column 3a

DealBook Column: Martoma Insider Trading Case Puts Spotlight on ‘Expert Networks’

November 27, 2012 by NewsMaker Leave a Comment

Toward the end of 2007, Silver Lake Partners, a well-respected investment firm, made what then seemed like a curious investment: it paid about $200 million to buy slightly less than a quarter of a fast-growing company called the Gerson Lehrman Group.

The investment was unusual because Gerson Lehrman, a so-called expert network firm that links hedge fund investors with experts in various fields, had been under scrutiny by regulators and the press for creating a business model that some said was tailor-made to foster insider trading on Wall Street.

A hedge fund manager could call up Gerson Lehrman, ask to speak with an expert — often a current or former employee of a company that the hedge fund was considering investing in — and, for prices as high as $1,000 an hour, the “expert” would, with luck, divulge what he knew. A front-page article in The Wall Street Journal in 2006 provided a series of anecdotes of questionable information being sought by Gerson Lehrman’s clients.

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Gerson Lehrman insisted that its business was honest, and it instituted a variety of compliance programs to prevent investors from seeking inside information from its experts. Soon after, all the regulatory investigations into the firm seemed to dry up.

Then came the investment from Silver Lake, a firm with a track record for investments in information technology and a group of founders with illustrious backgrounds in Washington, on Wall Street and in Silicon Valley. (Glenn Hutchins, one of the founders, worked as a special adviser to President Bill Clinton, for example.) So Silver Lake’s investment came across as a seal of approval. The firm, which had been a client of Gerson Lehrman, said it had done significant diligence on the firm and was more than satisfied.

And yet here we are: last week, federal prosecutors announced what they said was the largest insider trading case in its history, charging Mathew Martoma, an employee at the hedge fund SAC Capital Advisors, with using inside information about drug trials from one of these experts, Dr. Sidney Gilman, a neurology professor at the University of Michigan Medical School who had been hired by Elan and Wyeth to oversee the drug trials. The transfer of information was made possible by Gerson Lehrman, which had played matchmaker. If this expert network did not exist, it is not clear that Mr. Martoma and Dr. Gilman would ever have found each other. More on that in a moment.

The criminal case against Mr. Martoma suggests that he used Gerson Lehrman’s services repeatedly, paying a total of $108,000 to Dr. Gilman, who was paid about $1,000 an hour for his expert counsel — or his dispensing of inside information, as the government sees it. Dr. Gilman, 80, entered into a nonprosecution agreement in exchange for providing information on his discussions with Mr. Martoma to the government.

In fairness to Gerson Lehrman, the various complaints against Mr. Martoma make clear that the firm put Mr. Martoma and Dr. Gilman through a number of compliance programs and repeatedly provided them with notices — boilerplate e-mails — that Mr. Martoma was not to seek inside information and Dr. Gilman was not to provide it.

One e-mail explicitly instructed that the expert “will not reveal any information that the [expert] has a duty to keep confidential, including material nonpublic information.” The e-mail also said experts “participating in clinical trials may not discuss the patient experience or trial results not yet in the public domain.”

Based upon the complaints against him, Mr. Martoma appears to have tried to dupe Gerson Lehrman about the true intent of his requests to talk to Dr. Gilman by mischaracterizing the subjects he hoped to discuss.

And yet, the information appears to have been passed with tremendous efficiency. Each phone call between the two men was organized and documented by Gerson Lehrman, in part so that Dr. Gilman could be properly compensated for his expert advice. Gerson Lehrman, however, does not chaperon the calls.

Of about a million “consultations” the company has conducted between its clients and “experts,” this is the first time a criminal complaint has been filed against a client or expert of Gerson Lehrman. The Gerson Lehrman Group has not been charged or implicated in any way.

Still, the expert network business model is inherently perilous. Many expert network firms have gotten caught up in one insider trading case or another. Primary Global was featured in the Raj Rajaratnam case; it has since closed its doors. While Gerson Lehrman remains the leader in the business and might have the best compliance program in the industry, one of its experts was interviewed by the F.B.I. in 2010 after a client was raided. No charges were brought.

The original purpose of these firms was to provide primary information to investors looking for research after the old Wall Street research business model seemed to collapse under the weight of an industry settlement over conflicts of interest, led by Eliot Spitzer when he was the attorney general of New York. Gerson Lehrman became so popular that Goldman Sachs considered buying it, and other banks sought to copy its model.

Silver Lake declined to comment. Gerson Lehrman’s chief, Alexander Saint-Amand, said: “Professionals need to consult with other professionals to learn and make better decisions, especially as the business environment becomes more not less complex. That’s true for all of our clients — investors, corporations, law firms, nonprofits.”

So what to think of expert networks now?

On one side, there is a good argument that these firms help investors and others find one another — consider it a high-priced Facebook for consultants. Gerson Lehrman has expanded its business beyond simply working with investors; it now helps corporations looking for experts, or advertising agencies looking for help ahead of a big pitch.

There is clearly a market for matchmaking, and without a Gerson Lehrman, it is very possible that some interactions would take place over beers or expensive dinners — without the compliance efforts and audit trails that the firm provides. With the advent of LinkedIn and other social networks, there are increasingly new ways to find experts.

