THE DAILYALTS PLAYBOOK

October 17, 2019

Today, the DailyAlts Playbook talks about a Brexit Deal, Questions about ESG and China, Elizabeth Warren’s unsurprising announcement on finances, and just how rich that 35-year-old next door is (hint: he owns three houses).

PRIME OVERVIEW

Good morning,

Global markets were ripping higher on Thursday thanks to significant developments over the Brexit. The Dow gained triple-digits, and investors ditched concerns about recent weakness in the U.S. retail space. The news in Europe also offset statements by China this morning. Chinese officials have said that the U.S. must cancel new tariffs if it has any hope for reaching a trade deal.

Now, let’s get started with the primary stories driving macro-sentiment this morning.

BAILING OUT BORIS – The European Union and the United Kingdom have reached an agreement on a new deal for a Brexit. The news sent the Pound surging, while the U.S. dollar, gold, and other safe-haven assets saw an outflow of capital. Leaders finished the deal just-in-time for everyone to get their picture in the paper during summit talks in Brussels, Belgium. Of course, this is just a piece of paper for the moment. It remains unclear if Parliament approves the new proposal, but this morning is a positive day for the embattled Prime Minister.

TARGETING CHRISTINE – Brexit may dominate all the news in Brussels, but the real story centers around income ECB Chair Christine Lagarde. FT reports that Mario Draghi’s opponents are pushing back against recent stimulus efforts. They seek a cessation on any bond-buying program when Lagarde takes the job in the months ahead. Leaders at the Austrian, Dutch, French, and German banks have all pushed for changes in speeches this week. The key warnings have centered around the ECB’s potential desire to overlap monetary and fiscal policy – which could impact whatever perception of independence remains at the central bank. This report coincided with a CNBC reportthat the Federal Reserve may pause its rate-cutting cycle – citing statements from Chicago Fed President Charles Evans.

EARNINGS SEASON – This morning, U.S. equity markets will continue to monitor earnings reports from top Blue-Chip companies. Yesterday, Netflix surprised investors with stronger earnings figures despite weakening subscriber growth. This morning, investors are eyeing reports from Morgan Stanley, Honeywell International, and Phillip Morris International.

MORNING MOMENTUM

JAPANESE GOLD RUSH? – Activist fund Elliott Management is pushing Uzino to accept Blackstone Group’s $1.6 billion takeover bid. As we noted on Wednesday, Blackstone’s offer for the Japanese hotel operator and real estate investment firm is bordering on hostile takeovers. Given that Japanese accounting rules undervalue these assets – in some cases with a wide margin between price and net asset value – this deal could spark a rush of bids and takeovers in the Japanese real estate markets.

NEW FUND LAUNCHES – KPS Capital Partners announced it had closed KPS Special Situations Fund V and KPS Special Situations Mid-Cap Fund. The KPS Fund V topped out with a hard cap of $6 billion. That beat the target of $5 billion. Meanwhile, KPS Mid-Cap closed with a $1 billion hard cap. The two funds will focus on opportunities in “complex corporate carve-outs, turnarounds, restructurings, bankruptcies and other special situations,” according to a press release. For more news on recent fund launches, go here.

ACCRUED INTEREST

MILLENIAL MILLIONS – A new report from Coldwell Banker reveals that there are 618,000 millennials with a net worth north of $1 million. That figure will grow as wealth transfers from their parents to them over the next two decades. The so-called “Great Wealth Transfer” will see about $68 trillion flow from older to younger generations. So, what is their key asset? It turns out that real estate is a major investment. The average millennial millionaire has three properties and average real estate portfolios of roughly $1.4 million. Read the full report, right here.

ESG REMAINS RED HOT – RBC Global Management released its annual survey on responsible investing. It found that more than 70% of institutional investors in the U.S., Canada, and Britain are using ESG principles in their decision-making process. This shouldn’t be surprising given the incredible rush of capital and interest that we’ve seen in the headlines. The more interesting subject from the survey – however – might the top thing keeping these investors up at night. Roughly 67% of respondents said they have concerns about cybersecurity. A close second – at 66% – was corruption.

CARRIED INTEREST

SILENCE ABOUT CHINA – We’ve had a lot to say about the rush of ESG interest over the last year. We’ve seen funds pull out of the U.S. Treasury markets over America’s stance on gun rights, capital punishment, and – of course – military intervention. But what about China? Despite being bullish on China, ESG investors have been very silent – especially in the wake of the recent NBA flub. Chuck DeVore offers an interesting take on China and Environmental, Social, and Corporate Government issues. It turns out, Chinese companies violate ESG standards at a stunning rate. Whether its dumping trash in the ocean, imprisoning individuals over religious beliefs, or lack of transparency on business principles, it’s obvious why so many people are ignoring the truth in front of them.

REAL ESTATE RUSH – The blockbuster Las Vegas deal wasn’t a surprise if you’ve been following our speculative coverage. But on Tuesday, MGM Resorts International confirmed plans to sell the Bellagio and Circus Circus resorts in two different deals. The two deals will produce roughly $5 billion. Don’t expect companies in the hotel and resort space to stop here. Apollo Global Management has dropped a $40 per share offer for Hyatt Grand Vacations. We are waiting patiently to see if Blackstone makes an offer for the company.

