The Private Equity Top 10: The End Of The Road

Mike Lucas for Dow Jones

We’ve picked our top 10 private equity stories of 2009, and have been running our selections for the past couple weeks on this blog. If you missed the rest of the list, just check the end of this post for a roundup.

Today, we’ve reached number one: desperately seeking liquidity.

This topic came in at number two in our top 10 stories of last year, but this year we are bumping it up one notch. Despite recoveries in public stock markets that have lessened the urgency of liquidity problems for private equity investors of late, we think the full-on panic limited partners went through early this year will continue to influence their decisions on how, where and when to invest for a long while to come.

The institutions that are at the heart of the private equity asset class universally ran into liquidity problems worse than they had imagined could exist early this year. As stock markets declined, and cash flowing back to their portfolio from their alternative investments diminished to near zero, there was the very real fear that these institutions - foundations, endowments, pension funds and others - would literally not be able to meet their capital obligations to funds.

That fear was heightened by a few well-publicized instances of trouble - Lehman Brothers’ estate, for instance, defaulted on some capital calls, while fund of funds HRJ Capital sought to shore up its balance sheet by being acquired by Capital Dynamics. The problems at listed fund of funds Candover Investments ultimately led to the winddown of its primary investment, Candover Partners’ latest fund.

As the stock markets began their recovery in the second quarter, the fear of widespread defaults decreased, but LPs are still pondering the lessons learned about the dangers of illiquidity. MSCI Barra found in December 2009 that 59% of respondents to a survey now rate liquidity risk as being important.

The new emphasis on this is already playing out in multiple ways. You can see it in the fund size cuts that took place throughout 2009, and may continue in 2010. You can see it in the increased power that LPs have gained in negotiations over fund terms and conditions, like management fees and carried interest. You can see it, too, in the lockdown on private equity commitments that many LPs put into place and are only now considering lifting.

We think it’ll continue to have an impact down the road in other ways, as well. As to how, one idea surfaces in the minutes of a fall Washington State Investment Board meeting, in which board members discuss asset allocation. Results of a risk philosophy study carried out earlier in the year indicated that WSIB, one of the biggest private equity investors, should cut its allocation to private markets by 5%. (The pension fund has taken no action to cut its private equity allocation.)

Previously:
Numbers two and three: problems in venture and the pay-to-play scandal
Number four: Mr. Heesen goes to Washington
Number five: the return of risk
Number six: dealing with debt
Number seven: secondary market fail
Number eight: the return of IPOs, sort of
Number nine: the European equation
Number ten: BRIC is back


The Weather According to Economic Forecasters: Sunny!

And now, the weather report. Sunny ...

That's the weather.

Our next weather report will be in 3  days. Thank you.
   - L.A. Story (1991)

I wish I lived in the economic world of forecasters. It is smoother, less prone to crashes, and generally more stable and pleasingly growing all the time. Of course, economic forecasters are hardly ever correct, as this graph shows, but worrying about precision in the face of such an aesthetically pleasing consensus forecasting curve seems unfair.

economists

[via James Montier]


Monday links: a mixed bag

December was a mixed bag of performance for the major asset classes, mainly because fixed-income was weak.”  (Capital Spectator)

Mark Hulbert, “Basing a trading strategy on the market’s performance over the first five days of January can be dangerous to your wealth.”  (Marketwatch also MarketBeat)

Can the market rally without the financials?  (Bespoke)

Ten blasphemous trade ideas for 2010.  (Clusterstock)

A look back at the VIX and volatility in 2009.  (VIX and More)

Hedge funds turned things around in 2009.  (WSJ, The Deal)

Hedge fund replicators just keep on coming.  (InvestmentNews)

German bonds trade as if it were a safe haven.  Is it really?  (WSJ)

Selling covered calls in 2010.  (Options for Rookies)

A field guide to market bears.  (The Reformed Broker)

Gold wasn’t all that in 2009.  (The Money Game)

Investors:  think for yourself.  (Jeff Matthews)

On the dangers of economic optimism.  (Atlantic Business)

