>>> Barron’s Weekend Summary

Cover:
-Walmart, the largest US company by revenue and employees, delivered $15.5B in profit last year and has a $663B market cap. Despite ongoing divisional elections, Walmart continues to grow, with its e-commerce, advertising, and membership businesses proving successful. CEO Doug McMillon, who will mark his 11th-year anniversary on Feb. 1, has seen Walmart stock climb 231% during McMillon's tenure. Walmart's success and importance to the economy and society make it a unique company in the corporate elites. The Walton family, descendants of founder Sam Walton, has a 46% stake in Walmart worth $300B, making them America's richest family. The Walton family's stewardship is one of Walmart's greatest advantages, with a singular symbiotic relationship that has almost no parallel in American business. The Walton family's fortune is spread among more than two dozen family members, with Sam's brother, James "Bud" Walton, having a smaller piece of the company.

Interview:
-Brian Gardner, Chief Washington Policy Strategist at Stifel SF, has been helping businesses and investors navigate the political landscape for decades. With the Nov. 5 presidential election approaching, Gardner's views are in greater demand than ever. He has been particularly prescient, suggesting that Vice President Kamala Harris would be the most likely replacement for President Joe Biden. Gardner also highlighted the potential tax debate in 2025-26, with the expiration of Trump tax cuts and other issues like clean-energy tax credits and corporate income tax. Both candidates have discussed changes, with Harris looking to raise the corporate tax rate and Trump discussing cutting it. Both candidates have big trade agendas, with Harris likely maintaining the status-quo situation with China tariffs, while Trump plans to increase tariffs on Chinese goods and expand global tariffs.

Tech Trader:
-Big Tech stocks have seen a mixed response to recent earnings reports, with Microsoft reporting stellar earnings and shares rising in after-hours trading. However, Chief Financial Officer Amy Hood warned that capital expenditures would continue to rise, leading to a 4% drop in shares. The week's results are expected to focus on the massive spending bills that companies continue to accumulate. Microsoft's capital expenditures were $20 billion in its fiscal first quarter, up 79% on the year and 203% over two years. The spending is primarily for the AI buildout in its rentable cloud computing platform, Azure. Azure cloud saw a 33% increase against last year, with 12 percentage points coming from AI services. However, this growth comes at a cost to profitability, as depreciation expenses pile up. Microsoft's shares fell 6% on the earnings news, erasing $194B in market value. Meta Platforms' results were similar, with shares falling despite the company's capex growing rapidly, up 36% on the year.

The Trader:
-Stocks have been struggling due to uncertainty surrounding an election and Federal Reserve meeting. The S&P 500 finished down 1% for the month in October, marking its worst performance since April and ending a five-month winning streak. October is the most volatile month, especially during election years, and the S&P 500 had been trending lower since mid-month. However, this year could end similarly, especially once election-related volatility has passed. DataTrek Research co-founder Nicholas Colas believes that when the Cboe Volatility Index (VIX) is one to two standard deviations above the long-run average, it's a good time for investors to buy stocks. 22V Research President Dennis DeBusschere agrees that the election is driving higher volatility but that backdrop isn't likely to continue. Choppiness was a factor pushing the S&P 500 lower on Thursday, and volatility is expected to remain intense through the next two weeks of market clearing events. Stockpickers may be able to swoop in, as BofA Securities' contrarian Sell Side Indicator is closer to a Sell signal than a Buy.
-The Technology Select Sector SPDR exchange-traded fund (XLK) has fallen 3.4% to $223, below its peak of $237 in July. Despite the drop, investors are turning to former favorites like Microsoft, Super Micro Computer, Amazon.com, and Apple. Microsoft's earnings were solid, but not enough for a stock trading at nearly 30 times earnings. Super Micro Computer's stock plunged almost 40% in just two days after revealing its auditor resigned over accounting concerns. Amazon.com's stock rose 5.2% after beating third-quarter earnings estimates, while Apple's stock was only down 0.4%. The 10-year Treasury yield is up 0.63 percentage points since the Federal Reserve cut interest rates on September 18, making future profits less valuable and putting downward pressure on valuations. The Tech ETF now trades at 28 times 12-month forward earnings, down from a peak of 31 in July. Tech sector profits are set to grow 18% annually over the next two years, boosted by sales growth and billions of dollars in share repurchases.

Features:
-Expectations have increased since Beijing's September effort to show focus on stabilizing the economy, following weak economic data and growing deflationary pressures. The iShares MSCI China exchange-traded fund has increased by 21% this year, but has fallen from its peak due to Beijing's slow action. Structural challenges facing the economy include turning around the property market and finding new sources of economic growth. Analysts expect authorities to continue on a slow path to stimulus, which could be disappointing to investors. The meeting of the National People's Congress Standing Committee is expected to run from Monday through Friday. Market expectations include six trillion renminbi ($874B) of bond issuances over three years and possibly another four trillion ($561B) in special local government bond issuance over five years. Optimists are also expecting authorities to inject one trillion renminbi into banks to deal with nonperforming debt related to the property sector or into a fiscal package aimed at bolstering consumption.
-Nvidia and Sherwin-Williams will join the Dow Jones Industrial Average (DJIA), replacing Intel and Dow before trading opened on November 8. The announcement was made after the close of trading on Friday. The changes were initiated to ensure a more representative exposure to the semiconductors industry and materials sector. The DJIA is a price-weighted index, meaning persistently lower-priced stocks have minimal impact on the index. Intel finished Friday at $23.20 and Dow at $49.97, with Dow's market capitalization around $35B. Nvidia is the second-largest company in the U.S. stock market in market value at $3.3T, just behind DJIA member Apple. Sherwin-Williams is a surprise addition to the DJIA, with a market value of $90B. The additions follow the addition of Amazon.com to the DJIA in February and Vistra will replace AES in the Dow Jones Utility Average.

