Summary of business news and analysis

The Economist: Bain or blessing? Jan. 28, 2012

Keywords: Private Equity, Buy Out, Buy Out Returns, Fund Raising, Leverage

Keywords: Government, Economic Liberty

Interesting insights on the "state of debt" in the UK and elsewhere! Particularly interesting is the analyses which also takes the financial debt of banks into account:

Telegraph: America overcomes the debt crisis as Britain sinks deeper into the swamp, Jan. 22, 2012

Britain has sunk deeper into debt. Three years after bubble burst, the UK has barely begun to tackle the crushing burden left by Gordon Brown. The contrast with the United States is frankly shocking. read more in The Telegraph

Keywords: United Kingdom, British Economy, Debt Crisis

Keywords: US Presidential Elections, Mitt Romney

Ben Graham told a story 40 years ago that illustrates why investment professionals behave as they do: An oil prospector, moving to his heavenly reward, was met by St. Peter with bad news. “You’re qualified for residence”, said St. Peter, “but, as you can see, the compound reserved for oil men is packed. There’s no way to squeeze you in.” After thinking a moment, the prospector asked if he might say just four words to the present occupants. That seemed harmless to St. Peter, so the prospector cupped his hands and yelled, “Oil discovered in hell.” Immediately the gate to the compound opened and all of the oil men marched out to head for the nether regions. Impressed, St. Peter invited the prospector to move in and make himself comfortable. The prospector paused. “No,” he said, “I think I’ll go along with the rest of the boys. There might be some truth to that rumor after all.”

The OECD on the importance of angel investing

Keywords: Venture Capital, Angel Investors

A crisis can also open up new chances. Could the financial crisis bring a revival of equity participation in growth firms? A potential development which could bring new momentum.

Keywords: Engineering Talent, Innovation, Competition for Talent

A book about the divergence of the American society which might put the American success model at risk.

BusinessWeek: Book Review: Coming Apart by Charles Murray, Jan. 19, 2012

The conservative sociologist looks at the disintegration of America's white middle class. Is the welfare state to blame? read more in BusinessWeek

Keywords: US Economy, US Society, US Wealth

Great interactive chart of The Economist, showing the overall debt level as percentage of GDP. Click on the picture to get to the interactive graph.

Related:

MarketObservation: EU country's debt: not only official financial debt matters for a comprehensive picture! Jan. 15, 2012

Aswath Damodaran: Private Equity: Hero or Villain? Jan. 14, 2012

Aswath Damodaran looks at 4 elements when assessing the impact of active investors:

1) Asset deployment and aperating performance

2) Capital Structure

3) Dividend Policy

4) Corporate Governance

find the analysis on his weblog

Keywords: Private Equity, Active Investors

The hedge fund industry is currently going through difficult times. There was more money withdrawn than added to the industry in the last months of 2011:

The reformed broker: That giant sucking sound you hear… Jan. 20, 2012

Keywords: Hedge Funds, Alpha

Search term "hedge funds" on MarketObservation.

Good article of BofA's chief economist Mickey Levy on European competitiveness. Unit labour costs seem to be a key element:

Source: Voxeu.org: Diverging competitiveness among EU nations: Constraining wages is the key, by Mickey Levy, Bank of America, Jan. 19, 2012

Keywords: Europe, European Competitiveness, Unit Labour Costs

Tykvova, Tereza and Borell, Mariela, Do Private Equity Owners Increase Risk of Financial Distress and Bankruptcy? Nov. 2, 2011

Abstract:

"There is some controversy on the key sources of success in the private equity model and on how this business model affects the portfolio companies. We investigate financial distress risks of European companies around the buyout event in the period between 2000 and 2008. In addition, we analyze whether buyout companies go bankrupt more often than comparable non-buyout companies. Our paper suggests that private equity investors select companies which are less financially distressed than comparable companies and that the distress risk increases after the buyout. Despite this increase, private equity-backed companies do not suffer from higher bankruptcy rates than non-buyout companies. In fact, when companies are backed by experienced private equity funds, their bankruptcy rates are even lower. Experienced investors seem to be better able to manage distress risks than their inexperienced counterparts." Source: ZEW

Keywords: Private Equity, Bankruptcy Risk

The Economist: iPadded The trade gap between America and China is much exaggerated, Jan. 21, 2012

Pascal Lamy, the head of the World Trade Organisation, has suggested that if trade statistics reflected true domestic content, America’s deficit with China might be more than halved.

