Exelon’s Investments Impress, Wholesale Power Prices Vary

On Jan 18, 2016, we updated a research report on
Exelon Corporation



Exelon Corporation is a Chicago, IL-based utility services
holding company, operating through its subsidiaries – Generation,
Commonwealth Edison Company, PECO Energy Company and Baltimore Gas
and Electric. Exelons competitive retail and wholesale energy
business is controlled by Constellation. The company has operations
in 48 states and the District of Columbia in the US, along with

Exelons substantial investments in infrastructure projects and
upgrade of its fossil fuel generating capacity are impressive. The
company intends to invest $3.7 billion in utilities this year
primarily allocated to infrastructure enhancements, grid
reliability and improvements in resiliency. This investment
incorporates Exelons smart meter installation program, of which
5.5 million gas and electric installations have been completed.
Since 2012, Exelons investments in distribution automation or
digital smart switches have increased the reliability of its

In light of rising awareness and regulatory pressure, Exelon has
been consistently investing in renewables and natural gas
construction. In Jun 2015, the Generation segments Perryman 6
natural gas power plant in Maryland started commercial operations.
Construction of two low-carbon, combined-cycle gas turbine units in
Texas, each with a capacity of 1,000 megawatts (MW), is underway.
Last month, Constellation inked a 20-year power supply agreement
with Archdiocese of Baltimore and a 25-year power-purchase
deal with Amphitheater Public Schools to construct a 9.4 MW solar
plant in Tucson, AZ which will generate enough electricity to meet
60% of the districts needs.

These initiatives also serve to reduce Exelons dependence on
its nuclear power plants as well as the possibilities of accidents,
going forward.

On the flip side, Exelons financial performance is guided by
price fluctuations in the wholesale power markets.Wholesale power
prices mainly depend on supply and demand, which varies almost
minute to minute on the electric grid. Prices also depend on the
cost of the fuel source, especially those of coal and natural

Additionally, Exelons generation and energy delivery businesses
are highly regulated. The company continues to face potential
regulatory and political risks related to its utility businesses,
which could impair valuation and earnings. Fundamental changes in
regulations could disrupt Exelons business plans, and affect

Zacks Rank

Exelon carries a Zacks Rank #3 (Hold). Some better ranked
utility stocks include Atlantic Power Corporation

and Calpine Corp.

, sporting a Zacks Rank #1 and Black Hills Corporation

, carrying a Zacks Rank #2 (Buy).

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Lightyear Capital and PSP Investments Agree to Acquire AIG Advisor Group, Inc.

NEW YORK–(BUSINESS WIRE)–Lightyear Capital LLC (“Lightyear”), a New York-based private equity
firm focused on financial services investing, today announced that
investment funds affiliated with Lightyear and the Public Sector Pension
Investment Board (“PSP Investments”), one of Canada’s largest pension
investment managers, have signed a definitive agreement to acquire AIG
Advisor Group, Inc. (“Advisor Group”), a subsidiary of American
International Group (“AIG”). The transaction is subject to customary
regulatory and other approvals. Terms of the transaction were not

Advisor Group is one of the nation’s largest networks of independent
financial advisors with more than 5,200 independent advisors and $160
billion in client assets under administration. Advisor Group provides
comprehensive broker-dealer services, technology, and advisory programs
through its four registered broker-dealers and Registered Investment
Advisors (“RIAs”): FSC Securities Corporation, Royal Alliance
Associates, Inc., SagePoint Financial, Inc., and Woodbury Financial
Services, Inc. The broker-dealers/RIAs operate within a single network,
positioning Advisor Group to provide a best-in-class, industry leading

Investment funds affiliated with Lightyear and PSP Investments will have
the majority of the seats on Advisor Group’s Board of Directors. Erica
McGinnis will continue in her role as Chief Executive Officer of Advisor
Group. Valerie Brown, former Chief Executive Officer of Cetera Financial
Group, a portfolio company of Lightyear Fund II, LP (“Lightyear Fund
II”), will be joining Advisor Group full-time at the closing of the
transaction and will serve as Executive Chairman of the Board.

In 2010, Lightyear Fund II acquired three independent broker-dealers
from ING which were rebranded as Cetera to build an integrated,
standalone firm. Under Lightyear Fund II’s ownership from 2010 to 2014,
Cetera became a leading independent broker-dealer/RIA network and grew
to approximately 6,600 advisors, up from 4,000 at the time of the
acquisition. Additionally, Cetera’s client assets under administration
grew to $148 billion, up from $75 billion at the time of acquisition.
Brown’s management team and Lightyear helped build and optimize the
platform to drive asset growth, operational efficiency, and enhanced
scale through several strategic acquisitions.

