Monday, August 25, 2014

Get Paid To Click on Ads

How crazy is this? A company has been created to pay you for your click as they are making money in the arbitrage between what they pay you and the amount that the advertiser pays them. Aivars Lode

If you've ever searched online (so, pretty much everyone) this applies to you.

A London-based startup called Qmee will pay you to click on links that surface in search queries.
"Why wouldn't you want to get something back for something you do every day?" said Qmee founder Jonathan Knight.Once you've installed the Qmee toolbar in your browser, searches on every major engine (Google(GOOG)Yahoo (YAHOF) and Bing, as well as Ebay(EBAY, Tech30) and Amazon (AMZN, Tech30)) will yield a list of results in the left-hand column. Clicking on these links (which look a lot like Google ads) can earn you four to 15 cents apiece.
The more common the search (like "men's shoes" or "plane tickets"), the more likely there will be Qmee results. Theoretically, the results are directly related, although one search for women's dresses turned up for results for men's shoes.
As the search industry ages -- Google (GOOG) just celebrated its tenth anniversary as a public company -- is Qmee giving users a peek into the future of search?
Don't bet on it just yet.
Right now, Qmee said people should expect to see results just 15% of the time. They said this will grow as they partner with more ad networks. (They work with six networks right now, each with "thousands of clients.")
When I tested the app at CNNMoney, countless searches (everything from "prom dresses" to "movie tickets") turned up zero Qmee results. But on my home computer, searching the same terms turned up multiple Qmee results.
A Qmee representative said my experience at work was abnormal and not a complaint they've received (although a coworker had a similar experience).
Knight and co-founder Nick Sutton, both software executives, launched the "search loyalty" firm last year (the only one that offers up actual cash, according to Knight).
The intention is to let users get a little something when searching online. After all, users provide data about their behavior every time they click a search result links.
"Many loyalty programs require the customer to jump through hoops to redeem rewards," said Knight.
Qmee cash is redeemable through a PayPal account (or you can choose to donate to charity).
The company is not yet profitable, as 90% of its revenue goes to customers and just 10% goes to the firm. (The partnerships with ad networks are all monetized on a cost-per-click or cost-per-purchase model.)
Knight says while this ratio could change in the future, "a larger percentage of our revenues will always go to our users."
So far, it's just chump change for users -- the person who's accumulated the most money earned about $200 over the course of a year.
But it has the potential to take a bigger piece of the pie. ZenithOptimedia values the U.S. paid search industry at $16.8 billion this year.

Monday, August 18, 2014

The Number One Job Skill in 2020

This is totally in line with where the jobs came from in Aussie over the decade following the crash in the 90’s. Aivars Lode

What's the crucial career strength that employers everywhere are seeking -- even though hardly anyone is talking about it? A great way to find out is by studying this list of fast-growing occupations, as compiled by the U.S. Bureau of Labor Statistics.

Sports coaches and fitness trainers. Massage therapists, registered nurses and physical therapists. School psychologists, music tutors, preschool teachers and speech-language pathologists. Personal financial planners, chauffeurs and private detectives. These are among the fields expected to employ at least 20% more people in the U.S. by 2020.
Did you notice the common thread? Every one of these jobs is all about empathy.
In our fast-paced digital world, there's lots of hand-wringing about the ways that automation and computer technology are taking away the kinds of jobs that kept our parents and grandparents employed. Walk through a modern factory, and you'll be stunned by how few humans are needed to tend the machines. Similarly, travel agents, video editors and many other white-collar employees have been pushed to the sidelines by the digital revolution's faster and cheaper methods.
But there's no substitute for the magic of a face-to-face interaction with someone else who cares. Even the most ingenious machine-based attempts to mimic human conversation (hello, Siri) can't match the emotional richness of a real conversation with a real person.
Visit a health club, and you'll see the best personal trainers don't just march their clients through a preset run of exercises. They chat about the stresses and rewards of getting back in shape. They tease, they flatter -- maybe they even flirt a little. They connect with their clients in a way that builds people's motivation. Before long, clients keep coming back to the gym because they want to spend time with a friend, and to do something extra to win his or her respect.
It's the same story in health care or education. Technology can monitor an adult's glucose levels or a young child's counting skills quite precisely. Data by itself, though, is just a tool. The real magic happens when a borderline diabetic or a shy preschooler develops enough faith and trust in another person to embark on a new path. What the BLS data tells us is that even in a rapidly automating world, we can't automate empathy.
Last week, when the BLS reported that the U.S. economy added 175,000 jobs in May, analysts noted that one of the labor market's bright spots involved restaurants and bars. Waiters, cooks and bartenders accounted for a full 16% of the month's job growth. As the Washington Post's Neil Irwin put it, "A robot may be able to assemble a car, but a cook still grills burgers."
Actually, it's the people in the front of the restaurant -- and behind the bar -- that should command our attention. The more time we spend in the efficient but somewhat soulless world of digital connectivity, the more we will cherish a little banter with wait-staff and bartenders who know us by name. We will pay extra to mingle with other people who can keep the timeless art of conversation alive.
By George Anders

