Calling $24 billion in net gains “subpar”… Warren Buffett’s secrets of communication

“A number of good things happened at Berkshire last year (including $24 billion in net gains), but let’s first get the bad news out of the way.” That’s how Buffett starts his 2012 annual letter to shareholders.

His top three language strategies for success:

1. Start with the bad (and be funny)
2. Point to the executives responsible for business growth (and praise them in a personal, funny, way)
3. Give specific examples (and make them funny)
4. Criticize leaders that focus on the short-term (but make it funny)

Some of the communication and business highlights for Berkshire Hathaway (BH) in 2012:

– BH bought Heinz with Brazilian investor Jorge Paulo Lemann from the Secretary of State Kerry and his wife for $28 billion, with the former CEO of Burger King slated to run it.

– BH flagship insurance companies (the “powerhouse five”) combined earned in excess of $10 billion in pre-tax profits. The Gecko and GEICO (along with CEO Nicely and 27,000 associates) led the way.

Geico

– Bolt-on acquisitions resulted in 26 companies integrated into existing businesses for about $2.3 billion.

Buffett always takes pleasure in pointing to the executives responsible for business growth. According to him, BH hit the jackpot with its new investment managers Todd Combs and Ted Weschler, who “left me in the dust”. As a result, each of them received an additional $5 billion to manage.

One of my favorites: “Berkshire’s yearend employment totaled a record 288,462, up 17,604 from last year. Our headquarters crew, however, remained unchanged at 24. No sense going crazy.”

Hilarious and effective.

How do you criticize the fundamental strategies other leaders follow, without looking bad? A masterclass paragraph:

“There was a lot of hand-wringing last year among CEOs who cried “uncertainty” when faced with capital allocation decisions (despite record levels of both earnings and cash). At Berkshire, we don’t share their fears…. Charlie and I love investing large sums in worthwhile projects, whatever the pundits are saying. We instead heed the words from Gary Allen’s new country song: “Every Storm Runs Out of Rain.” … Opportunities abound in America.

“crying uncertainty despite record earnings – invest large in worthy projects – country music – US opportunities”, all in one paragraph – communication masterclass.

He follows it with some advice to his fellow CEOs on thinking long-term: “The risks of being out of the game are huge compared to the risks of being in it”.

And a pinch of sarcasm: “If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you.”

Irrespective of industry or geography, most executives can learn some communication lessons from the sage of Omaha:

1. Start with the bad (and be funny)
2. Praise your team by name (and be funny)
3. Give specific examples (… and make them fun)
4. Criticize leaders that focus on the short-term (but make it funny)

Business should be fun… Thus, WarrenEnskat’s motto: “Leaders in Mutual Fun(ds)”

I invite you to follow me on twitter @danenskat

(c) Warren Enskat 2013

More details on the global M&A in the asset management industry can be found in EAQ, a regular asset management review featuring thought leaders globally.

Electronic flipbook

PDF for electronic book format

Posted in alternatives, beauty, Brand, cash flows, consulting, E&A, Enskat, Enskat Associates, information delivery, lifestyle, management, Warren Enskat | Tagged , , , , , , , , , ,

China Investment Corporation – It pays to invest overseas… and in equities

The picture is simple.

Investment Management 101

Sovereign funds, in Asia-Pacific and the world at large, act as a leading indicators for the investment management industry. They have long-term capital to play with and are willing to take calculated risks in alignment (hopefully) with their asset management partners.

One of the largest of them, CIC, celebrated its fifth anniversary this week, with annualized returns for overseas investments of 10.6% (compared to a cumulative one of 5% since inception) – it pays to invest globally, it appears.

Ding Xuedong

After studying the asset allocation frameworks of major institutional investors around the world, Ding Xuedong in his message highlighted an extended investment horizon of a decade with rolling annualized returns as the benchmark and the continuation of the endowment model of investing as the framework.

Further focal points were on using Hong Kong and Toronto as hubs to interact with the world and post-investment management of illiquid investments in infrastructure, energy, mining and PE allocations. Outgoing chairman Lou Jiwei described his 2,000 days at the helm to “a ship emerging from a storm”, with “a bright future with renewed confidence”.

