Exclusive outtakes from industry leaders
PequotVentures, the venture capital arm of hedge fund Pequot Capital Management, has shut down its Silicon Valley office and now operates only out of New York. Managing general partner Lawrence Lenihan said the contrarian move made sense because the plethora of venture capital operators in Silicon Valley forced PequotVentures to compete on price.
That’s not so true in New York, where there’s less competition on the fund side but lots of promising media and finance businesses, he told the Reuters Hedge Fund and Private Equity Summit on Tuesday.
New York is also looking like increasingly fertile ground relative to Boston’s once booming Route 128 corridor. Lenihan, who admits that as a New Yorker he may carry a certain bias, said that shuttle flights which once were packed with New York investors going to Boston to check out companies are now carrying many more Boston investors in the opposite direction.
“If you look at the deal flow and you look at the amount of companies that are being built, I think there’s been a noticeable slowdown in technology innovation in the Route 128 corridor,” he said.
Massachussets State Pension Fund Executive Director Michael Travaglini says the Bay State’s pension fund, one of the nation’s largest, won’t be following the lead of New Jersey’s anytime soon — at least not in terms of direct investments in banks. He thinks that New Jersey — like some prominent sovereign wealth funds — viewed its recent investments in Citigroup and Merrill Lynch “almost as a necessity” to help prop up the financial system.
But even if he understands their motives, Travaglini isn’t sure rescuing troubled investment banks from Merrill Lynch to Bear Stearns is the right thing to do.
“If there’s always a net, whether it’s the Fed, whether it’s New Jersey, whether it’s Abu Dhabi, to me there’s a risk that there’s nothing learned,” he said. “I don’t want people to repeat the same mistakes. I think reasonably people could argue this whole subprime mess is a mistake that has been repeated two or three times throughout history.”
To Travaglini, the danger of lessons not getting learned reminds him of his own kids and why they must learn the consequences of mistakes.
“Why would they avoid getting in the same predicament if they had known they were going to get taken off the hook,” he said, speaking at the New York segment of the Reuters Hedge Funds and Private Equity Summit.
Michael Travaglini, executive director of the Massachusetts’ Pension Reserves Investment Management Board, spoke out against divestment legislation that restrains investment based on political causes.
“Genocide in Sudan is going to stop because it’s abhorrent,” he told the Reuters Hedge Funds and Private Equity Summit in New York.
2008 is shaping up to be a challenging year for hedge funds and private equity but there are opportunities if you know where to look.
From London to Tokyo to New York the turbulence in the stock market is driving hedge funds and private equity firms to look beyond equities.
Many thought that with a sick neighbor, Mexico should have caught the blues already, right? Wrong. The Mexican economy looks like it is still growing at a good pace while its No. 1 trade partner, the United States, sails through choppy waters.
Central Bank Gov. Guillermo Ortiz told Reuters in an interview during the Third Latin America Summit that recent consumption, investment, industrial output and export data showed Mexico’s economic health appears sound, but inflation remains a concern.
With Mexico’s average consumer prices currently hovering above the central bank’s comfort zone, Ortiz maintained expectations that inflation could range between 4 and 4.50 percent in the second quarter of this year.
When it comes to business, investors don’t fret much about Russia’s image, which has been damaged by events such as the Yukos affair, Russian investor Teijo Pankko told Reuters journalists in Paris. ”We regret what happened with Yukos. We feel that from a human point of view it is very unfortunate that it happened,” said Pankko, the Chief Financial Officer of Altimo, which is the investment vehicle of Russian billionaire Mikhail Fridman. ”At the same time, being very rational and pragmatic, I think it’s a fact of life. We have to accept that. I don’t think that in the long run that this individual case would have any kind of consequence for any other businesses,” he added. ”You may have a lot of feelings about it and emotions but if you look at the statistics there are so many transactions that have been done increasingly, especially last year… I believe it’s impressive indeed. I think it says quite the opposite,” he said. “Money makes things happen.”
Ferrell Asset Management Managing Director David Lee said rising asset prices in Asia was less of a bubble and more of a reflection of rising wealth in the region. Lee, who manages $500 million in assets, said rising incomes in India and China was spilling over to the rest of the region, resulting in demand for luxury homes in cities such as Singapore and Hong Kong. Lee is launching a 500 million euro property fund for Middle Eastern and European investors hoping to cash in on the resurgent markets in Singapore.
Richard Fan of UG Investment Advisers described his $900 million hedge fund vehicle as a “niche” product because of its focus on China and Taiwan. Although Asia-focused hedge fund assets have risen six-fold over the past five years, Fan said he was not overly concerned about competition because UG had on-the-ground knowledge and a network of local contacts. “You need to have the local presence…you need to be in a situation where you get the information first.”
Richard Bookstaber, principal at FrontPoint and author of a book about the perils of financial innovation, says that banks have every incentive to create increasingly complicated derivatives products, and allow customers to boost their leverage higher and higher. But that can result in big swings in financial markets, and is not necessarily a good thing for society as a whole, he says.