Why U of Texas endowment chief bolted
Bob Boldt’s dramatic September 1 resignation from the $19 billion University of Texas Investment Management Co. was anything but sudden. Tensions between the CEO, Utimco directors and the University’s board of regents had been mounting for months. Some directors and regents were growing concerned about Boldt’s aggressive investment strategy, which included hiking the endowment’s hedge fund allocation from 5 to 25 percent since he took the job in 2002.
Boldt tells Institutional Investor that no single factor led to his departure but that the board of regents was increasingly uncomfortable with the portfolio’s overall risk level. A Utimco spokesman declines comment.
The resignation underscores how difficult it is for university endowments to retain top in-house investment managers. Former Harvard Management CEO Jack Meyer and Mike McCaffrey, ex-CEO of Stanford Management, are among those who have recently left university jobs to start their own firms, where they can earn far more. Top hedge fund managers can make $30 million or more per annum; last year Utimco paid Boldt $996,212. During the first three years of Boldt’s tenure, the endowment returned 17 percent annually, making it one of the top performers in the country.
Many expect Boldt to follow the examples of Meyer and McCaffrey by either starting his own firm or joining a for-profit investment management company. Before his departure, Boldt had been trying to give Austin-based Utimco more of a private sector feel, moving the fund to swanky new offices with an 11-year, $8 million lease. Facing scrutiny from university staff, the regents and local press over the high decorating costs, Boldt offered to pay part of the bill for doing up his office out of his own pocket. “It was a show of good faith,” he says. He ended up paying for his own desk, which is emblazoned with the Utimco logo and now sits empty in the fund’s new headquarters, waiting for Boldt’s successor. — Imogen Rose-Smith
Court strikes blow for shareholder rights
score one for shareholder democracy.
A federal appeals court ruling has given new hope to institutional investors who have been fighting for an easier way to nominate candidates in corporate board elections. At issue: whether shareholders can place their own candidates and proposals on the proxy ballots that companies send to their owners in advance of annual meetings. Today companies routinely ignore shareholder nominations, forcing investors who want to propose alternate director candidates to mount costly proxy efforts.
But the September 5 decision by a three-judge panel sets the stage for investors to amend corporate bylaws so that outside nominations must be included on official proxy ballots. The American Federation of State, County and Municipal Employees, a 1.4 million-member labor union, proposed just such an amendment last year to shareholders of insurance giant AIG and sued the company after it ignored the proposal. A lower court upheld AIG’s right not to include Afscme’s measure on its proxy, but the federal ruling overturned that decision.
The appeals court action stands to fundamentally alter the balance of power between the shareholders and managers of public companies just a few months before the 2007 annual meeting season begins. AIG has 60 days from the date of the ruling to appeal; it is still weighing whether to do so. If the decision stands, it effectively gives the green light to activist shareholders who want to effect change at companies by replacing existing directors with candidates of their choosing. After the ruling the Securities and Exchange Commission — which allowed AIG to disregard Afscme’s 2005 proposal — said it would amend its rules concerning director nominations by shareholders.
“This is probably the most significant shareholder reform in the past 30 years,” says Richard Ferlauto, director of pension and benefit policy at Afscme. Ferlauto, 49, believes the decision will make companies think twice about disregarding proposals that would establish shareholders’ rights to nominate their own candidates on corporate proxies. As a result, 2008 may be marked by an upswing in contested board elections.
Indeed, in the wake of last month’s ruling, public pension funds in Connecticut, New York State, North Carolina and the District of Columbia joined Afscme in filing a proposal asking Hewlett-Packard to grant big shareholders the right to nominate board candidates.
Afscme plans to make more such proposals, though Ferlauto won’t specify which companies are on his hit list. “We intend to use it fairly quickly to establish the right as defined by the court,” he says. — Stephen Taub
Selling spin, spin, spin
What’s the value of good public relations? Quite a lot, judging from last month’s sale of PR and investor relations firm Financial Dynamics. FTI Consulting, a Baltimore-based restructuring and corporate advisory firm, agreed to pay $260 million in cash and stock for FD, whose 750 clients include Coca-Cola and Vodafone.
