Investing in stocks that cater to the rich has been a good strategy for investors and should continue to be successful in the coming years, a Citigroup report said yesterday.
"In many ways, it often pays off handsomely to sell to or serve upper-income Americans more than it pays to concentrate on all Americans," wrote Tobias Levkovich, chief U.S. equity strategist at Citigroup Global Markets Inc. "In this context, we continue to believe that a portfolio of stocks where the main business focus is on wealthier Americans (though not necessarily the ultrarich) should continue to do well in the foreseeable future." The top 20 per cent of Americans spend almost five times that of the bottom 20 per cent of the population, Mr. Levkovich said. Furthermore, the top 20 per cent's net worth is rising at a considerably faster clip than those of other Americans.
Citigroup has made up a basket of "living-large stocks," including jeweller Tiffany & Co., fashion retailer Saks Inc., Royal Caribbean Cruises Ltd., Las Vegas casino operator Wynn Resorts Ltd. and Orient Express Hotels Inc.
The luxury stock basket has consistently outshone the Standard & Poor's 500-stock index since the start of 1996 but the gap between the two really started to widen in 2003 and is exceptionally wide at the moment. The Standard & Poor's 500-stock index gained 6 per cent in the first six months of this year while the basket of the luxury stocks increased 14.5 per cent.
Mr. Levkovich noted that many of the companies included in the basket generate margins that are impressive when weighed against others in the same industry but which cater to much lower-income customers. "Tiffany & Co. margins trump those of Zale's handily and the same can be said of Steiner Leisure versus Regis or of Orient Hotels versus Marriott," he said.
Mr. Levkovich is not the first Citigroup strategist to suggest investing in stocks that cater to the rich. But he uses a lower standard for what constitutes rich. He refers to the top quintile of Americans, whereas Ajay Kapur, who last year was the head of Citigroup's global equity strategy, referred to the top 1 per cent, the superrich. Mr. Kapur, who has since left Citigroup to start a hedge fund, coined a word "plutonomy' to describe countries, such as the United States, Britain, Australia and Canada, where the spending habits of the ultrarich are powering economic growth and thus preventing those economies from slowing as much as might be expected in the face of surging oil prices. He constructed an index of stocks based on that theory, but the index is no longer being tracked.
Wednesday, July 25, 2007
Cleaning up - Mark Veverka
It's that rare opportunity to save humanity and make a killing. The mere possibility has Silicon Valley's venture capitalists tripping over each other to offer cash to start-ups focused on Clean Technology, a fuzzy business category that now encompasses just about anything that might help stave off global warming and aid the environment: solar and wind-generated energy sources, air and water pollution-control devices, and alternative fuels made from just about any non-hydrocarbon-based item all qualify. Even electric sports cars seem to fit the bill.
Venture capitalists plunked down better than $1.5 billion in funding for clean tech in 2006, bringing the total to $4.2 billion since 2000, according to the National Venture Capital Association. These strong inflows have helped launch 1,500 start-ups worldwide.
"These companies are popping up like weeds, just like dot-coms, but hopefully with better rates of success," says Vinod Khosla, the well-respected venture capitalist who founded Khosla Ventures and is an affiliated partner at Kleiner, Perkins, Caufield and Byers.
More than 50 of these one-time weeds already have progressed beyond private-equity funded start-ups and entered the public markets in the past two years or so, which begs the question of how well they'll fare longer-term. Will the attrition rate among clean-tech companies be as high as it was for Internet companies (not to mention their shareholders)?
Clean tech no doubt will suffer from some of the same ills as the
Internet: Already, solar stocks are frothy, ethanol shares have soared only to plunge as corn prices rose, and some fuel-cell companies seem to have borrowed their business plans from long-departed Web enterprises.
But the sector also appears to be a fertile source of profitable growth investments for the next decade or more. There's already a decent selection of stocks to buy in this area, with substantial upside.
In part, this is because governments worldwide are expected to pass tougher environmental laws aimed at saving the planet, by forcing industry and utilities to do less harm. Global accords like the Kyoto Protocol, which limits carbon-dioxide emissions and promotes trading of emission rights, are gaining. Just last week in the U.S., which didn't agree to the protocol, the Senate introduced a measure that would mandate a "cap and trade" system that limits total emissions and then allows carbon-dioxide producers to trade emission credits.
"The likely trajectory of legislation on global warming is creating a great investment opportunity," says Khosla.
Added impetus comes from the U.S.' dangerous dependence on foreign oil.
"There is a natural alliance here between the tree-huggers and the hawks, even if they don't agree on the reasons," says R. James Woolsey, director of the Central Intelligence Agency in the Clinton administration who works for consultants Booz Allen Hamilton.
"With about two-thirds of the world's oil supply situated in the tumultuous Middle East, we need to do to oil what electricity and refrigeration did to salt at the turn of the 19th century," says Woolsey. Salt still mattered after new means of preserving food were discovered, but it was no longer a strategic commodity that triggered wars.
In February, the California Public Employees Retirement System, the nation's largest pension fund, pledged to commit $400 million to private-equity investments in clean tech managed by Pacific Corporate Group of La Jolla, Calif.
California's move provided an added measure of validation to the category, which increasingly is moving into the public markets. Thirty clean-tech outfits went public in 2006, raising about $4.4 billion, following the 19 that generated roughly $1.7 billion in 2005. The American Stock Exchange now has a Cleantech Index (CTIUS) and there's a PowerShares' WilderHill Clean Energy Portfolio exchange-traded fund (PBW), one of a number of vehicles devoted to the group. (Barron's parent, Dow Jones, announced last week that it was launching a new Clean Tech news service for investors.)
Investors will have to negotiate a market that's likely to resemble biotech more than the Internet or information tech, says VantagePoint Venture Partners' Stephan Dolezalek, whose firm has invested in 11 companies to the tune of about $140 million since 2001 and plans to invest another $100 million or so a year.
As in biotech, venture capitalists are more likely to exit their investments in clean tech via buyouts rather than IPOs. In part this is because clean tech faces more uncertainties -- owing to its reliance on changing government policies and subsidies, an evolving customer base and huge capital needs -- than information-technology firms that had more defined sets of customers.
They will also compete against huge multinationals, which are likely to be active acquirers both for defensive purposes and as ways to enter new areas, Dolezalek says.
Instead of Big Pharma, it will be oil, chemical, agricultural, and energy-utility behemoths, among them companies like General Electric, BP, Dow Chemical, ConAgra, Monsanto that will be on the prowl for these companies. The start-ups, like fledgling biotech companies, will get brand recognition, distribution, big sales forces and manufacturing help while the acquirers will receive needed growth and knowledge.
It's too early to invest on this basis, but some big companies may also be long-term beneficiaries of clean tech. What would happen to General Motors' shares if the auto maker produced a car that got 100 miles to the gallon or didn't use fossil fuels at all? The same kind of breakthroughs could occur at GE (wind and lighting) or Archer Daniels Midland (ethanol).
That's not to say we shouldn't expect some new household names to emerge. While it produced fewer than those spawned in the computer revolution, biotech still gave us giants like Amgen and Genentech. If clean tech ever produces a comparable name, it's likely to come from the broad and diverse energy sector that's captured more than half of all clean-tech venture money.
Whether turning cow chips and corn into biofuels or harnessing the wind and sun, these alternatives to fossil fuels are going to garner more attention as the science improves, public policy shifts and storage capability grows. It is also where traditional Silicon Valley semiconductor technology intersects with new frontiers, such as solar cells and energy storage like batteries.
One of the early success stories and highfliers is SunPower (SPWR), a majority-owned spin-off of Cypress Semiconductor (CY). Nothing fancy here, SunPower is a well-managed maker and seller of high-efficiency silicon solar cells and panels based on today's technology. "It's the premier solar photovoltaic company," says Brion Tanous, a next-generation energy analyst with Merriman Curhan Ford in San Francisco. (Thermal solar, which heated water, was considered the first generation of solar where photovoltaic is the next generation that turns light into electricity).
The company has a market-leading position in Spain, one of the world's biggest promoters of alternative energy, a 2.2-megawatt solar-power plant in Korea and is starting on the largest solar installation in the U.S. The company racked up about $237 million in sales last year, with profits of $36 million, or 51 cents a share.
Supporting a market value in excess of $5 billion, the shares hit their 52-week high last week at 69.80, or a pricey 36 times 2008 earnings.
Some insist it's worth it for high-quality growth. Merriman Curhan's target is 75. Says one angel investor: "It's rich, but it's kind of like buying Microsoft in the early '90s. It will just stay rich."
Another alternative start-up is New Hampshire-based Environmental Power Corp. (EPG), a big bet on the institution of emissions caps and the trading of pollution credits in the U.S. The company's technology cuts the natural release of animal-produced methane, a carbon-based gas that contributes to the Greenhouse Effect. Under a trading system, Environmental Power would get valuable credits for its efforts which could translate into a new revenue stream beyond its main business of turning methane into biofuel. Analyst Tanous estimates the credits could be worth as much as $4.6 million, or 33 cents a share, by 2009.
Major investors have eyed the shares of this unprofitable company, but a market value of $84 million doesn't provide them enough liquidity.
Shares were trading around 8 last week, below their 9.34 52-week high.
"Small-cap investors are buying this stock," Tanous says. "And I think it has a long way to run." He has a target of 16, or 23 if the value of carbon credits is twice what's expected.
Making power plants run more efficiently at lower costs is a big-step toward cleaning the air, which is where Fuel Tech (FTEK) comes in. It is a $75 million-in-revenue company that installs air-pollution controls that improve the performance of combustion furnaces.
The company has borrowed its business model from shavers and blades: The system is cheap but the recurring revenues from supplying the chemicals to keep it going produce high margins. It has a chemical injection system for oil- and coal-fuel plants that eliminates the layers of petrified slag that build up on the inside surfaces of the furnaces.
Now, the slag that once had to be broken up with explosives, is turned to ash workers can simply sweep out of the furnace.
Coming off all-time highs in June, the shares could catch a second wind after the company's recent announcement that it's partnering with a Japanese company to sell its systems in China. Plus, the expected adoption of a carbon-credit system in the U.S. should generate more U.S.
demand.
The stock is trading at 46 times Tanous' 2008 earnings estimate of 71 cents a share. But he thinks 2008 revenue can grow 30%. "You could even argue that it's not that expensive now," says Tanous, who sees it climbing 25%, to 41.
Venture capitalists plunked down better than $1.5 billion in funding for clean tech in 2006, bringing the total to $4.2 billion since 2000, according to the National Venture Capital Association. These strong inflows have helped launch 1,500 start-ups worldwide.
"These companies are popping up like weeds, just like dot-coms, but hopefully with better rates of success," says Vinod Khosla, the well-respected venture capitalist who founded Khosla Ventures and is an affiliated partner at Kleiner, Perkins, Caufield and Byers.
More than 50 of these one-time weeds already have progressed beyond private-equity funded start-ups and entered the public markets in the past two years or so, which begs the question of how well they'll fare longer-term. Will the attrition rate among clean-tech companies be as high as it was for Internet companies (not to mention their shareholders)?
Clean tech no doubt will suffer from some of the same ills as the
Internet: Already, solar stocks are frothy, ethanol shares have soared only to plunge as corn prices rose, and some fuel-cell companies seem to have borrowed their business plans from long-departed Web enterprises.
But the sector also appears to be a fertile source of profitable growth investments for the next decade or more. There's already a decent selection of stocks to buy in this area, with substantial upside.
In part, this is because governments worldwide are expected to pass tougher environmental laws aimed at saving the planet, by forcing industry and utilities to do less harm. Global accords like the Kyoto Protocol, which limits carbon-dioxide emissions and promotes trading of emission rights, are gaining. Just last week in the U.S., which didn't agree to the protocol, the Senate introduced a measure that would mandate a "cap and trade" system that limits total emissions and then allows carbon-dioxide producers to trade emission credits.
"The likely trajectory of legislation on global warming is creating a great investment opportunity," says Khosla.
Added impetus comes from the U.S.' dangerous dependence on foreign oil.
"There is a natural alliance here between the tree-huggers and the hawks, even if they don't agree on the reasons," says R. James Woolsey, director of the Central Intelligence Agency in the Clinton administration who works for consultants Booz Allen Hamilton.
"With about two-thirds of the world's oil supply situated in the tumultuous Middle East, we need to do to oil what electricity and refrigeration did to salt at the turn of the 19th century," says Woolsey. Salt still mattered after new means of preserving food were discovered, but it was no longer a strategic commodity that triggered wars.
In February, the California Public Employees Retirement System, the nation's largest pension fund, pledged to commit $400 million to private-equity investments in clean tech managed by Pacific Corporate Group of La Jolla, Calif.
California's move provided an added measure of validation to the category, which increasingly is moving into the public markets. Thirty clean-tech outfits went public in 2006, raising about $4.4 billion, following the 19 that generated roughly $1.7 billion in 2005. The American Stock Exchange now has a Cleantech Index (CTIUS) and there's a PowerShares' WilderHill Clean Energy Portfolio exchange-traded fund (PBW), one of a number of vehicles devoted to the group. (Barron's parent, Dow Jones, announced last week that it was launching a new Clean Tech news service for investors.)
Investors will have to negotiate a market that's likely to resemble biotech more than the Internet or information tech, says VantagePoint Venture Partners' Stephan Dolezalek, whose firm has invested in 11 companies to the tune of about $140 million since 2001 and plans to invest another $100 million or so a year.
As in biotech, venture capitalists are more likely to exit their investments in clean tech via buyouts rather than IPOs. In part this is because clean tech faces more uncertainties -- owing to its reliance on changing government policies and subsidies, an evolving customer base and huge capital needs -- than information-technology firms that had more defined sets of customers.
They will also compete against huge multinationals, which are likely to be active acquirers both for defensive purposes and as ways to enter new areas, Dolezalek says.
Instead of Big Pharma, it will be oil, chemical, agricultural, and energy-utility behemoths, among them companies like General Electric, BP, Dow Chemical, ConAgra, Monsanto that will be on the prowl for these companies. The start-ups, like fledgling biotech companies, will get brand recognition, distribution, big sales forces and manufacturing help while the acquirers will receive needed growth and knowledge.
It's too early to invest on this basis, but some big companies may also be long-term beneficiaries of clean tech. What would happen to General Motors' shares if the auto maker produced a car that got 100 miles to the gallon or didn't use fossil fuels at all? The same kind of breakthroughs could occur at GE (wind and lighting) or Archer Daniels Midland (ethanol).
That's not to say we shouldn't expect some new household names to emerge. While it produced fewer than those spawned in the computer revolution, biotech still gave us giants like Amgen and Genentech. If clean tech ever produces a comparable name, it's likely to come from the broad and diverse energy sector that's captured more than half of all clean-tech venture money.
Whether turning cow chips and corn into biofuels or harnessing the wind and sun, these alternatives to fossil fuels are going to garner more attention as the science improves, public policy shifts and storage capability grows. It is also where traditional Silicon Valley semiconductor technology intersects with new frontiers, such as solar cells and energy storage like batteries.
One of the early success stories and highfliers is SunPower (SPWR), a majority-owned spin-off of Cypress Semiconductor (CY). Nothing fancy here, SunPower is a well-managed maker and seller of high-efficiency silicon solar cells and panels based on today's technology. "It's the premier solar photovoltaic company," says Brion Tanous, a next-generation energy analyst with Merriman Curhan Ford in San Francisco. (Thermal solar, which heated water, was considered the first generation of solar where photovoltaic is the next generation that turns light into electricity).
The company has a market-leading position in Spain, one of the world's biggest promoters of alternative energy, a 2.2-megawatt solar-power plant in Korea and is starting on the largest solar installation in the U.S. The company racked up about $237 million in sales last year, with profits of $36 million, or 51 cents a share.
Supporting a market value in excess of $5 billion, the shares hit their 52-week high last week at 69.80, or a pricey 36 times 2008 earnings.
Some insist it's worth it for high-quality growth. Merriman Curhan's target is 75. Says one angel investor: "It's rich, but it's kind of like buying Microsoft in the early '90s. It will just stay rich."
Another alternative start-up is New Hampshire-based Environmental Power Corp. (EPG), a big bet on the institution of emissions caps and the trading of pollution credits in the U.S. The company's technology cuts the natural release of animal-produced methane, a carbon-based gas that contributes to the Greenhouse Effect. Under a trading system, Environmental Power would get valuable credits for its efforts which could translate into a new revenue stream beyond its main business of turning methane into biofuel. Analyst Tanous estimates the credits could be worth as much as $4.6 million, or 33 cents a share, by 2009.
Major investors have eyed the shares of this unprofitable company, but a market value of $84 million doesn't provide them enough liquidity.
Shares were trading around 8 last week, below their 9.34 52-week high.
"Small-cap investors are buying this stock," Tanous says. "And I think it has a long way to run." He has a target of 16, or 23 if the value of carbon credits is twice what's expected.
Making power plants run more efficiently at lower costs is a big-step toward cleaning the air, which is where Fuel Tech (FTEK) comes in. It is a $75 million-in-revenue company that installs air-pollution controls that improve the performance of combustion furnaces.
The company has borrowed its business model from shavers and blades: The system is cheap but the recurring revenues from supplying the chemicals to keep it going produce high margins. It has a chemical injection system for oil- and coal-fuel plants that eliminates the layers of petrified slag that build up on the inside surfaces of the furnaces.
Now, the slag that once had to be broken up with explosives, is turned to ash workers can simply sweep out of the furnace.
Coming off all-time highs in June, the shares could catch a second wind after the company's recent announcement that it's partnering with a Japanese company to sell its systems in China. Plus, the expected adoption of a carbon-credit system in the U.S. should generate more U.S.
demand.
The stock is trading at 46 times Tanous' 2008 earnings estimate of 71 cents a share. But he thinks 2008 revenue can grow 30%. "You could even argue that it's not that expensive now," says Tanous, who sees it climbing 25%, to 41.
How to Be A Player in Beijing
Remember Peter Chung? Back in May 2001, Mr. Chung was a 24-year-old Princeton University grad posted to Seoul by the Carlyle Group and living, by his own account, quite large. A week and a half into his new buy-side job, he emailed home telling friends about his opulent digs, about riding around in the VP's Porsche, about the bankers who treated him to rounds of golf, banqueted him, and took him clubbing—and about his intention to bed every hot woman in Korea: "5 down, 1,000,000,000 left to go," he wrote.
Mr. Chung's email circled the globe, eventually finding its way to his bosses at Carlyle, who promptly fired him. The picture he painted is familiar to young people working at investment banks, private equity firms, or VCs almost anywhere in East Asia, Beijing included. China's tech boom has given rise to a new class of moneyed elites—overwhelmingly young, single men in their late 20s and early 30s—for whom nightlife is an integral part of business.
The Details of Dealmaking
In a booth in one of the capital's swankier discos, amid the thumping din of techno and the gyrating hips of the girls who invariably surround them, the young bucks talk shop: who's raising a fund, which VCs got good deal flow, what new telecom technology is about to burst disruptively onto the market, who paid too much for some wireless value-added services play, what high-flying Chinese Internet stock is just begging to be shorted, which dot-coms are ripe for acquisition.
They're mostly returnees or Chinese-Americans—either ABCs (American-born
Chinese) or Taiwan- or Hong Kong-born Chinese educated in the United States.
They're with many of the VCs active in China, including WI Harper, SAIF (formerly Softbank Asia Investment Fund), and IntelCapital. The group is top-heavy with alpha males. Shanghai, once known as the Paris of the East, may have gone a long way toward reclaiming the glamour and notoriety of its pre-Communist nightlife.
But Beijing, which has never been known for its wild club scene, is chock full of bars and clubs where there's no last call, and where revelry often lasts until well after sunup.
"I think it's a shock to a lot of people who come," says David Chen, a Sunnyvale-based corporate development manager at AMD who is halfway through a six-month posting in Beijing. Mr. Chen, who says he's been out "a lot" in his time in China, has come to believe that this particular style of nightlife—the not-so-latent sexism, the boy's club business machismo—is all "a natural part of business in East Asia." "China's in a time warp," he says. "It may be catching up in technology but it's still 50 years behind the U.S. in terms of the values that have been formed."
Rocky Lee's World
It's 1:00 a.m. on a Friday night and Rocky Lee is holding court at Vic's, a popular club in Beijing's Sanlitun entertainment district. Mr. Lee, 32, spearheads the venture and private equity practice for a law firm in Beijing. A University of California, Berkeley, graduate with a law degree from University of California, Los Angeles, Mr. Lee has been active in the Chinese technology, media, and telecommunications (TMT) sector for four years.
