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Pioneer Investments Completes its Board of Directors with Majority of Independent Members

Following Pioneer Investments’ (Pioneer Global Asset Management “PGAM”) ordinary shareholders meeting held on January 22, the company announces the completion of its new board of directors with the appointment of its fifth independent member, Robert Glauber, Former Chairman and Chief Executive Officer of NASD now Finra (2000-2006) and currently Chairman of the Board of XL Group Plc and Northeast Bancorp.

Mr. Glauber, whose appointment brings the number of independent directors of Pioneer Investments’ board to a majority of five, joins other well-known individuals in the industry who were appointed to the board in May of last year: Claude Kremer, Partner of Arendt & Medernach law firm, former Chairman of ALFI (2007 – 2011), former President of EFAMA (2011 – 2013); Alessandro Leipold, Former Acting Director of the European Department at the IMF including a variety of senior management roles (1982-2008), currently Chief Economist of the Lisbon Council, a Brussels-based think tank; and Antonio Vegezzi, Former Member of the Management Committee & the Board of Capital Group, currently independent director at Banque Mirabaud & Cie and visiting professor at Geneva and USI universities, former Trustee & Member of the Executive Committee of the International Financial Reporting Standards Foundation (2005-2010).

In addition, Axel Börsch-Supan, Director of the Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy & currently Professor for the Economics of Aging at the Technical University of Munich, an existing member of the company’s board is the fourth independent director.

Confirming the strategic direction already set for the company, Roger Yates, a non-executive member and former CEO of Pioneer Investments before Sandro Pierri took over this role in July 2012, was appointed chairman of the board. Commenting on his appointment, Roger Yates said, “Having been closely associated with Pioneer during my tenure as CEO, I have seen the company grow from strength to strength. As a member of the board, I have been monitoring the progress of the strategic plan and I am pleased to see the excellent results achieved in 2013 under Sandro’s leadership. It’s a fantastic time to be chairing the Pioneer board at this key stage of the company’s growth.”

The other non-independent directors are Sandro Pierri (CEO, Pioneer Investments), Giordano Lombardo (Group CIO & Deputy CEO, Pioneer Investments) and Marina Natale (CFO, UniCredit). The term of this board will be April 2016.

CorpBanca Agrees to Merge with Itaú in Chile and to Combine Businesses in Colombia

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Corpbanca e Itaú anuncian la fusión de sus operaciones en Chile y Colombia — Corpbanca in Chile. CorpBanca Agrees to Merge with Itaú in Chile and to Combine Businesses in Colombia

CorpBanca and Itaú Unibanco announced that they have entered into a definitive agreement to merge CorpBanca and Banco Itaú Chile in a stock-for-stock transaction. The transaction will create a new Chilean Bank that will operate under the Itaú name. Through this merger, Itaú Unibanco and CorpBanca will combine their banking businesses in Chile and Colombia to create an Andean banking platform.

Following the closing of the transaction, Itaú Unibanco and CorpGroup will sign a shareholders’ agreement to determine aspects related to corporate governance, transfer of shares and liquidity among others. The new Chilean Bank will control CorpBanca ́s and Itaú Unibanco ́s Colombian subsidiaries.

This transaction is subject to regulatory approvals from the Brazilian, Colombian, Chilean, Panamanian and United States regulators and also subject to Banco Itaú Chile’s and CorpBanca’s shareholders’ approval.

If approved, CorpBanca’s current shareholders will own 66.42% of the bank resulting from the merger of CorpBanca and Itaú Chile while Itaú Unibanco will own the remaining 33.58%. Prior to the closing of the merger, Itaú Unibanco will make a US$652 million equity infusion into Itaú Chile. Management expectsto receive all required approvals by the end of the fourthquarter of 2014. CorpBanca anticipate that closing will occur shortly following the receipt of all required regulatory approvals.

CorpBanca will be the surviving entity. Under the merger agreement, Itaú Unibanco will exchange all of the shares of Banco Itaú Chile in exchange for 172,048MM newly issued shares in CorpBanca, representing a 33.58% direct stake ofthe Chilean Bank immediately following the closing. Following the closing, the new Chilean Bank will acquire and control 100% of Itaú Colombia.