The deal, believed to be the first combination of a consulting firm and a corporate communications firm, gives FTI another set of services to offer corporate clients. Declan Kelly, the Tipperary, Ireland–born former business journalist who runs FD’s U.S. unit, calls the merger a natural fit; his firm has long sought to incorporate communications into overall corporate strategy.
“We are not management consultants, but we think like they do and have the same approach to winning business,” he says.
Kelly, 37, and a group of senior FD executives who collectively own a big chunk of the firm, will net $62.7 million from the sale. Another big winner: private equity shop Advent International, which invested $8 million for a minority stake in FD three years ago and stands to make close to $40 million once the acquisition is consummated. Now there’s a deal that needs no spin. — J.S.
Clarke gives research another try
Tom Clarke learned the hard way a little-known truth about independent research: Lots of institutional investors say they want it, but few are willing to pay for it. The 49-year-old CEO of TheStreet.com came to that conclusion after the online financial news company failed miserably at launching an analysis shop, Independent Research Group, which was losing almost $6 million a year when Clarke shut it down in June 2005, barely two years after its fanfare-filled launch.
Now Clarke is back in the indie research game, but with a much different strategy. In August he gave the green light to TheStreet.com’s acquisition of Jupiter, Florida–based Weiss Ratings, a consumer-focused research firm that rates everything from stocks and mutual funds to health insurers. Clarke plans to take Weiss’s rankings, which are now distributed to clients mostly on paper, and put them online, thereby enriching the content available for TheStreet’s core audience of retail investors and active individual traders. That’s a far cry from the company’s strategy with IRG, a full-fledged broker-dealer that depended for its revenue on trading commissions from hedge funds and other institutions.
TheStreet may even try to launch a mutual fund rating system to rival that of industry powerhouse Morningstar, says Clarke. “Weiss has great ratings for mutual funds, but a lot of it now is in printed materials and books,” he says. “If we can put it online, make it searchable and give people rankings of top-performing or worst funds in particular categories, we think that can be very powerful.”
Martin Weiss, the chairman and founder of Weiss Ratings, agrees. “We have a wonderful product that I think is very consumer-friendly and empowers investors,” he says. “This deal will give Weiss Ratings much more distribution so that many more investors can have access to that product.”— Justin Schack
Cameron’s climate-controlled fund
James Cameron is on a mission. The 44-year-old British barrister helped to negotiate the 1992 United Nations Framework Convention on Climate Change, as well as terms of the Kyoto Protocol, which requires 35 industrial countries to reduce greenhouse gas emissions by 2012. More recently, he has been advising corporations on environmental regulation as co-founder of three-year-old London investment bank Climate Change Capital. Now Cameron is enlisting investors in his cause.
Over the past three months, Climate Change Capital has raised $830 million from investors including Standard Chartered Bank, U.K.-based energy group Centrica and ABP, a $227 billion-in-assets Dutch pension scheme, for a private equity fund that will finance projects designed to reduce carbon emissions in emerging markets. The fund made its first investment last month as part of a consortium with Deutsche Bank, Morgan Stanley and hedge funds Stark Investments and Och-Ziff Capital Management. The group is financing equipment for Chinese chemicals company Zhejiang Juhua that will reduce Zhejiang’s carbon emissions by incinerating harmful exhaust gases. Over six years the potential reduction in greenhouse gases from the project will be equivalent to one third of the annual emissions for all U.K. households, says Cameron.
Under the terms of Kyoto, companies in developed countries that ratify the treaty cannot emit carbon emissions above a set level. Companies that emit pollutants below that level earn credits, which they can sell to peers that are over the limit. Zhejiang’s pollution-reduction scheme will generate carbon emission credits that could be worth up to $800 million to investors in the project, Cameron says.
“We don’t claim institutional investors can solve the problems of climate change alone,” he notes. “But they can find economic opportunities.” — P.P.
Goldman backs Sandor’s green markets
The nascent market for trading carbon emissions got a big boost from two deals last month: London’s Climate Exchange plc agreed to buy the 60 percent of the Chicago Climate Exchange that it didn’t already own, and Goldman Sachs said it would buy 10 percent of the combined company for £12 million ($23 million). Through its European Climate Exchange, the London company claims to handle some 80 percent of European trading of carbon emissions, a market driven by the EU- and U.K.-approved Kyoto Protocol. In the first eight months of 2006, it traded E4.5 billion ($5.7 billion) of carbon dioxide, almost triple the volume for all of 2005.
