Has David Cameron finally worked out what has caused the economic crisis and begun to deal with the problem by inviting all the culprits to dinner?!David Cameron has recently publicized 'social' meetings he has had with friends who are hedge fund managers, private equity managers, property tycoons and investment bankers who must surely have been invited their for a common purpose. To regulate all these businesses (.....in a way which prevents them damaging the economy!), to end this economic crisis and prevent the next one. Either that or the government is the subject of a corporate buyout!
Here are some details about how some of David Cameron's friends make their living.
1..............David Rowland is a Hedge Fund manager at Blackfish Capital.
Hedge funds make their money by buying and selling just about anything which includes shares of companies and whole companies. Blackfish is a specialist 'activist' hedge fund.
Activist hedge funds specialize in buying shares in companies and influencing the way they are run. They will get the executives to run the company in the way they want it run, even while the hedge fund may only own a few shares in the company. If the executives are not forthcoming with the demands being made by the hedge fund they may blackmail the executives by threatening a proxy vote. A proxy vote is where the share holders vote in new people to run the company. Because hedge funds are so successful at "making" money, the other share holders will often vote a hedge fund manager into the board. I say "making" money because the word more apropriate to use taking money then making it. The reason for this is that there is no real product of a hedge fund. When they take control of a company, costs will be cut by laying off lots of staff. Charges to customers will rise. So when I say take it, I mean in a legal sense. The laid off staff won't need paying any more, and the increase in prices to customers will also add to their income.
Then next comes the media affect. Financial newspapers and many other national news papers on their business pages will report that the companies fortunes have changed and this will encourage stock brokers and other investors to buy their shares and push up the price. (A lot of the time the stock brokers will know exactly what has gone on at the company, but stock brokers have to by stuff to trade because its their job! ) This sort of misleading information also encourages investment into ISAs and bonds and other types investment which are accessable to hedge funds as they not only use funds directly invested by their clients but also borrow fortunes from banks. You can not avoid investing in these hedge funds as all kinds of insurance funds are also invested in hedge funds.
As the share price of the company rises, the hege fund can start to think about an exit. -Selling all the shares at the peak price, after creating an illusion that the company is worth more than it really is.
What happens next is that the company may begin to struggle because only a skeleton of the previous company remains and its charges to customers can not be justified, so the business starts to lose customers. At this point, the hedge fund all being well will have sold all its shares in the company. Maybe the most annoying thing is that a hedge fund manager may be still on the board of executives long after the shares have been sold by the hedge fund. This could first of all look like a desperate attempt by a hedge fund manager to look after the interests of the company and its share holders, even when things are not going so well.Yes,loyalty. How resiliant these hedge fund managers can be! But, then it may be the hedge fund has 'exited' and has no more interest in the company. But that doesn't mean the hedge fund manager on the board of executives while collecting a salary from the hedge fund can't also keep collecting a hefty executive salary from the company that the hege fund had some time ago exited (sold all shares). Atleast until another proxy vote kicks him out!
'Yahoo is currently under attack from an activist hedge fund which has been on going for some time. You will find information on this on 'google' and also on 'Yahoo' atleast for the time being.
2.......................Micheal Farmer, Conservative Party Co Treasurer since March 2012.
Micheal Farmer is founder of R.K. Capital which owns 'Redkite' hedge fund. One of the biggest industrial metal hedge funds in the world.
The product of this type of business is basically more expensive costs for businesses which need to use metals in their industry. Its a real shame that many businesses like the redkite hedge fund are earning far more than businesses which are actually having to to produce products from the metals purchased from the redkite hedge fund which involves work whilst the 'redkite' touts are only having to get off their back side to get to the nearest bar.
Apparently, "Micheal Farmers motivation is not the city or even the economy, but society."
Well we knew it wasn't the economy!
3....................... Micheal Spencer - Conservative Party co-treasurer 2006-2010. Chairman of the Conservative Foundation. This was set up to support the conservative parties' financial future.
He is chairman and Chief Ex. of financial transactions company ICAP. A company with a multi-billion pound turnover.
The former entrepeneur of the year is also owner of spread betting firm City Index.
ICAP trades in interest rates, credit, credit derivatives, softs (otherwise known as food & fibre such as sugar, coffee, wheat and corn), energy, foreign exchange, intellectual property and equity derivatives.
