Exclusive: Morgan Stanley infrastructure fund hit by Volcker rule

Tue Sep 18, 2012 12:05am EDT

(Reuters) – A U.S. regulation that limits how much of its own capital a bank can put at risk is causing headaches for Morgan Stanley as it prepares to raise a new multi-billion-dollar global infrastructure fund, people familiar with the situation said.

The regulation, called the Volcker rule, puts a cap on the amount of capital that Morgan Stanley can pledge to the new fund. That means senior executives at Morgan Stanley Infrastructure Partners will have to make do with a smaller share of the fund’s profits, the sources said.

While the majority of the executives have so far accepted the new reality and Morgan Stanley is in talks to increase the fund managers’ share of profits, a few have left the bank, the sources said, declining to be identified because they were not authorized to speak publicly on the matter.

Over the past year, at least four key executives who oversaw infrastructure fund investments in the Americas, Europe and Asia have left or are in the process of leaving the Wall Street firm, the sources said.

The most recent departures were Adil Rahmathulla, an executive director for investments in the Americas, and Gautam Bhandari, a managing director and head of Morgan Stanley Infrastructure in Asia, the sources said.

Morgan Stanley spokesman Matt Burkhard declined to comment and would not make executives available for comment.

Morgan Stanley’s problems underscore the disadvantage banks have when competing with independent alternative asset managers such as Blackstone Group LP and Carlyle Group LP. They also highlight the constraints facing U.S. investment banks wishing to hold on to traditionally strong but capital-intensive businesses, particularly private equity assets that, by nature, are usually tied up for several years.

Infrastructure funds invest in assets such as roads, airports, power grids and electricity transmission networks. They offer investors low-risk returns with a long-investment horizon. But being private equity-type assets, they are much less liquid than traditional stocks and bonds.

The future of such businesses at banks like Morgan Stanley and Goldman Sachs Group Inc has been in question since the Volcker rule passed in 2010. The rule, which was mandated by the 2010 Dodd-Frank Act and named for former Federal Reserve Chairman Paul Volcker, is expected to be finalized by the end of this year.

Morgan Stanley’s current $4 billion infrastructure fund, launched in 2008, is part of the bank’s merchant banking business, which in turn is housed inside its investment management division.

The infrastructure fund has about 40 employees, with roughly 10 in senior investment roles, sources said.

Investment banks are already having a hard time convincing investors that they are the right custodians of alternative assets. Goldman Sachs was not as successful in its second infrastructure fund endeavor, slashing its fundraising target in half in the middle of its marketing process and ending up raising $3.1 billion.

Banks have been approaching the regulatory hurdle with different strategies. Bank of America Corp, HSBC Holdings PLC and Credit Suisse Group AG have each outlined plans to exit some private-equity businesses. Deutsche Bank AG had planned to do sell some of its alternative asset businesses as well, but reversed course in a strategic overhaul last week.


Under the Volcker rule, Morgan Stanley will have to cap investments in new private equity funds at 3 percent, far below the 10 percent investment it contributed to its existing infrastructure fund.

Fund managers have decided to increase their personal commitment to the new fund, targeting about 1 percent of its capital compared to 0.5 percent of capital of the 2008 fund, according to one of the sources.

Some executives want the firm to do more to compensate fund managers for losing out on profits as a result of Morgan Stanley’s smaller commitment, with one of them even calling for a spin out of the infrastructure business, the sources said.

Morgan Stanley has been offering to share more of the carried interest – its slice of investment profits – with the fund managers. Fund managers currently get 60 percent of the carried interest, up from an initial level of 50 percent, one source said. They are negotiating a further increase for the new fund, the source added.

To be sure, a lower contribution from Morgan Stanley into the new infrastructure fund may not affect investor sentiment and the amount of money the bank is able to eventually raise.

For example, Global Infrastructure Partners (GIP), an independent firm, is putting less than 1 percent of its own money into its latest $8.25 billion infrastructure fund, according to a person familiar with the matter.

GIP did not respond to a request for comment.


But the promise of higher pay elsewhere has played a role in at least some Morgan Stanley fund executives looking for opportunities outside the bank, the sources said. Independent firms, such as GIP and Alinda Capital Partners, do not have a bank owner they have to share profits with.

Of the recent departures, Rahmathulla is on “gardening leave” – or the notice period when he is still on payroll – considering opportunities at other independent funds, sources said.

Bhandari is still at Morgan Stanley but recently informed limited partners of his intention to leave and may eventually launch his own fund, sources said.

Morgan Stanley is speaking to him about the possibility of launching an emerging markets-focused fund off its infrastructure platform, one of the sources added.

Other executives who have left the fund in the past year include Sadek Wahba, the former chief investment officer who left the fund in late 2011; and Vincent Policard, who oversaw some investments in Europe and quit Morgan Stanley in August 2011. Private equity firm KKR Co announced in February that it had hired him.

