Daily Archives: December 28, 2011

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Hedge-Fund Millionaire Diggle Bets on Farms, Life Sciences

Dec. 28 (Bloomberg) — Stephen Diggle, who co-founded a hedge fund that made $2.7 billion in 2007 and 2008, plans to open his personal farmland portfolio to investors and start a fund that will trade life-sciences companies.

Diggle will transfer the farm assets from his family office to Singapore-based Vulpes Investment Management, which he set up in April after liquidating his previous firm’s volatility funds. Diggle’s family also holds “significant stakes” in life sciences, including biotechnology companies, which will be moved to a fund he plans to set up next year, the 47-year-old said.

“Everything that we are investing in personally is available to investors,” Diggle said in an interview. “We have got capital committed, we are focused on a number of things where we think there’s a compelling opportunity to make money.”

Diggle is widening his new firm’s investments after starting a volatility fund in May and taking over the Russian Opportunities Fund and Testudo Fund from Artradis Fund Management Pte, which he and co-founder Richard Magides closed in March. Once Singapore’s biggest hedge-fund manager, Artradis’s funds, which sought to profit from price swings, lost $700 million as volatility declined in 2009 and 2010.

“The one thing I didn’t want to do was to spend the rest of my life talking about how great 2008 was,” Diggle said. “You have to move on and find new challenges. That’s what gets you up in the morning.”

Volatility Cost

Vulpes, which focuses on alternative investments, started its long Asian volatility and arbitrage fund, LAVA, on May 1 with $30.5 million, of which $30 million was the founding partners’ money. The fund size has increased to about $50 million after some of Artradis’s former clients returned to invest Diggle. The fund has gained 6 percent since May, he said.

LAVA seeks to produce returns that aren’t correlated with the market by trading instruments that thrive on volatility, such as options, warrants, and convertible bonds. The fund uses strategies such as arbitraging or profiting from disparities in the price of similar securities simultaneously traded on more than one market, and tends to work well when markets go down.

“The cost of being long volatility on a daily basis as a buy and hold strategy is not going to make money in the next few years,” Diggle said. “You have to be more deft in your timing and more selective in what you own.”

Farmland Transfer

Diggle plans to transfer ownership of his farmland into a holding company, in which outside investors can hold shares, he said. Vulpes, which currently manages about $200 million, will own and operate the company. After buying farms in Uruguay and Illinois, as well as a kiwi-and-avocado orchard in New Zealand, he plans to pour money into Africa and eastern Europe as global food prices soar.

The value of farmland in the U.S. has probably gained 20 percent to 30 percent in the last two years, while Diggle’s investments in Uruguay may have risen 50 percent as sheep and cattle prices almost doubled in Latin America this year, he said.

Agriculture would be the “single most interest opportunity over the next 10 to 20 years,” Diggle said.

Vulpes favors investments in metals, energy and food, and “dislikes” government bonds, he said.

“Being long stuff in the ground is going to be a better place to be than holding pieces of paper,” Diggle said.

The firm’s Testudo Fund, which is heavily invested in precious metals and the mining industry, has gained 2.5 percent this year. The Russian Opportunities Fund has declined about 10 percent in the same period.

‘Biggest Risk’

Governments and their policies represent the biggest threat to investors, he said. “The biggest risk will come from governments: government interference in markets, government debt and government manufacturing of paper money to pay off the debt,” he said.

Diggle said he’s focusing on “new exciting commercially viable technology” in the life sciences industry that will find cures for illnesses including cancer and Parkinson’s disease.

“We certainly see a lot of interest by big pharma in small innovative biotechnology,” Diggle said. “If we can find those small new exciting biotechnology companies before big pharma gets to them, there’s a big uptick in terms of valuation if they can prove their work.”

To contact the reporter on this story: Netty Ismail in Singapore nismail3 .

To contact the editor responsible for this story: Andreea Papuc at apapuc1

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Normura Narrowly Tops Goldman in Japan Merger Advising in 2011

Dec. 29 (Bloomberg) — Nomura Holdings Inc. pulled ahead of Goldman Sachs Group Inc. to hold on to the top spot for mergers and acquisitions advisory work in Japan in 2011, after the two competed neck and neck during the last two months.

