Summit Notebook

from Global Investing:

BRIC: Brilliant/Ridiculous Investment Concept

BRIC is Brazil, Russia, India, China -- the acronym coined by Goldman Sachs banker Jim O'Neill 10 years back to describe the world's biggest, fastest-growing and most important emerging markets.  But according to Albert Edwards, Societe Generale's uber-bearish strategist, it also stands for Bloody Ridiculous Investment Concept. Some investors, licking their wounds due to BRIC markets' underperformance in 2011 and 2010, might be inclined to agree -- stocks in all four countries have performed worse this year than the broader emerging markets equity index, to say nothing of developed world equities.

For years, money has chased BRIC investments, tempted by the countries' fast growth, huge populations and explosive consumer hunger for goods and services. But Edwards cites research showing little correlation between growth and investment returns. He points out that Chinese nominal GDP growth may have averaged 15.6 percent  since 1993 but the compounded  return on equity investments was minus 3.3 percent.

But economic growth -- the BRIC holy grail -- is also now slowing. Data showed this week that Brazil posted zero growth in the third quarter of 2011 compared to last year's 7.5 percent. Indian growth is  at the weakest in over two years. In Russia, rising discontent with the Kremlin -- reflected in post-election protests -- carries the risk of hitting the broader economy. And China, facing falling exports to a moribund Western world,  is also bound to slow. Edwards goes a step further and flags a hard landing in China as the biggest potential investment shock of 2012.  "Yet investors persist in the BRIC superior growth fantasy...If growth does matter to investors, they should be worried that things seem to be slowing sharply in the BRIC universe," he writes.

Thomson Reuters data earlier this year appeared to show some disenchantment with the BRIC concept. After rising 1600-fold between 2003 and 2007, assets in BRIC funds had shrunk to $28 billion by August 2011, almost a quarter below 2007 peaks, a bigger fall in percentage terms than most other fund categories.

What of O'Neill, the man behind the moniker? He talks increasingly of Growth Markets, a broader grouping that also includes other promising emerging countries such as Turkey and Mexico. But at a Reuters investment summit this week O'Neill noted that the main reason for BRIC stocks' underperformance has been a massive monetary policy tightening exercise in all four countries, prompted by rising inflation.  With that at an end and valuations cheaper than they have been for a long time, he expects the BRIC markets, especiallly China, to do better next year despite slower growth. Time will tell.

from Funds Hub:

Here’s lookin’ at you KIID

The vexing question of how much to tell retail investors about what exactly they are buying has been exercising industry participants at the Reuters European Funds Summit. Although the sentiment is for more transparency and simplicity, as exemplified by the EU's new two page marketing document, some managers feel this won't fully reflect the risks and processes involved in a product.

The Key Investor Information Document (KIID), to be rolled out under UCITS IV, will replace the little loved "simplified" prospectus as the primary document via which fund promoters communicate with prospective clients - something that makes some managers very uneasy.

Noel Fessey, managing director of Schroder Investment Management in Luxembourg, admitted he had a bee in his bonnet about KIID, which requires managers to be very concise in their descriptions. "Under UCITS IV the fund prospectus becomes the subordinate document but that's the main document in which you can set out all the risks."

He agreed that the KIID would allow investors to compare products - something the simplified prospectus had failed to do, but added, "There's a significant degree of optimism by the regulator about what the KIID can do."

The problem for regulators and fund managers is trying to strike a balance. "If you are too technical you will scare people," said Andrea Favaloro, head of retail at BNP Paribas IP/Fortis Investments. "We need to explain what happens in simple words."

Maybe fund managers will have to experiment with some very small fonts.

from Funds Hub:

Live Blog from Reuters Funds Summit in Luxembourg

Everyone needs a private banker

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?

Private Bank finds synergy in public bar

It is a little known fact that private bank Wegelin, Switzerland’s oldest bank is also active in the bars and restaurants business.

In its ‘Nonolet’ bars – a play on the Latin saying pecunia non olet (money doesn’t stink) – in St. Gallen and in Geneva, hedge fund managers and other financial professionals rub shoulders with other locals in the early evening over sparkling wine or champagne and snacks.

It may sound an odd sort of diversification, but Wegelin says there were forced to try a new line of business to ensure an upmarket crowd mingled on the ground floor of the Wegelin building.

“You cannot have a strange business there like a kebab shop,” said Wegelin partner Christian Raubach.

Wegelin was forced to launch a hostile takeover on a local bar which had attracted a lot of unruly drinkers near its St. Gallen branch office.

“We bought the bar, we fired the owners, and we put a nice Café in so we get a different crowd. The crowd that sits during the day drinking coffee and not vomiting drinking beer at night,” Raubach said.

The operation proved to be a success but is unlikely to develop in to a brand new business area.

Swiss brand key to banks’ cache

Geneva is for wealth management

Even for an American who’s not wealthy, Geneva has a reputation as a global centre for wealth management – the place the world’s rich come to stash their money and (they hope) make it grow.

    But you don’t necessarily expect it to be so aggressive — after all, the rich tend to be demure when it comes to their banking.

    Imagine one reporter’s surprise, then, on arriving in the airport in Geneva and seeing bank ads everywhere. Think of the casino adds in Las Vegas’s McCarron Airport or the technology ads in San Jose’s Mineta Airport: it’s the exactly the same in Geneva, only with wealth managers.

    Look left – there’s UBS. Look right – there’s Julius Baer. Look up in the baggage queue – there’s a Swiss bank that emphasises a focus on the Arab world. A complete unscientific guesstimate suggests the display ads in the terminal run about 75 percent wealth management and 25 percent fine watches. (No surprise that every other storefront in the Ville Centre area of Geneva has watches on offer.)

    There is one plus to all of the bank ads in the airport for the less wealthy though. Tell your cab driver to head toward their addresses and you’re likely to find the city’s best cafes.

from DealZone:

Diamonds in the rough

Somewhere out there are ailing companies in need of a turnaround specialist. These experts -- also known as company doctors -- parachute into troubled businesses to turn their business around.

Funds, such as Oaktree Capital, HIG Capital and Apollo Management, specialise in buying up companies in distress (either through buying equity or debt) and turning them round.

And this should be a great time for these investors -- banks are loaded with stakes in troubled companies and unwieldy corporates may want to spin off unwanted businesses.

But banks are not playing ball. They want to wait until the economy recovers and sale values rise. So few companies are up for sale. But the funds want bank sales of stakes to accelerate otherwise it might be too late to turn these companies around.

Private equity certainly has the appetite for new deals. As Reuters reported yesterday, the private equity industry -- which may have up to $1 trillion in 'dry powder' -- is looking to the next restructuring wave for opportunities.

"Sponsors want new proprietary deals to show their limited partners they are not just churning portfolios," a top investment banker told the Reuters Restructuring Summit.