Bloomberg Markets - March 2014

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4 BLOOMBERG MARKETS March 2014
March
v o l u m e 2 3 n u m b e r 3
SPECI AL REPORT: EMERGI NG MARKETS
FEATURES
Russian President
Vladimir Putin in Paris
Photograph by
STEPHANE LAVOUE/
PASCOANDCO
ON THE COVER
30 The Gulf Speeds Ahead
The standouts in our annual rankings are Qatar, the U.A.E. and Saudi
Arabia, which are using their oil wealth to diversify their economies.
by WEIYI LIM
38 Remaking Russias Economy
Vladimir Putin and Rosneft boss Igor Sechin are spearheading the
drive to augment state capitalismas growth flags and investors fret.
by IRINA REZNIK, STEPHEN BIERMAN and HENRY MEYER
50 Mexico and Nigeria: Its Their Turn
The economist who coined the BRIC acronym says investors should
watch a new group of countries in Latin America, Africa and Asia.
by JIM O NEILL
54 Selling Korean Cool
CJ Groups Miky Lee is leading the $27 billion food-to-entertainment
conglomerate as her brother fights tax-evasion charges.
by YOOLIM LEE
62 Panama Digs Deep
The country is spending $5.25 billion to expand its 100-year-old
canal, in a bid to retain its edge in international commerce.
by ERIC SABO
68 A Heavier Touch
Chief U.K. markets regulator Martin Wheatley is racing to clean up
a banking culture tainted by Libor manipulation and insider trading.
by LINDSAY FORTADO and STEPHANIE BAKER
74 Ethanol Evangelist
In an industry littered with bankruptcies, Todd Becker has built
Green Plains into a $3.5 billion powerhouse.
by JOHN LIPPERT and MARIO PARKER
80 The Fight Over Canadas Riches
First Nations peoples are asserting their right to be consulted before
drillers and miners use their land.
by JEREMY VAN LOON
80
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14 Against the Stock Market Herd
16 Bloomberg Global Poll: Confidence Reigns
18 Stranded Sailors
20 Abes Womenomics
22 Green Racing Formula
24 Tips From Billionaire Alexey Mordashov
8 Editors View
Finding the Next BRICs
10 Letters
26 Bloomberg View
How Panama Can Seize Its Moment
COMMENTARY
AGENDA
March
c o n t i n u e d
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14
90
STRATEGI ES
90 Equities
Why active fund managers
are feeling optimistic
by DOUGLAS EDLER, CFA,
and JON ASMUNDSSON
92 Cheat Sheet
Emerging Markets
93 Equities
Profiting From Deals
by ERIC ROSEMAN
94 Portfolios
Lowering Volatility
by NICK BATURIN
96 Influential News
98 Private Equity
Exit Signs
by ANITA KHALILI
and ALICIA LOONEY
99 Riskless Return
Best Defense
by NICK TABOREK
100 Whats New
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Editors View
Bloomberg
Markets
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You can
privatize
enterprises, but
they wont be
competitive,
says Putin
spokesman
Dmitry Peskov.
Finding the
Next BRICs
Its been a bumpy 12 months for some of the worlds biggest
emerging markets, especially the BRICsBrazil, Russia, India
and China. Only one of those four, China, finished in the top 10
in BLOOMBERG MARKETS rankings of the best emerging markets
for investing. The standouts this year are smaller, so-called
frontier, markets, including the Persian Gulf nations of Qatar,
the United Arab Emirates and Saudi Arabia, which some inves-
tors see as ripe with potential, Weiyi Lim writes in the lead story
of our special report (THE GULF SPEEDS AHEAD, page 30).
In Russia, where growth likely slowed to 1.3 percent last year,
President Vladimir Putin is reasserting the states role in the
economyto the chagrin of many investors. This shift is most
notable at OAO Rosneft, the publicly traded, state-run oil giant
led by longtime Putin ally Igor Sechin, write Irina Reznik,
Stephen Bierman and Henry Meyer (REMAKI NG RUSSI AS
ECONOMY, page 38). You can privatize enterprises, but they
wont be competitive, Putin spokesman Dmitry Peskov says.
In South Korea, the economy is dom-
inated not by the state but by the chae-
bol. Yoolim Lee talks with the woman
whos now leading one of those family-
run conglomerates: CJ Groups Miky
Lee, who helped put Korean pop cul-
ture on the map (SELLING KOREAN
COOL, page 54).
In Panama, No. 6 in our emerg-
ing-markets ranking, Eric Sabo reports on the countrys $5.25
billion canal renovation, a bid to retain its edge in international
trade (PANAMA DIGS DEEP, page 62). And Jim ONeill, the for-
mer Goldman Sachs Group Inc. economist who coined the term
BRIC, has his eye on a new group of emerging and frontier mar-
kets (MEXICO AND NIGERIA: ITS THEIR TURN, page 50)in-
cluding a quartet of countries he calls the MINTs.
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Fleeced by Fees
Ive never believed that
managed futures should
have any role whatsoever
in the allocations of long-
term investors. Short-
term speculators, as your
story illustrates, shouldnt bother either. When a secu-
rity is bereft of any intrinsic value (interest, dividends,
earnings growth), put your hand over your wallet pocket!
JOHN C. BOGLE
Founder, Vanguard Group Inc.
Bryn Mawr, Pennsylvania
A Gift to Billionaires
FEBRUARY 2014
I have always enjoyed Bloomberg articles,
but this one struck home. The technique
undermines the tax system as a whole and
gives openings to the political few to play
with as they desire.
DAN GOULDEN
Management representative
Wellman Dynamics Machining
& Assembly Inc.
York, Pennsylvania
Education Empire
FEBRUARY 2014
I want to thank you for your brilliant,
in-depth article on Laureate Education
Inc., which is currently being read and
reread by Thunderbird School of Global
NOVEMBER 2013
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Markets
Management alumni based everywhere
from Kabul to Bogota to Wichita. You made
complex situations instantly easy to follow
and grasp. I and other alumni are deeply
indebted to you and everyone who helped
you make this article possible.
MARGARET AMEIN
Bad Soden, Germany
Too Good to Be True
FEBRUARY 2014
Thank you for your focus on such scams,
which are destroying the socioeconomic
condition of West Bengal. We, the people
of West Bengal, are helpless. We want a
new leader of a new India as well as a new
leader of West Bengal.
AHASAN MOHAMMAD HABIB
Kolkata

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Colombian Tungsten
Mine Will Be Closed
The Colombian government said in
December it would seize and close a
tungsten mine run by FARC guerril-
las. In Tungstens Tainted Trail
(September 2013), BLOOMBERG
MARKETS reported that the Colombian rebel group funneled the illegally mined
metal to companies that exported it and major multinational corporations
bought parts that originated from the tainted supply line. After the story was
published, the European Union wrote tough laws to prevent companies from
buying minerals that fund the conflict in Colombia.
MICHAEL SMITH AND ANDREW WILLIS
CFTC Investigating Managed Futures
The Commodity Futures Trading Commission is investigating the effect that high
fees in managed-futures funds have on customers. In Fleeced by Fees, BLOOMBERG
MARKETS reported that in the decade ended on Dec. 12, 2012, 89 percent of the $11.5
billion of profits in 63 funds was consumed by commissions, fees and expenses. The
article spurred U.S. Senators Elizabeth Warren, a Democrat from Massachusetts,
and Bill Nelson, a Florida Democrat, to urge the CFTC to work with the U.S. Secu-
rities and Exchange Commission to study ways to provide clearer disclosure of fees
charged on retirement accounts invested in the funds. In announcing the inquiry in
December, CFTC Commissioner Bart Chilton said the agency must protect inves-
tors. That includes highlighting, and potentially banning, excessive fees that can
gobble up profits, he said. DAVID EVANS
Letters
EQUITIES. COMMODITIES. ALTERNATIVES. BONDS.
Morningstar Rating as of 31 December 2013 for
the institutional class shares; other classes may have
different performance characteristics. Overall rating for
the Multisector Bond category. Fund ratings are out of
5 Stars. For the PIMCO Income Fund: Overall 4 Stars
(219 funds rated); 3 Yrs. 5 Stars (219 funds rated); 5
Yrs. 4 Stars (176 funds rated); 10 Yrs. N/A Stars (113
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Morningstar calculates a Morningstar Rating based
on a risk-adjusted return measure that accounts for
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consistent performance. The top 10% of funds in
each category receive 5 stars, the next 22.5% receive
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receive 2 stars and the bottom 10% receive 1 star.
The Overall Morningstar Rating is a weighted average
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Risk management
U P D A T E S
C o r r e c t i o n
In the Activist Buys GM item on the Influential News page (February 2014), we
misstated the enterprise value of General Motors Co. It was $42.3 billion on Nov. 25.

TYPE PMCO <GO>

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PEOPLE, COMPANI ES AND I DEAS THAT MOVE MARKETS
BANK STRATEGISTS AGREE:
U.S. stocks are going up in 2014, at least
a bit. At the beginning of January, after
the Standard & Poors 500 Index closed
out 2013 at 1,848, their end-of-year tar-
gets ranged from 1,850 to 2,100. The
median among 20 sell-side prognosti-
cators was 1,950, which would be a 5.5
percent gain if it pans out. In other
words, after big advances for U.S. stocks
in four of the past five years, including
a robust 32 percent return for the S&P
500 last year, the forecast is for more.
Against
the Herd
AS WALL STREET FIRMS PREDICT ANOTHER
GOOD YEAR FOR U.S. STOCKS, CONTRARIANS
SEE RISKS FROM STRETCHED VALUATIONS,
INFLATION AND THE FED.

March 2014 BLOOMBERG MARKETS 15
What could possibly go wrong? For-
tunately, there are always a few money
managers and strategists ready to ad-
dress that question. Their present con-
cerns encompass inflation, Federal
Reserve tapering, stock valuations and
technical chart breakdowns.
David Rosenberg, chief economist at
Gluskin Sheff & Associates Inc., says
the biggest stock market risk right now
is that the Fed will be forced to raise in-
terest rates as the economy grows faster
than expected. That flies in the face of
current wisdom. While the Fed has be-
gun to withdraw its monetary support
for the economy by trimming its bond
purchases, most economists say the
central bank will keep its benchmark
funds rate near zero at least into 2015.
A market that shrugged off bad news
for the past several years may quickly
become one underwhelmed by good
news, in Rosenbergs thinking. One
thing that we learned in this cycle is
that you can have very weak growth
but a tremendous surge in the mar-
ket when the Fed is providing a tre-
mendous amount of liquidity, he says.
Id expect that when we actually get
growth, and we get the Fed doing some-
thing different, were going to get dif-
ferent results in the market.
Jim Paulsen, chief investment strat-
egist at Wells Capital Management in
Minneapolis, describes a scenario that
has a lot in common with Rosenbergs.
Inflation, or inflation fears, is a possi-
bility in 2014, Paulsen says. He sees
nominal economic growth accelerating
to as much as 6 percentwith gross do-
mestic product expansion at 3.5 per-
cent plus inflation, measured by the
GDP price deflator, up to 2.5 percent.
The threat of an overheating econ-
omy would then raise concern that the
Fed will be unable to withdraw its ex-
traordinary monetary support in an or-
derly fashion, Paulsen says. The
methodical and well-controlled mone-
tary tapering which greets us here at
the beginning of the year could turn to
a panic taper, Paulsen wrote in a
Jan. 2 letter to clients. That would
wreak havoc in the bond market, and
boost stock market volatility, he says.
Paulsen forecasts that the S&P 500
will climb as high as 2,000 at some
point in 2014, a gain of 9 percent from
when he published his note, and then
slide, finishing with no gain at all for
the year. If that comes to pass, it likely
would be a setback and not an end to
the bull market, which he says has more
years to go.
Sam Stewart, chairman of Wasatch
Advisors Inc. in Salt Lake City, predicts
a rapid stock market sell-off at some
point in 2014. He argues that stock val-
uations are stretched after the five-year
bull market, especially when rising
price-earnings ratios are compared
with slowing growth ratesthe so-
called PEG ratio. Based on profits and
profit growth for the most recent 12
months, the S&P 500s PEG ratio was
3.1 at the beginning of the year, com-
pared with a 20-year average of 1.1, ac-
cording to Stewart. Thats higher than
it was in 2007, when the market
touched its pre-financial-crisis peak,
he says.
If stocks are expensive, theyre
vulnerable to unpleasant surprises,
Stewart says. The nationwide steel
strike in 1959 and the failure of Long-
Term Capital Management in 1998 are
examples of events that triggered sell-
offs in overvalued markets, according
to Stewart, whose Wasatch World In-
novators Fund beat 99 percent of its
peers during the past five years.
For Carter Worth of Oppenheimer
& Co., the New York investment bank
and wealth manager, the big risk may
be simply that total returns for U.S.
stocks have been positive for five years
running. Worth is his firms chief mar-
ket technician, meaning his forecasts
are based on historical charts and
patterns, not economic or company
fundamentals.
Since 1927, the S&P 500 has had five
consecutive winning years on six previ-
ous occasions. The average return in the
next year was negative 2.3 percent, ac-
cording to Worth. And the peak-to-
trough decline in that sixth year, as
opposed to the calendar year move, av-
eraged 23 percent. At a minimum, 2014
has high odds to be a below-average
year, Worth says, with the possibility
that its not only below average but has
something quite ugly. LU WANG
50
40
30
20
10
0
1880s 1890s 1900s 1940s 1980s 1910s 1950s 1990s 1920s 1960s 2000s 1930s 1970s 2010s
EXPENSIVE,
OR NOT
Nobel laureate Robert Shillers cyclically adjusted
price-earnings ratio shows that stocks are
expensive versus the long-term average of 16.5,
although not as overvalued as in 2000 and 2007.
Source: Yale University
1929 Stock Market Crash
Credit Crunch of 1966
2000 Technology Stock Bubble
LONG-TERM
AVERAGE
OF 16. 5

AGENDA
ECONOMICS
Here i s a guy who trai ned hal f of
the central bankers i n the worl d.
Donald Kohn on the nomination of Stanley Fischer to the
post of Fed vice chairman, which Kohn once held
WHAT I S YOUR VI EW OF . . . ?
Deteriorating
Stable Improving
No Idea
Positive sentiment is at an all-time high for the
U.S., the euro zone and the global economy,
while its negative on China.
THE GLOBAL ECONOMY
10% 1% 30% 59%
72%
49%
94%
22% 6%
14% 35% 2%
36% 49% 2% 13%
84%
62%
THE EURO-ZONE ECONOMY
THE CHINESE ECONOMY
Condence Reigns
AS GROWTH STRENGTHENS IN THE U.S., INVESTORS ARE MORE OPTIMISTIC ABOUT
THE WORLD ECONOMY THAN AT ANY TIME SINCE THE GREAT RECESSION.
THE RECOVERY IS
accelerating in the U.S.,
Europe is healing, and
investors are feeling
some animal spirits,
according to the
Bloomberg Global Poll.
Fifty-nine percent of
bankers, traders and
money managers said the
world economy is
improving, the most
bullish response since
the poll of Bloomberg
customers began in 2009.
Without doubt,
confidence is the single
most important determi-
nant for growth, says
Wilhelm Schroeder,
a poll participant and
managing director of
Schroeder Equities
GmbH in Munich.
Developed countries are
playing by far the most
important part of the
recovery in confidence.
SIMON KENNEDY
The quarterly Bloomberg Global Poll
was conducted Jan. 16 to 17 by
Selzer & Co. of Des Moines, Iowa.
Sample size: 477 investors, bankers
and traders who are Bloomberg
customers. Margin of error: plus
or minus 4.5 percentage points.
89%
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LOOKI NG
AHEAD
Unfavorable
16%
Favorable
68%
No idea
16%
WHAT WI LL THE AVERAGE ANNUAL
GROWTH RATE BE I N THE U. S.
OVER THE NEXT DECADE?
Amid growing optimism about the strength of the recovery and a favorable
view of incoming Federal Reserve Chairman Janet Yellen, a majority of poll
respondents still say that U.S. growth in the coming decade will be subpar.
WHAT I S YOUR VI EW OF
I NCOMI NG FED CHAI R
JANET YELLEN?
Bloomberg
Global Poll
About
2%
44%
About 3% 40%
Less than 2% 8%
THE U.S. ECONOMY
About 4% 6% No idea 2%

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now. Yes, very useful, if there was such a thing as
a Hindsight Mirror. Fortunately, there is such a thing as
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TYPE IVZC <GO>

AGENDA
ECONOMICS
ITS IN THE NATURE of the
$375 billiona-year global shipping
business that its workers are
scattered across the planet. Whats not
supposed to happen is for captains,
engineers and sailors to end up
stranded far from home. As early as
1926, international conventions
established that shipowners must pay
to repatriate crews.
Nonetheless, hundreds of sailors get
stuck each year when shipping
companies go bust or when ships
break down or land in legal limbo.
Sailors may not have appropriate visas
or, in the case of a vessel anchored
offshore, any way to reach land. Some
may be waiting for back wages or
unable to afford a ticket home.
The United Nations has docu-
mented 199 cases involving 2,379
stranded sailors in the past decade.
ONE CREWS ORDEAL
The captain and nine crew
members on the JSM were
stranded in Kiato, Greece, in
February 2013, after their ship
became tangled in a legal
dispute. The scheduled one-week
stop dragged into months. The
management company in
Romania said it couldnt reach
the owner of the Moldovan-
agged ship. Money for food and
fuel ran out. By summer, the
ships complementfrom Syria,
Egypt and Lebanonwas owed
about $100,000 in back pay.
Tempers rose until the chief
engineer attacked the captain
with a rock, sending him to the
hospital. That clash alerted
locals, who helped the crew with
food and a place to wash and
charge phones. The harbor
master wouldnt let the sailors
leave the ship unmanned without
Moldovan government permis-
sion, which came in October. The
sailors nally got to go home.
The actual numbers are likely higher,
as many instances go unreported,
according to The Mission to Seafarers,
a London-based group that provides
services for sailors in 260 ports around
the world. The charity estimates that
more crew members are held captive
by the actions of shipowners than are
kidnapped by Somali pirates.
ISAAC ARNSDORF
Stranded Sailors
SEAFARERS FACE THE RISK OF STORMS AND PIRATESAND GETTING STUCK
IN PORT WITHOUT FOOD, PAY OR A TICKET HOME.
Sailors killed in the sinking of four ships
carrying nickel ore, which can liquefy
and destabilize a vessel when handled
improperly, as tallied by GCaptain.com
66
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(
3
)

PowerShares QQQ is based on the Nasdaq-100 Index
. The Fund
will, under most circumstances, consist of all stocks in the Index.
The Index includes 100 of the largest domestic and international
nonfinancial companies listed on the Nasdaq Stock Market based on
market capitalization.
There are risks involved with investing in Exchange-Traded Funds
(ETFs) including possible loss of money. The funds are not actively
managed and are subject to risks similar to stocks, including those
related to short selling and margin maintenance. Ordinary brokerage
commissions apply. Shares are not FDIC insured, may lose value and
have no bank guarantee.
Holding Weights as of 9/18/13: Microsoft 7.66%, Google 6.74%,
Amazon.com 3.91%, Cisco Systems 3.65%, Intel 3.27%, Starbucks
1.59%. Holdings are subject to change.
Shares are not individually redeemable and owners of the shares
may acquire those shares from the Funds and tender those
shares for redemption to the funds in Creation Unit aggregations
only, typically consisting of 50,000 shares.
PowerShares
is a registered trademark of Invesco PowerShares Capital

Management LLC. ALPS Distributors, Inc. is the distributor for QQQ.
Invesco PowerShares Capital Management LLC is not afliated with
ALPS Distributors, Inc.
An investor should consider the Funds Investment objective,
risks, charges and expenses carefully before investing. To obtain
a prospectus, which contains this and other information about
the QQQ, a unit investment trust, please contact your broker,
call 800.983.0903 or visit www.invescopowershares.com.
Please read the prospectus carefully before investing.
As one of the groundbreaking ETFs in the marketplace, PowerShares QQQ invests in
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powershares.com/innovation | @PowerShares TYPE POWE <GO>

AGENDA
IDEAS
percent in 1999. Its not
high enough, says Matsui,
who grew up in Salinas,
California, working at her
fathers flower nursery.
Japan could expand its
workforce by 8 million
people and increase GDP by
as much as 14 percent by
raising female workforce
participation to 80 percent,
the same level as males.
We have to convince the
Japanese people that
running a marathon with
GENDER GAPS
IN SWEDEN
IN ONE OF THE WORLDS
most gender-equal countries,
SEB AB chief executive Annika
Falkengren says more work is
needed: Its important not to
glorify Sweden. We have so
few women at the very top.
Abes Womenomics
GOLDMAN SACHS STRATEGIST KATHY MATSUIS PROPOSALS FOR JAPANS ECONOMY FINALLY
GET THEIR DUE AS THE PRIME MINISTER SEEKS SUSTAINABLE GROWTH.
DEMOGRAPHIC trends
are working against
Shinzo Abes efforts to
foster growth in Japan after
two decades of stagnation.
By 2035, a third of the
population will be 65 or
older, up from 23 percent in
2010. The country will have
an increasing number of
retirees to care for as it tries
to service a public debt
thats twice as big as annual
gross domestic product.
In a sign that Abe gets the
problem, the prime
minister has embraced
something Kathy Matsui,
Goldman Sachs Group Inc.s
chief Japan equity strate-
gist, has been pushing for a
decade and a half: the
benefit of more women in
the workforce.
The proportion of
Japanese women with jobs
reached 60.7 percent in
2012, a record, up from 56.7
SWEDI SH SOCI ETY
one leg is going to take a
very long time, she says.
Matsui coined the term
womenomics in 1999, when
she first wrote about the
idea. Equalizing roles in
the workforce was a more
realistic and practical
solution to Japans
shrinking labor pool than
loosening immigration
laws or raising the birth
rate, she argued. Abe is
convinced. His economic
policy goals include the
elimination of waiting lists
for child care and support
of training for mothers
returning to work.
YOSHIAKI NOHARA
SWEDI SH BUSI NESS
24%
of corporate directors
are women
22%
of senior managers
at top 25 companies
are women
5%
of CEOs at top
100 companies
are female
45%
of elected ofcials
are women
WOME N ME N
80%
70
60
50
40
2012 1984
WORKFORCE PARTICIPATION RATE,
JAPANESE WOMEN AGES 15 TO 64
MATSUI S
TARGET
Source: Japans statistics bureau
P A P U A N E W G U I N E A
Only countries that
dont provide or require
paid maternity leave
Source: International Labour Organization data on 185 nations A
N
D
THE
U.S.
Goldmans
Kathy Matsui
has pushed for
womenomics
since 1999.
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Lipper. And Morningstar? And Barrons?
Were going to need a bigger shelf.
1
In calculating the awards, Lipper considered funds registered for sale in the United States with at least 36 months of performance as of the end of the
oalendar year of the respeotive evaluation year. lund groups with at least tve equity, tve bond or three mixed-asset portfolios were eligible for an overall
group award. 1he award is given to the group with the lowest average deoile ranking of three years' Consistent Return measure of the eligible funds over
the three-year period ended 11/30/12. 1lAA-CRLl was ranked against 35 fund oompanies.
2
As of 3eptember 30, 2013, 42.6 have 3 stars, 39.6
4 stars and 15.4 5 stars. Morningstar is an independent servioe that rates mutual funds and variable annuities. 1he top 10 of aooounts in an
investment oategory reoeive tve stars, the next 22.5 reoeive four stars and the next 35 reoeive three stars. Morningstar proprietary ratings reteot
historioal risk-adjusted performanoe and oan ohange every month. 1hey are oaloulated from the aooount's three-, tve- and ten-year average annual
returns in exoess of 90- day 1reasury bill returns with appropriate fee adjustments, and a risk faotor that reteots mutual fund/subaooount performanoe
below 90-day 1- bill returns. 1he overall star ratings are Morningstar's published ratings, whioh are weighted averages of its three-, tve- and ten-year
ratings for periods ended 3eptember 30, 2013.
3
1he Barron's/Lipper lund lamily survey uses an asset-weighted ranking system. Laoh fund's return
was measured against those in its Lipper oategory, and the resulting peroentile ranking was then weighted by asset size relative to the fund family's
other assets in its general oategory. 1he family's overall ranking was then determined by weighting the tve fund oategories in proportion to their overall
importanoe within Lipper's fund universe. ln 2012, 1lAA-CRLl is ranked 10th of 62 for the one-year, 29th of 53 for the tve-year and does not qualify for
the 10-year ranking. Consider the investment objectives, risks, charges and expenses carefully before investing.
Visit tiaa-cref.org for product and fund prospectuses that contain this and other information. Read the
prospectuses carefully before investing. 1lAA-CRLl lndividual & lnstitutional 3ervioes, LLC and 1eaohers Personal lnvestors 3ervioes,
lno., members llNRA, distribute seourities produots. Annuity oontraots and oertitoates are issued by 1eaohers lnsuranoe and Annuity Assooiation (1lAA)
and College Retirement Lquities lund (CRLl), New ork, N. 2014 1eaohers lnsuranoe and Annuity Assooiation-College Retirement Lquities lund
(1lAA-CRLl), 730 1hird Avenue, New ork, N 10017. C10238
Learn more about our breadth of award-winning
mutual funds, available to your clients, at
tiaa-cref.org/fundawards or call 800 719-1193.
TYPE TIAA <GO>

