>>> What to look at today - 3rd of July 2024

Asian stocks rose, tracking a record S&P 500 close, on optimism of US rate cuts after Federal Reserve Chair Jerome Powell said inflation is getting back on a downward path. The MSCI AC Asia Pacific Index headed for its longest stretch of gains since May. Japanese equities also rose, with the benchmarks now around 1% from their record highs. Singaporean stocks led among major Asian markets in gains, on the strength of banking shares.  Contracts for the S&P 500 edged lower after the benchmark closed above 5,500 for the first time, the gauge’s 32nd record this year. Tesla Inc. surged 10% to lead gains in megacaps, helping the Nasdaq 100 close above the 20,000 mark for the first time. The new record high close in the S&P 500 and Nasdaq “could also be taken as another win given the psychological significance that ‘round numbers’ hold,” said Chris Weston, head of research at Pepperstone Group in Melbourne. “Asia too will take some inspiration, not just from the net change in US markets, but because it wasn’t just tech that has propped up the respective indices, and we’ve seen somewhat better breadth and participation.” In other markets, Australia’s three-year bond yield extended its rise after better-than-expected retail sales data reinforced the case for an interest-rate hike.   Investors are looking to US initial jobless claims and ADP employment data due Wednesday to gain more clues on the policy outlook. Fed Chair Powell acknowledged the central bank has made “quite a bit of progress” in reducing inflation but emphasized officials need more evidence before lowering interest rates. In China, services activity expanded at the slowest pace in eight months in June, a private gauge showed, a slowdown that may add to worries over the economy’s outlook. Stocks in Hong Kong gained, while those on the mainland fell. In the US, equities keep defying doomsayers amid solid corporate earnings, the artificial-intelligence mania and expectations that interest rates will drop, adding more than $16 trillion to the S&P 500’s value from a closing low on October 2022. A lack of any meaningful pullback has given bulls conviction that the rally is sustainable. On the economic front, data Tuesday showed US job openings unexpectedly rose, interrupting a trend that underscored a slowdown in labor seen as key for Fed easing.  While the US market will close early on Wednesday due to Thursday’s July 4 holiday, investors are also gearing up for the all-important US payrolls reading due Friday. Economists expect the report to show employers added about 190,000 payrolls in June and the unemployment rate likely held at 4%. Elsewhere, oil steadied around a two-month high, while the Bloomberg Dollar Spot Index and Treasury yields were little changed. US After Hours Quiet after hours session; CDMO +4.5% higher on earnings; SLP -7.8% lower on earnings; RPAY -10.9% lower on convertible offering.

Nikkei +1.44% Hang Seng +1.03% CSI -0.21% Shanghai -0.46% Shenzen -0.50%

Eur$ 1.0745 CNH 7.3093 CNY 7.2734 JPY 161.62 GBP 1.2686 CHF 0.9042 RUB 87.8195 TRY 32.5350 WTI$ 83.23 +0.51% Gold 2,333 +0.12% BTC 60,810 -1.80% ETH 3,350 -1.91%

S&P -0.11% Nasdaq -0.05% EuroStoxx +0.67% FTSE +0.43% Dax +0.47% SMI +0.43%

Macro :
- Citadel and Millennium Extend YTD Gains in June: Financials Wrap
- Brevan Cuts Fees for Biggest Fund to Make Up for High Costs
- Powerful Storm Beryl Aims at Jamaica After Grenada Strike
- Russian hydropower major RusHydro cancels dividends

