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APRIL 2011     INSTITUTIONAL INVESTOR72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 01 02 03 0...
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Institutional Investor Magazine April 20th, 2011

  1. 1. Performance Art Secondary Action Public Party Affiliated Managers Group Investors are flocking to new Smaller companies are combines the benefits of a big markets to trade Facebook keeping the Chinese IPO firm with those of a boutique and other private companies machine humming along APRIL 2011 WWW.INSTITUTIONALINVESTOR.COM No School Left Behind Still feeling the sting of the financial crisis, university endowments are turning to risk management to prevent a similar disaster from happening again. PAGE 34 Follow Institutional Investor on twitter.com/ iimagAnjum Hussain, director of risk management, Case Western Reserve University
  2. 2. Invesco Ltd.RETIREMENT PLAN Accidental Investing. It’s not always this obvious. It could be as subtle as an investment’s strategy no longer being aligned with your objectives, or maybe it was just plain old style drift. Invesco creates investment strategies that stay true to their mandates, with disciplined risk oversight, repeatable processes and clear intent. And with investments for virtually every objective and risk tolerance, you can match an Invesco strategy with your intent. Explore Intentional Investing with Invesco. Contact your Invesco representative today. invesco.com/intentional
  3. 3. APRIL 2011 INSTITUTIONAL INVESTOR73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30SDOM THE FUTURIST THE CHARTIST CONTENTS INSIDE II TICKER FIVE QUESTIONS PEOPLE APRIL FEATURES 2011 34 48 58 40 54 44 40 Back Pulling CAPITAL MARKETS the Curtain BY UDAYAN GUPTA 54 Lite?BANKING 34 COVER STORY Secondary markets that Reform trade shares of Facebook BY NEIL SEN and other privately held Britain’s appetite for tough companies are catching the attention of investors — 48 Bond Boom Asia’s CAPITAL MARKETS new banking reforms appears to be waning as and regulators. the government focuses on BY MATTHEW MILLER economic growth. 44 The region’s debt markets No School 58 Blossoms ASSET MANAGEMENT are growing in size and Left Behind Performance Art sophistication, giving investors another way CHINA BY FRANCES DENMARK BY JULIE SEGAL China Affiliated Managers to gain an investment BY ALLEN T. CHENG Still feeling the sting of the Group blends the foothold in Asia. Smaller Chinese financial crisis, university benefits of a big firm with companies keep the endowments are turning to those of a boutique. IPOs flowing despite risk management to market setbacks. prevent a similar disaster from happening again. VOLUME XLV, NO. 3 • AMERICAS EDITION institutionalinvestor.com WEB COMPANY SUPERANGELS VALUATIONS COUNTRY CREDIT MAP Compare top Is Internet 2.0 becoming Political unrest affects superangel investors. just another bubble? creditworthiness. COVER PHOTOGRAPH BY BILLY DELFS INSTITUTIONALINVESTOR.COM
  4. 4. APRIL 2011 INSTITUTIONAL INVESTOR72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 3WISDOM THE FUTURIST THE CHARTIST CONTENTS INSIDE II TICKER FIVE QUESTIONS PEOP 7 ETC 7 RESEARCH & RANKINGS OPENING Ticker Japan’s crisis may be a catalyst for recovery. • Governments turn to sovereign wealth funds to fix everything from 64 The 2011 All-Japan bridges to potholes • Bank pay runs higher in Asia • Does Southern Research Team BY HENRY SCOTT STOKES Sudan’s independence mean the end of the region’s investment Opportunities abound stigma? Five Questions For Alabama Senator Richard Shelby in Japan for investors People Faces in Finance • Infobank that know where to look. 74 The 2011 Fund of Funds 50 BY IMOGEN ROSE-SMITH Many firms in our annual 18 20 MARKETS 26 DONE DEALS ranking seek to diversify their capital bases. Andale, Andale! ArabianKnight BY JAYNE JUNG BY LAURIE KAPLAN SINGH High frequency traders Abu Dhabi rides to the get a warm Mexican rescue of Aldar. 27 ALTERNATIVES embrace. 22 THE BUY SIDE Macro View Hot Commodities BY IMOGEN ROSE-SMITH 5 Inside II BY VIRGINIA MUNGER KAHN Hedge fund firm Balyasny 91 Unconventional Seeking alpha, investors are Asset Management returns Wisdom turning to active strategies. to global macro. 93 The Futurist 24 GLOBAL 28 GREEN SHOOTS 96 The Chartist SECURITIES SERVICES Hardly Sustainable JAPAN: TOMOHIRO OHSUMI/BLOOMBERG Taken into Custody BY KATIE GILBERT BY JULIE SEGAL Stock exchanges CAPITAL Private equity firms opt for face pressure to boost 18 third-party administrators. reporting standards. RAINMAKERS 25 FOREIGN EXCHANGE 30 CEO INTERVIEW Financial Engineer Betting on the News Worthy BY JAYNE JUNG Offshore CNH BY JULIE SEGAL To see the latest on these stories or provide Nomura’s Piero Novelli BY CHARLES WALLACE Thomson Reuters’s Tom feedback, visit predicts a new batch of The renminbi is on the Glocer sees a role for institutionalinvestor.com global M&A deals. rise in Hong Kong. traditional news. INSTITUTIONALINVESTOR.COM