Monday, August 11, 2014

Yahoo Reports Another Decline in Advertising

Is this a sign of things to come for the industry as google and others become harder to use awash with spam advertising? Yahoo reports a decline in advertising. Aivars Lode
Two years into Marissa Mayer's tenure at Yahoo Inc., YHOO +0.06% advertisers are still sitting on the sidelines.
Yahoo on Tuesday reported that its total revenue, minus commissions paid to partners for Web traffic, fell 3% in the second quarter, its fourth decline in the past five periods and below the company's estimates. Of particular concern, revenue from display ads, excluding the traffic costs, dropped 6.9% to $394 million.
"A transformation of this size will take several years," Ms. Mayer told analysts. "It will take a little longer than we originally forecasted."
That sentiment differs from Ms. Mayer's comments just three months ago, when she said the first quarter was "evidence we are on the right course." Those results—Yahoo's first revenue growth in more than a year—now appear to be a blip as Ms. Mayer struggles to persuade advertisers to shift their budgets from Google Inc. GOOGL -0.18% and Facebook Inc., FB +0.29% which command the bulk of the online and mobile ad markets.
Yahoo's shares fell 2.3% in after-hours trading to $34.78. Its market capitalization is about $35 billion.
The troubling progress report comes as Ms. Mayer needs advertisers most. Pressure on the chief executive is increasing as Alibaba Group Holding Ltd., the Chinese e-commerce company in which Yahoo owns a 23% stake, prepares to hold an initial public offering that will shift investor focus from that asset to Yahoo's stagnant core business.
Alibaba will give investors something to cheer about for the time being. Alibaba and Yahoo agreed to reduce the number of shares that Yahoo is required to sell at the IPO to 140 million shares from 208 million shares. That will give Yahoo less cash from the IPO but will allow it to hold on to shares that could increase in value as Alibaba grows. Yahoo will unload about 27% of its stake in Alibaba, rather than a previously planned 40%.
Alibaba's expected IPO valuation is a moving target. The e-commerce company last week valued itself at $130 billion ahead of the offering, but some Wall Street analysts valued the company at as much as $230 billion.
Yahoo's chief financial officer, Ken Goldman, said he expected the sale of Yahoo's Alibaba shares to be fully taxed and would return at least half of the proceeds to shareholders, though he didn't specify how.
B. Riley & Co. analyst Sameet Sinha estimated Yahoo's total stake in Alibaba is valued at about $38 billion. Assuming it pays a capital-gains tax of 35%, Yahoo would make about $6.7 billion in IPO proceeds, Mr. Sinha said. That would give shareholders more than $3 billion in the form of share buybacks or dividends.
The average price for Yahoo ads declined 24% in the second quarter—compared with a 5% drop three months earlier. The drop was a sign that Yahoo's new ad offerings, such as "in-stream" ads that appear in the center of sites such as Yahoo News and Yahoo Finance, aren't attracting much demand from advertisers.Regardless of the Alibaba outcome, Yahoo must find a way to turn around its advertising business before investors lose patience.
Ms. Mayer also said demand has dropped off for one particular type of ad, the FPAD, a small, square-like advertisement on its home page, which she plans to reconfigure and reprice.
More generally, advertisers are moving away from higher-priced, graphical banner ads that have been Yahoo's specialty. In their place, they are spending more on cheaper ads targeted to individual visitors, an area where Facebook and Google have excelled.
Ms. Mayer's reorganization of the company's executive ranks hasn't stopped the bleeding. The company's ad sales still declined in the wake of Ms. Mayer's firing of Henrique de Castro, her former operations chief and top liaison to the ad industry.
"It's remarkable how bad" ad revenue in the quarter was, said Brian Wieser, an analyst at Pivotal Research. "Such are the problems when there is no head of ad sales."
That job has been taken up by Ms. Mayer herself, who says she has recently gone on a listening tour meeting with more than 500 ad-industry executives representing more than 50 top brands. But she is still seen by some in such circles as a technologist out of touch with Madison Avenue. In one highly publicized incident, she arrived nearly two hours late for a meeting with top ad-agency executives in Cannes, France.
Yahoo has announced a bevy of new ad offerings—such as native ads, digital magazines and Web video shows—but marketers say Yahoo still lacks the popular appeal with consumers. "They all feel like 'could-be's' for brands, not big money bets," said Greg March, the CEO of ad agency Ikon3.
Yahoo reported second-quarter profit of $272.6 million, down from $335 million a year earlier.
—Mike Shields contributed to this article.

