Feeds:
Posts
Comments

Archive for October, 2007

Oregon PERS:More Funds to Robert Bass and Nike’s Phil Knight

Posted in Oregon-PERS, Politics, Technology and Microsoft on October 31, 2007 |

Today the Oregon Investment Council (OIC) had its October 2007 monthly meeting and made additional committments to private equity, including $325 million to Oak Hill Partners on top of its original $100 million investment made to a partnership in which Robert Bass and Phil Knight are general partners. State Treasurer Randall Edwards, whose wife Julia Brim Edwards is a public communications director at Nike, was not at the meeting and therefore did not vote.

Pictured below is J Randall of Oakhill Partners making his proposal to Ron Schmidt, PERS Chief Investment Officer on left seated next to legal counsel.

oicoakhillfarrell.jpg

Robert Bass right hand man and managing partner, J. Crandall, made the proposal. Crandall noted that his “first LBO was in 1978 and added that its 39 partners were investing a combined $100 million in the new $4 billion fund. He went on to add that this is not simply “recycling fees” but a real committment on the part of partners. Whatever the case, this amount is a fraction of the fees they are earning.

What makes us unique is our focus on “organic growth,” said Crandall, highlighting they they only leverage up firms they buy 3.5 times while the industry average is 5. As if that were not highly leveraged. He added, and so that’s our “secret sauce.” I almost burst out laughing in that it seems that since I started using this expression, secret sauce, to describe their use of NOL’s, they have turned its meaning around.

In attendance at the meeting was the council’s newest member, Keith Larson. Larson works for Intel Capital and when the council approved $75 million for a technology venture fund, Technology Crossover Partners, it seemed rather odd. Here is a top executive of a publicly traded company, Intel, one of Oregon’s largest, who is now one of five voting members on selecting the managers for Oregon’s $70 billion in PERS assets.

Technology Crossover Partners charges a carry fee of 25 percent in addition to a high annual managment fee, resulting in one council member, Harry Demorest, to initially object yet later support the proposal given the difference between the gross and net returns was about half due to the fees.

Pictured below is Scott Larson of Intel Capital, the newest member of the Oregon Investment Council.

oiclarson.jpg

The reason Larson’s involvement seemed strange, including his point that allocating a certain amount to this area is important, is that Intel has a very marginal 401K plan and one would think that deploying Mr. Larson to help fix its own retirement plan, in terms of better choices and lower fees, should be Intel’s priority.

The conflicts of interest given Intel capital’s broad reach with respect to investments that intersect with the council is so significant it is not worth mentioning. With so many capable and more experience candidates to serve in this role, it makes no sense for the Governor to add Larson.

Perhaps this again highlights why the Securities and Exchange Commission should have more oversight regarding directors of public pension systems. At a minimum, Intel’s Chief Financial Officer Andy Bryant should give Larson a call and say this is this is not the appropriate place for Larson to apply his talents.

Pictured below is Dick Solomon, OIC Council Chair and a practicing CPA, whose clients businesses intersect with the OIC’s investments.

oicsolomon.jpg

Read Full Post »

Tektronix Corporation Sale Mirrors Merrill Lynch CEO Attempt to Sell

Posted in Federal Reserve and SEC, Merger Review, News Analysis, Technology and Microsoft on October 27, 2007 |

Tektronix $2.8 billion sale to D.C. based Danaher Corporation is a dramatic example of top executives marketing a company’s sale to benefit themselves and thereby breaching its duty to shareholders and other stakeholders. According to the WSJ, Merrill Lynch’s CEO has tried the same trick yet the board is now considering firing him over making the overture for a sale.

With the declining dollar and solid industry position, Tektronix is poised to do well over the next decade and this should be managements focus, not leveraging growth in their options to buy more luxurious vacation homes and other perks on the backs of shareholders, pension participants and employees.

Let’s look at some of the revealing specifics:

1) Both Tektronix and Danaher have traditional pension plans, with plan assets of $896 million at Danaher and $655 million at Tek for their respective most recent year ends per SEC 10K filings. Danaher’s shortfall on funding this obligation is, however, a whopping $323 million or 36 percent of plan assets, while Tek’s shortfall is $27 million or 4 percent of plan assets.

2) The right decision for Tek executives is to fully fund the pension plan and then spin it off to be managed by a separate trustee unrelated to Danaher. What other reason could Danaher want the plan for, other than to change plan assumptions and systematically peel off its assets? Especially given that the plan was terminated in the last year with respect to new contributions.

