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Showing posts from February, 2009

How Harvard tripped on its investments

Forbes has an interesting article on the performance of Harvard Management Co., the subsidiary that invests the institution's money.
Desperate for cash, Harvard Management went to outside money managers begging for a return of money it had expected to keep parked away for a long time. It tried to sell off illiquid stakes in private equity partnerships but couldn't get a decent price. It unloaded two-thirds of a $2.9 billion stock portfolio into a falling market.

Now, in the last phase of the cash-raising panic, the university is borrowing money, much like a homeowner who takes out a second mortgage in order to pay off credit card bills. Since December, Harvard has raised $2.5 billion by selling IOUs in the bond market. Roughly a third of these Harvard bonds are tax exempt and carry interest rates of 3.2 per cent to 5.8 per cent. The rest are taxable, with rates of 5 per cent to 6.5 per cent.

...The fact that a fifth of HMC's portfolio is in private-equity-like investments mak…

Videos from The Deal's Distressed Investing Conference

The Deal has an interesting set of videos from its recently organized Distressed Investing Conference in Las Vegas here. Here is a sample featuring Michael Heisley of The Heico Companies LLC.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Abu Dhabi replacing Dubai?

The NYT DealBook has an interesting post on how Abu Dhabi is making bold moves formerly associated with fellow Emirate Dubai.
Twin deals initiated out of Abu Dhabi on Monday could signal a major change in power in the United Arab Emirates — the seven-state federation in which both Abu Dhabi and Dubai belong.

First, Abu Dhabi has subscribed to half of a $20 billion bond offering floated by the government of Dubai to help the emirate pay off the more than $80 billion in debt it racked up during the boom years.

...By assisting Dubai in paying off part of its huge debt, Abu Dhabi is sending a signal that it has the money and the power to lead the U.A.E. through the current economic downturn.
Related: Couple of YouTube videos on the Dubai Real Estate crash, here and here.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intellige…

Interview with N. Ram of The Hindu

ContentSutra has an interview with N. Ram, the editor-in-chief of the The Hindu newspaper. The interview is especially interesting in the context of how newspapers - including The New York Times - are struggling to cope with competition from the Internet. Excerpts:

On the impact of the Internet:
Internet penetration in India is not even close to a stage when you feel cannibalization (of print) will occur. That gives you some comfort. I’m very pleased with the present situation, when print is still growing, and you can do as much or as little as you want on the Internet. When Internet penetration reaches, say, 200 million users, then the game might change. But even then, where’s the revenue model?

On the reported deal with Australia’s Fairfax Media:
That was true earlier, but then Fairfax went into a tailspin. The CEO resigned due to differences with the board etc. So I guess that is that. Nothing is on currently.
On whether The Hindu is likely to enter into a business relationship with the…

Throwing Good Money After Bad - Illustration

The TARP, in PicturesPublish at Scribd or explore others: HumorCreative Writingtarp

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Is the PE fee structure set for decline?

In the PE industry, a 2% management fee and a 20% "carry" (the so called and "2 and 20" or 2/20) seemed set in stone. . Until 2008. According to a new survey by Mercer, fees are expected to decline in 2009 - especially for the fund-of-funds segment.
The survey shows alternative investment strategies to have the highest fees for each dollar of investor capital allocated. According to Divyesh Hindocha, worldwide partner in Mercer’s investment consulting business: “One needs to take care before passing judgement on this evidence, as return and risk considerations should take priority over fees. It is fair to conclude, however, that fund of fund approaches extract a heavy premium from the alpha generation process and we would expect this to be under challenge in the new financial environment.”

Mr Hindocha commented, “Historically, fees are higher in those strategies where asset managers have the most potential to outperform. However, anecdotal evidence suggests that incr…

Institutional investors to cut down on equity?

In an article for Business Standard, Akash Prakash of Amansa Capital points out the surprising "lack of debate on the poor returns delivered by global equities over the last decade".
Confidence in equities as the best place to park your long-term savings has got to have been shaken. Having just experienced two severe bear markets this decade alone, investors must be questioning their asset allocation towards equities. We run the risk that investors get disillusioned and use any strength in markets to lighten up on their equity exposures. Such behaviour, were it to come to pass, would set a ceiling on the equity markets for the short term at least, as any strength in the markets will be met by selling by investors looking to allocate out of equities.

