Economist 4/22/14

  1. When China started its economic liberalisation in the late 1970s, fewer than 18% of its citizens lived in cities. Now more than half do. The country’s urban population has grown by some 500 million; more than the population of America and three Britains. 
  2.  But that is precisely what Bill Ackman, of Pershing Square Capital Management, and Valeant, a drug firm, have done. A filing with the Securities and Exchange Commission (SEC) on April 21st revealed their common target: Allergan, best-known as the maker of Botox.Allergan fits nicely within Mr Pearson’s strategy. He favours medical treatments that are immune from capricious public health-insurance schemes. Botox and other Allergan products, such as the eyelash-lengthener, Latisse, fit the bill.An agreement with Pershing Square, which owns nearly 10% of Allergan, according to the SEC filing, eases Valeant’s bid to acquire the drugmaker. The deal would be the biggest yet for Valeant’s Mr Pearson, topping last year’s $8.7 billion acquisition of Bausch + Lomb, an eye-care company.
  3. Today proper water and sanitation systems are as crucial as ever to avoid crippling infectious diarrhoeal diseases, such as cholera and salmonellosis. Every dollar spent on sanitation brings a return of $5.50, in the form of lower health costs and improved productivity, according to the World Health Organisation. Worryingly, however, 14% of the world still practises what health types politely call “open defecation”. In poor countries that share is 21% and, interestingly, in lower-middle income countries the share rises to 32%. India is becoming an economic giant, but 48% of its population relieve themselves outdoors. 
  4. America aims to select prisoners for parole by more rational criteria, such as “Are they likely to re-offend? It turns out, however, that granting parole wisely is hard. Parole boards may be biased, perhaps without realising it. In general, they tend to overestimate the likelihood that a prisoner will re-offend. Among applicants given hearings, in some months less than 1% are released. (In neighbouring West Virginia the average is 48%.) Help may be at hand, in the form of “risk-assessment” software, which crunches data to estimate the likelihood a prisoner will re-offend. Such software tends to increase the proportion of applicants who are granted parole while also reducing the proportion who re-offend. Two such programmes, LSI-R and LS/CMI, appear to reduce parolee recidivism by about 15%. Developed by Multi-Health Systems, a Canadian firm, they were used to assess 775,000 parole applications in America in 2012. Four-fifths of parole boards now use similar technology, says Joan Petersilia of Stanford University.South Carolina uses a programme called COMPAS, developed by Northpointe Inc, an American firm, to help with rehabilitation. RAS, a programme designed for the Ohio Department of Rehabilitation and Correction, flags the low-risk criminals whose likelihood of reoffending actually increases the longer they are locked up alongside violent criminals. 
  5.  Four of the leading private-equity houses—KKR, the Carlyle Group, Blackstone and Apollo Global Management—have themselves gone public.  Shares in the big listed private-equity firms are up by between 48% and 131% since May 2012, when Carlyle became the last of them to float.  The leveraged buy-out, the mainstay of private equity, is turning into a marginal activity. Of the $266 billion managed by Blackstone, only $66 billion is in private equity.The firms say they have diversified into different product lines just as any other business would. Lending to companies is a much less crowded field now that banks are busy repairing their balance-sheets. It is less sexy than buy-outs, but it holds another attraction: though fees tend to be lower, they are relatively skewed towards the annual levy of 1-2%, known as management fees, which private-equity firms charge regardless of how their investments fare. These used to be a mere bonus: private-equity firms once earned most of their income from a 20% cut of investors’ profits, known as “carried interest”.This shift is not so good for institutional clients, such as pension funds, which are happy enough to split profits but loathe management fees. Promised annual returns have inched down from the 20-30% range to perhaps half that.There are other reasons why private equity’s titans have become more staid. The nine founders of the four big firms, who between them earned $2.5 billion last year, are nearing retirement age. Their successors are administrators rather than daredevils.

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