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What happens when public pension funds go activist?
Asset Management
<p>As activist investing continues to spread in popularity, we've begun seeing studies that attempt to gauge whether activism actually creates value for shareholders or not. Public pension funds are starting to get in on the action, now becoming a formidable force in the activist arena as Proxy Monitor found that this year nearly one-fifth of all the shareholder proposals brought to Fortune 250 companies were sponsored by them.</p> <p>Now there's a new study that looks at whether public pension fund activism makes a difference or not. As it turns out, their activism and even ownership to some degree is correlated with lower stock returns.<br /> Stock returns fall when public pension funds go activist<br /> University of Tennessee Professor Tracie Woidtke analyzed the stock returns of companies that became the activist targets of public pension funds between 2006 and 2014. The Manhattan Institute's Proxy Monitor published her report on the topic as a companion to the regular Proxy Monitor report, and interestingly, she found a correlation between shareholder proposal activism by public pension funds and lower stock returns.</p> <p>She examined Fortune 250 companies that were targeted by shareholder proposals from five of the biggest state and municipal pension funds and learned that, on average, the companies' stocks underperformed the S&amp;P 500 Index by 0.9% in the year after the vote on the proposals. Just five big state or municipal pension funds dominate shareholder proposals:</p> <p>Also the number of proposals introduced by those five funds has climbed steadily over the last few years:</p> <p>The public pension fund's activist involvement that had the biggest negative impact on stock prices was CalPERS. The Manhattan Institute warned that the sample sizes for CalPERS, CalSTRS and the Florida fund were probably too small. However, they did have a big enough sample for the the New York State Common Retirement Fund, which also had a huge negative impact on share prices. Woidtke found that companies targeted by that fund saw their stock prices decline by 7.3% compared to the broader market.</p> <p>Proposals on social issues not supported<br /> Perhaps the main reason the New York State Common Retirement Fund's activist campaigns had such a huge negative impact on its targeted impact is because it began to aggressively push out proposals on social issues like political spending starting in 2010. As you can see from the graph, political spending or lobbying made up the lion's share of the fund's proposals over the last decade:</p> <p>There's a marked difference in the strategy employed by the State fund and that used by New York City pension funds, which is more balanced:</p>
Billionaire buys two Manhattan condos
Lifestyle, 4:01
<p>&nbsp;</p> <p>Billionaire restaurateur Peter Morton has bought two condos in the West Village.</p> <p>Morton, who founded the Hard Rock Cafe and Morton's Steakhouse chains, spent $25.5 million on the two units on the 12th and 14th floors of 150 Charles St., reports the New York Daily News. Morton has been looking for a new pad since his $10 million Hamptons home burned down in March.</p> <p>Morton's new neighbors will include Jon Bon Jovi. The building sports a lap pool and hot tub, a gym, massage room, and  40,000-square-foot landscaped common area and private terraces.<br /> Photo: Michael Dorausch</p>
NY Fed president says interest rate rise still on for 2015
Capital Markets
<p>An interest rate rise is still, definitely maybe, coming this year, promises New York Fed president William Dudley.</p> <p>"Every meeting's a live meeting," Dudley said during a Wall Street Journal-hosted breakfast Monday. "Let's see what the information is [in October]," he said.</p> <p>But Dudley was reluctant to forecast when the rate rise will happen, or even what exactly the Fed is waiting for. "I don't think it's possible to say if 'X' happens then 'Y' will follow," he said, explaining that there are too many "X"s to take into consideration. As different economic issues come up, such as devaluation of the yuan or the strengthening of the dollar, the U.S. economic situation could change. "We want to assess [the uncertainty in emerging markets] not for itself but for how it effects the U.S. economy," said Dudley.</p> <p>The Fed isn't "chickening out" on raising rates either, said a defensive Dudley. "If things come along...we should change what we're going to do," he said. "The world is not a certain place."</p> <p>And everyone needs to take a chill pill, Dudley indicated. "I think there's an over emphasis on the first [interest rate] move." Once the first move happens, the focus will turn to the second, and then the third, he said. The markets shouldn't count on a "mechanical" approach to interest rates, such as a quarterly raise. The ideal approach to the economic policy is something between mechanical rules and discretionary policies, said Dudley. Rules, like the Taylor Rule, are "guidelines" that need the personal insight of economists before being implemented. And the Federal Reserve needs to communicate those choice carefully, to keep investors on board, he said.</p> <p>"We care about financial stability because of how it can disrupt" the macro economy, said Dudley.</p> <p>Basically, we're still waiting. And may be for a while.<br /> Photo: Michael Daddino</p>
Chicago business school alumni host Booth Night
Lifestyle, 4:01
