THE DAILYALTS PLAYBOOK

January 15, 2020

Today, the DailyAlts Playbook talks Trump’s Search for Ken Griffin, Souvenir Impeachment Pens, Family Office Flows, and Kyle Bass’s Hong Kong Warning.

PRIME OVERVIEW

This morning, U.S. markets are ticking higher as investors largely ignore Impeachment drama in Washington and cheer the Phase One trade deal between the U.S. and China. The dollar is steady. Solid earnings from Morgan Stanley and Taiwan Semiconductor Manufacturing gave investors the sense that headwinds facing the global economy are calming.

The trade deal, however, still relies on a lot of trust and many miles to go. The deal will see China purchase an additional $200 billion in U.S. goods in the next two years. The deal could effectively push U.S. exports to China at $263 billion this year and $309 billion by 2021. Both of those figures would be records, but it would require a dramatic realignment of importer agreements by Chinese buyers. That factor is especially apparent in the agricultural industry.

Investors are again eyeing another busy day of earnings reports. Morgan Stanley leads an earnings calendar that also includes reports from CSX, The Bank of New York Mellon, and Charles Schwab.

MORNING MOMENTUM

CRISIS COMING: Hedge fund manager Kyle Bass doesn’t see much promise in Hong Kong. Yesterday, he appeared on Bloomberg TV and predicted that Hong Kong will experience a “full-fledged banking crisis” in 2020. He cited high levels of leverage and a “collapse” in Hong Kong’s economy. He even compared Hong Kong’s conditions to those in Iceland and Ireland prior to the 2008 financial crisis. A few officials and analysts reject the thesis. But Bass’s resume suggests it’s worth watching right now.

FREE PENS: The House of Representatives will deliver Articles of Impeachment against President Donald Trump on Thursday. Yesterday, Speaker Nancy Pelosi held an Impeachment ceremony where they brought out pens on a silver platter – and she signed the articles a letter at a time with a different pen. Then she gave out the pens to the other Congressional leaders and impeachment managers in attendance, who clawed them to chest with smiles. The markets have largely ignored the event, although House Dems argue that new evidence has emerged that should be taken into account.  Yesterday, former Rudy Guiliani associate Lev Parnas said that Trump lied about what he knew about efforts to put pressure on Ukraine.

OUTRAGE, OUTRAGE EVERYWHERE: While CNN called Pelosi’s pen stunt “jarring,” the New York Times offered a not-so-subtle dig at the President’s trade deal celebration. “A White House signing ceremony turned into a lovefest for the mega-rich,” says the subhead to Alan Rappeport’s column on the post-signing talk offered by Trump. The President tossed out a few names in the alternative investment space during the ceremony. He teased Nelson Peltz about his investment in General Electric while joking that Ken Griffin was “trying to hide some money” when Trump couldn’t locate him. As you can imagine, people are spending their morning angrily Tweeting about this ceremony.

ACCRUED INTEREST

ALLOCATION BLUES: The Peltz International Survey says that family office allocations to hedge funds slumped from 28% in 2018 to 22.4% in 2019. The study also shows that allocations to stocks and fixed income increased, while allocations to cash and alternatives slipped.  That said, family office trends suggest an increased interest in ESG. The survey says that 72% of family offices plan to invest in ESG, 68% expect to explore co-investing, and 60% expect to focus on global investing. Just 48% said they expect to focus on alternative investments.

AUM BLOWOUT: BlackRock beat earnings expectations on Wednesday. But the bigger news is that the alternative asset manager now has a staggering $7.43 trillion in AUM. The company cited the ongoing market rally, strong inflows into its ETF business, and the $128.84 billion it raised during the fourth quarter. Larry Fink said: “I think it’s quite evident from our flows in the fourth quarter that we are winning more of our clients’ share of wallet.”

CARRIED INTEREST

SMALL WINS: The gross return of the SS&C GlobeOp Hedge Fund Performance Index for December 2019 measured 1.65%.Hedge fund flows as measured by the SS&C GlobeOp Capital Movement Index declined 1.84% in January. Here’s more.

FUND UPDATES: It has been a busy 24 hours on the fund front. Let’s take a look at the headlines and fund closings that are leading the headlines.

