This is a guest blog post by Jason Cassidy, Asset International's Senior Vice President of Strategy and Development.

By Jason Cassidy

Our Strategic Insight Global team recently published a detailed report on the rapidly growing middle class investor in emerging markets. The report describes the rapid growth in markets such as China and India and the need for asset managers looking to grow to find ways to enter these markets and to be sure to not underestimate the differences and potential obstacles these markets pose versus their home markets.

The report reminds me of the classic story of Kellogg trying to enter India with breakfast cereal. The story was described to me by a good friend and business partner in Mumbai, Prakash Iyer. There were so many potential eaters of breakfast cereal and the market was virtually un-penetrated, so Kellogg entered. However, there was a big cultural obstacle that was missed. There was a general preference in India for hot breakfast. Cold cereal was a foreign concept and not very appealing.

However, with Prakash, I also saw firsthand an ultimately more successful, more culturally centered rollout with my experience at a McDonalds on the highway between the Taj Mahal and New Delhi. (As a side note, I make it a point to try McDonalds in every country I travel to - my favorite for its irony is the outdoor McDonalds in Red Square in Moscow. Some of my colleagues tend to dread this tradition of mine.) The McDonalds menu in India, as some of you may have experienced, is very different from the menu you find in the U.S. or anywhere else in the world I have seen, for that matter. For one there is no beef. And there is a big focus on vegetarian options as well as chicken. I tried the McAloo Tikki (potato and pea patty) and did get to have the signature fries. They also have the same golden arches and style in the restaurants. This struck me as a great combination of taking what you do well and integrating it with elements that make it uniquely appropriate for the country's tastes and culture.

I generally defer to my Strategic Insight colleagues on the details and nuances of asset management around the world. However, there is an example from China that I find particularly relevant. From some conversations I had in China, I found that there is a general desire from investors in China to control their own investment decisions. This is partially due to distrust of asset managers (especially for a large group of people who have had investable wealth only in the past few years of financial turmoil around the world), There is also the desire to have the thrill and excitement of placing "bets" on specific stocks. People enjoy going to their broker's office, making trades, watching the stock ticker, and feeling part of the excitement. Thus, a traditional asset manager has some cultural hurdles to overcome to build assets under management. Trust and excitement are two key values they need to get across to the retail investors.

Overall, these cultural nuances can make or break a company's expansion into new countries (just ask Kellogg). Beyond the regulatory hurdles, the cultural hurdles need to be a primary driver in determining the product and service offering in a country. Assume nothing that is a given in your home country applies to your global footprint. Keep in mind the McAloo Tikki as you begin your global journey.<

About Jason Cassidy, Asset International's Senior Vice President of Strategy and Development.

Prior to joining Asset International, Mr. Cassidy was Vice President of website solutions for Register.com, where he oversaw sales, operations, customer service, marketing and product management with the primary focus on small business customers. Previously, as Vice President of Reed Business Information, he was actively involved in global strategy and development, including M&A initiatives and international development, and managed a portfolio of websites. Mr. Cassidy earned an M.B.A. from Duke Fuqua School of Business (2007) and an A.B. from Harvard University (1998). Originally from Boston, he and his family reside in Staten Island, New York.

With the concerns about the fiscal integrity of Greece and several other Eurozone members, the Euro has been under the most significant pressure since it was introduced as a common currency more than 8 years ago. There has been much speculation that it could fall to parity with the US dollar. Few recall that when it was introduced in 2002 and replaced national currencies, for example the German Mark, the Euro fell by approximately 15% vs. the US dollar in the first half of the year. It reached its peak of $1.599 vs. the US dollar in July of 2008. but since the global financial crisis began it has been under pressure. The Euro is the second largest reserve currency after the US dollar and the UK's sterling is the third largest reserve currency. (Wikipedia: Euro)

In February, the world's best-known bond trader, Bill Gross of Pimco, wrote in his monthly report: "...the UK is a must to avoid. Its Gilts are resting on a bed of nitroglycerin. High debt with the potential to devalue its currency present high risks for bond investors. In addition, its interest rates are already artificially influenced by accounting standards that at one point last year produced long-term real interest rates of 1/2% and lower." For the developed countries, Gross favors fixed-income investments in Canada -- its conservative banks did not participate in the housing crisis -- followed by Germany. (Pimco: Investment Outlook, Ring of Fire: Red Zone Countries, February 2010) While Pimco runs the world's largest fund, Total Return Fund, and I hold Bill Gross in high regard, I do not believe that the United Kingdom is the next Greece or that we will repeat 1992. (The Wall Street Journal reported that the "bets against the pound are the highest since 1992" and credited Camilla Sutton, currency strategist at Scotia in Toronto. [WSJ 3/6/2010])

