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For L’Oréal Group — which has always been the world’s leading beauty company — the crucial question has always been how to venture into the unknown, seize what’s starting and shape the future.

In the fast-paced and ever-shifting landscape of the beauty market, remaining unbeatable hinges on relentless innovation. This innovation is not just about fueling the company’s own future; it’s about blazing new trails in the market, sparking fresh inspiration across the industry — and ultimately propelling the sector into a new era of transformation. Faced with such challenges, L’Oréal Group has already turned in a stellar performance.

In a market environment rife with uncertainty, innovation has emerged as the lifeblood for beauty companies to sustain their dynamism and fuel long-term growth. Since 2020, the beauty industry has seen a transformative shift, with evolving consumer attitudes, the rise of new paradigms and the relentless march of technology redefining products, brands, corporations and the entire supply chain.

Today, North Asia (Greater China, Japan and South Korea) stands out as the most vibrant hub in the beauty market. The region’s sophisticated and evolving consumers pose new challenges for beauty businesses while also serving as a wellspring of inspiration for industry innovation.

In this landscape, sophisticated and savvy consumers are on the hunt for a more elevated and multifaceted “beauty,” with their desires and preferences iterating at a rapid pace. They’re not just looking for products with a strong technological endorsement and proven efficacy; the experience and sensory pleasure they get from using these products have become critical in their purchasing decisions.

Beyond the products, there’s a growing appetite for tailored, smart services, a retail journey that’s fresh, immersive and emotionally rich and content that’s creative and resonates on a deeper level. At the same time, as sustainable consumption gains ground, consumers are also paying closer attention to the values and actions of beauty brands on environmental protection and social responsibility.

These shifts are prompting beauty companies to rethink how they can deliver hyper-personalized products, highly professional and efficient services, all-encompassing delightful experiences and brand stories that genuinely resonate with the consumer. Technology is emerging as a powerful catalyst to meet these advanced demands.

L’Oréal Group’s decision to pivot towards becoming a beauty tech company in 2018 truly showcased its visionary strategic insight. The beauty industry is deeply intertwined with science and technology and securing a leadership role often hinges on robust tech capabilities. In today’s fiercely competitive landscape, technology is increasingly the ace up a beauty company’s sleeve.

As Vincent Boinay, president of the North Asia and chief executive officer of L’Oréal China, puts it, “this transformation isn’t just about adopting new tech; it’s about a radical rethinking of how we engage with consumers, how we innovate and how we craft beauty experiences that are both personalized and inclusive. It’s about breaking the boundaries and redefining the future of an industry we’re leading.”

From dermatological R&D to innovative products and the ongoing improvement of beauty experiences, technology has emerged as a critical pillar of L’Oréal’s competitiveness, with the L’Oréal North Asia Big Bang Beauty Tech Innovation Program (Big Bang) marking a significant milestone in this transformation.

Boinay shared with WWD China, “the mission of L’Oréal is to craft beauty that shapes the world, placing technology, particularly in the beauty sector, at the core of modern aesthetics. Open innovation is a quintessential example of this approach. At L’Oréal, we’re joining forces with startups and a wide array of partners in the creation of the beauty of the future”.

As Big Bang expands its reach and refreshes its focus across various markets, the open innovation ecosystem it fosters is maturing, not only breathing continuous life into L’Oréal but also emerging as a key driver in propelling the beauty industry forward.

Breaking New Ground in a Competitive Red Ocean Market

Amid the intensifying rivalry in the existing market, the secret to gaining an edge might just be creating new increments. Technological prowess is the “infrastructure” that beauty companies rely on to craft innovative products. Whether it’s winning over consumers with pioneering ideas, meeting their needs with tailored experiences, or expanding the definition of beauty products through a fusion of hardware, smart software and algorithms, tech innovation is emerging as a crucial asset in future competition.

Big Bang first kicked off in China in 2020, with a commitment to collaborating with startups and SMEs to develop innovative solutions that offer consumers more personalized products, services and experiences — effectively pioneering the beauty tech innovation challenges for startups in China. By 2023, it had drawn the participation of over 2000 startups and SMEs, successfully incubating more than 60 projects that have been implemented.

Since its inception, L’Oréal has consistently leveraged its profound insights of trends in the beauty industry to empower emerging players in the beauty tech arena, offering fresh approaches for major beauty conglomerates to swiftly tap into market dynamics and carve out a niche in new competitive fields.

From the get-go, Big Bang laid out three main tracks: future science, operations 4.0 and phygital to catch up the consumer trends in the North Asia beauty markets and explore solutions for the beauty industry to tackle new challenges.

