Case Blog

In one of my earliest postings in September of ‘07, Global Brands, I wrote: “As we transition to a digital world, managing our brands becomes ever more demanding. Microsoft, which has done wonders with the Windows and Office brands, stumbled as they tried to rebrand Hotmail, IM and Search under the Windows Live brand. I am certain that with their unlimited resources they employed several of the best branding agencies in the business, but they still struggled through this transition. Those of us who come to this with much less in the way of outside assistance must clearly understand that we need brands that can travel globally…All of us in the B2B or B2C space tasked with transitioning to the digital world are looking for the Holy Grail, an umbrella brand that inspires confidence and trust and at the same time can support many vertical channels. Strategy sessions and market tests play an important role in this process. Marketing dollars invested in branding will yield significant returns, although without strong digital brands there is not much chance of survival for print brands, even those with storied histories.”

In the fall of ‘07, my partners at Austin Ventures and I were still in the search mode to find a platform that we could acquire and grow.  It was almost a year later when we zeroed in on the institutional financial sector, with a focus on asset management. In fairly short order, we acquired Asset International, The Trade, and Strategic Insight.

We decided that we would operate under the Asset International name, as it provided a very clear brand and would allow us to add significant brands under the Asset International umbrella. Today we have established a new London office for Strategic Insight to support the Simfund Global database and analytics platform. In the next several months we will open a comparable office in Hong Kong for our expanding client base to support these well-known business intelligence products and services. This client base historically has been composed of mutual fund companies, but recently we have seen it expand in the U.S. to include other business sectors, including private equity firms that have a strong interest in the financial sector.

In addition, this past spring we launched Plan Sponsor Europe out of London. With this very strong retirement-focused brand and its print, online, research reports, and conference components, Plan Sponsor Europe is offering longtime clients like State Street (STT) a known brand to support their defined contribution efforts in the United Kingdom and on the continent. They have reserved our prime real estate, our back cover, to deliver their message for the balance of the year. In ‘11 we will launch Plan Sponsor Asia/Pacific edition. Recently, Global Custodian released its 2010 Prime Brokerage Survey, which received wide coverage in the business press and was quickly established as the standard for this segment of the industry. This brand, along with Strategic Insight, has had a global impact for more than 20 years.

The TRADE expanded its business several years ago by launching The TRADE Asia and this year launched The TRADE Growth Markets. They also expanded their global web presence with www.thetradenews.com. Finally, ai5000, which focuses on the professional information needs of the Chief Investment Officers of the largest global assets owners, launched their Chief Investment Officer Summit (CIOS) in New York and will hold the second summit in London on October 7th and 8th.

We will continue to expand our business by investing in our core brands on a global basis and serving the needs of our client base in the major markets they operate in.

You can learn more about our global brands and how they can assist you build your global market share by going to www.assetinternational.com.

Two weeks ago in my posting, $1 Trillion Dollar Rescue Plan & a Changing of the Guard, I closed with: “This was clearly a historic week on the continent and in the United Kingdom. There is a new determination to deal with the structural issues that have left most of the countries with debt loads that the global bond markets can not support in the long run, and there is a new a resolve by these countries to put themselves on a course that will support sustainable long-term growth. The Obama administration will need to start addressing deficit reduction as well as we approach the November mid-term elections. Those of us in the private equity business will be closely watching the impact of government actions on recovering credit markets.”

Since I wrote that, Treasury Secretary Geithner visited England and Germany on his way back from China and advised them to take action to put the $1 trillion dollar rescue plan into effect. “After two years in which an historic financial crisis seemed to deprive the U.S. of its self-confident global economic leadership, Mr. Geithner signaled a newfound willingness to reassert American authority on the future of the world economy… ‘What Europe should do is implement the program they laid out,’ Mr. Geithner said Wednesday. The basic lesson of financial crises is that you have to come in and act quickly and with force.” (WSJ: May 26, 2010) Then on the 27th China denied it was reviewing its holding of Eurozone debt. “The denial—which followed a Financial Times report Wednesday about the State Administration of Foreign Exchange, an agency that rarely answers questions from the media—highlights China’s awareness of how volatile financial markets have become increasingly sensitive to even hints about how Beijing deploys its enormous foreign reserves.” (WSJ: May 27, 2010)

