>>> Brokers Upgrade & DOwngrades - 5th of January 2015

>>> Up
*ASTRAZENECA RAISED TO NEUTRAL VS UNDERWEIGHT AT JPMORGAN
*EUTELSAT RAISED TO OUTPERFORM VS NEUTRAL AT CREDIT SUISSE
*GENERALI RAISED TO BUY VS HOLD AT BERENBERG
*HIKMA PHARMACEUTICALS RAISED TO BUY VS HOLD AT JEFFERIES

>>> Down
*BNP PARIBAS CUT TO SECTOR PERFORM AT RBC CAPITAL
*GLAXOSMITHKLINE CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
*GRIFOLS CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*MARKS & SPENCER CUT TO HOLD VS BUY AT SOCGEN
*SANOFI CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN

>>> PT Changes


>>> Initiation
*INDIVIOR RATED NEW BUY AT CITI, PT 240P
*RAI WAY RATED NEW OUTPERFORM AT CREDIT SUISSE, PT EU3.50

>>> Call
>> Stock
Soc. Gen Top Pick for 2015 : Accor, ArcelorMittal, Aviva, AXA, Credit Agricole, Deutsche Annington, EDF, Enel, Inditex, Intesa Sanpaolo, Nokia, Renault, Rio Tinto, Royal Dutch Shell, Vinci.

>>> Societe Generale Lists European Top Equity Picks for 2015

Societe Generale Lists European Top Equity Picks for 2015

Top picks by strategists Roland Kaloyan and Kevin Redureau incl: Accor, ArcelorMittal, Aviva, AXA, Credit Agricole, Deutsche Annington, EDF, Enel, Inditex, Intesa Sanpaolo, Nokia, Renault, Rio Tinto, Royal Dutch Shell, Vinci.
Key driver for equities in 2015, according to SocGen:
Buy high beta stocks: Eurostoxx 50 to rise 11% by end-2015 (target 3,500) supported by ECB easing, weaker euro, lower oil price
Buy high-yielding stocks: long-term peripheral govt bond yields should stay at record lows as ECB buys govt bonds in coming years
Buy restructuring stories: Some cos. are restructuring to boost profitability, boost margins
Buy French equities: Corporate tax cuts, lower labor costs will be implemented in 2015, 2016

>>> Telecom Italia leading shareholder Telco to be demerged in next two months

Telecom Italia leading shareholder Telco to be demerged in next two months

Telco, the vehicle that holds 22.4% of Telecom Italia (TI), is likely to be demerged in the next two months, Italian language daily Il Sole 24 Ore reported.

The report cited market sources who said that the members of Telco are already taking steps in regard to their stakes in TI following the demerger of Telco.

The report said that listed Italian insurer Generali is to set up a special vehicle to hold a 4.32% stake in TI. The item said that the aim of the operation is to take the stake out of the direct control of Generali with a view to carrying out a swift sale.

The report said that Mediobanca and Intesa Sanpaolo are also looking to quickly sell their stakes and are likely to set up special vehicles along the same line as Generali. The report said that the two listed Italian banks each hold a 1.64% stake in TI.

The report added that Mediobanca has already said that it plans to sell its shares directly on the Italian Stock Exchange.

The report added that CADE, the Brazilian antitrust authority, and its Argentine counterpart the CNDC still need to approve the demerger of Telco.

The report added that Telefonica, the largest shareholder in Telco, has already agreed to sell its TI stake to Vivendi, the listed French media group.

TI has a market cap of EUR 16.89bn.


Source Il Sole 24 Ore

>>> Asian Update

Asian Mid-session Update: Euro crashes to 9-year lows below $1.19 as Grexit fears resurface

***Economic Data***
- (AU) AUSTRALIA DEC AIG PERFORMANCE OF MANUFACTURING INDEX: 46.9 V 50.1 PRIOR (3-month low)
- (JP) JAPAN DEC FINAL MARKIT/JMMA MANUFACTURING PMI: 52.0 V 52.1 PRELIM (7th consecutive expansion)
- (KR) SOUTH KOREA Q4 FOREIGN DIRECT INVESTMENT (FDI) Y/Y: 10.1% v 37.9% PRIOR

***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 +0.2%, S&P/ASX +0.1%, Kospi -0.7%, Shanghai Composite +2.4%, Hang Seng +0.3%, Mar S&P500 flat at 2,046

***Commodities/Fixed Income***
- Feb gold +0.6% at $1,193, Feb crude oil -1.9% at $51.66/brl, Mar Copper flat at $2.81/lb
- (JP) BOJ to buy ¥70B in JGB with maturity less than 1-yr, ¥240B in 10-25yr JGB and ¥140B in JGB with maturity over 25-yr
- (KR) South Korea sells 3-yr govt bond at avg yield of 2.13%
- USD/CNY: (CN) PBoC sets yuan mid point at 6.1248 v 6.1190 prior setting (weakest setting since Dec 7th)

