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Sharp deviations have appeared in expected returns of two leveraged funds amid surge in bets

The sheer popularity of betting on the bitcoin-buying juggernaut MicroStrategy has led to rare growing pains in a corner of the $15tn global exchange traded fund industry.

The rapid growth of the ETF sector — with assets surging by 30 per cent in the past year alone — has thus far led to precious few structural problems, with the vast majority of funds working entirely as planned.

However, investors in two US-listed leveraged MicroStrategy ETFs targeting twice the daily return of the white-hot software company — which has raised almost $20bn from investors this year to buy bitcoin — have often received returns markedly at variance from what they might have expected in recent weeks.

On November 21, for instance the T-Rex 2x Long MSTR Daily Target ETF (MSTU) lost 25.3 per cent, according to data from FactSet. As bad as that might sound, the fall was actually 7 percentage points less than it should have been, given that MicroStrategy tumbled more than 16 per cent that day.

While this was a partial reprieve for investors, on other days they have lost out. On November 25, for example, MSTU lost 11.3 per cent, on a day when MicroStrategy only fell 4.4 per cent and MSTU should only have been down by 8.7 per cent, according to FactSet data.

Its rival fund, Defiance ETFs’ Daily Target 2x Long MSTR ETF (MSTX), has also exhibited noticeable tracking error on particular days, the most glaring of these being November 25, when it lost 13.4 per cent — 4.7 percentage points more than it should have.

As the first chart shows, both MSTX and MSTU, which launched in August and September, respectively, tracked their expected returns fairly accurately until mid-November, since when significant tracking error has crept in.

The central issue appears to be the growing size of these ETFs, which have piggybacked on rising enthusiasm for bitcoin since Donald Trump’s presidential election victory.

MicroStrategy is a leveraged play on bitcoin, given the company is the world’s largest corporate owner of bitcoin, with its debt-fuelled $43bn stash of the cryptocurrency helping send its shares spiralling 430 per cent this year.

Enthusiasm for a leveraged play on a leveraged play on a volatile cryptocurrency had led to a flood of buying, with MSTU’s daily assets in the $2bn-$3bn range and MSTX almost as large.

This in turn appears to have exceeded the supply of total return swaps that the ETFs’ prime brokers are willing to offer. These swaps — which involve a broker paying the exact daily return of an asset in return for a fee — offer very precise tracking.

This has led them to also deploy call options — giving the buyer the right to buy an asset at a specified price within a specific period — which do not always track the desired exposure as closely.

Tuttle Capital Management, the adviser and portfolio manager of MSTU, declined to comment, but Sylvia Jablonski, chief executive of Defiance ETFs, told the FT that MSTX had used a combination of swaps and options since launch, utilising “the most efficient product that allows us to achieve our target leverage”.

Jablonski argued that “it is not necessarily the case that options would provide less accurate tracking than swaps”.

Some disagree, though. Elisabeth Kashner, director of global fund analytics at FactSet and a former options trader, said “swaps are preferable: they can be one to one. The greater the volatility the less perfect the options hedge.”

Dave Mazza, chief executive of Roundhill Investments, a rival issuer of ETFs, including a leveraged Magnificent Seven fund and covered call strategies that also utilise derivatives, believed the problems stemmed from the sheer size of MSTU and MSTX.

“This isn’t an ‘ETF’ problem or even a ‘leveraged ETF’ problem — this is a MicroStrategy ETF problem,” Mazza argued.

“The two ETFs indirectly own exposure worth upwards of 10 per cent of MicroStrategy’s market cap, which is something we’ve never seen before in levered ETFs, let alone traditional ETFs.

“Simply put, MicroStrategy is too small a company to accommodate the AUM and trading volume in these products. At this point, these ETFs have already reached the ‘breaking point’.”

Mazza believed the elevated level of risk inherent in a volatile stock such as MicroStrategy was also a factor.

“If a leveraged fund is unable to achieve 2x exposure via swaps, it’s an indication that the trading community views it as a poor risk-reward decision to write additional swap exposure for the fund,” he said.

“Long options are a much less precise tool for achieving exposure, but they are also a tool that doesn’t require a counterparty to take on credit risk to the funds. While this could theoretically happen for any leveraged or inverse ETF, to our knowledge it has not because most are index based or focused on larger securities.”