AGENDA
ENERGY
Spanish Prime Minister
Jose Maria Aznar, is chief
executive officer of
Formula E Holdings and
owns a stake. Actor
Leonardo DiCaprio is
helping fund one of the
initial 10 racing teams.
For now, all Formula E
cars will be built to identical
specifications, including
200 kilograms (441 pounds)
of lithium-ion batteries, by
McLaren Group and other
car companies. Spending is
limited to 3.5 million euros
($4.7 million) per team per
season, or about 2 percent of
a Formula One teams
outlay.
To ensure success
beyond its first 10-race
season, Formula E hopes to
lure carmakers such as
BMW and Toyota to start
their own teams and
develop cars, according to
Mark Gallagher, a former
manager of an A1 team. He
says its reasonable to think
the companies will want to
be associated with cutting-
edge, superfast electric
vehicles: This is about
making sustainability sexy,
and thats a powerful
message for carmakers.
Which leaves the
question of whether it will
win fans. The first test of a
motor sport thats greener,
slightly slower and lacks
the ear-splitting roar of
Formula One will be
Sept. 13 in Beijing.
ALEX DUFF
T
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A Greener Formula
A MOGUL HUMBLED BY SPAINS REAL ESTATE BUST SEEKS A SECOND ACT
WITH AN ELECTRIC-CAR RACING SERIES.
DEVELOPER Enrique
Banuelos lost most of his
$5 billion fortune when
his company imploded
along with Spains real
estate market. And yet, he
hasnt lost his taste for risk.
Banuelos is using some of
the money he has left to
back a global, startup
electric-car race series
called Formula E. Banuelos
aims to succeed in the
creation of a new motor
sport where others have
failedmost recently, the
A1 Grand Prix race series,
meant to rival Formula
One, which folded in 2009
after four seasons.
Alejandro Agag, 43, the
son-in-law of former
FORMULA ONE
ENGI NE: 1.6-liter V-6 turbo
(plus a 120-kilowatt hybrid
electric boost)
POWER: 760 brake horsepower
(peak/passing mode)
ACCELERATI ON: 0 to 62 miles per
hour in 2.5 seconds
TOP SPEED: 200 mph
SOUND: 120 decibels
(comparable to thunder)
FORMAT: 90 minutes on a
3.5-mile (5.6-kilometer) track;
pit stops as needed for tires,
repairs; no change of car allowed
FORMULA E
ENGI NE: 200-kw
electric motor
POWER: 270 bhp
(peak/passing mode)
ACCELERATI ON: 0 to 62 mph
in 3 seconds
TOP SPEED: 140 mph
SOUND: 80 dB
(comparable to a city bus)
FORMAT: One hour on a
1.5-mile street circuit; two
mandatory pit stops to change
cars; no tire changes allowed
Elon Musk on
Twitter during a
spat with U.S.
auto safety regulators over steps Tesla took to
reduce any re risk related to recharging its vehicles
THE WORD RECALL
NEEDS TO BE RECALLED.

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TYPE EMBE <GO>

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AGENDA
INVESTING
Alexey Mordashov
THE MAJORITY OWNER OF STEELMAKER SEVERSTAL HAS DIVERSIFIED INTO TRAVEL
AND TELECOMAND SEES NO ROOM IN THE OIL AND GAS BUSINESS.
Where do you see
opportunities?
I have four criteria that
potentially help make
a successful investment:
demographicsan increas-
ing population in the region
where you invest; developing
technologies; a good
entrepreneurial climate; and
good potential for commod-
ity businesses. Several
regions meet these criteria.
One of them is definitely
Russia. We have a consumer
boom and a rising popula-
tion. Despite corruption and
bureaucratic issues, it is still
possible to start your own
business in Russia.
Do you invest in bonds,
shares or hedge funds?
I favor businesses that I
manage rather than putting
money into financial
instruments, in which I am
not an expert. All that I earn
I reinvest into businesses
that I consider strategic.
How do you view gold?
I dont see the price of gold
falling in the near future as
it is already close to the
production cost for the
majority of producers. I also
wouldnt expect gold to rise
by very much. In any case,
I wouldnt recommend
putting everything in one
basket. Any investor should
diversify risks by adding
different assets into the
portfolio.
How have you diversied?
I have assets such as
Utkonos, an online retailer.
I recently bought the stake
in Tele2 Russia, the mobile
phone operator. I have a
stake in travel company
TUI. I also own Siloviye
Mashiny, a heavy-machin-
ery maker, and Sveza, a
wood products company.
What about oil and gas?
I dont see any opportuni-
ties, as the sector is full of
highly professional and
effective players already.
The sector is overheated.
How long do you think the
global steel glut will last?
The industry is suffering
from excess capacity. Even
quite healthy 3 percent to
4 percent annual consump-
tion growth cant compen-
sate for excessive and
inefficient capacity. If the
situation remains like it is
now, the utilization rate
will only reach a more or
less appropriate 83 percent
to 85 percent in 2018.
Whats safest: a global
equities fund, Treasuries
or a top-tier Picasso?
Any investment is a risk,
but I would say that art
objects are less volatile.
BI LLI ONAI RE
EXCERPTED FROM A DEC. 16
INTERVIEW BY ALEX SAZONOV AND
YULIYA FEDORINOVA CONDUCTED AT
MORDASHOVS MOSCOW OFFICE.
PHOTOGRAPH BY TK
BLOOMBERG BI LLI ONAI RES
I NDEX NET WORTH:
$11.1 BI LLI ON
AGE: 48
CI TI ZENSHI P: RUSSI A
PRI MARY ASSETS:
OAO SEVERSTAL
(Cherepovets, Russi a);
SI LOVI YE MASHI NY
(St. Petersburg); TUI AG
(Hanover, Germany)
I NDUSTRI ES: STEEL,
I NDUSTRI AL MACHI NERY,
TRAVEL
COMMODI TI ES,
TELECOM
OI L AND
GAS
GOLD
$ 6 3 1 , 8 5 0
Record price for a bottle of single-malt whisky,
a 6-liter Lalique crystal M decanter of Macallan
auctioned by Sothebys in Hong Kong
$ 6 3 1 , 8 5 0

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i travel for work.
i see a lot of opportunity.
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i want to be a part of it.
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the same factors and more volatility. Bonds and bond funds lose value as interest rates rise. Trading ETF shares will result in brokerage commissions and tax consequences. The Funds
are not sponsored, endorsed, issued, sold or promoted by MSCI Inc., nor does MSCI Inc. make any representation regarding the advisability of investing in the Funds. BlackRock
is not afliated with MSCI. 1. Source: MSCI as of 6/2013, based on market cap coverage and number of holdings. 2. 90% of all institutional investors (pensions, foundations and
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Type ISHA <GO>

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BY THE EDITORS OF BLOOMBERG VIEW
To read more editorials, type VIEW <Go> on the Bloomberg Professional service or
go to BLOOMBERG.COM/VIEW.
With the worlds second-largest free-trade zone, four con-
tainer-vessel seaports, the Pan-American Highway and numer-
ous free-trade agreements, Panama is on its way to becoming
the Singapore of the Americas. And as Eric Sabo reports in
Panama Digs Deep (page
62), the expansion of the Pan-
ama Canal now under way is
only part of the massive in-
frastructure spending that is
propelling the Panamanian
economy.
Yet to reap the full bene-
fits of such investment, and
to address one of the hemi-
spheres worst cases of eco-
nomic inequality, Panama
needs to follow Singapores
lead in fighting corruption.
Singapore placed fifth out of
177 countries in last years
Corruption Perceptions In-
dex compiled by Transpar-
ency International; Panama
was 102nd. (The higher the ranking, the less corruption.)
Executives surveyed by the World Economic Forum have
pegged corruption as Panamas biggest problem for business.
Many of the qualities that have made Panama a hub for
global trade and finance have also attracted malefactors. Drug
cartels from Mexico and Colombia take advantage of its loca-
tion, dollarized economy and free-trade zones to move their
products and launder their proceeds. Panamas low tax rates
make it a haven for those seeking to shelter or hide assets. Rev-
enue from the canal and huge investments in infrastructure
feed temptations for misappropriation, bid rigging and bribery.
How Panama Can
Seize Its Moment
Ricardo Martinelli, the president of Panama, makes no secret
of his admiration for Singapore, the island state that has turned
itself into a thriving Asian financial and trading center. As he has
put it, We copy a lot from Singapore, and we need to copy more.
And notwithstanding five successive elected civilian
governments since the 1989 U.S. intervention that toppled
General Manuel Antonio Noriega, Panamas civil institutions
and democratic culture remain weak. The judiciary is seen
as lacking independence.
The press faces intimida-
tion. Martinellis leadership
has been marked by scandals
and efforts to amass execu-
tive power.
This Mays presidential
elections offer Panamanians
a chance to bring in a new ad-
ministration committed to
attacking corruption with
greater urgency. It could
start with transparencyfor
example, by posting online
more details on corporate
ownership and taking other
steps recommended by the
Organization for Economic
Cooperation and Develop-
ment. Panama also has yet to sign on to the World Trade Or-
ganizations government procurement agreement.
Strengthening the judiciary and building up anti-corruption
institutions will take time. In the interim, a few aggressive
prosecutions of cases involving corruption and abuses of au-
thority would be a down payment on reforms to follow. What
has made Singapore such a success, after all, isnt just its free-
dom of commerce but its commitment to following the rules.
CONTINUED PROGRESS IN PANAMA ISNT
A GIVEN. IT WILL REQUIRE THE SUCCESSOR
TO PRESIDENT RICARDO MARTINELLI
TO ATTACK CORRUPTION WITH URGENCY.

2014 Northern Trust Corporation. Head Ofce: 50 South La Salle Street, Chicago, Illinois 60603 U.S.A. Incorporated with limited liabilit y in the U.S. Products and services provided by subsidiaries of Northern Trust
Corporation may vary in different markets and are offered in accordance with local regulation. For legal and regulatory information about individual market ofces, visit northerntrust.com/disclosures.
In this tumultuous market, youre always looking for a competitive edge. And while transparency is often seen
as costly and complicated, it doesnt have to be. In fact, it can work to your advantage. Our single-platform
technology the rst of its kind delivers actionable data in real time. Helping you enhance investor and
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on staying ahead of the competition. To learn more contact Jon Dunham at 312 444 5824 or visit
northerntrust.com/dataclarity.
Transparency
is our priority.
But thats
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Alternative Fund Administration | Operations Outsourcing | Investor Services | Custody
TYPE NTRS <GO>

BLOOMBERG MARKETS 31 BLOOMBERG MARKETS 31

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nancial capital of the United Arab Emir-
ates. Tourists were once again jostling for
a spot from which to watch the dancing
fountains that adorn the downtown area.
Recurring trafc jams, increasing retail
sales and a rise in airport passengers
were other signals for Khan, the senior
executive ofcer at Dubai-based Shuaa
Asset Management.
The signs in the economy were visi-
ble before the market took off, says
Khan, whose rm had 780 million dir-
hams ($212 million) under management
at the end of September. We waited for
the pop and eventually it happened.
Dubais benchmark stock index, in the
doldrums for two years, rose 117 percent
in 2013, including reinvested dividends,
leading the world. That helped Khans
Arab Gateway Fund, which invests
throughout the Middle East and North
Africa, return 39 percent.
Dubais performance was part of a
surge by three Persian Gulf nations
Qatar, the U.A.E. and Saudi Arabia
which jumped to the top of BLOOMBERG
MARKETS third annual ranking of the
most-promising frontier markets in
which to invest.
Three Asian nations led the separate
emerging-markets ranking, with China
No. 1 for the third consecutive year, fol-
lowed by South Korea and Malaysia.
Panama was No. 6; its economy took of
as thousands of workers labored on an
expanded canal that will be able to ac-
commodate the worlds big ships. (For
more on Panama, see Panama Digs
Deep, page 62.)
MSCI Inc., the publisher of equity
indexes, designates countries as emerg-
ing or frontier based on a variety of cri-
teria, including trading volumes,
restrictions on foreign investors, cor-
porate governance, and currency and
political stability.
The BLOOMBERG MARKETS ranking is
based on 19 measures of the investing
climate, from forecasts of gross domestic
product growth for the next two years to
the ease of doing business. The gains for
the Gulf nations came as Brent crude oil
prices remained above $100 a barrel for
the third year, and the petroleum pro-
ducers used their huge revenues to diver-
sify their economies. Qatar and the U.A.E.
have progressed to a point that MSCI
said on June 11 it would upgrade them
from frontier to emerging status in May.
In these countries, you see a burst of
construction, which is reminiscent of
what you saw in China in the 2000s,
when they came up with the high-speed
bullet trains, the airports and all the new
infrastructurewhich opened up the in-
terior of the country, says Arjuna Ma-
hendran, chief investment ofcer at the
wealth management division of Dubai-
based bank Emirates NBD PJSC.
Saudi Arabias economy, the largest in
the Middle East, expanded at a 5.9 per-
cent average pace during the decade
ended on Dec. 31, up from 2.3 percent in
the previous 10 years and faster than the
global average of 3.8 percent, according
to the International Monetary Fund. Qa-
tar will probably post the quickest growth
in 2014 at 5 percent, while Saudi Arabia
and the U.A.E. will both expand about 4
percent, according to the IMF.
Overall, frontier markets were a more
Saudi Arabias King
Abdullah Economic
City, far right, under
construction in 2008.
Right, Dubai hosted the
13th Dubai Airshow in
November.

profitable place to invest in 2013 than
emerging marketsa trend thats likely
to continue into 2014, analysts say. The
MSCI Frontier Markets Index rose 21
percent in 2013, outpacing the MSCI
Emerging Markets Index by 26 percent-
age points, the widest annual gap since
2005. Corporate earnings in the 26 coun-
tries that make up the frontier index have
risen to the highest level in five years.
Profits in the MSCI emerging index,
which is dominated by Brazil, Russia, In-
dia and China, are still 11 percent below
their 2011 high.
In late January, emerging-markets
currencies saw their worst sell-of in ve
years as Chinas economy showed new
signs of weakness. As of Jan. 24, more
than $940 billion in value had been
erased from emerging-markets equities
since the U.S. Federal Reserve signaled in
May that it would start scaling back on
bond purchases that boosted demand for
high-yielding securities, including devel-
oping-nation stocks and bonds.
Among the so-called BRICs, China is
the only market in the top 10 of the 22
emerging-markets countries ranked by
BLOOMBERG MARKETS. China is going to
continue to grow, although at a slower
pace than in the past, says Mark Mobius,
who oversees $53 billion as chairman of
Templeton Emerging Markets Group.
The reform process is going to result in
more volatility.
China expanded in 2013 at a 7.7 per-
cent rate, its weakest annual growth
since 1999. The economy is forecast to
grow 7.4 percent in 2014, according to a
Bloomberg survey of economists. The
Shanghai Stock Exchange Composite In-
dex slumped 3.9 percent in 2013, includ-
ing reinvested dividends, as slowing
growth curbed corporate earnings.
The Chinese government has pledged
to stimulate the economy by allowing
more private investment in state-
controlled industries. And for the rst
time since the one-child policy was
proclaimed in 1979, the Communist
Party said on Nov. 15 it will permit cou-
ples to have two children if either parent
is an only child. The move is intended to
repopulate a rapidly aging workforce.
The government, in a four-day Com-
munist Party conclave in November, also
said it will accelerate convertibility of the
yuan, free up interest rates, improve
Treasury yield curves and let qualified
private investors set up small- to me-
dium-sized banks.
The other BRICs are oundering. As of
September, India, which is No. 21 in the
BLOOMBERG MARKETS ranking, had seen
four straight quarters of economic
1 CHI NA 69. 6 7. 4 1. 4 18. 3 96
2 SOUT H KORE A 68. 4 3. 5 1. 1 19. 5 7
3 MAL AYSI A 62. 0 5. 0 2. 4 36. 8 6
4 CHI L E 59. 3 4. 3 1. 7 40. 1 34
5 T HAI L AND 59. 0 4. 5 1. 9 57. 9 18
6 PANAMA 58. 8 6. 7 0. 04 57. 2 55
7 PE RU 57. 3 5. 5 2. 1 74. 3 42
8 L AT VI A 56. 3 4. 1 0. 6 49. 8 24
9 POL AND 53. 2 3. 2 1. 3 25. 7 45
1 0 CZ ECH RE PUBL I C 52. 6 2. 1 1. 0 25. 3 75
1 1 COLOMBI A 48. 9 4. 6 1. 6 63. 6 43
1 2 T URKE Y 48. 3 4. 1 1. 4 130. 4 69
1 3 HUNGARY 46. 2 1. 9 0. 9 186. 2 54
1 4 RUSSI A 45. 8 2. 5 0. 8 107. 0 92
1 5 BRAZ I L 45. 7 2. 6 1. 0 100. 1 116
1 6 PHI L I PPI NES 45. 3 6. 1 2. 6 39. 5 108
1 7 ME XI CO 43. 8 3. 7 2. 8 38. 8 53
1 8 I NDONESI A 39. 6 5. 7 2. 4 103. 7 120
1 9 SOUT H AF RI CA 38. 3 3. 1 2. 3 114. 7 41
20 MOROCCO 37. 9 4. 4 2. 1 157. 8 87
21 I NDI A 28. 6 5. 2 2. 6 173. 3 134
22 EGYPT 20. 0 3. 3 1. 3 642. 1 128
TOTAL
SCORE
PROJECTED ANNUAL
GDP GROWTH,
2014 AND 2015, %
PRI CE-TO- BOOK
RATI O OF PRI MARY
EQUI TY I NDEX
TWO-YEAR CDS
SPREAD, BASI S
POI NTS
EASE OF DOI NG
BUSI NESS, RANK
Sources: Bloomberg, Economist Intelligence Unit,
International Monetary Fund, Transparency
International, World Bank, World Economic Forum
FOR HOW WE CRUNCHED THE NUMBERS, SEE PAGE 36.

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growth below 5 percent, while Standard
& Poors said in November it may cut the
countrys credit rating to junk. The GDP
of Brazil, No. 15 on the emerging-markets
list, fell 0.5 percent in the third quarter,
the biggest drop since the rst quarter of
2009. Russia, No. 14, saw its GDP expand
1.3 percent in 2013, also the weakest rate
since 2009. Russias growth has deceler-
ated or remained unchanged every quar-
ter since Vladimir Putin won a new term
as president in March 2012. (For more on
Russia, see Remaking Russias Econ-
omy, page 38.)
To some extent, the emerging markets
were at the mercy of the Fed decision to
taper its bond purchases. Such macro
forces had less impact on frontier mar-
kets, says Sean Wilson, chief investment
officer at New Yorkbased LR Global
Partners, which oversees about $200
million in developing-nation invest-
ments. Its the local consumption
growth, infrastructure spending and re-
forms, the broadening and deepening -
nancial services sectors that matter to
these markets, he says. If you looked at
each one of the countries, theres some
domestic infrastructure plays that are
propelling the economy.
It was the construction and retail sec-
torsnot the state-owned oil and gas in-
dustriesthat led the big market gains in
Qatar, the U.A.E. and Saudi Arabia.
Qatar, which has the worlds third-
largest reserves of gas and the highest per
capita income, will host the 2022 soccer
World Cup. This is the largest sports
event in the world, says Rami Sidani, a
money manager at Schroder Investment
Management Ltd. in Dubai. And Qatar is
going to be spending more than $180 bil-
lion in infrastructure projects to be ready
to hold this event. The tiny Gulf coun-
trys GDP last year was $200 billion, the
IMF says. In Saudi Arabia, strong oil
prices have allowed the government to
spend billions each year on infrastruc-
ture, housing, schools and hospitals,
says Brent Clayton, an LR Global emerg-
ing-markets money manager. While
Saudi Arabia is known for its oil, it is the
nonoil sectors of the economycompa-
nies tied to consumption growth and
construction spendingthat represent
the real prize to investors.
Only investors within the Gulf Coop-
eration CouncilBahrain, Kuwait,
Oman, Qatar, Saudi Arabia and the
1 QATAR 73. 4 5. 6 1. 9 26. 1 48
2 UNI TED ARAB EMI RATES 72. 5 3. 8 1. 4 116. 6 23
3 SAUDI ARABI A 72. 3 4. 2 2. 2 26. 9 26
4 ESTONI A 64. 9 3. 3 1. 2 26. 5 22
5 BAHRAI N 61. 0 3. 6 0. 9 147. 8 46
6 SLOVAKI A 58. 8 2. 4 0. 8 25. 7 49
7 L I T HUANI A 58. 7 4. 0 0. 8 49. 4 17
8 BULGARI A 55. 6 2. 2 0. 7 62. 6 58
ROMANI A 55. 6 2. 8 0. 2 86. 0 73
1 0 KAZ AKHSTAN 52. 9 5. 7 0. 7 91. 4 50
1 1 SLOVE NI A 52. 6 0. 4 0. 8 245. 8 33
1 2 VI E T NAM 51. 5 5. 7 1. 8 131. 0 99
1 3 CROAT I A 50. 8 1. 2 0. 9 248. 0 89
1 4 ARGE NT I NA 41. 5 2. 4 0. 5 2, 370. 5 126
1 5 NI GE RI A 38. 3 7. 1 2. 7 335. 2 147
1 6 VE NE Z UE L A 26. 9 1. 1 0. 02 1, 194. 5 181
TOTAL
SCORE
PROJECTED ANNUAL
GDP GROWTH,
2014 AND 2015, %
PRI CE-TO- BOOK
RATIO OF PRIMARY
EQUI TY I NDEX
TWO-YEAR CDS
SPREAD, BASI S
POI NTS
EASE OF DOI NG
BUSI NESS, RANK
Sources: Bloomberg, Economist Intelligence Unit,
International Monetary Fund, Transparency
International, World Bank, World Economic Forum
FOR HOW WE CRUNCHED THE NUMBERS, SEE PAGE 36.
Renderings of
Al-Wakrah
stadium,
planned for the
2022 World
Cup in Qatar.