European Trader:
-The US presidential election could determine whether the world is heading for an escalation in the trade war, potentially jeopardizing global economic growth and geopolitical alliances. Vice President Kamala Harris is expected to maintain the Biden administration's approach to China, which would involve continuing tariffs and increasing restrictions on China's access to critical technology. Former President Donald Trump's proposals would take the trade battle to a new level, potentially hitting allies like Germany and Australia. Trump has said he would raise tariffs on China to as much as 60% and impose universal tariffs on all imports of at least 10%. A major escalation in the trade war could create chaos in the trading system that underpins the global economy, causing initial rattle in international markets, especially China, Mexico, South Korea, and Europe. However, global markets do not yet fully reflect an intensified trade war and tariffs, as Trump could pursue these trade policies without Congress.

Emerging Markets:
-Emerging market bonds issued in dollars have held their own as global fixed income has sold off over the past month. However, local-currency bonds have not been as stable. Emerging markets have shifted towards issuing debt in their own currencies since the 1980s and '90s, making them more stable but leaving $7T in bonds extremely vulnerable to the US election on Nov. 5. Donald Trump's promised 10% tariffs on all imports to the US would push exporting countries to weaken their currencies in response, potentially cratering bonds priced in those currencies. However, more than $1T in emerging market debt issued in dollars has been issued in dollars. Spreads for this subasset class over U.S. Treasuries tightened by 0.23% in October. Riskier credits outperformed, with high-yield sovereigns tightening by 50 basis points as investors gained confidence in the solvency of onetime basket cases such as Argentina, Pakistan, and Sri Lanka.

Commodities:
-Oil prices rose following a report that Israel believes Iran is planning a strike in the coming days. Axios reported that Israeli intelligence suggests Iran could attack through Iraqi territory in retaliation for last month's missile barrage. The strike could happen within days and possibly ahead of the US election on Nov. 5. Crude prices jumped on Friday, with Brent rising 2.2% to $74.38 a barrel and West Texas Intermediate up 2.5% to $71.02 a barrel. Shares in oil supermajors also rose, with Chevron rising 4.1% after reporting better-than-expected Q3 earnings and revenue. Traders are worried that any attack by Tehran could prompt a counterstrike by Israel targeting Iranian oil production sites.

Streetwise:
-The demand for artificial-intelligence chips has driven the two best 10-year stock performers among current S&P 500 components, Nvidia and Advanced Micro Devices. Nvidia has returned 31,300%, while Advanced Micro Devices has returned 5,900%. The No. 3 and 4 performers are in businesses that produce artificial-intelligence chips, such as credit scores and lumber. Fair Isaac, a credit score company, has returned 3,300% over the past decade and Builders FirstSource, 2,900%. Both companies were added to the S&P 500 last year and report quarterly financial results in the week ahead. Fair Isaac benefits from being an industry standard, with some help from the government, and having a long runway to raise prices. The company was founded in the 1950s by engineer Bill Fair and mathematician Earl Isaac, and first introduced its credit score in 1989. Today, a FICO score judges creditworthiness on a scale from 300 to 850 using payment history, loan balances, and other data. Competition includes the three main credit bureaus, VantageScores, and an AI-powered lending marketplace called Upstart. Fair Isaac's FICO scores are required for loans that originate with government entities, such as the Federal Housing Administration and the Department of Veterans Affairs, as well as those bought or securitized by Fannie Mae and Freddie Mac. Today, more than 90% of top lenders use FICO scores, and barriers to entry are high. Fair Isaac uses AI transparently and has its own scoring products for borrowers with limited credit histories.

CrunchBase : The 10 Biggest Rounds Of October: OpenAI’s Massive Deal Dwarfs All

The 10 Biggest Rounds Of October: OpenAI’s Massive Deal Dwarfs All Others

OpenAI led the way last month and it really wasn’t even close. However, there were lots of other big raises — as a startup had to raise more than $200 million to make October’s list as investors were very willing to open their checkbooks for megadeals.

1. OpenAI, $6.6B, artificial intelligence: OpenAI announced its long-awaited raise of $6.6 billion at a post-money valuation of $157 billion led by Thrive Capital. The new round makes the ChatGPT creator one of the most valuable private companies in the world and also included investment from the likes of Altimeter Capital, Fidelity, Khosla Ventures, Microsoft, Nvidia, SoftBank and Abu Dhabi-based MGX. It also was reported SoftBank’s Vision Fund would invest $500 million in the round. The new round comes just as the company is facing myriad issues, including an exodus of higher-up employees and a restructuring change to switch it from a nonprofit to a for-profit benefit corporation and to give co-founder Sam Altman equity in the company. The funding structure seems to take those factors into account, as it came in the form of convertible notes and reportedly allows for investors to ask for their money back if the change is not completed within two years and removes the cap on returns for investors. The new round is bigger than the $6 billion round Elon Musk’s generative AI startup, xAI, officially announced in May, which up to this point was the largest round raised this year.

2. Pacific Fusion, $900M, energy: Another huge AI-related round. Pacific Fusion, a startup attempting to create a nuclear fusion-based energy source, raised more than $900 million in a Series A led by General Catalyst. The funding does depend on the company hitting certain milestones — which were not spelled out. The round further illustrates investors’ appetite for energy sources that can meet AI’s immense power needs.

3. (tied) Crusoe Energy Systems, $500M, energy: Back in 2022, the Denver-based company was helping power Bitcoin mining by harnessing natural gas that is typically burned during oil extraction and putting it toward powering the data centers needed for mining — raising a $350 million Series C equity round led by G2 Venture Partners, at $1.75 billion valuation in the process. Well, Crusoe has now turned its energy to AI — literally. The company is a so-called “neocloud” — a data center firm providing outsourced cloud computing for those looking to build AI. That business plan was enough for Crusoe to reportedly lock up a $500 million round led by Founders Fund at a $3 billion valuation. Founded in 2018, the company has raised $1.2 billion, per Crunchbase.

3. (tied) Poolside, $500M, artificial intelligence: Poolside closed a $500 million Series B led by Bain Capital Ventures. The new round valued the startup at $3 billion, Bloomberg reported. The startup builds artificial intelligence software for programmers. Poolside is just one of a handful of big deals recently in the AI coding space. In August, San Francisco-based Magic, which also develops AI models to write software, raised a $320 million round, and AI-powered coding assistant Codeium closed a $150 million Series C. Poolside has raised $626 million since being founded in May 2023.