ICAP PLC is headquartered in London and operates from London, New York and Tokyo as well as 21 other smaller financial centres. The average daily transaction volume for ICAP is apparently $1.5 Trillion! (This seems an exceptionally high figure, but transactions in foreign exchange amount to somewhere between 10 or 20 times our GDP) . Its success isn't so much in what it actually invests in, but in the mountain of cash which these businesses are sitting on top of in the way of investments, pension funds and insurance. The volume of these investments creates a supply and demand problem which sends anything that is invested in upwards in price whether it may be gold or debt. Unfortunately, this is having an affect on prices of everything we buy and what the majority receive on their investments is virtually insignificant compared with the rising costs of fuel, food, vehicles and the inevitable inflation which is caused by these investments. If we had more control of what our savings are being invested in we could reduce inflation, have less living costs and have less businesses with real products going out of business.
Just to clarify the bit about foreign exchange trading that take place in U.K. Transactions being many times the GDP of the U.K. Most transactions in banking and stock markets are added to the GDP- when shares are bought for example. But if you buy foreign exchange, because you are just exchanging money for the same worth in an other currency it is not added to the GDP. (Even though currency is bought for exactly the same reason as shares, commodities, etc in the hope it will increase in value). Any way the reason normally given for not including currency for currency exchanges in the GDP is because it is just that - currency for currency. Yes O.K. The real reason is that currency exchange happens in such large volumes that it would actually multiply GDP figures of many countries by ten times or more. It would make complete mockery out of the GDP figures when they are treated with such importance by economists and politicians. There are also tax exemptions which encourage the trade in currency !
You have to admire how the politicians must have addressed this problem when it surfaced. They could have questioned the whole issue of buying currency and whether it was morally correct. And also the consequences of this trading on the countries of the world. Instead, the government allowed it to continue but just leave foreign currency transactions out of the figures so it wouldn't make economists and politicians look like idiots!
4........................Micheal Hintz. Multi Billionaire owner of a property empire in Australia.
Owner of hedge fund CQS and pension fund MHPF
Formerly 'Head of Equity Trading ' at Goldman Sachs.
Micheal Hintz 'MHPF' (Micheal Hintz Pension Fund) is currently using investors money to buy up farms in Autralia. Amounting to 124,000 acres since 2007. The fund has made 15 farm acquisitions in New South Wales and in addition to this, two sugar cane farms in North Queensland, "which marked a shift away from its weighting towards the Southern NSW mixed farming of wool, prime lambs, cattle and winter cropping."
MHPF has been described as, "A newly diversified agricultural force taking shape in Eastern Australia"
Im sure the investors into this Pension fund are going to be delighted that as the economic crisis loomed, Micheal Hintz saw the potential to feed off the human need to eat as opposed to the usual investments of stocks, shares etc. Australians as well as being faced with the usual credit difficulties are going to be paying increased prices for food as the costs of these purchased farms increases as a result of the debt to the pension fund and Micheal Hintz costs for his capitalism. When you read that changing economic conditions within an industry are raising costs, in the majority of cases its these kind of conditions which they mean, but are not telling you about. Not just the labour costs and recent weather, or any other reason which may be used to cover up the real cause.
CQS calls itself a "Global muti-strategy asset management firm"
CQS is a founding member of the 'Hedge Fund Standards Board'
Micheal Hintz has donated or lent £4 Million to the Conservative Party in the years upto their winning election and since then.
I think we can safely say that Micheal Hintz has been one of the defenders against regulating hedge funds in a way which prevents them creating economic damage. (They all do this without question). With people like this so close to the government, what chance do the ordinary people have of actually getting the democratic government that actually does what the people want it to do?
Europe has been trying to get backing from the U.K. to increase regulations to hedge funds but to what will be many peoples' surprise is that the U.K. Governmment has stubbornly opposed this. As the U.K. is centre for hedge funds second only to the United States, Europe would suffer if it was to implement tougher regulations on hedge funds, if the U.K. did not comply to the same regulations. ( Investment institutions which invest our money in hedge funds, insurance companies, pension funds,etc, may turn away from Europe if U.K. Hedge funds had more freedom and thus able to give a better ( though in many peoples view, illigitimate ) return on investment. This would have damaging affects on European banking and the economy. This is one of reasons why changes to banking need to be an international effort. And I don't meen just Europe (including the U.K).. For the same reasons just explained the U.S. and the whole of the European Union need to combine in fixing the financial system and then hopefully set the standards for the rest of the world.
Micheal Hintz spent twelve years at Goldman Sachs before setting up his own hedge fund.
"In the five months to September 2011 he donated £31,000, enough to grant him membership to the 'Conservative Treasurers Group', which allows its members access to senior conservative figures through a series of lunches, reception and campaign launches." -Are tax payers paying for this David Cameron?
5...............................Fares Fares Investment Banker
Oppenheimer & Co
Wedge Group
"An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities (debt). An investment bank may also assist companies involved in mergers and acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities and equity securities."
