TheChek News Flow

Izzy Englander’s group working with Petershill Partners as it opens up to external investors for the first time

Millennium Management, one of the world’s largest hedge funds, is in talks about selling a minority stake to external investors at a $14bn valuation, as it presses ahead with plans to open up its ownership for the first time.

People familiar with the discussions said that Millennium was working with Goldman Sachs’ Petershill Partners to identify potential buyers for a 10-15 per cent equity stake in Millennium’s management company. It is the first time a formal valuation has been put on the hedge fund.

Petershill, which is operated by Goldman, buys minority stakes in alternative investment firms and is targeting both its own clients and the largest investors in Millennium’s fund with the deal.

The deal would secure Millennium one of the top valuations of any hedge fund manager, according to two people familiar with the situation.

Millennium and Petershill declined to comment.

New York-based Millennium, which has more than $75bn in assets under management, is one of a select group of hedge fund giants that operates across asset classes.

The so-called multi-manager has more than 320 investment teams investing within a tight risk framework, and competes with the likes of Ken Griffin’s Citadel and Steve Cohen’s Point72.

The discussions with external investors come as Millennium is working on a plan to open up the ownership of the management company to its top executives for the first time by distributing equity to its key people.

Millennium is also talking to BlackRock about a strategic partnership that could lead to the world’s largest asset manager taking a small equity stake.

In recent years its septuagenarian founder Izzy Englander, who has kept sole ownership of Millennium for its 36-year history, has taken several steps to institutionalise the business and prepare it for life without him. 

Millennium has secured its capital base by moving the vast majority of investors into a long-term share class, increasing the time it takes them to exit their investment with the hedge fund from one year to five.

Englander has also built out Millennium’s leadership team with a series of senior hires from Goldman Sachs, explored diversifying the business with new strategies, and changed its fee structure so that investors are now required to pay a minimum fee regardless of the fund’s performance.

Annual fees, on top of expenses, are now about 1 per cent of assets or 20 per cent of investment gains, something bankers described as akin to a management fee. 

Hedge funds are typically valued on the basis of their management fees — around 1-2 per cent of overall assets — and the performance fees they generate. Management fees are seen as more predictable revenues and are ascribed a higher valuation by the market than sometimes volatile performance fees. 

An adviser to private capital groups said that multi-manager hedge funds — even those such as Millennium with capital that has been locked up for a few years — typically receive a lower multiple on their management fees than the multiple for the management fees of private equity firms. They also usually have lower performance fees. 

“If you put it all together it is a significantly lower multiple business than a well established private equity firm,” they said. “But investors could still be enamoured with the brand.”

The adviser said that “the publicly listed private equity firms trade for mid teens to low 20s multiple of cash flow. A hedge fund will be significantly less than that.” 

Millennium’s flagship fund gained 15.1 per cent last year and is up about 0.4 per cent this year through May, investors said. It has recorded annualised gains of about 14 per cent since inception.

Gucci Owner Picks Auto Executive for One of Global Luxury’s Top Jobs

Renault’s Luca de Meo faces a ‘titanic challenge’ at Kering, analyst says

Key Points

PARIS—François-Henri Pinault, the billionaire heir who spent two decades transforming Kering KER 11.76%increase; green up pointing triangle into a luxury powerhouse, is stepping back as chief executive officer, hoping an auto-industry veteran can pull Gucci and Saint Laurent out of a slump.

Kering on Monday named departing Renault chief Luca de Meo as CEO, ending months of speculation about a possible leadership change at the French fashion group, which also owns Bottega Veneta, Balenciaga and Alexander McQueen.

Pinault, who took charge in 2005 from his father, oversaw Kering’s shift from a sprawling retail conglomerate to a focused luxury player. The move paid off handsomely during the boom years, but it has since run into trouble.

Now, Pinault said, Kering was “ready for a new stage in its development.” He praised de Meo’s “experience at the helm of an international listed group, his sharp understanding of brands, and his sense of a strong and respectful corporate culture.”

De Meo will take the helm on Sept. 15, subject to shareholder approval, Kering said. His last day at Renault RNO -8.69%decrease; red down pointing triangle will be July 15. Pinault will remain chairman.

For Kering, the move represents a gamble at a precarious moment. Once a leader in European luxury, the group now lags behind rivals such as Hermès and Bernard Arnault’s LVMH by a widening margin.

