Archive for the ‘ Business ’ Category

News that a counterfeit version of the cancer drug Avastin was found in the U.S. highlights a rising threat: fakes of costly injectable therapies, rather than simple pills, such as Viagra.

The Food and Drug Administration recently alerted doctors and other health-care providers about the risk of “non-FDA-approved injectable cancer medications,” including unauthorized versions of Herceptin, Rituxan and Neupogen, that were being marketed and sold to clinics and “most likely were administered to patients.”

[FAKEDRUG]

Genentech/Associated Press

A vial of Avastin

[FAKEDRUG]

Genentech/Associated Press

A counterfeit vial of Avastin

On Jan. 13, the FDA also alerted British drug maker AstraZeneca PLC to “a number of cases of illegal importation of oncology drugs into the U.S.,” including AstraZeneca’s injectable cancer drug Faslodex, according to the company.

The FDA said this unapproved Faslodex was “most likely” administered to patients. AstraZeneca said it has “no evidence” that the illegally imported drug entered the legitimate supply chain in the U.S. or elsewhere.

A spokeswoman for Amgen Inc., maker of Neupogen, said it isn’t aware of any counterfeits of its products on the U.S. market and is cooperating with an FDA investigation of illegal imports of an unidentified product, not approved for sale in the U.S., that is being sold on the Internet and directly to clinics.

Read Related Content

Fake Cancer Drug Found in U.S. (Feb. 15, 2012)

In the past, most drug-counterfeiting incidents have involved pills such as the erectile-dysfunction medicine Viagra, the most commonly faked drug, according to its maker, Pfizer Inc., with more than 9.5 million bogus tablets seized last year. Increasingly, however, complicated therapies like Avastin, which is given intravenously, are being faked, drug makers say.

Injectable drugs have become increasingly attractive to counterfeiters, in part because they often fetch a higher price than regular pills. Avastin, made by Roche Holding‘s Genentech unit, costs $2,400 a vial.

Hugh Pullen, associate director for European government affairs at Eli Lilly & Co., said the faking of such products is a “growing phenomenon” and something Lilly is “looking at very closely.”

Counterfeiters “are going after anything and everything, from patented to non-patented, expensive to inexpensive,” said John Clark, Pfizer’s chief security officer. Last year, counterfeit Viagra accounted for 85% of the seized fake Pfizer drugs, down from a high of 95% when counterfeiting emerged as a serious threat in the late 1990s.

The number of reports of counterfeited injectable biological drugs, such as Avastin, is still small. But they have more than doubled to 4% of the world-wide total of reported counterfeiting incidents between 2009 and 2005, according to the most recent data collected by the Pharmaceutical Security Institute, a nonprofit group that works on behalf of drug makers. A third of the counterfeit injectables were cancer treatments.

In 2009, the group identified 2,003 drug-counterfeiting incidents world-wide, based on law-enforcement actions, regulators’ warnings and company announcements that fake drugs had been discovered.

The faking of injectable drugs is particularly worrisome to health-care providers because they tend to be life-savings medications for conditions such as cancer, rather than so-called lifestyle drugs, such as Viagra.

In the case of Avastin, the discovery of counterfeits has prompted clinics and hospitals in the U.S. to scrutinize their supplies. So far, the FDA says it hasn’t received any reports of cancer patients injured by the counterfeit Avastin.

The agency has warned 19 medical clinics, most in California, that they may have bought counterfeit Avastin. Connie Jung, an official in the FDA’s drug compliance office, described the threat as limited.

“This only affects a small subset of cancer patients” whose doctors purchased the illegitimate drugs, she said.

The source of the fake drug hasn’t been determined, but European and U.S. authorities said Wednesday they were looking into its path from a supplier in Switzerland through a Danish wholesaler and then to a British wholesaler, before a Tennessee company sold it in the U.S.

Britain’s Medicines and Healthcare Products Regulatory Agency said it found that 41 out of 167 packs of counterfeit Avastin the British drug wholesaler bought from its Danish counterpart already had been sold to the U.S. The agency quarantined the packs that remained at the British company.

The FDA identified the British wholesaler supplying the U.S. as Quality Specialty Products, which it said may also be known as Montana Health Care Solutions. The company couldn’t be reached for comment.

While experts say the U.S. drug supply remains safe, unapproved drugs can enter through purchases from Internet pharmacies or unauthorized suppliers. In the absence of a monitoring system, they then can make their way undetected through the network of wholesalers and distributors that furnish medicines to doctors and conventional pharmacies.

“We don’t have any system in place for authenticating drugs in the U.S.,” said Allan Coukell, director of medical programs at the Pew Health Group, who co-wrote a report last year on counterfeit and adulterated drugs. He said federal laws don’t require the tracking and tracing of medicines, though companies are developing a plan, and California has a law that starts taking effect for manufacturers in 2015 .