Wahba and Policard could not be reached for comment.

After Wahba left, Morgan Stanley named three co-heads of the business – Markus Hottenrott, who is also chief investment officer; Anne Valentine Andrews, who is also chief operating officer; and Jim Wilmott, who is also head of Europe.

John Veech, a managing director, oversees investments in the Americas division where Rahmathulla worked.

(Reporting By Lauren Tara LaCapra and Greg Roumeliotis in New York; Editing by Paritosh Bansal and Ryan Woo)

Dole Food sells two businesses to Itochu for $1.7 billion

Mon Sep 17, 2012 10:18pm EDT

TOKYO (Reuters) – Dole Food Company Inc (DOLE.N) will sell two businesses to Itochu Corp (8001.T) for $1.7 billion in cash – a deal that will help the world’s largest fruit and vegetable producer pay down debt and expand Itochu’s food presence in new markets.

Dole, founded in 1851, has struggled with volatile demand and low prices for bananas, its biggest-selling product.

In contrast, thanks to a strong yen and flush reserves of cash, Japanese trading houses have been active in overseas acquisitions, particularly non-resources firms, as they look to diversify their profit streams.

The sale of Dole’s world-wide packaged foods and Asia fresh produce businesses will be used to reduce debt and pay for restructuring that the company expects to implement by the end of fiscal 2013 and which will result in $50 million in costs savings annually.

Under the deal, Itochu will have exclusive rights to the DOLE trademark on packaged food products worldwide and on fresh produce in Asia, Australia and New Zealand.

Itochu’s purchase comes about four months after Marubeni Corp (8002.T) announced a multi-billion dollar deal to buy U.S. grain merchant Gavilon.

Last year, Mitsui Co (8031.T) spent a little more than $1 billion for a stake in Asia’s largest hospital operator IHH Healthcare Bhd (IHHH.KL).

Prior to the deal, Itochu estimated about 15 percent of its 280 billion yen ($3.6 billion) net profit for the current business year will come from its food business, compared to the almost 40 percent expected from its metals division.

Dole, which distributes produce and fresh fruit worldwide, began exploring strategic options in May and said in July it was in talks to sell or spin off its packaged foods business and was considering a deal in Asia.

Its packaged foods business includes canned pineapple, canned pineapple juice, fruit juice concentrate, fruit in plastic cups and other packages and frozen fruit.

The company’s shares closed at $13.70 on Monday on the New York Stock Exchange. Itochu shares fell 0.2 percent to 828 yen on Tuesday. ($1 = 78.8150 Japanese yen)

(Reporting by Ashutosh Pandey in Bangalore and Aaron Sheldrick in Tokyo; Editing by Edwina Gibbs)

Apple sells 2 million new phones, shares touch $700

Mon Sep 17, 2012 8:40pm EDT

(Reuters) – Apple Inc booked orders for over two million iPhone 5 models in the first 24 hours, reflecting a higher-than-expected demand for the consumer device giant’s new smartphone and setting it up for a strong holiday quarter.

Apple shares rose in extended after-market trading to touch $700 per share for the first time. They have gained nearly 22 percent in the past 3-1/2 months in the build-up to the launch of the iPhone 5.

Apple said on Monday that pre-orders outstripped initial supply but it would deliver most phones as planned by Friday, the first day of delivery. Many would not be available until October, however.

It is not unusual for Apple products to sell out the first day but this time around Apple has doubled its first-day sales record. Last October, the company booked 1 million orders for the iPhone 4S, in the first 24 hours. That had beaten Apple’s previous one-day record of 600,000 sales for the iPhone 4.

The strong preorders could mean a huge holiday quarter for Apple as the iPhone — its marquee device — accounts for half of Apple’s revenue.

Apple will make initial deliveries of the iPhone 5 by September 21 in the United States and most of the major European markets, such as France, Germany and the United Kingdom. The phone then goes on sale on September 28 in 22 other countries.

Given the demand for the device so far and Apple’s aggressive rollout of it internationally, some analysts raised their sales and earnings estimates.

“The pace of this iPhone 5 roll-out is the fastest in the iPhone’s history and points to a big December quarter,” said Barclays analyst Ben Reitzes, who expects Apple to sell 45.21 million iPhones in the December quarter, up 22 percent from last year. Reitzes said his estimates “could still be conservative.”

Canaccord Genuity analyst Michael Walkley said he now expected Apple to ship 9 million to 10 million iPhone 5s from Friday to September 29, the last day of its fiscal 2012 year.

He also raised his earnings per share estimates for the September and December quarters to $44.32 from $43.25, and to $56.96 from $56.90, respectively.

Wall Street analysts on average expect Apple to earn $44.25 per share in the December quarter, according to Thomson Reuters I/B/E/S estimates.