12-IB13-684CH657
Interactive Brokers
for Institutions
interactivebrokers.com/ria
Interactive Brokers LLC is a member of NYSE, FINRA, SIPC.
Why become an
independent RIA on
Interactive Brokers platform?
Please see the answer at:
TYPE INTB <GO>

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Morgan Stanleys Drinkall likes Argen-
tina (No. 14), Pakistan and Romania
(No. 8), each of which, he says, has insti-
tuted policy changes that will trigger
faster economic growth.
Andy Brown, a London-based emerg-
ing-markets money manager at Aber-
deen Asset Management Plc, which
oversees about $322 billion, has a long
list of what he calls good quality public
frontier-market companies. He names
Nairobi-based East African Breweries
Ltd. and Safari.com. In Nigeria, Zenith
Bank is locally owned and managed and
has a very strong deposit-gathering fran-
chise, Brown says. Most importantly, it
is well capitalized, so it has a bufer when
the bad times come.
Bad times come more often to frontier
markets than to their emerging counter-
parts, and investors have to be acutely
aware of the risk, Brown says. One issue is
the markets small size. About $6.2 bil-
lion of Dubai-based shares changed
hands in December, versus $613 billion
in China, according to data compiled by
Bloomberg. From a liquidity perspec-
tive, you have to be long term in your ap-
proach because it costs a lot to trade, he
says. The markets are relatively thin.
You dont really want to be trading in and
out on a regular basis. It can certainly be
a bumpy ride.
WEIYI LIM COVERS EMERGING MARKETS AT
BLOOMBERG NEWS IN SINGAPORE.
WLIM26@BLOOMBERG.NET WITH ASSISTANCE
FROM SARMAD KHAN IN DUBAI AND
ALEX MCINTYRE IN NEW YORK.
because of the young population, the
consumer spending power, fast-grow-
ing GDP, low government debt. Prices
are very attractive. I would rank them
higher than Middle East countries. Ni-
geria ranks No. 15 in the BLOOMBERG
MARKETS frontier list; Kenya is not
ranked.
U.A.E.can invest directly in Saudi Ara-
bia, where the benchmark stock index
rose 26 percent in 2013. Outsiders access
the market through mutual funds and
derivatives sold by investment banks.
The comeback story of the region is
the emirate of Dubai, which at the height
of the nancial crisis was on the verge of
default. It has been a key beneciary of
the unrest elsewhere in the Middle East,
says Tim Drinkall, a New Yorkbased
money manager at Morgan Stanley In-
vestment Management. Your tradi-
tional tourist destinations have been
places like Beirut, Lebanon, and all of
Egypt, he says. All those destinations
essentially have been closed down. You
are nding a tourism pickup in Dubai.
The emirate also won the right to
sponsor World Expo 2020, an event held
every ve years that is a stage for nations
to show off their economic progress.
This conrms Dubais position as the -
nancial gateway, the trading hub, the link
between the East and the West,
Schroders Sidani says. The Dubai econ-
omy will grow an average of 6.4 percent a
year over the next three years, Barclays
Plc said in a Nov. 26 report.
Sven Richter, who oversees about
$260 million as managing director of
frontier markets at Johannesburg-
based Renaissance Asset Management
Ltd., says the top frontier markets arent
in the Middle East; theyre in Africa. At
the moment, the best opportunity is in
Kenya and Nigeria, Richter says,
Lenovo workers assemble
smartphones in Wuhan. China is
still the No. 1 emerging market.

DBC
PowerShares DB
Commodity Index
Tracking Fund
DBC

Sechin, left, and
Putin began
working together
in the 1990s.


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worlds largest publicly traded oil com-
pany by output and reserves. During
a decade at Rosneft, Sechin has turned it
into something resembling in size the
gargantuan Soviet ministry that was
once in charge of oil production, mainly
by swallowing up rivals. Beginning in
2004, when Putin appointed him Ros-
nefts chairman, Sechin arranged the
companys takeover of the main assets
of Mikhail Khodorkovskys Yukos Oil
Co., according to Khodorkovsky and for-
mer Yukos managers Bruce Misamore
and Alexander Temerko. Yukos was
Russias largest crude producer at the
time. Last year, having become Rosnefts
CEO in May 2012, he orchestrated the
companys $55 billion purchase of TNK-
BP, a BP Plc oil joint venture in Russia.
Sechin is the leading exponent of Pu-
tins stated determination to restore the
governments role in the Russian econ-
omy. Putin used Rosneft, through its ac-
quisitions, to return Russian oil to state
control. The company, which is 69.5 per-
cent government owned, controls about
40 percent of Russias crude output. In
a similar vein, Putin re-established
majority state control of natural gas
exporting behemoth OAO Gazprom.
The company had been privatized in the
mid-1990s under his predecessor, Boris
Yeltsin, cutting the governments stake
to 41 percent. To develop high-technol-
ogy industries such as armaments and
pharmaceuticals, Putin created Rostec,
a state corporation that encompasses
663 companies employing 900,000 peo-
ple, or 1.2 percent of the entire Russian
workforce. He expanded state-run
banks OAO Sberbank and VTB Group,
whose dominance in retail banking has
weakened foreign rivals such as HSBC
Holdings Plc and Barclays Plc.
Sechin declined requests to be in-
terviewed or to answer written ques-
tions. In a telephone interview on Jan.
20, Putin spokesman Dmitry Peskov
said: Sechin is a believer in the role of
the state in his economic philosophy
while at the same time not excluding
a free-market approach. And he is firm
in pursuing his viewpoint. Of Putins
relationship with Rosneft, Peskov says,
The president cant get involved in the
affairs of a company.
Even as Putin, 61, stages the worlds
most expensive Olympics, the $48 billion
Winter Games in Sochi, to showcase the
glories of present-day Russia, he has
spent his time in office reshaping the
economy to resemble the countrys So-
viet past. Following Rosnefts March
2013 acquisition of TNK-BP, state-owned
enterprises accounted for more than 50
percent of Russias gross domestic prod-
uct, up from 30 percent in 1999, accord-
ing to data published by BNP Paribas SAs
Moscow unit and the European Bank for
Reconstruction and Development, or the
Oil from
Rosnefts
Achinsk refinery
flows through a
state-controlled
pipeline system.
visitors to his Kremlin office noticed an
unusual collection on the bookshelves:
row after row of bound volumes contain-
ing minutes of Communist Party con-
gresses. The record stretched across the
history of the party and its socialist pre-
decessorfrom the first meeting in
March 1898 to the last one in July 1990,
a year and a half before the Soviet Union
collapsed.
Sechin regularly perused the docu-
ments and took notes, says Dmitry
Skarga, who at the time was chief execu-
tive officer of OAO Sovcomflot, Russias
largest shipping company. He was
drinking from this fountain of sacred
knowledge so that Russia could restore
its superpower status and take its rightful
place in the world, Skarga says.
Sechins back-to-the-future fascina-
tion with his countrys communist past is
something he shares with Putin, who,
soon after coming to power in 1999, re-
stored the music (though not the lyrics)
of the Soviet-era national anthem and
later described the collapse of the USSR
as the greatest geopolitical catastrophe of
the 20th century. Sechin himself is an
open admirer of socialist icons such as
Cubas ailing Fidel Castro, the late anti-
U.S. Venezuelan leader Hugo Chavez and
the executed Argentine Marxist Che
Guevara, says Victor Mashendzhinov,
who studied with Sechin at college. As
a young man, Sechin served alongside
Cuban fighters in the Cold War hot spots
of Angola and Mozambique.
Sechin, 53, has put his careful study of
communist-era documents into prac-
tice at state-run OAO Rosneft, the

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EBRD. Russias economy probably grew
1.3 percent last year, Deputy Economy
Minister Andrey Klepach told reporters
on Jan. 15 in Moscow. Thats the slowest
expansion since the 2009 recession. The
ministry projects growth will average 2.5
percent a year through 2030 compared
with 7 percent from 2000 to 2008.
Under Putins rule in Russia, the state
is monopolizing key branches of the
economy, says Anders Aslund, a senior
fellow at the Washington-based Peterson
Institute for International Economics.
Aslund was an economic adviser to Yelt-
sin in the 1990s, when the government
prompted a wave of sell-offs of state as-
sets that put 70 percent of the economy
in private hands. Incredibly, Putin
seems oblivious both to the collapse of
the Soviet Unions economic system and
why it happened, Aslund says. Half of
the economy is controlled by state com-
panies, and that is why the Russian econ-
omy isnt growing.
Such criticism ignores competitive
realities, Peskov says. For example,
in shipbuilding, its absolutely point-
less to carry out privatization, he says.
You can privatize enterprises, but
they wont be competitive; they will
be doomed to failure. So consolidating
the assets under the states wing is the
only way to preserve key sectors of the
economy.
The slowdown in Russia coincides
with widespread malaise in some of the
larger emerging marketsincluding Bra-
zil and India, which along with Russia
and China make up the BRIC countries,
as theyre known. Russia is No. 14 in
BLOOMBERG MARKETS annual ranking of
emerging-markets countries. (See The
Gulf Speeds Ahead, page 30.) Its growth
has decelerated or remained unchanged
every quarter since Putin won a new
term as president in March 2012.
Putin has said Russia stacks up favor-
ably with many European countries on
certain key economic indicators. For ex-
ample, Russias unemployment rate for
November was 5.4 percent compared
with 11.1 percent in the euro zone. The
economy is in much better shape than
in a number of European countries,
SBERBANK
Russias largest lender
PUTIN LINK:
Worked with him at St. Petersburg
mayors office in the 1990s
THE RUSSI AN PRESI DENT MAI NTAI NS A GRI P ON THE ECONOMY
THANKS TO THE PRESENCE OF LOYAL ALLI ES I N THE EXECUTI VE
OFFI CES OF BI G FI RMS THAT ARE OWNED WHOLLY OR
MOSTLY BY THE STATE. GAZPROM, ROSNEFT AND
SBERBANK ARE THE COUNTRYS THREE
LARGEST COMPANI ES BY MARKET CAP.
50%
+
ONE SHARE
ROSTEC
State industrial holding giant
PUTIN LINK:
A neighbor in East Germany when Putin was
a KGB officer there in the 1980s
100% 100%
OAO RUSSIAN RAILWAYS
State monopoly railway operator
PUTIN LINK:
A neighbor of his in an elite dacha
settlement outside St. Petersburg
Sources:
Bloomberg,
company data
Herman
Gref
CEO
Sergey
Chemezov
CEO
Vladimir
Yakunin
CEO
50.002%
GAZPROM
Natural gas
exporter that
supplies a quarter
of the European
market
PUTIN LINK:
Worked with
him at St.
Petersburg
mayors office
in the 1990s
Alexey
Miller
CEO
69.5%
Igor
Sechin
CEO
ROSNEFT
Controls about 40
percent of Russias
crude production
PUTIN LINK:
Worked with
him at St.
Petersburg
mayors office
in the 1990s
PERCENTAGE
OF STATE
CONTROL

Peskov says. That is why we dont take
this criticism seriously.
In furthering Putins mission, Sechin is
more than just a loyal underling to the
president, says Khodorkovsky, who ac-
cuses Sechin of orchestrating the de-
struction of Yukos. In December, Putin
showed hes confident enough in the eco-
nomic change hes wrought to free
Khodorkovsky, once Russias richest man
and Putins most powerful rival. Khodor-
kovsky, who was imprisoned in 2003 on
tax evasion and fraud charges and spent
10 years in prison camps, says Sechin
tried to block his release. I dont have
any such information, Peskov says. I
doubt it.
Khodorkovsky also says Sechin has
helped to shape as well as execute Putins
economic policies. Sechin is a real oli-
garch, in the classic meaning of this
word, Khodorkovsky told Bloomberg
News in an interview in Berlin on his
fourth day of freedom. He convinced
Putin that state capitalism is right and is
realizing this idea in practice.
Putin, a one-time KGB colonel, main-
tains his tight grip on the economy by
drawing on Sechin and other members of
his inner circle to ensure that loyal allies
direct the countrys industrial strong-
holds and revenue flows. Sechin, like Pu-
tin, is a St. Petersburg native and worked
for Putin in the 1990s, when the Russian
leader was deputy mayor there. Like
Sechin, Putins favored few are men who
were associated with him before he be-
came president. They include the CEOs
of Gazprom, Sberbank, Rostec and mo-
nopoly rail operator OAO Russian Rail-
ways. Gazprom, Rosneft and Sberbank
are now the countrys three largest com-
panies by market value.
Putin, Sechin and other senior figures
want to ensure that big companies cen-
tral to the economy are in state hands,
says Chris Weafer, a senior partner at
Moscow-based consulting firm Macro
Advisory. They hanker after what they
recall as the stability of the Soviet system,
and part of that is keeping control of so-
called strategic industries, he says.
Despite his relatively low profile
internationally, Sechin looms large at
home. Sechin is easily the most influ-
ential person in the country after Pu-
tin, says Sergei Markov, a political
analyst at and vice rector of the Plekha-
nov Russian University of Economics in
Moscow. Putin trusts him more than
anyone else.
Having Sechin in control at Rosneft
reflects Putins commitment to large
government-run corporations. The
experience of successful economic
modernization of countries such as
South Korea and China shows that
the state has a necessary role to play,
Putin said in a 2012 campaign mani-
festo. Large private capital willingly
doesnt want to go into new areas be-
cause it doesnt want to carry major
risks.
Lately, that private capital has been
flowing away from Russia. Concerns
about Putins treatment of Khodor-
kovsky and what it said about doing busi-
ness in Russia encouraged investors to
pull $420.6 billion out of the country
from 2008 to the end of last year, accord-
ing to the central banka trend the gov-
ernment has said it wants to reverse.
Khodorkovskys release from prison
wont be enough to allay the concerns of
foreign investors, Alexander Kliment and
Yael Levine of Eurasia Group, a political-
risk research firm, said in an e-mailed
commentary on Dec. 19. His release, they
said, was a public relations stunt ahead of
the Sochi Olympics and doesnt mean the
business climate will improve.
The key drag on the economy is
corruption, much of it concentrated in
the state sector, says Elena Panfilova,
head of Berlin-based Transparency In-
ternationals Russia branch. Russia was
ranked the most corrupt nation among
the Group of 20 advanced economies in
the organizations 2013 Corruption Per-
ceptions Index.
Another hindrance is that state-run
companies face no incentive to cut costs
and eliminate waste because nonstate
shareholders are in the minority, says
Mattias Westman, CEO of London-based
WHI LE ROSNEFT
I S THE WORLDS
LARGEST PUBLI CLY
TRADED OI L
COMPANY BY
OUTPUT AND
RESERVES, I T LAGS
BEHI ND EXXON
MOBI L I N REVENUE
AND MARKET VALUE.
Data as of Jan. 13
unless otherwise noted.
1
Third quarter 2013.
2
As of Dec. 31, 2012.
3
As of April 25, 2013.
4
Includes TNK-BP pro
forma data.
Sources: Bloomberg,
company data
ROSNEFT EXXON MOBIL
4. 88
OIL AND GAS OUTPUT
1
(mi l l i on barrel s a day)
4. 02
PROVEN OIL AND GAS RESERVES
2

(bi l l i on barrel s of oi l equi val ent)
29. 6
25. 0
2012 NET PROFIT
PER EMPLOYEE
2012 REVENUE
(i n bi l l i ons)
$159. 2
4
$420.7
TOTAL DEBT
1

(i n bi l l i ons)
$71. 5
$21. 3
EMPLOYEES 235, 827 76, 900
$70, 815 $620, 026
LIFTING COSTS PER BARREL
3
$3.70
$12. 30
MARKET CAP
(i n bi l l i ons)
$76. 6
$430. 5
PRICE-EARNINGS RATIO 5.4
13. 2

50% REDUCTION
IN R&D COSTS
Ontarios R&D incentives
are among the most
generous in the world
26.5% CORPORATE TAX RATE
Ontarios combined provincial/federal
corporate tax rate is lower than the
U.S. federal/state average. Since 2010,
its dropped 5.5 points to 26.5%
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times of the late 1990s, Milov says. He
says Bogdanchikov had his own relation-
ship with Putin, though not as close as
Sechins. The pair wrestled over opera-
tional control, and Sechin eventually
forced Bogdanchikovs exit, Milov says.
While serving as Rosneft chairman,
Sechin was also appointed deputy prime
minister with responsibility for the en-
ergy sector in 2008. He held the Rosneft
position until 2011, when government
officials with a potential conflict of in-
terest were required to quit board seats
at state-run companies. He was the most
effective bureaucrat in the government,
says former Central Bank First Deputy
Chairman Sergei Aleksashenko. From
the point of view of bureaucratic man-
agement, he was simply amazing, says
Aleksashenko, now director of macro-
economic research at the Higher School
of Economics in Moscow. He worked
like a machine.
Under Sechin, Rosneft has grown into
a leviathan. From 2010 to 2013, its an-
nual revenue increased 128 percent to
an estimated $143.6 billion, according
to a forecast by 13 analysts surveyed by
Bloomberg. Its oil and gas output of 4.88
million barrels a day as of the end of the
third quarter of 2013 was greater than
Exxon Mobil Corp.s 4.02 million and
PetroChina Co.s 3.8 million; its proven
oil and gas reserves, including TNK-BP,
rose to 29.6 billion barrels at the end of
2012, more than Exxons (25 billion) and
PetroChinas (23 billion).
The company posted an eightfold
rise in third-quarter profit in 2013, af-
ter recording a 167 billion ruble ($4.98
billion) gain on the value of TNK-BP.
Sechin clinched his latest deal on Dec.
20the day of Khodorkovskys release
with the acquisition of Morgan Stanleys
global oil trading and transport busi-
ness for an undisclosed sum. Sechin
also presided over a $270 billion supply
deal signed in June that will make China
Russias largest crude customer during
the coming decade.
Compared with non-state-owned en-
ergy giants such as Exxon, Rosneft is in-
efficient. Even though Rosnefts lifting
coststhe costs of getting oil out of the
groundare less than a third of Exxons,
the Russian companys workforce is less
productive. Net profit per employee at
Rosneft was $70,815 in 2012 versus
$620,026 for Exxon. Rosnefts price-
earnings ratio was 5.4, compared with
Exxons 13.2, as of Jan. 13. Rosneft shares
fell 6.87 percent in 2013, while Exxon
shares rose 16.9 percent during the year.
The main reason to hold Rosneft is the
reserves, Snykov says.
Sechin had no hands-on oil experience
before joining Rosneft as a manager. Ini-
tially, operational control was left to
Bogdanchikov. Still, Sechins resume as
a state bureaucrat served him well, with
his rise neatly trailing his bosss. Born
in what was then called Leningrad, he
attended a school that specialized in
French. His parents, who both worked
at a metallurgical plant, were divorced
when Igor and his sister, Irina, were
young. After finishing secondary school
in 1977, Sechin studied Portuguese at
Leningrad State University. Unlike chil-
dren of well-connected parents, Sechin
was admitted on his own merits, says fel-
low student Mashendzhinov, whos now
CEO of First Media Co., a St. Petersburg
based advertising firm.
Sechin pored over Marxist-Lenin-
ist texts and could cite from memory
biographical details of Communist lead-
ers through the decades, recalls Larisa
Volodimerova, another fellow stu-
dent. He wasnt one to frequent under-
ground rock concerts frowned upon
Prosperity Capital Management, the
largest Russia-focused equity investor,
which manages about $4 billion in Russia
and other former Soviet countries.
Jim ONeill, the former Goldman
Sachs Group Inc. economist who coined
the term BRIC in 2001, says Putins sti-
fling of private enterprise has led to Rus-
sias growth slowdown. Unless they do
undertake reform, thats the future,
ONeill says. (For more of ONeills views,
see Mexico and Nigeria: Its Their Turn,
page 50.)
Kingsmill Bond, chief strategist at
Sberbank CIB, an investment arm of
Russias biggest lender, says some inves-
tors and commentators hold Russia and
China to different standards on trans-
parency and human rights issues. With
Russia trailing behind Chinas 7.7 per-
cent growth in 2013, Bond says, it would
be fair to say that Russian capitalism is
judged more assiduously than that in
China.
Largely thanks to Rosneft and Gaz-
prom, Russia (population: 143 million) is
the worlds largest energy exporter by
barrels of oil equivalent a day and the big-
gest crude producer after Saudi Arabia.
The government receives about half of its
budget revenue from oil and gas exports.
The EBRD said in December 2012 that
Russia was becoming perilously depen-
dent on commodities and failing to pre-
pare for falling oil output in 20 years. Lev
Snykov, a partner at Greenwich Capital
in Moscow, says the price of crude needs
to be at $120 a barrel or higher for the
government to be able to balance the
budget. Brent crude fell to $106.75 on
Jan. 13.
When Sechin became CEO of Rosneft,
he had already been deeply involved in
the company. As chairman beginning in
2004, he had a decisive say in strategic
decisions because of his unrivaled access
to Putin, according to Vladimir Milov,
who was deputy energy minister in 2002.
As a boss, Sechin displayed a ruthless
streak, Milov says.In 2010, he initiated
the sacking of CEO Sergei Bogdanchikov,
a lifelong oilman who had kept Rosneft
afloat through the volatile economic

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by the authorities, says Volodimerova,
now a human rights activist who lives in
Amsterdam.
After graduating in 1984 with a Ph.D. in
economics and being fluent in Portu-
guese and French, Sechin joined the So-
viet Army and served as a translator in
Portuguese-speaking Mozambique and
Angola, where Soviet- and U.S.-backed
factions competed for dominance during
the final decades of the Cold War. A trip
to a hot spot was seen as a good career
move then, Mashendzhinov says.
In Angola, where Soviet officers served
as advisers to Angolan insurgents and
Cubans fighting at their side, Sechins
friendships led to an affinity with Cas-
tros island bastion of communism. One
day, Sechin witnessed at close hand the
death of a Cuban pilot whose plane was
shot down by Angolan rebels, according
to Anatoly Kolomnin, deputy head of the
Moscow-based Union of Veterans of An-
gola. In Cuba about three years ago,
Sechin sought out the pilots widow and
son, Kolomnin says. He brought the son
to Russia for his university studies,
Kolomnin says.
What turned out to be Sechins best ca-
reer move of all came in 1988, when he
went to work at St. Petersburgs city hall,
where he became acquainted with Putin.
In 1994, when filmmaker Igor Shadkhan
came to interview Putin, then a newly ap-
pointed deputy mayor, he was surprised
to see Sechin in the reception area of Pu-
tins office. Shadkhan says Sechin was the
only male secretary in sight, recording
the names and details of all visitors in
a thick, black notebook. Putin chose
Sechin because he wasnt talkative and
can be trusted with any information,
Shadkhan says.
When Putin went to Moscow in 1996
to work as a senior Kremlin official un-
der Yeltsin, Sechin followed as a lower-
ranking bureaucrat in the presidential
administration. When Putin became
president in 2000, Sechin spent eight
years as his deputy chief of staff. Con-
stitutionally barred from serving more
than two consecutive terms as presi-
dent, Putin bided his time for four years
takeover, says Temerko, who now runs
a London-based business selling North
Sea oil platforms. Sechin was the main
ideologue and driver behind the Yu-
kos case, Temerko says. He was inti-
mately involved in the process from start
to finish. Putin spokesman Peskov says
theres no truth to these allegations.
The government subsequently dis-
mantled Yukos. Most of the companys
assets eventually ended up in Rosnefts
possession. That was always Putins end-
game, says Misamore, who as a former
director of Yukos helps run two Dutch
foundations that hold Yukoss overseas
assets. His philosophy was, private
ownership of the commanding heights
of the economy is not acceptable, Misa-
more says. He wanted to take it back to
the Soviet Union.
In acquiring first Yukos and then TNK-
BP from BP and its billionaire partners in
March 2013, Rosneft gained control of
companies that had pioneered the use of
Western technology and management in
Russia. Yukos hired foreign executives
such as Misamore, who made it the first
Russian company to switch to quarterly
financial reporting under U.S. accounting
standards. Yukos also introduced new
drilling techniques to bolster crude out-
put, which had been in decline during
most of the 1990s.
BP set up TNK-BP in 2003 with Pu-
tins blessing. While the new company
paid $19 billion in dividends to BP from
its inception, according to BPs 2012
annual report, infighting between the
Russian and U.K. partners eventually
led to last years takeover. Under that
deal, BP has a 19.75 percent stake in
Rosneft and BP CEO Bob Dudley occu-
pies one of two seats BP will eventually
be entitled to on Rosnefts nine-per-
son board of directors. Former Exxon
Senior Vice President Donald Hum-
phreys and former Morgan Stanley
CEO John Mack are among the four in-
dependent board members.
TNK-BP increased production by
more than 40 percent during the nine
years before Rosneft bought it. The con-
cern is, will Rosneft be able to achieve
In December, Putin freed former Yukos Oil CEO
Khodorkovsky, once Russias richest man.
as prime minister and installed Sechin
as deputy prime minister while Dmitry
Medvedev sat in as head of state. When
Putin reclaimed the presidency in 2012,
he appointed Sechin as CEO of Rosneft.
ExSovcomflot boss Skarga says that
even after 2000, no one took Sechin seri-
ously, seeing him merely as Putins loyal
sidekick. Yet within a few years, accord-
ing to Khodorkovsky, Sechin confounded
his rivals by masterminding the attack on
Yukos in 2003 to 2004. After Khodor-
kovsky was arrested by armed police at
gunpoint in a corporate jet in Siberia in
October 2003, Yukos was eventually
driven to bankruptcy, owing the govern-
ment $26.6 billion, according to Claire
Davidson, a spokeswoman for the former
management.
With Khodorkovsky sidelined,
Sechin personally launched takeover
talks with Yukos Vice President Alex-
ander Temerko in the summer of 2004,
says Bruce Misamore, Yukoss Ohio-born
chief financial officer at the time. The
Kremlin wanted to imprison Yukos ex-
ecutives so that they couldnt prevent the