Some in the industry call him "the next Carmen Chang," referring to the well-known Silicon Valley China VC lawyer.
He's knowledgeable and tapped into the technology scene, articulate and accent-free in both Mandarin and English. Just as important, he's perfectly bicultural, slipping easily between expatriate and Chinese friends, his body language shifting imperceptibly as his audience changes.
He also happens to be six feet tall, with boyish good looks, a bright smile, and a muscular frame. The women who've attached themselves to his table—Xiao Wei, Tracy, Naomi, Mimi, Xiao Bing, Juanjuan, Tammy, and a couple whose names he doesn't remember—are all friends he knows from "going out." They're all attractive locals in their 20s, and are here because Rocky Lee throws a good party. It's no surprise that he occupies a space at the center of the tech biz social swirl.
The women aren't working girls, Mr. Lee insists, though the assumption could be forgiven. Their bare midriffs, plunging necklines, and microshorts leave little to the imagination but he says they're secretaries, teachers, or personal assistants, "and they all speak English." But there's another woman at the table—much more conservatively dressed, doing no gyrating.
Ling Ong, a Singaporean who recently completed her law degree at Oxford University, has just started a three-month stint as a paralegal. "You see the same sort of thing in clubs in Singapore or in London," she says. "It's just not so blatant." Watching Mr. Lee in action, she comments with measured ambivalence: "He certainly seems at ease with the whole scene."
While he insists he doesn't "party to facilitate business," Mr. Lee estimates that 80 percent of club time is business-related.
Going Local
He knows that not everything that goes on at the bars and clubs would pass muster at home. "I've had to make some adjustments to the style of doing business here," he admits. But the whole nightlife scene, he says, is "part of the lifestyle, and you can either embrace it or shun it. And you're at a disadvantage if you shun it." Nightlife in Beijing would go on with or without him, he says, and so he participates. "The VCs come to me because I have access to deals, not because of the social scene," he adds. The tab for his table—"Rocky's table" is all his guests need say to avoid the 50 yuan ($6.25) cover at the door—doesn't come to all that much. He drops three or four hundred dollars in a night ("That's much less than you'd spend going out in New York"), but picking up tabs two or three nights a week adds up.
His firm, he says, doesn't pay for any of it—he has never expensed any of the entertaining.
Being in the thick of it keeps him in the loop, and that makes him more valuable as an attorney. "It's not hard to see why an out-of-town VC would want to give its business to Rocky," says one private equity investor, watching Mr. Lee work another crowd, this time on the roof deck of The World of Suzie Wong, another popular Beijing bar. Business has been good. Legal fees had been trending down in recent years, says Mr. Lee, but when China's State Administration of Foreign Exchange (SAFE) issued new regulations that created problems for companies planning eventual offshore exits, firms saw a return to a "favorable fee structure."
"In the Valley, you do a deal in Starbucks," says Mr. Lee. "In Beijing, we do them in a lounge or a bar." Centro, the fashionable bar at Beijing's Kerry Centre Hotel, is one of the more deal-heavy locales in town. One evening this summer Mr. Lee met Ian Goh from TDF Capital (Venture TDF) there to "discuss fees and ways to work around the SAFE issues" regarding the Shanghai-based VC's investment in a new media company called M-Zu, or Gmedia.
'Deal Napkin'
M-Zu provides a platform for retail sales by mobile phone, allowing cellular subscribers with camera-equipped handsets to snap pictures of bar codes in catalogs or advertisements and send them to retailers to purchase merchandise. SAFE's regulations, widely known as Circulars 11 and 29, had stymied international VC investment in Chinese companies by effectively preventing PRC residents from setting up wholly foreign-owned enterprises
(WFOEs) through offshore vehicles.
According to his firm, the resulting deal—a $2.3-million investment by TDF and Draper Fisher Jurvetson ePlanet Ventures—was the first cross-border investment to close with a PRC company that hadn't registered as a WFOE before the SAFE ban took effect. "The structure was complicated," says Mr.
Lee. "It took three napkins." He displays another "deal napkin"—this one a single napkin—for an investment that hasn't closed yet. The investee, he says, is a unit of "a major entertainment company using mobile and Internet for content delivery," and the likely investor is "a major venture capital fund which invested in the biggest exits of the year, Baidu and Focus Media," says Mr. Lee.
Back at Vic's, revelers pour out onto the dance floor as the DJ spins the Romanian dance pop hit "Numa Numa," apparently without irony. Vic's is one of four big discos all on the same block—the club, along with archrival Mix, is on the north side of Worker's Stadium; Babyface and Angel are on the stadium's west face.
The party often moves among these clubs and Tango, another disco two miles to the northwest. The settings are interchangeable: the music is the same, high-decibel and bass-heavy, and the drink of choice is, too. Periodically, a waitress comes by the table to mix the stuff up. She pours six or seven ounces of Chivas Regal into a big glass pitcher, then adds two plastic bottles of sweetened ice green tea. The unlikely cocktail has become the unofficial drink of the Chinese clubbing set in recent years. "It actually tastes OK," says AMD's Mr. Chen. Scotch drinkers may balk, but Pernod Ricard, which owns the Chivas brand, doesn't seem to mind: Chivas global sales were up 19 percent in the first half of 2005, largely on "spectacular progressions" in the China market, the company reports.
Circles of Hell
Like Dante's Inferno, the Chinese business world is organized into descending circles of decadence. The layer occupied by the Beijing new economy boy's club is positively mild compared to some of the lower circles.
The party life of the telecom and media set looks far more debauched than it actually is.
A few pitchers of Chivas and green tea and yes, there's plenty of highly suggestive dancing, but at the end of the night, everyone has his or her clothes on. Drugs like ice (crystal methamphetamines), Ecstasy, and ketamine are still fairly common in the Chinese club scene but are virtually unheard of in its tech and finance subset. Deeper down, there's the traditional, coastal, export-focused world of, say, electronic components, plastic injection molding, or textiles—a mix of private-sector and state-owned companies—peopled with nouveaux riches with their own nightlife subculture:
Hennessy VSOP shots decanted by young hostesses in slinky dresses in the private room of a karaoke parlor, expensive plates of exotic fruit, off-key crooning of Taiwan and Hong Kong pop—and then homeward, hostess optional.
Even deeper down, there's more grunge still. Mr. Lee stays clear of all that, and has kept his liver healthy.
He is, in fact, a teetotaler. Like about half of East Asians, he lacks liver mitochondrial aldehyde dehydrogenase, an enzyme that helps detoxify acetaldehyde, a byproduct of the breakdown of alcohol. He gets what is called the "Asian flush"—his face turns red, he says, after just half a drink, and he's utterly wasted and "absolutely will throw up" after a whole one. As a matter of survival, Mr. Lee has acquired a magician's skill in misdirection, learning how to get rid of alcohol on the sly. "You have three friends at a banquet: the wet towel, the cup of tea, and the glass of Coke,"
he says. "You can spit baijiu (sorghum liquor) into the towel, beer into the tea, and red wine into the Coke."
While others are suppressing their central nervous systems with Chivas and green tea, he's stimulating his with a highly caffeinated vitamin drink:
"Red Bull is the same color as Chivas," he says. By 3 a.m., he's wired, alert, and in an advantageous position vis-à-vis his fellow partygoers. No Peter Chung, Rocky Lee is cautious, grounded, and pragmatic. He won't kiss and tell. While he now plays Virgil to the Dante of many a newly arrived VC in their descent into the Beijing nightlife demimonde, Mr. Lee still recalls his early encounters with the often bizarre milieu.
"The first time I went to a karaoke bar, I just sat there," he recalls. "It was weird to have these girls—the hostesses—sitting next to you, just talking about business like they weren't there. But you get used to it—you realize they don't know what value-added services are." At least not in the context of telecoms.
Mr. Chung's email circled the globe, eventually finding its way to his bosses at Carlyle, who promptly fired him. The picture he painted is familiar to young people working at investment banks, private equity firms, or VCs almost anywhere in East Asia, Beijing included. China's tech boom has given rise to a new class of moneyed elites—overwhelmingly young, single men in their late 20s and early 30s—for whom nightlife is an integral part of business.
The Details of Dealmaking
In a booth in one of the capital's swankier discos, amid the thumping din of techno and the gyrating hips of the girls who invariably surround them, the young bucks talk shop: who's raising a fund, which VCs got good deal flow, what new telecom technology is about to burst disruptively onto the market, who paid too much for some wireless value-added services play, what high-flying Chinese Internet stock is just begging to be shorted, which dot-coms are ripe for acquisition.
They're mostly returnees or Chinese-Americans—either ABCs (American-born
Chinese) or Taiwan- or Hong Kong-born Chinese educated in the United States.
They're with many of the VCs active in China, including WI Harper, SAIF (formerly Softbank Asia Investment Fund), and IntelCapital. The group is top-heavy with alpha males. Shanghai, once known as the Paris of the East, may have gone a long way toward reclaiming the glamour and notoriety of its pre-Communist nightlife.
But Beijing, which has never been known for its wild club scene, is chock full of bars and clubs where there's no last call, and where revelry often lasts until well after sunup.
"I think it's a shock to a lot of people who come," says David Chen, a Sunnyvale-based corporate development manager at AMD who is halfway through a six-month posting in Beijing. Mr. Chen, who says he's been out "a lot" in his time in China, has come to believe that this particular style of nightlife—the not-so-latent sexism, the boy's club business machismo—is all "a natural part of business in East Asia." "China's in a time warp," he says. "It may be catching up in technology but it's still 50 years behind the U.S. in terms of the values that have been formed."
Rocky Lee's World
It's 1:00 a.m. on a Friday night and Rocky Lee is holding court at Vic's, a popular club in Beijing's Sanlitun entertainment district. Mr. Lee, 32, spearheads the venture and private equity practice for a law firm in Beijing. A University of California, Berkeley, graduate with a law degree from University of California, Los Angeles, Mr. Lee has been active in the Chinese technology, media, and telecommunications (TMT) sector for four years.
Some in the industry call him "the next Carmen Chang," referring to the well-known Silicon Valley China VC lawyer.
He's knowledgeable and tapped into the technology scene, articulate and accent-free in both Mandarin and English. Just as important, he's perfectly bicultural, slipping easily between expatriate and Chinese friends, his body language shifting imperceptibly as his audience changes.
He also happens to be six feet tall, with boyish good looks, a bright smile, and a muscular frame. The women who've attached themselves to his table—Xiao Wei, Tracy, Naomi, Mimi, Xiao Bing, Juanjuan, Tammy, and a couple whose names he doesn't remember—are all friends he knows from "going out." They're all attractive locals in their 20s, and are here because Rocky Lee throws a good party. It's no surprise that he occupies a space at the center of the tech biz social swirl.
The women aren't working girls, Mr. Lee insists, though the assumption could be forgiven. Their bare midriffs, plunging necklines, and microshorts leave little to the imagination but he says they're secretaries, teachers, or personal assistants, "and they all speak English." But there's another woman at the table—much more conservatively dressed, doing no gyrating.
Ling Ong, a Singaporean who recently completed her law degree at Oxford University, has just started a three-month stint as a paralegal. "You see the same sort of thing in clubs in Singapore or in London," she says. "It's just not so blatant." Watching Mr. Lee in action, she comments with measured ambivalence: "He certainly seems at ease with the whole scene."
While he insists he doesn't "party to facilitate business," Mr. Lee estimates that 80 percent of club time is business-related.
Going Local
He knows that not everything that goes on at the bars and clubs would pass muster at home. "I've had to make some adjustments to the style of doing business here," he admits. But the whole nightlife scene, he says, is "part of the lifestyle, and you can either embrace it or shun it. And you're at a disadvantage if you shun it." Nightlife in Beijing would go on with or without him, he says, and so he participates. "The VCs come to me because I have access to deals, not because of the social scene," he adds. The tab for his table—"Rocky's table" is all his guests need say to avoid the 50 yuan ($6.25) cover at the door—doesn't come to all that much. He drops three or four hundred dollars in a night ("That's much less than you'd spend going out in New York"), but picking up tabs two or three nights a week adds up.
His firm, he says, doesn't pay for any of it—he has never expensed any of the entertaining.
Being in the thick of it keeps him in the loop, and that makes him more valuable as an attorney. "It's not hard to see why an out-of-town VC would want to give its business to Rocky," says one private equity investor, watching Mr. Lee work another crowd, this time on the roof deck of The World of Suzie Wong, another popular Beijing bar. Business has been good. Legal fees had been trending down in recent years, says Mr. Lee, but when China's State Administration of Foreign Exchange (SAFE) issued new regulations that created problems for companies planning eventual offshore exits, firms saw a return to a "favorable fee structure."
"In the Valley, you do a deal in Starbucks," says Mr. Lee. "In Beijing, we do them in a lounge or a bar." Centro, the fashionable bar at Beijing's Kerry Centre Hotel, is one of the more deal-heavy locales in town. One evening this summer Mr. Lee met Ian Goh from TDF Capital (Venture TDF) there to "discuss fees and ways to work around the SAFE issues" regarding the Shanghai-based VC's investment in a new media company called M-Zu, or Gmedia.
'Deal Napkin'
M-Zu provides a platform for retail sales by mobile phone, allowing cellular subscribers with camera-equipped handsets to snap pictures of bar codes in catalogs or advertisements and send them to retailers to purchase merchandise. SAFE's regulations, widely known as Circulars 11 and 29, had stymied international VC investment in Chinese companies by effectively preventing PRC residents from setting up wholly foreign-owned enterprises
(WFOEs) through offshore vehicles.
According to his firm, the resulting deal—a $2.3-million investment by TDF and Draper Fisher Jurvetson ePlanet Ventures—was the first cross-border investment to close with a PRC company that hadn't registered as a WFOE before the SAFE ban took effect. "The structure was complicated," says Mr.
Lee. "It took three napkins." He displays another "deal napkin"—this one a single napkin—for an investment that hasn't closed yet. The investee, he says, is a unit of "a major entertainment company using mobile and Internet for content delivery," and the likely investor is "a major venture capital fund which invested in the biggest exits of the year, Baidu and Focus Media," says Mr. Lee.
Back at Vic's, revelers pour out onto the dance floor as the DJ spins the Romanian dance pop hit "Numa Numa," apparently without irony. Vic's is one of four big discos all on the same block—the club, along with archrival Mix, is on the north side of Worker's Stadium; Babyface and Angel are on the stadium's west face.
The party often moves among these clubs and Tango, another disco two miles to the northwest. The settings are interchangeable: the music is the same, high-decibel and bass-heavy, and the drink of choice is, too. Periodically, a waitress comes by the table to mix the stuff up. She pours six or seven ounces of Chivas Regal into a big glass pitcher, then adds two plastic bottles of sweetened ice green tea. The unlikely cocktail has become the unofficial drink of the Chinese clubbing set in recent years. "It actually tastes OK," says AMD's Mr. Chen. Scotch drinkers may balk, but Pernod Ricard, which owns the Chivas brand, doesn't seem to mind: Chivas global sales were up 19 percent in the first half of 2005, largely on "spectacular progressions" in the China market, the company reports.
Circles of Hell
Like Dante's Inferno, the Chinese business world is organized into descending circles of decadence. The layer occupied by the Beijing new economy boy's club is positively mild compared to some of the lower circles.
The party life of the telecom and media set looks far more debauched than it actually is.
A few pitchers of Chivas and green tea and yes, there's plenty of highly suggestive dancing, but at the end of the night, everyone has his or her clothes on. Drugs like ice (crystal methamphetamines), Ecstasy, and ketamine are still fairly common in the Chinese club scene but are virtually unheard of in its tech and finance subset. Deeper down, there's the traditional, coastal, export-focused world of, say, electronic components, plastic injection molding, or textiles—a mix of private-sector and state-owned companies—peopled with nouveaux riches with their own nightlife subculture:
Hennessy VSOP shots decanted by young hostesses in slinky dresses in the private room of a karaoke parlor, expensive plates of exotic fruit, off-key crooning of Taiwan and Hong Kong pop—and then homeward, hostess optional.
Even deeper down, there's more grunge still. Mr. Lee stays clear of all that, and has kept his liver healthy.
He is, in fact, a teetotaler. Like about half of East Asians, he lacks liver mitochondrial aldehyde dehydrogenase, an enzyme that helps detoxify acetaldehyde, a byproduct of the breakdown of alcohol. He gets what is called the "Asian flush"—his face turns red, he says, after just half a drink, and he's utterly wasted and "absolutely will throw up" after a whole one. As a matter of survival, Mr. Lee has acquired a magician's skill in misdirection, learning how to get rid of alcohol on the sly. "You have three friends at a banquet: the wet towel, the cup of tea, and the glass of Coke,"
he says. "You can spit baijiu (sorghum liquor) into the towel, beer into the tea, and red wine into the Coke."
While others are suppressing their central nervous systems with Chivas and green tea, he's stimulating his with a highly caffeinated vitamin drink:
"Red Bull is the same color as Chivas," he says. By 3 a.m., he's wired, alert, and in an advantageous position vis-à-vis his fellow partygoers. No Peter Chung, Rocky Lee is cautious, grounded, and pragmatic. He won't kiss and tell. While he now plays Virgil to the Dante of many a newly arrived VC in their descent into the Beijing nightlife demimonde, Mr. Lee still recalls his early encounters with the often bizarre milieu.
"The first time I went to a karaoke bar, I just sat there," he recalls. "It was weird to have these girls—the hostesses—sitting next to you, just talking about business like they weren't there. But you get used to it—you realize they don't know what value-added services are." At least not in the context of telecoms.
Monday, July 23, 2007
Watch out! Briefcases are on a roll - PATRICK WHITE
Every workday, chartered accountant Asifa Baig runs a veritable gauntlet of social disapproval.
Five days a week, she walks between her downtown Toronto office and Union Station, the regional train hub, and five days a week she endures frowns, scowls, shrugs and reprimands - both verbal and digital. "The dirty looks, they never stop," she says, taking refuge from swarms of commuters in a magazine shop steps from her train platform.
In the unwritten code of commuter conduct, few infractions are as egregious as Ms. Baig's daily stroll between office and train.
But it's not so much Ms. Baig that's the problem.
It's her rolling briefcase.
"I love it," she says. "I don't care what they say."
The wheeled briefcase has its detractors but also has a growing legion of admirers among the BlackBerry set. Laden with laptops, overstuffed file folders and electronic devices, urban office workers are finding relief for sore shoulders and wrenched backs in a nylon-and-metal caboose, making the bags a new bestseller for luggage makers.
Most major bag manufacturers, including Targus, Samsonite, Mancini and Victorinox, now carry at least one line of rolling briefcase. Prices range from just over $100 for a soft nylon model on casters to over $1,000 for a Kevlar bag with inline skate wheels.
Heys Luggage International, a Mississauga-based bag manufacturer, currently makes one model of wheeled laptop bag but has plans to meet increasing demand with four additional lines of roller bags next year.
For fashion-conscious female rollers, Heys is planning a briefcase constructed of polycarbonate plastic in such colours as candy-apple red.
But if customers remain hesitant about the stylishness of wheeling to work, their concerns don't seem to be affecting sales.
"We're completely sold out of Tumis," says Kelly Meehan, assistant manager at the Satchel Shop in downtown Vancouver, of one roller-bag brand that sells for up to $1,000. "They're beautiful. If I was a business girl, I would have one."
Small rolling baggage gained popularity for business travel in the mid-nineties, when workers began toting clunky laptops in their carry-on luggage. But it's only over the past five years that they began pulling the bags into the office place.
But popularity hasn't given way to acceptance. Wheelie bags remain an object of scorn in crowded office hallways and commuter byways. The bags are difficult to navigate in tight spaces and foot traffic tends to clot around stairwells when a roller-bagger stops to fold their tow hitch and lug their overloaded bag up the steps.
"People behind me on the stairs find that annoying," says Sakina Adenwalla, a consultant pulling her "office on wheels" into a train station elevator. "I see the odd scowl, that type of thing."
And because the bags have such a low profile, they can go unnoticed by some inattentive walkers. "I'm always tripping people," Ms. Baig says. "They're a bit of a nuisance."
Ms. Baig demonstrated just how irritated her fellow commuters can be with her bag by halting in front of some stairs and fiddling with her retractable handle. Several men in suits clumped behind her before letting out sighs of resignation and stomping around. "I literally stop traffic out there," she says. "And not in a good way."