The new phone, which will appear in stores on Friday for walk-in purchases, has a larger, 4-inch screen and is slimmer and far lighter than the previous model. The iPhone 5 supports the faster 4G network and also comes with a number of software updates, including Apple’s new in-house maps feature.

Apple began taking orders for the iPhone 5 at midnight Pacific time on Friday (0700 GMT Saturday). Shipping dates for the smartphone slipped by a week within an hour of the start of preorders.

On Monday morning, Apple’s U.S. store, at www.apple.com, showed preorders placed at that time would take two to three weeks to ship.


Wall Street is also keeping a close eye on the supply of the smartphone.

“We still believe Apple is facing significant production constraints due to a move toward in-cell display technology, which pushes a significant amount of units into the December and March quarters,” Reitzes said.

One of Apple’s key suppliers for screens, Sharp Corp, is struggling with high costs and scrambling to raise funds to pay debt.

The latest iPhone comes as competition in the smartphone market has reached a fever-pitch with Apple up against phones that run on Google Inc’s Android software. Android has become the most-used mobile operating system in the world, while Apple’s key supplier and rival, Samsung Electronics, has taken the lead in smartphone sales.

But Apple appears to be making headway into the corporate market, a traditional stronghold of now-struggling Canadian company Research In Motion

Yahoo Inc has instituted a new corporate policy that allows employees to pick from a host of smartphones, including the iPhone 5 and Android-based phones such as Samsung’s Galaxy S3. Yahoo, which previously gave out RIM’s Blackberry phones, will no longer support them, according to Business Insider blog, which cited an internal memo from Yahoo Chief Executive Marissa Mayer.

Yahoo declined to comment.

ATT, the No. 2 U.S. mobile service provider, said demand over the weekend had made the iPhone 5 the fastest-selling iPhone the company has ever offered.

ATT did not disclose how many iPhones it had sold, but said the iPhone 5 was still available for preorder and would go on sale September 21 at ATT retail stores.

All the phones carriers, including Verizon Communications Inc and Sprint Nextel Corp, showed delays of up to three weeks in shipping the phone.

European carriers also reported brisk sales. France Telecom’s Orange said bookings for the new phone “have been very strong, breaking the records of what we saw for the iPhone 4 or 4S.” But the carrier said it could deliver preorders on time.

Analysts have forecast that Apple will have sold more than 30 million iPhones, including older models, by the end of September.

(This story corrects analysts’ Dec quarter EPS expectations in paragraph 11 to $44.25 from 44.25 cents)

(Reporting by Poornima Gupta in San Francisco, Sayantani Ghosh and Sakthi Prasad in Bangalore. Nicola Leske in New York and Leila Abboud in Paris; Editing by Saumyadeb Chakrabarty, John Wallace, Lisa Von Ahn and Tim Dobbyn)

Asian shares ease after Fed-led rally

Tue Sep 18, 2012 1:30am EDT

TOKYO (Reuters) – Asian shares retreated from four-month highs on Tuesday while gold and copper eased, as markets paused from sharp gains inspired by the Federal Reserve’s aggressive stimulus and turned instead to concerns about the growth slowdown in China.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.5 percent as investors calculated the impact on growth from the Fed’s additional easing while taking profits from its loftiest point since May 3 touched on Monday.

The pan-Asian index soared some 3 percent since the Fed launched a third round of bond buying known as quantitative easing (QE3) on Thursday, which spurred a broad based jump in riskier assets.

European equities were seen edging down after slipping from 14-month highs on Monday, while a 0.1 percent rise in U.S. stock futures suggested a steady Wall Street open. Financial spreadbetters called London’s FTSE 100 .FTSE, Paris’s CAC-40 .FCHI and Frankfurt’s DAX .GDAXI to open down 0.1 percent. .L .EU .N

Commodity-reliant Australian shares .AXJO eased 0.1 percent while Shanghai shares .SSEC slid 0.7 percent.

“Investors are really in defensive mode today, and probably will stay that way until Thursday, when we get the fresh read on manufacturing out from China,” said Juliana Roadley, a market analyst at Commonwealth Securities, referring to the HSBC flash purchasing managers’ index (PMI).

Amid slackening demand from top customer China, Australia on Tuesday revised down minerals and energy export revenues by 9 percent to A$190 billion ($200 billion) in the year to June 30, 2013. It also cut its revenue forecasts for iron ore by a fifth.

Chinese shares were pulled down by commodities-related stocks following steep overnight losses in physical markets.

“It’s definitely making some people wonder if hedge funds were unwinding their positions this quickly after the QE3 announcement, but it’s a bit too early to say that it reflects anything about their longer term view on the Fed’s action,” said Edward Huang, equity strategist with Haitong International Securities.

