World financial news

Funds specializing in niche assets such as art and wine, long the preserve of ultra-rich hobbyists, are seeing a spike in interest from more mainstream investors seeking an antidote to the complexity of hedge funds.

As economies recover, interest has revived among traditional wealthy clients, but managers also tell of growing interest from institutions who have tended to avoided such illiquid assets.. Some have become confident enough in the trend to launch new funds.

“Attitudes are starting to change and we’re talking to large institutions which have the ability to write some large, meaningful cheques,” said Geordie Manolas, managing director at First State Media Group, which runs a fund that invests in music publishing rights and recently bought the catalog of singer Sheryl Crow.

Solid returns throughout the crisis as other asset classes crashed, and a lengthening track record for some funds, are translating into increased acceptance among investors, though figures are difficult to come by.

Investing in art has precedents for institutions: the British Rail Pension Fund achieved 11 percent annualized returns on art assets from the late 1970s until the late 1990s, but most existing funds are less than 10 years old.

The Fine Art Group, established in 2001, recently bought a work by David Hockney for around $850,000 and has notched up an average annualized return on assets sold at its funds of 30 percent.

On the back of this, institutional investors now make up around 20 percent of the assets and the group is targeting $100 million for a new venture by year-end, according to Philip Hoffman, chief executive payday loan.

“The institutions wanted to see a five-year track record and properly structured teams,” he said, adding that money invested in art funds would be around $350 million by year-end, up from around $200 million at the beginning of the year.

Another relative veteran investing in fine wines, The Wine Investment Fund which dates back to 2003, paid out an annualized return of 13 percent in the five years to August 2009.

Andrew della Casa, director and co-founder of The Wine Investment Fund, said the proportion of institutional investors in the fund is around one-third and rising.

The trend marks a significant shift in attitude. A common perk offered by art funds is to loan paintings, sometimes valued in millions, to investors to hang in their homes - a feature frowned upon by cost-conscious institutions unhappy with additional insurance charges.

HEDGE FUND BACKLASH

The performance of some of the funds contrasts with that of hedge fund industry which suffered its worst year on record in 2008, when the average hedge fund lost 20 percent.

Bernard Duffy, managing director at Emotional Assets Management and Research said the sector is also benefiting from a backlash against hedge funds’ sometimes impenetrable complexity.

“These are tangible assets. You can touch them, you can feel them,” he said. 

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Internet security and naming services provider VeriSign Inc sees near-term pricing pressure in its online security certificates business, but expects to grow margins in 2010 by controlling costs, its top executive said.

The company has been hit by a slowdown in its SSL business — which enables secure e-commerce and communication on the Internet — where the annualized average unit revenue for VeriSign, GeoTrust and Thawte-branded certificates for the third quarter was $234, down 3 percent from the prior quarter.

“We will continue to see some ASP pressure for a while,” CEO Mark McLaughlin said in an interview with Reuters. “With the economy improving, that would start to abate.”

The authentication services business, which includes SSL, forms about 39 percent of VeriSign’s revenue. Naming services — VeriSign serves as the global registry for .com, .net, .tv, .cc, .name and .jobs domain names — makes up most of the rest.

The company was offering discounts for long-term customers to preserve the relationships, he said.

“We haven’t cut our prices, but we’re willing to have discussions around giving discounts,” McLaughlin said online cash advances. VeriSign’s rivals in the SSL business include GoDaddy.

“This is sort of a mixed blessing where the low end of the market is growing faster than the high end of the market,” McLaughlin said.

McLaughlin sees an improvement in margins in 2010.

“Into next year, we’ll continue with this tight expense control. We think that we should be able to continue to get some incremental improvement into next year.”

VeriSign has said it expects fourth-quarter operating margins to be in line with that of the third quarter, when it recorded operating margins, excluding items, of 38.6 percent.

The company, which has been implementing a restructuring strategy to sell its slower growing businesses, expects to sell its last remaining unit to be divested by the end of the year, McLaughlin said.

On November 5, VeriSign swung to a third-quarter profit, but its fourth-quarter revenue forecast fell short of Wall Street estimates.

(Editing by Anil D’Silva)

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A reserve fund must be established ahead of time to give the government the working capital it needs to dismantle large, troubled financial companies, a top U.S. bank regulator said on Tuesday.

Sheila Bair, chairman of the Federal Deposit Insurance Corp, said she opposes the proposal by the Obama administration and a leading senator to collect fees from financial companies after another firm is seized and dismantled.

