THE DAILYALTS PLAYBOOK

January 24, 2020

Today, the DailyAlts Playbook talks about Davos virtues, the coronavirus outbreak, Goldman’s new IPO policies, and John Stumpf’s new limitations.

PRIME OVERVIEW

This morning, the Dow Jones was pushing higher despite ongoing concerns about China’s coronavirus outbreak.

Today is also the conclusion of the World Economic Forum, an event swarming with anti-capitalist capitalism. The New York Times talks of a Phillip Morris rep saying the tobacco firm is “dedicated to a smoke-free future.” What?

This year’s event will be remembered for the time a 17-year-old climate activist got into a spat with the U.S. Treasury Secretary after she called for the complete divestment in fossil fuels and he replied that she needs to “study economics.”

Instead, remember Davos for what it is: A wealthy “executive group therapy session” dedicated to “virtue signaling.”

MORNING MOMENTUM

OUTBREAK WARNINGS: Chinese officials said that the deadly coronavirus has now killed 26 people while countries like South Korea and Japan confirmed their first cases. China has reportedly quarantined at least 40 million people in its cities. It has also extended travel bans to contain the virus. They even shut Shanghai Disney. The ongoing panic has fueled new rounds of buying in gold and other safe-haven assets.

PULLING AWAY: Net outflows at hedge funds reached almost $100 billion last year, according to a report from eVestment. This was the worst year of outflows since 2016. However, hedge funds returned an average of more than 9%, the best figure since 2013. Despite the outflows, performance pushed total hedge fund AUM north of $3.3 trillion.

IMPEACHMENT PROGRESS: Investors are still eyeing the ongoing Impeachment trial of President Donald Trump. House managers, including Adam Schiff, will finish their opening case against Trump. The president’s lawyers will outline their case against impeachment tomorrow. Jay Sekulow, part of the Trump defense team, has also pegged the chance of conviction in the Senate at zero percent.

TESLA TRILLION: A think tank thinks that Elon Musk’s company could hit $1 trillion valuation one day. That’s a long way from the $103 billion valuation that it hit this week.

ACCRUED INTEREST

NEW RULES: Goldman Sachs CEO David Solomon said Thursday that companies with at least one woman on their board of directors have outperformed those without such representation over the last four years. Goldman is creating a policy to encourage greater diversity in the firm’s it assists in an IPO. “Starting on July 1 in the U.S. and Europe, we’re not going to take a company public unless there’s at least one diverse board candidate, with a focus on women,” Solomon said in a CNBC interview. The bank plans to demand two female board members starting in 2021.

CHANGING GUARDS: Renaissance Technologies founder Jim Simons said that the firm has found its next co-chairman: His son Nathaniel Simons. The $75 billion hedge fund has also added five new directors as part of its succession planning. The younger Simons has been vice-chair of Renaissance since 2006. He also runs the hedge fund Meritage Group.

CARRIED INTEREST

The start of 2020 has seen a wave of new funds. This week has been especially busy. Here’s a quick rundown of new funds that hit the headlines this week:

• Whale Rock Capital Management has launched three long-only funds: Whale Rock Long Opportunities Fund, an offshore version of that fund, and Whale Rock Long Opportunities Fund.
• Sequoia Capital is going to launch its largest fund ever that focuses on India-based investments. The venture capital firm has already invested in a number of the nation’s startups, such as OYO, Byju’s, and Zomato. A report says this new fund will come in around $1.25 billion.
• Wynnchurch Capital announced the closure at a hard cap of its fifth private equity fund after receiving $2.277 billion in commitments. The fund was launched in September with a target of $1.6 billion, and received a solid oversubscription.
• Baillie Gifford, the Scottish Mortgage investment manager, says that artificial intelligence will help the firm identify the next FAANG stocks or Teslas of the world. So, how about a four-team fund that focuses on experimental investing with AI?

QUOTES OF THE DAY

“In the fourth quarter, we did our favorite thing to do in markets: nothing.“

That’s famed Value Investor Bill Miller. His hedge fund returned a staggering 120% in 2019 because he stayed committed to his top-performing assets. The firm rallied to a 60% gain in the fourth quarter alone.

“We are sounding the alarm bells that if you are an investment institution and you’re not embracing this and taking it into account, it’s going to be at your own peril.”

MSCI chairman and CEO Henry Fernandez wants everyone to know that he is taking “climate change” as seriously as BlackRock’s Larry Fink. His firm recently published “Principles of Sustainable Investing,”  setting forth its views and recommendations on the core principles and best practices four ESG integration by investors globally.

ACTIVE MANAGEMENT

BURGER BUYOUT: CITIC Capital, the Chinese private equity firm, is bidding for a 22% stake in the Chinese and Hong Kong businesses of McDonald’s Corp. The firm is looking to put some of the $2.8 billion that it raised for its fourth Chinese buyout fund in August 2019. The deal would help it consolidate control of the organization.

MEET THE NEW BOSS: Mason Morfit has taken over as the new CEO of ValueAct. The 44-year-old and son of a diplomat takes charge after the news that Jeff Ubben would shift his duties to Chairman and focus on an environmental fund.

LIABILITIES

FAKE ACCOUNTS: Remember John Sumpf? The former Wells Fargo CEO is back in the news after the U.S. government barred him this week from every working at a bank again or take part in corporate votes at financial institutions. He will also pay $17.5 million in fines for his lackluster oversight tied to the massive account scandals at the firm. The Office of the Comptroller of the Currency is also targeting other executives who had a hand in that scandal.

The announcement comes the same day that Jamie Dimon received a $31.5 million bump from shareholders thanks to the firm’s blowout performance.

AN ODD ONE: The Financial Times reports that Switzerland’s regulators found that an executive at one of the nation’s top banks engaged in insider trading using his wife’s accounts. He will pay back SFr730,000 ($752,000) in illegal profits. Here’s the weird part – The Financial Times – doesn’t know the banker’s name. Switzerland maintains its secretive banking reputation by not even naming its insider traders.

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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.