it’s one that can trickle down to lesser artists and involves buyers who can afford the worst-case outcome – like the London jeweler who, according to the New York Times, splashed out $56 million for Lichtenstein’s “Woman With Flowered Hat” as a 75th birthday present to himself. Cheerful sellers, meanwhile, might consider commissioning an appropriately flattering likeness of Bernanke.

By Richard Beales

NEW YORK (Reuters Breakingviews) – Apple(AAPL.O: Quote, Profile, Research) is breaking new ground again – but this time in finance. The iPhone and iPad maker launched a giant bond issue on Tuesday and may borrow well over $15 billion, the most in one shot by any non-bank ever. The bonds could also carry record low pricing. Eager investors should be alert to the perfect storm behind the deal.

It’s a kind of conspiracy involving Apple’s novelty in the market, the Federal Reserve’s ultra-low interest rates and the Internal Revenue Service’s habit of taxing overseas profits that U.S. companies bring home. Apple is selling three and five-year floating-rate debt as well as three, five, 10 and 30-year fixed-rate bonds.

The company missed by just one notch a AAA rating from both Standard & Poor’s and Moody’s Investors Service. The agencies’ concern is that fickle consumers and technological disruption could dent Apple’s competitive position. Fitch Ratings said its grade would have been lower had it provided one, considering the humbling of former tech high-fliers Sony (6758.T: Quote, Profile, Research), Nokia (NOK1V.HE: Quote, Profile, Research) and Motorola Mobility.

But with $145 billion of cash and billions more flowing in every quarter, Apple is stirring intense interest in its debt, with orders topping $40 billion by mid-morning in New York, according to IFR. If the company ends up issuing $20 billion, spread evenly across all six parts, the annual interest bill could run to some $330 million at the early price levels reported by IFR, which will probably drop. Apple’s roughly $60 billion of annual earnings before interest and tax would cover interest plus existing interest-like charges well over 100 times.

In its quest to return $100 billion to shareholders by the end of 2015 while avoiding tax on repatriating cash, Apple could borrow as much again next year and the year after. That would turn it into a debt market touchstone without endangering its balance sheet. Add benchmark rates that have fallen even since Microsoft (MSFT.O: Quote, Profile, Research) sold debt last week, and Apple’s bonds may set new record lows for yields, at least relative to the underlying benchmarks.

The company has captured for its debt launch some of the hype it generates when unveiling new gizmos. Yet with little room in the pricing, buyers of longer-dated bonds stand to lose money if rates go up. And the competitive danger highlighted by Fitch, while seemingly remote, is real. As a debt investment, Apple may prove reasonably healthy but not especially satisfying.

CONTEXT NEWS

- Apple on April 30 opened order books on a six-part all-dollar bond offering, which could turn out to be the largest non-bank debt sale in history. The U.S. iPhone and iPad maker is issuing bonds to help fund its plan to return $100 billion in capital to shareholders by the end of 2015.

- Apple is planning to offer three-year and five-year fixed and floating-rate notes, as well as 10-year and 30-year fixed-rate notes via Goldman Sachs and Deutsche Bank.

- Sources told IFR that investors, in what is known as a reverse inquiry, had asked for Apple to issue at least $5 billion to $6 billion in debt, but that the company in fact plans to issue $15 billion or more, which would be the largest bond sale ever by a non-financial institution.

- Apple prospectus and supplement: link.reuters.com/bek77t and link.reuters.com/cek77t

(Editing by Reynolds Holding and Martin Langfield)

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Microsoft may be the quiet villain of global finance. Excel errors overstated pre-crisis structured finance ratings, dented JPMorgan’s risk management just as banks were on the mend, and tripped up influential fiscal policy ideas. The rest of the Office suite of “productivity” applications – the bulk of a division responsible for $24 billion in revenue in the last fiscal year – seems equally apt to court trouble.

In 2007, the triumph of the spreadsheet-style financial model peaked with so-called constant proportion debt obligations. This piece of structured finance genius managed to garner AAA ratings despite being designed so that as losses started accumulating, the built-in leverage would automatically increase (yes, increase). Sure enough, a coding error at Moody’s Investors Service had inflated the firm’s CPDO ratings.

