Predicting  further deterioration in financial conditions and continued volatility in the market, Barclays Capital has advised investors to stay put.

In its latest study, "Global Outlook: A treacherous path," the London-based money management firm recommended equities over bonds, with the best opportunities in emerging market equities.

“European authorities, increasingly aware of the consequences of failure, will likely implement measures in the next couple of quarters that will avoid disaster,” said Larry Kantor, head of research. “That said, we expect worsening financial conditions and continued volatility in the meantime. We advise a neutral position toward risky assets.”

It said China's inflation appeared to have peaked, reducing the risks of an unduly severe growth setback.The US economy would continue to be constrained in the near term, but growth should move modestly higher into 2012.

" In Europe, we see value in Sweden and the UK relative to Germany and other core euro-area countries."

Investors of all ages are turning to cash in an apparently deliberate and longer-term fundamental change in investing, according to the latest findings of a survey by MFS, a money management firm in Boston.

The research shows investors are driven by fear, leading to a strong desire to protect their assets. Nearly three in five investors cite fear about stock market  volatility or needing money someday as a reason they hold high or increasing cash levels.

They also want immediate access to their assets and say it will take a meaningful change in either the economy or their personal circumstances to instill enough confidence for them to return to the equity market.

"Investors are in cash for a reason and, regardless of time horizon, conventional investing wisdom no longer applies. The Great Recession of 2008 has had a profound – and longer-lasting – impact on investors' confidence than expected," said William Finnegan, senior managing director of U.S. retail marketing for MFS. "Investors, especially younger ones, would rather keep cash in the bank than chance the stock market."

The online survey was conducted from May 31 to June 7, involving 974 individual investors with $100,000 or more in household investable assets.

Noting that the global economyhas reached "a dangerous new phase," IMF Managing Director Christine Lagarde has urged world  politicians to move urgently to spur growth.

She said the world needs collective leadership for synchronized solutions, "but while the problems are largely economic, the solutions are mainly political."

"Unless policies are strengthened, especially in advanced economies, nothing beyond a weak and bumpy recovery is in the cards. There are potential major benefits to a stronger, collaborative policy response," the IMF said in its latet report.

According to the latest IMF projection released on Sept. 20, global growth will moderate to about 4 percent through 2012, from over 5 percent in2010. Real output in the advanced economies is projected to expand at an anemic pace of about 1.5 percent in 2011 and 2 percent in 2012, helped by a gradual unwinding of the temporary forces that have held back activity during much of the second quarter of 2011.

" However, this assumes that European policymakers contain the crisis in the euro area periphery, that U.S. policymakers strike a judicious balance between support for the economy and medium-term fiscal consolidation, and that volatility in global financial markets does not escalate," the study cautioned.
 

Three major challenges — sovereign debt, growth, and social instability — which currently confront the world economy, are intimately intertwined, and all three must be solved to unlock strong, stable and balanced global growth, the new IMF chief said.

 Christine Lagarde, managing director of the International Monetary Fund,  stressed that for sovereign debt to be sustainable, economic growth needs to be strong, but in a sustainable way. “And for economic growth to be sustainable, it needs to deliver the stable social chemistry that holds societies together,” she told a Council on Foreign Relations meeting July 26.

On growth, Lagarde said the global recovery is set to post reasonable near-term growth, but remains unbalanced, with signs of overheating in emerging economies, surging commodity prices hitting low-income countries, and deep and long-lasting crisis effects in advanced economies.

“Boosting growth in these economies is no small task. And the goal can’t simply be any growth—we need the right kind of growth, that creates jobs and lifts people across the socioeconomic spectrum,” Lagarde said.

On social instability, Lagarde said events in the Middle East and North Africa had shown how socially imbalanced growth contributed to the political upheaval. In many emerging and developing economies, rising commodity prices were exacerbating social problems associated with high joblessness.

“Social problems are of major concern to advanced economies too,” Lagarde stated. “The young in particular are having a hard time finding work—with potentially lifelong implications in terms of employability and income. At the same time, the older generations are fighting to protect their health and pension benefits.”

These trends raised the prospect of intergenerational conflict, Lagarde observed. “This is why focusing on the right kind of growth is so important.”

The earthquake and nuclear disaster in Japan as well as the ongoing political turmoil in the Middle East and North Africa are likely to have  a limited impact on the global economy – provided the twin shocks of higher oil prices and the supply chain disruptions from Japan do not get much worse, according to a study.

The study is based on assessments by economists and industry experts in automotive, energy, risk, security, shipping and supply chain at IHS, a global information and analysis provider in Englewood, Colo.

IHS chief economist Nariman Behravesh told a global webcast featuring presentations from nearly a dozen IHS experts that global growth for 2011 is forecast to come in between 3.5 percent and 4 percent.

"The bottom line is that in the most likely scenario – other than Japan and North Africa – growth in much of the world economy will not be derailed," he noted, adding that the faster growing regions of the world have the best chance of shrugging off the events. However, Behravesh and other IHS experts said that the near-term impact on some industries such as automotive, electronics and chemicals "could be quite painful."

The price risk for oil remains to the upside, IHS director Ruchir Kadakia said, with much of that being pushed by the growing demand from China. IHS projects a 2011 average price for Brent Crude Oil of $105 per barrel.

Japan

In Japan, increased demand for fuel oil to support electric power generation disrupted by nuclear power plant outages will be offset by decreased demand from the transportation and industrial sectors.

IHS Automotive Director Michael Robinet said the nuclear radiation perimeter and rolling blackouts will retard output for several months, with the most significant non-Japan impact expected at the six-to-eight week stage. IHS Automotive has reduced its Japan light vehicle sales forecast for 2011 by 9.2 percent and revised global sales downward by 0.5 percent.

Economic growth in Japan is expected to fall 1.8 percent and 6.5 percent in the first and second quarters, respectively, then rise 14 percent in the third quarter as the country undertakes a rebuilding effort, and another 4.9 percent in the fourth quarter.

Middle East and North Africa

As a result of the turmoil in the region – Bahrain, Egypt, Libya, Morocco, Oman, Tunisia and Yemen – IHS analysts Bryan Plamondon and Farid Abolfathi downgraded their economic growth forecast for the region as a whole by 0.8 percent to 4.5 percent and by 4.5 percent for North Africa to 0.5 percent. The outlook for the Middle East was raised 0.5 percent to 5.8 percent. Uncertainty and heightened economic risk will remain for some time because of the fluidity of the regional turmoil and unrest.

Asia Pacific growth, excluding Japan, is forecast at 7.1 percent for 2011, down from 8.4 percent in 2010.

By 2025, six major emerging economies  — Brazil, China, India, Indonesia, South Korea, and Russia — will account for more than half of all global growth, and the international monetary system is unlikely to be dominated by a single currency, a new World Bank report says. As economic power shifts, these successful economies will help drive growth in lower income countries through cross-border commercial and financial transactions.

The report, Global Development Horizons 2011 — Multipolarity: The New Global Economy, released in Washington on May 17, projects that as a group, emerging economies will grow on average by 4.7 percent a year between 2011 and 2025.  Advanced economies, meanwhile, are forecast to grow by 2.3 percent over the same period, yet will remain prominent in the global economy, with the euro area, Japan, the United Kingdom, and the United States all playing a core role in fueling global growth.

“The fast rise of emerging economies has driven a shift whereby the centers of economic growth are distributed across developed and developing economies – it’s a truly multipolar world,” said Justin Yifu Lin, the World Bank’s chief economist. “Emerging market multinationals are becoming a force in reshaping global industry, with rapidly expanding South-South investment and foreign direct investment inflows. International financial institutions need to adapt fast to keep up."

According to the report, emerging economies, which used to rely on technological adaptation and external demand to grow, will have to make structural changes to sustain their growth momentum through productivity gains and robust domestic demand.

The study maps out the challenges that a multipolar world economy poses for developing countries over the next twenty years. The authors use empirically-based indices to identify high-growth countries with strong human capital and technological innovation, and that also drive economic activity in other countries. Growth spillovers are likely via cross-border trade, finance, and migration, which will induce technological transfer, and increase demand for exports.

The report highlights the diversity of potential emerging economy growth poles, some of which have relied heavily on exports, such as China and Korea, and others that put more weight on domestic consumption, such as Brazil and Mexico. With the emergence of a substantial middle class in developing countries and demographic transitions underway in several major East Asian economies, stronger consumption trends are likely to prevail, which in turn can serve as a source of sustained global growth.

“In many big emerging economies, the growing role of domestic demand is already apparent and outsourcing is already under way,” said Hans Timmer, the World Bank’s director of development prospects. “This is important for the least developed countries, which are often reliant on foreign investors and external demand for their growth.”

The shift in economic and financial power toward the developing world has important implications on corporate financing, investment and the nature of cross-border merger and acquisition deals. As more deals originate in emerging markets, South-South foreign direct investment is likely to rise, with most of it going into greenfield investments, while South-North foreign direct investment is more likely to target acquisitions. As they expand, more developing countries and their firms will be able to access international bond and equity markets at better terms to finance overseas investments.

The growing role and influence of emerging-market firms in global investment and finance can facilitate moving forward with the sort of multilateral framework for regulating cross-border investment that has been derailed several times since the 1920s, the report says. In contrast to international trade and monetary relations, no multilateral regime exists to promote and govern cross-border investment. Instead, the surge of bilateral investment treaties — more than 2,275 BITs as of end  2007 — has provided the most widely used mechanism for interstate negotiation over cross-border investment terms, including access to international arbitration of disputes through referral  to the International Centre for the Settlement of Investment Disputes, an affiliate of the World Bank. 

“Over the next decade or so, China’s size and the rapid globalization of its corporations and  banks will likely mean a more important role for the renminbi,” said Mansoor Dailami, lead author of the report and manager of emerging trends at the World Bank. “The most likely global currency scenario in 2025 will be a multi-currency one centered around the dollar, the euro, and the renminbi.”

To sustain growth and cope with more complex risks, economies that are home to emerging growth poles need to reform their domestic institutions, including in the economic, financial, and social sectors. China, Indonesia, India and Russia all face institutional and governance challenges. Human capital and ensuring access to education is a concern in some potential growth poles, particularly Brazil, India, and Indonesia.
 
“The projected changes in the global economy are fundamental. Overall, these shifts will likely be positive for developing countries. However, a key question is whether existing multilateral norms and institutions are sufficiently strong to accommodate the passage toward multipolarity. The challenges of managing global integration among power centers makes strengthening policy coordination across economies critical to reducing the risks of economic instability,” said Dailami.

Most developing countries, particularly the poorest ones, will continue to use foreign currencies to carry out transactions with the rest of the world and will remain exposed to exchange rate fluctuations in an international multi-currency regime. Multilateral institutions have to help countries transition to the new multi-polar world. This will require technical assistance, aid, and policy advice to equip developing countries with the necessary tools and financial capacity to respond to anticipated challenges and risks, while capitalizing on their strengths and opportunities.
 

Economic growth in the Asia and Pacific region is expected to remain robust this year and next, according to Anoop Singh,director of the IMF’s Asia & Pacific department.

Growth is expected to be close to 7 percent in 2011 and 2012, as the region continues to lead the global recovery. The output gap is closing in much of emerging Asia, where growth is expected to reach around 8 percent, led by China and India. For Hong Kong, growth is expected to be close to 5.5 percent in 2011.

Overall, risks to the outlook for Asia are balanced, although new downside risks have surfaced such as the unrest in the Middle East and North Africa as well as uncertainties about the effects of the tragedy in Japan. Also, fiscal and financial vulnerabilities in advanced economies could affect Asia mainly through the trade channel, the report notes.

Within Asia, potential overheating pressures are rising, and inflationary risks remain on the upside. For the region as a whole, consumer inflation accelerated to about 4.5 percent in February 2011, largely because of the increased fuel and food prices, which are  beginning to feed into core inflation and to affect the poor.

Headline inflation is generally expected to increase further in 2011,  before decelerating modestly in 2012. Signs of overheating are also building up in some of the region’s asset markets. In Hong  Kong, for example, there is the risk of a property bubble developing, and the government is taking proactive policy steps to  resist this prospect, such as putting in place a range of prudential measures.

The report notes that the need to tighten macroeconomic stances in Asia has become more pressing than it was last year. Further  monetary tightening and macro-prudential measures will be necessary in several economies that face growing overheating pressures, in order to contain credit dynamics, bring interest rates more closely in line with robust growth, and mitigate risks to the financial sector.

“In many economies, exchange rate flexibility is a key line of defense against overheating. In addition, several economies have scope for more fiscal consolidation, which will also help contain demand while building the fiscal space that would allow governments to respond more effectively to future shocks,” the study says.

“Looking ahead, a key challenge for Asia’s policymakers remains to achieve balanced, sustainable, and more inclusive growth over the medium term,” Singh said. He noted the need to reduce inequality through inclusive labor markets, which would guard against risks to social stability, and to develop new engines of growth by strengthening private domestic demand.

The U.S. economy is improving at a moderate pace and the overall conditions in the labor market are improving gradually, the Federal Reserve said in its latest assesment based on data received by the central bank since its last open market committee meeting in March.

Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued.

The unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the committee judges to be consistent, over the longer run, with its dual mandate. Increases in the prices of energy and other commodities have pushed up inflation in recent months. The committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations.

The panel will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period, the bank said on April 27.

Latin American companies toppoed the list of most popular emerging market targets for acquisitions by U.S. companies in the second half of 2010, according to a KPMG study. Those countries accounted for more than 40 percent of emerging market acquisitions made by U.S. companies during the period.

The KPMG study, which tracks completed deals in which an acquirer took at least a five percent shareholding interest, revealed that U.S. companies made 116 emerging market company acquisitions in the second half of 2010, down slightly from 134 in the first six months, with Brazil, Central America and Caribbean, and other South American countries among the most popular targets.

"We believe that Latin America remains an attractive market, with continued GDP growth forecasted, abundant natural resources and commodities, and rising domestic spending by brand-conscious consumers," said Mark Barnes, principal-in-charge of KPMG LLP’s U.S.-High Growth Markets practice. "Many firms in Latin America were ripe for acquisitions as they were undervalued, and there are still deals to be made."

Emerging Markets’ Interest in Developed Economy Targets Dips Slightly

"After a burst of activity early in 2010, the general expectation was that emerging and high growth acquisitions in developed countries would continue to increase," said Barnes. The survey results show that emerging to emerging deals are picking up some speed, as companies shop for access to raw materials, energy sources and consumers in markets that may have many similar characteristics to their own.

Emerging and high-growth market companies made 239 acquisitions in developed economies in the second half of 2010, down slightly from 265 during the first half of 2010, according to the study.

"The modest decline in acquisitions by emerging market companies in developed economies in the second half of 2010 may have reflected the falloff in consumer buying power and other economic uncertainty in developed nations," said KPMG’s Barnes. "But even at slightly slower rates of acquisition, the developed economies remain large, wealthy markets that present major opportunities for investment and expansion by overseas global companies."

Two and a half years after the global financial crisis broke, the economic activity in 10 Eastern European nations returned to the pre-crisis levels, according to the World Bank’s new EU10 Regular Economic Report. Growth strengthened in the second half of 2010, supported by restocking, a double-digit expansion of industry and a rebound in consumption.
 
The countries include Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia.

The pace of the recovery in these nations is expected to accelerate in 2011 and 2012. The return to pre-crisis levels was helped by aligned business cycles and close trade and production linkages with Western European countries.

The economic sentiment in the Eastner European nations exceeded its long-term average in December 2010 for the first time in 26 months. In 2011 and 2012 firms are expected to raise investment with higher capacity utilization and strong global demand for capital goods and durables, and households to step up consumption with improving confidence about future prospects.

The performance of Slovakia and Poland is set to remain solid thanks to low pre-crisis imbalances, deep integration into European production networks, EU funds and, in the case of Poland, solid consumption. Estonia, Lithuania, and Latvia are likely to build on

the export-led upswing as domestic demand continues to recover. Romania and Bulgaria, where the crisis hit later than elsewhere,

are set to see the biggest improvements in growth in 2011, aside from Latvia and Lithuania. Growth in Slovenia, the Czech Republic, and Hungary is set to increase at a more measured pace, in part because these countries have already converged more to EU income levels.

“The strong rebound in global trade benefited exports in the EU10, which recovered to pre-crisis levels by the end of 2010,” said Kaspar Richter, Senior Economist in the World Bank’s Europe and Central Asia Region and lead author of the report. “However, growth prospects are subject to risks related to the feeble private investments, winding down of construction projects, and tight

international financial constraints,” said Kaspar Richter, Senior Economist in the World Bank’s Europe and Central Asia Region and lead author of the report
 

Japan’s real domestic growth will slow as a result of the earthquake and tsunami, but the slowdown is likely to be temporary. Growth should start picking up after mid-2011 as reconstruction efforts get underway, according to the latest assessment by the World Bank.

While there are uncertainties such as the situation with nuclear reactors, Japan’s past experience suggests an accelerated reconstruction effort. The short-term impact on the economies of developing East Asia is likely to be limited. In terms of impact on trade, disruption to production networks, especially in automotive and electronics industries, could continue to pose problems.

Real domestic growth in East Asia has been moderating after a sharp rebound from the global crisis.