It later expanded to include transversal topics of green & sustainability and AI. At the recent North Asia Big Bang Innovation Summit, Big Bang announced plans to introduce a sustainability track starting next year. These tracks encompass key trends in the beauty tech sector, which align with the strategic focus in beauty tech of the L’Oreal Group.

Boinay believes that “technology is the key to a sustainable plane.” He continues, “At L’Oréal, we’ve made a conscious decision to prioritize both financial success and the protection of our planet. This dual commitment is the driving force behind our Essentiality of Beauty initiative. We’ve launched L’Oréal For The Future, which is all about integrating our business performance with technological innovation and sustainability, laying the groundwork for the future. Technology is central to this mission because it not only aids in our protection of the planet but also positions us for greater strength and growth in the future.”

Over the past few years, L’Oréal has collaborated with several participating companies to develop cutting-edge and innovative products and experiences. A prime example is the patented nanochip technology in Lancôme’s Renergie Nano-Resurfacer 400 Booster, co-developed with a participant from the first Big Bang. This device, featuring over 400 ultra-precise nano touchpoints, delivers salon-quality results at home, perfectly tapping into consumers’ desires for a premium at-home beauty experience.

A former Big Bang participant, the biotech company Shinehigh Innovation, has received investment from L’Oréal China’s Shanghai MeiCiFang Investment Co., Ltd. Biotechnology has been a key focus for L’Oréal, playing a significant role in the company’s shift towards green science and holding immense potential for developing high-performance skincare and haircare formulations.

Shinehigh Innovation’s intelligent self-assembly technology has unlocked the possibility of combining previously unattainable ingredient blends, leading to the production of terminal beauty products with higher efficacy and ecological sustainability.

At the seventh CIIE this year, the L’Oréal Big Bang Beauty Tech Innovation Exhibition made a return appearance in the Innovation Incubation zone, spotlighting groundbreaking beauty tech solutions at the forefront of biotechnology, digital technology and innovative beauty devices. As Big Bang’s influence and reach continue to grow, Big Bang — now in its fifth year — is sparking even more innovative energy in the beauty tech sector.

From North Asia to the World, Fostering Cross-regional Synergy in the Innovation Ecosystem

North Asia has become a treasure trove of beauty innovation. In recent global rankings of urban innovation ecosystems, cities like Beijing, Shanghai, Shenzhen, Tokyo and Seoul consistently top the lists — with the innovation prowess of China, Japan and South Korea becoming increasingly formidable.

Greater China Area – One of the Key Sources of Beauty Innovation

In China, the support system for fostering entrepreneurship and innovation is continuously improving. Key tax incentives supporting scientific and technological innovation span the entire spectrum of tech activities, from venture capital investment and R&D to the commercialization of findings.

With policy support, various urban clusters across the nation have established scientific and technological innovation centers, each with its own focus. Among them, the Guangdong-Hong Kong-Macao Greater Bay Area stands out as a particularly promising urban cluster for development prospects.

The thriving physical retail industry in Hong Kong has long been a key driver of its beauty market and advancements in technologies like AI are now ushering in a smarter, more personalized shopping experience. Innovation hubs such as the Hong Kong Science and Technology Park (HKSTP) have been a steady source of support for talents, entrepreneurs and tech firms over the years. The high-tech and sustainable industry in the Taiwan Area of China is also highly developed, with its startup ecosystem continually expanding.

The Chinese market has become one of the important sources of beauty innovation, boasting a very mature online ecosystem where new models and platforms in the digital field are setting global benchmarks and driving innovation in beauty experiences and retail. As a major player in beauty manufacturing, China is also leading the way in the transformation of the manufacturing sector through technologies like artificial intelligence and the Internet of things.

Japan and Korea Markets – Featuring the Spirit of Craftsmanship and Innovative AI-Driven Devices

Japan’s beauty industry is deeply rooted in the first place, forging a unique Japanese beauty culture with its leading technological strength and craftsmanship spirit. In recent years, Japan has been at the forefront of developments in biotechnology, material science and eco-friendly technologies, consistently driving innovation in beauty products and advancing sustainable practices.

South Korea — another beauty powerhouse — boasts a well-established innovation ecosystem in the beauty sector. Its strengths in digitalization and artificial intelligence are opening up new horizons for innovative beauty devices and personalized experiences.

North Asia, a fertile ground for innovation, has long been a stage for companies and brands to shine. Capturing the opportunities it presents requires companies to demonstrate the ability to integrate resources, respond quickly and explore the unknown. As a “unicorn Trex” with both strength and flexibility, L’Oréal has welcomed the best time for development.