One of the first things that comes to light is that the investment bank authorises debt to corporations and governments to which it has a vested interest in providing the debt. In other words, the more finance it hands out, the more profit the investment bank will make. There is then a possible issue in that a corporation may not benefit from the debt being handed from the investment bank to the corporation or business. Although you wouldn't think it from what was going on in the last 'boom' it is quite possible to add un-desirable problems to a business by adding debt to it. To justify the debt, the benefits from the extra finance would actually have to benefit the product or service of the business to the degree that the income reflects those improvements to a level which will allow the company to pay back the loan, plus interest for the term of the loan. Ideally you would want to this with a margin that would allow you to improve profits also during that term.
This should be the minimum requirements for finance to be handed to any business. Having said that, there is one other small issue which should be taken into consideration when you are running an investment bank, and that is in a few years time you would want to be working with in an economy in which you could continue to make the same kind of investments. To do this, the investments you are making now would need to be of a sustainable type which actually improves economic conditions for the future, or at the very least maintains the current economic conditions. Unfortunately this is where lots of investments in businesses in the lead up to the financial crisis, and in the crisis aftermath, fall flat!
The basic problem is that the economy does not register very highly when an investment bank is about to add debt to a business. But the incentives for the bankers involved and the increases in salaries to executives of the company to be burdened with debt weigh heavily enough for them it would seem for both parties to disregard the economy all together. Because the executives of the company which is to receive the debt can use some of the debt to feed their salaries for the next few years whether the company performs well or not. So there are incentives on lending side and the recieving side to place a large company in debt. A company that is very likely to be of great importance to a local economy in the way of jobs. And may be also of importance by the products or service it provides at a local level or national or even international level.
Too many businesses are getting into debt when the benefits of that debt are going to a few people within those companies and the big banks, and other businesses directly involved with the finance of these companies. But should the company that has to carry the debt ultimately fail, the bankers have safety nets which move the problem onto other parties , by for example selling the debt. Banks routinely sell debt which creates a sustainability problem. If an investment bank knows it is going to sell the debt from a deal, then it is not going to be much of a problem for the investment bank if the the company in debt fails. It will be some one elses problem. So for this reason, there is almost an incentive to keep handing out vast loans to big businesses for what could be any reason that may be pulled out of a hat.
Ideally, we need an international organisation which is totally independant from the banks which would oversee every deal that takes place by investment banks. Currently we have a situation which is not dis-similar from a load toddlers running riot in a sweet shop. The F.S.A. and the S.E.C. would appear to be slightly older toddlers holding the sweet shop door open as all the others enter and quickly exit the shop handing some sweets to the doorman as they exit!
- I know you will find this difficult to beleive, but this fact may help you out a bit. The F.S.A. gets paid salaries and bonuses which reflect the earnings of the finance industry. The more money the banks earn, then the better salaries and bonuses the F.S.A. would receive. So for example just say that 20% of the profits of the banks were earnt illigitimately and the FSA thwarted those investments say next year. The banks would have reduced revenue of 20% . These figures would affect the payments to the F.S.A. The result would be less wages and bonuses for the F.S.A. staff. This is no way to run a regulator. The F.S.A. is currently given incentives to over look things that they may know are going on in banking. For doing this they will be paid more. Having said that, Im not blaming the regulators entirely. To regulate affectively, you need regulations to enforce. Unfortunately the required regulations to prevent the misuse of investors funds do not exist. Therefore the F.S.A. wouldn't appear to be too over worked. But over paid.
I think this International Banking Enforcement Agency is some years away, although I am sure it will happen one day. (When we are able to elect good governments who can communicate with each other on the same wave length) Until this happens I think it will be for the investors of the money being lent to invest their money elsewhere, where there are more creative people in control of the money that has been invested. Where the money will be invested in a more sustainable and fair way which will benefit the world economy above the more immediate beneficiaries!
Back to Fares Fares; He is currently director and Executive Vice President of Wedge Group which is either a Private Equity type company or hedge fund or both.
Wedge Group invests in a range areas which include real estate,hotels, oil and gas.
Wedge Group's web site states, "Wedge Group aquire controlling or large minority interests in companies and help them grow."
He is also Chairman of Wedge Real Estate.
Wedge Group then just use peoples savings and put it into business and adds to those businesses costs. Wedge group without question add to the costs of property, hotel bills and oil and gas along with thousand of other companies doing exactly the same thing. It makes very clear in the website's own words. There will be little or no product of this business as it states it aquires business with financial power only given by investments and savings and little else. There is nothing to say it creates new real estate, hotels or oil or gas supplies. It would appear that it just buys up anything which it can see a margin it can profit from. The debt added to these businesses is likely to hinder any likelihood of expansion and is much more likely to result in companies it invests in actually down sizing as a result of 'asset stripping' which these type of investment companies have become notorious for as far as the people who understand these companies work, who are able to see through the marketed image which has been created for potential investors.