3) Tektronix May 2007 year end 10K filing also reveals that $119M or 18 percent of plan assets are invested in real estate, absolute return and private equity whose fair values are supplied to Tektronix by fund managers and general partners given the absence of publicly traded security valuations. With all the difficulty in subprime lending and related areas, the Pension Benefit Guarantee Corporation, the agency that insures such plans, should require that management provide an expanded commentary outlining the specific investments involved, their indicated market value and how such values were derived.

4) According to an October 25, 2007 Oregonian story, “The same day it OK’s a sale to Danaher Corp., Tek’s board increased seven executives payoffs, including CEO Rick Willis.” Clearly, this is a fiduciary breach to shareholders and these golden parachutes should be rescinded by the SEC due to a proxy violation given that they are material and were never put to a shareholder vote.

One Tektronix board member, Gerry Cameron, should know well the stakes here. Cameron himself got a huge payout as the departing CEO of US Bank when it was sold. I always liked Cameron while an employee there and even told him, upon leaving as takeover rumors swirled, that if US Bank didn’t put him on top within a year it was a lost cause. At the time he was head of US Bank of Washington and openly and genuinely laughed at the thought.

Turns out, he was made CEO within 6 months and the organization bloomed for years. Particularly interesting was that Cameron did the restructuring from the top, noting that many executives “candles had burned out in terms of desire and ability.” He was very popular and even suggested bringing me back to work for his top executive yet I said I was only willing to work directly for him.

It was Gerry Cameron who introduced me to Robert Parry in 1999, the then head of the Federal Reserve Bank of San Francisco, at a breakfast in which I asked a question about the tax accounting treatment for stock options and Parry jokingly replied that he did poorly in his only accounting class and that “accounting issues were not within the purview of the Federal Reserve.” Of course soon after the accounting at Microsoft, Enron, MCI, etc. became rather germane and clearly was and continues to be a structural weakness at the Federal Reserve. My advice to Federal Reserve Chairman Bernakke, hire one accountant for every two economists given the Federal Reserve has the same accounting competency problem now with respect to private equity,hedge funds and derivatives.

5) Danaher’s purchase of Tektronix is a classic leveraged buyout (LBO) in which a large amount of debt is issued to finance the purchase. This will result in dramatic and unnecessary job losses at Tektronix as Danaher’s executives leverage the next round of growth in their own stock options via staffing cuts to make interest payments on the debt. It is almost pathetic that Danaher, a technology company, refers to “headcount” in its SEC filings.

Oregon and the nation have grown many great companies that involved a lot of sweat equity, including Cameron’s over 40 years with US Bank. Sadly, today we have many younger executives masquerading as business leaders, like Tektronix Willis, when in reality they are focused on “deal making” and cryptic legal minutae designed to line their own pockets.

In the old days bank robbers rode horses, carried guns and used explosives to get at a bank’s safe yet today they “book accounting entries” and steal millions from shareholders, pension participants and other employees and get treated as royalty rather than what they are, common ciminals. Those are harsh words for Willis and other Tektronix executives, I’ll save my compassion for the shareholders, pension participants and employees.

Read Full Post »

SEC Chair Cox called to suspend RiskMetrics IPO due to proxy rule deficiency

Posted in Merger Review, News Analysis, Oregon-PERS, Politics on October 24, 2007 |

Today Parish & Company formally requested the SEC to suspend RiskMetrics IPO due to inadequate disclosure regarding both RiskMetrics and ISS ownership structure. Such disclosure is the heart of proxy rule regulations given proxy firms unique role in the marketplace.

In order to remedy this, RiskMetrics needs to file an ADV with the SEC and fully disclose its ownership structure and other key aspects covered in this standard ADV disclosure. Stating that it is owned by hedge funds or private equity firms is not adequate unless these firms in turn file separate ADV’s with the commission.

Both Gretchen Morgenson and Floyd Norris of the New York Times are copied on the following correspondence to the commission. More details are available on my blog at billparish.wordpress.com including October 10, 2007 blog post titled “Hedge funds Secret Sauce Going Public via RiskMetrics IPO.”

October 2, 2007

Dear Chairman Cox,

Please do suspend the RiskMetrics IPO until such time it files a completed ADV disclosure both for itself and owners and control persons as defined by the commission who are private equity or hedge funds not currently filing separate ADV’s.

This is a clear and dramatic violation of the essence of proxy regulations by the leading proxy firm itself. RiskMetrics business is the modeling and creation of derivatives, which has played a key role in the current controversy regarding the mortgage markets.

