In Scotland, residents will vote next September on whether their homeland should become an independent country or remain part of the United Kingdom. In Catalonia, Spain, provincial president Artur Mas has called for a referendum on whether Catalonia should become a sovereign state. And in the Belgian province of Flanders, the leader of the ruling party has called for negotiations that would “enable both Flanders and French-speaking Wallonia to look after their own affairs.”
Although the economic integration of Western Europe has proceeded at a rapid pace in recent decades, the political borders of the region have remained almost entirely unchanged since the end of World War II. And yet, “there is the real possibility of one or several national divorces being initiated in Western Europe in 2014,” notes Nicholas Siegel, senior program officer at the Transatlantic Academy, a U.S.-European think-tank based in Washington, D.C. read more on Knowledge Wharton
Keywords: Europe, Secession, Scotland, Catalonia, Flanders
Keywords: Returns, Investment Performance, Bonds, Stocks, Dividend Yields
a positive development as they, by definition, should focus on prosperous long-term development of the firms they invested in.
Activist investors like Carl C. Icahn, Daniel S. Loeb and William A. Ackman are getting deep-pocketed imitators.
Some of the biggest public pension funds, which have sought to influence companies for years, are now starting to emulate these investors by engaging with, and sometimes seeking to oust, directors of companies whose stock they own.
Anne Simpson, director of corporate governance at the California Public Employees’ Pension Fund, the largest United States pension plan with $279 billion in assets, says “board coups” this year that led to the departure of directors at Hewlett-Packard, JPMorgan Chase and Occidental Petroleum show “how shareholder activism is evolving from barbarians at the gate to acting like owners.” read more in The New York Times
Keywords: Pension Funds, Shareholder Activism, Pension Fund Performance
Is it time for the Federal Reserve to start its exit from the extraordinary set of policies it has pursued over the past few years? That crucial question is on the minds of the nation’s central bankers, as well as the stock and bond traders who follow the Fed’s every move. read more in the New York Times
Keywords: Monetary Policy, Fed, Exit
"The conventional wisdom for investors in private equity funds is to invest in partnerships that have performed well in the past, so-called top quartile funds. This conventional wisdom is based on the belief that performance in private equity persists across funds for the same partnership. We present new evidence on the persistence of U.S. private equity (buyout and venture capital)
funds using a new research-quality dataset from Burgiss, sourced from over 200 institutional investors. Using detailed cash-flow data for funds, we study the persistence of buyout and venture capital fund performance of the same general partners across different funds. We pay particular attention to persistence pre- and post-2000. Previous research, studying largely pre-2000 data, has found strong persistence for both buyout and venture capital firms.
We confirm the previous findings on persistence in pre-2000 funds. There is significant persistence for buyout funds and, particularly for venture funds.
Post-2000, we find mixed evidence of persistence in buyout funds. When funds are sorted by the quartile of performance of their previous funds, performance of the current fund is statistically indistinguishable regardless of quartile. Returns for partnerships in all previous fund quartiles, including the bottom, exceed those of public markets as measured by the S&P 500. At the same time, however, regression estimates do find that current fund performance is significantly related to previous fund performance.
Post-2000, we find that performance in venture capital funds remains as statistically and economically persistent as pre-2000. Partnerships whose previous funds are below the median for their vintage year subsequently tend to be below median and have returns below those of the public markets (S&P 500). Partnerships in the top two quartiles tend to stay above the median and their returns exceed those of the public markets."
Keywords: Private Equity, Private Equity Performance, IRR
US Public Pension Funds would have to achieve "impressive" future returns to close the funding gap. The US is definitely not alone. Other nations' public pension funds would show similar pictures. A 20-year snapshot of BlackRock shows that such returns are hardly achievable in a well diversified portfolio. Only top quartile private equity funds would systematically come close to such returns.
Keywords: US Public Pension Funds, Pension Funds Funding Gap
Charts of the article in The New Yorker come from Emmanuel Saez, of Berkeley, which shows the share of pre-tax income enjoyed by the top one per cent of earners over the period from 1913 to 2012. The data, which comes from the Internal Revenue Service, is for market income: it includes realized capital gains but excludes government transfers. see charts and article in The New Yorker
Keywords: Income Distribution, Wealth Distribution, Gini Coefficient
Keywords: Entrepreneurship, Mindset of Entrepreneurs
"Private equity (PE) has developed into a well-established asset class with strong growth in capital commitments over the last decades. Consequently, fund returns have decreased over time and investors have become more cost conscious. Based on a unique data set of 358 PE buyout funds with vintage years between 1983 and 2007, we analyze whether the maturing PE asset class has become less costly over time. We define costs as the difference between gross and net returns (return spread) and provide a spread benchmark useful for investors to evaluate a fund’s costliness. Next, we show that, in line with our expectations, return spreads have decreased over time. However, when we control for falling gross returns causing lower performance-based fees, surprisingly, the cost of PE investing has increased. We relate the higher costs to increased levels of dry powder due to swelling capital flows into the industry. We conclude that the PE industry is a victim of its own success, suggesting that investors in the asset class should consider a more anti-cyclical investment approach."
