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Asset management: an activist’s playground



Don’t miss it: Next Tuesday we are hosting the inaugural FT Dealmakers Summit. This event on November 10 is the flagship conference of the Due Diligence team, a full-day virtual conference put on with our colleagues in FT Live.

We’ve updated the event agenda, where you will see sessions that feature speakers from top banks, law firms, corporations, hedge funds and private equity groups. Do join us if you can. Use this link to register.

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Nelson Peltz plays matchmaker

Activist investor Nelson Peltz is no stranger to the asset management industry. And that isn’t just because he owns a hedge fund. 

After Trian Partners made a solid return on its investment in Legg Mason following its $6.5bn acquisition by Franklin Templeton, Peltz’s group has now set its sights on Invesco and Britain’s Janus Henderson.

The New York-based firm has a near 10 per cent stake in both asset managers and speculation is rife that Trian is trying to play matchmaker between the two, though not everyone is convinced that would be a great idea. 

Nelson Peltz, chief executive of Trian Fund Management © FT montage/Bloomberg

Regardless of whether the two companies do link up, there is little doubt that Trian wants to see more consolidation in the asset management industry — in fact, it has a fund that is specifically built for this purpose.

And Trian is essentially using the same playbook it did for Legg Mason, where Peltz played a key role in its deal with Franklin Templeton. 

On Thursday Invesco said it had granted Trian three board seats — adding Peltz and Ed Garden, the group’s chief investment officer, as well as Tom Finke, chief executive of the $354bn fund group Barings.

As with Legg Mason, the appointments involve Invesco expanding its board to 12 directors, which helps to avoid a proxy battle. Peltz and Garden’s nominations to the board were obvious. More interesting is the appointment of Finke. 

Barings is a subsidiary of MassMutual, the US insurance company that happens to be Invesco’s largest shareholder. Nominating a board member who will be familiar with the group’s largest shareholder isn’t a bad idea. Plus Finke, who is leaving Barings, has overseen several M&A deals in the industry during his career. 

Invesco’s concession to Trian doesn’t come as a surprise, either. The manager’s longtime chief executive Martin Flanagan is well aware that companies in his industry will struggle to survive if they don’t band together. He told the FT last year that one in three asset managers would disappear as mounting fee pressures and rising costs took their toll.

Martin Flanagan, chief executive of Invesco © Bloomberg

While Invesco, which last year earned the not so coveted title of the worst-selling fund manager globally, and Trian seem to be getting on famously, little has been said about the hedge fund’s plans for Janus. 

The London-based company said it was only aware of Trian’s stake the day before it was officially disclosed and had not given any indication that it was in discussions with the hedge fund. If Trian wants a deal between the two, it’ll probably have to get both companies to play ball. 

Ant Group: stuck in the mud

It was meant to be the best week yet for Ant Group.

But Chinese regulators halted the country’s biggest fintech group in its tracks to achieve the largest initial public offering in history. (Catch up on DD’s coverage of the debacle here.)

Now lawyers involved in the deal and investors say it could be delayed by at least six months and its valuation slashed sharply thanks to new regulations, writes the FT’s Hudson Lockett and Primrose Riordan from Hong Kong. 

Shares in the group, which was set to raise $37bn, were due to begin trading in Shanghai and Hong Kong on Thursday. Shanghai’s bourse suspended the listing on Tuesday night, a day after Beijing announced draft rules that could weigh heavily on Ant’s vital lending business.

Bar chart of Market capitalisation ($bn) showing Ant IPO would have valued it higher than the world’s biggest banks

While Ant currently acts mainly as a high-tech liaison between consumers and financial companies, the new regulations would require the payments platform controlled by Alibaba’s billionaire founder Jack Ma to provide at least 30 per cent of funding for loans.

That could ultimately make its business model more akin to a (highly regulated) bank, and leave Ant’s balance sheet more exposed in the event of loans turning sour.