A quick review of the corporate structure:

– CIC was launched in 2007 with $200 billion in registered capital to diversify China’s forex holdings.

– CIC International started in 2011 to manage overseas assets, since then receiving an additional $50 billion to invest.

– Central Huijin holds controlling stakes in important state-owned financial institutions in China.

– International offices are Hong Kong (established in 2010) and Toronto (rep office, 2011)

CIC At A Glance

Highlights from last year, including direct investments:

– February: 2012-2016 Strategic Plan of Development approved

– June: Russia-China Investment Fund created

– July: CIC Culture Consensus established

Direct Investments 2012 CIC

CIC combines strategic asset allocation, policy portfolio and tactical allocations into its three layer asset allocation framework from longest to mid-term and short-term in nature. An interesting component of the process is the internal dealing room to gradually build up in-house investment management expertise side by side with external partners.

After completing its portfolio transfer, Hong Kong now is in charge of global credit products and China concept stock investments. Toronto continued to build up communication with local governments, institutions and communities to identify promising investment opportunities.

Let’s take a closer look at the investment specifics: overseas investments as mentioned above reached 10.6% compared to losses last year.

Inv results

The global investment portfolio has one third of assets each in long-term investments and public equities, as well as now close to 13% in absolute return investments.

global inv pf

int ext mgmt

Good for investment managers is that CIC continues to have two-thirds of their assets managed externally, especially in the case of diversified equities, shown below. Half is in US equities, followed by some 28% in non-US advanced economies. Notably, 23% are in emerging market equities.

Div Eq

And a few more numbers:

– CIC’s total assets in 2012 increased from $480 billion to $575 billion, with some $356 billion in long-term equity investments.

– Total investment income jumped from $50 billion to $85 billion ($63 billion from long-term equities).

In this era of multi-convergence between products, distribution, geographies and regulation, CIC especially focused on the talent management side of its five year strategic plan with the goal to make CIC a “recognized brand for financial professionals”.

E=MC2 … The era of multi-convergence in global investment management.

I invite you to follow me on twitter @danenskat

(c) Enskat Associates 2013
(c) Warren Enskat 2013

More details on the global M&A in the asset management industry can be found in EAQ, a regular asset management review featuring thought leaders globally.

Electronic flipbook

PDF for electronic book format

Posted in alternatives, asia, black swans, Brand, Brazil, cash flows, China, distribution, E&A, Enskat Associates, information delivery, institutional investor, institutions, Latin America, multi-convergence, pension funds, SWFs, Warren Enskat | Tagged , , , , , , , , , ,

Body Mind Balance

Reading and writing and data analysis should be balanced with some time on your hands.

20130720-143244.jpg

20130720-143829.jpg

BASo Stretch & Strength

Posted in alternatives, beauty, Brand, E&A, enskat associates, lifestyle, Warren Enskat

Monaco Fund Forum 2013: Lights, Camera, Action…

Where to begin… the Monaco Fund Forum International 2013, the largest asset management conference in the world, was another milestone.

Featuring Sir Bob Geldof along with hundreds of CEOs worldwide, conference director Jenny Adams went out on a limb and had the Warren Enskat Group host a red carpet movie premier on “how to rebrand the mutual fund industry” with winning films from the NYU Tisch School for the Arts, where Robert teaches various courses for MBA/MFA students.

This slideshow requires JavaScript.

The featured short films generated a lot of excitement and discussion among the audience, which continued afterwards on the terrace of the Monte Carlo casino over drinks. There is no doubt that the fund industry, despite its tremendous size, history and success, has to rethink its brand and how to engage with a new generation of investors.

Especially Generation X & Y, the ones that due to the financial crisis will have to save more to ensure their retirement, as well as the new wealthy and their very different investing attitudes will require new approaches of engagement and branding in an era of social media and social investing away from pure buy-and-hold equity investing – for details see my blog for the fund forum, which discusses how we went about the film competition and how Shruti worked with the winning directors Prithi, Eric and Rajat to make the impossible possible: Rebranding Mutual Funds for Gen Y.

