TheChek News Flow

Bets on GE Aerospace, Microsoft and Visa help activist fund to first-half profits

Sir Christopher Hohn’s activist hedge fund TCI has risen 21 per cent so far this year, according to two people who have seen the numbers, as bets on jet engine manufacturer GE Aerospace, Visa and Microsoft came good.

The gains for The Children’s Investment Fund, which manages just over $70bn in assets, are more than triple the returns of the US S&P 500 index, and reinforce Hohn’s status as one of the world’s most successful equity hedge fund managers.

TCI has held a multibillion-dollar stake in GE Aerospace, which has soared 47 per cent this year, according to US regulatory disclosures. The company makes jet engines for commercial and military applications and was spun out of General Electric following the conglomerate’s break-up last year. The fund held a $7.7bn stake as at the end of last year, and a $9.5bn position as of the end of March, according to the disclosures.

The fund also benefited from its multibillion-dollar stake in Microsoft, a position it has held on and off for some time and which has climbed 17 per cent this year. In addition, it has profited from a position in US payments company Visa, which is up 12 per cent.

However, stocks it has been holding, such as Canadian National Railway and Alphabet, the parent company of Google, are both slightly down so far this year.

David Frame named global head of the private bank, helping deep-pocketed clients invest more abroad

JPMorgan Chase JPM 0.55%increase; green up pointing triangle is reorganizing its private bank to better serve the world’s richest people, who want to safeguard their wealth by spreading it around the globe.

With a minimum required balance of $10 million, JPMorgan’s white-glove bank for the superrich is one of the preferred places for the world’s elite to store their wealth. These customers are demanding that JPMorgan invest more of their money abroad, not just in the country where they spend the bulk of their time.

Growing conflicts in the Middle East and the risk of a global trade war have made top clients more wary of keeping their money in one country or region of the world. Investors outside the U.S. also want to diversify their portfolios, attracted by the boom in private markets.

“Our clients have always been multi-jurisdictional but now their assets are too, and that’s becoming ever more so with how the world is changing,” said Mary Erdoes, head of JPMorgan’s asset and wealth management unit, in an interview.

On Thursday, Erdoes announced internally that David Frame would become global head of the private bank, a new role inside the organization. Frame previously served as the U.S. head, as JPMorgan’s bank for the rich had been set up more to focus on clients in individual countries.

David Frame has been named global head of JPMorgan’s private bank. Photo: JPMorgan Chase

JPMorgan executives say that is an increasingly outdated way of serving the world’s wealthiest.

“The wealthier you get, the more you feel you’re a citizen of the world,” Frame said in an interview. “If that doesn’t happen with the first generation of a family, it starts to happen with the second and the third.”

Erdoes said that JPMorgan’s private bank has already been busy helping its clients invest their money worldwide. When the German automaker Porsche started to work with JPMorgan’s investment bank for an initial public offering in 2022, it tapped the private bank to reach out to nearly 60 high-net-worth investors across the world to help build a book of orders for the stock.

Ultimately, 10 of the private bank’s high-net-worth clients participated in the deal, which was Europe’s largest IPO in over a decade. Each invested more than $100 million. Porsche shares are down nearly 50% since then.

Clients from around the world are also looking to invest in sports teams, which are commanding sky-high valuations as wealthy families pour billions into these franchises. When Boston Celtics owner Wyc Grousbeck started working with JPMorgan to find buyers for the franchise, the private bank contacted some 186 international clients to gauge their interest in the deal.

Frame said the deals show it makes more sense to treat these uber-rich clients as a group instead of siloing them by nationality.

“There are borders for sports teams, but it doesn’t feel that way when it comes to the wealthy who are investing in them,” Frame said.

Formula 1’s new tracks: built for speed and cash flow

The unsung visionaries behind the world’s racing circuits are adapting to a new brief — one that values spectacle and social media as much as apexes and asphalt

Drivers like Lando Norris and Max Verstappen grab the headlines but track designers are the hidden hands shaping Formula 1’s future — and its image.

It has been a busy period for the small number of specialists in the field since Liberty Media bought F1 in an $8bn deal in 2017. The US group has transformed the sport, adding new circuits to the calendar as it expanded the season from 20 to 24 races in a push to tap new markets and boost revenue.

But the work has not all been about getting the straights and corners just right to create an exciting race to pull in the fans. The trackside infrastructure and the backdrop are equally important to the circuits’ owners as they seek to boost income by turning them into all-year round venues.

The expansion first focused on the Middle East with the number of Grand Prix in the region doubling in 2021 when Qatar and Saudi Arabia hosted their first races at new circuits in Doha and Jeddah, respectively.

This was followed by a tripling of the number of Grand Prix in Liberty Media’s home market, beginning with Miami in 2022 and Las Vegas the following year. Spain is due to host its second F1 race next season with the addition of Madrid, while Rwanda, South Africa and Thailand are possible future additions.