The Nikkei stock average .N225 gave up early gains to edge down 0.1 percent, caught between a supportive weaker yen and concerns over firms having large exposure to China, where anti-Japan protests were escalating as tensions mounted over a territorial dispute between Asia’s two biggest economies. .T

Masayuki Doshida, senior market analyst at Rakuten Securities, said sentiment was also underpinned by expectations that the Bank of Japan will follow the Fed with its own stimulus measures, to stem the yen’s appreciation after the Fed’s move last week. The BOJ ends its two-day policy meeting on Wednesday.

The yen traded at 78.62 to the dollar, off a one-week low of 78.93 touched on Monday. The Fed’s move undermined the dollar and lifted the yen to a seven-month high of 77.13 on Thursday.


The dollar index .DXY measured against a basket of key currencies stayed near Friday’s 6-1/2 month low of 78.601.

The euro eased 0.1 percent to $1.3096, slipping from a 4-1/2 month high of $1.31729 hit on Monday.

Oil pared earlier gains to trade steady, with U.S. crude oil futures at $96.62 a barrel and Brent trading at $113.72.

Copper was down 0.1 percent at $8,293.25 a metric ton.

Spot gold fell 0.3 percent to $1,754.99 an ounce, below a 6-1/2-month high of $1,777.51 hit on Friday. GOL/

“Gold has been rising steadily so it’s natural that profit taking takes place in the short term,” said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo.

But over the longer term, the Fed’s accommodative stance will stoke inflation fears and undervalue the dollar, bolstering gold’s appeal as a hedge against these factors, he said, adding that he expected firm support at $1,730, with markets likely to test last year’s peak above $1,900 before the end of the year.

Asian credit markets were a touch softer, with the spread on the iTraxx Asia ex-Japan investment-grade index widening by 2 basis points but still near a 14-month low.

(Additional reporting by Maggie Lu Yueyang in Canberra and Clement Tan in Hong Kong; Editing by Alex Richardson)

Burnout Is a Myth

New Yahoo CEO Marissa Mayer has declared that burnout is a myth and recently offered advice on how bosses can put this wisdom into practice.



Ambitious business owners face a delicate balancing act. You want your team (and yourself) to work as hard as possible, but you want to avoid the serious long-term decline in productivity and employee turnover that burnout brings. How hard should you push? What measures should you take to prevent getting burned out? 

These are questions former Google exec and much chattered about new Yahoo! CEO Marissa Mayer has an interesting perspective on. Mayer–who clearly must know a thing or two about extreme hours–believes burnout is a myth. It simply doesn’t exist, in her opinion.

So what is this thing we perceive as burnout? Not the fall-out from working too much, she says, but another subtler problem we mistake for burnout. Speaking at the 92nd Street Y in New York she explained her views, Fins.com reports:

“I don’t really believe in burnout. A lot of people work really hard for decades and decades, like Winston Churchill and Einstein,” she said.

Avoiding burnout has nothing to do with making sure you eat three square meals a day or get eight hours of sleep a night. “Burnout is about resentment,” she said. “It’s about knowing what matters to you so much that if you don’t get it that you’re resentful.”

If burnout isn’t about long hours (Mayer reportedly spent 130 of the available 168 hours a week at work in the early days of Google, a feat, she said, that required strategic showering), how can bosses put this insight to use? Mayer recently elaborated on the practicalities of her philosophy on burnout to author Hanna Rosin for her new book The End of Men: And the Rise of Women.    

Mayer reiterated to Rosin that people “‘can work arbitrarily hard for an arbitrary amount of time,’ but they will become resentful if work makes them miss things that are really important to them,” so she makes sure that she knows what is most important to those working under her and insists they have time in their schedule for those things. She offers Rosin an anecdote from her Google days to illustrate:

Katy loved her job and she loved her team and she didn’t mind staying late to help out. What was bothering Katy was something entirely different. Often, Katy confessed, she showed up late at her children’s events because a meeting went overly long, for no important reason other than meetings tend to go long. And she hated having her children watch her walk in late. For Mayer, this was a no-brainer. She instituted a Katy-tailored rule. If Katy had told her earlier that she had to leave at four to get to a soccer game, then Mayer would make sure Katy could leave at four. Even if there was only five minutes left to a meeting, even if Google cofounder Sergey Brin himself was mid sentence and expecting an answer from Katy, Mayer would say “Katy’s gotta go” and Katy would walk out the door and answer the questions later by e-mail after the kids were in bed.

Could similar resentment-busting measures at your business make burnout as rare as unicorns and fairies, or is this view of burnout only true for a select group of highly ambitious workers? 


How to Get Complainers Off Your Back

Use this sure-fire method to turn workplace whiners back into productive team members.

employee complaining to boss, green room


In an ideal world, people would spend more time solving problems than kvetching about them. But the real world, unfortunately, contains many people who would rather complain rather than take action.

Complainers don’t just waste their own time; they also consume the time of the other people (including you) who end up listening to their complaints. Complainers also spread a toxic negativity, making it more difficult for everyone to get their jobs done.