But investors don’t pay hundreds of thousands of dollars a year for information that isn’t material — at least, material to them. In the best of worlds, the expert network business model is about pushing clients as close to the “line” as possible without crossing it. That’s a tough thing to do consistently — and a precarious way to run an enterprise.

A version of this article appeared in print on 11/27/2012, on page B1 of the NewYork edition with the headline: Knowledge Is Money, But the Peril Is Obvious.

Article source: http://dealbook.nytimes.com/2012/11/26/knowledge-is-money-but-the-peril-is-obvious/?partner=rss&emc=rss

Filed Under: Business News Tagged With: business model, column 3a, insider trading

State of the Art: Presenting the Nook HD, iPad Mini and Windows Phone 8 — Review

October 31, 2012 by NewsMaker Leave a Comment

Hollywood studios try to avoid opening big movies on the same weekend, to avoid diluting the buzz and the press coverage. “Oh, no — we can’t open that day,” one might say. “ ‘Titanic II: The Return’ is opening that weekend.”

That’s usually the way it works with the tech companies, too, especially as the holiday shopping season begins.

This year, though, a barrage of huge tech announcements all landed within about a week. Windows 8. Microsoft Surface. The iPad Mini. Google Chromebook. The Barnes Noble Nook HD. Windows Phone 8. A 10-inch Samsung tablet and a new Google phone.

All right, tech industry. You want splintered news coverage? You got it. You get to share this column: one-third of a column each for the three big touch-screen headlines of the week. Meet the iPad Mini, Nook HD and Windows Phone 8.

The iPad Mini

The rumors were true: Apple now has a smaller iPad.

The iPad Mini is half the weight of the big iPad (0.7 pounds versus 1.4), thinner (. 28 inches versus .37), shorter (7.9 inches versus 9.5) and narrower (5.3 inches versus 7.3). Those specs add up to one towering meta-change: you can comfortably hold this iPad in one hand. It’s still too wide for a blazer pocket, alas, but it’s certainly purseable and overcoat pocketable.

It’s available in white-and-silver and black-on-black, both with metal backs, both gorgeous.

Apple’s masterstroke was keeping the screen shape and resolution the same as on the iPad 2 (1,024 by 768 pixels). As a result, the Mini can run all 275,000 existing iPad apps unmodified, plus 500,000 more iPhone apps. The text and graphics are a little smaller, but perfectly usable.

Sadly, the Mini doesn’t gain Apple’s supercrisp Retina display. Nobody’s going to complain about the sharpness — it packs in 163 pixels per inch (ppi) — but it’s not the same jaw-dropping resolution as the big iPad (264 ppi). Gotta hold something back for next year’s model, right?

You pay $330 for the base model (16 gigabytes of storage, Wi-Fi connections). Prices run all the way up to $660 for four times the storage and the option to go online over the cell network.

By pricing the Mini so high, Apple allows the $200 class of seven-inch Android tablets and readers to live (Google Nexus, Kindle Fire HD, Nook HD). Those tablets also, by the way, have high-definition screens (1,280 by 800 pixels), which the Mini doesn’t.

But the iPad Mini is a far classier, more attractive, thinner machine. It has two cameras instead of one. Its fit and finish are far more refined. And above all, it offers that colossal app catalog, which Android tablet owners can only dream about.

Over all, the Mini gives you all the iPad goodness in a more manageable size, and it’s awesome. You could argue that the iPad Mini is what the iPad always wanted to be.

Barnes Noble Nook HD

The redesign of this $200 e-book reader/video player focuses on the three things that matter most in a hand-held e-book reader: weight, size and screen clarity.

In those ways, the Nook HD trounces its nemeses, Amazon’s Kindle Fire HD and Google’s Nexus 7. The Nook is lighter (11.1 ounces, versus 12 on the Nexus and 13.9 on the Kindle) and noticeably narrower, despite the same-size screen, because it has a far slimmer bezel. You can wrap your hand around its back, even if you’re dainty of hand.

And the screen is much sharper: 1,440 by 900 pixels (versus 1,280 by 800). At 243 dots ppi, the Nook’s screen comes dangerously close to the iPad Retina’s 264 ppi. Wow, is this screen sharp. Movies, books and magazines pop.

Whites are so white on this screen, it could be a Clorox commercial; the Nexus and Kindle screens look yellowish in comparison. (A 9-inch, $270 version, the Nook HD+, is also available.)

The software continues to improve. You can now create up to five accounts, one for each family member, each listing different books and movies. (It doesn’t remember where each person stopped reading a given book, but BN says that’s coming soon.)

The base-model, $200 Nook comes with only 8 gigabytes of storage — half as much as the Kindle; on the other hand, it has a memory-card slot, so it’s simple and cheap to expand. The Nook includes a wall charger (it can’t charge from a USB jack), which the Kindle doesn’t. And the Nook doesn’t display ads, as the $200 Kindle does.

Article source: http://www.nytimes.com/2012/11/01/technology/personaltech/presenting-the-nook-hd-ipad-mini-and-windows-phone-8-review.html?partner=rss&emc=rss

Filed Under: Business News Tagged With: column 3a, iphone, thinner

DealBook Column: Questions to Ask Mr. Dimon

June 5, 2012 by NewsMaker Leave a Comment

Mario Tama/Getty ImagesJamie Dimon, chief of JPMorgan Chase.