Last year Europe adopted legislation requiring each pack of drugs to carry a unique serial number. When the legislation comes into force in 2016, pharmacists and hospitals will be required to scan the bar code to ensure the product is legitimate.

Many drug makers have taken their own steps to curb counterfeiting. Pfizer has a global security team including former U.S. Federal Bureau of Investigation and Turkish narcotics agents, Hong Kong police and U.K. law-enforcement personnel to conduct undercover purchases and do other investigations. It shares the results with authorities in various countries.

China and Jordan now are investigating the counterfeiting of Pfizer drugs based on a company investigation, the company’s Mr. Clark said.

When three counterfeiters in an Asian country began selling fake versions of its drugs, Abbott Laboratories arranged a sting by forming fake businesses, said Doug Frazier, head of Abbott’s protection group. He declined to identify the country but said Abbott arranged for local law enforcement to arrest the suspects.

Because they are often administered in hospitals, by nurses or doctors, injectable drugs are harder to sneak into the supply chain than pills, industry experts say. Britain’s MHRA said the Avastin counterfeiting marks only the second time it has come across counterfeit injectable medicines in the legitimate supply chain. A spokeswoman for the European Medicines Agency called it “very rare.”

Nevertheless, hospitals and clinics attempting to “cut corners” might buy drugs from “more of a gray-market distributor than might be wise,” said Mark Davison, an industry consultant and author of the book “Pharmaceutical Anti-Counterfeiting: Combating the Real Danger from Fake Drugs.” He pointed to a case from the early 2000s when counterfeit Epogen, an injected anemia drug, made its way into Florida’s health-care system.

Typically, counterfeiters target doctors through email spam campaigns or “fax blasts” offering discounts on drugs administered at their offices or in hospitals, said Thomas Kubic, the Pharmaceutical Security Institute’s president and chief executive.

Foreign distributors, posing as legitimate drug wholesalers, may team up with local salespeople to recruit new physician customers, Mr. Kubic said. Those wholesalers usually get conventional drugs from legitimate Indian or Chinese generic drug manufacturers that make compounds that are not approved in the U.S.

The Danish Medicines Agency appears to have been the first regulator to notice the counterfeit Avastin. It reported to Britain’s MHRA on Dec. 15 that a Danish wholesaler had purchased the fake medicine from a Swiss company and then sold it to a U.K. firm, according to British and Danish drug regulators. After finding that counterfeit packs had been sold to the U.S., the MHRA said, it told the FDA on Dec. 22.

The MHRA said there is “no evidence” that British patients received counterfeit Avastin, but that it is still investigating the matter. It added that it doesn’t know where the fake product was produced.

The FDA collected the suspect vials and, working with Genentech, confirmed through testing that they were counterfeit, said the FDA’s Ms. Jung. After receiving the confirmation this week, the agency decided to warn doctors and hospitals about the fakes, she said.

Write to Jonathan D. Rockoff at jonathan.rockoff@wsj.com, Jeanne Whalen at jeanne.whalen@wsj.com and Christopher Weaver at chistopher.weaver@wsj.com

© 2011 Wall Street Journal (www.wsj.com)

The issuance of Islamic bond (sukuk) is gaining acceptance in markets beyond its established strongholds in Malaysia, Indonesia, and the GCC region, according to a report by Standard & Poor’s. The ratings services in it recently published report, ‘Global Crisis Boosts Growth In A Lively But Fragmented Sukuk Market’ said one of the main reason was that European banks were reducing their overseas exposure as their capital requirements have increased and their domestic economies faltered.

Governments in the Middle East and Asia have therefore turned instead to local investors to back their infrastructure projects, said the S&P in its report that examined the reasons behind Suku’s growth. Banks in the Middle East and Asia that comply with Sharia law have also demonstrated a strong appetite for new assets that meet their requirements. Until the global credit crisis of 2008, most sukuk issuances came from corporate issuers; now, most comes from governments and GREs, said the S&P report. ‘In our view, many sovereign issuers hope that Islamic finance will provide them with an alternative means of supporting their economies by tapping into the excess liquidity available in regions that were less hard hit by the economic downturn, such as the GCC region and Asia,’ the ratings agency said. ‘Given the slowdown in global economic growth, we expect this trend to continue in the short term’ it added. ‘Until the Islamic finance industry overcomes its long-term problems, we do not expect sukuk to become a mainstream asset class,’ the ratings agency said in the report.

The S&P pointed out that the huge variety of sukuk structures continued to deter some investors. ‘The process for resolving defaults and restructuring sukuk also remains uncertain; although an increase in the number of issues that have been listed has increased pricing transparency,’ said the report. ‘Sukuk instruments are, however, increasingly attracting attention as a source of funding and diversification,’ it added.

© 2011 Al Bawaba (www.albawaba.com)

For all the risks that come with investing in 529 college-savings plans in a period of market tumult, investors in most states have one certainty: that they’ll receive state tax benefits for their contributions to their home state’s plan. But those tax savings are much richer in some states than in others.

