Commodity hedge funds upbeat after mauling (FT)
Last week saw the largest daily trading volume in Brent crude’s history as investors – a large proportion of them hedge funds – began to liquidate positions in a stampede to reduce risk. It was a rush to the exits that was seemingly without cause, however. Many fund managers are at a loss to explain what triggered the panic, dismissing the explanations that have been proffered – weak US economic data, a hike in commodities trading costs or even hedging upcoming equity exposure to the giant Glencore listing…But crucially such losses – unattractive though they are – have done little, if anything, to dent managers’ confidence in the long commodities play.

AIG Offering Near Low End of Range (WSJ)
American International Group Inc. and the Treasury decided to move ahead with a stock offering this month for about $9 billion, far less than what officials had once hoped to fetch, people familiar with the decision said…[AIG's board] decided to proceed with plans for an offering near the low end of a range envisioned by people familiar with the plan of $7 billion to $25 billion, depending on investor demand and market conditions.

Banks Float $5 Billion Deal to End Foreclosure Probe (WSJ)
Such an offer is considerably less than the amounts sought by state and federal officials, some of whom are asking for more than $20 billion in penalties. The banks’ figure comes as mortgage companies and state and federal officials continue their efforts to strike a settlement of investigations sparked by allegations of “robo-signing” and other questionable foreclosure practices that came to light last fall.

Preemptive strike against high prices may be needed, Fed official says (WaPo)
The Federal Reserve needs to be prepared to take preemptive action against even the possibility of a surge of higher prices, a senior official of the central bank said Tuesday. Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, added in an interview that he doesn’t think the recent rises in the price of fuel and other commodities will spiral into a broader inflation, but he cautioned that the central bank needs to remain vigilant.

Dodd-Frank Dissenters Sound Off (Dealbook)
And Ken Griffin, founder of the $15 billion hedge fund Citadel Investment Group, went the furthest by proclaiming that not only would the legislation not work as proposed, but it is “going to deeply entrench crony capitalism into the very fabric of our financial system, which I am terrified about.”

Ex-Galleon Trader Kimelman Wants Jury Told He Rejected Plea Deal With U.S. (Bloomberg)
Former Galleon Group LLC trader Michael Kimelman said he wants jurors at his upcoming insider- trading trial to be told that he could have avoided jail by admitting guilt and rejected a plea deal because he’s innocent. Kimelman is scheduled for trial on May 16… The government’s offer would have had Kimelman plead guilty to conspiracy to commit securities fraud and “was still available last week,” according to the filing.

FDIC warns on moral hazard for money market funds (Reuters)
[Sheila] Bair, outgoing chairman of the Federal Deposit Insurance Corp, said regulators needed to be mindful of so-called moral hazard in creating a backstop for the $2.7 trillion industry. During the financial crisis, the federal government was forced to backstop the market after the collapse of Lehman Brothers pushed the value of the Reserve Fund money market fund below $1 a share, wreaking havoc on the industry.

China Inflation Signals More Tightening to Come (Bloomberg)
China’s inflation held above 5 percent in April and lending exceeded analysts’ estimates, signaling that further monetary tightening may be needed to cool the fastest-growing major economy…Today’s data showed that inflation has exceeded Premier Wen Jiabao’s 4 percent target each month this year.

German Inflation Accelerated More Than Estimated (Bloomberg)
The inflation rate, calculated using a harmonized European Union method, jumped to 2.7 percent from 2.3 percent in March, the Federal Statistics Office in Wiesbaden said today. That’s an upward revision from the first estimate of 2.6 percent on April 27. From March, consumer prices rose 0.3 percent, more than the 0.2 percent initially reported.

Bank of England cuts growth forecasts (FT)
The Bank’s central forecast now predicts growth of about 2.7 per cent in the four quarters to the end of this year, down from its February forecast of growth of 2.9 per cent, assuming no change in monetary policy. Growth in the year to the end of 2012 is expected to be about 2.8 per cent rather than 3.2 per cent. Inflation is forecast to peak this year at about 5 per cent in the fourth quarter, rather than at about 4.5 per cent. By the end of next year, inflation is expected to reach 2.4 per cent, compared with an earlier forecast of 1.7 per cent.

Greek unions hold new general strike, plan demonstrations, to protest harsh austerity (WaPo)
A 24-hour general strike in Greece Wednesday brought most public services to a halt, while thousands marched through Athens to protest the government’s introduction of harsh austerity measures intended to keep the debt-ridden country solvent. This month, the Socialist government is planning to pass further cutbacks aimed at saving an estimated €23 billion ($33 billion) through 2015.

