Archive for the ‘investments’ Category

Impact of Fed Tapering Announcements on Emerging Markets

July 21, 2014 Comments off

Impact of Fed Tapering Announcements on Emerging Markets
Source: International Monetary Fund

This paper analyzes market reactions to the 2013–14 Fed announcements relating to tapering of asset purchases and their relationship to macroeconomic fundamentals and country economic and financial structures. The study uses daily data on exchange rates, government bond yields, and stock prices for 21 emerging markets. It finds evidence of markets differentiating across countries around volatile episodes. Countries with stronger macroeconomic fundamentals, deeper financial markets, and a tighter macroprudential policy stance in the run-up to the tapering announcements experienced smaller currency depreciations and smaller increases in government bond yields. At the same time, there was less differentiation in the behavior of stock prices based on fundamentals.

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Incubators, Accelerators, Venturing, and More: How Leading Companies Search for Their Next Big Thing

July 11, 2014 Comments off

Incubators, Accelerators, Venturing, and More: How Leading Companies Search for Their Next Big Thing
Source: Boston Consulting Group

Most corporate-executive suites are packed with all manner of state-of-the-art technology. But one low-tech instrument is in demand in nearly all of them: a periscope. Not a literal one, perhaps, but CEOs would no doubt welcome the ability to see around corners and spot the approaching forces that could disrupt their businesses or give them an innovation advantage over their peers. In this report, The Boston Consulting Group takes a close look at tools already in use at some of the corporate world’s innovation leaders to identify and explore new pathways to growth, including business incubators and accelerators, corporate venture investing, and strategic partnerships. Drawing on our extensive experience in the field, we offer insights into their most effective applications and describe how they can best be used in concert for maximum strategic advantage.

Understanding Social Impact Bonds and Pay for Success

July 11, 2014 Comments off

Understanding Social Impact Bonds and Pay for Success
Source: Urban Institute

Pay for success (PFS) financing and social impact bonds (SIBs) have generated immense enthusiasm in the public and private sectors as a means to shift risk and generate new capital for social programming. In PFS and SIB transactions, private investors provide capital for an evidence-based social program. The investors’ principal is returned with a profit if rigorous evaluation concludes predetermined performance goals are met.

There are more than a dozen operating SIBs in the United Kingdom, and several PFS projects in US cities and states. However, transitioning from an experiment to a stable social funding structure requires a rigorous selection and evaluation process, and an appropriate pricing scheme for governments and investors. Urban Institute researchers have developed roadmaps for the next step for PFS development in the United States by drawing on evaluation research, policy development, and cost-benefit analysis.

Performance for Pay? The Relation Between CEO Incentive Compensation and Future Stock Price Performance

July 9, 2014 Comments off

Performance for Pay? The Relation Between CEO Incentive Compensation and Future Stock Price Performance
Source: Social Science Research Network

We find evidence that CEO pay is negatively related to future stock returns for periods up to three years after sorting on pay. For example, firms that pay their CEOs in the top ten percent of excess pay earn negative abnormal returns over the next three years of approximately -8%. The effect is stronger for CEOs who receive higher incentive pay relative to their peers. Our results appear to be driven by high-pay induced CEO overconfidence that leads to shareholder wealth losses from activities such as overinvestment and value-destroying mergers and acquisitions.

Market Risk Premium Used in 88 Countries in 2014: A Survey with 8,228 Answers

July 8, 2014 Comments off

Market Risk Premium Used in 88 Countries in 2014: A Survey with 8,228 Answers
Source: Social Science Research Network

This paper contains the statistics of the Equity Premium or Market Risk Premium (MRP) used in 2014 for 88 countries. We got answers for more countries, but we only report the results for 88 countries with more than 6 answers.

37% of the MRP used in 2014 decreased (vs. 2013) and 9% increased.

Most previous surveys have been interested in the Expected MRP, but this survey asks about the Required MRP. The paper also contains the references used to justify the MRP, comments from 30 persons that do not use MRP, and comments from 53 persons that do use MRP.

