tv Money Moves With Deirdre Bolton Bloomberg January 14, 2014 2:00pm-3:01pm EST
>> welcome to "money moves" where we focus on alternative assets. i'm deirdre bolton. we show you what investors and entrepreneurs are doing, as well as what is going on in hedge funds, private equity, real estate, and more. today, google making a $3 billion bet on connectivity and securities. plus, a venture capitalist will a $1 billionruns fund-to-fund business. and we will tell you about the hedge funds stretch these --
strategies that are paying off in china in a big way. but first, we will be hearing from president obama's intelligence review panel. will affectchanges some of the biggest tech in the country. peter cook is with me with the latest. what have you heard that has stood out as far as comments go from the panel? >> we have not heard from the panel yet. that will be at 2:30 p.m. eastern time. this is a big debate for this panel. the president back in december had recommendations that went further than a lot of people expected. they did call for things to be scaled back, specifically the panel with former white house advisor and deputy director of the cia. they offered 46 recommendations
in all. ms. at the nsa -- they offered new limits at the nsa. carriers like at&t and verizon to maintain the metadata on their own. the government would have to obtain a court order to access those records. and also ordering google and yahoo! to release more information to the public when they are forced to respond to government court orders. they are to make sure not handing everything over to uncle sam. how many of these recommendations the president will actually adopt? at is when he will outline -- fridays when he will outline his own recommendations. tech andso on the communications front, a different story, though. i know you are watching the sec. there is a huge legal defeat,
right? yes, this is a big story. the federal appeals court telling the sec to reject net neutrality, essentially telling them to go back to the drawing board. basically, to treat all traffic equally. verizon challenge those roles and the judge said that the sec overreach. the court sent them back to the commission saying that the sec used the wrong legal framework will stop it is a blow to the sec, and to the long list of web companies who now face the fact that internet content will slow down unless they pay up. tom wheeler says the agency will continue -- consider all of the legal actions, including the possibility of appeal. >> thank you, peter cook. we will have more on the panel that begins in about half an
hours time. -- in about half an hour. paying upwards of $3 billion for nest. it is about a connected home. reporter for bloomberg news is with me now. ari, this is a big change that google is putting forward. we can see our thermostats remotely, carbon measurement, all kinds of things. why is this so important to google? >> think about it more broadly. google's business has been about internet search and advertising. that is where the revenue has, -- come from since the creation of the company. that business is growing -- slowing and part of the reason is that we have it with us wherever we go and whatever we are doing. it is ubiquitous. we do not need to do as much searching, and surly not from the desktop. google recognizes that is happening and -- certainly not
from the desktop. google recognizes that is happening and they have to find ways to be everywhere. it means being at home, in your pocket, on the tv. and in this space, being on the wall where your thermostat is. means as far as what this for google versus apple talent wise, this really stand out. the number one person who worked on the iphone, with the , is then of steve jobs person behind nest. started nest with employee.ple they developed a great team of folks that think along the lines of gen x generation design. google had lost -- of next generation design. google had lost some people because they had moved away from
that focus. this is this just in that google wants to be building products from the bottom up with a focus on design and user experience. >> where else could google be in the future? we know this company is capable and has numerous arms and is always willing to take chances. what is next? same.is just more of this itmay be too colloquial, but on the internet everything is interconnected. you see the google glass, everythingcar -- they are doing now is this idea that you are always connected to the internet. you can live your life in a more efficient manner because of it. just to think about all the things in the analog world that better,, perhaps a cleaner, more fun, if they were more digital. >> thank you very much, joining me from san francisco. more on the business of home
automation tomorrow. the chairman and ceo of control 4 will be with me. it is a company that helps to turn your house into a smarter house, so to speak. we will stay on the market. with hedge fund managers about where they see opportunities in retail. >> as any sector gets more mature, there is a natural movement toward consolidation. the challenge with the teenage retailers -- the teen retailers is that they are brand oriented. you can gain a certain level of synergies through mergers. things ofsourcing, that nature. ultimately, i think it will happen. short-term, it is hard to say. there is still a lot of teen retail dollars to be spent out there. they are all working on strategies to sharpen their
pencil. and ultimately, acquisitions and mergers should happen. >> do the activist investors have a lack of respect for how complicated it is to run retail? i'm not saying specifically eddie lambert or the lachman, but can you take over a retail store -- or bill ackman, but you you just take over a retail store and say, i got this? >> it is complicated and multichannel. you have competition on every corner. it is a very tough this is. you cannot move the oil tanker overnight. thesees time for businesses to shift strategies. it is very difficult to expect instantaneous change just because an activist decides they want to get involved. having said that, i do think activist investors will be much more prevalent within the consumer space. there are many companies with a strategies inth today's world.
