Morgan Stanley’s Yoga-Troubadour-Crossword-Math Pro Flees With 20% Returns

At Caffe Vivaldi in New York’s Greenwich Village, Peter Muller bangs out a repertoire full of Carole King riffs on the piano along with his own soft-rock compositions that draw on the likes of Van Morrison and Cat Stevens.
“It’s not the same anymore,” he croons. “I’m still looking for my home.”
In the audience, couples sip house cabernet and applaud politely. Some drop $10 tips into a metal bucket.
About 40 blocks uptown in a 42-story skyscraper overlooking Duffy Square, straw-haired Muller, 47, performs for a tougher crowd -- as the multimillionaire math whiz behind one of Wall Street’s most secretive trading machines, Bloomberg Markets magazine reports in its August issue.
Muller is the founder of Morgan Stanley (MS)’s Process Driven Trading group, or PDT, a 70-person band of Ph.D.s and computer jockeys. They use algorithm-rich programs to bet Morgan Stanley’s money on pricing discrepancies in global markets.
Muller, who has had no outside investors to please, has kept the strategies and performance of PDT under wraps, stoking the curiosity and envy of rivals.
“They say: ‘I know him. He made a boatload of money for Morgan Stanley,’” says Arjun Divecha, chairman of Boston-based GMO LLC, who manages about $18 billion using quantitative techniques. “They don’t know how he’s done it.”
Muller makes no apologies for his obsessive secrecy.

Unlikely Executive

“I want my competitors to know absolutely nothing about what we do,” Muller says in his corner office, which is decorated with pictures of his wife, Jillian, and their two children as well as a pair of battered snowboards he retired years ago.
A troubadour, yoga enthusiast and math geek, Muller makes an unlikely Morgan Stanley executive. The 5-foot-10-inch (1.78- meter), 160-pound (73-kilogram) manager wears a handmade silver amulet around his neck that incorporates Native American symbols for sun, water and mountains. He practices ashtanga yoga, a style that incorporates synchronized breathing. He’s also a champion Texas Hold ’em poker player and writes New York Times crossword puzzles several times a year, garnering a core group of online fans.
Since he started PDT in 1993, its investments have returned an estimated annual average of more than 20 percent through 2010, according to a person close to the group. As a proprietary-trading desk, PDT uses different accounting rules than hedge funds. Its return figure has been adjusted to approximate its performance as if it were a hedge fund.

Top-Tier Quants

Hedge funds on average gained 10.4 percent annualized, net of fees, from July 1, 1993, through 2010, according to Chicago- based Hedge Fund Research Inc. The person says PDT notched that record with a Sharpe ratio of 3 to 4. The ratio measures risk- adjusted performance, and on this basis PDT generated 10 times the returns of the Standard & Poor’s 500 Index. The index gained about 8 percent annualized during that time.
“Wow,” says Daniel Celeghin, a partner at Casey, Quirk & Associates LLC, a consulting firm in Darien, Connecticut. “Those numbers would put them in the top echelons of quant managers.”
After almost two decades at Morgan Stanley, Muller is about to go out on his own, a move precipitated by the biggest regulatory overhaul of Wall Street since the Great Depression. Banks are jettisoning or closing groups like PDT as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Barack Obama signed into law in July 2010.
The law’s Volcker rule, named for former Federal Reserve Chairman Paul Volcker, bars banks from maintaining prop-trading operations and restricts the amount they can invest in hedge and private equity funds to 3 percent of their tier 1 capital. They can also own no more than 3 percent of such funds.

Spinning Off PDT

In its 2010 annual report, Goldman Sachs Group Inc. (GS) disclosed it had liquidated most of its long-short prop desk positions and was doing the same with its global macro group. Morgan Stanley in March completed the spinning off of FrontPoint Partners LLC, a hedge fund it acquired in 2006. Bank of America Corp. (BAC) disclosed in April a plan to sell its main private-equity business to management.
Now, it’s PDT’s turn. In January, Morgan Stanley said it would spin off the group at the end of 2012 as a separate firm -- retaining an option to buy a preferred stock position in the new company for undisclosed terms.
For decades, prop desks have played a crucial role in the transformation of investment banks such as Morgan Stanley from advisory and underwriting businesses to trading powerhouses that bet huge amounts of their own firms’ money. Once the closely held Wall Street partnerships began tapping the public markets for capital, prop desks could wager with shareholders’ money.