Environmentalists Denounce Repeal of Australia’s Carbon Tax

Australia repleals the carbon tax. Hmm, what do you think a backwards step on good enviromnetal stewardship or the elimination of a tax set will do to AL Gore's riches? Aivars Lode


SYDNEY, Australia — Opposition politicians and environmentalists in Australia reacted with dismay Thursday to the country’s repeal of laws requiring large companies to pay for carbon emissions, saying that it made Australia the first country to reverse progress on fighting climate change.
The Senate voted 39 to 32 on Thursday to repeal the so-called carbon tax after Prime Minister Tony Abbott’s conservative government secured the support of a number of independent senators. The House of Representatives had voted earlier in the week to repeal the unpopular measure, which has been a highly contentious issue in Australian politics for seven years.

The tax was devised to penalize hundreds of Australia’s biggest producers of carbon emissions, setting a price of 23 Australian dollars, or $21.50, per metric ton of carbon dioxide when it was put into effect in 2012 under then-Prime Minister Julia Gillard of the Labor Party, which is now in the opposition. The price rose to 25 Australian dollars this month.
Mr. Abbott, of the conservative Liberal Party, who took office in September, made repealing the tax a central pledge of his election campaign, arguing that ending it would reduce electricity prices and enhance economic growth. But he struggled twice to get the measure through the Senate before the vote Thursday. The government now plans to introduce a range of measures that it says will encourage business to reduce pollution, rather than penalizing polluters.
After the vote Thursday, Mr. Abbott characterized the tax as a “useless, destructive tax, which damaged jobs, which hurt families’ cost of living and which didn’t actually help the environment.” He called it a “9 percent impost on power prices, a $9 billion handbrake on our economy,” and said the repeal would save the average household 550 dollars a year.
Australia is among the world’s biggest producers of carbon emissions on a per capita basis. The government is committed to reducing emissions to 5 percent below levels recorded in 2000 by 2020.
Politicians from Labor and the smaller Greens party said the repeal would undermine Australia’s efforts to address climate change. The Labor leader, Bill Shorten, described Mr. Abbott as an “environmental vandal.”
“Today, Tony Abbott has made Australia the first country in the world to reverse action on climate change,” Mr. Shorten said. Christine Milne, a senator from Tasmania and leader of the Greens party, said, “History will judge Tony Abbott harshly for his denial of global warming and his undermining of Australia’s effort to address it.”
John Connor, chief executive of the Climate Institute, a Sydney-based advocacy group, said that some governments had pulled back from carbon reduction targets, including Japan after the Fukushima nuclear reactor disaster in 2011, but that “no one else in the world has repealed a working, functioning carbon pricing mechanism.”
“We are taking a monumentally reckless backward leap even as other countries are stepping up to climate action,” Mr. Connor said in an interview. He said that Australia is the highest per capita emitter of carbon in the Organization for Economic Cooperation and Development, the group of developed countries, and that it ranks in the top 20 globally, emitting around 25 metric tons of carbon dioxide per person every year. “Australia’s economy is much more carbon-intensive than the U.S. economy,” Mr. Connor said.
Mr. Abbott has said that the repeal will lead to lower energy costs for consumers. But Mr. Connor said that while Australian electricity prices have indeed risen, that was due in part to power companies investing in infrastructure. “The government effectively used the carbon tax as the scapegoat for higher energy costs,” he said.
But representatives of major industries, including agriculture and mining, said that the costs passed along to other businesses because of the emissions penalty were high. While the agriculture sector was exempt from directly paying the tax, its costs “hit Australian farmers every time they paid for essential electricity, fertilizer, chemicals and fuel supplies,” Brent Finlay, president of the National Farmers’ Federation, said in a statement.
Brendan Pearson, head of the Minerals Council of Australia, said in a statement that the removal of “the world’s biggest carbon tax is an important step towards regaining the competitive edge that Australia lost over the last decade.” The council estimated that the tax cost the mining industry 1.2 billion dollars per year.
A representative of independent grocers also applauded the repeal, saying that the cost of electricity and refrigerant gases had skyrocketed since the carbon tax was introduced. “A small, corner store operator will save about 17,000 Australian dollars a year,” said Jos de Bruin of Master Grocers Australia, which represents about 2,400 independent supermarkets.

