THE DAILYALTS PLAYBOOK

October 3, 2019

Today, the DailyAlts Playbook talks Trump tariffs on the things we love, Libra’s woes, the ESG Gold Rush, and a special lunch with Bill Ackman.

Good morning,

The Dow was flat on Thursday and unable to get any footing after a massive downturn yesterday. The markets continue to raise concerns about economic data and growth while monitoring ongoing trade developments. With trade dominating the headlines, let’s dive into the two related stories driving sentiment.

• LET’S START WITH THE OBVIOUS – The trade war between the United States and China is impacting manufacturing output and consumer confidence – but a lot of people to ignore it – including some mainstream financial media running around on the trading floor. There is a habit of ignoring the big economic problems until they fall directly into our laps. Market confidence has turned sour, given the 800-point decline we’ve witnessed since Tuesday. Even though U.S. and Chinese officials are meeting in a week to discuss trade, the damage has been largely done on business planning, consumer spending, and broader macroeconomic issues.
• HURT IN THE HEARTLAND – Moody’s Analytics said Wednesday that one-fifth of the U.S. economy – shipping, manufacturing, and farming – is now in a recession. Trump has attempted to blame Democrats’ impeachment efforts for the selloff. But across the Midwest, we see plenty of headlines around “hurt in the heartland.” John Deere just laid off 160 workers in Iowa. A steel foundry in West Michigan let go of 61 workers. And with the UAW striking in Michigan, fears of a recession are gripping the state.
• LEAVE THE WHISKEY OUT OF IT – While the markets need a trade deal to instill confidence, the U.S. is going in the opposite direction. The White House is now planning to hit Europe with 10% tariffs on Airbus planes and 25% on items like cheese, French wine, and Irish whiskey – because it’s just possible Washington is trying to punish us with the latter? Europe has said it will likely swing back at the U.S. with additional tariffs.

MORNING MOMENTUM

• EVERYTHING IS PRIVATE EQUITY – Bloomberg Businessweek has “gone there.” This week’s cover story dives deep into the world of private equity and explains how managers’ investments impact the life of every American. With a cover pointing to the coffee we drink, the jobs we go to, yoga pants, home rentals, even pancakes – all of it has the fingerprints of private equity. And – as Bloomberg explains – private equity won the financial crisis. The question, now, however, is whether the magazine has given Elizabeth Warren an inventory of talking points about highlighted LBOs, economic inequality, and the timeline of Private Equity’s growth since the 1970s.
• WHO WANTS EXTRA GUACAMOLE – We’re waiting to hear what the winning bid was this week for the private lunch with hedge fund manager Bill Ackman. One bidder and their guest has won a meal with the head of Pershing Square at Marea in New York City to discuss the “world of finance!” The best part of the auction description is that the winner “can take something small to be signed.” A Chipotle burrito with Ackman’s signature would look great up on the mantle and a great way to tilt the conversation to Pershing’s huge returns in 2019. In fact, we are somewhat surprised this lunch doesn’t consist of eating a Chipotle burrito (CMG) and sipping coffee (SBUX) in a converted mall parking lot (HHC) next to a Hilton (HLT) while videotaping Herbalife (HLF) employees from the back of Warren Buffett’s 2014 Cadillac XTS (BRK.B).

ACCRUED INTEREST

• ZUCKERBERG’S NEW CHALLENGE – The Libra cryptocurrency project could lose key partners, according to the Wall Street Journal. The Journal reported that the combination of regulatory uncertainty and opposition from central banks and politicians might drive companies like Visa and Mastercard away. Facebook has continued to face criticism over its data privacy rules, but Libra raises new worries about money laundering.
• HAVEN’T WE SEEN THIS BEFORE? – Is there any asset manager or financial research company that ISN’T getting into the ESG game? At DailyAlts, the editor feels like the man on the ladder changing gasoline prices during a hurricane just trying to keep up. In the last few days, Credit Suisse Asset Management introduced an ESG investing framework across its 30 funds carrying assets more than CHF 20 billion. Oppenheimer & Co. also announced Wednesday that it would launch ESG model portfolios later this year. European derivatives exchange Eurex announced it would add its first exchange-traded ESG options on a European benchmark. The new ESG options, tied to the new STOXX 600 Europe ESG-X Index, will launch October 21. And, Preqin announced this week that it had created a new rating system for ESG factors for private capital funds and investors’ portfolios. I’m sure I’ll be back later with another four dozen others…

CARRIED INTEREST

• LIQUIDATION TALES – JPMorgan Asset Management announced it plans to liquidate two funds with assets north of $2 billion, according to an SEC filing. Those funds are the JP Morgan Emerging Economies fund and the JP Morgan Intrepid America fund. Meanwhile, Credit Suisse Asset Management announced the liquidation of the Credit Suisse (Lux) Europe Equity Absolute Return Fund. The company blamed low asset volumes – which likely impacted demand. Perhaps both companies should have just rebranded the funds as “ESG opportunities”… everyone else is doing it.
• USMCA NOT A-OKAY, YET – Trade is the topic of the day, so we’ll conclude the top stories with an update on the replacement treaty for the North American Free Trade Agreement. Speaker of the House Nancy Pelosi said that despite the ongoing impeachment probe, the House is making progress on the USMCA. With that said, Pelosi said that Democrats are seeking better assurances on certain issues before proceeding with the deal. ‘We want to be sure that as we go forward, we are strengthening America’s working families and our farmers who are very affected by this,’ Pelosi said during a news conference.