and not that the activist is the one that actually takes over the company and becomes ceo or dominates it -- >> eddie lampert style. >> but take a look around. jones started with an activist. whether it is a conglomerate that needs to be broken up, a company that needs -- that is sitting on too much cash, or a company that investors overall are not valuing what the management is doing and there needs to be a change agent, i think you'll see a lot more of that in 2014. >> that was stephanie ruhle with an activist investor considering retail teens baseplate. space plays. this on the auction block, one by pope francis. the pope was known for preferring a more modest form of transportation. the ford focus, believe it or not. the motorcycle is going to be auctioned off for chaired by
capitalist funding. with us now, along with contributing editor to bloomberg tv, rob rice. the vcas the model, funds to fund's model, how did you know that investors would want this. how did you know that investors would want that? >> the important thing to understand with venture capital is that it is not really a cottage industry. it is smaller. version between the middle- class and the top tier -- the disbursement between the middle- class and the top tier is important. >> is it just size? for mostwords, individual investors, they just don't have enough to put it with the top vc's? most of them don't raise big
enough pools. for example, with josh kaufman, the first one was $75,000, and the third room was over $100,000. >> it is all about capacity. venture firmsr extremely large? >> not necessarily. if we had our druthers, we would have two or three of the biggest -- best venture capitalist with a small portion. we believe the best managers will yield the best returns. we have small to large, but our first requirement is that it is a top-tier firm. >> do you see the smaller ones giving you a higher rate of return? >> not necessarily. tophe past 10 years, the three to five often are the largest. and in the last two years, 15
out of 20 times, it was larger than the median. >> you mention this comparison five or 10 years ago when you were at rockefeller and doing vc investing. how has the whole industry, even if it is a cottage industry, changed in the last decade? >> five or 10 years ago there were 25 firms that dominated the market. now it has come down to five or six. >> fewer players, but arguably more power. >> that is right. vc's attractsful the most promising startups. >> those that have been most successful in the past have a higher probability of being successful in the future. >> how hard is it then, because it sounds like a popularity contest and if you are not with the cool kids, you have to eat lunch by yourself. >> that is an unfortunate way to describe it. [laughter] i guess it is better to be cool then uncool.
evenr as ideas that trump being uncool, even cloud, i'm assuming it is mobile, social, where do you see the top funding this year? >> you will see those all come together for a huge impact. a lot of it is collecting data that will let users get through based on mobile. you will see companies that are able to aggregate all three. but be on mobile and social and cloud, you will see cybersecurity -- beyond mobile social and cloud, you will see cybersecurity. >> banks are scared to death, and i hear them being scared about taking on this industry where there is overregulation and opacity in other areas. >> exactly.