Inflation has become the key short-run challenge for the authorities in the region, complicated by a surge in portfolio capital inflows and rapidly increasing food and commodity prices that hit low-income households disproportionately.

For many middle-income countries in East Asia, lowering inflation presents difficult policy choices.

The sharp increase in commodity prices portends increased volatility for the foreseeable future.

Over the medium-term, East Asia has the potential to sustain rapid increases in living standards even as the global economy enters a more challenging phase.

China, now the world’s second largest economy and leading exporter and manufacturer, will remain a powerful source of external demand for East Asian producers in the foreseeable future.

But even as developing East Asia continues to grow rapidly, rising inequality is a matter for concern and could pose a challenge to future social stability.

The economic impact of Japan's devastating earthquake and tsunami on Singapore companies is expected to be less severe than earlier projected, although the Southeast Asian nation's overall economy will be affected.

Global Logistic Properties, the real estate unit of sovereign wealth fund Government of Singapore Investment Corp., estimates the damage to its total portfolio of properties in Japan to be $38.8 million, down from previously estimated $47.5 million. Still, the company said Monday it could lose $10.8 million in rental income.

Saizen Real Estate Investment Trust, which has a diversified portfolio of residential properties in Japan, also expects to get hit. In a statement filed with the Singapore Exchange, the company said it has been unable to assess the conditions of all of its properties because of disruptions to the transportation, electricity and telecommunicationsi. The six properties its managers have viewed so far have sustained minor damage. The company's total portfolio value in Japan totaled some $460 million.

Meanwhile, Singapore's Foreign Minister George Yeo said Sunday the Singapore economy would be affected by the earthquake and tsunami, either directly or indirectly. They might even mean the start of a new period for the world, and there will be many uncertainties given the losses from the disaster and the reconstruction work, he added.

Qatar Holding LLC, a Middle Eastern sovereign wealth fund, has agreed to pump $2.65 billion into IBERDROLA S.A., a giant energy concern in Spain, for a 6.17 percent stake.

The two parties will cooperate to develop new business opportunities in high-growth and emerging markets. IBERDROLA also intends to establish its regional Headquarters Qatar.

Ahmad Mohamed Al-Sayed, chief executive officer of Qatar Holding, said the investment provides the fund significant exposure to important global markets,  including Brazil, Mexico and the United States. "As such, this investment represents a further step in our strategy of building a diversified portfolio of leading global enterprises.”

Ignacio S. Galán, CEO of IBERDROLA, described the deal as the company's first step toward "a long-term relationship that will support each other’s future development."
 

Advanced economies are expected to grow by 2.5 percent during 2011–12, a rate that is considered insufficient to significantly reduce high unemployment rates, according to the latest forecast by the International Monetary Fund.

Still, the 2011 growth projection marks an upward revision of 25 basis points compared with the October 2010 forecast, mostly because a new fiscal package passed in late 2010 in the United States could boost growth this year by 50 basis points. A similar measure in Japan is expected to sustain a moderate recovery.

In both 2011 and 2012, growth in emerging and developing economies is expected to remain buoyant at 6.5 percent, down from 7 percent registered last year.

Developing Asia continues to grow most rapidly, but other emerging regions are also expected to continue their strong rebound.

Notably, growth in sub-Saharan Africa — projected at 5.5 percent in 2011 and 5.75 percent in 2012 — is expected to exceed expansion in all other regions except developing Asia. This reflects sustained strength in domestic demand in many of the region’s economies as well as rising global demand for commodities.

Financial conditions are expected generally to remain stable or improve this year. Bank lending conditions in the major advanced economies would ease further.

Banks could face a systematic reduction in profits because of new regulations related to liquidity requirements, according to a new KPMG report.

The report by the global accounting firm finds that new regulations related to bank capital and liquidity requirements should strengthen the resilience of banks, but enhanced liquidity requirements could resulting in a fundamental reshaping of the sector.

“Our report indicates that while the regulatory changes may make banking safer -  they could also limit the diversity and innovation which has underpinned economic expansion,” said Scott Marcello, national leader of KPMG LLP’s (U.S.) financial services practice.

The report highlights that new liquidity buffers – potentially three times their current size – will sharply increase the costs of liquidity and may permanently depress margins. Liquid funds may have to be held in low-risk, low-return assets such as government bonds, yielding small returns and further reducing profitability. The cost of attracting long-dated retail deposits will be a key business challenge over the next few years, according to the study.

A Federal Reserve official has painted a gloomy picture for the nation's housing market, predicting possible further price declines.

"With a pipeline full of distressed properties, the unfortunate consensus is that we should expect even more downward pressure on house prices. Potential buyers seem inclined to wait and see if they can get a better buy in the future. Builders, too, are deterred by the additional competition lurking in this reservoir of vacant and distressed properties," Federal Reserve governor Sarah Bloom Raskin told the 2011 Midwinter Housing Finance Conference in Park City, Utah, on Feb. 11.

She said the U.S. economy is growing, but the pace of recovery is agonizingly slow, well behind the pace of recovery in prior recessions. There are several causes for this lethargy, but the critically important drag on the economy is the absence of any substantial recovery in the housing sector. Traditionally, housing is the first sector to recover after a recession, buoyed by low interest rates and pent-up demand. The increase in housing sales and construction usually is followed by a robust increase in consumer expenditures on durable goods, like furniture and appliances, which magnifies and multiplies the effect of the housing recovery.

"Yet today, demand for housing is weighted down by the enormous losses in income and net worth that households suffered in the recession. In addition, the persistent high rate of unemployment is further depressing housing demand, creating uncertainty about housing prices, and impeding that robust recovery in the housing sector that we generally see," she added.

Significantly, uncertainty about house prices destabilizes expectations outside of the housing sector. When banks have troubled mortgages on their books, they may be required to increase their loss provisioning and implement troubled debt restructuring, which in turn reduces the amount of funds they have to lend. Uncertainty about house prices also clearly undermines consumer confidence and undercuts consumers' willingness to spend.
 

Asia — including the Association of Southeast Asian Nations, industrial and emerging Asia — is expected to post 7 percent growth in 2011 on average, one percentage point lower than last year, said a leading economist of the International Monetary Fund.

In a wide-ranging interview with IMF Survey online looking at the prospects for the world’s fastest growing region, the head of the IMF’s Asia and Pacific department, Anoop Singh, however, warned that the strength of Asia’s growth could lead to the threat of inflation.

Asia also had to contend with the risks posed by possibly weaker global economic growth and financial spillovers from advanced economies, suggested Singh, but he predicted that the region’s economic importance would continue to increase.

Asked what are your expectations for the region in the coming year, Singh said:" Well, we expect growth to remain strong. We expect it to settle at a more sustainable rate of about 7 percent for Asia as a whole, slightly down from 8 percent in 2010. We see China and India continuing to lead Asia’s growth."

Despite this positive outlook, there are still downside risks, but these mainly come from the external environment: The risk that global growth could be weaker than we anticipate. Also financial spillovers from advanced countries, especially in Europe, could be another source of concern, and constitute another downside risk.
 

With the Federal Reserve flooding the market with money, a measure that has spakred criticism worldwide, the chief investment officer of London-based Barclays Wealth has issued a set of recommendations on where to make investments.
 
Aaron S. Gurwitz's top investment calls for November and December include:
 
*Government bonds;
* Korean, Chinese and Taiwanese equities; and
* High-quality Turkish lira-denominated debt.
 
 “Our recommended tactical asset allocation for the fourth quarter,” he said, "favours developed government bonds, largely at the expense of cash. Our equity overweight – the recovery component of our previous 'barbell' tactic – was cut to neutral, with a small overweight in emerging markets balanced by an equal underweight in developed markets.”
 
 Although the Fed's decision to pump more money into the economy drew sharp reaction in Germany and China, among other nations, Gurwitz endorsed the step.
 
“With further fiscal stimulus off the table for political or market reasons, and with short-term investment rates already at zero, quantitative easing is the only weapon left in policymakers' arsenals,” Gurwitz said. “We'd be happier to see growth re-accelerate without any additional help from policymakers, but until then we remain skeptical and concerned that the developed economies' weakness will linger, government bond yields will fall further, and the emerging economies will continue to be the principal wellspring of attractive risk-adjusted returns.”
 
 He, however, urged “investors not to alter their investment strategies radically. Further, we recommend that investors include an allocation to long-term government bonds in their asset mix and seek out investments – in all regions and in all asset classes – that provide exposure to economic growth in the emerging markets.”
 
 Kevin Gardiner, head of global investment strategy at Barclays, added: “This positioning reflects our increased concern that the global economic recovery will remain lackluster at best. However, it also reflects more market-orientated developments – namely the fact that equities have enjoyed a very strong run, flattered by anticipation of the Fed's boosted quantitative easing program. This has left stocks, in our view, tactically short of headroom – and the Fed's special measures are much more likely, in practice, to support bonds.”
 

Mubadala Development Co., Abu Dhabi's sovereign wealth fund, signed two deals with 1Malaysia Development Berhad on Oct. 9,  a step that could lead to significant increases in foreign direct investment in Malaysia.

Under the agreements signed by Mubadala Real Estate & Hospitality and Mubadala Industry, Mubadala has agreed to do a feasibility study to invest $7 billion in the hydro power-based  aluminium sector.

If implemented, the project will create more than 10,000 jobs during construction and another 2,000 specialist jobs, the companies said.

Mubadala Real Estate & Hospitalit has also agreed to explore the potential joint development projects within the Kuala Lumpur International Financial District. The full scope of the projects is expected to finalized next year.
 

The Goverment of Singapore Investment Corp., a state-run investment fund in Singapore, reported Sept. 27 a 7.1 percent yearly on averge rate of return over the past 20 years. Adjusted for inflation, the real rate of return was 3.8 percent.
 
“While the global economy is experiencing a rebound, the recovery path beyond this year is subject to significant uncertainties,” Tony Tan Keng Yam, deputy chairman, said.

Anticipation a shifting financial landscape, the sovereign wealth fund has decided on some adjustments to its investment policy. First, it will continue to increase its investments in emerging economies, especially in Asia. This is a deliberate progression of a strategy that began in 2003 when the fund focused on emerging market equities as an asset class, the fund said.

Second, It will establish a facility for a medium-term strategy about asset allocation. The policy portfolio is an anchor of the fund's investment process for allocating and rebalancing exposures to the various asset classes. The medium-term strategy facility will enable fund management, with the approval of the board, to make calibrated departures from the policy portfolio.

The Federal Reserve on Tuesday approved China Investment Corp.'s application to own indirectly up to 10 percent of Morgan Stanley shares.

CIC, a sovereign wealth fund organized by the Chinese government to  investing its foreign exchange reserves, controls Central SAFE Investments, a Chinese  government-owned investment company that invests in Chinese financial institutions. It owns controlling interests in three Chinese banks that operate banking  offices in the United States: Bank of China, China Construction Bank and Industrial and Commercial Bank of China.

CIC. established in 2007, manages more than $200 billion in assets.

Morgan Stanley, a global financial services company that provides its products and services to a diversified group of clients and customers, including  corporations, governments, financial institutions and individuals, traces its roots back to the House of Morgan, the grandest name on Wall Street.

But its last decade of operation has been one of recurrent turmoil, including a near-death experience during the 2008 credit crisis that toppled Morgan from its  standing as a premier investment bank.

In 2009, the bank recorded the first annual loss in its 74-year history. Under James P. Gorman, who took over as chief executive of the bank in January 2010, 

Morgan has reduced its risk levels and returned to profitability, albeit at more modest levels than competitors like Goldman Sachs or JPMorgan Chase.

Singapore's sovereign wealth fund Temasek Holdings has signed a deal with Impulsora Mexicana de Desarrollos Inmobiliarios to form a joint venture to pursue real estate investment opportunities in Mexico. Both parties will commit $200 million to the initiative, which will be launched in the third quarter.

The joint venture will evaluate opportunities stemming from the demand for affordable planned housing as Mexico's middle-income population grows.

"Mexico's transforming economy provides opportunities for Temasek to expand its investments in sectors such as real estate. The rising middle-income population also provides a foundation for Mexico's long-term growth," said  Lorenzo Gonzalez Bosco, Temasek's managing director for investments in Mexico.

The global economic recovery faces three big  potential risks, says Barclays Wealth economics research in a study released July 19. 

"The first big issue facing the global economy is the reluctance of the US consumer to spend, with real household disposable income well below what it normally is at this stage of the economic cycle. The outlook here is worrying: the recovery could easily stall or peter out in 2011," said Michael Dicks, chief economist at Barclays Wealth.

The second issue is whether the European Monetary Union will survive. Fixed exchange rates make it difficult for countries to engineer gains in competitiveness, and dramatic fiscal tightening won't necessarily help much if it leads to further declines in GDP. So, EMU could well change form – and perhaps even break up entirely. 

"Since Greece cannot devalue – unless it leaves the EMU and creates a new drachma – Greek firms won't see any great improvement in competitiveness, following their adoption of a joint EU-IMF adjustment programme. Indeed it may even deteriorate as firms find themselves facing higher tax burdens and much weaker domestic markets to sell into. But worse is to follow as German policymakers have chosen to now accelerate plans to rein in their own budget deficit and this decision has had the effect of ratcheting up how much other euro-area governments are expected to do.  This is the reason we have lowered our euro-area growth forecast for 2011 to just 1 percent," Dicks said.

The final issue is the potential Asian inflation. The region's ability to grow at an above-potential pace will be constrained by inflation fears. Worse still, Chinese inflation may be quite sensitive to shifts in the output gap. When it is positive, as currently, inflation normally rises several percentage points. So, a substantive tightening looks to be warranted. But China and the other major regional economies still look unlikely to slam on the brakes. If so, then markets may continue to worry about growth being unsustainably fast. 

Unless the Eurozone seriously tackles structural reforms,  the risks of an economic “lost decade” like that of Japan in the 1990s are significant, particularly for countries in Southern Europe, according to a study by accounting giant  Ernst & Young.

Ernst & Young’s quarterly Eurozone Forecast recently revised the region’s growth down to 0.8 percent this year and 1.3 percent for 2011

“The repercussions of the sovereign debt crisis will mean economic growth in the Eurozone being 1 percent - 2.5 percent lower per annum than in the United States over the next five years.The impact on jobs is just as striking. While during 2010-14, the U.S economy will generate more than 10 million new jobs, employment levels will barely change in the Eurozone,” said Marie Diron, senior economic advisor to the Ernst & Young Eurozone Forecast.

A lost decade for Southern Europe?

Given the more drastic deficit reduction plans in Greece, Spain and Portugal,the two-speed Europe is now expected to be even more marked.While GDP growth in Germany, France, the Netherlands and Belgium is expected to average 1.7 percent per year in 2010-12, Southern Europe (Greece, Spain and Portugal) would see negative growth of 0.1 percent per year in the same period.

As a result,  GDP per capita in Greece will fall from 89 percent of the Eurozone average in 2007 to 83 percent in 2012. In Spain,it will fall from 93 percent of the Eurozone to 88 percent.

“The South is heading not for just one or two bad years but for several years of very low, or even negative growth. Although Ireland,which is often included with its Mediterranean neighbors,will bounce back from 2011,Greece, Spain and Portugal are not expected to get back to their pre-crisis levels of activity until 2014,” Diron said.

With notable divergence from the North

 Northern Europe is relatively optimistic for two main reasons. Firstly, countries like Germany and the Netherlands enjoy strong competitiveness levels, after years of robust productivity growth and wage moderation and they are in a good position to reap the benefits of a robust recovery at the global level.

Secondly, while significant, the fiscal adjustment that is needed in the North is manageable and governments can push ahead with deficit reductions without impacting growth substantially.

Euro continues to weaken and interest rates on hold until 2011

The euro is likely to  fall to  $1.05 by next year's end, before rising back slightly as Eurozone growth picks up. In effective terms, against a basket of currencies representing the Eurozone trade structure, this means that the euro will depreciate by around 20 percent from its peak at the year's turn.

Diron explained,“Ongoing worries about the fiscal sustainability of some Eurozone countries,and their reluctance to tackle the underlying problems, are weighing heavily on the euro. The euro currently stands at around US$1.20,its lowest value since early 2006 and nearly 20% below its value at the beginning of 2010.”

Given the weaker growth outlook and the absence of inflationary risks, the European Central Bank will keep interest rates on hold until mid-2011.

 “While restoring sustainable public finances is necessary, the current trend to cut deficits in a very rapid manner, even in countries that do not have any problems to finance their deficits and refinance their debt, risks being counter-productive. In particular, countries that can afford to reduce their deficits more gradually should do so in order to help sustain growth in the Eurozone in general and in the South in particular, ” Diron concluded.
 

As the world economiy undergoes radical shifts with Asia leading the growth momentum, wealthy individuals in the emerging markets appear more optimistic about global economic prospects than those in the developed economies, according to a study by Barclays Wealth, a British financial services giant.

In part, this reflects the recent relative outperformance of emerging markets. But, the survey reveals, that the impact of the recent economic downturn on the wealthy's net assets has also been much smaller in the emerging markets than in the United States and Europe. As a group, US and Europe survey respondents are markedly more downbeat about global economic outlooks  than most professional economists.