“It’s not only pure track and grandstands for people but it’s entertainment,” says 70-year-old Hermann Tilke, the leading designer over the last three decades, whose projects include tracks across Europe and recent city circuits, including Jeddah and Las Vegas.

Tilke and his son Carsten, who jointly runs Tilke Engineers & Architects with his father, point out that the shift from purely functional racetracks began under former F1 supremo Bernie Ecclestone, who brought Malaysia (no longer on the calendar) and Bahrain into F1.

As sport and entertainment blend together, it is not enough just to design a track for the drivers. F1 must cater to a fan base that is getting younger — as a result modern circuits are now doubling as backdrops for social media.

Hospitality facilities also have to be expanded to accommodate sponsors, corporate entertainment and the growing number of famous personalities attracted to the show.

Given the global reach of the sport and an estimated fan base of 750mn, there is also the challenge of building circuits for host nations that are conscious of shaping an image on the international stage, showcasing national landmarks and tourist destinations.

One of the key aspects of track design is how the race looks to the majority of people watching it on TV screens and other devices. Cutting-edge tracks and magnificent coastlines look good on television, says circuit designer Alexander Wurz, but “zoomed-out camera shots make a car going 350kph look reasonably slow”, adding: “You have to design the track to make the speed feel real.”

Wurz, twice winner of 24 Hours of Le Mans and a former F1 driver, also highlights a shift towards multipurpose motorsport venues that are in cities or closer to urban centres. “I’m convinced modern racetracks will become lifestyle centres . . . [fitting] perfectly into the urban environment” by offering lots of things to do to draw in locals as well as tourists, he says.

Wurz is working alongside Tilke Engineers on Qiddiya Speed Park Track, which will form part of a wider sports and entertainment complex in Qiddiya, south-west of Riyadh and is expected to become an F1 circuit later this decade.

For circuit owners, the real financial challenge begins when the chequered flag falls on their annual F1 Grand Prix. In a bid to secure an all-year round revenue stream from the track, designers are now looking to build venues that can host other motorsports competitions, offer conference facilities and attract hobbyists to race their own cars.

“These circuits are now becoming almost motorsport theme parks,” says John Rhodes, director of entertainment and sport at design and architecture group Hok, who previously led the redesign of Silverstone, host of this weekend’s British Grand Prix, in 2010 when he was at Populous. “The [F1] event itself is difficult to commercialise [for circuit owners]”.

It is not just new circuits that are keeping the designers busy. With the demand to join the calendar — F1 typically negotiates bigger fees from race promoters outside Europe — the pressure is on the legacy courses to ensure they are financially sustainable so that they can retain their place.

Silverstone, host of this weekend’s British Grand Prix, has invested to create a festival feel that includes live music and nightclubs, as well as a museum, hotels, and business conferencing facilities all year round.

For street circuits, which originally helped to showcase city destinations, there has also been a move to install more flexible permanent infrastructure. In the case of the Las Vegas circuit, the building housing the pits is part of the bigger, all-year round Grand Prix Plaza entertainment complex.

There is also pressure on organisers to ensure the racing keeps up with the times. The historic Monaco Grand Prix faced the regular complaint about the narrow street circuit again this year with modern F1 cars too big to allow for much overtaking, making the outcome all too predictable.

Designers acknowledge the need to strike a balance between the heritage races in Europe and new venues around the world to ensure F1 does not lose touch with its roots.

“We need these traditional tracks,” says Carsten Tilke. “The visionary track of Qiddiya and then on the other hand the really cool old-school tracks like Spa [in Belgium] . . . you need to have this . . . ”. His father finishes the sentence: “ . . . mixture.”

The trades that will shape a new financial crisis

There are multiple vulnerabilities and faultlines that could be ruthlessly unpicked

In the lead up to the global financial crisis, the systemic risks building in markets were overlooked by many. Those risks proved calamitous. Today, there are multiple financial vulnerabilities and faultlines.

First, investors have increasingly borrowed low-cost funds, often in foreign currencies, to invest in higher yielding investments in ubiquitous carry trades, that are now vulnerable to moves in asset prices and currency values.

Second, investors have wagered on stability by investing in options, either directly or via funds, which hedge a counterparty from volatility. While they pay a premium, they risk large losses when there is more volatility. Likewise, so-called risk parity funds must maintain a set risk level, necessitating liquidating riskier assets when volatility increases.

Third, relative value trades that bet on the relationships between assets have become very large, raising risks if they sour. The basis trade, where investors buy US Treasuries and hedge them with futures to lock in small gains, assumes high correlation between the two and price convergence. Investors also hold large positions on the increasingly unstable spread between interest rate swaps and government bond rates.