>> and on deck in the small business base, similarly tearing it up right now. >> that is right. >> what about last year? it seemed like every two months we were reading every day about m and a. there seems to be a lot of activity gaining speed. do you think that will continue? >> i think it probably will. growth debt payment for the s&p has been pretty anemic and not five years. i do think you will see lots of m&a and lots of qualified bids. >> hold that thought. we will come back. ♪
>> welcome back. we are continuing our conversation with edwin poston, the founder and general partner at true bridge. and bob rice also joined us. you are running a vc fund to fund business. is there a bubble in venture capital right now? >> i don't think so. it is important to note though market opportunity -- the market opportunity is far larger than 10 years ago. 10 10 or 15 years ago -- 10 or 15 years ago you had a lot of people with a 56 k modem. very sophisticated investors that have insight into your company and into the market. >> you are saying that it else protects because there is a kind of intellectual level that does
not allow a bubble to grow and become widespread. >> that is right. and it is not ubiquitous. it is a handful of insiders making these decisions. and lastly, these are not just eyeballs. 30% to 40%rowing at per year. >> if you look at the map on something like facebook or twitter, while there is rapid growth, it is very small numbers. the market caps, from my view, would be kind of ridiculous. >> lots of people and no one buying drinks. >> exactly. that is why i worry about this exact point that there are only a number -- a certain number of people. a certainere is amount of groupthink that goes on in silicon valley. >> i think that is fair. backdrop, andrall with the s&p being anemic,
earnings have been pretty flat. >> i know bob and i go head to head on twitter a lot. i would actually pay a membership to follow the people i want to follow. i don't know if $10 a month is eventually what they end up doing. , enougha business model of one? >> and a second version of twitter that is free, just like this one is, and everyone would migrate to my free service. that is why i'm not a big fan of the peer social network thing -- networking type firms. the combination with had -- advertising, that is something. something that allows you to pay for something and you don't have to hold onto your wallet, that has value. >> exactly.
>> some of these social companies have had the advantage of being first and being widely adopted. you are saying they have some sort of protection. >> that is right. >> but will they be able to monetize at a level that justifies the market cap prior to becoming obsolete? there is a big question about that. you have heardk, teenager saying that facebook is dead. isdoesn't really matter who using it as long as a sizable number are. >> as soon as a teenager sign up, the grandparents are off. >> when you look ahead to this year, what is the most compelling? >> the key thing with venture capital is to invest in the best managers. youory suggests that if invest in the best managers, you can have fairly wide margins. that is a key attribute.
i think mnj could continue to be material. could continue to be material. >> more of the deals that are above that the leading dollar watermark. >> exactly. >> happy investment bankers here. edwin poston, thank you. bob rice, contribute in editor to "money moves." it is 26 minutes past the hour and that means it is time for bloomberg "on the markets." let's go to julie hyman. >> rebound today, deirdre, is what we've got. part --eeing stocks bounceback today, helped in part by retail. and we are watching what is going on in treasuries. prices are are up and yields are down for the first time in four days. comments from the philadelphia fed reserve president. he said the economy is on better
>> this is "money moves" where we focus on innovative alternative investment. at this hour, the fed is looking at whether to impose new restrictions on trading. a senate subcommittee will have a second hearing on the subject tomorrow. quarter profitrd- fell seven percent in part to a 2.6 billion dollars settlement for its role in the made off case. -- the bernie made off case. cable ceo rob marcus
is saying the takeover bid lowball rejected. $61 billion is not enough. accommodation would have created these third largest pay-tv operator. turning your attention to hedge emerged as ahas winning thing in the past year. su keenan is with me now with more on the story. these china bets are paying off have warned us about big bets. from evenest data shows some of these returns on china-based funds were extraordinary.
on average, they rose nine theynt last year and roughly doubled the average performance of hedge funds as a group in 2013. check it out. the top five performing funds include the orchid china master 48%. up and each af greater china fund gam star up as well. the shanghai index tumbled more than seven percent. the take away here is what? from debt away settled companies was one factor. and the funds appeared to focus on storied stocks. i took -- spoke to the vice president at a hedge fund
investment firm. thee not constrained by hedge fund benchmark did fairly well. questionablesome companies, but were long on those that had debt and a lack of transparency and focused on strong china companies. many.d there were this is a story we continue to follow. we will stay with hedge funds. we welcome ingrid pierce. she is a prominent international fund attorney. great to see you. thanks for coming in. berth, a wide range of activity. i know you are based in the cayman. up with that stack luxembourg, where i know there are a lot of funds? >> the cayman -- cayman is the leader in the pack.
you will notice a few figures that we have for the fund set up in cayman. it really is the leader of the pack. >> and obviously, has better weather, of course. looking smaller firms, to india, i've been told that was a growing trend as well. one of the areas staying global that you told me in the past has been setting up hedge funds, which are essentially sponsored by japanese institutions. what kinds of institutions are these investing? are they banks, other private entities? >> a lot of them are single investor funds. you will have a large japanese bank that will typically be managed by a u.s. fund manager. been a strong trend with the number of funds we have nearly one012, and quarter of them set of last year were aimed at that market. that is sizable.
