Building a Portfolio With a Focus on a Single Sector: Water

In the late 1990s, David Henderson and Khalil Maalouf bet big on young telecommunications companies, as industry landscape was changing drastically. Then the bubble burst, and the two investors got burned.

Even so, they didn’t lose faith in the concentrated philosophy. In their view, the single-sector portfolio made sense. They could develop true expertise in the area, cultivate a deep bench of potential talent and encourage partnerships among their companies.

A few years later, they found a new focus, close to home on the shores of Lake Ontario in Toronto: water. With concerns over the supply and pollution intensifying, they saw a wide range of investment opportunities. They also saw the potential for profit after General Electric bought a Canadian water-treatment company, Zenon Environmental, for $655 million in 2006.

Now, their venture capital firm, XPV Capital, is part of the growing group of investors, entrepreneurs, scientists and government groups focused on problems affecting the water supply â€" pollution, population growth, urbanization, climate change, aging infrastructure â€" and the potential solutions. As the investors see it, technology is shaking up the business, in the same way that developments like cellphones altered the telecom landscape.

XPV, which has $150 million under management, owns stakes in just eight companies, all connected to water. One investment, Newterra, builds modular systems to clean wastewater in remote locations, such as mining operations or off-the-grid housing developments. Another holding, FilterBoxx Water and Environmental, cleans wastewater from Alberta’s tar sands.

“There are now seven billion of us on the planet. There are more contaminants, more challenges around water access, more years of avoiding spending on infrastructure, which has taken it to the verge of collapse,” said John Coburn, a former executive at Zenon Environmental who teamed up with Mr. Henderson and Mr. Maalouf to form XPV. “So they’re going to need all kinds of technology.”

When the three investors set up shop, Toronto was the natural choice. For decades, the area has been a center of innovation in the water sector.

Places like Israel and Singapore are driven by scarcity to develop water technology, but Ontario’s culture of innovation is a product of its water wealth. The Great Lakes region has long attracted water-intensive industries such as mining, food and pharmaceuticals. But industrialization led to water pollution, prompting regulation and, eventually, investment in technology.

Today, the province employs 22,000 people in the sector, according to the Ontario Ministry of Economic Development, Trade and Employment. It boasts 900 water industry firms, 21 water-related research institutions and 20 universities that offer programs in water science.

Tax incentives for business and research have helped spur more growth. One of the firm’s holdings, Newterra, has benefited from provincial government support, including access to consultants and information, and collaboration with Ontario’s publicly funded universities.

Such connections led to XPV’s first investment. In 2009, a multinational industrial company reached out to the firm for insight on how to improve water management for their clients. During the meeting, the company said it used a technology from APTwater, a company based in Long Beach, Calif. After doing its own research, XPV decided to take a stake in APTwater, which also counts the venture capital firm Kleiner Perkins Caufield & Byers and the venture arm of Waste Management among its investors.

“They had used one of APT’s technologies and incorporated it into their process,” Mr. Henderson said. “That told us that the technology was fully commercialized and valid.”

Since investing, XPV has helped APTwater move from the commercialization phase to a global company that cleans various forms of tough wastewater, such as leachate from landfills, nuclear wastewater and coal bed methane wastewater. On the advice of XPV, APTwater has hired senior executives from its network of Ontario entrepreneurs and has made acquisitions to fuel growth and expand its technology portfolio. In 2011, APTwater bought Rochem, a German company that builds reverse osmosis modules to clean water.

“We’ve become an accepted member of the water community,” Mr. Henderson said. “We’re no longer considered V.C. or finance guys. We see more unique things because we’re insiders.”

As part of its investment process, XPV focuses heavily on management. In 2011, the investment firm helped recruit Larry Novachis, a Zenon and General Electric alumni, to run FilterBoxx. Last year, FilterBoxx set up an office in Ontario to tap the area’s talent pool.

“I was able to draw upon people I know from the Zenon days and G.E.,” Mr. Novachis said.

XPV also helps make connections in its own portfolio. APT recently licensed one of its technologies to FilterBoxx for applications in the tar sands.

“The value of being a sector-focused fund is having a portfolio of companies that complement each other,” Mr. Henderson said.

As a focused firm, XPV has to be more careful about its picks than venture capital firms with large, diversified portfolios. Home runs â€" investments that offer the potential for 100 percent returns or more â€" are also less likely.

“The average expected returns out of these companies will be three to seven times the investment,” Mr. Coburn said. “If you can’t have big winners, then you’d better avoid losers.”

To do so, XPV looks for companies that are on the verge of gaining commercial traction.

In 2010, the investors started looking at BCR Environmental, a company based in Jacksonville, Fla., that is developing a method to treat the waste left over after sewage processing. But XPV waited until the Environmental Protection Agency approved the company’s technology and invested the next year, later assisting BCR in scaling up its operations.

Mr. Coburn said BCR’s value doubled in each of the last two years and he expected that pace to continue for a few more years, because BCR has few competitors and the E.P.A. approval process is extensive. By the time another company makes it through, “we’ll have exited the company,” he said.

“We don’t make bullets, cigarettes, bombs,” Mr. Coburn said. “Our companies are doing great things for wastewater treatment. If you get the right company, it’s a high.”

Container Store Prices I.P.O. at Top of Heightened Range

The business of selling bins and closet storage has drawn big investor interest.

The Container Store has raised $225 million in its initial public offering, after demand from potential shareholders prompted the company to seek even more in its market debut.

The retailer priced its offering at $18 a share, the top of a range that was raised earlier this week. At that price, investors valued the Container Store at $828 million.