Fourth, exposure to illiquidity has increased with the migration to unlisted private equity and credit. The claimed higher returns are in exchange for unquantified liquidity risk.

Fifth, the repackaging of risky or illiquid assets via securitisations and synthetic risk transfer, a form of credit insurance resembling collateralised debt obligations, has grown again in recent years. These slice assets into tranches of varying risk through complex modelling . . . The adequacy of less-secured tranches of those assets to absorb first losses on the underlying loans and protect higher-rated securities created remains unverified.

These structures introduce vulnerabilities that will be ruthlessly unpicked in a crisis. The monetary volumes of these trades are substantial, well in excess of the around $1.3tn pile of US subprime loans that built up before the 2008 financial crisis.

The weakness overall is leverage, both in explicit borrowings but also financial engineering. Falling cash flows from a slowing global economy will test debt levels. US business defaults are at a post-financial crisis high with rates for highly leveraged private equity loans and junk bonds reaching the highest levels since the pandemic in 2020. The IMF has warned of pressures in commercial property and non-bank financial intermediaries. Delinquency rates on mortgage, car, credit card and other consumer debt are increasing.

The unwind in current market excesses will follow a familiar trajectory. Falling values and increasing price volatility will trigger calls for more collateral, or margin, on trades, a scramble for cash and forced deleveraging. There is also uncertainty around valuations of private investments compared with listed securities.

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Illiquidity will complicate matters as investors facing losses will reduce exposures while others will be required to bolster liquidity to meet margin calls or cut positions. As you typically sell what is liquid and what has the lowest losses, shocks will spread, increasing volatility and disturbing traditional asset price correlations.

Price falls may be exaggerated because of the reduction in the firms that act as market makers due to industry consolidation and high capital charges on dealer inventory. In addition, trading is now dominated by funds that are actually users, not providers, of liquidity.

The final vulnerability is belief in government underwriting of risk and bailouts. But major central banks are constrained by their balance sheets, which at around $20tn (below the peak of over $25tn) are well above their $5tn level in 2007. Interest rates are at modest levels, limiting the scope for large cuts, especially with continuing inflation concerns. Deficits under more pressure from military needs, interest costs and debt levels mean the cavalry may lack horses to ride to the rescue.

Markets follow Lenin’s dictum “you probe with bayonets: if you find mush, you push; if you find steel, you withdraw”. As a crisis evolves, markets test out weaknesses, probing until finding price levels with solid support. Investors will discover again that there are no new financial eras and excesses are never permanent.

ECB officials question whether euro has strengthened too much

Policymakers at central bank fret that a surging currency increases the risk of inflation undershooting

Just weeks after European Central Bank president Christine Lagarde hailed a “global euro” moment and said the common currency could rival the dollar, some inside the central bank are wondering if the euro’s strength could become too much of a good thing.

The euro has soared 14 per cent against the dollar in 2025 to reach its highest level in nearly four years as investors pile into European assets to shelter from US policy volatility, upsetting predictions it would hit parity with the greenback this year.

The rise came despite a mounting divergence in interest rates between the US and the much lower rates in Europe, an upending of the usual market dynamics.

At the ECB’s three-day annual conference in Sintra, Portugal, its vice-president Luis de Guindos was most outspoken, telling Bloomberg TV on Tuesday that “we should try to avoid any sort of overshooting”.

While the ECB could look past the current exchange rate of around $1.18, levels beyond $1.20 “would be much more complicated”, he said.

A stronger currency makes imports cheaper and drags down inflation, while sales abroad become more expensive and weigh on growth, particularly for export-dependent Europe. With the Eurozone already threatened by a trade war with the US, some central bankers are uneasy.

One senior European central banker, speaking on the condition of anonymity, said the ECB might need to signal more strongly that it does not like an overly strong euro, as it increases the risk of inflation undershooting targets. A second senior official said the strong euro could “become an issue”.

Tomasz Wieladek, chief European economist for fixed income at T Rowe Price, said ‘‘policymakers likely expected a slow euro appreciation over time . . . but this is not what is happening in practice”.

The rise has been “too fast for comfort”, Wieladek said, adding that it was “likely because private sector portfolios are also pivoting to Europe and at much larger speed than anticipated”.

If the euro appreciates further to hit $1.25 this year — a rise of 6 per cent from the current level — the ECB could cut rates by half a percentage point to mitigate the effects on inflation and the economy, he said.

While the ECB has halved borrowing costs to 2 per cent since June 2024, the Fed has kept them higher at more than twice that rate. Historically, higher US yields attracted capital inflows into the US, strengthening the dollar.

The stronger euro has helped to make life easier for the ECB as it reduced fears that a potential trade war with the US could drive up inflation in the currency bloc.