Kenneth Lamont, principal of research at Morningstar, drew allusions to two previous hiccups in the ETF landscape that also revolved around size. Last year Leverage Shares was unable to generate the full leverage for its popular 3x Tesla ETP for a short period due to an inability to borrow enough money to buy the necessary shares.

Two years earlier, BlackRock had been forced to switch the underlying index for its iShares Global Clean Energy ETF (ICLN) to a broader measure following a surge in assets, forcing it to radically revamp the portfolio.

Lamont said the MicroStrategy-related glitch “is not a case of the wheels falling off, it’s more of a stuttering engine”.

Nevertheless, he added “we would hope it’s incidents like this that would improve products in the future, send out a warning to other players in the industry, and perhaps improve things for everyone”.

If any ETFs in the future run into problems because of their rapid growth, “it means that they were not well built for success”, Lamont added.

Kashner suggested one simple solution to the problem, however: these ETFs could simply close to the creation of new units whenever their swap lines are fully exhausted, even though this is discouraged by the US Securities and Exchange Commission.

“If they had chosen to close to creation they would track perfectly. They would act more like a closed-end fund at that point,” Kashner said, meaning that the share price and net asset value would not necessarily align.

“The fund companies, T-Rex and Defiance, face a choice and it’s a suboptimal choice. They can limit their growth or they can live with the limited accuracy and so far they have chosen to prioritise growth over accuracy,” Kashner added.

Ballooning expenses rewrite the math of homeownership

Soaring costs for home insurance and property taxes are busting homeowners’ budgets.

Insurers have pushed big rate increases because of losses from natural disasters and rising costs to repair homes. Surging home values in recent years, meanwhile, have lifted property taxes for many homeowners.

These ballooning expenses are rewriting the math of homeownership. In September, 32% of the average single-family mortgage payment went to property taxes and home insurance, the highest rate ever for data going back to 2014, according to Intercontinental Exchange.

The analysis is based on borrowers who use escrow accounts to pay their taxes and insurance as part of their monthly mortgage payments.

For a small but increasing share of households, the burden is far more significant. In five major metro areas—Rochester and Syracuse, N.Y.; Omaha, Neb.; New Orleans and Miami—at least a quarter of borrowers spend more than half their monthly mortgage payment on taxes and insurance, according to ICE.

These metro areas have high property taxes or pricey home insurance relative to typical home costs, or both.

Nationwide, taxes and insurance make up more than half of the monthly mortgage payment for 9% of single-family mortgages. That is up from less than 4% at the end of 2014.

Rising taxes and insurance premiums intensify the lack of affordability home buyers already face because of record-high home prices and elevated mortgage rates. Those deterrents have led many home shoppers to give up this year, putting sales of existing homes on pace for their worst year since 1995.

But while mortgage rates fluctuate, climbing property taxes and insurance costs show no sign of reversing.

These costs also pose a growing and often unexpected burden for homeowners, even those who purchased or refinanced when mortgage rates were near historic lows.

Those most at risk are older homeowners on fixed incomes, said Joshua Stewart, director of federal policy and advocacy for Fahe, a network of more than 50 nonprofit housing organizations across six states.

“Even if their mortgage payment went away 10, 15, 20 years ago, they’ve done the math for their retirement based on increases of some kind, but not these massive ones,” Stewart said. “That really eats into their housing burden.”

Some homeowners are questioning their purchases after feeling the pinch of higher costs. When Lisa and Michael Landry bought their New Orleans home in 2015, their property taxes, home insurance and flood insurance cost about $725 a month.

Now they pay $2,448 a month for property taxes and wind and hail insurance. That exceeds the monthly payment for principal and interest on their mortgage, which has a fixed 3.5% rate. They pay another $2,000 a year for flood insurance and home insurance for other perils.

They can afford the rising costs as long as he is working, but they will likely need to move once Michael Landry, who is 70, retires.

“Had I known what I know today, we would not have moved here,” he said.

An increase in home-insurance premiums makes it more likely that a borrower will fall behind on mortgage payments, according to a recent working paper by researchers at New York University, Rice University and the Federal Reserve Bank of Dallas.

The jump in home-insurance premiums between mid-2022 and mid-2023 led to an additional 149,000 mortgages becoming delinquent than would otherwise have happened, said Stephanie Johnson, an assistant professor of finance at Rice and one of the paper’s authors.