why the change? >> and number of things have stimulated that market. the economy has done well, and that has contributed. we saw in the previous segment that china has done very well. asia-pacific generally returned about 15% overall. if you look at japan on its own, it was not up very high. >> there are a lot of headline trades that scare people off, or maybe when people read certain investment headlines, they read that bbj is the widow makers trade. what kind of funds are these new asian sources of capital going into? are they specialized? is at tech? is it longshore equity? can you differentiate? the moment,act at and probably will continue for a while. -- in technology at the moment,
and probably will continue for a while. i would say that is the one we will see the most of this year. >> what has changed, if at all him a in the past year as far as the size of funds? past yearll, in the as far as the size of funds? if someone says, i've worked for this firm for 10 years, and i'm ready to put out my shingle and do it, how much capital do they need to raise? >> it used to be that you could andaway with 700 million get away with that. there are some operating at that level. i'm not sure that 500 is the new 100. if you get to that level, you are doing very well out of the gate. size from the offices side? from some that just do not want to be bigger? because we are more nimble and we are where we want to be?
do you hear that? >> yes, but less then can -- tend to want to get to but less than 10, you tend to want to get to 10 and so forth. there are times when it actually is better to close the door and say that they are ok to operate at that level. >> interesting. and mitch fund, you were telling niche funds, each you are telling me more about that. >> yes, it is a small number. i will be interested to see how those alternatives begin to develop. >> ingrate, thank you for stopping by. ingrid pierce joining me from -- for stopping you by. ingrid pierce trainee from walkers. coming up, a prominent new
me now. >> they are talking about recommendations to change. i'm not sure if the president agrees with them all, but this is the view of the panelists. >> it is a pretty large agenda. will president obama be the president of 2008, or 2009? on twitter he is getting killed. privacy left is very disappointed in the president. as a candidate, he said the right thing, but in the oval office he became identical to george bush on these issues. it is very unlikely president obama is going to reverse course completely and go back to who he was before. >> you know any -- you know more than anyone about this push and pull behind closed doors. national security is at stake. can he find them comfortable, ryan? >> in some respects, he
thought he had it, in the sense that there was -- find some comfortable compromise? >> in some respects, he thought he had it. what changed was edward snowden. entire world can see the details of what we are doing within that legal framework and it has become more difficult to maintain that consensus that existed at the secret level. >> will we hear from snowden more in some way? >> we could. he may have up to one million additional documents. this is by far the biggest intelligence leak ever. and there may be some tie-in to president obama's speech on friday on these matters. affects u.s. institutions and citizens, but also u.s. businesses. there are companies in the , andhairs, at&t, verizon
others. >> there are two major issues. the first is what you mentioned, the telephone providers. they give all of the metadata to the nsa. a very controversial program. the review group said the nsa should not have custody of that data anymore. someone else, in other words, the telephone providers, should do it. they don't want to do it because it is a big responsibility and a lot of work. we are seeing the global competitiveness erode because it is believed that if you give it to a u.s. charter cloud computer company that you cannot trust them to take all of your information. >> what is likely to happen? >> i don't think there will be any legislation on this because congress right now is so dysfunctional and these were complicated laws that were negotiated over a decade or more. it is unlikely we will see any new laws, but there will be changes at the policy level. presidentngs that the
>> we are going to take you now to san francisco to jpmorgan conference. ceort is with me now, the of a pharmaceutical company focused exclusively on women's health. also joining me, jack cutter, pharmaceutical company that specializes in central nervous diseases. how is the conference going so far? what is the best idea you have heard? >> it is fantastic. there is no other conference in
the world that brings together so many investors and pharmaceutical companies. i cannot believe the amount of scientificnd breakthroughs and investors all in one place. >> what is actually the best idea, the most i did -- most innovative idea you have heard? >> of course, i'm going to say novel approach to immunotherapy, but i'm a little biased. >> yes, you are. for what you have seen, what you have heard. on -- you areocus focused on representing your company, but in the larger picture, the larger theme, what have you heard? >> a lot of the discussion is about 2014 and whether there is a bias in the sector. is movement ine the biotech sector. everybody is trying to guess