<p>Alumni snap photos at #BoothNight15</p> <p>Business school graduates from Lima to Abu Dhabi gathered on September 17 in over 97 cities worldwide. Donning silly props and flashing #ChicagoBooth night placards, alumni flooded social media with photos from different geographical gatherings.</p> <p>More than 3000 alumni participated in the virtual get together known as Worldwide Booth Night. The tradition dates back to 2001, and has grown in numbers each year with the support of local Booth alumni chapters around the world.</p> <p>In London, alumni gathered TwoRuba Bar at the Hilton Hotel Tower Bridge. Members from the UK Booth Alumni chapter, which has over 1,000 members, attended the event. In the US, events were held in New York, Chicago, LA, and in more than 30 other cities.</p> <p>Another major cluster of graduates gathered in Dubai’s GQ Bar, hosted by alumni Rezwan Mirza ’99 and John van Zuylen ’10.</p> <p>It’s an opportunity for not only networking and talking finance, but also a pleasant atmosphere to kick back with old schoolmates and meet new alumni in your city.</p> <p>After Harvard, Booth School of Business is the oldest business school in the United States, and the first ever to offer an Executive MBA program. Famous alumni include James McKinsey, Founder of McKinsey &amp; Company, Jon Corzine, former CEO of Goldman Sachs and the former governor of New Jersey, Brady Dougan CEO of Credit Suisse, and Peter Peterson, Founder and Chairman of the Blackstone Group and former CEO of Lehman Brothers.</p> <p>It is one of the top-ranked schools in the United States, and as the photos show, graduates take their Booth experience to all corners of the world.</p> <p>&nbsp;</p> <p>Sailing with Boothies &amp; Booth alums on Venetian Night in Chicago! #BoothNight15 #ChicagoBooth<br /> A photo posted by Grace Ding (@gracie_ding) on Sep 12, 2015 at 5:50pm PDT</p> <p>A glimpse of the people and places that make up our worldwide community! #BoothNight15 #ChicagoBooth — Chicago Booth (@BoothFullTime) September 21, 2015</p>
Wild ride for leveraged biotech ETFs continues
Asset Management
<p>A week after presidential candidate Hillary Clinton made scathing comments about price gouging by the pharmaceuticals industry, biotechnology stocks and exchange-traded funds remain at the epicenter of what has rapidly become a precariously positioned healthcare sector.</p> <p>However, some bearish leveraged biotech ETFs, namely the Direxion Daily S&amp;P Biotech Bear 3X Shares (NYSE: LABD), are enjoying life in the fast lane.<br /> LABD's Recent Run<br /> After surging more than 30 percent, LABD is up another 15.7 percent at this writing Monday on volume that is already more than double the daily average.</p> <p>LABD underscores how quickly things can change for triple-leveraged ETFs and why the disclaimer that only active traders planning to hold these funds for just a few days should use these products, not buy-and-hold investors, is so often repeated.</p> <p>Read more at Benzinga. <br /> Photo: United States Mission Geneva</p>
Video: Carl Icahn - cabana boy from Brooklyn dishes on the next market meltdown
Hedge Funds
<p>With all the bearishness currently embedded in the markets, I thought it was best to revisit Carl Icahn's Wall Street Week interview from May. Aside from talking about his background, he lays out all his worries about the market, from earnings to high yield bonds, adding that he was "very hedged" back then. Check it out.</p>
HKMA rejects criticism of its approach to Fintech
<p>Fintech entrepreneurs are not shy about criticizing Hong Kong for a perceived Luddite attitude to their innovative products and services. At the Cyberport and NexChange Fintech O-2-O Meet up last week, panelists and delegates compared the city’s regulators unfavorably to their more accommodating counterparts in the US, UK and even usually cautious Singapore.</p> <p>Well, on Friday the Hong Kong Monetary Authority (HKMA) hit back at its detractors.</p> <p>Speaking at the Hong Kong Institute of Bankers conference, Arthur Yuen, deputy chief executive, insisted that the HKMA welcomed fintech development, recognizing that it intensified competition in the financial service industry and empowered customers, reports  AsianInvestor.</p> <p>It was the first time for a while that the regulator had clarified its stance on an industry that attracted more than $12 billion of investment in startups last year.</p> <p>He rejected criticism that conservative restrictions inhibited fintech companies in Hong Kong, and argued that although it wants to ensure consumer protection HKMA does not want to stifle innovation.</p> <p>“We want to be technology-neutral,” and allow banks to adopt new technology while retaining safeguards for customers, he said.</p> <p>However, perhaps a little ambiguously, Yuen added that “the same customer protection requirement will more or less remain relevant regardless of the channel used to deliver it,” he said. </p> <p>He is most concerned about new entrants and whether the regulatory framework is sufficiently robust to supervise and the public sophisticated enough to understand the risks.<br /> Photo: Martin Ng<br /> &nbsp;</p>
Is China “fixed”? Short answer: Financial markets say no
Capital Markets