3. (tied) X-energy, $500M, energy: Rockville, Maryland-based X-energy raised a Series C-1 of approximately $500 million, anchored by Amazon. The company is developing advanced small modular nuclear reactors for clean energy generation. Amazon and X-energy are collaborating to bring more than 5 gigawatts of new power projects online across the United States by 2039. Founded in 2009, X-energy has raised more than $785 million, per Crunchbase.

3. (tied) Insider, $500M, digital marketing: Marketing tech platform Insider raised a $500 million Series E led by General Atlantic to fund its expansion in the U.S. and AI product development. The latest funding comes about 18 months after a round last year that valued it at $1.9 billion. The New York-based company declined to disclose its valuation with the latest round. Insider, which was co-founded in Istanbul in 2012, has now raised $772.1 million from investors, per Crunchbase. The company said it operates in 28 countries around the world and counts big names such as Nike, Samsung, L’Oreal, Unilever, Allianz and Walt Disney among its customers.

7. Form Energy, $405M, renewable energy: Form Energy, a renewable energy company developing and commercializing multiday energy storage systems, raised a $405 million Series F led by T. Rowe Price. Long-duration energy storage has proven to be a tough nut to crack, but Form has been able to get some commercial traction as it looks to ramp up manufacturing operations and commercial deployments of its iron-air battery systems. The Somerville, Massachusetts-based company, founded in 2017, has raised a total of $1.5 billion in a mix of equity and grants, per Crunchbase.

8. (tied) Kailera Therapeutics, $400M, biotech: Yet another big biotech raise last month, as Kailera Therapeutics announced its launch with a $400 million Series A financing co-led by Atlas Venture, Bain Capital Life Sciences and RTW Investments. The new Boston-based company is developing several clinical-stage injectable and oral therapies to help with chronic weight management.

8. (tied) Lightmatter, $400M, data centers: Lightmatter, a startup that uses light to link chips together and to do calculations for the deep learning necessary for AI, locked up a $400 million Series D led by new investor T. Rowe Price at a $4.4 billion valuation. The new round nearly quadruples its previous valuation of $1.2 billion in December after a $155 million raise led by GV — which along with Fidelity Management and Research Co. also participated in the new round. As Big Tech pours hundreds of billions of dollars into new AI data centers, Lightmatter is trying to solve the problems around energy consumption and scalability of those new centers. The company’s tech uses silicon photonics that can speed up processes while also using less power. Although the idea of using light in computing isn’t new, creating the components has historically been challenging. Founded in 2017, Lightmatter has raised $850 million, per the company. Lightmatter’s was not the only large raise by a photonic startup last month. Xscape Photonics — a New York-based startup also using photonics technology to address the energy, performance and scalability challenges of AI data centers — raised a $44 million Series A led by IAG Capital Partners with investment from the likes of Cisco Investments and Nvidia.

10. Splitero, $300M, fintech: Part of the beauty of being a homeowner is having equity in that home. Unfortunately, accessing that equity can sometimes be burdensome. San Diego-based Splitero offers homeowners another option to do just that and last month the startup locked up $300 million through a strategic investment from funds managed by Antarctica Capital to further that mission. Splitero offers homeowners a lump sum of cash in exchange for a share of their home’s future value. Founded in 2021, the company has raised nearly $318 million, per Crunchbase.

CrunchBase : The Week’s 10 Biggest Funding Rounds: Crusoe Energy, Insider And Bi

The Week’s 10 Biggest Funding Rounds: Crusoe Energy, Insider And Biotech Raise Big

There may not have been a $1 billion raise this week, but large money deals did abound. Two U.S. startups raised half a billion dollars apiece, and another eight raised $100 million or more, with industries from cybersecurity to biotech to AI represented.

1. (tied) Crusoe Energy Systems, $500M, energy: This is not the first time Crusoe has made this list. Back in 2022, the Denver-based company was helping power Bitcoin mining by harnessing natural gas that is typically burned during oil extraction and putting it toward powering the data centers needed for mining — raising a $350 million Series C equity round led by G2 Venture Partners, at a $1.75 billion valuation in the process. Well, Crusoe has now turned its energy to AI — literally. The company is a so-called “neocloud” — a data center firm providing outsourced cloud computing for those looking to build AI. That business plan was enough for Crusoe to reportedly lock up a $500 million round led by Founders Fund at a $3 billion valuation. Founded in 2018, the company has raised $1.2 billion, per Crunchbase.

1. (tied) Insider, $500M, digital marketing: Marketing tech platform Insider raised a $500 million Series E led by General Atlantic to fund its expansion in the U.S. and AI product development. The latest funding comes about 18 months after a round last year that valued it at $1.9 billion. The New York-based company declined to disclose its valuation with the latest round. Insider, which was co-founded in Istanbul in 2012, has now raised $772.1 million from investors, per Crunchbase. The company says it operates in 28 countries around the world and counts big names such as Nike, Samsung, L’Oreal, Unilever, Allianz and Disney among its customers.

3. Beta Technologies, $318M, aerospace: If you’re one of those people frustrated that the technology revolution has not yet delivered us the flying cars we were promised, take heart: Startups working on vertical-takeoff aircraft continue to get investor interest. The latest startup in the space to get a big chunk of cash is Beta Technologies, maker of electric vertical take-off and landing planes. The South Burlington, Vermont-based startup this week announced a Series C led by Qatar Investment Authority, Qatar’s sovereign wealth fund. Fidelity, TPG Rise Climate Fund and United Therapeutics also joined as investors. The company — which has now raised $1.4 billion from investors, per Crunchbase — said the fresh cash will be used to move its aircraft closer to certification and commercialization.