“This would not be a bail-out fund. This would not be an insurance fund,” Bair said in prepared remarks to the Institute of International Bankers. “It would provide short-term liquidity to maintain essential operations of the institution as it is broken up and sold off.”

Senate Banking Committee Chairman Christopher Dodd earlier on Tuesday released draft legislation that calls for any government expenses to be recouped after a financial company fails and is liquidated. The FDIC would be in charge of dismantling the company.

Treasury Secretary Timothy Geithner has been adamant that creating a standing fund would enhance moral hazard and be viewed by the financial industry as an insurance fund that would insulate it from risky bets.

Bair, however, has been successful in convincing Representative Barney Frank to reverse his opinion on the topic. He recently said he now supports pre-funding the so-called resolution authority.

The resolution authority is just one piece of sweeping legislation moving through Congress to overhaul financial regulation. Other pieces include creating a new consumer agency to police financial products, consolidating bank regulators and creating a new council to oversee risks to the financial system.

The House has made considerably more progress through public bill-writing sessions and hopes to have a full House vote by early December low fee payday loans.

The Senate Banking Committee will start drafting formal language and consider amendments in early December, Dodd said on Tuesday. He did not estimate when the full Senate might vote.

Bair said during her remarks on Tuesday that Frank, chairman of the House Financial Services Committee, is going to take other measures to strengthen his version of financial reform.

She said he will eliminate the government’s ability to assist open but troubled financial companies, will ban the government from investing capital in those institutions, and will create a higher standard for the FDIC and Federal Reserve to provide support to healthy companies in the event of a systemic meltdown.

“We’ve had too many years of unfettered risk-taking, and too many years of government-subsidized risk,” Bair said. “It’s time we closed the book on the doctrine of too big to fail.”

Bair also said regulators can restrain risk in the system by ensuring that large financial companies hold high amounts of capital. She said recent improvements in market conditions cannot deter the effort to follow through on tough new capital standards.

“There is little doubt that there will be eye-popping reductions in required capital when the good times return to banking,” she said.

(Reporting by Karey Wutkowski in Washington and Clare Baldwin in New York, Editing by Andrea Ricci and Gerald E. McCormick)

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Morgan Stanley is looking to sell its 34 percent stake in investment bank China International Capital Corp, the U.S. bank’s China chief executive said on Monday.

“We are a passive investor in CICC, so getting out (of it) is the general direction,” Wei Sun Christianson told Reuters on the sidelines of a conference.

She did not say whether Morgan Stanley was in talks to sell its stake or name potential investors.

Private equity firms Bain Capital and General Atlantic are among those eyeing the stake in CICC, China’s largest investment bank, in a deal that could fetch more than $1.2 billion, Reuters reported last week.

People with direct knowledge of the matter said first-round bids for Morgan Stanley’s stake are due on Tuesday.

The bank wants to sell because its role in CICC has been reduced to that of a passive investor and it feels frustrated, bankers say. Because Morgan Stanley already has one joint venture, regulators will not approve another one.

“We are looking for partners to cooperate closely with us in China,” Christianson said on Monday.

Morgan Stanley won approval from Chinese regulators early last year to sell its stake in CICC, but it took it off the block when bids came in too low. Now that the market has bounced back, it is trying again.

(Reporting by Kang Xize and Alan Wheatley; Editing by Jason Subler and David Cowell)

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General Motors Co GM.UL is confident that it can find the financing to keep and restructure its European Opel unit, Chief Executive Fritz Henderson said on Thursday.

Henderson declined to say how many jobs would have to be cut at Opel or what plants would be closed, saying those details would be presented to Germany and other European governments soon as part of a restructuring plan.

Opel has the liquidity it needs to pay off the 900 million euros ($1.34 billion) remaining on bridge loan from the German government.

At the same time, GM can find ways to provide financing to Opel from its U.S. operations even after a restructuring funded by U.S. taxpayers that had placed some initial restrictions on the automaker’s ability to shift funds to its overseas units.

GM’s decision to keep Opel rather than selling a majority stake to a group that includes Canada’s Magna International and Russia’s Sberbank has touched off controversy in Europe.

Thousands of Opel workers in Germany on Thursday downed tools in a protest.

“We will be very shortly presenting our plan,” Henderson told reporters at a briefing at GM’s headquarters. “We feel confident that the plan will be financeable.”

Henderson said GM could provide liquidity to Opel by reducing the royalties that the European unit would otherwise pay to headquarters online payday advance.