Mark Vassallo, Managing Partner of Lightyear, said, “We see enormous
opportunity to grow and expand Advisor Group, and we look forward to
working with Valerie Brown and Erica McGinnis, the Advisor Group
management team, the PSP Investments team, and the Advisor Group’s
high-quality advisor force to grow the company.”

“We are pleased to be acquiring Advisor Group. Lightyear’s commitment to
the asset and wealth management sector is substantial and one where we
have a deep heritage. We look forward to working with Advisor Group and
helping them expand the business,” added Donald B. Marron, Chairman and
Founder of Lightyear.

“We are pleased with this transaction, which is in line with PSP
Investments’ private equity strategy of making sizable, direct
investments in high-quality companies alongside experienced partners. We
see multiple growth levers to drive Advisor Group’s future performance
and look forward to collaborating with Lightyear and the Advisor Group
management team to deliver on that plan,” said Guthrie Stewart, Senior
Vice President, Global Head of Private Investments at PSP Investments.

Valerie Brown, incoming Executive Chairman of the Board of Advisor Group
stated, “I’m thrilled to work alongside Lightyear Capital’s team again.
I am confident Lightyear and PSP Investments will help Advisor Group’s
independent advisors thrive in this challenging marketplace. I have
known Erica McGinnis for several years and look forward to working with

“This acquisition marks an exciting chapter of growth for Advisor Group.
Lightyear and Valerie have proven track records of success in the wealth
management space. Together, we plan to grow the business and continue to
deliver world-class service to our advisors and their clients,” said
Erica McGinnis, Chief Executive Officer of Advisor Group.

About Lightyear Capital LLC

Lightyear Capital LLC is a financial services-focused private equity
firm based in New York. Lightyear, through its three affiliated private
equity funds, has raised over $2.5 billion of capital and makes
primarily control investments in North America-based, middle-market
financial services companies. Lightyear targets investments across the
financial services spectrum, including asset management, banks,
brokerage, financial technology, insurance, and specialty finance. The
firm brings strengths and discipline to its investment process, as well
as operating, transaction, and strategic management experience, along
with significant contacts and resources beyond capital. For more
information, please visit www.lycap.com.

About PSP Investments

The Public Sector Pension Investment Board (PSP Investments) is one of
Canadas largest pension investment managers with $112.0 billion of net
assets under management as of March 31, 2015. Its team of approximately
600 professionals manages a diversified global portfolio, including
public equities, private equity, bonds and other fixed-income
securities, real estate, infrastructure, natural resources, and private
debt investments. PSP Investments is a Crown Corporation established to
manage employer and employee net contributions since April 1, 2000 to
the pension funds of the federal Public Service, the Canadian Forces,
and the Royal Canadian Mounted Police, and, since March 1, 2007, of the
Reserve Force. PSP Investments’ head office is located in Ottawa,
Ontario, and its principal place of business is in Montreìal, Queìbec.
In November 2015, it opened its first international office in New York
City, USA. For more information about PSP Investments, please visit www.investpsp.ca.

About Advisor Group

Advisor Group, Inc. is the holding company for a network of independent
broker-dealers that is among the largest in the United States. The four
broker-dealers that comprise Advisor Group – FSC Securities Corporation,
Royal Alliance Associates, Inc., SagePoint Financial, Inc., and Woodbury
Financial Services, Inc. – are Registered Investment Advisors and
members of FINRA and SIPC. Advisor Group fosters the spirit of
entrepreneurship and independence exemplified by its more than 5,200
independent advisors across the US For more information, please visit www.advisorgroup.com.

Seth Klarman Blames Market, Investments for Rare Down Year

One of the most widely followed and profitable value investors, Seth Klarman (Trades, Portfolio) told clients that in 2015 his firm Baupost Group lost money for the third year in its history.

According to a letter and investor update reported by Business Insider, his funds public investments portfolio lost 6.7% and private investments portfolio gained 2.4%, while the Standard amp; Poors 500 Index ended the year down 0.73%. The slide broke Klarmans run of six consecutive years of positive returns. He is said to have returned 17% on an annualized basis since his funds inception in 1982.