Keywords: Private Equity, Fund Return
Keywords: Investment Strategy, ETF, Passive Index Funds, Actively Managed Fund, Mutual Funds
The euro area may be facing renewed deflationary pressures. Inflation measures are now near multi-year lows and falling. see some interesting charts on CPI, French employment, monetary base etc. on Sober Look
Keywords: Europe, European Crisis, European Recovery
Former Morgan Stanley managing director and manager of the Federal Reserve's $1.25 trillion agency mortgage-backed security purchase program, Andrew Huszar, about the backdoor bailout of Wall Street banks:
I can only say: I'm sorry, America. As a former Federal Reserve official, I was responsible for executing the centerpiece program of the Fed's first plunge into the bond-buying experiment known as quantitative easing. The central bank continues to spin QE as a tool for helping Main Street. But I've come to recognize the program for what it really is: the greatest backdoor Wall Street bailout of all time. read more in the Wall Street Journal
Keywords: Fed, Quantitative Easing, Bank Bail Outs, Bank Recapitalizations, Main Street, Wall Street
Why it is important to look with methodology and persistence to look for the best tier or best quartile private equity funds:
Private-equity investors often enjoy superior returns. But what happens when you account for factors like illiquidity and high fees — both of which make it riskier to invest?
Three academics argue in a new National Bureau of Economic Research paper private equity is basically a wash for the average investor, once you price in the various risks — such as being locked in for years, or not being able to rebalance the portfolio as the years go by
“On average, LPs may just break even, net of management fees, carry, risk, and costs of illiquidity,” write Morten Sorensen of Columbia University, Jinqiang Yang of Shanghai University of Finance and Economics, and Neng Wang of Columbia Business School. “LP” is limited partner, which is the lingo for the high net-worth individuals and institutions who invest in private equity.
Here’s a look at the intuition: read the whole article in Barrons
Keywords: Private Equity, Private Equity Fund, Private Equity Performance
Interesting article and charts by Wesley R. Gray, PhD, on the ratio of GDP growth/Corporate Profits, which seems to be of quite importance to investors such as Warren Buffett:
Keywords: Market Timing, Investor Strategy, GDP Growth to Corporate Profits
McCahery, Joseph A. and Vermeulen, Erik P. M., Recasting Private Equity Funds after the Financial Crisis: The End of 'Two and Twenty' and the Emergence of Co-Investment and Separate Account Arrangements (November 8, 2013). Lex Research Topics in Corporate Law & Economics Working Paper No. 2013-2. Available at SSRN: http://ssrn.com/abstract=2351816
"This article examines the post-financial crisis trends in the private equity industry. Although most research has followed the pre-crisis trends, we show that investors are demanding the inclusion of more investor-favorable compensation terms in limited partnership agreements. Our findings suggest that these new terms not only provide the investors with more favorable management fee and profit distribution arrangements, but also give them more control over the fund’s investment decisions. Importantly, the new pattern also reveals the inclusion of more straightforward co-investment rights. Besides the contractual ‘improvements’, we observe that investors want to see more skin in the game from the managers/general partners."
Keywords: AIFMD, Carried Interest, Co-Investment Rights, Private Equity Fees
This article reviews the mechanics of the Bitcoin currency and offers some thoughts on its characteristics. read the article on the Chicago Fed homepage
Excerpt from the authors conclusion:
..."Some of bitcoin’s features make it less convenient than existing currencies and payment systems, particularly for those who have no strong desire to avoid them in the first place. Nor does it truly embody what Hayek and others in the “Austrian School of Economics” proposed. Should bitcoin become widely accepted, it is unlikely that it will remain free of government intervention, if only because the governance of the bitcoin code and network is opaque and vulnerable. That said, it represents a remarkable conceptual and technical achievement, which may well be used by existing financial institutions (which could issue their own bitcoins) or even by governments themselves."
Keywords: Bitcoin, Private Currency, Alternative to Money Monopoly of Government
A lot of serious stuff explained in a convincing, funny way. Some explanations could certainly be questioned.
Keywords: Europe, European Crisis, ECB Monetary Policy
Keywords: Wealth, Middle Class, Liberalization
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