  5. 5. APRIL 2011 INSTITUTIONAL INVESTOR 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 2RKETS ALTERNATIVES NERD ON THE CHARTIST CONTENTS INSIDE II TICKER FIVE QUESTIONS www.institutionalinvestor.com EDITOR William H. Inman AMERICAS EDITOR Michael Peltz Sins of the Fortunately, freethinkers are emerg- INTERNATIONAL EDITOR Tom Buerkle CREATIVE DIRECTOR Nathan Sinclair Scholar ing among keepers of funds at schools such as Harvard, Stanford and the Uni- versity of Chicago. At Case Western MANAGING EDITOR Thomas W. Johnson Reserve, where a traditionally invested LONDON BUREAU Loch Adamson (Chief) pool of assets was drubbed, endowment ASIA BUREAU Allen T. Cheng (Chief) H.L. MENCKEN, IRASCIBLE officers rejected long-accepted tenets of WEB MANAGER Barry Whyte journalist and social critic, asset diversification, instead managing WEB EDITOR James Johnson admired scholarship but had a risk by cutting equity creeping unease about the way exposure and selling WEB PRODUCTION/DESIGN Michelle Tom WEB INTERN Franziska Scheven economics was taught and prac- College market volatility. ticed at American universities. He fund Doctrinal strategies SENIOR WRITER Frances Denmark STAFF WRITERS Imogen Rose-Smith, Julie Segal, questioned whether professors applied masters formulated by some Neil Sen (London) the same hard calculus to that business as seek new of the most influen- SENIOR CONTRIBUTING EDITORS Firth Calhoun, scholars did in other fields. “Colleagues tial economists in Nick Rockel of archeology may be reasonably called models. academia no longer SENIOR CONTRIBUTING WRITERS Pam Baker, free and their colleagues of bacteriology go unquestioned. Hugo Cox, Katie Gilbert, Fran Hawthorne, Jonathan Kandell, Leslie Kramer, and those of Latin grammar and sidereal “We’re looking at risk with a wider lens,” Scott Martin, Ben Mattlin, Craig Mellow, astronomy,” he wrote. But academic for- says Jane Mendillo, president and CEO Virginia Munger Kahn, Cherry Reynard, mulators of money theory, and their dis- of Harvard Management Co. To peer into David Rothnie, Harvey D. Shapiro, Henry Scott Stokes, Paul Sweeney, ciples in fund management, seem wedded the future of endowments, turn to page Stephen Taub, Charles Wallace to “obscurantist” writ, and having their 34 and Senior Writer Frances Denmark’s SENIOR EDITORS Tucker Ewing, Jane B. Kenney “freedom as plainly conditioned, though story, “No School Left Behind.” (Editorial Research) perhaps not as openly, as the faculty of ASSOCIATE EDITORS Denise Hoguet, Brian Murphy (Editorial Research) theology.” Econ academics, in fact, ranked COPY EDITORS Monica Boyer, Ruth Hamel, at the bottom of Mencken’s scale of free- Catheryn Keegan thinking, along with socialists and Meth- DEPUTY ART DIRECTOR Diana Panfil odists. Doubts became more intense the — WILLIAM H. INMAN ART DEPARTMENT Alex Agius, Israt Jahan, Bethany Mezick, John Miliczenko deeper Mencken read “solemn disproofs EDITOR, INSTITUTIONAL INVESTOR and expositions of the learned professors.” IIeditor@iimagazine.com EUROMONEY INSTITUTIONAL INVESTOR PLC CHAIRMAN Padraic Fallon DIRECTORS Sir Patrick Sergeant, The Viscount Rothermere, Richard Ensor(managing director), Neil Osborn, Dan Cohen, John Botts, Colin Jones, Diane Alfano, Christopher Fordham, Jaime Gonzalez, Jane Wilkinson, Martin Morgan, SAVE THE DATE ! September 14, 2011, New York City David Pritchard, Bashar Al-Rehany INSTITUTIONAL INVESTOR, 225 Park Avenue South, NewYork, NY 10003; (212) 224-3300; Fax: (212) 224-3171. www.institutionalinvestor.com London Bureau: Nestor House, PlayhouseYard, London EC4V Delivering Alpha 5EX, U.K.; (44-207) 303-1703; Fax: (44-207) 303-1710 In a first of it’s kind, CNBC and Institutional Investor will host a unique, one-day meeting Hong Kong Bureau: 27/F, 248 Queen’s Road East,Wan Chai, composed entirely of the best-known hedge fund managers and the largest investors globally as Hong Kong; 852-2912-8030; Fax: 852-2842-7011 well as illustrious political and economic commentators moderated by II and CNBC editors. © 2011 Institutional Investor, Inc. (ISSN 0192-5660) No statement in this magazine is to be construed as a Advisory Board recommendation to buy or sell securities. Neither this publication • William Ackman, Founder and CEO, Pershing Square Capital Management LP • Scott Kalb, CIO, Korea Investment Corporation nor any part of it may be reproduced or transmitted in any form or by any means, electronic or mechanical, including • Steven Algert, Managing Director, Investments, J. Paul Getty Trust • Pierre Lagrange, Co-Founder and Partner, GLG Partners LP photocopying, recording or any information storage and retrieval • Clifford S. Asness, Ph.D., Managing and Founding Principal, AQR Capital • Jim Leech, President and CEO, Ontario Teachers’ Pension Plan system, without the prior written permission of Institutional Management • Jim O’Neill, Chairman, Goldman Sachs Asset Management Investor magazine. For reprints and web links, contact: Dewey • Peter L. Briger, Jr., Principal and Co-Chairman, Fortress Investment Group LLC Palmieri (212) 224-3675; Fax: (212) 224-3563; e-mail: • Anne Popkin, President, Symphony Asset Management dpalmieri@institutionalinvestor.com. Printed by Cadmus Specialty • Arpad A. Busson, Chairman, The EIM Group • Bruce Richards, President and CEO, Marathon Asset Management Publications, Richmond,VA U.S.A. For customer service • Leon G. Cooperman, Chairman and CEO, Omega Advisors • Jeff Scott, CIO, Alaska Permanent Fund inquiries please call (800) 945-2034; • Laurence D. Fink, Chairman and CEO, BlackRock • Ted Seides, Sr. Managing Director and Co-Founder, Protégé Partners, LLC Overseas: (212) 224-3745; Fax: (615) 377-0525. • Sonia E. Gardner, President, Managing Partner and Co-Founder, Avenue • Damon Silvers, Director of Policy and Special Counsel, AFL-CIO Capital CHAIRMAN, INSTITUTIONAL INVESTOR Diane Alfano • Thomas F. Steyer, Sr. Managing Member, Farallon Capital Management, LLC • Peter Gilbert, CIO, Lehigh University FOUNDER Gilbert E. Kaplan • Joseph Eugene Stiglitz, Professor, Columbia University and recipient of the • J. Tomilson Hill, CEO, Blackstone Marketable Alternative Asset Management Nobel Memorial Prize in Economic Sciences (2001) INSTITUTIONALINVESTOR.COM For more information contact Lisa McErlane Yao on 212 224 3991 or lyao@iiconferences.com
