FT : Hedge funds raise bets against European government bonds to two-year high

Hedge funds raise bets against European government bonds to two-year high
Traders bet ECB will have limited room to cut rates this year with inflation above target

Hedge funds have amassed their biggest bets against Eurozone government bonds in more than two years, in expectation that the European Central Bank will have limited room to cut interest rates further this year.

The total value of bets against European government bonds hit $413bn this week, according to data from S&P Global Markets Intelligence, as measured by bonds out on loan. That was up 8 per cent since January and the highest level since April 2022.

The rise in bets came ahead of the ECB delivering a well signalled 0.25 percentage point interest rate cut from a historic high of 4 per cent on Thursday.

But it also raised its inflation and growth forecasts for the rest of the year and removed an explicit easing bias from its monetary policy statement.

“The big picture here is that inflation numbers had been coming down but had a nasty uptick,” said Robert Tipp, head of global bonds at PGIM Fixed Income. “In my opinion they made the mistake of signalling and boxing themselves into a cut even though the data was suggesting they should have held up.”

Eurozone inflation rose for the first time this year in May to 2.6 per cent, with services inflation rising to a seven-month high. Raising its predictions for this year and next, the ECB said on Thursday that inflation would average 2.5 per cent in 2024 and 2.2 per cent in 2025. However, its forecast for 2026 was unchanged at 1.9 per cent. Its target is 2 per cent.

On Thursday Christine Lagarde, president of the ECB, said policymakers had decided to cut because of their “confidence in the path ahead” but added that she “wouldn’t volunteer” the notion that the central bank has moved into a dialling back phase.

Markets have increasingly moved to price in a shallow easing cycle for the ECB, with a 76 per cent chance of the next cut by September. A month ago, another cut by then was fully priced in.


Short positions on German government bonds — the benchmark for the Eurozone — have risen by 10 per cent since January to $112bn. Yields on 10-year Bunds have risen from 2.1 per cent to 2.5 per cent, representing a fall in prices. 

The biggest rise in short positioning, according to S&P’s data, has come in Italian bonds, where the value borrowed by investors has risen 38 per cent since the start of the year. That suggests some investors are losing confidence in a rally in Italian debt that has narrowed the gap between Italy and Germany’s benchmark borrowing costs from 1.65 percentage points to 1.31 percentage points since the start of the year. 

Other measures of investor positioning paint a more optimistic view on the outlook for European bonds. Bank of America’s monthly fund manager survey showed asset managers were slightly overweight European bonds relative to their benchmark.

However, Alex Batten, a fixed income fund manager at Columbia Threadneedle Investments, said he preferred to own US government debt over European debt.

“Europe will not be immune to the US experience of inflation taking time to recalibrate back to target,” he said.

