Friday, November 30, 2007
Goldman Sachs (GS) NewsBite - Goldman Sachs to Invest in ISTC
Thursday, November 29, 2007
Goldman Sachs' Road to Riches
Amount that Goldman Sachs clients recently put into a fund that invests in infrastructure such as highways: $3 billion
Amount that Goldman Sachs gave to a PAC established by its lobbying firm, Hillco Partners, to push a 2001 Texas ballot measure allowing privately operated roads: $10,000
Minimum amount Goldman Sachs paid Hillco lobbyist J. McCartt, a former aide to Texas governor Rick Perry, between 2002 and 2005: $95,000
Difference between the amount Goldman Sachs offered for Houston's 83 miles of toll roads in 2005 and what a subsequent study found they were really worth: 86 percent
Number of county commissioners who voted to privatize: 0
Number of Goldman Sachs funds that invested in Australian toll road operator MIG while the bank was advising Indiana on its privatization deal with MIG: 3
Amount it would cost to drive through NYC's Holland Tunnel if a MIG-style toll pricing scheme had been put in place at its inception: $185
Wednesday, November 28, 2007
Cold Call
(Photo: Associated Press)
It's been a few years since former Treasury secretary Robert E. Rubin has swept down from Mount Olympus and saved American capitalism. Since bowing out of government in 1999, Rubin has been ensconced in Citigroup CEO Sandy Weill's office of the chairman doing -- well, it's hard to say exactly what.
He takes calls from billionaire Mexican financiers who want to sell their banks to Citigroup (Citigroup bought Banamex in 2001). He does the lecture circuit, lending his glow to dewy-eyed Citigroup clients all over the world. He even goes down to Washington every now and then to see his old pal Alan Greenspan and primly lecture the Bush administration about blowing the surplus.
For the most part, though, he stays above it all: sitting in his corner office right next next to Weill's with his stocking feet up on the desk while a clutch of Citigroup executives -- including vice-chairman Deryck Maughan, Salomon Smith Barney CEO Michael Carpenter, emerging-markets chairman Victor Menezes, and, most recently, the newly appointed president, Robert Willumstad -- sweat mightily to position themselves as the 68-year-old Weill's successor.
On November 8, though, Bob Rubin's invisible hand got that old itch. Enron's stock was in free fall, and though the energy-trading company was still far from a household name, he feared the company's bankruptcy would be a dire event. Citigroup, one of its longstanding bankers, had more than a billion dollars in loans outstanding to Enron. But Rubin had larger concerns. He had been told by his bankers working on the deal, Salomon's Carpenter and syndicated-loan head Chad Leat, that a rescue package was almost assembled. The night before, a group of the highest-level Citigroup and JP Morgan Chase bankers cobbled together a deal that would merge the fast-sinking Enron with its Houston competitor Dynegy.
But for the deal to go through, the credit-ratings agencies needed to be dissuaded from downgrading Enron's mountain of debt to junk status. With a downgrade, the deal would be off and Enron would most likely go bust. In Rubin's eyes, Enron's implosion would rock not only the energy markets but global markets as a whole -- just as the collapse first of the Mexican peso and then of Mexico's stock market in 1994 had wobbled markets worldwide.
So Bob Rubin did what Bob Rubin does. On his own, without consulting Weill or anyone else, he picked up the phone and made what he thought would be the most discreet of calls to Treasury Undersecretary Peter Fisher. Rubin and Fisher weren't strangers -- Rubin knew him from his Treasury days, when Fisher worked at the New York Fed.
"Hey, Peter," Rubin proposed, "this is probably not such a good idea, but what do you think about putting a call in to the ratings agencies? Maybe they could work with Enron's bankers to see if there might be an alternative to an immediate downgrade."
It was a cheeky proposal: Rubin was asking the federal government to meddle in the private business of the independent ratings agencies, Moody's and Standard and Poor's, on behalf of a company with manifold financial and spiritual links to the current administration. Not to mention the fact that he was a major shareholder and executive of one of the two banks that stood to lose the most if Enron went under. "Gee, Bob," Fisher smartly demurred, "I'm not sure if that's advisable at this point."
Consensus within Treasury at the time was that an Enron flameout, contrary to what Rubin was thinking, would not threaten the financial and energy markets. Rubin's intentions may well have been noble, and he had his own qualms about Treasury's getting involved with the ratings agencies. When he sensed Fisher's hesitation, though, he quickly backed off. He had tried to do his bit, and that would be that.
"He was putting on his éminence grise hat," says Michael Holland of Holland and Co. "Rubin is an arbitrage trader; he makes decisions quickly. He viewed Enron as a financial-markets issue. In his mind, if a downgrade occurs, it's 'Katie, bar the door.' "
Nevertheless, splashed all over the front page of the Times, the gesture made it seem -- and perception is what always counts in the markets -- as if he were flacking for Citigroup's loan book.
The close-to-the-vest phone call has always been the hallmark of Rubin's style -- from his days as a Goldman Sachs arbitrageur to his celebrated stint as the White House's financial-markets shaman. But the secret to Rubin's phone calls, and Rubin himself, is that they remain secret. And they remain secret because the calls never cross that invisible line that keeps the interests of the second party best served by not revealing the call.
Rewind to the booming eighties: takeover fever was rampant, and the kings of Wall Street were not Internet analysts and technology bankers but risk arbitrageurs -- brass-balled traders who bet millions on when and for what price companies would be taken over. Ivan Boesky was a semi-legend, but the best arb man of them all was Goldman Sachs's Bob Rubin.
In the spring of 1984, Rubin bet a chunk of Goldman's capital on a sleepy little company called Houston Natural Gas. It was the hot hostile-takeover stock of the moment: A rival energy concern called Coastal Corporation was buying up shares. Every arb worth his salt was long the stock. It seemed like a done deal, and Rubin bet big, taking on some leverage to spice up his return. But to the surprise of the street, Houston Natural Gas's board sent Coastal packing. In return for a $42 million greenmail payment, Coastal gave up on its merger aspirations. Guy Wyser-Pratte, then of Prudential-Bache Securities and a prominent arbitrage player at the time, remembers the moment well. "It was a terrible shock when news of the greenmail came across my ticker," he remembers. "You've just paid a huge premium for the stock, and all of a sudden the stock price collapses." So Rubin and the arb community dumped their positions for a big loss. Shortly after, HNG's board hired an ambitious, 40-year-old oilman named Kenneth Lay to run the company.