what is coming in 2014 for the sector in general. i personally believe it will be more on a case-by-case scenario. as you know, the sector is very much driven by clinical data and so forth.es, it will be on a company by company basis. --when you look ahead robert, i will turn it back to you, but then jack i would like to ask you the same question. how is obamacare change in the way you view business at all? affected not really our prescription prenatal business. and the rest of the value of the country -- company is in hormone development for women. there has been no impact at all. >> and jack, do you have a similar kind of insulation, i would say, from this legislation? >> yes, in our case, we have major concerns about our patients with epilepsy. .e launched two products
having a consistent and continuous therapy is so important. when we hear about patients losing their relationship with their own physicians, losing their health care policies, and if they were can team ewing with a certain -- to continue with a certain coverage it would have to pay a higher premium, that is unfortunate to us. because access to their medications is necessary to keep these patients sable -- stable. acts unfortunate that the has proven to be a lot of things, but not affordable unfortunately, too many of our patients -- too many of our patients. you and thear as company goes, number one business goal is what? >> to advance our phase three trials. and hopefully, and get to a
progesterone phase three data read this year and finished enrollment in the identical bio hormone combination. >> ok, thank you both for joining me. robert is the ceo of therapeutics and the. jack cutter is the ceo of supernovas cap -- pharmaceuticals. the are participating in jpmorgan conference. we are going to take a quick rate on "money moves." when we come back, we will give you a trading update. meantime, my colleague julie hyman giving you a bit of a preview a few minutes ago, telling you the markets are higher across the board. a complete update, though, after this short break. ♪
on the markets with everything you need to know about trades. stands out? >> you were just talking about stocks broadly. indeed, we had this rebound after declined yesterday. first up, wells fargo reported record earnings this year, the bottom line fueled by cutting expenses and one-time gains. that helped to account for a six percent slide in revenue a year earlier. and jpmorgan also reported earnings today that ended the bank's three-year streak of record annual numbers. from profitserased due to a settlement over the ponzi scheme.f charlie, when you look at there was one analyst
that we spoke to today that spoke about analysts getting out of the way. where are we in that process? >> at in the bottom line is that it is in line with expectations. but the bottom line could come pouring out of those nonrecurring items. i think on the quarterly basis, it is somewhere around $1.35 give or take. i think the expectation is for one dollar $.50. i think expectations have to be cut. >> -- $1.50. i think expectations have to be cut. think they will improve, or not as much as people think? >> we have definitely seen a rotation out of fixed equities. underwriting in the ipo has been picking
up -- m&a has been picking up. >> what about the consumer side of the business? on the one hand, you've already had refinancing take a hit, because people are being -- seeing rates creep up. theon the other hand, economy is getting better, so that should be good for the consumer side of the business. >> the growth of the bank is very important. if you look at jpmorgan's consumer bank, revenues year- over-year have dropped eight percent, expenses dropped three percent. net income would have fallen if it had not been for a reserve release, and that was pretty dramatic this year. in 2014, you may see a bit of revenue growth, tied expenditures, but provisions will be pretty tight. flat againwill be next year. >> when you look at jpmorgan
compared to its competitors, it has long been views as the best in class. -- been viewed as the best in class. is it no longer the case? >> they have been harvesting the investments they've made in their systems, you know, in terms of the core businesses. and i think that investment is what allowed them to produce the kind of growth they've had in the past two years. but i think they are running out. i don't think they are setting themselves apart anymore from the competitors. >> thank you very much. againl be on the markets in 30 minutes. "streetsmarts" is next. ♪
>> good afternoon, live from bloomberg world headquarters in new york by emily chang. i am stephanie ruhle, welcome to street smart. right now we are waiting for new jersey governor chris christie deliver his state of the state address in trenton. this comes one week after the embattled governor and faces an investigation into his role in the lane