Tuesday, December 23, 2008

From McKinsey Public vs Private

The voice of experience: Public versus private equity

Few directors have served on the boards of both private and public companies. Those who have give their views here about which model works best.

DECEMBER 2008 • Viral Acharya, Conor Kehoe, and Michael Reyner

Advocates of the private-equity model have long argued that the better PE firms perform better than public companies do. This advantage, these advocates say, stems not only from financial engineering but also from stronger operational performance.

Directors who have served on the boards of both public and private companies agree—and add that the behavior of the board is one key element in driving superior operational performance. Among the 20 chairmen or CEOs we recently interviewed as part of a study in the United Kingdom,1 most said that PE boards were significantly more effective than were those of their public counterparts. The results are not comprehensive, nor do they fully reflect the wide diversity of public- and private-company boards. Nevertheless, our findings raise some important issues for public boards and their chairmen.

Monday, December 22, 2008

Is Chrysler iliquid

Most people think they are.
Do most people realize that the car industry in the States recognizes revenue on Car sales for the manufacturers when the car is shipped to the distributor. Strange how in the early 2000's in the computer industry and other industries this was called stuffing the channel. Amazing how a few of the right lobbyists and appropriate donations can get GAAP accounting changed for the car industry. When I saw Cerberus buy Chrysler I wondered (as I have worked with Cerberus) what gap in GAAP had they found in the car industry. Cerberus only focus on cash flow, so immediately they cut car models, shuttered plants and focused on cash not revenue. Novel concept? No this is where the focus for the USA will be in the future. I for one will be eager to watch Chrysler's progress.

Aivars Lode

Friday, December 19, 2008

"McKinsey" on

Leading through uncertainty

The range of possible futures confronting business is great. Companies that nurture flexibility, awareness, and resiliency are more likely to survive the crisis, and even to prosper.

The future of capitalism is here, and it’s not what any of us expected. With breathtaking speed, in the autumn of 2008 the credit markets ceased functioning normally, governments around the world began nationalizing financial systems and considering bailouts of other troubled industries, and major independent US investment banks disappeared or became bank holding companies. Meanwhile, currency values, as well as oil and other commodity prices, lurched wildly, while housing prices in Spain, the United Kingdom, the United States, and elsewhere continued to slide.

As consumers batten down the hatches and the global economy slows, senior executives confront a more profoundly uncertain business environment than most of them have ever faced. Uncertainty surrounds not only the downturn’s depth and duration—though these are decidedly big unknowns—but also the very future of a global economic order until recently characterized by free-flowing capital and trade and by ever-deepening economic ties. A few months ago, the only challenges to this global system seemed to be external ones like climate change, terrorism, and war. Now, every day brings news that makes all of us wonder if the system itself will survive.

If we look back in the past we can see the future. We have had recessions and depressions, those that add value and generate cash flows by adding value to items we consume on a daily basis no matter how obscure, that continually adapt to the environment and don't get lazy will survive. Aivars Lode

Wednesday, December 17, 2008


How did we and many others resist the attraction of a seeming sure thing in the Madoff Ponzi scheme? Many noticed that Madoff's proposal had a few red flags. They were:

1. Madoff's investment advisory business used his own firm as the custodian for all managed client's assets. In general, investors should not invest with an investment manager who is also the custodian of the assets. Having a separate, unaffiliated custodial firms' administrative and compliance policies and procedures helps safeguard against fraud, and makes it easier to confirm that the assets are actually there.

2. Madoff refused to give investors any insight whatsoever into his method of investing. It has been reported that some investors were given their money back for being too nosy. Never invest with a manager who refuses to give you the details of how the money is being managed. If the style of management is too secret to share, then it is probably too secret to work for a prolonged period of time. Supposed secret ways of managing money have a way of getting out. Once the secret is out, a large number of imitators will decrease the perceived exclusivity of the technique. Apparently, with Madoff, the "secret" could be maintained because the assets of investors were not circulated through outside traders and other institutions, but were kept in-house, and either sent to the earlier investors or kept by Madoff.

3. Madoff's record of low volatility appreciation was impossible for others to duplicate. No scientific experiment is considered valid if it cannot be duplicated. How was Madoff able to get stable returns irrespective of market volatility? Sure, investments can be hedged, but hedges also are affected by changes in market volatility. When equity market volatility changes (as it has tremendously in the past year), some degree of volatility change should be reflected in the performance of any equity investment vehicle.

Monday, December 15, 2008

Many have heard of my stories of various companies testing the USA market in Australia. The following URL takes you to an article about IBM that tales about Fujitsu's assault on the US market by testing the Aussie market.

Have a look at this article as an example of crisis that have hit elsewhere in the world at different time


The begining after the end

Well mates we saw it in Aussie in the early 90's the move from Growth to the focus on Dividends and cash Flow We are going to see that same move here in the States