Expedition of Big Bang in North Asia – Maximizing Regional Synergy Effects

Following a successful trial in China, Big Bang expended the program to regional level, covering markets of China, Japan and South Korea. L’Oréal signed an MOU with the Ministry of SMEs and Startups (MSS) of South Korea to nurture more cutting-edge beauty tech advancements.

Moreover, the J-Startup entrepreneurship support program, a collaboration between Japan’s Ministry of Economy, Trade and Industry (METI) and the Japan External Trade Organization (JETRO), will also provide support for Big Bang project. In the same year, L’Oréal pioneered the way by introducing international startups to present at the innovation incubation zone at CIIE, which was met with rave reviews from both exhibitors and attendees. This year, companies from Japan and Korea are once again part of this prestigious event, showcasing the latest advancements in beauty technology.

In 2024, Big Bang is set to extend its reach to the Hong Kong SAR and Taiwan region of China, achieving full coverage across the five key markets in L’Oréal’s North Asia portfolio. Inspired by the successful pilot in North Asia, L’Oréal also launched the Big Bang project in the South Asia Pacific, Middle East and North Africa (SAPMENA) region in this year.

Shelly Chiang, chief digital & marketing officer and head of corporate affairs and engagement at L’Oréal Taiwan shared with WWD China, “We are particularly thrilled that Taiwan Subsidiary is participating in Big Bang program for the first time this year. We have been an import market, essentially followed the roadmap directed by headquarter. Big Bang presents a unique chance for us to connect with local innovators here in Taiwan and explore new opportunities in business. Given the ‘go to market’ nature of Taiwan, we place greater emphasis on the creation of a unique consumer experience.”

“Big Bang in Hong Kong is the first open innovation program in the local beauty industry,” said Eva Yu, president and managing director of L’Oréal Hong Kong. “We hope to collaborate with startups to drive industry innovation and bring positive changes to the beauty and retail sectors in Hong Kong. By leveraging new technologies like immersive experiences, we look forward to presenting our brand stories in innovative ways to engage a wider consumer base.”

With the L’Oréal China Big Bang project as its springboard, a global innovation ecosystem is taking shape. As innovation elements from various markets collide and interact, the regional synergy will amplify the power of “open innovation.”

Boinay said, “Big Bang is more than just a project; it’s a testament to our commitment to open innovation and a one-of-a-kind platform that enables us to bridge the major markets within the North Asian beauty tech ecosystem — capitalizing on the unique strengths of the ‘Beauty Triangle’ of China, Japan and Korea — to ignite unprecedented synergies and expedite the creation of groundbreaking beauty solutions.”

Linking the Full Industry Chain, Mapping Out a Bright Future for the Beauty Industry

To sail safely through the swift currents of the beauty market, ongoing innovation is vital for businesses to sidestep risks and secure their long-term growth. The innovation ecosystem formed by Big Bang is not just setting the stage for the bright future of L’Oréal; it’s also driving the entire industry to a phase of higher quality.

Beyond fostering innovative companies, Big Bang is also bringing in a variety of partners to this ecosystem, engaging the full industry chain and continuously injecting new momentum into the global beauty market.

At the second Big Bang, L’Oréal joined forces with the Oriental Beauty Valley to provide incubating enterprises with specialized funding, value chain resources and expert guidance. The third Big Bang introduced exclusive meetings with investors, incubation hubs and innovation partners. The fourth Big Bang reached the initial collaboration with MeiCiFang, marking the beginning of a tightly-knit Big Banger community, enhancing interactions and partnerships with past participants through innovation-sharing sessions and maintaining ongoing collaboration with ecosystem partners such as Cathay Capital and Hurun Group.

In the realm of international collaboration, Big Bang has maintained a multi-year partnership with Business France. In 2023, L’Oréal, along with Business France and Oriental Beauty Valley, signed a MOU for the Sino-French Strategic Cooperation Initiative, the French Startups and SMEs Incubation Platform — amplifying support for French innovators in China regarding exchange, cooperation, project incubation and investment.

This also opens new avenues for Chinese tech innovators to engage internationally and broaden their global cooperation. This year, Oriental Beauty Valley signed a deal with CTIBiotech — a winner from the French track of Big Bang — to bolster its business expansion in China.

As an important platform for international cooperation and exchange, the China International Import Expo (CIIE) has also become a stage for overseas companies to access more opportunities and resources. The L’Oréal North Asia Big Bang Beauty Tech Innovation Program Exhibition has been staged in the innovation incubation area of the CIIE for two consecutive years, attracting the attention of numerous incubators and venture capital institutions and opening up more possibilities for the development of presenting overseas innovative enterprises in the Chinese market.