Neval Greenidge, a marketing manager in downtown Toronto, carried a shoulder bag until late last year when the weight of hauling around a laptop, cellphone, GPS, file folders, diaries, keys and several file folders started to wear on his broad back.
With all the room in Mr. Greenidge's wheelie bag, there is a temptation to drag around more than he actually needs from day to day, "but at least I don't forget anything at home."
"This is much easier," he says, rolling his briefcase back and forth on the concrete floor of the Air Canada Centre. "Look at how smooth that is."
There's good evolutionary reasoning for rolling rather than carrying. Four-legged beasts might make decent pack animals, but when humans evolved to walk on two legs, our spines lost much of their load-bearing capacity.
"The dynamic of the spine was thrown off when we went vertical," says Andrew Drewczynski, ergonomics specialist at the Canadian Centre for Occupational Health and Safety.
"Our spines became unstable. Lifting a bag on one shoulder throws the spine off balance, so we compensate with compression of spine and the muscles that stabilize the spine are put under much stress."
The result can be a variety of ailments, but their common denominator is pain. With a roller briefcase, Mr. Drewczynski says, most of that pressure is carried by wheels.
Health benefits aside, some briefcase conductors find that their train-like stature actually grants them a wider birth in crowded spaces.
"I find that people actually get out of my way," said Ian, an accountant rushing for his midafternoon train. "And if they don't, I always have the option of running over their feet."
Five days a week, she walks between her downtown Toronto office and Union Station, the regional train hub, and five days a week she endures frowns, scowls, shrugs and reprimands - both verbal and digital. "The dirty looks, they never stop," she says, taking refuge from swarms of commuters in a magazine shop steps from her train platform.
In the unwritten code of commuter conduct, few infractions are as egregious as Ms. Baig's daily stroll between office and train.
But it's not so much Ms. Baig that's the problem.
It's her rolling briefcase.
"I love it," she says. "I don't care what they say."
The wheeled briefcase has its detractors but also has a growing legion of admirers among the BlackBerry set. Laden with laptops, overstuffed file folders and electronic devices, urban office workers are finding relief for sore shoulders and wrenched backs in a nylon-and-metal caboose, making the bags a new bestseller for luggage makers.
Most major bag manufacturers, including Targus, Samsonite, Mancini and Victorinox, now carry at least one line of rolling briefcase. Prices range from just over $100 for a soft nylon model on casters to over $1,000 for a Kevlar bag with inline skate wheels.
Heys Luggage International, a Mississauga-based bag manufacturer, currently makes one model of wheeled laptop bag but has plans to meet increasing demand with four additional lines of roller bags next year.
For fashion-conscious female rollers, Heys is planning a briefcase constructed of polycarbonate plastic in such colours as candy-apple red.
But if customers remain hesitant about the stylishness of wheeling to work, their concerns don't seem to be affecting sales.
"We're completely sold out of Tumis," says Kelly Meehan, assistant manager at the Satchel Shop in downtown Vancouver, of one roller-bag brand that sells for up to $1,000. "They're beautiful. If I was a business girl, I would have one."
Small rolling baggage gained popularity for business travel in the mid-nineties, when workers began toting clunky laptops in their carry-on luggage. But it's only over the past five years that they began pulling the bags into the office place.
But popularity hasn't given way to acceptance. Wheelie bags remain an object of scorn in crowded office hallways and commuter byways. The bags are difficult to navigate in tight spaces and foot traffic tends to clot around stairwells when a roller-bagger stops to fold their tow hitch and lug their overloaded bag up the steps.
"People behind me on the stairs find that annoying," says Sakina Adenwalla, a consultant pulling her "office on wheels" into a train station elevator. "I see the odd scowl, that type of thing."
And because the bags have such a low profile, they can go unnoticed by some inattentive walkers. "I'm always tripping people," Ms. Baig says. "They're a bit of a nuisance."
Ms. Baig demonstrated just how irritated her fellow commuters can be with her bag by halting in front of some stairs and fiddling with her retractable handle. Several men in suits clumped behind her before letting out sighs of resignation and stomping around. "I literally stop traffic out there," she says. "And not in a good way."
Neval Greenidge, a marketing manager in downtown Toronto, carried a shoulder bag until late last year when the weight of hauling around a laptop, cellphone, GPS, file folders, diaries, keys and several file folders started to wear on his broad back.
With all the room in Mr. Greenidge's wheelie bag, there is a temptation to drag around more than he actually needs from day to day, "but at least I don't forget anything at home."
"This is much easier," he says, rolling his briefcase back and forth on the concrete floor of the Air Canada Centre. "Look at how smooth that is."
There's good evolutionary reasoning for rolling rather than carrying. Four-legged beasts might make decent pack animals, but when humans evolved to walk on two legs, our spines lost much of their load-bearing capacity.
"The dynamic of the spine was thrown off when we went vertical," says Andrew Drewczynski, ergonomics specialist at the Canadian Centre for Occupational Health and Safety.
"Our spines became unstable. Lifting a bag on one shoulder throws the spine off balance, so we compensate with compression of spine and the muscles that stabilize the spine are put under much stress."
The result can be a variety of ailments, but their common denominator is pain. With a roller briefcase, Mr. Drewczynski says, most of that pressure is carried by wheels.
Health benefits aside, some briefcase conductors find that their train-like stature actually grants them a wider birth in crowded spaces.
"I find that people actually get out of my way," said Ian, an accountant rushing for his midafternoon train. "And if they don't, I always have the option of running over their feet."
Adidas bets on Beckham to score market share - MARINA STRAUSS
When David Beckham stepped onto the soccer field for the Los Angeles Galaxy Saturday night, it wasn't just the Major League Soccer team that was counting on him to lift its fortunes.
Adidas AG, the German sporting goods maker that was once an industry leader with its well-engineered shoes, also was betting that the 32-year-old British superstar would help boost its business in the North American sports world.
Adidas' sponsorship of the fashionable midfielder is one in a series of high-profile marketing initiatives that industry observers say are already paying off for the company on this side of the Atlantic. Earlier this month, it signed up NASCAR driver Dale Earnhardt Jr. to its first major stock car racing sponsorship contract. More recently, it stole away a prized University of Michigan deal - to outfit all 25 collegiate teams - from industry leader Nike Inc. It snatched yet another agreement - with Texas A&M University - from Nike at last week .
"They're taking their business model and starting to translate that to what is relevant to North American consumers," said Keith McIntyre, president of K. Mac & Associates Marketing Inc. "They're taking a very pro-active approach."
The process got into full gear early last year when adidas, a dominant player in Europe, scooped up U.S.-based Reebok International Ltd. in a move that doubled its market share in North America and narrowed the gap with Beaverton, Ore.-based Nike.
Two years ago, North American business accounted for about 23 per cent of adidas' total sales - €1.56-billion ($2.26-billion) - while European sales were almost half the total. After the acquisition last year, North American business - at €3.3-billion - represented about 33 per cent of overall sales, while the European slice of the business had fallen to about 42 per cent. (Adidas also operates in Asia and, to a much lesser extent, in South America.)
Within months of the Reebok acquisition, adidas signalled its new focus by signing a deal to use the adidas brand instead of the Reebok brand as exclusive uniform and apparel provider for the National Basketball Association. Adidas was intent on tying its name not only to a global sports property but to one particularly close to the hearts of Americans, said Steve Ralph, vice-president of sales and marketing at adidas Canada.
"All these are North American sports," Mr. Ralph said. "What you're seeing is a considerable investment in the North American market."
In the 1970s, adidas was a coveted brand in North America, sought out for its sleek track suits and sneakers. But its signature triple stripes were quickly overtaken by Nike's iconic swoosh logo and daunting marketing machine.
Mr. Ralph said the North American marketplace is important because it is characterized by a "sports crazy" attitude toward basketball, football and baseball. In Europe, on the other hand, the market is more balanced between two main interests: soccer and fashion.
Adidas has distinguished itself from Nike by chasing after entire league sponsorships - backing the NBA and MLS - rather than just teams or individual athletes, he said.
Mr. McIntyre said that adidas' initiatives are already paying off. His own 12-year-old son, a big golf player, used to insist on wearing only Nike gear. But just a week ago, the boy coveted a pair of adidas' three-striped golf shoes.
"He said, 'They're very comfortable and, more important, they're cool,'" Mr. McIntyre recalled his son saying.
Adidas started targeting the North American market in the late 1990s, when it signed a sponsorship deal with the New York Yankees, the biggest property in baseball. But it's been just in the past few years that adidas has made more of a comeback, Mr. McIntyre said.
Now the Beckham tie-in could help broaden its appeal in North America. "They've been able to tap into teams and athletes that people want to be part of."
Adidas AG, the German sporting goods maker that was once an industry leader with its well-engineered shoes, also was betting that the 32-year-old British superstar would help boost its business in the North American sports world.
Adidas' sponsorship of the fashionable midfielder is one in a series of high-profile marketing initiatives that industry observers say are already paying off for the company on this side of the Atlantic. Earlier this month, it signed up NASCAR driver Dale Earnhardt Jr. to its first major stock car racing sponsorship contract. More recently, it stole away a prized University of Michigan deal - to outfit all 25 collegiate teams - from industry leader Nike Inc. It snatched yet another agreement - with Texas A&M University - from Nike at last week .
"They're taking their business model and starting to translate that to what is relevant to North American consumers," said Keith McIntyre, president of K. Mac & Associates Marketing Inc. "They're taking a very pro-active approach."
The process got into full gear early last year when adidas, a dominant player in Europe, scooped up U.S.-based Reebok International Ltd. in a move that doubled its market share in North America and narrowed the gap with Beaverton, Ore.-based Nike.
Two years ago, North American business accounted for about 23 per cent of adidas' total sales - €1.56-billion ($2.26-billion) - while European sales were almost half the total. After the acquisition last year, North American business - at €3.3-billion - represented about 33 per cent of overall sales, while the European slice of the business had fallen to about 42 per cent. (Adidas also operates in Asia and, to a much lesser extent, in South America.)
Within months of the Reebok acquisition, adidas signalled its new focus by signing a deal to use the adidas brand instead of the Reebok brand as exclusive uniform and apparel provider for the National Basketball Association. Adidas was intent on tying its name not only to a global sports property but to one particularly close to the hearts of Americans, said Steve Ralph, vice-president of sales and marketing at adidas Canada.
"All these are North American sports," Mr. Ralph said. "What you're seeing is a considerable investment in the North American market."
In the 1970s, adidas was a coveted brand in North America, sought out for its sleek track suits and sneakers. But its signature triple stripes were quickly overtaken by Nike's iconic swoosh logo and daunting marketing machine.
Mr. Ralph said the North American marketplace is important because it is characterized by a "sports crazy" attitude toward basketball, football and baseball. In Europe, on the other hand, the market is more balanced between two main interests: soccer and fashion.
Adidas has distinguished itself from Nike by chasing after entire league sponsorships - backing the NBA and MLS - rather than just teams or individual athletes, he said.
Mr. McIntyre said that adidas' initiatives are already paying off. His own 12-year-old son, a big golf player, used to insist on wearing only Nike gear. But just a week ago, the boy coveted a pair of adidas' three-striped golf shoes.
"He said, 'They're very comfortable and, more important, they're cool,'" Mr. McIntyre recalled his son saying.
Adidas started targeting the North American market in the late 1990s, when it signed a sponsorship deal with the New York Yankees, the biggest property in baseball. But it's been just in the past few years that adidas has made more of a comeback, Mr. McIntyre said.
Now the Beckham tie-in could help broaden its appeal in North America. "They've been able to tap into teams and athletes that people want to be part of."
Saturday, July 21, 2007
How to let the gurus do your grunt work - JOHN HEINZL
As a psychology and criminology student at Simon Fraser University, Arjun Rudra spends a lot of time probing the human mind.
So it's fitting that before the 22-year-old puts any cash to work in the stock market, he carefully studies the minds of top investment pros.
“I am not trying to be a hero in the investment game,” the Vancouver resident says. “I simply piggyback off the trends and ideas of people I consider to be smarter and more resourceful than myself.”
For years, investors basically had two choices: They could go it alone – a terrifying prospect for many – or they could turn over their savings to a fund manager or financial planner who would invest their money for a fee.
Now, with the Internet making it possible to track the buys and sells of world-class money managers, more investors are adopting a third approach that blends do-it-yourself investing with the peace of mind that comes with having a seasoned expert at the wheel.
Known as copycat investing or coattail investing, it's based on the notion that ordinary investors can generate extraordinary returns by mimicking the moves of the pros, whether they're icons such as Warren Buffett and George Soros or smaller investment firms that generate big returns.
Mr. Arjun, who pens a commodity investment blog under the name Wolf Stone, gets many of his best ideas from Toronto-based Sprott Asset Management. By choosing junior mining stocks from Sprott's holdings, which are updated quarterly on its website, Mr. Rudra has turned his initial investment of $2,000 into $7,000 in less than three years.
“I don't know 50 per cent of what those guys at Sprott know. So to have them on my side is an added benefit,” he says. “It gives me the extra confidence that they've researched the stock and put it in their portfolios.”
Being a copycat investor used to mean spending hours digging through securities commission filings or fund company newsletters in an attempt to glean what others had been buying. But now, financial websites do most of the grunt work for you. The best part: Much of the information is free.
One of the most comprehensive sites is gurufocus.com. Want to know what stocks Warren Buffett bought in the six months to March 31? The site lists nine companies, including health-care giant Johnson & Johnson Inc., drug maker Sanofi-Aventis and railroad operators Burlington Northern Santa Fe Corp., Union Pacific and Norfolk Southern.
Want to know how the stocks have fared since he bought them? Gurufocus.com calculates the gain or loss based on the estimated purchase price. For value investors, there's even a handy tool called “guru bargains” that highlights stocks that have dropped the most since they were purchased.
Many stocks, of course, do the opposite; they soar in price as soon as the public learns of a guru's involvement. In such instances, investors should ask themselves whether it might be wise to wait for a pullback before getting in, lest they overpay for a stock that's suddenly on everybody's radar.
In most cases, you won't learn what the gurus have been doing until several weeks after the fact. That's because they aren't required to file their trades with the Securities and Exchange Commission until after the end of the quarter. Once the information is public, it won't appear on gurufocus.com for another day or two, unless you pay for a premium membership, in which case you get the information within hours of it being published by the SEC.
Another useful feature of the site is the detailed commentaries from the gurus themselves. If you want to probe the thinking of investing legends such as Martin Whitman, chairman of Third Avenue Value Fund, or Bill Miller, chairman of Legg Mason Capital Management, this is the place for you. Warren Buffett's annual letter to Berkshire Hathaway shareholders is here, too.
“Reading the gurus' commentaries, their shareholder letters and interviews is very important. From that you can learn how they invest, how they do valuations of companies and how they understand business,” says Charlie Tian, founder and director of research at Dallas-based gurufocus.com.
A slightly different spin is offered stockpickr.com, which lets investors compare their portfolios to thousands of others, both amateur and professional. The user simply enters a few stock symbols and the site generates a list of similar stocks owned by hedge funds, mutual funds and ordinary investors who have posted their portfolios online.
Still another site worth checking out is coattailinvestor.com, which has a few names you won't find on gurufocus.com.
The key to using all of these websites is to treat them as one more weapon in your investing arsenal, not as a way to make a quick buck, says Cory Janssen, co-founder of Investopedia ULC, an Edmonton-based company that owns coattailinvestor.com.
“It's not a silver bullet or a magic formula, but it's a starting point for you to do more homework and match the gurus out there with your own investment philosophy,” Mr. Janssen says.
For those who want to track every move of the pros, there's also Google Alerts, a service that sends e-mail updates on whatever topic the user chooses. This is how Mr. Janssen stays current with one of his favourite investors, hedge fund manager Eddie Lampert.
“I find out the second anybody's blogged on him or the second he's in Forbes magazine,” he says.
Mr. Rudra agrees that copycat investing isn't foolproof.
Although he gets most of his ideas from fund managers with proven track records, he won't buy a stock until he's done his own research. This usually entails spending several days poring over company filings and brokerage reports.
“I do not recommend people blindly pick any stock they see in a fund portfolio,” he says. After all, even gurus get it wrong sometimes.
So it's fitting that before the 22-year-old puts any cash to work in the stock market, he carefully studies the minds of top investment pros.
“I am not trying to be a hero in the investment game,” the Vancouver resident says. “I simply piggyback off the trends and ideas of people I consider to be smarter and more resourceful than myself.”
For years, investors basically had two choices: They could go it alone – a terrifying prospect for many – or they could turn over their savings to a fund manager or financial planner who would invest their money for a fee.
Now, with the Internet making it possible to track the buys and sells of world-class money managers, more investors are adopting a third approach that blends do-it-yourself investing with the peace of mind that comes with having a seasoned expert at the wheel.
Known as copycat investing or coattail investing, it's based on the notion that ordinary investors can generate extraordinary returns by mimicking the moves of the pros, whether they're icons such as Warren Buffett and George Soros or smaller investment firms that generate big returns.
Mr. Arjun, who pens a commodity investment blog under the name Wolf Stone, gets many of his best ideas from Toronto-based Sprott Asset Management. By choosing junior mining stocks from Sprott's holdings, which are updated quarterly on its website, Mr. Rudra has turned his initial investment of $2,000 into $7,000 in less than three years.
“I don't know 50 per cent of what those guys at Sprott know. So to have them on my side is an added benefit,” he says. “It gives me the extra confidence that they've researched the stock and put it in their portfolios.”
Being a copycat investor used to mean spending hours digging through securities commission filings or fund company newsletters in an attempt to glean what others had been buying. But now, financial websites do most of the grunt work for you. The best part: Much of the information is free.
One of the most comprehensive sites is gurufocus.com. Want to know what stocks Warren Buffett bought in the six months to March 31? The site lists nine companies, including health-care giant Johnson & Johnson Inc., drug maker Sanofi-Aventis and railroad operators Burlington Northern Santa Fe Corp., Union Pacific and Norfolk Southern.
Want to know how the stocks have fared since he bought them? Gurufocus.com calculates the gain or loss based on the estimated purchase price. For value investors, there's even a handy tool called “guru bargains” that highlights stocks that have dropped the most since they were purchased.
Many stocks, of course, do the opposite; they soar in price as soon as the public learns of a guru's involvement. In such instances, investors should ask themselves whether it might be wise to wait for a pullback before getting in, lest they overpay for a stock that's suddenly on everybody's radar.
In most cases, you won't learn what the gurus have been doing until several weeks after the fact. That's because they aren't required to file their trades with the Securities and Exchange Commission until after the end of the quarter. Once the information is public, it won't appear on gurufocus.com for another day or two, unless you pay for a premium membership, in which case you get the information within hours of it being published by the SEC.
Another useful feature of the site is the detailed commentaries from the gurus themselves. If you want to probe the thinking of investing legends such as Martin Whitman, chairman of Third Avenue Value Fund, or Bill Miller, chairman of Legg Mason Capital Management, this is the place for you. Warren Buffett's annual letter to Berkshire Hathaway shareholders is here, too.
“Reading the gurus' commentaries, their shareholder letters and interviews is very important. From that you can learn how they invest, how they do valuations of companies and how they understand business,” says Charlie Tian, founder and director of research at Dallas-based gurufocus.com.
A slightly different spin is offered stockpickr.com, which lets investors compare their portfolios to thousands of others, both amateur and professional. The user simply enters a few stock symbols and the site generates a list of similar stocks owned by hedge funds, mutual funds and ordinary investors who have posted their portfolios online.
Still another site worth checking out is coattailinvestor.com, which has a few names you won't find on gurufocus.com.
The key to using all of these websites is to treat them as one more weapon in your investing arsenal, not as a way to make a quick buck, says Cory Janssen, co-founder of Investopedia ULC, an Edmonton-based company that owns coattailinvestor.com.
“It's not a silver bullet or a magic formula, but it's a starting point for you to do more homework and match the gurus out there with your own investment philosophy,” Mr. Janssen says.
For those who want to track every move of the pros, there's also Google Alerts, a service that sends e-mail updates on whatever topic the user chooses. This is how Mr. Janssen stays current with one of his favourite investors, hedge fund manager Eddie Lampert.
“I find out the second anybody's blogged on him or the second he's in Forbes magazine,” he says.
Mr. Rudra agrees that copycat investing isn't foolproof.
Although he gets most of his ideas from fund managers with proven track records, he won't buy a stock until he's done his own research. This usually entails spending several days poring over company filings and brokerage reports.
“I do not recommend people blindly pick any stock they see in a fund portfolio,” he says. After all, even gurus get it wrong sometimes.