Investors were seeking alternatives to the dollar, as this year’s news flow could translate “into a general lack of confidence that will be further fuelled by more uncertainty”, Lagarde said in Sintra. “There is clearly something that has been broken,” she said about the dollar’s weaknesses, adding that it was unclear if “it is fixable”.

Lagarde did not address the implications for ECB policy, but stressed: “We take it into account for purposes of our projections.”

As inflation hit the ECB’s medium-term 2 per cent target in June, and is projected to temporarily fall to 1.6 per cent next year, there is increasing unease among Europe’s top central bankers — especially if the stronger euro coincides with higher US tariffs.

“A stronger euro would weigh on exports and so can be disinflationary,” said Pooja Kumra, a rates strategist at TD Securities. “The euro area at this stage really doesn’t want to enter the deflation era seen in the 2010s.”

The challenge for the ECB is that any attempts to tamper with the exchange rate could easily backfire.

“There is a long-standing etiquette among global central banks that unilateral action on the exchange rate is off-limits,” one influential policymaker told the Financial Times.

Uncoordinated attempts to tamper with currency markets are either doomed to fail or could even trigger a currency war, they said, adding that the situation was further complicated by some Trump allies arguing in favour of a weaker dollar.

Some investors are sanguine. Mike Riddell, a fund manager at Fidelity International, pointed to the EU’s large trade surplus, which is typically an indication that a country’s currency should appreciate.

“I don’t think policymakers have a leg to stand on when complaining about the euro being strong,” he added.

Boris Vujčić, governor of the Croatian central bank and one of the 26 members of the ECB’s governing council, was similarly unfazed.

The euro is at the same level as when it was introduced and has traded more strongly in many of the past 25 years, he told the FT. “Current levels are far from being exceptional.”

Corporate governance group says transaction ‘risks squandering’ Japan’s efforts to improve shareholder protection

The $33bn privatisation of a major Toyota supplier has been called out as a “study in opacity” by an investment industry group, reviving criticism that the transaction “risks squandering” Japan’s efforts to improve corporate governance.

The Hong Kong-based Asian Corporate Governance Association, which represents investors that together manage more than $40tn of assets, released a searing attack on Thursday of Japan’s biggest management buyout, saying it would “serve as a referendum on the credibility of Japan’s corporate governance revolution”.

Toyota Industries last month accepted a ¥16,300 ($113) a share offer led by Toyota Fudosan, a privately held real estate company, and Akio Toyoda, chair of Toyota Motor, the world’s largest carmaker by sales.

While the deal addresses concerns over governance risks arising from Toyota Motor’s web of crossholdings with affiliates such as Toyota Industries, institutional investors have decried the deal for an alleged lack of transparency and perceived low value.

The premium of 23 per cent above the share price before media reports of the deal is below the average premium for management buyouts in Japan of 44 per cent, according to the industry body.

The association said the special committee that reviewed the offer had not fought hard enough for a fair price and was not independent enough, a criticism levelled by many overseas and retail investors in Toyota Industries.

“The process that led to the deal’s terms is, by any international standard, a study in opacity,” said Anuja Agarwal, head of research for Japan and India at the ACGA. “Beneath the surface, the deal exposes the persistent fragilities of Japan’s corporate governance regime and the enduring power of entrenched interests.”

The Japanese government and the Tokyo Stock Exchange have been pushing for corporate governance reforms over the past decade. They have made strides such as increasing the number of independent directors in listed groups and sharpening companies’ focus on investor returns.

But many international investors believe the Toyota Industries buyout represents a crossroads that will raise questions about whether Japan has enough measures in place to protect minority investors’ interests.

Toyota Motor declined to comment, and Toyota Industries did not immediately respond to a request for comment.

Toyota Industries has argued that the valuation was deemed to be fair based on assessments by external advisers to the company and special committee, including SMBC Nikko and Mitsubishi UFJ Morgan Stanley.

Toyoda, who will own 0.5 per cent of Toyota Industries after contributing ¥1bn of his own money, has denied that the deal strengthens his control over the company and said it would allow Toyota Industries to pursue long-term growth. The company’s business spans forklifts, car parts and textile looms.

Shareholders including London-based fund Mondrian Investment Partners have contended that the independent advisers used an inappropriate methodology to value Toyota Industries that resulted in an “unjustifiably low” valuation.

“It is abundantly clear that the tender offer grossly undervalues Toyota Industries,” Mondrian told the Financial Times last month, calling for “greater transparency over valuation assessments”.

SMBC Nikko and Mitsubishi UFJ Morgan Stanley did not immediately respond to a request for comment.

For the deal to succeed, at least 42 per cent of Toyota Industries shares must be tendered. However, companies under the Toyota Group umbrella such as Denso, Aisin and Toyota Tsusho collectively own 12.2 per cent, and they are considered independent minority shareholders by the company.

ACGA called this interpretation to be “perhaps the most egregious governance failing” in the deal.