4. Armis Security, $200M, cybersecurity: Cybersecurity startup Armis Security closed a $200 million Series D led by Alkeon Capital and General Catalyst. The round boosts the company’s valuation nearly 25% to $4.2 billion. The San Francisco-based startup last raised a $300 million private equity round in 2021 led by One Equity Partners at a $3.4 billion valuation. The new cash comes just after Armis said it had surpassed $200 million in annual recurring revenue — growing ARR by an additional $100 million in less than 18 months. The company is targeting an IPO in 2026, per Bloomberg. In 2020, Insight Partners bought a large stake in the startup. Armis is one of a handful of companies that plays in the industrial security — also called operational technology security — and IoT security spaces. The sector typically sees an ebb-and-flow of investment interest, but 2024 has been good for startups in the sector. Earlier this year, New York-based Claroty secured $100 million in strategic debt/credit financing led by Delta-v Capital, and San Francisco-based Nozomi Networks locked up a $100 million Series E from investors including Mitsubishi Electric and Schneider Electric.

5. Sierra, $175M, artificial intelligence: If you want to have your company’s valuation skyrocket in the blink of an eye, start an AI startup. Ex-Salesforce co-CEO Bret Taylor’s conversational AI startup Sierra raised $175 million this week in a funding round led by Greenoaks Capital that gave it a $4.5 billion valuation. It was just in February when the San Francisco-based company raised $110 million led by Sequoia Capital and Benchmark at a reported valuation of nearly $1 billion. A 4.5x increase in value in eight months time is not too shabby. And yes, Taylor also is chairman of the board at OpenAI — whose large language models Sierra uses — although he has said there are no conflicts of interest.

6. Melio, $150M, fintech: Payments platform Melio raised a $150 million Series E led by Fiserv at a $2 billion valuation. The New York-based company last raised cash in 2021 at a $4 billion valuation, but a reported sale of the company fell through last year at half that value. Founded in 2018, the company has raised $654 million, per Crunchbase.

7. (tied) Axonis Therapeutics, $115M, biotech: Boston-based Axonis Therapeutics, a biotech startup developing neuromedicines, locked up a $115 million Series A co-led by Cormorant Asset Management and venBio Partners. Founded in 2020, the company has raised nearly $130 million, per Crunchbase.

7. (tied) Evommune, $115M, biotech: Palo Alto, California-based Evommune, a biotech startup developing new ways to treat immune-mediated inflammatory diseases, completed a $115 million Series C co-led by new investors RA Capital Management and Sectoral Asset Management. Founded in 2020, the company has raised $268 million, per Crunchbase.

7. (tied) Fingercheck, $115M, human resources: Small business payroll and human resource software company Fingercheck raised a $115 million growth investment led by Edison Partners. Fingercheck’s platform allows payroll and HR management to be set up in hours and supports posting jobs, onboarding, payroll, scheduling and shift management, and more. The round is impressive considering the precipitous fall in funding to HR startups in recent years. During the height of the venture market in 2021, few sectors seemed to benefit as much as human resources — likely due to the fact businesses were undergoing major changes in the way they handled employees due to the pandemic. In 2021, HR startups raised more than $10.5 billion in over 900 rounds, per Crunchbase data. In 2023, those numbers fell to $7.8 billion in more than 800 rounds, and then dropped to only $2.9 billion in 500 rounds last year. So far this year, HR startups have seen only $1.7 billion in fewer than 300 rounds, per Crunchbase data. In fact, Fingercheck’s round is only the fourth raise in 2024 of $100 million or more in the sector.

10. DoorLoop, $100M, property management: Miami-based DoorLoop, a property management software company, raised a $100 million Series B funding led by JMI Equity. Founded in 2019, the company has raised $130 million, per Crunchbase.



Big global deals
The biggest deal of the week came from China.
  • GDS International, a developer and operator of data centers, raised $1 billion from institutional private-equity investors.

FT : Boeing sets milestone with colossal equity issue

Boeing sets milestone with colossal equity issue
Bold action signals aerospace giant is trying to take risk of financial distress off the table

In the third season of Breaking Bad, Mike Ehrmentraut warns Walter White: “No more half-measures, Walter.” When you’re on a knife’s edge, you need to take decisive action.

Boeing’s management team seems to have taken that advice to heart, pulling off one of the boldest financial recovery manoeuvres in recent corporate history. On Monday, the beleaguered aerospace group went all-in with a humongous offering of shares and equity-linked instruments to shore up its balance sheet and stave off a credit rating downgrade to junk status.

This was no small ask. Market analysts had expected Boeing to tap the markets for $10bn-$15bn, but the company raised an eye-watering $24.3bn, following the exercise by the underwriters of the “greenshoe” option to increase the offering by an additional 15 per cent. Boeing has thus set a record for the largest ever US equity offering. The stock offering was priced at $143 per share, a roughly 5 per cent discount to Monday’s close — a reasonable level given the circumstances.

What’s perhaps most remarkable, though, is the market’s reaction. You’d think this level of shareholder dilution — where existing shares lose value due to a flood of new stock — would send the stock price plummeting. But Boeing’s shares took only a small hit, dropping a mere 2 per cent on the placement day. The shares have subsequently rallied to around $150, about 5 per cent above the placement price and giving the company a market capitalisation of $95bn. 

Part of the reason is that investors had already baked a large equity offering into their expectations. But the market is also giving Boeing a nod of approval for this move. By raising such a massive amount, Boeing is trying to take the risk of financial distress off the table. Avoiding a ratings downgrade is crucial, as losing investment-grade status would hamper Boeing’s ability to raise debt, unsettle suppliers and customers, and potentially damage core industrial operations. It sounds paradoxical but a hugely dilutive offering can cause the stock price to re-rate upwards by alleviating concerns over financial wherewithal.

In that context, it is telling that after a strong investor response on Monday morning, Boeing decided to upsize the common stock tranche by 25 per cent instead of pushing to maximise the offer price. In other words, management prioritised putting to rest any concerns about its financial health over squeezing out the last dollar on price. Boeing wasn’t trying to drive a hard bargain, but rather was determined first and foremost to bolster its battered balance sheet — even if it meant leaving some money on the table for investors.

And Boeing’s timing also speaks volumes: this offering came right before the US presidential election and amid an unresolved machinists’ strike, signalling confidence that neither would derail its recovery plan. For Boeing there was no better time than now to start rehab. And no one wants half of the world’s duopoly in aircraft manufacturing to collapse.