Vanishing Profit Centers

By the mid-2000s, prop traders were at the center of the exploding markets for collateralized debt obligations, or pools of bonds, and derivatives, which are instruments that derive their value from an underlying asset. These products were high- octane fuel for the credit bubble that ultimately blew up Bear Stearns Cos., Lehman Brothers Holdings Inc. (LEHMQ) and American International Group Inc. (AIG)
As the curtain falls on prop trading at banks, their profits may suffer. Morgan Stanley in 2008 began to pull back on risk partly by reducing leverage, and since then its fixed income trading revenue has been sluggish. Morgan Stanley’s net income fell 45 percent in the first quarter of 2011 from $1.78 billion a year earlier. While firms don’t generally disclose profits from prop trading, Goldman characterized it in 2010 as constituting about 10 percent of revenue in most years.

Statistical Arbitrage

The loss of this profit engine, along with other Dodd-Frank restrictions on products such as derivatives and debit cards, will hurt Wall Street banks’ returns in coming years, says Charles Peabody, an analyst at Portales Partners LLC in New York.
“It’s the cumulative effect of Dodd-Frank that will lower expected returns,” Peabody says. “Just about every business is facing some kind of crackdown.”
Mark Lake, a spokesman for Morgan Stanley, says the bank won’t comment on PDT.
Prop traders aren’t going away; they’re just changing addresses. Dodd-Frank only sought to end the practice in banks to reduce risk. Traders have been relocating to hedge funds and nonbank Wall Street firms such as KKR & Co.
PDT makes most of its money using statistical arbitrage, or stat-arb, former Morgan Stanley employees say. When PDT’s research suggests that a stock is temporarily overpriced based on its trading history, the group bets against it while piling into corresponding underpriced securities.

No Down Years

In a group of a dozen oil services stocks, six might be rising on a given day and six falling. At some point, the trend reverts: The gainers begin to fall and vice versa. For PDT, figuring out the precise time to place its bets is the tricky part.
PDT has lost money in only two quarters since its inception and never in a calendar year, according to two people familiar with the matter.
Muller skippered PDT through the August 2007 quant meltdown, when overleveraged hedge funds and other investors lost billions of dollars during a four-day period. PDT, along with other Morgan Stanley prop desks, lost $390 million in a single day, according to Morgan Stanley filings. Yet it powered back to finish the year in the black, people close to PDT say. The group also lost heavily in the fourth quarter of 2008 amid the global credit crash but still made money for the year.
“I think Peter is brilliant,” says Clifford Asness, co- founder of AQR Capital Management LLC, a $39 billion quantitative investment firm in Greenwich, Connecticut. “PDT will be a top-quality firm.”

Pandit’s Probe

The AQR Global Risk Premium fund ranked sixth in Bloomberg Markets’ February list of the top-performing large hedge funds, with a return of 27.3 percent for the first 10 months of 2010.
With PDT off to a strong start in the mid-1990s, Vikram Pandit, then Morgan Stanley’s head of institutional equity, wanted to know more about the secretive trading group, says Graham Giller, a researcher who worked with Muller. Giller says Pandit told him to find out details about PDT’s strategies.
“He felt it was the intellectual property of Morgan Stanley,” says Giller, who now runs Giller Investments (New Jersey) LLC in Holmdel. Giller says Pandit never set up a meeting at which Giller could inform him of what he had discovered. Pandit, Citigroup Inc. (C)’s CEO since 2007, declined to comment.

Wary of Quants

In going solo, Muller will have to drum up capital from investors who have grown wary of quants, whose returns have lagged behind those of other types of traditional managers for more than six years.
Equity managers using quantitative strategies generated a cumulative return of 37 percent from the start of 2005 through April 2011 compared with 49 percent for equity managers deploying traditional or combined approaches, according to EVestment Alliance LLC, an Atlanta research firm.
The assets of quant funds were down 10 percent as of December from their peak of $157.5 billion in 2007, as tracked by research firm Lipper Inc. And new fund launches in 2010 were less than half of the 2005 peak of 189.
“Quantitative managers have been losing market share, and it’s fairly significant,” says Mark Thurston, head of global equity research at Russell Investments in Seattle.
The underperformance may be due to cyclical forces, as beaten-down value stocks that many quant funds invest in have tended to lag behind their more-expensive growth counterparts in recent years. The decline may also stem from an abundance of quant-managed money pursuing similar strategies.

“Watership Down”