Simple “tuning out” complainers is good advice, but difficult to implement–particularly in today’s open work environments. If you’re the boss, you’ve got to get complainers back on track before they poison the work environment.

Here’s a step-by-step method:

1. Schedule a Conversation

If a known complainer (you know who they are) comes into your work area and indicates that he or she wants to talk, do not interrupt what you’re doing in order to have the conversation.

Instead, explain that you do want to hear what the person has to say, but that you can’t give the matter the attention it deserves while your mind is on your current task. Schedule a specific time in the not-too-distant future.

There are several advantages to doing this.

  • It limits the impact of the complainer on your own productivity.
  • It prevents the complainer from using your “sympathetic ear” as a way to avoid doing his or her own work.
  • It conveys respect for the complainer and a willingness to listen … at the appropriate time.

When the scheduled time rolls around, there’s a chance the complainer has been distracted by something else. If so, problem solved. But if not, go on to the next step.

2. Set the Agenda

Start the scheduled conversation with this question: “As we discuss this, do you want me to suggest solutions or do you just need to vent for a while?”  This question is essential for three reasons:

  • It recognizes the fact that some people can’t begin to think about a solution until they’ve complained about the problem for a while.
  • It establishes that there is probably a solution to whatever the complainer is complaining about, even if this isn’t the right time to surface it.
  • It sets a time limit for the complaining, thereby making certain that it doesn’t become a productivity-gobbling black hole.

3. Listen Nod

When somebody is complaining, the best strategy is listen and to communicate that you’ve heard what the complainer has to say. Even if the complaints seem ridiculous and pointless, do not roll your eyes, fidget, or check your email.  Instead, nod your head and say things like, “I hear you,” or, “That must be really tough.”

In most cases, complainers wear themselves out in five minutes or less, unless you’re stupid enough to add fuel to the fire by suggesting a solution. Don’t: At this point, you’ll always get a response like, “But that won’t work because …” and the complaining will last that much longer.

Remember, complainers above all need to feel that they’re being heard.  They usually know already what they need to do to address the problem–but can’t motivate themselves to take action it until they’ve moaned about it for a while.

4. Offer Your Perspective

Once the complainer has vented and wound down, ask: “Did it help to get that off your chest?”  Whether the answer is “yes,” “no,” or “sort-of” is irrelevant.  What you’re establishing with this question is that you’ve listened to the complaint in order to help the complainer.

Therefore, the complainer now owes you.  That’s both good and appropriate, because it’s hard work to listen to complainers.

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  • Now ask: “Do you want my perspective on the situation?”  If the answer is “no,” let the matter drop, secure in the knowledge that, by listening, you’ve done what’s possible to help the complainer get back on track.  End the conversation.

    If the answer is “yes,” phrase your advice from your own perspective. Say something like: “If I were in your situation, I might try …”  That way, if the complainer starts up again with reasons it won’t work, you simply say, “Well, that’s what I’d try.”  End the conversation and get back to work.

    5. If Necessary, Take Corrective Action

    The above four steps work with 95% of the world’s complainers, allowing them to get back to doing real work within a few minutes.  However, if an employee or co-worker is constantly complaining, there two possibilities.

    First, the complainer may be having emotional or mental problems that are spilling over into the workplace. If so, the complainer’s manager (or HR manager, if one exists) should suggest that the complainer get counseling and/or medical assistance.

    Second, there may be an insurmountable mismatch between the complainer and his or her job.  In this case, the only solution–for the good of the organization and the complainer alike–is reassignment or termination.

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    4 Ways to Supercharge a Business Trip

    Think you can’t grow as a leader while waiting in a security line? Think again. Check out easy ways to maximize your next business trip.

    Business Travel

    Flickr/David Jones

    If you’re a business leader, traveling comes with the gig. Whether it’s visiting clients, prospecting new business, attending workshops and conferences, or just plain looking for inspiration elsewhere, you can’t always run your company from your office.

    But when you’re out on the road, it can be hard to be a leader. In fact, life on the road can become such an ingrained part of the week-to-week rhythm of business that for many leaders it becomes something close to a chore–a mind-numbing routine of airport terminals, endless security queues and hotel rooms. So, if the best part of business travel is arriving home, here are four ways to turn your travel time into an opportunity to develop as a leader. 

    1. Can the cab, coach a colleague. More years ago than I care to remember, I got a call from a senior partner in the accounting firm I had recently joined (he’d been part of the interview panel that hired me). He asked, “Would I bring my car around and drive him to the airport?”

    In the 40-minute journey to drop him off for his flight, we had a conversation that turned into an invaluable five-year mentoring relationship. I later discovered that this was something he did with many employees, not just me, and it became a practice I’ve used successfully to this day.

    Try it for yourself. At the start and end of a trip, grab time with someone you wouldn’t ordinarily have more than a corridor discussion with–believe me, they’ll get more from it than you can imagine. 