An intriguing twist to the deal is the $5bn three-year “mandatory convertible” bond, a hybrid security that converts into shares on maturity. Rating agencies treat these as (mostly) equity. Boeing’s common stock pays no dividends, but the mandatory instrument yields 6 per cent, appealing to equity-linked fund managers and thus diversifying the investor pool for the deal. The positive market response enabled the underwriters to skew allocations in favour of “outright” investors keen for exposure to Boeing’s stock price over arbitrageurs, who typically profit by shorting the stock while holding the convertible. As a result, pressure on the Boeing stock price was minimised during the offering.

Boeing’s choice of equity underwriters was also strategic, aiming to foster a supportive stable of relationship banks. The four leads — Goldman Sachs, Bank of America, Citigroup and JPMorgan — had arranged a $10bn bridge credit facility earlier this month. Although US regulations prohibit banks from “tying” a loan commitment to an investment banking role, Boeing rewarded the four arrangers by granting them the equity mandate, which should yield each bank more than $75mn in fees. This contrasts with National Grid’s decision to allocate the full £140mn in underwriting fees for its £7bn share offering solely to its two corporate brokers, thereby excluding its other relationship lenders.

In short, the Boeing record-breaking offering is a recognition by the company that a fortress balance sheet is a precondition for its turnaround. The big question, of course, is whether this colossal equity deal will pay off in the long run. While not a quick fix, the capital raise represents a bold, strategic choice — and a recognition by Boeing’s management that there’s no more time for half-measures.

FT : How the US election may unsettle Europe

How the US election may unsettle Europe
Europeans mostly prefer Harris to Trump but challenges lie ahead on democracy, defence and economics

Democracy in peril?
The contest between Kamala Harris and Donald Trump makes Europeans nervous for at least three reasons: democracy, defence and economics.

Let’s take democracy first.

In the latest edition of its annual report on freedom around the world, the non-partisan, US-based group Freedom House said that political rights and civil liberties had deteriorated in 52 countries last year, while only 21 countries had registered improvements.

Its conclusion was that global freedom had declined in 2023 for the 18th consecutive year.


Then the organisation linked these findings to Tuesday’s US elections:

As it has for decades, the US can play a vital role in the expansion of global freedom.

But much depends on whether the November 2024 presidential election reinforces or weakens America’s democratic values, processes and institutions, along with its will to uphold the cause of democracy around the world.

Writing for Social Europe, Harold James, a Princeton University historian, makes a similar point:

No one knows how the US presidential election will turn out. One possibility is that the Trump bubble will finally burst, allowing for a return to normalcy in America and around the world.

But it is also possible that the United States will lurch toward a radical militarised authoritarianism that would establish a new norm for despots elsewhere.

This is Europe’s most profound concern. If democracy were to stumble in its US stronghold, it would stimulate illiberal or extremist political forces that are already active — in some countries, even in or close to government — in Europe.

It would also make European democracies more isolated and vulnerable in a world where dictatorships and semi-authoritarian regimes are contemptuous of liberal norms and act aggressively to discredit them.

Defending Europe
Europe’s second worry is defence and security.

Many Europeans lose sleep at night at the prospect that Trump might act or speak in ways that would shatter the credibility of the US security guarantee of Europe, expressed through Nato and the nuclear umbrella.

European supporters of Ukraine also worry that he might try to settle the war there on terms that amounted, in effect, to a victory for Vladimir Putin’s Russia.

Some politicians recognise that, in certain respects, Europe has only itself to blame. Many governments have spent too little on defence for far too long (though military budgets are rising), and a united EU foreign policy is more an aspiration than a reality.

In this piece for Project Syndicate, Friedrich Merz, leader of Germany’s opposition Christian Democrats, laments what he calls “the desolate state of European foreign and security policy at a critical moment”.

Most Europeans would certainly feel more comfortable with Harris in the White House, as is shown by surveys such as this one by the Savanta data and market research company.

In six countries polled — France, Germany, Italy, the Netherlands, Poland and Spain — clear majorities thought Harris would be better for Europe’s security.

Change things so things stay the same
However, that is not the whole story — as is made clear in an impressive collection of commentaries issued by the US Council on Foreign Relations and associated think-tanks.

For instance, Patrycja Sasnal of the Polish Institute of International Affairs writes:

Harris as president [would epitomise] a generational change in American politics that [would mean] shifts and challenges for Europe, too.

. . . with US President Joe Biden we bid farewell to post-cold war politicians, viscerally connected with European countries for better or worse, who have regarded the transatlantic partnership with a semi-religious dogma.

With Harris, Europe [would] have to embrace a new United States, more West coast, deeply connected to Asia and Latin America, perhaps at the expense of the partnership with Europe.

We can learn something about how a Harris administration might act on the international stage by considering the career and outlook of Philip Gordon, her chief foreign policy adviser.

Writing for the Washington-based Center for European Policy Analysis, Samuel Dempsey says:

Gordon . . . has broad expertise in Europe, is firmly behind Ukraine, but has advocated for a European Nato that pays its way.

Europeans hoping that a Harris administration might return to the good old days where the US pays a lot and asks little in return will likely be disappointed.

In other words, whoever wins the presidency, Europe will have to get its act together if it wants to preserve its freedom and, one hopes, remain allied with the US.

Economic threats
A third concern for Europe is trade and the economy.

At a rally in Pennsylvania this week, Trump could hardly have sounded more menacing about what lies in store for the EU on the trade front, if he should return to the White House:

I’ll tell you what, the European Union sounds so nice, so lovely, right? All the nice European little countries that get together …

They don’t take our cars. They don’t take our farm products. They sell millions and millions of cars in the United States. No, no, no, they are going to have to pay a big price.

The prospect of a Trump victory, followed by punitive US tariffs on European goods, is hurting the share prices of export-sensitive companies such as Diageo, LVMH and Volkswagen, the FT reported this week.

For sure, the EU has been working on a response. As my colleague Henry Foy wrote:

The [European Commission], which manages trade policy, has already drafted a strategy to offer Trump a quick deal on increasing US [exports] to the EU and only resort to targeted retaliation if he opts for punitive tariffs.

Not much better with Harris?
But the broader picture is that Europe has been falling behind the US — and, to some extent, China — in the technologies of the future (see the chart below).