CRS — Foreign Holdings of Federal Debt

July 7, 2014 Comments off

Foreign Holdings of Federal Debt (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

Federal debt represents, in large measure, the accumulated balance of federal borrowing of the U.S. government. The portion of gross federal debt held by the public consists primarily of investment in marketable U.S. Treasury securities. Investors in the United States and abroad include official institutions, such as the U.S. Federal Reserve; financial institutions, such as public banks; and private individual investors.

CRS — High-Frequency Trading: Background, Concerns, and Regulatory Developments

July 7, 2014 Comments off

High-Frequency Trading: Background, Concerns, and Regulatory Developments (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

High-frequency trading (HFT) is a broad term without a precise legal or regulatory definition. It is used to describe what many characterize as a subset of algorithmic trading that involves very rapid placement of orders, in the realm of tiny fractions of a second. Regulators have been scrutinizing HFT practices for years, but public concern about this form of trading intensified following the April 2014 publication of a book by author Michael Lewis. The Federal Bureau of Investigation (FBI), Department of Justice (DOJ), Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), the Office of the New York Attorney General, and the Massachusetts Secretary of Commerce have begun HFT-related probes.

Sustainability goes mainstream: Insights into investor views

July 4, 2014 Comments off

Sustainability goes mainstream: Insights into investor views
Source: PricewaterhouseCoopers

What do investors think about sustainability issues? Do these issues factor into investment strategies and practices? Will they in the future?

Four in five investors responding to our survey said they considered these concepts in one or more investment contexts in the past year. And about 85% expect to consider them three years from now. But investors are not happy with corporate reporting about sustainability—they’re still not getting the information they’re looking for. Investors want to be a part of the sustainability dialogue. And they want direct engagement with the companies in which they invest.

The Effect of Patent Litigation and Patent Assertion Entities on Entrepreneurial Activity

June 27, 2014 Comments off

The Effect of Patent Litigation and Patent Assertion Entities on Entrepreneurial Activity
Source: Social Science Research Network

This paper empirically investigates the statistical relation between levels of patent litigation and venture capital (“VC”) investment in the U.S. We find that VC investment, a major funding source for entrepreneurial activity, initially increases with the number of litigated patents, but that there is a “tipping point” where further increases in the number of patents litigated are associated with decreased VC investment, which suggests an inverted U-shaped relation between patent litigation and VC investment. This appears strongest for technology patents, and negligible for products such as pharmaceuticals. There is some evidence of a similar inverted U-shaped relation between patent litigation and the creation of new small firms. Strikingly, we find evidence that litigation by frequent patent litigators, a proxy for PAE litigation, is directly associated with decreased VC investment with no positive effects initially.

Hat tip: ResearchBuzz.

New From the GAO

June 23, 2014 Comments off

New From the GAO
Source: Government Accountability Office


1. DOD Financial Management: The Defense Finance and Accounting Service Needs to Fully Implement Financial Improvements for Contract Pay. GAO-14-10, June 23.
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2. Telecommunications: USDA Should Evaluate the Performance of the Rural Broadband Loan Program. GAO-14-471,May 22.
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3. Medicaid: Financial Characteristics of Approved Applicants and Methods Used to Reduce Assets to Qualify for Nursing Home Coverage. GAO-14-473, May 22.
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4. Advanced Reactor Research: DOE Supports Multiple Technologies, but Actions Needed to Ensure a Prototype Is Built. GAO-14-545, June 23.
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5. VA Spina Bifida Program: Outreach to Key Stakeholders and Written Guidance for Claims Audit Follow-up Activities Needed. GAO-14-564, June 23.
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6. Debt Management: Floating Rate Notes Can Help Treasury Meet Borrowing Goals, but Additional Actions Are Needed to Help Manage Risk. GAO-14-535, June 16.
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Related Product

Debt Management: Survey of Investors in Treasury Securities (GAO-14-562SP, June 16, 2014), an E-supplement to GAO-14-535. GAO-14-562SP, June 16.