Keep an eye on :
- AAL LN : Anglo Considers Options to Sell Coal Assets After Australia Fire
- AAPL US : Apple Set to Get OpenAI Board Observer Role as Part of AI Pact
- AKERBP NO : Aker BP Narrows FY Avg Production Forecast
- PRO IM : Barents Re in Exclusive Talks to Buy Banca Profilo, MF Reports
- BAS GY : BASF Pulls Plug on Potential Chile Investments Amid Lithium Rout
- BNP FP : European Banks' €1.6 Trillion CRE Loans Threaten 2Q Provisioning
- BPOST BB : Bpost FY Adjusted Ebit Forecast Misses Estimates
- BUR LN : Burford Rises as Jefferies Calls Sundance Settlement ‘Good News’
- CAP FP : Capgemini expands footprint in Chennai with new 5,000-seat facility
- DBHAN GY : Deutsche Bahn struggles to shake off ‘travel hell’ reputation
- DTZ GY : Deutz Offers Up to 12.6m Shares via Commerzbank, MM Warburg
- DIS US : Bay, Iger Near Angel City FC Deal at $300m Valuation: Semafor
- DOFG NO : Dof Group Offering of 10.7m Shares Prices at NOK99/Share
- ENGI FP : Engie to Support Operations & Expansion of Google in Belgium
- ERF FP : Eurofins Provides Detailed Response to Muddy Waters Allegations
- GLJ GY : Grenke 2Q Leasing New Business Volume EU790.3M
- GRF SM : Grifols Holding Scranton, Oaktree in Credit Talks: Confidencial
- LLY US : Lilly Wins FDA Approval for New Drug to Slow Alzheimer’s Disease
- LOGN SW : Logitech's Board Changes Won't Dent Gender Diversity Lead: React
- MC FP : LVMH Names Alessandro Valenti CEO of Givenchy
- MAERSKB DC : DOF Group in Pact to Buy Maersk Supply Service for $1.112b
- MERY US : Mercialys to Sell Four Hypermarkets to Consortium for €117.5m
- NKR NO : Nekkar to Buy 67% of Globetech for NOK79m Cash, Shares
- NORBT NO : Norbit Offering of 2.6m Shares Prices at NOK77/Share
- NDX1 GY : Nordex Receives Orders for 245 MW From France, Turkey
- NOVOB DC : Novo, Lilly Slide After Biden Calls for Cheaper Obesity Drugs
- PARA US : Skydance Media Is Said to Reach Paramount Merger Agreement
- RIO LN : Sovereign Metals Says Rio Tinto Increases Stake to 19.76%
- SAN FP : Sanofi’s Dupixent Wins Clearance in Europe for Lung Disorder
- SKAB SS : Skanska Gets US Order for About SEK1b
- STLA IM : BYD Plays Winning Hand in China EV Market With Hybrid Models
- TTE FP : TotalEnergies to Quit South African Offshore Gas Finds (Correct)
- TUI1 GY : TUI Offering by Holder Prices at EU6.30/Share
- VOW GY : VOLKSWAGEN OF AMERICA 2Q VEHICLE SALES ROSE 31%
- VOW GY : Germany to Block Sale of VW Unit to Chinese Company: Reuters
- VU FP : Blakemore Retail to Deploy VusionGroup Solutions in Stores
- ZAG AV : Zumtobel FY Ebit Meets Est., Proposes €0.25/Share Dividend (1)

>>> Europe : Brokers Upgrades & Downgrades - 3rd of July 2024

>>> Up
* Alcoa PT Raised to $39 from $31 at B Riley(Earlier)
* Athens International Airport Raised to Overweight at Barclays
* Balder Raised to Buy at ABG; PT 90 kronor
* BE Semiconductor PT Raised to 190 euros at Morgan Stanley
* Diageo Raised to Buy at Citi; PT 3,000 pence
* L'Oreal Raised to Sector Perform at RBC; PT 410 euros
* Nyfosa Raised to Buy at ABG; PT 120 kronor

>>> Down
* 3i Cut to Equal-Weight at Morgan Stanley; PT 3,192 pence
* Castellum Cut to Hold at ABG; PT 140 kronor
* Concentric Cut to Hold at SEB Equities; PT 198 kronor
* JD Sports Cut to Underweight at Barclays; PT 110 pence
* Sinch Cut to Sell at Goldman; PT 22 kronor
* Spirit Aero Cut to Neutral at Citi; PT $37.25
* Spirit Aero Cut to Equal-Weight at Barclays; PT $37
* Tele2 Cut to Neutral at Redburn; PT 108.50 kronor
* Tesla Cut to Hold at Punto Casa de Bolsa; PT $192.88

>>> Initiation
* Andritz Rated New Equal-Weight at Barclays; PT 61 euros
* ASMI Rated New Buy at Stifel; PT 800 euros
* Eni Resumed Equal-Weight at Morgan Stanley
* Kooth Rated New Buy at Berenberg; PT 590 pence
* Nvidia Rated New Buy at SPDB Intl HK; PT $147.60
* Papoutsanis Rated New Sponsored at Euroxx Securities
* Qualcomm Rated New Buy at SPDB Intl HK; PT $240.70
* Rheinmetall Rated New Overweight at Morgan Stanley; PT 636 euros
* Valmet Rated New Underweight at Barclays; PT 19 euros

