FT : Belgium will not charge Moroccan suspects in Qatargate probe

Belgium will not charge Moroccan suspects in Qatargate probe
Decision by judicial authorities is latest setback for investigation into claims of corruption in European parliament

Belgium will not charge the Moroccan suspects linked to the European parliament’s Qatargate corruption scandal, marking the latest setback for the drawn-out investigation.

Belgian authorities earlier this year informed Morocco that two of the north African country’s citizens were suspected of bribing EU lawmakers, but the federal prosecutor’s office in Brussels said on Sunday it would not pursue them, leaving any further action against the Moroccans in the hands of authorities in their home country.

Belgium’s probe into EU lawmakers suspected of receiving bribes from Qatar and Morocco, which began in 2022, was seen as one of the biggest to hit the European parliament but has faced difficulties after investigators faced accusations of conflicts of interest and a judicial review.

Belgium, in April, issued an order informing Moroccan authorities that they suspected the individuals of corruption, money laundering and participating in a criminal organisation.

One of the suspects is Abderrahim Atmoun, a Moroccan diplomat who allegedly bribed former MEP Pier Antonio Panzeri, according to leaked security service reports that triggered the investigation. According to Belgian media reports, Atmoun was questioned in Morocco in December last year.

The Moroccan embassy in Brussels did not immediately reply to a request for comment. Morocco’s government has previously denied any wrongdoing in the case.

However Panzeri, the key suspect in the case, has admitted taking at least €2mn in bribes from Qatar and Morocco in exchange for political favours and friendly EU resolutions towards both countries.

The prosecutor’s office said a decision had not yet been made on whether to charge Qatari suspects in the case. It is unclear how many people this would concern. The Qatari government has denied bribing European lawmakers and their associates.

Brussels police raided a series of offices in the European parliament in December 2022, seizing €1.5mn in cash and arresting Panzeri and several sitting MEPs. Those held included Eva Kaili, a Greek MEP who had previously served as vice-president of the parliament, and Francesco Giorgi, her partner, who was not an MEP but had formerly been Panzeri’s assistant.

Kaili denies any wrongdoing, while Giorgi has admitted involvement in the case, reportedly confessing that he was part of an organisation used by Qatar and Morocco to influence EU policy.

The suspects were accused of corruption, money laundering and participation in an organised criminal group, but no one has so far been formally charged, while a judicial review is delaying a potential trial.

Kaili and several other suspects triggered the judicial review over concerns of the legality of using some of the evidence. Its outcome is still pending.

The investigating judge in charge of the case, Aurélie Dejaiffe, was suspended in March after one of the suspects asked for her to be removed. Another judge has taken over temporarily until a decision is made on her status.

That was not the first time the lead investigator in the case, who is in charge of ordering wiretaps and arrests, was replaced: Dejaiffe took over the case from Michel Claise, who stepped down last year over claims of a conflict of interest after it became public that his son was in business with the son of a close associate of one of the suspects.

The prosecutor at the time said that Claise stepped down “as a matter of caution”, but said there was a lack of “effective elements” that would call into question the investigation.

The federal prosecutor in charge of the case, Raphaël Malagnini, also resigned in October last year to take up another job.

Police investigating the case also faced questions after Giorgi published a secret recording of a conversation with a senior police officer involved in the case, who visited him at home last year and complained that prosecutors and judges in Belgium served a political agenda. 

WSJ : ‘Poo in the Water’: How Financial Engineering Sullied Britain’s Most Famou

‘Poo in the Water’: How Financial Engineering Sullied Britain’s Most Famous River
Critics say the U.K.’s largest water utility, Thames Water, loaded up on debt to pay investors dividends while failing to upgrade London’s Victorian-era sewers

LONDON—On a spring day this year, spectators gathered on the banks of the River Thames to watch Oxford and Cambridge universities compete in the annual Boat Race.

Rowers were urged to avoid coming into contact with the water, which had earlier tested with high levels of E. coli. The Cambridge men shunned the traditional victory celebration of throwing their coxswain into the water, with their coach instead promising to find a bucket of clean, sanitized water to douse him.

“It would have been ideal not to have so much poo in the water,” one rower told the BBC after the race.

The cause of the River Thames’ foul water is rooted in London’s Victorian-era sewers and the failure of one of the world’s largest experiments in private-sector water investment.

Thames Water, England’s biggest water company and the steward of its most famous river, is on the verge of financial disaster. The utility’s parent company, controlled by an array of sovereign wealth and pension funds, defaulted on its debt in April. Investors worry more of its roughly £18 billion in overall debt, equivalent to around $23 billion, could be at risk of losses even though much is meant to be secured against the water company’s assets.

What was meant to be a supersafe investment in a business that has a natural monopoly, has turned into a financial debacle, pushed further into crisis by the increase in interest rates. Thames Water’s troubles have cast a shadow over infrastructure investment, an area fashionable among risk-averse, long-term investors.

Environmental critics say Thames Water loaded up on debt to pay investors dividends while failing to upgrade London’s sewer system, which has spilled the equivalent of at least 34,000 Olympic swimming pools of raw sewage into the river since 2020.

Near central London, a matted mountain of wet wipes and sanitary products that washed into the river along with sewage has been dubbed “Wet Wipe Island.” On a recent day, a dog gleefully rolled around in the detritus.

Thames Water has become a political lightning rod in the U.K.’s July 4 election, where polling suggests the Labour Party will push Prime Minister Rishi Sunak’s Conservatives from power. In its election manifesto, Labour said it would give regulators power to block water executive bonuses, impose severe fines and bring criminal charges against serial polluters.

How a new government deals with Thames Water’s debt will be watched around the world as countries wrestle with the rising role of private finance in the business of purveying water.

Most water-and-sewerage systems in the U.S. are still publicly owned, though cash-strapped local governments have in recent years turned to players such as French utility Veolia Environnement and publicly traded American Water to operate their networks.

Dieter Helm, a University of Oxford professor who studies privatization, says part of the blame for the U.K.’s water problems rests with the government regulator, Ofwat, which failed to balance the competing interests of investors, who sought profits, and consumers, who wanted low bills and good service.

“People think this is a problem of privatization, that capitalism has failed,” said Helm. “The right lesson is not that we need to nationalize stuff. It’s that we need to regulate it properly.”

Ofwat said it closely monitors companies’ financial health and has new powers to intervene if dividends don’t match environmental performance or service to customers.

A spokesperson for Thames Water said the company is committed to stopping sewage spills and noted the opening of a long-awaited sewage tunnel next year that is expected to drastically reduce spills in the river.

Private water
Prime Minister Margaret Thatcher privatized Thames Water and nine other regional water-and-sewer authorities in 1989. They were listed on the London Stock Exchange with £1.5 billion in cash shared among them and all debts erased.