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  7. 7. APRIL 2011 INSTITUTIONAL INVESTOR2 83 84 85 86 87 88 89 90 91 92 93 94 95 96 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 4T THE CHARTIST CONTENTS INSIDE II TICKER FIVE QUESTIONS PEOPLE INFOBANK RAINMAKER OPENINGApril 2011 News and views from the world of finance The BoJ’s Masaaki Shirakawa is responding aggressively to the disaster JAPAN and destruction, it of deflation. A number of early last resort but would extend to RALLYING JAPAN was not long before economic omens have been effectively underwriting a share THE CRISIS MAY BE hopes arose that not encouraging, amid the gloom. of the government’s reconstruc- A CATALYST FOR only would Japan be For a start, Bank of Japan tion costs by what amounts to RECOVERY able to rebuild but Governor Masaaki Shirakawa monetizing Tokyo’s debt. that it also would used a massive injection of Even before the earthquake, reap monetary, fiscal liquidity to shore up the coun- the bank had begun stepping TOMOHIRO OHSUMI/BLOOMBERG A silver lining was not what and other economic benefits try’s financial system. Indeed, up its purchases of Japanese anyone expected to find from the disaster, if at far too the sum was so large — ¥40 tril- Government Bonds (JGBs) in the radioactive cloud high a human cost. lion ($495 billion), or close to to prevent a rise in long-term that fanned out from Japan’s As callous as it may sound, one fifth of its balance sheet — yields from further damping Fukushima Daiichi nuclear the catastrophe may have been that it provoked speculation that Japan’s anemic recovery. The plant following March 11’s the catalyst the country needed the central bank’s white-knight pace is now bound to pick up. devastating earthquake and tsu- to galvanize its stagnant econ- role might not be restricted to In addition, the BoJ has nami. And yet, amid all the death omy and escape from decades that of short-term lender of doubled, to ¥10 trillion, its INSTITUTIONALINVESTOR.COM
  8. 8. APRIL 2011 INSTITUTIONAL INVESTOR2 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56DE II OPENING TICKER FIVE QUESTIONS PEOPLE INFOBANK RAINMAKERS MARKETS THE BUY SID Japan Public Finances Libya’s Saif Gaddafi: Owning the Santa lion Abu Dhabi Investment Authority Monica freeway? could take a stake in bringing back existing program of purchasing the glory of aging LaGuardia Airport. government bonds, real estate To be sure, most sovereign wealth investment trusts and even some funds are prudent, patient investors, and they don’t pursue overt political equity instruments from finan- agendas, says Darrell West, Brook- cial institutions as a way to inject ings’s director of governance stud- liquidity into the economy. ies. “We looked at how they have Other dramatic measures invested,” he says. “They generally are being contemplated to help take a long-term perspective and do not seek controlling ownership.” with the recovery. In late March What’s more, they’ve got plenty the newspaper Sankei Shimbun of dough. Sovereign wealth funds reported that Japan’s Ministry control some $4 trillion, and eco- of Finance was considering PUBLIC FINANCES nomic trends suggest some will whether to issue ¥10 trillion SMOOTHING become even wealthier. of JGBs directly to the central THE BUMPS “In our integrated global econ- omy, capital is going to move across bank. However, Finance SWFS MIGHT FIX borders,” points out Gordon Gold- Minister Yoshihiko Noda said U.S. POTHOLES stein, one of the Brookings report’s co- “cautious debate” was needed authors. If the U.S. doesn’t embrace before the MoF asked the cen- Call it pothole politics — debate over how to fix such global investments, he says, other countries will, the U.S.’s infrastructure: failing commuter rail- and they will gain a competitive advantage. tral bank to underwrite govern- ways, crumbling bridges, ancient sewer lines, Nevertheless, the notion of the U.S. welcoming ment bond issues this way. decrepit electrical grids and, of course, pitted roads. national foreign investments as if it were some BoJ officials say in private that But discussion doesn’t get the job done if there’s no neo-emerging-markets country may be hard for they would be reluctant to see money, and there’s no money. So a think tank, the many politicians to stomach. “ a change in the rule barring the Brookings Institution in Washington, has come up Imagine, for instance, if the $70 billion Libyan with a possible solution: Recruit interest from flush sov- Investment Authority, founded by Muammar al- ereign wealth funds like China’s and Abu Dhabi’s. Gaddafi’s son Saif al-Islam Gaddafi, owned a big In a March 11 report, “Rebuilding America: The chunk of the Santa Monica Freeway. (It does, in fact, Role of Foreign Capital and Global Public Investors” own a small portion of the fabled Financial Times.) Japan’s real (brookings.edu), Brookings urges a budget- strapped U.S. to embrace investments from these Sovereign wealth funds represent a highly diverse universe of actors, Goldstein admits: “It GDP growth national piggy banks, particularly for infrastructure would be a mistake to characterize them in will be ‘around projects and new ventures such as green technology. Beijing’s $332 billion China Investment Corp. broad-brush terms.” Not so long ago, nobody would have envisioned multibillion-dollar Chinese zero’ this year could help fund President Obama’s vaunted plans holdings in U.S. Treasury bonds. but will rebound for a high-speed rail network; perhaps the $430 bil- — IMOGEN ROSE-SMITH in 2012. — Hiroshi Watanabe Japan Bank for ” International Cooperation engage in such a transaction.” the yen caused by speculators’ Hiroshi Watanabe, president Shijuro Ogata, a former vice betting that Japan will have to of the Japan Bank for Inter- governor for international rela- repatriate