Thursday, August 7, 2014

Understanding ASEAN: Seven things you need to know

Where will the next rising star countries come from? Aivars Lode

Southeast Asia is one of the world’s fastest-growing markets—and one of the least well known.
China remains the Goliath of emerging markets, with every fluctuation in its GDP making headlines around the globe. But investors and multinationals are increasingly turning their gaze southward to the ten dynamic markets that make up the Association of Southeast Asian Nations (ASEAN). Founded in 1967, ASEAN today encompasses Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam—economies at vastly different stages of development but all sharing immense growth potential. ASEAN is a major global hub of manufacturing and trade, as well as one of the fastest-growing consumer markets in the world. As the region seeks to deepen its ties and capture an even greater share of global trade, its economic profile is rising—and it is crucial for those outside the region to understand its complexities and contradictions. The seven insights below offer a snapshot of one of the world’s most diverse, fast-moving, and competitive regions.
7 Things you need to know about ASEAN
The ten member states of the Association of Southeast Asian Nations collectively comprise the seventh-largest economy in the world. Here are some critical facts.

1. Together, ASEAN’s ten member states form an economic powerhouse.
If ASEAN were a single country, it would already be the seventh-largest economy in the world, with a combined GDP of $2.4 trillion in 2013 (Exhibit 1). It is projected to rank as the fourth-largest economy by 2050.1 1. Based on forecasts by IHS.
Labor-force expansion and productivity improvements drive GDP growth—and ASEAN is making impressive strides in both areas. Home to more than 600 million people, it has a larger population than the European Union or North America. ASEAN has the third-largest labor force in the world, behind China and India; its youthful population is producing a demographic dividend. Perhaps most important, almost 60 percent of total growth since 1990 has come from productivity gains, as sectors such as manufacturing, retail, telecommunications, and transportation grow more efficient.
To capitalize on these trends, however, the region must develop its human capital and workforce skills. In Indonesia and Myanmar alone, we project an undersupply of 9 million skilled and 13 million semiskilled workers by 2030.
2. ASEAN is not a monolithic market.
ASEAN is a diverse group. Indonesia represents almost 40 percent of the region’s economic output and is a member of the G20, while Myanmar, emerging from decades of isolation, is still a frontier market working to build its institutions. GDP per capita in Singapore, for instance, is more than 30 times higher than in Laos and more than 50 times higher than in Cambodia and Myanmar; in fact, it even surpasses that of mature economies such as Canada and the United States. The standard deviation in average incomes among ASEAN countries is more than seven times that of EU member states. That diversity extends to culture, language, and religion. Indonesia, for example, is almost 90 percent Muslim, while the Philippines is more than 80 percent Roman Catholic, and Thailand is more than 95 percent Buddhist. Although ASEAN is becoming more integrated, investors should be aware of local preferences and cultural sensitivities; they cannot rely on a one-size-fits-all strategy across such widely varying markets.
3. Macroeconomic stability has provided a platform for growth.
Memories of the 1997 Asian financial crisis linger, leading many outsiders to expect that volatility comes with the territory. But the region proved to be remarkably resilient in the aftermath of the 2008 global financial crisis, and today it is in a much stronger fiscal position: government debt is under 50 percent of GDP—far lower than the 90 percent share in the United Kingdom or 105 percent in the United States.
Most of the region has held steady so far, despite concern about the effect on emerging markets of the potential end of quantitative easing by the US Federal Reserve. In fact, ASEAN has experienced much lower volatility in economic growth since 2000 than the European Union. Savings levels have also remained fairly steady since 2005, at about a third of GDP, albeit with large differences between high-saving economies, such as Brunei, Malaysia, and Singapore, and low-saving economies, such as Cambodia, Laos, and the Philippines.