Is Chairman Bernanke in denial on the role of the Fed in the credit crisis?  (WashingtonPost, Big Picture, Baseline Scenario, 24/7 Wall St., Crossing Wall Street)

The lesson of California is that a political system too dysfunctional to avert crisis is also too dysfunctional to respond to it.”  (Ezra Klein)

On the dangers of overestimating self-control or the “restraint bias.”  (The Frontal Cortex)

Google Chrome has edged into third place in browser use.  (The Big Money)

How to get from here to there.  Mapping your goals and the plans to achieve them.  (Kirk Report)

There is a difference between linking and approval.  (Daily Dish)

Abnormal Returns is a proud member of the StockTwits Network.


Super Bowl Ads: Only Three Left!

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Despite the media slump that's been running alongside the worldwide recession, CBS (CBS) isn't having any trouble moving ad space for the Super Bowl.

The event is still more than a month from now, but the network reports having only a few commercial slots left for the big game. In fact, 95% of its 62 slots have moved, even with two of the most committed Super Bowl advertisers -- Pepsi (PEP) and General Motors (GRM) -- bowing out of the action. The first half is already sold out completely.

Continue reading Super Bowl Ads: Only Three Left!

Super Bowl Ads: Only Three Left! originally appeared on BloggingStocks on Mon, 04 Jan 2010 13:00:00 EST. Please see our terms for use of feeds.

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CVS, Walgreen: Pull-Backs Are Buy Opportunities

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I'm reiterating my buy ratings the nation's two premier drug store chains: CVS Caremark (CVS), first recommended on February 16, 2009, at a price of $27.30; and Walgreen (WAG), first recommended on February 17, 2009, at a price of $25.46. If you bought CVS in February, you're up 25%; WAG, up about 40%.

As expected, each has performed well on increased store traffic stemming from the H1N1 flu virus (trips to purchase hand sanitizers, other disinfecting items, and flu symptom comforts), which has offset reduced traffic for other drug store trips, due to the U.S. recession.

Continue reading CVS, Walgreen: Pull-Backs Are Buy Opportunities

CVS, Walgreen: Pull-Backs Are Buy Opportunities originally appeared on BloggingStocks on Mon, 04 Jan 2010 12:45:00 EST. Please see our terms for use of feeds.

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Kraft Adds More Cash for Cadbury Bid

Kraft revised its offer for Cadbury ahead of regulatory deadline in less than two weeks. The offer of $16 billion has 20% more cash than the previous offer but is still at least 5% below the price that most investors are seeking. Kraft sold its frozen pizza division to Nestle for $3.7 billion.

Ben Bernanke: Weak Regulation Caused Economic Crisis

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Big Ben Bernanke is letting his opinions be known early in 2010, and he is pointing the finger of blame for the economic crisis right at weak regulation. Bernanke is waiting for confirmation of his second term as Fed chair and he is looking for greater regulatory authority from Congress.

Bernanke told the American Economic Association that "Stronger regulation and supervision aimed at problems with underwriting practices and lenders' risk management would have been a more effective and surgical approach to constraining the housing bubble than a general increase in interest rates." This statement was part of Bernanke's response to accusations that the Fed was a major contributor to the financial crisis. The Fed head believes that the interest rates set by the Federal Reserve from 2002 to 2006 were appropriate.

Continue reading Ben Bernanke: Weak Regulation Caused Economic Crisis

Ben Bernanke: Weak Regulation Caused Economic Crisis originally appeared on BloggingStocks on Mon, 04 Jan 2010 12:30:00 EST. Please see our terms for use of feeds.

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Deference, Dubai style

From Bloomberg on Monday afternoon:

Dubai’s Sheikh Mohammed bin Rashid Al Maktoum opened the world’s tallest tower today and renamed the building Burj Khalifa after Sheikh Khalifa bin Zayed Al Nahyan, president of the United Arab Emirates.

Sheikh Khalifa bin Zayed Al Nahyan is also the ruler of Abu Dhabi,...

