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Daily Scan: Beware stock options expiration day; dark horse candidates pose fund raising challenge to incumbents
Capital Markets
<p>October 16</p> <p>Good morning everyone. Stock options expire today in the U.S. Watch out. For the past eight expirations, markets rallied the day before (ahem) and then tanked on expiration day. But for now, stocks are up a bit, with the Dow, Nasdaq, and S&amp;P 500 all adding 0.1%. Which makes us think of the Presidential primary election. What should we make of the fund-raising data just released? Ben Carson, the retired neurosurgeon gunning for the GOP nod, raised $20 million in the third quarter vs. $12 million for establishment candidate Senator Ted Cruz of Texas.  Favorite Jeb Bush? The former Florida governor took in just $11.4 million (though he raised tons in the summer). And Democratic frontrunner Hillary Clinton barely out-raised rival Bernie Sanders, the Vermont senator: $29.9 million vs $26.2 million.</p> <p>&nbsp;</p> <p>Here’s what else you need to know:</p> <p>U.S. industrial production drops. Industrial production fell in September for the second straight month, dropping 0.2%, as expected. The August decline was revised to a 0.1% fall. CNBC</p> <p>JOLTS report shows job openings down. The quits rate has held steady at 1.9% for the fifth consecutive month. Job openings in August were at 5.6 million, down from the adjusted 5.67 million in July. Business Insider</p> <p>GE surprises with better-than-expected earnings. Boosted by better aviation and transportation earnings, General Electric reported a profit of $2.51 billion, or 25 cents a share, last quarter. Excluding the finance business, which GE is moving to cut, the company had revenue of $27.9 billion, on a profit of 29 cents a share. Wall Street Journal</p> <p>Theranos backs away from much vaunted "nanotainer" tests. After an inspection by the Federal Drug Administration, the hot startup (company valuation $9 billion) is now able to use the assay to test just one condition -- not the 100 originally publicized. Wall Street Journal (exclusive, paywall)</p> <p>Roaring week for Chinese stocks. The Shanghai Composite notched gains fo 6.13% and the Shenzhen 7.66% on the back of  stimulus hopes both in China and in Japan. The Hang Seng hung back a bit, nudging 0.69% higher and the Nikkei 225 rose 3.14%. Hooray for stimulus.</p> <p>Since June, asset classes in synch for first time in 20 years. And that's not good. Robeco Investment Solutions show that gold, real estate, stocks, high yield bonds, stocks are all in the tank. Usually different asset classes hedge one another. MarketWatch</p> <p>Yuan heads to weekly low. With the PBOC fixing the yuan’s midpoint down 0.05% to 6.3436, both onshore (CNY) and offshore (CNH) yuan are heading to their weekly lows. CNY touched 6.3555 against the greenback today, just as the CNH dipped to 6.3583. </p>
Raj Rajaratnam sued by brother Rengan
Hedge Funds
<p>Raj Rajaratnam is not a happy man. Not only does he still have nine years left on his prison sentence, but apparently, he’s having family problems as well.</p> <p>According to Reuters, the once high-flying Galleon chief was recently sued by his younger brother Rengan, who claims that Raj, as well as Galleon, owe him over $13 million in unpaid performance fees and legal costs.</p> <p>Rengan, who was cleared of insider trading charges following his brother’s conviction, alleges that Galleon failed to pay him his 10% share on the $83 million he made for the fund back in 2009, and not only that, he also claims the fund stiffed him for up to $1 million over his stock recommendations, among other things:<br /> “He said Galleon also wrongly did not pay him up to $1 million for telecommunications stock recommendations he made in his other role as an analyst, and also failed to advance his legal fees and costs during the insider trading case.</p> <p>As a result, Rengan Rajaratnam said he had to pay $2 million in legal fees out-of-pocket and may owe another $2 million. Galleon also failed to help cover any of the $840,000 civil settlement he reached with the U.S. Securities and Exchange Commission after his acquittal, the lawsuit said.”<br /> Raj, who recently had an awkward reunion with Rajat Gupta in Ayer, probably isn’t too pleased about this.<br /> Photo: Marc Treble</p>
Founders, investors gather in Hong Kong to share past failures
<p>Learning and growing from one's past failures is a core part of startup culture and this week a group of founders will gather in Hong Kong to observe that tradition at the 2nd annual Postmortem conference.</p> <p>The event will be held at KPMG's Causeway Bay office at Hysan Place and will feature a line-up of HK's best startup founders, investors and mentors sharing their personal failures, pivots, regrets, and mea culpas. Confirmed speakers at the event include:</p> <p> Deepak Madnani, Paperclip<br /> Daniel Walker, Dragon Law<br /> Christopher Geary, Asianet Group<br /> Elsa Chan, Jetlun<br /> Andrea Livotto, Perpetu<br /> Sam Gellman, Uber<br /> Jeffrey Broer, Grayscale<br /> Donna NguyenPhuoc, Angel investor</p> <p>The event starts tomorrow (October 17) but a handful of tickets are still available.<br /> Photo: Steve Jurvetson<br /> &nbsp;</p> <p>&nbsp;</p>