The companies needed money to upgrade long-neglected infrastructure and meet new European water-quality rules.

There were initially big improvements, said Roger Wood, who worked as an infrastructure and utilities banker in the U.K. at the time. Investment in the industry nearly doubled to £6.3 billion a year in the decade following privatization, according to government data adjusted for inflation.

But in the 2000s, Wood said private owners shifted focus to boosting shareholder returns.

Australian infrastructure giant Macquarie Group’s asset-management arm pulled together a consortium to take over Thames Water in a leveraged buyout in 2006. Under Macquarie’s ownership, the company’s corporate structure grew more opaque and more indebted, with eight entities under a parent company named Kemble Water.

Much of the debt was issued by the operating company, which is required to hold an investment-grade credit rating, and is secured against its assets. But the subsidiaries were used to issue lower-graded debt. Kemble then used the proceeds to invest in the water business and pay down money it borrowed for the acquisition. Using subsidiaries got around government rules that limit debt at the operating company.

Debt for dividends
Debt was an attractive source of funding in the era of low interest rates, and juiced dividends to shareholders, according to University of Greenwich visiting professor David Hall.

U.K. water-and-sewerage companies have paid an inflation-adjusted £73 billion in dividends since 1990, according to his research. At the same time, the industry’s net debt reached £61 billion last year.

Macquarie said last summer in a report in response to criticism of its ownership that it earned an average annual return of between 12% and 13% in the period it owned Thames Water. Those returns are standard for the industry, said Macquarie. It pointed to improvements under its ownership, such as a 22% decline in leaks.

Industry groups and investors place the blame for Thames Water’s decline on the regulator for emphasizing low customer bills. Water bills have fallen 13% over the past decade when adjusted for inflation, according to industry group Water UK, though they are up nearly 50% since privatization.

By the time Macquarie sold its stake in 2017 to a consortium led by the Canadian pension fund Omers, Thames Water’s debt had swelled to £11 billion from £3.2 billion. Other shareholders include the sovereign-wealth funds of the United Arab Emirates and China, along with the Universities Superannuation Scheme, the U.K.’s largest private pension fund.

Shareholders haven’t taken money out of the business since 2017, though Thames Water continued to send money to its parent entity to pay debt. Over the past five years, the company’s capital spending totaled £5.8 billion, according to Moody’s Investors’ Services. Its interest costs, meanwhile, swelled to £3.8 billion, though some of that isn’t owed to investors until the debt matures.

Sprung a leak
The postpandemic surge in inflation and interest rates rocked Thames Water. The company hadn’t locked in its borrowing costs when rates were low and more than half of its debt was linked to an index of inflation.

At the same time, the lack of investment in the face of strong population growth began to show up in the U.K.’s water quality. Victorian-era sewers handle both sewage and rainfall. Heavy rains, made more common by climate change, cause frequent overflows, spilling sewage into rivers and beaches.

In March, the sovereign wealth and pension funds that control Thames Water reneged on an earlier plan to give the company £750 million after learning regulators weren’t likely to approve their proposal to increase customer bills by 40%. Ofwat is expected to deliver its formal assessment of the company’s plan after the election.

Thames Water said it had £2.4 billion in cash at the end of February, enough to keep the business going through next May. Without new equity, however, the government could begin insolvency proceedings. It would be restructured and sold on to new owners, though some question who would be interested.

“Water is the most natural of monopolies, and should be at the lowest end of the risk spectrum,” said Wood, the infrastructure banker. “You have to screw up quite badly to put a regulated water company on the brink of special administration.”

Omers in May wrote the value of its 31.8% stake down to zero. Its chief executive, Blake Hutcheson, has played down the impact it will have on its 600,000-plus members.

“It is a fraction of 1% of your portfolio,” Hutcheson said at the fund’s annual meeting. “It’ll affect the returns in a very, very insubstantial way, like a few dips maybe.”

Meanwhile, polluted water has become a fact of life across the U.K. Marlene Lawrence runs a London swim group and has noticed the water getting worse. She doesn’t put her head below the surface. Once, she found a piece of building insulation in her bathing suit. But she remains undeterred.

“Until we see dead fish, I will keep swimming in the Thames,” she said.

FT : Russia overtook US as gas supplier to Europe in May

Russia overtook US as gas supplier to Europe in May
Rise in market share highlights difficulty of weaning the region off Russian energy

Europe’s gas imports from Russia overtook supplies from the US for the first time in almost two years in May, despite the region’s efforts to wean itself off Russian fossil fuels since the full scale invasion of Ukraine.

While one-off factors drove the reversal, it highlights the difficulty of further reducing Europe’s dependence on gas from Russia, with several eastern European countries still relying on imports from their neighbour.

“It’s striking to see the market share of Russian gas and [liquefied natural gas] inch higher in Europe after all we have been through, and all the efforts made to decouple and de-risk energy supply,” said Tom Marzec-Manser, head of gas analytics at consultancy ICIS.

Following Russia’s full-scale invasion of Ukraine in February 2022, Moscow slashed its pipeline gas supplies to Europe and the region stepped up imports of LNG, which is shipped on specialised vessels with the US as a major provider.

The US overtook Russia as a supplier of gas to Europe in September 2022, and has since 2023 accounted for about a fifth of the region’s supply.

But last month, Russian-piped gas and LNG shipments accounted for 15 per cent of total supply to the EU, UK, Switzerland, Serbia, Bosnia and Herzegovina and North Macedonia, according to data from ICIS.

LNG from the US made up 14 per cent of supply to the region, its lowest level since August 2022, the ICIS data showed.


The reversal comes amid a general uptick in European imports of Russian LNG despite several EU countries pushing to impose sanctions on them.

Russia in mid-2022 stopped sending gas through pipelines connecting it to north-west Europe, but continues to provide supplies via pipelines through Ukraine and Turkey.

Flows in May were affected by one-time factors, including an outage at a major US LNG export facility, while Russia sent more gas through Turkey ahead of planned maintenance in June. Demand for gas in Europe also remains relatively weak, with storage levels near record highs for this time of year.

The reversal was “not likely to last”, said Marzec-Manser of ICIS, as Russia would in the summer be able to ship LNG to Asia via its Northern Sea Route. That was likely to reduce the amount sent to Europe, while US LNG production had picked up again, he said.

“Russia has limited flexibility to hold on to this share [in Europe] as demand [for gas] rises into next winter, whereas overall US LNG production is only growing with yet more new capacity coming to the global market by the end of the year,” he added.

The transit agreement between Ukraine and Russia also comes to an end this year, putting at risk flows through the route.


