Archive for the ‘Goldman Sachs’ Category

Goldman Values Facebook at $50 billion, Digital Sky Technologies Makes 400% on its Investment Since 2009!

Monday, January 3rd, 2011
The New York Times announced today that Goldman Sachs and Russian Investor Digital Sky Technologies are investing $500 million into Facebook at a valuation of $50 billion.   According to Second Market, some private investors have bid up the Company’s shares to imply a value of $56 billion.  This bid comes soon after Google announced a $6 billion bid for Groupon a couple weeks ago.  Some call the Facebook valuation astronomical, and it theoretically doubles the net worth of founder Mark Zuckerberg to approximately $14 billion.  Two years ago Microsoft attempted to purchase a stake in Facebook at $15 billion, which at the time was deemed too high.  Digital Technology’s original 2009 stake in Google, which valued the company at $10 billion has since quintupled.  While Goldman is purchasing shares, VC firm Accel Partners is selling very aggressively at much lower valuations.  When examined more closely, with this purchase, Goldman may have bought it’s right to the Facebook IPO.  If Goldman is able to IPO shares of the company at a higher price, it could eventually simply divest of its shares in the open markets at a higher valuation and make a fat fee in the process.
According to Reuters, “Goldman Sachs is investing $450 million of its own money into Facebook and that it’s bringing along $50 million from Digital Sky Technologies and as much as $1 billion more from its high-net-worth clients — all at a valuation of $50 billion.

The enormous sums of money involved here clearly ratify the valuation: this isn’t a handful of shares trading in an illiquid market, it’s an investment substantially larger than most IPOs.

It’s worth remembering here that only two years ago, when Microsoft bought into Facebook at a $15 billion valuation, that sum was described in the NYT as “astronomical”. But that said, Facebook’s multiples have clearly shrunk from those heady days: in 2007, Facebook could actually use Microsoft’s $240 million to fuel its expansion. Today, it’s reportedly earning $2 billion a year, which implies to me that this is a cash-out rather than a dilutive offering. Facebook has raised, in total, about $850 million to date, and there’s no obvious need for a massive new round of funding which would dwarf that entire sum.

If Goldman is leading the buyers, then, who are the sellers? VC shop Accel Partners has been selling Facebook shares quite aggressively of late, at lower valuations than this. They could easily provide all the shares that Goldman is buying and still be left with a stake worth some $3.5 billion. And it’s entirely conceivable that some early employees might well want to diversify their holdings and have maybe a little less than 99% of their net worth in Facebook stock.

As for Goldman, it has probably bought itself the IPO mandate, which could easily generate hundreds of millions of dollars in fee income. It has also become the only investment bank which can give its rich-people clients a coveted pre-IPO stake in Facebook: the extra cachet that brings and the possible extra clients, make this investment a no-brainer. Facebook doesn’t need to stay worth $50 billion forever — Goldman just needs to engineer an IPO valuation somewhere north of that, then exit quietly in the public markets. And that is surely within its abilities.

According to Dealbook, “the deal could double the personal fortune of Mark Zuckerberg, Facebook’s co-founder.

Facebook, the popular social networking site, has raised $500 million from Goldman Sachs and a Russian investor in a deal that values the company at $50 billion, according to people involved in the transaction. The deal makes Facebook now worth more than companies like eBay, Yahoo, and Time Warner.

The stake by Goldman Sachs, considered one of Wall Street’s savviest investors, signals the increasing might of Facebook, which has already been bearing down on giants like Google. The new money will give Facebook more firepower to steal away valuable employees, develop new products and possibly pursue acquisitions — all without being a publicly traded company. The investment may also allow earlier shareholders, including Facebook employees, to cash out at least some of their stakes.

The new investment comes as the SEC has begin an inquiry into the increasingly hot private market for shares in Internet companies, including Facebook, Twitter, the gaming site Zynga and LinkedIn, an online professional networking site. Some experts suggest the inquiry is focused on whether certain companies are improperly using the private market to get around public disclosure requirements.

The new money could add pressure on Facebook to go public even as its executives have resisted. The popularity of shares of Microsoft and Google in the private market ultimately pressured them to pursue initial public offerings.

So far, Facebook’s chief executive, Mark Zuckerberg, has brushed aside the possibility of an initial public offering or a sale of the company. At an industry conference in November, he said on the topic, “Don’t hold your breath.” However, people involved in the fund-raising effort suggest that Facebook’s board has indicated an intention to consider a public offering in 2012.

There has been an explosion in user interest in social media sites. The social buying site Groupon, which recently rejected a $6 billion takeover bid from Google, is in the process of raising as much as $950 million from major institutional investors, at a valuation near $5 billion, according to people briefed on the matter who were not authorized to speak publicly.