Mega rounds keep rolling in amid IPO slump
Venture Capital
<p>It be might a lousy exit market right now but the big VC deals have still been coming through thick and fast these past three months with 68 startups globally each raising $100 million or more, according to a new report.</p> <p>The joint report by KPMG and CB Insights reveals there have been 170 of these so-called mega rounds for the first nine months of the year raising an aggregate $19 billion. In total VC-backed startups raised $37.6 billion worldwide during the three months and $98.4 billion for the year so far, already exceeding the 2014’s $88.7 billion total.  </p> <p>Asian mega deals in particular tipped the scales for the third quarter, with massive investments into the likes of Didi Kuaidi,, One97 Communication and Eleme. The top five deals in Asia accounted for $5.3 billion, or 39% of fundraising in the region. </p> <p>But the report also shows that while there are more late stage deals, there are fewer IPO exits than previous years, exacerbated by the fact that China suspended IPOs once again in July. The number of late-stage investments has affected the availability of cash for seed-stage investments. Despite more funds investing at the seed stage, seed investments have dropped to a five-quarter low of 28%, globally. </p> <p>In the short term at least it seems the gigantic late stage deals will continue to spur the rise of the unicorns - startups valued at $1 billion or more. There were 23 new unicorns in the quarter: 17 in the US, 3 in Asia and 3 in Europe.<br /> Photo: Maxwell Hamilton</p>
Can blockchain tech revolutionise IP and digital content ?
<p>When people talk about blockchain technology they invariably talk about bitcoin, but its applications go far beyond cryptocurrency. There is now a community of startups that are looking at how blockchain can be used to protect digital content and intellectual property.</p> <p>In a nutshell: just as blockchain is used as a virtual decentralised ledger to track bitcoin transactions, it can also be used as a tool to track the rights and transactions attached to all manner of digital creative works from music to artwork.</p> <p>To this end there are now platforms like Ethereum coming into existence that use blockchain tech to issue smart contracts: decentralised computer protocols used to verify contractual agreements. There is now an ecosystem of companies being built around platforms like Ethereum that focus on IP solutions and other alternative blockchain applications. </p> <p>Many of the leading lights of this nascent industry gathered at the "Smart Contracts for Smart Cities" conference in Hong Kong’s Cyberport this week to share their views in the future of blockchain technology. Trent McConaghy – the founder of Ascribe, a digital IP platform – is one of the people looking to solve the issues surrounding IP and digital content on the internet, he said:<br /> “A fundamental challenge of the internet is that if you are a creator you are getting a raw deal. When you put your stuff on the internet you are probably not going to get paid, or at best you are only getting a fraction of its value. Ads are a horrible solution to monetization.”<br /> A similar frustration was expressed by Juan Benet, the creator of  InterPlanetary File System (IPFS), a type of peer-to-peer protocol. Benet explains that blockchain and timestamping services can be used to create an auditable trail of content ownership from creation through to the transfer of rights and beyond.  He added that the democratization of the process could also address some imbalances in the patent system:<br /> “Currently the patent system in software is pretty broken, it allows for a lot of things that shouldn't be allowed as patents and excludes others things that should be. It is a very tricky situation when you have these massive companies  amassing these huge portfolios and only they get to wield patents.”<br /> Photo: Mattwalker69</p>
People Moves: Credit Suisse strengthens China research team; HSBC to relocate bankers to HK
Capital Markets
<p>Credit Suisse bolsters A-share research team. Li Chen, an Institutional Investor-ranked portfolio strategist, is among the six new hires Credit Suisse made to bolster it’s A-shares research team.</p> <p>Prior to joining Credit Suisse, Li spent five years at UBS, serving various key roles including head of China equity strategy. Before that, he was head of research for one of China’s largest mutual funds, the Harvest Fund. He will report to Vincent Chan, Credit Suisse’s head of China research, and he will continue to be based in Hong Kong. Finance Asia</p> <p>HSBC bankers move to Hong Kong. Agustin Gargallo, a New York-based director for HSBC’s emerging markets debt syndicate, is set to relocate to Hong Kong amid a massive reshuffle within the British firm’s debt syndicate unit. Also set to head to Hong Kong is Alison Chan, a London-based associate within the bank’s EMEA corporate and structured syndicate team.</p> <p>The two of them seem to have spent most of their careers at HSBC, although Gargallo joined the firm following a two-year stint at Goldman Sachs Asset Management. They will both report to Carla Goudge, head of debt syndicate, Asia Pacific. Reuters</p> <p>For Asset Management moves, click here.</p> <p>Photo: Wendy</p>
