The DailyAlts Playbook: January 7, 2020

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THE DAILYALTS PLAYBOOK

January 7, 2020

Today, the DailyAlts Playbook talks pension allocations in 2020, the cost of Carlos’ freedom, Blackstone Group’s 2020 Surprises, and a ridiculous valuation for TopGolf.

PRIME OVERVIEW

ON THE MOVE: This morning, markets appeared tame as investors take a step back from geopolitical tensions across the Middle East. Following the U.S. killing of Iran’s top military commander last week, markets are waiting to see if Iran plans to retaliate and target U.S. interests. This morning, oil prices pulled back slightly for the first time in four days, while gold’s rally looked to continue for the seventh consecutive day.

NEGATIVE RATE RESPONSE: Gold prices have benefited from the recent geopolitical turmoil. But the asset might just be getting started, according to Ben Seager-Scott of Tilney. Investment Week offers an outlook for real assets, gold prices, private equity, and infrastructure in the year ahead. “Lower for longer” interest rates are driving more and more money into alternatives, a theme in today’s analysis.

BOLD PREDICTIONS: Speaking of Iran, Blackstone’s Byron Wien and Joe Zidle released their list of Ten Surprises for 2020. Fifth on the list is the “Surprise” prediction that Iran may shut down the Straits of Hormuz as it steps “up acts of hostility against Israel and Saudi Arabia.” The two also suggest that the Trump administration may cut payroll taxes in 2020, the U.K. becomes the winner from the Brexit, and one solitary Millennial puts down his or her phone in New York and makes a human connection. The full list 2020 Surprises is published here.

MORNING MOMENTUM

BUY ON THE SOUND OF CANNONS: Nikkei Asian Review reports that Mainland Chinese investors poured money into Hong Kong stocks during the protests in 2019. The search for value was simply too great for individuals seeking to buy into the financial hub as chaos erupted. In fact, the report says that investment in the hub tripled last year.

2020 RECOVERY: Mercer now predicts that the global economy will recover in 2020. In a forecast issued this week, the global investment consultancy said it expected a turnaround in capital spending as trade relations improve between the United States and China. The firm doesn’t expect that the U.S. unemployment rate will fall further, but it does suggest that higher CAPEX is on the way. Meanwhile, the firm also expects economic growth to return to Europe and Japan. Here’s more from the report.

THE BILL ARRIVES: In HBO’s classic show The Wire, Proposition Joe one posited: “What you think a man with a whole lot of money would pay for his freedom?” In the case of former Nissan CEO Carlos Ghosn’s escape from Japan, we now know at least part of the bill. His getaway flight cost $350,000. Given reports that upwards of 15 people might have been involved in the scheme to smuggle him to Europe, that tab might well be into the millions of dollars. 

ACCRUED INTEREST

BEYOND SURPRISING: On Monday, Bed Bath & Beyond announced plans to sell 2.1 million square feet of real estate to Oak Street Real Estate Capital for roughly $250 million with a lease-back agreement. The firm will lease about 1,500 retail outlets for its Harmon and Buy Buy Baby stores. The firm needs capital, as it’s quite apparent thanks to ongoing demographic shifts in mall traffic. If the lease-back strategy seems familiar – it’s right out of the playbook of Sears owner Eddie Lampert. This is all part of a bigger effort by CEO Mark Tritton to turnaround the firm. If you think this was controversial, however, keep in mind that he fired six executives just before Christmas (remember: it’s all part of a plan.)

“CASH FLOW PROBLEMS” – Earlier this year, we watched British regulators suspend Woodford Investment Management over its liquidity problems tied to various investments. The matter of illiquid funds allowing investors to redeem on a whim is for another day. Instead, let’s talk about who didn’t face a liquidity problem heading up to the crisis: Neil Woodford and CEO Craig Newman. The two men received a combined 13.8 million pounds in dividends in the 12 months leading up to the crisis that saw Woodford’s ouster. Woodford also pushed back against calls to waive management fees after its suspension – which ran around 8 million pounds for four months until his firing.

HOW DOES MATH WORK: Bloomberg reports that TopGolf International – the golf’s version of Cosmic bowling – could see its IPO reach a staggering valuation of $4 billion. Morgan Stanley, JPMorgan Chase, and Bank of America are helping to lead the charge. The IPO could happen as soon as 2020. This will be a very fun S-1 to comb through.