The European Commission is supporting efforts to establish an investment plan to expand the capacity of pipelines in the Southern Gas Corridor between the EU and Azerbaijan.

A senior EU official said supplies through the route were not currently sufficient to replace the 14bn cubic metres of Russian gas that currently flowed through Ukraine to the EU each year.

The EU’s energy commissioner Kadri Simson said she had raised concerns about LNG being diverted from Europe to meet demand in Asia on a trip to Japan this month.

She said Tokyo and Brussels had established an “early warning system” to monitor LNG shortages and had agreed both should pursue energy saving measures.

“The EU is prepared to buffer any negative supply or demand events in global gas markets,” she added. “Our gas storage remains at record high levels [and] our gas demand stabilised at record low levels, down 20 per cent compared with 2021.”

FT : Adidas investigates bribery allegations in China

Adidas investigates bribery allegations in China
Senior managers accused of receiving millions of euros in kickbacks

Adidas has launched an investigation into allegations of large-scale bribery in China after the world’s second-largest sportswear maker received a whistleblower complaint that accused senior staff of embezzling “millions of euros”, people briefed on the matter told the Financial Times.

The anonymous letter, which claims to have been written by “employees of Adidas China” and was also briefly shared this month on Chinese social media platform Xiaohongshu, names several Chinese Adidas employees including a senior manager involved with Adidas’s marketing budget in the country, which the document said stood at €250mn a year.

The letter alleged that Adidas staff received kickbacks from external service providers who were commissioned by the German group. A second senior Adidas manager, who works in a different division in China, is accused of having received “millions in cash from suppliers, and physical items such as real estate”.

Adidas confirmed that it had received a letter on June 7 alerting it to “potential compliance violations in China”. It said it was “committed to complying with legal and internal regulations and ethical standards in all markets where we operate” and that it was “intensively investigating this matter together with external legal counsel”.

No accused individuals have been placed on leave, according to people familiar with the matter.

Adidas revamped its leadership in China last year after suffering an unprecedented crisis in what until the Covid-19 pandemic was its fastest-growing and highly profitable market.

Sales fell off a cliff between 2019 and 2022 as the brand was hit by drawn-out lockdowns as well as a consumer backlash against western brands over their refusal to buy cotton from the Xinjiang region, where human rights activists say the industry involves forced labour.

The headwinds in China were a core reason for the ousting of Adidas chief executive Kasper Rørsted, who was replaced last year by former Puma boss Bjørn Gulden.

New China CEO Adrian Siu, hired from Chinese lingerie maker Cosmo Lady in 2022, promised to win back “the hearts and minds” of Chinese consumers with patriotic clothing lines, telling the FT last year that the company was “are marrying traditional Chinese elements with international product design”.

Adidas said in March it expected a rebound in China this year, predicting a double-digit sales growth rate after a 37 per cent surge in the fourth quarter of 2023.

One of the senior managers targeted in the whistleblower report was hired by Siu, according to people familiar with the matter.

While the anonymous authors of the letter did not provide hard evidence for their corruption allegations, they appear to be well-informed about highly sensitive and confidential internal issues, according to Adidas insiders.

The Information : OpenAI CEO Says Company Could Become Benefit Corporation Akin

OpenAI CEO Says Company Could Become Benefit Corporation Akin to Rivals Anthropic, xAI

The Takeaway
• OpenAI could trim ties to nonprofit parent
• Before Microsoft invested, OpenAI’s nonprofit contributed more capital than other shareholder
• OpenAI employees have sold more than $800 million worth of shares in past year

OpenAI CEO Sam Altman recently told some shareholders that the artificial intelligence developer is considering changing its governance structure to a for-profit business that OpenAI’s nonprofit board doesn’t control, according to a person who heard the comments. One scenario Altman said the board is considering is a for-profit benefit corporation, which rivals such as Anthropic and xAI are using, this person said.

Such a change could open the door to an eventual initial public offering of OpenAI, which currently sports a private valuation of $86 billion, and may give Altman an opportunity to take a stake in the fast-growing company, a move some investors have been pushing.

The restructuring discussions are fluid, and Altman and his fellow directors could ultimately decide to take a different approach.

Altman’s comments were part of longer discussions about overhauling OpenAI’s structure while still maintaining a connection to the original nonprofit he cofounded. For shareholders including Microsoft, which has invested $13 billion in the unit, drama involving the nonprofit board and Altman last fall exposed the current structure’s fragility. The board fired Altman, sparking an employee revolt inside the for-profit unit that ended when Altman was rehired.

Benefit corporations are legally protected from minority shareholders who might otherwise sue the company for making decisions that don’t prioritize shareholder returns. The new entity could also maintain a mission similar to that of the current OpenAI nonprofit—AI for the benefit of humanity—while giving investors a chance to more quickly realize a return on the $14 billion or so in capital they’ve put in.

Even so, some current investors say there is little pressure on the company to go public since it can continue to allow existing employees and others to sell their shares through regular secondary-share offerings, such as those done by SpaceX and Stripe. OpenAI conducted two such offerings for employees over the last year in which they collectively cashed out more than $800 million, said a person with knowledge of the deals.

In a statement, a spokesperson for OpenAI said, “We remain focused on building AI that benefits everyone and as we’ve previously shared we’re working with our board to ensure that we’re best positioned to succeed in our mission.” They added: “The nonprofit is core to our mission and will continue to exist.”

Microsoft Execs Push For-Profit Option

Some senior Microsoft executives involved in the company’s relationship with OpenAI have for years favored converting OpenAI into a full-fledged for-profit. Such a structure could give the software giant more influence over OpenAI in the form of a seat on its board as well as shareholder voting rights, according to one of those executives. A Microsoft spokesperson declined to comment.

In an unusual arrangement, the nonprofit, established in 2015 as a research lab, oversees the for-profit, set up in 2019. The for-profit has promised to pay Microsoft and other investors a share of any profits it generates up to a certain cap that will increase year after year. (Microsoft gets 75% of OpenAI’s profits until the capital investment is paid back, and 49% of subsequent profits up to a certain cap.) No outside investors hold a seat on the nonprofit’s eight-person board, although Microsoft has a nonvoting observer position.

A new structure theoretically could remove profit caps for shareholders. Altman didn’t take equity in OpenAI’s for-profit arm when he started it, as he wished to limit the number of board directors with shares. Now he could end up with a significant equity package. Investors have privately said they prefer that he have such a package so he isn’t as incentivized to focus on other projects and investments in other AI companies.

Such a change in structure could also make it easier for Altman to attract the amount of capital he has said the company might need—up to $100 billion.

The discussions come as the company accelerates its revenue growth. The ChatGPT maker has surpassed $3.4 billion in annualized revenue, a measure of the past month’s revenue multiplied by 12, more than doubling the number from about six months ago.

