Monday, October 30, 2006

R&D2 has more on R&D.
"A simple example of the benefits of R&D spending for share price is the performance of the scoreboard’s “R&D portfolio”, comprised of companies in the FTSE100 index that devote more than 4 per cent of their turnover to R&D. Since it started in August 1997, the portfolio has increased in value by 73 per cent, while the FTSE100 has risen by only 16 per cent (see graph below)."
This also includes data in excel format.

Governance On a report that suggests that private companies perform much better than public ones. However, there is little space for governance here. It all seems to be about picking winners and selling at the top. "Management" may hint at governance issues.
"“This [the doubling in enterprise value] is a substantially faster rate of growth in value than achieved by public companies in the same countries, sectors and timeframe: 26 per cent per annum versus 12 per cent per annum,” E&Y said. It attributes private equity’s performance to four factors: selective buying, delivery of the portfolio company’s business plan, strong management, and selling well."

Sunday, October 29, 2006

R&D on the latest figures on R&D. Europe has fallen behind. This goes against the argument that European has more stability and can cocentrate on long-term goals unlike the short-term orientated nature of US and UK firms.
"But the scoreboard – the world’s most comprehensive R&D ranking – provides little reassurance for European policymakers who are concerned about Europe’s poor long-term R&D performance. European companies spent 5.6 per cent more in 2005-6 than the average of the previous four years. The comparable increase for US companies was 15.4 per cent. "

Wednesday, October 25, 2006


The FT on the "Big Bang" and (later) Mifid.
"Nevertheless, Mifid could also have profound effects on the business of banks. In his report, sponsored by LogicaCMG, the IT consultancy, Mr Bishop suggests that banks could steal a march on their competitors by, say, offering hedge funds a service whereby they can trade whole portfolios of stocks, even if those are listed on different exchanges. Large national banks could also match orders from their retail customers"

There may also be implications for the universal banks as it may no longer make sense to sell to retail investors if you have to prove that they have the best price.

Thursday, October 19, 2006

Chinese FX risk

Some comments on Chinese capital flows at the FT. China stems inflows of hot money:
"Qing Wang, of the Bank of America in Hong Kong, said in a research note that the authorities had made “systematic efforts to encourage major financial institutions to keep their foreign exchange assets offshore”.
This includes allowing state companies, such as the banks that have listed overseas, to leave some of the billions raised in initial public offerings offshore."

This seems to shift the risk to the private sector. Rather than force exchange for domesticic currency, the regulatory change means that USD are accumulated offshore by Chinese firms (offshor becauses domestic regulations require exchange for domestic currency). If it blows up, the burden is shared, but there is more likely to be profit motive in the firms' actions.

Tuesday, October 17, 2006

Verticle integration

FT on the story of Maersk:
"Eivind Kolding, joint chief executive of Maersk Line, says sharing an owner with many of the companies with which it does business helps the line to control its own destiny. Maersk Line has far more flexibility in how it modifies its services to meet changing conditions than other shipping lines, which are not so vertically integrated and therefore must always negotiate with partner lines, port operators and logistics companies."

This is also a study in corporate governance and globalisation.

Sunday, October 15, 2006

Private equity collusion?

John Gapper at the FT onThe case for barbarity in private equity:
"Is there any overt collusion among private equity firms to avoid fiercely contested auctions? Probably not. Is there a culture of collaboration and a preference to avoid bruising takeover battles? Yes. My bet is that they will convince the DoJ that there are enough obvious causes for their great wealth without crimes having been committed. But it would help if they were a little more barbaric."


The Economist talks about America's population:
"On or around October 17th, according to the Census Bureau's population clock, the number of people in the country will hit 300m, up from 200m in 1967. By as early as 2043, the bureau says, there will be 400m Americans. Such robust growth is unique among rich countries. As America adds 100m people over the next four decades, Japan and the EU are expected to lose almost 15m."

I am surprised that more has not been made of this. It must affect the calculation for debt repayment, deficits etc.

Saturday, October 14, 2006


The Economist on wine as a means of diversification.

Fruity little numbers:
"In 2002, when the FTSE 100 share index fell by 24.5%, the Decanter Bordeaux Index of 1,300 wines went up by 8.5%, according to “Wine Investment for Portfolio Diversification”, a book by Mahesh Kumar. The Liv-ex 100 wine index, which tracks the price of 100 fine wines, has risen by 55% in the last year and the fine-wine market is now worth more than £1 billion ($1.9 billion), according to Mr Miles. Hype generated this year by the 2005 Bordeaux, considered the best in a generation, has helped."

This can also be done through wine funds.
"Interest in wine investment has also spurred the creation of new wine funds, including the Fine Wine Fund in August, charging a 2% management fee and 15% performance fee. Better availability of price information and more demand for wine in emerging markets has created a fine-wine bull market."

Thursday, October 12, 2006


Interesting stuff about the unbundling of a corporation. Even in something as hefty as Boeing, componentents are bring taken apart and distributed to more effective locations.
"Despite the widespread panic caused by the latest A380 delays, Airbus’s problem is not its dispersed manufacturing set-up per se.... If distributed manufacturing and snap-together assembly were really such bad ideas, its American rival Boeing would not have recently adopted the same approach, flying in sub-assemblies to its Seattle base from as far away as Japan and Italy. Boeing has also outsourced some work in Kansas, after selling one of its main factories to a Canadian private-equity firm, from which it buys fuselage sections at lower cost than when it owned the factory. It will not be so easy for Mr Gallois to pull off the same trick, since it implies lower wages for the workers under new owners."

Wednesday, October 11, 2006

USD outflow

No wonder China is accumulating reserves at such a rapid pace.

Appetite for foreign equities growing in US:
"AMG data also show that of the net $123bn invested in US equity mutual funds this year, including exchange traded funds, fully $108bn, or 88 per cent, has gone into funds investing in overseas companies. By contrast in 2005, of the net $147.5bn invested in US mutual funds, 60 per cent, or $86bn, was invested in funds containing international equities.
Other data services also show a strong appetite for foreign equities among US domestic investors. As of August 31, 86.8 per cent of $118.56bn in net equity flows for this year have migrated offshore, according to the Investment Company Institute."

Exchange rate pass-through

Have U.S. Import Prices Become Less Responsive to Changes in the Dollar? - Federal Reserve Bank of New York: "Authors Rebecca Hellerstein, Deirdre Daly and Christina Marsh conclude that the sensitivity of U.S. import prices to changes in the dollar has been relatively unchanged in the past decade. The responsiveness of U.S. import prices to such changes, known as the exchange rate “pass-through” effect, has important implications for the U.S. economy because of the potential impact on consumer prices and inflation."

Sunday, October 01, 2006

Art as an asset

Information on the BR use of art as an asset class and some more recent attempts.

Funds To Please The Eye:
"The new crop of art funds isn't the first to try this investment approach. In the mid-1970s, British Rail Pension Fund put $100 million, or 2.5% of its portfolio, into art. The fund amassed a broad collection of 2,400 pieces, from Chinese porcelains to African tribal art. The portfolio wound up with an annual compound return of 11.3%, but the gains came primarily from 25 Impressionist paintings. The fund sold off all of its art from 1987 to 1999. 'We tried to diversify too much,' says Jeremy Eckstein, a former adviser to the fund who is consulting with some of the new players."