“Everything goes in cycles,” Muller says. “Success creates more competition.”
PDT keeps a low profile within Morgan Stanley’s headquarters. In the elevator vestibule at its ninth-floor offices, a plain, 7-inch-by-7-inch (18-centimeter-by-18- centimeter) plastic sign reads “Process Driven Trading.”
Muller has created a distinctive corporate culture at PDT, rejecting the eat-what-you-kill ethos practiced at some hedge funds. He cites a childhood book, “Watership Down,” as informing PDT’s environment.
The fantasy novel by Richard Adams tells the story of a nest of rabbits on an odyssey to find a safer home in the English countryside. Each of the principal rabbits -- with names such as Bigwig and Fiver -- excels in some area: intelligence, physical strength, intuition. After tribulations, they make it to their new abode.
Wanted Ph.D.s
What does this tale have to do with PDT? “It’s a community coming together with each individual contributing their unique skills,” Muller says. “It’s the whole that benefits.”
PDT has operated as a quasi-independent group within Morgan Stanley for almost 20 years, Muller says. Dede Welles, 41, is the legal head; Amy Wong, 43, serves as operating chief; and Eunice Baek, 41, runs human resources.
Baek canvasses schools such as Massachusetts Institute of Technology and California Institute of Technology for Ph.D.s in math-heavy fields with an interest in applying research to the real world.
“I had grown disillusioned with academia,” says Denis Dancanet, 43, PDT’s head of futures trading, who has a Ph.D. in computer science from Carnegie Mellon University in Pittsburgh. “Maybe three people care what you do.”
Eli Ofek, a former New York University finance professor, also left academia for PDT. In 1998, Muller offered him a job after attending a class taught by Ofek, who is PDT’s fundamental research chief.

Paint Ball

In Manhattan, researchers gather for free-roaming discussions at the lunch table.
“The range is broad, from the technology to solve Rubik’s Cube, to sports, to politics, to the rate at which flesh-eating bacteria can eat your arm,” says Tushar Shah, 40, PDT’s chief scientist, who has a Ph.D. in physics from MIT and joined the group in 2000.
Muller personally pays for weeklong vacations for the group to locales such as Grenada and Jamaica to celebrate good years. PDT off-site retreats have included white-water rafting in Maine and a paint ball competition in upstate New York. Despite a spate of new hires, Muller says employee tenure at PDT averages 7 1⁄2 years.
Researchers work in teams on PDT’s strategies, with Muller and Shah meeting independently with each group. “There was a hub and spoke structure,” says Giller, who has a Ph.D. in experimental elementary particle physics from Oxford University and worked at PDT from 1996 to 2000. “The ideas were funneled to a central conduit.”

Discrete Markets

There, Muller and his closest cohorts use a program called an optimizer to allocate assets among the different strategies to generate the most profit with the least risk. Nobody else knows its details.
PDT’s strategies often focus on discrete markets such as U.K. equities, former employees say.
In the late 1990s, Shakil Ahmed, a Yale University computer science Ph.D., worked on U.S. equity stat-arb strategies. Wong, who has an M.S. in electrical engineering from MIT, oversaw investments based on fundamentals, such as earnings. Giller built a statistical method utilizing interest-rate forecasts. And Mike Reed, a Ph.D. in electrical engineering from Princeton University, ran a U.K.-based stat-arb equity strategy.
All contributed to PDT’s reputation as a cauldron of white- hot quantitative talent.

Attracted to Puzzles

Muller says his group will expand after it’s spun off and rechristened PDT Partners LLC. Ownership will be spread among 11 partners. They will pursue strategies that may be less predictable than what Morgan Stanley is comfortable with.
“We have strategies that can take large amounts of capital,” Muller says. “But they are not as consistent. They’ll make money almost every year but not almost every quarter.”
A native of Philadelphia, Muller says he was born hard- wired for math. His Austrian-born father, Kurt, was a chemical engineer with Essex Chemical Corp. His mother, Eva, a native of Brazil, was one of the first women to practice medicine there and later became a psychiatrist.
“I was attracted to puzzles and games,” Muller says.
The family moved into a shingled ranch house in the New Jersey suburb of Wayne, 21 miles (34 kilometers) west of New York. At Wayne Valley High School, Muller was named one of two class mathematicians.
“He was one of the top kids that came through Wayne Valley High,” says John Gross, former chairman of the school math department. “He was involved in everything.”

Heads West

Muller, a captain of both the Frisbee and Quiz Bowl clubs, was also a member of the yearbook staff, German club, Honor Society and Model UN club. Muller’s yearbook quote: “All men by nature desire to know.”
At Princeton, Muller’s skill at frisbee caught the eye of classmate Ken Nickerson, who would later help build PDT’s stat- arb business. Muller was a star on the Ultimate Frisbee team in 1983 when it won the mid-Atlantic open championship.
He was a member of the Colonial Club, one of Princeton’s famed eating clubs, founded in 1891 and housed in a sprawling porticoed mansion. Muller would sit down in the club’s parlor and play the grand piano, leading singalongs. He graduated in 1985 with honors and a B.A. in mathematics.
That summer, Muller drove across country to the San Francisco Bay Area and soon took a job as a researcher and programmer at Barra Inc. The pioneering quant firm in Berkeley used complex mathematics to help active fund managers measure and control risk. Muller was soon presenting papers at client conferences, where he became a favorite, partly because he incorporated cartoons into the slides.