Gucci, Kering’s biggest brand by revenue, has stumbled in China and lost ground to many competitors. Saint Laurent has also struggled, weighed down by a smaller wholesale business and a tougher U.S. market. Kering’s market value has dropped about 70% from a high three years ago.

“De Meo has a titanic challenge ahead of him,” said Luca Solca, analyst at Bernstein. “Investors will need to hear what it is that de Meo plans to do and digest how soon his plans can be realized.”

Kering investors welcomed the news. Kering shares rose 12% in Paris on Monday, after reports of the likely appointment emerged, while Renault stock fell 8%.

Pinault, who met de Meo a few months ago, told analysts he had been laying the groundwork to split the roles of chairman and CEO for a number of years, a process that accelerated in recent months. He brought in two headhunters to help identify a successor.

In addition to retaining the chairman’s role, Pinault and his family hold a 42% shareholding and about 60% of the company’s voting rights. The holding accounts for the bulk of the family’s fortune, estimated at just under $20 billion.

With the 58-year-old de Meo, Kering is betting that an executive who revitalized car marques can do the same for handbags and ready-to-wear clothes.

De Meo has more than three decades of experience in the automotive industry, building a strong reputation as a brand builder and marketer. He helped turn Fiat’s modern 500 into a cultural icon, carved out Seat’s sporty Cupra line, and refocused Renault by slimming its model range and boosting profitability in hybrids and electric vehicles.

De Meo is also no stranger to craftsmanship: He collects intricate Swiss watches and counts Pietro Beccari, CEO of LVMH’s Louis Vuitton brand, as a close friend—a bond cemented over regular padel matches.

Still, running a carmaker and leading a luxury conglomerate demand different skills. Success in autos relies heavily on industrial scale, efficiency and engineering excellence. High fashion, by contrast, depends more on narrative, cultural cachet and the unpredictable chemistry between designers and audiences. A luxury leader must be able to manage a stable of creative directors, handle viral social-media moments and safeguard brand mystique.

Reviving underperforming brands has become more complex and costly, with investors wary of turnaround stories and consumers gravitating toward established leaders, said Thomas Chauvet, luxury analyst at Citi. He said Kering faces a long road to restore momentum at Gucci and Saint Laurent and secure steady growth and cash flow.

Pinault has been candid about the need for bold action and has shaken up Kering over the past two years. He named two deputy CEOs and became more involved in so-called brand-elevation strategies, which aim to ensure that every action taken builds the brand’s long-term standing, in areas from real estate to marketing and product development.

At Gucci, which made up almost half of sales and more than 60% of core profit last year, a new CEO took over in the fall. A new creative director, Demna Gvasalia of Balenciaga, is due to take over the creative reins in July.

Gucci owner Kering’s new CEO is a surprisingly good fit

It would not hurt the luxury group to have a more traditional approach to governance

What does a mass-market carmaker have in common with a luxury goods provider? Investors may well be pondering that question as they digest news that Luca de Meo, lifetime car executive and architect of Renault’s nifty turnaround, has quit to lead Gucci parent company Kering. 

In theory, there is little overlap between the two jobs. True, at the very top of the heap, businesses selling super-premium cars and buttery-soft handbags do seem to have converged — as evidenced by the high margins and high valuations of Ferrari and Hermès. 

But the distance between Renault and Kering is much greater. While Renault has brushed up its product offering, the French carmaker’s turnaround was, in essence, about cost and capacity cuts. Luxury, meanwhile, is about growing sales — something that Kering’s ailing Gucci brand is failing to do. 

Dig a little deeper, and de Meo’s appointment makes more sense. For one thing, while luxury’s equity story is not centred on efficiency, a little discipline never goes amiss. Kering could probably do with some. UBS forecasts that Gucci sales this year will be about 30 per cent lower than in 2018, while its store count at the end of last year was about 13 per cent higher. Financially, too, Kering is more thinly stretched than its peers, with 2024 net debt of more than twice its ebitda, and has embarked on a programme to offload stakes in its real estate portfolio.

Nor would it hurt Kering to have a more traditional approach to governance. Major shareholder François-Henri Pinault occupies the chair and chief executive seats, with two deputy CEOs reporting to him. Such structures are perhaps palatable when companies do well, but become less so when their sales are sinking. The appointment of a new, experienced chief executive will help allay concerns. 