Friday, July 20, 2007
Desperately seeking Jeeves - REBECCA DUBE
The superwealthy have a new worry to keep them awake on their 1,000-thread-count sheets at night: the global butler shortage.
Butlers are making a big-time comeback as the number of millionaires and billionaires steadily grows in Canada and around the world. And, while Canadians have traditionally held tight to their hardy, self-reliant image, increasingly they are succumbing to the allure of formal domestic help.
The modern butler is not the Jeeves of yore, though. He (or she) can still fold a mean napkin and answer the door with aplomb, but many modern butlers run the equivalent of a mid-sized business, managing multiple estates in different countries, reviewing contracts and supervising dozens of staff members - in addition to walking family pets and driving the children's carpool.
"The worldwide butler shortage is a serious problem. It sounds silly, but it is," says Charles MacPherson, former butler to the Eaton family who now runs a placement service in Toronto.
"The wealthy family that used to be happy with an 8,000- to 10,000-square-foot house is now living in a 40,000-square-foot home," he said.
"To manage that takes a small army of staff."
The general of that army is someone like John Binette, former butler to the Cirque du Soleil who currently works for a family in Vancouver. His average day may include planning and cooking gourmet meals, light housekeeping, having luxury cars detailed, dealing with contractors and renovators, organizing the wine cellar, chauffeuring his clients and supervising other household staff.
All while anticipating his clients' needs and discreetly blending into the background, of course.
"You have to be attentive, you have to listen, you have to understand the first time they tell you something, because repeating is not something they like to do," Mr. Binette says. "A butler's aim is to please - to do whatever is physically possible and morally responsible."
Salary for a novice butler may start at about $50,000; more seasoned butlers can command $150,000 or more in Canada, and far more in New York or London, says Mr. MacPherson, who's also vice-chairman of the International Guild of Professional Butlers and teaches at the International Butler Academy in the Netherlands.
"It's a role of diplomacy and service," says Mr. MacPherson, who taught a refresher course this week for the two dozen butlers on the Queen Mary 2. Requests for butlers, along with personal chefs and head housekeepers, have increased dramatically in Canada, he says. "There's more demand today for domestic staff than there has been in the past 100 years."
Mr. Binette started his career cooking and cleaning for a businessman who had had a stroke. From there, he worked for a succession of families in progressively grander homes. His toughest job, he says, was in a house where the staff were always fighting.
"Oh, it was every day," he recalls wearily. "You could hear them all the way from the west wing."
He offers no horror stories of screaming clients, perhaps because, after 10 years in the business, very little bothers him.
"Clients are clients," Mr. Binette says. "You take a lot with a grain of salt, and you get on with your job."
Mr. Binette is moving to Toronto this summer, and hopes to work for one family that has a 150-acre, 18-bedroom estate in Ontario plus several other houses in the region and homes in Florida. If that doesn't work out, he has four other interviews lined up with families seeking butlers.
The role of the butler has evolved continuously, from low-level servant in charge of the wine cellar and beer-making in the middle ages, to head of the household staff in the 19th century, to near-extinction in the 1960s and 1970s.
In the modern incarnation, the butler is a household manager and personal assistant rolled into one.
The current butler boom springs directly from the growth in global wealth.
The number of millionaires (assets measured in U.S. dollars, houses not included) grew 8.3 per cent last year to include 9.5 million people worldwide, according to the 2007 World Wealth Report published by Merrill Lynch and the wealth-management firm Capgemini.
In Canada, 248,000 people counted themselves as millionaires last year, up 6.9 per cent from 2005.
Mr. MacPherson says the greatest demand for butlers in Canada comes from Toronto, followed by Montreal and Vancouver. Torontonians like their butlers on the more formal side, dressed in business clothes if not a three-piece suit, while employers in Vancouver and Montreal favour the khakis-and-polo-shirt look. Despite the oil money in Calgary, he says, butlers haven't really taken off there.
"Calgary is still very traditional, old Canadian, where you have one housekeeper and the wife does everything else," Mr. MacPherson says.
Of course, just because you can afford a butler doesn't mean you have the faintest idea what to do with one.
Three years ago, Steven Ferry created the International Institute of Modern Butlers, based in Florida, in response to what he saw as slipping standards. "People were renaming their pool attendants 'butlers,' " he tsks.
Since then, he's found that potential employers often need training as well.
"They tend to say, 'Okay, we've got a butler, let's give him everything to do,' " Mr. Ferry says. "It's certainly fine for a butler to roll up his sleeves and clean toilets or muck out stables, but an honest-to-goodness butler is really a manager. They should be managing people who muck out stables or clean toilets. ... It's sort of like using a Rolls-Royce to tow a U-Haul."
Most people would be better off towing their own U-Haul, says Lynda Reeves, president of Toronto-based House & Home Media. She dismisses the current butler craze as "a stupid concept."
Ms. Reeves says she can count on one hand the number of Canadians who have enough money and property to warrant a true, Remains of the Day-style butler. As for the rest, she says, "it's a pretentious name for a housekeeper. ...
"They're trying to create an aura of elitism," Ms. Reeves says. "People have a lot of money, and that's all."
Regardless, the butler boom shows no signs of slowing. And, as butlers move into the modern era, they're trying to unload some of that elitist baggage.
Mr. Binette says many families prefer to call him a house manager because they fear "butler" will sound snobby.
Mr. Ferry says a supercilious, sneering butler has no place in today's homes, however grand. A modern butler puts everyone at ease, Mr. Ferry says. "One has to have a lot of compassion and tolerance."
*****
The butler files
Think you have what it takes to be a butler? Charles MacPherson, former butler to the Eatons and a butler instructor, explains how to deal with three challenges:
Oops! How do you remove strawberry stains from white cotton?
Stretch the fabric taut over a bowl and pour boiling water over it. The stain should dissolve.
Yikes! You see a houseguest slipping a silver picture frame into her purse. What do you do?
Proceed cautiously. Above all, you don't want to make a scene and embarrass your employer. Approach the sticky-fingered guest quietly and say something like, "Excuse me, Mrs. Jones, I noticed you have borrowed the picture frame that was on the mantel; I'm sure you noticed it was broken and you want to have it fixed. Thanks so much, but I've already made arrangements to have it repaired."
Ka-ching! You're the butler and confidant to a beloved, glamorous princess who dies tragically in a car accident. Should you write a tell-all book?
No. Paul Burrell, the butler who wrote two books about his 10 years of service to Diana, Princess of Wales, is a butler pariah. "He would not be accepted by any butler organization in the world, because of his book," Mr. MacPherson sniffed.
Of course, Mr. Burrell has not recently asked for membership in any butler association, but as any butler could tell you, it's the principle of the thing.
Butlers are making a big-time comeback as the number of millionaires and billionaires steadily grows in Canada and around the world. And, while Canadians have traditionally held tight to their hardy, self-reliant image, increasingly they are succumbing to the allure of formal domestic help.
The modern butler is not the Jeeves of yore, though. He (or she) can still fold a mean napkin and answer the door with aplomb, but many modern butlers run the equivalent of a mid-sized business, managing multiple estates in different countries, reviewing contracts and supervising dozens of staff members - in addition to walking family pets and driving the children's carpool.
"The worldwide butler shortage is a serious problem. It sounds silly, but it is," says Charles MacPherson, former butler to the Eaton family who now runs a placement service in Toronto.
"The wealthy family that used to be happy with an 8,000- to 10,000-square-foot house is now living in a 40,000-square-foot home," he said.
"To manage that takes a small army of staff."
The general of that army is someone like John Binette, former butler to the Cirque du Soleil who currently works for a family in Vancouver. His average day may include planning and cooking gourmet meals, light housekeeping, having luxury cars detailed, dealing with contractors and renovators, organizing the wine cellar, chauffeuring his clients and supervising other household staff.
All while anticipating his clients' needs and discreetly blending into the background, of course.
"You have to be attentive, you have to listen, you have to understand the first time they tell you something, because repeating is not something they like to do," Mr. Binette says. "A butler's aim is to please - to do whatever is physically possible and morally responsible."
Salary for a novice butler may start at about $50,000; more seasoned butlers can command $150,000 or more in Canada, and far more in New York or London, says Mr. MacPherson, who's also vice-chairman of the International Guild of Professional Butlers and teaches at the International Butler Academy in the Netherlands.
"It's a role of diplomacy and service," says Mr. MacPherson, who taught a refresher course this week for the two dozen butlers on the Queen Mary 2. Requests for butlers, along with personal chefs and head housekeepers, have increased dramatically in Canada, he says. "There's more demand today for domestic staff than there has been in the past 100 years."
Mr. Binette started his career cooking and cleaning for a businessman who had had a stroke. From there, he worked for a succession of families in progressively grander homes. His toughest job, he says, was in a house where the staff were always fighting.
"Oh, it was every day," he recalls wearily. "You could hear them all the way from the west wing."
He offers no horror stories of screaming clients, perhaps because, after 10 years in the business, very little bothers him.
"Clients are clients," Mr. Binette says. "You take a lot with a grain of salt, and you get on with your job."
Mr. Binette is moving to Toronto this summer, and hopes to work for one family that has a 150-acre, 18-bedroom estate in Ontario plus several other houses in the region and homes in Florida. If that doesn't work out, he has four other interviews lined up with families seeking butlers.
The role of the butler has evolved continuously, from low-level servant in charge of the wine cellar and beer-making in the middle ages, to head of the household staff in the 19th century, to near-extinction in the 1960s and 1970s.
In the modern incarnation, the butler is a household manager and personal assistant rolled into one.
The current butler boom springs directly from the growth in global wealth.
The number of millionaires (assets measured in U.S. dollars, houses not included) grew 8.3 per cent last year to include 9.5 million people worldwide, according to the 2007 World Wealth Report published by Merrill Lynch and the wealth-management firm Capgemini.
In Canada, 248,000 people counted themselves as millionaires last year, up 6.9 per cent from 2005.
Mr. MacPherson says the greatest demand for butlers in Canada comes from Toronto, followed by Montreal and Vancouver. Torontonians like their butlers on the more formal side, dressed in business clothes if not a three-piece suit, while employers in Vancouver and Montreal favour the khakis-and-polo-shirt look. Despite the oil money in Calgary, he says, butlers haven't really taken off there.
"Calgary is still very traditional, old Canadian, where you have one housekeeper and the wife does everything else," Mr. MacPherson says.
Of course, just because you can afford a butler doesn't mean you have the faintest idea what to do with one.
Three years ago, Steven Ferry created the International Institute of Modern Butlers, based in Florida, in response to what he saw as slipping standards. "People were renaming their pool attendants 'butlers,' " he tsks.
Since then, he's found that potential employers often need training as well.
"They tend to say, 'Okay, we've got a butler, let's give him everything to do,' " Mr. Ferry says. "It's certainly fine for a butler to roll up his sleeves and clean toilets or muck out stables, but an honest-to-goodness butler is really a manager. They should be managing people who muck out stables or clean toilets. ... It's sort of like using a Rolls-Royce to tow a U-Haul."
Most people would be better off towing their own U-Haul, says Lynda Reeves, president of Toronto-based House & Home Media. She dismisses the current butler craze as "a stupid concept."
Ms. Reeves says she can count on one hand the number of Canadians who have enough money and property to warrant a true, Remains of the Day-style butler. As for the rest, she says, "it's a pretentious name for a housekeeper. ...
"They're trying to create an aura of elitism," Ms. Reeves says. "People have a lot of money, and that's all."
Regardless, the butler boom shows no signs of slowing. And, as butlers move into the modern era, they're trying to unload some of that elitist baggage.
Mr. Binette says many families prefer to call him a house manager because they fear "butler" will sound snobby.
Mr. Ferry says a supercilious, sneering butler has no place in today's homes, however grand. A modern butler puts everyone at ease, Mr. Ferry says. "One has to have a lot of compassion and tolerance."
*****
The butler files
Think you have what it takes to be a butler? Charles MacPherson, former butler to the Eatons and a butler instructor, explains how to deal with three challenges:
Oops! How do you remove strawberry stains from white cotton?
Stretch the fabric taut over a bowl and pour boiling water over it. The stain should dissolve.
Yikes! You see a houseguest slipping a silver picture frame into her purse. What do you do?
Proceed cautiously. Above all, you don't want to make a scene and embarrass your employer. Approach the sticky-fingered guest quietly and say something like, "Excuse me, Mrs. Jones, I noticed you have borrowed the picture frame that was on the mantel; I'm sure you noticed it was broken and you want to have it fixed. Thanks so much, but I've already made arrangements to have it repaired."
Ka-ching! You're the butler and confidant to a beloved, glamorous princess who dies tragically in a car accident. Should you write a tell-all book?
No. Paul Burrell, the butler who wrote two books about his 10 years of service to Diana, Princess of Wales, is a butler pariah. "He would not be accepted by any butler organization in the world, because of his book," Mr. MacPherson sniffed.
Of course, Mr. Burrell has not recently asked for membership in any butler association, but as any butler could tell you, it's the principle of the thing.
Thursday, July 19, 2007
Lehman Bros. reels from subprime fallout - TARA PERKINS
Trigger-happy investors sent shares of Lehman Brothers Holdings Inc. on a roller-coaster ride yesterday, illustrating how quickly investors will react as they wait for the next shoe to drop from the subprime mortgage market.
Lehman Brothers' shares were down 3.5 per cent by early afternoon on rumours that it could be the subprime mortgage market's next big victim. The stock rebounded to $71.65 (U.S.), down 1.93 per cent on the New York Stock Exchange, after the company denied speculation it is struggling with large losses on subprime mortgage securities.
The market is on edge after this week's news that two Bear Stearns Co. hedge funds have very little value left. The performance of those two funds reflects, in part, unprecedented declines in the value of a number of subprime-related securities that were highly rated - at double-A or triple-A - Bear Stearns said in a letter to clients that was obtained by The Wall Street Journal. Preliminary estimates show that there is "effectively no value left for the investors" in one of the funds and "very little" left in the other, the letter said.
The Bear Stearns admission will almost certainly trigger a mass revaluation of portfolios with similar investments in collateralized debt obligations, or CDOs, causing big writedowns at the banks, said Richard Bove, an analyst with Punk Ziegel & Co. He downgraded virtually all of the Wall Street banks yesterday on the Bear Stearns news. He said the collapse of the two Bear hedge funds does not reflect a problem at the firm itself, but reveals troubles with the entire system.
"The banks are overstating the quality of assets on their balance sheets," he said. "When they go back and look at these securities, it could be up to a 15- to 20-per-cent devaluation."
If the assets of the Bear Stearns funds are liquidated, their true market value will likely come to light, Blackmont Capital analyst Brad Smith noted.
"It's quite likely that more information will come to the surface now," Mr. Smith said in an interview. "It's a developing situation that should not be ignored by the market."
Of Canada's big banks, Canadian Imperial Bank of Commerce "is most likely to be impacted given its rapid 2006 entry into this field," he wrote. "Although likely manageable, losses will underscore the build-up of non-traditional risks in domestic banks and may cap [price-to-earnings] levels," he said.
CIBC has acknowledged putting about $330-million into a CDO called Tricadia that's tied to U.S. subprime mortgages. It has stated that the majority of its exposure to these structured credit transactions is rated triple-A.
Shares of CIBC fell 68 cents, or less than 1 per cent, to $97.55 (Canadian) on the Toronto Stock Exchange, having dipped as low as $96.50 earlier in the afternoon.
Standard & Poor's Rating Services, which last week downgraded various classes of U.S. residential mortgage-backed securities (RMBS) with exposure to subprime mortgages, said yesterday it expects to spend several weeks reviewing U.S. RMBS, with a review of CDOs to follow shortly thereafter. While the reviews are under way, it has adopted guidelines for rating new CDO transactions to deal with the uncertainties surrounding future rating actions.
What is a CDO?
Collateralized debt obligations are created by pooling large numbers of residential mortgages into residential mortgage backed securities (RMBSs). Pooling is a way for banks to unload risk from mortgages and is a way for investors to earn a return from interest payments on the underlying mortgages. The RMBSs are then sliced and diced into chunks, or CDOs, with different levels of risk. Those near the top, the ones with mortgages that are most likely to continue payments, would be rated AAA. The CDOs with the riskiest mortgages are rated much lower or not at all.
Lehman Brothers' shares were down 3.5 per cent by early afternoon on rumours that it could be the subprime mortgage market's next big victim. The stock rebounded to $71.65 (U.S.), down 1.93 per cent on the New York Stock Exchange, after the company denied speculation it is struggling with large losses on subprime mortgage securities.
The market is on edge after this week's news that two Bear Stearns Co. hedge funds have very little value left. The performance of those two funds reflects, in part, unprecedented declines in the value of a number of subprime-related securities that were highly rated - at double-A or triple-A - Bear Stearns said in a letter to clients that was obtained by The Wall Street Journal. Preliminary estimates show that there is "effectively no value left for the investors" in one of the funds and "very little" left in the other, the letter said.
The Bear Stearns admission will almost certainly trigger a mass revaluation of portfolios with similar investments in collateralized debt obligations, or CDOs, causing big writedowns at the banks, said Richard Bove, an analyst with Punk Ziegel & Co. He downgraded virtually all of the Wall Street banks yesterday on the Bear Stearns news. He said the collapse of the two Bear hedge funds does not reflect a problem at the firm itself, but reveals troubles with the entire system.
"The banks are overstating the quality of assets on their balance sheets," he said. "When they go back and look at these securities, it could be up to a 15- to 20-per-cent devaluation."
If the assets of the Bear Stearns funds are liquidated, their true market value will likely come to light, Blackmont Capital analyst Brad Smith noted.
"It's quite likely that more information will come to the surface now," Mr. Smith said in an interview. "It's a developing situation that should not be ignored by the market."
Of Canada's big banks, Canadian Imperial Bank of Commerce "is most likely to be impacted given its rapid 2006 entry into this field," he wrote. "Although likely manageable, losses will underscore the build-up of non-traditional risks in domestic banks and may cap [price-to-earnings] levels," he said.
CIBC has acknowledged putting about $330-million into a CDO called Tricadia that's tied to U.S. subprime mortgages. It has stated that the majority of its exposure to these structured credit transactions is rated triple-A.
Shares of CIBC fell 68 cents, or less than 1 per cent, to $97.55 (Canadian) on the Toronto Stock Exchange, having dipped as low as $96.50 earlier in the afternoon.
Standard & Poor's Rating Services, which last week downgraded various classes of U.S. residential mortgage-backed securities (RMBS) with exposure to subprime mortgages, said yesterday it expects to spend several weeks reviewing U.S. RMBS, with a review of CDOs to follow shortly thereafter. While the reviews are under way, it has adopted guidelines for rating new CDO transactions to deal with the uncertainties surrounding future rating actions.
What is a CDO?
Collateralized debt obligations are created by pooling large numbers of residential mortgages into residential mortgage backed securities (RMBSs). Pooling is a way for banks to unload risk from mortgages and is a way for investors to earn a return from interest payments on the underlying mortgages. The RMBSs are then sliced and diced into chunks, or CDOs, with different levels of risk. Those near the top, the ones with mortgages that are most likely to continue payments, would be rated AAA. The CDOs with the riskiest mortgages are rated much lower or not at all.
Tempest brews over coffee perks - IAN BAILEY
VANCOUVER — — The B.C. government is defending Starbucks treats for exceptional civil servants that ended up costing $51,452 in the last fiscal year, according to an NDP review of government credit-card billings.
“Starbucks is one of the very popular staff appreciation awards we give out,” Finance Minister Carole Taylor said Tuesday, noting public service managers are entitled to give outstanding workers $100 in gift certificates each year.
“Starbucks is a very easy thing to give someone in recognition of the work they have done, so there is quite a bit of that,” she said.
Ms. Taylor linked the awards, which range beyond Starbucks gift certificates to vouchers for bookstores and elsewhere, to a continuing drive by the Liberal government to recruit more civil servants and improve morale.
These gift certificates come about when somebody does something above and beyond the call,” she said. “I think it is a positive way to say thank you for doing something extra. These appreciation awards aren't for doing your regular job. They're for doing something above and beyond the call.”
She added: “It's the idea we have got to defend. It's a good thing to do.”
Although the Starbucks cost is minor for a government that spends billions of dollars a year, the NDP spokesman on the issue said the idea is ridiculous. He is also calling for tougher controls over government-issued credit cards. The opposition came up with the Starbucks figure while poring over credit-card expense records.