Aside from Microsoft, the investors who have put money directly into OpenAI include Reid Hoffman's foundation, Khosla Ventures, Y Combinator (which Altman previously ran), Y Combinator partner Paul Buchheit and the University of Michigan. Firms such as Thrive Capital, Sequoia Capital and Founders Fund have purchased shares from earlier investors or employees over the years.

The nonprofit has a stake in the for-profit unit as well. Before Microsoft became an investor, the nonprofit contributed more capital than each of the other shareholders, according to a person with knowledge of the deal.

To end the nonprofit’s control over the new benefit corporation, the nonprofit would likely need to sell at least part of its ownership interest, according to Jonathan Storper, a partner at San Francisco–based law firm Hanson Bridgett who helped draft the California benefit corporation law in 2012.

Finding buyers for the shares isn’t likely to be difficult. Smaller investors have clamored to buy shares in OpenAI and its rivals, often through special purpose vehicles set up to acquire them from existing investors.

>>> Barron’s Weekend Summary

Barron’s Weekend Summary: CA Healthcare, the country's largest for-profit hospital operator, has faced criticism for its recent acquisition

Cover:
-HCA Healthcare, the country's largest for-profit hospital operator, has faced criticism for its recent acquisition of Mission Hospital in Asheville, North Carolina. The hospital, which is the second-largest in the HCA system by net patient revenue, generated nearly $1.3B in 2022. The acquisition was one of more than a dozen hospitals that HCA acquired between 2017 and 2021. HCA's share price has increased more than 140% in five years and outperformed the S&P 500 index. Unionized nurses at Mission Hospital have publicly decried low staffing and stretched workloads, with dozens of physicians signing an open letter expressing concern about the hospital's quality under new ownership. HCA is fighting the suit, stating that the issues have been resolved and Mission Health continues to be recognized as one of the top hospitals in the country in third-party quality and patient safety ratings.

Interview:
-Savita Subramanian, head of U.S. equity and quantitative strategies at BofA Securities, advises investors to increase their exposure to value stocks in cyclical industries. The S&P 500 index has gained nearly 14% this year, and the Nasdaq 100 has 16%, largely due to rallies in megacap tech stocks. Subramanian, who has been following markets for over two decades, has earned a reputation for prescient investment calls. She marries quantitative research with fundamental analysis and draws on behavioral finance principles. Subramanian raised her S&P 500 year-end price target in March to 5400 from 5000, which was one of the most bullish calls on Wall Street. However, she is not planning to change her target now, as market sentiment has moved from bearish to more neutral. She has been following markets for over two decades and has a dual major in mathematics and philosophy at the University of California, Berkeley.

Tech Trader:
-Artificial intelligence (AI) is gaining traction as investors continue to invest in the technology. Nvidia, Arm Holdings, C3.ai, and Taiwan Semiconductor have all seen significant increases in their stock prices over the past month. The recent unveiling of Apple's AI strategy and AI-juiced earnings reports from Oracle, Broadcom, and Adobe have also boosted the market. Corning, a specialty glassmaker, has seen its revenue decline for six consecutive quarters due to declines in key markets such as smartphones, TVs, autos, and telecommunications. However, CEO Wendell Weeks believes a turnaround is possible due to improvements in underlying businesses and new opportunities, such as AI. Weeks predicts that Corning can boost annual revenue by at least $3B by 2026, potentially as much as $5B, on top of the $13.6B reported in 2023. Weeks believes that material science is slow, but a catalyzing customer application can trigger a big secular trend to take off.

The Trader:

-The Federal Reserve remains optimistic about its battle against inflation, with the stock market experiencing positive momentum. The S&P 500 index has hit four new closing highs, with a 1.4% gain this week. The NASDAQ Composite has advanced 3%, while the Dow Jones Industrial Average has fallen 0.7%. Apple's announcement of artificial-intelligence capabilities in new iPhones has boosted hopes that consumers will upgrade to the iPhone 16, sending the stock up 8.7% for the week. The inflation data also provided optimism, with the consumer price index rising 3.3% year over year in May, below the forecast and down from April's 3.4%. The S&P 500 gained 0.9%, while the Fed emphasized that inflation is not close enough to its 2% target to cut rates. The Fed's "dot plot" showed one rate cut later this year, down from three at the previous meeting.
-Pacific Gas & Electric (PG&E) shares have seen a partial recovery after filing for bankruptcy in 2019 due to a $30B settlement with victims, the state of California, and insurance companies. The company is expected to have negative free cash flow over the next two years, despite increasing earnings per share. However, the stock has gained about 150% since bottoming out in 2019, and its current market cap of $39B has returned to near peak levels. The bull case starts with PG&E's deal with California, which includes a provision allowing the utility to receive cash from the state for every $1B billion in damages it settles from a $21B fund. J.P. Morgan analyst Richard Sunderland upgraded the stock to Overweight from Neutral, citing the company's clear guidelines and financial protections. PG&E's investor day presentation confirmed its direction in safety, financing, and demand outlook for the coming years.

Features:
-French stocks and bonds experienced a drop due to President Emmanuel Macron's call for snap elections three years early, following a stronger showing for Marine Le Pen's far-right National Rally in European elections. The move could fuel increased spending, sparking concerns about a European debt and currency crisis. A rushed coalition on the left vows to break with Macron as the elections approach. The bond market also showed uncertainty, with the gap between 10-year bond yields in France and Germany widening to 80 basis points, its highest point since the euro debt crisis in 2011. Gavekal Research founder Charles Gave cited a decline in French bank shares and its debt situation as reasons investors should not dismiss the prospects of a currency and bond market crisis.
-Pharma stocks have traditionally been chosen based on the number of drugs and vaccines sold to large numbers of people. However, the dominant force in pharma stocks is closing, and investors will need to find a new strategy. Advanced therapies and personalized medicines, also known as precision medicine, are rapidly emerging. This field allows healthcare providers to order specific therapies for each patient based on their unique genetics and other factors. The battle against certain cancers is one of the most important developments in this field. Over one-third of new drugs approved by the Food and Drug Administration have been personalized medicines, and further growth is expected. The personalized medicine market is valued at over half a trillion dollars worldwide and is predicted to exceed $1T by 2031. However, investors should not use a "patent cliff" model, as patent laws are not as consequential for personalized therapies as they are for one-size-fits-all medicines.

