DUBAI (Reuters) – Global credit markets are poised for a decade of dislocation with sovereign debt issues in the euro zone and United States providing attractive entry points to distressed debt investors, Todd Morley, co-founder and chairman of asset management firm G2 Investment Group said.

“Our general themes are that we are into probably decade of credit dislocation. The Euro zone and the United States are still playing themselves out and you have big credit dislocations, counting in the trillions,” Morley said in an interview with Reuters.

“Being in the middle of those flows is going to be very important.”

Morely’s comments echoes those of high-yield investor and chairman of Oaktree Capital, Howard Marks, who said earlier this month that investment opportunities for distressed debt players have picked up in the past three months.

G2, which has over 60 investment professionals, was formed in 2008 as a spin-out of Guggenheim Partners to invest in emerging markets and credit market opportunities. The firm has an investment partnership with the Forbes family, called Forbes Capital Group.

Morley, whose team also includes Maria Boyazny, former Siguler Guff managing director, said events in the Euro zone were unfolding quickly though it was too early to predict the full outcome of the crisis.

European Union leaders made some progress toward a strategy to fight the debt crisis on Sunday, though final decisions were deferred until a second summit on Wednesday.

“It’s a very slow process but the question is how far will it go, what other countries will be involved. Obviously Spain, Portugal and Italy are all in critical shape as well,” he said.

EMERGING MARKETS

G2, which deploys its own capital along with third-party money, is also eyeing equity investment opportunities in emerging market countries, Morley said.

“As a very simple philosophy we believe that in no-growth, low growth countries such as the U.S., Euro zone, one ought to be higher on the capital stack and purchase debt and in high-growth countries, one ought to be purchasing equity.”

“It seems very simple but not everybody follows it.”

Morley is particularly bullish on Iraq, saying the country’s stock exchange is among the cheapest in the world.

Foreign investors are increasingly choosing Iraq’s stock market as a lucrative investment, with the expected listing of the country’s three main mobile phone firms and better regulation seen boosting appetite.

“One doesn’t need to be that clever just buying the stock market as they will be an outperformer. It’s up 30 percent already this year,” he said.

The firm has already made some investments in Iraq, including buying a stake in Northern Gulf Partners, an investment management and merchant banking company, Morley said.

G2 is also looking to boost its Middle Eastern investments, which are currently restricted to investments in financial services companies, Morley said. The firm wants to participate in the reinvestment of capital, which earlier went to the Western world but is now coming back to the region.

“We are already having that dialogue with a number of senior people in the region,” he said.

(Reporting by Dinesh Nair, Editing by David Cowell)

In the spring of 2006 I went to New Orleans to see what I could do to help rebuild following the nightmare of hurricane Katrina. With a group of partners including Global Green, we began the process of developing a multi-family housing project by announcing a design competition which drew 3,000 registrants.

I can remember very clearly a line of questioning at the press conference announcing the project. Multiple reporters questioned why people who had lost their homes should care about green building. The questions went something like this:

• Isn’t green building for rich people?
• Instead of building green, shouldn’t we just build the cheapest houses we can build?
• Don’t these people have bigger things to worry about than climate change?
• Green-building is way too expensive; there is no way these people can afford it?

In June of 2006, there seemed to be a clear sense that green building was an unnecessary luxury.
That design competition project led to the first green housing development in New Orleans following the hurricane, in the low-income Holy Cross neighborhood.

Then we decided to go big.

In September of 2007 at the Clinton Global Initiative in New York we announced Make it Right, a massive project aimed at rebuilding the core of an entire New Orleans neighborhood — the Lower 9th Ward. Driven by two passionate and committed philanthropists and with the guidance and encouragement of President Bill Clinton and his team we announced something we had no idea if we could accomplish — building the greenest single family homes in the world, for some of the poorest people in America, using the world’s greatest architects.

I was terrified. We had no idea whether we could do it.

But we went to work, because of the talented team at Make It Right, we were able to return to the Clinton Global Initiative in September of 2009 where the U.S. Green Building Council announced that we had built “the largest and greenest community of single family homes in the world.”

This time there were no questions about affordability or whether green building was only for the rich. As residents of the Lower 9th Ward talked about how their energy bills had gone from hundreds of dollars a month to less than ten, how their children’s asthma had gone away because of the non-toxic materials used in the homes, and how their lives were now filled with dignity and stability, we had made the case for green building, even in one of the poorest communities in America.