“I find it a little strange that [civil servants] would be rewarded with caffeine,” said MLA Guy Gentner, the critic for Crown corporations and citizens' services. “I would have thought working in the civil service was a reward in itself.”
Questions about the 18-year-old staff-appreciation program, launched during the decade in which the NDP last governed B.C., have recently been raised as Mr. Gentner, the member for North Delta, has found receipts for spa treatments and other perks while reviewing $60-million in governmental credit-card billings.
“The NDP brought the program in and I think it's a good program,” Ms. Taylor said, chuckling.
The government has explained away NDP-flagged expenses on credit cards as reasonable expenses. Billings for a sex-toys store raised by Mr. Gentner in the legislature turned out to have been made by a stolen card.
Last week, the Finance Ministry even released a pre-emptive list, poring over expenses to flag those that might look odd. For example, a $22.56 expense from a company called Bosom Buddies Canada by officials of the Public Safety Ministry turned out to be 10 nursing bras for female inmates at a corrections centre.
Many expenses have been linked to staff-appreciation efforts. Mr. Gentner said he thought the program inappropriate despite its NDP roots.
“I am not an apologist for what had happened before,” he said. “It gives me a bad taste in my mouth. It's an arbitrary system. I don't know how you merit good behaviour with vats of coffee.”
Starbucks, he said, seems extravagant.
“My office has a coffee machine – small, little a Black and Decker you pick up at Costco,” he said, noting his staff are welcome to buy Starbucks at an outlet across the street from his constituency office. “I'll go and get Nabob grounds and brew coffee for staff, free of cost. I don't have to run an expense account for Starbucks.”
Mr. Gentner also said he was skeptical about Ms. Taylor's suggestion the Starbucks expenses were linked to staff-appreciation efforts because many line-item Starbucks costs he found were in amounts of less than $2, suggesting they were for individual drinks.
“I have a hard time believing a $1.75 entry is a staff-appreciation award,” he said.
He called for tighter controls over the use of cards, noting some public servants have told him existing efforts to monitor cards are “somewhat of a joke.”
Ms. Taylor said she was satisfied with existing controls, though she welcomed anyone, including the NDP, raising concerns to help maintain vigilance.
“We all have to keep our eyes on issues like this to make sure everything is being done properly and I welcome any set of eyes that look at them. If they found, in their research, something that looked unusual, I'd like to know about it and we can check it out.”
“Starbucks is one of the very popular staff appreciation awards we give out,” Finance Minister Carole Taylor said Tuesday, noting public service managers are entitled to give outstanding workers $100 in gift certificates each year.
“Starbucks is a very easy thing to give someone in recognition of the work they have done, so there is quite a bit of that,” she said.
Ms. Taylor linked the awards, which range beyond Starbucks gift certificates to vouchers for bookstores and elsewhere, to a continuing drive by the Liberal government to recruit more civil servants and improve morale.
These gift certificates come about when somebody does something above and beyond the call,” she said. “I think it is a positive way to say thank you for doing something extra. These appreciation awards aren't for doing your regular job. They're for doing something above and beyond the call.”
She added: “It's the idea we have got to defend. It's a good thing to do.”
Although the Starbucks cost is minor for a government that spends billions of dollars a year, the NDP spokesman on the issue said the idea is ridiculous. He is also calling for tougher controls over government-issued credit cards. The opposition came up with the Starbucks figure while poring over credit-card expense records.
“I find it a little strange that [civil servants] would be rewarded with caffeine,” said MLA Guy Gentner, the critic for Crown corporations and citizens' services. “I would have thought working in the civil service was a reward in itself.”
Questions about the 18-year-old staff-appreciation program, launched during the decade in which the NDP last governed B.C., have recently been raised as Mr. Gentner, the member for North Delta, has found receipts for spa treatments and other perks while reviewing $60-million in governmental credit-card billings.
“The NDP brought the program in and I think it's a good program,” Ms. Taylor said, chuckling.
The government has explained away NDP-flagged expenses on credit cards as reasonable expenses. Billings for a sex-toys store raised by Mr. Gentner in the legislature turned out to have been made by a stolen card.
Last week, the Finance Ministry even released a pre-emptive list, poring over expenses to flag those that might look odd. For example, a $22.56 expense from a company called Bosom Buddies Canada by officials of the Public Safety Ministry turned out to be 10 nursing bras for female inmates at a corrections centre.
Many expenses have been linked to staff-appreciation efforts. Mr. Gentner said he thought the program inappropriate despite its NDP roots.
“I am not an apologist for what had happened before,” he said. “It gives me a bad taste in my mouth. It's an arbitrary system. I don't know how you merit good behaviour with vats of coffee.”
Starbucks, he said, seems extravagant.
“My office has a coffee machine – small, little a Black and Decker you pick up at Costco,” he said, noting his staff are welcome to buy Starbucks at an outlet across the street from his constituency office. “I'll go and get Nabob grounds and brew coffee for staff, free of cost. I don't have to run an expense account for Starbucks.”
Mr. Gentner also said he was skeptical about Ms. Taylor's suggestion the Starbucks expenses were linked to staff-appreciation efforts because many line-item Starbucks costs he found were in amounts of less than $2, suggesting they were for individual drinks.
“I have a hard time believing a $1.75 entry is a staff-appreciation award,” he said.
He called for tighter controls over the use of cards, noting some public servants have told him existing efforts to monitor cards are “somewhat of a joke.”
Ms. Taylor said she was satisfied with existing controls, though she welcomed anyone, including the NDP, raising concerns to help maintain vigilance.
“We all have to keep our eyes on issues like this to make sure everything is being done properly and I welcome any set of eyes that look at them. If they found, in their research, something that looked unusual, I'd like to know about it and we can check it out.”
The new wave of H2O - worth it, or just all wet? - SIRI AGRELL
There is a new miracle product currently on shelves that claims to make you smarter, give you energy, boost your vitamin intake, improve your fitness regimen and even help you get a little bit wild.
They call it water.
It wasn't long ago that the marketing of bottled water was regarded as a bit of a joke. Evian is naive spelled backward, people would point out.
But the multibillion-dollar global industry for bottled water is no longer a laughing matter, and now a tsunami of new "enhanced water" brands are positioning H20 as a means to more than just hydration.
This month saw Loblaws stores across Canada start stocking Clearly Canadian's new line of "certified organic essence water," including dailyENERGY - with taurine, inositol and caffeine - and citrus-flavoured dailyHYDRATION, for those who like water in principle, but not in taste.
Jennifer Aniston's face began appearing in magazines and on billboards as the celebrity spokesdrinker for "vapour distilled" smartwater, and Gatorade introduced a vitamin water called Propel, which claims to contain energizing levels of vitamin B.
There are diet waters, Special K20 protein water (available only in the United States) and even vodka water - liquor stores across Canada are stocking Hydra, an alcoholic concoction branded as "water made naughty."
Marketing and nutrition experts say the "new/improved" water trend is buoyed by an increasingly health-conscious culture well-versed in the benefits of hydration, and looking for flavoured but uncarbonated drinks to quench their thirst.
But Robin Ritchie, a marketing professor at the University of Western Ontario said it's not easy to figure out which products are beneficial and which ones are just "puffery."
"People are beginning to look for ways to use foods as almost quasi-medications," he said. "The challenge is sorting out the really helpful ones from those that claim a lot and offer little."
And health professionals, too, are skeptical about some of the claims that are being made.
"I find most of them are nothing more than a flavoured water with a really good marketing campaign," said Janelle Belter, a nutritional consultant and owner of Hip Momma Nutrients in Vancouver.
"For $2.25, I'd rather drink from the tap and take a multivitamin."
Ms. Belter recommends her clients drink eight glasses of water a day, depending on their body type, but said the additives in many new water products do little to improve their value.
Most of the waters that claim to improve energy simply contain sugar, artificial sweetener or caffeine, she said, all of which should be consumed in moderation.
And products that promote themselves as dietary or vitamin supplements contain only small quantities of the elements consumers may be seeking out, she said.
The Special K20 protein water, for example, contains five grams of protein in a 16-ounce bottle. To put that in perspective, Ms. Belter said, an ounce of meat has about seven or eight grams of protein.
"You could just as easily eat a handful of almonds," she said.
But Peter Lemon, director of the University of Western Ontario's Exercise Nutrition Research Laboratory, believes that enhanced water could benefit those who do not eat well to begin with.
"Because they're convenient, they may result in an improved diet for someone who has a poor diet," he said.
The satiating effect of water could be helpful to people trying to diet, he said, but consumers should look carefully at the exact nature of what they are drinking.
The taste, too, may surprise people. While billed as water, many of these products taste like anything but, as they are enhanced with natural or artificial flavours.
"A lot of people don't like the taste of water," Dr. Lemon said. "So that might actually be the draw."
Regardless of the products' flavour or nutritional impact, it is obvious companies are prepared to throw tremendous resources behind their marketing.
In May, Coca-Cola bought Energy Brands for $41-billion (U.S.). Energy Brand is the maker of Glaceau products, including smartwater.
Mr. Ritchie said the notion of "functional foods" has become a huge industry and will likely spawn rebranding efforts for other natural products, such as cheese (probiotic!) and blueberries (anti-oxidant!).
And although he believes many of the new water drinks are "almost certainly overpromising," few customers are likely to be disappointed.
"It's not going to do you any harm," he said. "At worst, you're out a couple bucks."
They call it water.
It wasn't long ago that the marketing of bottled water was regarded as a bit of a joke. Evian is naive spelled backward, people would point out.
But the multibillion-dollar global industry for bottled water is no longer a laughing matter, and now a tsunami of new "enhanced water" brands are positioning H20 as a means to more than just hydration.
This month saw Loblaws stores across Canada start stocking Clearly Canadian's new line of "certified organic essence water," including dailyENERGY - with taurine, inositol and caffeine - and citrus-flavoured dailyHYDRATION, for those who like water in principle, but not in taste.
Jennifer Aniston's face began appearing in magazines and on billboards as the celebrity spokesdrinker for "vapour distilled" smartwater, and Gatorade introduced a vitamin water called Propel, which claims to contain energizing levels of vitamin B.
There are diet waters, Special K20 protein water (available only in the United States) and even vodka water - liquor stores across Canada are stocking Hydra, an alcoholic concoction branded as "water made naughty."
Marketing and nutrition experts say the "new/improved" water trend is buoyed by an increasingly health-conscious culture well-versed in the benefits of hydration, and looking for flavoured but uncarbonated drinks to quench their thirst.
But Robin Ritchie, a marketing professor at the University of Western Ontario said it's not easy to figure out which products are beneficial and which ones are just "puffery."
"People are beginning to look for ways to use foods as almost quasi-medications," he said. "The challenge is sorting out the really helpful ones from those that claim a lot and offer little."
And health professionals, too, are skeptical about some of the claims that are being made.
"I find most of them are nothing more than a flavoured water with a really good marketing campaign," said Janelle Belter, a nutritional consultant and owner of Hip Momma Nutrients in Vancouver.
"For $2.25, I'd rather drink from the tap and take a multivitamin."
Ms. Belter recommends her clients drink eight glasses of water a day, depending on their body type, but said the additives in many new water products do little to improve their value.
Most of the waters that claim to improve energy simply contain sugar, artificial sweetener or caffeine, she said, all of which should be consumed in moderation.
And products that promote themselves as dietary or vitamin supplements contain only small quantities of the elements consumers may be seeking out, she said.
The Special K20 protein water, for example, contains five grams of protein in a 16-ounce bottle. To put that in perspective, Ms. Belter said, an ounce of meat has about seven or eight grams of protein.
"You could just as easily eat a handful of almonds," she said.
But Peter Lemon, director of the University of Western Ontario's Exercise Nutrition Research Laboratory, believes that enhanced water could benefit those who do not eat well to begin with.
"Because they're convenient, they may result in an improved diet for someone who has a poor diet," he said.
The satiating effect of water could be helpful to people trying to diet, he said, but consumers should look carefully at the exact nature of what they are drinking.
The taste, too, may surprise people. While billed as water, many of these products taste like anything but, as they are enhanced with natural or artificial flavours.
"A lot of people don't like the taste of water," Dr. Lemon said. "So that might actually be the draw."
Regardless of the products' flavour or nutritional impact, it is obvious companies are prepared to throw tremendous resources behind their marketing.
In May, Coca-Cola bought Energy Brands for $41-billion (U.S.). Energy Brand is the maker of Glaceau products, including smartwater.
Mr. Ritchie said the notion of "functional foods" has become a huge industry and will likely spawn rebranding efforts for other natural products, such as cheese (probiotic!) and blueberries (anti-oxidant!).
And although he believes many of the new water drinks are "almost certainly overpromising," few customers are likely to be disappointed.
"It's not going to do you any harm," he said. "At worst, you're out a couple bucks."
Caught in the eye of the BCE storm - JACQUIE MCNISH
It was big, nasty and messy, and Ed Waitzer was smack in the middle of it.
When the Stikeman Elliott LLP deal maker was airlifted into the BCE Inc. auction in April to advise a special committee of directors, he braced himself for a public outcry over the loss of one of Canada's largest companies. What he wasn't prepared for was the furious insults, complaints and deal punches hurled at the board, its executives and advisers during what became one of the messiest auctions witnessed in Canada.
"There were a lot of noisy grievances from bidders who were trying to tilt the auction in their direction or who genuinely felt that it was being tilted away from them," Mr. Waitzer said.
As the bidding lurched from one suitor to another and buyers stormed away complaining bitterly about the auction process, Mr. Waitzer said his challenge was to keep the committee of directors focused.
"There was a lot of noise and some of it was nasty and personal. I had to keep everyone focused on the law and the process so that we were doing what was best for shareholders," he said.
The noise, at times, was deafening. The Ontario Teachers' Pension Plan set the tone from the start by going hostile with a public securities filing that signalled a possible unsolicited bid. Then BCE's CEO Michael Sabia and chairman Richard Currie infuriated potential suitors by shepherding friendly buyers into a monster bidding syndicate headed by the Canada Pension Plan Investment Board and Kohlberg Kravis Roberts & Co.
While suitors yelped that the deck had been stacked against them, mini-dramas erupted off stage in each camp. First, the CPP syndicate saw some of its Canadian backers defect, then New York's Cerberus Capital lined up improbable Canadian partners who were long on ambition but short on cash. At the 11th hour, BCE's archrival Telus Corp. arrived at the deal table, fought furiously to gain access to the data room and then retreated in a huff complaining publicly about "inadequacies" in the auction process.
Over in BCE's camp, things weren't much calmer. As the company's special committee of directors jostled with bidders and, at times, its senior executives over how to steer the auction, a cast of legal advisers twirled across the stage. Key BCE advisers Bill Braithwaite, at Stikemans, and Bill Ainley, at Davies Ward Phillips & Vineberg LLP, moved into the wings after CPP emerged with its gorilla-sized buying group. Taking the lead after that were grizzled New York M&A veteran James Morphy at Sullivan Cromwell LLP and Mr. Waitzer.
Joining the BCE legal chorus was ferocious litigator Alan Lenczner, who kept a trained eye on cranky bondholders threatening legal action. Rounding out the large legal team were competition experts Neil Finkelstein and Brian Facey at Blake Cassels & Graydon LLP, who arrived presumably to help shape a regulatory-proof merger strategy with Telus.
With so many advisers and warring suitors, it's a wonder BCE's board ever made a decision.
Mr. Waitzer's strategy was to keep it simple by advising the committee of directors to keep focused on the one thing that mattered most to shareholders: price. All complaints, threats and criticisms would evaporate, he told directors, if they were able to deliver a substantial premium to BCE shareholders that had endured a listless stock price for years.
And while BCE's $34.8-billion deal with Ontario Teachers amounted to a 42-per-cent premium over its stock price prior to the auction, some critics argue the price might have been even higher had the company been able to keep its rival Telus at the table.
Mr. Waitzer disagrees. He said Telus is still free to come back with an unsolicited offer. Even if it doesn't, he said shareholders shouldn't complain about the Teachers offer, which exceeds even the most optimistic expectations when the auction started in April.
"At the end of the day it is pretty hard to screw up an auction because price wins," he said.
When the Stikeman Elliott LLP deal maker was airlifted into the BCE Inc. auction in April to advise a special committee of directors, he braced himself for a public outcry over the loss of one of Canada's largest companies. What he wasn't prepared for was the furious insults, complaints and deal punches hurled at the board, its executives and advisers during what became one of the messiest auctions witnessed in Canada.
"There were a lot of noisy grievances from bidders who were trying to tilt the auction in their direction or who genuinely felt that it was being tilted away from them," Mr. Waitzer said.
As the bidding lurched from one suitor to another and buyers stormed away complaining bitterly about the auction process, Mr. Waitzer said his challenge was to keep the committee of directors focused.
"There was a lot of noise and some of it was nasty and personal. I had to keep everyone focused on the law and the process so that we were doing what was best for shareholders," he said.
The noise, at times, was deafening. The Ontario Teachers' Pension Plan set the tone from the start by going hostile with a public securities filing that signalled a possible unsolicited bid. Then BCE's CEO Michael Sabia and chairman Richard Currie infuriated potential suitors by shepherding friendly buyers into a monster bidding syndicate headed by the Canada Pension Plan Investment Board and Kohlberg Kravis Roberts & Co.
While suitors yelped that the deck had been stacked against them, mini-dramas erupted off stage in each camp. First, the CPP syndicate saw some of its Canadian backers defect, then New York's Cerberus Capital lined up improbable Canadian partners who were long on ambition but short on cash. At the 11th hour, BCE's archrival Telus Corp. arrived at the deal table, fought furiously to gain access to the data room and then retreated in a huff complaining publicly about "inadequacies" in the auction process.
Over in BCE's camp, things weren't much calmer. As the company's special committee of directors jostled with bidders and, at times, its senior executives over how to steer the auction, a cast of legal advisers twirled across the stage. Key BCE advisers Bill Braithwaite, at Stikemans, and Bill Ainley, at Davies Ward Phillips & Vineberg LLP, moved into the wings after CPP emerged with its gorilla-sized buying group. Taking the lead after that were grizzled New York M&A veteran James Morphy at Sullivan Cromwell LLP and Mr. Waitzer.
Joining the BCE legal chorus was ferocious litigator Alan Lenczner, who kept a trained eye on cranky bondholders threatening legal action. Rounding out the large legal team were competition experts Neil Finkelstein and Brian Facey at Blake Cassels & Graydon LLP, who arrived presumably to help shape a regulatory-proof merger strategy with Telus.
With so many advisers and warring suitors, it's a wonder BCE's board ever made a decision.
Mr. Waitzer's strategy was to keep it simple by advising the committee of directors to keep focused on the one thing that mattered most to shareholders: price. All complaints, threats and criticisms would evaporate, he told directors, if they were able to deliver a substantial premium to BCE shareholders that had endured a listless stock price for years.
And while BCE's $34.8-billion deal with Ontario Teachers amounted to a 42-per-cent premium over its stock price prior to the auction, some critics argue the price might have been even higher had the company been able to keep its rival Telus at the table.
Mr. Waitzer disagrees. He said Telus is still free to come back with an unsolicited offer. Even if it doesn't, he said shareholders shouldn't complain about the Teachers offer, which exceeds even the most optimistic expectations when the auction started in April.
"At the end of the day it is pretty hard to screw up an auction because price wins," he said.
Wednesday, July 18, 2007
Building a portfolio with things, not paper - Julia Werdigier
Zelda Cheatle, a London photography gallery owner, is close to sealing one of her biggest and most peculiar deals. Next month, she expects to sell about 4,000 photographs in a single transaction, but the buyers will not be allowed to keep the works. Ms. Cheatle manages a photography investment fund set up by the London-based hedge fund WMG, which raised the money to buy the photographs, including Pablo Picasso by Brassai and Malcolm X by Eve Arnold, from a handful of investors.
WMG hopes the fund will make returns of as much as 50 percent over three years by buying and selling the art. ''With the right expertise and attitude, collecting photography is a good investment,'' Ms. Cheatle said.
As investors search for places to put their money, hedge funds have expanded investments beyond stocks and bonds into art, wine, rare stamps and even soccer players. Money managers have begun to look at these so-called exotic assets as a way to diversify risk while searching for assets that may provide a cushion if the market boom ends. Critics, however, call them too risky and opaque.
''There's a new wealth that will not go away, and that means for luxury cars, watches and wine, there will always be demand,'' said Stephen Decani, a partner at Arch Financial Products, a London-based firm that runs a fund investing in Bordeaux wines.