Global Wealth 2014: Riding a Wave of Growth

June 20, 2014 Comments off

Global Wealth 2014: Riding a Wave of Growth
Source: Boston Consulting Group

The global wealth-management industry delivered a few surprises in 2013. Excellent growth did not always translate into higher profits. The mature economies of the “old world” and the rapidly developing economies (RDEs) of the “new world” continued to move at different speeds in general, but some developed economies performed extremely well, shifting the playing field. And sophisticated digital offerings are increasingly becoming a source of competitive advantage.

Overall, the key challenge in the old world remains how to make the most of a large existing asset base amid volatile growth patterns, while the principal task in the new world is how to attract a sizable share of the new wealth that is being created more rapidly than ever. Players in every region will be required to forge creative strategies in order to deepen client relationships and lift both revenues and profits. But the road will not be easy. Indeed, most wealth managers continue to face common challenges in terms of gathering new assets, generating new revenues, managing costs, maximizing IT capabilities, complying with regulators, and finding winning investment solutions that foster client loyalty. The battle for assets and market share will become increasingly intense in the run-up to 2020.

In Riding a Wave of Growth: Global Wealth 2014, which is The Boston Consulting Group’s fourteenth annual report on the global wealth-management industry, we explore the current size of the market, the present state of offshore banking, and the performance of leading institutions in a wide range of categories. We also examine the growing digital aspects of wealth management, along with the most profitable business models—all with an eye toward the steps that wealth managers must take to position themselves advantageously.

Our goal, as always, is to present a clear and complete portrait of today’s wealth-management industry, as well as to offer thought-provoking analysis of issues that will affect all types of wealth managers as they pursue their growth and profitability ambitions in the years to come.

Free registration required to access report.

The big questions about Scottish independence; Towers Watson summarises what Scottish independence could mean for pension plans, their sponsors and financial institutions.

June 17, 2014 Comments off

The big questions about Scottish independence; Towers Watson summarises what Scottish independence could mean for pension plans, their sponsors and financial institutions.
Source: Towers Watson

As we enter the final three months of the countdown to the Scottish Independence referendum, Towers Watson has released a short paper, entitled The big questions, outlining how a yes vote to Scottish independence could affect UK-wide financial institutions and pensions plans. It poses questions in several fundamental areas such as currency, membership of the European Union and tax and fiscal policy.

In the paper Towers Watson summarises the main questions for pension plans, as well as some of those likely to affect the investment and insurance industries, in the event of a yes vote. It suggests that these will only be answered through the developing economic, social and regulatory policies of an independent Scotland and not ahead of time.

Retirement Insights — Breaking the 4% Rule (executive summary)

June 17, 2014 Comments off

Retirement Insights — Breaking the 4% Rule (PDF)
Source: J.P. Morgan

In Brief
• A dynamic model adapts withdrawal rates and asset allocations in response to changes in economic and market environments and shifts in personal circumstances.
• This approach appears to offer greater probability of retirement funding success by measuring the amount of overall satisfaction retirees derive from their withdrawals.
• Understanding the emotional aspects of investing can help draw meaningful—if at times counterintuitive—conclusions about optimal retirement income strategies.
• Case studies suggest the dynamic framework provides a potentially more even balance between generating and withdrawing enough from portfolio assets to maintain sustainable post-retirement living standards, while avoiding the risk of running out of money.