Jamie Dimon’s trip to Capitol Hill next week to explain his bank’s multibillion-dollar trading debacle could quickly devolve into Washington Gotcha Theater.

But it shouldn’t. It should be used to draw out some real answers that will help inform the public and lawmakers about the risks of our banking system.

Mr. Dimon, the chief executive of JPMorgan Chase, has been pretty blunt about the trading losses, calling them sloppy, stupid and bad judgment. But, so far at least, he has sidestepped explaining in any detail how they happened and what actions the firm has since taken.

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Green Column: As Affluence Spreads, So Does the Trade in Endangered Species

January 1, 2012 by NewsMaker Leave a Comment

HONG KONG — A little more than a year ago, I wrote an article about the alarming pickup in the trade in endangered species
that the world has seen in recent years.

A year later, the situation has, if anything, only worsened — and there is little prospect that campaigners and the enforcement authorities will be able to reverse the trend any time soon.

For those of you who do not follow the steady flow of wildlife-related news, here is a selection of some of the most striking events of the past year:

• Hong Kong customs officials in November
seized 33 rhinoceros horns, 758 ivory chopsticks and 127 ivory bracelets, worth about 17.4 million Hong Kong dollars, or $2.2 million, from a container shipped from Cape Town.

• Hundreds of elephant tusks were seized by officials in China, Vietnam and Thailand, in three separate incidents in April alone. Hundreds more were intercepted last year in a series of seizures in Malaysia, which has emerged as a major transit hub for illegally trafficked ivory.

• More than 400 rhinoceroses were poached in South Africa in 2011 — up from 333 in 2010 and just half a dozen 10 years ago.

• Customs officers in Central Java in Indonesia late last year foiled an attempt to smuggle 6.7 tons of dried tokay geckos (large, orange-spotted lizards) bound for Hong Kong and mainland China. The creatures are popular in the pet trade and are also used in traditional Chinese medicine in the belief they can cure maladies like diabetes, asthma, skin disease and cancer.

And that, experts say, is just the tip of the iceberg, in a market that is thought to be worth many billions of U.S. dollars a year.

The trade in animal and plant life, including in creatures protected by international conventions, has skyrocketed over the past decade or so, largely because of soaring demand from mainland China and many other parts of Asia.

By now, illegal wildlife trading ranks among the top five most valuable illicit markets globally, after counterfeiting and the illegal trafficking in drugs, humans and oil, according to Global Financial Integrity
, a research and advocacy organization based in Washington.

Rising levels of affluence mean that many millions are now able to buy coveted items like rare pets, plants and animals thought to have medicinal benefits, and food items or decorative wood that were once the purview of the privileged few. At the same time, transport and trade links have improved considerably, smoothing the flow of both legal and illegal goods.

“Not only have people got more cash, but the transport infrastructure has got much better — there are more flights connecting Asian markets than ever before,” said James Compton, senior director for Asia-Pacific at Traffic
, an international organization that monitors wildlife trade.

All this is making the work of smugglers easier — and the work of wildlife protectors harder.

And although an increase in the number of smuggling intercepts is partly the result of improved customs checks, it also reflects that fact that the globalization of wildlife trade picked up in 2011.

“We’ve seen a rise in the number of very large shipments — of a ton or more — and a shift from air transport to sea transport,” said Mr. Compton. “Sea cargo undergoes less scrutiny at ports; the sheer number of containers means there’s less chance that a particular cargo will be checked.”

There have been some positive developments recently, and the political will to combat wildlife crime is by no means absent. Asian governments, for example, have recently stepped up efforts at international collaboration to address the problems.

Wildlife traders at Chatuchak market in Bangkok, a sprawling weekend market that is an important hub for the trade in rare wildlife, are more cautious than they once were about selling their wares, according to Onkuri Majumdar, a senior programs officer at Freeland Foundation
in Bangkok, which helps train the enforcement authorities and raise public awareness.

The sale of shark fins has been banned in several U.S. states after soaring demand from China, where shark-fin soup is considered an essential dish at weddings, led to a steep fall in global shark populations.

And in South Africa, which is bearing the brunt of the recent jump in demand in rhinoceros poaching, the budget of the national parks authority
has been more than doubled in the past few years, said Morné du Plessis, the chief executive of the environmental group W.W.F. in that country.

“The likelihood of getting caught and severely punished for rhino poaching have risen substantially in South Africa recently,” Mr. du Plessis said by phone from Johannesburg last month.

But, he said, “the battle is not going to be won in Africa. The battle is going to be won where the demand is — in Asia.”

For the time being, however, those fighting the trade in Asia are often under-resourced and responsible for combating many other types of smuggling, according to campaigners like Ms. Majumdar of Freeland Foundation.

The penalties for getting caught, meanwhile, are generally too mild to act as much of a deterrent for poachers and traders. Very few seizures are moved through solid case preparation to use the full force of the law against organized wildlife crimes.

“At the moment, the risks are viewed as very low, and the financial opportunities as very high,” Mr. Compton of Traffic said.