Janet Raggi, who is retired, said she is selling her home in Bradenton, Fla., because her property tax, home insurance and homeowners’ association costs have all risen since she moved in four years ago.

But the three-bedroom house has sat on the market for more than a year. Raggi said the high mortgage rates and recent hurricanes in Florida have deterred buyers.

Raggi wants to move back to Nevada for a lower cost of living. “We got a great house for a great price with great interest rates, and now that’s all turned on its head,” she said. “I’m looking to get out.”

Homeowners with mortgages are typically required to purchase home insurance, but some without mortgages are opting to go without, especially in places where costs have risen sharply. While that could save them money, it could also make it prohibitively expensive to rebuild if their homes are damaged by natural disasters.

About 6.8% of homeowners reported going without home insurance in 2023, down from 7.4% in 2021, according to an analysis of Census Bureau data by Sharon Cornelissen, director of housing at the Consumer Federation of America.

But the proportion of uninsured owners rose in some major metro areas, especially in Miami, where 21.2% of homeowners went without home insurance in 2023, up from 14.5% in 2021.

Home prices currently hover around all-time highs, but rising property tax and insurance premiums could eventually translate to lower prices in some areas, said Andy Walden, Intercontinental Exchange’s vice president of research and analysis.

“It creates an environment where you have less of your budget” to spend on the mortgage itself, he said. “That drives down the price that people are willing to pay.

Homeowners who bought in the past two years at higher mortgage rates might already be stretched thin in terms of what they can afford, Walden said. Those borrowers likely plan to refinance if rates go down, but they might not be able to qualify for a new loan if their tax or insurance costs have risen significantly, he said.

Christopher Moynihan got a pay raise last year when he moved with his family from Utah to Nebraska to take a new job. Nearly the entire increase has been eaten up by higher expenses, he said.

Their current mortgage rate is more than double the rate they had on their prior home, and property taxes and home insurance account for 34% of their new mortgage payment.

“It was kind of a bitter pill to swallow,” he said.

One crew member airlifted to a hospital in Graz by helicopter

An Airbus AIR -0.57%decrease; red down pointing triangle jet operated by Swiss International Air Lines made an emergency landing in Austria due to engine problems and smoke in the cabin and cockpit, the airline said.

Flight LX1885, a narrow-body Airbus A220-300 flying from Bucharest to Zurich with 74 passengers and five crew members onboard, diverted to Graz after experiencing engine issues and smoke, the Lufthansa Group LHA -0.19%decrease; red down pointing triangle subsidiary said late Monday.

One crew member was airlifted to a hospital in Graz by helicopter, while the remaining four crew members received medical care. Twelve passengers were also treated for medical issues, the airline said.

Swiss stated that it is in close contact with authorities and is working to determine the cause of the incident. The aircraft has been removed from the runway, the airline added.

Saks Finalizes $2.7 Billion Deal to Buy the Neiman Marcus Group

The deal creates a luxury retail empire in the U.S. and also raises questions over possible consolidations, executive changes and relationships with vendors.

A new luxury retail empire has been created.

Late Monday afternoon, Saks Global disclosed that it has finalized its acquisition of Neiman Marcus Group for a total enterprise value of $2.7 billion, as has been expected. The agreement by Saks to buy the Neiman Marcus Group was revealed in July 2024.

Saks Global now includes Neiman Marcus, Bergdorf Goodman, Saks Fifth Avenue and Saks Off 5th, and represents a total volume of approximately $10 billion.

Richard Baker, executive chairman of Saks Global, said in a statement, “This milestone transaction marks a transformative moment for Saks Global and the luxury retail industry. By uniting Neiman Marcus, Bergdorf Goodman and Saks Fifth Avenue, we have created an unparalleled multibrand luxury portfolio with tremendous growth potential. With data and innovation at our core and a portfolio of prime real estate, we aim to redefine the luxury shopping experience.”

Along with the announcement of the closing, Saks disclosed several fundamental changes in how Saks Global will operate and integrate the Neiman Marcus Group, as well as a flurry of executive changes at the top rungs of the enterprise and executive departures.

Saks and Neiman Marcus will be managed by one team, whereas Bergdorf Goodman will be managed separately, according to Marc Metrick, who takes on the role of chief executive officer of the Saks Global Operating Group.

