Goldman Sachs is among Wall Street's elite investment banks. Should it be looking abroad for deals, or is the U.S. still the place to be?
Excellent cold-water-to-the-face post on Wednesday by Steven Davidoff, the New York Times' "Deal Professor." He questions whether the American investment banking model, stymied at home, can find Elysian fields of opportunity abroad. Then he offers this answer:
If you’ve been anywhere near a Wall Street conference in the last five years, you know the drill. Deal makers bemoan the United States as a mature and overregulated economy. They talk about heading abroad, as emerging market economies leave us far behind. To listen to them, one might think the rest of the world was a paradise out of “Atlas Shrugged,” where capital flows and where private equity, investment banks and other investors can freely seek opportunities.
So what country is No. 1 in initial public offerings so far this year? Yes, it is the United States, according to Renaissance Capital, with 75 I.P.O.’s raising $39 billion in total. Compare this activity with China, where 41 I.P.O.’s raised just $8.1 billion.
And in mergers and acquisitions? Again, it is the United States, with 53 percent of the worldwide deal volume, up from 51 percent from last year, according to Dealogic. For investment banks, this means that the United States has a 46 percent share of the $63 billion in worldwide investment banking revenue, up from 34.6 percent in 2009.
Jemal Countess/Getty Images for Time Inc.
Berkshire Hathaway CEO Warren Buffett attends the Fortune Most Powerful Women summit at Mandarin Oriental Hotel on October 5, 2010 in Washington, DC.
Thanks to Henry Blodget at Business Insider for directing to this Fortune except from Warren Buffett's annual letter to Berkshire Hathaway shareholders. In it, Warren Buffett lays out the commonsense case for avoiding investments in currency (for example, government debt like U.S. Treasuries) and gold (driven by fear) and sticking with stocks. Here's a taste:
My own preference -- and you knew this was coming -- is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See's Candy meet that double-barreled test. Certain other companies -- think of our regulated utilities, for example -- fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.
David Siemer of Siemer Associates and Siemer Ventures.
I had a great conversation recently with David Siemer of Siemer & Associates, a boutique investment bank and early-stage venture capital investor — Siemer Ventures — that's based right here in Southern California. The merchant banking side of their business is "new" old school investment banking, centered on raising capital for clients and providing advisory services. In other words, investment banking the way it used to be, before trading of the sort practiced by the Big Boys — Goldman Sachs, Morgan Stanley — became a profit-driver.
Not surprisingly, David Siemer wanted to get into venture capital, as well. What's interesting about this part of the business, which focuses on digital media, is the firm's bullishness on Asia and India. Siemer Ventures was started in 2007 and currently has its main office in Santa Monica, which is beginning to re-establish the "Silicon Beach" critical mass of tech companies that we first saw back before the dot com crash. For what it's worth, New York is also picking up steam. Silicon Valley isn't the only place to go for venture funding anymore. (Not that it ever was, but it's always been easy to get that impression.)
The Solyndra bankruptcy has taken a vaguely criminal turn, as the FBI in recent days has raided the company's Fremont, Calif. headquarters and paid a visit to the homes of the CEO and founder. Opponents of President Obama's enthusiasm for green jobs have seized on Solyndra's woes as evidence that alt.energy is an economic bust. This is from the LA Times:
"The FBI raid further underscores that Solyndra was a bad bet from the beginning and put taxpayers at unnecessary risk," Rep. Fred Upton (R-Mich.), chairman of the House Energy and Commerce Committee, and Rep. Cliff Sterns (R-Fla.) chairman of its Oversight and Investigations subcommittee, said in a joint statement. "President Obama's signature green jobs program went from a darling of the administration to bankruptcy to now the subject of an FBI raid in a matter of days."
On the Patt Morrison Show today, the problem of anemic Green energy job-creation in California was discussed. The numbers, according to the Brookings Institution, aren’t very good. In fact, the place called the clean economy an “enigma.” California is supposed to be the wellspring of Green job creation in the U.S., the vanguard of a new Green economy that will power us out of the recession and provide high-paying, 21st-century jobs...but it’s not really happening.
Job training programs intended for the clean economy have...failed to generate big numbers. The Economic Development Department in California reports that $59 million in state, federal and private money dedicated to green jobs training and apprenticeship has led to only 719 job placements — the equivalent of an $82,000 subsidy for each one.
“The demand’s just not there to take this to scale,” said Fred Lucero, project manager at Richmond BUILD, which teaches students the basics of carpentry and electrical work in addition to specifically “green” trades like solar installation.
It would be great if Southern California could figure out some way to get the Green jobs-engine revving. Unemployment in the state is back to 12 percent -- the second highest in the nation, behind the great jobs destroying machine that is Nevada.
At NBCLA’s PropZero blog, Joe Matthews puts his finger on the problem: there’s investment capital flowing into the state -- but there isn’t enough of it to really move the needle:
California led North America with 67 percent of the total share of all venture investment in clean technology. And since North America accounted for 72 percent of global venture investment in the sector, California was unmistakably the world leader. [My emphasis]
Here's the underwhelming part: The total amount of investment globally was just over $2 billion, with California getting $980 million. That's a drop in the bucket for a state with a GDP of more than $1.5 trillion.
That doesn't mean clean technology isn't a growth business -- it appears to be. But it's not a big business, and it's not clear if it ever will be.
Growth is wonderful, and rapid growth is usually even better. But unless that growth is fully leveraged, it’s liable to have limited impact. This is really a function of demand. At the moment, the biggest challenge to the Green energy economy isn’t that people don’t want to invest in it, but rather that its competitors -- traditional energy sources such as coal, oil, and gas -- aren’t losing enough customers to encourge serious Green energy investment.
Why? Price, plain and simple. Oil is still relatively cheap, and coal is just about the cheapest and most abundant source of energy there is. So absent something like a national cap-and-trade scheme or a carbon tax -- both of which would make traditional energy more costly, in the service of curbing global warming -- that situation problably isn’t going to change.
It’s a drag on the scale of what Green energy can achieve. You build solar panels for a boutique buyers -- or for the federal and state government, which subsidize the nascent industry -- rather than for all the houses and buildings in the U.S. where they might make sense. That’s where we’re stuck right now, with the Really Big Money avoiding Green energy -- and failing to deliver the California jobs bonanza.