“When you think back to the early days of Google, they were kind of ignored by Wall Street investors, until it was time to go public,” said Chris Sacca, an angel investor in Silicon Valley who is a former Google employee and an investor in Twitter. “This time, the Street is smartening up. They realize there are true growth businesses out here. Facebook has become a real business, and investors are coming out here and saying, ‘We want a piece of it.’”

The Facebook investment deal is likely to stir up a debate about what the company would be worth in the public market. Though it does not disclose its financial performance, analysts estimate the company is profitable and could bring in as much as $2 billion in revenue annually.

Under the terms of the deal, Goldman has invested $450 million, and Digital Sky Technologies, a Russian investment firm that has already sunk about half a billion dollars into Facebook, invested $50 million, people involved in the talks said.

Goldman has the right to sell part of its stake, up to $75 million, to the Russian firm, these people said. For Digital Sky Technologies, the deal means its original investment in Facebook, at a valuation of $10 billion, has gone up fivefold.

Representatives for Facebook, Goldman and Digital Sky Technologies all declined to comment.

Goldman’s involvement means it may be in a strong position to take Facebook public when it decides to do so in what is likely to be a lucrative and prominent deal.

As part of the deal, Goldman is expected to raise as much as $1.5 billion from investors for Facebook at the $50 billion valuation, people involved in the discussions said, speaking on the condition of anonymity because the transaction was not supposed to be made public until the fund-raising had been completed.

In a rare move, Goldman is planning to create a “special purpose vehicle” to allow its high-net worth clients to invest in Facebook, these people said. While the S.E.C. requires companies with more than 499 investors to disclose their financial results to the public, Goldman’s proposed special purpose vehicle may be able get around such a rule because it would be managed by Goldman and considered just one investor, even though it could conceivably be pooling investments from thousands of clients.

It is unclear whether the S.E.C. will look favorably upon the arrangement.

Already, a thriving secondary market exists for shares of Facebook and other private Internet companies. In November, $40 million worth of Facebook shares changed hands in an auction on a private exchange called SecondMarket. According to SharesPost, Facebook’s value has roughly tripled over the last year, to $42.4 billion. Some investors appear to have bought Facebook shares at a price that implies a valuation of $56 billion. But the credibility of one of Wall Street’s largest names, Goldman, may help justify the company’s worth.

Facebook also surpassed Google as the most visited Web site in 2010, according to the Internet tracking firm Experian Hitwise.

Facebook received 8.9 percent of all Web visits in the United States between January and November 2010. Google’s main site was second with 7.2 percent, followed by Yahoo Mail service, Yahoo’s Web portal and YouTube, part of Google.

For Mr. Zuckerberg, the deal may double his personal fortune, which Forbes estimated at $6.9 billion when Facebook was valued at $23 billion. That would put him in a league with the founders of Google, Larry Page and Sergey Brin, who are reportedly worth $15 billion apiece.

Even as Goldman takes a stake in Facebook, its employees may struggle to view what they invested in. Like those at most major Wall Street firms, Goldman’s computers automatically block access to social networking sites, including Facebook.”

David Tepper Personally Earns $4 Billion for 2009 Performance

Sunday, December 26th, 2010

We thank Dan for his contribution to Leverage Academy, LLC and for writing this biography on David Tepper, of Appaloosa, who made $4 billion for himself last year.

David Tepper grew up in a middle class neighborhood in Pittsburgh, PA. He became interested in the stock market after observing his dad, an accountant, trade stocks during the day.  Following high school, he enrolled in the University of Pittsburgh, where he excelled. After Tepper graduated with a degree in economics, he found a job with Equibank as a credit analyst. He quickly became bored with the role and enrolled in the MBA program at Carnegie Mellon’s School of Business, now named after him. [1] Tepper’s experience at Carnegie Mellon helped him learn options theory at a time when there were no textbooks written on the subject. Kenn Dunn, the Dean of school of the school himself taught these option courses.[2]

After graduating, Tepper worked in the Treasury division at Republic Steel, once the third largest steel manufacturer in the U.S.  Soon after, Tepper moved onto Keystone Mutual Funds, and finally to Goldman Sachs.  At Goldman, Tepper focused on his original role as a credit analyst.  However, six months later, he became the head trader on the high yield bond desk!  Despite his successes, Tepper was not promoted to partner due to his disregard for office politics.  After eight years at Goldman, he left and started Appaloosa Management in 1992 with Jack Walton, another Goldman Sachs trader.