>>> Call
* Balder, Nyfosa Upgraded to Buy at ABG, Castellum Cut to Hold
* Diageo Reaching Inflection Point, Upgraded to Buy at Citi
* JD Sports Gets Only Sell as Barclays Cuts on Nike Exposure
* L’Oreal’s Continued Volume Growth Spurs an Upgrade From RBC
* Rheinmetall at Good Entry Point, Morgan Stanley is Overweight

The Information : Runway, an AI Video Startup, in Talks With General Atlantic fo

Runway, an AI Video Startup, in Talks With General Atlantic for $4 Billion–Valuation Fundraise

The Takeaway
• Runway in talks to raise $450 million
• Investment would deepen funding lead on other AI video startups
• New York startup faces heightened rivalry with OpenAI, Google’s Veo

Runway, already the best funded among a cluster of startups developing artificial intelligence software to generate videos for Hollywood and more amateur filmmakers, is trying to strengthen that lead with a new round of financing.

The firm is in talks with investors to raise $450 million at about a $4 billion valuation, according to a person involved in the deal and a person who spoke with Runway executives. General Atlantic, a New York private equity and growth-stage investor, is in talks to lead the round, said the person involved in the deal.

Runway has previously raised more than $230 million and was most recently valued at $1.5 billion in June 2023. It wasn’t clear if the new $4 billion valuation that Runway is targeting includes the new capital. Spokespeople for the company and General Atlantic declined to comment.

The potential fundraise, which would nearly triple the amount of capital Runway has raised, reflects growing investor excitement about AI’s potential to revolutionize the entertainment industry.

Runway sells subscriptions that grant a specified number of credits per month to users of its software, which produces images and movies from text prompts. It was generating around $25 million in annual recurring revenue at the end of last year, said the person involved in the deal. That’s up from the several million dollars a year it was making six months prior, The Information previously reported. It’s still a far cry from the billions in revenue older AI firms like OpenAI are generating, though.

Runway’s revenue rate also makes the deal relatively expensive, even among typically high-priced AI deals. The $4 billion valuation implies that investors value the startup at about 160 times its end-of-2023 ARR, or the subscription revenue it expected to make over the next 12 months.

Such a multiple is significantly higher than those of other in-demand AI startups, which have been raising at 50 to 100 times their forward revenue in recent months. (Usually investors price startup investments based on future revenue, a figure that couldn’t be learned for Runway.)

The New York–based startup, founded in 2018 by three New York University graduates, is facing increasing competition from venture capital–backed upstarts like Pika, Genmo and Luma AI, as well as from OpenAI itself. Earlier this year, the ChatGPT maker announced its video-generation model Sora to much fanfare, and it has reportedly been in talks with Hollywood studios, though it has yet to make the software publicly available. Google also offers a video-generation model called Veo.

The 86-person Runway has tried to stand out by positioning itself mainly as a tool for businesses and professionals rather than as a consumer app. The recent funding discussions follow the release of Gen-3 Alpha, its latest video-generating model, which Runway says is easier for users to control and faster than previous versions. Runway has tried to ease filmmakers’ concerns that AI will eliminate jobs by hosting in-person festivals for films made using its AI.

Runway in June 2023 raised $141 million from investors including Google, Nvidia and Salesforce Ventures. General Atlantic has previously backed tech companies including ByteDance, Alibaba and Facebook.

FT : Why the ECB is more focused on risks than recovery

Why the ECB is more focused on risks than recovery
Also in this newsletter: why von der Leyen is glued to her phone at the moment


Frank Sintra
At this week’s annual conference of the European Central Bank in Sintra, president Christine Lagarde played golf with US Federal Reserve chair Jay Powell and the governors of the German and Canadian central banks. Canada’s Tiff Macklem won thanks to his long drive but Powell gave him a good run; Lagarde was surprisingly sharp around the greens.