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have any billions, he says. What Sechin
does have, Skarga says, is power.
He will have it as long as Putin does,
says Masha Lipman, an analyst at the
Carnegie Moscow Center. Putin has
been in power for 14 years. Under a 2008
amendment to the constitution that al-
lows presidents to serve two consecutive
six-year terms, Putin could remain as
president until 2024, when he would be
72 years old. Though politically stricken
by economic stagnation, Putin is likely
to stand for re-election in 2018, says An-
drew Monaghan, a senior research fel-
low at Chatham House, a London-based
research center. Putins leadership cur-
rently looks steady and sturdy enough to
last until the next election, he says.
Sechin looks well set, too. He now has
his eyes on a post-communist break-
through: In a Jan. 9 research note, Sber-
bank said Russian oil output will probably
approach the Soviet-era peak of 11.4 mil-
lion barrels a day by 2016 or 2017. It
would be a very big psychological mile-
stone for Russia to get back to the Soviet-
era peak production, says Julian Lee,
a senior analyst at the London-based
Centre for Global Energy Studies. It
would be a boost, too, for the former city
hall secretary whose study of the Soviet
communist past has positioned him to
play a leading role in shaping Russias
economic future.
IRINA REZNIK COVERS COMPANIES AND POLITICS
AT BLOOMBERG NEWS IN MOSCOW.
IREZNIK@BLOOMBERG.NET STEPHEN BIERMAN
COVERS OIL IN MOSCOW.
SBIERMAN1@BLOOMBERG.NET HENRY MEYER
COVERS POLITICS IN MOSCOW.
HMEYER4@BLOOMBERG.NET WITH ASSISTANCE
FROM ILYA ARKHIPOV IN MOSCOW AND ANATOLY
KURMANAEV IN CARACAS.
died last March. Sechin, who sported
a Chavez-emblazoned T-shirt during
a trip to Venezuela in 2012 and headed
the Russian delegation to the leaders
funeral, said last year that the country
is our No. 1 priority. At a ceremony to
mark the naming of a Moscow street
in Chavezs memory, Sechin read from
the patriotic poetry of Vladimir May-
akovsky, a Soviet revolutionary poet.
Chavez always told us that if you need
to sort out an issue with Russia, you go
to Sechin, Diosdado Cabello, president
of the National Assembly, told report-
ers before meeting Sechin in Moscow
last October. Hes the go-to man.
Sechin is the go-to man at home as
well, former Sovcomflot head Skarga
says. The richer Rosneft becomes, the
more his influence grows, he says. Un-
like those Russians who accumulated
vast wealth during the privatization of
state industries, Sechin isnt preoccupied
with money, Skarga says. He doesnt
that same level of operating efficiency as
TNK-BP did before it was acquired? says
Rob West, an oil analyst at Sanford C.
Bernstein & Co. in London. That really
is the big question.
Rosneft managed to increase crude
production by an annual average of more
than 3.5 percent from 2009 to 2012.
While that looks faster than TNK-BPs
annual 1.5 percent rise over the period,
West says thats largely because strong
government ties have given it access to
new resources such as the Vankor field in
Siberiathe biggest oil find in Russia in
25 yearswhich started pumping oil in
2009 and now accounts for almost 10
percent of Rosnefts production.
Rosneft is also shouldering huge debts,
says Tatiana Mitrova, head of the oil and
gas department at the Energy Research
Institute of the Russian Academy of Sci-
ences. Following the TNK-BP deal, the
companys indebtedness more than dou-
bled to $72 billion. To ease financial pres-
sures, Rosneft has drawn down the first
tranche of up to $70 billion in advance
payments from China National Petro-
leum Corp. in exchange for supplies, ac-
cording to a Jan. 15 Rosneft statement. In
October, Rosneft separately signed a pro-
visional $85 billion agreement to supply
China Petrochemical Corp. with 100 mil-
lion metric tons of crude over 10 years.
While any advance payments from that
deal could provide a cash lifeline, the
agreement may also restrict Rosnefts
ability to supply other customers at po-
tentially higher prices, West says.
Rosneft, together with other Rus-
sian oil producers, is investing $13 bil-
lion in Venezuela in partnership with
state-owned monopoly Petroleos de
Venezuela SA. Rosneft wasnt put off
by PDVSAs questionable performance.
Even as proven reserves almost qua-
drupled from 1999, when Chavez be-
came president, to 2012, the countrys
crude output declined about 13 percent
to 2.7 million barrels a day, according to
the BP Statistical Review of World En-
ergy 2013.
Sechin has demonstrated a soft spot
for Venezuela and for Chavez, who
EXPLORING ROSNEFT Bloomberg Tps
Sechin, right, shares with Putin a fascination with
Russias seven decades of Communist Party rule.

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emerging
markets needs a rethink. Eight coun-
tries that today are grouped under
this rubric rank in the worlds top 20
largest economies, each accounting
for at least 1 percent of global output.
They are Brazil, Russia, India and
China, for which I coined the name
BRICs more than a decade ago, plus
South Korea, Mexico, Indonesia and
Turkey. Theyre systemically impor-
tant enough to be part of the Group of
20, the core group of nations that
meet annually to try to solve the
worlds economic problems.
Is South Korea really justified as
being part of the emerging markets?
Per capita wealth there isnt far off
RUSSI A
2.6%
5.5%
7.2%
Median economist forecast. Source: Bloomberg
The pace of expansion in the MINT nations
Mexico, Indonesia, Nigeria and Turkeywill rival
that of the better-known BRICs in coming years,
according to economist forecasts.
2015 GDP GROWTH
8%
7
6
5
4
3
2
1
0
TURKEY
4.4%
I NDONESI A MEXI CO
3.9%
6.0%
NI GERI A
7.1%
CHI NA I NDI A
2.7%
BRAZI L

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(
2
)
the level in Spain and is above that of
euro-zone countries such as Greece
and Portugal. (Index publisher MSCI
Inc. in November moved Greece from
the developed-economies group to its
emerging-markets list, and its weigh-
ing whether to move South Korea in
the other direction.)
What about China? Its size, ambi-
tion and global economic reach give
the country a unique role. Some
among the big emerging economies
are commodities producers, such as
Brazil and Russia, while several are
more raw-materials consumersfor
example, South Korea, India and Tur-
key. The forces that these countries
face are sufficiently diverse that
grouping them together for any as-
sessment of economic or investment
outlook is probably an error.
So whats the right way to proceed?
Give each country its due. There are a
lot of opportunities out there. In re-
cent months, Ive focused on a new
group beyond the BRICs, namely
Mexico, Indonesia, Nigeria and Tur-
key, and Im using a new acronym for
them: MINTs. All four have not only
large populations but also very favor-
able demographic dynamics. Each is
set to see its working population rise
relative to overall population, which
is usually a good recipe for growth.
I spent the fourth quarter of 2013
traveling through the MINT countries,
working on a British Broadcasting
Corp. radio documentary. I returned
to London with a particular fond-
ness for both Mexico and Nigeria, al-
though Indonesia and Turkey have
some positive stories, too.
The reforms being undertaken in
Mexico are broad and deep, spanning
fiscal policy, energy, education and
governance. If one were to compare
them with the changes to the U.K.
economy in the 1980s under Margaret
Thatcher, one might conclude that
the Iron Lady was a pussycat. And
Mexico is regaining a competitive
edge as Chinas leaders orient their
economy more toward domestic
consumption. Manufacturers such as
Volkswagen AG, which operates
North Americas biggest automobile
plant in Puebla, are expanding in the
country. The next decade in Mexico
should be much better than the previ-
ous one.
Nigeria is remarkable not least be-
cause it has more than 15 percent of
the entire African continents popula-
tion. If the country stays together, it
will likely have more people than the
U.S. by 2050. The ingenuity and cre-
ativity of many Nigerians is more
akin to what one might expect to find
in the U.S. or another developed econ-
omy rather than in an emerging one.
Their desire to harness modern tech-
nologies might allow Nigeria to leap
through many stages of development
more quickly than other countries.
With a bit better governance, Nige-
ria could really go places. Sub-Saha-
ran Africa generally seems on the cusp
of significant progress. The story in
this region at this time has more to
do with improving leadership and
the application of the best technol-
ogies than it does with commodities
demand.
I visited Turkey in October, after
the protests in Istanbuls Gezi Park
but before Decembers corruption ar-
rests that have rocked Prime Minister
Recep Tayyip Erdogans government.
There were hints that all wasnt well,
not least of which was the reluctance
of many officials to be interviewed by
a foreign news organization. (In the
other three MINT countries, senior
policy makers were very willing to
participate in our documentary.)
The ingenuity and
creativity of
Nigerians is more
akin to what one
might expect
in a developed
economy.

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Concerns about corruption and the
governments construction program
cast considerable doubt over the
near-term outlook for Turkey, espe-
cially as the country needs lots of for-
eign capital to fund its current-account
deficit.
All this said, however, Turkey has
really big advantages that will persist.
It has a youthful and expanding work-
force and a unique geographic spot,
connecting Europe, the Middle East
and Central Asia. And, of course, it
bridges the Muslim world and West-
ern capitalism. No leader keeps
power forever, and at some point, the
issues roiling Turkish politics and
economics will be history.
Indonesia also faces a current-
account deficit, and it has parliamen-
tary elections in April and a presiden-
tial vote in July, in which incumbent
Susilo Bambang Yudhoyono is barred
from running because of term limits.
If the country moves in a positive di-
rection, growth will be quite strong,
given its demographic trends and ur-
banization. Still, I finished my visit in
Jakarta more uncertain about the
outlook for Indonesia than the rest of
the MINT group. Yes, the country has
more than 240 million people, but as
I kept asking during my visit, where is
its edge? Where is its Samsung? Or, to
contrast it with Turkey, where is its
Turkish Airlines or its Beko, a fast-
growing brand of appliances?
All of which is not to say that the
BRIC nations should be forgotten. I
continue to be quite bullish about
China, especially what I would call the
new China. Policy makers seem ea-
ger to boost the quality of the nations
growth rate and less interested in the
quantity of growth for its own sake.
This suggests that there are good
places to invest in China, such as alter-
native energy, creative and knowl-
edge-based industries and businesses
involved in the broad consumer devel-
opmentnot luxury goods but what
might be called luxury lite. It will be
best to avoid companies dependent
upon low-value-added exports and
commodities, as well as the largest fi-
nancial firms, because new entrants
are both allowed and encouraged to
bring more diversity to the sector.
People lately say China has been a
disappointing investment destina-
tion, but Im not sure thats true. In-
vesting in the Shanghai stock market
was a money loser in 2013, but that
index is dominated by companies that
represent the old China. The Shen-
zhen index, weighted more to smaller
companies and much less to the big-
gest state-owned enterprises, man-
aged a rise of 20 percent.
China doesnt yet have anything
like the wealth of a South Korea, but
its rise is so important to the world
that we probably shouldnt consider
China as being in any way a typical
emerging market. Its nominal gross
domestic product will have surpassed
$9 trillion in 2013, and if it grows by
7.5 percent or thereabouts, China will
be contributing more than $1 trillion
a year to global GDP growth. Thats
equivalent to what the U.S. would
provide if it were growing by 4 per-
cent annuallyor Italy if it were
growing 50 percent a year. Even com-
parisons with the other BRIC econo-
mies probably arent entirely fair,
given that Chinas growth is equiva-
lent to the creation of another Brazil,
Russia or India about every two years.
Its hard to overestimate the im-
portance of China to global growth,
even as the emerging-markets label
begins to seem an odd fit. And yet in-
vestors may be rewarded most if they
focus on the fundamentals of specific
countries such as Mexico and Nigeria.
Theyre truly poised to emerge.
JIM ONEILL IS A COLUMNIST FOR BLOOMBERG
VIEW IN LONDON, A VISITING RESEARCH FELLOW
AT BRUEGEL AND A FORMER GOLDMAN SACHS
ECONOMIST. THE OPINIONS EXPRESSED ARE
HIS OWN. JONEILL62@BLOOMBERG.NET
Manufacturers such as
Volkswagen, with its plant in
Puebla, are expanding in Mexico.

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Stocks of companies based in emerging markets are subject to national and regional political and economic risks and to the risk of
currency uctuations. These risks are especially high in emerging markets.
For more information about Vanguard ETF Shares, visit advisors.vanguard.com/VWO, call 800 652-8474, or contact your broker
to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information are contained in the
prospectus; read and consider it carefully before investing.
Vanguard ETF Shares are not redeemable with the issuing Fund other than in Creation Unit aggregations. Instead,
investors must buy or sell Vanguard ETF Shares in the secondary market with the assistance of a stockbroker. In doing
so, the investor may incur brokerage commissions and may pay more than net asset value when buying and receive
less than net asset value when selling.
*Source: Morningstar, Inc., as of 3/1/2013. Based on 2013 industry average expense ratio for emerging markets ETFs of 0.55% and
Vanguard VWO expense ratio of 0.18%.
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is a trademark
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suitability of the Index for the purpose to which it is being put by Vanguard.
2014 The Vanguard Group, Inc. All rights reserved. U.S. Patent Nos. 6,879,964; 7,337,138; 7,720,749; 7,925,573; 8,090,646; and
8,417,623. Vanguard Marketing Corporation, Distributor.
Vanguard FTSE Emerging Markets ETF
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These days, understanding the advantages of tapping into emerging
markets is essential for investing. Vanguard FTSE Emerging Markets ETF
can help your clients diversify by exposing them to companies in more
than 23 countries around the world. And given that its cost is one of the
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TYPE VETF <GO>

Miky Lee stands before a portrait of
Lee Byung Chull, her grandfather.
She says she shares the Samsung
Group founders desire to create
new industries, jobs and heroes.

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South Koreas biggest purveyor of food,
home-shopping services, TV programs
and movies. Wearing a black top, char-
coal leggings and midcalf Michael Kors
sneakers, the 55-year-old granddaughter
of Samsung Groups founder shows no
sign its been a traumatic few months.
Settling in for her first major interview,
Lee opens up about how shes leading the
shaken Samsung offshoot after CJ Group
Chairman Lee Jay Hyun, her younger
brother, was arrested in July.
Im now working longer, talking to
more people, taking care of a lot more
things, including the balance sheet, she
says in a room dominated by a portrait of
Lee Byung Chull, her grandfather. CJ
will get back on track.
Lee is leading Seoul-based CJ Group
during a pivotal time for South Korea.
President Park Geun Hye, who took of-
fice in February 2013, has promised to
crack down on chaebol, empower
women and promote creative busi-
nesses to spark growth. Park told
Bloomberg News in a Jan. 10 interview
that her administration is determined
to quash unfair business practices. She
tempered those comments by saying
she doesnt want to saddle companies
with excessive rules. Having all eco-
nomic participants grow to their poten-
tial, coexist and develop in harmony in a
fair-market environment is our most
important objective, she said.
South Koreas economy is picking up
as Park begins her second year. After ex-
panding 2 percent in 2012, the slowest
pace in three years, gross domestic prod-
uct growth will accelerate to 3.9 percent
in 2014 from 2.8 percent in 2013, the fi-
nance ministry predicts. Korea is No. 2,
behind China, in BLOOMBERG MARKETS
ranking of promising emerging markets
for investors.
Miky Lee helped fashion South Ko-
reas movies and music into a multibil-
lion-dollar industry. Lee Mie Kyung, as
shes known in Korea, and Lee Jay Hyun,
who turns 54 on March 19, turned a sugar
and flour refiner their grandfather had
founded in 1953 called Cheil Jedang
Corp. into the countrys 14th-biggest
conglomerate.
Lee Jay Hyun, known as Jay in inter-
national circles, changed the name to CJ
Group in 2002. He established CJ Corp.,
the groups holding company, in 2007.
Revenue from CJ Groups 76 units soared
more than 16-fold from its start as Cheil
Jedang in 1995 to about 28.5 trillion won
($26.9 billion) last year. Today, CJs 4-D
theaters surprise moviegoers with mo-
tion, wind and scent, and the splashy
Mnet Asian Music Awards, known as
MAMA, honor the regions musicians.
Pop singer Psy says he was skeptical
when Miky Lee began staging MAMA
outside Korea in 2010. Psy came around
Miky Lee is
shown above
with Lee Byung
Chull and at
right with Lee
Jay Hyun, her
younger brother.

after seeing MAMAs popularity grow,
drawing Stevie Wonder to jam with
K-pop star Hyolyn and singer Aaron
Kwok in Hong Kong in November.
MAMA is one of the flowers that came
into bloom by Vice Chairman Lees in-
sight, who always dreamed of music and
culture making all of us one, Psy says.
David Geffen, who co-founded U.S.
film studio DreamWorks SKG with Jef-
frey Katzenberg and Steven Spielberg,
says the Lees built their entertainment
empire from scratch. Its remarkable
that they have gone from absolutely
nothing in entertainment to incredibly
successful, he says. At Mikys urging,
Cheil Jedang invested $300 million in
DreamWorks in 1995 and won the right
to distribute the then-neophyte studios
movies in Asia outside Japan. The Lees
parlayed the deal into their lucrative shift
into entertainment. Their intention was
to learn from this investment so they
could build in Korea a great media com-
pany, which they did and quite a bit
more, he says. Its an indication of how
good they are.
As CJ grew, Miky claimed less of the
spotlight than Jay. Other than her close
ties to her brother, which is rare among
Koreas wealthiest families, and her suc-
cess in media, little is known about her,
says Kim Sang Jo, director of Solidarity
for Economic Reform, which promotes
minority shareholders rights.
Jay was the big-picture guy. Lee Jay
Hyun talked about businesses that didnt
yet exist in Korea, Kim says. Hes a
strategist and a big shoe to fill.
Miky is raising her profile in Jays ab-
sence. As Park began her chaebol crack-
down last year, prosecutors arrested
him on charges of tax evasion, embez-
zlement and breach of trust. Impris-
oned in July, he underwent a kidney
transplant in August. His trial began in
December. The charges relate to per-
sonal taxes, and Lee Jay Hyun didnt
cause losses at his companies, Kim Yong
Sang, his attorney, says. We are fighting
to prove hes not guilty, he says.
CJ Group appointed Miky to a new,
four-person governing committee after
Jays arrest in July. Maternal uncle Sohn
Kyung Shik, 74, who was named co-
chairman with Jay then, and two outside
managers complete the quartet.
Miky Lee describes her role as CJ
Groups de facto chief executive officer.
She says that doesnt mean shell get the
chairmans title in Jays absence: In prac-
tical terms, titles dont change anything,
she says. Its a familiar job, she says.
We have been more like co-founders of
a startup where he formed strategies and
I carried them out.
Lee is poised to show that her instincts
for whats hot in K-pop can augment the
revenue from CJ products such as nucle-
otides that enhance flavors and frozen
dumplings. Businesses outside her enter-
tainment bailiwick generated 83 percent
of CJs revenue in 2012. At stake is how
the conglomerate, with revenue that ac-
counts for 2.4 percent of South Koreas
GDP, will emerge from its crisis.
DreamWorks Katzenberg recalls
Lees drive. When they met in 1995, she
told him she wanted to create a multime-
dia giant from a Korean industry that
barely existed. I thought, Well, this is
going to be interesting, Katzenberg
says. Today, Lee has exceeded his expec-
tations. I hold her in extraordinarily
high esteem as a businesswoman, a man-
ager and a leader, Katzenberg says.
Lee says she never expected to lead a
large conglomerate, thinking shed be-
come a professor. During her 20s and
30s, a neurological disorder she inherited
called Charcot-Marie-Tooth flared up.
The condition affects motor and sensory
nerves, and left her with a limp. When
you have such a condition, you feel a lot of
anger at first, she says. You dont know
why this is happening. Lee, a Buddhist,
says she has come to terms, aided by
meditation. Now I know God has given
this to me for a reason, she says, explain-
ing that her mission is to fulfill her duty
as a business leader, as her grandfather
once did.
Lee says her goal is to keep CJ profit-
able and efficient as it expands overseas.
The world I am dreaming of is one
where people all over the world eat Ko-
rean food once a week, listen to Korean
music sometimes and watch a Korean
film twice a year, she says.
As for her management style, Lee says
the era of South Koreas authoritarian
INFRASTRUCTURE
1%
FOOD & FOOD
SERVICE
34%
HOME
SHOPPING
& LOGISTICS
31%
BIOTECHNOLOGY
& PHARMACEUTICALS
18%
ENTERTAINMENT
& MEDIA
17%
CJ Corp. is the holding company of CJ Group with 11 main
subsidiaries at the end of 2012. The revenue breakdown is based
on 2012 consolidated figures. Percentages are rounded.
Source: CJ Corp.
BREAKDOWN FOR
CJ E&M
7%
55% Broadcasting
16% Films
15% Games
14% Music,
Concerts,
Internet
CJ CORP.
2012 REVENUE:
17. 6 TRI LLI ON WON
($16. 6 BI LLI ON)

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Inc., gained 14 percent as of Jan. 13 fol-
lowing Lees arrest on July 1. It hit an all-
time high of 426,100 won on Jan. 2.
Lee is exploiting links between CJs
businesses to multiply sales. CJ O Shop-
ping broke a South Korean record on
Dec. 1, selling $2.3 million of Siberian
goose-down jackets in 49 minutes. In a
marriage of shopping and entertain-
ment, CJs outdoor clothing unit de-
signed the jacket and a celebrity wore it
on a popular reality show on CJ E&M
Corp.s tvN cable channel, sparking a
buying stampede. Star pitchwomen pro-
mote upscale products, texting on air
and gossiping about their husbands to
hook customers.
CJ is taking this business formula to
China, Vietnam, Indonesia, Japan, the
Philippines, Thailand, Turkey and even
Latin America. CJ O Shopping predicts
overseas sales from TV-based shopping
will top domestic revenue for the first
time in 2015. The company aims to sur-
leaders is over. I see myself as a connec-
tor linking people and businesses, she
says. In December, she hosted Korean
films at New Yorks Museum of Modern
Art, where Korean directors and actors
met executives from U.S. companies in-
cluding Viacom Inc. and Imax Corp.
Such leadership can infuse CJ Group
with a welcome openness, says Kang
Sung Boo, head of fixed-income re-
search at Seoul-based Shinhan Invest-
ment Corp. who specializes in corporate
governance of chaebol. The fact that
shes communicating for the first time
through a media interview is a very en-
couraging sign, he says.
Lee is doing her part to promote her
countrys culture. She started the
KCON annual convention devoted to
K-pop, Korean film and food in Los An-
geles. In January, she traveled to Davos
Switzerland, to showcase South Ko-
rean cuisine at a party President Park
hosted. Lee has Asias youth on her
side. Some 750 million people aged 15
to 24 live in the Asia-Pacific region, ac-
cording to the United Nations. Theyre
prime targets for CJs online games,
shopping, concerts and bibimbap, the
signature rice-bowl dish at its Bibigo
restaurants.
With most sales still at home, some CJ
units are rare beneficiaries of the wons
rise. The currency gained 6.5 percent
against the dollar and 10.6 percent
against the yen in the six months ended
on Jan. 13. Shares of CJ O Shopping Co.,
the worlds No. 2 home-shopping service
in gross merchandising sales, behind
West Chester, Pennsylvaniabased QVC
pass QVC by 2020. Restaurant unit
CJ Foodville Corp. has big plans, too. It
runs more than 160 eateries overseas,
from New York to Cambodia. Lee wants
the Bibigo chain to grow to 740 outlets
outside Korea by 2020, up from just 14
todaywith Psy promoting the brand.
China, where CJ gets $4 billion of an-
nual sales, is its biggest market. CJ has
made inroads with animal-feed factories,
home shopping, VIPS steakhouses and
the multisensory 4DX theaters. Lee plans
new restaurant brands and additional
theaters and shopping channels.
Lees passion remains entertainment.
She and Jay built South Koreas first mul-
tiplex at the height of the 1998 Asian fi-
nancial crisis. The inaugural movie, The
Prince of Egypt, sold out on all 11 screens
for all showings. Other venues have
screens on three walls and fine dining. CJ
CGV Co., Koreas biggest multiplex chain
operator, runs 87 4DX theaters in 22
countries, including 19 in Mexico. Lee
1953: Samsung Group founder
Lee Byung Chull, shown at left,
starts sugar refiner Cheil Sugar
Co., later renamed Cheil Jedang.
1993: Cheil Jedang separates
from Samsung Group.
1995: Cheil Jedang invests in
DreamWorks.