***Market Focal Points/Key Themes/FX***
- The open of the first full trading week of the new year was met with extreme volatility in the currency markets, particularly in the euro pairs, as EUR/USD crashed over 120pips to $1.1870s - the lowest levels since March of 2006 - before recovering to $1.1930s. USD also made further ground in the other majors, with GBP/USD briefly falling 150pips below 1.52, AUD/USD down 50pips at $0.8050, and NZD/USD down 80pips around $0.7620. A combination of factors is being attributed to fresh euro selling, including further bearish positioning going into the eurozone flash CPI this week, just as ECB's Draghi last week announced that the central bank sees a higher risk of failing on inflation objectives. Geopolitical news over the weekend related to Greece are also weighing on sentiment - Germany's Der Spiegel reported that Chancellor Merkel is less concerned with the possibility of a Greek exit, calling the fallout as "manageable", while opposition Syriza party leader Tsipras reiterated he would move to end the austerity policies if elected in the polls coming up in just 3 weeks. Local press surveys still see Syriza ahead of the ruling ND party by 30.4% vs 27.3%, though that margin has narrowed slightly.

- Shanghai Composite resumed its steady climb, reaching new 5-year highs above 3,300 despite more audible expectations of slowing growth for China in 2015. Standard Chartered said 2015 GDP would slow to 7.1% from 7.3% forecast for 2014, State Information Center (SIC) estimated 2015 GDP at 7%, and a former Stats Bureau economist went as far as to warn that CPI may post an outright decline this year. In the property sector, China Index Academy recorded its 8th consecutive sequential decline during December, with average prices across top cities falling -0.44% v -0.38% prior, although developers are moving higher on signs of a rebound in Beijing.

- In Tokyo, December final manufacturing PMI slowed marginally from the preliminary estimate but remained in expansion for the 7th straight month. Markit economists noted a further rise in new orders from both the domestic and international markets, as well as input price inflation accelerating due to falling yen. Japan Fin Min Aso also said the economy is emerging from a deflation-driven slump, anticipating a rise in capex that would help return GDP to growth. USD/JPY briefly tested below ¥120 early in the day before returning to Friday highs around ¥120.60.

- Among Fed speakers, commentary from Boston Pres Rosengren (alternate on FOMC in 2015) was most notable, as he urged patience on interest rate liftoff until the Fed is confident inflation is returning to 2% target. He added sluggish inflation growth would allow for "more gradual normalization process", and also pointed to global economic risks as a potential challenge to orderly policy measures.

***Equities***
US/ADRs:
- RIO: May announce a buyback of as much as A$5B (4.8% of market cap) as early as next month - AFR citing resource analysts
- AAL: Said to raise pilot pay by as much as 23% as part of a tentative new contract - financial press

Notable movers by sector:
- Consumer Discretionary: Melco Crown Entertainment 6883.HK -3.8% (to delist in Hong Kong); Seven West Media SWM.AU -2.2% (CFO resigns)
- Financials: China Vanke 000002.CN +6.5%, Poly Real Estate 600048.CN +6.9%, China Merchants Property 000024.CN +7.2% (Beijing Dec home sales rise rapidly)
- Energy: Titan Energy TTE.AU +10.0% (provides drilling update); AWE Ltd AWE.AU +4.3% (receives approval for gas project)
- Technology: Toshiba Corp 6502.JP +1.2% (receives order for nuclear reactor in China)

WSJ : Vanguard Sets Record Funds Inflow


Vanguard Sets Record Funds Inflow
Investors Gave Stock Pickers a Vote of No Confidence in 2014

Investors gave stock pickers a resounding vote of no confidence in 2014, pouring $216 billion—a record inflow for any mutual-fund firm—into Vanguard Group, the biggest provider of index-tracking products, according to preliminary figures from the mutual-fund group.

Those large inflows accentuate a trend away from fund managers and toward so-called passive investments that mimic indexes and other benchmarks for a fraction of the cost of the typical mutual fund.

Active investments have been hurt by years of subpar performance and high fees. Data through November, the latest available, show investors pulled $12.7 billion in 2014 from actively managed U.S. stock funds while plowing $244 billion into similar passively managed funds, according to fund-research firm Morningstar Inc.

Even hedge funds, which cater to wealthy investors, have lost some of their shine. Hedge funds lagged behind major indexes in 2014 by a wide margin but still continue to attract money.

The merits of passive investing are becoming conventional wisdom among retail investors. In addition, many financial advisers have incentives to recommend low-cost funds because they can charge their own fees without giving investors sticker shock.