Despite their divergent growth outlooks, wealthy individuals worldwide agree that wealth offers opportunity and choice. Yet, how people view their wealth - and what they choose to do with it -  varies considerably from region to region. Europeans seem to be veering away from the notion that wealth commands  respect, but those in Asia Pacific and Latin Americans tend to think wealth carries weight. How do they use wealth? Latin Americans emphasize spending on children's education, Americans focus on charity and  Europeans indulge in personal enjoyment.
 

Fifty-one percent of 255 American coporate  executives surveyed by  PricewaterhouseCoopers believe the US economy would improve over the next 12 months, up 32 points from the same quarter last year.

Similarly, the number of chiefe executive officers expressing pessimism fell 30 points from year earlier, according to the study by the accounting giant.

Private companies operating globally show more optimism than their domestic-only counterparts about prospects for the US economy. International marketers' confidence in the global economy is up 32 points from the year-ago  first quarter.

Overall, more than three-quarters of leading private businesses expect positive revenue growth over the next 12 months, with 38 percent projecting double-digit growth. Only 5 percent forecast negative growth.

“As we've moved beyond the last few quarters, private business owners are more confident that the US and global economies have hit rock bottom and are beginning to recover," says Ken Esch, partner with PricewaterhouseCoopers' Private Company Services practice. "Consequently, we’re now seeing more companies projecting growth. It's important to note, however, that these projections are still almost half of what private company CEOs were projecting in mid-year 2007."

Recent economic events have shaped the way U.S. high-net-worth investors - 37 percent of whom have seen their personal net worth shrinking as a result of the financial meltdown - view their own investment portfolios, their economy and their government.

As a result, they are taking a more active role in their money management, with 44 percent reviewing their investment portfolio more than they were before the recession and 22 percent saying they now spend more than five hours each week actively investing their money, according to a study by Barclays Wealth, a global money manager.

Yet, this does  not necessarily mean they have increased their reliance on their advisors or peers for advice.The majority have not changed how frequently they are speaking with their financial advisors, nor their friends and colleagues about investing. Instead, they are taking matters into their own hands.

"Global economic uncertainty has prompted a new 'wealth  consciousness' in high-net-worth individuals in America and around the world,"  said Matthew E. Brady, head of wealth advisory, Americas at Barclays Wealth. "As we start the new decade, wealthy investors are paying closer attention to  how their wealth is being managed and taking a more hands-on role in the process of investment itself." 

The majority divulge that the global  downturn has made them more concerned about wealth preservation, and nearly half are avoiding high-risk investments more than they were before the  downturn.  However, when considering where to invest, equities and real estate are the asset classes they expect to perform best, with the majority of U.S. respondents predicting equities and property will do well over the next five years.

"The sustained uncertainty around the prospects and timing of the global economic recovery is causing investors to favor the familiar and  perceived less complex asset classes of equities and property.  However, the outlook among wealthy individuals is notably more cautious than their institutional  peers," Brady said.

U.S. high-net-worth investors are particularly pessimistic about the economic outlook , and they mistrust government. About half of the American respondents said the U.S. and global economies will continue to deteriorate over the next few years, or at least over the next  year. The majority also said the downturn has  caused them to trust the government less, and two-thirds do not feel the U.S. government handled the downturn well. 

Among wealthy U.S. investors the definition of wealth  has changed  Asked what wealth means to them, 91 percent said it allows them freedom of choice in their life and 80 percent reported that wealth is a reward for hard work. Only 38 percent view wealth as a  means to get respect from friends and family.

These findings are from the  Barclays Wealth report, 'The Changing Wealth of Nations,'uncovering the perspectives of high net worth  individuals around the world.' " The study polled more than 2,000 high-net-worth individuals worldwide and examined their views on wealth and the economy. 

Economic activity in the Euro zone remained unchanged in April, despite a mega shockwave Greek's woes sent through the global financial markets; Economists expect the Euro area to post positive growth this year, but paint a gloomy outlook for next year and beyond.

"The structural imbalances unveiled by the current fiscal and financial crisis could well put Europe on a slow growth track in 2011 and beyond. For 2010, we still project moderately positive growth rates for most European countries, with exceptions in Greece, Spain and Ireland, which will decline," said Bart van Ark, the Conference Board chief economist.

Said Jean-Claude Manini, the board's senior economist for Europe, predicted a weak recovery for the Euro area. "Even with the recent volatility in European financial markets, post-recession rebound effects still dominate the recovery process." He said the activity indicators show "a solidly upward trend, suggesting a moderate pick-up in economic activity in the second half of the year."

The New York group's index aggregates eight economic indicators that measure activity in the Euro area.

Meanwhile, the board's index for the United States dipped slightly in April, following a $1.3 percent gain in March, but the outlook still remains positive.

"These latest results suggest a recovery that will continue through the summer, although it could lose a little steam,"  said Ken Goldstein, economist at the board.
 

U.S. venture capital investment in cleantech companies during the first three months of 2010 hit $733.3 million in 72 financing rounds, up 68 percent in capital and 118 percent in deals from the same period last year, according to an Ernst & Young LLP analysis.

Cleantech investment is recovering faster than overall venture capital investment, the study shows.

Early stage venture financing was particularly robust. The 34 seed and first rounds represented 49 percent of financing activity, the highest percentage since the fourth quarter of 2008. The energy efficiency category received the largest proportion of seed or first round investments, 41 percent, underscoring the sector’s appeal for new financing and company creation.

“With rising oil prices and growing signs of economic recovery, particularly in Asian markets, the drivers for cleantech remain strong” said Gil Forer, Ernst & Young’s global cleantech leader. “Given that the majority of government stimulus funds have yet to be deployed, the intensifying focus on cleantech solutions as a driver of operational efficiency, and the robust cleantech innovation pipeline, we expect increased activity in coming quarters” added Forer.

Growing focus on energy efficiency

Companies in the energy efficiency cleantech category garnered the greatest number of deals, 20, continuing a trend that emerged last year. With 11 deals, the energy efficiency products sub-segment, which includes technologies such as smart meters and lighting management systems, was the largest segment in this category. Adura Technologies, a San Francisco-based provider of building lighting control systems, received the largest financing in this segment with a $12 million later-stage round.

The venture investment focus on energy efficiency is reflective of broader trends. Electric utility energy efficiency budgets jumped by 60 percent to $4 billion in 2009 from the 2007 level, according to the Consortium for Energy Efficiency.

Corporations are also pushing the electric vehicle agenda. General Motors will invest $246 million to become the first major U.S. automaker to manufacture electric motors for hybrids and electric vehicles. Toyota, Nissan and Mitsubishi, Fuji Heavy Industries and Tokyo Electric Power jointly created the CHAdeMO Association to increase the number of quick-charge stations for electric vehicles worldwide and standardize how to charge vehicles. UPS deployed 200 hybrid delivery trucks in eight additional U.S. cities. Meanwhile, FedEx plans to be the first U.S. delivery service to use an all-electric truck when it adds four Navistar vehicles to its fleet in June.

A vast majority of business professionals are concerned that there may be a "double dip" recession, according to a Deloitte survey.

“Many of our clients are optimistic about the economic recovery but have lingering concerns. They are worried about job growth as well as continued uncertainty within the financial and governmental sectors,” said David Williams, chief executive officer of Deloitte Financial Advisory Services LLP, an accounting firm. “The economic growth we experienced at the end of 2009 and the momentum that continues today has resulted in increased optimism; however, until the job picture stabilizes and the credit markets firm up, concerns will remain.”

Nearly one-third of respondents believe that their company will not fully recover from the recession until after 2011. Only 14 percent thought their company would fully recover by the end of 2010.

More than 1,280 business professionals from the banking and securities, insurance, investment management, media & telecommunications industries responded to the online polling questions during a March 2010 Deloitte webcast, titled “Recession and Recovery: Great Challenges, Greater Opportunity.

China Investment Corp. has signed an agreement with Penn West Energy Trust to form a partnership to develop Penn West’s bitumen assets in Alberta, Canada.

CIC, the government-controlled investment fund of the Asian giant, will invest about Canadian $817 million to acquire a 45 percent interest in the partnership.

CIC has also agreed to purchase 23,524,209 trust units of Calgary-based Penn West for roughly Canadian $435 million in a private placement, or about 5 percent of Penn West’s outstanding trust units.

Penn West is North America's largest conventional oil and natural gas producing income trust,  with 2008 pro forma average daily production of about 192,000 barrels of oil equivalent per day.

New Zealand Superannuation has terminated the global equity, non-US small-cap equity and multi-strategy equity mandates managed by GMO LLC, but a spokesman for the sovereign wealth fund declined to say if the move indicated a retrenchment from non-U.S. equities.

GMO, a global investment firm with offices in San Francisco and Boston, was appointed in June 2004 to manage a non-US small-cap mandate; in February 2005 to manage a growth-oriented global equity portfolio and in June 2006 to manage a multi-strategy equities mandate.

This decision does not affect the New Zealand Superannuation Fund’s strategic asset allocation to global listed equities.

GMO Renewable Resources Ltd continues to manage the fund’s New Zealand timber assets.

GMO saw a plunge in assets under management in 2009, as did several other heavyweight U.S. mutual funds.
 

Global investors are buying U.S. equities and retaining confidence in the U.S. dollar in the aftermath of Greek's recent financial trouble, which has sent  a shockwave through the financial markets worldwide.

Forty-six percent of asset allocators say they are overweight in equities, up from 33 percent in February. Some 66 percent of fund managers, according to the Bank of America Merrill Lynch Survey of Fund Managers for May, expect the dollar to rise the most of the reserve currencies.

The gulf in confidence between U.S. and European corporate profit has reached a seven-year high.

"The survey shows that investors have capitulated on Europe, beaten down by sovereign debt concerns and faltering growth expectations," said Gary Baker, head of European equities strategy at Merrill Lynch Global Research.

According to the survey, conducted from May 7 to May 13 polling 202 fund managers worldwide, 33 percent of the respondents consider U.S. corporate profit outlook the most favorable, while 41 percent rate the eurozone outlook least favorable - the widest gap since July 2003. The number of U.S.-based investors expecting double-digit earnings growth has risen to 54 percent from 50 percent in April.

"May's survey highlights a flight to the U.S., driven by the uncertainty in Europe and underscores a positive U.S. growth outlook," said Michael Hartnett, chief Global Equities strategist at Merrill Lynch.

Concerns in both the eurozone and emerging markets have shaken investors' confidence in global equities and growth prospects for the global economy. The number of investors who believe the global economy will strengthen in the next 12 months fell to 42 percent in May from 61 percent in April. Confidence in earnings also slipped, with 47 percent saying profits will improve in the next year, down from 67 percent last month

The survey points to deepening negative sentiment toward Europe. Forty-six percent expect the euro to fall, up from 23 percent in April.

The regional survey echoes this pessimism, with European investors reducing their expectations of improved growth to the lowest in a year. Twenty-three percent expect Europe's economy to strengthen in the year ahead, down from 62 percent in April.

Japanese fund managers are more bullish about their macro prospects than their counterparts in all other regions, with 71 percent expecting the economy to strengthen in the coming year.

Positive sentiment toward emerging market equities has dipped to its lowest since early 2009, with 29 percent of investors expecting the Chinese economy to weaken in the next 12 months, compared with 5 percent predicting a stronger economy in April.

Some 90 percent say the European Central Bank will not raise rates in 2010, up from 62 percent a month ago. One in four respondents expect no rate rise by the Federal Reserve before April 2011, compared with one in 10 a month ago.

Individual investors are bullish on the investment climate, with 62 percent of  large and small investors who have investable assets of $500,000 and $100,000, respectively, saying the investment climate will get better in the next six month, according to a new survey by the Citigroup.

Despite this optimism, investors remain cautious.  By a big margin – 57 percent to 42 percent – investors with investable assets over $100,000 said their current strategy was more focused on maintaining wealth rather than building it.

Among the investors surveyed, 36 percent indicated they are moving assets and savings to less risky areas. Only 8 percent preferred a high return strategy with high risk, while 41 percent opted for a lower risk and reward.  A slim majority of investors believe that the investment climate is better today than a year ago.

Said Deborah Doyle McWhinney, president of  Citi Personal Banking and Wealth Management:  “With nearly one-third of investors reporting the stress of investing being higher than in years past, it’s understandable that Main Street investors are playing it safe because they are uncertain about their own circumstances.”

Asked to rate preferred areas for investment, 47 percent picked real estate – investment properties or REITs – as No. 1. Mutual funds came in second, followed by individual stocks and municipal bonds.

More than a quarter of the investors said their financial circumstances are worse off now than a year ago. Large investors were even more bearish on their current financial situation, with 33 percent saying they are financially worse off now, compared to 28 percent of investors overall.

Only 44 percent of investors reported being confident they can retire in financial security as planned, while 36 percent might need to adjust their plans and 16 percent were not confident.
 
Hart Research Associates surveyed nationwide 756 investors with  at least $100,000 in investable assets, including 317 with more than $500,000, from March 15-25.

Wealth management industry revenues in Asia are expected to rebound over the next two years, with China and India continue to be viewed as the most attractive Asian markets, both in potential for business expansion and expected revenue growth.

According to Barclays Capital’s survey, Asia’s leading wealth managers, who control $5 trillion of assets, expect stronger growth in the high-net-worth and  ultra-high-net-worth base over the period.

The survey involved 159 respondents from 58 wealth management firms - asset managers, insurance companies, local and global retail banks and private banks  -  in eight Asian countries, excluding Japan.

This year's growth forecasts are more optimistic, with 24 percent predicting higher than 15 percent revenue growth and 38 percent, 6 percent to 15 percent.  In last year’s survey, nearly 60 percent predicted growth below 5 percent in Asia ex-Japan, compared with 38 percent in this year’s survey.

A majority view China as the most attractive market, with over a quarter forecasting more than 25 percent yearly revenue growth over the next two years.  India came in second, and Indonesia surpassed Hong Kong as the third most attractive market.

Investment Strategies and Product Features

Capital protection remains the most popular investment strategy, with 75 percent of clients opting for it.

“Investor appetite for more complex structured investments remains quite reserved, as they continue to look for yield enhancing ‘back to basics’ structures,”said Peter Hu, Head of non-Japan Asia Investor Solutions at Barclays Capital. “However, the mood, while still cautious, is beginning to show signs of renewed  optimism as growth products become increasingly important as clients take on additional risk.”

Wealth managers’ recommendations for a balanced-risk investor portfolio saw an increase weighting in Asian equity, while reducing allocations to historically  lower risk cash and bonds in developed markets. This represents a marked rise in risk appetite.
 

The U.S. monetary authorities did not intervene in the foreign exchange markets during the January—March quarter, the Federal Reserve Bank of New York said in its quarterly report to the U.S. Congress.

During the three months that ended March 31, the dollar rose 6.1 percent against the euro and 0.5 percent against the yen. In this period, the dollar’s trade-weighted exchange value appreciated 1.8 percent, as measured by the Federal Reserve Board’s major currencies index.

Brian P. Sack, executive vice president of the Federal Reserve Bank of New York and the Federal Open Market Committee’s manager for the System Open Market Account, presented the report for the Treasury and the Federal Reserve.

U.S. economic activity has continued to strengthen and the labor market is beginning to improve, according to the Federal Reserve. Growth in household spending has picked up, but remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit.

Business spending on equipment and software has risen significantly; however, investment in nonresidential structures is declining and employers remain reluctant to add to payrolls.

Housing starts have edged up,  but remain at a depressed level. While bank lending continues to contract, financial market conditions remain supportive of economic growth. The pace of economic recovery is likely to be moderate for a time.

Inflation is likely to be subdued for some time, the Fed said in a statement on April 28.

The Fed will maintain the target range for the federal funds rate at zero to 0.25 percent.

America’s millionaires are feeling somewhat better about their financial futures, but their sense of personal financial security has not yet returned to pre-2009  levels, according to a survey by Harris Interactive for The Phoenix Companies Inc., a life insurance and annuity provider.

“This year’s survey found that concerns have moderated and optimism has increased regarding the nation’s economy over the next one to two years,” said  Walter H. Zultowski, senior advisor for Phoenix.

Last year, high-net-worth consumers experienced a “negative wealth effect,” with 74 percent feeling less wealthy than they had the year before. These  consumers have recovered significantly in 2010, with only 52 percent now feeling less wealthy compared with last year. But they are still in negative wealth  effect territory.

In the first quarter of 2009, 40 percent indicated they were pessimistic about the future of the economy. This year, that number is down to 28 percent.

“We would characterize the general mood as cautious optimism, particularly in light of the 25 percent who believe we will remain in a prolonged economic  downturn for the next two years, and an additional 13 percent who feel that ‘the worst is still yet to come," he said.

Asked whether they thought the recession was over,  only 26 percent of the high-net-worth respondents agreed.

Global private equity activity appears robust this year as funds look to invest and divest in a more stable economic setting, a study by Ernst & Young found.

It found that PE bounced back in the third quarter of 2009 and gained strength as larger deals were announced toward year-end. This momentum and trend carried into the first quarter of 2010 where deal value rose 59 percent to $27 billion from 358 global transactions, compared with $17 billion from 415 in the same period last year.