yen assets en masse national Cooperation and a tions at the BoJ, tells Institutional to pay for reconstruction. former vice minister of MoF, bank from underwriting govern- Investor that the bank will in the In multiple ways, then, the expects Japan’s real GDP ment bonds, even in an emer- meantime continue to provide BoJ is escalating its efforts to growth this year to be “around gency. They fear that relaxing additional liquidity by purchas- revive Japan’s battered econ- zero” but to rebound in 2012. the restriction could open the ing public debt, such as JGBs, in omy. The need for such stimu- Yet in another example of door to more general monetiza- the open market along with buy- lus is becoming all the clearer serendipity, the earthquake tion of government debt. ing up private sector commercial as estimates of the disaster’s perversely reminded many Nevertheless, one senior paper, corporate bonds, equities economic impact grow. dispirited Japanese of their JAMAL NASRALLAH/BLOOMBERG central banker, who insisted on and other instruments. The chief problem is the country’s continuing impor- anonymity, did indicate that the On top of all this, the bank loss of electric power caused tance to the global economy BoJ might agree to purchase has begun foreign exchange by the partial meltdown of the and especially to Asia’s. Har- proposed earthquake-recovery market intervention to further Fukushima reactor. Rolling uhiko Kuroda, president of bonds from the government as boost liquidity. The Group of power blackouts are likely to the Asian Development Bank, a “very, very exceptional case, Seven countries also intervened play havoc with production of describes Japan as the center on the condition that a new law massively in the forex market cars and parts and electronic of “Factory Asia” – a sophis- is enacted, allowing the BoJ to in mid-March to stop a spike in components for many months. ticated, highly integrated pro- INSTITUTIONALINVESTOR.COM
  9. 9. Your best ideas are waiting to be discovered. Find them with Capital IQ.HAVE MORE LIGHT BULB MOMENTS. Use Capital IQ to: Analyze companies with accurate, transparent data Spend more time doing value-added research www.capitaliq.com/ideas Generate high-quality investment ideas Turn data into meaningful insights
  10. 10. APRIL 2011 INSTITUTIONAL INVESTOR4 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58DE II OPENING TICKER FIVE QUESTIONS PEOPLE INFOBANK RAINMAKERS MARKETS THE BUY SID Japan Global Investing duction and distribution system civil war that led current investors in Petro- that accounts for Asia’s vast output to independence China, whose parent, China of goods — and which can’t func- but also gave rise National Petroleum Corp. tion without Japan. to a humanitarian (CNPC), does extensive Another surprise boon of crisis in Sudan’s business with the corrupt Japan’s misfortunes was Tokyo’s western region regime of Bashir, which has willingness to embrace help from of Darfur. Will been accused of genocide. China and Russia. Japan has been this hopeful new TIAA-CREF divested its on the brink of confrontation with peace hold? Does shares in PetroChina at the both of these countries over ter- Southern Sudan end of 2009 after it failed to ritorial disputes, so this bodes well have a future as a persuade CNPC to stop sub- for their future relations. Most of Sudan’s oil sovereign state? sidizing the violent activities of is in the south, but “ None of this muted good news An uneasy the Bashir government. “Our the north controls is to imply that recovering from distribution truce in the civil the calamity will be anything war has held since but a struggle. As of late March, GLOBAL INVESTING 2005, although the toll in dead and missing SUDAN CHANGE rebels in Darfur Investors ASSESSING THE should ask approached 27,000; the human agreed to their lat- cost will always be incalculable. FREE SOUTH est cease-fire only Tokyo puts the price tag for the last year. More- if they can damage at $200 billion, or twice over, the under- influence a that of the Kobe (Great Hanshin) earthquake in 1995. And Japan This July south Sudan is to become the Republic lying causes of the conflict remain sensitive: the south’s oil corporation. embarks upon this epic effort of Southern Sudan. In riches (and the north’s relative ‘If the answer with a debt load twice the size of January’s plebiscite nearly 99 lack thereof) and ancient tribal is no, then it’s its GDP and an economy that has been constantly on the verge of percent of southern Sudanese voted to secede from the north. rivalries and religious schisms. Freedom for the south could time to divest. ’ — David Raad ” stalling for many years. Sudan’s president, Omar exacerbate old tensions. Ex-diplomat Still, the Japanese have a prov- Hassan al-Bashir, has pledged The revolution casts a erb: Fall down seven times, get up to abide by the outcome. spotlight on the role played in eight. Perhaps the horrible events The creation of Southern Sudan by Western financial of March 11 will provide the impe- Sudan will conclude, symboli- firms, including Franklin sense after making this effort tus for that eighth time. cally as well as formally, more Templeton, JPMorgan and not having any success — Anthony Rowley than five decades of bloody Chase and Vanguard — all was that this wasn’t a way to leverage our ownership in the company,” says John Wilson, director of corporate gover- COMPENSATION nance for TIAA-CREF. PAY CHECK GO EAST, YOUNG BANKER Still, he adds that even with The British government’s push for banks to be more forthcoming about top earners’ pay is an independent south, the meant to shame them into being more circumspect about compensation. Paradoxically, the 2010 comp figures being released under the disclosure rules show that top U.K.