Even in the rarefied world of luxury, bosses need an eye for high-end talent as well as high-end fashion. Perhaps in recognition of this, the sector has started to appoint more outsiders. Chanel picked Leena Nair from Unilever for the top job in 2021, while Audemars Piguet plumped for Ilaria Resta, whose career had been built on consumer goods and fragrance, in 2023. Ferrari has performed strongly since the 2021 appointment of Benedetto Vigna, an electric components expert from STMicroelectronics with no prior luxury experience. 

All this suggests that, while making cars is different to making couture, running a company is a transferable skill — which helps explain why Renault hit the skids on Monday morning, while Kering gained almost 12 per cent to about €24bn.

As de Meo goes one way, other executives might yet go the other. Mass-market car manufacturing is becoming commoditised; design will become an increasingly important competitive differentiator. The ascent of Tesla in part shows this is already the case. If the auto industry seeks new executive talent, the world of luxury may not be a bad place to look.

European bank M&A is hard, but sometimes stars align

Some of the continent’s biggest potential combinations remain, to varying degrees, stuck

Attempts to merge European banks are becoming more common. Most recent deals, though, will require a major stakeholder to be dragged kicking and screaming — be it the target, a national government, or both — if they are to close. BPCE’s €6.4bn acquisition of Portuguese lender Novo Banco is that rare case: a bank tie-up that pleases almost everyone. 

French lender BPCE says buying Novo Banco from its private equity owner Lone Star is part of the broader project of “European banking consolidation” necessary for boosting the continent’s economic growth. It is true that the continent could use the efficiencies, both for customers and shareholders, that come with having more big banks. But for that to happen, many interests must coalesce.

In this case, they have. BPCE, which owns Natixis and a pair of French retail banking businesses, is getting extra scale and geographic diversification at a relatively low price. The price of 1.3 times Novo Banco’s net assets looks high, but then the lender, formed from the remnants of failed Banco Espírito Santo in 2014, is unusually profitable by Eurozone standards. Valued as a multiple of earnings, the price is in line with the sector, even factoring in the premium.

For Lone Star, meanwhile, the deal crystallises an extremely profitable investment in one swoop. It could probably have ultimately earned more through an initial public offering, but the stake was already eight years old, a long time for private equity investors. And Lone Star looks to be making almost six times its initial €1bn investment from the sale of its 75 per cent stake plus previous dividends.

Portugal’s government, which was a minority shareholder, may have preferred a listing too, in an ideal world, but the more likely alternative to BPCE’s bid would have been a takeover by Spain’s CaixaBank. Since Portugal already relies heavily on Spanish banks, a source of some political consternation, a French owner looks like the lesser of two evils. 

It will be tricky to get the stars to align in the same way for further cross-border bank deals, however strong their logic. European governments, encouraged by high-profile figures like former central bank chief Mario Draghi, support European banking champions in theory, but nationalistic interests often get in the way in practice. 

Some of Europe’s biggest potential combinations remain, to varying degrees, stuck. Look at the resistance to UniCredit’s stakebuilding in Commerzbank, or the drama created even by domestic deals like BBVA’s attempt to buy Sabadell. Those deals still face political obstacles. But if bets like BPCE’s pay off, opposition will look increasingly counter-productive.

Airbus unveils close to $10bn of orders at Paris show overshadowed by Air India disaster

The world’s two largest planemakers usually vie for large deals but Boeing has scaled back its presence

Airbus dominated the first day of the biennial Paris Air Show, unveiling close to $10bn of orders after its rival Boeing cut back its activities following last week’s fatal Air India crash. 

The European planemaker has secured an order for up to 77 freight and passenger aircraft from Saudi Arabian leasing company AviLease, as well as deals with Riyadh Air and Polish airline LOT.  

The world’s largest aerospace industry gathering is taking place just days after the crash of an Air India flight bound for London. The plane, a Boeing 787-8, crashed shortly after taking off from Ahmedabad, killing all but one of 242 people on board.

Boeing scaled back its presence at the show after the disaster, with chief executive Kelly Ortberg and Stephanie Pope, the head of its commercial aircraft division, both cancelling plans to attend. 

Investigators in India are continuing to examine one of the plane’s “black box” flight recorders, which records cockpit voices and flight data, to try to determine what happened.