Nomura, the nation’s largest brokerage, this year advised companies on 134 transactions worth $65.4 billion, including Takeda Pharmaceutical Co.’s $13.7 billion acquisition of Swiss drugmaker Nycomed, data compiled by Bloomberg show. Goldman Sachs came in second after handling 24 deals worth $62.3 billion, according to the data.

Retaining the No. 1 position will require Nomura to harness Japanese demand for overseas assets. Bolstered by a strong yen, Japan’s companies spent about $88.3 billion on overseas acquisitions in 2011, the most in any of the twelve years for which Bloomberg data is available. Nomura ranked fourth among advisers of such deals, behind Goldman Sachs, Credit Suisse Group AG and Deutsche Bank AG, the data show.

“Japanese companies will increase their presence even further next year as acquirers in cross-border mergers and acquisitions as they are in a relatively strong position in business and financial performance,” Nomura’s Joint Head of Global M&A Kentaro Okuda said in an interview. “We are already seeing this trend in our pipeline of deals which will keep our M&A bankers busy through the New Year break.”

Left Out

Nomura competed with Goldman Sachs for the top position since October, when the New York-based bank took first place in the rankings after advising Sumitomo Metal Industries Ltd. in its $22.5 billion acquisition by Nippon Steel Corp. Nomura wasn’t involved with that deal, Japan’s biggest in at least five years.

Japan saw 2,261 transactions valued at $195.9 billion this year to Dec. 29, a record for the equivalent period, data compiled by Bloomberg show. A total of 795 Japanese firms, including Mitsubishi Corp., Kirin Holdings Co., Terumo Corp. and Tokio Marine Holdings Inc., made acquisitions overseas.

Nomura and Goldman Sachs were followed by Bank of America Corp., Deutsche Bank AG and Mizuho Financial Group Inc. in the rankings, according to the data. Goldman Sachs’s Tokyo-based spokeswoman Hiroko Matsumoto declined to comment on the advisory ranking.

Tapping Koizumi

Nomura has held the top position for five years. The Tokyo-based brokerage had a 33.4 percent market share this year, the lowest in three years, according to Bloomberg data.

Among the purchases on which Nomura offered advice this year was its own acquisition of affiliate Nomura Tochi Tatemono Co. for $11 billion. It also advised on Toshiba Corp.’s acquisition of nuclear-plant designer Westinghouse Electric Co. and Tokyo Stock Exchange’s merger with Osaka Securities Exchange.

Goldman Sachs, which hasn’t been No. 1 in Japan since 2006, is the top adviser for global mergers and acquisitions this year. It also advised Nycomed on its takeover by Takeda as well as with Hitachi Ltd. on its sale of a hard disk drive business to Western Digital Corp. for $4.3 billion.

As part of its efforts to secure business after the March 11 earthquake and tsunami, the U.S. bank tapped former Japanese Prime Minister Junichiro Koizumi to speak to 300 investors and company executives at a forum in Tokyo in June.

The U.S. bank has donated at least 520 million yen ($6.7 million) to help with emergency relief efforts in the wake of Japan’s largest earthquake on record, the biggest donation among 161 financial firms in Japan, according to research conducted by Bloomberg News in April.

Nomura is ranked twelfth among acquisition advisers globally.

To contact the reporter on this story: Takahiko Hyuga in Tokyo at thyuga

To contact the editor responsible for this story: Chitra Somayaji at csomayaji

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Banker Who Fled Kim Jong Il Says New Leader to Open N. Korea

Dec. 29 (Bloomberg) — Kim Jong Un may relax state controls over North Korea’s economy and ease the isolation entrenched by his late father’s nuclear weapons program, according to a banker who fled the communist state after years working for the regime.

Kim’s Swiss education and his reported fondness for basketball — a sign he’s a team player — may make him more open to change than his late father, Choi Se Woong, former deputy governor of the North’s Korea Reunification Development Bank, said in an interview in Seoul this week.