For a cosmetics powerhouse like L’Oréal, its robust strength, which includes incomparable scale, resources and experience, isn’t the sole factor that has allowed it to weather cycles and remain at the helm. Flexibility is key to its resilience and dynamism. The innovation ecosystem it has nurtured is also expanding its global impact, synergizing with various forces across the industry to advance the vision of “create the beauty that moves the world.”

Miuccia Prada, fashion designer defying the luxury gloom

Luxury scion’s Miu Miu brand is enjoying a boom, even in China, as rivals suffer from a broad pullback in spending

As a schoolgirl activist in 1970s Milan, Miuccia Prada once recalled hemstitching her skirts on the stairs outside her family home in between leftwing protests.

Known simply as Miu to her relatives, the designer — who has spent almost half a century building Prada from the leather company founded by her grandfather into a global luxury powerhouse, is known for her progressive views and unorthodox aesthetic.

Now Miu Miu, the brand she launched in 1992 inspired by those same values, is defying a downturn in the luxury sector with spectacular sales. La signora Prada, as she is known in the industry, deserves all the credit, industry insiders say.

Miu Miu recorded a 105 per cent jump in sales in the three months to September 30, pushing like-for-like sales at its Milan-based parent up 18 per cent on a year earlier. Net revenues at Prada Group, which is listed in Hong Kong, were up 18 per cent to €3.8bn in the first nine months of the year compared with the same period in 2023.

Their results came as competitors such as Gucci recorded falling sales, prompting its French owner Kering to issue several profit warnings this year. Prada’s share price has risen almost 30 per cent this year. While it is not alone in bucking the broader luxury trend — Hermès is up about 15 per cent — LVMH and Kering have fallen about 15 per cent and 43 per cent respectively.

Andrea Guerra, who took over from Miuccia Prada and her husband Patrizio Bertelli as Prada Group chief executive at the start of 2023, told analysts last month that Miu Miu’s growth was attributable to its “strong point of view”.

Hiring Raf Simons as her co-creative director for the main Prada brand has freed Miuccia Prada to focus on designing Miu Miu’s fashion lines, according to Prada insiders. Miu Miu has since shifted from a label aimed at younger consumers to one for “those who are young in spirit”, they add.

The line’s irreverent designs include sequinned knickers that sell for as much as €4,000, embroidered bralettes and an “absurdly” short miniskirt that Nicole Kidman wore on the cover of Vanity Fair two years ago, sparking a debate on age-appropriate dressing. They have paid off at a time when rival labels’ traditional designs struggle to enthuse customers.

Daria Nasledysheva, an analyst at Bank of America, said: “Miu Miu has driven fashion content and newness through product at a time when other luxury brands continued to stick to understated luxury, thus managing to successfully re-engage the consumer across different price-points.”

“The avant-garde nature of the looks and the sense of experimentation and risk-taking really sets Miu Miu apart,” she added.

Former Miu Miu chief executive Benedetta Petruzzo, who was poached at the end of the summer by LVMH-owned Dior, told the Financial Times last year that Miuccia Prada was “not just the creative director” of the brand, “she’s the soul . . . Miu Miu is Miuccia Prada; it’s the space where she can be entirely herself”.

Once considered akin to a little sister to the main Prada brand, Miu Miu has now topped ecommerce site Lyst’s closely watched ranking of the most in-demand fashion brands for two consecutive years. It targets a far more diverse group of consumers at a much higher price-point than a decade ago.

Prada herself is known for her particular tastes — she once declared “ugly is attractive” and was unafraid to have supermodels Kate Moss and Amber Valletta walk the catwalk in unflattering silhouettes in a 1996 show entitled “Banal eccentricity”. But Miu Miu “is an entirely different story to her”, colleagues say.

However, analysts do not expect Miu Miu to overcome Prada in size. “Whilst growth rates are definitely superior to those of Prada, this is off of a much smaller base,” said BofA’s Nasledysheva.

Crucially, Miu Miu is doing well in China, a market that has recently become challenging for many European luxury groups after years of breakneck growth. Group sales grew 9 per cent in the first nine months of the year in Asia-Pacific excluding Japan. Meanwhile, strong growth in Japan was also fuelled by visiting Chinese tourists, analysts said.

Guerra has sounded a note of caution, describing market conditions in the region as “challenging”.

But in the meantime consumers are continuing to support Prada with its provocative designs and a push on accessories, including hit ballet flats and a fresh take on Miu Miu’s traditional matelassé leather handbags, proving popular with Chinese customers.

