Readings: FMP scam, Chinese manufacturing, PE valuations
- Sucheta Dalal: The Great FMP Scam
. . . mutual funds’ debt side is around Rs250,000 crore and NBFCs, non-deposit taking is Rs380,000 crore.
Many FMPs were lured by new opportunities that spring up in long bull markets: funding the subscription of initial public offerings (IPOs), funding promoters’ holding in their listed stocks and funding real estate companies. These investments, made through non-banking finance companies, rested on shaky grounds after the stock market indices dropped more than 50% from their January 2008 peak.
FMPs did not have simple mark-to-market rules, although their investments included very short maturity investments as well as structured derivative instruments. So funds were hit with a liquidity crisis because they allowed institutional investors to exit at high net asset values (NAV) based on the yield at maturity.
Templeton Fixed Horizon Fund 15 Months – Growth, which has invested 97.7% of its net assets in a single instrument of a single company - Reliance Capital.
Ah, the wonders of Dalal Street. ‘Assured returns’, ‘indicative returns’ and what not.
China’s manufacturing contracted by the most on record and export orders slumped as a slowdown in the world’s fourth-biggest economy deepened. The Purchasing Managers’ Index fell to a seasonally adjusted 38.8 in November from 44.6 in October.
Sacked workers seeking more compensation from a toy factory in Guangdong province clashed violently with police on Nov. 25. Baosteel Group Corp., China’s biggest steelmaker, is facing its “most difficult” period since the company was founded 30 years ago as output, sales and profit plunge.
The bloom is off the rose.
- Economist: Private Equity, Get a Grip
In the nine months to the end of September, developed-world shares dropped by about a quarter in dollar terms. Given their extra leverage, that is consistent with a fall in the value of companies owned by private equity of well over 50%. Yet Blackstone has said that its private-equity portfolio fell by just 13%.
. . . given the collapse of all asset classes (with the exception of private equity, of course) they are now being forced to reshuffle their entire portfolios. Using unrealistic values for their private-equity stakes pollutes this process. Many may choose to lower the absolute value of private-equity investments in their portfolios and concentrate their holdings on the best-performing funds. All of this requires accurate valuations. It is striking that so-called “secondary” sales by clients of stakes in buy-out funds are reputedly taking place at large discounts to their reported values, although again trading remains very thin.
Related Posts: