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Singapore's Vertex beats $200M target for third China fund
Venture Capital
<p>Vertex Ventures — the venture investing arm of  Singapore's Temasek — has reportedly smashed its $200 million target for its third China fund.</p> <p>This is not really surprising as Temasek pumped $600 million into the firm earlier this month. But raising this latest fund was still no mean feat. Vertex CEO Chua Kee Lock told Deal Street Asia that around $850 million of the total raised came from outside investors.</p> <p>Its a first for Vertex's China vehicle which was a 100% captive fund in its last two incarnations. Vertex's U.S., Israel, and China funds all have external investors, among them are pensions funds, endowments, and corporate investors.   However,  Vertex is far from courting success independently of its powerful parent. Kee Lock added:<br /> "We are owned by a very strong shareholder – so we can be selective on the type of investors we can pick for our funds.”<br /> Photo: Shubhika Bharathwaj</p>
John Cleese would like to teach you the ‘Ten golden rules of equity investing’
Lifestyle, 4:01
<p>Here’s something completely different. John Cleese, star of Monty Python and Fierce Creatures, has taken a break from the Ministry of Silly Walks to team up with Aberdeen Asset Management and narrate some of its investment cartoons.</p> <p>Here’s what they call the ninth golden rule:</p> <p>Former model, Bond girl, and Wolf of Wall Street actress Joanna Lumley also did some voice-overs for the firm, this time, for the cartoon’s “Seven deadly sins of multi-asset investing” segment. Here’s what they call the first sin:</p> <p>The cartoons were apparently adapted from booklets Aberdeen produced for beginner investors, and can be seen in their entirety at the firm's magazine channel, “Thinking Aloud.”</p> <p>Now if they could only get Sean Connery to explain the yield curve…<br /> Photo: Flanders DC</p>
Why users are raging at WeChat's new payment charges
FinTech
<p>WeChat, the popular Chinese social messaging app owned by Tencent, has started to charge its users for its payments and money transfer services and they are very unhappy about it.</p> <p>The amount being charged is small — 0.1% on spending and transfers over 20,000 yuan — but it has still managed to irk users who until now have been getting the services for free, according to Tech In Asia.</p> <p>The most galling aspect is that WeChat is competing Alibaba's Alipay which currently holds the lion's share of the market. Alipay doesn't charge users for its services (unless they are using the website were it charges 0.2%). Tech in Asia quoted one Zhengzhou-based user as saying:<br /> "Alipay controls more than 70% of the market, and WeChat only controls more than 10%. I really don’t know where [Tencent CEO] Pony Ma’s confidence is coming from?"<br /> It's a good question, but there is perhaps an equally good answer. While Alipay dominates now, WeChat has a few tricks up its sleeve. As the country's number one messaging app WeChat has a suite of products it can draw from to incentivise users to sign up to its services.</p> <p>These services include WeChat's Chinese New Year red envelopes promotion, for gifting money to relatives, and City Services, a platform that allow users to manage things like a doctors appointments and handle utility bills via its chat app. This is likely why users are so angry, because many are so tied into WeChat's ecosysyem that there is very little they can do about it.<br /> Photo: Steven Depolo<br /> &nbsp;</p>
Small hedge fund rocks Citigroup big-time
Hedge Funds
<p>This week in unsupervised trading, a small British hedge fund – LNG Capital – plunged Citigroup into a panic after risk-control issues tied to the fund’s trades left the banking giant exposed to as much as $400 million in write-downs.</p> <p>As the Wall Street Journal reports:<br /> “LNG is a small fund, with about $150 million in assets. Most of its trades went through automated systems with infrequent human interaction on Citigroup’s part, the people said. On the dates LNG entered trades, Citigroup’s systems erroneously assigned higher than intended values to the bonds LNG held in its account, the people said.</p> <p>According to the people, the systems got tripped up by expecting buy and sell orders to settle together, effectively canceling each other out. Instead, with some of the trades, which went on through May and June, one leg actually didn’t settle for weeks. As a result, Citigroup inadvertently kept extending credit to LNG, allowing it to buy about five times the value of securities as would have been allowed under normal risk limits, even as risks mounted for the bank.”<br /> When the bank finally caught on to the problem, it was forced to demand around $400 million from LNG, an amount the tiny fund simply could not afford.</p> <p>It has since recouped all the cash though, and has added several more controls to prevent something similar from occurring.<br /> Photo: Herve Boinay</p>
Beware Asian high yield bond covenants
Capital Markets