1996: Company begins focus on
lifestyle-related businesses.

1997: Cheil Jedang acquires
cable music channel Mnet.
1998: Company opens CGV,
South Koreas first multiplex
theater.
2000: Company acquires 39
Shopping, later renamed CJ O
Shopping.
2002: Name changes to CJ
Group; Lee Jay Hyun becomes
chairman.

2011: CJ E&M Corp. set up to
house entertainment units.
2011: CJ acquires Korea
Express Co. logistics company.
JULY 2013: Lee Jay Hyun arrested
on charges of tax evasion.
DreamWorks
co-founders
Katzenberg,
Geffen and
Spielberg, left
to right, pose
with Miky Lee
and Jay Lee
in this 1995
photo.
Sources:
Bloomberg,
CJ Group

herself has produced several movies. In
the latest, a $40 million sci-fi thriller
called Snowpiercer, people jam a massive
train fleeing a new ice age.
Today, it seems like jumping into en-
tertainment is a no-brainer, says Choi
Chunghwan, an entertainment partner
at Lee & Ko in Seoul, who says he spoke
with Lee about the industry over lunch
back in 1998. Then, it was an audacious
business decision. South Koreans on av-
erage saw 1.17 films at cinemas a year in
1999, according to the Korea Film Coun-
cil. That rose to 4.12 in 2013, more than
the 3.88 for the U.S., market researcher
Screen Digest says. People wonder how
Korean films became so cool overnight,
Choi says. Its really her vision and capi-
tal that made it all possible.
CJs next step is movies and music that
appeal to cultures worldwide. A Wedding
Invitation, the Chinese-language film CJ
E&M and Chinese companies co-
produced and South Koreas Oh Ki Hwan
directed, features lovers who reunite af-
ter a falling-out. It became Chinas top
romantic box-office hit when it opened
in April. I see no reason why we cant do
in the content business what Korean
companies have done in mobile phones
and cars, Lee says.
Still, she says, its easier for traditional,
manufacturing-centric chaebol to go
global than a company that promotes
lifestyles and was founded on the princi-
ples of convenience, health and joy. The
production line will churn out the same
product rain or shine, Lee says. We in-
teract with our customers directly, and
that requires soft skills, care and sophis-
tication. Its more challenging.
For all her Korean boosterism, Lee was
born in Tennessee, where her father at-
tended the University of Tennessee. The
Lee shows off a CJ exhibit where
a sample of the com panys
best-selling cooked rice grows
under artificial sunlight.

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Jedang in 1994 and plunged into the
DreamWorks investment. She never
forgot Geffens advice: You can have the
greatest idea in the world, but at the end
of the day, the key is, whos going to exe-
cute it? he said.
The headquarters of CJs food-related
businesses hold a reminder of the chal-
lenges ahead. A hologram of Lee Byung
Chull seems to move as if surveying
passersby. His corporate philosophy is
written nearby: Contribute to the na-
tional economy, value talent and pro-
mote rational management.
Miky Lee, recalling carefree days at
her grandfathers home half a century
ago, says his motto remains relevant.
Lee Byung Chull never stopped think-
ing about the next big trend. He fash-
ioned computer chips during his time
and would be building lifestyle compa-
nies now, she says. For him, it was
never about, Lets make lots of money
so I can live comfortably, she says.
Rather, it was about creating new in-
dustries, jobs and heroes, thereby con-
tributing to the nation. My brother and
I live in his legacy. We have that DNA.
Without her grandfather, or her
brother Jay, Miky Lee will have to mus-
ter the determination that helped her
turn a sugar refiner into an entertain-
ment behemoth as she steers CJ
through crisis. Some longtime enthusi-
asts say shes up to the task. All Ill say
is, dont bet against Miky Lee, Dream-
Works Katzenberg says.
YOOLIM LEE IS A SENIOR WRITER AT BLOOMBERG
MARKETS IN SINGAPORE.
YOOLIM@BLOOMBERG.NET WITH ASSISTANCE
FROM SAM KIM IN SEOUL.
family moved back to Seoul when she was
3. Lee and Jay were joined by brother Lee
Jae Whan, now 51, who runs an advertis-
ing agency called JS Communications
Co. The Lees lived with Samsung founder
Lee Byung Chull, who was building one
of South Koreas biggest business dynas-
ties, before they moved down the block.
Every morning, grown-ups and cousins
gathered at the grandparents house for
breakfast before work or school.
Miky Lee graduated from the elite
Seoul National University in 1981 with a
degree in home economics, a popular
major for women at that time. After
studying the Chinese language at Na-
tional Taiwan University and the Japa-
nese language at Keio University in
Tokyo, she enrolled at Harvard Univer-
sity. She earned a masters degree in East
Asian studies there in 1986 and then
studied Chinese literature and history at
Fudan University in Shanghai. She mar-
ried financier Kim Seok Ki; the couple
later divorced.
Lee says her years at Harvard showed
her South Koreas dismal international
standing. Harvards Korean-language
classes attracted few students because
Korea was little known, so she volun-
teered as a teaching assistant. Future
World Bank President Jim Yong Kim, one
of her students, became a close friend.
My lifetime obsession to promote the
Korean culture started then, she says.
CHECKING CJS
CONNECTIONS
Bloomberg Tps
In 1993, Samsung Chairman Lee Kun
Hee, Mikys uncle, unexpectedly offered
the deal that sparked CJs empire.
Chairman Lee proposed to Mikys
mother, Sohn Bok Nam, that she swap
her stake in what is today Samsung Life
Insurance Co. for his stake in Cheil Je-
dang. She agreed. Miky joined Cheil
CJs 4DX theaters, shown at right, enhance
on-screen action with mist, wind and other
effects. ScreenX technology, shown below,
projects images onto three walls.

TYPE SIAI <GO>

BLOOMBERG MARKETS 63
Construction on the new locks
on the Pacific side of the 51-mile-
long Panama Canal

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The ship is part of a dwindling fleet
that still uses the waterway to trans-
port stacks of freight containers from
Asia. Just west of the canal, a new
shipping lane is taking shapeone
thats designed to bring Asian vessels
back. Cranes rise above the jungle,
while Caterpillar trucks the size of
two-story houses carry away some of
the 50 million tons of dirt and rock be-
ing excavated. The work goes on seven
days a week, 24 hours a day, with about
31,000 workers suffering through
tropical humidity and an eight-month
rainy season. Lightning and thunder,
you cant do anything about, says Ilya
de Marotta, the canals executive vice
president for engineering and pro-
gram management. Other than that,
you have to work.
A century after U.S. President Theo-
dore Roosevelts gunboat diplomacy
made the Panama Canal a reality, the
Panama Canal Authority is rushing to
finish a $5.25 billion effort to keep the
canal relevant. New locks and a deeper
channel will accommodate ships 1,200
feet (366 meters) long and 160 feet
wide25 percent longer and more
than a third wider than the biggest
ships that can use the canal today.
These bigger vessels will be loaded
with as many as 12,600 20-foot con-
tainers, 2 times what a ship like the
Zim Shanghai can handle. The canal
expansion will also make room for
ships that carry commodities such as
liquefied natural gas.
Touring the project in November,
U. S. Vice President Joe Biden
emphasized this last point. This is a
very important thing for the United
States, Biden said as workers
pounded away on the 10-story-tall
concrete blocks that will hold the
gates for the new locks. And as the en-
ergy production throughout the
Americas grows, Panama is going to
play a critical role in bridging energy
supplies in the Atlantic with a growing
demand in the Pacific.
The Panamanian economy has been
on a tear: Gross domestic product has
risen an average of 8 percent annually
for the past five years, to $36 billion in
2013. The canal project is both a big
reason for this growth and the linch-
pin of Panamas plan for sustaining it.
The country ranks sixth among emerg-
ing markets in investment outlook, ac-
cording to BLOOMBERG MARKETS
annual ranking. (See The Gulf Speeds
Ahead, page 30.) In projected GDP
growth, Panama ranks second, behind
only China, at 6.7 percent for 2014
through 2015.
The Panama Canal Authority, the
agency that operates the canal, began
the expansion project in 2007, with
the goal of completing it in 2014, the
waterways centennial year. That
wont happen, for reasons including
an early foul-up with the concrete mix
for the locks, a number of strikes and
a still-raging fight between the canal
authority and contractors over cost
overruns. The expected opening has
been pushed back to late 2015.
When the new locks do become op-
erational, the canal will once again
shake up shipping and ports world-
wide. Among the winners will be man-
ufacturers that move goods from
Asia to the U.S. Copenhagen-based
A.P. Moeller-Maersk A/S, the worlds
The latest trouble for Jorge Quijano,
head of the canal authority: massive
cost overruns.

biggest container-shipping company;
Beijing-based China Ocean Shipping
Group Co.; and other firms may be
able to cut transport costs as much
as 30 percent by sending bigger ships
through Panama to move Asian cargo
to Boston, New York and other East
Coast ports. These shippers now un-
load goods onto trains and trucks on
the West Coast of the U.S. to finish
the journey east or make the trip to
East Coast destinations from Asia via
Egypts Suez Canal.
The losers are likely to be the West
Coast portsLong Beach, California;
Los Angeles; Oakland, California; Se-
attleand the Suez Canal. A cheaper
Panama Canal route may also divert
current U.S. imports from the Suez Ca-
nal, with a significant time savings on
the shorter routing, Barclays Plc ana-
lysts said in a report issued in April.
The canal project is only part of the
massive infrastructure spending thats
propelling the Panamanian economy.
Panama is nearing the end of a four-
year, $13.6 billion campaign intended
to, in the terms of a 2012 report from
Standard & Poors, remake the coun-
try as a shipping and logistics hub on
a par with Singapore. (The Singapore
analogy is also a favorite of Ricardo
Martinelli, Panamas president.) The
spending is mostly on new hospitals
and roads and a subway in the capital
of Panama City.
Singapore status, however, isnt im-
minent. The most significant barrier
to achieving it is, in the words of the
S&P report, a duality in the econ-
omy: a split between a modern, pros-
perous and externally oriented sector
strongly connected with the global
economy and a backward, poorer sec-
tor employing less-educated people
and generating less per capita in-
come. In other words, inequality.
Add to that a legacy of corrup-
tion and a reputation as a regional
center for money laundering. It was
only in August that Panama out-
lawed the bearer share corpora-
tiona favorite corporate structure
for drug traffickers looking to laun-
der cash, says Angel Gurria, secre-
tary-general of the Organization for
Economic Cooperation and Develop-
ment. The country remains behind
even Switzerland in sharing tax in-
formation with foreign governments
searching for citizens who are hiding
income. There is less and less toler-
ance, less and less patience for that,
Gurria says. Now, 120 nations around
the world are [sharing tax informa-
tion]. Sixty of them have already
signed, including Switzerland, to mi-
grate towards automatic exchange of
information, which is the standard we
are going to have in the world in the
near future. Panama should be part of
the collective.
That the Panama Canal would one
day become obsolete was clear not
long after it opened in 1914: Even
then, U.S. Navy ships narrowly fit
through the waterway. The maximum
size of a ship that could pass through
the locks came to be called Panamax.
By 1996, three years before the U.S.
handed control of the canal to Pan-
ama, the first post-Panamax ships
were in use. Since then, two more
Sources: A.P. Moeller-Maersk, Hofstra University, Panama Canal Authority
MAXIMUM SHIP
SIZE, EXISTING
LOCKS
32.3 m wide
294.1 m long
12 m draft
4,500 containers
MAXIMUM SHIP
SIZE, NEW LOCKS
49 m wide
366 m long
15.2 m draft
12,500 containers
THE LARGEST
CONTAINER SHIP,
MAERSKS TRIPLE E
59 m wide
400 m long
14.5 m draft
18,000 containers
A great majority of container-ship traffic will be able to
use the new Panama Canal. The biggest ships, though,
will keep to the other side of the world.
EARLY
CONTAINER SHIP
17 meters wide
137 m long
9 m draft
800 containers
EXISTING LOCKS
33.5 m wide / 12.8 m deep / 304.8 m long
NEW LOCKS
55 m wide / 18.3 m deep / 427 m long
Figure for 2013 is an estimate;
2014 to 2018 are projections.
Source: International Monetary Fund
The Panamanian
economy has expanded
every year in the past
25 and is expected to
keep going.
12
10
8
6
4
2
0
%
2000 2010 2018
GDP GROWTH

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TRAFFIC
Bloomberg Tps
generations of new, larger ships have
been placed in service. Even the ex-
panded locks wont fit the largest of
them, but those are specialty ships
intended for shorter routes between
Asia and Europe. The New Panamax
ships, as those designed around the
dimensions of the expanded canal are
called, will be more than sufficient
to alter the face of Asia-to-America
shipping.
The delay in the project is a prob-
lem. Last year, Maersk and Singa-
pores Neptune Orient Lines Ltd.
began using the Suez Canal for big-
ger ships from Asia. The rerout-
ing cost the Panama Canal, which
produces about $2 billion in an-
nual revenue, about $40 million in
business, says Jorge Quijano, the
waterways chief administrator. It
was going to happen sooner or later,
he says. Well accommodate for it,
and we will survive.
The widening of the canal has trig-
gered preparations at ports up and
down the East Coast of the U.S. and
throughout Latin America. The Port
Authority of New York and New Jersey
is raising the Bayonne Bridge; Savan-
nah, Georgia, plans to deepen its river
by 6 feet; and Miami has budgeted
$2 billion to modernize its port.
In the Bahamas, Hong Kong billion-
aire Li Ka-shings Hutchison Wham-
poa Ltd. has built a deep-water port at
Freeport, vying to become a transship-
ment hub, a place where cargo is un-
loaded to smaller boats that can
navigate cramped waterways across
the Caribbean.
And in Louisiana, Lake Charles Ex-
ports LLC got permission in August
from the U.S. Department of Energy to
ship liquefied natural gas from its ter-
minal in Lake Charles. Its the fourth
company awarded such a license, and
21 more applications are pending. This
activity is largely about Asian markets,
which will be made accessible when
the expanded canal opens. U.S. exports
of natural gas liquids could jump to 20
million metric tons in 2020 from the
current 5 million metric tons, accord-
ing to Sanford C. Bernstein & Co.
Jurisdictions threatened by the ca-
nal are fighting to keep their share of
the shipping market. U.S. West Coast
ports now account for about 70 per-
cent of container trade between the
U.S. and Asia. Cheaper transport by
water could shift 10 to 15 percent of
the action over to Eastern ports, ac-
cording to Barclays. Los Angeles, the
busiest U.S. port, is spending more
than $1 million a day to improve in-
frastructure during the next five years
and defend its market share, says Phil-
lip Sanfield, a spokesman for the port.
Panamas neighbors also see gold
in opening avenues across the Cen-
tral American isthmus. Guatemalan
President Otto Perez Molina said in
July that his government was seek-
ing investors to build a rail line that
would shuttle cargo between ships on
the Atlantic and Pacific sides of the
country, following a similar proposal
announced by Honduras.
The most ambitious proposal is
from Nicaragua, which narrowly lost
out when Panama was chosen as the
site of the U.S.-built canal a century
ago. In June, President Daniel Orte-
gas government granted rights to
Hong Kongbased HKND Group to
construct an interoceanic canal at an
estimated cost of $40 billion.
Rodolfo Sabonge, a former vice
president for the Panama Canal Au-
thority, says all competitors are taken
seriously. Yet he doubts that any other
Central American country has what it
takes. Its not that easy, Sabonge
says. You need human resources, the
processes and the culture to be effi-
cient. We have all that.
ERIC SABO COVERS CENTRAL AMERICA FOR
BLOOMBERG NEWS IN PANAMA CITY.
ESABO1@BLOOMBERG.NET
U.S. Vice President Joe Biden, in
foreground, tours the canal project with
Panamanian President Ricardo Martinelli.

Oppenheimer International Growth Fund
Overall Morningstar Rating (Among 230 Foreign Large Growth Funds).
Overall rating of Class Y shares for the 3- and 5-year periods
ended 9/30/13 based on risk-adjusted performance.
1

Today, investors must be willing to pursue growth opportunities globally or risk
missing them altogether. Three out of four billion-dollar companies are now outside
the U.S. and 80% of global GDP growth comes from emerging markets.
2
This fund is
designed to help take advantage of long-term global macro-trends by investing in
many of the best and fastest-growing companies around the world.
Lets take a fresh look at portfolios and start a new conversation about growth,
income and protection* against certain risks in a changing world.
*Protection is positioned as an investment goal. Investing in certain securities may help to hedge against certain
risks, but does not imply any guarantee from loss. Mutual funds are subject to market risk and volatility. Shares may
gain or lose value.
Different share classes may have different expenses, performance characteristics and Morningstar Ratings. Class Y shares
are not subject to a sales charge and are available to certain institutional investors such as insurance companies, registered
investment companies, employee benet plans and 529 plans. Please consult your nancial advisor and/or see the
prospectus for additional information about investor eligibility requirements.
Foreign investments may be volatile and involve additional expenses and special risks including currency uctuations, foreign taxes and political and
economic uncertainties. Emerging and developing market investments may be especially volatile. Investments in securities of small-cap and
growth companies may be especially volatile. Diversication does not guarantee prot or protect against loss.
1. For each fund with at least a three-year history, Morningstar calculates ratings based on a proprietary risk-adjusted return score that accounts for
variation in a funds monthly performance (including the eects of sales charges, loads and redemption fees), placing more emphasis on downward
variations and rewarding consistency. The top 10% of funds in each category receive 5 stars, the next 22.5% 4 stars, the next 35% 3 stars, the next
22.5% 2 stars and the bottom 10% 1 star with some adjustments for multiple share class portfolios. The Overall Morningstar Rating is derived from
a weighted average of the 3-, 5- and 10-year ratings (where applicable). For the 3- and 5-year periods, respectively, the International Growth
Fund was rated 5 and 5 stars among 230 and 190 funds in the Foreign Large Growth category for the time period ended 9/30/13. Rating is for
Class Y shares and rating may include more than one share class of funds in the category, including other share classes of this fund. Ratings are
relative peer group ratings and do not necessarily mean that the fund had high total returns. Past performance does not guarantee future results.
2. Source: IMF World Economic Outlook, 10/9/12 (latest data available).
Before investing in any of the Oppenheimer funds, investors should carefully consider a funds investment
objectives, risks, charges and expenses. Fund prospectuses and summary prospectuses contain this and other
information about the funds, and may be obtained by asking your nancial advisor, visiting oppenheimerfunds.com
or calling 1.800.CALL.OPP (225.5677). Read prospectuses and summary prospectuses carefully before investing.
2014 OppenheimerFunds Distributor, Inc.
TYPE OPPFUN <GO>

69

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who leads Londons top markets watch-
dog, says he wishes he could bike to
and from his home in Greenwich, a
borough along the Thames. He cant
because hes lugging too much paper-
work around. That doesnt stop him
from applying a cycling analogy to his
job. He compares cleaning up bank-
ing to eradicating doping in the Tour
de France, which was rocked by Lance
Armstrongs admission that he cheated
to win his record seven titles.
The Tour de France is in many ways
similar to banking, Wheatley says, wear-
ing an army-green camouflage Nike
wristband that counts the miles he covers
and the calories he burns. I want to be-
lieve theyre all clean, he says of bankers.
We hope beyond hope that actually the
bad stuff is behind us. Weve got a testing
system that really goes in and validates,
which is what we do with the banks.
It took the U.S. Anti-Doping Agency
12 years to ban Armstrong from com-
petitive cycling. Wheatley, 55, has
had barely a year to uncover the Arm-
strongs of the banking world. He says
any cultural shift will take time.
As head of the Financial Conduct
Authority, created in April 2013,
Wheatley meted out a record 474 mil-
lion pounds ($778 million) in fines to
financial firms last year, more than
seven times higher than had been is-
sued in 2011. Among the top pen-
alties: The FCA fined three firms
206 million for manipulating the
London interbank offered rate, or
Libor, and charged JPMorgan Chase &
Co. 137.6 million as part of the probe
into a $6.2 billion loss by Bruno Iksil,
the trader known as the London Whale.
When it comes to punishing bank-
ers, Wheatley made his mark as head
of the consumer and markets busi-
ness unit at the FCAs predecessor, the
Financial Services Authority, where he
was posted in September 2011 while
waiting for the new regulator to be cre-
ated. Wheatley has brought charges
against nine people for insider trading,
including Martyn Dodgson, a former
Deutsche Bank AG managing direc-
tor, and Julian Rifat, a former trader
at Moore Capital Management LLC.
Dodgson and Rifat deny wrongdoing.
Their cases were ongoing as of Jan. 24.
More penalties may be on the way.
The FCA is widening its investigation
into price manipulation of financial
benchmarks that have a direct impact
on interest rates, currencies and the
gold market. Wheatley has initiated a
probe into alleged rigging of the $5.3
trilliona-day foreign-exchange mar-
ket and is examining the ISDAfix
benchmark, used by companies and
money managers in the $379 trillion
market for interest-rate swaps.
Wheatley faces a daunting cleanup.
In 1997, thenU.K. Chancellor of the
Exchequer Gordon Brown stripped
oversight responsibilities from the
Bank of England and created the
Financial Services Authority. The upshot
was what U.K. Treasury Select Commit-
tee Chairman Andrew Tyrie later called a
failed culture of box ticking at the FSA.
Under a light-touch regime, regulators
allowed banks to build up subprime hold-
ings and other risky debt without enough
capital to back them up. When the finan-
cial crisis came, the U.K. government
paid an unprecedented price1.16 tril-
lion in loan guarantees and cash to bail
out Royal Bank of Scotland Plc, Lloyds
Banking Group Plc, Northern Rock Plc
and two smaller banks.
When George Osborne took
office as chancellor of the Ex-
chequer in 2010, he called for
a resetting of regulation. He
announced plans to disband
Browns FSA over time and split
regulation into twin peaks:
the FCA, to oversee banking
behavior and protect consum-
ers, and the Prudential Regu-
lation Authority, an arm of the
Bank of England designed to
supervise capital and liquid-
ity requirements at banks, in-
surers and investment firms. In
2011, Osborne gave Wheatley
U.K. Chancellor George Osborne
said the regulatory system in
place before Wheatleys tenure
was discredited.