The report also reveals that the gap between the average value of a PE divestiture, excluding initial public offerings, and an acquisition is much wider during down markets and narrows during economic booms. Last year, the average PE firm paid $100 million per acquisition, while divestitures yielded $321 million, a gap of $221 million, down from $323 million  in 2008. The last time average exit values were $321 million and average investment values were approximately $100m was in 2001.

“Debt markets began to slowly thaw in the second half of 2009, and this trend continued into the early months of this year, offering firms opportunities to obtain acquisition financing to complete deals and to refinance existing debts,“ says Jeffrey Bunder, Americas private equity leader at Ernst & Young LLP.

“Valuations are improving, IPOs are encountering resistance, leverage is returning in some markets, and some high-profile secondary sales have been completed. Firms are taking advantage of improving markets to make acquisitions, enhance portfolio company performance, and exit investments in order to return funds to limited partners in advance of 2011 fund-raising rounds,” said John Harley, global private equity leader at Ernst & Young.

Globally, in 2009, overall PE announced deal volume fell 35 percent to 1,612 as deal value fell 56 percent to $95.5 billion from 2008 levels.

While the number of acquisitions will gradually increase, PE exits will gain momentum after a dry spell that lasted six consecutive quarters until exits re-emerged in the third quarter of 2009. During the first quarter of 2010, there were 104 announced deals for which the seller was a PE firm, up from 78 during the same period in 2009. Also in this period, there were 22 PE-backed IPOs on global exchanges, while there was only one for the same period last year. The pace of exits will accelerate as the year progresses.

"The competition for deals will likely intensify as well funded corporates enter the market both to sell non-core operations and to acquire businesses. We are already seeing examples of heated auctions occurring but also situations where price expectations of the sellers - bolstered by rising stock markets - well exceed buyer expectations,” says Bunder.

Emerging markets, less affected by the recession, are leading the worldwide economic recovery and have seen their share of PE deal activity increase in recent years. Over the last decade, PE firms invested $7.3  billion in Brazil, $25.8 billion in China and $23.4 billion in India.  

In 2000, PE investments in these three geographies were $183 million $80 million and $1.1 billion, respectively. These numbers are expected to increase as there are an increasing number of funds raised from 2003 to 2009 with a global investment focus.

“As the industry becomes increasingly global, emerging markets gain more importance in PE firms’ investment strategy,” says Bunder. “Balancing the inherent risks with potential rewards when investing in these markets is still a challenge but this appears to be a sustainable trend. Larger PE firms may be ahead of their smaller counterparts in capitalizing on these markets, some of which have recently formed renminbi-denominated funds in China.”

Current signs indicate the outlook for 2010 is encouraging, with more deal activity and PE exits on the horizon. More transactions are expected to be announced and completed in 2010 than in 2009. However, deal size is expected to be smaller than a few years ago, with most transactions registering below the $2 billion level.  

Bunder concluded:  “PE firms will continue to find opportunities to invest. Expect to see more public-to-private deals and acquisitions of carved-out businesses from corporate sellers, as they look to shed non-core assets at attractive valuations.”

Merger & acquisition activity in the US financial services sector will gain momentum in 2010 as industry conditions continue to improve, according to a PricewaterhouseCoopers’ 2010 Financial Services M&A Outlook.

The study found deal-making in the remainder of 2010 will be marked by a steady stream of FDIC-assisted M&A deals in the banking sector, continued consolidation among small- to mid-size asset management firms, and an uptick of deals in the property and casualty insurance segment. 

Although year-to-date transaction volume has been modest, PricewaterhouseCoopers expects activity to increase over the remainder of 2010. Improving sector fundamentals will reduce the gap between buyer-seller pricing expectations and uncertainty surrounding regulatory reform is likely to be clear.  These factors will enable the potential impact of prospective reforms to be priced into term sheets.

“We believe the current market presents a significant number of potential opportunities in the banking, asset management and insurance sectors for investors that have the liquidity and capital strength to be acquisitive and the infrastructure and capabilities to realize potential synergies,” said Gary Tillett, financial services leader, transaction services, PricewaterhouseCoopers.

FDIC-assisted sales of failed banks kept the US financial services M&A market buoyant in 2009.  These deals will continue to present “once-in-a-lifetime” opportunities over the coming year for investors seeking to acquire distressed banks with limited downside investment risk.  Banks with healthier balance sheets and stronger capital levels will be best positioned to take advantage of the current market conditions.

Loss-sharing agreements provided by the FDIC will continue to attract strategic and financial investors to the deal table, particularly among small- to medium-sized banks. As of December 31, the FDIC’s problem-bank watch list included more than 700 institutions, which will fuel the increase in the number of FDIC-assisted M&A deals this year.

PricewaterhouseCoopers expects to see greater levels of collaboration between private equity investors and “good” banks to capitalize on potential opportunities in the remainder of 2010.  Private equity firms with banking expertise will be well positioned to anticipate the impact of the significant regulatory, integration, compliance and accounting requirements associated with failed bank transactions.

The trend of divestitures of asset management businesses by banks and insurance companies will continue.  In addition, an increase in consolidation among independent, small- to mid-sized asset managers in both traditional and alternative asset management sectors of the market is expected.

Economic recovery appears to be taking firm hold worldwide, according to a survey.

“What we are seeing here is evidence of a properly robust recovery across numerous key markets which is set to run through until at least spring 2011. Admittedly, we are coming at this from a pretty low base in terms of the nadir which the survey numbers hit in late 2008. However, the extent to which the optimists now outweigh the pessimists is not something which can be easily dismissed,” said Alan Buckle, global head of advisory at KPMG, the survey sponsor.

The results from the BRIC countries - Brazil, Russia, India and China, do tend to put the others – with the exception of the United States – somewhat in the shade,  "but even if you took out the BRIC numbers, you would still be looking at some respectably healthy confidence levels elsewhere.”

For the third consecutive edition, the survey shows healthy optimism around key measures such as business activity, revenues and profits.

The survey, compiled by research firm Markit for KPMG International, is based on  the percentage of respondents feeling more pessimistic about their company’s outlook in 12 months  deducted from the percentage feeling more optimistic.

Buckle said tha with only a few exceptions, the recession ended last year and the survey pointed to continued growth over the next twelve months. However, there are still concerns. In particular, over the course of the year. "We need to see the recovery feed into employment and to kick-start investment spending - where intentions currently lag somewhat - before we can really sleep soundly.”
 
One area in which global confidence does remain somewhat muted is regarding the prospects for further employment.

The study was based on a survey of about 11,000 manufacturers and service providers that are asked to give their thoughts on future business conditions. 
 

Oaktree Capital Management and Audax Management Co. will receive initial allocations of $250 million each from the Alaska sovereign wealth fund.

The Alaska Permanent Fund, an investment entity of the state government, recently hired the managers for a new allocation to mezzazine debt, which was approved at a meeting in December.

“We believe that mezzanine debt is a good addition to the Permanent Fund’s portfolio because it provides returns in line with high yield bonds, but at lower risk levels,” said Steve Frank, chairman of the fund's board. “As a fund with a long term investment horizon, we’re well suited to take advantage of investments that reward our ability to make longer term commitments.”

Mezzanine debt provides a financing tool for private corporations to fund such actions as acquisitions or general corporate growth. Mezzanine debt has characteristics similar to both equity and debt and falls ahead of equity but subordinate to senior debt in a company's capital structure.

The board also approved hiring GMO, a global investment firm based in Boston, Mass., as a real return manager with an initial allocation between $250 and $500 million. Last May, the board approved a search for four real return managers. At the end of the manager search, the fund staff identified five managers as potential candidates, all of which were approved by the board in December. Because the initial funding was limited to four managers, recently staff asked for additional funding for GMO, the remaining firm on the list.

In addition, the board approved the hiring of Dimensional Fund Advisors, an international small-cap stock manager, for two small-cap mandates of $200 million each. Dimensional takes a quasi passive approach to stock management, systematically building portfolios that provide a broad approach to a market rather than actively picking stocks that are expected to outperform. This addition is part of a larger strategy to focus on the active managers that are providing the most benefit, while shifting more of the stock portfolio toward lower-cost passive strategies.

Malaysia's sovereign wealth fund intends to replicate the "university city business model" that it has helped implement by investing $44 million in Oriental University City Limited in Singapore.

Oriental University City, a 3.31 million square meter  self-contained campus located in Langfang, Hebei Province, China, is located within an hour’s drive from two of China's most affluent and populous cities - Beijing and Tianjin - whose combined population is roughly 28 million.

Oriental University City, which currently houses and provides educational services to 16 colleges with 36,000 students,  focuses on the vocational education segment, an under-served education segment in China.

In February, the government-controlled investment fund - Khazanah Nasional Berhad - took a 10 percent stake in Oriental University City from Raffles Education Corp. Khazanah and Raffles are now exploring the viability of replicating such University City business model in Malaysia and other countries in the region.

Tan Sri Dato’ Azman Hj. Mokhtar, Khazanah’s managing director, said: “This investment is part of our China and education services strategy. It gives us exposure  into the exponential growth potential of China’s education services sector. As China continues to lead the world in economic recovery and growth, there will be increased demand for skilled work-force every year. The investment allows us to capitalize on this by tapping into China’s higher education business, which sees 26 million new students and is worth $39 billion annually."

Upon completion of this transaction, Raffles Education Corp. and Khazanah intend to list Oriental University City before September 2013 to realize its value.

Education is a key focus sector for Khazanah. It has a direct stake in the International Medical University and indirect exposure via its investee companies, namely Iskandar Investment Berhad (Marlborough College Malaysia, Newcastle University Medicine Malaysia), Tenaga Nasional Berhad (Uniten), Telekom Malaysia Berhad (Multimedia University) and Pantai Holdings Berhad (Pantai Education).

The Alberta Heritage Savings Trust Fund, a Canadian sovereign wealth fund, earned $1.7 billion in net investment income in the first nine months of 2009-10. It is projected to earn $2.1 billion net the end of the 2009-10 fiscal year.

During this period, the fund outperformed its benchmarks in Canadian equities, global equities, hedge funds, bonds and money market securities. Canadian and global equities, which comprise 50 per cent of the fund’s investment portfolio, had the highest return of all asset classes.

The income will go to the general revenue fund to support low taxes.

By law, the fund must retain money to protect its value against inflation. Because inflation would be negative in 2009-10, no fund retention will be needed this fiscal year.  However, about $300 million will be retained for inflation-proofing in 2010-11.

The fund also earned $420 million in unrealized gains during the period, raising the fund value to $14.4 billion.

The Heritage Fund is invested with the intention of providing a solid long-term rate of return of inflation plus 4.5 per cent. Over the past 10 years, the fund’s return was 4.4 per cent, including 0.1 per cent in value added by the investment manager.

In its most recent forecast, the Federal Reserve has painted an upbeat picture for the U.S. economy, reporting business activity picking up and inflation fears remaining contained.

"Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating," the central bank said in its bulletin Jan. 27. "Household spending is expanding at a moderate rate, but remains constrained by a weak labor market, modest income growth, lower housing wealth and tight credit."

Business spending on equipment and software appears to be picking up, but investment in structures is still contracting. Employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales. While bank lending continues to contract, financial market conditions remain supportive of economic growth.

The pace of economic recovery, however, is likely to be moderate for a time.

With substantial resource slack continuing to restrain cost pressures and with longer-term inflation expectations stable, inflation is likely to be subdued for some time.

Generations Management is a traditional family office – run by and for a single family.

Started in the 1920s, Generations has varied interests, with positions in several industries, including oil and gas, manufacturing, retail, venture capital, private equity in lower middle-market companies, securities and futures trading, and real estate.

Generally, Generations invests in companies that have strong niche market positions and identifiable growth opportunities. It seeks to ensure that a company’s legacy of success is perpetuated with the next generation or current management team.

Here's what Generations looks for when selecting potential investment opportunities:

* Market and growth prospects - Generations targets opportunities where the market and growth prospects are able to provide accelerated returns.

* Viable product or service - Generations targets products and services where risk is minimized and proof of concept is reasonably assured. Before large amounts of capital are invested, a thorough product or service evaluation is made to determine the potential for rapid customer or business acceptance. We want to be able to clearly understand who the customer is, why they'll buy the product or service, and what they are willing to pay.

* Strong management team - It believes that the strength of the management team is one of the most important attributes of a successful investment opportunity. Much of its due diligence efforts are centered on determining the capability of management.

* Competitive advantage - Generations look for opportunities that fill a market niche by way of a proprietary technology, product, license or franchise, or because of dominance of a specific marketing channel, and that may be positioned to become a market leader. Similarly, an opportunity with a "first mover" advantage may satisfy this criterion if such advantage is sustainable over time.

For Generations, private equity industries of interest include:

* Healthcare
* CleanTech and renewable energy
* Consumer products
* Diversified industrials, niche manufacturers and distributors
* Energy services
* Media and entertainment
* Outsourcing
* Technology
* Retail
* Freight

Generations prefers companies with revenues between $5 million and $30 million, with $1 million in earngins before taxes. It invests between $5 million and $30 million in each deal.

Contact: Keith Nielson or Cori Nielson at 231.946.5174

Ever wonder where family offices are investing these days? The short answer is - all over.

An analysis by The Capital Express of how family offices invested during the second half of  2009 - a period marked by deep recession worldwide - shows their investment patterns were as diverse as the global investment landscape.

"Our data indicate family offices tend to invest wherever they see an attractive return potential," said B.Z. Khasru, publisher of The Capital Express (www.thecapitalexpress.com,) a New York-based publication covering private investments.

These family offices - from Canada to Denmark to Malaysia -  pumped money into ventures ranging from shell company to macadamia nuts farm to gold-mining venture to horse-betting vehicle. Investment sizes varied from $22,000 in a shell company to $115 million in a grocery chain.

Here are the headlines of the family office investment deals between July and December last year as recorded by The Capital Express.

1. Florida family office invests $250K in online instant messenger developer
2. New York family office reports $49.1K investment in financial services firm
3. Alabama family office invests $300K in Florida personal-care products venture
4. Minnesota family office invests $750K in online poker-products manufacturer
5. Minnesota family office invests $18M in South Carolina garment company
6. Canadian family office invests $393K in South Carolina garment manufacturer
7. Singapore family office reports $6.9M investment in Chinese herbs grower
8. Kentucky family office reports $17.1M investment in Florida banking company
9. Hong Kong family office invests $27.5M in Chinese apparel manufacturer
10. Canadian family foundation invests $5.1M in Saskatchewan mining venture
11. California family trust invests $6M in Georgia packaging company
12. California family trust invests $700K in Arkansas clean energy tech company
13. Burkle family office invests $75M in New York hotel company
14. Israeli family office reports $530K investment in software company
15. Georgia family reports $19K investment in Ohio retirement home manager
16. Florida family office invests $4.1M in California horse betting company
17. Canadian family office invests $623K in Michigan automotive supplier
18. Texas family trust reports $303K investment in ceiling fan distributor
19. Nevada personal trust invests $1.3M in Hawaii macadamia nuts farm
20. New Zealand family office invests $1.5M in Georgia agro-research company
21. Texas family office invests $172K in North Carolina drug research outfit
22. California family office invests $36.4M in Connecticut blank check company
23. Ohio family trust invests $6.8M in Texas solid waste collection company
24. Massachusetts family trust reports $11.5M investment in real estate
25. New York family trust invests $641K in Oklahoma oil exploration company
26. Greek family office invests $270K in Florida industrial products company
27. New York family office invests $750K in Colorado investment firm
28. Texas family office discloses $110M investment in Colorado energy venture
29 Canadian family office parks $671K in Houston investment firm
30 Swiss family office invests $490K in Canadian emission tech company
31. The Austin family office invests $72K in North Carolina drug company
32. The Kahn family office invests $14M in Arizona defense contractor
33. Florida family office invests $39K in California shell company
34. Mexican billionaire family invests $32.1M in Oklahoma drilling venture
35. Florida family trust invests $22K California shell company
36. Idaho family trust parks $100K in Georgia parking management company
37. Texas family office invests $1M in security software company
38. Cerna family trust reports $683,885 invests in Texas oil exploration company
39. California family office reports $2.6M in financial services firm
40. Offshore family office invests $829K in Philippines company
41. Paul Allen family office invests $76M in Texas oil and gas venture
42. Israeli family office reports $2.1M investment in software venture
43. Greek family office reports $187M investment in shipping company
44. Greek family office reports $266K investment in Pier 1 Imports
45. Malaysian family office makes $11M bet on New York casino
46. New York family office invests $33K in North Carolina fabrics manufacturer
47. Singapore family office invests $15M in new online venture
48. Hong Kong family office invests $100K in gold mining company
49. Illinois family trust invests $48K in Canadian TV content producer
50. Burkle family office invests $115M in U.S. supermarket chain
51. Chinese family office invests $1.1M in Delaware medical products supplier
53. Texas family office invests $950K in advanced materials company
53. Family office reports $182M investment in Texas ice maker
54. Utah family office reports $150K investment in bio-tech firm
55. Canadian family office discloses $1M investment in online auction company
56. Michigan family office discloses $3.15M investment in Massachusetts tech firm
57. Texas family office invests $20K in North Carolina biopharma venture
58. Perelman family office invests $6.24 million in New York drug venture
59. California family trust invests $460K in furnishings retailer
60. Cyprus family office invests $291M in Texas offshore drilling venture
61. New Jersey family office discloses $51M investment in watch maker
62. Borick family office discloses $18.8M n investment in auto parts supplier
63. Chinese family office invests $223K in television venture
64. Fife family office reports $1.1M investment in Houston energy firm
65. New York family office invests $2.2 M in Texas insurer
66. Danish family office invests $1M in Indiana wireless device distributor
67. Leichtenstein family office reports investments in Greek shipping company
68. Canadian family office invests $11M in gold mining venture
69. Brandt family office invests $7M in California medical tech firm
70. Texas family office reports $29.3M investment in Israeli tech venture
71. Israeli family office invests $3.9M in California medical device venture
72. Michigan family trust reports $1M investment in bank holding company
73. Israeli family office invests $380K in tech venture
74. Rose family office reports $6.1M investment in RV maker
75. California family trust reports $1M investment in wind energy firm
76. Oklahoma family office invests $515K in Colorado oil venture
77. Houston family office invests $569K in energy outfit
78. New Jersey family trust reports $6.31M investment in phone venture
79. Disney family office reports $48.89M investment in Georgia tech venture
80. Texas family office invests $226K in California venture
81. Florida family office invests $858K in Ditech Networks
82. Kerkorian family office invests $99.9M in MGM Mirage
83. Canadian family office reports $15.5M investment in California venture
84. Brogdon family office reports $32K investment in Adcare Health
85. Toronto family office reports investment in PFB Corp.
86. Canadian family office reports CDN$9M investment in Paramount Gold
87. Krassner family office invests $4.5M in Wilhelmina
88. Bill Gates' family office invests $9M in Grupo Televisa
89. Tanya Eva Schuler Trust invests $274M in Quidel
90. Thompson Family Office invests $30M in May
91. Dell family office invests in SemGroup
92. French family office invests in Renegy Holdings of Arizona
93. New York family office invests in Accelrys of California

Looking to invest in oil and gas stocks this year? Here are the 2010 top picks by IHS Herold Inc., a research firm focusing on the world’s leading oil and gas companies:

1. Canadian Natural Resources
2. Chevron Corp.
3. Devon Energy
4. Encana Corp.
5. Noble Energy
5. Royal Dutch Shell
7. Ultra Petroleum
8. Williams Companies
9. Arrow Energy
10 Bankers Petroleum
11. Frontier Oil Corp.
12. Santos Ltd.