-based same dubious financial links bankers earn significantly less than their foreign counterparts, especially in Asian markets. will remain between the oil HSBC awarded an elite group of 186 London-based “code staff” (that is, top traders, business and the government bankers and other nonsenior managers) an average of $1.22 million in salary and bonuses in Khartoum. “I don’t think OIL WORKERS: TREVOR SNAPP/BLOOMBERG; for 2010. By contrast, the bank typically paid members of an equivalent coterie of 280 star the fundamental factors of staffers outside the U.K. $1.6 million. HSBC is not unique in being extra generous to its Asia- based employees. Thomson Reuters confirms that the trend is widespread. our decision have changed HSBC CEO Stuart Gulliver was asked point-blank by a reporter: “Why do you pay people very much,” Wilson says. Sig- in the U.K. less? Is it because the market is hotter in Asia?” Gulliver’s response: “[Asian] econo- nificantly, the West’s broad mies are growing at a rapid pace, and that is where the pressure is on compensation.” PAPER: RICHARD MEGNA sanctions against Western oil It’s no wonder that U.K.-based bankers, feeling unloved and underpaid as well as over- companies doing business in taxed, migrate eastward. Christian Brun, a Hong Kong–based partner of recruiter Wellesley Partners, says he’s been steadily receiving CVs from bankers in London and New York seek- Sudan will remain in place ing work in Asia. The catch? Unless a banker has relevant expertise — say, in Hong Kong for now. IPOs (see page 58) — it can be tough to find a job in Asia. — CHRISTOPHER ALESSI Fidelity, too, essentially divested its PetroChina INSTITUTIONALINVESTOR.COM
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  12. 12. APRIL 2011 INSTITUTIONAL INVESTOR6 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60KER OPENING FIVE QUESTIONS PEOPLE INFOBANK RAINMAKERS MARKETS THE BUY SIDE GLOB Global Investing holdings, perhaps in part because of a lobbying campaign by Investors Against Genocide, but the fact that it doesn’t really take care of too-big-to- 3 Can Fannie Mae and Freddie Mac be fixed? My idea is to get the govern- a privately funded Boston non- fail sets the stage ment out of the mortgage profit. IAG head Eric Cohen tes- in a sense for the business, not create a hybrid tified to Congress in November next crisis. Con- where you socialize risk to the that stricter transparency laws gress didn’t do the taxpayer and privatize gains to are needed so that investors can necessary work the stockholders. That is what readily discern whether their [and] hold the happened. We certainly don’t investments are, as he puts it to necessary hear- want to re-create something II, “genocide-free.” ings on the front like the Fannie and Freddie Fidelity sold all but a fraction end in the bank- mode, which failed. The of its shares in 2007 and today ing committees of administration hasn’t got any holds a “negligible percentage,” the Senate or the real idea where they want to “ according to a spokesman. On House to write a go. We need leadership from FIVE QUESTIONS FOR well-thought-out the administration. They are RICHARD law. Dodd- supposed to propose things, SHELBY Frank abdicates but I’ve seen no proposals Are we KNOCKING DODD- responsibility by worthy of the name yet. FRANK REGS comfortable Congress to regu- owning this company? lators. Regulators have failed in the Alabama’s Richard Shelby, past, and now they are in the 4 You oppose the nomination of Nobel Prize–winning MIT economist — John Wilson the ranking Republican on process of bringing out scores Peter Diamond to the Fed ” TIAA-CREF the U.S. Senate Banking of rules and regulations. We are board because you say it Committee, is outspoken in his going down the wrong road. already has too many criticism of the Obama admin- Keynesians. Didn’t Keynesians its web site the firm defends the principle of remaining invested istration’s financial policies. Yet his support for Big Banking 2 What’s the worst thing about the law? is by no means automatic. He The biggest flaw is a consumer save the world in the Great Depression? What we need are people on in a company as potentially the opposed George W. Bush’s agency [the Consumer Finan- the Fed who know something best way to influence it to mend bank bailout bill, objected to cial Protection Bureau] that is about monetary policy and its ways. financial deregulation in 1999 self-funding, accountable to no are mainline economists, not Former diplomat David Raad, — the only Senate Republi- one, gets about 10 percent of behavioral economists and who represented the U.S. in the can to do so — and resisted the Federal Reserve’s operat- champions of bailouts. Look negotiations that led to Sudan’s letting federally insured banks ing budget and is not subject at the Fed’s balance sheet. peace agreement, says investors sell insurance. He also was to the appropriations process It’s the largest in history, and should ask themselves if their par- early to fault Fannie Mae and of Congress. That is horrible. it’s going to be interesting ticipation can positively affect the Freddie Mac. I oppose a lot of the policies of how they deleverage. A lot of behavior of a corporation. “If the The senator, who has Elizabeth Warren [President commodities are indicative answer is no,” he says, “then it’s lately focused his wrath on Obama has put Warren in of future inflation, and once probably time to divest.” the Dodd-Frank Act, spoke charge of establishing the inflation takes off, it’s hard to TIAA-CREF is taking a wait- recently with Institutional consumer agency but has not bring back price stability. and-see approach to whether the Investor Senior Contributing yet nominated her to head it]. south’s independence justifies tak- ing another look at PetroChina. Writer Charles Wallace. This is a power grab if you have ever seen one in the Congress. 