Best known for selling products ranging from filing cabinets to garage bins, the Container Store dominates its relatively specialized niche. As the company notes in its prospectus, some national retailers like Walmart serve as rivals to some extent, but it faces little direct competition. And it is a niche that the chain and its prospective investors believe will grow, as older customers settle into new homes and new families grow.

That is reflected somewhat in the company’s financials: its revenue for the fiscal year ended March 2 rose 11.5 percent from the same time last year, to $706.8 million.

The company still reported a net loss attributable to common shareholders for the year, albeit one that shrank 17 percent from the year-ago period to $90.5 million. Using adjusted earnings before interest, taxes, depreciation and amortization, which strips out certain noncash costs tied to events like the opening of new stores, it earned $87.6 million.

In a perhaps worrisome sign for the future, the Container Store’s sales growth appeared to slow a bit this year. Revenue in the 26 weeks ended Aug. 31 rose just 9 percent, to $343.4 million.

Based in Coppell, Tex., the company runs 62 stores in 22 states and the District of Columbia.

The company is scheduled to begin trading on Friday on the New York Stock Exchange under the ticker symbol “TCS.”

Jos. A. Bank Says It May Raise Bid for Men’s Wearhouse

Jos. A. Bank said on Thursday that it was willing to raise its takeover bid for Men’s Wearhouse, but only if its target was willing to begin merger talks.

But if Men’s Wearhouse does not respond by Nov. 14, Jos. A. Bank said, it will withdraw its bid, which stands at $2.3 billion.

The move is an attempt to bring a brewing takeover fight to a head. Jos. A. Bank first bid for its larger rival last month, hoping to unite two of the country’s biggest sellers of men’s suits.

In a letter to the chief executive of Men’s Wearhouse, the chairman of Jos. A. Bank, Bob Wildrick, wrote that his company’s offer of $48 a share already offered a high premium, but it could consider paying even more.

But such a move would be contingent on Men’s Wearhouse beginning substantive talks over a deal, something that it has declined to do over the last several months. Earlier this week, Men’s Wearhouse published a presentation defending its stance, arguing again that the takeover bid is “highly opportunistic” and adding that it expects to increase its sales by up to $550 million by 2016.

Without the ability to take a closer look at Men’s Wearhouse’s financials, Mr. Wildrick said in an interview, Jos. A. Bank would be hard pressed to raise what he described as an already richly valued offer. And with the target refusing to talk, Jos. A. Bank must eventually move on.

“We are willing to sit down with them,” he said. “But we can’t allow this process to go on in perpetuity.”

Mr. Wildrick persisted in criticizing the Men’s Wearhouse board and its stonewall defense, arguing that several large shareholders have approached him and supported Jos. A. Bank’s approach.

“Why would a company refuse to even talk to someone willing to make a serious offer?” he asked. “Are they looking out for shareholders, or are they looking out for themselves?”

After Fraud, the Fog Around Libor Hasn’t Cleared

The Libor market, we now know, was a fraud. There were few â€" if any â€" real trades backing the indicator.

The Dutch lender Rabobank settled charges related to the Libor scandal with authorities in the Netherlands, Britain, Japan and the United States.

This week the scandal claimed its second top European banker and treated us to more of those delightful emails and electronic chats in which traders discuss their deceptions.

“Don’t worry mate â€" there’s bigger crooks in the market than us guys!” wrote an official of Rabobank, the large Dutch lender, after he agreed to a request from one of the bank’s traders in 2007 to submit a phony rate for Libor rates in yen.

He was right about that. As more cases are disclosed, there will no doubt be more big fines and more assurances from senior executives that they had no idea what was going on.

Even without fraud, Gary Gensler, the chairman of the Commodity Futures Trading Commission, said this week in a speech at Harvard, Libor rates “are basically more akin to fiction than fact.”

Unfortunately, nothing fundamental is being changed. Libor lives on. Regulators who wanted to change that, most notably Mr. Gensler, have been outmaneuvered by those who did not want to risk damaging one of the biggest and most lucrative markets around.

This week’s penitent financial institution, Rabobank, showed just how international a fraud this was. The bank settled with authorities in the Netherlands, Britain, Japan and the United States. The authorities said the fraud was carried out by more than two dozen traders and managers at the bank’s offices in London, New York, Utrecht, Tokyo, Singapore and Hong Kong. The bank’s chairman resigned.

When the Libor scandal exploded last year, with Barclays as the initial villain, there was a narrative that made the violations seem understandable and perhaps provoked at least a little sympathy for the banks. They had lied about their borrowing costs during the financial crisis, concealing how difficult a time they were having. Perhaps they should not have done so, but who was really harmed?

It turns out that the financial crisis did not cause the fraud; it merely made it so obvious that regulators finally noticed. It had been going on for years, aided by an international culture that treated market manipulation as a matter of course. If a bank did not have its own good reason for manipulating the market, then a trader would agree to do so as a favor for a trader at another institution. Why not? Maybe he would need a favor on another day.

“You know, scratch my back, yeah, and all,” a Rabobank trader said after he agreed to a request from a “geezer at UBS” to submit a figure as low as possible. “Yeah, oh definitely, yeah, play the rules,” replied the broker who had relayed the request. The complaint filed by the C.F.T.C., which included the exchange, helpfully explained that the “geezer” was a senior yen trader at the Swiss bank. It did not give his age.

Libor â€" the London interbank offered rate â€" is supposed to represent the costs that each bank would face if it received an unsecured deposit from another bank. Each day, banks report Libor rates for maturities ranging from overnight to 12 months, in numerous currencies. The announced Libor rates are based on averages of bank submissions. In Europe, there is a similar Euribor. Banks cheated on both.