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a transitional role at the FSA as it was
being phased out. In a speech last year
when the FCA came into force and
Wheatley took over, Osborne said the
regulatory changes would strengthen
London as a financial center. They do
away with the discredited system that
failed to sound the alarm as the finan-
cial system went wrong, Osborne said.
Sitting in his FCA office, Wheat-
ley says hes working toward the cul-
tural transformation that Osborne
espoused. We came through a period
in 2007 and 2008 when everybodys
moral compass got slightly out of kil-
ter, he says. The biggest concern is
whether the business model of finan-
cial institutions can adequately adapt
to the new world order, where you cant
just rip off your clients.
U.K. fines pale in comparison with
those levied on banks by U.S. author-
ities. Last year alone, JPMorgan, the
biggest U.S. bank by assets, said it paid
out more than $23 billion to settle gov-
ernment and private disputes. By con-
trast, the largest-ever fine by U.K.
regulators was 160 million in 2012
against UBS AG for attempting to ma-
nipulate Libor. The same year, Barclays
Plc also became ensnared in the Libor
probe. It paid out 59.5 million and lost
its Massachusetts-born chief executive
officer, Robert Diamond, in a barrage of
scathing publicity.
U.K. penalties havent been steep
enough, says Tom Kirchmaier, a fel-
low in the Financial Markets Group
Research Center at the London School
of Economics and Political Science.
Bankers are shell-shocked and more
frightened than they were in 2007, so
that will put a lid on some bad habits,
he says. But the fines should have been
bigger for Libor, in my opinion, given
the damage done to society.
Bolstered by an annual budget of
445.7 million and a staff of about
3,000, Wheatley has the power to ini-
tiate criminal prosecutions for insider
trading and market manipulation, is-
sue subpoena-like requests for records
and shut down businesses. On April 1,
the FCA will begin supervising con-
sumer credit, cracking down on pay-
day lenders that offer short-term loans
at interest rates sometimes exceed-
ing 4,000 percent a year. Hes setting
a new tone, says Peter Allen, manag-
ing director at London-based Lom-
bard Street Research Ltd. Hes taking
on the role of headmaster and making
clear to prefects and bullies what will
be tolerated. Hes trying to bring back
ethics rather than just rules.
Wheatley says hes trying to posi-
tion the FCA as a global leader on reg-
ulation. Under the auspices of the
International Organization of Se-
curities Commissions, he worked
with Gary Gensler, then-chairman
of the U.S. Commodity Futures Trad-
ing Commission, to promulgate the
first global recommendations on how
benchmarks should be set and regu-
lated. With U.S. Federal Reserve Gov-
ernor Jeremy Stein, hes co-chairing
a Basel, Switzerlandbased Finan-
cial Stability Board panel looking at
whether the lack of benchmark over-
sight led to manipulation. The U.K.
response has been to position itself as
a reformer-in-chief, he told a group
of investors in London in November.
Thats a change. During the after-
math of the financial crisis, the old U.K.
regulatory setup played catch-up. In the
U.S., the CFTC began its Libor investi-
gation in 2008. It took the U.K. a year
Wheatley worked with ex-U.S.
CFTC Chairman Gary Gensler on
benchmark setting and regulation.
The penalties handed down by Wheatleys FCA last year
were more than seven times greater than those meted out
by its predecessor, the FSA, in 2011.
Sources: Bloomberg,
FCA, FSA
FSA AND FCA FI NES (in millions of pounds)
LIBOR
Rates af fect
$360 TRI LLI ON
of secur i t i es wor l dwi de.
CURRENCY RATES
FX deal s amount to
$5. 3 TRI LLI ON a day.
ISDAFIX
I nter est- r ate swaps ar e a
$379 TRI LLI ON mar ket .
GOLD PRICING
Thi s i s a $20 TRI LLI ON
mar ket .
500
400
300
200
100
0

UNDER
REVIEW
The U.K. regulator
is widening its
investigations into the
manipulation of key
financial benchmarks.
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
474.1

FOLLOWING
REGULATIONS
Bloomberg Tps
and a half to follow suit, even though
Libor is set in London. In July, Wheatley
announced plans to remove control of
Libor from the British Bankers Associa-
tion, an industry group. ICE Benchmark
Administration, a unit of Interconti-
nentalExchange Group Inc., which ac-
quired NYSE Euronext last year, was set
to take over Libor in February.
This time around Wheatley has got-
ten out in front, spearheading the for-
eign-exchange investigation that began
in October. The FCA has 60 people ex-
ploring benchmark manipulation,
including whether a small group of se-
nior traders at a dozen major banks
colluded to manipulate currency rates.
The banks have said theyre cooperat-
ing with the investigation. At least 17
traders have been suspended by their
institutions in the probe. There is
huge political impetus behind change,
says David Green, a former regulator
who worked at the Bank of England
and the FSA. The FCA is bound to
push out the boundaries. Having found
abuse in one market, it was inevitable
they would start looking at other mar-
kets, he says.
With a degree in English and phi-
losophy from the University of York
in northern England, Wheatley is the
thinking mans regulator. He gained
experience as a financial cop in Hong
Kong after 17 years at London Stock
Exchange Group Plc, where he rose to
the post of deputy chief executive. He
moved to the former colony in 2005,
eventually becoming head of the Secu-
rities and Futures Commission. When
Lehman Brothers Holdings Inc. col-
lapsed in September 2008, a credit-
linked product structured by Lehman
blew up and wiped out the savings of as
many as 40,000 people in Hong Kong.
For months, protesters gathered
outside Wheatleys office, brandish-
ing placards, including one that said
Wheatley Go Home, and burning im-
ages of him. Within a year, Wheatley
forced the 16 Hong Kong banks that
sold $1.8 billion of the products, known
as Lehman minibonds, to return more
than 90 percent of the money to in-
vestors. Martin saw firsthand whats
involved in dealing with large institu-
tions wielding more political power
than regulators, says Mark Steward,
who worked with Wheatley as his head
of enforcement.
Wheatley says he wants to end what
he calls regulation through the rearview
mirror. He says hell intervene when he
sees trouble brewing as banks peddle
their wares. Any product thats growing
very, very quickly in terms of scale is usu-
ally a good place to start to look, he says.
Were saying to major organizations,
Actually, your customers matter.
Julian Franks, a finance professor at
London Business School, says its too
early to judge Wheatleys performance.
We dont know if regulation has gone
far enough to prevent another crisis.
Given the pent-up public anger about
bankers wayward ways, Wheatleys
success or failure depends as much on
heading off the next crisis as on clean-
ing up the mess left by the last one.
LINDSAY FORTADO COVERS LEGAL MATTERS
AT BLOOMBERG NEWS IN LONDON.
LFORTADO@BLOOMBERG.NET STEPHANIE BAKER
IS A SENIOR WRITER AT BLOOMBERG MARKETS
IN LONDON. STEBAKER@BLOOMBERG.NET
WITH ASSISTANCE FROM DOUGLAS WONG IN
HONG KONG.
425. 5 mi l l i on
Against five firms
for rigging
interbank offered
rates to profit from
their own trades
137. 6 mi l l i on
For failings at JPMorgan
that allowed former
London-based trader
Bruno Iksil to rack up
trading losses
29. 7 mi l l i on
For not preventing
unauthorized trades
that cost the bank
$2.3 billion
About 57 mi l l i on
Against more than a dozen
firms, including Aberdeen
Asset Management and
JPMorgan, for failing to
protect client money
LIBOR LONDON WHALE CLIENT MONEY UBS ROGUE TRADING
Under a light-touch regime
that began in the mid-1990s,
banks and other firms lost
their bearings. As regulators
got tougher, so did the
penalties.
0 million 100 200 300 400 500 600 649.8
Sources: Bloomberg, FCA, FSA

This advertisement has been approved and/or communicated by Deutsche Bank AG. Without limitation this advertisement does not constitute an offer or a recommendation to enter into any
transaction neither does it constitute the offer of securities. The offer of any services and/or securities in any jurisdiction by Deutsche Bank AG or by its subsidiaries and/or affiliates will be made in
accordance with appropriate local legislation and regulation. Deutsche Bank AG is authorised under German Banking Law (competent authority: BaFin Federal Financial Supervisory Authority)
and authorised and subject to limited regulation by the Financial Conduct Authority. Details about the extent of Deutsche Bank AGs authorisation and regulation by the Financial Conduct Authority
are available on request. Investments are subject to investment risk, including market fluctuations, regulatory change, counterparty risk, possible delays in repayment and loss of income and
principal invested. The value of investments can fall as well as rise and you might not get back the amount originally invested at any point in time. Copyright Deutsche Bank 2014.
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74
IN AN INDUSTRY LITTERED
WITH BANKRUPTCIES,
TODD BECKER
HAS BUILT GREEN PLAINS
INTO A $3.5 BILLION
POWERHOUSE.
BY JOHN LIPPERT AND MARIO PARKER

PHOTOGRAPHS BY JENN ACKERMAN AND TIM GRUBER
Becker says the fundamentals
of ethanol are as good as
he has ever seen.

odd becker couldnt
stop checking prices on
his iPhone as he prepared
to speak at a Nov. 21 inves-
tor conference in Manhattan. Ethanol
was rising, and corn was falling, he says,
driving potential prots on the gasoline
additive to one of their highest levels in
six years.
Becker, chief executive officer of
Green Plains Renewable Energy Inc.,
says he didnt want to wait for a bank
loan. Instead, he ordered deputies to
wire a third of the companys cash
$108 millionand buy two ethanol
plants, in Nebraska and Minnesota,
from creditors of Denver-based Bio-
Fuel Energy Corp. He says he worried
that if he didnt jump, rival Valero Energy
Corp. in San Antonio would snatch the
properties, robbing him of a chance to
expand annual production by almost
a third to 1 billion gallons.
Such is Beckers condence in a U.S.
industry rocked by at least a dozen
bankruptcies since 2008. Some inves-
tors are still spooked after BioFuel de-
faulted on its debt amid a 2012 drought,
leaving David Einhorns Greenlight
Capital Inc., its largest shareholder, a
victim of ethanols volatility. Political
challenges are piling up, too. Big Oil
lists minimum ethanol requirements
as its top policy concern for 2014 and
wants to completely eliminate them.
Government ofcials are already back-
tracking. A week before Becker bought
the BioFuel plants, the Environmental
Protection Agency proposed lowering
its 2014 requirement for corn-based
ethanol in U.S. gasoline to about 13 bil-
lion gallons from 14.4 billion. Senators
Dianne Feinstein, a California Demo-
crat, and Tom Coburn, an Oklahoma
Republican, want to scrap mandates for
corn-derived ethanol entirely. Ethanol
consumes 44 percent of U.S. corn only
to inate food prices, harm the environ-
ment and potentially damage engines,
Feinstein says. Rising U.S. crude output
diminishes the need for ethanol, says
Scott Faber, vice president of govern-
ment afairs for the Washington-based
Environmental Working Group. Eth-
anol is bad news for anyone who eats,
drives a car or cares about the environ-
ment, Faber says.
Becker isnt deterred. Its a contrar-
ian play, he says, driving along I-29 east
of the companys Omaha, Nebraska,
headquarters. But the fundamentals of
ethanol are as good today as weve ever
seen them.
He says ethanol, a form of alcohol
made by fermenting starch from corn
and other crops, will thrive because it
contains the octane that modern, high-
compression engines need. Ford Motor
Co. and others are designing cars to run
on ethanol mixtures greater than to-
days 10 percent. And at $1.94 a gallon,
ethanol costs reners 26 percent less
than petroleum products used to make
gasoline. Were the cheapest molecule
in the fuel tank, Becker says.
As for the environment, growing corn
for ethanol is less harmful than drill-
ing, rening and using oil for gasoline,
Becker says. The technology isnt yet
commercially viable to make ethanol
from switch grass and other cellulosic
sources, which would require less energy
to produce and release fewer greenhouse
gases during manufacturing, use and dis-
posal, Becker says. Im not a dreamer,
he says. I want to make money.
more for the commodity than rivals if
prices fell, the company said in a state-
ment. Instead of rising, corn tumbled
61 percent and ethanol fell 51 percent.
VeraSun lost $476 million on revenue
of $1.1 billion in the third quarter of
2008 and led for bankruptcy.
Becker keeps his grain purchases
and ethanol sales in lock step. He
rarely has more than a days worth of
corn that hasnt been sold and assigned
a slot in his ethanol production. That
helped him charge premium prices
for ethanol when corn was expensive
and protected him as values of both
tanked. Green Plains lost a compar-
atively small $880,000 on revenue
of $105.9 million during 2008s third
In the six years ended in 2013,
Becker built Green Plains into a com-
pany with $3.5 billion in revenue and
700 employees with two strategies: He
buys plants on the cheap and converts
them for low-cost manufacturing, says
Matthew Farwell, an analyst at Impe-
rial Capital LLC in New York.
Green Plains also deploys sophis-
ticated futures, options and swaps to
make fewer wrong-way commodities
bets than such rivals as now-liquidated
VeraSun Energy Corp. As corn soared
66 percent during the rst half of 2008,
VeraSun, the industry leader at the
time, stumbled. It bet prices would
continue to rise with futures contracts
that would require VeraSun to pay
Becker, wearing a tie, meets with his
staff for their daily strategy session
at Green Plains Omaha headquarters.
ETHANOL EVANGEL I ST
T

quarter and had enough cash to buy
two VeraSun plants.
Companies that trade the commod-
ities separately can wind up with big
inventories and wide price swings,
says Michael Cox, a Piper Jafray Cos.
researcher in Minneapolis. The survi-
vors use Beckers strategy now, he says.
Beckers tactics made Green Plains,
with its 12 plants, the fourth-largest
U.S. ethanol producer by production
capacity in 2013, behind Archer-Daniels-
Midland Co., a consortium called Poet
LLC and Valeroand ahead of Flint
Hills Resources, a subsidiary of Koch
Industries Inc. The top ve now control
45.2 percent of the industry, up from
39 percent in 2008, the Washington-
based trade group Renewable Fuels As-
sociation says. Unlike the others, Becker
relies exclusively on corn-based etha-
nol. ADM is 25 times bigger than Green
Plains, and its unit that includes etha-
nol accounts for 15 percent of the com-
panys revenue.
Green Plains shares more than
doubled to $19.38 in 2013, outpacing
the 30 percent rise for the Standard
& Poors 500 Index. Todd has a disci-
plined approach to maintaining mar-
gins and growing through acquisitions,
says Sam Halpert, manager of a Van
Eck Associates Corp. fund that owned
407,600 shares in September. Hes got
a fair amount of stock, which we like. In
January, Becker had options on 250,000
shares he can buy at any time for $12 or
less apiece on top of the 509,584 he al-
ready owns.
Green Plains headquarters is hum-
ming on a 14-degrees-Fahrenheit
(minus-10-degrees-Celsius) Tuesday in
December. Becker, whos 6 feet 3 inches
(1.9 meters) tall, thrusts his hands as if
throwing a basketball to emphasize a
point during his 30-minute strategy
session. He grills his two dozen traders
on corn hoarding in Nebraska and
animal-feed demand in China. Back at
their desks, they pore over potential
plant-by-plant prot breakdowns using
futures contracts covering a matrix of
commodities and time frames.
Becker doesnt waste time when
deals pop up. After his subordinates
wired cash to buy the BioFuel plants
on Nov. 22, Becker took control of the
Wood River, Nebraska, facility at 5 p.m.
that day. By lunchtime the next work-
ing day, his traders had sold most of the
ethanol and animal feed Wood River
would produce in December and pur-
chased most of the corn it would need,
This ethanol plant in Shenandoah, Iowa,
is one of 12 the company runs across the
U.S. The output is shown at right.
Green Plains use of futures contracts at the end of 2011 helped it lock in profits for the
following year. The strategy saved the company money when the worst U.S. drought
since the 1930s drove up corn prices and the company didnt need to buy any.
30%
20
10
0
10
20
PRI CE OF CORN
PRI CE OF ETHANOL
How Becker
Makes Money
Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012
Source: Green Plains
Q4 2012
If Green Plains had
waited and paid
spot prices ...
$7. 39
A BUSHEL
$2. 36
A GALLON
... it would
have pro-
duced a loss
of 7.4 cents
a gallon.
Q4 2011
Because Green Plains bought futures
contracts to secure prices for corn and
ethanol to be delivered in Q4 2012 ...
$6.73
A BUSHEL
$2.19
A GALLON
... it produced
an operating
profit of 15.3
cents a gallon
of ethanol.
Drought, June to
July 2012

WHAT DRIVES
ETHANOL PROFITS?
Bloomberg Tps
plus natural gas to heat it. In half a day,
they generated an operating profit
of as much as $10.2 million, a 10th of
the plants purchase price, says Jason
Ward, a Northstar Commodity Invest-
ment Co. analyst in Minneapolis.
Becker bet big in 2011, when he sold
ethanol and bought corn futures for
most of the following year. Corn had
dropped as Europes debt crisis cut
demand and Ukraine tripled exports.
Becker gured he could earn 20 cents
per gallon of ethanol, a third more than
usual. He got lucky when a drought
pushed corn from $5.50 a bushel to
$8.24 in July 2012 and he didnt need
any. Green Plains earned $11.8 million
in 2012; Becker got a $4.3 million pay-
check. Valero had an operating loss of
$47 million on ethanol that year.
Becker started a separate Green
Plains hedge fund that had $55 mil-
lion in assets as of mid-January. He
hopes to reach $1 billion in assets, de-
clining to say when. Theres always an-
other bottom coming in the commodity
markets, Becker says. We prepare for
that, and when margins turn, we can
generate signicant amounts of cash.
Jim Barry, chief investment offi-
cer of renewable power at BlackRock
Inc., the worlds biggest money man-
ager, recruited Becker for a forerun-
ner to Green Plains in 2007. Becker
took charge at the BlackRock-funded
startup in Chicago that later bought
out Green Plains, gaining its name
and stock listing. Since what we
were really doing was playing in com-
modities, we needed a guy who could
do that, says Barry, a Green Plains
director whose various BlackRock
funds own 1.3 million shares.
Becker learned to temper risk with
caution after watching his grandfather,
a Russian immigrant who ran a scrap
yard and grew soybeans before opening
a Los Angeles delicatessen. Millions of
dollars passed through his hands, but he
died with nothing, Becker says. The rst
of his family to attend college, Becker
chose the University of Kansas for its
scholarships. He interned at whats now
CBOE Holdings Inc. in Chicago.
Becker experienced what he calls a
perfect trade in 1993. He was working
at Kansas City, Missouribased Farm-
land Industries, then the biggest U.S.
farm cooperative. Farmland sold so
much wheat, it convinced competitors
the company had huge reserves. In fact,
Farmlands traders were also shorting
wheat, or selling borrowed grain with
hopes of proting when prices later fell.
Becker says the sheer volume of wheat
they were selling threw rivals of. When
competitors started dumping their re-
serves amid what appeared to be Farm-
lands massive holdings, Farmland was
the only buyer. It resumed wheat sales
and made huge prots, Becker says. It
was like a trifecta, he says.
Becker modeled Green Plains after
Farmland. Rail cars, storage elevators and
shipping terminals complement his trad-
ing desk and ethanol plants. Fifty miles
(80 kilometers) southeast of Omaha, in
Shenandoah, Iowa, Green Plains pro-
duces 65 million gallons of ethanol a
year in towers that emit a sweet beerlike
scent. The company wrings 175,000 tons
of animal feed from leftover parts of the
corn. It converts some feed to corn oil,
adding a nickel to its typical 15 centsa-
gallon ethanol prot. It saves three cents
a gallon by grinding corn thoroughly.
Becker promises to pressure presi-
dential candidates to support ethanol
when they pass through Iowa in 2016
even though hes sure lawmakers will
scrap minimum requirements. Its
just a matter of when, he says.
Becker says Green Plains is ready for
that dayand for the once-in-a-life-
time trading opportunity that will mul-
tiply revenue. Green Plains hasnt had
an event like that, but we will, he says.
We could grow quickly into a $10 bil-
lion or $20 billion company.
JOHN LIPPERT IS A SENIOR WRITER AT
BLOOMBERG MARKETS IN CHICAGO.
JLIPPERT@BLOOMBERG.NET
MARIO PARKER COVERS ALTERNATIVE ENERGY
AT BLOOMBERG NEWS IN CHICAGO.
MPARKER22@BLOOMBERG.NET WITH
ASSISTANCE FROM JEFF WILSON AND
ELIZABETH CAMPBELL IN CHICAGO AND
ANITA KUMAR IN PRINCETON.
ETHANOL EVANGEL I ST
The Big Five
*A consortium of independent plants. As of Dec. 20. Sources: Green Plains, Renewable Fuels Association
PRODUCTION
CAPACITY
(MI LLI ONS OF
GALLONS A YEAR)
1 Archer-Daniels-Midland 1,720
2 *Poet 1,649
3 Valero 1,130
4 Green Plains 1,020
5 Flint Hills Resources (Koch Industries) 660
TOTAL PRODUCTION,
U. S. INDUSTRY:
13. 7 BI LLI ON GALLONS
Green Plains, which focuses
exclusively on corn-based ethanol,
competes in a U.S. market domi-
nated by diversified companies.
TOTAL
PRODUCTION
BY TOP 5:
6. 2 BI LLI ON
GALLONS
45% MARKET
SHARE

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The Fight Over Canadas
PHOTOGRAPHS BY MICHAEL FRIBERG

Riches
Scenes from the Aroland community in
northern Ontario: 1. The Church of the
Immaculate Heart of St. Mary 2. Village
elder Julia Mendowegan 3. The railroad that
would carry minerals south 4. Trapper Mark
Bell with marten pelts 5. Darcy Gagnon runs
the OSullivan Lake Gas Bar. 6. His cousin
Sonny Gagnon is Arolands chief. 7. Route
684 is the only road in town. The Cliffs
mining company wants to build a new artery
to carry ore to the railhead. 8. Jack
Shabogamik, an elder 9. Children gather at
an educational tepee for a lesson on
traditional practices.
FIRST NATIONS
PEOPLES ARE
ASSERTING THEIR
RIGHT TO BE
CONSULTED BEFORE
DRILLERS AND
MINERS USE THEIR
LANDCOMPLICATING
STEPHEN HARPERS
PLANS TO TURN THE
COUNTRY INTO
AN ENERGY
SUPERPOWER.
BY JEREMY VAN LOON
1
3
2 5
8
9
7
6
4

The Fight Over Canadas Riches
BACK IN THE SPRING OF 2012, WHILE WALKING IN
the deep woods of northern Ontario, Sonny Gagnon
stumbled across a collection of surveying equipment
among the towering spruce trees. Gagnon is chief of
the Aroland aboriginal tribe, a band of 450 people liv-
ing in a village of ramshackle houses surrounded by
swampy muskeg. He tracks everything that goes on in
his community. And the surveying tools werent sup-
posed to be there, he says. I was ticked off, he says, af-
ter learning that the equipment belonged to a
subcontractor of Cleveland-based mining company
Cliffs Natural Resources Inc. It turned out Cliffs had
plans to mine for chromite to the north
of the Aroland reserve and to build a
road through the territory to transport
truckloads of the mineral to a railhead.
They werent consulting us on what
they were doing on the land, Gagnon
says. I told them to leave and that we
didnt want them back. Gagnon and
his native band then set up a roadblock
to monitor traffic. Cliffs suspended
plans for the mine in November, in a
statement citing risks associated
with its ability to transport the ore for
processing. Cliffs officials didnt respond
to repeated requests for comment.
Aboriginal Canadians from Quebec
to British Columbia are asserting their
rights. Energized by a 2004 Supreme
Court decision that requires govern-
ments to consult and accommodate
aboriginal groups before miners and oil
and gas drillers encroach on their
lands, the natives have blocked half a
dozen major projects since the court
ruling, including a proposed C$6.5 bil-
lion ($6 billion) oil pipeline from Al-
berta to the Pacific Ocean and a shale
gas project in the eastern province of
New Brunswick.
The natives activism complicates
Prime Minister Stephen Harpers grand
plan to boost the Canadian economy
with C$650 billion worth of natural re-
source projects over the next decade in
a quest to make the nation an energy
superpower. Among the governments
priorities are mining projects in the
so-called Ring of Fire region of north-
ern Ontario, stepped-up oil extraction
from Albertas tar sands and natural gas
exploration in British Columbia.
Native Canadians are demanding a
say in how these projects proceed, and
the 2004 court decision forces the gov-
ernment to give them one. These are
huge issues, which have enormous im-
plications for the economy of the coun-
try, says Bob Rae, a former Ontario
premier who, until April 2013, led Can-
adas federal Liberal Party. Theyre
right at the center of Canadas eco-
nomic life.
Former Liberal Party leader
Bob Rae is negotiating on
behalf of Ontarios Matawa
First Nations.