Europe:
-The iShares MSCI France exchange-traded fund fell 7.22% on the week, despite being tilted away from luxury sectors. The largest component is LVMH Moët Hennessy Louis Vuitton, controlled by Bernard Arnault, who is now at No. 3 in the Bloomberg Billionaires Index. Other big components in the French ETF include global luxury brands like L'Oréal and Hermès International, whose businesses are less affected by the domestic economy than big spenders around the globe. Airbus, half of the global duopoly in commercial aircraft with Boeing, is half of the global duopoly in commercial aircraft with Boeing. Election politics have roiled France's markets, as have those in India and Mexico. Stocks had another winning week, with the NASADQ Composite closing at record levels and the S&P 500 index nearly ending the week at a fresh high.

Emerging Markets:
-Recent elections in India and Mexico have highlighted the potential for political instability and a potential for radical changes to jeopardize government checks and balances. Claudia Sheinbaum's victory as Mexico's first female president and her supermajority in the lower house led to concerns about radical changes that could jeopardize checks and balances. In contrast, India's Prime Minister Narendra Modi's coalition victory and his ability to stay in power have allayed concerns about the world's largest democracy. The market has interpreted supermajorities as a threat, especially in the hands of left-leaning leaders. Divided governments are generally a win for investors, but investors are pulling back from Mexico after Sheinbaum's win. Mexican stocks had doubled since 2020 due to a strong U.S. economy and rising U.S.-China tensions. However, concerns now are that Sheinbaum's supermajority could lead to increased spending to bolster state pensions and minimum wages, as well as constitutional changes that could compromise judicial independence and government oversight.

Commodities:
-The Energy Select Sector SPDR Fund, which includes oil producers like Chevron and Exxon Mobil, saw an 18% increase through early April, then a rough patch but still maintained a solid 5% gain. The fund reached a multiyear high of $98, boosted by WTI crude oil's 12% rise. Copper names like Freeport-McMoRan and Southern Copper rose 50% and 29%, respectively, while the metal itself rose just over 30%. The price jumps for copper and oil show confidence in the global economy's growth and the potential for it to continue growing now that central banks have stopped raising interest rates. Additionally, copper is benefiting from AI mania, as data centers that power the world's adoption of artificial intelligence require more of the metal. However, the commodities and their associated stocks moved in sync, with the oil ETF and copper stocks dropping slightly.

Streetwise:
-Shares of major home builders have slowed since March, with Toll Brothers down 8%, Lennar 10%, and D.R. Horton 14%. Mortgage rates have not been the main reason for the selloff, with the 30-year rate at just under 7%. Mixed economic signals also don't explain the builder selloff. UBS blames an increase in home inventory, with 1.52 million single-family homes for sale in April, a 15% increase from a year ago. This raises concerns for investors due to a housing shortage keeping selling prices high and profits for builders being fat. Publicly traded companies have taken market share, and if a rush to sell homes is taking hold, big builders could give up more gains. However, nationwide, inventory is up but still exceptionally low, with an average of 2.36 million single-family units for sale since 1982. Houses for sale are old and expensive, with some homeowners shooting for the stars due to tight supply and lavish sales prices.

>>> Weekend Papers Summary

Weekend Papers Summary

FINANCIAL TIMES
-EU regulators are set to charge Apple for allegedly stifling competition on its mobile app store, marking the first time they have used new digital rules to target a Big Tech group. The European Commission has determined that Apple is not complying with obligations to allow app developers to "steer" users to offers outside its App Store without imposing fees. The charges would be the first brought against a tech company under the Digital Markets Act, which forces powerful online gatekeepers to open up their businesses to competition in the EU. An announcement over the charges against Apple is expected in the coming weeks. The EU could also announce charges against other tech groups, such as Google parent Alphabet and Facebook owner Meta's use of personal data for advertising.
-Voters in France are considering whether to allow the nationalist, populist RN to enter the heart of government. The snap poll on June 30 and the second round on July 7 will depend on whether voters see the RN of today, which Marine Le Pen has spent over a decade crafting into a smoother, more professional force, is up to the task. Voting patterns in the Berry region of central France show the RN making inroads in new areas and voter segments, conquering a swath of France known as "the diagonal of emptiness" due to depopulation, lack of high-speed train links, and weak economy.
-Russia's Vladimir Putin has proposed a ceasefire and negotiations to end the war in Ukraine in exchange for control of four frontline Ukrainian regions. The conditions include areas Moscow never occupied during its two-year invasion, a pledge not to join NATO, and lifting western sanctions imposed in 2022. Ukraine rejected this proposal, claiming it amounted to capitulation and would leave the country vulnerable to future attacks. Under Putin's conditions, Russia would gain full control of Donetsk, Kherson, Luhansk, and Zaporizhzhia.
-Boeing and Airbus have admitted to using titanium parts in their jets with counterfeit certification documentation. The parts were purchased from Spirit AeroSystems, a Kansas supplier struggling with quality issues. The metal, which originated in China, was falsified before being used in parts installed in jets. The transaction may have occurred as early as 2019. The metal is used to make critical components for aircraft, including landing gears and fasteners for engine-to-wing pylons. The companies have been scrutinized by regulators following a door panel blowout in January. An audit of the two companies found examples of them failing to meet manufacturing and quality control requirements.
-Tesla CEO Elon Musk has won a significant victory in shareholder votes on his $56B pay package and a proposal to relocate the company's domicile from Delaware to Texas. The largest stock options package in US history was reapproved by 77% of votes cast at Tesla's annual meeting in Austin. The plan to reincorporate in Texas won the backing of 84% of votes, representing 63% of shares. The results are a significant boost for Musk as he seeks to reassert control over Tesla. The reaffirmation of his pay will also strengthen Tesla's position in overturning a Delaware court decision to void the 2018 stock options package.
-Luxury clothing sales platform Yoox Net-a-Porter is closing its China operations, citing a weaker economic backdrop in the vast ecommerce market. The decision was made in line with a global Yoox Net-a-Porter plan to focus investments and resources on its core and more profitable geographies. The company operated in China under a joint venture with Chinese ecommerce group Alibaba, which will be liquidated. Profitability in China's luxury market has been a focus this year due to a prolonged property slowdown and lagging consumer demand. French luxury group Kering has also faced worsening performance in the first quarter due to slow market conditions.
-The Labour Party is planning the largest Whitehall shake-up in decades, aiming to break down departmental silos and pursue its government missions. Sir Keir Starmer is reviewing proposals for five new "mission boards" to aid cross-department work, headed by Starmer himself. These entities will draw on private sector expertise and may be granted powers to help deliver policy. The Labour leader's aim is to "break down silos" and reduce delays caused by measures passing between rival departments and being split between different budgets. The Treasury will focus more on attracting investment and driving growth, as part of his pledge to end "sticking-plaster politics" and usher in a "decade of renewal" for the country.
-Carlyle is considering a sale of Cogentrix Energy, one of the largest US power plant owners, as a wave of deals for utilities accelerates due to soaring energy demands from digital networks. The private capital group has hired advisers to explore a sale that could value Cogentrix at $3B-$4B, generating a large windfall for Carlyle's infrastructure arm. Investment bank Lazard and law firm Latham & Watkins have been hired to advise on the sale. Cogentrix owns stakes in 13 natural gas power plants across the US. The wave of deal-making has been partly spurred by speculation that data centers and digital infrastructure used to power artificial intelligence will spark an unprecedented demand for power, straining the energy supply.
-South Africa's ruling African National Congress (ANC) has signed a power-sharing deal with the Democratic Alliance, allowing a new government to be formed under ANC leader Cyril Ramaphosa. This deal was crucial for the ANC to maintain power, which lost its majority for the first time since the end of white minority rule 30 years ago. Ramaphosa is expected to be reappointed president later. The deal is seen as a "historical" moment for South Africa, allowing his party to co-govern. The agreement aims to create a stable democracy and an inclusive economy.
-Miami's Waldorf Astoria Residences, the tallest building in the Americas south of New York City, has secured a $668M residential construction loan, the largest in Florida's history. The $668M loan, secured from Bank OZK and Related Fund Management, breaks the previous record for a residential construction loan in Florida, a $600M loan for the Cipriani Residences earlier this year. Miami is the most attractive market for condo construction lenders due to the demand and lack of supply. The city experienced a population influx during the pandemic, with high earners flocking to the area for better weather, friendly taxes, and looser Covid restrictions. The buyer pool is deeper than ever, with people with high-paying jobs able to afford the construction of luxury properties.

