Reflections on the 2 weeks ending August 20, 2010

1. Substantial investments in India were reported by each of Soros and Blackstone, some of the most respected names in global investing.
   
   On Friday August 20, 2010, the Globe and Mail reported that George Soros’ Quantum Hedge Fund had acquired 4% of the Bombay Stock Exchange.
   
   http://www.bloomberg.com/news/2010-08-20/soros-controlled-fund-said-to-acquire-4-holding-in-bombay-stock-exchange.html
   
   “Soros's investment comes as India works to modernize its capital markets, opening new exchanges, streamlining trading and introducing new products, like currency futures. With retail stock ownership still low and a booming economy, India's stock markets are of increasing interest to foreign investors.”
   
   On Wednesday, August 18, 2010, reported “Blackstone to invest $4bn in India”
   
   http://www.ft.com/cms/s/0/193fda74-aa54-11df-9367-00144feabdc0.html?ftcamp=rss
   
   Like physical infrastructure (eg. roads, ports, power plants, etc.), we view communications infrastructure (eg. fiber optic cable) and financial infrastructure as both, key enablers, as well as significant beneficiaries of economic development.  Unlike physical infrastructure, however, communications infrastructure and financial infrastructure are more easily scalable and, in our opinion, present the opportunity for larger potential economic returns.  Accordingly, we expect to see substantial growth in the financial infrastructure in emerging markets and, earlier this year, added Financial Technologies (India) Ltd, a leading Indian developer of financial infrastructure to the Indian physical infrastructure investments that already existed in some of the portfolios we manage.   The above referenced investment by the Soros hedge fund into the Bombay Stock Exchange would appear to support our point of view. 
   
2. We view recent earnings results reported by some Canadian asset managers as indicative of the earnings leverage (i.e. earnings growth in excess of growth of assets under management) possessed by these businesses. (see below for further information)

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During the week, the following news items were of relevance to some of the companies we follow and in which we may have an economic interest:

• Financial Technologies (India) Limited, a provider of capital markets technology and infrastructure, issued the following releases:
• August 11, 2010:  Results, on a standalone unconsolidated basis, for the quarter ended June 30, 2010 which saw a 26% year over year increase in operating revenue, a 53% increase in Profit from Operations before Other Income and Interest, and a 120% increase in Net Profit.  In addition it reported the following in relation to the exchanges in which it has ownership interests: “MCX witnessed 30% growth in volumes with 87% market share in commodities market, MCX-SX garnered 56% market share in FX-Derivatives segment, IEX had 86% market share in electricity spot market.”
  
• August 12, 2010: http://www.ftindia.com/PR-SMX-Approval-12AUG2010.pdf “Monetary Authority of Singapore (MAS) has granted ‘Approved Exchange’ (AE) status to Singapore Mercantile Exchange (SMX), the final approval to operate as a regulated and licensed exchange. SMX is the first pan-Asian multi-product commodity and currency derivatives exchange. Mr. Jignesh Shah, Vice Chairman of SMX and Group CEO, Financial Technologies Group, said, “SMX will create a new generation international commodity and currency derivative trading platform at par with best global exchanges in New York and London. The development also stands testimony to FTIL’s domain knowledge and technological expertise in creating next generation financial markets. The approval from MAS is a significant milestone towards realizing SMX’s vision of creating a pan-Asian exchange from Singapore, one of the world‟s most respected and reputed international financial centres and the best IFC from the East.” Mr. Thomas J. McMahon, Chief Executive Officer of SMX, said, “Today‟s development brings SMX a step closer towards revolutionizing the Asian commodities ecosystem. It will empower Asian economies to be ‘price setters’, facilitate the creation of premium Asian benchmarks and effectively position Asia as the centre of global commodity market growth.” To date, SMX has announced four products which will be traded when the exchange goes live - a Gold Futures Contract with physical delivery, West Texas Intermediate (WTI) Crude Oil, Brent-Euro Crude Oil and Euro-US Dollar Futures Contracts. It also recently concluded the successful market-wide testing of its electronic trading platform, risk management and clearing & settlement systems.”
  
• Adani Enterprises Limited,  a leading Indian conglomerate with operations in coal mining/trading, ports and power generation, reported its results for the quarter ended June 30, 2010.  Consolidated EBITda increased 51.3% year over year and Profit After Tax But Before Extraordinary and Exceptional Items increased 61.8%. 
• CI Financial Inc.,  a leading asset manager in Canada, reported its results for the quarter ended June 30, 2010.  Earnings per Share of $0.31 was 19% higher than the quarter ended March 31, 2010 and 72% higher than the prior year.  Of note, Average Assets Under Management increased 18% year over year.   We see the 72% EPS growth relative to the 18% growth in Average Assets Under Management as indicative of the substantial earnings leverage in the wealth management business model.  
• IGM Financial Inc., the leading non-bank mutual fund manager in Canada, reported its results for the quarter ended June 30, 2010.  Earnings per share of $0.68 was 24% higher than the prior year while June 30, 2010 Assets Under Management were only 5.5 % higher.  We the relative difference between earnings growth and AUM growth as further evidence of the substantial earnings leverage in the wealth management business model. 
• Dundee Corporation, whose main subsidiaries operate in the wealth management, real estate and resources sectors, reported its results for the quarter ended June 30, 2010.  Diluted Earnings Per Share of $0.64 increased from $0.27 in the prior quarter and $0.39 in the prior year.