Lay had grand ambitions for the company, and within months it was in play again. This time, the bidder was a rival, an Omaha-based gas firm called InterNorth, and by the summer of 1985, InterNorth had paid $2.3 billion, in a friendly merger, for HNG. The next year, Lay, now CEO of the merged company, christened it Enron. This time, the arbs made out big. HNG's stock shot up from the low 50s to the $70 level, where the deal was priced.
Rubin by then had moved on to management, and leadership fell to Rubin protégé and fellow partner Robert Freeman. Freeman and his team stuck to the sidelines as the stock soared; Goldman Sachs was advising InterNorth on the deal.
But one of the risk arbitrageurs who did make a mint off HNG was Ivan Boesky. Since the mid-seventies, Boesky and Rubin had widely been recognized as the top arb men on the street. A Fortune article in 1977 had dubbed them, together with Wyser-Pratte and a fourth banker from Salomon Brothers, the four horsemen of Wall Street. Practically the same age, they had made millions for themselves and their firms by mastering the black arts of risk arbitrage, relentlessly working the phones, hoovering up information wherever they could find it and then trading on it. Loud, ostentatious, and a shameless epicure, Boesky was the antithesis of Rubin, who preferred his suits off the rack and a strictly light lunch at his desk. For Boesky, though, his information on InterNorth's designs for HNG proved to be too good. As would later be documented in James Stewart's Den of Thieves, Boesky had been buying his information from Martin Siegel, a takeover wizard at Kidder, Peabody, who, the government and more specifically U.S. District Attorney Rudolph Giuliani claimed, was sourcing much of his information from Goldman Sachs's arbitrage desk -- and Bob Freeman.
In February 1987, Giuliani ordered the arrest of Freeman on insider-trading charges. Rubin had been a mentor to Freeman; he had hired Freeman and taught him all that he knew. And Freeman was good, too -- he had made millions for the partnership, and his reputation on the street before his arrest had been impeccable. But as he finally admitted in 1989, when he pleaded guilty to having put a call in to Marty Siegel and selling stock on an inside tip, one thing Freeman had not learned from the master was when not to make that last, skating-too-close-to-the-edge phone call. Giuliani got his Goldman partner, though some said at the time that he was after bigger game -- Rubin himself.
To this day, Rubin resolutely defends Freeman ("Marty Siegel was lying through his teeth," he has been known to say), who was never formally charged with providing information to Siegel on HNG. And his acute dislike for the former mayor still retains its fresh edge. As for Giuliani, he could never make his larger case.
Rubin knew well enough from his days as a deal lawyer at Cleary, Gottleib in the sixties, when all the arbs would call him digging around for deal scoop, that the key to successful arbitrage was not just good information but knowing which information to use: knowing when a company will be taken over, placing your bets, riding the stock up, and, most important, knowing when to unload a position. He witnessed as well how his mentor, Gustave Levy -- a legendary Goldman arbitrageur and senior partner who helped invent and popularize the risk-arbitrage business in the forties and fifties, always seemed to know just enough to make big money on a deal but never enough to make it obvious.
Every morning at 8 a.m., Rubin would show up at his small desk on Goldman's trading floor. Spread out before him would be a slide rule, some yellow legal pads, and a telephone. And he would make his calls -- never shouting, never emoting, never breaking a sweat. With Goldman's monster balance sheet behind him, he could bet up to $50 million on a single position, and Goldman became the 800-pound gorilla in the arbitrage racket in the seventies and eighties.
"Rubin was leagues ahead of Boesky," says a rival arbitrage man from the period. "He had that steel-trap mind, and he always knew how far he could go, who he could talk to, and who he knew would shut up. He was always operating just underneath the radar. And he also had Gus Levy. Gus could call any CEO in the country and ask him: 'Is your deal safe?' That's what made Rubin so good. Goldman always seemed to have the information."
Most arbitrageurs tend to be like Boesky and Levy. To be on the phone that much, to get access to the right kind of information, to keep your shirt dry when your bet goes south -- it all assumes a brashness of character, a largeness of ego.
But Rubin was different. His selflessness, the soft mutter of his voice, the self-deprecatory smirk, that worn, Waspy look -- he just stood out from the crowd. The players, the lawyers, the deal guys, came to him in droves, like moths to light. Some risk was fine -- risk is the very pith of arbitrage -- but knowing when to pull back was the true secret that the other guys could never understand.
In a way, Rubin's call to Fisher was akin to an arbitrage bet. A trade-off, if you will. He might well have scratched out a scenario or two on his yellow legal pad. The downside risk was essentially what happened: Fisher backed off, Enron collapsed, and Rubin's reputation lost a bit of its gloss. But weighed against the possible upside -- Fisher makes the call and a national tragedy is quite possibly averted (Bob saves the day again!) -- in Rubin's mind, that was a risk-reward relationship he could work with. If he had to do it today, friends say, he'd certainly do it again. He had saved Mexico in 1994, an entire country, by weighing similar pros and cons -- why not do the same for Enron?
Tuesday, November 27, 2007
COVER STORY WALL STREET'S SPREADING SCANDAL
New York Authorizes $1.6B in Liberty Bonds For Goldman Sachs's New Headquarters
A spokeswoman for the Empire State Development Corporation, which controls the Liberty agency, said several other approvals are necessary before the bonds are issued, and a public hearing will be scheduled for September. The spokeswoman, Deborah Wetzel, said yesterday's vote approved the bond issue unanimously.
Some mayoral candidates and some civic groups have criticized the Goldman deal, on the ground that the four month delay in completing negotiations with the banking giant cost the city and the state better terms.
