GSAM’s O’Neill: US Ready to Profit From Developing World

(April 30, 2013) — It is possible Jim O’Neill simply wanted to go out on a high note, but the retiring chairman of Goldman Sachs Asset Management (GSAM) presented a rosy take on the global economy in his latest — and last — client note.

“Perhaps now things have shifted in such a way that the US is in a position to benefit more than many realize from this changing world,” the UK-born economist wrote. “This is helped by the competitive US dollar and competitive energy markets for industry and business….The US is enjoying strong export growth to China, the BRIC [Brazil, Russia, India, and China] and Next 11 countries.”

The US is enjoying strong export growth to China, O’Neill noted, now the US’s third-largest export market. In 2012, GSAM data shows that China bought 7% of the country’s exports, ranking behind Mexico (14%) and Canada (19%). By 2020, the asset management firm predicts China will oust Mexico to take the number two spot (responsible for an estimated 16% of US exports).

“In terms of the US balance of payments,” he wrote, “while far from strong, this changing world is contributing to an improvement in the current account and the broad balance of payments.”

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In the changing global economy, O’Neill also stressed the distinction between large countries and rich countries. Sometimes they are one in the same (the US, Japan, Germany), but “size is not the same as wealth, as we often forget.” Only South Korea came up a number of times in O’Neill’s client note as an example of a small yet well-developed emerging economy.

“The BRICs and the N11 becoming bigger should make us all wealthier in aggregate,” he said. “South Korea is the 27th wealthiest [by GDP per capital], which is why it is a particularly strong, positive example for large populated emerging economies.”

At a recent conference on growth markets in New York, the GSAM chairman encouraged ambassadors in attendance to “suggest a visit to South Korea to the influencers in their countries in order to adapt and apply any potential learning to their own economies.”

(April 30, 2013) — New York City’s five pension funds have filed a lawsuit against oil giant BP and several of its branches and executives in an attempt to recover investment losses related to the 2010 Deepwater Horizon oil spill.

Representatives of the funds claim that BP was not forthcoming with shareholders as to the accurate risks involved in its offshore oil extraction processes. Furthermore, the complaint asserts that BP inaccurately presented the extent of the leak, and the estimated cost of the cleanup.

The city comptroller’s office estimated the funds’ ensuing investment at upwards of $39 million.

“BP failed to disclose to shareowners the serious risks involved in its offshore drilling operation,” Comptroller John Liu said. “After the spill began, it misleadingly attempted to minimize the extent of the damage and the cost to shareowners.”

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A BP spokesperson declined to comment on the charges.

However, the firm and others in the industry have repeatedly characterized the spill as an extreme tail-risk event-the prospect of which was not diminished to shareholders. In a speech this last May, Executive Vice President Dev Sanyal likened the oil spill to a Black Swan experience.

Similarly, during a conference presentation in October, BP’s Vice President of Global Deepwater Response Richard Morrison said, “risk management in this high-hazard industry has always been at the forefront of BP’s agenda…On that tragic night aboard the Deepwater Horizon, multiple barriers — both human and physical — failed to prevent the accident from occurring.”

New York City’s de-centralized city pension system filed the lawsuit earlier this month in the Southern District Court of Manhattan. However, court documents related to the case have been sealed up until now. The presiding judge agreed with BP’s attorney’s that the initial complaint “contains confidential and highly confidential information as defined by confidentiality orders” which have been applied to several similar, ongoing cases in the District Court of Southern Texas.

Inga Van Eysden, chief of the New York City law department’s pensions division, said that due to a 2010 court decision (Morrison v. National Australia Bank, Ltd), “the city pension funds are barred from seeking recovery from BP under federal securities laws for the vast majority of its losses.” This ruling disallowed any US federal securities fraud suits for assets traded on foreign stock exchanges. Given this decision, Vam Eysden said, “We strongly believe the funds deserve to be compensated for BP’s fraudulent actions and are therefore pursuing this case.”

As of April 13, the five New York City pension funds owned a combined 2,822,840 shares in BP valued at $19.3 million.

The case is New York City Employees Retirement System v. BP Plc, 13-2551, U.S. District Court, Southern District of New York (Manhattan).

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