Also, Ian Putnam will serve as CEO of Saks Global Properties & Investments. Both Metrick and Putnam will report to Baker.

Emily Essner, forrmerly chief marketing officer at Saks, has been promoted to a new role – president and chief commercial officer, in which she will oversee the merchandising, marketing, commercial analytics and e-commerce for Saks and Neiman Marcus. “She’s got all things consumer related,” Metrick told WWD in an interview Monday evening. “Her team will be supporting the Saks and Neiman’s stores and websites.”

Tracy Margolies, who was chief merchandising officer for Saks, has been appointed president of Bergdorf Goodman. She succeeds Darcy Penick. Margolies, who before joining Saks worked at Bergdorf’s, has been “a key partner of mine,” Metrick said. “Tracy’s deep expertise and track record of leading results-driven strategies will propel Bergdorf Goodman into the future while honoring its unique legacy. I am confident she is the right person to lead this storied business’ next chapter and look forward to what Bergdorf Goodman will accomplish under her leadership.

“We are going to do things very differently,” Metrick added. “You will not see some of the same traditional roles, like chief merchant. Saks Global plans to break the mold in how we go to market and how its business runs.”

Metrick also underscored that Saks Global will adopt AI “in the right places for greater personalization and to maximize the customer experience.”

Others leaving Neiman’s as a result of the acquisition include Geoffroy van Raemdonck, NMG’s CEO; Ryan Ross, president of Neiman’s and head of NMG customer insights; Lana Todorovich, chief merchandising officer at Neiman’s, and Katie Anderson, NMG’s chief financial officer.

“The big takeaway first is that we believe there is a ton of talent at Neiman Marcus Group,” Metrick said. “When we get into the integration as we move forward, there will be a lot of cross pollination between the companies.”

He pointed out that Bill Bine, NMG’s former chief supply chain officer, will fill the new role of chief transformation officer of Saks Global. “A highly strategic, results-oriented executive, Bill’s significant experience leading large-scale business transformation and operations in retail will be instrumental to our integration journey,” said Metrick.

Also, some changes in how the deal to buy Neiman’s ended up being structured were disclosed. Sources had said that Baker was rushing to button down financing for the deal, even within the last few weeks. Part of the issue was the high interest rate being charged on the initial loans Baker was being provided in the deal – sources said it was initially set at 11 percent and with interest rates coming down he was anxious about finding cheaper financing.

Earlier this month, Saks issued a $2.2 billion bond, replacing the higher rate financing that would have come from private equity giant Apollo. But Amazon and Salesforce continue as investors, along with Authentic Brands Group as well as G-III Apparel Group, which more recently came in as investors. Saks did not specify how much each of the four companies contributed.

Saks, for several seasons now, has been delinquent on payments to many vendors. But Metrick told WWD that the transaction “recapitalizes the company and puts us in a much better cash position and much better position operating the business.”

Metrick also said that starting in January, “We will begin the process to work through the delayed payments. It will begin the first week of January. That’s when the process starts.”

Sources said Saks in some cases is months behind in payments and that in many instances major vendors would ship merchandise to the retailer only if they received some payment, or payment up front. While most of the leading luxury brands operate at Saks under concessions, other companies in fashion and beauty were facing pressure. Some beauty companies declined to ship to Saks stores, only agreeing to ship to orders from Saks.com.

In his memo to the team on Monday, a copy of which was obtained by WWD, Baker wrote: “I’m pleased to share that with the closing of the transaction, Saks Global has greater financial stability with less leverage and a newly-funded revolving line of credit, providing significant levels of available liquidity. This financial structure enables us to make investments to better serve our customers and be a better partner to our vendors.

“With the closing of the NMG transaction, HBC’s Canadian business has been recapitalized as a standalone entity, separate from Saks Global, with significantly reduced leverage,” Baker wrote. “HBC will continue to operate Hudson’s Bay stores and TheBay.com, as well as continue to own or lease a 2 billion (Canadian) dollar real estate portfolio, either entirely or with its joint venture partner, RioCan Real Estate Investment Trust. With a new financial structure, HBC’s Canadian business will be set to execute on its business plan and best serve its loyal Canadian customers.”