Other incentives planned for Goldman include at least $150 million in tax breaks. Yesterday, the Empire State Development Corporation approved about $23 million in job retention grants as part of the larger deal. Other tax incentives will proceed through the Battery Park City Authority, a state agency, according to a spokeswoman for the city's Economic Development Corporation, Janel Patterson.
Following the terrorist attacks of September 11, 2001, Congress authorized the city and the state each to issue $4 billion in tax-exempt Liberty Bonds, with a total of $6.4 billion allotted for commercial projects and $1.6 billion for residential. The Goldman Sachs deal represents 25% of the city's and state's total commercial allotment, and more than twice the second-highest allocation, the $650 million authorized through the city's Economic Development Corporation for a Bank of America building near Bryant Park in Midtown.
The developer who has a lease for the former site of the World Trade Center, Larry Silverstein, has said he is seeking the remaining $3.4 billion in commercial bonds to help finance the Freedom Tower and five other office towers planned for ground zero.
Ms. Patterson said the city corporation had a hand in reviewing the Goldman Sachs application through a joint city-state committee, but the bonds will be issued from the state's bond allocation. The EDC president, Andrew Alper, recused himself from this deal because he is a former executive of Goldman.
Government officials' negotiations with the banking giant over the same office tower unraveled last April due to elements that included security concerns about a nearby underground tunnel. At the time, the terms contained only $1 billion in Liberty Bonds and less money in tax incentives.
A Goldman Sachs spokeswoman, Andrea Raphael, declined to comment yesterday. A spokesman for Governor Pataki, Joanna Rose, issued a statement last night that said: "This project would exemplify why Congress created the Liberty Bond program by spurring development of an anchor tenant immediately adjacent to the World Trade Center site and maintaining and creating thousands of jobs."
The executive director of a development accountability think tank, Good Jobs First, Greg LeRoy, said in a telephone interview that the additional tax breaks included in the real estate deal were unlikely to have influenced Goldman Sachs as significantly as other factors, including the Manhattan work force, the downtown infrastructure, and the proximity to other financial institutions.
Monday, November 26, 2007
Baron Cohen comes out of character to defend Borat
Now, after staying resolutely in boorish persona during previous interviews, Sacha Baron Cohen has spoken in depth about his motives in creating his comical anti-hero Borat. The journalist from Kazakhstan who sings anti-Semitic songs and refers to women as prostitutes was created "as a tool" to expose people's prejudices, he said.
The 35-year-old Jewish comedian from London has maintained a long silence over the controversy raised by Borat, whose extreme anti-Semitic remarks have earned censure both from the Kazakh government and from the Jewish community.
In one sketch from Baron Cohen's film Borat: Cultural Learnings of America For Make Benefit Glorious Nation of Kazakhstan, which premiered this month in London, Borat performs a song called "Throw the Jew Down the Well" in a country and western bar in Arizona.
In an interview with Rolling Stone, the comedian revealed he was a devout Jew, observing Sabbath and eating kosher foods, and he referred to the singing scene to defend his inflammatory comedy.
"Borat essentially works as a tool. By himself being anti-Semitic, he lets people lower their guard and expose their own prejudices, whether it's anti-Semitism or an acceptance of anti-Semitism. 'Throw the Jew Down the Well' was a very controversial sketch, and some members of the Jewish community thought it was actually going to encourage anti-Semitism.
"But to me it revealed something about that bar in Tuscon. And the question is: did it reveal that they were anti-Semitic? Perhaps. But maybe it just revealed that they were indifferent to anti-Semitism," he said.
Baron Cohen said the concept of "indifference towards anti-Semitism" had been informed by his study of the Holocaust while at Cambridge University, where he read history. "I remember, when I was in university, and there was this one major historian of the Third Reich, Ian Kershaw. And his quote was, 'The path to Auschwitz was paved with indifference.'
"I know it's not very funny being a comedian talking about the Holocaust, but I think it's an interesting idea that not everyone in Germany had to be a raving anti-Semite. They just had to be apathetic," he said.
He also talked of his astonishment at hearing that the Kazakh government was thinking of suing him over the offence caused by his comic alter ego, and stressed that the "joke is not on Kazakhstan".
"I was surprised, because I always had faith in the audience that they would realise that this was a fictitious country and the mere purpose of it was to allow people to bring out their own prejudices. And the reason we chose Kazakhstan was because it was a country that no one had heard anything about, so we could essentially play on stereotypes they might have about this ex-Soviet backwater. The joke is not on Kazakhstan. I think the joke is on people who can believe that the Kazakhstan that I describe can exist - who believe that there's a country where homosexuals wear blue hats and the women live in cages and they drink fermented horse urine and the age of consent has been raised to nine years old...
"I've been in a bizarre situation, where a country has declared me as its number one enemy. It's inherently a comic situation," he said.
While Borat has drawn much criticism from Kazakh ministers - the government took out a full page ad in The New York Times to promote their country at one stage - Erlan Idrissov, the Kazakhstan ambassador to Britain, admitted to finding some humour in the film.
Baron Cohen, who was born in Hammersmith to an affluent Orthodox Jewish family, is the second of three sons. He went to an independent school in Elstree, and Christ's College, Cambridge, and worked for the investment bank Goldman Sachs before starting his career in television.
Sunday, November 25, 2007
Hedge Funds Ditch Japan for Asia, Goldman Sachs Says (Update2)
By Tomoko Yamazaki and Takahiko Hyuga
Nov. 26 (Bloomberg) -- Hedge funds are shifting Asian investments out of Japan because of lower returns and poor corporate governance in the region's biggest economy, said Kathy Matsui, Goldman Sachs Group Inc. chief strategist in Tokyo.
Japan's average return on equity will be about 10.2 percent this fiscal year, compared with 20 percent in the U.S. and 15.7 percent in Asia, according to Matsui. Return on equity is a measure of how well a company uses its cash to generate profit.