Advertisement

Vanguard, which has long sold index and exchange-traded funds that track baskets of securities, has been the prime beneficiary of the shift, said analysts and industry observers.

The Malvern, Pa., company’s latest inflows in the U.S. top the previous annual record, also set by Vanguard, in 2012. The last time a mutual-fund company that wasn’t Vanguard set an annual record for investor inflows was 2004, when Los Angeles-based American Funds saw $89.7 billion for the year, according to Morningstar.

Vanguard said it had an estimated $31 billion of inflows in December, its highest monthly total ever. The company surpassed $3 trillion in assets under management in September and is the country’s largest mutual-fund firm. The firm with the second-highest inflows through November was Dimensional Fund Advisors, with $26.2 billion, according to Morningstar.

F. William McNabb III, Vanguard’s chairman and chief executive, said in an interview that Vanguard doesn’t set growth goals and tries to avoid a “sales culture” in which profit trumps investor interest. He said the company spent less on advertising in 2014 than in a typical year and hasn’t made significant additions to its sales force.

But Vanguard in recent years has made aggressive moves to help it gain market share at the expense of Fidelity Investments and other rivals. Vanguard has emphasized customer service, expanded outside the U.S. and rolled out new products such as a method of portfolio management that relies on computerized algorithms.

Performance also is behind the shift. Through Dec. 29, about 74% of active stock funds in the U.S. were underperforming their category benchmarks, according to Morningstar. The S&P 500 gained about 15.4% during the period. One of Vanguard’s largest funds, the $198 billion Vanguard 500 Index fund, has matched the index’s gains.

Meanwhile, Vanguard is undercutting many rivals on fees. Investors pay 18 cents for every hundred dollars they invest with Vanguard, compared with $1.24 for the average actively managed mutual fund, Morningstar said. The company also is beating its passive rivals, which charge an average of 77 cents for every hundred dollars.

Vanguard’s corporate structure lets it keep fees low. It is owned by its funds, which in turn are owned by their shareholders. Vanguard operates “at-cost,” charging the funds only enough to cover its cost of operations.

Other fund companies, including BlackRock Inc. and Charles Schwab Corp. , have cut fees but haven’t attracted as many investors as Vanguard, said Daniel Wiener, who publishes an independent newsletter for Vanguard investors.

John Aravosis, a self-employed writer in Washington, D.C., said he moved his individual retirement account into Vanguard in mid-2014 after he realized he was paying nearly half his yearly savings allotment in fees to a longtime broker. He said the performance of his IRA also suffered, causing him to lose out on thousands of dollars in stock-market gains, and that he felt “utterly cheated and violated” by how much he had paid in the past.

Mr. Aravosis, 51 years old, said he has since persuaded his mother and father to move their retirement savings to Vanguard and is helping his brother move his money.

There are dangers for mutual-fund companies when their funds grow too big, said analysts and industry observers. When funds swell in assets, it becomes harder for managers to trade effectively. That can affect returns for existing shareholders.

Mr. McNabb said Vanguard is aggressive about closing funds to new investors when managers believe performance is at risk.

Also, Vanguard has been riding a wave of rising markets. A widespread downturn could steer investors back to stock pickers if they are able to outperform benchmarks during that time, analysts said.

Vanguard’s strategy has pushed large institutional and individual investors to move their money.

The pension fund for Montgomery County, Pa., in 2013 made the unusual decision to move the bulk of its $470 million in assets into Vanguard’s index funds after fund officials spoke with Vanguard’s former chief executive, John “Jack” Bogle. Since then, the fund has seen a return of 12.7% and saved about $1.3 million on fees, said Josh Shapiro, chairman of the Montgomery County Board of Commissioners who serves as chairman of the pension fund’s board.

Mr. Shapiro said he frequently fields calls from other pension funds interested in moving to index funds and is trying to persuade the state’s other two pension funds to move more toward indexing.

While it isn’t possible to directly track investor money from one company to the next, Vanguard also appeared to get a boost from the roughly $80 billion that has fled Pacific Investment Management Co.’s flagship Total Return Bond fund since the departure of star manager Bill Gross at the end of September.

In October, the first full month after Mr. Gross left, Vanguard saw inflows of $10.3 billion into its Vanguard Total Bond Market Index fund, the fund’s highest monthly inflow ever.

Vanguard also may have gotten a boost last year from Warren Buffett , who recommended Vanguard’s S&P 500 index fund in his letter to shareholders of Berkshire Hathaway Inc.

Michael Klein, 34, an account executive at a marketing and sales firm in Corona, Calif., said he was having little success picking stocks for his retirement portfolio when he learned about Vanguard. He said he is moving his portfolio to the firm’s index funds. “Active managers can’t reliably beat the market consistently over time,” he said.