People Moves: JPAM CIO relocates to HK; Manulife AM adds CFO, CMO
Asset Management
<p>Carlyle names Southeast Asia chief. Sunil Kaul, a 30-year veteran of private equity and banking scene, has been appointed head of Southeast Asia of the Carlyle Asia buyout advisory team. Greg Zeluck, Managing Director and Co-Head of the Carlyle Asia buyout advisory team, had this to say:<br /> “Sunil is a Carlyle veteran with a wealth of experience in the private equity and financial services industries. With his deep industry expertise and strong networks, Sunil has significantly contributed to the success of many of our investments in Asia over the last seven years. In this newly created role, Sunil will lead our investment advisory activities in Southeast Asia as we continue to see great opportunities in this fast-growing region.”<br /> Before joining Carlyle in 2008, Kaul was president of Citibank Japan, a role he served concurrently with his chairmanship of Citi's credit card and consumer finance companies in Japan. He was also a member of the banking giant’s Global Management Committee and Global Consumer Planning Group. Carlyle</p> <p>JP Morgan AM CIO returns to Hong Kong. Richard Titherington, JP Morgan Asset Management’s London-based CIO for emerging market equities, will be returning to Hong Kong to lead the U.S. investment firm’s newly-merged emerging markets and Asia Pacific equity team. Titherington, who previously spent 14 years in the region, seems to be pretty stoked on the move:<br /> “For me, this move feels like coming home and I couldn’t be more pleased. The firm has a long and proud history in the region, backed by a very strong group of investment professionals. I am honoured to have been entrusted with this role and am very excited about the prospects for our team.”<br /> Despite the move, he will remain as portfolio manager for his UK and Luxembourg-domiciled portfolios. AsiaAssetManagement</p> <p>Manulife AM adds two key hires. Frederick Reidenbach, an old hand in the Japanese asset management space, has been named chief financial officer, wealth and asset management, Asia by Manulife Asset Management. Joining him at the firm will be Grace Ho, a ten-year veteran of the financial services marketing arena. She’ll be serving the firm as its chief marketing officer, wealth and asset management, Asia.</p> <p>Prior to joining Manulife, Reidenbach spent 10 years at Nikko Asset Management in Japan, working in various capacities including a dual role of CFO and COO. Ho meanwhile was the previous head of marketing, Asia Pacific for Schroders. Before that, she spent two years at JP Morgan as a VP in marketing following a four-year stint at AIG in a similar role. They will both be based in Hong Kong. FundSelectorAsia</p> <p>For Capital Markets moves, click here.<br /> Photo: Luke Ma</p>
Activist funds tank; down 10.3% in quarter 3; now -8.1% ytd
Hedge Funds
<p>Managed futures and quantitative equity funds excelled while activists’ pain continued.</p> <p>The hedge fund industry produced an aggregate return of -1.20% in September, dropping YTD returns further into negative territory for 2015, -2.35%. The industry’s last annual decline was 2011 when average returns were -4.99% and the S&amp;P rose +2.11%.</p> <p>For many in the hedge fund industry, 2015 is shaping up as the worst year since 2011, if not since 2008. One primary difference between 2015 and 2011 is many major markets produced positive returns in 2011, more so on the credit side, and the hedge fund industry was generally perceived to have lagged significantly. In 2015 the industry is mostly outperforming equity, multi-asset, commodity and regional/country specific indices.</p> <p>Systematic strategies performed well during September's global volatility<br /> Systematic, or quantitative strategies performed well during September’s global volatility. Most interesting was the performance of those focused on equity markets, given declines seen following the US Fed meeting mid-month. Quantitative equity strategies returned an average of 0.58% in September and were down only slightly in Q3, -0.39%, while the S&amp;P 500 and MSCI were -6.44% and -8.45% in Q3, respectively.</p> <p>After four down months in the last five, managed futures funds, heavily populated with systematic strategies, gained +1.01% in September, ending Q3 only -0.26%. The difference between large and smaller managed futures funds has been significant in 2015. Those with greater than $1 billion in AUM entering 2015 returned an average of +2.53% in September, +3.62% in Q3 and +4.40% YTD, while their smaller peers returned +0.80%. -0.54% and -1.59% in the same periods.</p> <p>Through the end of Q3, event driven returns are on pace for their worst year since 2008, having eclipsed 2011 losses of -3.90%. Event driven funds fell an additional -2.53% in September, bringing YTD returns to -4.15%. The group declined -20.48% in 2008, but bounced back with +30.35% in 2009 and +11.78% in 2010.