Investors make roughly a third of their contributions to the state-sponsored 529 plans during the fourth quarter of each year, and most of that money comes rushing in during December as families look ahead to tax season, says Paul Curley, director of college-savings research at Financial Research Corp. in Boston.

Most states offer a tax deduction. For one child, a married couple’s annual write-off is capped at levels ranging from $250 (in Maine) to $26,000 (in Pennsylvania), says Joe Hurley, founder of Savingforcollege.com, which tracks 529 plans. Four states—Colorado, New Mexico, South Carolina and West Virginia—don’t have annual deduction limits, but cap total deductions over time for each child. The limit can be as much as $318,000 (in South Carolina).

For parents saving for two children’s college education, the annual deduction caps in 10 states double. In Kansas, for example, it’s $6,000 for one child or $12,000 for two.

Instead of deductions, three states—Indiana, Utah and Vermont—give tax credits for a portion of 529-plan contributions.

Sixteen states don’t offer any tax benefits. A few are states that don’t have a personal income tax, such as Florida and Texas. But several of those states, including California, Hawaii and Minnesota, have high tax rates.

Beyond tax benefits, some states are offering free cash in their 529 plans. Some give money just for starting a 529 plan. For example, Maine and Rhode Island offer $500 and $100, respectively, for parents who start a 529 plan before their child’s first birthday.

One drawback: Because the tax benefits are typically limited to plans sponsored by the taxpayer’s state, that can stop people from choosing a different 529 plan with better-performing investments, says Deborah Fox, a San Diego-based financial planner and founder of Fox College Funding.

The exceptions are Arizona, Kansas, Maine, Pennsylvania and Missouri, where residents can choose a 529 plan from any state while still receiving their own state’s deduction.

—AnnaMaria Andriotis

SmartMoney.com

Less-Than-Full Disclosure

It’s the season to run up those sizable credit-card bills. On the plus side, there are more of those cash-back bonuses and reward points that millions of Americans have come to expect.

But consumer advocates and cardholders say there’s just one small problem: Nobody can really see how the perks are tallied.

At issue is the fact that most credit-card companies don’t provide a charge-by-charge accounting of the rewards earned on each statement and instead list the monthly category or overall totals. That makes it hard to determine if that $1,000 charge for a new plasma TV really qualified for that expected 5% reward (or $50)—or if it netted a smaller payback.

The lack of transparency is “one of the biggest complaints I hear,” says CreditCardForum.com founder Michael Dolen.

Critics say the practice leaves consumers in the dark in a way that would be hard to imagine when it comes to transactions with other corporate entities. In essence, they argue, cardholders must trust the card issuer to get the math right.

For their part, most banks counter that they don’t include such detailed information because they don’t want to confuse the consumer.

“It’s an effort to keep the statement as clear and as uncluttered as possible,” says Terry O’Neill, an executive vice president with Citi Cards. Additionally, banks say a customer-service representative can usually provide a charge-by-charge accounting over the phone—if a cardholder requests it.

That call might yield some surprising revelations—or reminders of oft-forgotten details. Some reward programs, for example, rotate which categories are eligible during a given period and cap rewards. Others don’t count sales at certain types of merchants when calculating points.

—Charles Passy

SmartMoney.com

Fraud Patrol

A nationwide program to fight Medicare fraud is expanding, and organizers could use your help.

The Centers for Medicare and Medicaid Services is awarding $9 million to Senior Medicare Patrol programs across the country. Operated by the Administration on Aging, Senior Medicare Patrol recruits and trains older Americans to “recognize and report instances or patterns of health-care fraud,” according to the AOA.

Senior Medicare Patrol is made up primarily of volunteers—almost 5,000 individuals in all 50 states at the close of 2010. These volunteers teach classes to—and have individual counseling sessions with—Medicare beneficiaries, as well as family members and caregivers.

The focus: why and how to review Medicare notices and Medicaid claims to, first, identify errors and, second, look for potentially fraudulent activity.

If you think you might be interested in volunteering—or you simply wish to learn more about Medicare fraud—visit the National Consumer Protection Technical Resource Center at smpresource.org.

—Glenn Ruffenach

Encore Blog

SmartMoney.com

More Mr. Moms

The economy has been harder on men than women, but a new Census Bureau report shows men are at least picking up some of the slack at home.

Some 32% of dads who have a wife in the work force watch after the kids on a regular basis, up from 26% in 2002, according to the bureau’s semi-regular report on families’ child-care arrangements.

Men’s household responsibilities have been on the rise over the past several decades as more mothers have entered the work force. Meantime, men’s wages have stagnated over roughly the same period—adjusted for inflation, men made more in 1978 than they do today. That means moms are shouldering a greater share of their families’ economic burden.

—Conor Dougherty

Real Time Economics Blog

WSJ.com

The Aggregator, edited by Cristina Lourosa-Ricardo, features news and commentary from The Wall Street Journal and other Dow Jones publications. Email: cristina.lourosa@wsj.com

© 2011 Wall Street Journal (www.wsj.com)

Investing is supposed to be how you build wealth, but sometimes it feels like you need to have money to make money.

