Brian Bollen's Blog

Death Or Glory...Just Another Story – Is This The Moment To Be Brave

Newedge - Blain's Morning Porridge - September 28 2011

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

Yesterday was risk on as the market basked in the warm rosy glow of the predicted European solution. This morning, the doubts are back. Pick your story: either it's hardliners demanding larger (and frankly more realistic) Greek default haircuts in the FT, threats of global recession driven from Europe on Bloomberg, Asian investors refusing to play in ST, or any number of stupid comments by the ill-informed shysters masquerading as experts circulating on the internet.

Big talking point seems to be what happens to the EFSF. I used the Puffer Fish analogy yesterday: the EFSF leverages itself up to a couple of trillion (essentially filling itself full of [hot] air) to look large enough to cope with any eventuality like an Italy default. The risk is that speculators would see through the defence, and still gobble it up. Then a client pointed out: Puffer Fish are among the most poisonous creatures on the planet (hence beloved by daredevil sushi enthusiasts).

The Puffer Fish analogy still works – the EFSF may be pumped up on hot air and rhetoric, but it will still slaughter markets if anyone takes a pop at it.

Thought For The Day: When Did Salt Stop Tasting Of Salt?

When did salt stop tasting of salt? I have to use about half a packet of the stuff these days to get anything resembling a salty taste on food. Salt-free salt. Whatever next? Someone trying to sell alcohol-free alcohol???

Pound Breaks Back Through SFr1.40

The pound has, to much astonishment, broken back through the SFr1.40 mark. This prompted a call to HiFX, my regular dealer, to discuss the options open to me relating to a 12-month forward contract struck just a couple of weeks back at £1/SFr1.11. I knew at the time that it was extraordinarily low, and have no problem with sticking with it.

No matter how clear it was that the franc was massively overvalued, only a idiot would have gambled on the Swiss National Bank intervening so spectacularly to put a cap on its currency (anyone who took the other view, that it would in fact have carried on strengthening, will surely pay dearly).

I am quite happy with a compromise offered by HiFX (which I strongly recommend to anyone who needs to send foreign currency abroad on a regular base; it's good value and makes the process as painless as parting with cash can ever be). It has offered me an early six-month extension at the much better rate of £1/SFr1.26, giving me the option of either reducing my sterling costs or increasing my Swiss franc purchases.

Like a contestant who deals early on Deal or no Deal, I'll worry when the time comes about whether the decision was right.

 

Another Perspective On Greece And Default

Neil Dwane, CIO Europe at RCM, an Allianz Global Investors company, comments

“Equities were heading for their worst week since October 2008 before last Friday’s big rally. Banks globally were showing that they are, despite much management protestation, still at the heart of the problems troubling the global economy since 2008. EU banks, especially the French, have fallen 50% in a month as sovereign stress and super leverage plus funding concerns grow and grow.

“Over the weekend at the IMF in Washington, the message coming from the Rest of the World to the EU was to get their act together and this time they seemed to have listened. So has anything changed so far other than market sentiment?

“Possibly and at the margin, conclusions are now being drawn:

1.       There is now a common acceptance that Greece must default

Sovereign’s Alcumus Takes Drury

Sovereign Capital, a UK private equity buy and build specialist, reports the bolt-on acquisition of Drury PSM Limited (Drury) by Alcumus Group, one of its portfolio companies. This cements the reputation that Alcumus enjoys as one of the UK’s fastest-growing governance, risk and compliance businesses, it says. Drury is the fourth operating subsidiary it has added to complement the existing highly regarded brands, Sypol, Info Exchange and ISOQAR.

Established in 1991 and headquartered in Bradford, Drury provides expert advice and guidance on complex compliance issues to over 1,200 clients nationwide.  Services include HR and employment law advice, employment tribunal representation and support, health & safety audits, risk assessments and safety policy development.

Scaring The World - Now Showing At A Sovereign Borrower Near You...

Newedge - Blain's Morning Porridge - September 27 2011

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

Scaring the World - now showing at a sovereign borrower near you..

Sorry for late porridge – putting folk off their breakfasts again.