The natives have a powerful political
ally in Rae, who has agreed to negotiate
with mining companies and the provin-
cial and federal governments on behalf
of the nine chiefs of the Matawa First
Nations, including Gagnon. The coun-
cil holds sway over northern Ontario
lands where major mineral discoveries
were made as recently as 2008. Mining
companies, including Cliffs and
Toronto-based Noront Resources Ltd.,
estimate the region contains C$50 bil-
lion worth of copper, zinc and chromite.
The aboriginals latest show of power
came in New Brunswick in October and
November, when demonstrators gath-
ered in opposition to Houston-based
Southwestern Energy Co.s plans to
drill for natural gas on native lands.
The protesters clashed violently with
police, at one point throwing Molotov
cocktails that incinerated six police ve-
hicles. The company says the disrup-
tion in its operations cost it $60,000 a
day. It got a court injunction that
stopped the protests and proceeded
with exploratory drilling in December.
Confrontations such as the one in
New Brunswick are proof that the
Canadian federal government has
mishandled its mandate to consult with
the First Nations over such projects,
says Paul Martin, an aboriginal rights
advocate who led Canada as prime min-
ister from December 2003 to February
2006. If you want to have a relation-
ship, begin by listening, Martin says.
And the federal government seems in-
capable of doing so.
Prime Minister Harper has pledged to
reset the relationship between govern-
ment and Canadas indigenous people.
Certainly, in the past, lack of trust on both
sides has held us back, he said in 2012.
Canada is facing more challenges to
resource-extraction projects from ab-
originals than any other nation in the
world, according to an October report
by Fredericksburg, Virginiabased
First Peoples Worldwide, which pro-
vides grants and services to native
tribes. The activists are divided into
two groups. The so-called traditional-
ists want to shut out development and
preserve native lands for hunting and
fishing. Progressives want to share in
the enormous wealth being produced
by the countrys resource companies.
Often both points of view are repre-
sented in the same native band, creat-
ing conflict. Both can be found in a
national movement called Idle No
More, which has staged protests
around the worldincluding in Stock-
holm and Londondemanding jobs,
education and economic development
for Canadas indigenous communities.
Idle No More made headlines in Janu-
ary 2013, when it staged protests that
blocked train traffic between Montreal
and Toronto.
Canada is home to 1.4 million na-
tives, who make up 4.3 percent of the
population, compared with the U.S.s 2
percent, according to the most-current
census data. More than half of Canadas
Coastal First Nations director
Art Sterritt says the Northern
Gateway project threatens
fragile shellfish beds.
Canadas 600 First Nations reserves
are scattered across six time zones,
many of them within or near
proposed resource projects.

K
E
V
I
N

C
O
O
L
E
Y
/
R
E
D
U
X
First Nations peoples, as they are
known, live and work in cities; the rest
are scattered across six time zones on
more than 600 reserves. Unemploy-
ment is as high as 90 percent in native
communities such as Aroland, and the
median per capita income was C$14,000
in 2005, the latest year for which figures
are available. The per capita income of all
Canadians today is C$40,650, according
to Statistics Canada.
Canadian resource companies say
theyre eager to accommodate the First
Nationsso long as they dont make
unreasonable demands. In August,
Calgary-based Athabasca Oil Corp. won
approval from Albertas energy regula-
tor to start up an oil sands project in
northeastern Alberta over the protests
of the Fort McKay First Nation, whose
traditional hunting grounds are adja-
cent to the proposed site. The Fort
McKay group wants a 20-kilometer
(12-mile) buffer around the bitumen
drilling operation. Athabasca rejected
the idea, but on Dec. 17, Sveinung
Svarte, its chief executive officer, said,
It is our view that a mutually accept-
able solution is achievable. Athabas-
cas shares sank 38 percent in 2013
amid uncertainty about the project,
which could produce 250,000 barrels of
oil a day at full capacity.
On the Pacific coast, Calgary-based
pipeline builder Enbridge Inc. has
reached an angry impasse with the na-
tives. The company wants to lay a
1,178-kilometer line called Northern
Gateway to connect Albertas oil sands
with the Pacific port of Kitimat, where
the oil would be loaded onto tankers
and shipped to petroleum-thirsty
Asian markets. The pipeline would tra-
verse British Columbias mountains
and salmon streams.
The pipeline is opposed by native
groups along much of its proposed
route because they say oil spills and
leaks would destroy their hunting and
fishing grounds. The Yinka Dene Alli-
ance, a group of six tribes whose lands
span the pipelines proposed route to
the sea, have banned any Northern
Gateway contractors from setting foot
on their lands. The Coastal First Na-
tions, an alliance of nine aboriginal
groups on the British Columbia sea-
shore, is equally determined to block
Enbridges pipeline, and joined dozens
of First Nations that voiced their
opposition to the pipeline during 2012
regulatory hearings by Canadas
National Energy Board.
The board gave the project a green
light in a December ruling, placing 209
conditions on the pipeline, many of
them designed to protect the environ-
mentand, by implication, native
lands. Enbridge says it will spend an ex-
tra C$500 million to boost the thick-
ness of its pipes, will install dual leak
detection systems and will post perma-
nent staff at remote pumping stations
to minimize the risk of a spill. Ive
been in a number of locations in B.C.
trying to talk to people about the proj-
ect, but, more importantly, listening to
what they are saying, Enbridge CEO
Al Monaco says. I dont say a heck of a
lot. I basically listen to what the con-
cerns are.
The natives arent persuaded. Art
Sterritt, executive director of Coastal
First Nations, stands aboard a 20-
meter (70-foot) boat plying the waters
near Prince Rupert and points across
the Hecate Strait at a string of buoys,
marking the spots where the seabed
was seeded with juvenile scallops in
2012. The fragile shellfish beds are part
of an effort to rebuild a traditional ab-
original economy based on aquacul-
ture. The real foundation of who we
are is shellfish, Sterritt says, as a pod of
whales surfaces within view of the boat.
He adds that he doesnt want to take a
chance that an oil spill will destroy the
pristine bay. We are still hopeful that
they will see the merit of stopping this
project, says Arnold Clifton, chief
councilor of the Gitgaat First Nation.
The recommendation is by no means
the final say. All options are on the
table. Harper, who also faces opposition
Heavy equipment at work
at an oil sands site in
Alberta. The Fort McKay
native reserve is nearby.
Prime Minister Harper says his goal
is to reset the relationship between
government and the aboriginals.
Lack of trust has held us back.

and other companies. Whether with
the mining sector, whether its in for-
estry, whether its waterwe own it all,
he says.
In reality, what the natives own or
control is a matter of disputeand has
into any agreement that we want to,
says Gary Allen, chief of the Nigigoon-
siminikaaning First Nation, which is
negotiating logging rights on its land
in northern Ontario with Montreal-
based Resolute Forest Products Inc.
to the pipeline from nonnative British
Columbians, has until June to decide
the projects fate.
Their recent victories in holding up
projects have emboldened the aborig-
inals. We have the authority to enter
RISKS
PROPOSED
RESOURCE
PROJECT
FIRST
NATION(S)
AFFECTED
ECONOMIC
POTENTIAL
5
RING OF FIRE
MINES

MATAWA (nine tribes)

Metals and minerals
worth as much as
C$50 billion

Clearing of north
Ontario forests,
including moose and
caribou habitat
destruction
6
SOUTHWESTERN
ENERGY CO. SHALE
GAS PROJECT

ELSIPOGTOG,
MI KMAQ

Exploitation of the
80 trillion cubic feet
of natural gas
thought to lie under
New Brunswick
Encroachment on
native lands;
contamination of
the water supply;
earthquakes
3
KINDER MORGAN
TRANS MOUNTAIN
EXPANSION

SQUAMISH,
TSLEIL-WAUTUTH
Asian oil sales;
increased oil
production at global
prices
Oil spills in rivers
and ocean;
increased tanker
traffic in Salish Sea
2
APACHE-CHEVRON
PACIFIC TRAIL
PIPELINE

WETSUWET EN
Increased gas
production, sales at
global prices

Fish and animal
habitat destruction;
local pollution
4
ATHABASCA, DOVER/
BRION ENERGY OIL
SANDS PROJECT
FORT MCKAY

Potential oil
production of
250,000 barrels
a day
Moose and caribou
habitat destruction;
encroachment on
native hunting
grounds
1
NORTHERN GATEWAY
PIPELINE

COASTAL (including
GITGAAT, HAISLA and
others), YINKA DENE
ALLIANCE (six tribes)
Asian oil sales.
Producers command
global prices, now
30% higher than
Canadian crude.
Oil spills in B.C.
rivers and bays
where salmon and
shellfish spawn;
more tanker traffic
in Hecate Strait
Source: Bloomberg
INDIGENOUS PEOPLE ARE PROTESTING AND SUING TO BLOCK
A HOST OF RESOURCE PROJECTS THE CANADIAN GOVERNMENT IS COUNTING ON TO BOLSTER THE COUNTRYS ECONOMIC FUTURE.
CLASH OF CULTURES

been since Canada was founded. Al-
though the 2004 Supreme Court deci-
sion forced the government to
negotiate with First Nations when a
company encroaches on land they oc-
cupy, the court did not give aboriginals
veto power over government-backed
resource projects.
Canada has signed 11 major treaties
with natives since 1867, when the coun-
try gained independence from Great
Britain. The treaties guarantee that the
natives can practice their traditional
way of life without giving them owner-
ship of any land, says Thomas Isaac, a
partner and head of aboriginal law at
Toronto-based law firm Osler, Hoskin
& Harcourt LLP. The Supreme Court
decision clarified Ottawas responsibil-
ities, Isaac says. Government is the
centerpiece of the wheel, he says. The
courts are going back and relying on
ancient principles around fairness and
equity. This is about government treat-
ing its subjects fairly.
In the Ring of Fire in northern On-
tario, the federal government is serv-
ing as an intermediary to make sure the
new mines include training and jobs for
the aboriginals and do no permanent
harm to the environment. We want
to do this right. It has to be inclusive,
says Greg Rickford, the federal minis-
ter responsible for the development.
First Nations communities can and
will bring important understand-
ing to the environmental assessment
processes.
Former Prime Minister Martin says
Canadas indigenous peoples are not
anti-development. What they want is
for it to be done in a sustainable way.
That means doing it in full consultation
with the people who live near these
projects.
Native claims are mostly addressed
in the courts and other government
forums. Since 2011, aboriginals have
filed 165 complaints against the federal
government with the Canadian Human
Rights Commission, claiming they re-
ceive insufficient funding for education
and child welfare. In disputes over re-
source projects, the mining and drilling
companies are caught in the middle.
The expectations placed on compa-
nies in this area over the past 10 years
have evolved incredibly quickly, says
Robert Walker, vice president at Van-
couver-based NEI Investments, which
oversees C$5.5 billion in assets. First
Nations power is growing.
Arolands Sonny Gagnon intends to
take full advantage of that fact. Condi-
tions in Aroland are typical of rural na-
tive communities. Houses stand
unfinished or in a state of decay.
Clutches of mothers stroll up and down
the dirt roads pushing baby carriages.
The only business is a corner store sell-
ing gasoline and canned food. The big-
gest of the few employers is the tribal
government, which provides paychecks
to about 30 people. Most of the rest live
on government welfare of about C$400
a month. Every day is a challenge,
says Robinson Meshake, in charge of
social work on the reserve. We take
each day one at a time.
Gagnon says alleviating his commu-
nitys deep poverty is his only goal.
Even as he blocks construction of
Cliffs proposed road through his set-
tlement, he says he has no objection to
the mining project. Im pro-develop-
ment, he says. Cliffs would use the
road to transport ore from a mine 340
kilometers to the north to a railhead in
Aroland. As many as 100 ore-laden
trucks a day would pass through the
community. I want those jobs for my
people, Gagnon says. I want them to
be making $400 a day.
With the stakes in the tens of bil-
lions of dollars for Harpers govern-
ment and the resource companies he
supports, Gagnon and other native Ca-
nadians have never been in a better
position to right some of the historic
wrongs they believe their people have
suffered.
JEREMY VAN LOON IS CHIEF OF THE
CALGARY BUREAU OF BLOOMBERG NEWS.
JVANLOON@BLOOMBERG.NET
WITH ASSISTANCE FROM PAUL BADERTSCHER
AND GREG QUINN IN OTTAWA.
Natives take part in a
ceremony in the
educational tepee on the
Aroland reserve.
Whether with the mining sector,
whether its in forestry, whether
its waterwe own it all, says
chief Gary Allen.

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ALEXCO RESOURCE CORP.
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THOMPSON CREEK METALS COMPANY INC.
TORONTO STOCK EXCHANGE: TCM NYSE: TC
Thompson Creek Metals Company Inc. is a diversied North American mining company with three
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from its new Mt. Milligan Mine in British Columbia, and molybdenum from its Thompson Creek Mine in
Idaho and Endako Mine in British Columbia.

Gauge the U.S. Economys Health
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U.S. economy by monlLorlng shllLlng credlL lundamenLals.

1he lndex leverages llLchs vasL proprleLary daLa on morLgages,
credlL cards, corporaLes and banks Lo bulld a deLalled plcLure
ol Lhe healLh ol Lhe U.S. credlL markeLs. 1he Lrends ln economlc
growLh are lndlcaLed by Lhe relaLlve sLrengLh or weakness ol
Lhe lndex, ranglng lrom 10 Lo -10.

1he llLch lundamenLals lndex complemenLs llLchs dally raLlngs
and research Lo help markeL parLlclpanLs lorm a hollsLlc vlew ol
how underlylng credlL lundamenLals are lnLeracLlng.

Learn more abouL Lhe Fitch Fundamentals Index at
our webslLe.
TYPE FII <GO>

4Q13
+
2
3Q13
0

IN THE AFTERMATH OF THE GLOBAL FINAN-
cial crisis, correlations among U.S. stocks rose to
levels higher than during the Great Depression.
To show how equities move together over time,
New Yorkbased Empirical Research Partners
LLC calculated the correlations of returns among
the 750 largest U.S. stocks by mar-
ket value, averaging daily data dur-
ing each quarter from 1926 through
the end of 2013. In all but one quar-
ter since the start of the crisis in
2007, correlations have been higher
than the historical average, the cal-
culations show. The average corre-
lation peaked at 67 percent from
June to September 2011, when
Standard & Poors downgraded the
U.S. credit rating and stock markets
tumbled. Stocks were more in lock
step than they had been in 87 years.
CORRELATIONS TYPICALLY
spike when stocks plunge. How-
ever, in 2013s rising market, the
share tango persisted, to the frus-
tration of stock pickers. As the S&P
500 Index racked up its biggest gain
since 1997, only 16 of the best-per-
forming large hedge funds beat the
Risk Returns
As the Fed tapers its asset purchases, correlations among shares may ratchet
down from historic highs and provide opportunities for active managers.
BY DOUGLAS EDLER, CFA, AND JON ASMUNDSSON
EQUITIES
STRATEGIES
benchmark as of Oct. 31, according to a BLOOM-
BERG MARKETS ranking. (See Larry Robbins: Off
to the Races, February 2014.) More broadly, less
than 20 percent of actively managed mutual funds
in the U.S. outperformed their benchmarks in
2013, according to Morgan Stanley research.
PHOTOGRAPH BY SASHA MASLOV
Stocks in Lock Step
Since 2007, correlations of returns among U.S. stocks have remained
mostly higher than their 87-year average.
0
10
20
30
40
50
60
70%
1926 1930s 1940s 1950s 1960s 1970s 1980s 1990s 2000s 2013
*Computed using daily data, averaged over each quarter.
Source: Empirical Research Partners
Average correlation of capitalization-weighted returns among the 750 largest U.S. stocks*
Recessions
Average for entire period
1929
The Great Depression sent
correlations to a record high
that held until 2011.
2011
The downgrade of the
U.S. pushed readings to
an even higher level.

When correlations of stocks are very high,
its more difficult for active management to per-
formin that the market isnt really separating
the wheat from the chaff, says John Linehan,
head of U.S. equities at Baltimore-based fund
giant T. Rowe Price Group Inc. That doesnt
mean that active managers are throwing in the
towel. Far from it, Linehan says. We fervently
believe that we can outperform the market over
the long term, he says. In 2013, in fact, the firms
largest mutual fund, the $42 billion T. Rowe Price
Growth Stock Fund, returned 39.2 percent, beat-
ing the S&P 500s 29.6 percent.
TEASING OUT WHATS CAUSED THE HIGHER
correlations is difficult. One culprit may be in-
vestors moves into passive index-based invest-
ments, such as exchange-traded funds that track
a benchmark by proportionally buying all of the
stocks it includes. For example, the Vanguard
Total Stock Market Index Fundwhich surpassed
the Pimco Total Return Fund as the largest U.S.
SkyViews Steven Turi,
Andrew Melnick and
Larry Chiarello, left to
right, say the flood of
money from the Fed had
reduced stocks riskiness.

STRATEGIES
from $85 billion, portends a drop in stock
correlations, which as of early 2014 had al-
ready started to ebb from their 2011 peak.
Linehan says he doesnt anticipate a
sea change just yet. You tend to see more
dispersion and less correlation around an
inflection point, he says. Active managers
should be able to do well in a lot of differ-
ent environments, though the best conditions are
characterized by extremes in valuation and low
correlation, he says.
SkyView focuses on investing in long-short
hedge funds, which pursue strategies of buying
some stocks and selling others short with an eye
toward profiting from a decline in their prices.
Turi says that the broad market rise of late has
made it tough for managers to profit from their
short bets. One factor is that many companies
with large debt loads have been able to refinance
at low rates, he says.
TURI POINTS TO THE 1990s, WHEN STOCK
correlations were the lowest since the 1960s, as
a prime time for long-short managers. It was al-
most nirvana, Turi says.
Melnick says the stock market is probably a
couple years away from another sharp downturn.
Yet as we move closer to that turning of the cycle,
he says, parsing the quality of companies will
become more important. Stock selection will be-
come more and more critical because risky assets
will become riskier again, he says.
DOUGLAS EDLER, CFA, IS AN EQUITIES APPLICATION
SPECIALIST AT BLOOMBERG IN NEW YORK.
DEDLER@BLOOMBERG.NET JON ASMUNDSSON IS
STRATEGIES EDITOR OF BLOOMBERG MARKETS.
JASMUNDSSON@BLOOMBERG.NET
mutual fund in Octoberseeks to track
the performance of the CRSP U.S. Total
Market Index by passively sampling the
benchmarks holdings.
Another potential cause has been the Federal
Reserves purchase of Treasuries and agency
mortgage-backed securities, which has held
down bond yields and pushed investors into
other markets in search of higher returns. An-
drew Melnick, a managing partner at SkyView
Investment Advisors LLC
in Shrewsbury, New Jersey,
says that the Feds unconven-
tional monetary policy has had
a spillover effect from bonds
to stocks. Its the enormous
amount of money thats coming
out of the Fed, Melnick says.
There is inflation; its in assets, not in the
real economy. In the asset world, were getting
an enormous amount of inflation.
Steven Turi, SkyViews chief investment offi-
cer, agrees. Weve been using monetary policy to
solve all of our ills, he says. Thats a very blunt
tool. One byproduct of Fed policy, Turi says, is a
reduction in the riskiness of risky assets. In ef-
fect, the flood of liquidity into the markets has
floated all boats, says Larry Chiarello, a managing
director at SkyView.
The Feds Dec. 18 announcement that it would
trim its bond purchases, to $75 billion per month
EQUITIES
STOCK SELECTION
WILL BECOME
MORE AND
MORE CRITICAL,
MELNICK SAYS.
TRACKING CORRELATIONS
You can use the Volatility and Correlation Analysis (VCA) function
to examine changes in correlations. Type VCA <Go>, click on the
arrow in the upper-left corner of the screen and select Index. Click
on North/Latin America to expand the list if it isnt already dis-
played. Click on the Impl/Realized Corr tab to compare correlations
implied by trading in index and single-stock options and historical
correlations. Options are contracts that grant the right to buy or
sell an asset at a set strike price by a certain date. As of Jan. 13, the one-month
implied correlation on the Standard & Poors 500 Index was lower than the one-
month realized correlation. To track correlations for the 50 largest stocks in the
S&P 500, click on the indexs name. JON ASMUNDSSON
TIP BOX
Type FSRC
<Go> to
screen for
actively
managed
funds.

STRATEGIES
CHEAT SHEET
T
E
A
R

O
U
T

A
N
D

S
A
V
E
.
Emerging Markets
PULL OUT AND SAVE. // MARCH 2014 // PRESS <HELP> TWICE TO SEND A QUESTION TO THE BLOOMBERG ANALYTICS HELP DESK.
Want to learn
more? Turn over
to read our ad.
EMMV <Go>
displays real-time
values for benchmark
stock gauges,
currencies and debt
by country.
OTC <Go>
allows you to dig
deeper into money
markets, derivatives
and government
bonds in Asia, eastern
Europe, the Middle
East and Africa.
PORT <Go>
lets you investigate
the key drivers of
a selected portfolios
performance and run
scenarios to estimate
future returns under
diferent conditions.
XLTP COUNTRY
RISK <Go>
downloads a
spreadsheet that
allows you to
calculate your own
proprietary risk score
for more than 60
countries.
WCDM <Go>
displays a macro view
of countries nancial
conditions, including
data on outstanding
debt, credit-default
swaps and ratings.
SOVR <Go>
shows spot prices and
performance over
time for CDSs and
can be narrowed to
focus on developed or
emerging-markets
countries.
WCRS CR <Go>
lets you analyze the
performance of a
carry-trade strategy,
in which investors
borrow in lower-
interest-rate regions
to invest in higher-
yielding markets.
MA <Go>
tracks mergers and
acquisitions, letting
you customize
searches based on
size and countries of
the buyer and target.
XCRV <Go>
monitors and
compares spot levels,
forward rates and
forecasts for
currencies and other
assets.
VOLC <Go>
lets you chart
option-volatility
measures for up
to four currencies
at a time.
XLTP CROSS
BORDER FLOWS
<Go>
lets you track the
ow of funds into and
out of diferent asset
classes for a select
list of countries.
PGEO <Go>
shows the geographi-
cal breakdown of a
selected companys
revenue and expendi-
tures.
WBI <Go>
ILBE <Go>
allow you to track
world inationlinked
bonds and break-even
rates.
COMPILED BY
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RSWIFT5@
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lets you use a quantitative model to
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countrys debt and generate a model-
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can use to compare the risk of diferent
countries.
SRSK <Go>

Some design flaws are so
obvious, you have to wonder
how they were ever able to
pass inspection. Investments are no exception.
After all, who wants to invest in a watered
down version of what they expected?
Twenty years ago, State Street Global Advisors
ETGCVGF VJG TUV GZEJCPIG VTCFGF HWPF VJG
SPDR
S&P 500.
It offers a more precise way

to buy and sell an entire index, but is traded
like a stock.
Today, there are more than 120 other SPDR
ETFs that cover a range of asset classes.
So you can be sure youll get just what your
portfolio needs.
If you would like to wash your hands of
imprecise investments, scan the QR code
or visit spdrs.com.
Before investing, carefully consider the funds investment objectives,
risks, charges and expenses. To obtain a prospectus or summary
prospectus, which contains this and other information, call
1.866.787.2257 or visit www.spdrs.com. Read it carefully.
EIFs trade Iike stocks, uctuate io arket vaIue aod ay trade at prices above or beIow the EIFs oet asset vaIue. rokerage coissioos
aod EIF expeoses wiII reduce returos.
The SPDR
S&P 500
ETF Trust is an exchange traded fund designed to generally correspond to the price and yield performance of the S&P 500 Index.
TM
SPDR, S&P and S&P 500 are registered trademarks of Standard & Poors Financial Services, LLC (S&P) and have been licensed for use by State Street Corporation.
|c r+rci+| u|cJuct ce|eJ |] St+te St|eet c| its +|i+tes is sucrsc|eJ, erJc|seJ, sc|J c| u|cacteJ |] S8|.
ALPS Distributors, Inc., a registered broker-dealer, is distributor for SPDR S&P 500 ETF Trust, a unit investment trust.
IBG-9400
WAS YOUR LAST INVESTMENT DESIGNED WITH
THE SAME METICULOUS ATTENTION TO DETAIL?
TYPE SPDR <GO>