Bank of America Merrill Lynch is discouraging its brokers from taking on accounts smaller than $250,000. Even mutual funds, which were invented for the little guy, often require initial investments of $3,000 or more.

Thomas Kuhlenbeck

Those who have access to a 401(k) at work can, and almost always should, contribute to the plan at least enough to qualify for any employer matching contributions. But beyond that, what is a beginning investor to do?

With help from fund researchers at Morningstar, I’ve identified some investments with a low price of admission—as well as low expenses and no loads.

Here are three ways to start small. Really small:

Index Mutual Funds

These benchmark-tracking baskets of stocks—or bonds—can provide a quick and easy way to lay a solid foundation for a balanced, diversified, low-cost portfolio. Charles Schwab’s namesake index funds have initial purchase requirements of just $100 each.

Using a handful of these funds, a small investor could cobble together a starter portfolio for under $1,000.

Among the building blocks: Schwab Total Stock Market Index Fund(SWTSX) for U.S. equities; Schwab International Index Fund (SWISX) for developed-market foreign stocks; and Schwab Total Bond Market Fund (SWLBX) for domestic bonds.

Prefer someone else to do the heavy lifting for you? Last year, Vanguard Group slashed the minimum for funds in its Target Retirement series to $1,000 from $3,000.

These are one-stop alternatives for investors with a specific date in mind for retirement or perhaps another long-term goal.

They invest in other Vanguard index funds, which themselves invest in U.S. stocks and bonds as well as developed- and emerging-markets international stocks. And they automatically rebalance and shift gradually toward more conservative asset allocations as the funds approach their target dates.

Automatic Plans

Some mutual funds with higher minimums provide a back door in for investors willing to commit to small but regular share purchases.

For example, USAA waives the $3,000 minimum on the majority of its 48 funds if you agree to invest $50 per month directly from your savings or checking account. (USAA markets to members of the U.S. military and their families, but its investment products are available to the general public.)

Such “automatic investment plans” can be a nice way to round out your portfolio with a good, actively managed fund that might otherwise be out of your reach.

Want to invest with Morningstar’s 2011 domestic stock fund managers of the year—Scott Satterwhite, James Kieffer and George Sertl? Just $50 a month will get you into their
Artisan Value Fund
(ARTLX), which ordinarily requires a $1,000 initial investment.

Index ETFs

Index exchange-traded funds (ETFs) track benchmarks like index mutual funds but trade on exchanges like stocks. They can be tax efficient, making them especially handy for taxable accounts. And they tend to have super slim expense ratios.

In the past, trading commissions made ETFs impractical for small investors. But now, many brokerages offer commission-free ETF trades.

Michael Iachini, managing director of ETF research at Charles Schwab Investment Advisory, says you could even start with just two ETFs: Vanguard Total World Stock ETF (VT), which invests in U.S. stocks and developed- and emerging-markets international stocks, and Schwab U.S. Aggregate Bond ETF (SCHZ), which tracks the broad, U.S. investment-grade bond market.

Assuming a typical 60%/40% stock/bond mix, you could construct this portfolio for less than $1,000. Schwab ETFs trade commission-free at Schwab—which typically requires a $1,000 account minimum. Non-Schwab ETFs cost $8.95.

Alternatively, Mr. Iachini says you could go with IShares MSCI ACWI Index Fund (ACWI) and Vanguard Total Bond Market ETF (BND). Both ETFs are available commission-free through TD Ameritrade, which advertises a $500 account minimum but will take smaller accounts, says company spokeswoman Christina Goethe.

For a slightly more fine-tuned approach, Paul Justice, director of North American ETF research for Morningstar, says you might choose three separate stock ETFs in addition to the Vanguard Total Bond Market ETF: Vanguard Total Stock Market ETF (VTI), which covers U.S. equities; Vanguard MSCI EAFE ETF (VEA), which covers developed-market foreign stocks; and Vanguard MSCI Emerging Markets ETF (VWO), which covers emerging-markets foreign stocks.

These, too, are available commission-free through TD Ameritrade. And all Vanguard ETFs trade commission-free through Vanguard Brokerage. (Though at Vanguard you’ll need to keep a minimum account balance of $3,000.)

Which reminds me, these strategies needn’t be just for newbies. If you’re among the multitude of investors who flocked to cash last year in fear of another market meltdown, and you are nervous about getting back into the market, consider starting small.

Really small.

© 2011 Wall Street Journal (www.wsj.com)

Karachi: Pakistan’s national flag carrier on Thursday said it would buy five Boeing aircraft and sign an agreement with Airbus to acquire six A310 aircraft that it leased in 2004.

Pakistan International Airlines (PIA) will buy new B777 aircraft to replace its ageing Boeing 747, it said.