Take rhinoceros horn, for example. By weight, this is now probably more valuable than gold, according to Mr. du Plessis, and poachers are often highly organized and well equipped, with night-vision equipment and helicopters. The reason: many Vietnamese harbor a belief — which is not backed by scientific proof — that rhinoceros horn can cure cancer and other diseases, and they are willing to spend a lot on just a sliver of the supposed miracle cure.

Without demand of this kind, the trade in wildlife — rhinoceroses, tigers, scaly ant-eaters, rare tortoises, sharks or precious wood used in the manufacture of traditional, high-end furniture in China — would not be as lucrative as it is. So raising awareness among consumers has become a main focus of campaign groups in Asia.

“We have to go beyond posters at airports,” Mr. Compton said. “We have to come up with new, innovative strategies, of substantial scale and duration, to address demand. If we can make consumption of endangered wildlife uncool among young people in Asia, then perhaps we have a chance of really shifting things.”

Article source: http://www.nytimes.com/2012/01/02/business/global/as-affluence-spreads-so-does-the-trade-in-endangered-species.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: column 3a, customs officers, rhinoceros horns

DealBook Column: On Wall Street, a Protest Matures

October 4, 2011 by NewsMaker Leave a Comment

Andrew Ross Sorkin/The New York TimesChris Cobb, left, a protester from Brooklyn, conducted a mock interview with another participant on Monday.

“I think a good deal of the bankers should be in jail.”

That is what Andrew Cole, an unemployed 24-year-old graduate of Bucknell University, told me Monday morning in Zuccotti Park, the epicenter of the Occupy Wall Street movement. Mr. Cole, an articulate young man dressed in jeans, a sweatshirt and with a blue wool beanie on his head, had just arrived by bus from Madison, Wis., where he recently lost his job.

There was nothing particularly menacing or dangerous about Mr. Cole. He said he had come to participate in Occupy Wall Street because he believed in its “anticapitalist” message. “I see Wall Street as responsible for the mess we’re in.”

I had gone down to Zuccotti Park to see the activist movement firsthand after getting a call from the chief executive of a major bank last week, before nearly 700 people were arrested over the weekend during a demonstration on the Brooklyn Bridge.

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“Is this Occupy Wall Street thing a big deal?” the C.E.O. asked me. I didn’t have an answer. “We’re trying to figure out how much we should be worried about all of this,” he continued, clearly concerned. “Is this going to turn into a personal safety problem?”

As I wandered around the park, it was clear to me that most bankers probably don’t have to worry about being in imminent personal danger. This didn’t seem like a brutal group — at least not yet.

But the underlying message of Occupy Wall Street — which spread to Boston, Chicago and Los Angeles on Monday — is something the big banks and corporate America may finally have to grapple with before it actually does become dangerous.

What’s the message?

At times it can be hard to discern, but, at least to me, the message was clear: the demonstrators are seeking accountability for Wall Street and corporate America for the financial crisis and the growing economic inequality gap.

And that message is a warning shot about the kind of civil unrest that may emerge — as we’ve seen in some European countries — if our economy continues to struggle.

“Ultimately this is about power and greed, unchecked,” said Jodie Evans, the co-founder of Code Pink. She, too, said she wanted to see Wall Street executives go to jail.

Consider the protests a delayed reaction to the financial crisis that has now reached a fever pitch as the public’s lust for scalp has gone unfulfilled. In Chicago on Monday, one sign read: “If corporations are people, why can’t we put them in jail?”

In Zuccotti Park, several protesters were gathered around a laptop watching an online video that had just gone viral of Rosanne Barr, the comedian, recently interviewed by a newscaster.

“I am in favor of the return of the guillotine,” she told a newscaster, in reference to bankers, with a straight face. “I first would allow the guilty bankers to pay, you know, the ability to pay back anything over $100 million,” she said, before adding that they should go to “re-education camps and if that doesn’t help, then being beheaded.” She made the comments without a hint of laughter, yet the group watching around the laptop seemed to be quite amused.

Some people have suggested the Occupy Wall Street protest is a mere form of street theater, that the protesters have a myriad of grievances with no particular agenda. All of that may be true.

Edward Heath, 36, of Chicago, who is unemployed, said he was participating in the protest, in part, to ensure a more fair tax regime. When I asked about his views on Warren Buffett’s “Buffett Rule,” he replied: “I really can’t comment because I haven’t heard of him.” But this group may be worth paying attention to if for no other reason than they are organized and growing in ranks. (They are beginning to link up with union organizations.) Later this week, more protests are expected to be staged around the country with the number of protesters swelling. And they are beginning to form groups to develop demands.

“We’re disenfranchised,” said Chris Cobb, a 41-year-old writer and designer from Brooklyn who was conducting mock interviews with a cardboard television camera and microphone emblazoned with the Fox News logo. “Wall Street is a metaphor for the financial industry,” Mr. Cobb said.

Acknowledging that most financial executives now work in Midtown, he said with a laugh, “We couldn’t do this on Park Avenue. Park Avenue isn’t a metaphor for anything. This is a metaphor for David and Goliath.” While the protesters generally didn’t talk much about politics, most leaned left. Mr. Cobb said, “Like the Tea Party was about reinvigorating the right, this is about reinvigorating the left.”