Barron's : Move Over, Banks. Alternative Asset Giants Plunge Into Private Credit

Move Over, Banks. Alternative Asset Giants Plunge Into Private Credit.
Lending from asset managers has quadrupled over the past decade to nearly $2 trillion in assets.

When a business is repeatedly slammed by Jamie Dimon, you know it’s a big deal.

In his annual letter, the JPMorgan Chase boss tore into the private credit industry, warning that the business loans made by lightly regulated private funds will implode when the credit funds’ opaque valuations and illiquidity meet the economy’s next downturn.

“When the shit hits the fan—and it will one day, we don’t know when—there will be a lot of stranded borrowers,” Dimon told a May investor conference, “because some of these people simply cannot roll over loans like we would.”

A less remote concern for the JPMorgan chief may be that the deep-pocketed credit funds have become formidable competitors, even for the world’s biggest bank. Private credit has been one of the fastest-growing businesses at alternative asset giants like Blackstone, Apollo Global Management, and Brookfield, as well as specialists like Ares Management, Blue Owl Capital, and HPS Investment Partners. After quadrupling in the past decade to nearly $2 trillion in assets, private credit is as big as the market for banks’ syndicated loans.

Drawing investors to private credit are yields that exceeded 11% in the past few years, as rising rates swelled income from the funds’ floating-rate loans.

Bankers may grumble, but financial regulators like the Federal Reserve say they aren’t alarmed by what they see in private credit. In fact, commercial banks are joining with credit funds, or getting into the business themselves. At the same meetings where Dimon lashed out at his private credit rivals, his lieutenants explained how JPMorgan is building out a private credit operation.

Private credit’s breakneck pace of fund-raising from pensions, endowments, and sovereign-wealth funds has slowed since 2021. It is increasingly seeking money from wealthy individuals, with retail products that range from publicly listed business development companies, or BDCs, to insurance annuity products and limited partnerships.

What can individual investors expect if they put money into private credit?

Near term returns will likely trend down. Subsiding rates will lower the absolute yields on private credit, from their double-digit heights. Private credit’s spreads over base rates also have narrowed this year, as the cash-rich credit funds compete with each other, and with re-energized commercial banks, for borrowers.

And as Dimon notes, this new kind of finance hasn’t been through a deep downturn.

But private credit has lots of headroom. These nonbank players are set to become a big part of the world’s lending, and they are sure to get a growing slice of investors’ portfolios. As their share of commercial lending grows, so will their investment returns.

Private credit’s growth spurt began after the 2008 financial crisis. As regulators tightened capital requirements for depositor-funded institutions, the banks pulled back from riskier loans to small businesses and to companies bought by private equity. Into the gap stepped business development companies, a kind of untaxed loan fund approved by Congress in the 1980s, as a lender of last resort to small business.

“Your readers will remember the BDCs of 10 years ago,” says Blue Owl co-founder and co-CEO Marc Lipschultz. “They were like junkyards.”

Over the course of the 2010s, says Lipschultz, BDCs supplied capital to companies of increasingly higher quality.

Managers like Ares grew from humble roots into major lenders to mid- and small-size businesses. Ares, Blue Owl, and other alternative asset managers also became the main lenders to companies bought by each others’ private-equity funds.

An alt manager’s private-equity funds necessarily created opportunities for another firm’s credit fund, since it is a potential conflict to lend to companies you are buying. Even after private credit’s fundraising boom, there’s five times as much money on tap at private-equity funds. “We are a very large lender to a lot of those who people would perceive as our competitors,” says Chris Edson, who heads loan origination at Apollo.

Commercial banks also lend to these same noninvestment grade borrowers, in ways that don’t pinch the banks’ regulatory capital. High-yield bonds fund big loans. Smaller loans can be distributed to a broad syndicate of banks and investors.

But come the Covid economic shutdown of 2020, private credit kept on lending, while the high-yield and syndicated loan markets dried up. That touched off another growth spurt that has brought credit funds toe to toe with the banks. At business school job fairs, it’s the Golden Age of private credit.

Next year, private credit may get another competitive boost if the so-called Basel III Endgame rules for bank capital take effect in the U.S., Europe, and the U.K., further constraining the ability of banks to make loans.

Today, the large private credit managers have raised their sights beyond the senior, secured loans that have been their bread and butter. Offering investment-grade loans, asset-based loans, and other sorts of specialized credit, they think they can put tens of trillions to work.

Apollo’s Edson oversees 4,000 people at over a dozen units that each offer different kinds of loans. At Ares, the operating chief of direct lending, Jana Markowicz, has hundreds of investment professionals and loan officers based in local markets. “This is a people business,” she says. “It’s important to be close to the borrowers.”

Private credit has some advantages over banks. Lending from their funds’ capital, to borrowers they usually know, private credit managers can act quickly.

By comparison, most brokers can only tell a borrower that they will try to arrange a high-yield loan. “Their key word is ‘try,’” says Apollo’s Edson. “When a company speaks to us, we can say ‘Here is the money. Here is the documentation.’ That speed and certainty is incredibly valuable.”

How valuable? Private credit firms have been able charge a premium for their floating-rate loans that is two to three percentage points above banks’ broadly syndicated loans, and more than five percentage points above the benchmark known as the Secured Overnight Financing Rate.

As the benchmark rate rose from near zero to 5% in the past few years, these floating-rate lenders raked in investment income. Shares of Blue Owl have doubled since the alt manager announced in 2020 that it would come public via a special-purpose acquisition company, while those of Ares have nearly quadrupled over the same stretch.

For private credit’s borrowers, the rate cycle has been a kind of stress test, as borrowers with floating-rate loans saw their loan payments surge. “They’re obviously paying our funds a lot more interest than they had hoped when rates were close to zero,” says Blue Owl’s Lipschultz. “But their businesses are doing well, on average.”

Some loans have soured. In August, a group of credit funds that included Blue Owl, Ares, and others had to take ownership of a struggling workforce development firm called Pluralsight that fell behind on more than $1 billion of debt. Critics said the private credit bubble was bursting.

But most private credit borrowers have survived the stress test. Over a decade, default rates and losses in private credit matched those of the high-yield market. At the biggest private-credit firms, defaults are 0.1%.