The brand has also doubled down on its social media spending in China in the past couple of years, using popular domestic social media platforms such as Little Red Book to sell its products including via live streaming events.

One insider said that although Prada and Bertelli, who is now the group’s chair, generally had a “distaste” for social media platforms, the digital strategy adopted in China showed how they were “clever enough to maximise their social media presence in the best possible way”. Prada does not have any social media presence herself.

Last year Prada opted to feature octogenarian Chinese actress Wu Yanshu among a group of Gen Z celebrities in Miu Miu’s Women’s Tales short film series. In March, Chinese doctor Qin Huilan, 70, was invited to walk Miu Miu’s catwalk in Paris after posting snaps of herself in the brand’s outfits on her Instagram page. Both events went viral globally.

In the newly released biography Prada by Tommaso Ebhardt, graphic designer Michael Rock is quoted thus: “It is as if Ms Prada were telling her clients: ‘I know that you know that I know about all the contradictions we experience, I experience them too, I feel them too’.”

Troubled Northvolt may struggle to find a buyer

The one-time great European hope for the battery industry faces an uphill task to secure a financial rescue

Peter Carlsson, the co-founder and former chief executive of Northvolt, supposedly joked once about what would happen if the one-time great European hope for the battery industry ran into trouble.

If it all goes wrong, he suggested everyone in the Swedish company would end up speaking German, according to a former senior executive. Carlsson admits making a comment along these lines, indicating it was an expression of the importance of Germany to Northvolt.

Volkswagen, the German carmaker that is Northvolt’s biggest shareholder with a 21 per cent stake, was long seen as the most likely to take over the Swedish battery manufacturing start-up since it first invested in 2019. But with Northvolt now having filed for Chapter 11 bankruptcy in the US and Carlsson resigned, VW is scarcely mentioned as a likely buyer. It and virtually every other European carmaker are deeply mired in crises of their own because of weak demand and an uncertain outlook for electric vehicles, robbing Northvolt of a whole slew of possible saviours.

Another obvious group of potential investors — existing battery manufacturers, dominated by Asian players — are dealing with their own problems, particularly overcapacity in the industry. Another factory, yet alone one in the rather unattractive European market, is hardly top of their Christmas lists.

On top of that, recriminations are swirling among the Swedish group’s shareholders about who is to blame. One target of ire: the Swedish government for not only failing to support Northvolt financially, but also for saying out loud in the middle of sensitive financial discussions that it would not do so. And then seeking to influence any rescue of the start-up.

That is the unpropitious backdrop to Northvolt seeking up to $1.2bn in the next three months to exit Chapter 11. It is one that raises questions about Europe’s appetite for engaging in the fierce competition around the green transition.

The Swedish industrial start-up has said it hopes to finish what Carlsson called “its purification process” in the first quarter of next year. That is due not least to its precarious finances. It filed for Chapter 11 with just $30mn in the bank, despite having raised $15bn in debt, equity, and government subsidies for its battery factory in northern Sweden and planned plants in Germany and Canada. Forecasts in the filing underscore its problems. Revenues for the 13 weeks from mid-November to mid-February are estimated to reach $46mn, according to the filing, while outflows are likely to be $348mn.

Northvolt’s pitch to potential investors is likely to be that they get an expensive package of battery assets for a knockdown price. Northvolt’s property, plant and equipment were valued at $5.2bn at the end of 2023, including its current factory in Skellefteå in northern Sweden as well as land in Germany and Canada.

The start-up’s crown jewel, according to several former executives, is not the Skellefteå plant but its research and development facility, known as Northvolt Labs, in Västerås, close to Stockholm. That location is seen as more attractive to foreign workers than a factory close to the Arctic Circle, and it boasts facilities no other battery maker has in Europe.

Northvolt says it is speaking to all potential partners about its future. A particular focus is on Asian battery makers, including Chinese manufacturers such as CATL. Pan Jian, CATL’s co-founder, told the Frankfurter Allgemeine Sonntagszeitung at the weekend that investing in Northvolt was “not a priority”, but that there was a “possibility that we can help them on the production side”. That could involve sending skilled battery engineers — something Europe desperately lacks.

The Swedish government, despite offering Northvolt almost no financial support, has further stirred the pot by saying that it sees the battery maker’s “western” shareholder base as a significant asset, and that it is important that Europe’s green transition does not become Chinese. That could easily clash with Northvolt’s Asian overtures.

Northvolt’s task for now is to ensure it can carry on making batteries despite the turmoil, and try at last to raise production. Ironically for Carlsson’s joke, it has turned to two new German hires — chief operating officer Matthias Arleth, and head of the Skellefteå factory Markus Dangelmaier — to steer it through Chapter 11. The path for Northvolt to secure financial rescue, industrial triumph and a geopolitical success for Europe appears an increasingly uphill task.