With his background in bankruptcies and special situations at Goldman, Tepper applied his skills and experience at the new hedge fund, and it worked out tremendously for him. Tepper is categorized as a distressed debt investor, but he really analyzes and invests in the entire capital structure of distressed companies, from senior secured debt to sub-debt and post-bankruptcy equity. His fund has averaged a 30% average return since 1993!  While that number is particularly high, Appaloosa has fairly volatile historical returns.  In 2008, Tepper’s fund was down around 25% for the year. For the investor that stuck with him, this certainly paid off with a 120% return after fees in 2009. [3] Tepper shies away from the typical glitz and glamour of the ostentatious hedge fund industry. Appaloosa is not based in New York, but in a small office in Chatham, NJ. It is only about 15 minutes from his house so he can spend more time with his family. The firm manages around $12 billion.

Tepper’s astronomical returns resulted from huge bets on the banking industry, specifically Bank of America (BAC) and Citibank (C). He bought BAC around $3.72 and Citi near $0.79. At year’s end, BAC ended at $15.06, a 305% return, and Citi ended at $3.31, a 319% return.  Appaloosa also has invested in other financial companies such as Wells Fargo (WFC), Suntrust (STI), and Royal Bank of Scotland (RBS). Other companies Tepper has investments in are Rite Aid (RAD) , Office Depot (ODP), Good Year Tire and Rubber (GT), OfficeMax (OMX), and Microsoft (MSFT).  He believes that valuations on stocks and bonds in the financial industry remain favorable, and he is now investing in commercial real estate, a place where many analysts expect huge losses.[4]

Tepper’s investment strategy involves finding value in these distressed companies and betting big. He is not very diversified in his holdings compared to most hedge funds. Investing in these distressed companies can be a very lonely business. David Tepper stated about his recent purchases of BAC and Citi, “I felt like I was alone. No one was even bidding.” While some don’t like being alone, Tepper’s contrarian approach helped him scoop up these companies at bargain prices. Tepper reminds himself that he needs a contrarian attitude every day when he walks into his office and sees a pair of brass balls on his desk, literally. “Mr. Tepper keeps a brass replica of a pair of testicles in a prominent spot on his desk, a present from former employees. He rubs the gift for luck during the trading day to get a laugh out of colleagues.”[5] While humorous, these brass balls represent his strategy of taking concentrated bets on these companies that the market does not see any value in.

David Tepper has not been without controversy. In his dealings with Delphi, an auto parts maker, his hedge fund along with other investors backed out of their exit financing agreement after Delphi sought additional funding from General Motors. His hedge fund believed accepting money from an automaker would hurt Delphi’s ability to win contracts with other automakers. The hedge fund also claimed that this funding arrangement broke their financing agreement. Delphi, in turn sued, declaring that the issue was a “story of betrayal and mistrust.” [6] It has since gone into Chapter 11 reorganization.

While most hedge fund managers who have made $4 billion in a year during one of the worst recessions since the 1930s would face scrutiny from the press, public, and government, Tepper has largely gone unscathed due to the lack of glitz and glamour of his lifestyle. Tepper lives in a New Jersey suburb in the same house that he bought in the early 1990s and coaches his kids’ sports teams. He is a family man is proud of raising three good children. He says, “It was much easier when they were younger. It’s harder now when they open the paper and see how much money I make.”[7]

Last year, Tepper told the business school magazine at Carnegie Mellon that money should be a secondary goal, while living an upstanding life and pursuing what you enjoy should be the top priority.[8] Tepper does not forget about his roots either. He regularly goes to Pittsburgh to visit his alma mater and to watch the Pittsburgh Steelers (of which he is now a part owner).  He also donates money to food pantries and other charities around Pittsburgh.[9] Tepper comes to Carnegie Mellon frequently to talk to students about what needs to be improved at the school. Students describe him as down to earth, friendly, and very candid. While he has been an extremely successful hedge fund manager, he does not lead an extravagant lifestyle and continues to deliver excellent results to investors. His philosophy is very simple: if you treat people right, run your business right, and run your life right, you will create a sustainable business.




[4] ibid






2010 Top 10 Highest Earning Hedge Fund Managers
Rank Name Firm Name 2009 Earnings
1 David Tepper Appaloosa Management $4 billion
2 George Soros Soros Fund Management $3.3 billion
3 James Simons Renaissance Technologies $2.5 billion
4 John Paulson Paulson & Co. $2.3 billion
5 Steve Cohen SAC Capital Advisors $1.4 billion
6 Carl Icahn Icahn Capital $1.3 billion
7 Edward Lampert ESL Investments $1.3 billion
8 Kenneth Griffin Citadel Investment Group $900 million
9 John Arnold Centaurus Advisors $900 million
10 Philip Falcone Harbinger Capital Partners $825 million


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Goldman Sachs Promotes Record # of Managing Directors!