“In the U.S.,” Mr. Gensler said in his speech, “Libor is the reference rate for 70 percent of the futures market and more than half of the swaps market. It is the reference rate for more than $10 trillion in loans.”

Such a huge market created ample incentives to cheat. Sometimes traders wanted to influence the rate so that their derivatives positions would benefit. Other times banks knew that a lot of loans they had made had interest rates that would reset on a certain day, based on a particular Libor rate. Then they wanted to push that rate up, if only for one day.

At Rabobank, the people who submitted the Libor number each day were not even trained to determine what the real market rate was. If there was no request from someone at the bank to push rates up or down, the submitters were told to just repeat the previous day’s number.

All of this makes it appear as though Rabobank got off easy, even though it will pay more than $1 billion to settle with all the prosecutors and regulators.

Activism is Going Global, Citi Warns Clients

Citigroup has a message for the international companies it advises: Watch out for the activists.

In a new report for its corporate clients, the bank’s financial strategy and solutions group took stock of the growing wave of shareholder activism, and concluded that what was once primarily an American phenomenon is spreading abroad.

“Shareholder activism has morphed from an occasional threat facing corporate management and boards to a sweeping trend that has spread to companies in all sectors and of all sizes, and increasingly, across all geographic regions,” the report said.

The report, entitled the “Rising Tide of Global Shareholder Activism,” showed that the number of activist campaigns overseas has jumped in recent years, from 22 in 2010 to 30 last year. What’s more, many activist situations remain out of the public eye, suggesting the actual numbers are likely much higher.

A combination of factors is pushing the activists into new regions. One main driver is the success of activist hedge funds, which have generated nearly 20 percent annual returns since 2009, outperforming traditional hedge funds and many markets. This performance has attracted new inflows to activist funds, which have grown by more than 50 percent in the last year. And because that new money needs to be put to work, activists are looking for new targets abroad.

The large activist war chests also mean they can go after larger targets. Big companies in the U.S., including Apple, Microsoft and PepsiCo have already come under attack.

Now large international firms are being targeted as well. TCI, an activist hedge fund, took a stake in French aerospace company EADS, encouraging it to sell its stake in Dassault Aviation. Third Point Management, run by Daniel S. Loeb, has a stake in Sony of Japan and is agitating for change. And activist investor Knight Vinke has called for a breakup of Swiss bank UBS.

The Citigroup report said a number of factors make companies vulnerable to activist attacks, including middling share price performance, a lack of top line growth, conservative financial strategies and conglomerate business models.

But while growing activism may prove a headache for management, it is a mixed bag for shareholders. The Citigroup report concluded that companies targeted by activists outperformed market benchmarks by an average of 15 percent in the year after the start of a campaign, and 34 percent in the two years after a campaign. Those numbers, however were skewed by a smaller number of outsize successes. Most companies targeted by activists actually underperformed the markets in the one and two years after a campaign.

“This points to an important dichotomy between the goals of activists and companies,” the report said. “Since activists tend to invest in several firms at a time, they can achieve superior portfolio performance even if only a few of their targets outperform substantially. From a company’s perspective, however, the activist agenda may not necessarily always be in the company’s long-term interests.”

Russian Diamond Firm Closes Higher After Offering

MOSCOW â€" Shares of the Russian diamond-mining company Alrosa closed slightly higher on Thursday in their first day of trading, indicating some investor enthusiasm for a stock that offers a way to place a market bet on the price of diamonds.

Alrosa, which owns licenses to the world’s largest-known reserves of unmined diamonds, had set the price of the new shares via a secondary stock offering at 35 rubles a share, or about $1.09, on Monday. The new shares were available for trading for the first time for one hour during the end of the trading day Thursday on the Micex stock exchange. They closed about 3 percent above their offer price, at 36.22 rubles, or $1.13.

‘‘Nobody rushed to trade in the new shares after the settlement,’’ explained one financial industry adviser who helped with the placement but was not authorized to discuss it publicly.

The issue raised a total of $1.3 billion. Although it is not Alrosa’s first offering, it garnered greater interest than the 2011 initial public offering, which released only a small number of shares that traded thinly.

As such, it was a qualified success for a company that is testing investors’ interest in the market for unfinished diamonds.

De Beers, Alrosa’s main competitor, is a majority-owned subsidiary of a large, diversified mining company, Anglo American, so doesn’t trade separately on a public exchange.

Demand for diamonds is expected to rise as Chinese people become wealthier and buy more diamond engagement rings and other jewelry.

On the flip side, the industry’s future has been clouded since 2008 when European Union anti-monopoly regulators forced the Russians and De Beers to unwind a cartel that had propped up prices for decades.

The two companies dominate the diamond business. Alrosa produces more carats of diamonds annually than De Beers, but De Beers has higher revenue, earning more from each stone as its mines yield a higher grade of gem.

A carat is a measure of weight but not quality. Although per-carat prices vary greatly, overall diamond prices have more than doubled since 2009.

In the share placement, the Russian federal government, a regional government and the company spun off equity representing a 16 percent stake in the company.

Oracle Shareholders Oppose Compensation for Ellison

A majority of Oracle Inc. shareholders demonstrated their opposition to the compensation of the software giant’s chief executive, Lawrence Ellison, on Thursday, voting against a nonbinding resolution on the company’s pay practices.

More than 2 billion shares were voted against the company’s “say on pay” measure at Oracle’s annual meeting on Thursday, while nearly 1.6 billion were voted in favor of the proposal. After subtracting out Mr. Ellison’s roughly 1.1 billion shares, however, suggests that the margin of defeat was bigger than the initial numbers suggest.

