HarbourVest makes final offer for SVG, Aberdeen given new capital requirement, Primark profits up. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
By Jonathan Guthrie: Lord Rothschild is pulling in his horns. The veteran investor has reduced the equities exposure of RIT Capital Partners, his family’s £2.5bn London-quoted vehicle, from 55 to 44 per cent. He has cut sterling-denominated positions to 25 per cent and raised outlay on gold and precious metals to 8 per cent.
You know who doesn’t like a falling oil price? Sovereign wealth funds for countries dependent on high oil prices and in love with their (endangered) petrodollars. And a risk based on that dislike is a presumption of forced selling and equity market weakness becoming self-fulfilling as/ if oil prices slide. Stable oil prices means SWFs don’t have to suddenly liquidate but the opposite would also seem to be true… The last time JPM’s Flows & Liquidity team looked at this risk they based it on a fall in Brent to an average price of $45 per barrel. They now assume an average oil price of $40 for 2016 and also note that the “YTD average has already fallen to $42.”
Our portfolio of Funding Circle US loans has continued to substantially underperform our expectations, a trend which continued during the quarter and created a drag on the overall portfolio. We stopped purchasing new Funding Circle US loans late in 2015 so the portfolio continues to amortize down. That’s from VPC Specialty Lending (VSL) Investments’ second quarter letter, released earlier this week (mea culpa, we didn’t spot it at first). The UK-listed fund, which invests in online-originated loans on both sides of the Atlantic, reported net quarterly returns of 0.33 per cent, “below expectations”. Funding Circle’s US loans make up 9.84 per cent of net asset value, or around £37m of exposure.
The taxi wars have entered a new phase, with the focus turning to consolidation rather than competition. Uber has admitted defeat in China and today Bloomberg reported that the London office of Hailo is being gutted after its merger with Daimler’s MyTaxi. Felix Salmon over at Fusion has some good thoughts on what consolidation means for customers (and others), but it’s worth also pondering the specific consequences for pretenders to Uber’s throne, particularly startups like Karhoo that came to the game late.
Fine, the Japanese stock market maybe isn’t paying attention to the Bank of Japan the way it used to. But did things have to get this mean? From CLSA’s Benthos: Faced with the problem of when to fire its last bullet, the Bank of Japan decided to fire half a bullet at half-cock. Now, speculators will be free to take liberties, fortified by the knowledge that the BoJ has only enough powder left to miss the mark one more time. The yen surged derisively. Governor Haruhiko Kuroda warned he has ample room to extend bankkiller Nirp. Three years after saying he’d achieve 2% inflation in two years, he said he would achieve 2% inflation in two years. It seems the BoJ has entered the Age of Impotence.
Immigration laws are complicated and ugly things. In the case of the UK burger chain Byron, they are very complicated, and very ugly. The company has come under heavy fire this week after reports that earlier this month, dozens of its staff were arrested by the immigration authorities on suspicion of working illegally. When the news was broken by the Spanish newspaper El Ibérico, anger erupted at the private equity-backed company for how it cooperated with immigration officers. In the report, which cited an anonymous employee of the chain, Byron was accused of organising a fake training day to help facilitate the arrests. There are calls for a boycott of the company, which has 65 restaurants and was bought in 2013 for £100m by Hutton Collins.
Private technology startups are pretty tough to value, particularly if you’re on the outside looking in. First, you have the inherent subjectivity in valuing any company. Investors can differ on which metrics are most appropriate and what to include or exclude in their calculations. Even a price set by a reasonably liquid market doesn’t settle the argument; after all, one of the reasons an investor buys or shorts a stock is that they disagree with the market. Second, you have opaque and complicated capital structures. The classic, clean idea of selling equity involves a certain number of shares at a certain price giving a straightforward percentage ownership of a company. In the tech world, however, liquidation preferences are common and the blurred line between debt and equity make it difficult to deduce anything sensible from fundraising announcements.
- Jim Millstein discusses the financialisation of America
- Alphachat is on hiatus this week
- Benn Steil explains the Marshall Plan
- Marcel Fratzscher on the dark side of the German economy — now with transcript!!
