Also Noted: Spotlight On... Bank of America intern dies News From the Fierce Network: Today's Top News1. The latest Blackstone billionaire
It's fair to say that the private equity business isn't what it used to be. Sure, exits are strong right now, and some institutions are ponying up to new funds being raised. But we can all agree the heyday is over. It might have crested with the anointment of Steve Schwarzman as the new king of the industry. Things haven't been the same since. Which is precisely why the likes of Blackstone felt an imperative to diversify, which has worked wonders. Reflecting that imperative, we note that the latest billionaire to be minted at Blackstone is Jonathan Gray, just 43, who runs the company's real estate business, which is now the largest unit. According to Bloomberg, Gray "owns 40.6 million shares of the alternative-asset manager, a stake valued at $913 million as of yesterday's close. He also has collected more than $120 million in bonuses, carried interest and dividends in the past two years." Gray is said to be intensely private. He "graduated magna cum laude from Penn with bachelor's degrees in economics and English. He serves on the boards of the Pension Real Estate Association and Trinity School, and has given $10 million to the Harlem Village Academies, a New York-based learning institution he's chairman of. "With his wife, Mindy, Gray established the Basser Research Center at the University of Pennsylvania School of Medicine with a $25 million gift. The center focuses on the prevention and treatment of certain genetically caused breast and ovarian cancers." One would think that he's in the mix in terms of CEO succession, which the board must be mulling constantly. For more: Read more about: Blackstone 2. Should Wall Street fear nepotism probe?
What to make of the SEC investigation into the hiring practice of JPMorgan Chase in China? For some, this is big news. Some argue that it is sending shivers down the spine of executives at other big banks, which have also made some high-profile hires of children of powerful bureaucrats in China. "If JPMorgan Chase is found to have violated the Foreign Corrupt Practices Act by hiring the children of the elite, then the entire financial services industry is probably in a heap of trouble. Virtually every firm has sought to hire the best-connected executives in China and, more often than not, they are the 'princelings,' the offspring of the ruling elite," according to the esteemed DealBook columnist. Others think the idea is downright humorous. DealBreaker: "But of course you don't need to go that far afield; anyone who's worked in an investment bank for more than twelve minutes, anywhere in the world, can tell you stories of nepotism at least as blood-curdling as these. There are idiots, look around, often they are clients' kids." Lex: "When the Securities and Exchange Commission has finished proving that companies (even banks!) hire people for their connections (even in China!) it can move on to the movements of bears in woods or the religious persuasion of famous Catholics." (That last quip is a bit cryptic. But it certainly sounds sarcastic.) My take is that it will be hard to prove that a hire was made as a quid pro quo for specific business deals. No bank is so stupid as to spell it out in contracts. A circumstantial case may be very hard to build, even if you show how big deals followed the hiring of specific people. All in all, I doubt this will amount to much. Then again, there could be some shocking evidence that has yet to come to light. For more: Read more about: Fcpa, JPMorgan Chase 3. JPMorgan: Yet another probe leads to more enforcement woes
JPMorgan's enforcement woes keep intensifying, growing more expensive by the day. The latest development is that the Justice Department has decided to open an investigation into the energy sales and trading practices of the behemoth bank. The announcement comes on the heels of a widely publicized move by the bank to settle charges by the Federal Energy Regulatory Commission that the bank manipulated markets in California and Midwestern states. JPMorgan Ventures Energy Corp agreed to disgorge $125 million in illicit profits and pay a penalty of $285 million for 12 "manipulative bidding strategies" between September 2010 and November 2012. That was hailed as a big win for FERC, as the $410 settlement was the second largest sum in the agency's history. But it amounts to a mere slap on the wrist financially for the big bank. Indeed, two senators have questioned the settlement and whether it represents enough deterrent. That may have prompted the U.S. Attorney in Manhattan to take a closer look. It is unclear exactly how all this is shaping up and whether this is projected as a criminal or civil matter. This is disconcerting to the bank because it raises the possibility that the executives, notably Blythe Masters, who escaped being named personally in previous complaints, just might end up being charged after all. Recall that the FERC suggested that the Masters and others sought to mislead their investigators and suggested strongly that charges might be coming. In the end, however, no executives were named individually. The bank apparently made that a top priority in the negotiations. For more: Read more about: Enforcement Activity 4. PR tactics in Wells Fargo vs. Richmond