The world’s two largest planemakers typically vie for large orders but the accident has cast a shadow over the show, which is also taking place against a backdrop of worries about US tariffs and worsening conflict in the Middle East.

AviLease, which is backed by Saudi Arabia’s sovereign wealth fund, kicked off the show with an order for 30 A321 narrow-body aircraft, with options for 25 more, as well as 10 A350 freight planes and 12 options. Last month, it announced an order of 30 Boeing 737 Max jets during US President Donald Trump’s tour of the Middle East.

Riyadh Air announced an order of 25 A350-1000 wide-body Airbus jets, with options for another 25. Poland’s LOT will buy 40 A220 narrow-body aircraft, with an option to extend to 84 planes. 

The combined orders, excluding options, are valued at close to $10bn, according to estimates from aviation consultancy Cirium. Riyadh Air’s order of 25 A350s alone is valued at about $4.6bn, according to Cirium.

The orders announced on Monday bring the order book of Riyadh Air, which plans to operate its first flight later this year, to a total of 182, according to its chief executive Tony Douglas.

The orders come as both Boeing and Airbus have continued to struggle with persistent supply chain problems, with both “selling what they can build”, according to Sash Tusa, analyst at Agency Partners in London. 

In the case of Airbus, this means wide-body A350s because they have a shorter lead time than the bestselling A320 family of narrow-body jets. Airbus has faced challenges increasing output of the A320, particularly because of shortages of engines. 

The Polish order for A220 jets was welcome, said Tusa, because Airbus needs to sell more for the programme to break even.

The UK needs to ensure natural gas is less dominant in setting costs

If economic growth is the UK government’s “number one mission”, it could do no better than to address the country’s punishingly high electricity prices. Britain has the highest industrial electricity prices in the developed world, according to 2023 data from the International Energy Agency — and it has been near the top for some time. This means energy-intensive UK businesses struggle to retain competitiveness, start-ups have less to spend on scaling up and Britain’s attractiveness as an investment destination is damaged. Right now, a manufacturer setting up in the UK would pay almost four times more, per kilowatt-hour, than it would in the US. This is a significant factor in Britain’s feeble productivity growth.

Yet the UK is a world leader in green electricity generation. Last year it generated close to two-thirds of its power from low-carbon sources, well above the global average. Backed by renewable energy sources that have low generation costs, the UK’s electricity prices ought to be a lot lower. But like many nations, its electricity market operates a marginal pricing system: the wholesale price of electricity is determined by the cost of the most expensive power needed to meet demand at any given moment. That is often from plants fuelled by natural gas, a significant portion of which the UK imports at volatile international prices.

This leads to a frustrating situation where expensive gas plants determine the price of electricity the bulk of the time. In 2021, gas set the price of electricity 98 per cent of the time in the UK, compared with just 39 per cent across Europe on average, according to a UCL study. How can Britain ensure gas sets the price less often?

The long-term solution is to phase out gas use and expand renewable and nuclear generation. But the intermittent nature of wind and solar energy means gas will remain an important source until the UK generates all electricity from zero-carbon sources. In the interim, subsidies for industrial users could provide a reprieve, but are not fiscally sustainable. Instead, the government is better off focusing on efforts to modernise an energy system that was designed for the fossil fuel era.

First, the UK must make better use of renewables. The government’s long-term infrastructure strategy, which is being outlined this week, and its forthcoming industrial strategy will be important in guiding public and private investment towards green energy sources. Investing in the country’s poor grid infrastructure and storage technologies would lower the amount of time that costly gas plants are relied upon. Building more electricity links with Europe would also boost the system’s resilience.

Second, flexible power usage has an important role. Different tariff structures can incentivise retail and industrial customers to shift to off-peak times when electricity rates are lower. This can also reduce the outlays on expensive green infrastructure, which are often recouped in bills.

Finally, Britain could adjust its pricing formula. The government is mulling the use of zonal pricing, which would set prices according to the regional electricity mix. Another option worth exploring includes reverting to the pre-privatisation model of charging industry the long-run marginal costs of energy, as recommended by the economist Sir Dieter Helm.

New pricing models make sense in theory. But in practice any move to a new mechanism would require quick and clear execution, to avoid the effect of price uncertainty in dulling energy investment. Either way, the cleanest and most cost-effective way to bring down Britain’s energy prices is to pave the way for cheap, homegrown renewable energy sources to set them for much more of the time.