Archive for July 21st, 2016

Is Greed Ruining Private Equity Firms?

July 21, 2016

It always looked like but no one cared. Gordon Gekko argued along ago greed is good and has remained a dictum for the financial sector.

Now a new research by Profs Victoria Ivashina and Josh Lerner of HBS shows greed rules Private Equity firms. Here is a discussion of the same:

In a first-ever look at the internal economics driving private equity partnerships, Harvard Business School researchers have found that many of these funds can be torn apart by greed among founding partners who take home a much bigger share of profits than other senior partners, even when their performance doesn’t merit higher rewards.

This creates a ripple effect, where other senior partners become resentful, disenchanted, and leave their jobs, causing instability that spooks potential investors and could lead to a firm’s collapse. This pattern of unequal pay was much more extensive than anticipated among the 717 private equity partnerships studied by HBS finance professor Victoria Ivashina and Josh Lerner, the Jacob H. Schiff Professor of Investment Banking.

These rifts, far from being uncommon, are the average experience in PE partnerships, Ivashina says.

In their working paper released in March, Pay Now or Pay Later? The Economics within the Private Equity Partnership, she and Lerner found that a partner’s pay was often tied more to the person’s status than to performance. Previous success as an investor seemed to have little bearing on how much the partner earned. Founders in particular gobbled up a much bigger piece of the pie.

Senior partners who believe they aren’t compensated fairly are significantly more likely to leave a firm. These departures can give limited partners the impression that a private equity firm is unstable. That perception creates a wariness to invest, which means a PE firm often struggles in its attempts to raise the next fund.

So in essence, founding partners are damaging their own firms, in some cases beyond repair, by being greedy.

One still needs research to prove the obvious..

How national cuisines depict economic strength…

July 21, 2016

Gulzar has a wonderful post on the topic. He points to this article which tries to understand how certain cuisines are perceived in US?

Atlantic has an interesting article that charts the “hierarchy of tastes” or social acceptance trajectories of different national cuisines in the United States. In particular, why does the French and Japanese cuisine get admitted to high-ed, white-tablecloth establishments while the Chinese and Indian recipes are relegated to lower-status eateries as “ethnic” food?
Consider the cases of steak frites and carne asada. They both involve cooking a fairly high-quality cut of meat over high heat, and they’re both dishes whose origins are foreign to America. But they’re often listed on American menus at vastly different prices. Why? “The shortest answer would be cultural prestige, some notion of an evaluation of another culture’s reputation,” says Krishnendu Ray, an associate professor of food studies at New York University. In a book published earlier this year, The Ethnic Restaurateur, Ray expands on this idea, sketching the tiers of what he calls a “global hierarchy of taste.” This hierarchy, which privileges paninis over tortas, is almost completely shaped by a simple rule: The more capital or military power a nation wields and the richer its emigrants are, the more likely its cuisine will command high menu prices.

Fascinating..

India is pretty much bottom of the list and falling in the hierarchy of taste since 1986.. Further from the article:

In 1985, the earliest year for which Zagat data is available, Japanese food had the sixth-highest average check price in New York. Last year, it ranked first. During that time, Greek and Korean have also seen their lots improve, while Chinese has remained at the lower end of the check-price spectrum, along with Thai, Indian, and Mexican.

The theory Ray outlines in The Ethnic Restaurateur is more complicated than just loosely extrapolating from a country’s financial and military might. Some more-granular data does support that approach—many cuisines’ Zagat check averages correlate closely with the per-capita income of the corresponding cultural group—but Ray believes that other variables must matter a lot too, considering that nearly all the cuisines with the highest check prices are ones generally associated with whiteness.

….

Similarly, it is who the American mainstream considers foreign—and when—that can go a long way in explaining why the prestige of a cuisine surges or plunges over time; perhaps the most important variable in determining “foreign-ness” is how large an immigrant group is, and their socioeconomic status upon arrival. “Most of the Japanese we are familiar with are business folks, are executives,” Ray recently told the podcast The Sporkful. “But right now, most Americans associate Chinese food with relatively impoverished Chinese immigrants.” (A cuisine need not even be foreign to experience such bad luck: Poverty probably plays a role in why Native American food, which has all the trappings of a trendy cuisine, has failed to accrue cultural capital.)

The cuisines of France and Italy, Ray argues, have had very different histories in the U.S. precisely because those two countries have sent different volumes of people, of varying levels of wealth, to American shores. The fact that large numbers of poor French immigrants never settled in large portions of the U.S., along with the country’s reputation for sophistication (and fussiness), helped propel French food to becoming the standard against which other cuisines were measured.

The history of Italian food in America, meanwhile, offers a wonderful case study of how a cuisine’s status is dictated by immigration patterns. As Ray details in The Ethnic Restaurateur, Italian food was first popularized in the U.S. in the 19th century. Thomas Jefferson had a high opinion of macaroni (and pasta in general), which at the time was not associated with cardboard boxes and bright orange powder, but rather with more refined cuisines, such as France’s.

“Italian food would be dislodged,” Ray writes in his book, “by the entry of new southern Italian immigrants between 1880 and 1924 who were numerous and mostly poor, hence derided by the taste-making elite.” Italians were scorned as “garlic eaters,” and by 1955, the status of their country’s cuisine had fallen so far that the legendary cookbook author and food columnist James Beard wrote, “My opinion of Italian cookery was not too high.” Technically speaking, Beard did, like those in Jefferson’s time, compare it to French food, but unlike 19th-century gourmands, he compared it (unfavorably, no less) to the food the French servedon trains.

It was only after the descendants of these relatively poor Italian immigrants began rising in American society that the nation’s cuisine started accumulating prestige. “When American Italians climbed out of the ghetto and into sports arenas, corporate offices, governor’s mansions, city halls, and movie studios, Italian food was re-assessed in the American imagination,” Ray writes.

Superb reading.. Never thought on those lines.

One should do a similar experiment in India as well which has so many within India cuisines as well.

What after all is meant by One Belt, One Road? Will it reshape global trade?

July 21, 2016

A good discussion at McKinsey over the One Belt One road or OBOR plan by China.

The first q is what exactly is One Belt, One Road?

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25 years of 1991: Is India now just a proud outpost of global finance?

July 21, 2016

Aseem Shrivastava, a Delhi based economist who earlier wrote a critical review of India growth story, writes on the 25 years of 1991. This is an alternative view (most would call it leftist) which goes against the usually accepted positive spin of the 1991 agenda.

The crux of the argument is despite stellar growth records, jobs have barely grown:

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India’s capital market regulator plans to crawl social media on a 24/7 basis..

July 21, 2016

As most of stock investment advisory business shifts on the virtual world, the regulator has no choice but to move there as well.

This BS article informs that SEBI is planning to move aggressively into the space. It has invited companies specialised in Web Crawling, Data extraction and Information Management Services for helping in its cause:

As the regulator of Indian securities market, SEBI proposes to improve monitoring of the news or messages that are appearing ‘about SEBI’ in the social media, so that SEBI is well aware about the general perception of the market on the various issues pertaining to SEBI and can act on those thenceforth. Accordingly, it has been decided to engage an outside agency who can track public information on SEBI and securities market, published and publically accessible in the World Wide Web as well as the information in electronic and print media, and provide it to SEBI, in a manner that is relevant to the various departments of SEBI. Additionally, the agency is also required to carry out social media management activities on behalf of SEBI. 

This is interesting stuff. SEBI should set up a research department as well to report on the emerging trends, ideas and so on as well. No point just having a crawler who does things secretively.


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