The DailyAlts Playbook – PointState’s Redemption Woes, Crypto Whale Dominance, a Sleepy IPO, and a Contest to Fly around the Moon with a Love-Starved Japanese Billionaire.
THE DAILYALTS PLAYBOOK
January 13, 2020
Today, the DailyAlts Playbook talks PointState’s redemption woes, Crypto Whale dominance, a sleepy IPO, and a contest to fly around the moon with a love-starved Japanese billionaire.
U.S. equity markets projected gains Monday morning as investors prepare for a busy earnings week. Tomorrow will kick off a busy earnings season, and we’ll piece through reports from JPMorgan Chase (JPM), Wells Fargo & Co. (WFC), and Citigroup (C) tomorrow and see other major banks report over the balance of the week. In the meantime, China’s trade delegation heads to Washington D.C. to discuss Phase One of a trade deal with the U.S. Optimism about progress on a broader deal has U.S. futures pushing higher in premarket hours. The two sides will likely sign the Phase One deal on Wednesday.
Geopolitical headlines are driving the morning sentiment. President Donald Trump has tweeted support for Iranian protestors as they call for change in the wake of their country’s mistaken downing of a passenger jet. Meanwhile, markets await China’s reaction to a landslide victory in the presidential election that saw Tsai Ing-wen beat a Mainland-friendly challenger.
BOEING BLOWBACK: We’re piecing through the details of fired Boeing CEO Dennis Muilenburg’s Golden Parachute. Reports indicate that the departing executive could end up with an exit package worth $62 million. Muilenburg was ousted in the face of the company’s weak response to two fatal crashes of sits 737 MAX jet in 2019. Recent emails reveal a rotten culture that attempted to skirt regulation and bypass simulator testing during the production of the jet. While the payment will face significant criticism, it’s important to note that exit packages are typically prenegotiated. Muilenberg spent 30 years at the company. He has owned unexercised stock options since 2013 valued at more than $18.5 million.
REDEMPTION WOES: PointState Capital has moved to stop investors from pulling all of their capital in full. According to an investor letter seen by Bloomberg, the company will only allow recent redemption requests to obtain 88% back in cash. The remaining 12% will be distributed as portfolio shares for new vehicles that have “somewhat limited liquidity.” Those assets reportedly include a cash collateralized loan, a residual private equity investment, and a pre-IPO convertible note. The firm is being optimistic about it, but Lisa Abramowicz of Bloomberg Radio described it best on Twitter last week: “Not a good look.” The news comes at the same time that various outlets report that Woodford investors are working with law firms to sue Neil Woodford’s hedge fund. Following that firm’s suspension, investors found themselves unable to redeem their capital as well.
CRYPTO CONTROL: The cryptocurrency markets are far more concentrated than many people first believed. According to a report from IntoTheBlock, just 39 Whales control 11.1% of all Bitcoin. The report indicates that the concentration becomes stronger as we move into other projects. Just 154 Whales own 40% of all Ethereum, and 128 whales own 47% of all Litecoin.
CRYPTO COMPETITION: WisdomTree is pushing to launch a regulated cryptocurrency in the U.S. markets. The firm’s stablecoin would be pegged against a basket of assets – which could include government debt, the U.S. dollar, or even gold. The firm is seeking approval from the Securities and Exchange Commission. Financial News reported on the story late Sunday night. We reached out to WisdomTree this morning and will report more on the story later this afternoon. For now, here’s our breakdown ahead of publication.
LIQUID PERFORMANCE: The Wilshire Liquid Alternative Index, a baseline metric for the performance of the broad liquid alternative investment category, returned 0.66% in December. That figure underperformed the 1.22% monthly return of the HFRX Global Hedge Fund Index. “Equities surged in the fourth quarter of 2019 across geographies thanks to improvements in investor sentiment and continued central bank support,” said Jason Schwarz, President of Wilshire Funds Management and Wilshire Analytics. “The fourth quarter was punctuated by a ‘Phase One’ trade deal between the U.S. and China and a strong pro-Brexit election result in the UK that provided a degree of certainty for investors in the near-term.”
QUESTIONABLE IPOS: Another questionable IPO is looming for the markets. This time, it’s the Leonardo DiCaprio and Ashton Kutcher-backed (yes, your eyes aren’t tricking you) Casper Sleep. The online mattress firm continues to face competition from imitators like Purple and Leesa, and it continues to see wider losses. The solution: Sell shares on the public markets. Remember, it’s not the worst idea in the world. As Bloomberg reported in December, companies that have negative book value have outperformed the Russell 3000 Index for more than 20 years.