>>> Weekend Papers Summary

Weekend Papers Summary

FINANCIAL TIMES
-Donald Trump raised $12M at a fundraiser for venture capitalists and entrepreneurs in San Francisco, marking a significant sign of his inroads in the Democratic stronghold. The event, hosted by Silicon Valley investor David Sacks, took place at his $20M mansion on "billionaire's row" in the city's Pacific Heights district. Trump spoke on artificial intelligence, energy, and crypto, causing a "wild moment" in Silicon Valley politics. The event, which cost between $50,000 and $300,000 a head, revealed the extent to which some Silicon Valley luminaries are warming to Trump as they worry over issues such as free speech, technology regulation, and taxes.
-President Joe Biden urged voters to "stay true to what America stands for" and to draw on the bravery of US forces to protect and uphold democracy in an address commemorating the 80th anniversary of D-Day. Standing on the cliff at Pointe du Hoc, Biden invoked the spirit of the US Rangers who stormed the Normandy coast in 1944. He emphasized the need to stand up for democratic rights both in the US and abroad, referring to Trump as a threat to democracy after the January 6 2021 attack on the US Capitol. Biden urged Americans to protect freedom, defend democracy, stand up against aggression abroad and at home, and refuse to believe that America's greatness is a thing of the past.
-Tesla has filed a court filing claiming that a proposed $5.2B award for lawyers who challenged Elon Musk's pay package is the highest hourly rate in history and they deserve only $13.6M. The lawsuit was filed after a Delaware court ruled that a proposed $56B pay package for Musk was improperly approved and had short-changed shareholders. Tesla argued that the award, initially valued at $5.6B, would be 17 times larger than any fee in Delaware legal history and equal to the state's entire 2024 budget. The sum would collectively make Bernstein Litowitz and two supporting law firms a top-three Tesla shareholder.
-Denmark's Prime Minister Mette Frederiksen was assaulted in a central Copenhagen square during the European election campaign. The 39-year-old man was arrested and is set to appear in court on Saturday. The incident is unclear whether it took place during a campaign event for her Social Democrats party or as part of a private outing. Politicians from Denmark's political spectrum condemned the attack, with Morten Løkkegaard, lead candidate for the governing center-right Liberal party, stating that violence and assaults undermine public debate and democracy. The incident has left Frederiksen "in shock" and sparked condemnation from politicians across the political spectrum.
-Jensen Huang, the CEO of Nvidia, made a high-profile entrance at the annual Nvidia conference, attracting attendees who abandoned overcrowded coaches to attend his speech. Huang's investment in artificial intelligence chips and software has made Nvidia one of the world's most powerful companies, with its market value briefly rising above $3tn. He is on the cusp of becoming a household name, joining Elon Musk and Mark Zuckerberg as tech CEOs the public can recognize. Huang co-founded Nvidia in 1993 and has been at the helm for over three decades, making him one of the last remaining founder-CEOs in Big Tech.
-Rishi Sunak's decision not to attend a D-Day commemoration on Omaha Beach has been criticized by many Conservative candidates, who have already faced electoral oblivion. Some have compared Sunak's decision to other recent British election fiascos, such as Gordon Brown's unguarded description of a voter and Theresa May's infamous "dementia tax" plan. Sunak had spoken at a commemoration event at the British Normandy Memorial earlier on Thursday. By the afternoon, Sunak had disappeared, and Lord David Cameron, the British foreign secretary and former prime minister himself, posed alongside Biden, Macron, and German chancellor Olaf Scholz for photos that immortalized his absence.
-Mexico's leftwing ruling party Morena has won a landslide victory in presidential, congressional, and state elections, with President-elect Claudia Sheinbaum and Morena now poised to push through radical changes to the constitution after greatly increasing its majority in congress. Sheinbaum won more votes than Gálvez across genders, age groups, and in every state but one, but business owners and employers favored Gálvez. In the wealthiest enclaves, support for the opposition coalition and a loathing for outgoing President Andrés Manuel López Obrador is the norm. Some wealthy Mexicans struggled to understand how so many fellow citizens could vote for a political movement they view as responsible for scaring off investment, attacking democracy, and allowing organized crime.
-India's six-week election saw Prime Minister Narendra Modi re-elect his Bharatiya Janata party and its allies to a third five-year term. Modi criticized the opposition and its leader, Rahul Gandhi, calling them casteist, communal, and corrupt. Exit polls showed the BJP and its National Democratic Alliance partners heading for a victory, possibly even a 400-seat supermajority in the 543-seat parliament. However, the results were humbling, as voters handed Modi an unprecedented electoral upset, a magnitude unseen in years.
-The US labor market saw a 272,000 job gain in May, exceeding forecasts, indicating a potential Federal Reserve rate cut. President Joe Biden praised the "great American comeback" in jobs, stating that unemployment has been at or below 4% for 30 months, the longest stretch in half a century. Employers have consistently maintained hiring, despite interest rate increases that have raised borrowing costs to their highest for over two decades. However, voters have been hesitant to credit the president for the economy's performance, and interest rate cuts could potentially strengthen Biden's electoral prospects. The chances of a rate cut at the Fed's mid-September meeting fell from 81% to 57%.
-Germany's Allianz has pleaded guilty to investment adviser fraud, following a $6B settlement between the two countries. Gregoire Tournant, the former lead manager of Allianz Global Investors, pleaded guilty to two counts of fraud, each carries a maximum sentence of five years in prison. The scandal sparked doubt over Allianz's control functions and led to an apology from its chief executive. Tournant and two other managers lied to investors, secretly exposed them to risk, and sent victims altered risk reports. The guilty plea was the culmination of a multiyear investigation and prosecution.
-The Gaza Strip has experienced a significant increase in prices for basic goods following the closure of its border crossing with Egypt. The wartime scarcity has led to a surge in prices for cigarettes, vegetables, frozen meat, medication, petrol, and cooking fuel, with some items now costing dozens of times more than before Israel's war with Hamas began. The situation worsened last month after Israel's military offensive in Rafah, seizing a key border crossing with Egypt and targeting smuggling tunnels. The cost of frozen chicken thighs has risen to $20, cooking gas costs $35 a kilo, car batteries cost over $500 each, and petrol costs $22.