Cocoa market on the brink of big price surge

A multiyear structural deficit will push up costs to inflation-adjusted highs

The outlook for cocoa beans offers unwelcome tidings for chocolate makers hoping prices are on the retreat.

After an explosive rally in the first four months of the year, prices have cooled somewhat. Having started the year at about $4,400 per tonne, cocoa beans futures prices peaked at $12,000 in April — well above the inflation-adjusted decade average of $3,400. Yet by May, prices plummeted to $7,000 a tonne. But the respite is likely to be temporary. The prospect of a multiyear structural supply-demand deficit in cocoa beans will mean much higher prices are coming.

This is likely to catch out many chocolate makers that have been betting at their peril on a more sustained fall in prices, draining their stockpiles while reducing price hedges from eight to nine months of demand to five months. The strong pod count recorded from May to August had raised hopes among the makers that a rebound in production would replenish inventories, especially following the 500,000-tonne deficit in the 2023-24 season — the third consecutive annual shortfall and largest ever. This shortfall is attributed to a 13 per cent drop in global cocoa output due to much weaker production in Ivory Coast and Ghana — responsible for more than half of the world’s production.

Many pointed to the El Niño warming weather phenomenon as the primary driver of this poor harvest, expecting a transition to the cooling La Niña pattern to revive yields. However, recent data has dashed those hopes. Pod counts in key producing regions have deteriorated, and the 2024-25 season is now forecast to post a deficit of 160,000 to 200,000 tonnes, according to Forestero, a leading cocoa research company, and this time from a depleted inventory base.

Exchange-held stocks in Europe and the US have plunged from 400,000 tonnes in December 2023 to just over 100,000 tonnes — the lowest amount ever recorded. Such dwindling reserves amplify concerns about a prolonged supply squeeze. Yet the weather alone cannot shoulder all the blame. Structural issues are at the crux of the crisis. New deforestation laws have discouraged farmers from expanding plantations, while a global fertiliser shortage, exacerbated by Russia’s war in Ukraine, has led to lower usage rates. West Africa is also grappling with an ageing tree stock and the spread of the cocoa swollen shoot virus.

The virus has long been recognised as a production killer. Once symptoms appear, trees generally die within four years with yields significantly affected from the first year. A recent study by Forestero, using a new DNA-based technology developed by SwissDeCode, concluded that the current prevalence of CSSV in cocoa farms in West Africa is about 67 per cent, much higher than 30 per cent previously thought.

Assuming that most infected trees develop symptoms, this would suggest an impending collapse of production in Ivory Coast and Ghana. Cocoa expert and head of research at Tropical Research Services, Steve Wateridge, noted that Ivory Coast production could halve over time due to the spread of CSSV, in line with other disease-related production shocks.

The fragility of cocoa supply is underscored by its geographic constraints. Grown primarily within a narrow equatorial belt, cocoa is highly vulnerable to regional shocks. Historical precedents are sobering: Brazil’s output plummeted by 70 per cent within five years of the witches’ broom disease outbreak in 1989, and CSSV was a major cause of the 50 per cent decline in Ghana production in the 1970s. Should West Africa face a comparable crisis, the global market would struggle to offset the shortfall. Cocoa trees take roughly four years to mature, meaning any new planting initiatives would offer no immediate relief.

In some commodity markets, demand destruction through higher prices might close a supply gap. But demand for chocolate — and hence cocoa beans — is relatively inelastic. Even if you take, for example, an avid chocolate eater who consumes 50g of 70 per cent cocoa dark chocolate a day, they would pay cocoa costs of just 35 cents per day. A doubling in prices is unlikely to deter their consumption.

Similar levels of inventories-to-demand ratio led to an inflation adjusted peak of $28,000 a tonne in 1977 after a five-year bull run. With the current rally barely a year old and supply headwinds likely to worsen for at least four years, the stage appears set for cocoa prices to reach new inflation-adjusted highs.

Abu Dhabi’s Mubadala Capital takes large stake in US credit fund

Deal for $10bn Silver Rock Financial underscores the Gulf nation’s ambition to evolve beyond passive investing

Mubadala Capital, the asset management arm of Abu Dhabi’s state investment fund, is acquiring a large stake in a US-based credit manager as it seeks to build a global player in private capital based in the Middle East.