And the chatter at the luxury resort in the south of Portugal was not just about the hazards on the golf course — ECB officials were clear about the many risks that lurk on the horizon, writes Martin Arnold.

Context: Eurozone inflation fell from 2.6 per cent in May to 2.5 per cent, data from Eurostat showed yesterday, supporting the ECB decision to cut interest rates last month based on forecasts that price growth will fall to its 2 per cent target next year.

The Eurozone economy expanded 0.3 per cent in the first quarter — ending almost a year of stagnation — and unemployment remained at an all-time low of 6.4 per cent in May.

One of the biggest risks looming is that the world economy is heading for a period of protectionism, especially if Donald Trump wins November’s US presidential election.

Goldman Sachs chief economist Jan Hatzius gave a presentation spelling out how Trump’s promise to increase tariffs on imports from the EU by 10 per cent would hit the Eurozone economy disproportionately hard — predicting it would knock 1 per cent off GDP in the bloc, while shaving only 0.1 per cent off US GDP.

Another worry for Eurozone rate-setters is fiscal policy, particularly the risk that the French election produces a far-right government which embarks on a spending spree that puts it on a collision course with investors, destroys credibility in the EU’s recently revamped fiscal rules and pushes up inflation.

“Fiscal matters enormously,” ECB president Christine Lagarde told delegates yesterday, adding that rate-setters were “very concerned” about the need for governments to bring their deficits in line with the EU’s 3 per cent limit.

The final worry is that inflation is yet to be completely tamed because wages are still rising at about 5 per cent a year, pushing up costs for labour intensive services companies that are passing this on to consumers via higher prices.

“We have to look what is behind it, which is a lot of labour costs,” Lagarde said.

WWD : Richemont Names New CEOs for Top Brands Cartier and Van Cleef & Arpels

Richemont Names New CEOs for Top Brands Cartier and Van Cleef & Arpels
In a rapid-fire series of internal appointments, Richemont has named Louis Ferla CEO of Cartier, and has tapped Catherine Rénier for the top job at Van Cleef & Arpels.

LONDON — In a day that will go down in the fine jewelry history books, Richemont has made a rapid-fire series of top management appointments, naming Louis Ferla chief executive officer of Cartier and Catherine Rénier CEO of Van Cleef & Arpels.

Richemont revealed the two key appointments within hours of each other on Tuesday. Both managers are current Richemont executives, and will take up their positions at two of the group’s biggest and most profitable brands on Sept. 1.

Ferla, who is currently head of Vacheron Constantin, will take over from Cyrille Vigneron as CEO of Cartier. Rénier, currently CEO of Jaeger-LeCoultre, will succeed Nicolas Bos, now Richemont’s CEO, as head of Van Cleef & Arpels.

Vigneron, 63, is retiring after eight years at the helm of Richemont’s biggest brand, and will assume the position of chairman of Cartier culture and philanthropy. He’ll also work with Ferla on the management transition.

The exiting Cartier leader is a busy man. He also assumed the role of chairman of the Watches and Wonders Geneva Foundation on Monday.

The appointments come in a year of management change for Richemont, whose chairman and founder Johann Rupert has been succession planning as a generation of top managers reaches retirement age.

In May, Richemont revealed that Bos would take over as CEO, and talked about the reasoning behind the changes.

“People tend to stay a very long time, and we have loyalty up and down. Then, you suddenly get to a situation where you look at your senior executives and they’re roughly approaching retirement age. So we have to ask ourselves how to prepare for succession and how to ensure that smooth transitions take place,” he said.

At Richemont, employees tend to retire between the ages of 63 and 65, although Rupert often likes to keep some of them on as advisers, or in ad hoc positions.

Ferla, who turns 49 this year, is part of the new generation of top managers. He has “earned the admiration and respect of his colleagues across the group, and of the industry at large” for his work at the high-end watch brand, Rupert said.

Bos said Rénier, another new-generation leader, built a strong leadership team and a clear and differentiated positioning for Jaeger-LeCoultre.

“She brings the perfect mix of experience and leadership skills to the role, which — coupled with her deep knowledge of the maison — will enable her to ensure Van Cleef & Arpels long-term success,” he added.

Both Ferla and Rénier have big shoes to fill.

On Tuesday, Rupert said Cartier reached “new heights” under Vigneron, who helped to choose Ferla as his successor.

