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What exactly is happening to the money? | Advantage zyaada

Are high valuations a key concern?

As result season got underway, the market in India has also moved to a different plane in this phase of the recovery. Along with its global peers in Brazil and China, indeed in market terms even in Europe and US, subdued volatility and a healthy disrespect for positive pronouncements is much more visible this time around. The surrounding commentary in the business news campaigns shows a global market much more used to analyzing each information silo in the larger global puzzle rather than good for its own sake. The bigger stories of growth and effective management are thus waiting to be discovered and rediscovered before their value is made obvious to the world. Witness PE funds in India that are sitting on $30 billion of dry powder, unsatisfied with the deals the money was chasing at the bottom of the cycle. According to mint, this is just a fifth of the $100bn or even as high as $160 bn globally. This corpus excludes any mention of the $1 T lying with Sovereign Funds from Middle East and Asia that is ready to be invested and is already chasing Chinese IPOs, BP and PE darling KKR itself. We have mentioned a number of such candidates earlier, that have been waiting for the right investors for as long as 18 months now including AIG’s global life insurance business, UK banks and more promising candidates from banking in India, China and Brazil that are already approaching markets and in fact Ag Bank has already listed at a 2% premium.

With the Chinese government having found the strength to rein in the growth and score a 10.3% after a 11.9% run in Q1 in its GDP numbers, it is obvious that each of these local constraint based strategies are working for the stakeholders. Each such development will underscore our distance from the crisis events still clouding some skies in Europe. As Portugal takes center stage at the Crisis Quay, paper actions such as timely downgrades from Moody’s for the sovereign and the banks also underscore that such recoveries will be slow and torturous for its stakeholders

What crisis?

With trillions invested in the global economy, today investors and managers have a more complete map of each obvious play in a fresh industry and each hidden gem that will reap structural benefits from reinventing itself in the aftermath of the crisis. What it also means is that today it is more unlikely to find that ideal Private Equity play for new markets in global economies that will break the hypergrowth constraints or possess the tipping point for a market shimmy and a mandate to burn investible cash into productive assets, unlike the ‘obvious’ and ‘poor’ cousins of the digital age such as internet businesses that remain grossly unremunerative or facebooks that have made a business of wasting time and resources of the fun generation.

The US is reporting 3% rise in GDP but that is not enough any longer for its detractors. The Euro is sitting on a debt pile but each component is refusing to crumble with Spain and Greece surviving the structural pain and on way to a tough reform programme. Things will remain at this stage for a decade or more and to live cautiously in the belief that there is still a crisis cloud that will be lifted is a misguided belief inside all of us.

Where is the value motive?

What Warren Buffet did 20 years ago, what George Soros did and what hedge funds did in the nineties and the oughts’ has however become a benchmark for those who have made a habit of winning. What we need however, is not that we jettison those fundamentally sound principles but that we recognize that a different set of factors is at play now. The BRIC formulations or the Global Healthcare and Education deficit, the Lifestyle Spending Hyper cycle to be are all great ideas that are already happening in the here and now. However, those ideas that grapple with such key opportunities with a shallow reach or without the benefit of Chinese or Brazilian or Indian policy or the momentum of government sanctions are just one stet of obvious lame ducks. Such examples that need to be avoided include early players in Training and Education in India without any policy to back it up wasted billions in halfhearted retail investment and unoccupied cities built to grow GDP in the heart of north China.

Businesses with simple value drivers or a key winning meme have to be nurtured in the now, because when you next wake up, they might be in a higher orbit for you to ever see the revolution which already passed you by. However retraining promoters and transplanting global practices in multiple silos is neither an answer nor any euphemism for Global collaboration. Trading remains profitable and we will see a lot of non-bank boutiques grow in the absence of a true business model.

Well researched plays always win and those following ADVANTAGES.US will be reaping that throughout the globe, but effectively the results season is no longer a key harbinger of verdicts on such plays, just one of many that envelope us. But then we all know and take care of these things in our daily chores. Unknowingly we have let loose a revolution of bloggers and reviewers that may each find the next jack in the box for a global play. However these may not by itself be leading anywhere specific. The 40% + unemployed in the US and Chinese workers demanding higher wages in a business model where the real estate is half of your investment and more may still be around when we ring the bells on 2020 and the world would have moved on.

Some of the preferred Private Equity methods of engendering a new kind of promoter or our public formula for growing evangelists is equally at fault for this long winded essay that keeps 2010, and then 2011, 2012 and even 2013 in a limbo.

What now?

Global collaboration still has a few victory laps to go. In fact a lot of Cross border flows will ramp up in this decade. The larger deals will start happening as a minimum ticket size is mandatory to tackle lifestyle gaps, healthcare in Africa, Educational Infrastructure and International businesses that can carry best practices to new locations without being wasteful like traditional Transnational corporations, even nonprofits are likely to be more important in the scheme of things from here. The business of government has also become lucrative now for more stakeholders as they are a key harbinger of policy and have come out from blistering crises and scams. Knowledge businesses are not in danger of becoming socially obsolete for the premium associated with them, but if someone can discover a profitable way to fly and supply your phone infrastructure, that’s proven win too. Unfortunately that and the fact that in the Top 5 economies in 10 years over $2 Trillion will be domestic spending on food and groceries is still not enough to put down the pens and the books or the digital equivalents and get on with it. The money going around may seem to be too much money chasing too few deals but still money is the scarce commodity and that itself will move some markets as commodities find their new secular uptrend and dreams of a belittled Dollar or an ultra-weak Euro fade away.

China is of course a good destination but they are not inviting you in. Other G20 members apart from China and Brazil will still be in a different orbit and always be made aware of their almost second class citizen status including India and the really undeveloped markets in Africa, Mexico and some like the Philippines and Vietnam. The mineral rich economies would run only so far before their limitations are discovered as gatherers were jettisoned very early in the human evolution for hunters and farmers. Which is saying exactly what would have been said 10 years ago on the same subject.

Who else?

Well, the answer, people have realized in various bits and pieces is that till date the only clear mandate in the world has been to build true institutions and that cannot happen overnight or without investment. That also means that regular cycle of 5 years from Private equity are infeasible options as the time and investment will lap into more than one decade and performance measurement cannot be suspended but still has to happen without turning itself into a selling basis or for trading equity in the institution overnight. Maybe private funds can add to sovereign reserves and international investments made to happen as this open transparent era truly deserves. Policy and protectionist pitfalls could be necessary to further the revolution in each case and thus the corrective revelations and pockets have to be agreeable to stakeholders dreaming of such support. For such institutions there needs to be a class of enablers that is specifically supported rather than a generic mass of writers / blogs being promoted or public markets being reported to. Also, there needs to be a realization that not even half of the institutions we build will be public institutions and at least 50-60% of such to be institutions are in the 100% private domain, not limited to non-profits or existing businesses

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This entry was posted on July 15, 2010 by in Amitonomics, Brazil, China, Emerging Markets, India, Private Equity, Retail Lifestyle.

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