As evidence of the underlying politics, Ms. Evans volunteered that she had proudly disrupted the Koch brothers’ Tea Party conference earlier this year in Palm Springs, Calif. “They put me in shackles,” she said with a grin. “They were looking down at me with their drinks in hand.”

Ms. Evans, who said she has made a career of participating in protests, said she had just flown to New York from Los Angeles to join Occupy Wall Street. How did she get here, I asked. “Virgin America,” she replied with a smile. But doesn’t Virgin America represent the corporations you are trying to fight? “No,” she insisted. Referring to Richard Branson, she said, “He’s working on creating solar planes.”

As I was leaving, having spoken to scores of protesters, I noticed two of them walking over to the A.T.M. at Bank of America. As much as this group may want to get away from Wall Street and corporate America, it may be trapped by it. In the eyes of these young protesters, until they can unshackle themselves from the system — or perhaps make the system work for them — the sense of unrest is unlikely to go away anytime soon.

Article source: http://feeds.nytimes.com/click.phdo?i=a91b176a0f8491a1ea50da921fb27d75

Filed Under: Business News Tagged With: activist movement, column 3a, personal danger

DealBook Column: New Buffett Manager Gets Higher Taxes and Less Pay, by Choice

September 20, 2011 by NewsMaker Leave a Comment

Matt Eich/LUCEO, for The Wall Street JournalTed Weschler shows that the rich do not necessarily make all decisions based on the financial bottom line for themselves.

How would you feel about taking a pay cut and paying more in taxes?

Meet Ted Weschler. He just did both. And he’s happy about it.

You might have heard about Mr. Weschler. He was hired by Warren E. Buffett last week to help invest Berkshire Hathaway’s piles of cash.

Mr. Weschler, a successful but little-known 50-year-old hedge fund manager, plied his trade from a small office in Charlottesville, Va., above an independent bookstore, reaping huge returns for his investors, some 1,236 percent over a decade. In the process, his $2 billion fund put him comfortably in the millionaires’ club, and at the rate he was going, he was on his way to the more exclusive cadre of billionaires.

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Here is a quick measure of his wealth: he paid $2,626,311 in a charity auction to have lunch with Mr. Buffett in 2010. That’s how they met. A year later, Mr. Weschler paid $2,626,411 to dine with him again.

In his new job at Berkshire, he is expected to be paid significantly less than he was making. (We’ll get to the formula for his compensation in a moment.) And he is going to be giving up a huge tax break. Instead of paying the 15 percent capital gains rate on most of his income like most hedge fund managers and private equity executives, he is going to be taxed at the 35 percent ordinary income level as an employee.

His decision — and his compensation structure — are worth considering as the country weighs President Obama’s proposal to increase taxes for the ultra wealthy in what has been called the “Buffett Rule.”

The plan is aimed at ensuring that millionaires pay the same effective rate as middle-income families. In part, it takes aim at the controversial “carried interest” income, or the profits that hedge fund managers and other big investors take home as part of their pay. That compensation is now taxed at the capital gains rate of 15 percent, far below the 35 percent top rate on ordinary income. Mr. Obama hopes to close that loophole.

Many Republicans have derided the Buffett Rule, saying it would hurt the economy. “If you tax job creators more, you get less job creation,” Representative Paul D. Ryan, Republican of Wisconsin, argued on “Fox News Sunday. “If you tax investment more, you get less investment.”

Perhaps Mr. Ryan should dine with Mr. Weschler. The view that “millionaires and billionaires” will stop, or slow down, working or investing may be a myth.

“When you have enough money to live the lifestyle you want,” Mr. Weschler told me in a brief conversation, money and taxes are less of a consideration than “who you want to work with.”

Mr. Weschler — and his colleague Todd Combs, another successful hedge fund manager who joined Mr. Buffett last year — demonstrate that people of great wealth don’t necessarily make all decisions based on their own financial bottom line.

“Neither would have voluntarily paid more than 15 percent when working at their hedge fund simply because of the feeling that they were a favored class,” Mr. Buffett said. “But neither will feel the least bit abused because the earnings from their daily labors will now be taxed at a higher rate.”

Like Mr. Buffett, Mr. Weschler says he doesn’t believe the tax loopholes for hedge fund managers make sense. “When my accountant first told me about it,” he said he responded “You can’t be serious.” But he added quickly, “I’m not complaining.”

That’s not to say he will be paid like a pauper at Berkshire. Mr. Weschler and Mr. Combs will earn seven figures, and potentially more. But they won’t make John Paulson money. He reportedly made $5 billion last year.

Unlike hedge fund managers, at Berkshire Mr. Weschler and Mr. Combs don’t take home the standard “2 and 20,” collecting a 2 percent management fee and 20 percent of all the profits. Instead, Mr. Buffett has tightly linked their pay to the performance of the Standard Poor’s 500-stock index, a system that some big institutional investors should be pressing hedge funds to adopt.

“Both Todd and Ted will have performance pay based on 10 percent of the excess return over the S.P., averaged over multiple years,” Mr. Buffett told me. “If the S.P. averages 5 percent annually in the future, this means that the average hedge fund manager has received a 1 percent performance fee — 20 percent of 5 percent — before Todd and Ted receive anything.”