Michael Hall, the chief executive of the Stanley Gibbons Group, a coin, stamp and autograph collecting company that offers investment funds, considers his funds ''a safe haven for cash.'' Areas like wine and art investing, previously reserved for the rich, are becoming more mainstream as pension funds and institutional investors look for ways to spread risk. Booming stock and credit markets have left asset managers and private equity firms with loads of cash and a hunger for new opportunities.
Yet many large institutional investors balk at the risk, saying such investments are difficult to price and difficult to monitor. Stocks or bond investors can track the value and the performance of their portfolios minute by minute, while those buying into fine wines or soccer players have fewer tracking methods. There are indexes that track the price of wines, like Liv-ex, and art, like Art Market Research, but they offer limited insight into how the markets move, tracking certain wines or artworks sold at certain auctions.
One problem for investors, Mr. Hall said, is that they are largely at the mercy of the specialized fund managers. ''Would the average investor know that autographs by Robert De Niro are worth more than Tom Cruise's because they are rarer? Probably not,'' he said.
The need for special knowledge keeps the size of the market small. For Jan Vilhelmsen, a partner at Absolute Return Partners in London, some level of transparency is a must. ''We stop when we can't get a good sense of how you price an asset,'' he said.
Transparency may improve as time allows for a price and performance track record, but some managers, like Philip Hoffman, who runs the Fine Art Fund in London, disagree. At least art will never be as transparent as stocks, he said, because ''every painting is different'' and making high returns requires knowledge and market expertise.
Returns for investments in wine and art, the most established exotic investment types, have been strong. Prices for the 4,000 most popular artists, like Andy Warhol and Pablo Picasso, as tracked by Art Market Research, increased 20 percent last year from a record in 2005 and gained 75 percent since 1988.
The Liv-ex 100 index of investment-grade wines, which is more than 90 percent weighted toward Bordeaux, rose 49 percent in 2006 after rising
18 percent in 2005. A case of Chateau Latour brought $:5,290 at a Sotheby's wine auction in London in January, 5 percent more than at a similar auction in September.
''Demand from Asia, Korea, China and Japan, where wine is perceived as a status symbol just like a Rolls-Royce or a Louis Vuitton bag, increased dramatically,'' said Peter Lunzer, who five years ago was among the first to develop a capital structured vehicle for wine investments. He now has $:10 million under management, about half of that coming from private investors, and his five-year funds all have a plan to double their investments.
Yet, even if returns are bigger than those of stock funds, some analysts said they may be harder to realize because exotic markets remain small and less liquid. That means investors in exotic assets can be stuck with their investments if they want to sell.
''The liquidity is difficult and means you may not be able to realize returns when you have to sell,'' said Frances Hudson, global thematic strategist at Standard Life Investments in Edinburgh. ''The illiquid nature of the investments can be problematic for some investors.''
But investors may overlook that shortfall in exchange for some fun and a lively dinner party conversation. In June, Mr. Hoffman invited investors in one of his art funds to Geneva to admire and discuss some Picasso and Ed Ruscha paintings over lunch. Arch Financial Products organized wine tasting trips, and investors in WMG's photography fund will get the first right to buy any prints in the fund.
''It's really as much a lifestyle thing as an investment,'' Mr. Decani said.
WMG hopes the fund will make returns of as much as 50 percent over three years by buying and selling the art. ''With the right expertise and attitude, collecting photography is a good investment,'' Ms. Cheatle said.
As investors search for places to put their money, hedge funds have expanded investments beyond stocks and bonds into art, wine, rare stamps and even soccer players. Money managers have begun to look at these so-called exotic assets as a way to diversify risk while searching for assets that may provide a cushion if the market boom ends. Critics, however, call them too risky and opaque.
''There's a new wealth that will not go away, and that means for luxury cars, watches and wine, there will always be demand,'' said Stephen Decani, a partner at Arch Financial Products, a London-based firm that runs a fund investing in Bordeaux wines.
Michael Hall, the chief executive of the Stanley Gibbons Group, a coin, stamp and autograph collecting company that offers investment funds, considers his funds ''a safe haven for cash.'' Areas like wine and art investing, previously reserved for the rich, are becoming more mainstream as pension funds and institutional investors look for ways to spread risk. Booming stock and credit markets have left asset managers and private equity firms with loads of cash and a hunger for new opportunities.
Yet many large institutional investors balk at the risk, saying such investments are difficult to price and difficult to monitor. Stocks or bond investors can track the value and the performance of their portfolios minute by minute, while those buying into fine wines or soccer players have fewer tracking methods. There are indexes that track the price of wines, like Liv-ex, and art, like Art Market Research, but they offer limited insight into how the markets move, tracking certain wines or artworks sold at certain auctions.
One problem for investors, Mr. Hall said, is that they are largely at the mercy of the specialized fund managers. ''Would the average investor know that autographs by Robert De Niro are worth more than Tom Cruise's because they are rarer? Probably not,'' he said.
The need for special knowledge keeps the size of the market small. For Jan Vilhelmsen, a partner at Absolute Return Partners in London, some level of transparency is a must. ''We stop when we can't get a good sense of how you price an asset,'' he said.
Transparency may improve as time allows for a price and performance track record, but some managers, like Philip Hoffman, who runs the Fine Art Fund in London, disagree. At least art will never be as transparent as stocks, he said, because ''every painting is different'' and making high returns requires knowledge and market expertise.
Returns for investments in wine and art, the most established exotic investment types, have been strong. Prices for the 4,000 most popular artists, like Andy Warhol and Pablo Picasso, as tracked by Art Market Research, increased 20 percent last year from a record in 2005 and gained 75 percent since 1988.
The Liv-ex 100 index of investment-grade wines, which is more than 90 percent weighted toward Bordeaux, rose 49 percent in 2006 after rising
18 percent in 2005. A case of Chateau Latour brought $:5,290 at a Sotheby's wine auction in London in January, 5 percent more than at a similar auction in September.
''Demand from Asia, Korea, China and Japan, where wine is perceived as a status symbol just like a Rolls-Royce or a Louis Vuitton bag, increased dramatically,'' said Peter Lunzer, who five years ago was among the first to develop a capital structured vehicle for wine investments. He now has $:10 million under management, about half of that coming from private investors, and his five-year funds all have a plan to double their investments.
Yet, even if returns are bigger than those of stock funds, some analysts said they may be harder to realize because exotic markets remain small and less liquid. That means investors in exotic assets can be stuck with their investments if they want to sell.
''The liquidity is difficult and means you may not be able to realize returns when you have to sell,'' said Frances Hudson, global thematic strategist at Standard Life Investments in Edinburgh. ''The illiquid nature of the investments can be problematic for some investors.''
But investors may overlook that shortfall in exchange for some fun and a lively dinner party conversation. In June, Mr. Hoffman invited investors in one of his art funds to Geneva to admire and discuss some Picasso and Ed Ruscha paintings over lunch. Arch Financial Products organized wine tasting trips, and investors in WMG's photography fund will get the first right to buy any prints in the fund.
''It's really as much a lifestyle thing as an investment,'' Mr. Decani said.
Latin American stocks catch up - ANGELA BARNES
Latin American markets have been hot, hot, hot this year. So hot in fact that they as a group are now trading on a trailing price/earnings multiple at just a 5- to 10-per-cent discount to developed markets, a far cry from the 60 per cent in 2002, according to Citigroup Global Markets Inc.
But that may be about to change. Geoffrey Dennis, Citigroup's chief Latin American strategist, suggested in a report released yesterday that the region is vulnerable to a near-term correction, or "at best, a pause," which would allow developed markets to lead the charge and outshine the Latin markets.
But he remains bullish on the region over the longer term and would view any pullback as a long-term buying opportunity.
Just how strong Latin American markets have been so far in 2007 can be seen by comparing the Peru Lima general index's 84-per-cent year-to-date advance, or Mexico's Bolsa index's 22-per-cent rise and Brazil's Bovespa stock index's 29-per-cent increase to that of the Standard & Poor's 500-stock index's 9.25-per-cent gain or the S&P/TSX composite index's 11-per-cent advance.
And it isn't just the Latin markets that have been flying high. "Emerging markets as a whole are now effectively at parity with developed markets," Mr. Dennis said.
He noted that emerging markets as a group have outshone global markets for seven consecutive years, which includes all five years of the current bull market. Emerging markets climbed 344 per cent from the October, 2002 trough, while developed markets advanced 138 per cent. "However, our basic valuation approach to global equity markets as a whole suggests that this trend could be about to change," he said.
He does not think that emerging markets are likely to trade at a premium relative to developed markets for a sustained period.
"Therefore, with the emerging market discount almost gone and developed markets (alone) still cheap to debt, emerging markets seem set for a period of underperformance," he said.
Mr. Dennis remains bullish on the markets, expecting that both emerging and developed markets will continue to rally, but with the latter taking over the lead from the former. He believes that the long-term fundamentals are supportive of a continuing bull market and doesn't see a bear market materializing until the U.S. economy goes into a recession and/or global growth slows sharply, which he believes won't happen until 2009 "at the earliest."
Some investors have suggested that emerging markets can trade at a premium to that of developed markets, an argument Mr. Dennis rejected.
He noted, for example, that the cost of capital is still higher in emerging markets.
"For Latin America, sovereign bond yields are higher by as much as 260 basis points relative to global bonds as a whole and by around 180 basis points relative to U.S. Treasuries," he said. Therefore, "the regional risk premium is not zero."
He also said that emerging markets are more volatile than developed markets.
Furthermore, he said the times when emerging market valuations have gone to a premium are usually after a long bull run, "which could be just the time that events could occur that cause risk appetite to decline again."
He upgraded the Mexican market to neutral from underweight and cut Chile to neutral. Brazil remains the sole overweight in the region.
But that may be about to change. Geoffrey Dennis, Citigroup's chief Latin American strategist, suggested in a report released yesterday that the region is vulnerable to a near-term correction, or "at best, a pause," which would allow developed markets to lead the charge and outshine the Latin markets.
But he remains bullish on the region over the longer term and would view any pullback as a long-term buying opportunity.
Just how strong Latin American markets have been so far in 2007 can be seen by comparing the Peru Lima general index's 84-per-cent year-to-date advance, or Mexico's Bolsa index's 22-per-cent rise and Brazil's Bovespa stock index's 29-per-cent increase to that of the Standard & Poor's 500-stock index's 9.25-per-cent gain or the S&P/TSX composite index's 11-per-cent advance.
And it isn't just the Latin markets that have been flying high. "Emerging markets as a whole are now effectively at parity with developed markets," Mr. Dennis said.
He noted that emerging markets as a group have outshone global markets for seven consecutive years, which includes all five years of the current bull market. Emerging markets climbed 344 per cent from the October, 2002 trough, while developed markets advanced 138 per cent. "However, our basic valuation approach to global equity markets as a whole suggests that this trend could be about to change," he said.
He does not think that emerging markets are likely to trade at a premium relative to developed markets for a sustained period.
"Therefore, with the emerging market discount almost gone and developed markets (alone) still cheap to debt, emerging markets seem set for a period of underperformance," he said.
Mr. Dennis remains bullish on the markets, expecting that both emerging and developed markets will continue to rally, but with the latter taking over the lead from the former. He believes that the long-term fundamentals are supportive of a continuing bull market and doesn't see a bear market materializing until the U.S. economy goes into a recession and/or global growth slows sharply, which he believes won't happen until 2009 "at the earliest."
Some investors have suggested that emerging markets can trade at a premium to that of developed markets, an argument Mr. Dennis rejected.
He noted, for example, that the cost of capital is still higher in emerging markets.
"For Latin America, sovereign bond yields are higher by as much as 260 basis points relative to global bonds as a whole and by around 180 basis points relative to U.S. Treasuries," he said. Therefore, "the regional risk premium is not zero."
He also said that emerging markets are more volatile than developed markets.
Furthermore, he said the times when emerging market valuations have gone to a premium are usually after a long bull run, "which could be just the time that events could occur that cause risk appetite to decline again."
He upgraded the Mexican market to neutral from underweight and cut Chile to neutral. Brazil remains the sole overweight in the region.
Monday, July 16, 2007
The usual suspects can ruin meetings - Harvey Schachter
You meet them routinely in meetings. The Monopolizer. The Tangent Talker. The Cynic. Even worse, sometimes you find yourself adopting that persona. San Francisco consultant Craig Harrison suggests on the Coachville site that you should be alert to this crazy (and potentially dangerous) cast of characters that can ruin your meetings:
The Monopolizer: This person thinks he or she is the only one with wisdom on subjects, and everybody else is there simply to listen. Their aggressiveness and rudeness keep others from contributing, unless facilitators and other meeting participants indicate an interest in hearing from others.
The Tangent Talker: This person hijacks the topic of the group by taking discussions off onto topics unrelated to the issue at hand. The chair should remind people to confine themselves to the issue at hand and extraneous items can be "parked" in a "parking lot" list of matters to be addressed in future.
The Devil's Advocate: This person relishes taking the opposing view on everything, often beginning with, "Just for the sake of argument ..." The more unpopular the stance, the more exciting it can be for them. Recognize the value of hearing opposing views, but try to remind the person that the agenda and time constraints doesn't allow it on every matter.
The Cynic: This person insists, on everything: "It won't work." Challenge them to think like a Devil's Advocate, and suppose it could work - or even to argue the other position, as if it was their own.
The Fence Sitter: They can't make a decision and are swayed by every argument, providing fodder for The Cynic and The Devil's Advocate. "Try to cajole them to action," Mr Harrison says. "Ask them their opinions on matters to draw them out and get them on record."
The Brown Noser: This obsequious soul bends over backwards to ingratiate himself to the boss. Try to elicit their ideas and preferences before asking others, as a way of drawing them out.
The Pandora's Box Opener: These folks have to tackle issues that are emotional or touchy for others (often re-opening ones you thought were settled). The best cure is a firm "Let's not go there" from the chair, or "Let's cross that bridge when we get there," or "That's a hornets' nest we don't need to disturb."
The Attackers: These bullies deftly mix negativity with personal attacks. The facilitator needs to refocus them to be positive, removing the sting from their words and avoiding an adversarial approach in meetings. Any meeting participant should be able to stop the meeting when attacked personally.
The Jokers: Their constant joking can diminish others' serious ideas or suggestions. The meeting chair must intervene when their humour becomes disruptive.
The Monopolizer: This person thinks he or she is the only one with wisdom on subjects, and everybody else is there simply to listen. Their aggressiveness and rudeness keep others from contributing, unless facilitators and other meeting participants indicate an interest in hearing from others.
The Tangent Talker: This person hijacks the topic of the group by taking discussions off onto topics unrelated to the issue at hand. The chair should remind people to confine themselves to the issue at hand and extraneous items can be "parked" in a "parking lot" list of matters to be addressed in future.
The Devil's Advocate: This person relishes taking the opposing view on everything, often beginning with, "Just for the sake of argument ..." The more unpopular the stance, the more exciting it can be for them. Recognize the value of hearing opposing views, but try to remind the person that the agenda and time constraints doesn't allow it on every matter.
The Cynic: This person insists, on everything: "It won't work." Challenge them to think like a Devil's Advocate, and suppose it could work - or even to argue the other position, as if it was their own.
The Fence Sitter: They can't make a decision and are swayed by every argument, providing fodder for The Cynic and The Devil's Advocate. "Try to cajole them to action," Mr Harrison says. "Ask them their opinions on matters to draw them out and get them on record."
The Brown Noser: This obsequious soul bends over backwards to ingratiate himself to the boss. Try to elicit their ideas and preferences before asking others, as a way of drawing them out.
The Pandora's Box Opener: These folks have to tackle issues that are emotional or touchy for others (often re-opening ones you thought were settled). The best cure is a firm "Let's not go there" from the chair, or "Let's cross that bridge when we get there," or "That's a hornets' nest we don't need to disturb."
The Attackers: These bullies deftly mix negativity with personal attacks. The facilitator needs to refocus them to be positive, removing the sting from their words and avoiding an adversarial approach in meetings. Any meeting participant should be able to stop the meeting when attacked personally.
The Jokers: Their constant joking can diminish others' serious ideas or suggestions. The meeting chair must intervene when their humour becomes disruptive.
Bicycles built for vous - SUSAN SACHS
ARIS — The City of Light is going green on two wheels.
Parisians awoke yesterday to find more than 10,000 sturdy bicycles available for their use at 750 locations around the city. It cost next to nothing to take one for a spin. A swipe of a credit card for the deposit, and a 22-kilogram, pearly-grey bike, complete with basket and chain lock, was ready to ride.
"The weather's great, the streets are practically empty and we're going on a picnic," said Adrien Roux, a social worker who had just pulled out two bicycles for himself and his girlfriend from a stand near the Gare de Lyon train station.
Yes, they would have planned a day in the park anyway. "But we wanted to give bicycling a try," said Mr. Roux.
The new self-service bike-rental program is called Vélibre, a play on "vélo" and "libre," meaning free bicycle or, in a more lyrical translation, bicycle freedom.
It is the brainchild of the socialist mayor, Bertrand Delanoë, who has made the automobile his personal bête noire since his election in 2001.
Much to the fury of car owners, he has already dramatically reconfigured the city's traffic patterns, eliminated most of the free parking, widened bus lanes and created pedestrian walkways in the place of car lanes. Paris has also doubled its bike lanes, to 370 kilometres, in the past five years.
At the same time, however, the bus and subway system is nearing saturation. Some 1.4 million cars and trucks crowd into city streets each day, a reduction from the peak traffic figures of the 1990s, but still too much for Mr. Delanoë.
With Vélibre, his idea is to flood the city with subsidized rentals in hopes of reducing air pollution and weaning the capital's residents from their cars for short trips to work and play. Studies have shown that most car trips are relatively short, with Parisians spending about half an hour getting from home to work. The fee schedule for Vélibre takes that into account.
The first 30 minutes on a city bike is free. But to encourage turnover, the price escalates the longer a user keeps a bike. The second half-hour costs one euro (about $1.45), the next half-hour is another two euros and from then on each 30 minutes costs four euros.
"Reducing air pollution has to be put at the centre of our development plans," said Mr. Delanoë when he officially launched the program yesterday. "We are simply offering here a little more air, a little more innovation and, as you can see in the name, a little more freedom."
The novelty of the Paris project may be in the sheer volume of bicycles available.
By early next year, when the new Vélibre program reaches full strength, no Parisian should have to walk more than 300 metres to find one of the planned 1,400 bike-rental stations. The city anticipates a total of 20,600 community bikes by January, 2008.
The bikes are to be supplied, monitored and maintained by the advertising company JCDecaux, which gets free rights to advertise on 1,600 city billboards in exchange for operating the program.
Similar, but more modest, projects in other cities have foundered.
Amsterdam, which made several hundred free bikes available, abandoned its program a few years ago. Copenhagen has an ongoing program, but offers just 1,300 free bicycles.
Toronto's BikeShare project, run by a non-profit group and funded by the city, closed last year after five years of operation. At its peak, it offered 150 yellow bicycles from 18 pickup and drop-off points, but the program suffered from a high incidence of vandalism and theft.
Paris is betting stiff penalties will reduce the potential for bikes to disappear. Users will be required to leave a security deposit of 150 euros (close to $220) when they take out one of the city bicycles. They forfeit the entire amount if the bike is not returned. If the bike is stolen, and a police report is filed, the renter's forfeit would still be a hefty 35 euros.
For all its good intentions, however, Vélibre has its critics.
Cycling groups have called for dedicated bike lanes, saying that bike riders will be at risk because they share lanes with motorcycles, buses and, in some cases taxis. Others have complained that Paris traffic will only worsen with the addition of thousands of bicycles.
"This mayor is a disaster," said Christine Lagarde, a Paris housewife driving her two children to the movies yesterday. "We call him 'Monsieur Traffic Jam' because everything he is doing makes the traffic worse in Paris."
Parisians awoke yesterday to find more than 10,000 sturdy bicycles available for their use at 750 locations around the city. It cost next to nothing to take one for a spin. A swipe of a credit card for the deposit, and a 22-kilogram, pearly-grey bike, complete with basket and chain lock, was ready to ride.
"The weather's great, the streets are practically empty and we're going on a picnic," said Adrien Roux, a social worker who had just pulled out two bicycles for himself and his girlfriend from a stand near the Gare de Lyon train station.
Yes, they would have planned a day in the park anyway. "But we wanted to give bicycling a try," said Mr. Roux.
The new self-service bike-rental program is called Vélibre, a play on "vélo" and "libre," meaning free bicycle or, in a more lyrical translation, bicycle freedom.