“I wish Cyrille all the best in his new role, where I know he will be working on topics that he has always felt passionate about,” Rupert added.

Barclays was broadly positive about Ferla’s appointment earlier on Tuesday.

The bank described Vigneron’s departure as “a small negative,” but not a big surprise considering the ongoing management reshuffle.

“We believe that Vigneron was highly​ respected among investors thanks to his ability to reinforce Cartier over the past years,” the bank said.

During Vigneron’s tenure, the Cartier business doubled, while Vigneron became known as a bold thinker and marketeer. He promoted archive designs, including the Panthère, Santos and Baignoire watch styles, to a new generation and marketed new ones, such as Clash de Cartier, at the same time.

While his retirement — not unexpected but coming six to 18 months sooner than expected by the bank — could bring short-term volatility to Richemont’s shares, it did not see as a negative the appointment of Ferla, who’s credited with markedly improving Vacheron Constantin’s brand desirability.

Following the announcements, the group’s share price was up 0.39 percent at market close while the Swiss Market Index dipped 0.32 percent.

Ferla, a French national, joined Richemont in 2001, starting at Dunhill as area sales manager in Hong Kong, and then as general manager in Taipei.

In 2006, he joined Cartier, where he held various senior executive positions, namely across the Middle East, India and Africa before being appointed CEO in China.

In 2015, he was promoted to Cartier’s executive committee as international director, clients and business. Ferla has been CEO of Vacheron Constantin since 2017.

Under Ferla’s tenure, the watchmaker has stepped up its cultural partnerships, signing a collaboration with the Louvre in 2019 and inking an agreement for educational programs with the Metropolitan Museum of Art in 2023.

Bos said he has “always admired Louis’ strategic vision and inspiring management style, which have served him well in turning Vacheron Constantin. I look forward to seeing Cartier continue to thrive under his leadership.”

Vigneron said he helped to choose Ferla for his “outstanding leadership skills, exceptional business acumen and deep affinity for our maison.” He said those qualities make Ferla “the ideal candidate for the role. I look forward to working with Louis in my new role.”

Rénier, who is also a French national, joined Richemont in 1999 as Cartier North America’s retail development director in New York.

In 2003 she moved to Paris to join Van Cleef & Arpels as deputy marketing manager, and in 2008, she relocated to Hong Kong to support the brand’s growth in the Asia Pacific region.

She served first as commercial director, then as managing director for Hong Kong and Macau SAR, China in 2011. Her last role in the region was as president for Asia Pacific, a position that she held for eight years.

With her 2018 appointment as CEO of Jaeger-LeCoultre, Rénier became the first female CEO of a historic Swiss watchmaker.

Under her tenure, the watchmaker has encouraged the intersection with artistic practices; stepped up its effort to develop know-how and education, and, in terms of product, extended the brand’s warranty to eight years and in 2023 launched its vintage The Collectibles watch offer.

While no successor has yet been named for Ferla at Vacheron Constantin, the group said Jaeger-LeCoultre’s chief financial officer Philippe Hermann would be assuming the role of ad interim CEO for that brand.

WSJ : Skydance Media’s Deal to Buy Shari Redstone’s Family Company Is Back On

Skydance Media’s Deal to Buy Shari Redstone’s Family Company Is Back On
Skydance would pay $1.75 billion for National Amusements under the preliminary deal

David Ellison’s production company has reached a preliminary agreement to buy National Amusements, according to people familiar with the matter, rekindling deal talks that fizzled last month. It then plans to merge Skydance with Paramount Global PARA 5.72%increase; green up pointing triangle, a deal subject to approval by a special committee of Paramount’s directors.

National Amusements, which owns about 77% of the voting shares of Paramount, has referred the new deal to the special committee for review. The panel met Tuesday evening to discuss it, the people said.

Under the proposed terms, Skydance would pay $1.75 billion for National Amusements, the people said. Skydance, known for popular titles such as Amazon’s “Tom Clancy’s Jack Ryan,” and National Amusements have also agreed to a 45-day “go-shop period” in which other interested Paramount bidders can make offers for the company.

The will-they, won’t-they saga has turned into one of the messiest media deals in recent memory during which Paramount’s CEO and four directors parted ways with the company. The “Office of the CEO” is now run by three divisional heads.