Renaissance Technologies

He jogged once a month under the full moon with fellow employees. One mentor, former research chief Richard Grinold, recalls discovering a coding problem with Barra’s analytics.
“We thought it was going to take five to six months to fix,” he says. “Peter came up with a solution: one person, two days.”
Muller also worked on a problem for Renaissance Technologies LLC, a Barra client. The hedge fund co-founded by Jim Simons wanted to know which U.S. Treasury maturities would be most efficient for it to park its excess cash in.
After the assignment, Renaissance offered Muller a job. But at the time, Muller was under the spell of the efficient-market hypothesis, which says beating the markets long term -- as Renaissance sought to do -- wasn’t possible. Muller turned down Renaissance’s offer.

Joins Morgan Stanley

By 1992, Muller was becoming restless and cooked up an idea of using Barra’s quantitative techniques to forecast returns rather than just model risk; Barra could manage money itself. Management turned down Muller’s proposal, and the 28-year-old decided it was time to move on.
A headhunter put Muller in touch with Morgan Stanley, which was then looking for a quant strategist to drum up business. Muller had bigger aspirations and cut a deal with Derek Bandeen, a prop-trading executive. Muller had two years to get a profitable trading system running. If he failed, he would perform the strategist’s job. PDT was born.
In 1993, as Muller began building a team at Morgan Stanley’s Sixth Avenue headquarters, his business model and ethos mimicked Barra’s, not Wall Street’s.
“From the beginning, PDT had its own culture,” he says. Muller’s first hire was Kim Elsesser, a Morgan Stanley information technology specialist in its equity division.
“We clicked,” says Elsesser, 46, who, in addition to other jobs, hired programmers to write code that Muller needed.

Money Machine

Within a year, Elsesser says, PDT was making serious money. A computer monitor was set up to show real-time profits and losses.
“We had a little party when we made our first million dollars,” she says. “At the time, it seemed like a lot of money.”
Muller struck an agreement with management. If PDT met its profit targets for one week, PDT employees could dress casually the next. By 1996, PDT was sizzling. “It was like an express train,” marvels Giller, the former analyst. “It was generating millions of dollars a day. It would just appear on the screen. It was surreal.”
As profits grew, PDT employees talked often about splitting off from Morgan Stanley. Muller says he negotiated with management for a greater slice for himself and his colleagues.
“We don’t need to be paid as if we are running our own hedge fund, but it needs to be close enough so we don’t feel taken advantage of,” he says he told Morgan Stanley executives.

Subway Gigs

Muller could play hardball with compensation, which led to a lot of back-and-forth negotiations. “It wasn’t specifically based on the performance,” Giller says. “It was always an unpleasant experience.”
By 1999, after seven years running the group, Muller was burned out and negotiated a sabbatical with a steep pay cut. Ahmed, who was managing stat-arb strategies, stepped in for the founder. Muller traveled, kayaking in the Grand Canyon and trekking to the kingdom of Bhutan.
The multimillionaire also took his electronic keyboard into New York’s subways to busk -- performing for dollar bills and change. “One of the things that makes me feel most alive is performing live,” he says.
Muller returned to work a year later on a reduced schedule while he recorded CDs and played in coffeehouses. Over the next five years, Muller’s role evolved into that of a chairman. During that time, he says, innovation slowed within the group. There were fewer new hires developing fresh ideas and that showed in the group’s returns, with competitors gaining on PDT.

Mack Backs PDT

“The gap between our results and those that we considered the best was narrowing,” Muller says. “The pace of research and innovation was not at a level that would keep us competitive.”
Ahmed declined to comment. A person close to the situation disputed Muller’s view, saying under Ahmed there were new hires and strategies and that relative performance was strong.
In 2006, Muller successfully lobbied management to reinstate him as sole head of PDT. Ahmed left the group and later joined Citigroup.
Muller pushed Morgan Stanley executives to hire new staff and raise outside capital to invest alongside it. Muller says then-CEO John Mack, who had rejoined Morgan Stanley the previous year after a five-year hiatus, offered to furnish whatever capital PDT felt it could handle. Mack, 66, declined to comment.

PDT’s Mistakes

In August 2007, Muller confronted the greatest financial storm of his lifetime. Tightening credit markets triggered a panic as leveraged quant funds tried to exit many of the same positions.
“We were all trying to figure out how much selling pressure there was and when it was going to abate,” Muller says.
The PDT founder says he wanted to hold on to his money- losing positions, betting on a reversion. But ultimately Muller agreed with Mack that PDT should reduce its leverage and increase cash.
“If we had traded the model without cutting risk, we would have had our best year ever,” Muller says.
The bank and PDT made a similar mistake the very next year, as the subprime contagion morphed into a global rout in the fourth quarter of 2008. Morgan Stanley cut back capital, and the group lost money for the quarter.
In late 2009, Muller says, he approached then-co-president James Gorman to ask for three changes at PDT: Employees should be allowed to directly invest in its funds, PDT should be permitted to employ new strategies to attract outside capital and employees should own the group in whole or part.