What's this curiously unfamiliar euphoric feeling? Gosh...I think I'm suffering an outbreak of mildly short-term bullish sentiment. The leaks from Washington and Brussels suggest Europe's elites might finally be getting their act together, that a plan to ringfence Greek default from contaminating the other PIIS is being worked upon, and bank capital injections are being planned. Whoopee.

Fill my boots with cheap assets please. Tier 1 financials up 2-3 points already this morning – confirming stronger sentiment towards bank assets. (We have high-return/low risk view on the right strategy in the T1 sector – give me a call on how to execute it!)

That's the good news. Last week I wrote there were three possible outcomes for an orderly Greek default - broadly: the Good, The Bad and The Ugly. It does look like we could get option ii). It's not perfect, but it could be something under the merely bad but acceptable. It’s infinitely preferable to the very sharp pointy stick of not doing anything.

That said, it’s not a done deal yet - still lots of Indiana Jones moments to come:

Crisis? What Crisis?

Watching an extended item on BBC2's Newsnight last night, I realised that my opinions on how to resolve the eurozone's sovereign debt situation are as valid as anyone's. I covered Latin American debt rescheduling from October 1984 till the summer of 1989 for the Financial Times Euromarket Letter and am familiar with the approach to tackling sticky debt problems. I am also credited in some quarters with 'creating' the Brady Bond that became an integral part of the solution.

The main ingredients in the recipe are: debt forgiveness (in combination with Brady Bonds), debt reprofiling (aka in this day and age 'extend and pretend' or 'delay and pray'), interest rate reduction (a goodly portion is probably paying what now look like usurious rates of interest; reducing those rates to the ultra-low current levels would certainly help) and inflation (I would prescribe a sustained period of 5-7% inflation on the various official measures to help replace the liquidity that has been destroyed; 'ordinary' people can largely avoid the impacts of that inflation by changing buying habits, even to the extent of slightly tightening their belts).

Oh, and patience. 'There is no quick fix,' I remember the great William Rhodes, Citibank's doyen of debt rescheduling, say at an event in London. 'There is no quick fix.'

Follow Alfi’s Blog

Phew. What a relief for those of us who failed to register for the global distribution conference being organised this week by the Association of the Luxembourg Fund Industry (ALFI).

ALFI reports that proceedings will be reported through a live blog, http://www.alfievents.com/. The blog will be updated throughout the conference, September 27-28 2011. Bloomberg TV's viewing figures will surely plummet.

The blog will be written by Phil Davis, a freelance journalist and former fund management reporter at the Financial Times. Supporting collateral will also be uploaded from the conference.

The conference, which is being held in association with NICSA and the Hong Kong Investment Funds Association, will provide presentations and panel discussions on latest news and trends in the cross-border distribution of Luxembourg investment funds, with this year a focus on the Asian region. This is the 20th Global Investment Funds Forum.

AIMA Queries ESMA Equivalence Judgment

The Alternative Investment Management Association (AIMA), the global hedge fund association, has expressed concerns over how the Alternative Investment Fund Managers Directive (AIFMD) would apply to non-EU managers and funds under proposals by a task force of the European Securities and Markets Authority (ESMA).

ESMA, the AIMA notes, is responsible for giving advice on specific rules and regulations that will enable the AIFMD to be implemented under an on-going process known as ‘level 2’. AIMA said the latest proposals went further than what was required - or even permitted - by the ‘level 1’ legislation agreed last year by the European Council, the European Commission and Members of the European Parliament. The Directive is scheduled to take effect in July 2013.

In its response to an ESMA consultation exercise on the third country issues, AIMA said the proposed measures, if enacted, could have the practical effect of preventing EU investors from investing in non-EU hedge funds such as those managed from the US, Canada, Hong Kong, Singapore, Australia and Switzerland.

Who's Screwing Whom?

It's not often I'm speechless, but there are some times when words fail me. And this one of those times. The news that the Investec Specialist Bank’s Fund Finance team has provided a €15m loan to F&C European Capital Partners LP, a private equity fund of funds focusing on the European mid-market of private equity including buyout, mezzanine and co-investments, leaves me scratching my head.