“If [the new rules] get strictly carried out, Ant would be worth less than half of what it is now,” said a Shanghai-based fund manager who subscribed to Ant’s IPO. And if the Past four days are any indication, the situation could change even more drastically over the next six months.

Ant’s last implied valuation of $316bn — almost a fifth larger than China’s ICBC banking behemoth — isn’t the only thing that risks shrinking as regulators keep the listing at bay, Lex points out. Banks giddily awaiting a payday estimated at $400m will probably see that sum deflate.

Bar chart of IPO and secondary listings, year to date ($bn) showing Ant Group listing was set to deliver windfall to Greater China bourses

It was also a rude awakening for Alibaba investors, who saw shares in the group fall sharply on Wednesday before recovering some of those losses on Thursday.

The highly-anticipated dual listing was thought to illustrate the dynamism of China’s financial system, no matter the political conflicts unfolding in the region. Its suspension may change all that.

H2O Asset Management: cut adrift

Regular DD readers will have closely followed the saga of the ironically named H2O Asset Management and its troublesome illiquid investments.

It has been almost 18 months since DD’s Rob Smith and the FT investigations team’s Cynthia O’Murchu first revealed a startling fact: that H2O, one of Europe’s best-performing fund managers, had loaded up on more than €1bn of hard-to-sell bonds linked to Lars Windhorst, a controversial German financier.

Lars Windhorst © FT montage; Bloomberg

The €20bn investment group’s parent company, the French bank Natixis, initially dismissed the story. The lender’s fund management chief Jean Raby reassured investors shortly after the FT’s exposé that these bonds were in fact “quite diversified”.

And while the Paris-based bank launched an audit into its lucrative fund management subsidiary, Natixis repeatedly refused to disclose the findings.

“This is not something we make public,” Raby told a reporter on the slopes of Davos in January. “This is something that is really for internal purposes.”

But since that interview, H2O has suffered a bruising year of drastic losses and an unprecedented intervention from French regulators over its illiquid assets.

And now it appears enough is enough for Natixis: the French bank is now looking to sever all ties with its controversial subsidiary by offloading its majority stake. Get the full story here.

Job moves 

  • Finsbury has hired Ginny Wilmerding as a partner in its Hong Kong office. She joins from Brunswick, where she was a partner and led the TMT sector in Asia, advising on deals for clients including Alibaba and Ant Group.

  • Blackstone has appointed Eric Duchon to the newly created role of global head of real estate ESG. He was previously global head of sustainability at LaSalle Investment Management.

Smart reads

Popping pills Hims amassed a $1.6bn empire by delivering Viagra, Rogaine and other remedies in sleek, colourful packaging that spared consumers from blushing at the pharmacy counter. But the telemedicine start-up may be a little too generous when doling out prescriptions, potentially crossing legal boundaries in the process. (Bloomberg)

Buyer beware The risky US market for collateralised loan obligations has long been supported by Norinchukin Bank, a Japanese institution investing overseas on behalf of the country’s yield-starved farmers and fishermen. The pandemic infected that route, exposing vulnerable investors to staggering losses by US companies during the height of the crisis. (Wall Street Journal)

It’s a landslide As the US languishes in uncertainty throughout a multi-day election, Silicon Valley executives have already uncorked the victory champagne. The pandemic has concentrated almost every industry into the hands of big tech — the true recipients of power in 2020. (FT)

News round-up

UK insurer RSA in talks to be acquired for £7.1bn (FT) 

US justice department sues to block Visa’s $5.3bn Plaid takeover (FT)

Intesa Sanpaolo chief calls for cross-border European banking deals (FT)

More than £1.1bn in fraud exposed in UK bounce back loan scheme (FT)

Justice Department files antitrust lawsuit challenging Visa’s acquisition of Plaid (WSJ)

Saudi Arabia media group to make play for elite global sports events (FT)

TikTok parent ByteDance seeks to raise cash at $180bn valuation (BBG) 

Commerzbank warns of impact of government Covid support running out (FT)

SocGen swings back to profit as equity trading rebounds (FT)

Iberdrola pledges €75bn to capitalise on energy transition (FT)

Sainsbury’s to close most Argos stores (FT + Lex

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PayPal to acquire ‘buy now, pay later’ provider Paidy for $2.7bn




Mergers & Acquisitions updates

PayPal, the US online payments company, has agreed to acquire Paidy, a Tokyo-based “buy now, pay later” group, for ¥300bn ($2.7bn) in the latest shake-up in the industry.