In spite of all of these efforts, the global equity markets were pummeled in May. “Between the ‘Flash Crash’ and angst over the worsening crisis in Europe, stocks suffered a dismal May, posting their worst decline for the month since Franklin Roosevelt was in the White House.” (WSJ: May 29, 2010) To further contribute to the slide, Fitch announced that they were downgrading Spain’s credit rating. (FT: May 28, 2010) What does this new religion about reducing deficits as a percentage of GDP mean going forward? I turned to Bill Gross’ June Investment Outlook letter, “Three Will Get You Two (or) Two Will Get You Three.” (Pimco) “So the developing predicament is becoming more obvious to Shakespeare’s ‘lenders and borrowers be,’ ” Gross writes. “Fiscal tightening and budget conservatism may have come too late for Greece and its global lookalikes. Continued deficit spending may be an exorbitant privilege extended to only a few. Caught in the middle are many developed countries that likely face New Normal growth rates and a continued bumpy journey toward that destination. Investors must respect this rather tortuous journey in the months and years ahead for what it is: A deleveraging process based upon too much debt and too little growth to service it. No longer will ‘two get you three’ in the investment world. Not 1,000%, but 4-6% annualized returns for a diversified portfolio of stocks and bonds is the likely outcome. And be careful — sometimes ‘three gets you two.’ ”

On a more positive industry note, the conference and exhibition business is showing signs of life after a very difficult ‘09. Informa, which derives almost 50% of its global revenues from events and training business, is a candidate “for promotion in next month’s Footsie index reshuffle.” (FT: May 25, 2010)

We are also enjoying a strong recovery in our events business at Asset International. On May 20th and 21st, ai5000 Editor-in-Chief Kip McDaniel produced our first Chief Investment Officer Summit (CIOS) in New York City. The event received high marks from all the attendees and sponsors. Our featured dinner speaker was Nassim Nicholas Taleb, best-selling author of The Black Swan, which has just been released in a second edition with a new section, “On Robustness and Fragility.” I highly recommend that this book gets added to your summer reading list.

We will hold our second CIOS event of the year in London on October 7th and 8th and once again Nassim Taleb will be the featured speaker and will explain how Black Swan events result in the market volatility we are experiencing.

I wrote several weeks ago regarding Kip McDaniel’s foresight in his initial ai5000 cover story on the problems brewing in Dubai. Now we know that there were deep-seated debt problems that could only be abated by Abu Dhabi extending a $10B lifeline, with lots of strings attached. This month in the Winter Issue of ai5000, Asset International’s founder Charles Ruffel  opens with an editorial on the suit that California Attorney General Jerry Brown has initiated against State Street Bank. He writes:

Litigation, like castor oil, is a necessary evil–it should be taken out of the cupboard only when reason fails. This is particularly true when attorneys general, generally amid much clamor, brandish the power of their writ in the institutional financial services industry.

The leverage that the threat that such suits can deliver–a threat that can, and sometimes should result in settlement–can be utterly undermined when attorneys general tilt at windmills. The present effort by California Attorney General Jerry Brown to go after State Street for ‘unconscionable fraud’ is purely quixotic. It is based on a farcical misinterpretation of the law.

Charlie delivers a strong left to Jerry Brown’s next run for the state house to succeed the Terminator!

Kip delivers this issue’s knockout cover story, “America’s Pension Hell is in a Little Slice of Heaven: The Puerto Rico Employees Retirement System, America’s worst-funded public pension plan, reeks of competency and a willingness to do what it takes to raise its 15% funding status. Can the rest of the world learn best-in-class practices by looking into this tropical pension abyss?”

You can also read Sara Nelson’s insightful book reviews, “Curse of the Mogul,” by Knee, Greenwald and Seave and “Wired,” by Stibel.

Finally, meet the talented Richard Schwartz, who is usually found in our sister publication in London, The Trade, who contributed “The True Cost of Trading” to this outstanding issue.

In the holiday spirit, we are asking you to recommend a colleague or colleagues that you would like to receive a free subscription to ai5000, with your compliments.

Happy Holidays!

Last year as we prepared for Thanksgiving, the disturbing news reached us from Mumbai, India that a massacre of innocent individuals was taking place and it was focused on two very well-known international hotels, the Taj and the Oberoi, as well as the central train station and the Chabad House.  The final human toll was in many ways incomprehensible and we know today that a Pakistan-based terrorist group, Lashkar-e-Taiba, was responsible for the attack.