The technology mogul received $78.4 million for the 2013 fiscal year, which ended in May, according to Oracle’s proxy statement. While that’s down from the $96.2 million that he received in the prior year, it far outstrips the $11.7 million that Cisco‘s chief executive, John Chambers, earned in 2012.

“It’s a defeat for the board however you spin it,” Michael Pryce-Jones, an analyst at CtW Investment Group, which advises several union pension plans on corporate governance matters and led a campaign against Mr. Ellison’s pay.

Still, all of Oracle’s directors were re-elected, despite the opposition by CtW and several major investors. The country’s two major proxy advisory firms, Institutional Shareholder Services and Glass Lewis, also recommended that investors vote against at least some of the directors.

Oracle didn’t immediately disclose how much support each director had garnered.

The say-on-pay vote reflected continued controversy over Oracle’s pay practices, one that has been percolating in recent years. At the heart of the dispute is the pay of Oracle executives, and Mr. Ellison’s in particular.

Oracle has defended its pay practices, calling Mr. Ellison’s compensation “appropriate.” But Mr. Pryce-Jones argued that this year’s results should force the board to take action.

“I don’t think the board has the courage to stand up and represent shareholders,” he said.

A Call for ‘Scrooge McDucks’ to Pinch Fewer Pennies

The billionaire bond analyst Bill Gross is calling on “the Scrooge McDucks” of the world to share a little more of their wealth.

In his latest monthly Investment Outlook, Mr. Gross, the co-founder of Pimco, tells his readers â€" whom he refers to as the Scrooge McDucks â€" that the era of taxing capital gains at rates below labor should end.

“Admit that you, and I and others in the magnificent ’1 percent’ grew up in a gilded age of credit, where those who borrowed money or charged fees on expanding financial assets had a much better chance of making it to the big tent than those who used their hands for a living,” he wrote.

Mr. Gross was referring to tax breaks that some of the wealthiest Americans receive because they earn their income through investments, which are taxed at a lower rate than regular income. This has led to a yawning gap between the rich and the poor. Since the 1970s, the percentage of total pretax income in the United States earned by the 1 percent has more than doubled, to 20 percent, he added.

For Mr. Gross, whose net worth is estimated to be about $2.2 billion, giving some of it away is his latest theme. On Wednesday, he told CNBC that he and his wife planned to give all their wealth away before they die.

The letter and pledge follow an exchange on Twitter last week between Mr. Gross and Carl C. Icahn, the activist investor who has called for Apple to return more of its cash to shareholders. On Twitter, Mr. Gross lashed out at Mr. Icahn for his focus on Apple:

Gross: Icahn should leave #Apple alone & spend more time like Bill Gates. If #Icahn’s so smart, use it to help people not yourself.

â€" PIMCO (@PIMCO) 24 Oct 13

Mr. Icahn fired back that if Mr. Gross “really wanted to do good, why not join givingpledge.org like Gates, I and many others.” The Giving Pledge is a group of wealthy Americans who have pledged to give away at least half of their fortunes. It was organized by Bill Gates and his wife, Melinda, and Warren E. Buffett.

Mr. Gross’s November letter includes the image of a golden duck wearing a Scrooge hat.

“Smoke that cigar, enjoy that Chateau Lafite,” but acknowledge that the good fortune has been the result of a boom in credit over the last three decades, he wrote.

Batista’s Bravado, Even After His Company’s Bankruptcy

Even bankruptcy can’t subdue Eike Batista’s bombast.

As his flagship oil company, OGX Petroleo e Gas Participacoes, sought protection from creditors on Wednesday, the Brazilian tycoon was practically goading them. He just sold gas assets at a knockdown price to an electric utility he partly owns.

Bondholders still have a better chance of recovering more money by injecting fresh cash. Pushing them too far, though, could lead to a painful liquidation for all.

The filing in a Rio de Janeiro court underscores the rapid descent of a man who was one of the world’s 10 richest just 18 months ago. OGX was the lynchpin of Mr. Batista’s EBX conglomerate, whose six listed companies were collectively worth about $60 billion at the peak in 2010. Investors including BlackRock and Pimco probably will get no more than 10 cents on the dollar for their $3.6 billion. The strapped company says it will have to cease operations altogether by year’s end without a $250 million infusion.

Mr. Batista is still playing hardball, though. The OGX sale of its gas operations on Monday for $91 million, if allowed by the courts, robs bondholders of one of the company’s few tangible assets. OGX’s stake in the unit, which has gas production equivalent to more than 20,000 barrels a day, is worth at least twice the purchase price, according to recent deal comparisons by Morningstar. Mr. Batista also stands to personally benefit. He owns around a quarter of the buyer, Eneva, one of the few financially stable remnants of EBX.

Despite hefty losses, creditors have an incentive to keep the company afloat a little longer. OGX says it is just a month away from starting production of its final promising field. Success could cut their losses. By contrast, a liquidation of OGX might prompt the government to revoke drilling rights, and thus eliminate much of the residual value.

Mr. Batista’s bravado also reflects the dynamics of Brazilian bankruptcy law. He retains an ability to veto creditor proposals. Even so, the former billionaire may be overplaying his hand. The gas deal could easily embolden bondholders to push back harder still or dissuade them, out of principle or some other reason, from throwing good money after bad. And that would humble everyone involved in this Brazilian mess once and for all.

Christopher Swann is a Reuters Breakingviews columnist in New York. For more independent commentary and analysis, visit breakingviews.com.

Batista’s Bravado, Even After His Company’s Bankruptcy

Even bankruptcy can’t subdue Eike Batista’s bombast.