Key corporate governance terms to be included in the shareholders’ agreement are related to the Board of Directors and senior management teams. The Board of Directors of the new Chilean Bank will be comprised of 11 directors and 2 alternate directors, while the Board of Directors of the Colombian bank will be comprised of 9 directors. CorpGroup will be entitled to appoint the Chairman of the Board of directors. CorpGroup expects to appoint Mr. Jorge Andrés Saieh to serve as Chairman of the new Board of Directors in Chile as of the closing.

The Chief Executive Officer of the new Chilean Bank will be appointed by Itaú Unibanco. Mr. Boris Buvinic, current CEO of Itaú Chile, is expected to be appointed as CEO of the new Chilean Bank effective as of the closing. Mr. Fernando Massú, current CEO of CorpBanca,will become a member of the new Board of Directors. Other senior management members will be appointed by the Board of Directors following recommendation of the Management and Talent Committee.

As a result of the partnership, the new Chilean Bank will enjoy several benefits, including:

Combined franchise will have a greater scale and resources to compete more effectively:
Greater market share in Chile by gross loans with approximately 12.4% market share (excluding gross loans from CorpBanca Colombia and Helm Bank);
Opportunity to partner with a premier Latin American franchise;
Ability to leverage Itaú Unibanco ́s strong global client relationships;
Combined entity has the potential to generate significant synergies in Chile; and
Sustainable dividend flow supported by greater scale and earnings capability of the combined enterprise.

The transaction enables the creation of additional synergies through: synergies related to optimization of cost structures; savings derived from enhanced branch network; relevant savings derived from scalable IT systems; the improvement in cost of funding; and the ability to further leverage Tier I Capital.

The new Chilean Bank is expected to be the fourth largest private bank in Chile with US$43billion in assets, US$33 billion in loans and US$27 billion in deposits. With this greater scale, the institution will be able to exploit various cross-selling opportunities and access funding at lower cost.

Capital soundness of the new bank will be strengthened by the US$652 million capital increase that Itaú Unibanco will inject into Itaú Chile prior to the merger. As a result of this merger, customers of all entities involved will have access to a greater array of product offerings as well as a more extensive branch network (217 branches in Chile and 172 branches in Colombia).

FINRA Fines Banorte-Ixe Securities for Inadequate AML

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Banorte-Ixe Securities, multado por fallar en las prácticas contra el lavado de dinero y no registrar a referenciadores en EE.UU. — Photo: Alvesgaspar. FINRA Fines Banorte-Ixe Securities for Inadequate AML

The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Banorte-Ixe Securities International, a New York-based securities firm that services Mexican clients investing in U.S. and global securities, $475,000 for not having adequate anti-money laundering (AML) systems and procedures in place and for failing to register approximately 200 to 400 foreign finders who interacted with the firm’s Mexican clients.

FINRA also suspended Banorte Securities’ former AML Officer and Chief Compliance Officer, Brian Anthony Simmons, for 30 days in a principal capacity, as he was responsible for the firm’s AML procedures and for monitoring suspicious activities. As a result of the firm’s AML compliance failures, Banorte Securities opened an account for a corporate customer owned by an individual with reported ties to a drug cartel, and did not detect, investigate or report the suspicious rapid movement of $28 million in and out of the account.

Brad Bennett, FINRA Executive Vice President and Chief of Enforcement, said, “FINRA continues to focus on the activities of foreign finders and the effectiveness of member firms’ AML programs. When foreign finders function as associated persons, they need to be properly registered with a U.S. broker-dealer. When firms accept customers who are located in high-risk jurisdictions, their AML programs need to be carefully tailored and robust to address the risks inherent in this activity.”

FINRA found that Banorte Securities’ AML program failed in three respects. First, the firm did not properly investigate certain suspicious activities. The Bank Secrecy Act requires broker-dealers to report certain suspicious transactions that involve at least $5,000 in funds or other assets to the Financial Crimes Enforcement Network. Banorte Securities lacked an adequate system to identify and investigate suspicious activity, and therefore failed to adequately investigate and, if necessary, report activity in three customer accounts. In one example, it failed to adequately vet a corporate customer in Mexico who deposited and withdrew a substantial amount of money within a short period of time—$25 million in a single month—a “red flag” for suspicious activity. A few weeks later, the same customer transferred $3 million into and out of another corporate account via two wire transfers two and a half weeks apart. Had Banorte Securities conducted a simple Google search in response to the suspicious movement of funds, it would have learned that one of the owners of the corporate customer had been arrested by Mexican authorities in February 1999 for alleged ties to a Mexican drug cartel.