Meanwhile, Japanese companies are fending off purchases by foreign firms seeking to boost share prices, by buying stakes in each other or taking so-called poison pill measures. Some 400 Japanese companies, or 10 percent of all publicly traded firms, have taken steps to ward off hostile takeovers, according to a Nikkei newspaper survey published in October.
``I meet foreigners all the time; there has been disappointment with the Japanese market,'' Matsui said in a telephone interview. ``So Japan has been the favorite short, and that's been the price action.''
Hedge funds investing in Japan have seen outflows of about $7 billion, while Asia ex-Japan has seen inflows of about $17 billion through October this year, according to data provided by Eurekahedge, a Singapore-based hedge-fund research company.
Asia Investing
The Nikkei 225 Stock Average is down 4.3 percent this year in dollar terms and may be headed for its worst year since 2002. The Eurekahedge Asia Ex-Japan Hedge Funds Index has returned 35 percent this year, compared with a 1.9 percent advance in the Eurekahedge index that tracks hedge funds that invest in Japan.
The majority of about 700 international investors attending a Goldman Sachs two-day conference in Tokyo earlier this month were interested in investments in Asia, according to three attendants including Hiromichi Tsuyukubo at Myojo Asset Management Japan Co.
``Interest in Japan was on average lower than last year,'' said Tsuyukubo, who helps manage about $800 million at Myojo Asset, a Tokyo-based hedge fund. ``But the good thing was that the conference attracted a lot of long-term investors such as college foundations and family offices.''
Investors in Japan including Warren Lichtenstein's Steel Partners and Harbinger Capital Partners have had hostile takeovers rebuffed as Japanese companies resort to poison-pill defenses and cross-shareholdings.
Different Standards
Bull-Dog Sauce Co., a condiments maker, in June rejected a takeover approach from Steel Partners and allowed all investors except the fund to convert warrants it issued into common shares. The Tokyo High Court termed Steel Partners an ``abusive acquirer'' in striking down the fund's legal challenge to the move. Japan's Supreme Court later sided with Bull-Dog.
Companies are also reverting to an old practice of cross- shareholding to fend off any possible takeovers. Toyota Motor Corp. and Matsushita Electric Industrial Co., the country's biggest and 10th-largest companies by market value, said in annual filings that they hold stakes in each other. Toyota, located in Toyota City, Japan, said it bought the shares in Osaka-based Matsushita Electric to strengthen business ties.
``Governance standards in Japan on average, relative to the rest of Asia, are actually quite low,'' Matsui said. ``And you have a lot of Asian people wondering, why is Japan so different, why does Japan have different standards?''
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We invite you to learn more about the the foundation. Please visit our Programs and Projects, Annual Reports and Publications, and Grant Guidelines.Saturday, November 24, 2007
The Street Turns Green
Believe it or not, Goldman Sachs's interest in green goes beyond its record profits. The firm chauffeurs execs in hybrid cars, and the "Green Tower," its new $2 billion headquarters rising in Manhattan, is so ecofriendly that switching to a meatless diet may be a healthy career move for employees. So you'd expect any deal that reeks of greenhouse gases to set off alarms. Which is what happened when two of Goldman's clients, the private equity firms Kohlberg Kravis Roberts & Co. and Texas Pacific Group, said they wanted to buy TXU Corp., a Texas utility that has become a poster child for global warming.
What to do? Paint the utility green, naturally. Goldman advised its clients to strike a massive compromise with environmentalists: First, nix plans for all but three of 11 coal-fired plants TXU intended to build. And invest $400 million in energy-saving initiatives, like wind power. It won a green thumbs up from environmentalists, who applauded the role of Wall Street's top M&A firm. "Goldman's willingness to make the environment a key component of the deal" helped broker a truce, says Fred Krupp, president of the advocacy group Environmental Defense. With the air cleared, TXU's board last week accepted KKR and Texas Pacific's record $45 billion leveraged-buyout offer.
Wall Street is experiencing a climate change. Elite global investment banks like Citi, J.P. Morgan and Merrill Lynch never used to think twice about filling up the tanks of the nation's biggest polluters looking for cash. But now, many of the same banks that grew rich financing companies' strip mines, oil rigs and SUV plants are advising clients that the way to get the green is to go green. Since the late 1990s, environmentalists have been pressuring bankers to clean up their act, and to make it their business to persuade clients to do the same. "Sometimes we will decline to do a piece of business," says Mark Tercek, Goldman's green czar. "But more frequently, we recommend how we'd like to see the transaction proceed. Usually the client is open to our advice." In an age when Al Gore wins an Oscar for a film on global warming, no one wants to look like they're beating up on Mother Nature.
It looks as though Goldman Sachs is leading the greening of Wall Street. It all started in 2004, when the firm acquired a loan that was secured by 680,000 acres of land in southern Chile near Antarctica, on Tierra del Fuego. Goldman decided to set the land aside as a nature preserve, in collaboration with the Wildlife Conservation Society. "That was the [environmental] epiphany," says Tercek. Since then, Goldman has been on a green jag. In late 2005 it established a formal policy that, among other things, bars the firm from bankrolling projects that "significantly convert or degrade a critical natural habitat." Goldman committed to avoiding business with illegal loggers, and the firm has pledged a 7 percent cut in indirect greenhouse-gas emissions from its offices. Goldman is also fast becoming a developer of renewable energy, following its 2005 purchase of Horizon Wind Energy.
The rest of Wall Street is turning over a new leaf, too. Several major firms have formal green policies. Last week, Lehman Brothers established an internal Global Council on Climate Change, naming as its head none other than Theodore Roosevelt IV, great-grandson of the most formidable environmental president. Firms are cranking out research reports with names like "Climatic Consequences," a 120-page tome from Citi. "We started paying attention back in 2001, long before any other financial institution in the U.S.," says Pamela Flaherty, head of Citi's global community relations. Is that the sound of greenish envy?
True, some of these attempts are, well, pale green at best, but environmentalists are heartened. The investment banks are "very welcome players in what is as much an economic as a science and environmental discussion," says Mindy Lubber, president of Ceres, a network of investors, environmental groups and public-interest advocates that enlists capital markets in the environmental fight. For its part, Goldman says its environmental focus is pivotal to creating "long-term value for our shareholders and serving the best interest of our clients." Or, as Gordon Gekko might say, "Green is good."
