THE DAILYALTS PLAYBOOK

January 2, 2020

Good morning, and welcome to the official launch of the DailyAlts Playbook.

Each morning, we take a quick dive into the major stories shaping the universe of alternative investments. Please signup for the daily letter and send it along to others seeking insight and education in the alternatives industry.

Today, the DailyAlts Playbook talks record dry powder for PE managers, the strange odyssey of former Nissan CEO Carlos Ghosn, 2019 hedge fund returns, and a Bitcoin prediction that fell just a little short.

PRIME OVERVIEW

STARTING STRONG: The Dow Futures projected a 164-point gain at 8 a.m. this morning. Investors continue to cheer the Jan. 15 signings of the Phase One trade deal between the United States and China. Also, investors cheered news that China plans to offer more support to its economy through stimulus. This morning saw weaker Chinese manufacturing numbers for November; however, the Caixin PMI showed expansion for the month.

WHAT’S ON TAP: It’s a busy week of economic data despite the New Year’s Holiday. Tomorrow, we’ll receive am update from the Fed Open Market Committee from its December meeting. We’ll also be looking to see if the U.S. ISM manufacturing figure has contracted for the fifth-straight month.

DAILYALTS AGENDA: Today, like every day, we’ll release new content every hour. Check back on the hour for insight on crossborder M&A expectations, Qatar’s state investment in Universal, EV Growth and other fund updates, an outlook on European real estate, and more. Sign up for the DailyAlts Today and the DailyAlts Playbook, right here.

MORNING MOMENTUM

DRY POWDER READY TO DEPLOY: The private equity industry has more cash on hand to start a year than ever before. There could be an arms raise in every sector from consumer goods to real estate. Preqin reported that companies like Carlyle Group, Blackstone Group, and KKR have about $1.5 trillion in dry powder. Last year, private equity deals topped $450 billion. But we could see M&A levels this year that rival the pre-crisis era. KKR already hit the ground running this week after announcing plans to purchase Overdrive from Rakuten.

OLD PROBLEMS, NEW PROBLEMS: On the geopolitical front, markets continue to monitor the return of geopolitical tensions. First, North Korean leader Kim Jung Un said this week that his nation no longer feels bound to comply with a pledge to stop major missile tests. The nation plans to unveil a new “strategic weapon” in the near future. Meanwhile, all eyes are back in Baghdad during the second day of a siege on the U.S. embassy. An Iran-backed militia attacked the embassy, which would likely escalate tensions once again between Tehran and the White House. Inderjeet Parmar, visiting professor at the London School of Economics and head of City University’s department of International Politics, warned CNBC this week that geopolitics will likely infect every corner of the upcoming 2020 election.

ACCRUED INTEREST

GOOD TO BE GOLDEN: The WeWork golden parachutes emerged from company documents over the weekend. The Financial Times recently saw documents on negotiated exit packages before a cash infusion from SoftBank. Co-Chairs Artie Minson and Sebastian Gunningham will both receive $8.3 million if they face termination or depart the firm for a list of reasons. Good work if you can get it.

A YEAR TO FORGET: Hedge fund returns in 2019 averaged 8.5% heading into Monday, but fell well short of the broader market rally. Although it was the best year since 2013 on the aggregate, the industry fell short by a pretty wide margin. Heading into Monday, the S&P 500 has gained 29.1%. HFR said hedge funds fell well short of the U.S. Bond Market’s gain of 14.5%. That said, Bill Ackman’s Pershing Square Capital had a much better year. We’ll dig deeper into the numbers and discuss the 2019 fund performance on Monday.

IT COULD HAVE BEEN WORSE: While people chat up hedge fund returns in 2019 and the departure of several legends, they might be missing the bath taken in the crypto market. Crypto hedge funds shuttered at a rather alarming pace in 2019. According to Crypto Fund Research, 70 such funds had closed during the first 11 months of the year. That means there was still time for another few of these funds to close as the month comes to a close. To put that number into perspective, Crypto Fund Research says there are just 355 crypto hedge funds remaining. On the surface, the news does seem to run a bit contrary to the news that Bitcoin gained 94% in 2019.

CARRIED INTEREST

BREAKING THE BANK: Sen. Bernie Sanders announced he raised more than $34.5 million during the fourth quarter. The Democratic Socialist has easily topped rival Peter Buttigieg and Andrew Yang, who reported solid quarterly figures. The cash blowout comes just months after Sanders suffered a heart attack on Oct. 1. This week, his campaign released doctors’ notes stating that he was healthy and fit enough to serve as President. Former Vice President Joe Biden and Sen. Elizabeth Warren will likely report their fundraising efforts soon. Warren has reportedly been struggling to raise cash, while Biden just recently announced an impressive roster of bundlers that include Wall Street icons, Hollywood titans, and Washington elites.