Secondly, Banorte Securities did not adopt AML procedures adequately tailored to its business, relying instead on off-the-shelf procedures that were not customized to identify the unique risks posed by opening accounts, transferring funds and effecting securities transactions for customers located in Mexico, a high-risk jurisdiction for money laundering, or the risks that arose from the firm’s reliance on foreign finders. Third, Banorte Securities did not fully enforce its AML program as written.

In addition, FINRA found that from January 1, 2008, to May 9, 2013, Banorte Securities failed to register 200 to 400 foreign finders. The firm’s Mexican affiliates employed foreign finders who not only referred customers to Banorte Securities but also performed various activities requiring registration as an associated person, including discussing investments, placing orders, responding to inquiries, and in some instances, obtaining limited trading authority over customer accounts. The firm had previously registered individuals performing the same functions prior to July 2006.

Standard & Poor’s Opens a New Office In Poland

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Standard & Poor’s Ratings Services (S&P) announced this week the expansion of its European network with the opening of a new office in Warsaw, Poland, and the appointment of Marcin Petrykowski as Regional Head for Central and Eastern Europe and Managing Director of the Poland office.

The Warsaw office will serve as a hub for S&P’s operations, serving financial markets across Central and Eastern Europe (CEE).

“We are committed to fostering the development of deep and efficient capital markets across the region, linking local market participants with the global economy, and enhancing transparency for investors,” said Mr. Petrykowski. “We have chosen Poland as our Central and Eastern Europe hub due to its strategic location, growing internationalization of business, and emerging domestic bond market. Poland provides a unique location for S&P to offer its full range of services covering credit research, data, and ratings, together with a wider set of analytics, information, and index services provided by the McGraw Hill Financial businesses across the region,” Mr. Petrykowski added.

S&P first upgraded Poland to investment grade in April 1996. Since then, Poland has grown to become a leader in the region, with a diversified, resilient economy, backed by a flourishing banking sector. Poland now has a long-term foreign currency rating of ‘A-‘.

Mr. Petrykowski will oversee S&P’s strategy for Central and Eastern Europe, lead activity in the region, and facilitate the use of ratings for issuers in the market as the global benchmark for creditworthiness, helping them access the domestic and international capital markets for funding. S&P already holds a strong position in the region, with over 70 entities rated.

Mr. Petrykowski joins S&P from J.P. Morgan Corporate and Investment Bank, where he was Executive Director, Head of Coverage for Central and Eastern Europe, Russia, CIS, and Israel for the Investor Services division. In this role, Mr. Petrykowski also served as the Deputy General Manager for the J.P. Morgan branch office in Poland. Prior to joining J.P. Morgan in 2007, he spent five years with Citi Corporate and Investment Banking, focusing on Poland and CEE.

The EMEA network of Standard & Poor’s offices now comprises 12 locations including London, Paris, Frankfurt, Moscow, Stockholm, Milan, Madrid, Warsaw, Istanbul, Tel Aviv, Johannesburg and Dubai. Approximately 450 analysts are based in the region, covering about 2,500 issuers.

Three Worries for 2014, and They’re All About Credit

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So far in the cycle the US economy has done well without the extra adrenaline of private credit creation. In other words, growth has been occurring organically since 2009 without consumers adding debt to their balance sheets to buy goods and services, or companies radically expanding bank borrowings and issuing new bonds to boost sales. Profits have been the key to sustaining this situation.

Not everything is going swimmingly, however. There are signs that the low volume of private credit creation could be changing for the worse. The potential use — or misuse — of credit could indicate what might happen during the next phase of the business cycle.