<p>Moody's Investors Service reckons that the financial reporting covenants for Asian high-yield bonds are weak. It’s yet another red flag to the Fed as it mulls over its interest rate decision.</p> <p>"Currently, for the vast majority of Asian high-yield bonds, the company only needs to provide the trustee with financial reports after they are filed with the relevant stock exchange. Therefore, if a company fails to file such reports with the relevant exchange, there is no breach under the indenture," said Jake Avayou, a Moody's vice president and senior covenant officer, at the release of report this morning. (subscribers only)</p> <p>"By comparison, in the US, as a result of litigation, high-yield bond covenants expressly tie the delivery of financial reports to the filing deadlines of securities exchanges, while Asian covenants have not done the same and maintain ambiguous language that is not protective for bondholders," says Avayou.</p> <p>Investors beware.<br /> Photo: Rutger van Waveren</p>
Life on the London trading floor at Citigroup
Lifestyle, 4:01
<p>The epicentre of the investment bank is, of course, still the trading floor. This is the battleground where traders and salesmen and women return every day armed only with strong coffee, the Financial Times and the latest batch of analyst notes, to pit their skill and intellect against the capricious nemesis that are the financial markets – and hopefully win.</p> <p>Just at Citigroup’s London HQ, you will find more than 1,000 of these men and women working for the bank’s EMEA Markets and Securities Services (MSS) division which includes rates, commodities, credit, FX, equities, and investor services. All of the heads of division sit in London, except for credit, who based in New York.</p> <p>They sit across two expansive floors, with FX and rate traders and salespeople on one floor and credit and equities sitting cheek-to-cheek on the other. They work only for the bank’s institutional client base. Citigroup never had a proprietary trading desk in the same way as some of the other investment banks and so the commodity desk is less affected by the Volcker Rule than other banks.</p> <p>The boss of the division is Leonardo “call me Leo” Arduini, a Citigroup veteran who took over the role in March 2014 after being promoted from his previous position as head of EMEA investor sales. He has been with the bank for 21 years, covering many trading, sales and management roles.</p> <p>He became head of markets in Italy in 2010 and since then his career has been on the rise, clearly proving his salt in a challenging period. It certainly hasn’t gotten easier since he took the helm of EMEA Markets with heightened volatility in most financial markets, a result of geopolitical and economic uncertainty for the best part of 2015.</p> <p>In the bank’s third quarter until the end of September, Citigroup’s Markets division suffered an overall year-on-year 5% dip in revenue, with fixed income dragging on performance, down 16% to $2.6 billion from $3.06 billion in the same period in 2014.</p> <p>In addition, there has been the delicate matter of a global regulatory investigation into widespread foreign exchange rate manipulation, which Citigroup has been cooperating with.</p> <p>But challenging environments have become the new normal for banks and time will tell if Mr Arduini is up to the job to steer the US bank’s key EMEA trading operations in the right direction.</p> <p>A tour of Citigroup’s trading floors proves slightly disappointing for your correspondent, but not unexpected. No excitable and cryptic hand signals to execute a trade and no adrenaline-fuelled shouts of “buy” and “sell”.</p> <p>There are lots of screens with fast-moving red and green lines, but traders go about their business quietly and the only sounds are the low hum of the air conditioner and snippets of conversation.</p> <p>For a long time, the business of trading most markets – with the exception of the commodities exchange in Chicago – has not been a spectator sport, but there is an intense energy on these floors and the sense that there is a lot riding on the minute-by-minute actions of the people that work here.</p> <p>“The trading floor is not like it was 20 years ago, and with less liquidity because of a number of factors such as higher capital requirements, it is also much more difficult for a bank to make money,” says one insider. “Citigroup is in good shape because it has been hugely slimmed down after the crisis, but hasn’t pulled out of any markets or geographies as our </p>
Other losers from PBOC actions
Capital Markets
<p>The PBOC did more than cut key lending rates to stimulate China's economy. It also finally removed the regulatory cap on the deposit rates banks can offer savers. This means that alternative money market funds no longer enjoy an advantage over conventional bank providers.</p> <p>“It's well known that Baidu and Alibaba (along with others like Tencent) have substantial money market operations inside China. Similarly, it's well known that the uptake of these products has been driven by the pitifully low interest rates savers get at banks in that country. Today [October 23] the Chinese government announced its latest changes in interest rates, including the statement that they will now lift that regulatory cap on the interest rates that bank accounts can offer. This is obviously bad news for the strategic advantages of those money market funds,” writes Forbes’s Tim Worstall.<br /> Photo: keso s<br /> &nbsp;</p>
China rate cut good for economy, bad for banks
Capital Markets