Then there was JPMorgan’s $6 billion “London whale” trading loss last year. Excel flubs made another appearance. Also, overly flattering input assumptions allowed risk outputs to be understated – the garbage in, garbage out principle. Most recently, a graduate student discovered a spreadsheet error missed by two Harvard economists, undermining part of their widely cited theoretical case for austerity.

Microsoft Word, meanwhile, has had broader dubious effects. Long, jargon-filled documents obscure the central issues in all kinds of corporate and government reporting. The ability to copy and paste easily also has surely blunted the need to understand ideas.

Ultimately, the elegant graphics of PowerPoint have validated the wackiest results from spreadsheets and the kookiest of strategies advanced by chief executives and investment bankers. It’s not for nothing that Edward Tufte, a Yale professor and statistical presentation guru, once held forth under a headline reading: “Power corrupts. PowerPoint corrupts absolutely.”

The Outlook email and calendar application and the world of networked computing, meanwhile, add to the information overload, straining systems and attention spans. Worse, they encourage the kind of idiotic but revealing exchanges between bankers that have made life easier for prosecutors.

All told, Office has played more than just a cameo role in the dark side of capitalism, a distinction that undercuts the technology’s economic and social value. It would help if financiers deployed Microsoft’s tools with common sense rather than trying to use them as a substitute.

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The debacle at J.C. Penney exposes a glaring inefficiency in how the market values corporate chieftains. When the struggling U.S. retailer hired Apple whiz Ron Johnson in 2012, the company’s equity value spiked by more than $1 billion. On Monday evening, news of his departure added $350 million. The return of ex-Chief Executive Mike Ullman – the man Johnson replaced – swiftly erased some $700 million. Such big swings make no sense.

Less than two years ago, Johnson was given a savior’s welcome. Bill Ackman, a board member and hedge fund manager whose Pershing Square Capital Management is J.C. Penney’s biggest shareholder, championed the recruitment and touted Johnson’s retail success at Apple and Target. Apple, in particular, always looked a shaky comparison. J.C. Penney lacks the desirable products, focus and brand image of the iPhone and iPad maker.

As it turns out, J.C. Penney’s shares are trading at less than half the price they were when Johnson took over. A year and a half isn’t long enough to forge a major turnaround. Even Ackman, though, realized things weren’t going well. He bluntly acknowledged the problems at a conference last week.

Even if Johnson’s ideas had been the right ones, big organizations with entrenched people and cultures are hard to turn around. That made the market exuberance for his arrival excessive. By the same token, the large discount applied to Ullman’s second attempt is probably overdone.

Part of the rap against Johnson is he tried to do too much, changing sale policies and alienating traditional customers. In that sense, a blast from the past might not be so bad. Although Ullman’s seven-year tenure cost J.C. Penney 15 percent of its value – as Ackman liked to point out – the pressure from online rivals, the intervening recession and the more dramatic decline under Johnson make that record look less bad.

J.C. Penney, now a $3.1 billion company, has struggled to keep up in a challenged industry. That may be where Ullman can help. If anything, the fickle market has provided him with one advantage over Johnson: low expectations.

Apple Chief Executive Tim Cook is starting to make a habit of apologies. The latest, in China, is worth the loss of face. Social media traffic suggests today’s worldly Chinese iPhone, iPad and Mac computer buyers won’t be swayed by what seems to be state-orchestrated media criticism. But the tech giant’s admission of arrogance is a cheap salve to a mass of future buyers of the company’s products.

Cook’s last show of contrition was six months ago over the poor performance of Apple’s Maps app. The latest, posted on the company’s China website, is a response to media criticism of warranty practices and customer service which began two weeks ago when state-run China Central Television targeted Apple in an annual exposé of corporate malpractice. The onslaught does not seem to have unearthed much in the way of specific examples of unfairness, but it has carried the implication that Apple treats Chinese consumers less well than, say, those in the United States.

The underlying message could be a political warning to a huge foreign company making a lot of money selling popular products that are often assembled in China, and on a relative shoestring, by the likes of Foxconn. It might reflect widespread sensitivity to the perceived insult of a rising world power’s citizens being treated as second-class by multinationals. It could even be intended to boost domestic would-be rivals like ZTE and Huawei – especially given security-related criticism of the latter in the United States – though finding fault with an actual Apple product would be more potent.