Metrick also issued a memo, a copy of which was obtained by WWD, in which he wrote, “Bringing these iconic brands together is a significant step forward for luxury retail. As one company, we have an opportunity to transform the way we serve consumers, blending art and science to ensure each customer’s experience is unmistakably their own. With deep relationships across the industry, cutting-edge personalization and strategic technology partnerships, we are poised to drive innovation and growth. I look forward to working with the many talented leaders and employees from NMG and across Saks Global as we embark upon our journey to bring these businesses together.”

While the deal creates a luxury retail empire in America, it raises various questions about potential consolidations involving functions, stores and personnel. Asked about consolidations, Metrick replied, “This is about transformation, not consolidation. It’s about growth…There are redundant functions that are going to be rationalized. It will be a process we go through over time.”

As previously reported, Saks plans to close its store on Worth Avenue in Palm Beach, Fla., next year, and is closely reviewing the Saks and Neiman Marcus store fleets.

Other Neiman’s executives departing the business are Eric Severson, chief people, ESG and belonging officer; Ann Marie Janke, chief technology and information officer; Tiffin Jernstedt, chief communications officer, and Tom Mattei, chief legal officer, corporate secretary, chief compliance officer.

In January, Metrick is scheduled to host a Saks Global town hall for the newly combined organization. Details will be revealed soon.

Under the combined organization, Metrick has 11 senior officials reporting to him, including Bine, Margolies, and Essner as well as Kim Miller, president of Saks Off 5th; Rob Brooks, chief operating officer; Larry Bruce, president of stores for Saks and Neiman’s; Sarah Garber, chief people officer; Sarah Garber, chief people officer; Mike Hite, chief technology officer; Caroline McMurray, vice president of strategy; Jeff Pedersen, chief financial officer, and Andrew Woodworth, chief legal officer.

The Seattle-based retailer revealed that the Nordstrom family and Liverpool will acquire the company shares they do not already own.

Nordstrom Inc. is going private.

As expected, the Seattle-based retailer said Monday that it signed a definitive agreement under which the Nordstrom family and Mexican retailer El Puerto de Liverpool will acquire all of the outstanding shares of Nordstrom not beneficially owned by the Nordstrom family and Liverpool. It’s an all-cash transaction with an enterprise value of about $6.25 billion.

The announcement confirms a Dec. 18 report in WWD that the deal was imminent.

Nordstrom common shareholders will receive $24.25 in cash for each share of common stock they hold. The deal represents a premium of about 42 percent to the company’s unaffected closing stock price on March 18, which was the last trading day prior to media speculation about the potential transaction.

Nordstrom’s board has approved the buyout. Nordstrom Inc. is led by brothers Erik and Pete, chief executive officer, and president and chief brand officer, respectively, as well as their cousin Jamie, who serves as chief merchandising officer.

“For over a century, Nordstrom has operated with a foundational principle of helping customers feel good and look their best,” said Erik, in a statement. “Today marks an exciting new chapter for the business. On behalf of my family, we look forward to working with our teams to ensure Nordstrom thrives long into the future.”

“We’re grateful to the employees, customers and shareholders who have shaped Nordstrom into the company it is today,” Pete said in a statement. “Since our founding in 1901, we have been committed to providing our customers with the best possible service — and to improving it every day. We look forward to building on that commitment in this next phase of the company’s evolution.”

“Nordstrom is one of the worldwide leaders in department store retailing, and we’re thrilled to be investing in a company that has meaningfully shaped the industry for nearly 125 years,” said Graciano F. Guichard G., executive chairman of the board of directors of Liverpool. “We are honored to partner with the Nordstrom family and the company’s talented team as they continue to deliver outstanding service to customers.”

The board approved the deal upon the recommendation of a special committee of independent directors that conducted a review of the transaction proposal submitted earlier this year. The transaction is expected to close in the first half of 2025, subject to regulatory and other conditions, including approval of holders of two-thirds of the company’s common stock and the holders of a majority of the shares of the company not owned by the Nordstrom family or Liverpool or their respective affiliates and the company’s directors, and Section 16 company officers who are those required to disclose their beneficial ownership of the company’s equity.