Friday, November 23, 2007
100 Best Companies to Work For 2007
| All-stars 18 employers have been on the Best Companies to Work For list every year since it launched in 1998. |
| Company name | 2007 rank |
|---|---|
| Wegmans Food Markets | 3 |
| Whole Foods Market | 5 |
| W. L. Gore & Associates | 10 |
| Cisco Systems | 11 |
| Nordstrom | 24 |
| Recreational Equipment (REI) | 27 |
| Goldman Sachs | 36 |
| J. M. Smucker | 39 |
| First Horizon National | 46 |
| SAS Institute | 48 |
| Microsoft | 50 |
| Four Seasons Hotels | 53 |
| Publix Super Markets | 57 |
| Timberland | 78 |
| TDIndustries | 79 |
| Marriott International | 89 |
| Synovus | 98 |
| A. G. Edwards | 99 |
Thursday, November 22, 2007
World Potential Economy
The report said, "Bangladesh, the world's tiny economy with most corrupt brand, will power the global economy something of the magnitude of the BRICs economies."
The "Next Eleven" is the second term the Goldman Sachs has coined to describe economies with high growth potential, such as the "BRICs" economies encompassing Brazil, Russia, India and China.
Comparing the 22 economies of the G7, BRICs and Next Eleven, the report said Bangladesh will grow faster than predicted earlier. The main reason for the change in projection is the faster growth seen in 2000-05.
The criteria for the Next Eleven list included macroeconomic stability, political maturity, openness of trade and investment policies and quality of education.
The other countries on the list are Egypt, Indonesia, Iran, South Korea, Mexico, Nigeria, Pakistan, the Philippines, Turkey and Vietnam.
In view of the present time that is largely regarded as an Asian Century, the new Goldman Sachs list has four other Asian nations--Iran, Indonesia, Vietnam and the Philippines in addition to the two South Asian countries.
"Investors, always on the lookout for the next big trend, are scouring Asia as the region is home to booming economies, swelling populations and fast-developing markets," an economist said.
Mahmudur Rahman, Board of Investment (BoI) executive chairman, said inclusion of Bangladesh on the Goldman Sachs list of potential economies has proved that the country has great possibilities ahead.
"Major corporate houses including the Tata Group, Dhabi Group, Global Vulcan Energy are showing interest in Bangladesh's economy," he added.
Rahman said world business magnates such as Bill Gates and Ted Turner have visited Bangladesh amid soaring militant activities, which also testify the potentials of the country.
Wednesday, November 21, 2007
Goldman Sachs Closes GS Capital Partners VI
NEW YORK--(BUSINESS WIRE)--The Goldman Sachs Group, Inc. (NYSE: GS) today announced it has closed GS Capital Partners VI with $20 billion in committed capital, $11 billion from qualified institutional and high net worth clients and $9 billion from the firm and its employees. This is the sixth global, diversified fund dedicated to making privately negotiated equity investments.
The Fund will invest across a broad range of industries and will seek to create value through meaningful involvement with portfolio companies’ strategic decision-making and operating philosophy. GS Capital Partners VI seeks long-term capital appreciation by committing equity to high-quality companies with superior management in a variety of situations, including leveraged buyouts, recapitalizations, and growth investments to fund acquisitions or expansion.
Goldman Sachs’ Principal Investment Area has over 125 investment professionals in New York, London, Hong Kong, Tokyo and San Francisco with expertise in a wide variety of industries. Selected investments include Ahlsell AB; Allied World Assurance Company Holdings, Inc.; ARAMARK Corporation; Burger King Holdings, Inc.; Capmark Financial Group; Coffeyville Acquisition, LLC; Cognis GmbH; Education Management Corporation; Executive Jet, Inc.; Hawker Beechcraft Corporation; Hana Financial Group; Hexcel Corporation; ISS A/S; Kinder Morgan, Inc.; Kion Group; Kookmin Bank; Mindray Medical International Limited; Nalco Company; Orion Power Holdings; PagesJaunes Group SA; Ping An Insurance Co. of China; Polo Ralph Lauren Corporation; Prysmian Cables & Systems; Sanyo Electric Co., Ltd.; SunGard Data Systems, Inc.; Universal Studios Japan; VoiceStream Wireless Corporation; Western Wireless Corporation; and Yankees Entertainment and Sports Network.
Founded in 1869, Goldman Sachs is one of the oldest and largest investment banking firms. Goldman Sachs is also a global leader in private corporate equity and mezzanine investing. Established in 1991, the GS Capital Partners family of funds is part of the firm’s Principal Investment Area in the Merchant Banking Division. Goldman Sachs’ Principal Investment Area has formed 13 investment vehicles aggregating $56 billion of capital raised. GS Capital Partners VI is the current primary investment vehicle for Goldman Sachs to make large, privately negotiated equity investments.
The Goldman Sachs Group, Inc.
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GS Capital Partners
Partnership Approach
Our investors rely on our ability to build strong, long-term relationships, to source attractive investments, and to maximize returns. As part of the Goldman Sachs global network, we have access to world-class management teams with expertise in a variety of industries. Moreover, our investment partners include a number of preeminent private equity groups as well as leading corporations, which can bring unique strategic elements to special situations. Together with these partners, we commit resources to help build companies that will achieve and retain market leadership positions. We have built a partnership model based on reciprocity which allows us to create investment opportunities to share with other financial sponsors as well as invest alongside them in investment opportunities that they generate.
Leveraging Goldman Sachs
We provide access to the resources and expertise of Goldman Sachs to our business partners and portfolio companies. These capabilities include sophisticated financial advice in public and private market financings, mergers and acquisitions, real estate, investment and economic research, trading, foreign exchange,and commodities. Furthermore, we leverage relationships with thousands of companies, individuals, and governments worldwide that can be important in structuring and operating successful business ventures.