RAISING YOU $12 MILLION: Shortly after Sanders announced his fourth-quarter haul, the Trump campaign came out with a figure that blew away all Q4 fundraising annoucements so far from Democrats. Trump’s campaign reportedly raised $46 million during the fourth quarter. Overall, the Trump campaign raised more than $143 million in 2019. Here’s more from The Hill.

NO CASH REQUIRED: Meanwhile, keep in mind, Michael Bloomberg and Tom Steyer won’t need to raise money given their billionaire statuses. The two candidates are self-funded, and they’re willing to throw money over states like Iowa out of a helicopter if needed for support. They both plan to spend up to $100 million each if needed to boost their names ahead of the primary. Steyer alone has already purchased $83 million in advertisements… because he really thinks he has a chance.

QUOTES OF THE DAY

“I’ll say $1 million by 2020, as well, easily. There’s 15 million millionaires around the world. All their financial advisors are going to say, ’Hey, buy a bitcoin. You need some exposure.”

That was hedge fund manager James Altucher predicting that Bitcoin would hit $1 million by 2020 back in November 2017. This morning, Bitcoin traded at $7,125 at [6:30] EST. So, he was off by just $992,875. Altucher may argue that he has another 364 days for Bitcoin to reach that level. In fact, he recently said that $1 million still isn’t out of the question in the coming years.

“The housing market is ridiculously overpriced in every major US market, treasury bond yields have bottomed and the Fed is done with rate cuts. Good luck to homebuyers in 2020.”

Fund manager Will Meade raised concerns after Christmas that the housing market could face a reckoning in 2020. This comes after Charlie Bilello noted in December that the U.S. Housing Market Index jumped to 76. That is the highest it has reached since June 1999. Home prices continue to rise, pricing out new buyers. Meanwhile, inventory shortages continue across the country – thanks in part to zoning regulations, NIMBY sentiments, and the costs of labor, land, and lumber.

ACTIVE MANAGEMENT

A HOLDOVER FROM LAST WEEK: Activist hedge fund Marcato Capital Partners will shut down after two years of lackluster returns. Marcato Capital had one of the most enthusiastic launches of the decade back in 2010. The world’s largest hedge fund investor, Blackstone Group, and activist hedge fund manager Bill Ackman, both backed the firm. McGuire had previously worked for Ackman at Pershing Square Capital Management and was the first partner to leave the firm.

LIABILITIES

PLEA DEAL PENDING: According to the Philadelphia Inquirer, former Rittenhouse hedge fund manager Brenda Ann Smith may be working on a deal with prosecutors. The Feds say she ran a $63 million Ponzi Scheme and funneled a lot of it from the $105 million she solicited from high-net-worth clients. She allegedly channeled the money through different entities like Broad Reach Capital, Broad Reach Partners, and Bristol Advisors. From there, she allegedly paid off other clients and a $2 million American Express bill.

TRAVELING WEST: Former Nissan CEO Carlos Ghosn has made it safely to Lebanon, where he holds citizenship. The former head of Renault and Nissan fled in the night to avoid trial over financial misconduct charges. And the entire story has Japanese officials wondering why they have police.

Lebanon doesn’t have a past of extraditing people to Japan. He arrived to explain that he hadn’t escaped Japan after his arrest for financial crimes. Instead, he argued that he had liberated himself from the “rigged Japanese justice system.” Ghosn had been under house arrest and 24-hour watch. He wasn’t allowed to talk to anyone except his wife for a one-hour November call. And on Christmas.

Several media outlets claim he escaped by fitting himself into a musical instrument case that had been played at his house. The Wall Street Journal explains that it likely took months of planning to escape Japan.

He reportedly wanted to be tried in France and is on his way back there. French officials now say that they will not extradite him to Japan from there either. Reports say that France does not extradite its citizens (even for heinous crimes, apparently.)

All of this leads to one question and one question only: Who is going to secure the rights to this story: Netflix, HBO, or FX? This seems like it would work as a seven-part series that combines the feeling of HBO’s take on Too Big to Fail with FX’s Trust (about the Getty Family).

BOOTSTRAPPING (PEOPLE ON THE MOVE)

• Josh Samuelson is departing PointState Capital, the firm he co-founded. According to a letter from co-founder Zach Schrieber, Samuelson “has decided to retire from investment management.” The manager plans to stay at the hedge fund for “several months” while leadership changes. Here is more on the announcement.
• Financial News reports that a new name could be in the running to ultimately replace Warren Buffett at Berkshire Hathaway. While most chatter centers around, vice-chairs Greg Abel and Ajit Jain, the media outlet reports differently. The report names Todd Combs, who is moving up to become CEO of GEICO, as a rising star in the conglomerate.

Moving forward, look for a daily column on People on the Move at DailyAlts.com.

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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. He holds degrees from Northwestern University, Johns Hopkins University, Purdue University, and Indiana’s Kelley School of Business. He also 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.