<p>The PBOC’s 25 basis point (bp) cut in loan and deposit bank interest rates and a 50bp reduction in the RRR (required reserve ratio) immediately boosted Chinese stock prices. Markets expect this move -- the fifth so far this year -- to invigorate economic growth by releasing about Rmb750 billion of liquidity. </p> <p>But, there is a flip side. Barclays warns that bank earnings will come under increasing pressure.</p> <p>“The banking sector’s earnings growth has slowed to 2% in 1H15 on narrowing NIM [net interest margins] and higher credit charges. We see further pressure on NIM as well as earnings growth upon the rate cut and abundant liquidity in the banking system,” Barclays research team write in a note.</p> <p>“2009 was the last time China aggressively cut [rates] to stabilize the economy, and banking sector earnings dropped from 31% in 2008 to 15% in 2009. In addition, during this round of rate cuts which started from Nov 2014, sector profit growth slowed to 2% in 1H15 from 10% in 2014 on narrowing NIM as well as higher credit charges. With the recent loosening measures from the PBOC, we see further earnings pressure on China banks.”</p> <p>&nbsp;</p> <p>&nbsp;<br /> Photo: Stephen Chipp<br /> &nbsp;</p>
The world’s richest banked $8.7 billion last Friday
Lifestyle, 4:01
<p>The world’s richest did pretty well for themselves last Friday, banking $8.7 billion among themselves with Warren Buffett leading the pack with a $1.9 billion single-day win. As much as I like IKEA chief Ingvar Kamprad however, his $846 million loss that day kind of merits this Price is Right horn.</p> <p>Best day for the world's richest people ever? The top 9 averaged almost $1B each today. pic.twitter.com/WdJpDWvrCU<br /> — ForexLive (@ForexLive) October 23, 2015</p> <p>Let’s see how they do this week.<br /> Photo: OnInnovation</p>
The seven biggest lies told (and believed) about gold
Capital Markets
<p>It’s hard to say which lie about gold is the biggest whopper.</p> <p>Many widely held beliefs about gold are lies – propaganda hammered home to have us believe the only true measure of wealth is government-issued debt.</p> <p>Big Lie #1: Gold is a barbarous relic.</p> <p>Repeated for decades, this misquote of 20th century socialist economist John Maynard Keynes perpetuates a lie exploited as an almost biblical prophesy of gold’s demise.</p> <p>What Keynes actually wrote in 1923 was “the gold standard is already a barbarous relic.” Big-spender Keynes was advocating legislation to demolish gold’s restrictive power over government spending.</p> <p>While the classic gold standard (gold backing paper money) no longer officially exists, governments buy and sell gold around the clock.</p> <p>Their economic prestige is still measured by the tonnage of gold they claim to possess.</p> <p>What’s true is every individual holding gold has adopted his own personal gold standard. They disagree that gold – and the gold standard – are “barbarous relics.”</p> <p>Big Lie #2: Gold pays no interest.</p> <p>This silliest lie of all is meant to portray gold as lower class. But no wealth instrument pays interest until transferred to a counterparty. Gold handed to a counterparty does pay, but it’s not called “interest.” Central bankers know that calculation as the Gold Lease Rate (GLR), where gold serves as collateral to lower interest costs when borrowing dollars in “gold swaps.”</p> <p>Swaps and leases are often code for selling.</p> <p>What’s true is your dollars don’t pay interest at all, until you give away your controlling possession to a counterparty – like putting your cash in a bank or loaning it to a relative. And the interest you’re paid for taking such risk is heading to zero or negative.</p> <p>Big Lie #3: Gold will be confiscated, just as in 1933.</p> <p>This is the lie most useful to government because it has frightened so many away from gold. The “confiscation” was actually a paid-for expropriation, which outlawed “hoarding,” not owning, gold. Franklin Roosevelt left millions in gold legally in Americans’ hands. His order was largely ignored anyway.</p> <p>FDR’s aim was forcing Americans to recognize only fiat paper as money, because he couldn’t print gold for his government spending spree. President Gerald Ford reversed FDR’s order in 1974.</p> <p>What’s true is Washington has instead published plans to confiscate your cash in your bank accounts without notice.</p> <p>Big Lie #4: Gold is not money.</p> <p>History is littered with the carcasses of collapsed paper currencies, right up to today. In every instance, gold and silver stepped in to restore confidence as accepted and desired money.</p> <p>Across Asia, gold and silver are commonplace currencies. Utah and Texas have recently taken steps to legalize gold and silver as acceptable money. Other states, terrified of the Federal Reserve’s money printing and Washington’s reckless spending, are studying their examples.</p> <p>What’s true is gold and silver have been money for thousands of years, despite Ben Bernanke’s dishonest "gold is not money" testimony to Congress in 2011.</p> <p>Big Lie #5: Gold is useless in a crisis because merchants cannot make change.</p> <p>History shows in every paper money collapse, barter systems always emerge. Gold and silver make perfect barter, accepted by most, including merchants selling goods and services. And gold and silver are widely available in convenient fractional sizes.</p> <p>In a dollar collapse, yesterday’s price tags won’t matter, since prices won’t mean much in dollar terms. Customers holding gold and silver will determine their metal’s value an</p>