Like many investors in their 2015 shareholder letters, Klarman used some space to bemoan a market overly kind to a few companies and punishing to energy names, where he had 39% of his portfolio invested at the end of the third quarter. Klarman, who likes stocks temporarily battered into having a pronounced margin of safety to the extent that he wrote a book titled, Margin of Safety can sometimes misidentify these. His head of public investments, Jim Mooney, described two of their mistakes in the letter:

Our loss on Micron resulted from the fact that we remained overly optimistic about our long-term thesis after it should have become apparent that the companys widening cost disadvantage compared to its largest competitor, Samsung Electronics (XKRX:005930), would result in lower than expected profit margins. It also should have been clearer to us that the company was more vulnerable to the decline in PC DRAM pricing than we had believed. By the time we decided to sell nearly all of our remaining position, the stock was lower a frustrating coda to an otherwise tremendously successful investment that achieved total lifetime profitability of over $900M.

Micron (NASDAQ:MU), Klarmans fourth largest position at mid-year, took up merely 0.25% of the portfolio after a 95% reduction in the third quarter. Year to date, the stock extended its decline, falling 26% to trade around $10.48 per share in mid-afternoon.

In the second case, biopharmaceutical company Keryx (NASDAQ:KERX), Klarmans team overestimated initial prescriptions for Auryxia, the companys approved drug for dialysis patients. Though this only slightly lowered Bauposts estimate of intrinsic value, it had a significant effect on the stock.

The market, however, took a much harsher view and punished the stock, driving it down to almost 70% in less than three months from about $10 to almost $3 a share. Although this certainly was not good news for our mark-to-market Pamp;L, we believe it was a significant overreaction, and we were able to take advantage of the opportunity by investing additional capital on a private basis at what we believe is an incredibly attractive valuation. This, of course, is a great illustration of the fact that even in circumstances when we reduce our own expectations, price declines can far exceed what we judge to be warranted.

Keryx closed Monday at $3.36 per share, down 33.5% year to date and 2.3% for the day. On Oct. 14, Klarman increased his Keryx position by 63% to 42,016,276 million shares, totaling 34.6% of the company.

In addition to the stocks he discussed, Klarman also had losses in his top positions, with Cheniere Energy Inc. (LNG), down 40%; ViaSat Inc. (NASDAQ:VSAT), down 8.4%; and Alcoa Inc. (NYSE:AA), down 29.5% since October.

In retrospect, the long-term investor said he dodged many fallen knives but could have been more patient.

What had, for many investors, been a growing pool of red ink during the year turned into a bloodbath by year-end, he said. To repurpose Warren Buffett (Trades, Portfolio)s famous quote about managements and businesses, when a talented investment team confronts an exceptionally challenging market, sometimes the market wins (at least in the short run).

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The Generational Investments to Stay Safe in This Market

Stocks actually rose last week, although youd be hard-pressed to find an investor or hedge fund manager who is feeling good about things right now.

But the Dow Jones Industrial Average did in fact gain 105 points or 0.7% to close at 16,093.53 while the Samp;P 500 rose by 1.4% or 27 points to 1906.90. The Nasdaq Composite Index, home of the FANGS, added 2.3% to close at 4591.18. But as the title of the novel goes, its been down so long it looks like up to me.

All three markets are still down sharply on the year and many hedge funds are nursing double digit losses just three weeks into the year.

Conditions are even worse in the high yield bond market, where the average yield on the Barclays High Yield Bond Index is creeping up on 10%. As of January 22, the average yield and spread on the index were 9.72% and 776 basis points. Month-to-date, the index has a total return of -3.67%, which creates a big hole for this asset class to dig out of.

Energy bonds are trading at an average yield and spread of 19.15% and 1,617 basis points while Basic Energy bonds are not far behind at 14.76% and 1,246 basis points. These are levels reminiscent of the 2008 credit market collapse. But rather than being near a bottom, these levels are likely to get even worse.

The End of The Debt Supercycle

On January 21, Moodys Investors Service placed the ratings of 69 US Eamp;P and oil field service companies (and about 50 non-US companies) on review for downgrade. We are witnessing a replay of the collapse of the telecom and Internet bubble fifteen years ago that led to the 2001-2 credit crisis during which the market saw two consecutive years of default rates that exceeded 10%.

While the default rate is unlikely to beat that record, the volume of defaults will be much larger this time around because the market is much larger than in 2000. It is now clear as I warned at the time that the collapse in the high yield bond market beginning in mid-2014 was a warning sign of problems in the equity market. The fact that energy bonds were the epicenter of that collapse was even more alarming because it coincided with the sharp slowdown in the Chinese economy, which in turn signaled a global economic slowdown.