The Tablet PC Market Won’t Materialize — Except for Apple

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The first part of every year is marked by tradeshows and product releases. For the gadget crowd (that is, most Americans), all the cool products are announced sometime in January and released sometime in the year.

Although consumer electronics giant Apple (AAPL) will not confirm that it's planning to announce a tablet-like computer at the CES tradeshow, many other companies that believe they compete with Apple are expected to have their own versions of a tablet ready to leap off PowerPoint screens soon.

Continue reading The Tablet PC Market Won't Materialize -- Except for Apple

The Tablet PC Market Won't Materialize -- Except for Apple originally appeared on BloggingStocks on Mon, 04 Jan 2010 12:15:00 EST. Please see our terms for use of feeds.

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Nov. Chip Sales Up 3.7% From October; Up 8.5% Vs. Last Year

Worldwide semiconductor sales rose to $22.6 billion in November, up 3.7% from October and 8.5% above the same month last year, according to new data from the Semiconductor Industry Association.

Sales for the first 11 months of 2009 were $202.1 billion, down 13.2% from a year ago.

It was the first month in 2009 with a year-over-year gain. In statement, SIA President George Scalise said that 2009 ended “with sales of many IT and consumer products faring better than earlier projections.”

Scalise noted that PC sales continue to strengthen, “and appear to signal the beginning of recovery of demand from the business sector.” He said 2009 handset units now appear about even with 2008 levels. LCD TV units were up 25%-30% in units in 2009.

November was the ninth straight month of sequentially higher chip sales.

Anyone Seen the IBD Congrats to Obama?

Back on March 4, 2009, right-leaning IBD — among many right-wing organs trying to hang the stock market’s collapse around President Obama’s neck — wrote an editorial titled “Dissing the Market” which was, predictably, critical of some comments Obama had made about the stock market being “sort of like a tracking poll in politics.”

Obama also said at the time that “…what you’re seeing now is profit and earning ratios are starting to get to the point where buying stocks is potentially a good deal, if you have a long-term perspective on it.”

Said IBD:

If the market follows through on its strong action Wednesday, his call — that stocks are a “good deal” — may be one for the record books: He will have nailed the bottom, and we’ll be the first to congratulate — and thank — him.

Well, we know the market bottomed within one week, has bounced 60+% off the lows, and finished (S&P500) up 23.5% for the year.

So, not being an IBD reader, I’ll throw this one out to the crowd: Has anyone seen their “congratulations” and “thanks”?

Anyone? Seriously. Anyone? Bueller?

(I’d be remiss if I didn’t point out that IBD, in the same editorial, wrote that we were in the 17th month of a “savage bear market” with “no end in sight.” It now appears the end was less than a week away but that IBD couldn’t see it due either to ideology or incompetence. That’s the risk you run being an ideologue.)

>

Previously:
Michael Boskin on “The Obama Crash” (December 7th, 2009
http://www.ritholtz.com/blog/2009/12/michael-boskin-on-the-obama-crash/

Was the ‘00-03 Crash Bush’s Fault? ‘09 Obama’s? (March 5th, 2009)
http://www.ritholtz.com/blog/2009/03/2000-crash-bush-09-obama/

Pricing in a Bush Presidency (July 8th, 2008)
http://www.ritholtz.com/blog/2008/07/pricing-in-a-bush-presidency/

Source:
Dissing The Market
IBD  03/04/2009 07:11 PM ET
http://www.investors.com/NewsAndAnalysis/Article.aspx?id=470377&Ntt=dissing


Top Picks for 2010: Powershares US Dollar Bullish (UUP)

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This post is part of a special report, Top Picks for 2010, the 27th annual survey in which TheStockAdvisors.com asks the nation's leading advisors for their single favorite stock for the new year. See all 80 stocks listed here.

"When extreme valuations are accompanied by unbridled optimism or abject pessimism, it virtually always marks a turning point -- and an opportunity; and this is no exception," says Alex Green, referring to the U.S. dollar.