The firm is buying a 42 per cent stake in Silver Rock Financial, a Los Angeles-based credit investment specialist backed by the family office of onetime “junk bond king” Michael Milken and led by executives who used to manage the billionaire’s sprawling portfolio of private investments. Mubadala will also take in an investment from Milken’s family office, accepting outside equity for the first time.

The deal underscores Abu Dhabi’s growing ambition to not just passively invest its ample capital in ventures around the world but also to manage and guide decisions and deals for others.

In an interview with the Financial Times, Mubadala chief executive Hani Barhoush called the tie-up, which will be formally announced later on Thursday, a significant milestone.

“Our strategic objective since we were established was to build a significant Abu Dhabi-based third-party asset manager,” said Barhoush. “We are pretty advanced, but there is still a long way to go and a lot of room to grow.”

Silver Rock, which manages about $10bn in assets with a speciality in structured products and high-yield debt investments, will push Mubadala Capital into the fast-growing arena of private credit investments. 

Mubadala Capital manages about $27bn in assets, with about $18bn managed on behalf of third-party investors such as Milken’s family office M-Cor and large institutions. It also manages about $9bn of cash coming from the balance sheet of its majority owner Mubadala Investment Company, the $302bn state investment fund. 

Typically, local sovereign wealth funds and wealthy individuals in the region have invested in private markets through US- and European-based groups such as Apollo, Blackstone, CVC and KKR. However, Mubadala decided to create the independent Mubadala Capital unit in 2011 with the goal of it becoming large and skilled enough to attract outside investment dollars. 

Under Barhoush and chief investment officer Oscar Fahlgren, Mubadala Capital has invested heavily in private equity and venture capital deals, backing companies such as high-end stroller maker Bugaboo and Arbol, a start-up focused on climate risk insurance. It also has invested heavily in Brazil and is providing structured equity financing to strong companies with overleveraged balance sheets. 

Over the past 18 months, Mubadala Capital has quickened its investment pace, emerging as a dealmaking force in the Middle East.

Its funds acquired a majority stake in Fortress Investment Group for about $3bn in May and recently announced a C$12.1bn ($8.6bn) deal for CI Financial, a large asset manager.

The group’s deal for Silver Rock, however, is its first strategic acquisition. 

Mubadala Capital will pay with a mixture of cash and stock. Existing equity owners of Silver Rock, including chief executive Carl Meyer and Milken’s family office, will take minority equity interests in Mubadala Capital at an undisclosed valuation. Separately, Mubadala Capital will also invest more than $1bn into Silver Rock’s funds. 

Mubadala and Silver Rock have worked on previous deals together, including a 2012 takeover of EMI Music Publishing, which they sold to Sony for $4.75bn in 2018.

Other areas of strategic expansion could eventually include infrastructure or strategies dedicated to buying private equity fund stakes, said Fahlgren.

Investors and advisers prepare for consolidation among the country’s thousands of regional lenders

Bank investors and advisers are preparing for a new era of consolidation among smaller US lenders that could help them fend off Wall Street’s giants.

KBW’s large and regional bank indices both gained more than 10 per cent respectively the day after Donald Trump’s election victory, the biggest rise in four years and one that trounced the 3 per cent increase in the tech-heavy Nasdaq.

While shares in some banks such as Goldman Sachs have risen in anticipation of higher advisory fees and looser capital rules, the potential for a more liberal attitude to tie-ups lifted shares in small and mid-sized lenders.

One banking deal has already been struck: Old National Bancorp, a regional lender in Illinois and Indiana with $54bn in assets, agreed to buy Midwestern group Bremer Financial for $1.4bn late last month.

“Unequivocally, the ‘Do Not Enter’ sign that stood in front of bank mergers has been removed,” said Bill Burgess, co-head of investment banking at boutique investment bank Piper Sandler.

“That is especially true for smaller banks where right now there are far more sellers than buyers, but all systems are go for a resurgence of deals.”

Although the number of US banks peaked in the 1980s at more than 14,000 and has been steadily declining, there are still more than 4,000, the vast majority of which are local minnows with a few billion dollars in assets.

Investors believe these smaller banks could be ripe for consolidation, caught between rising regulatory and technology costs and the relentless march of JPMorgan Chase’s asset-gathering machine.

“I feel pretty confident that over the next two to three years, consolidation in the regional banking sector will bring the number of banks down to 1,000 to 2,000 from 4,500 today,” Bob Diamond, the dealmaking former chief executive of Barclays, said on Tuesday at the Financial Times’ Global Banking Summit in London.

His current venture, Atlas Merchant Capital, plans to invest in mid-sized banks that are thin on capital after sustaining paper losses in securities or loan portfolios from faster than expected interest rate rises.