The transaction will be financed through a combination of rollover equity by the Nordstrom family and Liverpool, cash commitments by Liverpool, up to $450 million in borrowings under a new $1.2 billion ABL (asset-based lending) bank financing, and company cash on hand. The company’s $2.7 billion principal amount of existing senior notes and debentures are expected to remain outstanding following the transaction. Following the closing of the transaction, Nordstrom will be 50.1 percent owned by the Nordstrom family and 49.9 owned by Liverpool.

“The special committee of the Nordstrom board of directors reviewed this proposal against the company’s stand-alone prospects for growth,” said Eric Sprunk, chairman of the special committee, in a statement Monday. Sprunk said the deal offers “greater value for all public shareholders at a significant premium to the unaffected share price.”

Also, common shareholders will receive a special dividend of up to $0.25 per share based on cash on hand at the close of the transaction. Nordstrom stock closed Friday at $24.53.

The third generation is taking the helm as Michael Chalhoub has been named chief executive officer of the Middle East luxury giant; Patrick Chalhoub will become executive chairman, effective Jan. 1.

DUBAI — Chalhoub Group has revealed that Michael Chalhoub, 37, will take over as chief executive officer from his father, Patrick Chalhoub, effective Jan. 1. The transition represents a pivotal moment for one of the Middle East‘s biggest luxury retail groups as Patrick moves into the role of executive chairman after more than two decades of leading the company.

Chalhoub Group manages a network of 773 retail stores and 65-plus e-commerce platforms, with more than 16,000 employees across the Middle East and North Africa. The company serves as the regional distribution and joint venture partner for hundreds of global fashion, luxury and beauty brands including a portfolio of LVMH Moët Hennessy Louis Vuitton labels: Louis Vuitton, Christian Dior, Fendi, Celine and Sephora. In addition, the group is the regional partner of Puig, Christian Louboutin, Versace, Jimmy Choo and Jacquemus, among others.

This transition marks a new chapter for the luxury retail and distribution group, which has been led by the Chalhoub family for 70 years. In an exclusive joint interview with WWD ahead of the handover, father and son shared their vision for what lies ahead for the family-owned company.

Patrick — who has served as CEO for more than two decades, succeeding his own father Michel Chalhoub, who founded the business — has been preparing for this moment for several years. The group set in place a rigorous succession planning process with an internal and external search, which included nonfamily members. “I’ve always said I wanted this moment to come between my 65th and 67th birthdays. Now I am turning 67, so we are on track,” he said.

“There is a cycle in the lifetime of a business plan — the period where you learn, the period where you do and the period where you teach,” Patrick explained. “I wanted to make sure that I could control the period when I let go, to ensure an efficient and well-planned transition.”

He emphasized the importance of an “orderly transmission” of leadership, ensuring a smooth handover to the next generation. The planning process involved restructuring the company’s advisory board, transitioning longtime employees into nonoperational roles, and building a younger, more collaborative executive committee. “It all began three years ago when we started changing our board, who were ultimately in charge of taking the decision on who the new CEO would be,” Patrick said.

He went on to explain that it wasn’t a presumption the role of CEO would be given to a family member; in fact, the fact group went through a systematic process to ensure it had the right candidate and the roles and responsibilities were clearly defined. “We worked with a headhunting company on the process to recruit, on how we define the role of the executive chairman, the role of the CEO,” he explained.

He added the board considered 21 internal as well as external candidates, who went through several rounds of reviews.

“This process was so very important and reassuring for both the group, for the family and for Michael himself,” Patrick said.

The succession comes after Michael’s four-year tenure as head of joint ventures for the group as well as president of strategy, growth, innovation and investment. He successfully expanded the group’s portfolio, adding new key category partnerships like EssilorLuxottica while driving digital transformation and innovation initiatives.

“Taking on the management of our joint ventures was a way for me to directly address one of the key priorities that was keeping my father up at night,” said Michael, who explained he worked within the company in two different periods of his professional life, the first time running Michael Kors in the region. At the time he said he left because he didn’t “always see eye to eye” with the top management, including his father.

When he rejoined the group in 2020, he said: “I focused on streamlining and strengthening critical partnerships, and I think I was able to demonstrate my ability to navigate the complexities of the luxury landscape and create value for our business.”

Michael, who holds an MBA from Harvard Business School and also successfully launched his own sports media business in Dubai, brings a forward-thinking approach to his new role as CEO. While he aims to pioneer change and future proof the business, he acknowledged the legacy created by his father and grandfather.