The first aircraft in the deal will be inducted into the PIA fleet in March 2015 and the other four in April, July, September and October.

"The induction of the aircraft is part of PIA’s fleet renewal programme by which more aircraft would be inducted into the airline’s fleet," Nadeem Khan Yousufzai, PIA managing director, said on the sidelines of the signing ceremony with Airbus.

Article continues below

© 2011 Gulf News (www.gulfnews.com)

Foreign and local banks are intensifying their struggle for the for the region’s high net worth clients by expanding their Islamic Wealth Management services.

In wealth management there is no such thing as an “invisible hand”, which economist Adam Smith described as the growth-driving result of a free market economy in his “Inquiry into the Nature and Causes of the Wealth of Nations”, published in 1776. In fact, private bankers must work hard to lure High net worth individuals (HNWI) and Ultra-HNWI (clients with over $1m and over $30m at their disposal).

Take Swiss private banks Sarasin and Clariden Leu. Although both financial institutions have been in the DIFC since 2005 and 2007 respectively, they opened representative offices in Abu Dhabi in late 2010. Their moves were obviously not a luxury, but a necessity. According to one private banker: “Emirati investors in Abu Dhabi do not spend much time talking to you if you do not run an office in the UAE capital.”

Different stages of development

Islamic banking is likewise a necessity for any bank which aims to position itself strategically not only in Dubai, Doha and Riyadh but also in North Africa. Banks in post-revolutionary Egypt and Tunisia have taken steps to rival their peers in the Gulf region. But while the former states are more keen on developing Islamic retail banking in order to help SMEs to get on their feet, the GCC‘s Islamic finance industry is miles ahead. Wealth management in line with Shari’ah is considered the “missing link” between Islamic Corporate Banking and Islamic Retail Banking.

Islamic Wealth management is mushrooming in the UAE. Barclays Bank Middle East has recently obtained a licence to operate an Islamic window within their branch in the DIFC. RBS Coutts, the private banking arm of the Royal Bank of Scotland announced last week that it has applied for a banking license to operate the DIFC and is aiming to hire 40 relationship managers by 2015.

“Basle” does not stand solely for regulation

According to Syrian-born Fares Mourad, Managing Director and Head of Islamic Finance at Swiss private bank Sarasin, which operates in the Gulf region in a joint venture with Alpen Capital: “Sarasin is currently the only private bank in Europe that offers customized solutions for cases which had been almost set under a taboo in the Islamic world, such as complex heritage cases or international real estate management and its related tax management.”

Gary Dugan, the Chief Investment Officer Private Banking at Emirates NBD, says that for Arab HNWI “there is no reason any more to fly out money to Switzerland, since Dubai has proven during the Arab Spring that it is a safe harbour within the Middle East”. Dugan adds: “Our booking centres in Dubai, London and Singapore prove that we are well established in the world centres of Islamic Finance.”

But for conventional banks the scope has shrunk and expanded at the same time. While Qatar does not allow conventional banks to offer Islamic banking any more, Oman’s Sultan Qaboos has allowed Islamic Finance in a decree earlier this year. Sarasin-Alpen acted fast to obtain a licence to offer Shari’ah-finance. But there is competition: HSBC Amanah, the UAE‘s local Falcon Private Bank in Abu Dhabi and Geneva-based Pictet also offer customised Shari’ah-compliant solutions. The pieces in the Islamic Wealth Management jigsaw are yet to be set.

© 2011 AMEINFO (www.ameinfo.com)


Fri Feb 17, 2012 10:45am EST

* Schwarzman’s 2011 dividends at least $120.6 mln

* Fee income contributed 82 percent of payout

* Investors concerned over alignment of interests

By Greg Roumeliotis and Bernard Vaughan

NEW YORK, Feb 17 (Reuters) – Stephen Schwarzman, the
boss of the world’s largest private equity firm, made his
fortune by being a financier who delivered outsized returns for
investors from buying, restructuring and then selling companies.
These days, he is getting huge rewards for being the biggest
shareholder in what is more like a souped-up asset manager.

The Blackstone Group LP head is set to receive at
least $120.6 million in 2011 dividends from his 21 percent
ownership of the firm, based on regulatory filings. That is many
times what he gets for being CEO – he received a $350,000 salary
and total compensation of $6.7 million in 2010 though it hasn’t
yet been disclosed for last year.

Fees for managing assets and advisory services accounted for
82 percent of Blackstone’s dividend payouts in 2011, up from 63
percent in 2010, the statements show. That means Schwarzman’s
payout includes a lot more from fees charged to investors for
managing their money than from Blackstone’s slice of the profits
from its buyout business, also known as carried interest.

Blackstone, co-founded by Schwarzman in 1985, has
historically made over two-thirds of its private equity revenues
from carried interest. But fees have now made up the majority of
Blackstone’s cash distributions every year since the company
went public in 2007.