4. ASEAN is a growing hub of consumer demand.
ASEAN has dramatically outpaced the rest of the world on growth in GDP per capita since the late 1970s. Income growth has remained strong since 2000, with average annual real gains of more than 5 percent. Some member nations have grown at a torrid pace: Vietnam, for example, took just 11 years (from 1995 to 2006) to double its per capita GDP from $1,300 to $2,600. Extreme poverty is rapidly receding. In 2000, 14 percent of the region’s population was below the international poverty line of $1.25 a day (calculated in purchasing-power-parity terms), but by 2013, that share had fallen to just 3 percent.
Already some 67 million households in ASEAN states are part of the “consuming class,” with incomes exceeding the level at which they can begin to make significant discretionary purchases (Exhibit 2).3 3. Defined as households with more than $7,500 in annual income (in purchasing-power-parity terms).That number could almost double to 125 million households by 2025, making ASEAN a pivotal consumer market of the future. There is no typical ASEAN consumer, but some broad trends have emerged: a greater focus on leisure activities, a growing preference for modern retail formats, and increasing brand awareness (Indonesian consumers, for example, are exceptionally loyal to their favorite brands).
Urbanization and consumer growth move in tandem, and ASEAN’s cities are booming. Today, 22 percent of ASEAN’s population lives in cities of more than 200,000 inhabitants—and these urban areas account for more than 54 percent of the region’s GDP. An additional 54 million people are expected to move to cities by 2025. Interestingly, the region’s midsize cities have outpaced its megacities in economic growth. Nearly 40 percent of ASEAN’s GDP growth through 2025 is expected to come from 142 cities with populations between 200,000 and 5 million.
ASEAN consumers are increasingly moving online, with mobile penetration of 110 percent and Internet penetration of 25 percent across the region. Its member states make up the world’s second-largest community of Facebook users, behind only the United States. But there are vast differences in adoption. Hyperconnected Singapore has the fourth-highest smartphone penetration in the world, and almost 75 percent of its population is online. By contrast, only 1 percent of Myanmar has access to the Internet. Indonesia, with the world’s fourth-largest population, is rapidly becoming a digital nation; it already has 282 million mobile subscriptions and is expected to have 100 million Internet users by 2016.
5. ASEAN is well positioned in global trade flows.
ASEAN is the fourth-largest exporting region in the world, trailing only the European Union, North America, and China/Hong Kong. It accounts for 7 percent of global exports—and as its member states have developed more sophisticated manufacturing capabilities, their exports have diversified. Vietnam specializes in textiles and apparel, while Singapore and Malaysia are leading exporters of electronics. Thailand has joined the ranks of leading vehicle and automotive-parts exporters. Other ASEAN members have built export industries around natural resources. Indonesia is the world’s largest producer and exporter of palm oil, the largest exporter of coal, and the second-largest producer of cocoa and tin. While Myanmar is just beginning to open its economy, it has large reserves of oil, gas, and precious minerals. In addition to exporting manufactured and agricultural products, the Philippines has established a thriving business-process-outsourcing industry. China, a competitor, has become a customer. In fact, it is now the most important export market for Malaysia and Singapore. But demand from the United States, Europe, and Japan continues to propel growth.5 5.“Ten of Asia’s most dynamic export processing zones that you’ve never heard of,” Asia Briefing, April 24, 2014,
Export-processing zones, once dominated by China, have been established across ASEAN. The Batam Free Trade Zone (Singapore–Indonesia), the Southern Regional Industrial Estate (Thailand), the Tanjung Emas Export Processing Zone (Indonesia), the Port Klang Free Zone (Malaysia), the Thilawa Special Economic Zone (Myanmar), and the Tan Thuan Export Processing Zone (Vietnam) are all expected to propel export growth.