The battle over the city of Richmond's plan to use eminent domain to seize and restructure underwater mortgages has generated lots of controversy. It has proven to be especially mediagenic on the West Coast. There is plenty of room for grandstanding, to be sure. We got a glimpse of this recently when it was reported that the mayor of Richmond, a hard-hit city in California, San Francisco had been locked out of a Wells Fargo building as she attempt to confront bank executives about their opposition to the eminent domain plan. Richmond Mayor Gayle McLaughlin "was undaunted after bank officials denied her request to speak to CEO John Stumpf and locked the front door. She said the city will not be dissuaded from its plan to use eminent domain to seize underwater mortgages," according to one local report. "I am absolutely not backing down," McLaughlin was quoted. This is great political theater. We'll no doubt see a lot of it as the battle drones on. Wells Fargo, which has sued the city over the plans in its role as a trustee for the likes of Pimco and BlackRock, has sought to add its own spin to the controversy, as it absolutely should. "Yesterday, a Wells Fargo representative reached out to Mayor McLaughlin to let her know we are available to meet with her to discuss community concerns, but not the eminent domain issue, which is now a subject for the courts," a Wells Fargo spokesman told the San Francisco Business Times. "Wells Fargo cares about Richmond." The spokesman also said that Wells has employees that live and work in Richmond and that the bank "hosted a two-day home preservation workshop in Richmond last year, meeting with more than 500 troubled borrowers. The bank also participated in a Richmond housing fair in June. In another effort, more than 100 Wells employees worked last year to rehabilitate two homes, a community center and create a community garden." This is going to get interesting from many points of view, including the tactical PR view. For more:
Read more about: Wells Fargo, Eminent Domain 5. Pensions opt for more direct investments
Pension funds have been angst-ridden for several years about their mounting liabilities relative to their assets, which just don't seem to be growing enough. Private equity firms and hedge funds, despite spotty returns in some cases, have been seen as one answer. But it was inevitable that some pensions would throw up their hands and decide that the high fees and unpredictable returns were no longer worth it. Some are deciding to take a proactive approach, one that is cause for concerns among alternative investment companies. DealBook profiles the little-known Institutional Investors Roundtable, which "has kept a low public profile since it began in 2011." This year it managed to attract 27 funds managing public money to its latest meeting and "is spinning off concrete investments." The group neatly symbolizes "a much broader push by the world's biggest pension and sovereign wealth funds to reduce their reliance on the Wall Street firms that used to manage almost all their money." At the most recent meeting, three attendees finalized a deal to invest $300 million in a clean-energy company. "The moves are not yet threatening to eat into the overall profits of the big hedge funds and private equity firms that cater to large international investors. Even the funds that are graduating to investing alone generally say they still use Wall Street firms for areas in which hiring an expert would be hard. But the moves point to a mistrust of Wall Street's ability to deliver the kind of outsize returns it has long promised. This, in turn, is leading to a broader shift toward lower-cost methods of managing money." Over the next few years, we'll likely see public pensions move to cut their dependence in ways overt and subtle. It's really a matter for diversification. Pension boards do not want their success or failure determined by one or two investment modes. We're in for a surge in direct investments that disintermediate private funds. We'll see if the pensions truly fare better. They may find that the talent to run to such programs is hard to come by. For more: Read more about: pensions Also NotedSPOTLIGHT ON... Bank of America intern dies Tragedy has struck Bank of America in London. A 21-year-old intern has been pronounced dead, a week before his internship was scheduled to end. "Moritz Erhardt, a University of Michigan student from Germany, reportedly had worked until 6 a.m. for three days straight and was found dead in his flat. Erhardt, who suffered from epilepsy, collapsed in his shower," according to CNCB. A spokesperson told the news outlet: "The whole point about internships is to give students a positive experience and to get to know our firm and us to know them well, so we can work out who would be the best fit to join the company full-time after they graduate." No doubt interns are asked to work hard, to prove themselves. But it's better not to speculate in the wake of the tragedy. There will be plenty of time for the bank to ponder the issues later. Article Company News:
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Wednesday, August 21, 2013
| 08.21.13 | Should Wall Street fear nepotism probe?
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