Monthly Archives: May 2015

Groundhog day: Another BMPS (ISIN IT0005092165) deeply discounted rights issue “Italian style”

Health warning: Do not try to trade in such situations unless you know exactly what you are doing. This is not investment advise, do your own research.

Almost exactly 1 year ago, I already looked at last year’s deeply discounted rights issue of struggling Italian Bank BMPS. Well, the same time in the year again and of course, BMPS is again in the market…. somehow this reminds me of this great movie:
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Some links

Good Bloomberg article on Danaher plus a Danaher slidedeck (via Valuewalk)

Interesting “introperspective” from Quan (Gannon) on writing a monthly newsletter

An interesting presentation by Frank Martin, a very cautious value investor (via Valueinvesting World)

Watch out Warren, “big (packaged) food” might be on a permanent decline.

A good summer reading list frome Cove Street Capital and of course the one from Bill Gates

Great interview with Brunello Cucinelli about how differently he runs his business.

Updates: Admiral CEO, Lloyds Banking, Cranswick + Editorial (Comments)

Editorial stuff:

While I was away (without access to my account) some people complained that their comments were not shown while other comments went through. The reason is the WordPress commenting system. If you comment for the first time, I need to manually approve this first comment. Once you are approved, further comments appear automatically if you login and comment the same way than you had done for the first time. So for anyone who commented for the fist time in the last 2 weeks, the comments were still in the “to be approved queue”.
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Double Book review: Tim Clissold “Mr. China” & “Chinese Rules: Mao’s Dog, Deng’s Cat, and Five Timeless Lessons from the Front Lines in China”

Tim Clissold is an English guy who happened to go to China just when China was opening up to the Western world in the early 1990s. His first book “Mr. China” tells the story how he tried to set up and invest a 400 mn USD private equity fund in China together with an US Wall Street veteran.

This was clearly not an easy task. When, after visiting 100 or more companies, he finally found some to invest in, the real problems only began. Ownership rights in China are quite flexible and in his book there are a couple of in-detail stories what can go wrong in China. As a short summary I would say that actually almost everything can go wrong in China for a foreign investor. Contracts are worth nothing and more than once a manager disappeared with most of the money. In other cases, the old owner just built a new factory next to the old one and all the workers left for the new factory and so on and so on. An interesting details was the importance of company seals (“chops”). Those company seals are much more important than anything and the one who has those seals in possession can do anything.

It might be a severe case of confirmation bias but after reading this book I felt fully vindicated for not even considering to invest in any German or US listed Chinese companies (and yes, this includes Alibaba, Baidu etc.). If you can’t even control what’s happening when you are in the country how should you have any chance if you are only invested via several questionable legal constructs.

Clissold makes it especially clear that Chinese thinking is entirely different from western thinking when it comes to business and rules that we take for granted just do not apply or even exist in China.

The second book is a more focused story on his second attempt in China, where he was called in to solve a difficult situation with regard to a big Carbon credit project and then started out to set up his own Carbon Credit investment fund in the mid 2000s. Of course he encountered the same problems as in the first try but he tried to counter them with more typical Chinese tactics which seemed to have worked better. In the end this project didn’t work either as the price of Carbon credits collapsed during and after the financial crisis.

The second book also includes more historical and philosophical background on China which makes it a “deeper” read than the first one.

Overall I can recommend both books to anyone who is interested in China in general and investing or working in China specifically. Although they are a lot of “How China thinks” books out there, this is one of the few with really first hand experience. And the books are quite well written, too.

Book review: “King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone”

The title of the book is actually a little bit misleading. Yes, Blackstone and Steve Schwarzman play a large role in the book, but the book also covers the story of the whole private equity industry pretty well.

After working for DLJ and Lehman, Schwarzman started Blackstone as a 2 person M&A advisory boutique in the 1980ties. As the M&A advisory business was somehow limited, Schwarzmann and his partner decided trying to get into the then fledgling private equity business. Just before they were out of money, they got their first investor money and then became on of the most succesful Private Equity players.

What I liked the book ist that it looks not only at Blackstone but at the development of Private Equity since the 1980ties in general. There is also a lot of interesting detail to be found on specific deals which I found very interesting. For instance how Blackstone failed in Germany in the Cable sector and many more deals. Blackstone in contrast to some other players invests often in cyclical companies where timing is quite important.

Most recently they also branched out big time into Real Estate. A funny side story is the fact, that Larry Fink started Blackrock as a division of Blackstone and relatively early bough the company out for a couple of hundred million USD. Blackrock is now a 65 bn USD market cap company, almost 20 bn more than Blackstone, its former parent.

The author hinself seems to be relatively neutral or even slightly positiv on the general role of private equity and collects some good arguments.

Overall, private equity investors like Blackstone are very close to what I would call “value investors”. Clearly, sometimes they extract that value petty quickly but many times they also create and grow companies like Blackrock. Overall those guys clearly have longer time horizons than most equity fund managers and one of their strengths is that they are not meassured against benchmarks on a monthly or quarterly basis. I guess that is the main reason why they can act very countercyclical.

However, Private Equity is not a one-way street to success a s the side story of Forstmann-Little shows. In the 1990s, they were the predominant player but than went all in into telecom and technology and finally did not survive. Blackstone did some Telco deals as well but nothing which would harm them big time.

As a summary, I can highly recommend this book who has a some interest on how Private Equity works and how those guys think.

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