5 Some say the Republican Party is too close to banks. “We’re going to be asking the 1 Will Dodd-Frank prevent She would be the queen or the We’re not close at all. I’m JOSHUA ROBERTS/BLOOMBERG same questions we asked before,” the next banking crisis? czar of all. She would be telling certainly not close. I don’t own Wilson says. “Are we comfortable Absolutely not. Dodd-Frank financial institutions how to one share of stock in banks. But owning this company, and do we is flawed. It has probably insti- run, what products to offer, a good, solid bank that is well feel like we’re going to be asking tutionalized to some extent the everything. We don’t even capitalized but not overregu- our participants to profit from too-big-to-fail doctrine, and know the scope of her authority lated will create jobs. Who is genocide by doing so?” that is not good. Many things or what she would hope would going to create them if we don’t — Katie Gilbert in Dodd-Frank are problems, be her authority. have a fluid banking system? INSTITUTIONALINVESTOR.COM
  13. 13. We’re out of line.We invest differently—often in challenges and problemsthat others have abandoned. We operate differently—with a business model intended to maintain growth andprofitability. We foster a different corporate culture—open, accessible, where a spirit of inquiry is the highestvirtue. This all tends to put us out of line with otherbiopharmaceutical companies. So does our record ofsuccess. We don’t toe the line. Which is precisely what lets usmove to the front of it. Learn more at cubist.com The shape of cures to come.TM
  14. 14. APRIL 2011 INSTITUTIONAL INVESTOR8 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62IONS OPENING PEOPLE INFOBANK RAINMAKERS MARKETS THE BUY SIDE GLOBAL SECURITIES S PEOPLE BOFA TAPS AMBANI; HEFNER GOES PRIVATE; PAULSON PLUGS PROPERTY MUKESH AMBANI GIVES BOFA BREADTH For a bank that operates in 150 countries and traces its roots to an institution founded by an immigrant to lend to other immigrants, Bank of America has been pretty provincial in its selection of board members. Only now is BofA getting around to naming its first for- eign director. But the choice should do a lot to make up for the oversight: Mukesh Ambani, 53, the chairman, managing director and significant owner of India’s biggest private sector company, Reliance Industries, an energy and materials conglomerate with a $75 billion market cap. (Mukesh’s brother, Anil, wound up with the telecom, raging bull. In his latest movie, tion, manipulation and old- Mubarak gave that obstinate financial services and enter- Limitless, De Niro, 67, takes an fashioned bribery. speech saying he wasn’t going tainment side of the family almost professorial role (think — Franziska Scheven to step down.” business after their father, of it as Professor Godfather Fattouh was impressed Dhirubhai, died in 2002.) teaching Gordon Gekko), AHMED FATTOUH that the demonstrators never Mukesh Ambani, a explaining through his own TALKS TAHRIR lost their “peaceful and nonvio- Stanford B-school dropout, experiences how Wall Street Once protesters in Cairo’s lent posture.” He told the crowd may be able to give BofA some climbers can make the ascent Tahrir Square discovered they had the support of the personal advice on a subject in a postcrash, Fed-regulated that Ahmed Fattouh speaks Egyptian diaspora in America. where it could use a tutorial: environment. Some of the Arabic and English, they Born in Egypt but raised mortgage financing. You see, comments sound timeless, asked the Egyptian-American in Connecticut (his family he owns the world’s most and some downright mafia- money manager to give them emigrated in 1978), Fattouh expensive house, the 27-story esque. “Climb up the greasy a speech. has kept up with Egyptian “Antilia” in Mumbai, which little rungs on the ladder,” De “I had gone over to politics; his great grandfather cost about $1 billion. Niro, who plays a corporate observe what was going on,” and grandfather were pre- AMBANI: PANKAJ NANGIA/BLOOMBERG; DE NIRO: RON SACHS/VIA BLOOMBERG — Niraj Bhatt raider, says to an ambitious says Fattouh, 37, who runs revolutionary party leaders. colleague who absorbs mental $200 million New York City Fattouh is optimistic, albeit ROBERT DE NIRO, powers by swallowing a pill; emerging-markets invest- wary of the future. “No matter GODFATHER GEKKO marry “the girl with the right ment firm Globalist Capital what happens,” he says, “we Actor Robert De Niro father”; and threaten, bribe Management.“I felt drawn to have begun a process that at has played a Machiavellian and charm your way into the notion of change. I didn’t the end of the day is creating mafia boss, a crooked Casino that “seat at the table.” Not expect to be speaking to tens of a living, beating constitution,” operator, a gun-wielding taxi only is greed good, as Gekko thousands of people. And I was the foundation of any robust driver, a master thief and a would have it, so are extor- on stage just before [Hosni] democracy, which, Fattouh INSTITUTIONALINVESTOR.COM