- Marcel Fratzscher explores the dark side of the German economy
- Emi Nakamura on calculating inflation
- Stephanie Kelton explains how the government budget affects the economy and the mechanics of student debt forgiveness
- Jonathan Knee explains 25 years of Wall Street’s evolution
- Marcus Noland explains the North Korean economy
- Brad Setser explains how corporate tax policy affects the balance of payments
- Michele Wucker explains “Gray Rhinos”
- Listen - The "gray rhino" theory
- James Heckman tells us why IQ is overrated
- Mihir Desai explains the wisdom of finance — Now with transcript!
- Mihir Desai explains the Wisdom of Finance
- Can we avoid another financial crisis?
- Hirschmania, the final chapter
- The life and speeches of Sadie Alexander
- Kim Rueben on the fiscal impact of immigration
- A sit down with Adair Turner
Alphachat is available on Acast, iTunes and Stitcher.
This is a story of a startup going up against its most important investor and losing the fight. Each side has their version of events and the narrative is complicated by the various claims and counter-claims, but it’s a cautionary tale of how personal rivalries can almost ruin a business.
We’re a little bit late to Friday’s note from Citi’s Hans Lorenzen and Aritra Banerjee, but it’s a pretty good assessment of the tensions in European credit markets at the moment: Without implying causation, corporate credit spreads tend to be highly correlated with European bank stocks. But recently, those conventions have clearly broken down. Most notably, returns on non-financial credit have seemingly decoupled completely from returns on bank equity. But bank credit returns have also diverged notably from equity returns. And incidentally, the correlation between financial and non-financial credit spreads has broken down too – in case you were in any doubt.
Italian banks are a problem. Post-Brexit they’re a serious problem. A full recap of said banking sector and its estimated €200bn of gross non-performing loans would, according to JPM, “require up to €40 billion (less than 2.5% of GDP)”. Manageable, say JPM again, “given the current Italian fiscal position and sovereign cost of funding.” Only problem is…
Legal & General has brushed off the effect of the Brexit vote, Tory leadership nominations close at noon, Mark Carney speaks at 4pm. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
EIF’s established reputation in the European VC market is substantiated by its significant role in European investment and fundraising activity. In this paper we estimate that the investment activity backed by EIF represented 41% of total investments in Europe in 2014 (29% in 2007). The share directly attributable to EIF amounts to 10% (5% in 2007), hinting to the significant leverage that characterises EIF-backed investments. Moreover we estimate that fundraising volumes backed by EIF in 2014 amount to 45% of the overall volumes collected by European VC investors (36% in 2007), against a share directly attributable to EIF totalling 12% (5% in 2007). That’s from a European Investment Fund research paper published at the start of June and it shows the extent to which dynamic European venture capital relies on the munificence of sluggish European government — as told by said government, of course.
A Deutsche Bank note that’s been gaining attention lately says that the “glory days” seem to be over for high-frequency trading. Depending on how you define glory, maybe they are. But the note would be more convincing if it didn’t repeat an irritatingly persistent Treasury-market myth, especially in a piece that’s ostensibly about equities.
Let’s all pause for a moment and remember the Great Fall of China’s stock market, one year ago this month, and remember that this evening is when MSCI tells China’s A-shares if they are to be allowed into its club after all. Done? Right, let’s all pause for a longer moment and consider the plight of the small Chinese investor who doesn’t quite have the same government support as some of the larger forces around him.
The DAO is a decentralised autonomous organisation, which the cryptocurrency faithful believe could disrupt corporate structures forever. It is, to put it simply, a kind of crowd-funded investment fund. It’s only been going for over a month or so but in that time the DAO has already raised stacks of illiquid and variably priced Ether (ETH) coupons for funding its potential ventures — worth some $150m at the last count (or there about, because mark to market). The faithful say the DAO will solve the problem of how revenue can be generated within a purely decentralized environment, with its core supporters claiming it is superior to a normal corporation because all the decisions it makes are transparent and because, well, its finances can be audited by anyone, making corruption impossible.
Sterling is under pressure ahead of next week’s EU referendum, Sir Philip Green is set to be grilled by MPs on the collapse of BHS. FT Opening Quote, with commentary by City Editor Jonathan Guthrie, is your early Square Mile briefing. You can sign up for the full newsletter here.
Powa Technologies may be long gone, but the dust has yet to settle. Founder Dan Wagner is locked in a dispute with a former director of Powa over a loan made to the company when it was in desperate need of funding. Wagner personally guaranteed the loan, which is yet to be repaid, and on Friday, records show, he made an application to the bankruptcy court asking for a repayment demand to be dismissed.