THE NEW YORK TIMES
- The G7 summit in Italy has sparked a tense debate over abortion rights, primarily between the United States and Italy. The summit's final statement, which includes the words "abortion" and "reproductive rights," has sparked a diplomatic tug of war between the two countries. The debate primarily revolves around the inclusion of the words "abortion" and "reproductive rights" in the statement, which has been a contentious issue. The Italian government has denied any intention to backtrack on its commitment to protecting access to safe abortions. The G7 leaders had a variety of topics to discuss and disagree on, including the ongoing wars in Gaza and Ukraine, a loan for Ukraine, and the issue of abortion rights.
-President Biden was at the G7 with Ukraine's President, Volodymyr Zelensky, where he was expecting to discuss a security pact he had signed to support Ukraine in its battle with Russia. However, he seemed flustered when asked about the Gaza cease-fire plan. Biden asked for an update on the fate of the cease-fire deal, which he announced last month but has yet to be publicly accepted by Israel or Hamas. He reiterated the U.S. stance that the proposal had been endorsed by the Israeli government, the United Nations Security Council, and the G7, and that the hold-up was with Hamas. Biden seemed flustered at confronting questions about his cease-fire plan for Gaza.
-Former President Donald Trump is celebrating his 78th birthday, which he is not happy about. Trump, who is trying to become the oldest person to be elected president of the United States, expressed his dislike for birthdays, particularly this one. He was upset earlier this week when his supporters sang an early "Happy Birthday" to him at a rally in Las Vegas. Trump is now 78 and trying to convince the country to give him another four years in office, at the end of which he would be the oldest president in American history. The current, 81-year-old occupant of the Oval Office holds the mantle.
-A Houston bankruptcy judge has ordered the sale of Alex Jones's personal assets, allowing the conspiracy theorist to continue broadcasting on Infowars while the Sandy Hook families continue to pursue payment of $1.4B in defamation damages. The proceeds will be distributed among the Sandy Hook families, but Jones will not have to shutter his Infowars business empire. The outcome divided the Sandy Hook families, with those who sued Jones in Texas favoring the decision, which will keep Jones on the air but allow them to potentially receive more in damages from the Infowars income. Those who sued Jones in Connecticut favored settling for less money and shutting down Jones, although they acknowledged he would not be silenced entirely.
-The Supreme Court has rejected a ban on gun bump stocks, which allow semiautomatic rifles to fire at speeds rivaling those of machine guns. The ban was imposed after one of the deadliest mass shootings in modern US history, at a Las Vegas concert in 2017. The decision, by a vote of 6 to 3, split along ideological lines. Justice Clarence Thomas, writing for the majority, argued that the Bureau of Alcohol, Tobacco, Firearms and Explosives had exceeded its power when it prohibited the device by issuing a rule that classified bump stocks as machine guns. The court held that a semiautomatic rifle equipped with a bump stock is not a 'machine gun' because it cannot fire more than one shot by a single function of the trigger.
-Israel's defense chief rejected a diplomatic effort by France to end the tit-for-tat missile strikes over Israel's border with Lebanon. The United States, France, and other mediators have been seeking an agreement to stop the tit-for-tat strikes between Israel and Hezbollah, a powerful militia and political faction backed by Iran. The United States, France, and other mediators have sought for months to find a way to stop the tit-for-tat strikes. More than 150,000 people on both sides of the border have been displaced by the fighting, and Israel has warned that it is prepared to take stronger action to dislodge Hezbollah militants from southern Lebanon. The ongoing cross-border hostilities between Hezbollah and Israeli forces have raised fears of a full-blown war.
-China and the World Anti-Doping Agency (WADA) have been accused of doping in the Olympic Games, following the revelation that 23 elite Chinese swimmers had tested positive for a banned substance months before the last Summer Olympic Games. China and the WADA defended their decision to allow the swimmers to compete in the Games in 2021, claiming they had not been doping. However, a secret report reviewed by The New York Times revealed that China and the WADA were aware that three of the 23 swimmers had tested positive for a different performance-enhancing drug several years earlier and had escaped public identification and suspension in that case as well. China claimed that the swimmers had unwittingly ingested the banned substances, an explanation viewed with considerable skepticism by some anti-doping experts. The two incidents add to longstanding suspicions among rival athletes about what they see as a pattern of Chinese doping and the unwillingness or inability of the WADA to deal with it.

THE NEW YORK POST
-Tupperware Brands is set to close its South Carolina factory and lay off over 100 workers, marking the company's last remaining US plant. The iconic plastic food container company will shift all manufacturing operations to Mexico, where many of its products are already made. The closure of the facility in Hemingway, Florida, will result in the layoffs of 148 employees. The layoffs are set to begin in September and conclude on January 14, 2025. Tupperware aims to appreciate each of its valued team members and their many years of service to the company. The Hemingway plant, which was sold in 2023, was the company's sole manufacturing site in the US. Eligible employees will be offered severance packages and early retirement, and the company will also help connect them with other companies for employment. Tupperware was founded in 1946 by Massachusetts chemist Earl Tupper.
-Tesla CEO Elon Musk confirmed that he and former President Trump have had conversations during a shareholder meeting. Musk said that Trump calls him out of the blue for no reason and is "very nice when he calls." He recalled telling Trump that EVs are "pretty good for the future" and that America is the leader in electric cars. Musk also mentioned that many Trump's friends now own Teslas and love them. The Wall Street Journal reported last month on the pair's "growing alliance." Musk did not address this claim. Tesla shareholders voted to reinstate Musk's $56B pay package that had been voided by a Delaware judge and change the company's state of incorporation from Delaware to Texas.