Thursday, November 18th, 2010

Today, Goldman Sachs appointed 321 Managing Directors, all one level below Partner.  This number is sharply higher than the 272 in 2009 and 259 in 2008.  Yesterday, 110 MDs were appointed to Partner, a highly coveted role.  Twenty four percent of the MD promotions consisted of women, the highest percentage in Goldman’s history.  This is after the firm was sued in September by 3 former GS employees for discriminating against women in both pay and upward mobility.  Interestingly enough, 45% of the new partners were based in the Americas, while 26% were in Asia.  This pattern reflects the growth of the firm, now focusing on emerging markets.

According to Bloomberg, “Goldman Sachs Group Inc., the most profitable securities firm in Wall Street history, promoted a record number of employees to managing director, one level below the highest rank of partner.

The 321 appointments, up from 272 last year and 259 in 2008, were detailed in an internal memo obtained by Bloomberg News. The announcement came a day after the New York-based company selected 110 people to become partners, a designation that means they share in a special pool of compensation.

Goldman Sachs Chairman and Chief Executive Officer Lloyd Blankfein, 56, has presided over an expansion of the firm, with the total number of employees rising to 35,400 from about 24,000 when he took over in mid-2006. In promoting more employees this year, the company is rewarding people who stayed through the financial crisis, said Charles Peabody, an analyst at Portales Partners LLC.

“It’s a function of trying to regain loyalty after turbulent times,” said Peabody, who is based in New York and recommends investors buy Goldman Sachs stock.

Yesterday’s promotions include the largest group of women ever, making up 24 percent of the new class, said Lucas van Praag, a spokesman in New York. Women make up 19 percent of all managing directors, including the new class, he said. Van Praag said “over 10 percent” of this year’s new partners are women and declined to give a more specific figure.

Employee Lawsuit

Goldman Sachs was sued in September by three former employees who alleged that they faced discrimination in pay and fewer opportunities for promotion than men. Goldman Sachs has said the suit is without merit.

While half of the new managing directors are based in the Americas, 28 percent are in Europe, the Middle East and Africa and 22 percent are in Asia, van Praag said. He said the figures represent a marginal increase in the number outside the Americas.

About 45 percent of the new partners are based in the Americas, with 29 percent in Europe, the Middle East and Africa and 26 percent in Asia.

“That, I think, is reflective of where their growth is going to be,” Peabody said of the hires outside the Americas.

The following is a list of the new managing directors from the internal memo:

James B. Adams

Geoffrey P. Adamson

Yashar Aghababaie

Nicole Agnew

John F. Aiello

Ahmet Akarli

Ali A. Al-Ali

Jorge Alcover

Moazzam Ali

Paolo Aloe

Shawn M. Anderson

Gina M. Angelico

John J. Arege

Paula G. Arrojo

Richard J. Asbery

Scot M. Baldry

Gargi Banerjee

Amit Bansal

Thomas J. Barrett

Roger K. Bartlett

Renee Beaumont

Stephen E. Becker

Mick J. Beekhuizen

Stuart R. Bevan

Ron Bezoza

Nick Bhuta

Christopher Biasotti

David R. Binnion

James Black

Michael Bogdan

Charles P. Bouckaert

Marco Branca

Didier Breant

Kelly Reed Brennan

Craig T. Bricker

Nellie Bronner

Kimberley Burchett

Sara Burigo

James M. Busby

Elizabeth A. Byrnes

Alvaro Camara

Ramon Camina Mendizabal

Tavis C. Cannell

Michael J. Casabianca

Jacqueline M. Cassidy

Leor Ceder

Gaurang Chadha

Brian D. Chadwick

Eli W. Chamberlain

Gilbert Chan

Kevin M. Chan

Isaac J. Chang

Devin N. Chanmugam

Francis S. Chlapowski

Dongsuk Choi

Stephen L. Christian

Peter I. Chu

Vania Chu

Susan M. Ciccarone

Emmanuel D. Clair

Bracha Cohen

Darren W. Cohen

Antony Courtney

Christopher J. Creed

Timothy J. Crowhurst

Helen A. Crowley

Elie M. Cukierman

Matthew J. Curtis

Jason S. Cuttler

Sterling D. Daines

Kevin Daly

Rajashree Datta

Samantha Davidson

Adam E. Davis

Sally Pope Davis

Raymond E. de Castro

Gilles M. Dellaert

Wim Den Hartog

George J. Dennis

Sara V. Devereux

Diana R. Dieckman

Avi Dimor

Lisa A. Donnelly

Igor Donnio

Mark T. Drabkin

Tilo A. Dresig

Thomas K. Dunlap

Steven M. Durham

Michael S. DuVally

Masahiro Ehara

Grant M. Eldred

Manal I. Eldumiati

Charles W. Evans

Anne Fairchild

Craig R. Farber

John W. Fathers

Lev Finkelstein

Warren P. Finnerty

Elizabeth O. Fischer

John J. Flynn

Veronica Foo

Francesca Fornasari

Christian L. Fritsch

Andrew J. Fry

Charles M. Fuller

Ruth Gao

David M. Garofalo

Lisheng Geng*

Luke F. Gillam

Lisa M. Giuffra de Diaz

Matthew J. Glickman

Parameswaran Gopikrishnan

Luke G. Gordon

Pooja Grover (IBD)