“Nevertheless, I expect them to make a lot of money,” he added. “The difference is that they have to earn it by true investment performance.”

In addition, both men receive modest salaries that Mr. Buffett said “will work out to about a tenth of 1 percent” of the assets they manage. “This compares to the 2 percent nonperformance fee which most hedge fund managers charge, even if they are losing money.”

Mr. Buffett’s critics complain that while he supports higher taxes on the wealthy, Berkshire is structured to pay little in taxes and he has sidestepped Uncle Sam by giving away his wealth.

Some have even suggested that he mail the Treasury a check if he wants higher taxes. The Senate minority leader, Mitch McConnell, Republican of Kentucky half-jokingly said on NBC News program “Meet the Press,” “if Warren Buffett would like to give up some of his benefits, we’d be happy to talk about it.”

But Mr. Buffett shrugs off the naysayers. “When I ran my partnership in the 1950s-1960s, I was generally taxed at 25 percent, considerably below the rate on similar amounts of ordinary income,” he said. “I knew I was getting favored treatment compared to the local doctor, lawyer or C.E.O., but I made no voluntary payments to the Treasury, nor does any hedge fund manager of whom I’m aware.”

Article source: http://feeds.nytimes.com/click.phdo?i=988b3f126ae00a652a5abaf365eb3d10

Filed Under: Business News Tagged With: column 3a, private equity, warren e buffett

Green Column: Trains That Run Like, and on, the Wind

August 21, 2011 by NewsMaker Leave a Comment

Deutsche Bahn says it wants to raise the percentage of wind, hydro and solar energy used in powering its trains from 20 percent now to 28 percent in 2014 and to become carbon-free by 2050 — targets that exceed the German government’s already ambitious national goals.

“Consumers in Germany have made it clear they want us all to get away from nuclear energy and to more renewable energy,” said Hans-Jürgen Witschke, chief executive of Deutsche Bahn Energie, which supplies electricity for trains in Germany.

“It’s what customers want, and we’re making it happen,” Mr. Witschke said in an interview. “The demand for green electricity keeps rising each year, and that’ll continue.”

Prevailing attitudes in Germany were already decidedly green before the accident at the Fukushima Daiichi nuclear complex in Japan set off by the March 11 earthquake and tsunami.

After the nuclear crisis in Japan, the Berlin government abruptly reversed course on nuclear power, shutting eight nuclear plants and vowing to close the other nine by 2022.

That caught Deutsche Bahn — and German industry — off guard. The state-owned railroad had relied heavily on nuclear energy. But now the public and industry are increasingly attuned to sustainability and to what companies are doing, Mr. Witschke said.

“Environmental protection has become an important issue in the marketplace and especially in the transport sector,” he said. “Even though more renewables will cost a bit more, that can be contained with an intelligent energy mix and reasonable time frame. We’re confident that cutting CO2 emissions will give us a competitive advantage.”

There are still concerns about the reliability of renewables as their share rises toward 100 percent and before more storage capacity is available. What happens when there is no wind or sunshine?

Some transportation industry analysts are skeptical.

“It sounds like a bit of ‘greenwashing,”’ said Stefan Kick, an analyst at Silvia Quandt Research, a Frankfurt brokerage. “Obviously, costs for renewable energy are going to be higher. Yet if customers are truly willing to pay, it could make sense.”

The railroad’s new push for a larger share of renewable energy to operate trains that transport 1.9 billion passengers and 415 million tons of freight each year has won applause from environmental groups.

They have cheered Deutsche Bahn’s partnerships with wind and hydroelectric power suppliers and its exploratory moves into harvesting solar power from the roofs of its 5,700 stations.

Photovoltaic panels in the spectacular glass roof of the Hauptbahnhof, the main station in Berlin, produce 160,000 kilowatt-hours of electricity a year — about 2 percent of the station’s needs.

Previously, environmentalists had accused the company of neglecting to develop renewables on its vast properties because of its heavy reliance on nuclear power.

Peter Ahmels, a renewable energy specialist at the German Environmental Aid Association, said the railroad could have done more with wind and solar on its property holdings.

Instead, he said Deutsche Bahn had relied complacently on its image as a low-emission mode of transport. Even high-speed trains, which zip across the country at as much as 300 kilometers, or 185 miles, per hour, have carbon emissions of 46 grams per passenger per kilometer, or about 2.6 ounces per passenger per mile, compared with an average of 140 grams for cars and 180 for planes.

“Since Fukushima, Deutsche Bahn has been moving in the right direction,” Mr. Ahmels said. “There’s clearly a new thinking on the board. They’re doing sensible things. Before, they resisted. The argument was that renewables were not their core business.”

By 2014, the railroad wants a third of the electricity for long-distance trains to come from renewable sources.

Article source: http://www.nytimes.com/2011/08/22/business/energy-environment/trains-that-run-like-and-on-the-wind.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: column 3a, nuclear crisis, nuclear power

DealBook Column: Is Google Turning Into a Mobile Phone Company? No, It Says

August 16, 2011 by NewsMaker Leave a Comment

Matthew Staver/Bloomberg NewsLarry Page, a Google co-founder, left, and Eric Schmidt, the former chief executive, in Sun Valley, Idaho, in 2009.

