Case Blog

When I was in London several weeks ago, Lord Turner, chair of the Financial Services Authority, revived an old idea, the Tobin tax.  The tax is named after the economist James Tobin, who in the early ’70s proposed a tax on all currency transactions that took place across borders. He believed that this would cut down on currency speculation.  The Labour Party’s Adair Turner believes that today’s financial services sector has grown too large and a Tobin tax would help to bring it in line and reduce the excesses that lead to the global financial crisis.

Unfortunately, for both The City in London and Wall Street in New York, adding a new tax at a time when the financial services industry is just starting to recover will only delay a real recovery. In addition, both cities have suffered very significant job losses, which have reduced both their tax bases.  The most likely result of a Tobin tax would be that capital would find more efficient locales and the job and tax losses would become even more profound. The British Bankers Association said: “If we introduce the wrong kind of regulation or the wrong kind of taxes we could so easily lose that position by driving business abroad…On so many occasions in the past the country has lost chunks of industry through making the wrong decisions. Let’s not do that again.” (Financial Times: August 28th, 2009)

At this point, it is clear that the G-20 is not ready to adopt Adair Turner’s proposal. Have we forgotten how uncompetitive our economies were in the ’70s before Ronald Reagan and Margaret Thatcher, two kindred souls, came to power, cut taxes significantly and made both economies the envy of the world? Now, I am not arguing that there were not abuses, there were and we clearly need more transparency. But the G-20 focus on global growth without a new tax on the financial services industry is a much better strategy for a sustainable recovery.

In closing, if you are focused on the media industry I strongly recommend a new book. The Curse of the Mogul, by Jonathan Knee, Bruce Greenwald and Ava Seave. It will be published by the Penguin Group on October 15th and can be pre-ordered on Amazon, including a Kindle edition. I have read it in galley form and it is a provocative read that uses deal analytics, over time, to support its thesis.

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

This is a guest blog post by Jason Cassidy, Asset International’s Senior Vice President of Strategy and Development.

By Jason Cassidy

The barber shop where I get my best insight on the economy, the local plumber who received many phone calls from my wife when I tried to remodel our bathroom myself, and the doctor who gets a lot of business from my 4 year old and 2 year old during cold and flu season are just 3 of the over 20 million small businesses in the U.S. with fewer than 20 employees, according to the US Census Bureau. At Asset International we have several categories of small businesses as customers. For example, we have plan advisers who in many cases are 1-person companies. We also have plan sponsors who in many cases are also the owners of small companies.

Small businesses need information but they also need tools and services to help them be more efficient. At its core, a small business wants to take care of its customers and employees and make money in the process–just as any large corporation. However, specialization in a small business may not exist. The same person responsible for choosing the company health plan may also manage the marketing budget. Companies serving small businesses need to keep this in mind and think more broadly about what products and services we can provide. Our small business customers not only need information about the financial markets but also need tips on how to acquire more customers or set up a billing system.

Because the person who is choosing the 401K provider has a lot of other things to do during the day, that person can not be expected to be an expert in all the nuances of being a plan sponsor and certainly does not have the staff to do analysis for them. We need to make access to information quick and easy and add service wherever possible. As well, small businesses do not have large budgets for research on the best 401K provider, for instance, so we need to create high value, low-cost options. We and other companies that cater to small businesses should think high volume, high value, quick and easy, and low cost. Asset International and other companies serving small businesses need to keep in mind that what we are trying to do is help small businesses grow.

About Jason Cassidy, Asset International’s Senior Vice President of Strategy and Development.

Prior to joining Asset International, Mr. Cassidy was Vice President of website solutions for Register.com, where he oversaw sales, operations, customer service, marketing and product management with the primary focus on small business customers. Previously, as Vice President of Reed Business Information, he was actively involved in global strategy and development, including M&A initiatives and international development, and managed a portfolio of websites. Mr. Cassidy earned an M.B.A. from Duke Fuqua School of Business (2007) and an A.B. from Harvard University (1998). Originally from Boston, he and his family reside in Staten Island, New York.

As we celebrate Labor Day in the Bay Area, it is clear that summer is coming to an end. I returned to Blackhawk from a week in London, where Gordon Brown and the Labour Party continue to surprise me by still surviving. It looks like Brown will make it until he must call for an election in the spring.

We are evaluating several acquisitions for further expansion in London. In addition, organic growth through global expansion is also a priority. Information needs around pensions are still significant, as plans continue to recover from last year’s stock market debacle. Under Nevin Adams’ editorial leadership we will launch the well-respected Plan Sponsor brand in the United Kingdom and continental Europe. I sense that New York and London will remain the primary global money centers and we need to have a significant presence in each market. Commercial real estate offers similar opportunities to New York and we plan to consolidate our presence in a new headquarters in The City.

Many of London’s private equity players and their bank sponsors are working on restructuring plans. I was interested to see that the Royal Bank of Scotland and Apax have reached an agreement to split Incisive Media. RBS will take a controlling interest in the UK assets of Incisive, while Apax will still control the U.S. based ALM, which was under a separate financial structure with very different covenant requirements. The media industry will continue to be deleveraged throughout the fall, particularly in the newspaper sector.

Mary Claire and I will enjoy several last rounds of summer golf this weekend, and then she will return to New York while I head to Hong Kong, Beijing and Shanghai. In Hong Kong we will attend SWIFT’s Sibos 2009. It is a large conference and exhibition and for many it is one of the financial services industry’s major events. Last year in Vienna it drew over 8,000 attendees. We will be introducing Asset International’s growing portfolio of products and services, including our most recent acquisition, Strategic Insight. Charlie Ruffel and Dominic Hobson will host the event during this 20th anniversary year for Global Custodian.  The Trade’s editorial team (we acquired The Trade in June) under John Lee’s leadership will be producing the show dailies, which they have done for close to 10 years.  We will be looking for opportunities to further expand our footprint in this fast-growing region, which appears to be recovering at a faster pace than the west.

Fall has also given us the return of the football season in the U.S. The biggest upset of this inaugural weekend of college football was the #20 Brigham Young Cougars beating the #3 Oklahoma Sooners, who with their Heisman Trophy winner Sam Bradford had their eye on a national championship before last evening. Max Hall, the talented quarterback of BYU, clearly established the Cougars as a contender for a major BCS bowl game, in spite of playing in the Mountain West conference, one that is not insured of BCS Bowl representation.