Dodd-Frank Act

Gorman, 52, said he could work on addressing the first two requests but resisted him on the third, people familiar with the matter say. Gorman, who became CEO in January 2010, declined to comment.
Today, as regulators write rules for the Dodd-Frank Act, Muller is poised to see his third wish fulfilled. Regulators are set to release a final proposal in October for implementing the ban on prop trading at banks. The Federal Reserve said in February that banks would generally have two years to comply once the rule takes effect.
Quants are laying odds that PDT will prosper on its own. “It’s an incredible opportunity to be spun out,” GMO’s Divecha says. “They have this wonderful machine that prints money. Now, they’ll be using it to print money for themselves rather than Morgan Stanley.”

Spanish Conquistador

As investors still bruised from past losses steer clear of quant funds, Muller is confident that PDT’s reputation will lure money his way. People close to PDT say institutions looking to make investments have already approached Muller.
Muller will also need to contend with critical matters unrelated to trading -- accounting, legal, compliance -- and build a marketing department.
“Anytime a manager goes from a proprietary-trading desk in a large investment bank to an independent business, it can be difficult,” says Robert Frey, who left Morgan Stanley in 1988 to start Kepler Financial Management, a fund he later merged into Renaissance Technologies. “It can be like taking a beautiful hothouse flower and planting it outside.”
About a decade ago, Muller co-wrote the song “I Wish I Had a Madman,” which could be the anthem for his new firm. It’s about the Spanish conquistador Hernan Cortes, who torched most of his fleet upon arrival in Mexico in 1519 to prevent his crew from deserting him on his odyssey of epic plunder.
“The men knew they had to go forward,” Muller sings. “No looking shoreward, forward to glory and gold.”

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Mitsubishi UFJ to Send ‘Smoke Signal’ to World on Equity Trading Road Trip

Mitsubishi UFJ Financial Group Inc. (8306) plans to dispatch a group of traders abroad in September to tap investors for its Japanese equity business after hiring 12 stocks specialists from rival Nomura Holdings Inc. (8604)

Traders and algorithm developers will travel in Asia, Europe and the U.S. to meet with 60 investors in their first such trip, said Akihiro Kiyomi, deputy head of the equity group at Mitsubishi UFJ Morgan Stanley Securities Co., a brokerage unit of Japan’s biggest publicly traded bank. 

Mitsubishi UFJ, ranked first in managing local debt sales this year, aims to narrow the gap with rivals including Nomura and Mizuho Financial Group Inc. (8411) in stock trading and managing share sales. The bank seeks to add overseas clients by offering products such as electronic trading as Japan’s stock market and economy show signs of recovery from a record earthquake.

“Overseas clients have no idea about Mitsubishi’s trading ability,” Kiyomi, 48, who oversees about 180 employees, said in an interview in Tokyo. “For starters, we’ll send up a smoke signal by visiting them and promoting Mitsubishi as a trading partner.”

Kiyomi and about four colleagues plan to visit cities including Hong Kong, Singapore, London, New York, San Francisco and Boston to meet institutional investors including hedge funds and pension managers during the one-month trip, he said. 

Electronic Trading Rivalry

Japanese banks have been competing to provide computer- driven algorithmic trading for clients. Mizuho hired 16 people for electronic trading from Lehman Brothers Holdings Inc. (LEHMQ) in 2008. Mitsubishi UFJ hired the 12 equity-trading staff, including Kiyomi, from Nomura between February and April.

Mitsubishi UFJ Morgan Stanley, an investment banking joint venture formed by Mitsubishi UFJ and Morgan Stanley in May 2010, is ranked seventh in managing sales of Japanese equity and equity-linked products this year, according to data compiled by Bloomberg. The banking group holds the top position for underwriting Japanese bonds in 2011, the data show.

The Japanese bank has a majority stake in Mitsubishi UFJ Morgan Stanley. The Wall Street firm owns most of a separate joint venture, Morgan Stanley MUFG Securities Co.

Japan’s Nikkei 225 (NKY) Stock Average rose 1.1 percent to 10,082, a seventh day of gains, marking the longest winning streak in almost two years. Industrial production climbed the most in more than 50 years in May and a central bank survey last week showed companies expect profits to rebound later this year. 

Build Client Base

Mitsubishi UFJ Securities Holdings Co., the parent of Mitsubishi UFJ Morgan Stanley (MS), earned 21.7 billion yen ($268 million) from stock brokerage commissions and 6.9 billion yen of equity underwriting fees for the year ended March 31. Income from equity products amounted to 31.7 billion yen, or 20 percent of the company’s total fees and commissions.