Here, the senior investment advisor to The Oxford Club and Investment U looks to PowerShares DB US Dollar Index Bullish ETF (UUP) as a favorite idea for the coming year.

Continue reading Top Picks for 2010: Powershares US Dollar Bullish (UUP)

Top Picks for 2010: Powershares US Dollar Bullish (UUP) originally appeared on BloggingStocks on Mon, 04 Jan 2010 12:00:00 EST. Please see our terms for use of feeds.

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Intel Rises As Baird Upgrades; Sees Strong PC Demand

Robert W. Baird analyst Tristan Gerra this morning raised his rating on Intel (INTC) to Outperform from Neutral, setting a price target of $26. The stock closed 2009 at $20.40.

“We view INTC shares as a value and defensive idea on the enterprise upcycle we expect for 2010,” he writes. “Our checks point to tier-one PC OEMs recently raising their procurement forecasts for [the 2010 first half], suggesting a continuation of above-seasonal trends in PCs.” He adds that Intel could outperform the semi sector overall this year, and adds that “should a gradual recovery in true end-demand prolong the current upcycle, INTC shares should benefit as well.”

INTC today is up 56 cents, or 2.8%, to $20.96.

Analyst Upgrades, Downgrades and Initiations: BA, BMY, EAT, INTC, MS, UNH, WYNN …

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Analyst Upgrades

  • Baird upgraded Intel (INTC) to outperform from neutral and has a $26 target on the stock. The firm's checks indicate tier-one PC OEMs have raised their 1H10 procurement forecasts, which could lead to Intel outperformance.
  • Citigroup upgraded UnitedHealth (UNH) to buy from hold on expectations the company will benefit from a sector rotation into Managed Care in 2010. The firm raised its price target on shares to $39 from $30.
  • UBS upgraded Morgan Stanley (MS) to buy from neutral based on strong capital and liquidity positions, building investment banking pipelines, and expectations for a turn in EPS/ROE, among other reasons.
  • Deutsche Bank upgraded the U.S. Refining group as it believes demand is improving and margins could expand in 2010. The firm raised its rating on Sunoco (SUN) to hold from sell and its target on shares to $25 from $18, and upgraded Tesoro (TSO) and Frontier Oil (FTO) to buy from hold.
  • Boeing (BA) was raised to overweight from equal weight at Barclays.
  • Wynn Resorts (WYNN) was upgraded at UBS to buy from neutral.
  • Investors Bancorp (ISBC) was upgraded to buy from neutral at Janney Montgomery.

Continue reading Analyst Upgrades, Downgrades and Initiations: BA, BMY, EAT, INTC, MS, UNH, WYNN ...

Analyst Upgrades, Downgrades and Initiations: BA, BMY, EAT, INTC, MS, UNH, WYNN ... originally appeared on BloggingStocks on Mon, 04 Jan 2010 11:45:00 EST. Please see our terms for use of feeds.

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Sovereign debt crises 2010, an RBS sapling

What is the `Tree of Truth’?

According to RBS, it is a Binary Recursive Tree Approach aimed at selecting explanatory variables and critical threshold levels that best discriminate between sovereign debt crisis and non-sovereign debt crisis states.

In basic terms it’s a flow chart, showing which countries in Central Eastern Europe,...

Will Bloomberg Buy The FT?

Michael Bloomberg: Think Pink?

Could Bloomberg, fresh off its bargain-basement purchase of Business Week, now go after the Financial Times?

The Guardian today notes a research report from a firm called Execution which proposes that Pearson (PSO) could sell the FT Group to Da Mayor’s company for 1.5 billion pounds.

In addition to the Financial Times, the FT Group owns a 62% stake in Interactive Data Corp. (IDC) a provider of financial data to institutions and retail investors; operates various other publications; and holds a 50% stake in the Economist.

Execution theorizes that such a move would seem to fit Bloomberg’s strategy while giving Pearson firepower - that is, cash - to pursue other avenues of expansion. On the other hand, the Guardian notes that “the idea of selling the FT is not a new one, and there has never been much sign Pearson was keen on such a move”