The right decision is to require RiskMetrics to sell ISS to a more appropriate owner, for example a large public pension, as was done with Glass Lewis, or a private firm without the internal conflicts of interest that undermine the quality of proxy services, i.e. structuring derivative products for hedge funds. Failure to do so may indeed repeat some of the tough lessons learned from the accounting industry, in my opinion.

Much appreciated.

Sincerely,

Bill Parish

Read Full Post »

Nike’s Phil Knight Gives UO $100M

Posted in News Analysis, Oregon-PERS on October 22, 2007 |

In his recent $100 gift to the University of Oregon, Phil Knight stipulated that the gift was to cover operating expenses and not be used for constructing a new athletic facility. True to his accounting roots, Knight understands the importance of funding operating costs, rather than funding a building that has no operating budget. It was a brilliant forward thinking gesture.

Two aspects pertaining to the October 9, 2007 story in the Oregonian not discussed were Knight’s bitter conflict with the City of Beaverton’s attempt to annex Nike’s corporate campus and secondly Knight’s partnership with Robert Bass that received $100 in public pension assets (PERS) retirement funds to manage.

The conflict with the City of Beaverton resulted in a prolonged legal action by Nike and the ultimate search of City of Beaverton employees home and work computers regarding any reference to this annexation effort. To most observers this effort by Nike seemed extreme. It was led by Julia Brim Edwards, former Chair of the Portland Public Schools, whose husband is the sitting State Treasurer Randall Edwards.

Ironically, Edwards voted in the Spring of 2005 to give this private equity partnership in which Phil Knight and Robert Bass are the sole general partners $100 million of PERS funds to manage. At the same time Nike was bitterly fighting increased taxes to cover city services that would have resulted from annexation, taxes for which a large percent of would go to pay public employees, most notably teachers and police officers, future retirement costs.

If you are Phil Knight and in Oregon, you clearly have it your way, especially at the Oregonian who dared not discuss his receiving the PERS funds at the height of the conflict with the City of Beaverton. In addition, there has never been an article in the Oregonian discussing Knight’s investments.

To Knight’s credit, he has made terrific gifts to athletics at the University of Oregon. Perhaps some day he will also endow pure academics, for example language and literature programs.

Read Full Post »

Obstacles Facing Microsoft’s HealthVault Initiative

Posted in Technology and Microsoft on October 22, 2007 |

When Microsoft announed its “HealthVault” concept I frankly just burst out laughing. It was back in 1999 when I proposed this concept to Intel Capital, the idea being to establish a place at Intel.com where users could store sensitive information, in particular health care records. The idea was to drive the project, not from a software perspective, but rather from that a bank would use with respect to safety deposit boxes.

With Bill Gates friend and collaborator Warren Buffett being one of the biggest players in the health insurance industry, including medical malpractice, and Microsoft’s numerous strategic partnerships with drug companies and others in the health care industry, one has to wonder who would trust Microsoft with this information. And even if you trusted them, would they be competent enough to not have their vault hacked and the information sold to health insurance companies.

In reviewing the emails between Intel capital and myself it was interesting to note that they clearly liked the idea but were looking to me to lead some kind of effort. My attitude was, hey, you are Intel with all the software and hardware connections. Give it to an ambitious project leader and put me on the board to help maintain the integrity of the idea from a non-technology standpoint.

In reviewing Microsoft’s preliminary concepts regarding its HealthVault, they clearly don’t have the perspective that will make it a success. They look more and more like a disoriented mass of confusion aboard a sinking ship grasping at opportunities they will never realize because such opportunities require partners who trust them, a group not in abundance these days.

http://web.mac.com/billnparish/iWeb/Bill%20Parish%20/Podcast/3021607B-405D-4089-AA5F-4435E750A2EF.html 

Read Full Post »

Should Treasury Secretary Paulson and SEC Bail Out Citigroup and Former Secretary Rubin’s SIV Investments?

Posted in Federal Reserve and SEC, Merger Review, Politics on October 22, 2007 |

Current Treasury Secretary Paulson is now encouraging major banks, led by Citigroup, JP Morgan and Bank of America, to establish a financial superfund of perhaps as much as $100 billion to deal with toxic financil derivative products, often called SIV’s. The biggest beneficiary would be the biggest issuer of SIV’s, Citigroup and its Vice Chairman Robert Rubin, often referred to as the godfather of hedge funds in financial circles.

The idea is, well, patenly absurd and would involve banks contributing to the fund which would buy back these SIV’s and ultimately resell them to investors. Perhaps the beauty of this financial scam is its transparency up front.