The terms of GM’s exit from bankruptcy in the United States after taking $50 billion in U.S. government financing also allow GM to send funding directly to Opel if needed, he said.

“We are able to run a global business. We certainly need to be prudent about it. We need to be careful about it but we can run a global business,” Henderson said.

Henderson acknowledged that the automaker had “work to do to repair” its relations with the European unions.

GM’s Opel unit was rescued temporarily by a bridge loan from the German government that requires repayment by the end of November.

GM is outperforming its financial plans since emerging from bankruptcy in July and now sees more stability around its sales forecasts, Henderson said.

Henderson said the GM board meeting this week that scrapped plans to sell Opel had been “very vigorous.”

(Reporting by Kevin Krolicki, writing by David Bailey, editing by Dave Zimmerman)

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Although U.S. President Barack Obama has never set foot there, China cast a long shadow in the Pacific region where he grew up.

Obama, who will visit Shanghai and Beijing for the first time on November 15-18, spent much of his childhood in Hawaii, five time zones away from Washington, D.C.; and beginning in 1967, when he was six years old, he lived in Jakarta for four years.

At the time, China was in the throes of Chairman Mao Zedong’s bloody Cultural Revolution. Abroad, the nation was less interested in selling widgets than in promoting Mao’s brand of radical communism — a force the U.S. saw behind communist movements and political upheaval in Vietnam, Indonesia and elsewhere in Southeast Asia.

In 1979, Obama’s senior year at Punahou school in Honolulu, China and the United States normalized diplomatic relations, launching a three-decade period in which ties between the two grew inexorably tighter and deeper — and complicated.

“Think of what China was in 1979: It was an autarkic, insular, inward-looking country that was preoccupied with its own internal things,” said a senior U.S. official. “Even 10 years ago … there was still a sort of sense of ‘We’re not a part of these global rules, we’re not doing this stuff.’ Now they see themselves as sitting at the table.”

If there were any doubts that China would have a seat at the table from now on, Obama dispelled those when he sent Secretary of State Hillary Clinton there on her first official trip abroad — not Pakistan, Afghanistan or any other foreign policy hot spot.

“That the first major visit (was) to China, and to Asia as well, is symbolic of where the locus of international economic activity — and to some degree the locus of international activity, period — is going to be in the coming years,” said economist and author Zachary Karabell, whose new book “Superfusion” posits that the U.S. and Chinese economies have effectively merged.

Beijing, once considered a wallflower on global affairs, is in turn warming to its more prominent role, though it’s unclear that will translate into greater cooperation with Washington on issues like climate change and the nuclear disputes with Iran and North Korea — not to mention human rights differences.

U.S. Deputy Secretary of State James Steinberg highlighted the tension at the heart of the relationship in a speech in September. “Given China’s growing capabilities and influence, we have an especially compelling need to work with China to meet global challenges,” he said.

But Steinberg added that there was a tacit bargain in which the United States expects China to reassure the rest of the world that its growing role “will not come at the expense of security and wellbeing of others.”

That of course includes America’s.

“The big challenge there is going to be to maintain a competitive U.S. economy, and at the same time to maintain a high degree of stability and equanimity in the U.S.-China relationship,” said Clyde Prestowitz, president of the Economic Strategy Institute think tank.

Indeed, even as the United States and China have grown closer diplomatically, their economic and trade ties have deepened to the point of mutual dependence. Not only does China depend on the U.S. export market to fuel its highflying economic growth rates, the United States relies on China’s vast savings to help finance its burgeoning budget deficits.

“It is clearly unsustainable. This relationship helped give rise to global economic imbalances,” said Ben Simpfendorfer, an economist with Royal Bank of Scotland in Hong Kong. “If we are ever going to free ourselves of these imbalances, we need to reverse this relationship, get China to buy things in the U.S. and the U.S. to invest in China.”

“STAKEHOLDER” STRATEGY 

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Canadian auto parts maker Magna wants Herbert Demel, the head of its Austrian car development and assembly plant, to become head of Opel, a German magazine said, citing sources.

Carl-Peter Forster, the current head GM Europe, had been touted to become the head of Opel’s operating business with Demel assuming management of the Opel holding company, WirtschaftsWoche said on Sunday.

The magazine said Forster wants to leave the company bad credit payday loans.

Demel presently heads Magna-Steyr Fahrzeugtechnik in Graz, Austria.

Top officials from Magna and Opel said last week they were confident General Motors GM.UL would go through with the sale of Opel to Magna despite being held up by last-minute EU competition concerns.

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