In the years since we launched our first project in New Orleans, green building has become broadly accepted in all forms of construction.

According to the McGraw-Hill Green Outlook report which tracks the building industry, the value of green construction starts jumped 50% from $42 billion in 2008 to $71 billion in 2010, when it represented 25% of the all new building activity. It is expected to reach $135 billion by 2015.

This growth has been especially robust in the commercial sector, where one-third of new projects are now built using green standards.

This change is despite one of the worst economies in American history.

The reason for the tipping point in green building? The bottom line. Simply put, green building is smart building.

Green building equals increased profits and returns to investors in multiple ways:

• Reduction of building operating costs (13.6% on average for new buildings and 8.5% for retrofits)
• Increase in building values (10.9% for new buildings and 6.8% for retrofits)
• Increased return on investment (9.9% for new buildings and 19.2% for retrofits).

In addition to being good for investors, all of this is also good for the world. Buildings contribute almost 30% of global annual greenhouse gas emissions and consume up to 40% of all energy.

Now that we have reached the green building tipping point, how will green building become more deeply embedded in every form of construction and real estate? Through capital. Those looking to retrofit existing buildings or to build new green buildings need funds dedicated to those projects, in addition to the existing tax and regulatory incentives that governments have wisely offered throughout the country. Smart investors are starting to see this opportunity, and will reap the benefits of investing in this space.

We have reached a tipping point in green building. What was once thought of as a luxury for the rich is now seen as a shrewd investment — and that change will have major benefits for investors, homeowners, and the world.

Investor interest and activity are growing rapidly. The country is enjoying a rush of foreign direct investment in a broad range of sectors and the NGP Iraq20 Index, which tracks the 20 largest companies by market capitalization on the nascent Iraq Stock Exchange, is up 35% this year. Private equity investment is also starting to take off, offering rich pickings for early movers.

A number of fairly unique characteristics and trends are driving the increase in foreign participation through all Iraqi investment classes. First amongst these is Iraq’s immense natural wealth. The country’s oil reserves are potentially the world’s largest, estimated by some industry insiders to be up to 300 billion barrels (bbl). In comparison, Saudi Arabia has the world’s largest proven reserves at 264 bbl. Iraq’s current proven reserves number, 143 bbl, is based on outdated data and will be revised as exploration resumes after 30 years hiatus.

In 2009, Iraq initiated one of the largest oil and gas development programs in world history. The technical service contracts signed by Baghdad to date commit the leading international oil companies to raising Iraq’s production from the current 2.7 million barrels per day (bpd) to more than 12 million bpd by the end of this decade. These initial contracts have marked the start of “The Great Iraqi Oil Rush”, and hundreds of billions of dollars of investment are being mobilized to this end.

Sixteen major international oil companies have begun investing and the work is progressing on or ahead of schedule, with production and exports increasing. On top of this extraordinary growth, natural gas, new exploration, and production from the autonomous Kurdistan Region will all add substantially to these numbers.

Farouk Soussa, Citigroup’s chief economist for the Middle East, said in September last year: “We calculate that by the end of the decade, the increase in oil production could quadruple GDP per capita and leave Iraq with financial reserves in excess of USD350 billion, putting it on par with Saudi Arabia, Kuwait and the UAE today. Iraq, currently borrowing from the IMF to make ends meet, could become one of the world’s main exporters of capital.”

Iraqi politics have stabilized and security continues to improve. Four successful nationwide elections have been held since 2005 and all major factions are committed to a democratic future. Statistically, there is now greater violence in countries such as Mexico, South Africa, Russia and Brazil than there is in Iraq.

Iraq’s economy is by far the most open of any major regional country, and its sound macroeconomic regime has started to pay dividends. The IMF forecasts GDP growth of 11% in 2011 and 12.6% in 2012. Inflation is down to 5%, the currency has been stable since mid-2008 and foreign currency reserves have increased to USD50 billion.

Iraq’s society is another lure to investors. Iraqis are educated and enterprising, with a long history of international commerce, finance and industry. Demographics are also a draw; with a population of 32 million, Iraq is the most populous Arab country in the Gulf and Levant region and has one of the highest growth rates (2.5%) and median age of only 20.4 years.

After three decades of war, poor governance, and international sanctions, all sectors of the economy need to be rebuilt, including basic services, infrastructure, housing, industry, telecommunications and financial services, whilst existing assets are not only undervalued but also under-analyzed.