Rubin resigned as Clinton’s Secretary of the Treasury and walked over to Citigroup where he received a $50 million compensation package just for showing up. It now seems somewhat ironic that the current Secretary, Paulson, is now advocating bailing out his predecessor’s firm.

Investors should oppose this bailout bccause it will hurt quality banks and financial firms that play by the rules. A likely reason Citigroup issues so many SIV’s is that they wanted to escape the FASB accounting 115 rule that require banks to mark the market value of their investment portfolios to market on a quarterly basis. This was a great reform put in place by George Bush Sr. that stabilized the banking industry after the S&L crisis by restoring confidence.

The significance of this rule is that if asset write-downs impair capital beyond regulatory limits, regulators can come in and shut down the bank, forcing it to merge its assets with a more stable institution. This has already happened to internet start up Netbank due to losses on its mortgage portfolio and this tough rule is an important part of our free market competitive system.

For comparitive purposes with respect to bailing out Citigroup, who will bail out Etrade if its $22 billion mortgage portfolio is deemed to be worth only 80 cents on the dollar. If forced to take such a write-down due to credit quality issues or simply a rise in long term interest rates of 2 -3 percent, Etrade would clearly be undercapitalized.

Etrade is an institution that issued real loans to real customers, not a cespool of conflicted hedge fund inspired greed issuing massive speculations on subprime mortgages, as was the case with Citigroup. My advice to Treasury Secretary Henry Paulson, SEC Chairman Christopher Cox and Federal Reserve Chairman Bernake is to save those chips for the Etrade and Northern Trust’s, a fine bank, of the world.

Let FASB 115 do its job and stabilize the industry. Sure there will be some loosers, perhaps big ones, yet that comes with the territory of taking such risks.

Read Full Post »

Hedge Funds “Secret Sauce” (ISS) Going Public via Risk Metrics IPO

Posted in Federal Reserve and SEC, Merger Review on October 10, 2007 |

Institutional Shareholder Services (ISS) was purchased by Risk Metrics in the last year and will now be part of Risk Metrics upcoming IPO, see SEC S1 filing. ISS is the leading proxy firm and its opinions on merger and acquisition activity often determine a merger votes outcome. Sadly, many great companies with solid long term prospects, including Willamette Industries in Portland Oregon, have been eliminated by ISS actions.

It is simply astonishing that both shareholder rights advocates focused on maintaining shareholder value and union leaders focused upon jobs don’t pay more attention to Risk Metrics/ISS. It is my opinion that the IPO itself should be rejected by the SEC because it does not fully disclose the ownership structure of ISS, which is essential given SEC proxy rules. This is somewhat like allowing a political action committee (PAC), or in this case ISS, to cast a US Senator’s vote and not knowing who that Senator really is. ISS is owned by what many call “private equity” firms that do not disclose anything to the SEC.

Given that such firms do not disclose their holdings, accounting policies, etc. my sense is that they actually nothing but speculative hedge funds whose primary business is leveraged buyouts. What ISS has effectively become is hedge funds secret sauce used to grease the wheels for mergers that make no long term economic sense, robbing shareholders of future gains and eliminating good jobs.

MIT’s Technogy Review has a nice article about the “quant” related activities including a the following quote regarding RiskMetrics from its article titled “Blow-Up.”

The MIT article noted  “Running such computationally intensive simulations has become a lot easier in the last decade. Gregg Berman, a former experimental astrophysicist who left the academy for the world of finance in 1993, is one of what he calls “a ­plethora of PhDs” at RiskMetrics, a firm that provides models, tools, and data to the majority of important banks, brokerages, and hedge funds. (Among other things, the company tries to predict how a derivative will behave in a variety of market conditions–how it might respond, for instance, to weakening exchange rates or increased interest rates.) When Berman started in the business, he says, “full-blown simulations [of the Monte Carlo type] were rare.” Now that computers can be so easily linked, however, ­Berman might put as many as 1,000 processors to work at once to run “simulations within simulations,” which might measure risk on a product like a mortgage-backed security.”Like many of the deals ISS has annointed for hedge and private equity firms doing hostile takeovers of public companies, this proposed IPO is itself a leveraged buyout in which debt is being used to finance the IPO. In addition, almost two thirds of the stock options listed are currently exerciseable.

Two firms, ISS and Glass Lewis, are effectively the nation’s corporate Congress.  In the accounting industry it was once the Big 8 and now the final four after mergers and the dissolution of Arthur Andersen.  In the proxy world it is simply the dynamic duo and while Glass Lewis is now owned by a Canadian Pension plan with much greater disclosure than its previous owner, a Chinese Bank, ISS ownership is now cascading into the world of derivatives and hedge funds.