The shift will increase concerns at pension funds,
university endowments and other investors, who provide the funds
for private equity firms, that public listings of firms such as
Blackstone means stockholders are being favored over them.

While these investors, or limited partners, focus on returns
on their investments, shareholders want dividends which can come
from carried interest and management fees.

FEES ALREADY SLIDING

The investors have already been able to push down the
average fee charged on asset management to 1.5 percent from the
more traditional 2 percent in the past few years but stories
like Blackstone’s will only increase the momentum for further
reductions, according to some private equity executives and
investors’ representatives.

Other publicly traded private equity firms, such as KKR & Co
LP and Apollo Global Management LLC, are also
generating more of their revenue from fees but as yet it hasn’t
reached the proportion at Blackstone.

“As the industry has matured some unintended consequences -
like nine-digit management fees – have become apparent and
problematic,” said Stephen Moseley, president of private equity
and advisory firm Rockland Management LLC. “Multiple sources of
income can produce divided loyalties and divided loyalties make
limited partners nervous.”

Blackstone’s fee-earning assets under management increased
25 percent in 2011 to a record $137 billion. On an after-tax
basis, $502 million out of $610 million in dividend payouts last
year came from fee-related income.

The large fee component of Schwarzman’s pay will “add fuel
to the fire in the argument between limited and general partners
on the structure of funds,” said Michael Moy, a managing
director at Pension Consulting Alliance Inc, which advises some
of the largest U.S. pension funds on private equity, including
California Public Employees’ Retirement System.

Blackstone spokesman Peter Rose said given the firm is the
largest and most diversified alternative asset manager, private
equity accounts for only about 25 percent of its business.

“Blackstone has a significant percentage of its businesses
which generate fee income only, similar to all long-only money
managers and financial advisory firms,” Rose said. “We manage
the business as we did before we went public, to maximize net
returns to our limited partners, and, as such, we rank as one of
the top performing managers in the world.”

KKR and Apollo declined to comment.

MAXIMIZE ASSETS OR RETURNS?

The managers of private equity funds, known as general
partners, had traditionally followed the 2/20 model, seeking a
management fee of 2 percent on committed capital and taking 20
percent of a fund’s profits. They argue that compared with
traditional asset managers, their work justifies higher
incentive fees because returns are also outsized.

Moreover, the argument goes, sharing in profits from fund
investments aligns their interest with limited partners, who
commit their money for as long as 10 years in often illiquid
assets that cannot easily be sold.

But internal rates of return from buyouts have dropped to
11.2 percent on a five-year basis in June 2011 from 29.6 percent
in September 2008, according to market research firm Preqin.

Although the impact of the financial crisis, including much
tighter financing conditions, is at least partly to blame,
critics also say it may be a sign the private equity firms are
losing some of their focus after growing much larger.

Cerberus Capital Management co-founder Stephen Feinberg, in
a rare admission for an industry insider, argued last summer
that many private equity executives were overpaid, focused too
much on fees and were hampered by the size of their assets.

“I do think there’s an issue here in funds that are too
large and funds that have acquired too many assets under
management,” Feinberg said at a conference. “If your goal is to
maximize your returns as opposed to assets under management, I
think you can be most effective with a big company
infrastructure and a little bit smaller fund size.”.

The interests of the investors and the general partners of
the firms are best aligned when the latter is making most of
their money from carried interest, said Kathy Jeramaz-Larson, an
executive director at Institutional Limited Partners
Association, which has more than 250 member organizations
representing over $1 trillion of private assets globally.

AN OUTLIER

Besides the dividend payout and his CEO compensation,
Schwarzman – whose wealth was pegged at $4.7 billion by Forbes
last year – will also receive profits from co-investments
through the firm, which are not disclosed.

The size of the dividend payout and its main source, though,
is an outlier even among the handful of publicly traded private
equity firms. At KKR, co-founders Henry Kravis and George
Roberts, who together own 25 percent of the firm, are set to
receive $64.2 million each in dividends in 2011, of which 46
percent will come from fee-related income.

At Apollo, co-founder Leon Black, who owns 24 percent of the
firm, is set to receive $103.9 million in dividends for 2011, of
which only 25 percent will come from fees.

Blackstone has diversified at a faster pace than rivals. It
had assets under management of $166 billion at the end of 2011,
up from $44.4 billion (when it was largely a buyout shop) in
1987, and it has diversified through a credit arm, real estate
business and hedge funds.

For example, BAAM, its hedge funds group manages $40 billion
and is mostly a fees business, with just half the assets
eligible for carried interest payments and the carry rate at 10
percent rather than 20 percent. GSO, Blackstone’s credit arm,
has a collateralized loan obligation business relying on fees.

Blackstone also runs advisory businesses that rely just on
fees, such as an investment banking arm and a placement agent,
which helps other private equity firms fundraise.

Other private equity firms are headed down the same path,
though some way away from Blackstone’s fee reliance. At Apollo,
which has $75 billion in assets under management, the credit
investment business is set to overtake its buyout arm in size.
And KKR, which has $59 billion in assets under management, is
moving furher into real estate, hedge funds and capital
markets .