The deal announced late on Tuesday, which will be paid for principally in cash, deepens PayPal’s push into the crowded BNPL sector, in which consumers spread the cost of goods over a small number of payments, typically without interest and often without requiring a credit check.

Last month, Square, the payments company led by Twitter chief executive Jack Dorsey, acquired BNPL group Afterpay for $29bn, in the largest takeover in Australian history.

Shares in San Francisco-based Affirm, another BNPL company, soared last month after it announced a partnership with Amazon allowing shoppers who spend more than $50 to make payments in monthly instalments.

Paidy, founded in 2008, is one of Japan’s few “unicorns”, or start-ups worth more than $1bn. The company launched the country’s first zero-interest post-payment service last year.

While the global BNPL market has exploded in popularity owing to the pandemic-driven boom in online shopping, the trend is only starting to catch on in Japan, where consumers still depend heavily on cash payments.

Paidy allows its 6m registered users to split the cost of goods into three equal instalments with no interest. Users can pay off their balance using cash at convenience stores or bank transfers.

According to Yano Research Institute, the volume of transactions made through post-payment services in Japan is expected to more than double from an estimated ¥882bn in fiscal 2020 to ¥1.88tn by fiscal 2024.

Paidy was valued at $1.3bn when it raised $120m in March, and was expected to list its shares in Tokyo later this year. It has been backed by trading house Itochu, Goldman Sachs and Soros Capital Management along with PayPal.

Russell Cummer, the Japanese fintech’s founder, recently told the Financial Times that a public listing “made sense” — though no firm timetable had been established. Instead, the company is now expected to become part of PayPal by the fourth quarter of this year.

“Paidy pioneered ‘buy now, pay later’ solutions tailored to the Japanese market and quickly grew to become the leading service, developing a sizeable two-sided platform of consumers and merchants,” said Peter Kenevan, PayPal’s vice-president and head of business in Japan.

“Combining Paidy’s brand, capabilities and talented team with PayPal’s expertise, resources and global scale will create a strong foundation to accelerate our momentum in this strategically important market.”

PayPal said Paidy would “continue to operating its existing business, maintain its brand and support a wide variety of consumer wallets and marketplaces”. Cummer and Riku Sugie, Paidy’s president and chief executive, will continue to lead the company, according to a statement.

“Paidy is just at the beginning of our journey and joining PayPal will accelerate our plans to expand beyond ecommerce and build unique services as the new shopping standard,” said Sugie. “PayPal was a founding partner for Paidy Link and we look forward to working together to create even more value.”

The acquisition comes as PayPal rolls out its broader strategy to become a “super app” — incorporating payments, cryptocurrency investments and savings — drawing inspiration from under-one-roof Chinese apps such as WeChat.

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Bitcoin: El Salvador’s experiment does not warrant cross-cryptocurrency price rise




Bitcoin updates

Early adopters of virtual currencies have a clear incentive to promote mainstream acceptance. The more buyers, the higher the price. Crypto fans, therefore, hatched an online plan to bolster bitcoin as El Salvador legalised the tokens for payments. That was logical. The knock-on rise in other cryptocurrency prices was not.

Bitcoin’s 8 per cent rise over the past seven days means that it is now worth about $51,000. But according to data from CoinGecko, which tracks more than 9,000 coins, it is not the largest mover. Ethereum, the world’s second-largest cryptocurrency, has leapt 16 per cent over the past week. Solana’s SOL tokens have risen 69 per cent.

