Hi Everyone,
As a follow up to our June 12, 2012 meeting, we would like to extend a special thanks to our key note speaker, Grace Gu, Esq. Lead portfolio manager of the BlackRock Multi-Strategy Hedge Fund (MuSt), who rescheduled her trip to Asia, in order to speak at our meeting. In addition, special thanks to Jason Straight, Managing director Cyber Security & Information Assurance practice, Kroll, for doing everything necessary to provide an outstanding Kroll presentation at our meeting. A special thanks to all of you for your participation, perspective and questions! You kept the event lively and practical! Lastly, we would like to thank Kurt Brungardt, Chief Information Officer at MSD Capital, for once again hosting our CIO event.
The following companies were registered for the June 2012 meeting:
MSD Capital, Kroll, BlackRock Multi-Strategy Hedge Fund (MuSt), Morgan Stanley, Alliance Bernstein, Promontory Financial Group, LLP, McCann-Erickson Advertising, Moore Capital, AEGIS, AIG, Bank Leumi USA, Bank of America, Bridgewater Associates, LP, SBLI USA Mutual Life Insurance, Investment Technology Group (ITG), General Electric Capital Corporation, Eton Park, Financial Guaranty Insurance Co., GE Asset Management Inc., Credit-Suisse, GHF Group, Connolly Inc., Kita Capital Management LLC, Millennium Management LLC, iQ Venture Advisors, LLC, Dun and Bradstreet, MacAndrews and Forbes, Deerfield Partners, McGraw-Hill Companies, , Experian, Imagineer Technology Group, Plural Investments, Richard Bernstein Advisors, Financial Guaranty Insurance Company, CenterLight Health System, JP Morgan Chase, Warby Parker, Viking Global Investors LP, Platinum Underwriters Reinsurance, Inc., Paulson & Co., Diamondback Capital Management, LLC, Tigris Financial Group, Ltd., The University of Texas Investment Management Company, Good Offices, Merck, Centurion Global Management, LLC, TPG-Axon Capital Management, L.P., XL Global Services, Inc. and Federal Reserve Bank of New York.
Meeting Agenda:
Grace Gu, Lead Portfolio Fund Manager, BlackRock Multi-Strategy Hedge Fund (MuSt)
The financial crisis……how does this all end ?
- Developed market interest rates won’t stay near zero forever, will they ?
- Will central bank balance sheets ever shrink back or will they continue to grow ?
- What are the trends in capital movements, labor availability/skill and regulation which we should keep our eyes on ?
With a focus on Globally Rebalancing, discussions included:
- Emerging market labor, and developed market corporate margin
- From credit economy to central bank money economy – our routes to deleveraging
- Where is the exit? (US – how to leave zero-interest rate policy, Europe – fiscal integration of exit of euro, China – demographics)
Summary:
- Deleveraging is a two-phase process. The first phase is the consumer / private sector. The second phase is the government/public sector.
- Trade is unbalanced. China has surpluses and is holding too much US debt. That should lead to currency volatility.
- As people live longer they are more fiscally conservative in investment behaviors. This thought is based on traditional / historic behavioral models.
Bottom Line: Grace sees positives in the U.S. with the increase in competitiveness of the U.S. a significant positive, along with improving demographics, especially relative to other developed economics. Regarding Europe and China, they face longer term issues that need to be worked out.
U.S.:
- The U.S. is moving through deleveraging:
- Private net debt is down 15%.
- US is at the low end of the debt to GDP ratio
- The U.S. middle class is losing compared to company owners.
- Adjusted US labor cost is amongst lowest of developed markets
- U.S. labor cost and owner-equivalent rent are bigger contributors to inflation then resource cost.
Bottom Line: Grace is constructive on the U.S. due to the fact that the U.S. is at the end of the private sector deleveraging, and approaching the end of the public sector deleveraging. Europe Is at the beginning of the deleveraging process with more work to do on that front. A significant positive trend in the U.S. is: the labor force is becoming more competitive currently vs. other economies. Also, immigration is a positive for the U.S. economy, as is the increasing birth rate.
Europe:
- European debt is about the same as the U.S, and lower than Japan and the UK.
- The European future is common currency with separate fiscal controls
- What’s right for Germany is not necessarily good for Spain; ( i.e. Central EU zone vs. periphery zone)
- One plan is fiscal integration, another plan is a clearer exit plan from the European zone
- Many parts of European demographic matches Japan
Bottom Line: The problem in Europe is not a debt crisis, the real issue is institutional factors. There are 17 players with different motivations in the game. The solutions revolve around 1) fiscal integration, and 2) a distinct mechanism of membership in the Eurozone. The health of Europe’s banks is tied to periphery countries. The bank balance sheets are contaminated by sovereign debt issues in the periphery – hard to envision strong economy without healthy banks.Europe looks like Japan with deflation.
China:
- Three decades, started with too low debt, which now results in lots of room for debt accumulation.
- Started 80% rural and has moved to 40% rural
- China is moving up the supply chain.
- China has been misallocating capital. Lots of built, and unused infrastructure. This is short term GDP growth.