Patricia R. Hall

Anna Hardwick

John L. Harrisingh

Peter M. Hartley

Taimur Hassan

Gerrit Heine

Caroline Heller

Richard I. Hempsell

Isabelle Hennebelle-Warner

Jeremy P. Herman

Matthias Hieber

Amanda Hindlian

Darren S. Hodges

Edward Y. Huang

Simon Hurst

Edward McKay Hyde

Nagisa Inoue

Marc Irizarry

Shintaro Isono

Benon Z. Janos

Ronald Jansen

Darren Jarvis

Mikhail Jirnov

Benjamin R. Johnson

Richard Jones (GIR)

Mariam Kamshad

Makiko Kawamura

Christina Kelerchian

Andre H. Kelleners

Sven H. Khatri

Sandip Khosla

David A. Killian

Melinda Kleehamer

Maxim B. Klimov

Adriano Koelle

Goohoon Kwon

Thymios Kyriakopoulos

Laurent-Olivier Labeis

David R. Land

Lambert M. Lau

Sandra G. Lawson

David H. Leach

Terence Leng

Deborah A. Lento

Gavin J. Leo-Rhynie

Leon Leung

Ke Li

Qunmei Li**

Xing Li*

Sabrina Y. Liak

Jason R. Lilien

Kirk L. Lindstrom

Amy M. Liu

Bernard C. Liu

Nelson Lo

Kyri Loupis

Yvonne Low

Joshua Lu

Yvonne Lung

John G. Macpherson

Premal Madhavji

Marcello Magaletti

Todd M. Malan

Uday Malhotra

Upacala Mapatuna

Kristerfor T. Mastronardi

Ikuo Matsuhashi

Francois Mauran

Brendan M. McCarthy

Patrick E. McCarthy

Michael J. McCreesh

Mathew R. McDermott

Charles M. McGarraugh

Sean B. Meeker

Christopher J. Millar

Vahagn Minasian

Matthew R. Mitchell

Ryan C. Mitchell (EQ)

Christine Miyagishima

Igor Modlin

Michael Moizant

Petra Monteiro

Heather L. Mulahasani

Eric Murciano

Colin D. Murphy

Paul M. Mutter

Balachandra L. Naidu

Arvind Narayanan

Mani Natarajan

Antti K. Niini

Tomoya Nishikawa

Daniel Nissenbaum

Kevin Ohn

Thomas A. Osmond

Diana Y. Pae

David C. Page

Elena Paitra

Chrisos Papavasiliou

James Park

Katherine J. Park

Kyung-Ah Park

Ian L. Parker

Karen M. Parry

Benjamin R. Payne

Thomas G. Pease

Andrew J. Pena

Stuart R. Pendell

Ricardo H. Penfold

Jerry Z. Peng

Andrew Philipp

Sasa Pilipovic

Giovanna Pomilio

Asahi M. Pompey

Ling C. Pong

Michael A. Pope

Raya Prabhu

Macario Prieto

Joshua Purvis

Xiao Qin

Philippe Quix

J Ram

Rajiv Ramachandran

Maximilliano Ramirez

Gary M. Rapp

Felicia J. Rector

Christopher C. Rollins

Colin J. Ryan

Maheshwar R. Saireddy

Ricardo F. Salgado

David Sancho

Ian P. Savage

Bennett J. Schachter

Bruce J. Schanzer

Martin L. Schmelkin

Laurie E. Schmidt

Alexander A. Schnieders

Joseph Schultz

Dirk Schumacher

Carsten Schwarting

Thomas Schweppe

Dmitri Sedov

Ram Seethepalli

Stacy D. Selig

Kunal Shah (FICC, EMEA)

Tejas A. Shah

Alasdair G. Share

Kevin C. Shea

William Q. Shelton

Jie Shen*

Jason E. Silvers

Ales Sladic

Howard D. Sloan

Michelle D. Smith

Stephanie P. Smith

Thomas J. Smith

Sangam Sogani

Robert A. Spencer

Thomas G. Stelmach

Thomas A. Stokes

Sinead M. Strain

Phillip B. Suh

Jamie Sutherland

Anton Sychev

Brian A. Tafaro

Hideaki Takada

Konnin Tam

Bong Loo Tan

Yasuko Taniguchi

Daniel W. Tapson

Richard M. Thomas (Finance)