There is no sensible reason for these rallies. El Salvador is not expected to make other virtual currencies legal tender. Instead, the jumps reflect a soupy mixture of low rates, blind faith and better investor access.

Trading apps make it easier for retail investors to buy cryptos. The initial public offering of Coinbase in April raised its profile, leading to a jump in downloads.

The make-believe world of nonfungible tokens, or NFTs, has also given cryptos a boost. These prove ownership of digital assets such as art, music or even virtual pet rocks. Many use the ethereum network. Solana, which is backed by Andreessen Horowitz, has its own NFT marketplace, Solanart.

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None of this, however, has anything to do with El Salvador’s attention-seeking adoption of bitcoin. This diverts domestic attention from the failing economy of this impoverished Central American nation, the first country to embrace bitcoin as legal tender. It also supplies cheerier news flow to bitcoin fans than did the cryptocurrency’s collapse in value this spring.

Rising prices mean the total market value of cryptocurrencies has reached nearly $2.4tn. It is rapidly closing in on the previous record of $2.57tn set in May. Bitcoin’s share of the market has fallen. It is now about 40 per cent, down from 57 per cent a year ago. Yet bitcoin remains a powerful bellwether.

This could be a problem if bitcoin’s latest rally depends on success in El Salvador. President Nayib Bukele says the country has purchased 400 bitcoins — equal to just 0.002 per cent of the outstanding value. Local opposition is widespread, suggesting take-up will be low. A damp squib is more likely than the financial dislocation some critics are prophesying.

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Europe stocks notch best day in 6 weeks on sustained stimulus hopes




Equities updates

European equities had their biggest rise since late July on Monday as weaker-than-expected US jobs data suggested pandemic-era stimulus, which has helped prop up markets, may continue for longer than anticipated.

The Stoxx Europe 600 index gained 0.7 per cent, the region-wide benchmark’s best day in six weeks, as traders analysed the implications of a large miss in US job creation. Employers in the US added 235,000 jobs in August, which fell wide of economists’ projections of more than 728,000 new hires.

“The weak jobs number gave the Federal Reserve ample room to take it easy in terms of how and when it will taper” its $120bn of monthly bond purchases that begun in March 2020, said Maarten Geerdink, head of European equities at NN Investment Partners.

Before Friday’s non-farm payrolls report, some analysts had expected the Fed to announce a reduction of its asset purchases as early as this month.

European stocks, Geerdink added, were “in a sweet spot with the eurozone economy doing well while financial conditions remain extremely loose”.

London’s FTSE 100 index also ended the session 0.7 per cent higher while US markets were closed for Labor Day.

Column chart of Stoxx Europe 600 index, daily % change  showing European stocks notch best day in six weeks

Economists expect the European Central Bank to provide an update about its own debt purchases at its meeting on Thursday, with government bond prices signalling some expectations of a pullback. The yield on the benchmark German 10-year Bund, which moves inversely to its price, was steady on Monday at minus 0.37 per cent, around its highest point since mid-July.

Technology shares, which tend to perform well when expectations of low-for-longer bond yields flatter valuations of growth companies, were the best performers in Europe with the sector rising 1.7 per cent on Monday.

In Asian equity markets on Monday, Chinese shares rallied after vice-premier Liu He said the government would continue to support private businesses despite a regulatory crackdown across the technology and education sectors. 

“Policies for supporting the private economy have not changed . . . and will not change in the future,” Liu said in comments reported by state news agency Xinhua. The CSI 300 index of mainland Chinese stocks climbed 1.9 per cent. 

Japan’s Nikkei 225 gained 1.8 per cent as investors bet that last week’s abrupt resignation by prime minister Yoshihide Suga would usher in a successor more focused on protecting the nation’s economy from rising Covid-19 cases. 

Brent crude, the international oil benchmark, slid 0.7 per cent to $72.10 a barrel.

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