Let’s consider three concerns about credit that should keep investors on the alert, and where we are now:

Private credit acceleration can bring bubbles

Private credit growth reaching 6% to 8% of US GDP has historically been a warning sign of an aging and decaying business cycle. Why? Too much credit causes the economy to grow beyond the capacity that is in place, and bubbles become a concern. When that happens, too much capacity may come on line, often leading to a recession and a cooling in profits, which is generally preceded by a stock market collapse.

Now, credit growth is low, and the US Federal Reserve’s efforts to create some credit growth have not been working as planned. The velocity of money — or the movement of cash and bank lending throughout the economy — is still slow, but speeding up.

Excess corporate issuance can impair credit quality

When corporations use credit to drive earnings growth, their credit quality goes downhill and their ability to repay debt deteriorates. Buyers of riskier credit bonds expect a spread over safer Treasury securities. As that spread widens, credit issues underperform Treasury benchmarks.

Now, companies are starting to issue more debt in the bond market, and we are beginning to see significant increases in commercial and industrial loans. While this is quite normal, it usually occurs in the early part of an economic expansion, when credit can help to revive growth. As debt burdens increase, however, credit quality can become impaired, especially in the high-yield market. For now, credit measures are still solid, but the key measure of debt to cash flow is starting to rise for the first time in this cycle.

Credit can be linked to inflation

Credit growth can lead to economic growth, but if credit accelerates too quickly, it can lead to inflation, which is usually not welcomed by investors. In the initial phases of inflation, stocks can go up and credit quality can improve. However, when wages start to increase, profits begin to fall.

Now, there is no sign of inflation pressures building, nor is there any evidence of excess capacity in US factories, shops or the labor market. Yet this benign environment can change if credit expansion accelerates.

Credit is not a bad thing; rather, it is necessary to fund current needs against future income. Consumers and corporations alike have legitimate reasons for borrowing to finance big-ticket items, such as automobiles, and to expand inventories and capital plant, such as computers, software and factories. The growth of credit can help kindle the expansion phase, but as the business cycle progresses, the growth and use — or more precisely, misuse — of credit can lead to contraction and even recession, which is the worst outcome for investors.

Now, the use of credit in the United States is within normal bounds, but the lure of credit could ruin the investment story of 2014 if accelerating credit growth is accompanied by deteriorating credit quality. Credit excess is a storm warning, something we at MFS watch keenly. And we think it may make sense to build some conservatism into stock and credit portfolios, just in case.

Extract from James Swanson’s blog On The Outlook – James Swanson is Chief Investment Strategist at MFS Investment Management

Growth of The Web

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El crecimiento de la red — Stuart O'Gorman, Portfolio Manager of the Henderson Global Technology Sector. Growth of The Web

The internet can provide secular growth at an attractive price

We hold a long-term bullish view on the internet sector, having been overweight the sector for the last ten years. Two major factors underpin our thesis. Firstly, the internet has and will continue to take market share as it disintermediates old economy competitors by removing the ‘middle man’ given its radically lower-cost business model. The internet is also ever more accessible with speeds increasing and device prices declining. Demographic factors are also a major tailwind as ‘digital refugees’ (the older generation who have not integrated into tech culture as they feel it is threatening and dangerous) age and die, and are replaced by the tech savvy ‘digital natives’ (who view technology as a necessity and have a high level of tech spend).

Old economy casualties from the increasing use of the internet surround us, from struggling newspapers, along desolate high streets to bankrupt video stores and bookshops. We believe the move from the old to the new economy still has a long way to run, as even now the bulk of spending is still done offline. For example, US online sales still represent less than six per cent of total retail sales. Add to this the huge potential of emerging market internet penetration catching up with the West and we have a very exciting growth story.

Bigger can be better

However, history is littered with great ‘stories’ that end up as bad investments. The second (and more important) factor that makes the internet an attractive investment are the large and growing barriers to entry that many internet companies possess. A surprisingly small number of companies dominate the profits of the internet. Scale, brand and network effects are enormous competitive advantages, and as an area of the internet matures one or two players tend to lead.

For example, in keyword search advertising in the developed world, Google generally has over 60 per cent revenue share – and more significantly more than 90 per cent profit share. In retail, it is now incredibly expensive to compete with the distribution infrastructure and buying power of Amazon in the major Western markets it is present in; in China, Alibaba holds an equally strong position. The hotel reservation market, the most lucrative area of the online travel industry, is dominated by websites controlled by Priceline, Expedia and TripAdvisor. The same story is true in internet radio (Pandora) and UK real estate (Rightmove). This we believe really differentiates the internet from other popular growth areas such as cloud computing.