Hat tip: PW

Individual Retirement Account Balances, Contributions, and Rollovers, 2012; With Longitudinal Results 2010–2012: The EBRI IRA Database

May 29, 2014 Comments off

Individual Retirement Account Balances, Contributions, and Rollovers, 2012; With Longitudinal Results 2010–2012: The EBRI IRA Database
Source: Employee Benefit Research Institute

Executive Summary

  • As part of the EBRI Center for Research on Retirement Income (EBRI CRI), the EBRI IRA Database is an ongoing project that collects data from IRA plan administrators across the nation. For year-end 2012, it contained information on 25.3 million accounts owned by 19.9 million unique individuals, with total assets of $2.09 trillion. The EBRI IRA Database is unique in its ability to track individual IRA owners with more than one account, thereby providing a more accurate measure of how much they have accumulated in IRAs.
  • The average IRA account balance in 2012 was $81,660, while the average IRA individual balance (all accounts from the same person combined) was $105,001. Overall, the cumulative IRA average balance was 29 percent larger than the unique account balance.
  • Rollovers overwhelmingly outweighed new contributions in dollar terms. While almost 2.4 million accounts received contributions, compared with the 1.3 million accounts that received rollovers in 2012, 10 times the amount of dollars were added to IRAs through rollovers than from contributions.
  • The average individual IRA balance increased with age for owners ages 25 or older, from $11,009 for those ages 25–29 to $192,961 for those ages 70 or older.
  • Looking at individuals who maintained an IRA account in the database over the three-year period in question, the overall average balance increased each year—from $95,431 in 2010 to $95,547 in 2011 and to $106,205 in 2012.
  • Males had higher individual average and median balances than females: $139,467 and $36,949 for males, respectively, vs., $81,700 and $25,969 for females. However, the likelihood of contributing to an IRA did not significantly differ by gender within the database, as both Roth and traditional IRAs owned by either males or females (as well as those without a gender identified in the database) had similar probabilities of receiving contributions.
  • IRA owners were more likely to be male. In particular, those with an IRA originally opened by a rollover, or a SEP/SIMPLE IRA were much more likely to be male (57.4 percent of the former, and 58.2 percent of the latter).
  • Younger Roth IRA owners were more likely to contribute to the Roth IRA than were older Roth IRA owners: 43 percent of Roth owners ages 25–29 contributed to their Roth in 2012, compared with 21 percent of Roth owners ages 60–64.

SEC Warns Investors About Marijuana-Related Investments Amid Recent Trading Suspensions

May 16, 2014 Comments off

SEC Warns Investors About Marijuana-Related Investments Amid Recent Trading Suspensions
Source: U.S. Securities and Exchange Commission

The Securities and Exchange Commission today cautioned investors about the potential for fraud in microcap companies that claim their operations relate to the marijuana industry after the agency suspended trading in the fifth such company within the past two months.

The SEC issued an investor alert warning about possible scams involving marijuana-related investments, noting that fraudsters often exploit the latest growth industry to lure investors with the promise of high returns. “For marijuana-related companies that are not required to report with the SEC, investors may have limited information about the company’s management, products, services, and finances,” the SEC’s alert says. “When publicly available information is scarce, fraudsters can more easily spread false information about a company, making profits for themselves while creating losses for unsuspecting investors.”

Spearheaded by its Microcap Fraud Task Force, the SEC Enforcement Division scours the microcap market and proactively identifies companies with publicly disseminated information that appears inadequate or potentially inaccurate. The SEC has the authority to issue trading suspensions against such companies while the questionable activity is further investigated.

Upscale Tech-Savvy Millennials: Saving and Investment Strategies Around the World

May 16, 2014 Comments off

Upscale Tech-Savvy Millennials: Saving and Investment Strategies Around the World
Source: Nielsen

Upscale Millennials represent the future of economic growth and prosperity. These consumers are a subset of the Millennial generation with household incomes over the 75th percentile in their countries—that means households earning $30,000 or more in India and above $70,000 in the U.S.

This young segment of the population is actively saving and investing, and these consumers feel confident in their financial futures. In contrast to the global population, the proportion of upscale Millennials actively saving exceeds future savings intentions in areas reflective of their lifestage like higher education and a first-home purchase. And they’re devoting a larger portion of their monthly income to savings than the general Millennial population. Financial institutions should look to consumer sentiment and savings intentions country by country to develop strategies to educate and connect with upscale Millennials. In an effort to better understand this group and its consumer prowess, Nielsen conducted a study across the U.S., China, India and Brazil to learn about their financial plans and aspirations.