Francis S. Todd

Christos Tomaras

Lale Topcuoglu

Thomas A. Tormey

Chi Keung Tse

Weidong Tu**

Reha Tutuncu

Mei Ling Tye

Allen Ukritnukun

Nicholas A. Valtz

Nicholas J. van den Arend

Emile F. Van Dijk

Dirk-Jan M. Vanderbroeck

Alexandra S. Vargas

Peter G. Vermette

Matthew P. Verrochi

Cynthia L. Walker

Sindy Wan

Freda Wang

Yi Wang**

Mitchell S. Weiss

Greg R. Wilson

Mark J. Wilson

Gudrun Wolff

Isaac W. Wong

David J. Woodhouse

Stuart J. Wrigley

Jerry Wu*

Jihong Xiang**

Ying Xu

Lan Xue

Yoshiyuki Yamamoto

C.T. Yip*

Eugene Yoon

Angel Young

Daniel M. Young

Raheel Zia

*Employee of Goldman Sachs Gao Hua Securities Company Limited

**Employee of Beijing Gao Hua Securities Limited”

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Quantitative Easing II: A Video Tale of Mr. Ben Bernanke

Thursday, November 18th, 2010

Today, Ben Bernanke defended his second economic stimulus package, using monetary easing to lower interest rates and spur both spending and lending.  The first $2 trillion package apparently wasn’t enough, so now another avalanche of capital will flow into the United States economy and abroad.  When criticized by China and other East Asian economies now being flooded with excess capital flows, Bernanke claimed that both growth and trade are not balanced and that emerging market currency pegs were to blame.  Now begin the currency wars between the mature and emerging economies…can anyone actually win?  Bernanke claims that emerging market growth will be stimulated as the developed nations recover; therefore, a weaker U.S. currency could be better for everyone.  Only time, our inflation rate, and the price of gold will tell. (Paulson’s gold fund has certainly been on a tear…)

This video should provide some humor to the current situation.  The section on Mr. Dudley’s role at Goldman Sachs is pretty revealing…


According to Bloomberg, “Federal Reserve Chairman Ben Bernanke, took his defense of the U.S. central bank’s monetary stimulus abroad, saying it will aid the world economy, and implicitly criticized China for keeping its currency weak.

The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said in prepared remarks to a conference later today in Frankfurt. Countries that undervalue their currencies may eventually inhibit growth around the world and risk financial instability at home, he said.

The Fed chief is confronting criticism from officials in countries including China and Brazil who say the Nov. 3 decision to buy $600 billion in Treasury securities has weakened the dollar and contributed to flows of capital to emerging markets. The policy has also come under fire in the U.S., where critics including Republican members of Congress have said it risks fueling inflation and asset bubbles.

“Globally, both growth and trade are unbalanced,” Bernanke said, with economies growing at different rates. “Because a strong expansion in the emerging-market economies will ultimately depend on a recovery in the more advanced economies, this pattern of two-speed growth might very well be resolved in favor of slow growth for everyone if the recovery in the advanced economies falls short.”

Group of 20

While Bernanke didn’t identify China, he took aim at “large, systemically important countries with persistent current-account surpluses.” Bernanke’s comments come a week after leaders of the Group of 20 developed and emerging nations meeting in South Korea failed to agree on a remedy for trade and investment distortions. At the summit, President Obama attacked China’s policy of undervaluing its currency.

Bernanke said that the “sense of common purpose has waned” after officials around the world united to fight the financial crisis. “Tensions among nations over economic policies have emerged and intensified, potentially threatening our ability to find global solutions to global problems,” he said.

China has tied the yuan to the dollar to promote exports that helped produce the fastest gains in gross domestic product of any major economy. China, which surpassed Japan’s GDP to become world No. 2 in the second quarter, recorded 9.6 percent annual growth in the three months through September. It holds about $2.6 trillion in foreign reserves, the most in the world.

International Panel

The Fed released the text of Bernanke’s speech in Washington ahead of the address scheduled for at 11:15 a.m. Frankfurt time at a European Central Bank conference on monetary policy. He will then speak on a panel at 11:45 a.m. with ECB President Trichet, International Monetary Fund Managing Director Kahn and Brazil central bank President Meirelles.

In the panel discussion, Bernanke will say that “financial conditions eased notably in anticipation” of the Fed’s stimulus announcement, “suggesting that this policy will be effective in promoting recovery,” according to a text released by the Fed.

It’s Bernanke’s first trip abroad since the Federal Open Market Committee made the decision, dubbed QE2 by economists and investors, to implement a second round of so-called quantitative easing. Bernanke said the term is “inappropriate” because it usually refers to policies that change the quantity of bank reserves, “a channel which seems relatively weak, at least in the U.S. context.”