The region sits at the crossroads of many global flows. Singapore is currently the fourth-highest-ranked country in the McKinsey Global Institute’s Connectedness Index, which tracks inflows and outflows of goods, services, finance, and people, as well as the underlying flows of data and communication that enable all types of cross-border exchanges.6 6. For further details, see the full McKinsey Global Institute report, Global flows in a digital age: How trade, finance, people, and data connect the world economy, April 2014. Malaysia (18th) and Thailand (36th) also rank among the top 50 most connected countries. ASEAN is well positioned to benefit from growth in all these global flows. By 2025, more than half of the world’s consuming class will live within a five-hour flight of Myanmar.
6. Intraregional trade could significantly deepen with implementation of the ASEAN Economic Community, but there are hurdles.
Some 25 percent of the region’s exports of goods go to other ASEAN partners, a share that has remained roughly constant since 2003. While this is less than half the share of intraregional trade seen in the North American Free Trade Agreement countries of Canada, Mexico, and the United States and in the European Union, the total value is climbing rapidly as the region develops stronger cross-border supply chains.
Intraregional trade in goods—along with other types of cross-border flows—is likely to increase with implementation of the ASEAN Economic Community integration plan, which aims to allow the freer movement of goods, services, skilled labor, and capital. Progress has been uneven, however. While tariffs on goods are now close to zero in many sectors among the original six member states (Brunei, Indonesia, Malaysia, the Philippines, Singapore, and Thailand), progress on liberalization of services and investment has been slower, and nontariff barriers remain a stumbling block to freer trade.
While deeper integration among its member states remains a work in progress, ASEAN has forged free-trade agreements elsewhere with partners that include Australia, China, India, Japan, New Zealand, and South Korea. It is also party to the Regional Comprehensive Economic Partnership trade negotiations that would form a megatrading bloc comprising more than three billion people, a combined GDP of about $21 trillion, and some 30 percent of world trade.
7. ASEAN is home to many globally competitive companies.
In 2006, ASEAN was home to the headquarters of 49 companies in the Forbes Global 2000. By 2013, that number had risen to 74. ASEAN includes 227 of the world’s companies with more than $1 billion in revenues, or 3 percent of the world’s total (Exhibit 3). Singapore is a standout, ranking fifth in the world for corporate-headquarters density and first for foreign subsidiaries.7 7. Headquarters density is the ratio of the revenue of all large companies (defined as those with revenue of $1 billion or more) headquartered in a given country to that country’s GDP in 2010. For further details, see the full McKinsey Global Institute report, Urban world: The shifting global business landscape, October 2013.
Consistent with this growth, foreign direct investment in ASEAN has boomed, surpassing its precrisis levels. In fact, the ASEAN-5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) attracted more foreign direct investment than China ($128 billion versus $117 billion) in 2013.8 8.Based on data from Bank of America Merrill Lynch. In addition to attracting multinationals, ASEAN has become a launching pad for new companies; the region now accounts for 38 percent of Asia’s market for initial public offerings.
Despite their distinct cultures, histories, and languages, the ten member states of ASEAN share a focus on jobs and prosperity. Household purchasing power is rising, transforming the region into the next frontier of consumer growth. Maintaining the current trajectory will require enormous investment in infrastructure and human-capital development—a challenge for any emerging region but a necessary step toward ASEAN’s goal of becoming globally competitive in a wide range of industries. The ASEAN Economic Community offers an opportunity to create a seamless regional market and production base. If its implementation is successful, ASEAN could prove to be a case in which the whole actually does exceed the sum of its parts