Free registration required to download report.

Global Liquidity – Issues for Surveillance

April 30, 2014 Comments off

Global Liquidity – Issues for Surveillance
Source: International Monetary Fund

The paper starts by presenting evidence of commonality in global financial conditions. This commonality is then related to specific drivers of global financial conditions through a range of transmission channels, including cross-border banking and portfolio flows. Empirical analysis shows a range of price and quantity factors, including measures of risk, bank leverage, and interest rates in financial centers, to drive in part these flows. Country specific policies, including exchange rate and prudential frameworks, are shown to affect the transmission of global conditions. Much remains unknown though, including how evolving structures of global funding, changing institutions, and ongoing financial innovations affect the mechanics of liquidity creation, the channels of liquidity transmission, and potential risks going forward.

Private Equity, Jobs, and Productivity

April 25, 2014 Comments off

Private Equity, Jobs, and Productivity
Source: Harvard Business School Working Papers

Private equity critics claim that leveraged buyouts bring huge job losses. To investigate this claim, we construct and analyze a new dataset that covers U.S. private equity transactions from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing outcomes to controls similar in terms of industry, size, age, and prior growth. Relative to controls, employment at target establishments declines 3% over two years post buyout and 6% over five years. The job losses are concentrated among public-to-private buyouts and transactions involving firms in the service and retail sectors. But target firms also create more new jobs at new establishments, and they acquire and divest establishments more rapidly. When we consider these additional adjustment margins, net relative job losses at target firms are less than 1% of initial employment. In contrast, the sum of gross job creation and destruction at target firms exceeds that of controls by 13% of employment over two years. In short, private equity buyouts catalyze the creative destruction process in the labor market, with only a modest net impact on employment. The creative destruction response mainly involves a more rapid reallocation of jobs across establishments within target firms.

Search Based Peer Firms: Aggregating Investor Perceptions through Internet Co-Searches

April 23, 2014 Comments off

Search Based Peer Firms: Aggregating Investor Perceptions through Internet Co-Searches
Source: Social Science Research Network

Applying a “co-search” algorithm to Internet traffic at the SEC’s EDGAR website, we develop a novel method for identifying economically-related peer firms. Our results show that firms appearing in chronologically adjacent searches by the same individual (Search Based Peers or SBPs) are fundamentally similar on multiple dimensions. In direct tests, SBPs dominate GICS6 industry peers in explaining cross-sectional variations in base firms’ out-of-sample: (a) stock returns, (b) valuation multiples, (c) growth rates, (d) R&D expenditures, (e) leverage, and (f) profitability ratios. We show that SBPs are not constrained by standard industry classification, and is more dynamic, pliable, and concentrated. Our results highlight the potential of the collective wisdom of investors ― extracted from co-search patterns ― in addressing long-standing benchmarking problems in finance.

Private equity: Changing perceptions and new realities

April 23, 2014 Comments off

Private equity: Changing perceptions and new realities
Source: McKinsey & Company

Private-equity performance has been misunderstood in some essential ways. It now seems that the private-equity industry decisively outperforms public equities with respect to risk-adjusted returns, which may prompt return-starved institutional investors to allocate even more capital to the asset class. But this good news comes with an asterisk: top private-equity firms now seem less able to produce consistently successful funds. That’s because success has become more democratic as the general level of investing skill has increased.

The new priority for success is differentiated capabilities. Limited partners (those who invest in the funds raised and managed by general partners) expect funds that exploit a general partner’s distinctive strengths will do well, while more generalist approaches may be falling from favor. Institutional investors will need to get better at identifying and assessing these skills, and private-equity firms will need to look inward to better understand and capitalize on the factors that truly drive their performance.


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