Some are inclined to slough off high yield bond problems as merely a liquidity problem due to the reduction in dealer inventories, which resulted from new bank regulations under Dodd-Frank. They miss what is really going on we are at the end of a Debt Supercycle that will end up severely damaging all asset classes before it reaches its bottom. The logical place for a Debt Supercycle to start showing its age is the high yield bond market. Thats exactly what happened in mid-2014.

Unfortunately, high yield bond borrowers are going to be dealing with $148 billion of debt maturities in 2016 and $224 billion in 2017. Investment grade issuers have another $505 billion in 2016 and $569 billion, according to Standard amp; Poors. The costs of capital for all high yield borrowers and the high grade borrowers in energy and related industries have risen sharply.

This will lead to more defaults among the high yield bond issuers and credit downgrades among the high grade borrowers (Barclays is forecasting that $155 billion of high grade debt will be downgraded to junk). In short, as bad as things are, they are going to get worse. Put another way: even though Ive been down so long, this isnt going to look like up.

Heres How Well Stay Safe

There has been a lot of reader reaction to some of my pieces on gold and silver in Sure Money. The reason I recommend gold and silver despite the fact that they too have been down so long is as plain as the nose on my face.

Last week, ECB President Mario Draghi promised again to do whatever it takes to create inflation in the Eurozone. That means he is going to try to weaken the Euro. Pressure is rising on the Bank of Japan to weaken the Yen.

The Chinese are actively devaluing the Yuan. And the Fed may talk big about raising interest rates four times in 2016, but the odds of that are about as great as the odds of Janet Yellen having an extreme makeover exactly zero. The worlds paper currencies are being destroyed by the deliberate policies of central banks because they have no other tools to promote growth or inflation and governments have no other way to pay back the trillions of dollars of debt they have created.

I think these are the wrong policies, but we must take the world as it is and not as we would like it to be. Accordingly, the only antidote to the destruction of paper money is tangible assets such as gold and silver.

Sure, these could go lower, but eventually they will be worth much more than their current depressed prices. These are generational investments, not short term trades. Investors should continue to buy gold and silver and save themselves.

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Cleantech VC 2016: 8 Early-Stage Energy Investments

Venture capitalists invested $58.8 billion into US-based startups in 2015, according to Thomson Reuters, PwC and the National Venture Capital Association — the second-highest figure recorded.

But VCs continue to turn a blind eye to the cleantech sector — with less than $700 million invested in the last quarter of 2015, according to Clean Energy Pipeline, and just a fraction of that total going to early-stage deals.

Nevertheless, weve managed to find eight earlyish-stage cleantech deals to start off 2016.

Powerhive, a microgrid developer and financier for emerging markets, closed a $20 million series A financing round led by Prelude Ventures along with Caterpillar Ventures, Total Energy Ventures, Tao Capital Partners and Pi Investments. The funding will be used to grow Powerhives footprint into new markets in Africa and the Asia-Pacific region, as well as to support continued expansion in Kenya. Recently, Powerhive received a $12 million equity investment in its flagship project, which is seekingto develop microgrids that will serve 90,000 people in western Kenya. The Berkeley, Calif.-based company has offices in Nairobi and Manila, and received early backing from First Solar. Off-grid renewable energy companies raised close to $200 million in 2015 versus the roughly $64 million invested in off-grid solar solutions in 2014.

MPrest just raised $20 million in equity funding led by GE Ventures and OurCrowd in its series A. The startup provides software to connect the dots across multiple complex systems of any scale for real-time situation awareness [and] predictive analytics and is bringing its technology to the internet-of-things/utility market. The firm is already working with New York Power Authorityand Israel Electric Corp. The company has also contributed to Israels Iron Dome defense system.

London-based Telensa, a 10-year-old developer of networked LED street lighting equipment for smart city applications,raised $18 million in equity and debt from Environmental Technologies Fund and Silicon Valley Bank. Telensa already has hundreds of thousands of endpoints networked using its low-power wide-area wireless technology. The company is a founding member of the Wireless Internet ofThings Forum.

Mercatus, a cloud-based provider of Energy Investment Management (EIM) solutions to energy producers, developers and financiers, raised $11.7 million in series B funding led by Traverse Venture Partners and TPGs Alternative and Renewable Technology fund, along with existing series A investors Vision Ridge Partners, Trepp and Augment Ventures. Josh Green of Traverse said, In the current era of rapid energy industry transformation, we see Mercatus EIM solution as a critical enabling technology that accelerates the mass deployment of distributed energy. Mercatus is seeking to speed up the investment of massive amounts of capital required by the energy industry, according to Haresh Patel, the companys CEO.