Calpers Pulls Back From Hedge Funds

By Dan Fitzpatrick
Public pensions from California to Ohio are backing away from hedge funds because of concerns about high fees and lackluster returns.
Those having second thoughts include officials at the largest public pension fund in the U.S., the California Public Employees' Retirement System, or Calpers. Its hedge-fund investment is expected to drop this year by 40%, to $3 billion, amid a review of that part of the portfolio, said a person familiar with the changes. A spokesman declined to comment on the size of the reduction but said the fund is taking more of a "back-to-basics approach" with its holdings.
The retreat comes after many pension funds poured money into hedge funds in recent years in hopes of making up huge shortfalls.
The officials overseeing pensions for Los Angeles's fire and police employees decided last year to get out of hedge funds altogether after an investment of $500 million produced a return of less than 2% over seven years, according to Los Angeles Fire and Police Pensions General Manager Ray Ciranna. The hedge-fund investment was just 4% of the pension's total portfolio and yet $15 million a year in fees went to hedge-fund managers, 17% of all fees paid by the fund.
Before 2004, public pensions favored plain-vanilla investments and avoided hedge funds almost entirely, according to data compiled by consultant Wilshire Trust Universe Comparison Service. Public pensions began wading into hedge funds roughly a decade ago as they sought to boost long-term returns and close the gap between assets and future obligations to retirees."We were ready to move on," Mr. Ciranna said.
Hedge funds typically bet on and against stocks, bonds or other securities, often using borrowed money. Hedge funds also charge higher fees, usually 2% of assets under management and 20% of profits.
Many hedge funds dropped less than the overall market during the financial crisis, and some even posted outsize gains by anticipating the collapse. That performance accelerated the flow of pension money into hedge funds.
The move was part of a wider embrace of alternative investments, including private equity and real estate, as pension officials looked to diversify holdings in case more conventional investments faltered. They also hoped bigger investment gains would help them avoid extracting larger contributions from employees or reducing benefits for current or future retirees.
With many hedge funds, that sort of outperformance hasn't materialized in recent years: Average public-pension gains from hedge funds were 3.6% for the three years ended March 31 as compared with a 10.9% return from private-equity investments, a 10.6% return from stocks and 5.7% from fixed-income investments, according to a Wilshire review of public pensions with more than $1 billion in assets.
After peaking at 1.81% in 2011, pension allocations to hedge funds dipped to 1.21% of total portfolios as of March 31, according to Wilshire's review.
The average amount committed to private equity, by comparison, still is climbing. Those investments jumped to a decadelong high of 10.5% as of March 31, according to Wilshire. Stocks and bonds are still the dominant investments for all public pensions.
The reconsideration of hedge funds as an investment option hasn't produced significant shifts inside all funds. Some big public pensions said they are holding firm on commitments or increasing allocations as they worry about how stocks will perform in any future downturn. About half of the U.S. public pensions still have some sort of hedge-fund investment, according to data tracker Preqin.
"We are seeing a little moving away from hedge funds," but so far it's "just on the margin," said Verne Sedlacek, the chief executive of Commonfund, a nonprofit that manages money for pension funds, endowments and other nonprofit groups.
How far Calpers goes with its hedge-fund review may influence decisions at other public pensions because of its size in the industry. The current value of its assets is roughly $301 billion. The examination began in March as officials inside the fund began raising questions about whether hedge funds are too complicated or can effectively balance out poor-performing stocks during a market crash, said a person familiar with the situation.
A Calpers spokesman said the investment staff will make a formal recommendation to the board in the fall. But some cuts already have been made, said the person familiar with the situation. Hedge funds represented 1.5% of Calpers's total assets, or $4.5 billion, as of June 30.
Other states have made reductions as well. The School Employees Retirement System of Ohio decided to lower its hedge-fund allocation to 10% by fiscal 2015 as compared with roughly 15% in fiscal 2013 after investment gains were lower than expected, according to a spokesman. New Jersey's State Investment Council lowered its planned allocation to hedge funds to 12% from 12.25% as part of its fiscal 2014 plan, according to a spokesman.
The debate in San Francisco is indicative of those under way nationwide.
Board members of the San Francisco Employees' Retirement System are considering whether to invest 15% of assets into hedge funds for the first time. A debate about that strategy dominated a June meeting, in which board member Herb Meiberger argued hedge funds have blown up in the past and aren't the only investment alternative. The fund's executive director couldn't be reached for comment Wednesday.
Mr. Meiberger said at the meeting that he had sought out Warren Buffett's advice on the matter. The billionaire investor's handwritten response: "I would not go with hedge funds—would prefer index funds."