Information technology sectors are forecast to leap at twice the pace of gross domestic product and telecoms would grow some 50 percent higher than the overall U.S. stock market during 2010-2011, according to latest global forecasts by IHS Global Insight released Dec. 18.

IHS, a consulting firm in Englewood, Colo., forecasts a modest, slow economic recovery next year. U.S. consumers will spend again, but do so more cautiously compared with the past because of high debt burdens, depleted wealth, tight credit and weak labor markets.

Meanwhile, house prices in the United States ended their two-year slide in the third quarter, posting a 0.2 percent gain over the second quarter. California led the pack with  a 2.1 percent rise, according to a quarterly housing valuation analysis by IHS.

Stephen C. Vogt, senior managing director, Mesirow Financial Holdings Inc., recently offered a success formula for hedge funds in 2010, pretty much mimicing a mantra mutual fund advisers have chanted for decades: Diversification.

"It is our opinion that the key to success in hedge fund investing today is to diversify across a broad set of hedge fund strategies and maintain a balanced long-short approach," Vogt told the Chicago firm's clients Dec.15, while discussing investment outlook for next year.

Currency investment prospects in 2010 will depend on two factors: China's response to increasing demands for a floating currency and the U.S. interest rate, according to  Gary C. Klopfenstein, also senior managing director at Mesirow.

"If the Federal Reserve begins raising interest rates because growth has returned, the dollar will rally. However, the dollar will fall if rates rise because the U.S. needs to pay a higher return on its debt in order to attract investors. The outcome of this tension should provide for another interesting year, filled with opportunity in the currency markets."

The general economic  forecast for 2010 was less than rosy.

"I believe that headwinds associated with the credit crunch will persist and limit the degree to which we can recover this time around," said Diane Swonk, chief economist, Mesirow Financial.
 

Why does the United States have a housing glut? Because the household formation rate is down, according to an IHS Global Insight study.

The 2009 Annual Social and Economic Supplement to the Current Population Survey found that the number of households rose by 398,000 between March 2008 and March 2009, the smallest increase since 1983, and the second-smallest in the history of this statistic, which dates to 1947.

"This drop explains why we have a housing glut despite the sharp contraction in housing starts during the past three-and-a-half years. But once the economy gets back on track and job growth resumes, housing markets could tighten quickly as the formation rate increases, and housing starts could take off," wrote Patrick Newport, IHS director of long-term forecasting.

Indeed, the gross housing vacancy rate stood at 14.5 percent in September, just below the 14.6 percent record high set in the first quarter of this year. This happened despite housing starts setting record lows last year and this year.

Nearly all of the increase in households last year took place in the West South Central Census Division (Arkansas, Oklahoma, Louisiana, and Texas). The Mid-Atlantic Division (New York, Pennsylvania, and New Jersey) saw the biggest drop (102,000). By region, households fell by 42,000 in the Northeast, but rose by 61,000 in the West, 16,000 in the Midwest, and 361,000 in the South.

In a related forecast, IHS said the drop in construction spending would total more than 12 percent this year and exceed 5 percent in next year before rebounding in 2011. The mixed outlook for construction — weak nonresidential construction, but strengthening residential construction — mirrors a mixed economic outlook for next year: positive GDP,  but dull  job growth and consumer confidence.
 

Despite recent economic and market turmoil, European institutions still favor equities, according to a recent survey.

The European Equity Survey, conducted by J.P. Morgan Asset Management, polled 194 European institutional clients to gauge their market and asset-allocation views. It found 61 percent have not changed their target equity allocation, but they still cite market volatility as a big concern over the next 12 months.

Forty-four percent expect large cap stocks to beat small caps. More than half believe global emerging markets, followed by Asia ex-Japan, will be the best performing sectors over the next year.

On average, pension funds and life companies across Europe, excluding Britain, favor conservative portfolios, with an 29 percent of their target allocation in equities, 57 percent in fixed income and cash and 13 percent in alternative assets. In Britain, institutions allocate 56 percent to equities, 31 percent to fixed income and cash and 14 percent to alternatives, showing a higher level of risk.

Despite the positive views of equities, institutional investors also still favor alternatives. They expect all asset classes within alternatives to maintain or increase their value over the next 12 months. Respondents were most bullish about absolute return/hedge funds and commodities.

“The fact that institutions expect large caps to outperform suggests they are not expecting a conventional market recovery next year. Traditionally, in the early stages of economic recovery, small caps tend to rebound strongly. This would suggest institutions expect a prolonged ‘flight to quality’ in equities,” said Karsten Stroh, head client portfolio managers for European equities at J.P. Morgan Asset Management.
 

Supporting popular perception in the United States, a new study paints a dismal picture of commercial real estate nationwide.

Vacancies will continue to rise and rents will fall across all property sectors before the market hits bottom in 2010, according to respondents of the Emerging Trends in Real Estate 2010 report,  recently released by the Urban Land Institute. It also  projects property value will decline 40 percent to 50 percent off 2007 market peaks before the market becomes stable again.

Survey participants also believe that 2010 and 2011 will present generational opportunities for investors to buy at or near cyclical lows. 

“Our report participants find that a sense of nervous euphoria is growing among liquid investors who can make all-cash purchases,” said Stephen Blank, senior resident fellow for real estate finance, at the Bethesda, Md., based nonprofit educational and research institute.  “Those that are patient, daring and selective could score generational

bargains on premium properties from both distressed sellers and banks that are clearing out unwanted bad loan and real estate owned portfolios.  However, once the property

market recovery begins and gains traction -- likely before 2012 -- any rebound could be restrained by a lackluster economy and rising interest rates.” 

Capital will begin to flow back into commercial real estate 2010 end

The survey also indicates that investors believe that capital will slowly begin to flow back into commercial real estate markets by the end of 2010, led by all cash investors seeking quality assets.  The debt markets will start to rebound too, but remain “far from normalized” after unprecedented de-leveraging.  Any lending will be conservative, expensive, and extended only to the most-favored banking relationships.  REITs, private equity funds, and even refashioned mortgage REITs will start to provide loans to battered borrowers but at a steep price.

“For 2010, our report finds that investors will need to time the cycle and only cash-buyers will benefit from the emerging opportunities,” said Tim Conlon, partner and U.S. real estate sector leader, PricewaterhouseCoopers.  “Investors will need to be patient and transaction trigger points will be improving job numbers, visibility into asset pricing and stepped up tenant deals.  Equity investors will need to focus on quality assets and expect to hold for at least a five to seven year period during the recovery, allowing fundamentals to slowly improve.”

The markets performing well before the crash should perform better coming out of it and the laggard markets will continue to suffer.  Investors will continue to favor markets on the East and West coasts.  Cities and suburbs as well as markets where geographic constraints limit development will be top market performers. 

Washington, D.C. ranks No.1 one as the “recession-proof” city.  Value declines have been less than other markets as employment is buffered by the federal government. 

Long-term confidence holds for New York and Boston despite financial industry downsizing.  San Francisco, Seattle and Los Angeles  have all suffered ratings declines, but remain among the survey’s top 10 major markets.  Texas markets continue to show strength after languishing for years.

The findings reinforces comment recently made by a New York financial research firm, responding client queries. "We do think that we will see more losses in commercial real estate," AllianceBernstein said in a report recently, adding publicly traded real estate companies are seeing net operating income fall, lower rents are being negotiated and vacancy rates are threatening to climb.

AllianceBernstein, a New York wealth management firm, recently provided answers to three questions asked by clients about the future direction of the U.S. economy and the dollar. Here is an edited version of the answers:

Q: How can the economy recover if US consumers aren’t spending?

Consumers represent about 70 percent of the U.S. gross domestic product — and with the unemployment rate currently above 10 percent and likely heading higher in 2010, we don’t expect consumer spending to recover in the near term. Indeed, it’s weakness in the consumer sector that’s keeping our forecasts of 2010 real GDP growth in the United States in the 3.5 percent range — half of what we’d expect in a recovery after a long, deep recession. But while recovery is being muted by this headwind, in our view it isn’t being derailed.

Q: Is commercial real estate the next shoe to drop?

We do think that we will see more losses in commercial real estate. Publicly traded real estate companies are seeing net operating income fall, lower rents are being negotiated and vacancy rates are threatening to climb. On the debt side, delinquencies have increased in commercial mortgage-backed securities since late 2008, raising media speculation that another credit crisis is brewing. Nonetheless, the value of some real estate-related bonds has been rising and real estate investment trusts have been posting robust returns - the global REIT index was up 31 percent through Oct.1 This disconnect suggests that the commercial real estate problems can be contained. Nothing like the meltdown we’ve just witnessed on the residential side is expected.

Q: What’s your view on the future of the dollar?

We see continued weakening versus other currencies in the near and intermediate term. By most of the measures we use to gauge currency strength, the dollar is still overvalued: US interest rates are lower than in most other countries; we continue to import much more than we export, leading to a flow of dollars abroad; and momentum is decidedly a headwind as the dollar continues to slide.

Go East, investors. That's the message from a just released study on investment prospects for those who hope to mint money in real estate in 2010.

Based on investment prospect ratings, the top five markets next year are Shanghai, Hong Kong, Beijing, Seoul and Singapore, according to the Emerging Trends in Real Estate Asia Pacific 2010 report by the Urban Land Institute and PricewaterhouseCoopers LLP.

 “Chinese cities dominate the rankings this year, which is a reflection of a remarkable resurgence in Chinese commercial real estate as the government-mandated liquidity boom lifts markets across the country,” said KK So, PwC real estate tax leader for the Asia Pacific region based in Hong Kong. 

Real estate markets in the Asia Pacific region are holding up “surprisingly well” despite the global recession compared with U.S and Europe markets.

The report , released Dec. 7 by the Bethesda, Md., nonprofit education and research institute, is based on the opinions of more than 270 internationally renowned real estate professionals, including investors, developers, property company representatives,lenders, brokers and consultants.

Since the onset of the global economic meltdown, Asia-Pacific asset markets have fared better than those in Europe and the United States. While both pricing and rentals in the region fell steeply in 2008 and early 2009 in step with those in the West, the region's markets have been lifted since mid-2009 by the Chinese economy's resilience.

So, many Asian markets have begun to flash positive signals toward this year's end.

“Pricing has improved across the region. While the upturn has been modest in most cases, moves have been substantial in some asset classes and geographies, especially in China,” he said.

Despite a stalemate between buyers and sellers in some markets, and big rent fluctuations, Asia has in general saw both a rise in deal volume and property prices – with a large part of the upturn occurring in China, the report noted. Unlike the prevalence of distressed sales in the United States and Europe, Asian distressed sales have been relatively minimal.
 

While the recent news from Dubai may have made investors jittery worldwide, at least one U.S. financial research firm has some soothing words for those who have investments in other Gulf nations.

"We do not expect widespread defaults on quasi-sovereign or sovereign debt in the Middle East because most countries have stronger economic fundamentals than Dubai," said Alexander Moseley, vice president at the AllianceBernstein Global Economic Research in New York. "Dubai’s particularly weak economic fundamentals compared to other Gulf Cooperation Council states suggest that a new wave of foreign debt restructurings are not likely to follow."

Government-owned Dubai World requested a payment standstill on Nov. 25 for $3.52 billion worth of Islamic bonds, maturing in December, as it looks to restructure $26 billion worth of debt. Dubai government-linked entities debt is estimated at another $70 billion.

Dubai World is widely believed to be a government-backed sovereign wealth fund, which implies a sovereign gurantee of its debt, but recently Dubai's rulers said they did not underwrite Dubai World investments.

Dubai World’s plan to delay the debt payment probably "reflects a strategic decision by the rulers of Dubai and Abu Dhabi to draw a line in the sand over which projects" they intend to support. Apparently, Moseley said, they intend to "restructure projects that are now clearly non-viable" and not viewed as strategic holdings, including many related to real estate.

"They have probably made this decision despite the risk to the sovereign’s reputation and the potentially higher borrowing costs that may result in the future. By contrast, the Emirates’ rulers are less likely to restructure strategic holdings, and have ample resources to service the debts of choice projects," Moseley said.

He said in a Nov. 30 that Dubai-based borrowers are more prone to default than their peers, including the five other GCC states, because Dubai's oil reserves are and "its real estate bubble and external leverage were particularly excessive." By contrast, he added, stronger fundamentals of the other Gulf nations have enabled them to better manage the fallout from the global financial crisis.

_{(IHS Global Insight chief economist Nariman Behravesh predicts a 2.8 percent global economic growth next year.)}

The world will shake off the current economic doldrums next year, with the global economy expected to grow a 2.8 percent in 2010, up from a 2 percent drop this year, according to a just released forecast by the IHS Global Insight.

IHS Global Insight chief economist Nariman Behravesh and other IHS forecasters listed the top 10 economic predictions for next year as follows:

1. The U.S. Recovery Will Start Slowly: IHS expects U.S. growth to be in a 2 percent to 2.5 percent range. While housing and capital spending on equipment are expected to show respectable gains, with consumer spending rising just 1.8 percent, stronger gross domestic product growth will be impossible. One of the biggest drags on spending by households will be the unemployment rate, which should move up to around 10.5 percent during the first quarter.

2. Europe and Japan Will Rebound More Slowly than the United States: Europe and Japan suffered through deeper recessions than the United States and are likely to see more modest recoveries. The Eurozone and the U.K. economies will grow 0.9 percent and 0.8 percent, respectively, in 2010. Some West European economies — Iceland, Ireland and Spain — will continue to contract next year, as the aftershocks of the housing bubbles and financial crises take their toll. Japan, on the other hand, will do better with GDP growth of 1.4 percent.

3. Most Emerging Markets — Especially in Asia — Will Outpace the Developed Economies: Growth in all the emerging regions will recover in 2010 and, with the possible exception  of Emerging Europe, will outpace the United States, Europe and Japan. Non-Japan Asia will be at the forefront with GDP growth of 7.1 percent. Latin America, the Middle East  and Africa will see gains in the 3 percent-to-4 percent range. The laggard will be Emerging Europe, which will expand only 1.7 percent.

4. Interest Rates in the G-8 Economies Will Remain Very Low:  While some central banks (notably in Australia, Israel, and Norway) have already started to raise interest rates, the Federal Reserve, European Central Bank, Bank of England and the Bank of Japan are unlikely to raise rates before the third quarter of 2010. Nevertheless, some Asian central banks, notably the Reserve Bank of India and the People's Bank of China, may pull the trigger sooner—in the first or second quarters.

5. Fiscal Stimulus Will Begin to Ease: Aggressive fiscal stimulus by some countries (especially the United States and China) helped to cushion the blow of the financial meltdown a year ago. With that crisis now over, though, most countries have no plans for further stimulus and some are set to tighten (e.g., the January boost in the value-added tax in the United Kingdom). Even in the United States, where there is talk of a second stimulus package, there is no money for anything more than a symbolic attempt to relieve some of the pain from job losses.