A lot of the asset allocation policies adopted by many of the real money long-term investors must also be now under question. These policies are based on the framework that over the long term, equities always deliver the highest a…

Recession triggers rethink on renewable energy

At $145 to an oil barrel, Renewable Energy was a favorite theme among investors. But what when oil languishes at $45? Knowledge@Wharton provides the take of various energy industry players who spoke at the recent Wharton Energy Conference
Energy experts are now taking a more rigorous look at purported energy and environmental savings from renewables, trying to include all the costs and pollution that go into production, transportation and use. It is no longer given, for example, that America's oil-dependence and pollution problems can be solved by making ethanol from corn, Carson pointed out. "We're all doing a collective, 'What were we thinking?' on that." In another example, he pointed to a project in The Netherlands to make electricity from renewable wood pellets. While it sounded environmentally responsible, the wood came from pine trees in the U.S. state of Georgia, and the pellets traveled by train, ship and truck, each burning fossil fuels. "That …

Emerging Markets PE Funds raise record $67-B in '08

Extracts from an EMPEA press release

Bucking global trends, 210 private equity funds focused on emerging markets raised a record-breaking US$66.5 billion in 2008, a 12% increase over the US$59 billion raised in 2007, according to new research from the Emerging Markets Private Equity Association (EMPEA).

“The good news is that there is a pool of capital that can take advantage of unprecedented investment opportunities in emerging economies,” said Sarah Alexander, President of EMPEA. “The bad news is that fundraising in 2009 will be much more challenging. Western institutional investors are grappling with their own asset allocation issues, and the globalization of the financial crisis will impact expansion plans into new markets,” she said.

EMPEA estimates that 371 private equity funds focused on emerging economies are presently in the market looking to raise as much as US$144 billion in capital.

“2009 will be a difficult year for fund managers seeking to raise capital, but funds with dr…

K@W interview with CEO of Sutherland

Knowledge@Wharton has an audio interview with Dilip R. Vellodi, CEO of Sutherland Global Services, about the company's business model and its future.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports. Email the author at arun@ventureintelligence.in

Indian PE veterans look back and ahead

The Mint traces the history of the Indian PE/VC space via interviews with three industry veterans - Nitin Deshmukh of Kotak PE, PR Srinivasan of CVC International (both of whom were formerly with ICICI Venture) and JM Trivedi of Actis (formerly with GVFL). Here are some extracts on what these managers think about the scenario ahead:

Deshmukh: While it is unfortunate to be caught in this unprecedented financial environment, this will bring in discipline among private equity players on investment processes and valuations. We had seen unprecedented euphoria and excesses in PE investing in India during the last three years. At least 70% of investments in private equity over the past three years is estimated to have gone into PIPEs (private investment in public equity) and pre-IPO placements. This is going to hurt many players. In fact, many first-time funds that have participated in the euphoria will see tough times and find it difficult to raise funds in the future. The number of players,…

Will global markets hit fresh lows in 2009?

Ruchir Sharma says the likelihood of this scenario has increased in an article for the Economic Times.
Scenario3: The deleveraging process continues unabated resulting in fresh new lows for global markets: There is still something incomplete about the current downturn; overall leverage ratios are way above trend and after the overshoot on the upside valuations need to fall to bargain-basement levels to form a true bottom for equities. The current consensus among opinion makers is for governments to end the downturn through intervention and aggressive spending.

...The base case here still is that the US and the global economies avoid an Armageddon-type scenario in the wake of all the concerted policy action. But it would still not be possible to engineer a new growth cycle until excessive debt in the system is purged. As a result, equity markets will continue to trade in the range established since the lows were hit in November 2008.

However, the odds of the third scenario materialising h…

Boutique I-Banks tightening their belts

The Mint has an article on how Boutique investment banks are bracing for the slowdown.
“Last year, a lot of investment bankers came up, few will be active in 2009, as the correction was too sharp and caught every one unaware,” says T.R. Srinivas, director, real estate and energy, Ozone Capital Advisors Pvt. Ltd.

...M&A activities will be more prominent this year as a number of companies that diversified into unrelated areas may look at opportunities to get out of them, they say. Mergers could also get triggered by necessity as a few companies may look at the option of liquidating assets to generate working capital.

“Last year, our revenues from PE/M&A were in the ratio of 50:50. This year we expect the ratio to change to 30/25:70/75, as PE deals will be less than M&A,” says Ozone Capital’s Srinivas. Experts say valuations are attractive among information technology service firms (as it will continue to grow at 20%) and quite a few mid-sized US companies are interested in acqu…