This year as we were enjoying our Thanksgiving dinners with friends and family in the United States, we learned that Dubai World was calling for a six-month moratorium on debt payments. This morning the world equity markets are once again being roiled by this unsettling announcement. Abu Dhabi, who most assumed would bail out Dubai World again, remained quiet on the sidelines.

ai5000’s Editor-in-Chief Kip McDaniel saw this coming in his cover story, Dubai (S)Inc., in our premiere issue of the ai5000. I have linked to a copy of this article from six months ago and also his analysis of the unfolding events.

As we return to work on Monday, it is clear that the global markets will remain rattled while a settlement is negotiated with Dubai World’s lenders.

Click here for a complimentary subscription to the ai5000

This is a guest blog post by Kip McDaniel, Editor-in-Chief, ai5000.

By Kip McDaniel

Yesterday’s news of Dubai World asking for a six-month reprieve on $60 billion in debt repayments has sent global financial markets into a downfall not seen in many months. It should not have: The Emirate’s troubles are not a surprise — many observers, including ai5000, have been warning of trouble at Dubai World for months now.

I traveled to Dubai and the Gulf in March of this year on assignment for ai5000, reporting on the state of the Emirate in relation to its neighbors and in absolute terms for our first cover story, entitled “Dubai (S)Inc.” What I found was shocking: meeting with numerous sources within Istithmar World (the state-owned private-equity arm of Dubai World) and other Dubai sovereign investment vehicles, it was clear to me that Dubai was in much greater trouble than its government was letting on. The bankers I met with were clearly frightened but putting on a happy face. However, my Dubai World sources — agreeing to meet only in dark restaurants and on the sly, for fear of being spotted in Dubai’s surprisingly limited social scene — were much more pessimistic.

A sample:

“It’s real bad,” Karim says. “Istithmar needs money fast or they’re going to close shop. Technically, our parent company” — Dubai World, the umbrella group that holds Dubai’s publicly earmarked money, as opposed to the Sheikh’s personal funds housed in Dubai Holdings — “needs the cash. They owe the interest on a lot of non-negotiable debt, and the easiest way to get that money is to cut staff and sell assets.” Staffers also say that Istithmar’s equity stakes were funded by loans, not cash — a structure reminiscent of American subprime mortgages, where the mortgager’s equity stake was often another loan — and thus it must service even more debt than a typical private-equity firm. Istithmar’s CEO, American David Jackson, a Lehman Brothers and Saks Fifth Avenue alum who joined the firm in 2004, has acknowledged that the fund must return money, but he has downplayed the seriousness of any redemption. Jason and Karim laugh aloud at Jackson’s public stance on recapitalization: “Who would want to give us money?” Jason asks, laughing.

I can see why many people — reporters, businessmen, tourists, and foreign government officials — failed to see this. Flying into the Emirate is a shocking experience. The pure scale of its buildings, of islands literally built in the shape of palms or a map of the world, are awe-inspiring and (metaphorically) blinding. How could something of this size and scope be in trouble? How could a country build the world’s tallest tower and fail to adequately plan to pay for it? The fact is, just as many (or most) failed to foresee the equity bubble, so too did the masses fail to understand that Dubai — oilless, leveraged, and extravagant — was a blueprint for trouble everywhere.

It’s sadly clear now that we were correct in our dire predictions for Dubai and its growth strategy. What ai5000 will be doing now — as, I suspect, will the rest of the world — is looking for other institutions where the financial markets and players have glossed over the fact that extreme leverage is no longer tenable. The first to come under scrutiny will be the financial institutions that lent to Dubai World; the second, I suspect, will be other sovereign wealth vehicles. For the sake of the global economy I hope that we find nothing similar to the Emirate’s business plan and hubris. This wish, however, might be as vain as building an entire city on debt.