<p>The rally in stocks off of the August low has in some respects alleviated worst case fears about the fate of the Chinese economy. After all, in hindsight it is pretty clear that the selloff was driven by a simultaneous rerating of Chinese growth expectations by market participants combined with the possibility of higher short rates in the US to boot. These fears resulted in vast under performance of growth sensitive asset prices throughout the correction and then a sharp rally in those assets in the days following its terminus.</p> <p>Yet, when viewing the financial markets as a discounting mechanism in which prices represent the probabilistic outcome of future events, the path of asset prices since the August low has not convinced us that China is indeed “fixed”. If the prospects for Chinese growth had improved we would expect to see those better expectations represented by higher prices in things like copper and oil, and outperformance of growth sensitive sectors of the stock market like materials, industrials and energy.</p> <p>Instead, we’ve seen exactly the opposite. After a very brief (8-11 day) rally in Brent crude oil and copper, Brent is below its price of three weeks ago and copper is just three pennies away from taking out its August low to make a new cycle low (charts 1 and 2).</p> <p>Emerging market stocks in the energy, materials, and industrials sectors have followed a similar path in that they rallied for 19 days following their August low and have since turned right back around and are either at new cycle lows or are testing that August low (charts 3-5).</p> <p>But developed market stocks in those sectors rallied for an even shorter period of time and then fared even worse after the initial bounce. The DM materials and industrials sectors have already breached their August lows and the energy sector is within just a few percent of that important low (charts 6-8).</p> <p>If we are to take the market’s discounting at face value then the conclusion that China is not “fixed” is as clear as day. In contrast, the financial markets are telling us that the outlook for cyclical areas of the economy – those most closely linked to Chinese economic growth – has deteriorated. Such a scenario could keep a lid on interest rates as well as keep a relative bid under the less cyclical areas of the stock market.</p>
Silicon Valley's week of schmoozing with Asian leaders
Venture Capital
<p>Last week we saw a who's who of Silicon Valley rub shoulders with two of Asia's biggest leaders: Indian Prime Minister Narendra Modi and Chinese President Xi Jinping. Here we summarize the two visits and how they reflect on Silicon Valley's evolving ties with Asia.</p> <p>China </p> <p>Xi decided to  kick off his trip to the US last week by meeting with 28 top tech executives. Among them was Apple's Tim Cook, Facebook's Mark Zuckerburg, Microsoft's Satya Nadella, and's Jeff Bezos.</p> <p>The meeting - which actually took place in Seattle - was awkward at best. CEOs hoping to talk with the Chinese leader on such pressing issues as cyber attacks and the theft of intellectual property by Chinese companies instead got a brief address and a photo op.</p> <p>There were some brief moments of light relief: Zuckerberg's exchange with Xi in Mandarin, and the Xi's frequent - if somewhat cheesy- references to US popular culture.</p> <p>The most significant development were a series of proposed tech alliances. Among them was an agreement by search engine  Baidu to promote Window 10 to its users if Microsoft made Baidu the default search engine for operating system's China release.</p> <p>Also ride-hailing app Didi Kuaidi -  which recently backed US counterpart Lyft - agreed to a tie-up with social network LinkedIn to develop artificial intelligence solutions.</p> <p>India</p> <p>Unlike his Chinese counterpart, the Indian prime minister went to meet with US tech leaders in their home turf for a two-day tour where he had a much warmer reception.</p> <p>The highlight was Modi's teary one-on-one chat with Zuckerberg at Facebook's campus. Modi, who is one of the world's most popular political leaders on social media, spoke of his commitment to his "Digital India" agenda, which Zuckerberg also pledged to support.</p> <p>He then went on to Google's headquarters where he met with the firm's India-born CEO Sundar Pichai. The visit coincided with Google's announcement that it would bring wireless to 500 Indian railway stations.</p> <p>But perhaps the biggest score following Modi's trip was Qualcomm Ventures - the investment arm of the US chipmaker - revealing its $150 million India-focused venture capital fund for startups in the mobile and internet-of-everything (IoE) ecosystem.</p>
The Sino-American codependency trap
Capital Markets
<p>Increasingly reliant on each other for sustainable economic growth, the United States and China have fallen into a classic codependency trap, bristling at changes in the rules of engagement. The symptoms of this insidious pathology were on clear display during Chinese President Xi Jinping’s recent visit to America. Little was accomplished, and the path ahead remains treacherous.<br /> Codependency between America and China was born in the late 1970s, when the US was in the grips of wrenching stagflation, and the Chinese economy was in shambles following the Cultural Revolution. Both countries needed new recipes for revival and growth, and turned to each other in a marriage of convenience. China provided cheap goods that enabled income-constrained American consumers to make ends meet, and the US provided the external demand that underpinned Deng Xiaoping’s export-led growth strategy.</p> <p>Over the years, this arrangement morphed into a deeper relationship. Lacking in saving and wanting to grow, the US relied increasingly on China’s vast reservoir of surplus saving to make ends meet. Anchoring its currency to the dollar, the Chinese built up a huge stake in US Treasuries, which helped America fund record budget deficits.<br /> Click here to read more<br /> This story first appeared in Advisor Perspectives.</p> <p>Photo:</p>