Atlas planned to “provide enough equity to acquire, one, two or three smaller private community banks where the synergies are immediate” because regulatory and technology costs can be shared, Diamond said.

Consolidation slowed to a trickle under Joe Biden’s administration, stymied by regulators which took a critical view to corporate tie-ups. As of late September, 507 bank mergers had been completed during his presidency, down 44 per cent from Trump’s first term, according to data from S&P Global.

The median time for a deal to be completed has also steadily increased under Biden, peaking at about six months in 2024. By comparison, the peak under Trump was less than five months.

Larger deals worth more than $500mn have been slower to close under Biden, averaging almost 10 months compared to six months under Trump, S&P data showed.

Regulators are scrutinising what would be one of the largest bank mergers in the past 15 years, Capital One’s proposed acquisition of Discover Financial. Since Trump’s victory, Discover’s share price has risen 20 per cent, a sign the market considers the deal more likely to be allowed to close under his administration.

The slow pace to get a deal approved created a chilling effect for banks to pursue some potential mergers, dealmakers said.

“You had to add it as a risk element before you decided to merge your company,” said Tom Michaud, chief executive of investment bank Keefe, Bruyette & Woods.

Last year’s regional banking crisis, which followed the collapse of Silicon Valley Bank, also failed to be the catalyst for mergers that some were predicting. In 2023, 112 US bank deals were completed and only 71 have closed this year, the lowest since the turn of the century.

Mid-sized banks with hundreds of billions of dollars in assets have lamented their struggles to do deals in an effort to bulk up and better compete with the biggest players such as JPMorgan and Bank of America, which benefit from their large scale to absorb increasingly burdensome regulatory, compliance and technological costs.

In a letter to regulators earlier this year, PNC chief executive Bill Demchak argued proposed bank merger rules would foster further dominance by the industry’s largest players such as JPMorgan and BofA. Pittsburgh-based PNC has more than $420bn in deposits, making it the country’s sixth-largest bank by deposits, but it lags far behind JPMorgan’s $2.4tn in deposits.

KBW’s Michaud said: “There’s a real urge to merge, for lack of a better phrase, because of the scale impact.”

However, even with the prospect of more amenable regulators, some of the country’s thousands of banks are reluctant to sell. There is renewed optimism about banks’ businesses with interest rates potentially staying higher for longer and hopes for fewer new rules from a second Trump administration.

Part of the reticence comes from a fear bosses have of being seen as abandoning their towns, where banks are often pillars of their communities as major employers and patrons which sponsor local parades and sports teams.

In one of the industry’s cautionary tales, the Philadelphia Inquirer labelled Terrence Larsen a chief executive who “took the money and ran” and “left Philadelphia poorer” when he sold CoreStates in 1998 for $17bn.

One senior investment banker said: “If you’re a bank in Pittsburgh, Minneapolis, Cleveland — that bank leaving that town and selling is traumatic for those communities and the CEOs of those banks know it.”

Bankers cautioned stock market investors may be getting too presumptuous about how aggressive banks would be even with amenable regulators.

Anu Aiyengar, global head of advisory and M&A at JPMorgan, said: “The equity markets are the most enthusiastic in terms of how life has changed [since Trump’s win]. Banks by definition tend to be more conservative. In bank land no one is jumping around yet saying let’s go in [for mergers].”

M&A advisers warn the new Republican administration has a strong populist agenda that is opposed to mega deals that could hurt consumers.

Mitch Eitel, managing partner of Sullivan & Cromwell’s financial services group, said: “I think there will be a shift in policy that will allow deals. But I think antitrust still remains a little bit of a question mark because we don’t know where that goes.”

“While a Trump administration is presumably business friendly it’s also presumably populist on antitrust enforcement and not trusting big banks”, he said.

Larger banks with pending regulatory issues may also find it harder to buy rivals under a more amenable Trump administration — almost two-thirds of US banks with more than $100bn in assets were deemed by the Federal Reserve to have “less than satisfactory” controls in at least one area of supervision, which includes anti-money laundering and compliance.

“We view this as an indication that bank M&A may remain challenging next year even after Donald Trump becomes president,” Jaret Seiberg, a financial research analyst at TD Cowen, wrote in a note to clients last month.

A gap between the expectations of potential buyers and sellers may also remain, particularly given a lack of certainty about the path of US interest rates.

“Most banks view themselves as a buyer,” said John Esposito, who heads the financial institutions group at Morgan Stanley. “And we need sellers in order to restart the M&A market.”

Esposito added: “It’s cautious optimism from bank clients about M&A. It should be better under Trump. If we can figure out the disconnect between buyers and sellers that would help.”