Structuring Creative Solutions
The scale of our committed capital, Goldman Sachs' sponsorship, and our experienced investment team enable us to take a creative approach to structuring attractive investments. These advantages allow us to consider a broad set of investment opportunities and develop a customized solution that maximizes both the success of our portfolio companies and the potential returns to our investors.
Ability to Execute in Challenging Environments
Our broad access to financing and capital markets, combined with our established relationships, have proven critical to successful execution, even in difficult market environments.
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Our investments are designed to support the company's long-term goals and to build value. We believe that management is most qualified to run the day-to-day business and we assist by actively participating in the boards of our portfolio companies. In addition, we take an active role in supporting management and in providing additional resources and capital to assist our portfolio companies.
Monday, November 19, 2007
Goldman pumps in $2bn to bail out hedge fund
Goldman Sachs is using $2 billion of its own money to fund a $3 billion bailout of a fund that acts on computer analysis
Goldman Sachs has been forced to inject more than $2 billion (£1 billion) of its own money into a $3 billion emergency package to rescue one of its hedge funds from "significant market dislocation".
The bank acknowledged today that its Global Equity Opportunities fund, which has a $3.6 billion asset value, had received investment from a number of parties including Perry Capital, a hedge fund, and Eli Broad, an American billionaire and philanthropist, to "reduce risk and leverage".
But Goldman admitted to investors today that the rescue would involve $2 billion of its own money, adding that the Global Equity Opportunities fund had “suffered significantly".
Goldman Sachs's Global Alpha and North American Equity Opportunities funds have both had to be given cash injections, but the investment bank declined to reveal how much had been pumped into the funds.
The party's over
Cheap credit has led to a torrent of takeovers with little regard to risk. Last week the market woke up
Global Alpha's returns have fallen by 27 per cent this year but Goldman Sachs denied that it would unwind the fund.
The bank laid the blame at the recent market volatility and its impact on "quantitative" funds that use complex computer programmes and risk strategies to determine where to invest billions of dollars of assets.
Quantitative funds invest in both debt and equity.
In recent weeks, debt markets have stagnated as banks have been left with huge chunks of borrowings they have been unable to syndicate to other lenders while global equities took a battering last week
Panic selling spread throughout the markets, leaving quantitative funds battered from both angles.
Goldman Sachs said: "We believe the current values that the market is assigning to the assets underlying various funds represent a discount that is not supported by the fundamentals."
In the wider markets, Wall Street rebounded today after the Federal Reserve and other central banks added more cash to their banking systems, helping investors set aside some concerns about credit tightness.
The New York Fed, which carries out the central bank’s market operations, announced minutes after the opening bell $2 billion in overnight repurchase agreements.
The move, following similar injections by the Fed and other central banks last week, appeared to placate Wall Street for now.
In midmorning trading, the Dow Jones industrial average rose 55.03, or 0.42 per cent, to 13,294.57.
Shares in Goldman rose $2.90 to $183.39.
Sunday, November 18, 2007
Banks' love affair with hedge funds
NEW YORK (CNNMoney.com) -- Hedge funds have come under fire in recent days, owing in part to the recent $6 billion Amaranth debacle. But the regulatory run-ins aren't scaring off large banks, which increasingly are turning to hedge funds as a way to create serious growth.
As increased competition for deposit growth and a flattening yield curve continues to put pressure on profits, banks are eager to attract high net-worth clients and diversify their profit stream.
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And while banks like Goldman Sachs (Charts) and Morgan Stanley (Charts) have had success in their prime brokerage units, which cater in part to servicing hedge funds, analysts say the big bucks lie in the management of actual hedge fund assets.
Just look at the numbers: Hedge fund managers collect 2 percent of the assets under management regardless of the fund's profitability. If a fund shows a profit, its managers receive an additional 20 percent as a performance fee.
For the banking industry, which is concerned about dwindling profits and higher interest rates, that type of fee structure is particularly appealing, analysts said.
High net-worth investors continue to demand hedge-fund products, making it a no-brainer for banks to enter the business and meet that demand, said Dick Bove, analyst at Punk Ziegel & Co. Hedge funds are notoriously high risk but offer potentially high returns to investors - thus their appeal to wealthy bank customers.
According to Hedge Fund Intelligence, the U.S. hedge fund industry grew to $984 billion in assets in July - a 32 percent jump from last year.
Industry tracker Hedge Fund Research estimates that the size of the hedge fund industry globally is $1.225 trillion.
"The banking industry is in the business of gathering money wherever it may exist," said Bove. "If the money now exists in hedge funds, it's incumbent on the banking industry to get into that business."
But banks are doing more than just getting in to the business. They're now becoming leaders within the hedge fund industry.
Banking titans Goldman Sachs and JPMorgan (Charts) Asset Management - through JPMorgan's majority stake in Highbridge Capital Management - are currently the largest hedge fund firms in the United States, according to a recent survey by industry magazine Absolute Return.
Goldman Sachs leads the pack with $29.5 billion in assets, while JPMorgan ranks a close second with $28.8 billion. Barclays ranks sixth with $17 billion in assets under management.
It marks an impressive leap for both Goldman and JPMorgan in just one year. In 2005, Goldman Sachs ranked third with $15.3 billion, while JPMorgan wasn't even in the top ten.
As hedge funds aren't required by any regulation to disclose their monthly returns, they're notoriously tight-lipped about their performance, and it's unclear what the banks' profits - if any - are on those assets.
But given the growth in assets under management at Goldman Sachs and JPMorgan, its little wonder other banks are looking to enter the hedge fund arena as well. Morgan Stanley, most notably, has been the subject of Wall Street rumors to the effect that the bank is in talks to acquire a hedge fund. The buzz is that such a buy would fulfill part of CEO John Mack's vision of expanding the company's alternative investments business, which includes private equity.
Still, Wall Street has long had a love-hate relationship with hedge funds. Investors love the promise of high returns, and managers love the heady fees associated with running the alternative investments.