Given the abundant investment opportunities, the challenge from a private equity perspective lies in selecting the sectors and investment types that offer high returns and strategic potential, and in being able to mitigate the risks and avoid the obstacles faced in Iraq.

One of these is the paucity of companies with the appropriate level of governance and robust financial and management reporting that is required by financial institutions and professional investors. Other challenges include bureaucracy and the dilapidated condition of many existing enterprises and supporting infrastructure.

Some of the most attractive propositions are found in greenfield opportunities that provide a market entry for world-class strategic companies, or in young Iraqi companies with exceptional management that combine their local knowledge with international training and experience. Last year, we led the way in identifying one such company in the oilfield services sector that has now received more than USD100 million in international private equity investment.

Suitable, well-developed opportunities currently exist in the financial services, telecoms, infrastructure and property sectors, among others. The key is to use local knowledge, contacts, relationships and on-the-ground presence to identify the fastest growing companies in what is already one of the fastest growing economies in the world.

About the writer:
Zaab Sethna, managing Northern Gulf Partners’ Baghdad office, has been based in Baghdad for the last eight years, where he worked for the Government of Iraq on `financial, trade, and energy policies from 2003 to 2007. He was an adviser to the Iraqi Governing Council, Oil Ministry, Finance Ministry and Office of the Prime Minister from 2003-2006. Mr. Sethna began his career with the United Nations in Brazil and also worked at the Sawyer/Miller Group in New York and the Rendon Group in Washington, D.C. and London. He received a BA from Georgetown University and has an MIA from Columbia University.

Original Article at Zawya

J. Todd Morley, Chairman and CEO of G2 Investment Group, said “Given the frightening state of U.S. and European fiscal and monetary policy and the resulting risk of devaluation of our currencies and debts, G2 Natural Resources is committed to investing in real assets which already include shale gas and early stage gold and copper mines. We will soon be adding a commodities trading capacity. We will be particularly focused on evolving markets. Perhaps the best example of this is shale gas, which has the potential to revolutionize energy markets.”

G2 Natural Resources will be led by Douglas Wu, co-founder and CEO, who has had over 25 years experience as a private equity and hedge fund investor in natural resources and related industries. G2 Natural Resources has invested in early stage mining opportunities in Chile, Colombia, Turkey and the Ukraine with experienced management teams that have a strong track record of having found large resources and effected successful exit strategies. Juan Villarzú, Chairman of AMG Minerals, Inc. and former Chairman and CEO of Codelco, a large Chilean copper company, said “We are delighted to be working with G2 Natural Resources in finding and capitalizing on exciting early stage opportunities that can offer outsized returns. Given the volatility in the commodity markets, getting in early is key to mitigating risk and maximizing returns.”

G2 Investment Group is an independent, privately-owned financial services firm established by J. Todd Morley and partners. G2 has over 60 professionals offering investment management, advisory, and other financial services to institutional and private clients around the world. Prior to founding G2, Morley was co-founder of Guggenheim Partners, a financial services firm with over $100 billion of assets under supervision.

MB Global Partners will capitalize on the credit dislocations and distressed opportunities created by the global financial crisis.

“This is a decade of credit, as financial institutions and governments around the world are forced to refinance their LBO, real estate and sovereign debt. We will implement a number of innovative concepts to take our credit business to a new level,” said Boyazny.

Boyazny has been the Portfolio Manager of $4.5 billion in assets across Siguler Guff’s Distressed Opportunities Funds I, II, III and IV since the funds’ inception ten years ago.

Boyazny is a well-recognized expert in the field of credit and distressed securities and the author of several publications, as well as a frequent conference speaker and media commentator.

“Maria has an unparalleled track record in credit and distressed securities,” said Todd Morley, Chairman of G2 Investment Group. “MB Global Partners will become a powerful way for investors to get exposure to a broad set of credit dislocation opportunities.”

G2 Investment Group is an independent, privately-owned financial services firm established by Todd Morley and partners. G2 has over 50 professionals offering investment management, advisory, and other financial services to institutional and private clients around the world. Prior to founding G2, Morley was co-founder of Guggenheim Partners, a financial services firm with over $140 billion of assets under supervision.

MB Global Partners will run an innovative multi-manager platform focused on an array of credit dislocation and distressed strategies, both by allocating capital to other managers and direct investments. The platform will encompass all asset classes – corporate debt, residential mortgage debt, commercial real estate and other hard assets and special situations around the world.

MB Global Partners will be a woman-owned business with broad backing among investors including pension funds, foundations and multi-billion dollar family offices.