THE NEW YORK TIMES
-Benny Gantz, a centrist member of Prime Minister Benjamin Netanyahu's Israeli war cabinet, has threatened to resign amid disagreements over the war in Gaza. Gantz has said he would quit by Saturday unless his concerns about the war's end and what would follow were addressed. Last month, Gantz said he would resign by Saturday, though there was no public indication of whether he would follow through. If he departs, it is unlikely to force Netanyahu from office. Gantz and his party have not been part of the prime minister's right-wing governing coalition, which has a majority of 64 seats in Israel's 120-member Parliament.
-The Israeli military has killed dozens of militants in central Gaza, including some who had hid in a former United Nations school. The military targeted Hamas fighters at a school compound in Shati, a coastal neighborhood northwest of Gaza City's downtown. The number of casualties is unclear. The Israeli military accused Hamas of systematically, intentionally, and strategically placing its infrastructure and operating from within civilian areas in violation of international law, while putting the lives of Gazan civilians at risk. The Israeli military pushed ahead with its offensive in central Gaza, claiming that Hamas systematically, intentionally, and strategically places its infrastructure and operates from within civilian areas in full violation of international law.
-The Biden administration has tightened vehicle fuel mileage standards as part of its strategy to combat climate change. The new measure requires automakers to achieve an average of 65 miles per gallon for all car models they sell by 2031. The move is part of a larger effort to transform the American auto market into one dominated by electric vehicles that do not emit pollution. The Transportation Department announced the new standards as part of several regulations the administration is using to encourage carmakers to produce more electric vehicles. The 2022 Inflation Reduction Act, championed by Biden, provides tax credits for buyers of new and used electric vehicles, incentives for charging stations, and grants and loans for manufacturers.
-Justice Clarence Thomas has included luxuries in his financial disclosures, including trips to Indonesia and a secretive all-male club in Northern California. Other Supreme Court justices have also disclosed their gifts, travel, and money earned from books and teaching. Justice Ketanji Brown Jackson received four concert tickets valued at $3,700 from Beyoncé and $10,000 of artwork from Alabama artist Lonnie Holley. The financial disclosures are one of the few public records available about the justices' lives, providing details of their activities outside the court. Justices can earn outside, uncapped money through books, with Justice Jackson reporting $893,750 from an advance for her memoir, Justice Neil M. Gorsuch listing a book advance of $250,000. Justice Brett M. Kavanaugh disclosed a $340,000 advance for his legal memoir.
-Senate Democrats are facing increased pressure from the left for inquiries into ethical questions at the Supreme Court due to the court's independent status and Republican opposition. Advocacy groups and progressives are calling for more aggressive action after Chief Justice John G. Roberts Jr. rebuffed a plea to require Justice Samuel A. Alito Jr. to recuse himself from pending cases related to the Jan. 6 assault on the Capitol and Donald J. Trump's immunity. A coalition of liberal groups and House Democrats urged the Senate to open an investigation into Alito's actions.
-Hunter Biden is on trial for gun charges, but the Biden women have been forced into an uncomfortable spotlight. The women called to testify have tried to support and protect the troubled husband, father, and son, who has a ruinous history of addiction. The women who didn't speak sat in the courtroom, playing parts of nurturers and sentinels. Naomi Biden Neal, Hunter Biden's eldest daughter, testified on his behalf on Friday. She described a period in October 2018 when drug addiction was again overtaking her father's life. That month, Hunter Biden had bought a gun and filled out a federal form attesting that he was not using drugs, a decision that is at the heart of the prosecution's case against him.
-President Emmanuel Macron of France highlighted the "bond of blood shed for liberty" that connects his country to the United States, dating back to the founding of the United States in 1776 and French support for American independence against the British. Despite tumultuous times and tensions between Paris and Washington, the ties between the two countries remain resilient. President Biden's five-day stay in France, an unusual visit for an American president, demonstrates the strength of this friendship, but also highlights the tension between French gratitude for American sacrifice and Gaullist restiveness.
-France has found a mild-mannered insurgent in 28-year-old Jordan Bardella, the president of the National Rally. Bardella, a disciple of Marine Le Pen, is known for his strong-jawed TikTok star and love of candy. As European Parliament elections approach, Bardella is poised for a victory that could reshape French politics. An IPSOS poll published this past week gave the National Rally 33 percent of the vote, more than double the 16 percent of President Emmanuel Macron's centrist Renaissance party. As the European Parliament elections approach, Bardella's victory could reshape French politics.
-The Washington Post's new publisher, Will Lewis, has defended the newspaper's coverage of British phone hacking, arguing against it. Lewis, who previously served at The Wall Street Journal, has invited renewed scrutiny of the scandal. In 2011, News Corporation faced a significant threat in Britain when reporters at one of his tabloid newspapers were exposed for hacking the phones of celebrities, private citizens, and a murdered child for information. Other misdeeds emerged, including the revelation that tabloid reporters had paid for information from police officers and government officials for years. In response, News Corp tapped Lewis to clean up the mess and appease prosecutors in Britain and abroad.
-Alex Jones, the founder of Infowars, is seeking bankruptcy to liquidate his personal assets and deliver the proceeds to the Sandy Hook families who are owed over $1.4B in damages for his lies about the 2012 school shooting. Jones also filed a separate bankruptcy for his company, Free Speech Systems, which is set to be liquidated. This would shutter Infowars and place assets from Infowars' studios and potentially Jones' social media accounts in control of the families. Silencing Jones would be a definitive win for the families, who claim he has profited from the lies and fear he spreads on Infowars.
-Frank Stronach, the 91-year-old founder of Magna International, has been arrested and charged with sexual assault in connection with a sexual assault investigation. The police force for Peel Region, outside Toronto, stated that the time frame of crimes alleged against Stronach spanned from the 1980s until last year. Stronach was charged with offenses including indecent assault, sexual assault, and forcible confinement. The Austrian-born founder of Magna International was released after being charged and will appear later at a court in Brampton, Ontario.
-Italy has been hailed as the home of opera, with a star-studded concert at Arena di Verona on Friday night. The concert was a public acknowledgment of opera's cultural impact around the world, broadcast worldwide from the ancient Roman amphitheater that draws tens of thousands of opera lovers each summer. The concert featured sweeping overtures, heart-wrenching arias, and an oversize orchestra and choir backing A-list soloists. The conductor, Riccardo Muti, said that opera's "great masterpieces are our heritage, and we Italians have given them to the world." The concert was attended by President Sergio Mattarella of Italy and Prime Minister Giorgia Meloni, as well as fashion glitterati, opera fans, and dozens of ambassadors from countries where opera is loved. The addition to the list by UNESCO was a coup of sorts for Italy's conservative government, whose culture minister, Gennaro Sangiuliano, has made it his mission to exalt Italianness.