“It’s better for North Korea to have Kim Jong Un as their leader than anyone else,” said Choi, 50, who defected to the South in 1995 and is the son of a former North Korean finance minister. “Kim Jong Un will seek to start a market economy but it will be uniquely North Korean-style, different from China, South Korea or any other capitalist country.”

Choi joins the growing number of people saying Kim will push for a more open North Korea as he takes over from his father Kim Jong Il, who passed away this month after a 17-year reign. Templeton Emerging Markets Group Executive Chairman Mark Mobius said last week he expects the North to adopt China-style deregulation, and a poll of South Koreans this month showed almost half expect the North to become more open under new leadership.

‘Exquisite Toys’

North Korea’s gross domestic product, about one-fortieth that of the South, shrank in four of the past five years after attempts to liberalize the economy failed under its stated policy of self-reliance. Still, it sits on deposits of minerals estimated at almost 7,000 trillion won ($6 trillion), according to South Korea’s state-run Korea Resources Corp.

“It’s a country with undiscovered minerals and the technique to make missiles,” Choi said. Have you seen the exquisite toys they make, like helicopters? Just think what it would be like if these skills were applied to manufacturing.’’

Kim may pursue more projects such as in Gaeseong, home to a joint industrial complex where South Korean-built factories employ workers from the North, said Choi, now a managing director at Eugene Investment & Futures Co. in Seoul.

Any economic opening in North Korea would follow Myanmar, also known as Burma, another undemocratic Asian nation subject to sanctions. Secretary of State Hillary Clinton this month became the highest level U.S. official to visit Myanmar in more than five decades as the nation moved to release political prisoners. Clinton pledged to upgrade relations if Myanmar takes further steps to ease repression.

‘Last Stalinist Regime’

North Korea and Myanmar are among the few countries remaining largely disconnected from international commerce in a region that’s leading global economic growth.

“The sustainability of the world’s last Stalinist regime will ultimately be under greater pressure following a transfer of power and within the broader global context of political change, with nascent political reforms in Burma evidence that change is not limited to the Middle East,” Citigroup Inc. analyst Tina Fordham in London wrote in a note this month.

Still, Fordham said it’s unlikely North Korea will undergo a “Pyongyang Spring” anytime soon, alluding to the Arab democracy movements that led to authoritarian regimes fall in North African nations this year.

Pak Un

“Top-down reform or re-unification are not likely in the near-term, but internal pressures could grow over the months and years ahead,” Fordham wrote.

Kim, who’s thought to be 28 or 29, isn’t too young to lead the nation because his father also had decision-making responsibilities in his 20s, Choi said. Though Kim Jong Il formally began to assume the nation’s highest posts three years after North Korean founder Kim Il Sung died, he had been groomed for decades.

The younger Kim may have attended the Liebefeld Steinhoelzli school in Berne, Switzerland during the 1990s under the alias Pak Un. Joao Micaelo, who attended the school at the time, told the Daily Telegraph last year he and Pak Un bonded over the difficulties of learning German, and their passion for NBA basketball and Michael Jordan.

North Korea, which refuses to abandon its nuclear weapons program in the face of global sanctions, has depended on economic handouts since the mid-1990s. Food aid is currently needed for about 5 million people, with one in three children physically stunted from a lack of nutrition, according to a report from the United Nations and World Food Programme.

North Korea’s Elite

Previous attempts to liberalize the North’s economy have backfired. In 2002, North Korea started its “most drastic” effort by letting prices and wages fluctuate, resulting in the spread of the black market, said Bahng Tae Seop, a senior fellow at the Samsung Economic Research Institute. That led to a widening gap between the poor and elite, Bahng said.

Choi was one of the elite. The second son of Choi Hee Byeok, who was finance minister during the 1980s, he attended the nation’s top college in Kim Il Sung University. Then he was a currency and gold dealer at Daesong Bank in charge of foreign- currency management for the North’s Workers’ Party before rising to the deputy governorship at the KRDB.

Though he fled 16 years ago to seek a better life, Choi said he’s still in touch with North Korean mentality and expects a smooth transition.

“North Koreans think it’s a ‘must’ that political power be inherited to the heir,” he said. “Kim will probably open up gradually and selectively, while tightening internal grip to keep his power.”

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst

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