BETTER RETURNS

It is not that Blackstone’s performance is bad, it is the
source of the returns that is the question. Blackstone said
earlier this month its private equity portfolio was up 5 percent
in 2011, its real estate portfolio was up 17 percent and
credit-oriented hedge funds were up 9 percent, all outperforming
benchmarks. The S&P 500 U.S. stocks index was flat in 2011.

These returns have come during what has been a particularly
difficult period for global financial markets, which buffeted
firms and investors. In the private equity business, exits from
investments – which are needed to turn paper profits to hard
cash – have fallen dramatically since the financial crisis, as
IPO markets have remained choppy at best and frozen at worst.

Blackstone sees its business as cyclical and argues that
carried interest will return as the global economy improves and
it starts to sell its private equity assets. “You’ll see more
(M&A) volume coming in a more traditional fashion in the private
equity area,” Schwarzman told analysts on a recent call.

NEGOTIATING LEVERAGE

Blackstone and other publicly traded private equity firms
argue that ultimately the interests of public shareholders and
limited partners are the same. They say that if the firm does
not make money for limited partners, they will stop giving it
money to manage, which will also hurt public shareholders.

“I don’t think there is a problem with the alignment of
interest,” said Steven Kaplan, a finance professor at the
University of Chicago. “The founders of these firms are not
selling their shares tomorrow and if their funds do not perform
in the long term, the value of their holdings will suffer.”

It also isn’t easy for investors to negotiate the fees down.

“A lot of pension funds believe fees charged by the major
private equity firms are too high but it’s difficult
to negotiate them down on an individual basis,” said George
Hopkins, an executive director of the Arkansas Teachers
Retirement System, an investor in Blackstone. “The ability of
these funds to charge large fees all depends on whether they
continue to perform,” Hopkins added.

© 2011 REUTERS (www.reuters.com)


WASHINGTON |
Thu Feb 16, 2012 8:35am EST

WASHINGTON (Reuters) – Housing starts rose more than expected in January as groundbreaking on rental property surged, boosting hopes the still-weak housing sector could help economic growth this year.

The Commerce Department said on Thursday housing starts climbed 1.5 percent to an annual rate of 699,000 units.

Initial estimates for housing starts can be subject to large revisions and the government revised the December reading significantly higher to a 689,000-unit rate.

The Commerce Department initially estimated groundbreaking in December advanced at a 657,000-unit rate.

Economists polled by Reuters had forecast housing starts rising in January from the initial reading to a 675,000-unit pace.

Starts of multi-unit buildings, which are often rented, jumped 8.5 percent last month. New construction on buildings with five units or more increased 14.4 percent.

Groundbreaking on single-family units, which make up a much larger portion of the sector, fell 1.0 percent.

Permits climbed 0.7 percent to an annual rate of 676,000 units.

(Reporting by Jason Lange; Editing by Andrea Ricci)

© 2011 REUTERS (www.reuters.com)

Tehran: Iranian retailers and restaurateurs were hoping yesterday that young people out buying gifts and making dinner plans for Valentine’s would bring some temporary respite in the face of harsh economic sanctions.

Many Tehran restaurants reported being fully booked last night while young Iranians could be seen out browsing gift shops in the capital to buy presents for loved ones, in defiance of a ban on Valentine’s Day items aimed at preventing the spread of "Western culture".

Iranian authorities banned the sale of Valentine cards and other heart-shaped products last year and police have warned that action will be taken against those who violate the ban.

Gift shops

Article continues below

© 2011 Gulf News (www.gulfnews.com)


HONG KONG |
Sun Feb 12, 2012 11:03pm EST

HONG KONG (Reuters) – Three years after China launched its most ambitious experiment yet to give its currency more global clout, some market watchers are writing its epitaph, saying Beijing is not loosening its grip on the yuan fast enough to attract sustained interest.

But others say incremental changes in Chinese regulations are creating more channels for investors to move yuan between domestic and offshore markets, pointing to a growing market in Hong Kong that Beijing is using as a testbed for far-reaching reforms which could one day see the yuan become a global reserve currency.

“The landscape has changed for the better,” said Tee Choon-Hong, regional head of capital markets, North Asia at Standard Chartered Bank, referring to the recent introduction of new guidelines allowing companies to invest yuan in China.

While many of the earlier deals in the offshore yuan market (CNH) were driven by speculation that China would allow faster appreciation of the yuan, Tee and others said that is no longer the single driving factor behind the market’s growth.

Multinationals such as heavy equipment maker Caterpillar (CAT.N) are eager to plough more money into the country to fund expansions. While capital controls still make it tough to get offshore yuan back into the China, their gesture of selling yuan-denominated bonds is unlikely to go unnoticed by Beijing.