It is the brainchild of the socialist mayor, Bertrand Delanoë, who has made the automobile his personal bête noire since his election in 2001.
Much to the fury of car owners, he has already dramatically reconfigured the city's traffic patterns, eliminated most of the free parking, widened bus lanes and created pedestrian walkways in the place of car lanes. Paris has also doubled its bike lanes, to 370 kilometres, in the past five years.
At the same time, however, the bus and subway system is nearing saturation. Some 1.4 million cars and trucks crowd into city streets each day, a reduction from the peak traffic figures of the 1990s, but still too much for Mr. Delanoë.
With Vélibre, his idea is to flood the city with subsidized rentals in hopes of reducing air pollution and weaning the capital's residents from their cars for short trips to work and play. Studies have shown that most car trips are relatively short, with Parisians spending about half an hour getting from home to work. The fee schedule for Vélibre takes that into account.
The first 30 minutes on a city bike is free. But to encourage turnover, the price escalates the longer a user keeps a bike. The second half-hour costs one euro (about $1.45), the next half-hour is another two euros and from then on each 30 minutes costs four euros.
"Reducing air pollution has to be put at the centre of our development plans," said Mr. Delanoë when he officially launched the program yesterday. "We are simply offering here a little more air, a little more innovation and, as you can see in the name, a little more freedom."
The novelty of the Paris project may be in the sheer volume of bicycles available.
By early next year, when the new Vélibre program reaches full strength, no Parisian should have to walk more than 300 metres to find one of the planned 1,400 bike-rental stations. The city anticipates a total of 20,600 community bikes by January, 2008.
The bikes are to be supplied, monitored and maintained by the advertising company JCDecaux, which gets free rights to advertise on 1,600 city billboards in exchange for operating the program.
Similar, but more modest, projects in other cities have foundered.
Amsterdam, which made several hundred free bikes available, abandoned its program a few years ago. Copenhagen has an ongoing program, but offers just 1,300 free bicycles.
Toronto's BikeShare project, run by a non-profit group and funded by the city, closed last year after five years of operation. At its peak, it offered 150 yellow bicycles from 18 pickup and drop-off points, but the program suffered from a high incidence of vandalism and theft.
Paris is betting stiff penalties will reduce the potential for bikes to disappear. Users will be required to leave a security deposit of 150 euros (close to $220) when they take out one of the city bicycles. They forfeit the entire amount if the bike is not returned. If the bike is stolen, and a police report is filed, the renter's forfeit would still be a hefty 35 euros.
For all its good intentions, however, Vélibre has its critics.
Cycling groups have called for dedicated bike lanes, saying that bike riders will be at risk because they share lanes with motorcycles, buses and, in some cases taxis. Others have complained that Paris traffic will only worsen with the addition of thousands of bicycles.
"This mayor is a disaster," said Christine Lagarde, a Paris housewife driving her two children to the movies yesterday. "We call him 'Monsieur Traffic Jam' because everything he is doing makes the traffic worse in Paris."
Saturday, July 14, 2007
Get in the game - and get the job - WALLACE IMMEN
Your parents told you it was a waste of time to play computer games; many employers prohibit using work computers for anything other than business.
So should you tell a potential employer you're a wizard in the virtual world of online gaming?
It might be a smart move, because a new study finds those who are masters of multiple-player online games gain leadership skills and mental agility that puts them on a fast track to leadership in their careers.
Companies increasingly will value employees who are skilled at online gaming, says Eric Lesser, Cambridge, Mass.-based associate partner in human capital management with IBM's Institute for Business Value, which sponsored the study, Leadership in a Distributed World: Lessons from online gaming.
"Companies are seeing their world change. They are becoming globally distributed and the pace of change is faster and there is more information to deal with than ever," Mr. Lesser says. These are the very challenges online gamers have to solve to successfully lead their virtual teams to success.
"We found the leadership qualities that make people successful in gaming also makes them successful in leading business teams," Mr. Lesser says.
These qualities include:
Being able to bring together a large number of participants in a highly complex network for a common goal.
Self-direction and interest in learning new skills and taking on new roles.
Willingness to take risks and the ability to accept and learn from failure.
Collaboration skills and the ability to influence others in the group.
Ability to identify strengths and vulnerabilities in the organization.
Communications skills.
The study looked at the experience of 214 U.S. professionals who play video games, 137 of whom belong to an association that links players to "massive, multiplayer, online role-playing games." In these, the player becomes a character who navigates through a virtual world, interacting with other users and coming up with collaborative strategies to reach a goal or fight computer-controlled enemies.
Half of the respondents said their game playing has improved their real-world leadership. And of the 66 respondents who have headed up online gaming teams, 61 have also used their skills to lead business project teams, with 45 saying they have led more than five teams.
Significantly, gaming is not just a kids' thing. Of those in the study, 68 per cent were over 35.
So should you play up your virtual experience on your résumé?
It can be a plus, but don't make it the first thing you highlight, recommends Brett Slade, managing director of Slade Consulting Group, a recruiting company in Toronto.
For someone at the entry level with no work history, a track record of conquering challenging online games can be a way of demonstrating achievement and dedication. "Someone who is a gamer is demonstrating a commitment to taking on a task and finishing the entire project. And with that comes a will to win and a competitive spirit," Mr. Slade says.
"And for a more seasoned candidate, it can show that you have a more youthful attitude and a sense of fun," he adds.
However, there are downsides to consider, Mr. Slade says. "Gaming can be seen as a little introverted, even though you are communicating with others online."
And being too avid a gamer can raise questions about productivity. Many employers have set policies restricting the use of company equipment for Internet and video gaming, notes Claude Balthazard, director of HR excellence for the Human Resources Professionals Association of Ontario.
But Mr. Balthazard believes HR managers are ready to look at gaming prowess as a plus in a candidate. Many companies already use simulations in training, he notes.
"However, I can't make a blanket statement because claims about developing leadership skills have to be substantiated with further research to set standards. Not all video games are going to teach skills that translate into the business world," Mr. Balthazard says.
And as for the restrictions on gaming at work, Mr. Balthazard says these might represent a generational difference that will change with time. While older workers may believe that company time should be strictly devoted to work, "many younger employees who have grown up multitasking on computers say they find it refreshing to take a break to play a game and then get back to business," he says.
But will gaming get you to the top in your career? For the moment, recruiters are not asking candidates for the corner office about their gaming abilities, but they might in the future, Mr. Slade believes.
"The skills we look for in an executive are things we look for in a new candidate. These would be mental agility, [the] ability to think on their feet and make quick decisions; resourcefulness; the ability to manage resources and operate with limited amounts of information." It also shows the candidate is tech-savvy, which is a growing plus in modern offices, Mr. Slade says.
And gamers will have an edge on succeeding in the increasingly complex and global business world, IBM's Mr. Lesser predicts. "If gamers become the leaders of the future, the game of business will be more fun and their odds of seeing the 'game over' message will be reduced."
Real success from the virtual world
Here are some gaming skills that can help you be a better manager in the future.
Practice virtual management: As organizations expand globally, leaders must develop techniques to motivate people they have never met and the ability to mediate conflict, and draw individuals into discussions.
Develop a 'centre of gravity': When people are dispersed it's important to set things up so all information, communication and problem solving goes through a central site, which you keep track of regularly.
Know informal skills: Having information about your virtual team beyond their formal training - such as aspirations, personal interests and hobbies - can help improve teamwork and loyalty.
Concentrate on communicating: Blogs or podcasts get out the vision and emphasize progress across an organization that may not be in visual contact.
Develop a scoreboard: A computer 'dashboard' everyone can log into that monitors goals and progress of all phases of a project and resources available will keep the team working in unison.
Reward performance: Rapid feedback is important for people who are not in physical contact. It is important that employees receive input on strengths - and needed improvement - and recognition for their accomplishments.
So should you tell a potential employer you're a wizard in the virtual world of online gaming?
It might be a smart move, because a new study finds those who are masters of multiple-player online games gain leadership skills and mental agility that puts them on a fast track to leadership in their careers.
Companies increasingly will value employees who are skilled at online gaming, says Eric Lesser, Cambridge, Mass.-based associate partner in human capital management with IBM's Institute for Business Value, which sponsored the study, Leadership in a Distributed World: Lessons from online gaming.
"Companies are seeing their world change. They are becoming globally distributed and the pace of change is faster and there is more information to deal with than ever," Mr. Lesser says. These are the very challenges online gamers have to solve to successfully lead their virtual teams to success.
"We found the leadership qualities that make people successful in gaming also makes them successful in leading business teams," Mr. Lesser says.
These qualities include:
Being able to bring together a large number of participants in a highly complex network for a common goal.
Self-direction and interest in learning new skills and taking on new roles.
Willingness to take risks and the ability to accept and learn from failure.
Collaboration skills and the ability to influence others in the group.
Ability to identify strengths and vulnerabilities in the organization.
Communications skills.
The study looked at the experience of 214 U.S. professionals who play video games, 137 of whom belong to an association that links players to "massive, multiplayer, online role-playing games." In these, the player becomes a character who navigates through a virtual world, interacting with other users and coming up with collaborative strategies to reach a goal or fight computer-controlled enemies.
Half of the respondents said their game playing has improved their real-world leadership. And of the 66 respondents who have headed up online gaming teams, 61 have also used their skills to lead business project teams, with 45 saying they have led more than five teams.
Significantly, gaming is not just a kids' thing. Of those in the study, 68 per cent were over 35.
So should you play up your virtual experience on your résumé?
It can be a plus, but don't make it the first thing you highlight, recommends Brett Slade, managing director of Slade Consulting Group, a recruiting company in Toronto.
For someone at the entry level with no work history, a track record of conquering challenging online games can be a way of demonstrating achievement and dedication. "Someone who is a gamer is demonstrating a commitment to taking on a task and finishing the entire project. And with that comes a will to win and a competitive spirit," Mr. Slade says.
"And for a more seasoned candidate, it can show that you have a more youthful attitude and a sense of fun," he adds.
However, there are downsides to consider, Mr. Slade says. "Gaming can be seen as a little introverted, even though you are communicating with others online."
And being too avid a gamer can raise questions about productivity. Many employers have set policies restricting the use of company equipment for Internet and video gaming, notes Claude Balthazard, director of HR excellence for the Human Resources Professionals Association of Ontario.
But Mr. Balthazard believes HR managers are ready to look at gaming prowess as a plus in a candidate. Many companies already use simulations in training, he notes.
"However, I can't make a blanket statement because claims about developing leadership skills have to be substantiated with further research to set standards. Not all video games are going to teach skills that translate into the business world," Mr. Balthazard says.
And as for the restrictions on gaming at work, Mr. Balthazard says these might represent a generational difference that will change with time. While older workers may believe that company time should be strictly devoted to work, "many younger employees who have grown up multitasking on computers say they find it refreshing to take a break to play a game and then get back to business," he says.
But will gaming get you to the top in your career? For the moment, recruiters are not asking candidates for the corner office about their gaming abilities, but they might in the future, Mr. Slade believes.
"The skills we look for in an executive are things we look for in a new candidate. These would be mental agility, [the] ability to think on their feet and make quick decisions; resourcefulness; the ability to manage resources and operate with limited amounts of information." It also shows the candidate is tech-savvy, which is a growing plus in modern offices, Mr. Slade says.
And gamers will have an edge on succeeding in the increasingly complex and global business world, IBM's Mr. Lesser predicts. "If gamers become the leaders of the future, the game of business will be more fun and their odds of seeing the 'game over' message will be reduced."
Real success from the virtual world
Here are some gaming skills that can help you be a better manager in the future.
Practice virtual management: As organizations expand globally, leaders must develop techniques to motivate people they have never met and the ability to mediate conflict, and draw individuals into discussions.
Develop a 'centre of gravity': When people are dispersed it's important to set things up so all information, communication and problem solving goes through a central site, which you keep track of regularly.
Know informal skills: Having information about your virtual team beyond their formal training - such as aspirations, personal interests and hobbies - can help improve teamwork and loyalty.
Concentrate on communicating: Blogs or podcasts get out the vision and emphasize progress across an organization that may not be in visual contact.
Develop a scoreboard: A computer 'dashboard' everyone can log into that monitors goals and progress of all phases of a project and resources available will keep the team working in unison.
Reward performance: Rapid feedback is important for people who are not in physical contact. It is important that employees receive input on strengths - and needed improvement - and recognition for their accomplishments.
What's more important: The business or its manager? - AVNER MANDELMAN
Historians debate whether historical trends create leaders, or whether leaders create history. Similarly, some investors say a business's growth trend is more important than management, while others insist that good management can make any business grow. Why should you care about such a debate? Because the answer could show you where to focus your research: on the business or on management. So which is more important?
Warren Buffett - who certainly loves good managers - famously said that when a business with a lousy reputation meets a manager with a terrific reputation, the business's reputation stays intact. In other words, even a terrific jockey can not make a nag win a race. A strong business, Mr. Buffett said, can be run even by mediocre managers, just like a swift horse can win a race even when ridden by a ho-hum jockey.
That's one side of the debate. On the other hand stands General Electric Co., a company famous for training management talent. GE managers could not, perhaps, make a mediocre business win, but they could often guide it to a second or third position - at which point GE would sell it and buy a better one.
Is the answer, then, to look for a strong business run by strong management? This is too broad, because what is a strong manager? At each stage of a business's life, a different kind of manager may be required.
A run-of-the-mill competent executive may not be able to manage fast growth, while a headstrong entrepreneur suitable for starting the business may not be able to moderate his behaviour once the company has grown. Similarly, a grown company fallen into trouble needs a superstrong manager who, if brought into a stable company, could cause trouble by overactivity.
To take a historical analogy: Winston Churchill was often blunt, aggressive, impetuous, bullheaded, and made decisions on his own - all drawbacks in peacetime. But in wartime these same drawbacks became advantages and helped Britain win the Second World War. But right after the war, Churchill was voted out by the British voters, who correctly realized that these same qualities won't do in peacetime.
Turning back to investing, here are two historical business examples, then a current one of a stock Giraffe owns.
First is Yahoo. As Google began to make inroads into its market, Yahoo's founders brought in outside management talent - Terry Semmel, a successful Hollywood executive. But Mr. Semmel was the wrong choice. As our Silicon Valley informants told us, his Hollywood style did not sit well with Yahoo's geeks, which caused a slow unravelling in the top ranks and the stock began a steady fall. In other words, even a good manager can be the wrong fit.
Second example: Wavecom, a wireless products company with its headquarters in France. When its handset business declined, it got stuck with surplus employees who local managers did not dare fire.
An American chief executive officer then joined the company. As an American he was not beholden to French politicians and so he laid off two-thirds of the personnel and wrote off old products, which allowed him to invest in new wireless products. As a result, the stock rose from $5 (U.S.) to $36. Were the previous managers not good? They were okay; but they were suitable for running a steady ship, not for righting a listing one.
Now the third, current example: Nstein Technologies (EIN-TSX-VEN), a growing Montreal tech company whose stock, as was recently disclosed publicly, Giraffe owns. Nstein has search technology superior (in our view) to Google's -while Google looks at the myriad connections made by all other searches, Nstein's application understands language at the structural-grammar level. The company sells its product to online publishers, to help place the right ads alongside articles, and so increase the reader's response rate - and advertising revenues - meaningfully.
Sales are quick and customers are happy. Why then did we wait on the purchase? Although we have admired the company's technology and its entrepreneurial culture, and liked its growth, we judged that at this stage of life the company could benefit from further management. To their credit, the company's founders saw it, too, and on their own initiative brought in an experienced and successful CEO - Luc Filiatrault.
The moment he joined he began buying shares - as did several of his friends who knew his record. We did further due diligence, and within a short while invested also. Nothing is certain, of course, but we have good hopes for this combination of a good business and the right CEO - and good board, too.
What is Giraffe's answer, then, to the debate of relative importance of business or management? Like most investors, we think both are important; but we also insist on monitoring the manager's fit to the company's particular life stage.
Now how can this help you invest? Keep a list of strong businesses whose stocks are languishing because management no longer fits current business requirements. Wait until the suitable manager joins. Then invest. You may be surprised at the effectiveness of this simple rule.
Warren Buffett - who certainly loves good managers - famously said that when a business with a lousy reputation meets a manager with a terrific reputation, the business's reputation stays intact. In other words, even a terrific jockey can not make a nag win a race. A strong business, Mr. Buffett said, can be run even by mediocre managers, just like a swift horse can win a race even when ridden by a ho-hum jockey.
That's one side of the debate. On the other hand stands General Electric Co., a company famous for training management talent. GE managers could not, perhaps, make a mediocre business win, but they could often guide it to a second or third position - at which point GE would sell it and buy a better one.
Is the answer, then, to look for a strong business run by strong management? This is too broad, because what is a strong manager? At each stage of a business's life, a different kind of manager may be required.
A run-of-the-mill competent executive may not be able to manage fast growth, while a headstrong entrepreneur suitable for starting the business may not be able to moderate his behaviour once the company has grown. Similarly, a grown company fallen into trouble needs a superstrong manager who, if brought into a stable company, could cause trouble by overactivity.
To take a historical analogy: Winston Churchill was often blunt, aggressive, impetuous, bullheaded, and made decisions on his own - all drawbacks in peacetime. But in wartime these same drawbacks became advantages and helped Britain win the Second World War. But right after the war, Churchill was voted out by the British voters, who correctly realized that these same qualities won't do in peacetime.
Turning back to investing, here are two historical business examples, then a current one of a stock Giraffe owns.
First is Yahoo. As Google began to make inroads into its market, Yahoo's founders brought in outside management talent - Terry Semmel, a successful Hollywood executive. But Mr. Semmel was the wrong choice. As our Silicon Valley informants told us, his Hollywood style did not sit well with Yahoo's geeks, which caused a slow unravelling in the top ranks and the stock began a steady fall. In other words, even a good manager can be the wrong fit.
Second example: Wavecom, a wireless products company with its headquarters in France. When its handset business declined, it got stuck with surplus employees who local managers did not dare fire.
An American chief executive officer then joined the company. As an American he was not beholden to French politicians and so he laid off two-thirds of the personnel and wrote off old products, which allowed him to invest in new wireless products. As a result, the stock rose from $5 (U.S.) to $36. Were the previous managers not good? They were okay; but they were suitable for running a steady ship, not for righting a listing one.
Now the third, current example: Nstein Technologies (EIN-TSX-VEN), a growing Montreal tech company whose stock, as was recently disclosed publicly, Giraffe owns. Nstein has search technology superior (in our view) to Google's -while Google looks at the myriad connections made by all other searches, Nstein's application understands language at the structural-grammar level. The company sells its product to online publishers, to help place the right ads alongside articles, and so increase the reader's response rate - and advertising revenues - meaningfully.
Sales are quick and customers are happy. Why then did we wait on the purchase? Although we have admired the company's technology and its entrepreneurial culture, and liked its growth, we judged that at this stage of life the company could benefit from further management. To their credit, the company's founders saw it, too, and on their own initiative brought in an experienced and successful CEO - Luc Filiatrault.
The moment he joined he began buying shares - as did several of his friends who knew his record. We did further due diligence, and within a short while invested also. Nothing is certain, of course, but we have good hopes for this combination of a good business and the right CEO - and good board, too.
What is Giraffe's answer, then, to the debate of relative importance of business or management? Like most investors, we think both are important; but we also insist on monitoring the manager's fit to the company's particular life stage.
Now how can this help you invest? Keep a list of strong businesses whose stocks are languishing because management no longer fits current business requirements. Wait until the suitable manager joins. Then invest. You may be surprised at the effectiveness of this simple rule.
Thursday, July 12, 2007
The BlackBerry as workhorse - Penny Crosman
Unlike most compulsive habits, excessive BlackBerry use can be a positive. Take it from top IT executives at Merrill Lynch and the Blackstone Group.
"Most of our investment bankers are addicted to their BlackBerry and look at it every five minutes," relates Alok Prasad, managing director and head of strategy for global investment banking at Merrill Lynch.
"They feel kind of left out if they don't have an e-mail in their in-box." Rather than remove the objects of investment bankers'
obsessions, however, Merrill Lynch is feeding their addictions. The firm is giving its investment bankers - whom Prasad refers to as "our most expensive and critical raw material" - new software applications on their devices to maximize their BlackBerry time.
Until recently, investment bankers typically used Research in Motion's (Waterloo, Ontario) BlackBerry devices mainly for e-mail and phone contact, and maybe in conjunction with a contact management application.