The Wall Street Journal agreed with us and dedicated its feature story for the quarterly investment section to our films with the title: “Lights, Camera… Hot Fund Action”.

Check out the article and the video here.

WSJ

WSJ

Stay tuned for innovative new branding campaigns with some of our clients.

If you would like to see the movies and/or discuss brand work with us, reach out to my analyst Alla Bronskaya at AB@enskatassociates.com

AB

Next up was a discussion on liquid alternatives, an area of growing interest for both traditional fund managers as well as alt specialists. In my role as advisor to Asset International/Strategic Insight, I sat with Peter Branner, CEO of SEB Investment Management, and Emanuele Ravano, MD Global Wealth Management for PIMCO, to define liquid alternatives, take a look at the best-selling products, and discuss how clients are using them.

One of the most interesting conundra was how to define liquid alternatives, as they can fall into absolute return, GTAA, long-short, fund-of-hedge-funds, macro-driven, CTA, and other strategies. Notably, pioneers such as AQR have gathered 15% of total assets in ’40 act funds, with cash pouring in every month. Clearly, there is growing demand both by institutions and individuals.

This slideshow requires JavaScript.

Last but definitely not least was an interview with Nikko’s Europe president, Charlie Metcalfe, on new third-party distribution opportunities in Asia. CEO Charles Beazley was also at hand and jumped in on the discussion on brand, product demand and overall strategy to build a brand from east to west.

This slideshow requires JavaScript.

When in Monaco, enjoy life… coincidentally, this is also the motto for Warren Enskat:

Life… L (ifestyle) – I (nvestment management) – F (oundations) – E (ntertainment).

Just before we headed back to New York, we decided to hit a few balls at the Monte Carlo Country Club. The ocean in the background, center court with the help of the concierge at the Hermitage and Tintin, the manager of the club, and a perfect breeze with the ocean in the background.

The perfect way to finish the fund forum international 2013.

This slideshow requires JavaScript.

E=MC2 … The era of multi-convergence in global investment management.

I invite you to follow me on twitter @danenskat

(c) Enskat Associates 2013
(c) Warren Enskat 2013

More details on the global M&A in the asset management industry can be found in EAQ, a regular asset management review featuring thought leaders globally.

Electronic flipbook

PDF for electronic book format

Posted in alternatives, apps, asia, beauty, black swans, Brand, cash flows, consulting, distribution, E&A, Enskat Associates, information delivery, institutional investor, investment banking, lifestyle, management, multi-convergence, SWFs, UCITS, Warren Enskat | Tagged , , , , , , , , , , , ,

Largest pension fund worldwide, GPIF, increases equities and foreign allocations

The largest pension fund globally, Japan’s GPIF, is increasing equity allocations and foreign investments at the expense of fixed income to move into riskier assets.

20130607-125019.jpg

It’s part of what the media has called “Abenomics”, the not too creative neologism of the prime minister and his approach to the economy and how to fight the past decade of deflation.

GPIF is upping foreign stocks from 9% to 12%, as well as foreign bonds from 8% to 11%. Domestic bonds will be decreased from 67% to 60%. It is the first change in asset allocation in seven years, and other pension funds in Japan are likely to follow. Now it is up to asset managers to maneuver the policy and selection processes and get a piece of the pie.

20130607-124701.jpg

We are happy to help.

E=MC2 … The era of multi-convergence in global investment management.

I invite you to follow me on twitter @danenskat

(c) Enskat Associates 2013
(c) Warren Enskat 2013

More details on the global M&A in the asset management industry can be found in EAQ, a regular asset management review featuring thought leaders globally.

Electronic flipbook

PDF for electronic book format

Posted in alternatives, Brand, cash flows, E&A, enskat associates, institutional investor, institutions, management, money, multi-convergence, pension funds, regulation, Warren Enskat | Tagged , , , , , , , , , , , , ,

Changing paradigm for HNW investing: don’t bring sand to the beach

Younger HNW investors are much more comfortable investing in tangible assets than in stocks and other traditional asset classes. U.S. Trust in its annual Wealth and Worth study discovers a number of surprising and counterintuitive trends among HNW investors.

