Killing it like a hooker in Hong Kong

Unreasonable Investment Expectations (I)

I have a friend who just joined the newly set up Asian division of an international investment firm. So I went out to lunch with him to figure out what they want to do. Let’s call my friend Pa.

Me: So what sectors are you guys looking at?

Pa: Infrastructure, pan Asia.

Me: Ahh, so developing stuff, greenfield power plants and all?

Pa: Nope, we’re only doing developed assets. No greenfield.

Me: What’s your return hurdle?

Pa: Mid to high teens.

Me: Ahh, and are you taking small stakes?

Pa: Nope, we want majority stakes in these firms.

Me: Ok which countries in Asia again?

Pa: Japan, Korea, Taiwan, Singapore. No India, no Indonesia. China is a maybe.

Wow, I mean wow. I was sitting there thinking, I wish I could find someone willing to give me a fixed deposit with high teens interest. I mean wtf? Have you forgotten that there is a relationship between risk and return expectations?

It’s funds like these that litter the Asian infrastructure scene now. These idiots went out and did fundraising making all these promises, and then sit in Singapore and Hong Kong rejecting deal after deal after deal. They complain about dealflow, and take their management fees off the top.

See these guys were all setup to emulate Macquarie, who in the pre crisis days played this game better than anyone. Lever, relever, management fees, listing at IPO, more management fees.

But those days are long gone. Anyone who owns infrastructure with mid teens equity cash flows is sitting on it like being glued to your seat during a Jenna Jameson money shot.

So you want mid teens infra returns, I have one word for you pal. Develop. Another word being Greenfield.

I met a guy in India last year, who bought a developed airport, in a non-competitive negotiated bidding process. If all went well and he got reasonable tariff increases, he would get 12%.

There is a direct parallel between these infra funds, and the venture capital funds left over from the Internet bubble era. Both raised money based on bubble expectations, and then proceeded to invest when those expectations were gone. It’s taken over 10 years, but it looks like finally over the next 2-3 years, those venture funds will die out. So I hope all those investors in infra funds are prepared for a long wait to see nothing much come of their great expectations.

(Yes and I did throw in Jenna Jameson in there to see how many hits I can get from people searching for “Jenna Jameson infrastructure”

March 9, 2010 Posted by | Uncategorized | , , , , | Leave a comment

Infrastructure Investment Of the Year Award!

This would be pitched so:


ELAN INVESTMENTS presents unique investment opportunity in Asian infrastructure. The Company is the owner of the exclusive right to develop a transportation network in a prosperous Middle Eastern democracy. The network will be used for the transportation of all goods to be used by the territory in question, and hence would have a monopoly on transportation of materials into the territory. The economy of the territory in question is estimated at USD12 billion for a population of 2.5 million, for a GDP per capital of USD5,000 per person, which is higher than India and slightly lower than China.

The license obtained by Elan does not limit tolls in any way, and hence the Company will be able to charge whatever the traffic will bear. Cost of construction of each link in the network will cost approximately USD100,000.  The Company has been encouraged by the sponsor government to build as many links as possible. The Company envisions an initial investment of USD100 million in the form of Redeemable Assumed Preferred Exchangeable Receipts  paying a coupon of 120% per annum. The sponsors of the Company will own all equity in the firm, and hope to make a return in excess of the RAPES.

Political risk insurance on this investment in not available.


Elan by the way, in Arabic would translate to Hamas.

Inshallah they get restitution.

Investment opportunities are rare in the Gaza Strip. So when Nabila Ghabin saw one last year, she pawned her car and jewelry and put $12,000 into a network of tunnels that brought in supplies smuggled from Egypt.

She was one of about 4,000 Gazans who gave cash to middlemen and tunnel operators in 2008 as Israel blocked the overland passage of goods. Then Israeli warplanes bombed the tunnels before and during the Dec. 27 to Jan. 18 Gaza offensive and the investments collapsed.

Now investors, who lost as much as $500 million, want their money back from Hamas, which runs Gaza.

The imbroglio over the 800 to 1,000 tunnels has deepened Hamas’s decline in public opinion in Gaza and highlights the Wild West nature of the underground economy that supports this jammed enclave of 1.4 million people.


Digging and operating a tunnel, typically about 50 feet (15 meters) deep and 250 feet long, costs as much as $100,000, according to Shaban.

With Israel restricting the flow of goods into Gaza after Hamas took power in 2007, tunnel owners began seeking funds for more tunnels. They built under license from Hamas: Four operators who declined to be identified said they each paid 11,000 shekels ($2,950) to Hamas for a digging license.

According to investors Ghabin, Mohamed Shurab and Shadi Qishawi, the financing worked this way: In exchange for their money, investors were promised monthly dividends of 10 percent. They were not owners of the tunnels. The returns came from the profits of smuggling as well as new investments, Shaban said.

October 7, 2009 Posted by | Uncategorized | , , , , | Leave a comment

Blame it on the river not on the bank

Every pundit has a different opinion on who is responsible for the credit crisis and the coming recession. From Kunstler who blames it on the Republicans, to Mish who includes Greenspan, to Feldstein who brings in the regulators.

I don’t think any of them deserve the blame.

My thesis is that the credit crisis and the coming recession are manifestations of a process that the entire world is responsible for. This narrative begins with the triumph of capitalism over communism in 1989, which reordered the world. As soon as capitalism became accepted as the only reasonable way of ordering the economic affairs of humanity, the warring between differing systems of capitalism began. On the one hand you have the laissez faire systems of the West and the developed countries and on the other you have the command economies of the East.

The Western system allows for individual decision making and political renewal but on the whole fails to reward long term planning by politicians. The Eastern system relies on catching up on development using methods already developed in the West while holding on fast to political power. Hence policy makers in the East are able to use their political strength to push unpopular long term goals because they have the utmost confidence in where their roadmap will lead.

The end result of the Eastern system is Japan. Once all catchup development has been done and new entrepreneurship is required, the Eastern system finds itself in crisis. Institutions which were not build to support individualistic thought find themselves struggling.

What does this have to do with the credit crisis? Well it all boils down to the savings rates of the fast growing East. With the amount of money being saved and invested in US dollar assets, there was essentially no way asset price bubbles of some sort would NOT have formed in the US. That is why the bubble moved from Internet stocks to home prices and then to all forms of debt. There is essentially no way that the Fed could have prevented this without some rather drastic measures, like for example restricting US dollar convertibility.

So when the tide of liquidity rose, there was bound to leaks, bridges swept away, land inundated, and when the levees broke, it should not have come as a surprise that a flood of biblical proportions emerged.

Blame the river, not the bank.

August 27, 2008 Posted by | Credit Crisis | , , , | Leave a comment