</p> <p>Activist fund returns decline<br /> Activist fund returns have been increasingly negative in each of the last four months, having declined an average of -10.92% during this stretch. Losses in September of -5.06% are the largest since September 2011. Activist funds went on to return -4.26% in 2011, followed by 14% in 2012 and 20% in 2013.</p> <p>Credit strategies posted their fourth consecutive aggregate decline in September, with losses accelerating in each of the last two months. In the last twelve months, credit funds have declined -3.82% and experienced nine monthly declines. Larger funds continue to mitigate losses more effectively than their smaller peers, returning -2.60% in Q3 and -1.00% YTD compared to -3.34% and -2.64%, respectively. However, the securitized sector continues to be a standout in 2015.</p>
Millennials expect highest salaries in Australia, Emirates and US, according to survey
The results are in for the “cost of talent 2015” survey. The detailed report shows current trends in competitive wages across the globe for the next generation of employees, writes FinBuzz. The survey was conducted by Universum, a company engaged in employer branding and research. The data shows an abysmal gap between the salary expectations of the graduates in different
Gaps, growth and headwinds
Capital Markets
<p>Low rates and oil price fall are responses to output discrepancy</p> <p>Global growth is uninspiring. The global economy plods along with aggregate GDP growth of around 3 per cent to 3.5 per cent and similar levels of inflation. This has been true for the past several years and many expect it to continue for at least the next couple. This is partly because trend growth rates in major economies appear to have slowed from the pre-crisis pace. But slow growth is not just a supply-side condition. A gap between global aggregate demand and supply for goods and services persists, even though global interest rates - nominal and real, short and long maturity - remain at historic lows.</p> <p>Earlier this year, with oil prices falling, the global economy appeared poised to accelerate. While low oil prices represent a transfer of income from oil exporters to importers, conventional macroeconomic models predict they should boost global aggregate demand as long as the propensity to consume and invest by the importers exceeds the corresponding propensities by the exporters. Moreover, by reducing headline inflation, low oil prices provide central banks with room to ease monetary policy.</p> <p>This year, no fewer than 40 central banks have taken that opportunity, while among the major economies only three - Brazil, South Africa and the Philippines - have raised rates. In addition, the European Central Bank has embarked on a major quantitative easing programme, while the Bank of Japan has doubled down and greatly expanded the quantitative and qualitative easing programme it launched in 2013.</p> <p>And yet despite low oil prices, waves of QE and rate reductions by many central banks, world GDP growth in 2015 is expected to come in at a pedestrian 3 per cent, even though one year ago, when little of the stimulus from oil, rates and QE was factored in, the consensus projection for growth was 3.6 per cent. The same is true for the 2016 outlook: a year ago the consensus for 2016 was for 3.8 per cent growth, but now has been marked down to 3.5 per cent. And if history is any guide, it may only be a matter of time before the incoming data for 2016 again disappoint the more optimistic consensus from the prior year.</p> <p>So why isn’t growth accelerating? The simple answer is that falling oil prices, low interest rates and monetary accommodation are not random windfalls, but are instead responses to an excess of global supply relative to global aggregate demand.</p> <p>The decline in expectation for future productivity growth is a major source of the “new mediocre” of sluggish global demand falling short of ample global supply. The connection is as follows. Decisions by households and firms to invest or consume today depend in part on expectations for future income or profit growth, which in turn will be tied to future productivity growth. If workers expect modest or no pay increase in the future and firms scale back their views of future profits, they cut back today on consumption and investment.</p> <p>According to classical economics, the price level, bond yields, stock prices, exchange rates and commodity prices in theory should adjust even in a low productivity growth world to clear global markets at full employment. However, since Keynes, we have understood that the mechanism can break down, and when it does the global economy clears at a level of aggregate demand that falls short of supply. Monetary policy has adjusted to this reality. Monetary accommodation has boosted stock prices despite reduced prospects for productivity growth, while exchange rates reflect divergences - actual and prospective - among these accommodative national monetary policies.</p> <p>Yet while growth in demand has been dis</p>