Here, competition is extremely fierce, resembling that which the internet went through during the technology bubble and bust, and we fear a similar outcome for many of these high-flying names. We agree that the cloud is a major change in technology and some cloud-based names, like their internet brethren ten years ago, will emerge from this competitive war as winners but for every winner there will be many losers, and all players seem priced for success.

Mind the hype

Ultimately, however good the story and however strong the barriers to entry, valuations must be taken into account. While some areas of the internet have become rather expensive, most internet companies are highly profitable with price/earnings multiples that are reasonably in line with their earnings growth potential. This again contrasts rather sharply with cloud computing companies. Here, while there is extremely strong revenue growth (accompanied by lots of investor excitement) there is a distinct lack of profits, even when the vast stock options grants that these companies grant to their employees and management are excluded. For secular growth in technology, we strongly suggest that the real profits of the internet are far more attractive than the hopes of the cloud.

Not Yet the Time to Change Horses

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In its (short-term) tactical asset allocation, ING Investment Management has opened an underweight in emerging market equities. “We feel that the event risk in that region is one of the most obvious candidates that could trigger a market correction and squeeze in crowded investor positions”, Henk Luijten comments.

With an increasing concentration of consensus thinking on equities, peripheral assets and high yield bonds, it will become increasingly important to know when to change to a new horse during the first half of 2014. At this point it is too early to completely change course, but we have taken some moderate steps already to diversify our overall risk taking since the beginning of the year.

Enlarge

Joining herds and ‘ride the wave’, while looking at risks

Joining herds of other market participants that are moving in a certain direction is well-known characteristic of investor behavior. However, it is also key reason for markets to deviate from underlying fundamentals. To a large extent this is more a fact of life that needs to be acknowledged than a source of concern. It should probably be treated as a driver of investment opportunity rather than anything else. In this respect it is important to identify the biggest events that could test the current trends. Here, ING IM sees reason to look at emerging markets.

Growth momentum in emerging world is declining

Since mid-November, the economic growth momentum in the emerging world has been declining. Its proprietary growth momentum indicator, which captures the 3-month change in key economic activity indicators for the main 17 emerging economies, is clearly on a downtrend. At the same time, the average of all EM economic surprise indices also has deteriorated. For now, the fund manager sees no indications that EM growth dynamics will improve in the coming months. Financial conditions also have been weak recently. With capital flows still negative, this is unlikely to change anytime soon.

Some emerging equity markets deserve a positive view

While the emerging world as a whole is struggling to benefit from higher demand growth in the US, Europe and Japan, there is a group of countries that is still competitive and that have a larger exposure to growth in developed markets than the emerging market average. ING IM has a strong preference for the markets in this group: Korea, Taiwan, Mexico and Poland. The growth prospects in these markets are better, while the four markets also have limited macro imbalances.

To view the complete story, click the attached document.

Andbank Opens its New Head Office in Bahamas and Builds up its Local Team

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Andbank estrena nueva sede en Bahamas y refuerza su equipo local — Photos: Andbank. Andbank Opens its New Head Office in Bahamas and Builds up its Local Team

Although Andbank has been operating in Bahamas since the year 2000, it just opened its new headquarters a few days ago. The opening of the new office in Nassau comes hand in hand with a new team headed by Juan Iglesias as CEO of Andbank Bahamas.

As well as Iglesias, formerly from Julius Baer, Daniel-Marc Brunner, formerly from Credit Suisse, has also joined the company as head of private banking, and Werner Gruner, also formerly from Julius Baer, will be Andbank’s director of private banking. Other additions to the team are Wendell Gardiner as director of compliance, and Amanda Smith, formerly from Banco Santander Bahamas.

With its new team of fifteen people, Andbank Bahamas has doubled its staff within the last twelve months and has set its target for 2014 at boosting the local private banking business. The relaunch of its head office in the country marks a very special milestone which consolidates a process of internalization that started over 13 years ago.