- China demographics are similar to Italy, but without the wealth. They have a more aging population.
- The one-child policy is making things worse.
- Political conflict is expected
- China needs more global brands
- China needs financial deregulation & internationalization of currency
Bottom Line: Grace talked about three challenges that China faces, including a misallocation of capital, a leadership transition, and a negative trend in demographics: an aging population. Grace said that China needs 5-10 years to increase domestic consumption, implement financial deregulation, and execute on the internationalization of the currency.
Jason Straight, Managing Director Cyber Security & Information Assurance, Kroll.
Cyber Security:
How do we try and apply conventional measures against unconventional threats ?
What does one do when they are breached ?
Does social media adoption mean that there are risks we just have to live with ?
Top Ten 2012 Cyber Security Considerations
Mobile technology risks
Risks Associated with Social Media
Small Businesses have as much to lose as Big Business
Business and Government Cooperate to fight back
Privacy and Geolocation Technology
Database Security and Log Management
A Permanent Business role for Incident Response teams – Why Every Business Needs One
Key Vulnerabilities hide behind compliance-driven decisions
International breach notification laws gain traction
Cloud Service Providers and Third Party Vendors
Fortifying Defenses
From risk assessment to breach response
The Anatomy of Responding to a Security Incident with Sensitive Information
Summary:
- Encryption not a hardware/software problem, it’s a human problem.
- Important practices are needed for the staff (e.g. Security awareness, good password security, and access controls).
- There is huge growth in state-sponsored attacks
- The 2012 Verizon data breach report indicated 90% of breaches detected are reported by third parties (not the breached company).
- Strongly recommend that everyone have and practice an incident response plan.
Bottom Line:
Put cyber security practices and processes in place as soon as possible. Include an incident response plan that is put to use.
Final Observations:
The evening was quite amazing with our two incredible speakers, Grace Gu, and Jason Straight. We now have a better understanding of the world economic frontier, as well as the best practices, implications, and lessons learned in a Cyber Secure state. Topics discussed included the concern about Greece, as well as the outcome and repercussions of the upcoming election. In addition, given our discussions on cyber security, it is quite clear that security issues continue to be a strong focus for management across all industries. Once again, thanks to our speakers and to MSD Capital for hosting our event. Lastly, special thanks to all those of you who attended this event, despite the torrential rain and the large crowd! We much appreciate your participation and support! Feel free to send us any thoughts and ideas you may have for future meetings!
Wishing you all an enjoyable summer, and a wonderful fourth of July holiday! Looking forward to seeing you all in the fall!
-malka
Grace Gu’s Bio
Grace Gu is the lead portfolio manager of the BlackRock Multi-Strategy Hedge Fund (MuSt). MuSt is BlackRock’s all-in-one multi-strategy hedge fund. The Fund dynamically allocates to a broad range of BlackRock’s absolute return strategies globally, offering diversified exposures in relative value, global macro, long/short equity, fixed income arbitrage, emerging market, and opportunistic strategies. Prior to joining BlackRock in 2008, Ms.Gu was a portfolio manager of Goldman Sach’s (GSAM) flagship Global Alpha Hedge Fund. At GSAM she managed a number of fixed income and macro books.
Ms. Gu earned a BS degree, with highest distinction, in Electrical Engineering and a MS degree in Financial Mathematics, both from Stanford University. At Stanford she was recipient of the most prestigious President Scholarship for top undergrad and Frederick Terman Award for best engineering student. Ms. Gu was the top gold medalist of the Singapore Physics Olympiad in 2000.
Jason Straight’s Bio
Jason Straight is a managing director in the Cyber Security & Information Assurance practice of Kroll. In this role, he provides expert knowledge and outstanding service to attorneys, IT professionals, information security directors, compliance officers and risk management personnel, among others in the areas of information assurance, computer forensics, cyber investigations and litigation support.
Jason joined Kroll in 2002 as a legal consultant in Kroll’s legal technologies group, then served as a regional manager and later led Kroll Ontrack’s technology consultant and computer forensics practice. Alongside a team of specialized consultants, he provides clients with expert advice on digital investigations, data privacy protection, information security best practices, tactical incident response and strategic litigation preparedness. He has been involved in or overseen dozens of complex engagements concerning alleged securities fraud, intellectual property theft, white-collar crime, network intrusion incidents, loss of personal customer or employee data and all manner of internal corporate investigations.
Legal Background: Before joining Kroll, Jason practiced law as an associate in the New York offices of Fried, Frank, Harris, Shriver & Jacobson, where he gained substantive experience representing clients in various matters before the federal antitrust enforcement agencies. He also has significant experience representing corporate clients in complex bankruptcy and restructuring matters. He is currently licensed to practice law in the state of New York
Education, Certifications & Recognitions: J.D., University of Minnesota Law School; B.A., Macalaster College, Minnesota; Certified Information Privacy Professional
Professional Affiliations: Antitrust Section of the American Bar Association, member; Association of the Bar of the City of New York, member; International Association of Privacy Professionals, member.