But when a large-scale meltdown occurs - such as Amaranth's roughly $6 billion loss attributable to bad natural gas bets or, worse, the implosion of Long-Term Capital Management in 1998 - the closely guarded hedge fund world suddenly becomes enemy number No. 1, raising fears of litigation and huge losses to investors.
Indeed, banks eager to profit from hedge funds may open themselves up to increased legal risks, warned Christopher Whalen, managing director of Institutional Risk Analytics, a financial analysis and valuation firm.
"These things are highly speculative and we're likely going to see a lot more [Amaranths] coming out of the closet," he said. "If a bank-owned hedge fund blows up, the liability trial attorneys will have a field day."
And there are no guarantees that a fund will be profitable for investors or the banks that offer them. Citigroup (Charts), for instance, has been struggling with its in-house hedge fund unit. The company invested about $1.5 billion in Tribeca Global Management and currently has about $2 billion in assets. Citigroup Alternative Investment, which includes Tribeca Global Management, has total assets of about $7.5 billion, according to Absolute Return.
But the unit lost its chief executive, Tanya Styblo Beder, after months of relatively poor returns to investors and high expenses.
There is also concern that, after years of stellar growth, hedge funds may be in for a slowdown that could lead to consolidation. That could spell bad news for banks that enter the business now.
After starting the year with a 3.5 percent gain, the HFRI Fund Weighted Composite Index - a broad industry measure of hedge fund performance - ran into a rough patch in May, June and July. The index showed losses for those three months before rebounding modestly with a 1 percent gain in August.
The number of new funds launched has dropped, but liquidations declined apace. In the first half of 2006, 549 funds were launched and 223 liquidated. Over the same period, there were 1,211 launches and 428 liquidations.
But critics shouldn't be too quick to predict a decline in the hedge fund industry, said Josh Rosenberg, president of Hedge Fund Research. For one thing, the HFRI index is still up almost 7 percent year to date as compared to a 5.8 percent gain on the S&P 500.
And while fund launches fell from last year, the hedge fund industry is in for a record year of inflows.
Through the first half of the year, the hedge fund industry saw inflows of $66.1 billion, with the second quarter accounting for $42.1 billion of those flows - a record for a single quarter. And inflows in the first half of the year beat the $42.1 billion in inflows that the industry recorded for the full year of 2005.
"There's been quite a bit of fluctuation in performance during the course of this year but money still continues to flow into hedge funds," Rosenberg said.
And as money keeps flowing in, banks will continue to have an even stronger incentive to get in on the action.
"I don't know if banks will ever own the entire market," said Denise Valentine, senior analyst at independent consulting and research firm Celent LLC. "But it's a major trend that will continue because banks have tremendous resources both in technology and money to buy these firms."
Saturday, November 17, 2007
The Highwaymen
News: Why you could soon be paying Wall Street investors, Australian bankers, and Spanish builders for the privilege of driving on American roads.
"the road is one succession of dust, ruts, pits, and holes." So wrote Dwight D. Eisenhower, then a young lieutenant colonel, in November 1919, after heading out on a cross-country trip with a convoy of Army vehicles in order to test the viability of the nation's highways in case of a military emergency. To this description of one major road across the west, Eisenhower added reports of impassable mud, unstable sand, and wooden bridges that cracked beneath the weight of the trucks. In Illinois, the convoy "started on dirt roads, and practically no more pavement was encountered until reaching California."
It took 62 days for the trucks to make the trip from Washington, D.C., to San Francisco, and another 37 years for Ike to complete a quest, inspired by this youthful journey and by his World War II observations of Germany's autobahns, to build a national road system for the United States. In 1956, President Eisenhower signed the Federal-Aid Highway Act, which called for the federal and state governments to build 41,000 miles of high-quality roads across the nation, over rivers and gorges, swamps and deserts, over and through vast mountain ranges, in what would later be called the "greatest public works project in human history." So vital to the public interest did Eisenhower, an old-style fiscal conservative, consider the interstate highway system, he even authorized the federal government to assume 90 percent of the massive cost.
Fifty years to the day after Ike put his pen to the Highway Act, another Republican signed off on another historic highway project. On June 29, 2006, Mitch Daniels, the former Bush administration official turned governor of Indiana, was greeted with a round of applause as he stepped into a conference room packed with reporters and state lawmakers. The last of eight wire transfers had landed in the state's account, making it official: Indiana had received $3.8 billion from a foreign consortium made up of the Spanish construction firm Cintra and the Macquarie Infrastructure Group (mig) of Australia, and in exchange the state would hand over operation of the 157-mile Indiana Toll Road for the next 75 years. The arrangement would yield hundreds of millions of dollars in tax breaks for the consortium, which also received immunity from most local and state taxes in its contract with Indiana. And, of course, the consortium would collect all the tolls, which it was allowed to raise to levels far beyond what Hoosiers had been used to. By one calculation, the Toll Road would generate more than $11 billion over the 75-year life of the contract, a nice return on mig-Cintra's $3.8 billion investment.
The deal to privatize the Toll Road had been almost a year in the making. Proponents celebrated it as a no-pain, all-gain way to off-load maintenance expenses and mobilize new highway-building funds without raising taxes. Opponents lambasted it as a major turn toward handing the nation's common property over to private firms, and at fire-sale prices to boot.
The one thing everyone agreed on was that the Indiana deal was just a prelude to a host of such efforts to come. Across the nation, there is now talk of privatizing everything from the New York Thruway to the Ohio, Pennsylvania, and New Jersey turnpikes, as well as of inviting the private sector to build and operate highways and bridges from Alabama to Alaska. More than 20 states have enacted legislation allowing public-private partnerships, or P3s, to run highways. Robert Poole, the founder of the libertarian Reason Foundation and a longtime privatization advocate, estimates that some $25 billion in public-private highway deals are in the works—a remarkable figure given that as of 1991, the total cost of the interstate highway system was estimated at $128.9 billion.