  15. 15. 2 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 2SERVICES FOREIGN EXCHANGE DONE DEALS ALTERNATIVES GREEN SHOOTS CEO INTERVIEW COV Counterclockwise from top left: BofA director Ambani; Professor Godfather De Niro, Tahrir Square GOING GAGA FOR speaker Fattouh; ROBIN HOOD private person As this spring’s annual round Hefner; house seller Paulson; hedgie of hedge fund charity parties charmer Lady Gaga gets under way, the must-have ticket, as usual, is the Robin Hood Foundation’s do. To be held May 9 at New York’s Jacob Javits Convention Center, the gala is the alternative- investments answer to Lady Astor’s ball. The lavish party is always aswarm with hedge fund blue bloods, not least the members of the foundation’s board, including Robin Hood co-founder Paul Tudor Jones, CEO of Tudor Investment Corp.; board chair Lee Ainslie, managing partner of Maverick Capital, and co–vice chair Dan- iel Och, managing member of Och-Ziff Capital Management. Founded in 1988 to combat poverty in New York City, the foundation has become a phil- anthropic tour de force, giving away tens of millions in grants each year. In 2008 the gala raised $60 million from its din- hopes, will lead to an infusion of of Rizvi, proclaims that he is Paulson, a skeptic on the ner and auction. Typical prizes: foreign investment. — I.R.-S. pleased to be teaming up with strength of the dollar, told inves- enjoying a one-on-one lunch the author of the Playboy phi- tors he’s enthusiastic about with a star hedge fund manager HUGH HEFNER’S losophy as the “legendary brand hard assets like houses, includ- or having a classroom named PRIVATE AFFAIR enters a new chapter.” Never- ing second homes, and gold. after you. The fundraiser has Private is not a word one would theless, Kohn will want to be Paulson, 55, knows some- become famous not only for the ordinarily associate with Hugh paid back in more than pruri- thing of the vicissitudes of the amount of money it collects but Hefner, whose life has always ent interest. —F .S. second-home market. Back also for its A-list entertainment. been an open magazine, with in 2006 he bought a weekend Last year Stevie Wonder did the a foldout in the middle. But JOHN PAULSON’S home in Southampton for honors, and the year before that the octogenarian founder and HARD ASSETS about $13 million. When he it was the Black Eyed Peas. personification of Playboy He made his name and tried to unload it after buying an Still, this year’s featured per- LADY GAGA: BLOOMBERG NEWS; HEFNER AND HARRIS: Enterprises is taking his likewise fortune brilliantly shorting even bigger place, he got gored former is truly out of this world: aging empire of clubs and resorts the housing market in 2007, on his Ox Pasture Road pur- Lady Gaga. A one-time denizen WIREIMAGE; PAULSON: JIN LEE/BLOOMBERG private with financing from pri- precrash. But now John chase, taking a $3 million loss. of the City’s Lower East side, vate equity firm Rizvi Traverse Paulson, founder of $30 bil- But for Paulson that was Gaga, 25, who made $60 million Management and invest- lion hedge fund firm Paulson just the cost of doing busi- last year, is of course known for ment bank Jefferies. Despite & Co., tells investors to look at ness. His new weekend digs, provocative outfits and even Playboy’s dwindling readership real estate, buy a house or two, a Southampton waterfront more provocative behavior. and tough competition from and don’t hesitate to take out estate called Old Trees, cost At the Grammy Awards, she raunchier publications and the an extra mortgage. him $41.3 million in 2008, emerged from an egg. Indeed, anything-goes Internet, Hefner At a conference last month pocket change for the man who Gaga and top hedge fund man- will remain editor-in-chief. hosted by fund of hedge funds made billions betting correctly agers have this in common: out- Ben Kohn, managing director manager EnTrust Capital, against subprime. — I.R.-S. landish performance. — I.R.-S. INSTITUTIONALINVESTOR.COM
  16. 16. APRIL 2011 INSTITUTIONAL INVESTOR10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 6OPLE OPENING INFOBANK RAINMAKERS MARKETS THE BUY SIDE GLOBAL SECURITIES SERVICES INFOBANK • THOUGHT EXPLAINING THE Two forces are rapidly shifting WAGE GAP; PAULSON the quality of jobs, reshaping the VS. GOLDMAN; CIVILIZATION’S distribution of earnings and job KILLER APPS opportunities, and redefining gender roles. Job opportunities are increasingly concentrated in high-skill, high-wage jobs and Given the rapid market rise ... and political in low-skill, low-wage jobs; and, tensions in the Middle East, I do not wish to be responsible to limited partners through another possible market crisis. reversing a gender gap, women’s — Carl Icahn, giving back money to investors rising educational attainment [contrasts with] men’s stagnating educational • NUMBERS GAME 3 2 , 5 00 attainment. — MIT economist David Autor, “U.S. Labor Market Challenges over the Longer Term” (dautor@mit.edu) • 1 20 THAT W THEN AS “Robert Shiller believes that creating a derivatives market for home prices could reduce volatility — and help ensure that any fall in home values takes the HEDGE FUND PAULSON & CO., WITH 120 Countrywide was one of the greatest companies in the history of this country. — Angelo Mozilo, ex-CEO of the mortgage lender in newly released testimony before the Financial Crisis Inquiry Commission EMPLOYEES, MADE $5.8 BILLION FOR ITS form of a soft landing rather CLIENTS IN SECOND-HALF 2010, OR MORE than a burst bubble.” THAN GOLDMAN, SACHS & CO., WITH ITS — Institutional Investor, 32,500 EMPLOYEES, MADE IN NET PROFITS. April 2006 • WEB SITE TO BEHOLD • WORTH A READ Six killer apps set the West apart. One Asian country after rationaloptimist.com another has now downloaded Evolutionary biologist Matt Ridley makes a levelheaded case for faith in progress. them — competition, Financial Times columnist Samuel Brittan describes Ridley’s most recent book, The Rational modern science, the rule Optimist: How Prosperity Evolves, as a “marriage of Adam Smith and Charles Darwin.” That of law and private property Ridley was nonexecutive chairman of Northern Rock, a bank rescued by the British government rights, modern medicine, the in the financial crisis, ensures his perspective is not Panglossian. Ridley on nuclear power: “Even if it were to get as bad as Chernobyl (which it won’t), Fukushima will kill few people, raise consumer society and the work cancer rates only slightly and cause no birth defects. Nuclear energy is pretty harmless, and ethic. — Harvard historian its environmental footprint is minuscule. The problem is it is safe but expensive.” Niall Ferguson in Civilization: The West and the Rest INSTITUTIONALINVESTOR.COM