Back in 2004, Eric E. Schmidt, then Google’s chief executive, proclaimed, “We’re not going into the phone business, but we’re going to make sure Google is on those phones.”

Less than a year later, however, Google did the opposite.

As Steven Levy described in his book “In the Plex,” Google soon acquired Android, the mobile phone operating system, and began building a phone business that it has since developed into a juggernaut.

Even after Google acquired Android in 2005, it continued to play down plans to enter the phone business for several more years. It wasn’t until the summer of 2008 that Steven P. Jobs at Apple actually took notice and went to Google’s headquarters to inspect one of its prototype handsets.

Google’s diversionary tactics made sense: by 2006, Mr. Schmidt, now Google’s chairman, was an Apple board member and Google was considered an important partner to Apple. But when Mr. Jobs finally saw Google’s phone he was “furious” and “concluded he was a victim of deceit,” according to Mr. Levy’s account. (Mr. Schmidt has said he never misguided Mr. Jobs.)

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That history may be instructive to consider when judging Google’s $12.5 billion deal for Motorola Mobility, which makes Android phone handsets and TV set-top boxes.

Google is actively positioning the deal not as a means to buy its way into the handset market, but as an opportunity to buy Motorola’s portfolio of patents — some 17,000 of them.

During the company’s conference call with analysts and the news media, Google executives peppered the call with talk about the enormous value of Motorola’s patents (it mentioned this 24 times); yet they talked about its handset business almost as an afterthought.

Google’s focus on the patents rather than the handset business makes almost too much sense: Google’s Android operating system has long been “open” and is used by a large ecosystem of handset makers, including Samsung and HTC.

These companies have invested billions of dollars in its Android-based operations and helped make Android more popular than Apple’s mobile operating system. Those handset makers will now have to compete against Google.

“Google can’t admit in public that what they intend to do is eventually make Android proprietary,” said Tavis McCourt, an analyst at Morgan Keegan Equity Research. Despite Google’s protestations, Mr. McCourt says he believes that in two to three years — after Motorola increases its distribution channels in Europe, where it is weak compared to Samsung and others — Google will seek to start closing Android’s platform or begin building special features on its own phones that are not available to its “partners.”

And even though Google could keep Android as an “open” platform, a special phone with bells and whistles could still infuriate its current manufacturing partners. For consumers, however, a proprietary phone would finally make Google’s Android system vertically integrated, creating an end-to-end system that may allow it to better compete against the iPhone, which has long been heralded because Apple has been able to control all aspects of the phone, from software to hardware.

Indeed, Google’s main P.R. message in its takeover of Motorola Mobility may follow that playbook of Research in Motion, the maker of BlackBerry, when it acquired QNX Software Systems, a software unit of Harmon International, a little more than a year ago. At the time of the deal, RIM said it was buying QNX to enter the automobile and infotainment business, which was a strength of QNX. RIM played down any talk that QNX might be used as RIM’s next-generation operating system. Of course, the messaging was a bit disingenuous: QNX is now building RIM’s operating system.

“They couldn’t say it because RIM’s developers would have stopped developing for BlackBerry’s current operating system,” Mr. McCourt said.

Google’s message may also be needed to win approval from regulators who could seek to block the acquisition if any number of handset makers came out against the deal. On Monday, all of Android’s handset makers came out in support of the deal on the basis that it would protect Android from potential patent litigation.

None of this is meant to suggest that Google’s stated desire to own Motorola Mobility, in part, for its patents is untrue. Google clearly has been involved in an effort to buy mobile phone-related patents for the last year: it lost a bidding war last month to buy about 6,000 patents from the bankrupt telecommunications maker Nortel Networks. (Apple and Microsoft led a group that outbid it.)

But it is undeniable that Google’s new chief executive, Larry Page, has long had a hankering for the mobile phone business, and this acquisition may be the culmination of his ambitions. Mr. Page, after all, was the executive who personally pursued the acquisition of Android and has been its biggest proponent. And he pressed Google to compete in federal auctions for wireless spectrum in recent years at a time when others were more hesitant — and in some cases was willing to overpay for spectrum.

“He was the guy behind Android,” Mr. Levy said in an interview. “Larry is a big ambitious guy; he will roll big dice.”

If there’s any question about Google’s motivation to own a handset maker rather than just a portfolio of patents, consider this: InterDigital, a licensing company that owns some 8,000 wireless patents and has another 10,000 patent applications being processed, has been up for auction. Many industry insiders were sure that if Google were serious about acquiring a portfolio of patents, InterDigital would be its target. The company’s market value is only about $3 billion and it doesn’t come with all the baggage of Motorola’s handset business.

“If this deal was just about patents, Google would have bought IDCC,” Mr. McCourt said, referring to InterDigital’s stock ticker.

Guess what happened to shares of InterDigital on Monday? They fell 14 percent now that Google is unlikely to be a buyer.

Article source: http://dealbook.nytimes.com/2011/08/15/google-turning-into-a-mobile-phone-company-no-it-says/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: column 3a, phone handsets, staver

Green Column: Word Choice Matters for Energy Policy

July 10, 2011 by NewsMaker Leave a Comment

AUSTIN, TEXAS — When President Barack Obama speaks about the fuels of the future, his term of choice is usually “clean energy.”