    2. Learn the art of context. Most business trips these days consist of irritatingly inconvenient stops and starts, including the security lines, the airport to hotel transfers, the waiting in the terminal lounge. As a consequence, we often finish a day of traveling with a vague sense of not actually achieving anything.

    But here’s the thing: all those stops and starts are entirely predictable.

    We know that every trip will have the security line wait, the hotel transfer, the kicking around the boarding gate or lounge area. So it’s eminently possible to plan ahead to use that time wisely.

    When I’m traveling, I keep to hand a folder of stuff that I know I can work on at short notice and for short periods of time. I have my phone pre-programmed with calls I know can be cleared quickly in a spare moment or two. My iPad has a screen of icons with apps and websites that I can access profitably for periods of five to ten minutes at a time.

    3. Focus on input, not output. The biggest travel trap I see is when business leaders do precisely what they would be doing at the office: output, output, output. 

    How often have you strolled down the aisle of an airplane and watched people pecking away at email, completing excel spreadsheets, honing powerpoint presentations?

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  • And all this in far from ideal conditions–stale air, sleep deprived, in cramped conditions, fighting for elbow room, with no access to the tools and resources you would have back in the office.

    Next time you travel, set aside time for input. Read something you’ve been promising yourself you’d read. Consume those reports you know you should read, but haven’t had time. Watch a movie, for goodness sake. Maybe even have the foresight to bring your own, and make it something challenging and inspiring. Output always gets done in the end, so make room for input.

    4. Add time and subtract stress. I used to pride myself on the efficiency of my traveling. I’d get in, do whatever I was there to do, and get out. My flights would be scheduled to arrive just in time for me to shower and change (maybe not even that), go to whatever meetings I had scheduled, then head back to the airport for the flight home, or to to wherever I was scheduled to be next.

    And guess what? I learned much as a manager, and precisely nothing as a leader. Yes, I’d get the sale, or schmooze the client, or learn best practices about x or y, but I never made the time to step back and see what only a slower, less pressured itinerary would allow.

    Since I changed my approach to allow downtime, I can look back at some outstanding experiences where I learned much and developed as a leader. Make time, embrace the unusual, move out of your comfort zone, and grow as a leader.

    The 20-Minute Business Model

    Can you put your entire business model down on paper in 20 minutes? Author Ash Maurya shows us how.

    Stop Watch

    “Start-ups that succeed are those that manage to find a plan that works before running out of resources.”–Ash Maurya

    A key part of our business at Avondale is to pursue new ventures or adjacent businesses where we can leverage our strengths and experience to create value. We sometimes find it challenging, though, to move forward with fundamentally new business models. We tend to have drawn-out debates about how to approach the market, which customers to serve, and whether the new model has merit.

    Much of this debate can occur in a vacuum, with only limited discussions with potential customers. We tend to get risk-averse when thinking about the investment required to execute a new model and all the uncertainties around it. As a result, we can get stuck in analysis paralysis: a lot of talking without much forward progress.

    Enter the Lean Startup methodology, championed by Eric Ries. Ries’s book and writings contain a wealth of ideas for incrementally building a start-up. Ash Maurya has written a related book entitled Running Lean: Iterate from Plan A to a Plan That Works that gives practical advice and examples on building and testing a business model.

    Maurya emphasizes the need to develop a testable business model quickly. A start-up simply cannot afford to invest months to develop the traditional 10-to-60-page business plan. Maurya instead has developed a lean business model canvas (free to join) that allows you to put the key elements of your business model on a single sheet of paper in 20 minutes. The key elements are:

    1. The problem we are trying to solve
    2. Target customers and users
    3. Our unique value proposition
    4. Our solution
    5. Channels
    6. Revenue streams
    7. Cost structure
    8. Key metrics
    9. Our unfair advantage (something that can’t be easily copied or bought)

    Sounds extensive, right? You might be thinking: It’s not possible to get all that down on paper in 20 minutes.

    It is indeed possible; we experimented with the lean canvas and were able to document a start-up business model in 20 minutes. Over the course of a few articles we will talk through the Running Lean methodology using that business model as an example.

    Lean Business Model Example

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  • We have identified a market opportunity in the traditional Private Equity (PE) model, where the PE fund has misaligned incentives. Fund managers have two fundamentally different ways of looking at risk/reward trade-offs, compared with their investors:

    • A fund manager might typically be paid 2% of funds annually and also earn 20% of the gains earned on fund investments. The net result can be “heads I win, tails you lose” incentives where the fund managers are incentivized to overpay on risky companies, receive the annual 2%, and hope for a big upside gain. The investors of course do not want overpaid and risky portfolios.
    • PE funds have limited time windows in which to invest their funds, creating a rush to do deals. This again creates misincentives to overpay.