“A market that has previously blown hot and cold due to shifts in yuan gain expectations has made the transition to a more sustainable growth trajectory,” said Tee, who shepherded McDonald’s (MCD.N) first yuan bond in Hong Kong in July 2010.

For the offshore yuan market, that marks a sea change. It is now the more developed, liberal counterpart to China’s still tightly controlled domestic market, and recent reforms show authorities are more confident about its prospects.

Indeed, some economists argue that the rapid expansion and development of the offshore yuan market could give Beijing enough confidence to speed up broader reforms domestically, by giving sophisticated investors more access to relatively underdeveloped mainland markets, though full convertibility of the yuan may still be a long way off.

Conversely, unruly expansion of the offshore market could alarm Chinese policymakers into thinking they were losing control of the currency, and prompt them to take steps to stamp out volatility.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Latest CNH Tracker: r.reuters.com/tuj56s

Breakdown of yuan swap lines: link.reuters.com/dab46s

Offshore yuan deposit growth: link.reuters.com/raw46s

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

TRADE FLOWS FLOURISHING

London, New York and other major global financial centers are eager for a piece of the fast growing market in yuan-denominated assets, but Hong Kong’s status as a special region of China is likely to ensure it will be the biggest beneficiary of further moves by Beijing to internationalize the currency.

Offshore yuan deposits in Hong Kong banks have already expanded by a factor of 10 in two years, though they are still equivalent to less than one percent of China’s total yuan bank deposits.

December monthly figures for trade settlement and offshore yuan deposits are a case in point for the market’s potential.

Even as a more than 6 percent monthly drop in CNH deposits in December to 588 billion yuan ($93 billion) grabbed headlines, monthly trade volume settled in yuan jumped to its highest level since the market began in June 2010, indicating two-way trade flows between the mainland and Hong Kong are flourishing.

That is a big change. Growth of the offshore yuan market previously leaned on a larger number of mainland importers settling more of their bills in yuan because of the cheapness of the dollar abroad and relying on yuan-hungry investors to buy yuan debt, or so-called “dim sum” bonds, sold in Hong Kong.

But as hopes of hefty appreciation in the yuan melted after a global market selloff in the second half of 2011, giving a heavy jolt to the nascent CNH market, Beijing realized that it was equally important to allow the yuan to flow back into the mainland to keep the yuan trade settlement alive.

Recently, the pace of these reforms has only accelerated.

In less than two months, Beijing has taken the covers off a long-awaited cross border investment scheme (RQFII), streamlined a yuan-denominated inward foreign direct investment scheme, signed swap lines with more countries and eased regulations and trading limits on yuan transactions for banks in Hong Kong.

Daryl Ho, head of market development at the Hong Kong Monetary Authority, the territory’s central bank, said at a FinanceAsia conference last week he wasn’t worried about December’s drop in deposits.

“There are more bilateral flows now in yuan and that is a increasingly healthy sign,” Ho said.

REFORMS: CHINESE STYLE

The percentage of trade settled in yuan to total China trade has grown to nearly 7 percent in 2011 compared to less than 1 percent in the June quarter of 2010.

But as Beijing signs more trade deals and extends yuan swap lines with other countries, companies and investors are demanding more access to renminbi assets to give them an incentive to switch their trade settlements to yuan from U.S. dollars.

Last Wednesday, China more than doubled its swap line with Malaysia to 180 billion yuan, taking the total amount of swap lines signed with its trading partners to nearly 1.5 trillion yuan, representing a quarter of its global trade.[ID:nK7E7ND00O]

Some of those demands have also come from countries seeking to diversify their currency reserves. Japan wants more access to Chinese markets to boost trade and help its moribund economy, while Nigeria has hopes to hold as much as 10 percent of its reserves in yuan. [ID:nL4E8D81WX]

And China is heeding those calls. A long-awaited plan to allow Hong Kong-based financial institutions to invest their CNH proceeds in the mainland finally took off in December with authorities granting quotas amounting to 20 billion yuan.

Chordio Chan, head of investments at Bank of China Hong Kong (2388.HK), the territory’s only clearing bank for yuan transactions, said Beijing will sign more yuan swap lines and award more yuan investment quotas this year to boost the offshore market.

USEFUL SIGNALS

In developing Hong Kong as an offshore trading hub for its currency, while maintaining a tight grip on the yuan at home, China has turned a longstanding, evolutionary model of offshore foreign exchange markets upside down.

Countries such as the United States and Germany developed their domestic markets long before the use of their currencies flourished overseas.

Under Beijing’s plan, Chinese banks and companies can learn to handle their currency and interest rate exposure without the risk of causing lasting damage to mainland markets, Sebastian Mallaby and Oli Wethington said in an essay published in Foreign Affairs.

“The system can be tweaked and tested before it is rolled out on the mainland, and in the meantime, it may generate price signals useful to China’s government.” For a link: r.reuters.com/raf56s

(Editing by Kim Coghill)

© 2011 REUTERS (www.reuters.com)