FT : Economists sceptical QE can revive eurozone

Economists sceptical QE can revive eurozone

Any effort by the European Central Bank to launch a massive quantitative easing programme this year would fail to revive the eurozone economy, according to economists polled in a Financial Times survey. The FT survey of 32 eurozone economists, mainly working in the financial sector, conducted in mid-December, found most expected the ECB to launch QE in 2015 — catching up with the world’s other main central banks that have all bought large quantities of sovereign debt since the last financial crisis. Twenty-six economists forecast the central bank would start purchasing government bonds this year, while five thought it would not. One did not respond to the question. A stuttering recovery and a worrying drop in inflation have raised fears of another financial crisis in the currency bloc and put pressure on policy makers to cast aside powerful opposition from Germany and begin purchasing sovereign debt. ECB president Mario Draghi last week gave his strongest signal yet that the central bank would extend its asset purchases to include sovereign debt in the next few months. A decision could come as early as the next governing council meeting on January 22. But most of the FT poll’s respondents expected growth and inflation to remain weak even with quantitative easing. "[QE] will help lift inflation expectations and reduce the euro, but [it’s] not a total game changer," said Dario Perkins, economist at Lombard Street Research. Jörg Krämer of Commerzbank said QE would lower the yield on government bonds and "help the finance ministries of highly indebted countries such as Italy, and its banks". But he added that QE would not change low growth and inflation levels and would "only fuel asset prices". While several respondents said government bond-buying was likely to help fight the threat of deflation and lower yields on debt issued by weaker sovereigns, most economists agreed that growth would remain lacklustre unless governments backed the ECB’s efforts. "QE is not a panacea for the euro-area," said Carsten Brzeski of ING DiBa, a bank. He suggested that the biggest impact from any QE would come "if governments were at the same time allowed to start a deficit-financed investment programme. [It’s] doubtful [that] will ever happen in the euro area." Some said a larger package stood more chance of success. "If it is big enough, it will have some effect on the economy, if only to bring the euro down," said Jonathan Loynes of research group Capital Economics. "It’s worth a try." Of the economists who put a number on the size of the purchases, the most popular guess was €500bn, although some put the figure as high as €1tn and others as low as €250bn. Some also expected the ECB to start buying corporate debt alongside sovereign bonds. Eurozone inflation dropped to 0.3 per cent in November, less than a fifth of the ECB’s target of just below 2 per cent. Inflation is likely to have fallen again in December on the back of the sharp drop in oil prices. Mr Draghi and most of the governing council backed a new development in ECB policy in December, saying the expansion of the central bank’s balance sheet from €2tn towards the €3tn mark was now expected. However, six policy makers objected to the December decision, underlining the extent of divisions over quantitative easing. Jens Weidmann, the Bundesbank’s president, was among the dissenters, and while Berlin is not expected publicly to oppose the policy, resistance within Germany remains fierce. Many economists think it is impossible for the ECB to hit the €3tn level by confining its purchases to the assets it buys at the moment: covered bonds and asset-backed securities. "The ECB will purchase sovereign debt in 2015, mostly for want of anything else to buy," said Lorcan Roche Kelly of Agenda Research. Twenty-six respondents to the FT’s poll thought the size of the ECB’s balance sheet would lie somewhere between €2tn and €3tn by the end of 2015. Two thought the ECB would be able to hit €3tn over the next 12 months, while four thought the balance sheet would fall below €2tn. Some respondents thought resistance within the council could affect the programme, with others suggesting the ECB would ensure national central banks bore the risk from buying their governments’ bonds. "The ECB will most probably have to limit sovereign purchases to investment grade sovereigns," said Hetal Mehta of Legal & General Investment Management, an insurer. "The purchases will consist of nationally-weighted sovereign [debt purchases]. I think that [credit] risk will probably [be] decentralised at the national level via some mechanism," said Lucrezia Reichlin, a professor at London Business School and co-founder of data firm NowCasting. Richard Barwell of Royal Bank of Scotland said: "There may be compromises in the design to get as many people on board as possible, but I expect a sufficiently strong signal that the ECB is determined to do what it takes to preserve price stability and that’s what counts in the end." Kit Juckes of Société Générale said buying European Investment Bank bonds to spur investment spending was a "more appealing" way for the ECB to spend its cash. Harald Benink, a professor at Tilburg University, agreed. "Our proposal of buying bonds . . . issued by the EIB is likely to be more acceptable to the Bundesbank since it is violating to a lesser extent monetary financing rules as contained in the [EU] Treaty", he said.