• Lexington Partners announced the final close of Lexington Capital Partners IX and associated vehicles. The fund pulled in $14 billion of commitments.
• KKR has raised $2.2 billion for its second Next Generation Technology Growth Fund. That capital raise is more than three times the size of KKR’s first fund.
• Stone Point Capital has hauled in $7 billion for its eighth flagship fund. That figure topped the hard cap of $6.5 billion reported last year. It also easily tops the $5.5 billion raised for its previous flagship fund in 2017.
• HarbourVest Partners has closed the HarbourVest Fund XI, with $2.61 billion in commitments. That figure topped the capital target of $2 billion.

QUOTES OF THE DAY

“Ken Griffin, Citadel. What a guy he is. Where are you, Ken? Where the hell is he? He’s trying to hide some of his money. Look, he doesn’t want to stand up. Where the hell is Ken?”

That’s President Donald Trump looking for Ken Griffin after signing the Phase One deal with China.

“The jury spoke loud and clear last time that Paul Touradji abused his employees, and we’re confident that another jury will do so again.”

 

That’s Robert Seiden, a lawyer for Gentry Beach and Robert Vollero. The two are heading back to trial against their former hedge fund boss Paul Touradji of Touradji Capital Management. The two plaintiffs accuse Touradji of stiffing them out of millions. A judge, however, has vacated a $90 million judgment in their favor.

ACTIVE MANAGEMENT

BOARD SHAKEUP: Hedge fund Standard General announced it will nominate four directors to the board of regional TV operator Tegna. The fund has nominated its founder Soohyung Kim and media executives Colleen Brown, Ellen McClain Haime, and Deborah McDermott. Standard General argues that changes are needed in the boardroom following the stock’s long-time underperformance.

NEW LEAGUE RECORD: Lazard said Wednesday that activists recorded 99 campaigns in 2019 that had an M&A thesis. That figure is a record. Calls for firms to be sold or assets to be spun off represented 47% of activist activity. That figure is up from 35% in previous years. Notable activist campaigns from last year include Carl Icahn’s push for a Xerox-HP deal, Icahn’s strategic review push at Caesars that ended in a sale to El Dorado, Elliott’s AT&T campaign and the activist’s call for Marathon Petroleum to split up.

BLUE BUYOUT: Former NYSE President Thomas Farley’s Far Point Acquisition Co. is on the verge of buying Swiss payments giant Global Blue f0r $1 billion. The deal would bring Blue Global to the U.S. public markets and give the firm $1 billion from investors like activist fund Third Point, Ant Financial Services, and  Far Point. The Wall Street Journal reports that an announcement could come today.

LIABILITIES

DUMB MONEY: Can you believe that you could invest $150,000 with a guarantee of 18% to be paid back each month… forever? Well, that was the promise of Ken Courtright and his company Todays Growth Consultant. The SEC has filed a restraining order and asset freeze against the owner and company. The SEC said that he duped more than 500 investors and took in roughly $75 million since 2017. Spoiler alert: It was a Ponzi scheme.

PRISON PREP: Alan Heide will serve at least 51 months in prison after pleading guilty to one count of conspiracy to commit securities fraud. The former 1 Global CFO engaged in a fraud scheme worth about $287 million. His co-conspirator is awaiting sentencing next week.

BOOTSTRAPPING

Confluence Technologies has appointed Annabel Giles to the role of Chief Human Resource Officer. This is a new position for the technology solutions company. Giles comes to the firm with more than 20 years of experience in human resources, primarily within the asset management and investment industry. Giles recently served as CHRO at Actis LLP. Prior to this, she served as Managing Director, Human Resources – Global Trading at Credit Agricole CIB.

ACA Compliance Group has appointed Shvetank Shah to CEO. He will also serve as a member of the Board of Directors effective immediately. Shvetank previously worked at Gartner. At the research firm, he held roles that included Senior Vice President of its Technology & Service Provider practice.

Nancy Prior, Fidelity Investment’s head of fixed income, will retire after 18 years at the company. Prior oversaw the firm’s $1 trillion in assets and worked in that role for six years.

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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.