CARRIED INTEREST

PENSIONS WELCOME: Don Steinbrugge of Agecroft Partners released his annual list of Hedge Fund trends and predictions for 2020. He covers a few common bases: Hedge fund assets will set a new record, a reduction in expected returns, and how long-short specialty funds will see a boost to AUM. But he offers a few wild cards and provides some solid analysis on why pension funds will likely increase hedge fund allocation in 2020. Hint: Interest rates matter.

PENSIONS AND PRIVATE DEBT: The prediction comes the same week that Bloomberg offered a deep dive into public pensions, the private debt market, and the challenges pensions face in the future to maximize returns. With $4.57 trillion in assets, U.S. pension funds can effect incredible change across all corners of the investment world. Most interesting, however, about this column is the survey of private credit managers’ expectations around private debt recovery rates.

HERE COME THOSE ALLOCATIONS: A quick sweep of the news reveals that pension funds are turning to alternative investment funds quickly in 2020. San Francisco’s City & County Employees’ Retirement System disclosed eight investments worth $655 million this week. The massive pension fund is sending at least $200 million to hedge fund Elliott Management. In Pennsylvania, the $59.1 billion PSERs is turning to a Danish investment firm to automate its investment operations.

BUT YOU PROMISED – Finally, despite all of the chatter around ESG investing, it turns out that pensions just aren’t making the transition. A new report says that more than 57% of the Society of Pension Professionals’ (SPP) membership has failed to make any portfolio changes related to ESG standards. But remember, sales team – there is still “genuine interest”, the research says.

QUOTES OF THE DAY

” Getting digital right will sort the winners from the losers.”

That’s Bonn Liu, Partner, Head of Asset Management in ASPAC and China, KPMG China. According to a KPMG survey, 69% of asset managers expect their spend on digital programs to increase 10 percent or more in the next 12 months. The firm reports digitally mature organizations reach 25% more revenue growth and 31% higher EBITDA growth.

“We’re going to war, bro.”

That’s a young soldier at Fort Bragg, North Carolina heading to the Middle East. Reuters reported that the young man held two thumbs up and grinned as soldiers loaded trucks and prepared to deploy. The image stands in stark contrast to the mood of other soldiers in their 30s and 40s who have returned from the Middle East before. Lieutenant Colonel Mike Burns, an Army spokesman, told Reuters that soldiers “are excited to go but none of us know how long they’ll be gone.”

ACTIVE MANAGEMENT

JANA’S RALLY: Activist hedge fund Jana Partners’ Strategic Investment Fund reported a 52% return in 2019. Its JSI Benchmark A portfolio also gained 48%. The company saw solid gains last year from ConAgra Brands, Bloomin’ Brands, and Callaway Golf. It also had a successful year in fundraising.

SHOT OF CITRON: Meanwhile, Andrew Left’s Citron Research reported a solid 2019 as well. The short-fund reported an annual return of 43% after fees in its first year in business. Left also predicted that one of his top picks from last year – Restoration Hardware – may become a takeover target for someone later this year.

BEATING BENCHMARKS: Hedge fund D.E. Shaw posted returns of 10.5% for its flagship Composite fund in 2019, according to Business Insider. The firm’s macro-focused Oculus fund had an 11.8% return, the report says. Both funds topped the average 2019 hedge fund return of 8.5%, according to Hedge Fund Research.

LIABILITIES

SOUR TASTE: Lime Asset Management is facing new scrutiny over its efforts to conceal losses from investors.

BOOTSTRAPPING

CLOUD FIGHT: Microsoft Corp. has hired former Bridgewater Associates’ head of sales Shaka Rasheed. Institutional Investor noticed the change on his LinkedIn page this week. Rasheed is now the managing director in charge of the company’s U.S. capital market group. The hiring comes at a time that Microsoft is in a dogfight with rival Amazon for cloud-computing dominance.

PARTNER UP: Hedge Fund Odey Asset Management has promoted three people to the partner level: Stefan Way, James Kostoris, and Simon Schafer. All three had worked at the firm for at least five years. Wey was a former investment director at UBS, while Schafer joined from Goldman Sachs. Kostoris previously worked at CIB Egypt and Brown Shipley.

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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.

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