What, I wonder, do they mean by that? Is there any broader significance behind the loan of such a modest sum? Is there any qualitative difference between this form of finance and traditional bank lending to private equity? Should the use of the words innovative and compelling be sounding any alarm bells?

To put it in words that my immortal first editor might have used: Who is screwing whom? In my own words, the more bells and whistles there are attached to a loan, the more questions should be asked.

Operation Twist: Pushing On A Piece Of String

By Andrew Milligan, head of global strategy, Standard Life Investments

The headlines in the past week have been dominated by the latest efforts by the US Federal Reserve to kick start the American economy. A separate series of reports demonstrate why this particular policy will not work. Indeed, we fear that the central bank is following the wrong path, in effect pushing on a piece of string.

The latest version of QE is called Operation Twist. Under this exercise, over the coming nine months the Fed is selling up to $400bn of shorter-dated bonds (three-month to three-year debt) and buying an equivalent amount of longer-dated debt, across the six- to 30-year parts of the curve; the 30-year is so important for the US mortgage rate. The initial announcement had quite an impact: US 30-year yields fell below 3%, back towards the all time lows of 2.7% seen three years ago.

If Operation Twist is to have a positive effect on the US economy, the main channel should be through cheaper money, especially lower mortgage rates. There should be a boost to consumer spending as mortgage refinance and housing activity picks up.

The problem is that a series of reports also announced this week show a US housing market that is, at best, stagnant. Existing home sales have been erratically moving sideways since mid 2008, and new housing starts since mid 2009. The inventory of unsold homes is improving slowly but remains double the levels seen before the housing crisis began, in turn causing house prices to fall about 5% a year.

Capital IQ/Data Explorers In Short Data Link

Good news for believers in transparency and accessibility. Data Explorers is reporting that its securities lending data, tracking short selling and institutional fund activity is available to Data Explorers subscribers over Capital IQ, a platform for financial information and analytical tools for investment banks, asset management firms, private equity firms and corporations around the world.

Capital IQ, we are told, now offers Data Explorers content, significantly enhancing its Short Interest page, for use with Screening, Excel and Charting functionalities, as well as via its Xpressfeed data management solution for sophisticated quantitative research and modeling. This data adds a valuable new layer of criteria, especially for the buy side, for generating investment ideas, optimising portfolio positions, managing risks, and finessing deal timing.

AllianceBernstein: US, Europe, Asia Perspectives

The latest AllianceBernstein economic weekly reports are now available.

US Perspective by Joseph G Carson, US economist and director, global economic research: What’s Behind the Widening US Trade Gap with China?

European Perspectives by Darren Williams, senior European economist, global economic research: Sovereign-Debt Crisis Spills Over to the Core.

Asian Perspectives by Anthony Chan, Asian sovereign strategist, global economic research: Assessing the Relative Economic and Policy Risks of China and India.

 

Hawksford Goes Forth

Hawksford, one of the Channel Islands’ largest independent trust companies, reports that it is continuing its ongoing buy and build strategy and international expansion. Hawksford, which is backed by UK mid-market private equity firm Dunedin, has acquired L-S&S GmbH, based in Zurich, Switzerland, and its New Zealand trust company.

The acquisition follows the firm's recent move into the Middle East where it opened a Dubai office in May. Hawksford takes the opportunity to break a related piece of news, that it has appointed a new chairman, Philip Taylor, former senior partner of PwC Channel Islands, to assist with its expansion plans.

UBS: Not All Doom And Gloom

Not every piece of news with a UBS slant is laden with the doom and gloom that are inevitably generated by large, unexpected, unauthorised trading lesses and the noble but bloody falling of a chief executive onto his sword.

Societe Generale Securities Services (SGSS), for instance, reports that has extended its clearing licence with SIX x-clear, the clearing entity of SIX Securities Services, so becoming a general clearing member on UBS MTF, the UBS non-displayed order book.

SGSS adds that it continues to expand its ability to offer its clients, made up of broker-dealers, investment banks, and traders, improved access to the growing number of international multiple exchanges and trading platforms. It says that this extension of its clearing offering allows its clients to increase their efficiency and reduce costs by optimising their risk management, enabling them to carry out single margin calls and bookings at a single point of entry.