*EURO DROPS TO AS LOW AS $1.1864, WEAKEST SINCE MARCH 2006

Back to 1.1940 now

+------------------------------------------------------------------------------+

BFW 01/04 22:33 *EURO PARES DECLINES TO TRADE AT $1.1938, DOWN 0.6% FROM JAN. 2 BFW 01/04 22:32 *EURO DROPS TO $1.1864, WEAKEST LEVEL SINCE MARCH 2006 BFW 01/04 22:32 *EURO DROPS TO AS LOW AS $1.1864, WEAKEST SINCE MARCH 2006 BN 01/04 22:31 *EURO DROPS TO AS LOW AS $1.1864, WEAKEST SINCE MARCH 2006

+------------------------------------------------------------------------------+

Euro Drops to $1.1864, Weakest Since 2006, on Draghi Comments 2015-01-04 22:36:06.275 GMT

By Benjamin Purvis (Bloomberg) -- EUR/USD falls as much as 1.2%, trades at $1.1944 as of 7:33am Tokyo time, down 0.5% vs Jan. 2. * USD stronger against all G-10 currencies today * AUD/USD reaches new 4 1/2-yr low of 0.8065 as 15-yr Aussie bond yield drops to record 3.005% * “The euro remained firmly out of favor as markets bank on details of upcoming ECB quantitative easing being nailed down as soon as Jan. 22,” ANZ Bank said today in a research note. USD to extend gains as “roadblocks are expected to be few and far between on a journey towards a higher Fed Funds rate.”

For Related News and Information: First Word scrolling panel: {FIRST<GO>} First Word newswire: {NH BFW<GO>}

To contact the reporter on this story: Benjamin Purvis in Sydney at +61-2-9777-8657 or bpurvis@bloomberg.net

To contact the editor responsible for this story: Garfield Reynolds at +61-2-9777-8695 or greynolds1@bloomberg.net

Reuters - Germany's Gabriel says Berlin wants Greece to stay in euro zone

Germany's Gabriel says Berlin wants Greece to stay in euro zone

* German Economy Minister says Greece should stay in euro zone

* Germany says new Greek government must honour obligations

* Der Spiegel: "Grexit" seen likely if Syriza wins power

BERLIN, Jan 4 (Reuters) - The German government wants Greece to stay in the euro zone and there are no contingency plans to the contrary, Vice Chancellor Sigmar Gabriel said on Sunday, responding to a media report that Berlin believes the currency union could cope without Greece.

Gabriel, the Economy Minister and leader of the centre-left Social Democrats (SPD), also told the Hanoversche Allgemeine Zeitung that the euro zone had become more resilient in recent years and could not be "blackmailed".

"The goal of the German government, the European Union and even the government in Athens itself is to keep Greece in the euro zone," Gabriel said in the interview to appear on Monday.

"There were no and there are no other plans to the contrary," he said, and noted the euro zone had become far more stable in recent years.

"That's why we can't be blackmailed and why we expect the Greece government, no matter who leads it, to abide by the agreements made with the EU," he said referring to the Jan. 25 Greek election and possible change of government.

Earlier a spokesman for Chancellor Angela Merkel, Georg Streiter, said the German government expects Greece to stick to the terms of its 240-billion euro EU/IMF bailout agreement.

Streiter declined to comment on a report in Der Spiegel magazine on Saturday that said Berlin had shifted its view and now believed the euro zone would be able to cope with a Greek exit, or "Grexit", if necessary.

Der Spiegel reported that Berlin considers "Grexit" almost unavoidable if the left-wing Syriza opposition party, narrowly ahead in opinion polls, wins Greece's election. Syriza wants to cancel austerity measures and a chunk of Greek debt.

But the report said that both Merkel and Finance Minister Wolfgang Schaeuble now believe the euro zone has implemented enough reforms since the height of its debt crisis in 2012 to make a potential Greek exit manageable.

In addition, the euro zone now has an "effective" bailout fund, the European Stability Mechanism (ESM), another source added. Major banks would be protected by the banking union.

As the euro zone's paymaster, Germany is insisting that Greece must stick to a course of austerity and not backtrack on its bailout commitments - especially as it does not want to open the door for other struggling euro zone members to relax their reform efforts.

Peter Bofinger, on the "wisemen" council of economic advisers to the German government, warned against "Grexit".

"There would be many high risks for the stability of the euro zone with such a step," he told Welt am Sonntag. "It would let a genie out of the bottle that would be hard to control."

WSJ : CEOs Make Bullish Pitch for 2015

CEOs Make Bullish Pitch for 2015
Corporate Leaders Cite Economy, Gasoline Prices and Hiring as Positive for Business

How’s business shaping up for 2015?

We asked the 153 members of The Wall Street Journal CEO Council if they are positive or negative about the year ahead. And they said…

Wait a minute. Is this really as good a barometer as it sounds? CEOs aren’t exactly your average personality type. They are, it turns out, optimism addicts—or at least good at positive spin.

Writing in the Journal of Financial Economics in 2013, a group of Duke University researchers said they studied the traits of more than 1,000 chief executives and classified 80% as “very optimistic”—a percentage significantly higher than what is found in the general population.