Pellion Technologies, a Cambridge, Mass.-based developer of a magnesium battery technology with a potentially high energy density, raised an undisclosed amount of funding from Motorola Solutions. Motorola joins previous investor Khosla Ventures, along with the DOE. David Eaglesham, former CTO at First Solar, is the CEO of Pellion.

Small modular reactor startup Terrestrial Energy closed $8 million in funding from undisclosed sources for its Integral Molten Salt Reactor design, according to SEC documents. Terrestrials chairman Hugh MacDiarmid is on the board of two companies financially involved with the $106 billion Ontario Teachers Pension Plan, suggesting their undisclosed involvement here. The small nuclear reactors are intended for industrial process heat markets, with market deployment targeted in the 2020s.

According to SEC documents, Geli, the distributed energy storage software developer, has raised $3 million of a $9 million funding round from undisclosed investors. Strategic funders will fill out the rest of the round, according to sources.

Voltaiq closed on $1.6 million of a $3 million funding round, according to SEC documents. The startup is developing software to track and analyze the performance of batteries with analytics and big data. Michael Berolzheimer, an investor at Bee Partners, is listed on the SEC document. CEO Tal Sholklapper co-founded Point Source Power, a fuel-cell technology firm funded by Vinod Khosla.

Which older BMW M Cars will be good investments?

Most of us car enthusiasts have dream car collections, lists of cars that we wish we could have in our garage at the same time. Many of enthusiasts dream of buying cars that will appreciate in value, so as to actually have their collection be a good investment, rather than just an assortment of automotive toys. However, its difficult to judge which cars will be good investments.

There are some ways to determine what is going to be a future classic, a car that will be worth considerably more in the future than what someone pays for it now. Things like age, rarity, importance and popularity all play a factor in what might make a car increase in value. And being that were BMW fans here, lets make a look at some BMW M cars that might be good investments in the future.

The BMW M635iCSi is one such car. Firstly, its the very desirable shark-nosed, E24 6 Series, which everyone loves because its such a cool design. Secondly, the M635i was the first real BMW road car to be powered by BMWs M88 engine from the legendary M1. 280 hp, 0-60 mph in 6.4 seconds and a top speed of 158 mph are specs that would be decent for a sports car today, but this debuted back in 1984. Just under 6,000 units were built, making the M635CSi a rare car which only increases its desirability. Combine the rarity with its stunning good looks and incredible engine and you have a car that will be worth a lot of money for a long, long time.

Climate Change Risk and Sovereign Bond Investments

A little more than a month after
196 countries signed a historic climate agreement in Paris
at COP21, United Nations secretary general Ban Ki-moon will
address influential members of the finance community this
Wednesday, at the 2016
Investor Summit on Climate Risk, in New York.

This will be the first major event on climate change for
investors to discuss the far-reaching implications of the
agreement. Just as countries now must figure out how to meet
ambitious goals to reduce their carbon emissions, momentum is
building for investors to decarbonize their portfolios.

To date, portfolio decarbonization activity has focused on
equities. The divestment movements momentum around
stranded assets is the latest example. But investors are
now starting to realize that the global push to slash carbon
emissions also has implications for the $41 trillion sovereign
bond market.

French investors are on the front lines of this new reality.
A French legal requirement announced in May 2015 will require
that institutional investors disclose their carbon exposure.
The law takes effect this year and provides further impetus for
full integration of climate change risk into all asset classes,
including sovereign bonds, and introduces new tools and
methodologies to make such integration possible.

Only a small but growing number of asset owners and managers
primarily those focused on socially responsible
investing are factoring
climate change into their portfolio decisions. So far,
investors have been mostly concerned with equities when it
comes to decarbonization. Paradoxically, as the divestment
movement becomes stronger, its ethical undertones become louder
and may threaten to turn off many investors who view such
ethical considerations as being in conflict with
financial drivers, as some have already observed.

When considering sovereign bonds, however, climate change
poses actual material risks to national economies and,
consequently, creditworthiness. Going beyond disclosure, there
is a need to better understand and incorporate such risks into
sovereign bond investments, which, as the 2008 financial crisis
revealed, are not the safe haven they were once thought to

Sovereign bond investors who have started to incorporate
climate risk into their analysis typically examine exposure to
extreme weather events or simple carbon emission totals.
Research by Global Footprint Network, in collaboration with the
UN Environment Programmes Finance Initiative (UNEP FI)
and 14 financial institutions, has shown that country risk
related to climate change is far more complex. Factors
contributing to such risk include the carbon intensity of a
nations economy, whether oil and gas reserves are
government owned and policy changes sparked by climate