At the Twitter Town Hall
last week, where people asked the president questions via Twitter, Mr. Obama referred to “clean energy” five times.

The only similar term he used was “alternative energy,” once. Other descriptors, like “renewable,” “sustainable” and “green,” were not mentioned.

All of these words may sound interchangeable, but experts say that they are not, quite. “Clean,” for example, can cover a broader array of energy sources than “renewable.” Mr. Obama, in a major speech on energy security
this spring, called for 80 percent of the United States’ electricity in 2035 to come from “a wide range of clean energy sources,” in which he included natural gas, nuclear power and “clean coal.”

“You go back now and look at what’s being referred to as clean, and it’s all over the map,” said Russel Smith, executive director of the Texas Renewable Energy Industries Association, who argued that the term “clean” was too watered down.

Such things matter, Mr. Smith added, because “semantics plays a huge role in perception and policy and implementation and everything — it’s critical.”

In other words, if a particular energy source is billed as “clean,” the general public is much more likely to accept it, whatever its particulars.

In fact, “clean” is only the latest in a line of somewhat nebulous terms to be attached to the renewable energy industry. This reflects the cachet of being associated with small but well-regarded industries like solar and wind, though some argue that the more expansive terminology also facilitates greenwashing, or deceptive green marketing.

In the United States during the 1970s, most types of power that people today think of as “renewable” were considered “solar energies.” The logic was this: wind and wood chips would not exist without the sun (nor, of course, would solar rays).

A flyer in a 1982 issue of Spectra, a magazine of the Texas Solar Energy Society, even referred to oil as “old solar energy.” Oil, after all, is made from plants and animals that deteriorated millions of years ago and needed the sun to survive.

But “solar” as an umbrella term did not seem ideal, especially as the wind and solar businesses began to seek their own identities. The American Wind Energy Association, for example, was founded in 1974.

So as the 1970s progressed, the term “alternative” came into more common usage. It survives today, at places like the Alternative Energy Institute at West Texas AM University, which was formed in 1977.

But “alternative” could include nuclear, which was then in its heyday, and this worried people in the business of promoting sources like wind and solar.

The term “renewable” seemed like a better fit — after all, it contained the word “new” — and thus emerged groups like the Texas Renewable Energy Industries Association, which was formed in 1984.

“How can you be against something that’s renewable? I mean, it’s like — how can you oppose it?” said Michael J. Osborne, an Austin resident who built Texas’s first wind farm in 1981, decades before the state came to lead U.S. wind-power production, and helped found the Texas renewables group.

Soon other terms arrived, like “sustainable,” “green” and, ultimately, the current favorite, “clean,” which is short, business-friendly and appealing, and also lends itself well to another catchphrase, “clean tech.”

In his March speech on energy security, Mr. Obama used “clean” or “cleaner” 24 times in the context of energy, “renewable” eight times and “alternative” nine times. “Green” and “sustainable” got zero mentions.

“It’s a purely political thing,” said V. John White, executive director of the Center for Energy Efficiency and Renewable Technologies in California, explaining why Mr. Obama says he is seeking a “clean energy standard” — a requirement that the nation get a substantial portion of its energy from alternative sources — rather than a “renewable” standard or some other term.

“Clean,” Mr. White noted, allows for the inclusion of technologies like clean coal, a technology that involves sequestering carbon dioxide underground to prevent the heat-trapping gas from entering the atmosphere.

Other tricky terminology questions, Mr. White said, include how to categorize ethanol, a highly controversial fuel, particularly when it is derived from corn: Is it renewable or not? Renewable but not sustainable? Europe has a similar dilemma with biofuels like palm oil, which has generated concerns about land-use implications overseas.

Some differences in semantics between the United States and Europe are telling. Europeans feel no need to present fossil fuels as virtuous, according to Jürgen Weiss, a principal with the Brattle Group, a consulting firm based in Massachusetts.

“There is no strong industrial or political support base for these fossil fuels, which removes the requirement to touch them with velvet gloves,” Mr. Weiss said in an e-mail.

The United States is a large and enthusiastic producer of coal, natural gas and oil, but European production of those resources is generally declining or has never been an important pillar of the economy, according to Mr. Weiss. Even oil-rich Norway does not want to rely on oil as its chief source of energy, he said.

In Germany, “we don’t use ‘clean energy’ or ‘clean energies’ much, and the same is true for ‘green energies,”’ R. Andreas Kraemer, the director of the Ecologic Institute, based in Berlin, said in an e-mail. “The latter has connotations of political party affiliation, which most people want to avoid in discourse.”

Europeans do frequently have conversations about a different term, which some politicians in the United States treat like a toxin.

That term, as Mr. Weiss notes, is “climate change.”

Article source: http://feeds.nytimes.com/click.phdo?i=e5e2f33fec23c41d9e0c4af910a109ea

Filed Under: Business News Tagged With: column 3a, renewable energy industry, texas renewable energy industries

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A version of this article appeared in print on 11/27/2012, on page B1 of the NewYork edition with the headline: Knowledge Is Money, But the Peril Is Obvious.

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