Whatever the real motivation, the vagueness of the allegations made it easier for Apple to give ground. The text of the apology is more in the “we regret any misunderstanding” vein than suggestive of any big change in policy, though the company said it would revise some iPhone warranties. And it achieves the doubly happy objective of making Apple look less haughty and avoiding a war of words with the Chinese establishment.

That’s important. China was Apple’s second-biggest country market in the fourth quarter of 2012 – providing 13 percent of the company’s $54.5 billion of sales – and while visiting earlier this year Cook expressed the wish it might become the largest. Among other opportunities, Apple has yet to forge a handset partnership with China Mobile, which has a staggering 720 million customers. With his stock price sagging, Cook needs actively to avoid trouble in a growth bright spot.

(The authors are Reuters Breakingviews columnists. The opinions
expressed are their own.)

By Robert Cyran and Richard Beales

NEW YORK, April 1 (Reuters Breakingviews) – A bidding war
for Dell (DELL.O: Quote, Profile, Research) just became even less likely. The computer
company on Friday laid out, in a novel-length filing, its
reasoning for agreeing to a $24.4 billion buyout by founder
Michael Dell and private equity firm Silver Lake Partners. It’s
only the company’s version, but Dell seemingly did what it could
to secure the best offer available.

The 275-page document details the who, what, when, where and
why of the deal as it unfolded. The account essentially begins
in June 2012, when Dell shareholder Southeastern Asset
Management contacted Michael Dell to discuss going private. By
this account, that set in motion the process that resulted in
the proposed buyout, with the twist that Silver Lake ended up as
the founder’s backer with Southeastern squeezed out – and now a
critic of the deal.

In reality the story has older roots. Michael Dell was asked
in 2010 if he had ever thought about taking the company private,
and he said “yes.” Such narrative niggles aside, Dell’s board
appears to have done the right things after learning officially
of the founder’s interest in a buyout last August. It
established a special committee, hired advisers, and excluded
the founder from meetings. It also tried to gin up rival
interest, and it pushed the Michael Dell-Silver Lake offer from
an early conditional minimum of $11.22 a share up to a committed
$13.65.

Even after the board agreed to the buyout, 67 possible
buyers were contacted during the “go shop” period, with adviser
Evercore (EVR.N: Quote, Profile, Research) incentivized to the tune of $30 million to find
a superior bid. And in the meantime the board, with help from
outside consultants, became less bullish on Dell’s likely
financial performance, according to projections laid out in
Friday’s filing.

The board’s preference for a buyout over simply borrowing
more and paying shareholders a big dividend also appears sound.
Directors felt that taking on additional debt could be risky,
and there are other drawbacks. Nearly all the company’s share
buybacks over the past two years have cost more than the agreed
$13.65 per share sale price. While that suggests the board once
thought the company was worth more, it also shows how efforts to
signal a public market valuation can fail.

Investors are still stuck with the fact that Michael Dell
owns over 15 percent of the company and he can choose whether to
roll his equity into any other bid. However above-board the bid
process – and however many expensive advisers the board hired –
that makes him the kingmaker. Still, the board handled the
inevitable conflicts appropriately. That means the job of
potential rival bidders Blackstone (BX.N: Quote, Profile, Research) and Carl Icahn is now
harder.

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CONTEXT NEWS

– Dell on March 29 filed a proxy statement for the $24.4
billion agreed buyout by founder Michael Dell and private equity
firm Silver Lake Partners. In the statement, the company’s board
ticked through the history of the negotiations leading to the
deal and the reasons the board preferred the founder’s offer
over rival ones, and warned that it would be risky for the PC
maker to borrow heavily to buy back shares while remaining
public. The Silver Lake-backed group has offered $13.65 a share
to take Dell private.

– Dell said on March 25 it had received alternative
proposals from Blackstone and Carl Icahn that could turn out to
be superior to the offer from Michael Dell and Silver Lake.
Icahn, who proposed paying $15 a share for 58 percent of Dell,
also said he had started preliminary talks with Blackstone.