True to form, our survey found the corporate leaders overwhelmingly inclined to turn a frown upside down. They are bullish on 2015 and cite a long list of new tailwinds, and a shorter list of headwinds.

“Lower gas prices, higher employment rates and stronger consumer confidence should boost the consumer marketplace,” says Brian Cornell, CEO of Target Corp.

There’s “traction in middle-class incomes,” says Gerry Lopez, CEO of AMC Entertainment Holdings Inc. “Lower energy costs do provide a sense that the gains may be sustainable. For the first time in six-plus years it seems we’re focused on growth, not on sputtering around waiting for some indicator or another.”

“Momentum, even a little, fuels momentum,” adds Eric Elliott, CEO of Prime Therapeutics LLC, a prescription-drug benefit company

And momentum gives business some room to maneuver. “In this environment,” says Yang Yuanqing , CEO of Lenovo Group Ltd. , “we will see innovation thrive, and we will see innovators win.”

That optimism is echoed in other readings of business sentiment. The Institute for Supply Management last month said its survey found manufacturers expecting a 5.6% rise in revenue in 2015. Nonmanufacturing companies, like service firms, expect a 10% jump. The ISM survey also found executives confident that their costs of goods and labor will stay relatively stable.

What’s got our CEOs worried? The usual suspects: ennui in Europe, a restless Russia, turmoil in the Mideast, the slowdown in China and emerging markets, the Japanese dice-roll that is Abenomics (and U.S. monetary policy, for that matter). All this makes for a global market that “will continue to be highly volatile in 2015,” notes Kasper Rorsted, CEO of Henkel AG , the German consumer-products company. Still, he’s positive about the year to come.

This isn’t just a matter of macro trends raising all boats. The CEOs see specific factors helping (and in some cases hurting) their business.

“The proliferation of connected devices and growth in on-demand availability” mean consumers will want more entertainment content, which is good for Time Warner Inc., says CEO Jeff Bewkes .

Donald Jernigan, CEO of Adventist Health System, says the Affordable Care Act is boosting business at his hospital group. Robert Garrett, CEO of Hackensack University Health Network, has at the top of his list of positives: “More people signing up for health-care coverage.” Similarly, John Hammergren , CEO of drug wholesaler McKesson Corp. , says demand is up and he’s “very optimistic about 2015 and beyond.”

Over at the Nasdaq, it is about deals and disruption. And these days there is plenty of both.

“There is a robust pipeline of public companies and private enterprises looking for ways to use technology to create greater efficiencies, reshape industries and compete for talent,” says CEO Bob Greifeld . “This creates a vibrant ecosystem for IPOs and private marketplaces, and we operate both.”

But, of course, one person’s meat is another’s poison. The recent drop in commodity prices may boost profits at manufacturers. It can be a problem, however, for companies like Aurizon Holdings Ltd. , the big Australian rail-freight operator, which hauls those commodities (think iron ore). CEO Lance Hockridge says he’s “cautiously optimistic” about 2015. Asia isn’t going to stop urbanizing or industrializing anytime soon, he notes. He says he is confident about long-term demand.

And for Massachusetts Mutual Life Insurance Co., 2015 looks like “a mixed bag,” says Roger Crandall, CEO. Wall Street may be effervescent, but Middle America isn’t feeling the love. Underemployment is still an issue. “It doesn’t feel like a full recovery,” he says. “Life-insurance ownership is at a 50-year low.”

That said, there’s also the good news. MassMutual is outpacing the rate of growth of its industry, says Mr. Crandall. “We expect that to continue in 2015,” he says.

CEO: Chief Executive of Optimism.

FT : Permanent capital: Perpetual cash machines

Permanent capital: Perpetual cash machines

William "Bill" Ackman, founder and chief executive officer of Pershing Square Capital Management LP, speaks during an event in New York, U.S., on Tuesday, July 22, 2014. Herbalife Ltd. shares fell the most in three months yesterday after billionaire Ackman vowed to show Enron Corp.-like fraud at the seller of supplements and weight-loss shakes. Photographer: Jin Lee/Bloomberg *** Local Caption *** Bill Ackman©Bloomberg
Bill Ackman, founder and CEO of Pershing Square hedge fund
In 2009, Bill Ackman surveyed the wreckage of the US property market and spotted a golden opportunity. General Growth Properties, owner of shopping malls in 40 American states, was teetering on the verge of bankruptcy — and Mr Ackman, founder of the Pershing Square hedge fund, sensed it was time to buy.
There was just one problem: his own investors. Spooked by the financial and economic crisis spreading around them, many Pershing clients were asking for their money back. To cope with the flood of redemption requests, Mr Ackman had to keep almost half his fund in cash — money that he wanted to put to work in companies like General Growth.