Strengthening equity trading services will also boost the firm’s investment banking business by building up a base of clients to potentially purchase shares underwritten by the company, Kiyomi said. “We will be able to bolster our market placement ability, which is a condition for the selection of underwriters,” he said.

Kiyomi joined Nomura Securities Co. in 1986 after graduating from Tokyo Metropolitan University. He worked for Nomura’s U.S. unit for about seven years, and became the head of equity sales trading in 2009. 

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Twitter Is Said to Be Valued at $7 Billion in New Round of Venture Funding

Twitter Inc., the microblogging site that lets users post 140-character messages, is raising funding that values the startup at about $7 billion, said a person with knowledge of the matter. The San Francisco-based company is in talks with investors to receive hundreds of millions of dollars, said the person, who asked not to be named because the discussions were private. 

Twitter’s worth has almost doubled since December, when it received a $200 million investment led by Kleiner Perkins Caufield & Byers that valued the company at $3.7 billion. The startup was pegged at about $1 billion in 2009, a person familiar with the matter said at the time. SharesPost Inc., an exchange for shares of closely held companies, has assessed Twitter’s current worth at $6.8 billion. 

Twitter is continuing to raise funds from private investors, rather joining other social-media companies in filing for an initial public offering. LinkedIn Corp., a professional- networking site, went public in May. Since then, Groupon Inc., the biggest daily-deal site, and Zynga Inc., the top developer of Facebook games, have both filed for IPOs. 

Matt Graves, a spokesman for Twitter, declined to comment. 

In June, Twitter co-founder Biz Stone announced that he’s stepping away from day-to-day duties at the company to join Evan Williams, another co-founder, in a new venture. The shift puts more focus on Dick Costolo, who became chief executive officer last October, and Jack Dorsey, a Twitter co-founder and former CEO who returned to an active role at the company this year.

Advertising Revenue

Advertising sales on Twitter may more than triple to about $150 million this year, according to EMarketer Inc., a New York- based research firm. Still, that’s dwarfed by the growth of Facebook Inc, which brought in ad revenue of $1.86 billion last year, EMarketer estimates.

Twitter aims to get 1 billion users, Williams said in October. Facebook CEO Mark Zuckerberg had previously said that signing up a billion members is “almost a guarantee.”

Twitter revamped its site in September with the aim of being faster, easier to use, and better able to better handle photos and videos. The service now features a second column that lets users quickly look at messages without leaving a page. 

Twitter’s new valuation was previously reported by the Wall Street Journal. 

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Another Chinese Artist Vanishes, Atomic Bomb Photos, Hirst Dots: SoHo Art

Chinese artist Liu Bolin stood motionless as two assistants painted his hair pink and orange at Eli Klein Fine Art in Manhattan’s SoHo district.
The hodge-podge of color and images that finally transformed him head to toe would make no sense if he weren’t standing before a makeshift magazine stand lined with 100 recent publications. Liu had been painted with whole covers and segments of glossies featuring Lady Gaga, plump babies and new gadgets. He had become a vertical slice of the shelves.
The 38-year-old artist’s shtick is to “disappear” into the background, then have the trompe l’oeil captured by photographs. Since arriving in New York last month, he has blended with Kenny Scharf graffiti on Houston Street, elements of Ground Zero and a bull sculpture on Wall Street.
He says his disappearing act is a form of protest against the Chinese government after it razed an artist village where Liu worked. Before the compound turned into rubble, he painted himself against one of its red brick walls.
“I have no power to fight the government,” he said. “This is my protest.”
Photographs of earlier “disappearances” range from $6,000 to $15,000. “The Invisible Man” runs through Aug. 28th at 462 West Broadway; +1-212-255-4388; http://www.elikleinfineart.com.
Damien Hirst
Are you missing Damien Hirst, the once so ubiquitous Brit?
Proceed down the block to DTR Modern Galleries where the walls are lined with Hirst dot prints. They come directly from his studio and vary in dimensions and edition sizes.
There are also images of skulls and butterflies. Prices range from $4,900 to $100,000. The gallery rotates its Hirsts as they sell but they’re always in stock, said director Julia Morris.
458 West Broadway; +1-212-677-2802; http://www.dtrmodern.com

Atomic Explosion

In the Pacific Ocean, a giant mushroom cloud surges into the sky, destroying life on the Bikini Atoll. In Nevada, the desert is scorched again and again by fiery blasts.
“The Atomic Explosion” at Peter Blum displays 66 vintage photographs from the 1940s and 1950s, when more than 200 nuclear bombs were tested by the U.S. government.
In one creepy image, a group of men -- journalists, defense officials and two governors -- sit on chairs in the middle of the desert in heavy black glasses, watching the explosion as if it were a Broadway production.
Prices for individual photographs range from $1,200 to $10,000. Through July 29 at Peter Blum, 90 Wooster St., +1-212- 343-0441; http://peterblumgallery.com

Three Hands

In 1967, self-taught French artist Robert Filliou photocopied the hands of his fellow artists and called the project “Main d’artiste” (“Artist’s Hand”).
Some of these were later enlarged to 4-foot-square images and displayed in the windows of Tiffany & Co. (TIF) Three hands -- of Filliou, Marisol and Bob Watts -- are on view at Peter Freeman Inc. as part of the late artist’s first New York solo exhibition since 1998.
Filliou liked to turn everyday materials like cardboard, bricks and bicycle wheels into witty and poetic installations.
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Berkshire’s Munger Disbands His Investor Cult With Barbs for Wall Street

Charles Munger, the 87-year-old billionaire, used his farewell conference to criticize Wall Street, reflect on investing and raising children, and treat a fawning audience to his gratitude and familiar jibes.

“You all need a new cult hero,” Munger said on July 1 at the conference, called ‘A Morning with Charlie,” in Pasadena, California. “I’m doing you a favor” by ending the annual question-and-answer sessions with investors, he said. 

Munger, vice chairman of Berkshire Hathaway Inc. (BRK/A), began the three-hour meeting with observations on the deficiencies of bankers, the rise of China and the record of George W. Bush. He criticized decisions at Bank of America Corp. (BAC), praised Costco Wholesale Corp. (COST)’s pricing policies and said he hopes he’s dead before Berkshire pays a dividend.

“I think that some of you will live to see a Berkshire dividend but I hope I don’t,” Munger said. Omaha, Nebraska- based Berkshire, which uses earnings to fund acquisitions and stock picks, has said it will consider a payout when managers are no longer able to find investments for its profits.

Munger gained a following among investors as the outspoken business partner of Warren Buffett, Berkshire’s chairman and largest shareholder. He speaks in front of tens of thousands of people at Berkshire’s annual meetings in Omaha, where his role on stage is the caustic foil to a courtly Buffett. Hundreds of people, whom Munger called “groupies,” would show up at the Pasadena events to see him speak without Buffett.

‘Peculiar People’

“You people aren’t normal,” Munger told the audience last week. “It’s only peculiar people like you that I want to impress.”

Investment bankers and mortgage issuers were afflicted with “insanity, megalomania and evil” when they helped inflate the pre-2008 housing bubble, Munger said. He said U.S. unemployment must be faced with “gumption” -- which he called one of his favorite words -- because people in China, Japan and other Asian countries have demonstrated talent at production and innovation.

“This brutality of capitalistic competition is really something,” Munger said. “I kind of like seeing the Chinese rise after so many years being down.” 

Bank of America, which has lost more than three-quarters of its stock value since 2006, was guided by decision-making that Munger called “a disgrace.” Wells Fargo & Co. (WFC), which counts Berkshire as its biggest shareholder, was better than most big banks at “avoiding the common stupidities,” Munger said. Berkshire divested a three-year holding of Charlotte, North Carolina-based Bank of America last year. 

Punic Wars

Munger quoted Oscar Wilde, cited author W. Somerset Maugham’s views on romantic relationships and likened the U.S. response to the credit crunch of 2008 to the strategy employed by ancient Rome in wars that left Carthage destroyed. The bailouts under former President Bush and then-Treasury Secretary Henry Paulson helped the U.S. recovery, he said.

“I feel good about the way the Romans handled the Punic Wars, and I feel good about the way Paulson, and both political parties and George W. Bush handled the great recession,” Munger said.

Munger, a lawyer who gave up his practice after meeting Buffett in 1959, promised the “Morning with Charlie” to former shareholders of Wesco Financial Corp. Berkshire, which had owned 80 percent of Pasadena-based Wesco since 1983, increased its stake to 100 percent this year and removed the company from the stock exchange. Munger was Wesco’s chairman and chief executive officer and presided over the unit’s annual meetings.

Member of ‘Cult’

“I’m delighted to count myself in as a member in your cult,” a questioner said.

Attendees, who lined up behind microphones at the Pasadena Convention Center, thanked Munger for his time, and some said their lives had been improved by the billionaire’s musings on topics ranging from investment planning to filial relations. Munger was asked to give pointers for wealthy parents and recounted a conversation he once had with a successful friend. 

“I just think it’s too damn bad that you got too rich and you can’t provide hardships for your children,” Munger said he told the person. “I gave him the same advice I gave myself, ‘Lose graciously.’”

Wesco investors were offered cash or Berkshire stock for their holdings in a transaction completed last month. Elizabeth Caspers Peters, a former Wesco director and an ally of Buffett and Munger in the 1970s when the men were building a stake in the firm, said in an interview that the deal made her a Berkshire shareholder for the first time. She didn’t need stock in Buffett’s company as long as she had Wesco shares, she said.

Berkshire’s Surge

“I had my own and I thought they were better than his,” Caspers Peters said at Munger’s conference. “And it worked out fine.”

Berkshire has surged more than 30-fold since 1987 when it was listed on the New York Stock Exchange. Wesco advanced more than 20-fold since the end of 1983. Wesco paid dividends to shareholders, while Berkshire hasn’t. Berkshire, whose Class A shares ended at $117,050 on July 1, will continue to provide growth for investors, Munger said.

“I think that people that own Berkshire stock at current prices will do quite all right just sitting on their patoots,” Munger said.

Munger had a lawyer on stage at his event, whom he turned to for help understanding what a questioner said or meant to say. Munger didn’t seek clarification for all his doubts, as when he told one attendee:

“I’m not sure I fully understood the question, but let me answer the question I would prefer to have been asked,” Munger said. He made a few remarks about Berkshire’s growth, and said, “Anyway, I think that answers the question I hope you asked.”

BYD, Coca-Cola

Munger was asked to review some of Berkshire’s holdings, including BYD Co., the Chinese carmaker facing a decline in sales. BYD has the ability to recover from missteps, he said.

Coca-Cola Co. (KO) was cited by Munger as one of his favorite consumer-goods companies. Even so, “it’s not nearly as good a business as it was 20 years ago,” he said. Berkshire is Atlanta-based Coca-Cola’s biggest shareholder. 

Costco, the largest U.S. warehouse-club chain, was praised by Munger, a Costco director, for its skill at cutting costs and passing savings on to customers.

“It’s almost a religious duty,” Munger said. “Costco is just about the most admirable capitalist enterprise that ever existed.” 

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Global Logistic Submits Bid for LaSalle Japan’s Holdings After Earthquake

Global Logistic Properties Ltd. (GLP), an operator of warehouses near seaport hubs, said it submitted a bid to buy LaSalle Investment Management’s Japan holdings that include more than 20 industrial and warehouse buildings.

The company plans to make the acquisition through a “fund structure” with one or more institutional investors, it said in a statement to the Singapore exchange today, responding to media reports it’s paying S$2.1 billion ($1.7 billion) for the assets.

Global Logistic said on May 30 that it’s on the lookout for acquisitions in Japan as it expects the economy to rebound after the nation’s worst earthquake on March 11 and anticipates its 46 trillion yen ($570 billion) industry will benefit as more companies cut costs and farm out more logistics services.

“Property prices should be lower after the earthquake, but it’ll still need to look at specific terms they end up with,” said Peter Bai Hongwei, a Beijing-based property analyst at China International Capital Corp. “GLP has a very high operation rate in the Japan market, I’m not surprised they are making the acquisition to increase their growth rather than simply relying on rental.”

The Singapore-based Global Logistics is also seeking new tenants in Japan that may move out of older, non-earthquake resistant warehouses to its newer buildings, it said in the statement. Japan made up more than 80 percent of its revenue and pretax earnings in the year ended March, it said.

Shares Rise

Global Logistic shares rose 0.5 percent to S$2.08 as of 9:58 a.m. in Singapore, paring the decline this year to 3.7 percent, compared with the 2.2 percent drop in the Bloomberg Asia Pacific Real Estate Index

Global Logistic is among the companies that are in close competition for the LaSalle assets worth 140 billion yen, which would make it the biggest property deal in Japan in two years, the Wall Street Journal reported yesterday, citing people familiar with the transaction.

The company also took a $42.1 million loss in the value of its assets in Japan after the earthquake, it said in the May statement. The warehouse operator also said a day after the temblor that the buildings that were damaged made up less than 1 percent of the value of its properties in Japan.

Global Logistic, which is partly owned by Government of Singapore Investment Corp., the city-state’s sovereign wealth fund, raised S$3.9 billion in October in Singapore’s biggest initial public offering since 1993. 

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Iran to Keep Selling Oil to India After Warning on Payments, Official Says

Iran’s oil exports to India are continuing with no plans to halt supplies after a warning to the neighboring country over delays in paying for imported crude, an Iranian Oil Ministry official said.
“A warning was sent to indebted refineries but sending this letter doesn’t mean Iran’s oil exports to India were cut,” Mohsen Qamsari, the National Iranian Oil Co.’s head of international affairs, told the Oil Ministry’s news website, Shana. “We have no intention of halting our supplies to the Indian market.”

A Wall Street Journal report published July 1 cited two Indian refiners as saying that Iran warned it will stop oil supplies starting next month if pending bills aren’t cleared. NIOC made the warning in a letter requesting a sustainable mechanism for making payments.
Indian refiners owe Iran about $2 billion over oil imports due to complications on making payments to the Persian Gulf country. Iran is under international sanctions over its nuclear program, and punitive measures include restrictions on financial transactions with the country.

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