For example, shown below, for HNW investors between the ages of 18-32 – many of which inherited their wealth – tangible assets are twice as important a part of the overall wealth strategy than for older HNW investors.

20130525-112610.jpg

Combine that with the socio-economic background of most HNW investors, displayed below, and we see diverging trends that will result in very different investment strategy and client service propositions for wealthy investors.

20130525-112536.jpg

Only 20% of the 18-32 investors grew up poor or in a middle class environment, whereas that number is 75% or higher for HNW investors over fifty. Those older HNW investors also earned their wealth – instead of inheriting it – and, importantly, still do not consider themselves wealthy, despite their HNW status. They also invest more in stocks and bonds and believe in the benefits of long-term investing.

As a result, investment managers and relationship managers need to dramatically rethink their HNW product and service models based on much more nuanced age, wealth and gender analyses.

If they don’t, their value propositions will be as useful as bringing sand to a beach.

To be fair, with most of the new cash flows in coming years coming from wealthy individuals rather than institutions, many firms are doing just that. The leading wealth management brands in the US, Europe and globally are heavily investing in their HNW franchise, either acquiring companies or hiring broadly to beef up their value proposition and product suites.

Robert Warren and I will discuss some of the newer strategies on how to connect with different investor segments in an innovative way at the Monaco Fund Forum. Our production company RDD will screen a selection of short movies on how to rebrand investment management, in partnership with the NYU Tisch School for the Arts.

E=MC2 … The era of multi-convergence in global investment management.

I invite you to follow me on twitter @danenskat

(c) Enskat Associates 2013

More details on the global M&A in the asset management industry can be found in EAQ, a regular asset management review featuring thought leaders globally.

Electronic flipbook

PDF for electronic book format

Posted in alternatives, Brand, Brazil, Chile, consulting, E&A, enskat associates, information delivery, institutional investor, investment banking, iPad, lifestyle, management, money, multi-convergence, pension funds, private banking, professional fund buyers, wealth management | Tagged , , , , , , , , , ,

Multi-Convergence: BlackRock buys private equity real estate specialist MGPA – Asia focus

The era of multi-convergence.

BlackRock Deal

We have seen KKR/Schwab, GCS/ICBC/Dexia, Franklin Templeton/K2, Principal/Liongate, and many more examples of traditional and alternative convergence.

blk_core_logo

This week BlackRock bought private equity real estate firm MGPA to boost its Asia and Europe presence, doubling its real estate assets to $25 billion. MGPA has about $12 billion in assets for institutional investors, in vehicles including funds, co-investments and SMAs. The acquisition adds about 225 people in some 15 offices, especially across Asia-Pac – BlackRock so far did not have a real estate presence in the region. Mark McCombe is happy. He sees expansion opportunities especially in SouthEast Asia and Japan. The focus on alternatives has been notable for BlackRock – in recent years it bought Merrill’s PE investment unit and FOHFs from Quellos and Swiss Re.

mgpa_logo

The firm’s alternatives group includes:

-Hedge Funds
– Funds of Hedge Funds
– Custom Hedge Fund Solutions
– Private Equity Fund of Funds
– Real Estate
– Special Opportunities
– Multi-Alternatives Solutions

Jack Handler, Global Head of Real Estate for BlackRock, highlighted the new opportunities to create specific solutions for institutional clients after the acquisition. MGPA will tap into BlackRock’s distribution network to target institutional and HNW clients. It mirrors the strategic goals for the GCS/ICBC/Dexia acquisition, albeit in a different investment segment.

More to come, especially in Asia.

I invite you to follow me on twitter @danenskat

(c) Enskat Associates 2013

More details on the global M&A in the asset management industry can be found in EAQ, a quarterly asset management review featuring thought leaders globally.

Electronic flipbook

PDF for electronic book format

Posted in alternatives, asia, black swans, Brand, cash flows, Chile, consulting, E&A, EFAMA, Enskat Associates, information delivery, institutional investor, management, multi-convergence, pension funds, private equity, SWFs, wealth management | Tagged , , , , , , , , , , , , ,