I returned to New York City late on Thursday evening from a week in China. My trip, as I wrote in Summer’s End, was built around SWIFT’s Sibos 2009 event in Hong Kong.  It coincided with the one-year anniversary of Lehman Brothers’ filing for bankruptcy. As one looked around the exhibition hall in Hong Kong, it is clear that we are in a recovery. The press even reported during the week that Fed Chairman Ben Bernanke, in response to a question at the Brookings Institution said, “From a technical perspective, the recession is very likely over at this point. It’s still going to feel like a very weak economy for some time because many people will still find that their job security and their employment status is not what they wish it was.”  Dominic Hobson, editor-in-chief of Global Custodian, had a similar point-of-view when he told our guests at our event last Saturday evening in Hong Kong, to paraphrase: “That the world is still upside down, when the journalists are providing drinks for the bankers.”  I had the good fortune to follow Dominic to the podium and explain our plans for the global expansion of Asset International.

While the recovery will continue to expand, we will not see much job creation in the western economies over the next quarter or two. I am confident, though, that companies will start to add jobs in response to increasing demand by the second half of 2010. It was clear to me as we traveled to Beijing and Shanghai that China’s recovery was going to be much faster than the western economies  tied to the subprime debacle that took down Lehman Brothers and brought our entire banking system and the world’s major economies to the brink of the abyss. The energy and entrepreneurial spirit is alive and thriving in China.

We looked at several possible acquisition targets in China on this trip. While these businesses are still small by our standards, it is clear that they are growing quickly and that the demand for information and advisory services focused on the Chinese economy will continue to grow at a much faster pace than the overall economy.  We also came away with the understanding that the events business will continue to be an essential component of an overall strategy for growth in China.

Our second issue of ai5000 (www.ai5000.com), which will be released this week, will focus on the Asian/Pacific market with the cover story: The Metamorphosis of Chinese Capital.  Let us know if you have any colleagues that you would like to receive a complimentary subscription.

Last evening Mary Claire and I had the pleasure of dining at Eleven Madison Park. Chef Daniel Humm has made this the outstanding star in Danny Meyer’s restaurant universe. Daniel Humm came to Eleven Madison Park from Campton Place in San Francisco and has taken this restaurant to a new level over the past 12 months. Frank Bruni, who recently rotated out of his role of restaurant critic for the New York Times, elevated this lovely dining room to 4 stars on August 12th, 2009. The review is titled “A Daring Rise to the Top.” It is now at the pinnacle with Daniel and Per Se and just a handful of other establishments. Chef Humm works magic with his lobster dishes on most evenings. The wine list is extensive and clearly one of the best in the city. If you have a special occasion coming up, I strongly recommend that you call ahead early and make a reservation. www.elevenmadisonpark.com

Each of us in the media industry continues to review our models for content creation, particularly during this advertising recession. We often look toward the Google  (GOOG) model of aggregated content from sources around the globe with envy and realize that they identified a model, with paid search, that allows them to monetize their significant audience with great efficiency. We also realize that their cost of content creation is not a significant expense line in their model.  Most of us also understand that this model is not one that can be easily replicated. While we need to find more efficient ways to publish and distribute our content, we should focus on producing high-quality editorial content that becomes high-demand information and can be re-purposed many times across multiple platforms.

Over the course of my career, I have been privileged to have a front-row seat when talented editorial teams created high-quality, must-have information products. For example, in the ’80s I was able to witness the rapid growth of the personal computer revolution and the many first-class products created by the Compute! editorial team led by Robert Lock and Richard Mansfield.

During the early ’90s, I watched and supported the impresario of events, Stewart Alsop, establish the Agenda Conference as the event that set the course for the PC industry as it exploded.  His fireside chats with Bill Gates are memorable, even today.

In the late ’90s, I supported and applauded the efforts of John Battelle and Jonathan Weber as they launched The Industry Standard, which became the primary information source for the Internet revolution.  It was a publication that was in such demand that its publisher, Steve Thompson, and his team set the all-time advertising page record of 7,700 ad pages for a single year.

Today, we are one week away from the launch of the ai5000. When it launches on June 15th as a digital publication (you can get a sneak preview and a complimentary subscription at www.ai5000.com), it will fulfill a vision of high-quality and must-have information that the asset owners around the globe deserve. The original vision for this dynamic launch came from Charlie Ruffel, the founder of Asset International. Much of the first-class editorial came from the efforts of Kip McDaniel, a unique talent. Together with the rest of the AI team and a group of talented contributors, they have produced a level of excitement for our global capital markets that our industry can use after a long and deep recession,

As we migrate more and more of our assets and events to the digital world, we must renew our quest for quality content. This will insure that we can once again grow during the recovery cycle that has just begun.