A deal would usher in a new chapter for the iconic Hollywood company, famous for films such as “Titanic,” “Indiana Jones” and “The Godfather.” Paramount, owner of the namesake film studio, broadcaster CBS and cable channels such as MTV and Nickelodeon, has struggled with a cable business that is in decline, a hefty debt load and a costly build-out of its streaming business.

Under the new preliminary agreement, National Amusements isn’t mandating that the Paramount merger be approved by a majority of non-Redstone shareholders, a sticking point in the last round of deal talks.

Skydance, run by Ellison, the son of Oracle co-founder Larry Ellison, has been pursuing a deal for Paramount for months, a long and complicated process that has moved in fits and starts. Redstone ended discussions to sell her controlling stake in Paramount to Skydance and merge the two companies last month, an about-face that surprised many in Hollywood and on Wall Street.

Paramount shares rose more than 6% in after-hours trading following The Wall Street Journal and other media outlets’ reports that a preliminary deal was reached.

Skydance had sweetened its offer during months of negotiations, as the two sides continued to haggle over financial and operational terms. Redstone rejected the deal before the Paramount special committee was scheduled to vote on the merger.

Under the terms of the deal that fell apart a few weeks ago, Skydance would have bought National Amusements for around $1.7 billion in cash and would have provided $4.5 billion to buy out a certain number of Paramount’s nonvoting shares and non-Redstone voting shares. Skydance also would have injected $1.5 billion onto Paramount’s balance sheet, which it could use to pay down its hefty debt load.

Other bidders have pursued deals for National Amusements in recent months, including film producer Steven Paul, media executive Edgar Bronfman Jr.and IAC Chair Barry Diller. The New York Times earlier reported Diller had signed a nondisclosure agreement to do due diligence on NAI—the first step to doing a deal.

Paramount’s market value has fallen sharply since Redstone years ago won a battle to succeed her father, media mogul Sumner Redstone. The stock price decline has severely undercut her family’s fortune.

Paramount’s three CEOs—George Cheeks, CEO of CBS; Chris McCarthy, CEO of Showtime/MTV Entertainment Studios and Paramount Media Networks; and Brian Robbins, CEO of Paramount Pictures and Nickelodeon—are looking to aggressively cut costs as they contend with more than $14 billion in debt. The trio was installed in April after it parted ways with its former CEO Bob Bakish, a 27-year veteran of the company who had raised concerns about the Skydance deal.

At the company’s annual shareholder meeting, the office of the CEO stated its goal was to reach $500 million in annual cost savings.

The CEOs had begun exploring international streaming partnerships that could help save on costs overseas, relying on other partners for distribution, people familiar with the plans said.

Paramount was also planning more layoffs in August that are expected to hit the corporate marketing and streaming divisions particularly hard, people familiar with that initiative said. Managers were instructed to provide human resources with names of employees to be cut.

WSJ : China Services Sector Gauge Shows Slowdown in Activity Growth

China Services Sector Gauge Shows Slowdown in Activity Growth
The survey pointed to a worsening employment situation in the services sector

A private gauge of China’s services sector signaled the slowest pace of activity growth in eight months in June, reflecting the trend seen in official data.

The Caixin services purchasing managers index dropped to 51.2 in June from 54.0 in May, its lowest level since October 2023, Caixin Media Co. and S&P Global said Wednesday.

The index stayed in expansion territory for an 18th straight month, indicating that China’s service economy continued to grow into the end of the second quarter, albeit at a slower pace. A reading above 50 suggests expansion, while one below indicates contraction.

Business activity and total new orders grew for the 18th month in a row but both at a slower pace in June, while the gauge for new orders hit a four-month low, according to Caixin. Meanwhile, new export orders grew for the 10th straight month thanks to strong external demand driven by robust tourism spending, said Caixin.

The private survey pointed to a worsening employment situation in the services sector, with businesses continuing to express strong motivation to reduce payrolls and an unwillingness to fill vacant positions. The subindex for employment stayed in the contraction for the fourth time in five months, according to Caixin.

The slower rate of expansion was reflected in a decline in sentiment. The gauge for market optimism managed to stay in positive territory in June, but was significantly below the historical average, reaching the lowest level since March 2020, said Wang Zhe, senior economist at Caixin Insight Group.