As his flagship oil company, OGX Petroleo e Gas Participacoes, sought protection from creditors on Wednesday, the Brazilian tycoon was practically goading them. He just sold gas assets at a knockdown price to an electric utility he partly owns.

Bondholders still have a better chance of recovering more money by injecting fresh cash. Pushing them too far, though, could lead to a painful liquidation for all.

The filing in a Rio de Janeiro court underscores the rapid descent of a man who was one of the world’s 10 richest just 18 months ago. OGX was the lynchpin of Mr. Batista’s EBX conglomerate, whose six listed companies were collectively worth about $60 billion at the peak in 2010. Investors including BlackRock and Pimco probably will get no more than 10 cents on the dollar for their $3.6 billion. The strapped company says it will have to cease operations altogether by year’s end without a $250 million infusion.

Mr. Batista is still playing hardball, though. The OGX sale of its gas operations on Monday for $91 million, if allowed by the courts, robs bondholders of one of the company’s few tangible assets. OGX’s stake in the unit, which has gas production equivalent to more than 20,000 barrels a day, is worth at least twice the purchase price, according to recent deal comparisons by Morningstar. Mr. Batista also stands to personally benefit. He owns around a quarter of the buyer, Eneva, one of the few financially stable remnants of EBX.

Despite hefty losses, creditors have an incentive to keep the company afloat a little longer. OGX says it is just a month away from starting production of its final promising field. Success could cut their losses. By contrast, a liquidation of OGX might prompt the government to revoke drilling rights, and thus eliminate much of the residual value.

Mr. Batista’s bravado also reflects the dynamics of Brazilian bankruptcy law. He retains an ability to veto creditor proposals. Even so, the former billionaire may be overplaying his hand. The gas deal could easily embolden bondholders to push back harder still or dissuade them, out of principle or some other reason, from throwing good money after bad. And that would humble everyone involved in this Brazilian mess once and for all.

Christopher Swann is a Reuters Breakingviews columnist in New York. For more independent commentary and analysis, visit breakingviews.com.

A Call for ‘Scrooge McDucks’ to Pinch Fewer Pennies

The billionaire bond analyst Bill Gross is calling on “the Scrooge McDucks” of the world to share a little more of their wealth.

In his latest monthly Investment Outlook, Mr. Gross, the co-founder of Pimco, tells his readers â€" whom he refers to as the Scrooge McDucks â€" that the era of taxing capital gains at rates below labor should end.

“Admit that you, and I and others in the magnificent ’1 percent’ grew up in a gilded age of credit, where those who borrowed money or charged fees on expanding financial assets had a much better chance of making it to the big tent than those who used their hands for a living,” he wrote.

Mr. Gross was referring to tax breaks that some of the wealthiest Americans receive because they earn their income through investments, which are taxed at a lower rate than regular income. This has led to a yawning gap between the rich and the poor. Since the 1970s, the percentage of total pretax income in the United States earned by the 1 percent has more than doubled, to 20 percent, he added.

For Mr. Gross, whose net worth is estimated to be about $2.2 billion, giving some of it away is his latest theme. On Wednesday, he told CNBC that he and his wife planned to give all their wealth away before they die.

The letter and pledge follow an exchange on Twitter last week between Mr. Gross and Carl C. Icahn, the activist investor who has called for Apple to return more of its cash to shareholders. On Twitter, Mr. Gross lashed out at Mr. Icahn for his focus on Apple:

Gross: Icahn should leave #Apple alone & spend more time like Bill Gates. If #Icahn’s so smart, use it to help people not yourself.

â€" PIMCO (@PIMCO) 24 Oct 13

Mr. Icahn fired back that if Mr. Gross “really wanted to do good, why not join givingpledge.org like Gates, I and many others.” The Giving Pledge is a group of wealthy Americans who have pledged to give away at least half of their fortunes. It was organized by Bill Gates and his wife, Melinda, and Warren E. Buffett.

Mr. Gross’s November letter includes the image of a golden duck wearing a Scrooge hat.

“Smoke that cigar, enjoy that Chateau Lafite,” but acknowledge that the good fortune has been the result of a boom in credit over the last three decades, he wrote.

Fantex Adds Another Athlete to Its I.P.O. Roster

Fantex, the company that announced the first initial public offering for an athlete earlier this month, has signed up its second client.

The company said on Thursday that it had reached a deal with Vernon Davis, the star tight end of the San Francisco 49ers. An I.P.O. for Mr. Davis would join Fantex’s first announced I.P.O., an offering for a stock linked to Arian Foster, the Pro Bowl running back of the Houston Texans.

Fantex plans to purchase 10 percent of Mr. Davis’s future earnings for $4 million. It hopes to pay for that by selling investors shares in a “tracking stock” that is linked to his economic performance.

Since it was announced two weeks ago, Fantex’s innovation has caused a stir on Wall Street and in the professional sports world. Market commentators have raised questions about the sensibility of the deal for investors, citing its complex structure and many risks, not the least of which is the chance of an injury that could cut short a players’ career and earnings potential.

Fantex effectively has a two-pronged business model. The first part is a management company that signs professional athletes and takes a stake in their future earnings. It hopes to expand beyond football players and into other sports.

The second part is a proposed trading exchange that plans to allow investors to buy and sell interests in the athletes. In order to finance the payments to the athletes, Fantex is trying to develop stocks intended to track their economic performance.

Fantex’s business proposition appears to be a good one for the athletes. A deal with Fantex allows them to receive a large upfront payment in exchange for a certain percentage of their future earnings, acting as a hedge against an injury or other hiccup in their careers.