MERGERS AND ACQUISITIONS DELIVERED
an average premium of more than 30 percent to
shareholders of target firms last year. While
holders of the companies profited by owning the
shares before the deals were announced, inves-
tors using risk arbitrage strategies can also win
by betting on whether such transactions will
eventually succeed or fail.
Wagers on deal completion can provide a cush-
ion for investors in bearish markets and generate
returns that dont depend on broader market
movements. The M&A Arbitrage (MARB) func-
tion on the Bloomberg Professional service can
help you pursue this strategy by showing pend-
ing offers and terms, as well as breaking news
about the companies involved.
Type MARB <Go>. The function lets you create
templates for M&A monitors and customize
their metrics. Click on a deal to view news on the
Proting From Deals
You can use Bloombergs M&A-monitoring tool
to track arbitrage opportunities.
BY ERIC ROSEMAN
related companies, to see details of the offer or to
chart the prices and premiums over time. The
Current Premium in % column shows how a
takeover bid relates to a targets stock price and
is a key metric in M&A analysis. A negative value,
which occurs when the shares are trading above
the offer price, is a sign that the bid may eventu-
ally be raised. If the current premium crosses
over to positive territory, it may indicate skepti-
cism that the offer will succeed. To show first
those deals that the market has priced furthest
from completion, use MARB to sort the premi-
ums from highest to lowest.
Targets of M&A offers typically appreciate
after the deal is announced, while the buyers
shares usually decline. An investor could wager
against the success of a deal by buying the stock
of the acquirer and selling short the target.
THE DUELING BIDS BETWEEN MENS WEAR-
house Inc. and Jos. A. Bank Clothiers Inc. show
how to use the current premium as a barometer
for a deals expected success. After rebuffing a
buyout offer from its smaller rival, Mens Wear-
house offered to purchase Jos. A. Bank on Nov.
26 for $55 a share, an 8.7 percent premium over
the previous days closing price of $50.60.
Jos. A. Bank rejected the offer, and Mens
Wearhouse raised its bid to $57.50 on Jan. 6. That
was still a 1.64 percent premium to Jos. A. Banks
stock as of Jan. 13, signaling remaining doubt
among some investors that the offer would bring
the two retailers together.
ERIC ROSEMAN IS ON THE STAFF OF THE ANALYTICS
DEPARTMENT AT BLOOMBERG IN NEW YORK.
EROSEMAN5@BLOOMBERG.NET
Type MARB
<Go> for
a dashboard
of pending deals.
STRATEGIES
EQUITIES

STRATEGIES
94
LOW-VOLATILITY EQUITY STRATEGIES
investment approaches that focus on stocks
whose prices swing less than othershave at-
tracted interest from many investors during the
past few years. The oldest exchange-traded fund
based on such a strategythe PowerShares S&P
500 Low Volatility Portfolio, which was started in
2011had $4 billion in assets as of Jan. 13.
The attraction of such strategies lies in their
lower realized volatility combined with a return
that matches or beats traditional market-capital-
ization-weighted indexes. Such strategies arent
entirely new. Part of Warren Buffetts success may
be explained by his bets on low-volatility, boring
stocks, according to a recent academic paper.
The Portfolio & Risk Analytics (PORT) function
lets you build low-risk portfolios. You can base
such a strategy on a capitalization-weighted index
that you have access to on the Bloomberg Profes-
sional service or on your own list of stocks.
Lets create a strategy, for example, based on an
ETF that tracks an emerging-markets index. Type
VWO US <Equity> PORT <Go> to load the Vanguard
FTSE Emerging Markets ETF in PORT. Click on
the Tracking Error tab and then on the Summary
subtab. Click on the arrow to the right of Model, se-
lect Bloomberg Risk Model (Global) and press <Go>.
The annualized one-year volatility forecast by the
PORT risk model was 14.9 percent as of Jan. 13.
Lets see how much we can reduce that risk using
optimization. Click on the Trade Simulation button
on the red tool bar and select Launch Optimizer. If
youre using the optimizer for the first time, PORT
will display a window that offers a menu of tasks and
a link to a user guide. Click on Close.
LETS START WITH A READY-MADE TASK.
Click on Tasks, select Predefined Tasks and click
on Reduce Risk: Minimize Risk With 20% Turn-
over. To specify an optimization, you need to de-
fine four components of the process: your goals,
the universe of securities you can trade, con-
straints and security properties. Lets change the
goal to minimizing portfolio total risk. In the Goals
section of the screen, click on the pencil icon. Click
on the plus sign to the left of Risk to expand the list.
Click on the plus sign to the left of Risk (Ex Ante).
Scroll down and click on Portfolio Total Risk. A de-
scription of the data itemwhich calculates the
predicted volatility of the portfolios returnsis
displayed to the right. Click on Select.
We want the optimizer to re-weight the securi-
ties in the portfolio to achieve the goal. So in the
Trade Universes section, under Security List, we
can use the setting of Current Portfolio.
The next step is to define portfolio- and
Lowering Volatility
You can use the optimizer in PORT to build and backtest a reduced-risk equity
strategy based on an index or other list of stocks.
BY NICK BATURIN
PORTFOLIOS
Type PORT <Go> and click on the Tracking Error tab to display
model-predicted, one-year volatility for a selected portfolio.
TIP BOX
Type DOCS
#2066156
<Go> 1
<Go> for
a user guide
to the PORT
optimizer.

reduced forecast risk to 8.5 percent from 14.9 per-
cent. The portfolio was somewhat levered, with a 163
percent long weight and 63 percent short weight.
Now that weve seen that we can reduce the
risk of the current portfolio, lets run a backtest
in which we rebalance the portfolio over time,
minimizing risk at each rebalance date. Click on
the box to the left of Backtest so that a check
mark appears. In the Backtest Settings window,
click on the arrow to the right of Rebalance Fre-
quency and select Monthly. To test five years of
data, set the date range to 60 Months from Last
Month End. In the field to the right of Create
New Portfolio, enter a name. Click on Save and
then on the Run Backtest button.
The PORT system will start your backtest and
alert you with a Bloomberg message. Youll get an-
other message when its complete. Click on the at-
tachment to load the backtested portfolio into
PORT. Click on the Performance tab and on the To-
tal Return subtab if it isnt already selected. Click
on the arrow to the right of Time, select Maximum
Range and press <Go>. During the five years ended
on Jan. 13, the optimized portfolio returned a total
of 175 percent, while the ETF returned 95 percent.
Importantly, the ride was a lot smoother, too.
In addition, the risk statistics all look much bet-
ter. To display them, click on the Statistical Sum-
mary subtab. The realized volatility during the
past five years was lower: 14 percent versus 23 per-
cent. That gave the optimized portfolio a Sharpe
ratio of 2.36. By comparison, the ETFs ratio of ex-
cess return to volatility was 0.98.
NICK BATURIN IS THE HEAD OF PORTFOLIO & RISK ANALYTICS
RESEARCH AT BLOOMBERG IN NEW YORK.
NICK.BATURIN@BLOOMBERG.NET
security-level constraints.
We dont need the turn-
over constraint. Click on Turnover under
Constraint Field and then on the gray De-
lete button. Lets allow both long and short
positions in the optimized portfolio. In the
Security Properties section, click on the ar-
row to the right of Long Positions Only and
select Long/Short Positions. Lets allow up
to 100 percent short exposure and up to
200 percent long. Enter 200 in the MAX
field to the right of Long.
The ETF may hold some bonds that we
dont want to use in the optimization. To
avoid them, click on the Add Constraint
button. Click on the plus sign to the left of Weight
and then on Weight to select it. On the right side
of the screen, click on the plus sign to the left of
Bucket and then on the plus sign to the left of As-
set Class. Click on the plus sign to the left of Asset
Type and then on Fixed Income to select it. Enter
0 in the MIN field and 0 in the MAX field. Click on
the arrow to the right of Aggregation, select Gross
Value and press <Go>. Click on Add Constraint.
NOW, LETS SET THE CASH POSITION TO
zero. Enter 0 in the MAX field to the right of
Cash (USD Curncy). In addition, lets limit the
minimum weight for any given security to minus
30 percent and the maximum to 30 percent.
Click on the arrow to the right of Init. Portfolio
and select None. Enter 30 in the MIN WGT(%)
field and 30 in the MAX WGT(%) field. Click on
the Run button on the red tool bar.
As of Jan. 13, the optimizer created a portfolio that
After you load the
backtested portfolio
into PORT, the
Performance tab lets
you track the results.
In the optimizer, set the goal to minimize portfolio total risk, add
your constraints and click on the Run button on the red tool bar.
REDUCED RISK
The optimization here
cut the predicted
volatility by almost half.

COMPILED BY ROCKY SWIFT RSWIFT5@BLOOMBERG.NET
Pacific Investment Management Co. had record
redemptions in 2013 in its $237 billion Total Re-
turn Fund, which trailed 65 percent of peers and
fell 1.9 percent for its biggest annual loss since
1994. The Barclays U.S. Aggregate Index, a
benchmark for bond funds, declined 2 percent as
the U.S. Federal Reserve signaled a tapering of its
stimulus, while the Standard & Poors 500 Index
of stocks surged 30 percent, prompting investors
to flee traditional bond funds. Investors in 2013
pulled $41.1 billion from the Total Return Fund,
causing it to surrender its position as the worlds
largest mutual fund to the Vanguard Total Stock
Market Index Fund. Pimco was hurt by wrong-
way bets on U.S. Treasuries, inflation-linked
bonds and Brazils currency. The firm concluded
at its annual investment forum in May that the
U.S. had not reached escape velocity and that
growth over the next three to five years would av-
erage not much more than 2 percent a year. What
it didnt anticipate was that Fed Chairman Ben S.
Bernanke would raise the possibility that the cen-
tral bank might scale back its bond-buying pro-
gram if the economy picked up. Douglas Hodge,
Pimcos chief operating officer, in a December in-
terview called the taper a five-letter word and
said the firms holdings in longer-dated bonds
ahead of the central bank move cost us.
Taper Trouble
Lira Rally Seen
After Scandal
A corruption scandal pushed Turkeys currency
to its most oversold level in a decade. The liras
relative strength index climbed to a 10-year high
of 74 in early January, measured on a quarterly
basis, signaling a turnaround might be imminent,
according to data compiled by Bloomberg. The
slide worsened as the sons of three ministers and
the head of a state-run lender were arrested in
December amid a corruption probe. The central
bank pledged to buy at least $6 billion of the
liras to prop it up, while the currency slid to
2.1948 per U.S. dollar on Jan. 6, its weakest to that
point since at least 1981. Most of the move in the
lira has run its course, and its now attractive,
according to Benoit Anne, the head of emerging-
markets strategy at Societe Generale SA in London.
The central bank cannot afford a currency crisis
on top of a political crisis, he says. For the original
story, type NSN MYU67N6KLVRB <Go>.
TAPER TIMING
Pimcos Total Return
Fund underperformed
from May through
December.
TIP BOX
Type NI
INFLUENTIAL
<Go> for daily
roundups of
exclusive
market-moving
stories.
Type FXFC <Go> to nd analyst forecasts for the
Turkish lira and other currencies. Right click on a
forecast and select GP Historical Graph to see
how it has changed over time.
FORECASTING CURRENCIES
STRATEGIES
INFLUENTIAL NEWS

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STRATEGIES
98 BLOOMBERG MARKETS 98 March 2014
PRIVATE EQUITY
INITIAL PUBLIC OFFERINGS WERE THE
most popular method for private-equity firms in
Europe and North America to cash out of their in-
vestments in 2013. By contrast, exits via second-
ary buyouts and sales to strategic buyers last year
were 30 percent below 2011 levels. Because selling
a stake in a public offering typically exposes the
private-equity firm to market fluctuations for a pe-
riod after the listing, the spike in the use of this exit
strategy suggests firms are increasingly bullish.
You can use the Equity Offerings (IPO) function
to track private-equity exits and keep tabs on mar-
ket sentiment. In addition, new private-equity
functionality lets you dig deeper to identify the
specific funds that back a particular company and
find other holdings that may be ripe for exits.
To create a search that lets you track private-
equity exits via IPOs or additional offerings, type
IPO <Go> and click on the Custom Search button
Exit Signs
You can use IPO to analyze trends in offerings by private-equity-backed companies,
and new functionality lets you dig into details of buyout funds holdings.
BY ANITA KHALILI AND ALICIA LOONEY
on the red tool bar. To set a period you want to
track, click on Date Range on the left side of the
screen. Click on the arrow to the right of Date
Range and select Last 12 Months, for example.
Click on the box to the left of Effective Date so
that a check mark appears and then click on Up-
date. Next, click on Offer Type. To track all private-
equity and venture-capital exits, click on the box to
the left of Private Equity Exit to select it and then
do the same for Venture Capital Exit. Click on
Update and then on Result to display an
overview of the past years private-equity
and venture-capital exits.
TO CHART TRENDS, CLICK ON THE TIME
Series tab. To add a line plotting the number of
deals, click on the box to the left of Deal Count.
Click on the Deal List tab. In 2013, one of the
largest private-equity-backed IPOs was Mer-
lin Entertainments Plcs. Click on the Merlin
deal to display details. The London-based
owner of Madame Tussauds wax museums
sold 303.8 million shares, valued at 957 million
pounds ($1.6 billion). Click on the Sharehold-
ers tab and you can see that Blackstone Group
LP, the worlds largest manager of alternative
assets, sold 76 million shares in the offering.
To dig deeper and see which specific Blackstone
fund sold shares and the history of the investment,
first type BX US <Equity> PHD <Go> to display New
Yorkbased Blackstones portfolio holdings. Tab in
to the field under Portfolio Company, enter MER-
LIN, press <Go> and click on Merlin Entertain-
ments. The All Related Transactions section of the
window shows that the fundBlackstone Capi-
tal Partners IV LPfirst acquired its stake in the
A search in IPO shows private-equity exits climbed last year.
TIP BOX
Type PE <Go>
1 <Go> for a
menu of private-
equity-related
functions,
news and data.

BY NICK TABOREK
Click on Merlin
in Blackstones
list of holdings
for details. company in 2005. Click on that acquisition to dis-
play details of the funds takeover of the company
for 102.5 million from Hermes Private Equity Ltd.
For a description of the Blackstone fund, type
PEF1163 US <Equity> DES <Go>. The Financials
section of the screen shows that the 2003-vintage
private-equity fund is in Harvesting status. The
$6.5 billion fund made 24 investments, seven of
which are still active. In the Performance section
of the screen, you can see that the fund had a 30.6
percent net internal rate of return. Move your
mouse over the figure and you can see the source
of the information: Fresno County Employees
Retirement Association. The return ranked the
Blackstone vehicle in the first quartile among all
other 2003 buyout funds based on Bloombergs
quartile benchmarking. Type 3 <Go> to view de-
tails of the funds remaining investments.
ANITA KHALILI IS ON THE STAFF OF THE DATA MANAGEMENT
DEPARTMENT AT BLOOMBERG IN LONDON.
AKHALILI2@BLOOMBERG.NET ALICIA LOONEY IS ON
THE STAFF OF THE DATA MANAGEMENT DEPARTMENT
IN NEW YORK. ALOONEY1@BLOOMBERG.NET
AEROSPACE SOARS ABOVE S&P PEERS
1 AEROSPACE & DEFENSE 3.8% 14.3 54.9%
2 LIFE SCIENCES 3.6 14.8 52.9
3 MEDIA 3.4 14.8 50.4
AUTOMOBILES 3.4 19.5 65.4
5 AIRLINES 3.3 21.9 72.7
RISK-
ADJUSTED
RETURN VOLATILITY
TOTAL
RETURN
Figures are for 2013. The risk-adjusted return, which isnt annualized, is calculated by dividing total return by
volatility, or the degree of daily price variation, giving a measure of income per unit of risk. A lower volatility
means the price of an asset doesnt swing dramatically during a specified period, reducing the potential for
unexpected losses. Source: Bloomberg
Best Defense
A RALLY IN WEAPONS MAKERS SUCH AS
Northrop Grumman Corp. and Lockheed Martin
Corp. made aerospace companies the best-
performing sector among U.S. stocks last year,
even under the cloud of cutbacks in government
spending. The industry returned 3.8 percent in
2013 after adjusting for volatility, the Bloomberg
Riskless Return ranking shows, the most among
68 groups in the Standard & Poors 500 Index.
Northrop led gains in the sector, with a risk-ad-
justed gain of 4.6 percent and volatility that was
lower than the average for producers of military
and commercial aircraft. While U.S. lawmakers
reduced spending amid troop withdrawals from
Afghanistan and Iraq, defense companies re-
sponded by cutting staff and using cash stockpiles
to boost shareholder payouts. The top five U.S.
weapons makers, a group that also includes Boe-
ing Co., General Dynamics Corp. and Raytheon
Co., raised their earnings forecasts in October as
cost savings helped boost profit margins.
Investors took advantage of cheap valuations
to put money into the sector. Northrop, Lockheed
and Raytheon saw their shares surge at least 57
percent last year and traded at an average price-
earnings ratio of 14.3 at the end of December, still
lower than the 17.4 level for the S&P 500, accord-
ing to data compiled by Bloomberg. As the out-
look for government defense spending dims,
contractors are focusing on streamlining and
buying back shares, says Brian Ruttenbur, an ana-
lyst at CRT Capital Group LLC in Stamford, Con-
necticut. Cash flows are at record levels, and the
companies are deploying those cash flows back to
shareholders, he says.
NICK TABOREK COVERS STOCKS AT BLOOMBERG NEWS IN
NEW YORK. NTABOREK@BLOOMBERG.NET
RISKLESS RETURN

You can normalize data in bar and candle charts to
compare the performance of securities. Type XAU
<Crncy> GPC <Go>, for example, to graph gold
with the Historical Candle Chart function. Click on
Compare. To compare with silver, enter XAG <Crncy>
in the TO eld and click on the Silver Spot item in
the list of matches. Click on the box to the left of
Normalize All Series in First Panel so that a check
mark appears. Then click on the Update button.
GENERATING
TRADE IDEAS
The optimizer in
the Portfolio Risk &
Analytics function
has been enhanced
to let you generate
trading ideas based
on goals such as mini-
mizing your portfolios
value-at-risk and
maximizing its Sharpe
ratio. To minimize VaR
of the Standard &
Poors 500 Index, for
example, type SPX
<Index> PORT/I
<Go>. Click on the
Trade Simulation
button on the red tool
bar and select Launch
Optimizer. If a Wel-
come to the Optimizer
window appears, click
on the Close button.
Click on the Tasks
button on the red tool
bar, select Predened
Tasks and click on
Reduce Risk: Mini-
mize Active VaR. Click
on the Run button to
run the optimization.
VaR is an estimate
of the maximum
plausible loss on a
portfolio over a speci-
ed time horizon.
MANAGING
CONTACTS
IN DASH
The Equity Sales
Dashboard has been
enhanced to make
it easier to import
and edit your client
contact information.
Type DASH <Go>,
click on the Manage
Contacts button on
the red tool bar and
select Add Contacts
for a menu of features
you can use to import
contacts. For more in-
formation on the new
enhancements, type
DASH WELCOME
LANDING <Go>.
SYNCING EVENTS
The Events Calendar
function has been
enhanced to auto-
matically update your
Microsoft Outlook
calendar with upcom-
ing company events.
To add an event to
your Outlook calen-
dar, rst type EVTS
<Go> and click on the
AutoSync button on
the red tool bar. Click
on Add AutoSync and
in the pop-up window,
click on the arrow to
the right of Source
and select a category,
such as a portfolio, a
list of securities or a
single stock. You can
then pick the types of
events to track. Click
on the box to the left
of I Conrm That I
Am Logged In With
My Primary Windows
Login and then on the
Add button.
PRICING
WATERFALLS
The Portfolio & Risk
Analytics function
has been enhanced
to let you specify a
hierarchy of price
sources for xed-
income assets and
currencies. Type
PORT <Go>, click on
the View button on
the red tool bar and
select Edit Current
View. Click on Pricing
Source under Calcula-
tion Settings. You
can then specify price
sources in the Fixed
Income Intraday Data
section of the screen.
For more information
on setting up price
waterfalls, type NSN
MZ1VYV6VDKHV
<Go> 97 <Go>.
COMPILED BY JON
ASMUNDSSON
JASMUNDSSON@
BLOOMBERG.NET
TIP BOX
For more recent enhancements,
type NEW <Go>.
The BLOOMBERG PROFESSIONAL service (BPS) is owned and distributed by Bloomberg Finance L.P. (BFLP), except that Bloomberg L.P. and its subsidiaries distribute the BPS in Argentina, Bermuda, China, Japan, Korea and India. Bloomberg Tradebook is
provided by Bloomberg Tradebook LLC and its afliates and is available on the BPS. BLOOMBERG, BLOOMBERG PROFESSIONAL, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG ANYWHERE and BLOOMBERG TRADEBOOK are trademarks and
service marks of BFLPor its subsidiaries. Nothing herein constitutes an ofer or a solicitation of an ofer to buy or sell a security or nancial instrument or investment advice or recommendation of a security or nancial instrument. Bloomberg believes the information
herein was obtained fromreliable sources but does not guarantee its accuracy.
Communicated, as applicable, by Bloomberg Tradebook LLC; Bloomberg Tradebook Europe Ltd., authorized and regulated by the U.K. Financial Services Authority; Bloomberg Tradebook (Bermuda) Ltd.; Bloomberg Tradebook Services LLC. This communica-
tion is directed only to market professionals who are eligible to be customers of the relevant Bloomberg Tradebook entity. Please visit http://www.bloombergtradebook.com/pdfs/disclaimer.pdf for more information and a list of Tradebook afliates involved with
Bloomberg Tradebook products in applicable jurisdictions.
Neither Bloomberg Finance L.P. nor any of its afliates (Bloomberg) is a Nationally Recognized Statistical Rating Organization (NRSRO) in the United States or an ofcially recognized credit rating agency in any other jurisdiction. Bloombergs ratings have
not been solicited by issuers, and issuers do not pay Bloomberg any fees to rate them or their securities. Customers should not use or rely on Bloombergs ratings to comply with applicable laws or regulations that prescribe the use of ratings issued by
accredited or otherwise recognized credit rating agencies. Bloombergs ratings and related data are not investment advice or recommendations of an investment strategy or whether to buy, sell or hold an investment.
For information on the BLOOMBERGPROFESSIONAL service, contact the sales ofce in your region: New York 212-318-2000, San Francisco 415-912-2960, Frankfurt 49-69-920410, Hong Kong 852-2977-6000, London 44-20-7330-7500, Sao Paulo
5511-3048-4500, Singapore 65-6212-1000, Sydney 61-2-9777-8686, Tokyo 81-3-3201-8900.
March 2014, volume 23, number 3. BLOOMBERGMARKETS (ISSN1531-5061, USPS 008-897) is published monthly with an extra issue in December by Bloomberg Finance L.P., 731 Lexington Ave., NewYork, NY 10022, and distributed free to subscribers of
the BLOOMBERGPROFESSIONAL service. POSTMASTER: Send address changes to Circulation, BLOOMBERGMARKETS, P.O. Box 1583, NewYork, NY 10150-1583. Periodicals postage paid in NewYork and at additional mailing ofces.
2014 Bloomberg Finance L.P. Bloomberg Finance reserves the exclusive right to reproduce or authorize reproduction of articles. Advertisers and ad agencies assume liability for all ad content.
Normalizing Bars
and Candles
STRATEGIES
WHATS NEW

How the world advances
CME Group is a trademark of CME Group Inc. The Globe logo is a trademark of Chicago Mercantile Exchange Inc. All other trademarks are the property of their respective owners. Copyright 2013 CME Group. All rights reserved.
Condence to expand
Thats what participants in international commerce
can achieve when theyre smart about managing risk.
And smart managers work with CME Group, the worlds
leading derivatives marketplace. Companies doing
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virtually every kind of risk. Changing currency valuations,
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TYPE CME <GO>

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