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Today's Top News1. Goldman Sachs CEO: I am not a socialist
Goldman Sachs CEO Lloyd Blankfein has been called a lot of things, especially by those aligned with the Occupy Wall Street movement. But throughout the entire financial crisis and aftermath, he has never been called a socialist. Not until now. The accusation comes not from protestors but from Gordon Nixon, the CEO of Royal Bank of Canada. Now, Nixon didn't exactly call him a socialist directly. It was more a case of him imagining what people would say and what the headlines might be based on Blankfein's recent comments about the necessity of redistribution in America. Blankfein, who earned some $16.1 million last year, felt the need to tell his audience he isn't a socialist: "I am not saying… I am a socialist. I am not," he said. According to Canada Real Time, he went on to note that "the two goals of a financial system and an economic system … should be to expand the wealth of the world and to distribute it fairly. In the United States, over the last generation or two, we have been much better at generating wealth and much less good at distributing it." He also suggested that when the wealthiest country falls down in terms of reasonable redistribution, you end up with an "unstable society." These are common-sense observations and underscore the very statesman-like pose Blankfein has taken as of late. One might argue that such comments suggest he is counting on a Democratic victory in November and that he is putting himself in line for a high level public service position, in keeping with tradition for former Goldman Sachs executives. For more: Read more about: Goldman Sachs, CEO
2. Millennials a huge opportunity for wealth managers
"The United States' wealth management industry is in the midst of a transition unlike anything it has ever seen," Institutional Investor notes. "Over the next several decades, as baby boomers age and transfer their wealth to the next generation, an unprecedented $41 trillion will change hands." This is a massive opportunity, but it is not without pitfalls. Not all wealth management firms will be able to take full advantage of this transition unfortunately. Those who do not understand the character of this cohort just might find themselves on the outs. According to research, "Millennials are more likely to embrace a philosophy that financial interests and social interests ought to directly overlap, thereby ostensibly benefitting both wallet and world." So in a sense, the opportunity boils down to socially responsible investing. Lots of wealth management firms have embraced this niche, but they will likely have to refine their offerings and their marketing if they want to attract Millennial interest. Firms are definitely starting to respond to the opportunity. UBS has drawn attention for its moves. The bank just staged its annual Young Successors Program, a four-day conference that brings UBS wealth managers and advisers, clients and the offspring of those clients (who stand to inherit from them) to talk about investing. This was the first year the conference was held in the United States. Other firms will be wise to get more aggressive going forward. For more: Read more about: brokers, RIAs 3. Funds of hedge funds continue to suffer
In the aftermath of the financial crisis, hedge funds suffered in terms of returns, limited partner relations and in the court of public opinion. Since then, however, hedge funds have recovered in all areas, and the future once again looks golden--all except for one category. Funds of hedge funds have not stormed back to the degree the rest of the industry has. The criticism about the extra fees and sorry fund-picking has unfortunately stuck, so it's hardly surprising that the likes of Aberdeen Asset Management think "there will be a further wave of consolidation in the fund of hedge funds industry, with managers who run less than $3 billion facing a struggle to survive amid shrinking assets and rising costs," as noted by Reuters. "Many in the $627 billion sector are still to recover from redemptions in the financial crisis, forcing a round of dealmaking as bigger players snap up smaller, struggling rivals. On Wednesday, U.S.-based K2 Advisors became the latest player to sell out after Franklin Resources said it would buy a majority stake. That followed private equity group Kohlberg Kravis Robert's buyout of Prisma Capital Partners in June, and Man Group's May purchase of FRM." We'll no doubt see more deals, as valuations of fund of fund specialists decline even more. For more: Read more about: funds of funds, Funds Of Hedge Funds 4. SEC proves private equity waterfall issues
Bloomberg reports that the SEC is taking a close look at private equity waterfalls, and specifically whether agreements that govern distribution are being honored strictly. The SEC "is examining how buyout funds ensure that payouts follow the sequence set out in partnership document…Regulators are looking for deviations from the distribution process, which usually calls for clients to receive some gains on investments before the fund manager." When a buyout fund exits a portfolio holding, the limited partners "often get their investment back first, plus a certain percentage of the profits, known as the hurdle. Once the hurdle has been paid, the fund manager can begin collecting carried interest. Investment agreements aren't uniform among funds. In some cases a firm may waive upfront management fees and instead take an equivalent payout from investment profits. Under such arrangements, the manager may pay itself before returning the investors' original contribution. The SEC is concerned that firms lack internal controls to track payments and ensure that the agreed waterfall plan is followed, the people said. One issue is whether the firms are taking more of the deal profits than they are entitled to." It's unclear what prompted the probe. Regulators are taking a closer look at private equity practices in general and management fee waivers are a great example. Some have blamed the Presidential election as a reason for such scrutiny, but it may also have been that a few big investors complained to the SEC privately about waterfall issues. In any case, more people are resigned to enhanced scrutiny on a range of issues in addition to the stepped-up registration and disclosure requirements. For more:
Read more about: Private Equity, SEC 5. Vanguard: The antithesis of Wall Street culture
Fairly or not, the culture of the top investment banks and hedge funds has been stereotyped as a dog-eat-dog, Darwinian sort of place, where the weak will be swept aside. The trading room ethos reigns supreme at most banks, where sales and trading continue to account for the lion's share of revenue. For the antithesis of that culture, look no farther than Philadelphia, where mutual fund giant Vanguard has refined a workplace that must seem quaint by trader standards. Vanguard chief executive Bill McNabb Tells the Washington Post that employees can become millionaires at Vanguard over the long term, but "nobody comes to us thinking that there's going to be some big capital event. We're not going to go public. There's no monetization. We pay people well. We give them great benefits. We think we create an incredible environment to work. But by Wall Street standards, could you do better? Sure." He also says that, "We don't have superstars walking around. The money management group doesn't have special parking spots or a special dining hall. The best parking spaces are for those who get there early." He likes to tell the story of how employees were once expected to drop everything to man phones when call volume was high. To some, the culture may seem down-right boring, but it the company has made it work. Some on Wall Street might find that environment appealing at some point in their careers. For more: Related articles: Read more about: Mutual Funds, Wall Street Culture Also NotedSPOTLIGHT ON... A look at Wall Street CEO's wives Wall Street's top dogs are a remarkable bunch, but so are their better halves. Says Business Insider: "We've found that many of the hedge fund honchos, private equity titans and bank CEOs are married to some really remarkable women. During our research, we found a fashion designer, an economist, several entrepreneurs and philanthropists." Article Company News:
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Tuesday, September 25, 2012
| 09.25.12 | Goldman Sachs CEO: I am not a socialist
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