    As a result, PE funds may be underperforming the SP500 by up to three percentage points despite taking more risk. Similarly, the Kauffman Foundation reports that 62% of their venture capital fund investments failed to exceed returns from public markets.

    The Problem Statement

    Following the Running Lean methodology, we summarized this problem (in roughly five minutes) as:

    • Investors have a lot of cash sitting on the sidelines earning ~zero returns.
    • Investors are dissatisfied with the current PE model, which elevates fund managers’ enrichment above investors’ desire for prudent investment.
    • Some investors want to better control and manage risk and take a more active role in their PE investment choices.

    Based on the problem description above, is this a compelling problem that is worth solving? Please let us know your thoughts at karlandbill@avondalestrategicpartners.com. We will discuss our proposed solution and the other parts of the proposed business model in future articles.

    9 Hiring Tips Learned the Hard Way

    I’ve hired hundreds of people, and fired a few too. Here are the best recruiting insights I’ve gleaned the hard way.

    Talent, Hires, Chairs


    When you’re hiring, you’re growing. That means business is good. It’s easy to let that euphoria go to your head and, in a rush of enthusiasm, hire great people who, nevertheless, could be wrong for the job, or your business.

    During my career, I’ve hired hundreds of people and fired a few too. Here are some of the most important insights I’ve gleaned the hard way:

    1. Write up a job description that matters.

    The best job descriptions don’t just outline duties, responsibilities, and necessary skills. They also articulate how you want the work to be done, and the moral climate in which the company operates. If you’re a fiercely competitive company that likes to pit teams against each other, say so. If customer or patient care is critical, don’t assume that a candidate’s empathy is a given. I’d say the how often matters more than the what but it’s so hard to measure that most people prefer to ignore it. Do so at your peril.

    2. Know the talent you already have.

    Are you sure there isn’t internal talent that might seize an open opportunity? Internal hires tend to do better than outsiders so if you promote from within you’re likely to reduce your risk. You want to encourage the talent you already have so work hard to discover what you have before you go looking for more.

    3. Align your values with your hiring process.

    There’s no point saying teamwork is important and then letting one person make the hiring decision. If you say you value instinct, then doing a wide array of personal and professional assessments probably isn’t the way to go either. If you value creativity and risk-taking, don’t set ridiculously hard problems that humiliate the people who can’t solve them.

    4. Use professional assessment tests for senior leaders.

    Every HR professional I’ve spoken to argues that interviews don’t work; everyone is so hopelessly biased that, however lengthy the interview process, results are just too subjective. So bring in a professional assessor who can match evaluations to the skills and qualities you are looking for. Using an outside assessor can save you from yourself because she won’t be swayed by likeability.

    5. Listen hard for dissenting voices.

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  • If everyone loves your preferred candidate, something is wrong. No hire is perfect and there should be some dissenting voices around the table. What are the candidate’s weaknesses? They may not be critical but they must exist and it’s better to identify them (and figure out how to accommodate them) early.

    6. Watch the salary negotiation like a hawk.

    How people manage money will tell you a great deal about how they’ll handle partners and customers. If you don’t like what you see, pull the plug.

    7. Start with a trial period.

    I don’t think you ever know anyone until you see them in action (and vice versa). So agree–for both your sakes–to a joint review after one to three months. Give very honest feedback and ask for it too. No new hire is ever as alert and insightful as at the beginning. Most companies lose all sense of how they come across to outsiders so this feedback is precious.

    8. Assign mentors.

    Most organizations are bad at explaining themselves. Each new hire should have someone she can turn to with questions. And, of course, this mentor should not be her boss. It’s also important that everyone in your company is good at mentoring; if you’re great with co-workers, you’re more likely to be great with customers too. Mentoring new hires is excellent leadership training.

    9. Never sell your organization.

    Interviewing should be all about unfettered exploration, not persuasion. You shouldn’t sell your company, and the candidates shouldn’t sell themselves either. What you’re after is an intelligent, adult discussion about what constitutes success within your company and within the candidate’s professional and personal life. The stories have to be honest and fit.

    Indonesia’s Expanding Consumer Class Spurs New Investment Opportunities

    Indonesia will offer investors an increasingly lucrative opportunity to cash in on its steadily expanding economy in coming years, especially for businesses able to meet the needs of a dramatically increasing consumer class, consultancy McKinsey Co. said Tuesday.

    McKinsey said in a report that Indonesia will offer private-sector businesses an opportunity to tap into $1.8 billion in business opportunities by 2030 in several sectors that are expanding at least as rapidly as the broader economy: consumer services, agriculture and fisheries, and resources.

    Indonesia has been one of the bright spots in the global economy in recent years, with economic expansion hitting 6.5% last year, the country’s highest since the Asian financial crisis of the late 1990s. The government has forecast growth of 6.1% to 6.5% this year, and said it could be slightly higher in 2013.