Keywords: China, America, Trade Gap

Do not listen do analysts always. Stock markets stay a random walk:

The American: How to Think about Private Equity, by Steve Kaplan, Jan. 18, 2012

Keywords: Private Equity, Role of Private Equity

Related:

Jones, Alan, Kaplan, Steven N., Ferenbach, Carl, Bingle, Mike, Lipschultz, Marc and Canfield, Phil, Morgan Stanley Roundtable on the State of Global Private Equity (Fall 2011). Journal of Applied Corporate Finance, Vol. 23, Issue 4, pp. 8-33, 2011. Available at SSRN: http://ssrn.com/abstract=1975681 or doi:10.1111/j.1745-6622.2011.00350.x

WSJ: Bain Capital Saved America In the 1980s, the resilient U.S. economy saved itself from becoming Europe. Bain was part of the rescue, Jan. 18, 2012

Forbes: The Alternative To Bain Is Bankruptcies And Bailouts , Jan. 18, 2012

The Economist: Rich managers, poor clients, Jan. 7, 2012

Keywords: Hedge Funds, Investment Returns

..."Total government spending now exceeds 40% of GDP. Federal regulations now cost the private sector an astounding $1.7 trillion per year, or 12% of total output. That means that the governing elite now control more than 50% of the income produced by the American people to spend and distribute as they and lobbyists for powerful political and economic interests see fit." Source: Forbes

Forbes: To Restore Prosperity, We Must Increase Economic Freedom, Jan. 16, 2012

Keywords: Economic Freedom, Growth, US Economy

a question of regulation, integrity or a combination?..

Dai, Rui, Massoud, Nadia, Nandy, Debarshi K. and Saunders, Anthony , Hedge Funds in M&A Deals: Is There Exploitation of Private Information? (January 2012). NYU Working Paper No. FIN-11-047. Available at SSRN: http://ssrn.com/abstract=1983080

Abstract:

"This paper investigates recent allegations regarding the misuse of private insider information by hedge funds prior to the public announcement of M&A deals. We analyze this issue by using a unique and comprehensive data set which allows us to analyze the trading pattern of hedge funds around corporate mergers and acquisitions in both the equity and derivatives markets. In general, our results are consistent with hedge funds, with short-term investment horizons (henceforth, short-term hedge funds) taking advantage of private information and engaging in trading based on such information. We show that short-term hedge funds holdings of a target’s shares in the quarter prior to the M&A announcement date are positively related to the profitability of the deal as measured by the target premium. In addition, we also find that the target price run-up before the deal announcement date is significantly greater for deals with greater short term hedge fund holdings. We also find evidence consistent with informed abnormal short selling and put buying in the corresponding acquirer’s stock prior to M&A announcements. This is particularly evident when hedge funds take larger stakes in target firms. In addition, we show that such a strategy is potentially very profitable. We consider alternative explanations for such short term hedge fund holdings in target firms; however our results seem inconsistent with these alternative explanations but rather, seem to be consistent with trading based on insider information. Overall, our results have important implications regarding the recent policy debate on hedge fund regulation." Source: ssrn

Keywords: Hedge Funds, Hedge Fund Regulation

Econbrowser: China: Inflation and Exchange Rate Watch, by Menzie Chinn, Jan. 12, 2012

Keywords: China, Chinese Inflation, Yuan