The inauguration of the new headquarters was presided by Andbank’s president, Manel Cerqueda Donadeu, who pointed out that in the year 2000, the bank began operating in the country through a subsidiary, and that shortly afterwards, in 2001, the Central Bank of The Bahamas gave them a banking license.

“Our Bahamas business has grown steadily since it was first established in this country, and today, we wish to increase our presence even further,” said Cerqueda. He added that the Bahamas offers great opportunities thanks “to its ideal location, good connecting flights, a stable legal and financial system and a community of trained financial professionals.”

In statements to the local press, Cerqueda stressed that since they established themselves in the country, the business has grown steadily, therefore Andbank is looking at increasing its presence further, promoting it and making it grow, which is why they have hired a “team of highly qualified professionals.”

As for the competition which the Andorran bank faces in the Bahamas, where large institutions with many years of experience in private banking have been established for years now, Cerqueda said the business model which they are offering “sets us apart, as it allows us to offer a wide range of solutions for the client, regardless of the jurisdiction in question, the depositary or the bank through which they wish to operate. We move faster, adapting to change and seizing opportunities that arise,” he said.

Andbank’s general manager, Ricard Tubau Roca, its deputy general manager, José Luis Muñoz Lasuen, Jean Claude Roche, director of Andbank Panama, and Javier Rodriguez Amblés, managing director of the company in Miami, were all present at the relaunch of the bank in the Bahamas.

Starlight Global’s “Night of Inspiration”

Coinciding with the inauguration of its new headquarters in Nassau, the bank sponsored the annual “Night of Inspiration” of the nonprofit organization Global Starlight. Over 200 people attended the event which was held at the Old Fort Bay Club.

Mathu Joyini, the High Commissioner of the Republic of South Africa to the Caribbean, as well as members of the Bahamian government such as Ryan Pinder, Minister of Financial Services Bahamas, and renowned personalities of the country, along with Canadian singer Shania Twain, attended the gala, which this year was dedicated to honor the life of former South African President Nelson Mandela.

Entertainment for the evening included performances by the National Youth Choir of the Bahamas, winners of a double gold medal at the World Choir Games in 2012, the National Symphony Orchestra of the Bahamas, the Nassau City Opera Company, the Bel Canto Singers, the Bahamas All Stars Band, and other international artists.

Demystifying the Oracle’s Value-Added

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Desmitificando el valor añadido del Oráculo — Warren Buffett. Photo: trackrecord, Flickr, Creative Commons.. Demystifying the Oracle’s Value-Added

This month we participated in The Wharton School, University of Pennsylvania’s first Private Wealth Management course held in Miami. One of BigSur’s cornerstones is education: educating our clients on themes most relative to them, and also continually educating ourselves. One of our objectives in attending Wharton’s PWM course was to learn about the latest advancements in financial analysis and try to be at the cutting edge of investment techniques and manager performance evaluation.

From a strictly practical standpoint, one of the most interesting and extremely relevant parts of the course was the discussion on the performance of one of our core equity investments: Berkshire Hathaway. Finance Professors from the Wharton School of Business, Chris Geczy and Craig MacKinlay, discussed a new and very in-depth working paper from the National Bureau of Economic Research (by Andrea Frazzini, David Kabiller and Lasse H. Pedersen), which dissects the great historic performance attribution of the Maestro, Warren Buffett.

First Look: Typical Risk Measures

Buffett’s track record is clearly outstanding. A dollar invested in Berkshire Hathaway in November 1976 would have been worth more than $1500 at the end of 2011. Over this time period, Berkshire realized an average annual return of 19.0% in excess of the T-Bill rate, significantly outperforming the general stock market’s average excess return of 6.1%.

Berkshire stock entailed more risk, realized a volatility of 24.9% (higher than the market volatility of 15.8%). However, Berkshire’s excess return was high even relative to its risk, earning a Sharpe Ratio of 0.76 (19.0%/24.9%), nearly twice the market’s Sharpe Ratio of 0.39. Berkshire realized a market beta of only 0.7, an important point that we will discuss in more detail when we analyze the types of stocks that Buffett buys. Adjusting Berkshire’s performance for market exposure, we compute its Information Ratio to be 0.66.