QUOTES OF THE DAY

“Today, I’m announcing that in addition to these policies, I’m not going to take any contributions over $200 from executives at big tech companies, big banks, private equity firms, or hedge funds.”

Sen. Elizabeth Warren (D-Mass.) announced that her campaign will not accept any contributions from the groups that she criticizes all the time and pledges to reform should she become President. Days after saying she wouldn’t take money from drug or oil-and-gas firms, she aimed at Wall Street and alternative investment funds. It’s a political stunt given that Elizabeth Warren is claiming she won’t take donations that she was never going to receive anyway. This is like calling a press conference days before the prom and saying that you won’t go with someone who wasn’t going to ask in the first place. That said, Warren is drawing a line in the sand – and her war against Private Equity is just getting started.

“Recent developments in digital currencies similarly threaten the dollar’s dominance, and Washington policy makers are taking notice.”

In an op-ed for the Wall Street Journal, J. Christopher Giancarlo and Daniel Gorfine say that recent developments in digital currencies threaten the dollar’s pre-eminent status as a global reserve currency. That and the circumvention of US sanctions by various foreign entities should serve as a wake-up call to US policymakers. In fact, following the departure of many U.S. companies from the Libra Association, some analysts are increasingly concerned that China’s central bank will rush to push its own cryptocurrency project into the global market.

ACTIVE MANAGEMENT

Elizabeth Warren has already supported the union workers of AT&T and opposed the efforts of Elliott Management to bolster shareholder value. Now, the union has made a rather start warning. It suggests that Elliott’s proposed shakeup would cost up to 30,000 jobs. Paul Singer’s group never called for any job cuts. However, the hedge fund could easily bring on a proxy battle to push its aggressive cost-cutting and asset-selling agenda through in the year ahead.

DE Shaw held no punches in its recent report about waste at Emerson Electric. The activist fund has called for a breakup of the firm and took direct aim at CEO David Farr. The hedge fund owns a 1% stake in the firm. However, based on the way they are calling for cost cuts, you’d think they had holdings of 10% or more.

Finally, Teleios Capital Partners has increased its stake in German real estate lender Aareal. The activist firm has increased its stake in the company, criticized management, and renewed calls for the sale of the firm’s software unit. Teleios disclosed an increase in its stake from 3.4% to 4.47%. A letter signed by Teleios Partner Adam Epstein laid out its opinion on “management’s stubborn stance” on a deal.

LIABILITIES

JUSTICE IS SERVED – The CEO of Woodbridge Group of Companies – Robert Shapiro – received 25 years in prison for operating a Ponzi Scheme. A federal judge in Miami issued the sentence weeks after Shapiro pleaded guilty to running a $1.3 billion real estate scam. He defrauded more than 7,000 investors over five years. He received 20 years for the fraud and another five for failure to pay $6 million in taxes between 2000 and 2005. Details of his scam and lavish lifestyle received the full examination from TheRealDeal on Wednesday.

STARTING EARLY – Former University of Georgia student Syed Arham Arbab proves that you’re never too young to start a tangled web of economic deception. The 22-year-old former biology undergrad pleaded guilty to operating a $1 million Ponzi scheme out of his fraternity house. According to a complaint, he convinced 117 people – including other students – to invest in “hedge funds” Artis Proficio Capital Management and Artis Proficio Capital Investments over one year. He promised returns as high as 56%. While posing as a graduate student to some investors, he proceeded to offer more outrageous guarantees while gambling the money away in Las Vegas. Wait a second… 117 people went along with this guy? When I was in college, I could rarely find three people to just play beer pong with me.

BOOTSTRAPPING (PEOPLE ON THE MOVE)

• KKR promoted six people (in three pairs) to lead the firm’s private equity businesses in the Americas, Europe, and Asia-Pacific. The firm named Pete Stavrosand Nate Taylor as co-leaders in the Americas. It named Mattia Caprioli and Philipp Freise as co-heads in Europe. Finally, it appointed both Hirofumi Hirano and Ashish Shastry for its Asia-Pacific group.
• Berkshire Residential Investments has named David Olneyas CEO. Olney will replace Charles Leitner, who departed the firm to become CEO CBRE Global Investors. Olney will also keep the title of CIO until the firm finds a permanent replacement for the position.
• The London Stock Exchange Group hired Tadashi Tago to the role of information services in Japan. Tago comes over from Bloomberg, where he ran the company’s index and analytics business. A report from The Tradeindicates that Tago joined October 7. He will develop the firm’s global index unit, FTS Russell.
• Finally, Man Numeric announced that John Lidington is the group’s new co-portfolio manager of its liquid private equity strategy. Furthermore, he will work alongside existing portfolio manager Charles Liu. The company invests in small, listed companies that mimic the profile of a typical private equity portfolio.

Go here, for more people on the move for October 17, 2019.

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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.

Garrett graduated from the Medill School of Journalism at Northwestern University. He later received an MA in Global Security Studies (Economic Policy) from Johns Hopkins University, an MS in Trade Economics from Purdue University, and an MBA in Finance from Indiana’s Kelley School of Business. He 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.