“The market was concerned about downward pressure on the economy,” Wang added.

Prices were also under pressure in June, the data showed. Input costs and prices charged by service providers both declined from May, indicating limited inflationary pressure, Wang said.

China’s official nonmanufacturing PMI, which covers both service and construction activity, declined to 50.5 in June from 51.1 in May. The subindex tracking service activity fell to 50.2 in June compared with 50.5 in May, while the construction subindex fell to 52.3 from 54.4, according to official data.

FT : Blackstone snaps up ‘circular’ private equity credit risk

Blackstone snaps up ‘circular’ private equity credit risk
The US buyout group has become one of the biggest buyers of a fast-growing type of risk transfer product

Blackstone Group has become one of the biggest buyers of a type of bank loan that has become a lifeline for the private-equity industry, exposing the company to risks generated by its own business.

The world’s largest buyout group, which manages more than $1tn in assets, has in the past year emerged as a big investor in risk transfer products that are underpinned by short-term loans used by private equity fund managers to close deals as they wait to receive cash from their backers.

Because of its sheer size, Blackstone has assumed risk on credit lines attached to its own buyout funds, though the firm said they only constitute “a single-digit percentage” of the portfolios on which it has exposure.

Such transactions magnify the private equity behemoth’s exposure if an investor were unable or unwilling to fund their commitment.

“The unusual thing about Blackstone is that it is a bit circular,” said one large SRT investor. “They are providing protection on themselves.”

The dealmaking underscores how intricate and interconnected the private capital industry has become and how new pockets of risk can build up within less regulated corners of the financial system.

Banks in Europe and the US have been finding investors willing to assume some of the default risk on their loan portfolio in so-called significant risk transfer transactions (SRTs).

Such risk-transfer deals allow lenders to reduce the amount of capital they are required by regulators to hold and thereby boost returns.

Blackstone has recently become a large investor in SRTs underpinned by subscription lines, which are short-term loans used by private equity funds to close deals in advance of receiving cash from their backers.


For some years private equity firms have funded their corporate buyouts with debt provided by their own credit funds. The recent SRT transactions, which can themselves be part funded with bank debt, come at a time of growing concern for regulators over lack of transparency in private markets.

Jonathan Gray, president of Blackstone, told investors in an April earnings call that the group was a “market leader” in SRTs. He highlighted subscription lines as an area of particular interest because they are considered to be safe assets.

“The most active area has been subscription lines to date, which . . . have had virtually no defaults over the last 30, 40 years. So we like that area,” he said.

Blackstone disputed the circular nature of the risk, saying its investors were “the ultimate risk counterparty the lender is exposed to”. It noted that its investors had never missed a capital call in its 40-year existence.

The group added that its funds made up “a single-digit percentage of the portfolios on which we have provided SRTs” and that all their subscription line SRTs “have been in highly diversified portfolios”.

The Wall Street-listed group had been buying the assets through its Blackstone Multi-Asset investment unit, which manages hedge fund-type investment strategies, according to people briefed on the matter.

Banks typically use SRTs to buy protection against default on a pool of loans. This can either be done through a traditional cash transaction where assets are moved to a special-purpose investment vehicle that issues bonds, or through a derivative product while the lender keeps the assets on its balance sheet.

Asset managers and hedge funds, including $244bn Dutch pension fund PGGM and New York-based firm DE Shaw, have also been among the largest buyers.

The market for these products first developed in Europe following the 2008 financial crisis as lenders were requested to meet more stringent regulatory capital requirements. US banks became more active last year, after the Federal Reserve gave a blanket green light to the capital relief deals.

The International Association of Credit Portfolio Managers estimates that there were 89 SRT transactions globally last year for loans worth a total of €207bn. Approximately 80 per cent of them were corporate loans, with the rest comprised of debt such as subscription lines, car loans and trade finance loans.

While credit facilities to private equity form a small part of the SRT market, they have grown popular because they are considered relatively safe.

“The thing with subscription lines is that it’s an asset class that has no loss historically,” said Frank Benhamou, risk transfer portfolio manager at Cheyne Capital. “They tend to be tightly priced, so investors who engage in this trade often use a bit of leverage to enhance returns.”