Yet Fantex’s stock offerings have generated controversy. Investors will receive shares of securities called “Fantex Series Arian Foster Convertible Tracking Stock” and “Fantex Series Vernon Davis Convertible Tracking Stock.” The shares can be traded only on Fantex’s exchange, which it plans to set up soon.

The tracking stocks will theoretically benefit from the athletes’ future earnings, which include the value of playing contracts, corporate endorsements and appearance fees. If Mr. Davis’s future earnings potential soars, so will his shares, the thinking goes. But investors have no actual interest in the earnings stream, just a virtual one. There is no guarantee of a dividend. And the stocks tied to the players can be dissolved at any time and converted into stock in the Fantex brand-management company.

For now, both the Davis and Foster deals are in their nascent stages. Investors can register with Fantex on its website, but it is not yet accepting orders for the I.P.O.’s. Cornell French, the co-founder chief executive of Fantex, said that the company hoped to begin accepting orders for the Foster deal next week.

The company has not yet made a securities filing for the Davis deal, suggesting it is still several weeks away.

Mr. French, who goes by Buck, said the company’s proposition had been well received since its debut two weeks ago. “We will continue to be out in the marketplace signing athlete’s brands and executing our business plan,” he said.

The company was formed by a collection of executives across Silicon Valley, Wall Street and the sports worlds. Mr. French is a longtime technology entrepreneur and another co-founder, David M. Beirne, was a partner at the venture firm Benchmark Capital.

Fantex has had a number of early setbacks. The company had intended to open for business at the beginning of the N.F.L. season, but Wall Street regulators held up the company’s debut. Then, three days after Fantex announced the Foster I.P.O, the running back had one of the worst outings in his five-year career, carrying the ball just four times for 11 yards before leaving the game in the first half with a pulled hamstring.

Mr. French said he was not concerned about Mr. Foster’s injury or his spotty performance this season. The company intends to raise money in a Foster I.P.O that would go toward paying Mr. Foster $10 million for a 20 percent interest in his future earnings.

“Injuries are a risk for any of the players in the N.F.L.,” Mr. French said. “We’ll continue to develop his brand off the field, and the Texans can handle what he does on the field.”

In Mr. Davis, Fantex has signed an eight-year veteran from the University of Maryland who has played for the 49ers his entire career. Before the 2010 season, he received a five-year contract extension for $37 million, with $23 million guaranteed. Last season, he helped the 49ers advance to the Super Bowl, where they lost to the Baltimore Ravens.

Mr. Davis’s brother, Vontae Davis, is a cornerback for the Indianapolis Colts. Does Fantex have plans to sign him, too?

A Fantex spokesman declined to comment.

Hedge Fund Billionaire to Sell Choice Art

Under Fire, Hedge-Fund Billionaire to Sell Choice Art

Steven A. Cohen to Sell Works at Sotheby’s and Christie’s

In the two decades that the hedge fund billionaire Steven A. Cohen has collected art, he has been not only a high-profile buyer but also a high-profile seller, disposing of a painting one season, a sculpture the next.

Andy Warhol’s “Liz #1,” 1963.

Steven A. Cohen

“A. B. Courbet,” a canvas by Gerhard Richter.

But Mr. Cohen is now parting with about $80 million worth of blue-chip art at the important auctions that begin next week at Sotheby’s and Christie’s. It is the largest single group of artworks he has sold at one time and includes top examples of paintings and sculptures by Brice Marden, Rudolf Stingel and Cy Twombly, along with previously reported Warhols and a Gerhard Richter.

“We’re in a robust market, and we are actively managing the collection,” said Sandy Heller, his longtime art adviser.

The sales come just as Mr. Cohen’s fund, SAC Capital Advisors, has reached a deal with the government to plead guilty to securities fraud as part of the criminal prosecution of the firm, according to a person briefed on the case, who spoke anonymously because he not authorized to discuss the case. Prosecutors have not brought criminal charges against Mr. Cohen, but federal regulators filed a lawsuit accusing him of failing to supervise his employees and turning a blind eye to insider trading at his firm. In July, the United States attorney’s office in Manhattan brought insider trading charges against SAC, calling it “a magnet for market cheaters.” Six former SAC employees have pleaded guilty to illegal trading while at the fund.

Lawyers for SAC and federal prosecutors are putting the final touches on a settlement that, in addition to the guilty plea, will include an agreement for the fund to stop managing money for clients as well as to pay penalties of about $1.2 billion. Combined with $616 million in government fines assessed this year in two related civil cases, SAC will have paid penalties of more than $1.8 billion. Because Mr. Cohen owns 100 percent of SAC, that money will effectively come out of his pocket.

People close to Mr. Cohen, who were not authorized to speak, say that the art sales from his fabled collection are not an effort to raise money for his mounting fines and legal fees. Even after his fines are paid, Mr. Cohen will still have billions of dollars in the bank.

Ever the trader, Mr. Cohen is also taking advantage of today’s active art market where new collectors will often pay far more for artworks than they are worth.

As an opportunistic seller, he is in good company. Among this season’s high-profile sellers are the newsprint magnate Peter Brant, Eric Clapton and the New York financier Donald L. Bryant Jr.

Officials at Sotheby’s and Christie’s declined to comment about Mr. Cohen’s consignments, citing confidentiality. Jonathan Gasthalter, a spokesman for SAC and Mr. Cohen, declined to comment. But details emerged late last month that he is selling three works at Sotheby’s on Nov. 13: a 1986 abstract canvas by Gerhard Richter and two Warhols, both from 1963: “Liz #1 (Early Colored Liz)” and “5 Deaths on Turquoise” from the artist’s celebrated “Death and Disaster” series.