6. Commodity Prices Will Move Sideways: The extent of the recent rise in commodity prices cannot be justified, given the slow pace of the recovery. Some of the increase can only be attributed to investor activity. As such, IHS believes that oil and other commodity prices will likely soften in the coming months.  Specifically, oil prices are expected to fall from current levels (in the $75–80/barrel range) to around $65 by next spring, before gradually moving above $70/barrel by the end  of 2010 as the global recovery picks up steam.

7. Inflation Will (Mostly) Not Be a Problem: In most regions of the world, inflation will remain tame. Rising unemployment rates will put a big damper on wage increases and large amounts of excess capacity worldwide will limit the ability of businesses to raise prices. The only inflationary pressures will be in countries that are growing rapidly (mostly in Asia) and countries that peg (or closely tie) their currencies to the dollar (principally in the Middle East and Asia).

8. After Improving for a While, Global Imbalances Will Worsen Again: The deep U.S. recession was a key factor in the current-account deficit plunging from more than $700 billion in 2008 to near $450 billion in 2009. Nevertheless, IHS expects this deficit to widen by about $90 billion in 2010. Some of this is because the U.S. economy will be growing faster than most other developed economies. However, continuing dependence on export-led growth in several large economies (e.g., Germany, China and the rest of Asia) is also a factor.

9. While the Dollar May Strengthen a Little, It is on a Downward Glide Path:  Given the slightly better prospects for the U.S. economy, relative to those of Europe and Japan, the dollar is likely oversold. This means that there could be a slight appreciation in the coming months. However, given that the progress on reducing global imbalances has been temporary, the downward pressure on the dollar will continue. This downward movement is likely to be the greatest against emerging-market currencies because of stronger growth prospects in those economies.

10. The Risk of a "Hard W" is Still Uncomfortably High: There is about a one-in-five chance of a double-dip or "hard W" downturn. This could be triggered by any number of factors, including a premature tightening of fiscal and/or monetary policies, a major retrenchment of consumer spending in the face of rising unemployment, a sharp and sustained rise in oil prices (either because of a supply disruption or increased speculative activity), and the failure of a few large financial institutions. It would probably take some combination of these factors to drag global growth back into negative territory

China Investment Corp., China's sovereign wealth Fund, signed a binding agreement to invest $709,701 in GCL-Poly Energy Holdings Ltd., subject to, among other things, approval by shareholders. If the deal goes through, CIC will own about 20 percent shares of  Hong Kong-based GCL-Pol.

CIC and GCL-Poly, green energy suppliers in China, intends to establish a joint venture to invest in and develop photovoltaic projects or other solar energy projects based on an initial capitalization of $500 million, CIC announced Nov. 19.

This was at least the second energy deal the mighty investment fund, which manages more than $200 billion of government investment capital, announced in November. On Nov. 6, it said it would pump $1.58 billion into AES Corp., a U.S. energy giant. CIC said it would acquire 125.5 million AES shares, or 15 percent, and nominate one director to the company's board.

CIC has agreed to invest an additional $571 million for nearly 35 percent interest in the wind generation business of AES, based in Arlington, Va.

Welkin Capital Partners is a private equity firm with family office roots.

"Our family office roots makes us different from traditional private-equity managers," the company proudly declares. "We place greater emphasis on the management of wealth and risk. Our in-depth business  experiences and industry expertise, as well as relationships, allows us to offer substantial value to portfolio companies. We commit the best of our resources and talent  towards helping portfolio companies learn and gain from our families' past successful experiences."

Established in 2009 by four principal family offices in Hong Kong, Welkin Capital offers "a professional and independent investment platform that leverages  on the unique resources and expertise of our family office roots."

"We combine professional investment management with generations of experience in a wide array of industries and geographies, as well as practical expertise in business management, risk management  and operations. We offer our portfolio companies a wealth of financial and intangible resources that help them become world-class companies."

The firm specializes in the investment of growth capital in established companies in the Asia-Pacific region, predominantly in Greater China. Welkin invests in late-stage, established and profitable companies with a sizable asset base.

"We typically look for medium-sized enterprises in the Asia-Pacific region that have  significant, identifiable growth trajectories. We do not select investment opportunities by industry or geography. Instead, we look for undervalued companies that have  successful track records and we apply seek to add value through our investment process."

Welkin Capital says it draws on the experience, expertise and resources of generations of professional family office management to deliver a unique private equity approach.

"Our emphasis is on long-term wealth creation and preservation through the proper management of risks and creation of substantial shareholder value. This philosophy has helped us, and our families, produce consistent and superior financial returns over significant periods of time."

The firm's goal is "to generate superior financial returns for our investors with a high level of consistency by helping our portfolio companies become world-class businesses."

Welkin  combines the traditional approaches of private equity managers, with the long-term vision and wealth management practices of family offices. "Ultimately, we benefit from  playing the roles of both the strategic and financial investors."

Unique Investment Strategy
Welkin Capital focus on capturing investment opportunities that are different from traditional private-equity situations. "We leverage on our superior access to established, asset-rich,  high-growth and undervalued companies in industries and geographies to which few other private-equity managers have access. We focus on late-stage companies with  significant growth potential."
 
The company uses its long-term relationships and partnerships with financial-service providers to "create distinctive exit opportunities." "We may continue to reorient our investment strategy based on changes in the macroeconomic environment, but investing in hidden gems remains the core of our approach."

Value-Added Approach
Welkin Partners works closely with portfolio companies."We identify their strengths and augment them with our superior industry knowledge and financial experience. We take their weaknesses and  refine them with concrete business plans based on past successful experiences and business practices of our principal families. By working with Welkin, our portfolio companies gain access to vast amounts of proprietary resources, including relationships with national and local governments, industry and business leaders, talent, and leading academic  institutions. These resources, accumulated over several generations of continued business success, will help our portfolio companies build world-class businesses."

Due Diligence
In large part, the firm's "investment process centers on risk management and in-depth due diligence. We take an unusual effort to ensure proper diversification of our portfolio both  in terms of geography and sector."

"From time to time, we may focus on sectors or geographies which we believe may have larger numbers of unusual opportunities that fit our  investment strategy and criteria, but any one sector will never tip the balance of our carefully designed and diversified portfolio. We also place the highest priority on avoiding  losses in both good times and bad. We seek to understand potential portfolio companies from a bottom-to-top approach prior to any investments. We work closely with our  experienced industry experts, investment professionals and advisors, as well as with management teams, to develop a value-adding partnership built on trust."

The firm's portfolio companies typically have enterprise values of $50 million and up, and net profits after tax of $10 million and up. Its investment  sizes range from $2 million to  $10 million for minority stakes. In special circumstances, "we will invest smaller companies that have more compelling growth opportunities. "  Its investment horizon ranges from two to four years, depending on the type of the opportunity

Growth Profile
"We seek companies that have clear and significant growth opportunities within the next three years since initial investment, as well as a demonstrated growth trajectory historically."

It looks for undervalued companies "where our relationships, analysis, operational experience, and financial expertise can add value. We guide our portfolio companies through complex restructuring and business reengineering to unlock hidden value."

Contact:
Johnny S. Kong
Chairman and Chief Investment Officer
3/F, Oriental Crystal Building
46 Lyndhurst Terrace, Central
Hong Kong, China
Tel: (852) 3189-0100

J Leon & Co., a fourth-generation family office in London, focuses on investing in the UK commercial property.

"We are a diversified group," the single family office says, adding that it invests in equities and runs a portfolio of single-manager hedge funds as well as a selection of direct private equity investments. As a limited partner, J. Leon invests in more than 50 private equity funds and fund of funds. The group only invests from its own balance sheet and does not administer any third-party funds.

The group manages its property activities in-house and uses third-party managers to invest in non-core assets. It been an active investor in private equity since the early 1990s through its wholly owned subsidiary, Cairnsford Associates. Its third-party fund program was started in 1998.

Investment-grade property accounts for nearly two-thirds of J. Leon's balance sheet. High Street shops in prime locations make up three-quarters of the group's portfolio. J. Leon also invests selectively in retail warehouses and has a portfolio of residential properties.

It started Thesis Lion Growth in 1999 - a quoted authorized unit trust through which the group runs its long-only and other compliant investments. The vehicle currently has more than 30 submanagers and is thoroughly diversified by strategy and geography.

Paddy Walker, managing director, who handles investments, can be reached at paddy@jleon.com.
 

The Alaska Permanent Fund, a U.S. sovereign wealth fund, reported Oct. 28 that its investments produced a 10.7 percent return for the quarter ended Sept. 30, boosting its total value to $33.3 billion.

The government-controlled investment fund attributed the gain to the stock market rally that began in March and carried through the fall, recording a 19 percent return in the Dow Jones Global Index.

The fund’s stock portfolios primarily contributed to the $3.4 billion gain, with U.S., non-U.S. and global portfolios returning 16.2 percent, 18.8 percent and 17.7 percent, respectively.

“While the global economy may still have some issues to work through, we’re hopeful that the recent performance in the stock markets is a sign that the worst of the recession is over,” Michael Burns, chief executive officer, said in a statement.

The fund’s bonds also had solid performance, returning 5.3 percent for the U.S. and 3.2 percent for the non-U.S. portfolio. Absolute return provided a 5.6 percent return.

A family office with its own capital, Kier Global LLC is actively investing in public and private equities as well as real estate.

"Kier Global is flexible and will pursue attractive opportunities outside these core areas," the New York City-based family investment company says. "There are no set time frames for investments, and the firm seeks to partner with individuals who have the patience and commitment to be long term investors."

Kier Global is experienced in early- and later-stage ventures in the biotechnology, telecommunications, logistics and Internet areas.

The firm’s formation formalized decade-long activities that had been ongoing since 1995 when Isaac "Ike" Kier, who now manages the family office, sold the operating portion of the public company Lida Inc. He was Lida's chief executive and significant owner.

The firm aims to increase the value of its assets by partnering with talented individuals pursuing attractive opportunities worldwide.

Beyond capital, Kier Global brings additional resources to its partnerships, including:

*CEO level senior management support;
*Board level guidance, including audit committee;
*Broad M & A  experience in both private and public settings; and
*Value-added strategic affiliations.

Meanwhile, KG Funds, a fund of funds sponsored by Kier Global, invests for the Kier family and one foundation in a diversified pool of hedge funds. The fund uses leverage as appropriate to improve diversification and to amplify returns.

On the real estate front, the firm focuses on opportunities where factors such as size, complexity, or prior experience provide it with an advantage in profitably developing and managing the project. Kier Global is actively searching for investment opportunities with operating businesses that have significant real estate components, such as public storage facilities, parking facilities and hotels.

In addition to operating company investments, Kier Global has also been a real estate developer and investor in the United States, Canada and Puerto Rico.

Contact:
Isaac "Ike" Kier
(212) 247-4590 x13
ike@kierglobal.com
Kier Global LLC
1775 Broadway, Suite 604
New York, NY 10019

By DON DZIKOWSKI

Asset Management Finance LLC has won a U.S. patent for its “revenue share interest method of financing," a method under which the New York-based firm "provides up-front capital in exchange" for a cut in the borrower's future revenues.

During the limited revenue share term, ranging from seven to 20 years, the firm holds a passive, non-voting interest that entitles AMF to a fixed percentage of a manager’s gross revenues.

The approach differs from a traditional equity in that AMF holds no ownership stake, said chief investment officer Rob Jakacki.

At the end of the “revenue-rental” period, the asset manager has no further residual obligations to the lender, nor is required to raise additional capital to take out AMF, as is often  the case with traditional equity, Jakacki said.

The proprietary method “is a hybrid of equity with some elements of liability. Other (capital providers) do not decouple ownership like we do,” Jakacki said. Owners also enjoy the flexibility to sell the firm any time during the term of the financing, he added.

In operation since mid-2003, AMF has used the model to invest $325 million in 14 both traditional and alternative managers, covering the spectrum from wealth to independent-managers to private equity and hedge funds. The capital has been used for owner liquidity, internal equity transfers, management buyouts and other objectives.

In May of this year, AMF made its first investment in a manager outside the United States, MIR Investment Management Pty. Ltd., an equity fund in Sydney, Australia. AMF sees increasing demand from asset managers overseas and hopes to further diversify debt and equity exposure to assets located outside the United States, said Jakacki.

AMF plans to invest its remaining $250 million line of credit by the end of the second quarter 2010, when it would seek additional funding from its partners, he said.

AMF is majority owned by Credit Suisse Alternative Investments, which acquired a roughly 80 percent stake in Aug. 2008 for $384 million of the parent banking group’s newly issued stock. The transaction tripled AMF’s capital base.

“We never shied away from or lost desire to put money to work even during the volatility of the last 12 to 18 months. We’ve invested in two firms in the last nine months and are looking at many more right now,” according to Jakacki.

Contact:
Rob Jakacki
Asset Management Finance LLC
Tel: 212.710.6122
Rob.Jakacki@AMFinance.com

How will mega investors counter possible inflationary pressures that may result from the massive money printing by the Federal Reserve to fund the stimulus packages?

By relying on equity investments, according to one U.S. sovereign wealth fund.

In its most recently updated investment strategy for the 2010-2012 period, the Permanent Wyoming Mineral Trust Fund said: "Given long-term projections of equity markets and Wyoming’s 7 percent total return assumption, the state should rely on equity investments to maintain the value of the permanent funds and counter the effects of inflation for the most part."

The fund, which had $4.2 billion in assets under management as of June 30, meanwhile, recently dropped its expected annual rate of return by 1 percentage point to just under 7 percent. "Since the Wyoming investment portfolio contains sizeable investments in stocks and real estate, to the extent these long term projections pan out, this should sufficiently address inflationary concerns," state Treasurer Joseph B. Meyer said in his report.

Separately, the fund is seeking proposals for providing international equity investment management services:

Opening Date and Time:
November 2, 2009 at 2:00 p.m. (MT)
Please Note: Overnight delivery services can sometimes take two days due to the State of Wyoming security screening procedures.

To receive a copy of this RFP, please contact:
Lori Galles
Purchasing Representative
State of Wyoming
Department of Administration and Information
Procurement Section
122 West 25th Street
Herschler Building, 2nd Floor East
Cheyenne WY 82002-0060
Phone: 307-777-6797
 

An independent panel that advises Chile's Ministry of Finance has recommended that the government diversify its Pension Reserve Fund by "gradually including stocks and corporate bonds," the ministry announced recently. Such a step, the recommendation said, would "maximize returns while keeping risk in check."

The portfolio diversification was originally proposed in 2007, but put on hold because of the uncertainties of the global financial crisis.
 
The committee, headed by Andrés Bianchi, also suggested that new asset classes should be managed by external administrators, chosen from a group of finalists who were intensely scrutinized and pre-classified in 2008 during a selection process conducted by the Central Bank of Chile.

The panel based its recommendation on the improvement of economic expectations in the world’s major economies and on the decreasing volatility of international financial markets.

Regarding Chile's other sovereign wealth fund - the Economic and Social Stabilization Fund - the group proposed that "no innovations be made to its fixed-income investment portfolio, considering that the term in which these savings will be used remains unclear."

The ministry has not yet announced when it will start implementing the recommendation.

Hillspire, Adam Capital and Kiawah are separated by both the geography and investment criteria, but they pursue one common goal - win the maximum possible return on their investments.

Hillspire, a U.S. family office, focuses on public equities. Kiawah, also based in the United States, remains committed to its southern roots And, the third family office across the Atlantic extends its reach way beyond the Spanish shores.

Hillspire, an integrated family office investment management firm formed in 2006 to manage the capital of two U.S.-based families, engages in a broad range of investment activities on a global basis.

"Our primary objective is to build an investment portfolio focused on long-term capital  appreciation."

Hillspire focuses on the following investments:
* publicly traded securities
* traditional private equity activities
* real estate and other alternative assets
* third-party managers in private and public markets.

ADAM CAPITAL'S GLOBAL REACH

Adam Capital is a Spanish family office investment firm with a global reach.

"We are part of a family office dedicated exclusively to investments in the private equity and venture capital. We invest in fund of funds, private equity and venture capital funds and also on occasions co-invest in direct transactions with our partner funds.

"Within the asset class, we invest in large, mid- and small buyout groups, growth/expansion capital, venture capital, mezzanine, secondaries, etc. In terms of geography, we invest all over the world, having invested mainly in Europe and North America in addition to Asia and Latin America."

KIAWAH CAPITAL'S NICHE EQUITY, DEBT FUNDING

Kiawah Capital, a U.S. family investment office, provides equity and debt funding to private small-to-middle market enterprises in the Carolinas, Georgia and Florida.

Its $80 million Banyan mezzanine fund has a wide-ranging portfolio, including staffing, medical and distribution businesses.

"We seek opportunities with companies that have established revenue streams and achieved profitability, are well-positioned with differentiated products and/or services, and have solid management teams in place who possess a deep understanding of the markets and consumers they serve.

"Preferably, investment candidates will have reached sales of $5 million to $25 million or more, with operating earnings in excess of $1 million."
 

Carstairs Capital, a Chinese private investment holding company for the Carstairs family, focuses its attention on the Asia-Pacific.

Currently, it is "looking for investment opportunities showing exceptional value for money and returning shareholding solid dividends and rental income.”  Indonesia shows good prospects in new serviced apartment investments, according to the family office.