Global Call

In the speech, Bernanke called on policy makers around the world to “work together to achieve a mutually beneficial outcome — namely, a robust global economic expansion that is balanced, sustainable and less prone to crises.”

German Finance Minister Schaeuble said Nov. 5 he was “dumbfounded” at the Fed’s actions, which won’t aid growth and will instead contribute to imbalances by driving down the currency. U.S. monetary policy is creating “grave distortions” and causing “collateral effects” on faster-growing economies such as Brazil, Meirelles said in October.

Bernanke said that different economies “call for different policy settings.” In the U.S., inflation has slowed since the most recent recession began in December 2007, and “further disinflation could hinder the recovery,” he said.

“Insufficiently supportive policies in the advanced economies could undermine the recovery not only in those economies, but for the world as a whole,” he said.

Jobless Rate

America’s unemployment rate at 9.6 percent last month is currently “high and, given the slow pace of economic growth, likely to remain so for some time,” Bernanke said. He said that “we cannot rule out the possibility that unemployment might rise further in the near term, creating added risks for the recovery.”

The asset purchases will be used in a way that’s “measured and responsive to economic conditions,” Bernanke said. Fed officials are “unwaveringly committed to price stability” and don’t seek inflation higher than the level of “2 percent or a bit less” that most policy makers see as consistent with the Fed’s legislative mandate, he said.

Bernanke, 56, also appealed to human concerns to justify the Fed’s policy.

“On its current economic trajectory the United States runs the risk of seeing millions of workers unemployed or underemployed for many years,” he said. “As a society, we should find that outcome unacceptable.”

The former Princeton University economist devoted the majority of his speech to discussing global policy challenges and tensions.

China’s Criticism

China’s vice foreign minister, Mr. Tiankai, said Nov. 5 that “many countries are worried about the impact of the policy on their economies,” echoing concerns raised across Asia over stronger currencies and possible asset-price inflation.

Bernanke used one of nine charts to show how countries including China and Taiwan are intervening to prevent or slow appreciation in their currencies. Allowing stronger currencies would help result in “more balanced and sustainable global economic growth,” Bernanke said.

The comments echo views of Obama administration officials including Treasury Secretary Geithner, who said Oct. 6 that “it is very important to see more progress by the major emerging economies to more flexible, more market-oriented exchange-rate systems.”

Depression Lesson

Bernanke, a scholar of the Great Depression, drew a comparison between the current period and events leading to the 1930s economic disaster. The U.S. and France maintained “persistently undervalued” exchange rates by preventing inflows of gold from feeding into money supplies, which created deflationary pressures in other countries and helped bring on the Depression, Bernanke said.

“Although the parallels are certainly far from perfect, and I am certainly not predicting a new Depression, some of the lessons from that grim period are applicable today,” Bernanke said. “In particular, for large, systemically important countries with persistent current-account surpluses, the pursuit of export-led growth cannot ultimately succeed if the implications of that strategy for global growth and stability are not taken into account.””

Yahoo! Jumps on Buyout Rumors from AOL, KKR, Silver Lake, Blackstone

Tuesday, November 9th, 2010

Two years after Microsoft tried to acquire Yahoo! for $33/share and the company lost half its market value, AOL and Silver Lake have separately lined up financial advisers to explore options for the company.  AOL is also exploring a scenario where Yahoo!’s Asian assets are spun off and the capital is returned to shareholders before the acquisition.  AOL has been extremely proactive in buying companies over the past two months, purchasing 5min Ltd., an Internet content provider and TechCrunch, a popular technology blog.

Bloomberg announced today that KKR is also interested in helping finance the transaction.  Silver Lake Partners and Blackstone are currently in buyout talks.  The sponsors are interested in Yahoo!’s 40% stake in Alibaba, a growing Chinese online business.  Yahoo! currently employs about 13,600 people and had revenues of about $1.6 billion last quarter. Shares in the company rose 9.5% on the rumors today, and the firm’s management team may have hired Goldman Sachs as a takeover defense advisor to ward off bids.

According to the WSJ, analysts say that a Yahoo!-AOL merger could create a strong competitor in the display ads market, which is estimated to be $20 billion this year.  This should be an interesting transaction, if it proceeds further, as Yahoo has a market capitalization of $21.85 billion and AOL has a market capitalization of $2.66 billion.  However, analysts value at between $15bn and $25bn, which means that Yahoo!’s 40% stake could be worth $10 billion. By selling those assets, Yahoo!’s market value would fall to about $11 billion, which would make the deal much more realistic.

On the other hand, Alexei Oreskovic and Sue Zeidler argue that the company will have hurdles even if it does get bought out.  Yahoo! made many desperate attempts to grow revenue this year, such as its attempts to purchase foursquare and Groupon.  According to one analyst, “making Yahoo! bigger or smaller will not accomplish anything.”  Yahoo! is the 2nd most popular search engine behind Google, but it has failed to find growth in page views or new business.  From a private equity investor’s point of view, Yahoo! may simply be attractive because of the steady cash flow it generates, if nothing else.