The Richter, which Mr. Cohen bought from the Pace Gallery in 2012 for around $20 million, is now estimated to fetch $15 million to $20 million. Both Warhols belonged to the legendary dealer Ileana Sonnabend for decades. The Warhols are expected to bring a combined total of as much as $40 million.

In addition to those marquee works, Mr. Cohen is selling about a dozen other pieces, mostly at Sotheby’s, that he acquired in recent years at art fairs and auctions. He is not parting with his most valuable paintings, like “Le Rêve” by Picasso, bought from the casino owner Stephen A. Wynn for $155 million in March, or any of his de Koonings, including “Woman III,” bought from David Geffen in 2006 for about $137.5 million. The works for sale are less expensive, representing a fraction of his holdings.

One gem coming up at Sotheby’s is “The Attended” (1996-99), by Brice Marden, a reference to pottery figures placed in Chinese tombs to accompany the dead in the afterlife. Mr. Cohen acquired the work, estimated to sell for $7 million to $10 million, from the Matthew Marks Gallery in Manhattan for an undisclosed price. Other top works include a 2010 self-portrait by Rudolf Stingel, expected to go for $3 million to $5 million, and a 2009 bronze sculpture by Cy Twombly estimated at $2 million to $3 million; both were purchased from Larry Gagosian.

“Atlantic Side,” a 1960-61 painting by Joan Mitchell bought in 2007 at Christie’s, is also for sale with an estimate of $5 million to $7 million. The Nov. 13 Sotheby’s contemporary art catalog indicates that Mr. Cohen is receiving a guarantee â€" an undisclosed sum of money â€" for some of the more expensive works, regardless of whether the auction house is able to sell them.

While Mr. Cohen has some negotiating power over auction houses competing to sell his collection, he has had little leverage in his talks with the government. An entity like SAC can be held responsible for the acts of its employees, and the six former SAC traders who pleaded guilty would likely have testified at trial that they committed insider trading while working for Mr. Cohen.

Such testimony would have made it difficult for SAC to defend itself at trial.

A version of this article appears in print on October 31, 2013, on page C1 of the New York edition with the headline: Under Fire, Hedge-Fund Billionaire to Sell Choice Art.

3 Star London Deal Makers Form Advisory Boutique

LONDON - They could call themselves the three Simons of investment banking.

Simon Warshaw, who announced his departure from UBS two weeks ago, will team up with Simon Robey, a former Morgan Stanley banker, and Simon Robertson, a longtime banker and former chairman of Rolls-Royce Group, the bankers said in a statement on Thursday.

Mr. Robertson, 72, left Goldman Sachs in 2005 as its European president to set up his own advisory firm and was joined by Mr. Robey at the beginning of this year. With the arrival of Mr. Warshaw, the three will set up an advisory firm at which Mr. Robertson will be nonexecutive chairman.

The new firm will allow Mr. Warshaw, 47, and Mr. Robey, 53, to advise clients on corporate finance, decisions on strategy and mergers and acquisitions. Mr. Robertson can focus on his existing clients, his handful of nonexecutive director roles, including at HSBC and The Economist Newspaper Ltd., and his work as a trustee for the Royal Opera House endowment fund.

Mr. Warshaw left UBS less than a month after the he helped Vodafone seal a $130 billion deal, one of the largest in history, to sell its stake in Verizon Wireless to its longtime partner Verizon Communications. But his departure was widely anticipated and came after 27 years at the Swiss bank.

Mr. Robey, one of Europe’s most prominent deal advisers, left Morgan Stanley as co-chairman of global mergers and acquisitions. His clients included BAE Systems, BP and the London Stock Exchange. Mr. Robey is the chairman of the Royal Opera House’s board of trustees and almost became an opera singer after training as a bass-baritone.

Chegg Seeks to Raise Up to $172.5 Million in I.P.O.

Chegg, a start-up focused on textbook rental and academic services, said on Thursday that it hoped to raise up to $172.5 million in its initial public offering.

In an updated prospectus, the company said that it planned to price its stock sale at $9.50 to $11.50 a share. At the midpoint of the range, that would value Chegg at $906.2 million.

Should investor demand prove stronger than expected, the company’s underwriters can sell additional shares in what’s known as a greenshoe, pushing the offering’s potential proceeds up to $198.4 million.

With the disclosure of its price range, Chegg executives will begin a roadshow to pitch their offering, meeting with investors across the country.

While smaller than Twitter’s eagerly awaited stock sale, Chegg’s I.P.O. is expected to be one of the more closely watched among the technology community. Its chief executive, Dan Rosensweig, is a highly regarded former executive at Yahoo, and its backers include Kleiner Perkins Caufield & Byers, Insight Venture Partners and Pinnacle Ventures.

Formally founded in 2005, Chegg focuses primarily on renting textbooks for a semester at a time, with 180,000 titles in its catalog. But the company is building out its electronic services, which it sees as its future: It offers more than 100,000 electronic textbooks and has rolled out offerings like helping high school students find colleges and scholarships.

In the prospectus, the company said that it now reaches about 30 percent of all college students in the country and 40 percent of college-bound high school seniors.

Chegg said that it earned $22.7 million in adjusted earnings before interest, taxes, depreciation and amortization for the nine months ended Sept. 30, a metric that excludes certain costs like stock-based compensation. That’s up nearly fourfold from results in the period a year earlier.

Using generally accepted accounting principles, the company’s loss narrowed 12 percent, to $50.4 million.

During the first nine months of this year, Chegg’s net revenue rose 23 percent, to $178.5 million.

The offering is being led by JPMorgan Chase and Bank of America Merrill Lynch.

Chegg Seeks to Raise Up to $172.5 Million in I.P.O.