The investment by Goldman, which has backed Archipelago and other once-fledgling exchanges, is a big vote of confidence. “The patronage of Goldman Sachs is to me the big news,” says Neil Eckert, head and co-founder of Climate Exchange plc.
The capital injection may help both exchanges expand. The three-year-old CCX — which is planning to add European carbon trading and is in the early stages of researching water trading — could use the boost. Although the Chicago market’s volume has quadrupled in the past year, it still pales in comparison with that of its European counterpart. Through the first eight months of 2006, the CCX traded $30 million of carbon dioxide, less than 5 percent of the ECX’s volume. The primary reason: Participation in the CCX market is voluntary because the U.S. has not adopted the Kyoto Protocol.
Richard Sandor, 65, founder and head of the CCX and a co-founder of the ECX, will own about 20 percent of the combined company. The Brooklyn-born Ph.D., who made his name designing the first interest rate futures at the Chicago Board of Trade in the 1970s, has been a pioneer of environmental trading. He sees opportunity in a recently passed California law that will require emissions limits and trading in that state, as well as in a regional emissions-reduction and trading program proposed by seven northeastern states. The CCX could provide trading and clearing services for both.
The Holy Grail would be a U.S.-wide carbon-trading regime. But the CCX isn’t banking on federal regulations. “Over time that will come,” says Sandor. “But we’re here to service markets that exist.” — Loren Fox
Banks vie for Gulf talent
European and U.S. investment banks in the only-getting-richer Persian Gulf are applying an old fix to a new problem: To deal with the shortage of skilled bankers in the region just as they’re desperate to expand there, the firms have resorted to good old-fashioned poaching.
Merrill Lynch, the second-biggest U.S. securities firm, in May hired Deutsche Bank’s Jeffrey Culpepper, 47, to fill a new position as head of investment banking, trading and sales in the Middle East and North Africa. Culpepper had previously overseen Deutsche Bank’s corporate and investment banking business in the region.
The German bank quickly replaced Culpepper with Ricardo Honegger, 46, a seven-year veteran of the firm, and last month lured Barclays Capital’s Nicholas Hegarty, 42, into taking the newly created post of chief of investment banking in the Gulf.
For Hegarty, Deutsche’s product range in the region — which he says is wider than that of competitors, including Barclays — and its focus on debt and risk management proved attractive. “Deutsche today is able to provide the full product sweep into the Middle East, with very few institutions able to match this capability,” explains Hegarty, who spent two years as head of Barclays’ Middle East and North African investment banking operations before moving to Deutsche. Before Barclays he worked for 14 years at ABN Amro. Deutsche’s services, he adds, include merger advisory, initial public offerings, loans and Islamic finance.
Indeed, Deutsche has benefited from its ambitious plans in the Gulf, where it has stationed some 70 bankers in Dubai and created a joint venture in Saudi Arabia. Though Deutsche lags rivals like Citigroup in merger advisory in the region, it ranks among the top four banks in debt and equity capital markets businesses this year through September, according to U.K. research firm Dealogic. In debt capital markets Deutsche is in the No. 2 spot behind Citigroup, and in equity capital markets, it’s No. 4 behind HSBC and two local Gulf banks.
By hiring Culpepper, Merrill — which ranks nowhere in the top ten in any key areas of business, according to Dealogic — is trying to catch up with its investment banking competitors in an increasingly crowded market, where it’s already active in private banking, analysts say. — Vita Bekker
Rock of Agius
When it comes to bagging pheasants, Marcus Agius has always demonstrated a keen eye and a sure hand, distinguishing himself as a marksman on the game estates of England and Scotland. And as the U.K. chairman of advisory boutique Lazard since 2001, he’s an equally assured presence, lauded by colleagues and clients for his steadying influence and unflappable mien.
Those qualities will come in useful when he takes over as chairman of Barclays, the U.K.’s third-largest bank by market cap, in January. Agius, 60, was named in late August to succeed Matthew Barrett, who is stepping down after seven years at the bank, first as CEO, from 1999 to 2004, and then as nonexecutive chairman. The 62-year-old Barrett will return to his native Canada to — as he has threatened in the past — “write a bad book and grow a ponytail.”