Today, General Growth is worth 140 times its value in 2009. Pershing Square is thought to have made about $3.5bn from its investment in General Growth, but Mr Ackman still rues not being able to invest more in the company.
“I had one hand tied behind my back,” Mr Ackman recalls. “In 2009, we wanted to go on the offensive. But even though we were up a lot that year I still felt like we missed out. Because of the possibility of massive redemptions we had to hold too much cash.”
Hedge fund and private equity managers have always been subject to the whims of their investors or the rules of their funds. After all, the money belongs to their clients. But, for the managers, few things are more galling than having to pass on a “sure thing” because they have to give the money back, as Mr Ackman was forced to do.
Now many of the world’s savviest hedge fund and private equity managers think they have found a way round the problem. Instead of traditional funds that allow investors regular opportunities to redeem their money, or buyout funds that wind up after 10 years, they are looking to raise money for vehicles that bring cash in that can be invested in perpetuity. In the industry parlance, this is known as “permanent capital” and is seen as a new holy grail.
Whether these are stock market listed funds or acquisition vehicles that raise money in public share offerings, or reinsurance companies that bring in premiums to invest, they have a few things in common: fat fees and an end to the need to plead with potential investors to write cheques every few years.
Private equity bosses, complaining about a shortage of cheap companies to buy, are staring at years of lower returns. And with hedge funds having had their fourth consecutive year of sub-10 per cent growth, pension funds such as Calpers are reconsidering their investments. Pressure on fees is intensifying and permanent capital raised now could lock in arrangements that may in the future look quite generous.
While it is too early to say how many of these vehicles will justify the fees they pay to their managers, the quest for permanent capital is already changing the alternative investment management industry. Hedge fund managers and private equity firms are getting larger, more diverse and more institutional, becoming more like traditional fund management groups where gathering assets may be prized ahead of generating stellar returns.
The inspiration for many alternative managers is Berkshire Hathaway, the listed investment vehicle of Warren Buffett, who for 50 years has been able to invest the profits from his businesses and the premiums from his insurance operations without investors pressuring him to return cash to them. The result is that Berkshire is the fourth largest company on the US stock market.
“Everyone is suffering from Warren Buffett envy,” says the head of a private equity firm in New York. Berkshire had the money for rescue loans to Goldman Sachs in 2008 and Bank of America in 2011, moments of great fear in the markets when everyone except the US government seemed to be fleeing. Berkshire has made profits of more than $12bn to date on those deals.
Mr Ackman has been mulling the need for permanent capital since the crisis and, by giving discounts on fees and other incentives, has lured $6.7bn into a closed-end fund called Pershing Square Holdings. The vehicle was listed on the Euronext stock market in October, in what was the largest initial public offering in Europe in 2014. About one-third of the $18.5bn Mr Ackman manages sits in this listed unit.
Unlike investors in Mr Ackman’s hedge fund, Pershing Square Holdings shareholders who want to cash out must do so by selling their shares on Euronext, rather than withdrawing from the fund. “Permanent capital is the best protection,” he says. “I wanted to make it both compelling and material.”
Listed funds have also been raised by Third Point, the US hedge fund manager founded by Daniel Loeb, and (twice) by London-based Brevan Howard. Mr Loeb and David Einhorn’s Greenlight Capital are also among the hedge funds to have set up reinsurance companies in recent years. These bring in billions of dollars in additional money to invest, thanks to the companies’ capital reserves and insurance premiums, and have favourable tax treatment. Apollo, the private equity group founded by Leon Black, has nurtured an insurance group that has added tens of billions of dollars in permanent capital.
Other stock market listed vehicles could include special purpose acquisition companies — also known as shell companies — which raise capital for a future deal, real estate investment trusts, business development corporations and holding companies.
Advocates in the industry believe permanent capital vehicles hold the answer to another long-running frustration of alternative asset managers: the stock market’s refusal to value their businesses as highly as traditional fund management companies.
Public market investors dislike the volatility of alternative asset managers’ fee income, which is vulnerable to client redemptions and heavily reliant on unpredictable performance fees. Since permanent capital vehicles pay their managers’ fees in perpetuity, running them should be more valuable, according to the theory.
“These vehicles are likely to be a meaningful alternative,” says Marco Masotti, a lawyer with Paul, Weiss, Rifkind, Wharton & Garrison in New York, who helps many of the biggest firms to structure them. “There is no ticking clock of a finite life and there is always a readily available pool of capital.”
Mike Vranos, founder of mortgage specialist hedge fund Ellington Management, says the ability to pick from a variety of capital-raising structures increases a firm’s flexibility and there is a “game theoretical aspect” to picking the right framework.