    Southeast Asia’s largest economy, which has been largely sheltered from the global downturn by its robust domestic consumption, could become the world’s seventh-largest economy by 2030 from 16th at present.

    The McKinsey report highlights Indonesia’s expanding class of consumers with significant purchasing power, which it defines as people with net incomes exceeding $3,600 in purchasing power parity, at 2005 exchange rates. Such consumers could increase 90 million by 2030, from 45 million currently, if the country maintains annual growth rates of 5% to 6%.

    “This growth in Indonesia’s consuming class is stronger than in any economy of the world apart from China and India, a signal to international businesses and investors of considerable new opportunities,” McKinsey said in the report. “Brazil, Egypt, Vietnam, and other fast-growing economies will each bring less than half of Indonesia’s number into the consuming class in the same period.”

    Indonesia has proven its ability to draw increasing amounts of foreign investment in recent years, last year setting a record in foreign direct investment with almost $20 billion. This year the government hopes the number will rise to $28 billion.

    Privately many industry leaders say the number could be even higher were it not for significant barriers to investment in the form of inadequate infrastructure and uncertain regulatory environments in sectors such as banking and mining.

    “In terms of regulatory environment, we see Indonesia as having come a long way. It’s not a broad-brush thing. There are several challenges that have to be addressed, and if they are addressed correctly, foreign investors will come in,” Raoul Oberman, a McKinsey director and one of the report’s authors, told Dow Jones Newswires.

    “If you look at the successful foreign investors in China, South Korea and India, for example, the prize was big for the people who could look through the cycles. It’s a huge opportunity for foreign investors.”

    Key among the challenges to maintain high rates of economic expansion include Indonesia’s ability to increase productivity, which lags significantly behind that of its neighbors, to ensure inclusive economic growth, and to remove constraints on growth by building new infrastructure and ensuring access to resources, McKinsey said.

    The report highlighted three sectors in which Indonesia could address such challenges, with consumer services topping the list. Services have the potential to yield 7.7% annual growth and create a $1.1 trillion business (in current dollars) by 2030 from $260 billion last year, expanding from 61% of gross domestic product to 65%.

    Indonesia’s underdeveloped banking sector means the greatest opportunity lies in financial services, the report said, noting that just 12% of businesses access bank credit, compared with nearly 80% in Thailand, and that most retail financial income today is derived from traditional interest.

    “Indeed, Indonesia lags behind other Asian economies on every class of financial product,” it said.

    A number of foreign banks have sought to tap into the growing market. Singapore’s DBS Group Holdings Ltd. (D05.SG) this year announced a $7.2 billion deal to acquire Bank Danamon Indonesia (BDNM.JK), Indonesia’s sixth-largest bank by assets. The deal would be the largest ever acquisition in Indonesia.

    Growing demand for food on the back of increasingly affluent populations both at home and across the region could expand the agriculture and fisheries sector by 6% a year, with overall business opportunity rising to $450 billion from $140 billion.

    Annual domestic demand for energy could nearly triple by 2030, McKinsey said, increasing overall business opportunity to $270 billion by 2030 from $70 billion today and pushing Indonesia to develop its significant potential in alternative energy production.

    “‘Game-changing’ forms of energy from unconventional sources could meet up to 20 percent of Indonesia’s energy needs by 2030, reducing the country’s dependence on oil and coal by almost 15 percent as well as lowering greenhouse gas emissions by almost 10 percent, compared with business as usual.”

    Indonesia is thought to be home to 40% of the world’s total geothermal potential, but the sector remains underdeveloped.

    The report cautions that the country’s overall growth will be limited by its ability to meet the growing demand for millions of semi-skilled and skilled workers, which could increase from 55 million today to 113 million by 2030.

    “There is a large opportunity in private education, demand for which could potentially increase four-fold from $10 billion a year to an estimated $40 billion in 2030,” McKinsey said, projecting the number of students in private education to nearly double to 27 million by 2030. It added that current government spending of about 3% of GDP a year on public education could leave a gap of $8 billion a year by 2030 given expected demand.

    The report also highlighted the need for businesses to consider investment in regions beyond Jakarta and Java, where smaller cities are growing more quickly.

    “To capture these opportunities, businesses will need to rethink their geographical footprint in Indonesia given the shift toward middleweight cities and the rise of new, economically important regional centers,” the report said.

    The report underlined the misperception of Indonesia’s economy as volatile, pointing out that its growth has been steadier than any member of the Organisation for Economic Cooperation and Development, or the BRICS countries of Brazil, Russia, India and China plus South Africa.

    “Indonesia is not about boom and bust,” said Arief Budiman, one of the report’s authors. “It’s about capturing the long-term significant opportunity.”

    The report is available at www.mckinsey.com/mgi.

    Write to Ben Otto at ben.otto@dowjones.com

    Copyright © 2012 Dow Jones Newswires