  17. 17. What I need is Europeanexpertise, delivered locallyCorporates & MarketsAs a leading bank at the heart of Europe’s largest economy, we have built a reputation fordedicated client focus and reliability – but also structuring expertise and market insight.Commerzbank Corporates & Markets delivers investment banking when and whereyou need it. So you can access smarter thinking in capital markets, equity and debtfinancing, trading, hedging, research and advisory.www.cbcm.commerzbank.com Achieving more togetherAsia - EMEA - Americas
  18. 18. 76 77 78 79 80 81 82 83 84 85 86 87 88Novelli: A veteran deal makerwith cross-border smarts INSTITUTIONALINVESTOR.COM
  19. 19. APRIL 2011 INSTITUTIONAL INVESTOR89 90 91 92 93 94 95 96 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 TICKER FIVE QUESTIONS PEOPLE INFOBANK RAINMAKERS MARKETS THE BUY SIDE GLOBAL S CAPITAL I cent market share, according to Dealogic. But it’s 13th and 14th in global and European M&A, respectively, with less than 5 percent of both markets. “We want to use our global platform to take a much greater share of cross-continental deals,” Novelli says. He adds that the bank plans to become “global, narrow and deep,” with a focus on resources, energy and financials. Nomura’s strategy and operations are unaffected by the tragic events in Japan, Novelli says. Still, the father of two faces an uphill battle. This year Nomura has lost several star European bankers who came onboard after it bought some of Lehman Brothers Holdings’ European business in 2008. If anyone is up to the challenge, it’s Novelli, who was born and raised in Rome, where he earned an MSc in engineering from Sapienza – Università di Roma in 1989. Four years later, with a mas- ter’s in management from the Massachusetts Institute of Technology, he joined Merrill Lynch & Co. as an associate in New York. Edward Annunziato, who ran European M&A when Novelli started at Merrill, thinks the rainmaker benefited from his Financial spell in the U.S. At the time Merrill was exporting Ameri- Engineer can capitalism to Europe, which had no history of cross- IT’S AN IMPRESSIVE NUMBER BY ANY STANDARD: DURING Piero Novelli predicts more border deals. Novelli’s ability his 18-year career Piero Novelli has advised on almost $600 billion global deals as Nomura’s to bridge the cultural gap was worth of deals. The new co-head of mergers and acquisitions at co-head of M&A. an asset, says Annunziato, Nomura Holdings must now help steer Japan’s biggest investment BY JAYNE JUNG now chairman of London- bank toward its goal of becoming a global leader in M&A. After a and New York–based hedge two-year break from banking, he’s strongly enthusiastic. “I love the fund administrator GlobeOp M&A business,” says Novelli, 45. “It allows you a latitude of issues, Financial Services. clients, culture and complexities that very few other businesses could Novelli transferred to present to you.” London in 1994, when Novelli joined Nomura’s London office in January. He previously Merrill ranked 12th in M&A for Europe, the Middle East and led M&A at UBS, where his clients included Barcelona-based Gas Africa. He rose to prominence by focusing on consumer products Natural in its €22.5 billion ($28.2 billion) acquisition of fellow Span- and industrials. In a showcase of cultural sensitivity, Novelli advised ish energy provider Unión Fenosa in 2009. In 2007 he advised Italian French automaker Renault on its 1999 alliance with Japan’s almost- energy giant Enel on its €11.1 billion partial takeover of Spain’s bankrupt Nissan Motor Co. When he resigned as head of European Endesa and defended ABN Amro Bank against a successful €71 bil- M&A in 2004 to go to UBS, Merrill had climbed to fifth place. lion bid by Royal Bank of Scotland, Banco Santander and Fortis. At UBS, Novelli moved quickly: By 2007 the Swiss bank had Trained as an engineer, the soccer-loving Italian gets the math jumped from 12th to second in EMEA rankings. He quit UBS for and the politics of cross-border transactions. Take the Endesa deal, personal reasons in late 2009 after taking a sabbatical. a saga of three countries and four companies. Novelli’s UBS team Within five years, Novelli predicts, Nomura can crack the top ten advised not only Gas Natural on its hostile bid for Endesa but also in Asian and European M&A, by deal value and revenues. This global Enel on its winning counterbid with Spanish conglomerate Acciona, citizen is mindful of the rising power of state-owned enterprises.“For after E.On of Germany made a €29.1 billion cash offer. our advice to be valuable to our clients, particularly in the non–Anglo GIAN PAUL LOZZA As M&A co-head with Tokyo-based Kentaro Okuda, Novelli aims Saxon world, we need to place local values and principles front and to build Nomura’s European team and align it with the bank’s lofty center in our thinking,” he says. •• ambitions. Nomura, which has ¥30 trillion ($376 billion) in assets and 27,000 employees, ranks first in Japanese M&A, with a 40.1 per- COMMENT? GO TO BANKING & CAPITAL MARKETS AT INSTITUTIONALINVESTOR.COM INSTITUTIONALINVESTOR.COM

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