THE NEW YORK POST
-NATO is establishing "land corridors" at European ports to allow US troops and allied forces to reach the front lines quicker in case of a broader European ground war with Russia. This follows warnings from NATO leaders earlier this year urging Western governments to prepare for a full-blown war with Russia in the next 20 years. The newly established troop expressways would see American soldiers landing at one of five designated ports. The new routes will expand on existing arrangements since last year's summit in Vilnius, Lithuania. US forces will land at ports in The Netherlands before being transported through Germany and Poland by train.
-GameStop's shares fell 39% on Friday due to a wider-than-expected sales drop and a failed YouTube livestream from retail investor "Roaring Kitty." The company reported net sales of $881.8M in the quarter ended May 4, compared to $1.24B a year earlier. This was worse than Wall Street expected, with analysts predicting sales of $900M to $1.09B. GameStop's net loss narrowed to $32.3M, compared to $50.5M a year earlier. The company plans to raise over $3B by selling up to 75M shares.

The Information : AI Startup Harvey Targets $2 Billion Valuation and Mulls Buyin

AI Startup Harvey Targets $2 Billion Valuation and Mulls Buying a Legal Research Company


The Takeaway
• Generative AI startup Harvey is seeking $600 million
• New cash could fund acquisition of legal research tool vLex
• The startup has pitched investors on a valuation over $2 billion

In just over a year, artificial intelligence startup Harvey raised three investment rounds to develop software that takes the drudgery out of legal paperwork. Now the company wants an even bigger war chest—one that could help it acquire other companies.