Barrett helped Barclays restore its momentum. The group’s investment banking and asset management units, run by group president Bob Diamond, have grown rapidly, generating 47 percent of pretax profits in the first half of 2006, with earnings up 66 percent at Barclays Capital and 51 percent at Barclays Global Investors. Profits in retail and commercial banking were up 11 percent domestically in the first half and 210 percent internationally, thanks to a strong contribution from South African subsidiary Absa Group. CEO John Varley bolstered the global retail and commercial banking division in July by recruiting Frits Seegers, former head of European consumer banking at Citigroup, to run it.
One big test for Agius: the inevitable fight for resources between Barclays’ two main units and their high-powered heads. “It’s not like there are buckets of surplus capital sloshing around on the balance sheet,” says Mike Trippitt, U.K. banking analyst at Oriel Securities.
Agius had plenty of experience managing strong egos during his 34 years at Lazard. He started out humbly, however, on the shop floor of U.K. engineering group Vickers, which had paid part of his way through a mechanical sciences and economics degree at Trinity Hall, Cambridge. After earning an MBA at Harvard Business School, he joined Lazard in 1972 and worked on some of the biggest deals of the 1980s and ’90s before rising to chair the bank’s London arm in 2001.
“Marcus deals with whatever he’s confronted with,” says David Verey, chairman of Blackstone Group U.K. and Agius’s predecessor at Lazard. Verey (who’s also a director of Daily Mail and General Trust, which owns Institutional Investor) says that Agius “will be a force for stability and support.” — Ben McLannahan
Millet’s tough trade
Kelley Millet has spent the past 24 years persuading investors to trade bonds over the phone. First at JPMorgan, where he rose to become global head of capital markets and syndicate, and from 2001 on at Bear Stearns, as co-head of global credit trading, Millet witnessed how the steady rise of electronic trading pinched broker profits. Last month the 46-year-old switched sides, leaving Bear to become president of New York–based MarketAxess Holdings, an electronic credit-trading platform that links institutional investors with multiple broker-dealers, including both of his former employers. Millet joins former Morgan colleague Rick McVey, who launched MarketAxess in April 2000 and serves as its CEO.
Millet’s move comes at a critical time for MarketAxess. Since December 2004, one month after the company went public on the Nasdaq Stock Market, its market capitalization has fallen by almost half, to $335 million, amid softening industrywide corporate-bond trading volume. So far MarketAxess has responded by launching an interdealer bond-trading service and trying to expand its fledgling business in credit derivatives, a market that is growing rapidly.
Millet has an extensive Rolodex of potential customers, and he’s confident that he won’t need to put on a hard sell — more and more brokers and institutions are looking to electronic trading to shave transaction costs and boost efficiency. “When you squeeze profitability, you need e-trading,” he says. “It’s crystal clear to me that electronic trading is the future of the business, and that the future is now.” — P.P.
Letters
To the editor:
Your cover article in the September issue (“Mission: IMF-Possible?”) correctly identifies “the massive imbalances in global trade...led by the U.S.’s huge and growing current-account deficit” as “the biggest economic challenge on the planet today.” It also identifies a number of causes. However, it fails to mention the most significant cause of all: U.S. trade policy.
Although its apologists have cynically labeled that policy as one of “free trade” in order to obscure its true purposes, U.S. trade policy is really import maximization. All of the governmentally imposed conditions of trade are deliberately engineered to maximize imports and, at best, do nothing for exports.
Take tariffs as just one obvious example. The average U.S. tariff on imports is now 1.3 percent, yet the average tariff faced by our exports is 40 percent. Even an Econ 101 student knows if you tax butter at 40 percent and guns at 1.3 percent, you get too little of the former relative to the latter.
Far from being a surprise, our massive trade deficit has been orchestrated by the import maximizers among us.
George Shuster
President
Cranston Print Works Co.
Cranston, Rhode Island
Editor’s note: The average U.S. tariff applied on imports is 3.7 percent, according to U.S. government figures. The average tariff rate applied worldwide, the best measure of tariffs actually faced by U.S. exporters, is 10.7 percent; the average bound tariff — the maximum rate that may be applied under global trade rules — is 40 percent.