If you look at websites of all kinds of investment and banking businesses you would expect to see images of the new buisiness which is being created by all these investment businesses. Unfortunately, the truth is that if the business meant anything more than pumping invested money into it and adding to its debts these so called 'business experts', 'financial experts' and 'entrepeneurs' wouldn't know where to begin.
All these businesses should be accountable by what they actually achieve. The only way as it stands at the moment, regardless of what side of the Atlantic you are is that the only way in which there is any accountability is to the investor, in the way that they should receive a return on their investment, regardless of how it is achieved. Whether it is by asset stripping. Or it may be purely by creating a supply and demand issue in investments which pushes up prices of property, hotels, oil or gas, and returns are achieved from all of our extra living costs. What is happening now is un-sustainable. It is matter of time before the majority of the public will get to understand this and get the system changed. However, while waiting for the managers of these companies to change the way they invest the savings of the rest of us, the savers / investors themselves could influence their decisons by moving their money to where it will be treated as a commodity to improve people lives, instead of a commodity to achieve a quick profit.
6..........................Howard Leigh Set up the company ; Cavendish Corporate Finance.
Previously set up Deloitte's Mergers & Aqcuisitions Group.
Appointed as Treasurer of the Conservative Party in 2000 and more recently as Senior Treasurer.
Cavendish Corporate Finance can best described as a 'Tesco Express' for buying and selling companies.
This is where companies can invest in other companies which may be related to their own industry or be completely un-related. Ofcourse its not their own money they are investing as this belongs to investors into pension funds etc. Without going into too much depth, it is where the mountain of money which comprises all kinds of investments gets shoved into businesses which could in most cases be a lot better off without it. The reason being, that these business are going to be in debt which means they will have to continue to operate as before but with an added responsibility to the debt which has been added to the company. The over all result of this is that;
i)...........Companies will have added costs which is likely to increase the costs of end product or service.
ii)............Some of these companies will collapse under the new debt which has been loaded onto them. This is not speculation. Its an occupational hazard of this business. If you look at the type of businesses which are being acquired (You can see hundreds of them on Cavendish Corporate Finance's website) you should be able to see that they are a fairly safe type of business which should see them through atleast the early stages of their new investment. Cavendish will be picking these companies out for this kind of criteria.
iii)............As you will see from their website, companies are changing hands not just once, but may change hands again and again, basically going from one pension fund to another. They have a chance of getting away with it once, but unfortunately these buyouts are a bit like mortgaging a house again and again. Each time its re-mortgaged increases the possibilities of problems related to the debt. And even more so if the price is rising each time.
iv)..............When most companies are formed there is normally a relationship between the owner of the company and the customers which has a degree of loyalty built into it. Unfortunately if the original owner sells the company to any type of investor whether it be private equity or floatation on the stock market the product or service and the customer tends to become secondary to the return on the investment. This means the company becomes run in a completely different way. Unfortunately, in many cases the original owners don't quite know what they are about to inflict on their pride and joy. A business which they may have dedicated their lifes work to building. Only for it to become a vehicle for short term gains which will be tossed aside when its debts render it unable to give any more.
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The website for Cavendish which advertises for new victims for buyouts and mergers does so with the following statements;
"The market is increasingly global and many company disposals attract interest from overseas purchasers."
To call a transfer of ownership of a company a disposal certainly shows the passion and care that Cavendish gives to these businesses.
"We're sharing our expertise........Cavendish has produced a guide called, 'Selling Your Business - A Strategy for Success."
Success may be for the original owner who may become wealthy as a result of the deal. Im not quite so optimistic for the company there after or the customers who will be paying probably increased prices due to the new debts.
"Un-rivalled expertise in selling businesses."
"Is your business exit ready?"
-There may be alot of planning and prepration in starting a business and many late nights and long weeks, holidayless years building its reputation and its customer base. But when you have had enough Cavendish will certainly make it very simple from there on.
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Howard Leigh graduated in economics before going into corporate finance.
He used to be Chairman of The Faculty of Corporate Finance to the 'Institute of Corporate Finance of the Institute of Charterd Accountants'.
He has been a Vice President of 'M & A (Mergers & Acquisitions) International Inc.' the world leading independant and largest corporate finance network covering 47 firms in 41 countries.
He was awarded the Faculty of Corporate Finance's, 'Outstanding Achievement in Finance Award'.