In May, Carstairs Capital invested in The Macau Racing Club (www.macauracingclub.com,) a brand new race horse syndicate club that buys and syndicates shares in race horses and sells shares to race horse enthusiasts in Hong Kong and Macau. Currently, it manages three race horses and plans to build its portfolio as well as market several race-horse events for customers.

"Having owned and participated in a number of race horse partnerships, we decided this investments would be more of a leisure-driven asset, which has the capabilities to do very well in Asia,” comments James Carstairs, Carstairs founder.

Carstairs Capital makes four to five investments a year.

"We are very selective about only investing in the most well managed private companies. The most significant issue we consider when evaluating an investment is the capability and track record of the main shareholders and senior management team. We aim to invest in companies with proven and result orientated management teams."

Carstairs Capital specializes in niche business investment in specific industries. It focuses on five sectors, including aerospace, real estate, resorts and technology.

Capital Generation Partners LLP is a private investment office in London, providing investment advisory services to ultra high-net-worth clients on wide-ranging-asset classes from fixed income to real assets.

It relies heavily on outside managers to invest its funds.

"Our focus is on finding the best managers in each asset class. We do not manage money ourselves. We apply this philosophy not only to funds but also to directly owned assets."

" Even in asset classes, such as real estate, which are frequently directly owned, we believe that professional investors do better by working with professional managers who can add value to their investments."

Capital Generation Partners believes that consistent investment returns are hard to find.

"For this reason, we maintain the broadest possible watch on the investment horizon. We do not limit ourselves to easily investible assets, sectors or geographies. If we believe there is an investment case to make for a particular asset, we will work to find the best manager in the field."

MURRAY CAPITAL

UK-based Murray Capital invests in a wide range of assets, from mobile technology in Scotland to a stock-exchange listed manufacturer based in China.

"As a family office investor, we pride ourselves on our unique offering. Our approach in based on partnership and flexibility," says David D. Murray, managing director.

Murray Capital can invest from $350,000 to $7,000,000, although its typical deal size is between $1,500,000 and $4,500,000 of equity. It invests in four key asset classes, including real estate, publicy traded companies and eary state ventures.

"Our primary focus is on private capital opportunities. These businesses tend to be maturing, in traditional economy sectors, such as manufacturing, engineering and business services, with a track record of profits and cash generation."

VENTURE CAPITAL APPROACH

"We also invest in earlier-stage companies in a more traditional venture capital approach. Again, traditional economy is our preference although we have considered a number of technology proposals, primarily in the software arena."

PROPERTY FINANCE

The final two asset classes we look for exposure in are residential property development and the public markets.  PPG is the group’s main property arm. However, Murray Capital backs smaller development opportunities.

LISTED MARKETS

"Our exposure to the listed markets mirrors the sectors we focus on with our private capital offering namely traditional economy with the ability to generate a yield. We currently have a portfolio of FTSE100, small cap and AIM stocks, and we remain keen to assess new AIM flotations."

The Norway Government Pension Fund, the word's second largest sovereign wealth fund with nearly $400 billion in assets under management, will invest $3.3 billion over the next five years in environmental funds in emerging markets, the government announced recently.

In April, Norway's Ministry of Finance detailed plans to establish a new environmental investment program aimed at environment-related investment opportunities. The ministry will also assess whether it is pertinent to establish an investment program aimed at sustainable investment opportunities in emerging markets.

The entire amount for the two programs will constitute $3.3 billion. No investments have been made yet under the programs. The ministry plans to present a detailed plan in October.
 
In 2008, the ministry decided that 19 new emerging equity markets should be included in the pension fund equity portfolio. Emerging markets now represent 10 percent. Ownership in individual companies is capped at 10 percent in all markets.
 

Dancap Global proclaims it is in for the long haul, but an investment manager of the Canadian private family office declines to discuss whether the earthquake in the financial world has shaken its resolve.

Asked this week by The Capital Express whether Dancap has changed investment policies in light of the current financial crisis, Karen Luprypa, senior investment officer, refused to answer. She also declined to say whether Dancap would invest more or less in hedge funds next year, if at all. "I don't want to share that information with the public," she said.

 She then added: "I don't want to continue this interview."

On its Web site, Dancap says it "enjoys a singular mandate: to build wealth over the long term. We do this by providing best practices in asset allocation, portfolio construction, investment due dilligence and investment management.

"Our investment focus includes alternative assets, such as private equity, private debt, infrastructure, commodities and hedge funds, as well as traditional assets, including public equities, fixed income and real estate."

Some family offices faced severe cash crush in the aftermath of the financial crisis. One New Jersey single family office said recently it planned to sell its private jet to raise cash. The Dolan family office recently leased its private jet to Cablevision, the New York cable company, controlled by the Dolans. A Saudi family office closed its office in Stamford, Conn., in June.

Still, a very wealthy New York single family office, which declined to be identified, said its investment decision has not changed much, despite the financial turmoil. Like Dancap, this family office pointed out that it invests for the long-run and has already taken into consideration market upheavals while formulating its investment policy.

As for Dancap, here are its invest principles:

* "Proven Investment Opportunity - We look for investment opportunities with a clear value proposition or point of differentiation or investment managers that have a proven track record.

* Strong Management - We seek experienced and committed management teams whose interests are clearly aligned with their clients.

* Ability to Act Opportunistically - Our investment resources and capital allocation allow us to respond quickly and with confidence to market opportunities.

* Attractive Risk/Return Profile - We expect an appropriate rate of return for the risk we accept. Volatile investment opportunities are assessed in the context of the higher return and diversification benefits they may provide to the overall portfolio.

* Transparency - We require a certain level of investment and reporting transparency to provide us with a clear understanding of how and where value is being added.

* Long-Term Horizon - Our long-term view allows us to focus on an investment's intrinsic value and growth prospects rather than on short-term market fluctuations.

* Global Focus - We seek excellent investment opportunities and managers globally.

* Direct Relationships - We prefer to invest directly with investment managers rather than through advisors or intermediaries to gain more valuable communication and insight into the investment opportunities.

* Integrity - We believe that personal and professional integrity are an essential element of any investment relationship.

* Partnership - Our focus is on developing long-term, mutually beneficial relationships with our investment managers and business partners."

Next Chapter Holdings, an Illinois family office, manages investments of the Pattis family, with the aim of achieving "long-term growth and capital appreciation."

"Our strategy is to invest in a diversified range of asset classes and differing investment styles, with a special focus on alternative asset classes such as private equity (LBO funds and venture capital), real estate, natural resources, and hedge funds," according to Next Chapter. "Our approach is to align our interests with a select group of the world’s most talented managers to whom we delegate broad discretionary authority."

In addition, in partnership with other investors and entrepreneurs, the firm manages a portfolio of non-operating direct investments in private companies; many of these entities are focused in the media, publishing and communications sectors where we bring many years of experience in strategic and operational management.

Rhea Investment, a Turkish private investment office with presence in the United Kingdom, Bulgaria and the United Arab Emirates, expects to close before year-end a deal to buy all of the controlling shares of Vakif Risk Sermayesi Yatirim Ortakligi, an Istanbul Stock Exchange listed company.

Vakif Venture Capital Investment Trust,  founded in June 1996 and listed in July 2000, is the first venture capital investment trust in Turkey, with a current market value of about $6.5 million

"Going forward, we are aiming to dramatically expand VVCIT’s capital base and provide local and international retail and institutional investors the opportunity to co-invest and access attractive Turkish and regional investment opportunities together with us," Rhea’s chief executive Onur Takmak said.

RHEA, a Turkish private investment office with presence in the United Kingdom, Bulgaria and the United Arab Emirates, is big on real estate.

"Real estate is at the core of our investments across the spectrum," proclaims Istanbul-based RHEA chairman Onur Takmak. "In addition to principal investments, over the last few years we have ramped up our development business effort and partnerships with committed investors in commercial real estate in Turkey and residential assets in emerging markets in Eastern European markets and Arabian Gulf."

Launched in 2006, RHEA is currently engaged in a 10,000-square-meter construction project in Turkey in partnership with the German investor Union Investment. Rhea intends to develop 70,000 square meters of logistic warehouse space this year

"The company will focus its efforts in real estate on retail parks, prime office space, business and city hotels, and logistics parks."

Another area of RHEA's top priority is the healthcare industry. It has allocated $120 million for a hospital chain project in Turkey and is "actively exploring opportunities for purchase and investment in the field of health."

The company also plans to invest in energy, with initial investments to be made with foreign partners in renewable energy – small-scale hydro, wind, and geothermal energy projects – in the zones of geothermal energy in the Aegean region.
 

Sovereign wealth funds - the government-controlled financial powerhouses - tend to invest in countries where they feel culturally close, contrary to popular myth generated by massive publicity by their several controversial investments in the United States, a recent study by researchers at the University of Miami and the International Monetary Fund concluded.

"We find that SWFs tend to invest in countries that share similar cultural traits, specifically religion, suggesting that SWFs bias their investments to the familiar. Such preference for investing in the familiar may indicate the exploitation of informational advantages, or simply a tendency to feel affinity with the familiar. Moreover, we find that this cultural bias is more pronounced for SWFs than for other global and institutional investors," observed the researchers, Vidhi Chhaochharia, finance professor at the university, and Luc Laeven, senior economist at the IMF.

To be sure, this trend among SWFs is pretty common in the investment world. "Geographical and cultural factors, capturing differences in information, trust or affinity with the familiar, have been found to affect economic outcomes, including the allocation of investment," by other institutional investors, the researchers pointed out.

Why do SWFs take such a myopic investment approach?

First, "government-owned institutions are less sophisticated investors that are more likely to invest in firms or countries they are acquainted with," noted the study , "The Investment Allocation of Sovereign Wealth Funds." Second, "government-owned institutions are more prone to government influence, which is ultimately shaped by culture. Such influence could manifest itself in a number of  ways, including directed investments or the imposition of investment restrictions."

The researchers also concluded that "our finding that SWFs allocate their investments differently from non-government owned funds suggests that governments directly influence the global allocation of SWFs and is consistent with the concern that SWFs give their governments direct influence over global markets."

Management is the No.1 factor for family offices when they decide whether to invest or not.

An analysis by The Capital Express of the investment criteria of six family offices - three U.S. and three European - found that all of them placed top priority on management in their decision about whether to make an investment.

"There is no substitute for the strength, drive and enthusiasm a strong president brings to an organization," explained a 100-year-old U.S. family office, which has 16 management executives and support staffers. It attributes its success to "acquiring companies with talented leaders."

Thoma family office, also based in the United States, prefers "established funds and management teams," in an attempt to ensure a fair return on its investments - upwards of 15 percent annually. It invests in private equity, distressed assets, real estate and venture capital.

Here is a roundup of how these investment entities that manage fortunes of wealthy families go about making investment decisions:

For DMS, superb management is top priority

DMS, a U.S. single family office, "places a high value on management and company culture. DMS is flexible regarding industries in which it will invest. Like most investors, DMS prefers businesses in industries which have good growth potential, which have high barriers to entry, which enjoy superior and consistent margins, which are non-cyclical and which have stable customer relationships and defensible market positions.'

"However, DMS has repeatedly seen businesses operated very profitably by talented management teams in industries not meeting these criteria. Thus, while DMS does generally avoid certain industries, it is generally willing to consider a wide variety of industries provided the right management partners will be involved."

"DMS seeks to acquire controlling interests in active businesses that will allow it to earn a return on equity of at least 20 percent over a business cycle." It prefers companies with pre-tax net income of $2 million to $15 million (current or potential earnings). Its investments range  $2 million to $50 million.  It has $100 million available for private business investing activities. "Available capital, together with prudent leverage, allows us to consider companies with an enterprise value up to $200 million in many industries."

While DMS mainly focuses on acquiring existing businesses with a success record, it will consider start-up businesses. DMS views management as especially critical in start-up businesses and generally looks for management teams with a track record of success in the type of business being considered.

DMS invests in turnarounds or distressed companies. It is especially interested in management buyout transactions where management is buying out a historic individual owner of a business or where a corporation has made the decision to divest a “non-core” operation.

DMS has expertise relating to family succession matters, which allows DMS to participate in a flexible manner in a recapitalization of a business undergoing a generational change in ownership.

Financial, industrial and real estate top Donadeu family's picks

The Donadeu family office, which has been in existence since 1930, focuses on financial, industrial and real estate sectors. In industrial, it renewable energy and pharmaceuticals; in financial, it favors banking, private equity and investment funds; while its real estate investments target both income-producing assets and "development projects of all kinds."

 This European family office invests in "projects that have growth potential without any sector specialization, with a preference for significant miniority sharesholdings that allow" it to "participate actively in the decision-making process." It expects a 15 percent return yearly on its investments and invests $5 million or more in each deal.

Thoma applies diverse tools

U.S. single family office Thoma invests in private equity, distressed assets, real estate and venture capital. It prefers "established funds and management teams" in an attempt to ensure a fair return on its investments.

In the private equity arena, it makes "direct investments and provides financial assistance to growing companies." In distressed debt, it "buys pools of distressed residential mortgages." In venture capital, "Thoma will consider special situations in which it will act as a minority passive investor."

It "looks for companies with a proven management team and business model with proven profitablity." In real estate, it "invests in flagged hotel development projects" and "buys distressed land at deep discounts with plans to hold the land for five to ten years."

 Strong leadership is foundation for all YSV investments
 
The investment strategy of YSV, a U.S. single family office, focuses on the leadership of each opportunity, with the investment review process beginning with an evaluation of the management team.  "A strong leadership group is the foundation for all YSV investment activities."  
 
YSV will consider a broad range of investment categories, including venture capital, private equity, management buyouts and  growth investments. 

It has considerable experience in several industries. While YSV will consider investing in new industries, it prefers real estate, retail, franchise concepts, wholesale, distribution and financial services. 

YSV has a special interest in the emerging sustainability industry and the triple-bottom line business philosophy. It will consider investments in “green” companies as well as companies dedicated to socially and environmentally responsible business practices.

YSV evalutes each investment on a case-by-case basis, without imposing internal restrictions on investments based on capital invested or geography.

Klesch takes opportunistic approach

Klesch & Co, a European family office, which has made investments worth $14 billion since its founding in 1990, seeks to make "control equity investments across a broad spectrum of industries" in Europe, Asia and the United States.

"Opportunistic in our approach, Klesch & Company is interested in acquiring businesses no longer considered central to the growth plans of their current owners. Such businesses may be non-core divisions of large corporations, secondary buy-outs, refinancings or disposals. The businesses can be stable or underperforming."

It has focused on "buying businesses that are largely exposed to the vagaries of the commodity markets, in particular, oil, gas, coal, electricity, aluminium and other base metals or alternatively making greenfield investments in commodity projects."

Ecos Sustainable Equity Fund is all green

Ecos Sustainable Equity Fund, a family office of Swiss origin focused on investments in South America, targets ventures active in providing tools for a more sustainable development. "We invest in cleantech (defined as environmental engineering and renewable energy) and sustainable forestry operations throughout Latin America."

"Our focus is based on three pillars: energy generation, biofuels and efficiency. On energy generation, we look at solar and wind energy, hydropower, biomass/biogas energy and geothermal energy, which we feel has been overlooked to date, but has massive potential. In this sub-sector you could be looking at technology developers, technology deployers and services companies. We look more at technology deployers and services. We believe that the U.S. and Europe have access to outstanding and experienced technology investors to look at the technology development side."

"Another area interest is energy efficiency. We are looking at smart grid applications. We are also looking at more niche technologies, such as those that can be installed at home but that are affordable and deployable for Latin America’s infrastructure."

Wind River approach: invest the time, chart the course, create the future

Wind River, a 100-year-old U.S. family office, which owns companies in banking, franchising, service and light manufacturing sectors, "is looking for control positions in companies that we believe can grow by" five to 10 times. 

It "actively seeks to acquire companies that have strong opportunities for growth, a high-caliber management team, a leading and recognized brand in its respective market and annual sales of up to $100 million."

Currently, it is seeking to buy companies with $3 million to $10 million in earnings before taxes. They should be in business-process outsourcing, consumer services, environmental products or services.
 

As Temasek Holdings turned 35, the Singapore sovereign wealth fund this week sought to reassure Western nations that its investments remain purely focused on generating value for its shareholders, in an apparent attempt to alley fears in Western nations that these government-controlled entities might buy their strategic assets, undermining national interests.

"Our charter serves as a guide to anchor Temasek on strong commercial principles to create and deliver sustainable long-term value for our stakeholders, as we continue to evolve and transform with Singapore and the world," said Temasek chairman S Dhanabalan.

Before the credit crunch brought an humbling effect, sovereign wealth funds, especially those from Asia, faced public backlash in many Western countries, including the United States.

"We have refined our charter to more clearly articulate our focus as a value-oriented investor, and also as a shareholder focused on achieving sustainable returns by engaging with the boards and management of our portfolio companies."

Over the past seven years, Temasek have become more visible on the global investment scene, currently having two-thirds of its underlying portfolio outside the city state.

Meanwhile, Norway's sovereign wealth fund, the Government Pension Fund, reported a 2.7 percent return for the second quarter ended June 30, with the international equity and fixed-income markets showing a "marked improvement" during the period.