Private-credit managers say they are smart lenders. But a big reason their losses are low is because most of their investors are locked up for as long as 10 years. Unlike commercial banks, they need not fear a run on the bank by spooked depositors. That gives private lenders time to work through problem loans.

The matching duration of private credit’s funding with its loans is one of the reasons that regulators aren’t too worried about the industry, said Sandra Lee, the Treasury Department’s liaison to the Financial Stability Oversight Council, when she spoke to a recent private credit gathering. What’s more, credit funds rarely leverage themselves above one times capital, while banks leverage themselves up to 10 times. Regulators do find the sector opaque, she said.

Pluralsight’s loan workout might have become a fractious mess if a bank had broadly syndicated its loans to many holders.

“If you have a large group of lenders in the mix, it’s much easier to create a cool kids club and pit that cool kids club against a non-cool kids club,” CEO David Golub told investors in his Golub Capital BDC in August. Squabbles happen less in the small, interdependent community of private debt.

Private credit is consolidating among a small number of alt-asset managers, and they must maintain relationships with each other, said Golub.

Like other parts of the alt asset industry, private credit’s bigs are getting bigger.

Goldman Sachs Group manages $140 billion worth of private credit funds. Brookfield has $240 billion, mostly at Oaktree Capital, the firm co-founded by fixed-income guru Howard Marks, and which is now majority owned by Brookfield. Last year, Oaktree raised $19 billion in one of the largest fundings in the industry’s history. That got topped this year, when HPS Investment Partners raised $21 billion.

It’s no surprise that Blackstone ranks near the top, with $355 billion in assets under management in various credit funds in September, including $36 billion in net assets at the BDC nicknamed BCRED, which doesn’t trade on an exchange and is the private credit counterpart to BREIT, Blackstone’s unlisted real estate investment trust.

Instead of lending mainly to buyouts and other leveraged borrowers, Apollo will grow its credit returns by lending to investment-grade corporate borrowers. As of October, Apollo ran $562 billion in credit assets. It’s made big loans to companies like Intel, Sony, AT&T, and AB InBev, and Apollo believes the market for investment-grade private credit could reach tens of trillions. The resulting income will service fixed annuities that Apollo sells through its insurance business Athene—which are one of its products for individual investors.

To bring in direct-lending borrowers, Apollo is joining with banks. In September, it announced a $25 billion program with Citigroup.

“We complement each other,” says Apollo’s Edson. “We don’t want their client because we can’t sell them any other services. We just want the loan asset. They don’t want the long duration loan asset because it doesn’t fit their liability structure. But they want all the other services.”

Then there are Blue Owl and Ares, the alt-managers most focused on credit. Shares in their management firms trade, respectively, for 29 and 42 times this year’s earnings. Since its founding in 2016, Blue Owl has been one of the fastest-growing private credit managers ever. As of June, it managed $95 billion in credit assets.

Over 25 years, Ares grew the credit assets it managed to nearly $325 billion in June, including the largest publicly traded BDC. Its U.S. senior direct-lending business has averaged 13% net returns, with losses of 0.02%. In May, Ares told investors that it thinks it can grow its credit and equity assets to $750 billion by 2028.

“The power of incumbency is very, very real,” says Ares’ Markowicz. “We’re one of the only large firms that has still kept its hand in the lower end of the market.”

With their steady returns in the low-double-digits, private credit managers think they can replace some of the 40% of portfolios that individuals traditionally put into bonds. To reap those returns, however, investors in private closed-end funds have to lock up their money for years.

There are publicly traded BDCs. But their shares are selling at historically high prices, relative to their net asset values, and at high dividend yield spreads to the 10-year Treasury. In other words, don’t be surprised if BDC shares trend lower in the near term.

But in the long term, the demand for credit still far exceeds the private lenders’ size.

Jamie Dimon may be complaining about private lenders for years to come.

Barron's : Looking for International Exposure? Consider This Vanguard Fund.

Looking for International Exposure? Consider This Vanguard Fund.

With the U.S. stock market trading at generous levels, investors might consider moving some of their portfolio into less heady parts of the market.

International funds, for example. The popular MSCI All Country World Index ex USA foreign stock index—which includes 22 developed and 24 emerging markets—sports a comparatively modest 14.2 price/earnings ratio. The S&P 500 index’s forward 12-month P/E is currently 22.9, about 30% higher than its long-term average.

A fund like Vanguard International Core Stock is a good way not only to play the MSCI benchmark’s diverse international exposure but also to beat it. Though the $2 billion fund is actively managed, its country and sector weightings are similar to those of the benchmark. Yet it has outperformed the index by almost two percentage points annually since its October 2019 inception, having an 8.3% five-year annualized return and also an even lower 13.3 P/E for its portfolio, according to Morningstar.

In the past three years, the fund’s 4.6% annualized return far outpaces the 1.9% average of its Morningstar Foreign Large Blend category, besting 92% of its peer group. Moreover, it has done this with less volatility and less downside risk than its peers, and its 0.48% expense ratio is low for an actively managed fund.

One can credit Vanguard for the low fees, but the outperformance is largely due to the fund’s subadvisor, Wellington Management, which oversees some $1.3 trillion. Co-managers F. Halsey Morris and Anna Lundén have an immense pool of analytical resources they can access to find a small subset of stocks to beat the benchmark while not deviating too much from its sector and country weightings. They can draw on some 60 portfolio managers, 55 global industry analysts, 13 macroeconomic strategists, and 13 quantitative analysts.

Though its sector/country/style weightings are similar to the benchmark, the fund holds only 86 stocks, while the MSCI index holds 2,094. That means the fund’s returns are almost entirely driven by stock-picking instead of sector and country bets. Moreover, even when Morris and Lundén buy a stock, their individual company weighting is typically within 0.5 and 1.75 percentage points of the benchmark’s weighting of that stock, Lundén says.

Currently, “the largest deviation from the benchmark on the sectors in our universe” is about two percentage points, she says. “So we’re not swinging for the fences in terms of our sector allocation. If you look below [the broad sector] level, you’ll see us maybe deviate a little bit more. So, for example, within financials, at different points in time, we might favor the banks more than the insurance companies, or vice versa. But on the whole, the premise is to try to not get caught out by sector rotations or factor rotations.”