Google Sets Aside $500 Million for Probe (Bloomberg)
Google set aside $500 million related to the possible resolution of a U.S. Justice Department investigation of its advertising business, resulting in lower first-quarter profit. The expense trimmed net income to $1.8 billion, or $5.51 a share, in the period, Google said yesterday in a regulatory filing.

Stanford Trial Set for September (WSJ)
Jailed money manager R. Allen Stanford will go to trial on wire-fraud and other charges in September, a federal judge in Houston has ruled. Jury selection will begin Sept. 12 in the trial of Mr. Stanford, who has been accused of running a $7 billion fraud, according to an order issued by U.S. District Judge David Hittner in Houston on Tuesday.

‘Mack’ the life (NYP)
Mark Madoff’s widow, Stephanie, filed two name change petitions to distance herself and her children from her husband’s notorious last name. After the couple received numerous threats, Mark gave Stephanie his blessing to change her last name to “Morgan” in February 2010, and since then she’s been called Stephanie Morgan. When the name change request was reported, sources say Morgan filed a second petition to change her family name to “Mack.”

Female peacock escapes from Bronx Zoo, still on the loose on NYC streets (NYDN)
The Bronx Zoo cobra may be back in captivity, but a female peacock is on the loose. Three zoo workers wielding nets made a failed attempt to recapture the green peahen about noon on Tuesday…Zoo workers crawling stealthily through the grass got within a few feet of the feisty fowl before she flew off again. She hasn’t been seen since…”We’ll get her eventually,” vowed Nancy Clum, the zoo’s curator of ornithology.

Article courtesy of Dealbreaker

Paulson Plays the Lehman Bust (WSJ)
Mr. Paulson’s fund has been snatching up Lehman debt at steep discounts since the day the investment bank collapsed, betting prices would rise while panicked investors fled. Now, as Lehman’s estate prepares to wind down, Mr. Paulson’s fund could reap profits between $350 million and $726 million on the Lehman trades…Over two and a half years, Mr. Paulson’s fund, Paulson & Co., purchased more than $7 billion worth of Lehman bonds in about 1,800 transactions. The average cost of those trades was just 13 cents on the dollar, according to the Journal’s analysis.

PIMCO raises bet against U.S. government debt (Reuters)
PIMCO’s Bill Gross, the manager of the world’s largest bond fund, raised his bet against U.S. government-related debt in April to 4 percent from 3 percent, according to the company’s website on Monday.

Morgan Stanley Trading Gains Topped $100 Million on 10 Days (Bloomberg)
The firm’s trading division lost money on 3 days during the period, compared with 13 days in the fourth quarter, New York- based Morgan Stanley said in a filing with the U.S. Securities and Exchange Commission.

BofA to cut $850bn bad loan book in half (FT)
Bank of America plans to shrink its $850bn portfolio of troubled home loans by about half over the next three years as it seeks to quicken the pace with which it resolves problems related to the housing crisis and its disastrous purchase of Countrywide Financial. Terry Laughlin, who is spearheading BofA’s mortgage modification and foreclosure programmes, told the Financial Times he had been given leeway to act quickly to tackle the growing number of bad loans that threaten to overwhelm the bank’s overall performance and tarnish the reputation of Brian Moynihan, its chief executive.

Microsoft Said to Discuss Buying Internet-Call Provider Skype (Bloomberg)
A deal would value Skype at about $8.5 billion and may be announced as early as today, said one of the people, who asked not to be identified because the talks are private.

Alan Simpson Attacks AARP, Says Social Security Is ‘Not A Retirement Program’ (HuffPo)
At an event hosted by the Investment Company Institute, Simpson delighted the finance industry audience members by aiming a rude gesture at the leading lobby for senior citizens.

CME raises crude futures margins 4th time since Feb (Reuters)
Margins will climb by 25 percent as of the close of business on May 10, boosting the cost of holding positions for hedgers and speculators, a factor some traders said helped bring oil prices down by as much as 2 percent on Tuesday following a $5 a barrel spike a day earlier…The cumulative increase in margins on U.S. crude benchmark West Texas Intermediate CLc1 positions since February is 67 percent, from $3,750 to $6,250 per contract.

China Has Bigger-Than-Forecast Surplus on Record Exports (Bloomberg)
China reported a trade surplus that was more than three times larger than forecast in April as exports surged to a record, bolstering the U.S. case for faster yuan gains as officials from both nations meet for annual talks in Washington. The surplus widened to $11.4 billion and exceeded the forecasts of all 27 economists in a Bloomberg News survey. Exports climbed 30 percent to $156 billion while import growth slowed to 22 percent, the customs bureau said today.

Euro wobbles, haunted by commodities and debt worries (Reuters)
The common currency, which hit a six-week low against the Japanese yen and a one-month low against the British pound, was also hobbled by fears of a commodities rout after oil prices fell in the wake of the CME Group’s hike in trading margins for U.S. crude futures.

BNP Paribas chairman to retire (FT)
Michel Pébereau, France’s most influential banker, is retiring as chairman of BNP Paribas, the domestic bank he helped transform over two decades.

Reports of Mortgage Fraud Reach Record Level (WSJ)
Reports of mortgage fraud, which have been increasing since the housing boom, rose to their highest level on record in 2010, Treasury Department figures showed. The Financial Crimes Enforcement Network, a Treasury agency, reported 70,472 “suspicious activity reports” related to suspected mortgage fraud, up from 67,507 in 2009, or a 5% increase. That’s the highest number recorded by the government since tracking began in 1996.

A Venture-Capital Newbie Shakes Up Silicon Valley (WSJ)
As a newly minted venture capitalist, Marc Andreessen, co-founder of Netscape, aimed for nothing less than big… Like other investors here, he’d been eying Web companies with explosive growth and global star power. But acquiring shares in tech titans like Facebook is tricky…So Mr. Andreessen set out to make his own rules—maneuvering his way into hot private deals at huge cost.

U.S. Braced for Fights With Pakistanis in Bin Laden Raid (NYT)
President Obama insisted that the assault force hunting down Osama bin Laden last week be large enough to fight its way out of Pakistan if confronted by hostile local police officers and troops, senior administration and military officials said Monday. In revealing additional details about planning for the mission, senior officials also said that two teams of specialists were on standby: One to bury Bin Laden if he was killed, and a second composed of lawyers, interrogators and translators in case he was captured alive.

Arnold Schwarzenegger, Maria Shriver announce separation (LA Times)
Shriver has been residing apart from the actor-turned-politician for the last few weeks. The former first couple confirmed the separation in a joint statement released Monday after questions from The Times…Over the years, the marriage between the international celebrity and the daughter of the Kennedy dynasty has come under close scrutiny, especially during the 2003 recall of Gov. Gray Davis, when The Times reported on Schwarzenegger’s lengthy history of groping women. At the time, Shriver defended her husband, helping lift him to victory in the free-for-all contest.

Article courtesy of Dealbreaker

$$$ Bruce Berkowitz On AIG: “I Was Wrong” [MarketBeat]

$$$ To the Bullish Went the Spoils (WSJ)

$$$ Greece Pushes Plan to Raise Cash With Big Sales (NYT)

$$$ Pacific Crest Said to Plan Buyout of Goldman-Backed Research Arm (Bloomberg)

$$$ Citigroup shares face struggle post-reverse split (Reuters)

$$$ This is a tattoo of “the formula that caused the financial crisis” [Easy Street]

$$$ JPMorgan Hires Former Barclays M.&A. Banker (DealBook)

$$$ Barclays Will Get $1.1 Billion From Trustee Liquidating Lehman’s Brokerage (Bloomberg)

$$$ U.S. Closes Florida’s Coastal Bank (WSJ)

$$$ Evacuations in Memphis as River Nears Crest (NYT)

$$$ $2 billion in rail projects announced; Northeast to get largest share for high-speed upgrades (WaPo)

$$$ Scientific Study Links Flammable Drinking Water to Fracking (ProPublica)

$$$ Tina Fey’s Sarah Palin, Darrell Hammond’s Donald Trump Return For

Article courtesy of Dealbreaker

The senator wants to be kept in the loop re any ‘suspicious trading’ at SAC Capital (he doesn’t know of any, but in case anything comes up in the files) and also has questions just generally about what life is like there.

Iowa Sen. Charles Grassley, the top Republican on the Senate Judiciary Committee, sent a letter to Wall Street’s major self-regulatory organization asking for any reports reflecting “suspicious trading” involving SAC Capital that it had received from exchanges since 2000. “The use of nonpublic information for insider trading purposes is sadly alive and well in our nation’s financial markets,” Sen. Grassley wrote to the Financial Industry Regulatory Authority. “More must be done to investigate and bring these criminals to justice.” In the letter, which was dated April 26 and released Friday, Sen. Grassley cited recent insider-trading cases, including charges against two former SAC fund managers, writing: “While SAC Capital itself has not been charged, these allegations raise serious questions about the corporate culture at SAC Capital and undercut investor confidence in a fair and balanced playing field.”

[WSJ]

Article courtesy of Dealbreaker

Commodity hedge fund loses $400m in oil slide (FT)
Clive Capital, the world’s largest commodity hedge fund, has been left nursing losses of more than $400m as a result of the collapse in the price of oil last week…Others, including Astenbeck Capital, the Phibro-owned fund run by Andrew Hall, are thought to have taken double-digit percentage point losses to their portfolios, according to investors…In a letter sent to investors on Friday and seen by the Financial Times, Clive said it was down 8.9 per cent on the week after what it called “extraordinary” price movements on Thursday. Clive’s management said it was at a loss to explain what had caused crude oil markets to be “annihilated”.

Silver-Mad Small Investors Fueled an Epic Rise and Fall (WSJ)
Behind silver’s historic collapse is a market that came loose of its moorings, fueled by speculative traders, many of them small investors who may have jumped in at just the wrong moment. “If gold is a Monte Carlo casino, silver is a slot machine in Las Vegas,” says Andy Smith, a senior metals strategist at Bache Commodities.

Euro Nations Divided Over Greek Debt (WSJ)
Finance chiefs from the most important euro nations discussed Greece’s problems—and other issues, including Portugal’s imminent aid package—at informal talks in Luxembourg on Friday. The gathering, one of many informal meetings of select European officials since the financial crisis began, turned into a media circus after Germany’s Spiegel Online reported its existence Friday—and claimed it had been called because Greece was thinking of leaving the euro zone. The report sent the euro tumbling…”We are not discussing the exit of Greece from the euro area. This is a stupid idea and an avenue we would never take,” said the host of Friday’s meeting, Luxembourg Premier Jean-Claude Juncker.

EU eyes lower rates for Greece, Ireland amid chaos (Reuters)
The European Union is looking to lower interest rates on bailout loans to Greece and Ireland and is working on a second rescue for Athens in a chaotic effort to prevent a disorderly debt restructuring. The executive European Commission said on Monday it hoped to see a decision within weeks on reducing the rate charged to Ireland to make Dublin’s debt more sustainable.

Irish to Avoid ‘Doomsday,’ Honohan Says as Rescheduling Mooted (Bloomberg)
Irish central bank Governor Patrick Honohan said the country will avoid economic “doomsday,” as a government minister and prominent professor suggested the nation should reschedule debts from its as much as 85 billion-euro ($121 billion) bailout. Honohan was responding to Morgan Kelly, an economics professor dubbed Ireland’s Doctor Doom, who wrote in the Irish Times newspaper that Ireland faces a “prolonged and chaotic national bankruptcy.”

U.S. Will Urge China to Boost Interest Rates in Washington Talks (Bloomberg)
Treasury Secretary Timothy F. Geithner will urge China to allow higher interest rates when he meets with Chinese leaders this week, as the U.S. extends its push for a stronger yuan.

Private Equity Has A Horse In This Race (Dealbook)
Carl Pascarella, an executive at TPG, the private equity firm, owns a piece of the the colt that shocked the horse racing world on Saturday with a come-from-behind victory. Animal Kingdom, who had never run on dirt and only had four races under his belt, covered the mile and a quarter in 2:02.04.

AIG Fall Blunts Talk Of Taxpayer Gain (WSJ)
What Treasury chooses to do with its AIG shares “is essentially a political decision,” says Jay Ritter, a finance professor at the University of Florida. “Government officials and politicians would like to say we broke even and didn’t lose any taxpayer money” in the AIG bailout, he says. “But as a taxpayer, I would be happy if we got out close to whole, and losing a little would ultimately be a good outcome” given the amount that was committed to the AIG bailout, Mr. Ritter says.

Fee Pitched for Fast Firms (WSJ)
Sen. Charles Schumer told regulators that sophisticated electronic traders should bear the cost of monitoring their dealings, with special fees assessed to firms that issue and then rapidly cancel securities orders.

UBS fears missing ambitious targets (FT)
Oswald Grübel, chief executive, surprised analysts last month by maintaining his medium-term goals of SFr20bn (€16bn) in annual revenues and SFr6bn in pre-tax profits for the group’s recovering investment bank. UBS’s performance targets were set in late 2009, before the new Basel III framework was finalised and before regulators in Switzerland proposed their own additional capital requirements for the group…However, according to senior UBS bankers, there is a growing acceptance that the targets are aspirational and will be extremely difficult to achieve over the next two years.

Moody’s: Expiring of US muni backstops going well (Reuters)
An expected flood of expirations of liquidity facilities on U.S. municipal debt this year is so far going well, Moody’s Investors Service reported on Monday.

SEC reform proposal threatens ‘dark pools’ (FT)
The US Securities and Exchange Commission is considering a proposal to move more trading back on to exchanges from alternative venues such as “dark pools”, which has drawn sharp criticism from banks and many trading firms. David Shillman, associate director of the SEC’s division of trading and markets, told the Financial Times that a so-called “trade at” rule is “very much in play. There’s interest in it”. The “trade at” rule, which would require non-exchange venues to improve on the displayed market price, is a response to concerns among some academics and market participants that a rising share of trading happening outside of exchanges is making trading more expensive and difficult.

US Q1 home values see biggest drop since 2008–Zillow (Reuters)
Zillow said its home value index fell 3 percent in the first three months of the year from the previous quarter, and was down 8.2 percent year-over-year.

Seeking Business, States Loosen Insurance Rules (NYT)
Vermont, and a handful of other states including Utah, South Carolina, Delaware and Hawaii, are aggressively remaking themselves as destinations of choice for the kind of complex private insurance transactions once done almost exclusively offshore. Roughly 30 states have passed some type of law to allow companies to set up special insurance subsidiaries called captives, which can conduct Bermuda-style financial wizardry right in a policyholder’s own backyard.

Berkshire Hathaway profit falls on Japan (Reuters)
Berkshire reported a net profit of $1.51 billion, or $917 per Class A share, compared with a profit of $3.63 billion, or $2,272 per Class A share, a year earlier. The company took a provision of $1.7 billion in the first quarter for catastrophe losses, primarily for the Japan earthquake but also from a quake in New Zealand and flooding in Australia…Berkshire also recorded losses of $506 million in the first quarter for stocks where the company’s investment was in a loss position and that loss was not considered temporary. The biggest share of the loss was an impairment on part of Berkshire’s stake in Wells Fargo, and the rest came from an impairment on the stake in Kraft Foods.

HSBC Costs Rise on New Hires and Customer Compensation (Bloomberg)
Costs as a proportion of income rose to 60.9 percent from 49.6 percent, the London-based bank said today in a statement. Net income rose 58 percent to $4.15 billion compared with $2.63 billion in the year-earlier period, the bank said in its first detailed quarterly earnings report. The shares fell.

U.S. gas prices hit $4 a gallon, but may retreat (Reuters)
The national average for self-serve, regular unleaded gas was $4 per gallon on May 6, up 11.98 cents from April 22, according to the nationwide Lundberg Survey. This was still below the all-time high of $4.11 on July, 11, 2008, and last week’s fall in crude oil prices may lead to a 8- to 12-cent drop in prices at the pump over the next few weeks, according to Trilby Lundberg, the survey’s editor.

Sweep is an ugly ending for Lakers and a bittersweet one for Phil Jackson (LA Times)
The Mavericks’ 122-86 blowout victory in Game 4, which completed their 4-0 sweep of the Western Conference semifinal series, perhaps came at the right time for the Lakers. They appeared to be teetering, perhaps because this was the 77th postseason game they had played since 2008, nearly an extra 82-game regular season in a four-year span. “I was talking to Kobe [after the game] and we both agreed it was better to lose now than to get to the [NBA] Finals and lose,” Jackson said. “Going all the way and losing in the Finals, now that’s really tough.”

What was in medicine chests at bin Laden compound? (MSNBC)
Either Osama bin Laden or those who lived with him at the Pakistan compound where he was killed apparently suffered from stomach ulcers, high blood pressure and nerve pain — plus the normal ailments that affect a family with children, according to a pharmacist’s analysis of medications reportedly found at the site. In addition, the medicine cache was said to contain Avena syrup, a botanical product that has at least two uses: as an artificial sweetener often used for a sour stomach and as “natural Viagra” that could be used to increase sexual desire and potency.

Article courtesy of Dealbreaker

Henry Ford once said that a business takes makes nothing but money is a poor business. Impact investing takes that thought to a new level.

Impact investors look for businesses which have a positive social or environmental impact as well as a giving a financial return. These enterprises can be anything from schools to mobile carriers serving the poor. Can profit-led companies solve social problems? Impact investors think they can.

One of the pioneers in the field is the Omidyar network, created by Pierre Omidyar, the founder of eBay, and his wife Pam. Amy Klement, who leads Omidyar Network’s Access to Capital initiative (and previously headed up payments at PayPal) told me that Omidyar’s approach to philanthropy was formed by eBay. “By providing tools and a platform he saw what people could do with opportunities. Ebay created more than 1 million new entrepreneurs” Klement said.

The Omidyar’s initially created a non-profit, family foundation but quickly realised that this imposed a lot of restrictions on what they could do. It was very difficult to make for-profit investments in social enterprises. “According to the tax laws if something is a business it can’t be for good.” explained Klement. ”Through eBay the Omidyars had seen that businesses can have social impact and lasting social impact. They are sustainable, they are scalable in a way that non-profits generally aren’t.”

So the Omidyars created a new organisation which could invest. The network uses a range of tools including non-profit grants, direct equity investments, debt investments and also invests in funds like the Ignia venture capital fund (of which more later). It has made grants to, or invested in companies like Wikipedia and P2P microfinance lenders Kiva.

Profit and loss is easy to measure but how do you measure social impact? Klement explains. “We look at reach and engagement. Reach you can think of as breadth; the number of lives touched and and there we look for scale. We want to touch hundreds of thousands, if not millions, of lives. Engagement is depth. To what extent are we touching those lives. How deep is the impact?”

One of the network’s current investments is in Bridge International Acadamies, a chain of schools based in Nairobi, Kenya and founded by an ex-technology entrepreneur. “He founded this school in a box model. It’s a highly replicable franchise model where he can scale these schools quite quickly. The education system in Kenya is completely broken. Teachers show up about 50 percent of the time. Even when they do show up the average teaching time per day is about 90 minutes. The free government schools are not really free by the time people pay for uniforms and supplies and often bribes to the teachers” said Klement.

The Bridge International schools cost less than $4 per pupil per month which is in line with the costs of the government schools. There are now 25 schools making Bridge international the largest chain of schools on the African continent, and that will expand to 100 by the end of the year. Within 5 years the schools will serve a million children.

Another investment is D.light which makes solar lanterns to replace kerosene lamps. Kerosene causes millions of burns a year and serious respiratory system problems. One use is equivalent to smoking 2 packs of cigarettes. D.light has shipped more than a million lanterns to India, Africa, Haiti and is poised for exponential growth.

Klement told me that once you screen for social impact, this type of investing is similar to traditional VC investing but “We are prepared to take more risk because we are entering markets that are less developed” like India and sub-saharn Africa. The network invests in the range of 1 to 3 million per deal. The Omidyar Network is also one of the investors in the $100 million Ignia fund, a VC fund based in Mexico which invests in businesses which provide products and services to bottom of the pyramid (BOP) people, the poorest sector of society, but expects venture capital-level returns.

I asked founder Álvaro Rodríguez Arregui why he started the fund. “There is tremendous lack of access to basic, quality products and services in the base of the pyramid.” he said. The poorest people often pay over the odds for goods and services. If you don’t have a credit history you can’t get a post-paid mobile phone plan and pre-paid minutes are a lot more expensive. If you live in an area with no electricity you have to pay someone more to charge your phone.

Ignia’s definition of positive impact is the following: ”If you provide this product or service to the BOP , will it improve their quality of life? The way we define our impact is providing access to basic products and services to as many people as possible as soon as possible. The only way to grow as fast as possible is through returns. The more profitable you are you faster you grow and the faster you deliver on your mission.” Ignia invests in a range of sectors from healthcare to financial services and Telecommunications.

Rodríguez Arregui started fundraising for Ignia in November 2007. It was a challenge. There was the small matter of the financial crisis and Ignia invests in a company for up to 15 years, a longer horizon that most investors are used to. But there was a more fundamental problem. ”We are at the intersection of VC and impact investing. The biggest challenge was definitely fund-raising because not many people believe that intersection exists. Because of the way we have been educated, we believe that it is either impact or returns and that there is a conflict between those two. In that there is an embedded philosophy which is ‘profit is bad’ We don’t believe that is the case.”

“I am a huge believer that businesses with purpose end up being significantly stronger than those that don’t have a purpose. I am convinced that when you wake up in the morning every day to try to address a mission, it’s a much stronger motivator than when you walk into the office every day and just want to make a buck” asserts Rodríguez Arregui.

It’s early days for Ignia but its star investment Finestrella has grown 9-fold in the last year. Finestrella provides affordable, post-paid mobile phone plans to the BOP. 86 percent of people in Mexico have access to a mobile phone but they only take incoming calls. Outgoing calls are made on public pay phones which are much cheaper than pre-paid minutes. People still spend up to 30 percent of their income on mobile services.

Finestrella has defined a set of algorithms which are used to assess the creditworthiness of people who don’t have an official employment history, bank account or credit rating. If they meet the criteria, customers are offered a post-paid mobile phone plan at much lower rates than pre-paid.

Finestrella started in 2010 and will have 35,000 customers by the end of this year. It already has $8 million in revenue (whichis considerable in a country like Mexico) and is growing exponentially. The target is to have 800,000 customers by 2015.  A couple of Silicon Valley VC funds, one of which is  Storm Ventures, have also invested in Finestrella.

One of Ignia’s investment team Joshua Motta explained why BOP businesses can make excellent returns. “Those activities which have the highest financial returns tend to have the highest social returns. Major corporations and even entrepreneurs have overlooked the BOP segment of the population and dismissed them outright simply because of their low earning power. But aggregated (BOP is 70 percent of the population in Mexico) the BOP actually has a huge amount of disposable income” according to Motta.

Motta maintains that corporations often don’t understand the needs of the BOP and just sell their standard products more cheaply in emerging markets. This strategy is often ineffective. Procter and Gamble discovered this with their detergent. ”In Western markets the quantity sold per unit is quite large. The BOP can’t afford a gallon of detergent. What P&G discovered was that if they used smaller packet sizes, literally single use tablets, they were able to sell substantially in the BOP.” said Motta.

I asked Klement and Rodríguez Arregui what trends they see in impact investing. Both see momentum picking up and more money coming into the sector. Companies like Wells Fargo and J P Morgan are putting money into this new asset class. Rodríguez Arregui thinks that a lot of the talent in the social investing world comes from the non-profit sector rather than business and more business expertise is needed.

Finally, Rodríguez Arregui explains that people need to think hard about why they want to get into impact investing. ”Do you want to do good or do you want to feel good? You need to be extremely clear on what you want to do. It’s much easier to feel good by giving away meals to starving kids in Sudan but you are not going to solve any systemic problem in the world by doing that. The outcomes of impact investing are much more long-term. This is business and business is messy and you have to make hard decisions. When your only purpose is to feel good you are not willing to make those hard decisions” he concludes.

Tags: impact investing, investing, Venture Capital

Companies: Bridge International academies, D.light, Finistrella, IGNIA Fund, Omidyar Network

People: Pierre Omidyar

Article courtesy of VentureBeat » deals

$$$ Lawmakers told $2 trillion debt cap raise needed: sources (Reuters)

$$$ Obama will not release bin Laden photos, White House says (WaPo)

$$$ Value Investing Congress Summary: Marks, Romick, Tilson, Leonard & More (MarketFolly)

$$$ UBS Financial Services Inc. lost a jury verdict of almost $10.6 million in a case brought by a former sales assistant who said she was sexually harassed by a supervisor…[who] “repeatedly made inappropriate comments about Ingraham’s breast size,” called her into his office “to view sexually offensive e-mails on his computer,” and repeatedly talked about the size of his genitals,” she said. He also asked her about her sexual fantasies, she said in the lawsuit. (Bloomberg)

$$$ More Power Over Wall Street, but Little Chance to Discuss It (ProPublica)

$$$ Dems To Force Vote On Oil Subsidies (HuffPo)

$$$ Madoff trustee Irving Picard wants to start repaying victims (NYP)

$$$ PIMCO rolls out floating-rate fund ahead of rates (Reuters)

$$$ Carlos Slim Actively Selling Silver Futures (CNBC)

$$$ Bank Stocks Shunned by Money Managers Over Derivatives (Bloomberg)

$$$ LinkedIn Chooses NYSE Over Nasdaq, Following Renren and Pandora (Bloomberg)

$$$ NASA Gravity Probe Confirms Two Einstein Theories (Space)

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Earlier this morning, Jim Paulsen popped by the Squawk Box set (via phone) for a chat about the death of Osama bin Laden. What does it all mean? According to Paulsen, what the US did told the world, “Hey world, we’ve got balls.” Killing OBL should do more to get the confidence back in the markets that was obliterated during the financial crisis than things like “repairing our balance sheets.”

The way JP sees it, Sunday’s move to “cut the head off the snake” was “just the type of thing that adds up to the confidence to spend cash flow and..to feel better about your portfolio and equities in general.” Another reason to feel “bullish on America”? Putting our balls out there means “we don’t have to take crap, if you will, from China or North Korea or anybody. That’s a good feeling overall.”

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Founder Stays Mum As Defense Rests (WSJ)
People close to the 53-year-old Galleon Group founder said he told them after his arrest that he intended to testify on his behalf. But putting the main defendant on the stand is a relatively rare strategy in white-collar criminal cases, because of the risk of a blunder during cross-examination by prosecutors. “I think on ‘cross’ he would be forced to explain difficult tape recordings,” said Charles A. Ross, a criminal defense attorney in New York. “There’s almost a burden-shifting that occurs when you put a client on the witness stand. I think that burden is a particularly difficult one for the defense to bear.”

Rajaratnam Jurors Hear Chiesi’s AMD Discussion as Testimony Ends (Bloomberg)
Prosecutors’ brief rebuttal of Rajaratnam’s weeklong defense included playing a recording of a phone call between Rajaratnam and former New Castle Funds LLC analyst Danielle Chiesi. During the Sept. 30, 2008, call, Chiesi asked Rajaratnam if he had bought 1 million shares of Advanced Micro Devices Inc. (AMD), calling the purchase “a very bold move unless you know what we know.”

Bernanke May Sustain Stimulus To Avoid ‘Cold Turkey’ End To Aid (Bloomberg)
The Fed chief’s top two lieutenants said this month the economy and inflation are too weak to warrant the start of a monetary-policy reversal. Investors and economists including David Kelly at JPMorgan Funds see that as a signal the Fed will keep its balance sheet at current levels by replacing about $17 billion a month in maturing mortgage debt with Treasuries.

Obama Embarks on Tour to Sell Debt Plan, Not Dwell on S&P Report (Bloomberg)
Obama is scheduled to spend three days traveling through states crucial to his 2012 re-election campaign to publicize his plan to reduce cumulative deficits by $4 trillion over 12 years.

Japan Ministers Confident in US Debt After S&P Move (Reuters)
“The United States is tackling fiscal issues in various ways, so I still think U.S. Treasurys are basically an attractive product for us,” Finance Minister Yoshihiko Noda told reporters after a cabinet meeting.

Ukraine’s Richest Man Buys UK’s Most Expensive Flat (FT)
Rinat Akhmetov, Ukraine’s richest man, has bought the UK’s most expensive flat at the One Hyde Park residential development in London’s Knightsbridge, for £136.6 million.

PIMCO is back in the market buying Treasuries (PMM)
Allegedly.

Goldman Sachs Spins Away From Success (Dealbook)
Sorkin: “Having studied Goldman’s statements closely, it appears the firm decided to take a Clintonian approach to parsing its words. Notice that Goldman and Mr. Blankfein always qualify their denials of the firm’s short bets by saying they weren’t “massive” or “large” or “consistent.” Such descriptions may be accurate. What’s large, or even massive, may be in the eye of the beholder.”

Credit-Focused Hedge Fund Shrinks As Returns Fall (FT)
GLG Partners is preparing to close one of its largest funds to new investors, amid growing concerns about the ability of supersize hedge fund portfolios to deliver strong returns. The London hedge fund’s market neutral fund will shut when it grows beyond $1 billion, expected to be in the next few weeks. At such a size the credit-focused fund would still be only a third as large as its pre-crisis peak, when it ran more than $3 billion in investor capital.

BNY Mellon Profit Climbs 12% as Market Rally Increases Assets (Bloomberg)
The bank reported a 12 percent increase in first-quarter earnings as a rising stock market lifted assets and the fees for overseeing them. Net income climbed to $625 million, or 50 cents a share, from $559 million, or 46 cents, a year earlier. Analysts had expected the New York-based company to earn 56 cents a share, according to the average of 13 estimates in a Bloomberg survey.

Citi Struggles To Return To Growth (WSJ)
Having recovered from a near-collapse that forced it into the arms of the U.S. government, the New York banking giant has yet to show its overseas growth strategy can produce consistent profit. The challenge now before the bank: Pare its legacy holdings of toxic debt and expand its business abroad, while avoiding market blow-ups that can happen in fast-growing, emerging economies.

Citigroup Settling With JR (NYP)
The bank had been ordered in October to pay almost $12 million in damages to Hagman and charities chosen by him after losing a Financial Industry Regulatory Authority arbitration ruling. A Los Angeles judge dismissed that decision on Feb. 9, leading to Hagman’s appeal.
“Mr. Hagman is very pleased that the matter is settled,” Aidikoff said.

FAA Suspends Controller For Watching Movie On Duty (AP)
The controller was watching a movie on a DVD player early Sunday morning while on duty at a regional radar center in Oberlin, Ohio, near Cleveland that handles high-altitude air traffic, the FAA said in a statement. The controller’s microphone was inadvertently activated, transmitting the audio of the movie – the 2007 crime thriller “Cleaner,” starring Samuel L. Jackson – for more than three minutes to all the planes in the airspace that the controller was supposed to be monitoring, the agency said.

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$$$ Bill Gross Alone Beating Stocks as Bears Fail to Profit From Crashes [Bloomberg]

$$$ Red Flags Popping Up All Over Bank of America [NetNet]

$$$ Why This Tech Bubble Is Different [BusinessWeek]

$$$ IRS hands Nicolas Cage pocket full of kryptonite [TW]

$$$ Michael Burry: “Inside the Doomsday Machine with the Outsider who Predicted and Profited from America’s Financial Armageddon” [Vanderbilt News]

$$$ BofA’s $1.6 Billion Deal Ends Assured’s ‘Chinese Water Torture’ [Bloomberg]

$$$ These money managers are more than just fans [PI]

$$$ Ari Weinberg: Matt Taibbi’s Fact Souffle [WSJ]

$$$ Talking Money With Elmo [NYT]

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