Chegg, a start-up focused on textbook rental and academic services, said on Thursday that it hoped to raise up to $172.5 million in its initial public offering.

In an updated prospectus, the company said that it planned to price its stock sale at $9.50 to $11.50 a share. At the midpoint of the range, that would value Chegg at $906.2 million.

Should investor demand prove stronger than expected, the company’s underwriters can sell additional shares in what’s known as a greenshoe, pushing the offering’s potential proceeds up to $198.4 million.

With the disclosure of its price range, Chegg executives will begin a roadshow to pitch their offering, meeting with investors across the country.

While smaller than Twitter’s eagerly awaited stock sale, Chegg’s I.P.O. is expected to be one of the more closely watched among the technology community. Its chief executive, Dan Rosensweig, is a highly regarded former executive at Yahoo, and its backers include Kleiner Perkins Caufield & Byers, Insight Venture Partners and Pinnacle Ventures.

Formally founded in 2005, Chegg focuses primarily on renting textbooks for a semester at a time, with 180,000 titles in its catalog. But the company is building out its electronic services, which it sees as its future: It offers more than 100,000 electronic textbooks and has rolled out offerings like helping high school students find colleges and scholarships.

In the prospectus, the company said that it now reaches about 30 percent of all college students in the country and 40 percent of college-bound high school seniors.

Chegg said that it earned $22.7 million in adjusted earnings before interest, taxes, depreciation and amortization for the nine months ended Sept. 30, a metric that excludes certain costs like stock-based compensation. That’s up nearly fourfold from results in the period a year earlier.

Using generally accepted accounting principles, the company’s loss narrowed 12 percent, to $50.4 million.

During the first nine months of this year, Chegg’s net revenue rose 23 percent, to $178.5 million.

The offering is being led by JPMorgan Chase and Bank of America Merrill Lynch.

Revenue Slumps at BNP Paribas but Profit Rises on Cost Cutting

LONDON â€" The French bank BNP Paribas reported better-than-expected earnings in the third quarter despite lower overall revenue and a nearly 11 percent decline in its investment-banking business due to a “lackluster” economic environment.

BNP, France’s largest bank, said Thursday that its profit rose 2.4 percent to 1.36 billion euros, or $1.86 billion, up from a profit of 1.33 euros in the year-ago quarter. Revenue fell 4.2 percent to €9.29 billion.

The bank benefited from cost cutting as its operating expenses were down 2.1 percent to €6.43 billion. BNP said the quarter included a one-time benefit from its restructuring efforts of €145 million.

Analysts surveyed by Reuters had expected BNP to post a third-quarter profit of about €1.32 billion.

The bank made its profit “thanks to the good resilience of its revenues, the ongoing containment of its costs and the decline of its cost of risk,” said Jean-Laurent Bonnafé, the bank’s chief executive.

In its home market, its French retail bank saw revenue rise 1.3 percent to €1.73 billion, with deposits increasing 3.2 percent in the quarter.

Like many of its peers, BNP said revenue was down in its investment bank due to lower client activity in its fixed-income business. Fixed-income revenue declined 27.1 percent to €780 million.

Revenue overall in the investment bank declined 10.7 percent to €2.03 billion, down from €2.38 billion in the same quarter in 2012.

For the first nine months of the year, BNP said its profit declined 22.2 percent to €4.7 billion, down from €6.05 billion in the prior-year period. Revenue declined 1.4 percent to €29.3 billion.

The prior nine-month period reflected the sale of its 28.7 percent stake in the real-estate firm Klépierre to Simon Property Group for about €1.5 billion.

The bank said its core Tier 1 capital ratio, a measure of a bank’s ability to weather financial disturbances, was 10.8 percent by the end of the third quarter, up from 9.5 percent at the end of the prior year’s quarter.

Revenue Slumps at BNP Paribas but Profit Rises on Cost Cutting

LONDON â€" The French bank BNP Paribas reported better-than-expected earnings in the third quarter despite lower overall revenue and a nearly 11 percent decline in its investment-banking business due to a “lackluster” economic environment.

BNP, France’s largest bank, said Thursday that its profit rose 2.4 percent to 1.36 billion euros, or $1.86 billion, up from a profit of 1.33 euros in the year-ago quarter. Revenue fell 4.2 percent to €9.29 billion.

The bank benefited from cost cutting as its operating expenses were down 2.1 percent to €6.43 billion. BNP said the quarter included a one-time benefit from its restructuring efforts of €145 million.

Analysts surveyed by Reuters had expected BNP to post a third-quarter profit of about €1.32 billion.

The bank made its profit “thanks to the good resilience of its revenues, the ongoing containment of its costs and the decline of its cost of risk,” said Jean-Laurent Bonnafé, the bank’s chief executive.

In its home market, its French retail bank saw revenue rise 1.3 percent to €1.73 billion, with deposits increasing 3.2 percent in the quarter.

Like many of its peers, BNP said revenue was down in its investment bank due to lower client activity in its fixed-income business. Fixed-income revenue declined 27.1 percent to €780 million.

Revenue overall in the investment bank declined 10.7 percent to €2.03 billion, down from €2.38 billion in the same quarter in 2012.

For the first nine months of the year, BNP said its profit declined 22.2 percent to €4.7 billion, down from €6.05 billion in the prior-year period. Revenue declined 1.4 percent to €29.3 billion.

The prior nine-month period reflected the sale of its 28.7 percent stake in the real-estate firm Klépierre to Simon Property Group for about €1.5 billion.

The bank said its core Tier 1 capital ratio, a measure of a bank’s ability to weather financial disturbances, was 10.8 percent by the end of the third quarter, up from 9.5 percent at the end of the prior year’s quarter.