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Goldman on Gold…Going Up!

Thursday, October 21st, 2010

Goldman published this report on gold early this fall, and so far, so gold…Paulson’s gold fund must be doing pretty well…

With U.S. real rates declining, it makes sense that this commodity rose to nearly $1,380 just days ago because of the depreciation of the U.S. dollar currency.

In the report, Goldman cites U.S. 10 year TIPs sliding below 1.0%, suggesting gold is oversold.  Quantitative easing will only add to the hype…

Goldman Gold

Flamand Leaves Goldman to Start Fund

Thursday, March 11th, 2010

Pierre-Henri Flamand, a 15 year veteran employee of Goldman Sachs recently left Goldman Sachs to start his own firm.   Mr. Flamand formerly ran  Goldman Principal Investments.  His new fund may raise as much as $1 billion.  Six years ago, another Goldman employee, Eric Mindich, raised $3 billion for his fund Eton Park Capital.

According to Mr. Cahill of Bloomberg,  Pierre-Henri Flamand, the head of Goldman Sachs Group Inc.’s largest internal hedge fund, is retiring from the world’s most profitable securities firm to start a hedge fund, according to three people with knowledge of his plans.

Flamand, 39, has worked at Goldman Sachs for 15 years and has run Goldman Sachs Principal Strategies from London since 2007. He didn’t respond to calls or e-mails seeking comment. A Goldman Sachs executive in London confirmed the departure and said the company supports Flamand’s plan.

Flamand is setting up his own fund as Wall Street pay and proprietary trading come under increased scrutiny from lawmakers. Goldman Sachs Investment Partners, founded by a former principal strategies team, was transformed into a hedge fund managing $7 billion in 2008 and became part of Goldman’s asset management unit.

“Goldman Sachs is the best money-making machine in the world but compensation is subject to public policy — if you go private it’s your own business,” said Jerome Lussan, chief executive officer of Laven Partners LLP, a London-based hedge fund consultancy. “You could have been the best prop trader in the world and you would have been paid less last year than you might have expected.”

Goldman Sachs Principal Strategies rebounded from losses in 2008 to fuel the firm’s 7 percent gain in equity revenues to $9.89 billion in 2009, according to its annual report. The business seeks to profit from discrepancies in relative values of financial instruments, convertible bonds and “various types of volatility trading,” according to the report.

“Results in principal strategies were positive compared with losses in 2008,” Goldman said in its 10-K filing with the U.S. Securities and Exchange Commission. That helped make up for a reduction in revenue in the rest of Goldman Sachs’s equities business last year, according to the filing.

Before 2007, Flamand was head of Goldman Sachs Principal Strategies in Europe from 2002. While his background at Goldman will help lure investors, he’ll face a more challenging fund- raising environment than his fellow Goldman Sachs veterans who set up their own firms, said Lussan.

Former Goldman Sachs partner Eric Mindich founded Eton Park Capital Management LP with $3 billion in 2004.

“There’s so much less appetite today, if he gets a billion to start today it’ll be a massive launch,” said Lussan. “The world has a lot less means than it used to.”

Largest Hedge-Fund Managers as of Dec. 31, 2010

Monday, March 8th, 2010

Largest Hedge-Fund Managers
(Ranked by assets as of Dec. 31, 2009)
Firm Assets (billions)
JPMorgan Chase $53.5
Bridgewater Associates $43.6
Paulson & Co. $32.0
Brevan Howard $27.0
Soros Fund Management $27.0
Man Group $25.3
Och-Ziff Capital $23.1
D.E. Shaw* $23.0
BlackRock/Barclays Global $21.0
Farallon Capital $20.7
Baupost Group** $20.0
Goldman Sachs Asset $17.8
BlueCrest Capital $17.3
Canyon Partners $17.0
Landsdowne Partners* $15.0
Renaissance Technologies $15.0
Fortress Investment $13.8
Moore Capital $12.4
Viking Global* $12.4
Citadel Investment $12.2
SAC Capital $12.0
GLG Partners $11.5
Tudor Investment $10.0
Source: Pension & Investments magazine.

Senator Grassley’s Letter to Goldman Sachs: Why Are You Charging 37% More in Fees for “Build America” Bonds?

Sunday, February 28th, 2010

This is a must read! Senator Grassley is chastising the firm for taking 37% more in underwriting fees for the Build America bonds than plain vanilla municipal bonds.  You be the judge! (Click full-screen)

Senator Charles E. Grassley’s Letter to Lloyd C. Blankfein