The Bank of England, founded in 1694, and its Governor, Mervyn King, along with Chancellor of the Exchequer Alistair Darling, understand what the sterling represents on the world stage and how important it is to defend. During the dark days of the global finance crisis they introduced quantitative easing as one tool to support their banks. I have been reading Hank Paulson's book, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System". In it he relates a call he received from Darling during the search for an acquirer for Lehman Brothers, before its collapse into bankruptcy:

"I understand one of your possible buyers is a British bank," I remember him saying. "I want you to know that we have some concern, because our banks are already under a lot of stress. We don't want them to become overextended and further weakened." 

"Afterward I commented to Jim Wilkinson that Alistair seemed to be telling me that the British didn't want their banks to catch the American disease. But because he couched this as a general concern, I didn't see his words as the red flag that in retrospect they appear to have been."

Barclays management team could not get the approval they needed to acquire Lehman Brothers, but did end up buying Lehman's best assets after the bankruptcy filing. I find this supportive of my view that the Bank of England will not let the pound weaken further. (It did bounce back towards the end of this week from below $1.50 to close the week on an uptick at $1.5145.)

There is concern that the spring election between Labour & the Tories, which once seemed like a sure bet for the Tories, now appears too close to call. The Tories have squandered a 20+ point lead in the polls over the past year. They are going to have to become proactive & let the British electorate know where they stand on the issues of the day. In the final analysis, I believe that the British pound will withstand this storm better than the Euro and will reinforce the sentiment in the U.K. that they made the right decision not to join in the Eurozone common currency, which allowed them to avoid the budget restrictions imposed upon Eurozone members. I sense that both the U.S. and the U.K., with an assist by their respective deficit stimulus plans, will recover faster from the Great Recession than their Eurozone counterparts.

I spent the past week in London. While it was colder than normal, I missed the February blizzard that blanketed the northeast U.S. on Wednesday. Over the past several years, Mary Claire and I have managed to be in New York City for each of the major February snowstorms. This time she got to enjoy the winter wonderland without me.  It was hard to gauge on this trip if the Labour Party was bouncing back in time for the spring election or if the Tories had peaked too early, and no one I spoke with seemed ready to make a prediction.

Speaking of predictions, The Field General lost to the clever Sean Payton and the Drew Brees lead Saints. Congratulations to all those long-suffering Saints' fans and the city of New Orleans. I trust that Peyton Manning and the Colts will get at least one more shot at another Super Bowl before Manning ends his stellar career.

While in London my meals were distinctively French. We had lunch with Dominic Hobson and the management team of Global Custodian at L'Oranger on St. James's Street. This classic restaurant never disappoints. One evening we had dinner with John Lee and his senior team from The Trade at The Bleeding Heart Restaurant in Bleeding Heart Square, just off Hatton Garden. The ambience, service and cuisine were, as always, superb.  Both groups continue to build upon the strong momentum they established in the fourth quarter.  Finally, I got to try a new restaurant, for me, The Orrery Restaurant on MaryleBone High Street.  Orrery is located with Conran's and is a superb restaurant, again French, with enough room between tables for one to truly enjoy a special meal with colleagues or friends.

On the M&A front in London, the announcement by Pearson (PSON/PSO ADR) in January that they were exploring options for their majority-controlled public company Interactive Data Corporation (IDC) brought out a long list of potential bidders. IDC is a global provider of financial market data & analytics for financial institutions and traders and is listed on the New York Stock Exchange. The company was formed in 2000 when Pearson merged FT Interactive Data Corporation with Data Broadcasting Corporation and gained the majority position. It is clear that with the amount of interest this auction has attracted, with bids due shortly, the winner will need to pay at least $3B for this trophy. The list of suitors according to the Wall Street Journal (WSJ, 2/3/10) and the Financial Times (FT, 2/10/10) includes many of the major private equity funds: Apax, Apollo, Bain, Blackstone, Carlyle, Hellman Friedman, KKR, Permira, and Providence. McGraw-Hill and Thomson-Reuters were listed as the two interested strategic acquirers. The FT also reported that Bloomberg, which recently purchased Business Week but does not have a history of large acquisitions, was not intending to bid.

Within the past two weeks it was also announced that the Financial Times had purchased Medley Global Advisors as FT continues to look for subscription-based data products to lessen their dependency on advertising. This relatively small acquisition is along the lines of Money-Media, another subscription-based business FT purchased two years ago.