Chart 1: Value Generated by BRK from 1976-2013

While this Sharpe Ratio is very good but not super-human (like for example Bridgewater’s Dalio above 1), then how did Buffett become among the richest in the world?

Looking Beyond: Leverage, Selection and Succession

The answer is that Buffett has boosted his returns by using leverage, and that he has stuck to a good strategy for a very long time period, surviving rough periodsmwhere others might have been forced into a fire sale or a career shift. The authors of the National Bureau of Economics paper estimate that Buffett applies a leverage of about 1.6-to-1, boosting both his risk and excess return in that proportion.

This leaves the key question: How does Buffett pick stocks to achieve this attractive return stream that can be leveraged? They identify several features of his portfolio: He buys stocks that are “safe” (with low beta and low volatility), “cheap” (i.e., value stocks with low price-to-book ratios), and “high- quality” (meaning stocks that profitable, stable, growing, and with high payout ratios). Thus, Buffett’s returns appear to be neither luck nor magic, but, rather, reward for the use of leverage combined with a focus on cheap, safe, quality stocks.

The performance of the publicly traded companies is a measure of Buffett’s stock selection ability whereas the performance of the privately held companies additionally captures his success as a manager. Buffett relies heavily on private companies as well, including insurance and reinsurance businesses. Why? One reason the academics demonstrate might be that this structure provides a steady source of financing, allowing him to leverage his stock selection ability. Indeed, we find that 36% of Buffett’s liabilities consist of insurance float with an average cost below the T-Bill rate.

One of the largest risk factors affecting BRK/a is succession risk, as Mr. Buffett is 83 years old. However, newly published information confirms that the pupils are beating the master at Berkshire Hathaway. The two managers seen as potential successors to Warren Buffett have netted better returns than the renowne investor.

Both Todd Combs and Ted Weschler outdid both Mr. Buffet and the S&P500 in the last 2 years (since they’ve took over the management of $14B of the total $100B in public equityportfolio). With Berkshire’s market value approaching $300B and around $200B being tied to operating businesses, it has gotten harder for the company to get a big percentage gain in net worth expressed in book value per class A share, Mr. Buffett’s preferred yardstick.

Extract of January’s 2014 edition of “The Thinking Man’s Approach”, by Ignacio Pakciarz, CEO of BigSur Partners

You may access the full report through this link.

Kinetic Partners Enhances its Corporate Recovery Offering with Senior Hire in New York

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Kinetic Partners, a global adviser to the financial services industry, has announced that Kent McParland has joined its New York office as a director within the corporate recovery practice. Brought on to facilitate and execute liquidations and restructurings on behalf of distressed investments, Kent will focus on building the New York practice as well as supporting the corporate recovery team globally.

This new addition is part of an ever-expanding initiative to meet both the global and local needs of Kinetic Partners’ client base. In addition to augmenting the practice’s restructuring engagements and traditional approach to the market via financial institutions and smaller institutional investors, Kent will also service the growing need of investors seeking to wind down their positions in distressed 2008 assets and zombie funds.

Kent joins Kinetic Partners from Grant Thornton in the British Virgin Islands where, among other engagements, he was a senior member of the liquidation team for Stanford International Bank Limited and its related companies. He has focused primarily on corporate recovery/bankruptcy engagements for the past seven years after qualifying as a Chartered Accountant in Canada. Kent’s experience covers a range of industries including financial services, real estate, gaming, wineries and manufacturing.

Kent has extensive expertise in managing various stakeholders across multiple jurisdictions often in contentious situations. In addition to leading the engagement teams for liquidations, receiverships and various due diligence engagements, he has also held appointments as a Receiver/Receiver Manager for international financial institutions. Each of these engagements has required keen project management skills to address the many dynamic components ranging from recreating financial records through to international litigation.

Geoff Varga, Kinetic Partners’ Global Head of Corporate Recovery and Restructuring, said of Kent’s arrival: “Kent’s hire represents continued forward progress in the development of our corporate recovery service offerings. With his background in bankruptcy and insolvency, both domestically and offshore, we are proud to enhance the collective capabilities of our New York (and global) team to deliver optimized value preservation and recovery in distressed situations.”