– Proxy: link.reuters.com/han96t

RELATED COLUMNS

Ctrl-Alt-Dell [ID:nL2N0CJ0NQ]

The rub to stub [ID:nL2N0CH0JZ]

– For previous columns, Reuters customers can click on
[CYRAN/] and [BEALES/]

(Editing by Richard Beales and Martin Langfield)

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Maybe SAC Capital should forget about managing other people’s money. Steve Cohen’s $15 billion hedge fund firm is paying a whopping $616 million to settle Securities and Exchange Commission insider trading charges. It would be an ignominious time to follow legends like Stanley Druckenmiller, but Cohen is already losing over a quarter of some $6 billion of outside investor funds this year. It could be time to focus mainly on looking after his own cash.

SAC says it is happy to put the SEC’s allegations behind it, without admitting or denying them, even though it is costing the firm more than Goldman Sachs paid in 2010 to settle fraud charges relating to its infamous Abacus collateralized debt obligation. There is still an ongoing criminal investigation, however, and given the SEC’s seeming focus in recent years on people associated with SAC, there’s no guarantee the watchdog is finished with business tied to Cohen.

Most typical institutional investors would have pulled their money long ago, and SAC’s remaining clients must have strong tolerance for alarming news and swirling rumors. And the firm, not its funds, will swallow the payments to the U.S. government. Even so, investors have given notice they will withdraw about $1.7 billion over the course of this year. Some, like Blackstone’s fund of funds unit, previously said they would essentially wait and see what happened before deciding about redeeming more. With the settlement in the bag they may feel relieved for now, even if SAC isn’t entirely in the clear.

Cohen hasn’t been charged with anything and doesn’t lack for fortitude, but with $9 billion-odd of his own and close associates’ money in hand, he might eventually conclude that worrying about outside investors isn’t worth it. Other hedge fund stalwarts have decided as much. Druckenmiller, for example, closed his firm in 2010 to focus on managing his own money and playing golf. The former close colleague of George Soros also implied that running more than $10 billion didn’t allow him to make good enough returns. If Cohen ever opts to go the same route, that reasoning offers him – and maybe his stoic investors, too – a relatively graceful cover story for an exit.

Private equity with a 4-and-20 fee structure doesn’t sound too inviting. It’s what a new vehicle will charge people with only $50,000 to invest to gain entry to Carlyle Group’s private equity funds, and it’s far more than what institutions pay. While the firm’s long-term internal rates of return on private equity, after fees, are nearly 20 percent, today’s reality holds less appeal. The arrangement could be risky for Carlyle, too.

The new fund is to be run by a unit of Central Park Group, an alternative investment manager. That spares Carlyle the hassle of dealing with smaller investors, but means they face an extra layer of charges. On top of the roughly 1.5 percent management fee and 20 percent of gains that David Rubenstein’s firm reaps, Central Park will charge investors 1.8 percent in annual fees and up to 0.75 percent in expenses. That adds up to about 4 percent of assets plus 20 percent of gains – steep even before a sales load that could run as high as 3.5 percent upfront.

Even so, in a low-return world, everyone is chasing potentially better options. But near-zero interest rates and the sheer amount of private equity capital now chasing deals are among the reasons why the massive returns of the past are unlikely to be repeated.

Carlyle’s flagship 2007 fund, which is still making investments, is running at a 10 percent IRR net of fees. That would drop to less than 8 percent after Central Park’s cut. While that beats stock returns over five years, it’s no better than what several decent, widely-available bond mutual funds managed since 2008 and long term.

The Carlyle fund’s IRR should rise with additional exits, as back-ended payoffs are typical. There’s also hope that Central Park can improve on private equity’s weaker early-cycle years by buying secondary stakes in more mature funds. And smaller investors will be allowed to withdraw capital more frequently than can large ones who invest directly.

Be that as it may, the risk factors loom large. At least one could even conceivably sting Carlyle. Central Park will keep some cash to meet calls from Carlyle, but it may also “over-commit” in the expectation of future distributions and new investment flows. However conservatively done, that sounds like the sort of pre-crisis idea that worked only until it didn’t.