NAB to Sell Parcel of U.K. Commercial Real-Estate Loans

Looks like the Aussie banks had some exposure to European loans, this will probably depress their earnings. Aivars Lode

NAB to Sell Some Commercial Real Estate Loans
By Robb M. Stewart

MELBOURNE, Australia— National Australia Bank Ltd. NAB.AU -0.52% has agreed to sell a £625 million (US$1.06 billion) basket of mainly distressed U.K. loans to private-equity firm Cerberus Global Investors, further distancing the Australian bank from a business that has weighed on it for years.
When the deal is settled, it is expected to release about £127 million in capital for NAB, which had taken on the commercial real-estate portfolio of its British banking units about two years ago as the country's economy continued to struggle.
"This sale represents a substantial de-risking," Andrew Thorburn, who takes over as chief executive of Melbourne-based NAB at the start of August, said in a statement Monday.
The U.K. operations of NAB—Australia's largest bank by assets, but the smallest of the country's four big lenders by market value—were hard hit by soured property loans and rising funding costs as Britain struggled through the worst recession in a generation. When Britain's recovery stalled in 2012, NAB refocused its Clydesdale Bank and Yorkshire Bank units on retail operations and business lending and transferred most of the commercial real-estate portfolio to the parent company.
NAB bought Scotland's Clydesdale in 1987 and Yorkshire Bank in 1990. Departing CEO Cameron Clyne for years has said the U.K. banks needed greater scale and NAB would either need to beef up the operations or exit. Some analysts have speculated the move by Lloyds Banking Group PLC to list TSB Banking Group PLC in June could encourage NAB to unload its U.K. operations.
Mr. Thorburn said the Australian bank continued to look at opportunities to accelerate the sale of noncore assets, although didn't offer further details.
Omkar Joshi, an investment analyst at Watermark Funds Management in Sydney, said the sale only leads to a marginal capital release, so isn't t material to NAB in itself, but it would be positive if the bank can pull off more sales.
"The question remains why they didn't sell a bigger portfolio of loans," Mr. Joshi said.
The loans being sold to Cerberus are either in default, or passed or near maturity.
NAB said the deal will reduce its U.K. commercial real-estate portfolio by 20% to £2.38 billion and cut impaired loans by 48%. Because the sale isn't subject to regulatory or any other approval, the assets will immediately be taken off NAB's balance sheet.
NAB narrowed the loss before one-time items and certain costs in its U.K. commercial real-estate portfolio to £7 million in the six months through March, from a £149 million loss a year earlier, thanks in part to a slowdown in the emergence of new impaired loans and as the bank continued to run down the portfolio, reducing it by £700 million in the six-month period.
The U.K. business has been a drag on NAB while Australia's big lenders have seen record earnings on the back of low interest rates, strong mortgage lending, and sharp cuts in costs and bad debts. NAB's net profit rose 16% to 2.86 billion Australian dollars (US$2.68 billion) in the first half of its fiscal year as revenue increased 2.6% and its charge for bad and doubtful debts fell by more than 50%.