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Juan Toro

Given the aggressive activity displayed by private equity funds and the larger and larger numbers of deals taking place, there are many issues that have attracted the attention of the public regarding this industry. One much discussed issue is the tax bill of private equity managers. A prominent UK private equity manager recently declared in the FT that some managers pay less taxes that the cleaning woman. That was a pretty strong statement. I do not know whether that is true or not, but the comparison could be very illustrative coming from someone within the industry. In the US the congress has recently passed a bill that avoids the possibility much used by managers to consider their compensation as carried interest. The performance fee that is the bulk of their compensation is generally treated as carried interest and taxed at a mere 15 %. The recent bill will not allow this possibility anymore and managers compensation will be taxed at the ordinary top income tax of 35 %. The arguments in favor of the bill can be easily illustrated and are convincing.

Continue reading 'Taxing private equity managers'

Juan Toro

Two hedge funds set up by Bearn Stearn are in trouble. These are the High-Grade Structured Credit Strategies Enhanced Leverage Fund, together with a sister fund. They are funds that mainly invested in collaterized debt obligations (CDOs), specifically in mortgage backed securities. The sub-prime rout of two months ago has hit heavily the valuation of these two funds. The funds reported losses of around 6.75 % at the end on April. Two weeks later they released another report that showed losses of 18 %. This got nervous many fund investors that started requesting early redemptions. Gates were closed and this made investor even more nervous.

Continue reading 'The Bearn Stearn fund story'

Juan Toro

There might be a blur difference between hedge fund activism and private equity activity, but there is definitely a difference. Private equity activity can be summarized as follows: a private equity firm sees value on a firm, it acquires the firm, gets involved in management and will wait till their decisions and strategies mature.

Continue reading 'Activism and private equity'

Juan Toro

A 5 standard deviation movement is how some analysts evaluated the movement in the bond market Thursday and Friday. Thursday's and Friday morning's joint 26bp sell-off in 10-year rates equates to a five standard-deviation movement (or a one movement every 7000 years). Last week sell-off was a true move for bond markets. In percentage terms it was a mere 3 % movement in yields, but the bond market is not used lately to suffer this swings. Normal question after this rout are: What triggered it? Will it continue? What are the consequences? Will it drag the stock market? Are we going back to a normal upwards interest rate curve where long maturities yield more than shorter maturities with inflation premiums? Will these higher borrowing costs affect the economy somehow? Many questions and also many guess floating around.

Continue reading 'A 5 standard deviation movement'

Hector Rico

Manuel nos comenta alguno de los riesgos que supone invertir en una empresa como Sandisk.

"Lo que si puedo comentar es que Sandisk se ha visto en un negocio de feroz competencia. Como la mayoria de este tipo de productos, han pasado de ser productos de altos margenes a productos commodity, donde la calidad es algo que se presupone, y los costes pasan a definir si se hace la compra o no."

Continue reading 'Sandisk, ¿la oportunidad perdida?'

Juan Toro

Hedge fund managers usually have a stake in the fund they run in order to align their interest with those of the fund they manage. This guarantees that they do not take excessive risk as part of their own wealth is at risk. The problem is that when managers get married -and divorced- part of their own wealth is not only theirs but also shared with their partners. This has created some problems on the comitment of the manager`s wealth into the fund. The problem would disappear if both partners run the same fund, so that even in case of divorce both partners would have the same amount of wealth in the fund before and after the rupture. But this is hard to picture.

See editorial of the FT on post-nup agreements for hedge-fund managers
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