DON’T WORRY ABOUT THE ROBOTS: Presidential Candidate Tulsi Gabbard made headlines after throwing her support behind Universal Basic Income. Gabbard raised concerns about automation, robotics, and the displacement of workers in the years ahead. Naturally, there is a panic about a future that few understand, so what better way to address it than with top-down economic policy out of Washington D.C. Well, over the weekend, an alternative voice offered some peace of mind about the future. Garry Kasparov, one of the greatest chess masters of all time, has written a new book about artificial intelligence. Kasparov argues that the future does not include a robot Apocolypse. He’s optimistic that humans will do well to cooperate with robotics to maximize job functions. I guess Garry hasn’t learned that in the United States, fear sells.
FUNDRAISING BLOWOUT: Private equity funds raised almost $600 billion in 2019, according to Preqin. It was the fourth year in a row that PE shops topped more than $500 billion. The $595 billion from last year is the third-highest figure ever recorded. Preqin says that dealmaking was also strong, despite declining slightly from the previous year. Last year, we saw $393 billion in buyout deals and $224 billion in venture capital deals.
TOP ADVISERS: JPMorgan is no longer the top M&A adviser for banking deals (by volume). Last year, Goldman Sachs secured the top spot as the lead adviser in the banking sector, according to GlobalData. Goldman Sachs jumped four spots after it advised on 48 deals worth $188.8 billion. It was a blowout year. In 2018, the firm advised on 36 deals worth $58.3 billion.
QUOTES OF THE DAY
“I feel like a ‘clown’ and a ‘monkey’ defending everything. I was defending them more than they were defending themselves.”
Jim Cramer wasn’t too pleased with last week’s release of Boeing emails that revealed the company’s ongoing problems with the 737 MAX and efforts to skirt regulations and testing methods to make the plane more attractive to airlines. Cramers “clown” and “monkey” statements invoke a callback to the email sent by one pilot to another that read the 737 MAX “is designed by clowns who, in turn, are supervised by monkeys.”
“With that future partner of mine, I want to shout our love and world peace from outer space.”
Listen, there’s nothing unusual about this story at all. All that’s happening here is that Japanese billionaire Yusaku Maezawa is looking for a girlfriend… but there’s a catch. A somewhat — can we use the word contrarian – catch. The founder of online retailer Zozotown is seeking a woman to join him on a trip to fly around the moon with him. He is the first prospective rider on SpaceX’s deep-space rocket. He launched a campaign on his site to find a “female partner” and is taking his search worldwide. The site is accepting applications, and they are due by Friday. He will make his final decision by March, according to the website. This is a completely normal thing to do. Meet a stranger, confine them to a rocket ship for a few weeks, and shout into the cold dark abyss of space that you love them and want to make the world safer. Totally reasonable…
TOUGHER TIMES AHEAD: What’s on tap for active managers in 2020? According to Pauline Skypala at the Financial Times, much of the same over the last decade. “Revenues will go down, costs will go up, margins will be squeezed, and the biggest players will get bigger,” Skypala writes. Skypala expects that active managers will struggle in the year ahead and raises concerns on issues like ESG and climate change proposals as a factor for managers in the years ahead.
KEEPING FOCUS: Dodge & Cox has quietly built a 17% stake in embattled software developer Micro Focus, a firm that was recently dropped from the FTSE 1000. The $300 billion investment fund started building its stake after Micro Focus took over Hewlett Packard’s software arm in 2017. The firm is putting together a plan to revitalize Micro Focus shares, according to The Times.
ILLEGAL PROFITS: Hedge fund Citadel issued a statement last week that distanced itself from a former trader who profited from non-public information. Michael Mindlin worked for Citadel between June 2016 and June 2018. However, U.S. regulators just fined him for illegally profiting from tips tied to the Affordable Healthcare Act in 2014. At the time, Mindlin worked for Stelliam Investment Management.
MADOFF WANNABE: U.S. Attornies have announced sentencing against Steven Pagartanis, an investment advisor from Long Island, who ran a multi-million-dollar Ponzi scheme for 18 years. Pagartanis will serve 170 months in prison and pay $6.5 million in restitution. He pled guilty to wire fraud and mail fraud charges for his scheme that targeted elderly investors. Investors put $13 million into his scheme and lost a whopping $9 million.
Asset Management Exchange (AMX) has appointed Dr. Kerrie Mitchener-Nissen to the role of Head of Product. Mitchener-Nissen comes over from JPMorgan Asset Management, where she served as Head of International Product Development. AMX oversees $9.5 billion in assets. Mitchener-Nissen will manage existing solutions and lead new product development.
Refinitiv has appointed Andrea Remyn Stone to the role of Chief Customer Proposition Officer. Stone will also serve as a member of the Executive Leadership team and report to CEO David Craig. Stone comes over from DealLogic, where she served as Chief Strategy Officer.
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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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