Perhaps most remarkable about ISS is that it is in clear violation of SEC proxy rules by not adequately identifying its ownership structure, both before its purchase by RiskMetrics in addition to its planned disclosure post RiskMetrics IPO.

If someone were looking for a theoretical peak in merger activity, perhaps the SEC sleeping while ISS goes public and its owners cash out by loading it up with debt is a signal the cycle is over. In the end the remaining public shareholders of Risk Metrics/ISS will end up competing with shareholders of the companies they issue opinions on. Perhaps this would make sense if ISS were selling tires yet they are selling proxy services, i.e. votes, on key corporate resolutions.

Perhaps an additional irony is the debate over campaign finance reform and concern over candidates buying elections. Just another day at the office for ISS? With no disclosure, who knows?

I suppose the good news is that former SEC Chair Arthur Levitt is on the board of Risk Metrics/ISS and he clearly will be able to explain how this IPO violates SEC proxy rules if given an opportunity. Levitt has a history of integrity and competence.

Read Full Post »

EU Regulators Examine Reuters Thomson Merger

Posted in Federal Reserve and SEC, Merger Review, News Analysis, Politics on October 8, 2007 |

EU antitrust regulators vowed on Monday to scrutinise Canadian group Thomson Corp’s takeover of British financial news and data provider Reuters over concerns the deal could stifle competition.

With Rupert Murdoch now owning Dow Jones, parent to the WSJ and Barrons, one has to wonder what it will take for US regulators to more closely examine the consolidation of business media content.

One good place to begin would be Pearson PLC, the parent to the Financial Times newspaper that also owns a major stake in the Economist magazine. And while conducting this review US regulators might stumble upon Pearson’s highly abusive monopoly over key sections of the college textbook market, thereby price gouging students all across the country.

The issue is that these business media services companies top customers are now unregulated hedge and private equity firms and their various holdings. These customers have learned well from Warren Buffet how to control the media, including bond rating agencies, and thereby influence the value of their investments.

I had a personal experience with this in August 2006 when a reporter from the Financial Times, James Polti, asked me to help him with a major story on private equity. What Polti did was effectively a public relations piece for Oregon PERS and the private equity firms they invest in, with no discussion of the two most important issues surrounding these firms, a tax loophole involving the use of purchased NOL’s and carry fees.

Read Full Post »

Ontario Pension Fund Purchases Proxy Firm Glass Lewis

Posted in Federal Reserve and SEC, Politics, World News on October 8, 2007 |

Here in the United States the two most important proxy firms are Institutional Shareholder Services, which is owned by hedge funds, and Glass Lewis, previously owned by a Shanghai Bank.

The recent purchase of Glass Lewis by the Ontario Teachers Pension Fund is a terrific development in the world of corporate governance because it will clearly lead to more transparency regarding key issues, especially mergers. Proxy firms are effectively corporate America’s Congress, both the House and Senate, given that these firms issues key opinions on mergers and other important governance issues. It is most surprising that the Securities and Exchange Commission, Federal Reserve and Congress in the US have not paid more attention to ISS and Glass Lewis and their impact on the financial markets.

Read Full Post »

Microsoft and Google’s Untapped Frontier

Posted in News Analysis, Politics, Technology and Microsoft on October 4, 2007 |

It is ironic that in the 1990′s by aggressivly destroying competitors and also prohibiting the sale of content on the internet by giving content away for free, Microsoft essentially paved the road for Google’s business model, the sale of privacy to advertisers. Google is a great company yet it’s business is simple, it sells privacy, that is information about everything we do.

Rarely considered however is the extent to which individuals and companies are paying Google to not be seen or to be seen yet at the bottom of a search, perhaps several thousand references down, essentially being invisible.

For example, what if Warren Buffet paid Google to surpress anything negative on its searches surrounding, for example, his insurance companies that dominate key segments of medical malpractice insurance? Would Google do that? For example, would they make the following article I wrote for Oregon Business magazine difficult to find: Buffett’s takeover of PacificCorp.

Already, PR Newswire, open of two leading pr wire services, has a policy that prohibits discussion of publicly traded companies, even regarding significant newsworthy events, unless they get approval from the company being discussed. For example, if I want to write a press release opposing Rupert Murdoch’s purchase of Dow Jones, Murdoch has to approve the release. (search for dow jones to see related blog entry). PR Newswire does this by not including ticker symbols in the releases, meaning the releases get minimal visibility.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.