By using this single entry point, clients can manage their clearing, settlement and custody activities across a greater number of markets around the world.

Sell When You First Think About It

Newedge - Blain's Morning Porridge - September 26 2011

By Bill Blain, senior director, special situations, Newedge (as seen on TV)

T: +44 207 676 8615; Mobile: +44 777 088 1033; E: [email protected]

Lots of headlines – but no news…believe what you want to believe..

In the absence of real news or decisive leadership, there is a real danger markets hear what they want to hear.  As a result, markets are more vulnerable today than they've been in a long while. Many blogs this morning say they are analysing 'lots of' news from the weekend, but in fact they’ve responding to the rumour and sigh in unfounded headlines.

The IMF’s unexpected communiqué is long on confidence-building positive statements, but perilously thin on fact. (If it was a bond prospectus, someone could be in court!). It says the IMF is ready to act, and that 'advanced economies will ensure banks have strong capital positions and access to adequate funding'.And – actually says nothing of substance.

Bottom line is: they see the problem, but there isn’t yet anything solid to pin confidence upon. Investors, who have been whipsawed by the speed of the market's decline but are holding on in the expectations someone is going to announce the 'right thing', could be absolutely routed if something bad happens – like a negative German vote, a failed auction or yet another case of a European 'leader' saying absolutely and utterly the wrong stupid thing. Market meltdown remains a threat.

UK Buyout Market Down Again

The overall value of UK buyouts in the first three quarters of 2011 reached £7.8bn, lower than at the same point last year, when a resurgent buyout market totalled £13bn, according to the latest data published by the Centre for Management Buyout Research (CMBOR), sponsored by Ernst & Young and Barclays Private Equity.

While activity throughout 2011 has been subdued in comparison to last year, the value of buyouts in the third quarter reduced markedly, with values slumping to £1.1bn, compared to £3.1bn in Q2 and £3.6bn in Q1.

The number of buyouts also fell in the third quarter from 51 in Q1, 38 in Q2 to 35 during the third quarter. In the nine months to September there have been 124 deals, compared to 139 at the same point last year. The total value of buyouts this year only equates to 42% of last year’s total.

Sachin Date, private equity leader for Europe, Middle East, India and Africa (EMEIA) at Ernst & Young comments: “The slowdown in activity in both value and volume this quarter clearly reflects a weakening in business confidence.”

Pound Sliding Again Against The Swiss Franc

I've slightly neglected my self-imposed duty to monitor the daily relationship between the pound sterling and the Swiss franc. The reason? I can cite pressure of work, and the pressing need to meet external deadlines for august publications as the Financial Times FTfm supplement. But mostly it was because the pound was actually climbing minutely against its too-strong Swiss counterpart, which doesn't fit my long-term story.

I noticed this morning, though (September 23) that the pound has started to slide again, as evidenced by the spot rate of £1/SFr1.3896, compared with yesterday's £1/SFr1.3920. I do hope, though, that it stays around this level for a while, even if there is already concern in Switzerland about the more than doubling of the monetary base (up 115%) in a single month.

There's loose monetary policy, and there is LOOSE monetary policy. If the pound can't claw its way back in the face of that of Swiss looseness, it is in even worse health than I thought.

 

Enter The Lion

BNP Paribas Securities Services says it has been selected by Lion Global Investors (LGI) to launch new UCITs-structured funds to support the asset manager’s global fund distribution strategy.  

Based on the BNP Paribas Luxembourg platform, LGI is now in a position to capture a share of the growing demand from global investors seeking Asian high-yield assets while serving its Asia region customers more effectively.

Augentius: Helping To Avoid The Spoiling Of Ships

They also serve who only stand and administer. And no-one should overlook the importance of good administration. Ships, remember, can be spoilt for a ha'porth of tar.

So I can well understand why Augentius, the specialist private equity and property fund administrator, is so keen to report that it has obtained a clean SAS70 (Type II) audit opinion on its operations in London, Guernsey and Luxembourg. Augentius achieved a SAS70 Type II audit for its US office last year.