Yet Morris and Lundén’s portfolio is by no means static. The fund recently had a 76% turnover ratio, indicating that about three-quarters of its positions shifted in size or changed completely in the past year.

A number of new positions were added to the fund in 2024. This past March, as China was struggling with its economic doldrums, the team picked up HSBC, a British bank that does most of its business in Asia. “The bulk of their business and profitability really hinges on their performance in Hong Kong and other regional Asia markets,” says Morris. “It’s added to our U.K. weight, but really, we think about it as more a play on what’s going to happen in China.”

Unlike state-run banks domiciled in mainland China, HSBC isn’t controlled by China’s onerous regulatory regime. It has a “very solid balance sheet and at its valuation, which was about half tangible book [value], there was really a mispricing there,” Morris says about the purchase’s timing. The bank also “had the capital to get through a tough period.”

In June, the team snapped up some tech stocks, such as Germany’s SAP and Korea’s SK Hynix. At 16% of the fund’s portfolio, tech represents a small overweight over the benchmark’s 14%. According to Morningstar, the fund has a slight overweight to Germany versus its fund category peers at 9.1% of its portfolio, but Lundén points to individual names such as enterprise software maker SAP as the reason, not any bets on Germany’s economy.

“We invested in [SAP] because it’s got a unique position in the software stack for most companies,” Lundén says. “Its [software is] very sticky. Once you’ve got it, you’d rather cut off your arms than try and change things.” The company is also shifting from selling on-premises installed software to more lucrative cloud-based software. “Because of their very sticky position with their customers, they can pretty much force their customers to do this,” she says. “It’s basically a shift that’s going to help the margin profile of the company.”

SK Hynix is a maker of memory chips, which are “largely a commodity product,” Morris says, dependent on cyclical economic demand, but now there’s a shortage. “We invested on the view that the cycle for the next couple of years is really going to be a tailwind, and that we’re still early in that process. On top of the normal supply-demand dynamics...[Hynix has] a product called high-bandwidth memory, which is very well suited for the needs of data centers related to generative AI training.”

Another purchase this June was MatsukiyoCocokara, which runs one of the largest pharmacy chains in Japan. One reason for the purchase, Lundén says, was to shift the fund’s Japan focus from exporters, which had benefited from the weak Japanese yen increasing their sales to foreign countries, to more domestic-oriented businesses, as Japanese consumers now have more money in their pockets to shop because of recent wage inflation.

MatsukiyoCocokara is a stable company with “an opportunity to consolidate a very fragmented [mom and pop pharmacy] market, and they’ve got a strong balance sheet, like many Japanese companies,” she says.

Such subtle portfolio shifts and smart active bets occur while the team still stays within the tight parameters of being a core fund. It’s an impressive balancing act.

Barron's : Investors in EM Bonds Uneasily Await the Outcome of the U.S. Election

Investors in EM Bonds Uneasily Await the Outcome of the U.S. Election

Emerging market bonds issued in dollars have more than held their own as global fixed income sold off over the past month. Local-currency bonds, not so much. Now comes the U.S. election.

Emerging markets have shifted massively toward issuing debt in their own currencies since a series of crises in the 1980s and ’90s. That makes them more stable but leaves $7 trillion or so in bonds extremely vulnerable to the electoral outcome on Nov. 5.

Donald Trump’s promised 10% tariffs on all imports to the U.S. would push exporting countries to weaken their currencies in response. Even the threat could crater bonds priced in those currencies. “Trump would use very hawkish rhetoric over the next few months,” says Arthur Budaghyan, chief emerging markets strategist at BCA Research.

That still leaves more than $1 trillion in emerging market debt issued in dollars, though. Spreads for this subasset class over U.S. Treasuries, investors’ key guidepost, tightened by 0.23%, or 23 basis points, during October, says Cem Karacadag, head of emerging markets sovereign debt at Barings.

Riskier credits outperformed. High-yield sovereigns tightened by 50 basis points as investors gained confidence in the solvency of onetime basket cases such as Argentina, Pakistan, and Sri Lanka.

That reflects markets’ view that “fundamentals are pretty good,” says David Robbins, group managing director for emerging markets at fixed-income specialist TCW. Both the U.S. and Europe still look to be headed for “soft landings,” enabling central banks to cut interest rates even as economies keep growing.

China may perk up as Beijing steps on the stimulus gas. Prices for oil, which most emerging markets import, are dipping again after a blip in early October on Middle East tensions. The more spreads tighten, the harder it is to find value in emerging market bonds. “The bulk of the bull run has happened,” Robbins says.

Investment-grade issuers leave little further upside, Karacadag thinks. “If you’re buying Saudi Arabia, Indonesia, or the Philippines, that’s basically a U.S. Treasury with a little spread on top,” he says.

He is trawling for appreciation in Central American and Caribbean countries including Costa Rica, Guatemala, and the Dominican Republic. They benefit from U.S. economic buoyancy through tourism and remittances without the political complexities of Mexico, he argues.

Robbins favors debt from Turkey and Egypt, where economic policy is improving and regional stress possibly receding. He also likes West African oil producers Angola and Gabon.

Kamakshya Trivedi, head of global FX and emerging markets strategy research at Goldman Sachs, sees value in South Africa, where a new coalition government is “addressing fiscal concerns in a fairly credible fashion.” He’s also bullish on paper from Czechia (the Czech Republic), Hungary, and Poland, whose interest rates may drop to converge with the euro zone.

In sum, “idiosyncratic” is the word of the moment.

A Kamala Harris victory might spur a relief rally in local-currency emerging markets debt. But it would leave a central challenge in place: U.S. economic outperformance that pushes the Federal Reserve, and the dollar, to stay higher for longer. “What’s most important for EM debt is a more balanced global growth picture,” Trivedi says. “China and Europe doing better takes the edge off the dollar.”

One way or another, investors should let some dust settle before making any dramatic moves, says Cathy Hepworth, head of emerging markets debt at PGIM Fixed Income. “It is too early to meaningfully add risk,” she says.