WSJ : Pensions Piled Into Private Equity. Now They Can’t Get Out.

Pensions Piled Into Private Equity. Now They Can’t Get Out.
Retirement funds seek cash while money languishes in zombie investments

Private-equity and pension funds seemed like a match made in heaven. U.S. companies and states handed over control of some worker retirement savings. In exchange, they got a promise of high returns after a decade—and often received healthy cash payouts in the years before that.

Now the honeymoon is over. The payouts have dried up, creating an expensive problem for investment managers overseeing the savings of workers retired from big corporations and state and city governments.

To keep benefit checks coming on time, those managers are unloading investments on the cheap or turning to borrowing—costly measures that eat into returns. California’s worker pension, the nation’s largest, will be paying more money into its private-equity portfolio than it receives from those investments for eight years in a row. The engine maker Cummins took a 4.4% loss in its U.K. pension last year, in large part because it sold private assets at a discount.

It is the latest cash crunch to befall retirement funds that have piled into hard-to-sell investments in search of high returns, and spotlights the risks as Wall Street is trying to sell those investments to wealthy households.

“You’ve got a lot more money out and going out than is coming back, and I think that’s causing a lot of angst,” said Allen Waldrop, Alaska Permanent Fund Corp. private-equity director.


U.S. companies and state and local governments manage around $5 trillion in pension money. Large public pension funds have an average 14% of their assets in private equity, while large corporate pensions have almost 13% in private equity and other illiquid assets such as private loans and infrastructure, according to data from Boston College and JPMorgan Chase. Much of the money was committed when low bond yields were dragging down retirement portfolios.

But as private equity has grown, its lead over traditional stocks has narrowed. And during the decade before the investments pay out, it can be hard to trust interim estimates provided by fee-seeking managers.

Pensions, sovereign-wealth funds, university endowments and other institutions often promise their money to private-equity managers for a decade or so. Over that time, the managers draw down the cash and use it to buy companies, then overhaul and sell them. Those sales and the resulting cash distributions to investors have slowed markedly as high interest rates have made buying and owning companies more complicated and expensive.


Unable to sell without denting returns, private-equity managers are keeping workers’ retirement savings locked up for longer—sometimes past the promised maturity date. Nearly half of private-equity investors surveyed by the investment firm Coller Capital earlier this year said they had money tied up in so-called zombie funds—private-equity funds that didn’t pay out on the expected timetable, leaving investors in limbo.

So pension funds are selling private-equity fund stakes secondhand—often taking a financial hit in the process. Secondary-market buyers last year paid an average of 85% of the value the assets were assigned three to six months before the sale, according to Jefferies Financial Group. Secondhand sales by private-equity investors increased 7% to $60 billion last year.

Columbus, Ind.-based Cummins sold private assets because its U.K. pension suddenly needed cash after derivatives bets backfired and many U.K. pensions had to post large amounts of collateral. A Cummins spokeswoman said the plan is confident in its strategy.

The Oakland, Calif.-based healthcare provider and nonprofit insurer Kaiser Permanente has sold $6.5 billion in private assets in the past two years and is preparing to sell another $3.5 billion after an aggressive push into private markets a few years ago. Anton Orlich, who oversaw much of that push, is now supervising an expansion of the $502 billion California Public Employees’ Retirement System’s private-equity portfolio to 17% of assets.

Orlich told Calpers’s board Monday that the cash demands of the private-equity portfolio have dwarfed payouts for four years and would continue to do so for about another four years. Calpers is investing extra money up front as a part of a strategy that will reduce sudden requests for cash later, Orlich said.


Some pension funds are borrowing to access cash. Both Calpers and the $333 billion pension serving California teachers have approved plans to take out loans equivalent to 5% and 10% of fund holdings, respectively.

The Alaska Permanent Fund Corp. has received cash from a different kind of borrowing: private-equity managers making payouts that come not from investment gains but from loans they have taken out to appease cash-starved pensions and other investors. That is frustrating for the investment chief, Marcus Frampton. He estimated that his fund, which invests mineral revenue and other state money, could borrow on its own at lower cost. So far, this practice doesn’t appear to be widespread.

The $80 billion Alaska fund has been getting more cash from its private-equity program than it has put in. But it still missed out on around half a percent worth of stock gains—or about $40 million—over the past year after private equity tied up more cash than expected, causing the fund to run a smaller than planned stock portfolio, Frampton told the fund’s board last month.

Board members decided to reduce real-estate and cash holdings instead. They also voted to scrap a goal set a year ago to reduce the share of assets in private equity.

WWD : Galeries Lafayette Revamps Its Luxury Offering, Returns to Pre-pandemic Sa

Galeries Lafayette Revamps Its Luxury Offering, Returns to Pre-pandemic Sales, Traffic Numbers
With Chanel, Rolex, MaxMara and more, the department store group has more local VIPs to make up for the loss of Chinese tourists.

PARIS — As retail rights itself post-pandemic, Paris’ Galeries Lafayette has bounced back with sales reaching 2019 levels.

The retail group hit 3.6 billion euros in sales in 2023, chief executive officer Nicolas Houzé revealed during a presentation at the company’s flagship in Paris. The busy holiday shopping period last December even topped pre-pandemic numbers, and those sales continued to accelerate in the first quarter, he said.

That puts the company on track to hit 3.85 billion euros in sales across the group, including the 18 regional Galeries Lafayette stores, by the end of 2024. To that end, the group has returned to profitability after the lean pandemic years and will invest 400 million euros on building improvements such as the facade of its Paris flagship, plus significant tech and omnichannel investments over the next five years.

This year will also mark Galeries Lafayette’s 130th anniversary. Houzé’s great-grandfather opened the first outpost a few blocks away on Rue Lafayette, and it moved to the current location in 1902.

The store will hold a big birthday party with a special event under the store’s famous dome, details of which are still under wraps, in September, Houzé said.

Pop-ups and special events will increasingly become a core PR pillar for the store.

“We have continued to strengthen our events policy, since we are convinced that the department store must be an events business,” Houzé said.

Olympic Expectations
The anniversary celebration will follow this summer’s Olympics, which will bring expected disruptions to the city and the stores to the tune of driving sales down 5 to 10 percent.