The San Francisco startup has been talking to investors about raising $600 million at a valuation of at least $2 billion, more than double its valuation from a December financing, according to a person involved in the discussions. If it’s able to raise that much, it could potentially use the new money to buy vLex, a 25-year-old legal research service majority-owned by private equity firm Oakley Capital, to train its product, Harvey executives have told potential investors. Kleiner Perkins, which co-led Harvey’s last financing, plans to invest $100 million in the round, Harvey executives told potential investors.

Spokespeople for Harvey, Kleiner, vLex and Oakley didn’t respond to requests for comment. It isn’t clear if the $2 billion valuation Harvey is targeting includes the new capital.

While some young AI startups have considered selling to bigger, deep-pocketed AI startups, it would be unusual for a two-year-old startup like Harvey to buy a PE-backed firm. Harvey, whose service helps lawyers conduct research and draft and analyze legal documents, is interested in vLex’s database of regulatory and legal documents on topics such as case law and legislation, which it can use to improve the AI models it relies on from OpenAI, Harvey has told potential investors. Oakley bought its majority stake in vLex in 2022.

That would help it compete with other AI legal services. Last year, Harvey competitor Casetext sold to Thomson Reuters for $650 million, giving the startup access to Thomson Reuters’ legal content library, which it could use to improve its services.

Harvey’s fundraising, if completed, would bring its total funding to $700 million and extend a torrid streak of investments in young AI startups that’s continued unabated despite signs of reluctance on the part of businesses to pay a premium for AI-powered software. In one seven-day stretch in May, nearly two dozen generative AI startups raised almost $2.2 billion, data compiled by The Information show.

Harvey is competing with a number of other legal AI startups, including EvenUp, an AI tool for personal injury lawyers, and Leya, another AI assistant for lawyers. The crowded field has turned off some venture investors from backing any one of them.

Harvey, unlike some AI startups that have sought to raise money recently, generates revenue. In December, it hit $10 million in annual recurring revenue, or the subscription revenue it expected to generate over the next 12 months, compared to less than $2 million in April 2023.

The startup, founded in 2022 by former Meta Platforms AI researcher Gabe Pereyra and Winston Weinberg, a former lawyer at O’Melveny & Myers, has positioned itself as a safe way for big law firms to use the technological advances of generative AI. Some of its clients include legal teams at KKR and PwC. Harvey is supposedly named after Harvey Specter, the lead character in the legal drama “Suits.”

In December, Harvey announced it had raised $80 million, at a valuation of $715 million, the Information first reported. Sequoia Capital, solo investor Elad Gil, Sarah Guo’s Conviction and the OpenAI Startup Fund previously invested in the company.

FT : Man City legal challenge exposes Premier League splits on spending rules

Man City legal challenge exposes Premier League splits on spending rules
Top tier football clubs divided on what to do about financial regulations they say are not working

An escalating legal fight between the Premier League and its dominant champions, Manchester City, has laid bare simmering tensions among football clubs about the rules that limit spending on players in the sport’s richest competition.

City, which is owned by a member of the Abu Dhabi royal family and which has as its main sponsor the emirate’s state-backed airline Etihad, has challenged rules governing associated party transactions — commercial deals between a club and an entity deemed to have links to its owners.

News of the move follows a season in which two Premier League clubs, Everton and Nottingham Forest, were docked points for exceeding permitted losses, while Leicester City faces the prospect of being punished for similar offences when it returns to the division this summer. 

For the growing number of professional investors involved in English football, capped spending is seen as vital to creating a sustainable business model and a thriving competition. Many clubs believe the mechanisms in place are not working but they are deeply divided on what should be done about it. 

Some owners feel that the league’s rules have gone too far and disproportionately penalise ambitious clubs seeking to narrow the gap with the elite. Others argue that without tighter regulation, clubs will keep losing money while state-linked teams such as Manchester City, which recently notched up a record fourth consecutive Premier League title, become ever more unassailable on the pitch.

The split over spending rules adds to a list of challenges facing Premier League chief executive Richard Masters and chair Alison Brittain, who are also dealing with the prospect of a new independent football regulator, pressure to send more money down to lower leagues and a slowdown in the domestic market for broadcast rights that has powered revenue growth for the past 30 years. 