It is clear that as global financial markets continue to recover the companies that have both the financial data and analytical tools that provide transparency will see significant EBITDA multiples offered when they come to market in an auction environment.

We will be announcing, shortly, the appointment of a managing director for Strategic Insight, who as part of the Global SI team will manage our expansion in the UK and the rest of Europe from our new London office.

As we approach Super Sunday, most of us have had our teams bow out early. After a surprising win over the Patriots two years ago, the Giants did not even make the playoffs this year. Dallas won their first playoff game but exited the next week when they came up against Brett Favre and the Vikings. The Patriots are starting to show their age and the lack of top-quality draft picks, due to their three Super Bowl rings in the last decade, has not helped. They made an early exit against the Ravens led by Ray Rice. Foxborough did not provide much of a home-field advantage this year.

The Jets were the Cinderella team with a trash-talking coach and a rookie quarterback, at least for the first half against the Colts, but came crashing back to earth in the second half as Peyton Manning, the Field General, picked them apart. We are left with the underdog New Orleans Saints playing in their first-ever Super Bowl and the Indianapolis Colts. A friend of mine, Walter Callender, who generally reads this blog for my wine picks, wrote to me, "When are you going to make the call? My heart is with the Saints, but my wallet's with the Colts!"

Here goes...Peyton Manning is without question, for me, the best quarterback to play the game since the legendary Joe Montana of the San Francisco 49ers. Manning is in complete control on the field and is constantly using audibles to change the plays based on the defense he sees when he gets to the line of scrimmage. While Drew Brees has demonstrated excellence, particularly this season, I am going with the Manning-led Colts, who have been here before, by a touchdown, 7+ points.

Enjoy the Game,
Jim

The amount of populist rhetoric coming from both sides of the political aisle in the U.S. has been escalating over the past several weeks. Sarah Palin has been out on the talk show circuit promoting her book, Going Rogue, and has certainly continued her approach of appealing to her base's populist sentiment. Meanwhile, President Obama has once again renewed his attack on our banks and bankers in reaction to Senator-elect Scott Brown's surprising victory in Massachusetts.

This populist approach to challenging problems reminds me of earlier times in our country's history. A perennial Democratic presidential candidate, William Jennings Bryan, who ran for president in 1896, 1900 and 1908, was also a strong orator and a "critic of banks and railroads." (Wikipedia: William Jennings Bryan) Bryan never became president, but he did serve for a time as President Wilson's Secretary of State. If you look back on this time from around the turn of the century and study the impact the populist rhetoric had leading up to the Great Depression, I believe you would agree with me that it is time for both parties to allow Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner, together with Congress, to move forward with the necessary reforms and safeguards that need to be put in place, without all of the noise that distracts us from constructive solutions.

In a step in the right direction, President Obama reached out across the aisle on Friday when he accepted an invitation from House Republicans and traveled to a Baltimore hotel to engage in a give and take on the issues. At one point he remarked that he was not an "ideologue” and that his health care plan was not a “Bolshevik plot." (NY Times 1/30/2010) He was introduced by Congressman John Boehner, the minority leader, who handed him a publication titled "Better Solutions." The reporters for the New York Times article remarked that the event seemed much closer to the British tradition of the opposition party questioning the prime minister. I must admit that several times I have sat in a London hotel room during the Blair years and enjoyed watching this live example of parliamentary democracy,

As we move toward the midterm elections both parties would be better served by focusing on innovative programs to create jobs. All of the recent polls show this to be the #1 concern of the American people facing an unemployment rate that remains stubbornly above 10%. We know that in the recovery cycles from all the past recessions since World War II that small businesses are the first to hire as they move to meet renewed demand. The President's proposal of tax credits for small businesses that create new jobs is one that should be supported by Congress.

In closing, I have been reading The Prince of Silicon Valley: Frank Quattrone and the Dot-Com Bubble, by Randall Smith, a Wall Street Journal reporter. As I read it, I come away with the distinct feeling that the author and I have a very different view of Silicon Valley and the tech industry, where Frank Quattrone remains highly regarded and his new firm, Qatalyst Partners, is actively advising many of the Valley's top firms.

With one week left in Fed Chairman Ben Bernanke's first term, a sense of unease rattled the stock markets yesterday as several Democratic Senators (Boxer & Feingold) announced that they would not support President Obama's nomination of Chairman Bernanke for a second term. I wrote "A Second Term for Ben" (see below) in late August and shortly thereafter the president nominated him for a second term. I stand by my original position: Chairman Bernanke has earned a second term. We would be better served without the revisionist history that is taking place in Congress and with a forward look to the ongoing recovery from the Great Recession.