Still, Houzé expects that it will ultimately be good PR for the city itself.

“Our conviction is that this global event will give the city of Paris new visibility, and ultimately make new tourists and customers want to come visit Paris. Therefore we will make up these sales losses following the Olympic Games, between the month of September and the end of the year,” he said.

“It would be completely stupid to say that everything will be business as usual. Obviously there will be disruptions and we must take this into account,” added director of operations Alexandre Liot. “But we see the Olympics as an opportunity for Paris and for France for the future.”

To capitalize on the games, Galeries Lafayette will invite 20 designers to create exclusive products for the store that will roll out around the celebrations.

The Olympic shine will also continue the polishing-up project of the Champs-Élysées, which is in the midst of a multiyear revamp to improve the boulevard. The group believes that shine will also rub off on its second Paris store on the famous shopping street, which has underperformed since its opening in 2019.

“With everything that is happening on the Champs-Élysées, the new openings that will take place in the months and years to come, the Champs-Élysées will also undoubtedly be a very powerful center during the Olympic Games. It allows us to believe in a bright future for the Champs-Élysées store,” Houzé said.

It was launched with a more avant-garde, experimental point of view.

“We were frankly very innovative and pushed the concept as far as possible. The fact is that the performance didn’t live up to what we expected for many reasons,” he said, in part because the concept did not resonate with shoppers, as well as the tough retail climate.

They have revamped the concept with a more classical offering, as well as changed marketing tactics and increased communications spend. It will still serve as a space for emerging brands and new ideas, but they have added a more classical twists. Houzé noted that the personal shopper concept was a success in trials at that store, and has since been rolled out to other locations.

Foot traffic to the group stores has also bounced back, to 30 million visitors in 2023.

With More Locals, a New Luxury Brand Mix
But with the loss of Chinese tourists and the giant buses that used to deposit them in front of the Boulevard Haussmann flagship, that mix has shifted.

Before the pandemic, about 33 percent of its customers were from China, while that number now stands at 20 percent. Those are mostly individuals, and fewer large groups.

Those losses have been made up by French customers, which now make up 40 percent of the store’s customer base with a particular focus on local VIP clients.

The remaining 40 percent are international tourists, with other Asian nationalities, such as South Korea, Japan and Thailand, filling in that gap. The Haussmann flagship reopened its international tour group welcome center last year to make for a more pleasant customer and sales floor experience, he noted.

The local customer base has become increasingly loyal since 2021, Houzé added.

“Ultimately it allowed us to address a much more balanced clientele,” he said of the new demographics.

The loss of Chinese tourists and large groups also shifted the mix inside the store. They revamped the first floor, with larger spaces for key luxury brands, including Chanel and Rolex, while removing some unnamed brands that had mainly appealed to Chinese customers.

They added brands such as Bottega Veneta, Ferragamo, Patou, MaxMara and Victoria Beckham, and have added pieces from runway collections to up the fashion quotient.

“We reinforced our offer with a strengthening of partnerships with luxury houses,” he said, to be more in line with the desires of the newer customer mix, especially Parisian VIPs.

Those expansions came to the tune of about 200 million, with half coming from the group and the other half coming from the brands themselves. The store has also added a lounge and concierge services as it banks on bigger local spend.

“And so, we must evolve, we are not going to deprive ourselves of growth drivers that are close to us,” he said.

The luxury brand offerings are about on par with what they would carry in their own flagships. To differentiate the department store, they are seeking more exclusive brands and products.

The Jacquemus and Nike collaboration was only available at the brand’s flagship and the Haussmann store worldwide.

Kim Kardashian’s Skims brand is only available at Galeries Lafayette in France. It opened a pop-up at its Nice, France, store when that brand arrived to amplify its exclusivity. Strategies like this will help it stand out in an ever-crowded market, where customers have almost every brand at their fingertips.

To that end, the group is also investing heavily in developing its own omnichannel services. Houzé said it is “the right response to the expectations” of customers today.

Changes in customer behavior shaped by the pandemic have borne out in the numbers. In 2019, about 1 percent of the company’s sales were online, while for 2023, it was about 10 percent. Many of these are shipped-from-store home delivery sales and other convenient systems the company developed during the pandemic closures.

The company is also starting to test AI systems on several fronts, including efficiency on the customer service side, creating product descriptions as well as using it on image generation.

Houzé called it a “real revolution” for retail. More than anything the executive believes that the tech will eventually be deployed to “speak to our customers in hundreds of languages” be it in store or via chatbot.

It has also invested in developing its luxury resale channel in the Haussmann flagship through the Re-Store section, which was inaugurated in 2021. With 5,000 square feet dedicated to circular fashion, the section generated 90 million euros in sales in 2023.

“It’s a category which is truly an important expectation of the young generation,” he said.

In addition to expanding the luxury spaces, it has added new contemporary brands such as Jeanne Damas’ Rouje and Balzac, a young Parisian brand which only has one brand-owned flagship and is carried in three Galeries Lafayette stores nationwide.

The shoe department has also been revamped. The category has seen a growth level upward of 30 percent and continues to accelerate with the move to a new floor and upscaled section.

With its massage, personal care and gym, the wellness space opened in 2022, appeals particularly to tourists who are staying in Airbnbs that do not have access to hotel services, Houzé noted. Most of that is services, only about 20 percent of that space is devoted to products.

For its next act, the store will expand the spaces dedicated to the growing category of menswear starting in 2025.

Houzé emphasized that all of these investments are self-financed from the group’s profitability, and not from private investments or the selling off of the BHV department store.

That decision was made post-pandemic as the group wanted to refocus its portfolio on its core brand.

“We have decided to concentrate our efforts on the Galeries Lafayette brand and the 19 department stores that we consider a priority,” he said, of the 18 regional stores plus the Boulevard Haussmann flagship. “We sold BHV to focus our financial and personnel efforts on the historic name.”

That name is also expanding into new markets, with previously announced franchise partnerships in China and India.

“The objective is to make 15 percent of our turnover internationally by 2028,” Houzé said. It stands about 10 percent now, with outposts in Doha, Dubai and Qatar.

“It is our partners who carry the investment,” noted Houzé, who said it does not factor into the 400 million-euro investment number.

The group will continue to upgrade its 18 regional stores, including new approaches such as a shopping and entertainment complex in Annecy, where it includes other brands such as Uniqlo and a climbing wall.

As for the French franchises, which were thrown into chaos by the bankruptcy of owner Foncière Immobilier Bordeaux last year, a commercial court approved a safeguard plan earlier this year to keep the company afloat.

The relationship has stabilized since the decision, Houzé said.

“We have entered into a completely normalized relationship between us as franchisors and them as franchisees,” he said.