On the same day the Indiana Toll Road deal closed, another Australian toll road operator, Transurban, paid more than half a billion dollars for a 99-year lease on Virginia's Pocahontas Parkway, and the Texas Transportation Commission green-lighted a $1.3 billion bid by Cintra and construction behemoth Zachry Construction to build and operate a 40-mile toll road out of Austin. Many similar deals are now on the horizon, and mig and Cintra are often part of them. So is Goldman Sachs, the huge Wall Street firm that has played a remarkable role advising states on how to structure privatization deals—even while positioning itself to invest in the toll road market.
Goldman Sachs' role has not been lost on skeptics, who accuse the firm of playing both sides of the fence. "In essence, they're double-dipping," says Todd Spencer, executive vice president of the Owner-Operator Independent Drivers Association, a truckers' group that opposes toll road privatization. "They're basically in the middle, playing one side against the other, and it's really, really lucrative."
Despite such concerns, the privatization model has the full backing of the Bush administration. Tyler Duvall, the U.S. Department of Transportation's assistant secretary for transportation policy, says dot has raised the idea with "almost every state" government and is working on sample legislation that states can use for such projects. "This is a ground battle in the United States right now," he says. "States just need to be convinced that this is basically something they should be considering."
The financial stakes are potentially huge. "You're buying the infrastructure of the economy, and it's enormously valuable," says John Schmidt, who served as associate attorney general in the Clinton administration and as counsel to the city of Chicago on the $1.8 billion privatization of the Chicago Skyway, the 7.8-mile freeway that connects the Dan Ryan Expressway in the west to the Indiana Toll Road in the east. "[Private road operators] haven't been able to get in here previously. There's been a demand, and it's been bottled up because we just haven't had privatized infrastructure in this country, so they've been buying toll roads in Chile and in France. Now, they suddenly have the opportunity to come into this country."
Friday, November 16, 2007
Please, Sir, I Want Some More.
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(Photo: Phillip Toledano; Styling by Marie Blomquist) |
It’s like buying a gift for the guy who has everything: What can you do to impress the boss for whom you’ve already been pulling all-nighters and all-weekenders? That’s the dilemma faced by thousands of investment bankers in New York every fall, when bonus season gets under way. Starting sometime after Labor Day and ending before Christmas, everybody in the financial industry is on their best, most obsequious behavior, hoping to curry the favor of those who divvy up the spoils. And what spoils there are this year—the 2005 bonus season looks to be Wall Street’s biggest haul in five years. Last year, the New York State Comptroller’s office estimated the average bonus on Wall Street to be a clean $100,600 (or $15.9 billion split among 158,000 employees). Early estimates of the 2005 bonus pool reach as high as $19 billion.
Typically, Goldman Sachs’s announcement of its third-quarter results kicks the bonus season into high gear. Long revered for being where the serious money gets made, the firm has had a blowout year even by its own standards. Announcing a record profit in the third quarter, Goldman also noted that it had set aside $9.25 billion, almost $420,000 per employee, in compensation. When fourth-quarter results are factored in, that total could swell to an $11 billion pool, or $500,000 per employee.
Naturally, money on Wall Street is not shared equally, not even close. Most Goldman employees will receive a good deal less than half a mil, while a few will make an ungodly amount more. It’s simply a matter of how much more. Is that guy on the commodities desk who bet right every time on the price of oil worth $20 million this year—or $25 million? Maybe it’s worth taking $5 million out of the pocket of that old-school investment banker who couldn’t close that simple snack-food takeover deal. Maybe it’s time he was sent a clear signal about the weight he’s been failing to pull.
Even in the land of seven-figure incomes—in fact, especially in the land of seven-figure incomes—bonus sensitivity runs high. “Most days, I think I’m one of the most overpaid people on earth,” a former Goldman employee told me. “But other days, I feel like I’m getting shafted. Everyone at Goldman is afraid of feeling that way.” The result of extensive interviews with both current and former Goldman employees, what follows is our best guess at how, exactly, that shafting takes place. That, and the names of a few people you’ve never heard of who make more money than A-Rod.
The standard portion of net revenue (total revenue minus interest expense) earmarked for compensation at Wall Street firms stands at an astonishing 50 percent. That’s because talent is the most precious commodity on Wall Street; it’s what they sell, so it’s also what they have to pay for.
“Wall Street is just a compensation scheme,” says Andy Kessler, a Wall Street veteran and the author of several books about its culture. “They literally exist to pay out half their revenue as compensation. And that’s what gets them into trouble every so often—it’s just a game of generating revenue, because the players know they will get half of it back.” Goldman Sachs is no exception to this lucrative rule. Through the first nine months of the year, the $9.25 billion that the company set aside for salaries and bonuses was precisely 50 percent of its net revenue.
Back in the late nineties, when Goldman Sachs’s partners were considering taking the company public, the resulting turmoil in their ranks led to the departure of Jon Corzine and the ascension of Henry Paulson Jr. to the position of sole chairman and CEO of the company. One of the primary questions Paulson faced was how Goldman could motivate its relatively underpaid junior staff if it couldn’t hold out the brass ring of Wall Street’s most coveted partnership as incentive. If the company was public, the partners couldn’t just split the profits among themselves as they always had. There would be other shareholders to think of.
As it turned out, however, not much actually changed when the company did go public. The partners still control the flow of money, and they still divert a disproportionate share of it to themselves. Although it’s no longer a partnership per se, the firm breaks down its executives into senior managing directors “PMDs” (for partner managing directors) and its junior ones “EMDs” (for executive managing directors) or “MD Lite.” Starting with the 50 percent of net revenue, the PMDs slice off a big chunk—a current EMD estimated it to be 15 percent of the total. If 2005 compensation comes in at $11 billion, as one analyst estimates, that’s $1.65 billion for the firm’s 250 or so PMDs to split among themselves. Each PMD has what are known as “points” in the partnership pool, and a quarter to a third of that 15 percent (stay with me here) is split according to those proportions. With all senior managers of Goldman taking home a $600,000 salary, an equal split of 30 percent of $1.65 billion would be worth almost $2 million, pushing their pay into the neighborhood of $2.6 million. But wait, there’s more.