The positive development in the quarter has continued into the third quarter, said Yngve Slyngstad, CEO of Norges Bank Investment Management, which manages the fund.

"Economic developments showed clear signs of stabilizing in the second quarter and the uncertainty around the financial sector decreased. Liquidity is beginning to return to a number of fixed-income markets."

The Government Pension Fund is at least the second sovereign fund to report a positive return during Q2. Last month, Ireland's National Pensions Reserve Fund posted a 9.4 percent return for the quarter.

Despite bleeding from the financial crisis, sovereign wealth funds - the mighty government-controlled investment entities - have been quite active in recent weeks, with some making noticeable investments in global projects and others gearing up to clinch future deals.

The most recent move by a sovereign wealth fund came July 28, when Aabar Investments, controlled by International Petroleum Investment Co., which is owned by the government of Abu Dhabi, agreed to pump $900 million into Virgin Galactic, a British commercial space travel venture.

Aabar earlier invested $1.8 billion in Daimler AG, the German manufacturer of Mercedes-Benz cars. It has also invested in Tesla, the California-based electric car manufacturer. Aabar's deals coincide with moves by several other sovereign wealth funds:

*Khazanah invested $25 million as part of a $108 million financing in Small Bone Innovations Inc., a U.S. specialized orthopedics company;

*China Investment Corp. announced  on June 2 a $2.2 billion investment in U.S. banking giant Morgan Stanley. On July 3, it made a $1.5 billion investment in Teck Resources, a mining company in Vancouver, Canada.  It took a stake worth $365 million in the UK-based Diageo plc, an alcoholic beverage company.

Libyan Investment Authority  looks to Africa

Meanwhile, the Libyan Investment Authority and Italian aerospace and defense company Finmeccanica have agreed to form a joint venture to invest in Africa and the Middle East in aerospace, electronics, transportation and energy.

"This cooperation is an example of LIA’s consistent and continued investment in solid strategic investments and alliances globally, as a long-term investor," said Mustafa Zarti, deputy chief executive, the Libyan Investment Authority. Finmeccanica and the Libyan Investment Authority share the view that the Middle East and Africa "will offer significant investment opportunities."

These moves contrast with the picture earlier this year when several sovereign wealth funds reported hefty losses, including the Alberta Heritage Fund, which saw its  fair value dip by $3 billion to  CDN$14 billion at March 31 from year earlier.  A plunge in world equity markets and the credit crisis primarily caused the 18.1 per cent decline in the fund net assets.

Singapore's Temasek Holdings put its loss at 31 percent to $81 billion between March and November 2008. Kuwait's sovereign wealth fund lost about $31 billion, and Abu Dhabi Investment Authority, $125 billion. Bahrain's Mumtalakat Holding reported losing $184 million last year, with total assets plunging by 7.6 percent.

These debacles somewhat crushed sovereign wealth funds' appetite for risky investments, inducing them to trim their investment time horizons to deal with market uncertainties. Additionally, funds floated by oil-producing countries have changed their return expectations and postponed some investments.

Sovereign wealth funds to move cautiously

Going forward, sovereign wealth funds are unlikely to be aggressive investors as they were during the past two years, unless they can grab assets at fire-sale prices. They now appear to be moving toward creating stabilization funds to support their own economies from the shocks of falling commodity prices and export earnings. 

In fact, Bahrain's sovereign wealth fund made it clear in May that it would focus on its domestic investments. The  Kuwait Investment Authority and Qatar Investment Authority have also made key investments in domestic equities.

Kazakhstan’s sovereign wealth fund, Samruk-Kazyna, plans to buy gold, copper and iron assets that would benefit companies such as London-listed KazakhGold Group, Kazakhmys, Eurasian Natural Resources Corp. and Toronto- listed Alhambra Corp. Singapore’s Temasek, CIC and Brazil’s sovereign wealth fund are expected to follow suit.

Gulf asset management policies now favor domestic and emerging market economies over Western economies, according to Oxford Analytica, a private research organization in Oxford, England. While the attention to their domestic economies may decrease once the economic downturn eases, portfolio diversification and investment in emerging markets are likely to grow in prominence among regional funds.

Arab SWFs have pulled back somewhat from global markets as the value of their investments has fallen and have focused more on domestic economies. Gulf investors have also expressed interest in future development plans in their home countries. With more than 50 per cent of the population under age 24 years, the Gulf nations desperately want to create jobs.

Early August, Dubai World suspended several of its planned projects. "Dubai World has put on hold a number of projects until the market improves, including some tourism projects in Africa and elsewhere," a Dubai World spokesperson said in a statement.

With the formation of Dubai World Africa, it had planned to invest more than $1.5 billion over five years. The International Monetary Fund recently observed that some sovereign wealth funds are seeking indirect hedges to offset falling commodity prices. Such a step would change the asset allocation strategy in the sovereign funds' portfolios, leading them to invest in new sectors, new regions and new asset classes.

Natural resources, especially mining, would benefit from such moves, because they have low exposure to sovereign wealth funds now. Currently, banks and financials have the highest exposure, even after the market bloodbath, followed by real estate and energy.

The energy sector, however, would be relatively low priority for some funds, because several large fund sponsors already have an exposure to the sector through investments or their own economies. This sector may get preference from sovereign wealth funds of non-oil producing countries, such as Korea and Singapore, and industrial nations, such as China and Japan.

Experts dismiss dramatic shifts

Despite all the talk about adjustments and pullbacks, some dismiss the possibility of dramatic changes in sovereign fund investment practices.

"Sovereign wealth funds are heterogeneous," said Andrew Ang, a professor at Columbia University Business School in New York. "It's hard to say one policy is going to apply to all the funds. You might see some changes in funds that had a very high holding in financials" and that are small, such as Temasek, which manages $134 billion. But larger ones, such as the $326 billion Norway Government Pension Fund, are unlikely to change much their investment strategies.

In fact, he noted, Norway went ahead with its plan to boost its position from 40 percent to 60 percent in equities despite the market meltdown. However, he said, generally speaking sovereign wealth funds, pension funds and endowments "will need to re-evaluate their illiquid assets," including hedge funds and private equity funds in light of the credit crunch.

Still, Ang said, their appetite for foreign investments is unlikely to diminish. "I'd hope actually they would continue to be very large providers of capital to the financial world," although they would work under "regulatory and government uncertainties" in the post-financial crisis environment.

Oxford Analytica holds similar views: "Although financial markets have collapsed, oil prices have dropped, and global imbalances are unwinding, countries around the world remain interested in setting up new sovereign wealth funds. Seven new ones are expected to be created during 2009. While no longer making headlines as in 2007, they will maintain a powerful role in global financial markets."
 

Uncertain times perhaps breed wild speculations. And, that's what is possibly happening on the Eastern front.

Three studies published last week by analysts painted contradictory pictures about what lies ahead for China's property and stock markets.

Swiss giant UBS AG and Beijing-based Stanley & Partners Investment Management analysts predict a boom time in coming months, while a former Morgan Stanley analyst sees only doom and gloom.

UBS analyst Eric Wong suggested home prices in China will rise by 20 percent before 2011. Stanley & Partners' crystal ball also shows a similar greener pasture.

But former Morgan Stanley analyst Andy Xie finds things are entirely different. He thinks "Chinese asset markets have become a giant Ponzi scheme."

"Chinese stock and property markets have bubbled up again. It was fueled by bank lending and inflation fear. I think that Chinese stocks and properties are 50 percent -100 percent overvalued. The odds are that both will adjust in the fourth quarter. However, both might flare up again sometime next year," Xie said in a report.

"While China is experiencing weak exports now, the weak dollar allows China to release the liquidity saved up during the boom in the past five year without worrying about currency depreciation. How far would the bubble go and for how long?

"It is not too hard to understand when the bubble would burst. When the dollar becomes strong again, liquidity could leave China sufficiently to pop the bubble. What’s occurring in China now is no different from what happened in other emerging markets before. Weak dollar always led to bubbles in emerging economies that were hot at the time. When the dollar turns around, the bubbles inevitably burst," Xie observed.

Property sales in China surged by 60 percent by value in the first seven months of this year as record lending boosted the real estate market. Housinh prices in 70 major cities rose 1 percent in July from a year earlier, the National Development and Reform Commission said. Sales accelerated after a 53 percent gain in the first half of 2009 from a year earlier. Real estate investment rose 11.6 percent, up from 9.9 percent in the six months to June 30. The price increases are unlikely to cool, the reports said.

How far the bubble would go depends on the government’s liquidity policy. The current bubble wave is very much driven by the government encouraging banks to lend and the super low interbank interest rate. As the Fed’s interest rate is zero, the dollar is weak, China’s foreign exchange reserves are high, and the loan deposit ratio is low, China could increase liquidity, which would expand the bubble further. However, other considerations may motivate the government to cool it off," Xie added.

"In summary, the market frenzy now won’t last long. The correction may happen in the fourth quarter. There could be another wave of frenzy next year as China can still release more liquidity. When the dollar recovers, possibly in 2012, China’s property and stock market could experience collapses like during the Asian Financial Crisis."

China Investment Corp.will look for opportunities outside its defined investment sectors to ride out market gyrations, the sovereign wealth fund indicated in its recently released annual report.

"Given current market conditions, CIC believes it can best meet its risk-adjusted returns goals by taking advantage of unique opportunities as they present themselves," the Aug. 4 report outlined. "Thus CIC expects, and is prepared to manage, prudent variations from its benchmark portfolio distribution over the near term as it builds out its portfolio."

Putting its new policy into action, CIC recently agreed to invest $1.5 billion in Teck Resources Limited, a mining and mineral processing company in Canada.

"CIC entered 2009 with a stronger, more experienced investment management team, confidence in its investment and risk management processes and a cash position that will allow it to take advantage of the opportunities expected to emerge in the coming months and years."

At the same time, it indicated, it will perhaps take a go-slow attitude in its investment decisions to keep things under control.

"CIC will not deploy capital into asset classes faster than it can build its capabilities to manage that class."

The $287 billion fund currently invests worldwide in equities, fixed income and alternative investments, including hedge funds, private equity, commodities and real estate.

 "It chooses not to pursue investments in industries, such as tobacco and gaming, that would not be in keeping with its social responsibility."

The fund, in the 27-page report, sought to alley fears in certain Western nations, including the United States, of a possible Chinese take over of their strategic assets.

"CIC is a financial investor," the document outlined. "As such, it does not seek to control enterprises or sectors. CIC invests on a commercial basis."

The report said CIC will make extensive use of quality external investment managers across all asset classes, wherever appropriate.

"External managers selected for CIC’s mandates will be an integral part of its investment management team."

CIC's decision to continue using outside managers contrasts with a policy adopted recently by New Zealand's sovereign wealth fund, which has decided to manage its ndomestic-equities mandate internally to save "hundreds of thousands of dollars."

In the report, CIC said it sustained a 2.1 percent investment loss in fiscal year 2008 ended Dec.31. CIC attributed the poor showing to its decision to hoard cash.
 

The Alaska Permanent Fund’s investments sustained a 17.4 percent loss for fiscal year ended June 30, according to preliminary reports.

The fund ended the fiscal year with a value of $30 billion after accounting for the dividend transfer, down $6.5 billion from year earlier.

“I can’t say we’re out of the woods yet, but the market rally that began in March allowed the fund to return 11.2 percent in the final quarter of the fiscal year,” said CEO Michael J. Burns, in a statement. “2008 was one of the five worst years in the 218 year history of the U.S. stock markets, and it certainly took its toll on the fund. The spring rally was a welcome sight after well over a year of down markets.”

The stock portfolios, making up more than half of the fund, suffered the hardest blow. The fund’s U.S. stock portfolio returned -24.8 percent, while the non-U.S. and global portfolios returned -31.3 percent and -31.4 percent, respectively.

Real estate also plunged, contributing a 15.3 percent loss. The fund’s alternative investments took hit, too, with absolute-return investments returning -13.6 percent.

The bright spot for the year was the Permanent Fund’s bond portfolios, with the U.S. portfolio returning 3.3 percent and the non-U.S. portfolio 3.6 percent.
 

Family offices come in different shapes and sizes, and they follow their unique asset allocations and investment strategies.

However, views from two family offices - one in the United States and the other in Switzerland - may offer a rare glimpse into their thinking process about how they invest funds and select outside fund managers.

One of them is managed by Jacqueline Holmes, whose New York-based family office has invested $2.4 billion for two families:

"We do not accept outside capital or additional clients. We have discretion over this capital."

Her family office principally invests in hedge funds, private equity, debt, tangible asset direct deals, and public securities.

"We invest in hedge funds as an LP, with no special terms. We invest in a variety of strategies. The funds we invest in range widely in asset size; we are generally not 'day one' money."

"On the private side, we generally invest directly into deals, primarily those we source ourselves. (Occasionally we make a token investment as an LP in a private equity fund, when we co-invest with a fund manager who has shared several valuable opportunities.) We seek deals with an exceptional risk/return profile; we are open to all industries, sectors, geographic regions, stages and structures of deals, etc."

"However, we are less likely to do early stage/technology, unless there is a compelling 'edge' to our involvement, which is something we generally seek. We aim to be a value added partner to our portfolio companies, using our network of relationships for information and useful connections. We are fearful of 'vanity investments,' which might be interesting and personally compelling but are not compelling on a return on investment or risk/return basis."

"In our public securities (proprietary trading) efforts, we are opportunistic with a mixture of long term holdings and some short term trading of market movement, using equity, debt, FX and other derivatives. We seek arbitrage opportunities and trade volatility, etc., and also invest based on macro 'themes.' "

"On a personal level, I am interested in exploring investment opportunities that are highly compelling purely on their financial risk/return investment merits, and which are also mission-aligned with my personal values. Examples would include alternative energy, micro-credit, and organic and natural products."

Across the Atlantic, the Aegerter family office in Switzerland maintains a highly diversified investment portfolio, containing mainly "alternative investments, ranging from venture capital and private equity to hedge funds, commodities and real estate."

"We are not investing in fund-of-funds. Our focus has been investing in well-known fund managers with a good track record, and assisting entrepreneurial teams in establishing new funds. Currently, we are adding new managers on a very selective basis. We clearly prefer managers who are building their asset base via capital appreciation rather than by increasing their fund size."

This family office is "interested in equity investments in companies with a strong growth potential." "We are looking for technology, service, real estate, or fund management companies."  It favors "a focused and simple business model," and is interested in evaluating "both growth companies as well as special situations."
 

(This investment firm, based in California and run by principals, funds seed-stage and early-stage ventures.)

"We’re looking to invest in entrepreneurial teams with big ideas and a need for seed capital  to turn their ideas into great companies."

"We are willing to invest in unproven teams attacking unproven markets with unproven solutions. We’re not interested in teams that are creating the nth solution to the same old problem nor companies who are trying to improve things by only 10 percent or 20 percent."

"On a more tactical level, the characteristics of the companies we invest in are:

Sectors: Software, services, clean technology, and material sciences (not life sciences)

Funding: Seeking seed or early investments from $500,000 to $3,000,000

Geography: California or Western U.S.-based
.
Business model: requiring less than $5,000,000 to reach break even or sustainability

If this sounds like your company, please send us your executive summary.

Guy Kawasaki
Managing Director
kawasaki@garage.com
Garage Technology Ventures
360 Bryant St., Suite 100
Palo Alto, CA 94301
Phone 650-838-0811
Fax 650-853-2416
www.garage.com

Family offices are enigmatic creatures not only to ordinary folks but also to many in the money world.

There have always been questions about how these entities that manage wealthy families' fortunes make investment decisions. These questions are now heard more often because the economic downturn has made fund-raising a more difficult nut to crack.
 
No doubt, some of the family offices are taking blows from the cash crunch, but many say their investment priorities have changed little. One single family office in New York City, which declined to be identified, observed that family offices invest for the long term and that they always take into consideration ups and downs in the marketplace when they devise their investment strategy.

 What do they, then, expect from money managers now?

Here is what one U.S. family office has to say:
 
"We will consider investments that are primarily based in the United States of America.
We are NOT interested in any investments involving publicly traded securities like stocks, bonds, futures, commodities, currencies, or options. If you are a broker trading in any public market or exchange, do not contact us. We are not interested!

If you are not a broker trading in any public market or exchange, there is a very good chance we will consider your proposal. Please e-mail (or if you must mail) your investment information to us first before doing anything else, if at all possible. There is really no point to preliminary contact. "

"We are looking for investments within the following profile:
Some guarantee for return of capital ;
Some guaranteed return on capital;
if the guaranteed return is> 1 percent and <5 percent, then you must show a tremendous long-term benefit, for example, 100 percent to 200 percent over the next five years;
if the guaranteed return is> 20 percent per year, then some long-term benefit or possible benefit over the next five years is a big plus;
if guaranteed return is <1 percent or 0, then you must show a 300 percent to 1,000 percent return on invested capital over the investment term or the potential for such a return; and
If your investment proposal fits the above profile, then send us an e-mail explaining how.

"Use lots of numbers, we really like numbers. Spreadsheets are really good.
Don't try to sell us on the idea. Sell us on the numbers. Tell us how you make the numbers.

"We detest hyping the idea. Don't hype us!"