Since the crisis, Ellington has created and listed two permanent capital vehicles, a Reit and a $670m specialty finance company called Ellington Financial, which buys mortgage-backed securities and also owns part of a mortgage lender. “Permanent capital allows you to go into less liquid assets and even operating businesses, which require patient money,” Mr Vranos said.
Permanent capital vehicles typically must be listed on a stock market to allow investors the option of getting out — and that comes with disclosure requirements that would be anathema to hedge fund managers a decade ago. “It is a higher bar because there is a lot of scrutiny on the manager, a lot of issues around infrastructure and compliance, so you have to be up for it,” he says.
Those hurdles seem smaller, however, now that many, such as Blackstone and KKR in the private equity industry and Och-Ziff from the hedge fund world, have floated their own management companies on the stock market. Since the Dodd-Frank reforms of 2010, US hedge funds have been required to register with the Securities and Exchange Commission, and hedge fund managers now get most of their money from pension funds, which have high due diligence requirements.
Blackstone and Apollo have been among the private equity pioneers which have transformed their businesses into diversified investment management companies spanning private equity, hedge funds, asset allocation strategies and numerous other products for clients, including permanent capital vehicles. The expansion of their model comes amid concern that competition has cut the potential returns from the traditional 10-year private equity fund.
Some large firms, including Blackstone and Carlyle, are trying to lure their investors into funds with a lifetime of up to 20 years as a halfway house between the traditional 10-year fund and permanent capital. Investors are divided about the virtues of such a long lock-up.
Hanging on to lucrative investments longer is one of the more powerful arguments of proponents of permanent capital models.
Just ask Wes Edens about mobile phone towers. His New York-based private equity and hedge funds firm, Fortress, assembled a national portfolio of towers after the dotcom bust but had to sell the business in 2008. “Had we owned that in a permanent capital vehicle we would still own it today,” he says.
Fortress has been expanding its range of businesses since the credit crisis, and now has a diverse set of six listed or soon-to-be-listed vehicles that specialise in areas including healthcare, mortgage services and US newspapers.
As well as Mr Buffett’s, the business models Mr Edens uses for comparison are those of Teekay, a Canadian energy investor, and Carl Icahn, the controversial corporate raider. Mr Icahn runs a family-only hedge fund but also has an $11.4bn listed vehicle called Icahn Enterprises, whose businesses span railcars, metal recycling and textiles.
Mr Edens said: “Comparing yourself to Warren Buffett, good. Comparing yourself to Carl Icahn, not bad exactly, but Carl is Carl. However, if you look at what he has done in the permanent capital vehicle, it has been really productive.”
Not all the experiments in permanent capital have been a success. KKR listed a vehicle on the Euronext exchange, but it was absorbed into KKR’s New York-listed stock after trading at a discount.
And even Mr Ackman, whose investments were up more than 40 per cent in 2014, has not received the stock market welcome he hoped for. Despite his prediction that Pershing Square Holdings will one day trade at a Berkshire Hathaway-like premium, it has traded stubbornly at a discount, suggesting investors want to build in a margin of error in case performance slips.
The early evidence suggests potential shareholders will be cautious about these options for tapping the expertise of hedge fund and private equity managers. The capital may be permanent, but history suggests that investing success may not be.
Exit strategy: After making a profit, time to ‘harvest’ Alibaba?
Three years before Alibaba set a record with its $25bn IPO, Silver Lake Partners began building a stake in the Chinese ecommerce giant.
Silver Lake, a private equity firm, invested $450m at a blended cost of $14 a share. It was a good price: Alibaba went public in September at $68 a share, after which Silver Lake sold 7 per cent of its holdings and distributed the proceeds to investors, according to confidential letters to them.
Alibaba reached $88 by the end of the third quarter, giving Silver Lake’s remaining stake a value of $2.8bn. Those spectacular results have given its Silver Lake Partners III fund — which made its first investment in 2007 — a huge boost.
But when should Silver Lake cash out?
The life cycle of a private equity fund is generally 10 years. Investors expect managers to put their money to work in the first five years and then start to cash out.
The lock-up period for the listed shares for Alibaba’s private equity holders ends in March. One investor says he would like Silver Lake to either distribute the shares to investors or return cash to them sooner rather than later.
This investor was told that Silver Lake has not decided on when it will sell its shares. A general partner such as Silver Lake has total discretion over the timing of an exit. Still, the Silver Lake fund is already in the period in which it would be normal to wind down its holdings. A spokesman declined to comment.
By contrast, General Atlantic, another private equity firm with a stake in Alibaba, has taken a different approach. It has what it calls an evergreen structure, meaning it is not bound to invest over five years and then “harvest” its investments over the following five. It also has much more freedom in timing its exits.
Investors who think Alibaba shares are a good long-term bet might be happy to give their fund managers a little extra freedom.