But over the past few years new BlackBerry-ready applications - such as CRM, knowledge management and performance management solutions - have hit the market, and Merrill Lynch is considering most of them. "The intent is to use the wireless BlackBerry in a holistic way that drives a banker's or senior management's productivity," Prasad explains.
"In some ways the BlackBerry can be more powerful than a laptop because it's always connected to the firm's VPN," points out Ira Lehrman, Merrill's chief technology officer of global investment banking. "You're always on, which is important to bankers' mobility and the agility of getting access to data and information at any point, anywhere. We want to take the next step outside of e-mail, outside of standard applications, and we want to see how we can make people more productive." Merrill is working closely with partners and vendors to develop file access capabilities, productivity tools and performance management tools for the BlackBerry devices, Lehrman notes.
Not that a handheld device will ever replace the desktop or laptop, the Merrill executives quickly add. "The BlackBerry is one piece of the overall solution," says Prasad. Desktops and laptops will always have their place. "We're trying to understand the use case - when people use what. In the office, it's ridiculous to use a BlackBerry to do all your work; a desktop would be more productive," he continues, adding that the firm also is exploring other non-BlackBerry tools that help increase off-site productivity, such as a solution that lets users access their office desktops through a browser so that they can easily retrieve a file or use an application while sitting at a foreign computer, at an airport or client location, for example.
Merrill Extends BlackBerry Functionality
For their first BlackBerry project, Lehrman and Prasad extended a homegrown customer relationship management program to the BlackBerry platform with the help of Boston-based mobile solutions provider Vaultus. Getting the user experience, ease of navigation, data security and storage capacity right were critical, Prasad notes. Lehrman adds that data compression also was an important consideration in order to be able to load large volumes of data onto the small device.
In addition, Merrill Lynch is providing mandated courses, such as anti-money-laundering and e-communications policy training, on the BlackBerry, and as a result has seen higher completion rates, according to Prasad. "As new BlackBerry models come out with multimedia capability, we're planning to exploit that more and more," he says.
This year, the firm plans to create new performance management reporting tools, such as a graphical dashboard, using the real-time information gleaned from investment bankers' BlackBerry devices; Merrill has been in discussion with Cognos and other performance dashboard vendors, reports Prasad. "With the CRM tool now on a BlackBerry, we have more-timely and accurate data. Therefore we can report in a more-timely fashion," he says. "Senior managers can, on a daily basis, understand what our bankers are doing, whom they are calling."
Further, Merrill plans to make human resource tools available through BlackBerrys. And finally, Merrill is looking to roll out wireless daily workflow applications, such as pre-trade clearing and expense report approvals, for the handheld devices, according to Prasad.
One day, Lehrman notes, he envisions senior managers and bankers being able to go a week on the road without logging on to their laptops. "The devices are advancing, their screens are continuously getting better, the profile is becoming slimmer, and the amount of memory is increasing as well as the ability to interface with office tools and read large files such as PowerPoint [presentations] and spreadsheets," he notes.
BlackBerry Lockdown
Because Merrill allows investment bankers to work offline on their BlackBerrys (thus necessitating some data to be stored on the devices), the firm added layers of security beyond the BlackBerry Enterprise Server's built-in authentication, encryption and "kill button," which instantly wipes out data on any device reported lost or stolen. For instance, Merrill added an additional lockdown security capability that can be managed wirelessly. "This is a big balancing act because every security layer conceptually adds a user experience hurdle, but you've got to get the right balance," Prasad says. "We also train our bankers and employees to reach out as soon as they lose a device to minimize the window in which information might be flying around."
While security is a major challenge, the hardest part of extending a mobile application, Merrill Lynch executives say, actually is getting people to use it effectively on a day-to-day basis. It takes time and patience for bankers to input data in the CRM system via BlackBerry, for example, and some people simply are not comfortable with that. "That's one reason why we have a portfolio approach that BlackBerrys, laptops [and] desktops are all part of," explains Prasad. Merrill's target user base is 1,100 to 1,500 bankers, he says, adding that today the firm is 60 percent to 70 percent of the way toward that goal and plans to meet it by late summer.
Lehrman says Merrill Lynch also is considering the other end of mobility
- making the investment banker accessible to clients any time, anywhere.
"Bankers are on the road a lot, visiting clientele," he observes. "But at the same time, if a client needs a banker, we want that [banker] to be reachable." One answer, Lehrman suggests, is integrating office phones with the BlackBerrys so calls can be automatically forwarded to a banker's handheld device.
Managing Portfolios Wirelessly
While Blackstone Group also provides CRM functionality to its BlackBerry users, the firm is pushing the mobile application envelope further, delivering portfolio management applications to senior managers and portfolio managers on BlackBerrys so that they can access portfolio and customer data and experiment with what-if scenarios, according to Adrian Iosifescu, Blackstone's SVP of IT. "The other aspect that's critical to us is being in continual contact with investors and potential investors with information related to companies and real estate deals, or looking at potential targets for new deals," he adds.
"We targeted very senior managers and partners in the firm who are familiar with technology that can work while they're traveling or at their vacation homes, who need to have information available 24/7, but who don't prefer laptops and other devices," Iosifescu continues. "The cell phone and BlackBerry are two devices they know how to use and want to use."
With the help of Pyxis Mobile (Waltham, Mass.), Iosifescu extended an existing desktop asset management program to the BlackBerry platform.
Thanks to Pyxis' integration efforts, senior managers now can look at portfolio performance dashboards on the handheld devices and drill down to information on specific positions. So far, about 15 people in three businesses are using the wireless asset management application, according to Iosifescu, who notes that the tool eventually may be rolled out to as many as 50 users.
A smaller group that includes marketing executives uses the CRM capability. When executives do presentations or meet with existing or potential investors, they have the latest information available on their BlackBerrys, whereas before they used to carry books and bags of paper, notes Iosifescu. For example, senior managers often travel to find new investments, and they used to call into the office every hour or so to have somebody go to their desktop and look up information, especially when they were close to a new deal or trying to sell a position to an investor because they didn't have the information available or the information was already stale by the time they reached the client, he relates. Today, the real-time data is accessible from their BlackBerrys.
Insatiable Appetite?
The next step is to provide a way to run what-if scenarios on the BlackBerry devices. "Navigation gets a bit more complicated there, and I'm not sure how much appetite the senior managers have for that,"
Iosifescu says.
Also under development are coverage alerts - up-to-the-minute bulletins on specific topics delivered via BlackBerry. If Blackstone had been helping to take Delta out of bankruptcy, for instance, the people working with Delta would want to receive on a regular basis relevant market information and proprietary Wall Street research. There has never been an easy way to push that research out to people on the road, except by sending an e-mail to the BlackBerry with a link to a PDF, according to Iosifescu. "It's somewhat painful to read a PDF on a BlackBerry," he says, noting that he'd like to extract the critical information from the PDF - possibly by using automatic summarization software - and compose a dashboard that contains a snapshot of all pertinent information, including the research.
Also down the road is providing wireless access to Blackstone's digital "deal rooms," which hold contracts and other proprietary documents pertaining to specific deals. Security is tight on these deal rooms, which are hosted by a third party that provides strict controls not only on document access but on entitlements (i.e., who can do what with a document - read it, print it, change it and so on). Blackstone is seeking a digital rights management solution that can provide time-limited rights to files, watermarks and redactions (blackouts) of sections of the document, and deliver all this via BlackBerry. "We're looking at this but it's early on," Iosifescu concedes.
Asked if he considers new handheld devices, such as T-Mobile Wing or the next Palm, Iosifescu says, "We're always looking at new technologies."
But he expects the BlackBerry to continue to dominate the Street. "The challenge is a cultural one," Iosifescu observes. "These guys are so used to and love their Blackberrys, the ROI would have to be tremendous for them to move to something else. But that doesn't mean we're not going to look at things, and if we find the right solution we'll try and present it to them. Right now, BlackBerry is their tool of choice."
---
Can Wireless Trades Reduce Risk?
When they're out visiting clients or attending shows, Wall Street portfolio managers have tended to place trades the old-fashioned way.
"If you go to a buy-side conference, you see the portfolio managers constantly checking their BlackBerrys, and at every break they're calling back to the trading desk to submit orders and allocations through e-mail," says Adam Honore, senior analyst at Aite Group.
"That creates risk issues because there's often a communication gap between the desk and the portfolio manager," and that gap can cause serious trade losses, Honore continues. A typical e-mail might take the trading desk 20 minutes to acknowledge and address. "Twenty minutes is a long time when you're dealing with large volumes of buys and sells," he says.
To mitigate this risk, portfolio managers are starting to turn to wireless trading on BlackBerry or Windows Mobile devices. According to Honore, at least one firm conducted a price analysis for wireless portfolio management software. "They figured that if they could prevent one trade loss of decent size, that would pay for the software," he explains. The firm adopted a wireless application, and risk managers subsequently prohibited the submission of orders via e-mail, cutting trade losses through e-mail to zero. The wireless application also provides an audit trail and some enforcement of compliance rules, Honore notes.
On the other hand, letting people trade wirelessly can raise data security issues and the potential for error on transactions executed on handheld devices. Authentication and encryption are important to protect any device that provides access to sensitive data. Research in Motion (Waterloo, Ontario) provides both on its BlackBerry Enterprise Server, and an entire industry has sprung up around network protection.
The other issue is the possibility of making trading mistakes on a tiny handheld screen. "I've known a few people who've made significant mistakes using their wireless device," says Ray Wagner, research vice president at Gartner. One person using his Palm during a meeting decided to order $100,000 worth of stock, according to Wagner. Later, he realized he had ordered 100,000 shares of the stock, which tanked the next day.
Still, "The fact of the matter is that we're going to go in this direction - people yell and scream too much about convenience, and eventually they get what they want or they go around you if you try to block them," Wagner says. "We have to move in this direction, and it's a challenge for the security experts and the user-interface designers.
It's not something that can't be controlled, at least to the extent that we control our corporate network and desktop computers - there's nothing inherently different about a handheld device than there is about a laptop device or wired desktop."
"Most of our investment bankers are addicted to their BlackBerry and look at it every five minutes," relates Alok Prasad, managing director and head of strategy for global investment banking at Merrill Lynch.
"They feel kind of left out if they don't have an e-mail in their in-box." Rather than remove the objects of investment bankers'
obsessions, however, Merrill Lynch is feeding their addictions. The firm is giving its investment bankers - whom Prasad refers to as "our most expensive and critical raw material" - new software applications on their devices to maximize their BlackBerry time.
Until recently, investment bankers typically used Research in Motion's (Waterloo, Ontario) BlackBerry devices mainly for e-mail and phone contact, and maybe in conjunction with a contact management application.
But over the past few years new BlackBerry-ready applications - such as CRM, knowledge management and performance management solutions - have hit the market, and Merrill Lynch is considering most of them. "The intent is to use the wireless BlackBerry in a holistic way that drives a banker's or senior management's productivity," Prasad explains.
"In some ways the BlackBerry can be more powerful than a laptop because it's always connected to the firm's VPN," points out Ira Lehrman, Merrill's chief technology officer of global investment banking. "You're always on, which is important to bankers' mobility and the agility of getting access to data and information at any point, anywhere. We want to take the next step outside of e-mail, outside of standard applications, and we want to see how we can make people more productive." Merrill is working closely with partners and vendors to develop file access capabilities, productivity tools and performance management tools for the BlackBerry devices, Lehrman notes.
Not that a handheld device will ever replace the desktop or laptop, the Merrill executives quickly add. "The BlackBerry is one piece of the overall solution," says Prasad. Desktops and laptops will always have their place. "We're trying to understand the use case - when people use what. In the office, it's ridiculous to use a BlackBerry to do all your work; a desktop would be more productive," he continues, adding that the firm also is exploring other non-BlackBerry tools that help increase off-site productivity, such as a solution that lets users access their office desktops through a browser so that they can easily retrieve a file or use an application while sitting at a foreign computer, at an airport or client location, for example.
Merrill Extends BlackBerry Functionality
For their first BlackBerry project, Lehrman and Prasad extended a homegrown customer relationship management program to the BlackBerry platform with the help of Boston-based mobile solutions provider Vaultus. Getting the user experience, ease of navigation, data security and storage capacity right were critical, Prasad notes. Lehrman adds that data compression also was an important consideration in order to be able to load large volumes of data onto the small device.
In addition, Merrill Lynch is providing mandated courses, such as anti-money-laundering and e-communications policy training, on the BlackBerry, and as a result has seen higher completion rates, according to Prasad. "As new BlackBerry models come out with multimedia capability, we're planning to exploit that more and more," he says.
This year, the firm plans to create new performance management reporting tools, such as a graphical dashboard, using the real-time information gleaned from investment bankers' BlackBerry devices; Merrill has been in discussion with Cognos and other performance dashboard vendors, reports Prasad. "With the CRM tool now on a BlackBerry, we have more-timely and accurate data. Therefore we can report in a more-timely fashion," he says. "Senior managers can, on a daily basis, understand what our bankers are doing, whom they are calling."
Further, Merrill plans to make human resource tools available through BlackBerrys. And finally, Merrill is looking to roll out wireless daily workflow applications, such as pre-trade clearing and expense report approvals, for the handheld devices, according to Prasad.
One day, Lehrman notes, he envisions senior managers and bankers being able to go a week on the road without logging on to their laptops. "The devices are advancing, their screens are continuously getting better, the profile is becoming slimmer, and the amount of memory is increasing as well as the ability to interface with office tools and read large files such as PowerPoint [presentations] and spreadsheets," he notes.
BlackBerry Lockdown
Because Merrill allows investment bankers to work offline on their BlackBerrys (thus necessitating some data to be stored on the devices), the firm added layers of security beyond the BlackBerry Enterprise Server's built-in authentication, encryption and "kill button," which instantly wipes out data on any device reported lost or stolen. For instance, Merrill added an additional lockdown security capability that can be managed wirelessly. "This is a big balancing act because every security layer conceptually adds a user experience hurdle, but you've got to get the right balance," Prasad says. "We also train our bankers and employees to reach out as soon as they lose a device to minimize the window in which information might be flying around."
While security is a major challenge, the hardest part of extending a mobile application, Merrill Lynch executives say, actually is getting people to use it effectively on a day-to-day basis. It takes time and patience for bankers to input data in the CRM system via BlackBerry, for example, and some people simply are not comfortable with that. "That's one reason why we have a portfolio approach that BlackBerrys, laptops [and] desktops are all part of," explains Prasad. Merrill's target user base is 1,100 to 1,500 bankers, he says, adding that today the firm is 60 percent to 70 percent of the way toward that goal and plans to meet it by late summer.
Lehrman says Merrill Lynch also is considering the other end of mobility
- making the investment banker accessible to clients any time, anywhere.
"Bankers are on the road a lot, visiting clientele," he observes. "But at the same time, if a client needs a banker, we want that [banker] to be reachable." One answer, Lehrman suggests, is integrating office phones with the BlackBerrys so calls can be automatically forwarded to a banker's handheld device.
Managing Portfolios Wirelessly
While Blackstone Group also provides CRM functionality to its BlackBerry users, the firm is pushing the mobile application envelope further, delivering portfolio management applications to senior managers and portfolio managers on BlackBerrys so that they can access portfolio and customer data and experiment with what-if scenarios, according to Adrian Iosifescu, Blackstone's SVP of IT. "The other aspect that's critical to us is being in continual contact with investors and potential investors with information related to companies and real estate deals, or looking at potential targets for new deals," he adds.
"We targeted very senior managers and partners in the firm who are familiar with technology that can work while they're traveling or at their vacation homes, who need to have information available 24/7, but who don't prefer laptops and other devices," Iosifescu continues. "The cell phone and BlackBerry are two devices they know how to use and want to use."
With the help of Pyxis Mobile (Waltham, Mass.), Iosifescu extended an existing desktop asset management program to the BlackBerry platform.
Thanks to Pyxis' integration efforts, senior managers now can look at portfolio performance dashboards on the handheld devices and drill down to information on specific positions. So far, about 15 people in three businesses are using the wireless asset management application, according to Iosifescu, who notes that the tool eventually may be rolled out to as many as 50 users.
A smaller group that includes marketing executives uses the CRM capability. When executives do presentations or meet with existing or potential investors, they have the latest information available on their BlackBerrys, whereas before they used to carry books and bags of paper, notes Iosifescu. For example, senior managers often travel to find new investments, and they used to call into the office every hour or so to have somebody go to their desktop and look up information, especially when they were close to a new deal or trying to sell a position to an investor because they didn't have the information available or the information was already stale by the time they reached the client, he relates. Today, the real-time data is accessible from their BlackBerrys.
Insatiable Appetite?
The next step is to provide a way to run what-if scenarios on the BlackBerry devices. "Navigation gets a bit more complicated there, and I'm not sure how much appetite the senior managers have for that,"
Iosifescu says.
Also under development are coverage alerts - up-to-the-minute bulletins on specific topics delivered via BlackBerry. If Blackstone had been helping to take Delta out of bankruptcy, for instance, the people working with Delta would want to receive on a regular basis relevant market information and proprietary Wall Street research. There has never been an easy way to push that research out to people on the road, except by sending an e-mail to the BlackBerry with a link to a PDF, according to Iosifescu. "It's somewhat painful to read a PDF on a BlackBerry," he says, noting that he'd like to extract the critical information from the PDF - possibly by using automatic summarization software - and compose a dashboard that contains a snapshot of all pertinent information, including the research.
Also down the road is providing wireless access to Blackstone's digital "deal rooms," which hold contracts and other proprietary documents pertaining to specific deals. Security is tight on these deal rooms, which are hosted by a third party that provides strict controls not only on document access but on entitlements (i.e., who can do what with a document - read it, print it, change it and so on). Blackstone is seeking a digital rights management solution that can provide time-limited rights to files, watermarks and redactions (blackouts) of sections of the document, and deliver all this via BlackBerry. "We're looking at this but it's early on," Iosifescu concedes.
Asked if he considers new handheld devices, such as T-Mobile Wing or the next Palm, Iosifescu says, "We're always looking at new technologies."
But he expects the BlackBerry to continue to dominate the Street. "The challenge is a cultural one," Iosifescu observes. "These guys are so used to and love their Blackberrys, the ROI would have to be tremendous for them to move to something else. But that doesn't mean we're not going to look at things, and if we find the right solution we'll try and present it to them. Right now, BlackBerry is their tool of choice."
---
Can Wireless Trades Reduce Risk?
When they're out visiting clients or attending shows, Wall Street portfolio managers have tended to place trades the old-fashioned way.
"If you go to a buy-side conference, you see the portfolio managers constantly checking their BlackBerrys, and at every break they're calling back to the trading desk to submit orders and allocations through e-mail," says Adam Honore, senior analyst at Aite Group.
"That creates risk issues because there's often a communication gap between the desk and the portfolio manager," and that gap can cause serious trade losses, Honore continues. A typical e-mail might take the trading desk 20 minutes to acknowledge and address. "Twenty minutes is a long time when you're dealing with large volumes of buys and sells," he says.
To mitigate this risk, portfolio managers are starting to turn to wireless trading on BlackBerry or Windows Mobile devices. According to Honore, at least one firm conducted a price analysis for wireless portfolio management software. "They figured that if they could prevent one trade loss of decent size, that would pay for the software," he explains. The firm adopted a wireless application, and risk managers subsequently prohibited the submission of orders via e-mail, cutting trade losses through e-mail to zero. The wireless application also provides an audit trail and some enforcement of compliance rules, Honore notes.
On the other hand, letting people trade wirelessly can raise data security issues and the potential for error on transactions executed on handheld devices. Authentication and encryption are important to protect any device that provides access to sensitive data. Research in Motion (Waterloo, Ontario) provides both on its BlackBerry Enterprise Server, and an entire industry has sprung up around network protection.
The other issue is the possibility of making trading mistakes on a tiny handheld screen. "I've known a few people who've made significant mistakes using their wireless device," says Ray Wagner, research vice president at Gartner. One person using his Palm during a meeting decided to order $100,000 worth of stock, according to Wagner. Later, he realized he had ordered 100,000 shares of the stock, which tanked the next day.
Still, "The fact of the matter is that we're going to go in this direction - people yell and scream too much about convenience, and eventually they get what they want or they go around you if you try to block them," Wagner says. "We have to move in this direction, and it's a challenge for the security experts and the user-interface designers.
It's not something that can't be controlled, at least to the extent that we control our corporate network and desktop computers - there's nothing inherently different about a handheld device than there is about a laptop device or wired desktop."
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