“I feel incredibly lucky to be in this position, and I’m humbled by the responsibility that comes with it,” he said. “My focus will be on continuing to create value for our consumers, partners and employees, while also driving innovation and fostering a collaborative, inclusive culture.”

When asked if he grew up thinking he might be fit for this role some day, the younger Chalhoub replied: “I did think that there was a probability that I would try to succeed Patrick. Obviously, this business has stayed led by a family member for the last 70 years. And so it would be deaf for me not to think that there was a chance that this would happen.”

The Chalhoub Group’s story began when Patrick’s parents, Michel and Widad Chalhoub, established their first venture in Damascus, Syria, in 1955 after securing the first regional distribution rights for Christofle, which is now owned by Chalhoub Group. This first partnership laid the foundation for what would become the Middle East’s premier luxury retail and distribution group.

As political tensions rose in Syria in the 1960s, Michel demonstrated the resilience that would become a hallmark of the family business, relocating operations to Lebanon in 1965 and later to Kuwait in 1975 following the outbreak of civil war in Lebanon. The company’s ability to adapt and thrive during challenging times became part of its DNA, embodied in Michel’s oft-quoted philosophy: “We are des battants, fighters. The enemy is not competition, hard times or new ways…what we fight against every day is complacency.”

Patrick’s journey with the company has mirrored the group’s own evolution across the Middle East. After relocating through Beirut and Kuwait, he joined the family business in 1979, eventually settling in Dubai in the early 1990s. In 2001, he was appointed co-CEO alongside his late brother Anthony, marking the beginning of an era of unprecedented expansion for the group.

Under Patrick’s stewardship, what began as a regional distribution business has evolved into the Middle East’s leading luxury retail and distribution group. The company has built an extensive portfolio of joint ventures with the world’s leading luxury houses across fashion, accessories, watches, jewelry, eyewear and home categories. This expansion extended the group’s footprint beyond the traditional Gulf markets of the UAE, Kuwait, Saudi Arabia, Qatar and Bahrain into countries like Egypt and Jordan.

The handover comes at a pivotal time for Chalhoub Group, which continues to adapt to rapid changes in retail. Michael shared he would like to further expand into new markets and territories like Latin America and the U.S. The group has invested heavily in digital transformation, creating an omnichannel experience across its large network of stores and online platforms. Their future-focused approach includes investments in retail tech, data analytics, and innovative retail concepts through their Greenhouse incubator program.

In his new role as executive chairman, Patrick will focus on long-term strategic partnerships and guiding the group to thrive sustainably in an evolving regional and global landscape. He will continue to oversee the company’s sustainability and ethics initiatives, as well as the audit function, ensuring the organization maintains its vision and mission while upholding its foundational values. The company has made significant strides in sustainability and inclusion, with women comprising 61 percent of its workforce and 41 percent of management positions and is on track in its commitment to reach net zero emissions by 2040.

Additionally, Patrick will serve as the interface between the board and the executive team, providing guidance and support without being involved in day-to-day operations. “It’s important that we build trust and not try to prove ourselves by doing the opposite of what the CEO is doing,” Patrick said. “My role will be to support Michael, while allowing him and his team to lead the business.”

Michael is committed to creating a collaborative culture at the company as its new leader. “One of my biggest achievements even in the last few years is fostering a culture of innovation by building an inclusive culture around me where people are not afraid to speak their mind, to debate, to share some of their experiences,” he said. “I value surrounding myself with people that have incredibly diverse backgrounds, whether it’s the industry they come from, years of experience, gender. There is a lot more diversity, and those people are not just there to say yes, but they’re there to share their mind, and to have very heterogeneous conversations when we’re in the boardroom.”

As Patrick steps away from daily operations, he acknowledged feeling very comfortable in the carefully executed succession plan that ensures continuity as the company evolves, while staying true to its family values and heritage.

“I really feel very relaxed and very content in the way things have been done.”

He also shared he is looking forward to the road ahead. “In February I’m taking a course related to sustainability at Stanford, which I’m very much looking forward to having the time to do,” to which Michael responded with surprise, laughing: “Oh, that’s the first I’m hearing of this.”

“We’re not getting rid of you, Patrick,” Michael joked, acknowledging the guidance and support his father will continue to provide.