A Second Term for Ben

In my last posting, "Goldman Sachs' Swagger," I received more feedback than usual and it was more mixed than usual, but I stand by my position that while the company's over performance has resulted in some arrogant behavior, the firm and its partners are not evil. One of the people I heard from was the famous journalist and columnist, Robert X. Cringely. Bob and I were colleagues long ago in the early '90s at InfoWorld, where he wrote the well-read "Notes from the Field" column. We have remained friends over the years, but we have always seemed to come at things from a slightly different vantage point. My last blog inspired him to write "Is Technology Evil?" (www.cringely.com) He clearly did not like my sports analogies and found wisdom and inspiration in the Google motto, "Don't be Evil."

Now I am not ready for a steady diet of point counterpoint with Cringe, but our exchange lead me to the question: Should President Obama appoint Fed Chairman Ben Bernanke to a second term when his current term ends on January 31, 2010? I am confident that Cringe and I will arrive at very different conclusions.

Alan Greenspan's long tenure as Chairman of the Board of Governors of the United States Federal Reserve began when President Reagan appointed him in August of 1987. He was appointed to successive 4-year terms by President George H.W. Bush, President Bill Clinton and President George W. Bush until he retired on January 31st, 2006 and Ben Bernanke was appointed to succeed him. Today, historians are re-evaluating Greenspan's tenure, particularly in light of the sub-prime crisis that shook the foundations of the financial systems around the globe. Prior to this, though, he was heralded for maintaining stability and continuity in the global markets and for keeping down inflationary pressures. (We should never forget the inflation of the Carter years.) When faced with the option of reappointing a Republican appointee or replacing him, President Clinton twice decided that the country was better with Greenspan at the helm. During this period, the country experienced unprecedented growth and actually ran large surpluses.

President Obama is faced with a similar choice: should he reappoint Ben Bernanke or go to his own bench for Larry Summers? Chairman Bernanke has studied and written extensively about the causes of the Great Depression and understands that one of the underlying causes was the lack of credit. When he saw the credit markets freeze after Lehman Brothers filed for bankruptcy, he immediately worked to pull us back from the abyss with then Treasury Secretary Paulson and Tim Geithner, who was then head of the New York Federal Reserve and is the current Treasury Secretary. I sense that as confidence is slowly restored in our financial institutions globally, we would be best served, as would President Obama's own interests, by his reappointment of Ben Bernanke to a second term.

Cringe, your turn at bat.

On a very long flight west last evening, I started Pat Conroy's latest novel, South of Broad, which takes place as all of his novels do in Charleston, that charming, historic, southern city. This is his first novel since Beach Music, which was published over 14 years ago. I am finding it to be a very special way to end August, with Leo King narrating and bringing us back to the South Carolina coast.

As we closed out calendar year '09, our largest financial institutions were able to end a very difficult chapter of the Great Recession by paying back their TARP funds. These funds were paid back with interest and the federal government realizing an additional return through warrant coverage. This signified that our financial system was on the road to recovery. At the time, it was pointed out by the press that this freed these institutions from government oversight of their compensation plans, just in time for bonus season. Once again, Goldman Sachs (GS) was singled out along with JPMorgan Chase (JPM) and several others for the size of their bonus pool.

On Thursday of this past week, President Obama and his financial team took aim again at our 50 largest financial institutions, those with more than $50B in assets, by proposing a new Bank Tax. [This tax would exclude the Tier 1 Capital of these 50 large financial institutions. (NY Times 1/14/10)] The President outlined a plan to recover $90B over the next 10 years to cover TARP funds that would not be able to be paid back by Chrysler, General Motors, AIG, Fannie Mae and Freddie Mac. President Obama has called this new tax "a financial crisis responsibility fee." (NY Times 1/14/10) He also said that his determination was tied to "massive profits and obscene bonuses" as well as "to their reckless risk taking" that lead to the financial crisis from which we are slowly recovering. This new tax will be presented to Congress along with the budget in February and would go into effect after June 30. It would need to be voted on and passed by both the Senate and the House.

I sense that this populist appeal will play well with both main street Democrats and Tea Party Republicans, but it will not strengthen our financial institutions during a recovery cycle and will probably result in curtailed lending and could end up being passed on to companies and consumers. If both parties were really interested in avoiding a replay of the risk taking that lead to the meltdown of the global financial system, they would be trying to find ways to strengthen the capital base of these institutions and avoid the amount of leverage that resulted in the risk taking in the first place. I believe that the leaders of our largest financial institutions would react positively to a call to strengthen their capital base, as opposed to being singled out again for blame and to pay for the government's decision to bail out the automotive industry.