QUOTE OF THE DAY

“There’s a clear expansion in the political resonance of climate change, led by Europe, but more broadly by younger generations across the developed world. More political and corporate leaders don’t want to be seen as failing to address the issue.”

That’s Ian Bremmer, president of the Eurasia Group, in a note to clients this week. I think that helps partially explain the breakneck marketing push of financial institutions to rebrand or unveil funds as ESG opportunities. It also suggests that the private market isn’t going to stand around and wait for a candidate like Elizabeth Warren to arrive at the White House with a great big command economy platform to address climate change and other issues.

ACTIVE MANAGEMENT

• It’s good to be a partner at Elliott Management. According to CityWire, the staff over in England saw total pay and bonuses of roughly £90 million last year. The report said that directors’ saw their pay double. The 102 employees at Elliott Advisors (UK) earned an average of £874,577. Meanwhile, the three directors said their pay jump from £6.9 million two years ago to £14.5 million last year. Good work if you can get it.

LIABILITIES

• LAYERING IN KYIV – A federal judge has entered final judgments on New York-based brokerage firm Lek Securities and its CEO Sam Lek. Both faced charges from the SEC for helping to manipulate U.S. trading by a Ukraine-based firm. Over three years, Lek reportedly helped a customer Avalon FA profit illegally through cross-market manipulation and layering. Here is the latest on the case.

BOOTSTRAPPING (PEOPLE ON THE MOVE)

• Goldman Sachs has hired two new leaders to operate the company’s M&A group in Asia-ex-Japan. The firm has appointed co-heads Raghav Maliah and Jung Min to replace partner John Kim. Maliah joined Goldman in 2000. He recently served as global vice-chairman of investment banking and co-head of the bank’s technology, media and telecom group in Asia ex-Japan. Min joined Goldman Sachs in 2005. He served as the co-head of the TMT.
• John Kim is leaving Goldman Sachs to join the Carlyle Group in March. He will become managing director of Carlyle’s Asia buyout team. He will also lead the firm’s investment activities in South Korea. This is a new position based in Hong Kong. Kim joined Goldman in 2000 and became head of the M&A team in the region in 2014.
• KKR announced two senior appointments within its Global Impact business. The firm said that Stanislas de Joussineau would lead KKR’s Global Impact team in Europe. Meanwhile, Sharon Yang will join KKR Global Impact as a senior investor in Asia. Robert Antablin and Ken Mehlman, Co-Heads of KKR Global Impact, said in a statement that the appointments underscore the firm’s “commitment to growing KKR Global Impact in Europe and Asia.”

Go here for more People on the Move for October 3.

THE DAILYALTS UNIVERSE

• ALTERNATIVES – US Equity Indices Back to Oversold
• ARTIFICIAL INTELLIGENCE – Natwest Will Use AI To Predict Financial Market Patterns
• DIGITAL ASSETS – Why McAfee Expects Bitcoin to Touch $1 Million by 2020
• ESG – Purpose Investments Goes All-In on ESG Principles
• FINTECH – Cloud And Saas Banking Startup nCino Raises $80M
• HEDGE FUNDS –Hedge Fund Led by Ex-Citadel Manager Returns 26% on Gas Bets
• LIQUID ALTS – Vanguard Launches Actively Managed International Fund
• PRIVATE EQUITY – Blackstone Continues Real Estate Buying Spree
• REAL ESTATE – Economic Forecast is Rather “Meh” About Real Estate
• VENTURE CAPITAL – Notion Capital launches its Venture Fund IV

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ABOUT THE DAILYALTS PLAYBOOK

Garrett Baldwin is the author of the DailyAlts Playbook.

An economist and author based in Naples, Florida, Garrett has an extended history of financial analysis, business journalism, public relations and consulting experience in hedge funds, private equity, alternative investments, housing policy, commodities, and public equity coverage.

Garrett graduated from the Medill School of Journalism at Northwestern University. He later received an MA in Global Security Studies (Economic Policy) from Johns Hopkins University, an MS in Trade Economics from Purdue University, and an MBA in Finance from Indiana’s Kelley School of Business. He has a Certificate in Global Business from Harvard Business School.

An avid Baltimore Orioles and Buffalo Bills fan, he would prefer to discuss other sports, please.