Through SRTs, Blackstone is exposed to the risk that large investors such as pensions and sovereign wealth funds refuse to meet the capital calls when the loans mature, typically within a year. An investor could run low on cash, or face complications such as sanctions or fraud.

While no limited partners have ever defaulted on their obligations, including during the 2008 financial crisis, potential buyers have baulked at the lower diversification of subscription lines, compared with corporate loans.

“Though we accept that the credit risk is low for subscription lines, there’s a risk we can’t quantify and price,” said one investor who has been in the SRT market for more than a decade.

The pool of loans for subscription lines is smaller than more traditional asset classes so the “idiosyncratic risk is the sensitivity of your return to one party . . . and there’s higher risk of fraud which is difficult to price”, they added, referring to the limited number of private equity funds that they would be exposed to.

Another SRT investor pointed out that in a typical subscription line transaction there are somewhere between 10 to 30 funds, which creates more concentrated risks.

The rise of these debt products has also revived fears of unforeseen chains of events, with bank analysts and some policymakers debating whether the banks selling the SRTs have fully protected themselves. In the April earnings call, Evercore ISI analyst Glenn Schorr asked Blackstone’s Gray whether the explosion of SRTs carried hidden risks, like during the global financial crisis.

This type of deal “gives us shivers, reminds us about 16 years ago”, said Schorr, referring to off-balance sheet entities banks used in the crisis era to relieve their overburdened balance sheets. Gray said the firm was doing the transactions in a “responsible way”.

FT : Hawksmoor restaurant chain up for sale

Hawksmoor restaurant chain up for sale
Deal could value group owned by Graphite Capital at around £100mn as it seeks to expand outside UK

Hawksmoor has been put up for sale in a deal that could value the restaurant chain at around £100mn, according to two people familiar with the matter, as it seeks to grow its international footprint.

Investment bank Stephens, which has been hired to run a sales process, has started speaking to potential buyers, the people said. Graphite Capital has owned 51 per cent of Hawksmoor since 2013.

Hawksmoor chief executive and co-founder Will Beckett and another co-founder Huw Gott, who own a minority stake, will retain their shareholding to continue to lead the company, one of the people added.

Graphite Capital said it does not comment on “market rumour” and Stephens declined to comment.

Hawksmoor did not comment on whether it was up for sale but Beckett said in a statement: “We’ve got a great relationship with Graphite, and together we are getting to know the US investment community in more depth. As that continues, an opportunity may emerge that we wish to explore together.”

Meanwhile, Rare Restaurants, the owner of rival steakhouse Gaucho, is also exploring a sale of the business having appointed Clearwater M&A advisers, two people familiar with the matter said. One person said Rare is yet to start the process, as it is not under financial pressure. Rare Restaurants and Clearwater declined to comment.

London-based Hawksmoor’s sales process comes as the chain, which operates 13 locations, including 10 in the UK, continues expanding abroad having opened in Chicago last week.

It follows Hawksmoor’s debut US site in New York in 2021 and the launch of another venue in Dublin last year.

The company, which opened its first outlet in 2006 in east London as a place to buy better-quality steak, said last week that sales are expected to top £100mn this year with “consistent like-for-like growth”.

One person close to the company said underlying profits for the 12 months to the end of June were above £10mn, and that it aims to expand further in the US.

In 2021, Hawksmoor shelved plans for a flotation amid uncertainty in the hospitality industry caused by Covid lockdowns, shortages of labour and supply chain disruption. The chain had been working with Berenberg private bank on the plans.

Despite surging inflation and the cost of living crisis, the UK hospitality industry has witnessed several large deals. Last year, Apollo acquired Wagamama-owner The Restaurant Group for £506mn, while Japanese group Zensho acquired Yo! Sushi owner Snowfox Group for £490mm.

Earlier this year, London-based Equistone Partners sold its stake in catering company CH&CO to the world’s largest catering group Compass in a £475mn deal.

The exploration of a sale for Hawksmoor comes as private equity groups face pressure to sell some of their record $3tn in unsold assets in order to return cash to their backers.

Global takeovers in the first half of the year climbed 22 per cent by value thanks to a rebound in big deals, but the total number of mergers and acquisitions fell to a four-year low because of a slowdown in smaller transactions.