At the league’s annual meeting this week in Harrogate, clubs agreed to trial two new approaches to financial regulation. The squad cost rule will limit spending on players to 85 per cent of revenue, while “anchoring” will link the amount any club can spend to the income of the bottom-ranked team. Both will be tested next season in tandem with existing profit and sustainability regulations. 

This year’s AGM took place two days after news broke that City had launched its legal challenge. The club claims that the current APT rules are anti-competitive and says the system requiring 14 of the league’s 20 clubs to agree on rule changes amounts to a “tyranny of the majority”, according to details of the legal complaint first reported by The Times.

Neither the league nor the club has commented on the matter. 

The move to challenge the rules through an arbitration system, unprecedented since the Premier League was formed more than 30 years ago, comes ahead of a separate hearing in the autumn on 115 charges laid against City by the league last year. Among the accusations is that the club declared inflated sponsorship deals in order to spend more on players. City denies the charges.

In a video interview published on City’s website on Wednesday, chair Khaldoon Al Mubarak said the allegations were “always frustrating”.

“We, as a club, have to respect that there’s a process we have to go through and we are going through it,” he added. “It is taking longer than anyone hoped for, but it is what it is.”

A top executive at a rival Premier League club warned that if successful, City’s complaint would create a two-tier system within the Premier League, with a small group of teams free to soak up cash from related sponsors and vastly outspend rivals. “It’s time for the league to wake up,” the person said.

One senior figure in English football said City’s legal move appeared to be a long shot attempt to undermine the league’s entire financial rule book ahead of the autumn hearing, at which an independent commission will decide whether City breached regulations over a nine-year period. A shareholder at another rival club viewed City’s challenge as an effort to “weaken the Premier League’s resolve” ahead of the case. 

Several Legal experts and football executives said they did not expect City’s case against the league to be successful.

Premier League rules are dictated by its clubs, and the current regime was agreed by a vote in 2021 — largely to prevent Newcastle United from being flooded with sponsorship money from Saudi companies after its takeover by the country’s Public Investment Fund. “This is more about bluster and headlines”, said one sports lawyer. 

A board member at a top tier club welcomed the fact that the dispute was coming out into the open, and said the league’s push for new financial rules over the past two years had been slowed repeatedly by the fear of exactly this kind of legal challenge.

“They’ve been threatening to do this forever”, the board member said. “This is a step too far.”

Barrons : Investing in Sports Has Arrived. Here’s the State of Play.

Investing in Sports Has Arrived. Here’s the State of Play.
A fluid and disparate sports business ecosystem is being etched by a handful of pioneering private-equity firms.

Gradually and then suddenly, the wily ways of Wall Street have come to the wide world of sports. And while you’d think testosterone-driven financiers would be naturally drawn to sports, investments by the former in the latter had been rather limited heretofore. Now, as these worlds increasingly collide, dealmaking is picking up and becoming more sophisticated.

Gradually and then suddenly, the wily ways of Wall Street have come to the wide world of sports. And while you’d think testosterone-driven financiers would be naturally drawn to sports, investments by the former in the latter had been rather limited heretofore. Now, as these worlds increasingly collide, dealmaking is picking up and becoming more sophisticated.
First, at the headline level, private-equity executives have become go-to buyers of marquee sports teams. Look no further than the latest megadeals: David Rubenstein, co-founder and co-chairman of The Carlyle Group, purchased the Baltimore Orioles for $1.725 billion in March, and Josh Harris, co-founder of Apollo Group Management, bought the Washington Commanders for $6 billion in July.

Second, investment firms themselves are acquiring stakes in, or entire teams, leagues, and global competitions—from women’s soccer and professional bull riding to lacrosse and sailing.

Third and most significantly for now, professional investors are snapping up and creating tertiary sports businesses, leveraging, say, broadcast, digital, and scripted series rights, as well as bespoke stadium concessions. Example: George Pyne’s sports-focused investment firm Bruin Capital just bought a majority stake in a stadium grass-turf company.

It’s a fluid, disparate ecosystem being etched by a handful of pioneering private-equity firms. As such, there are very few publicly traded options for retail investors (see table below), but that will probably change soon as more investment firms enter the sports fray and ordinary Joes clamor to get their piece.

U.S. Invasion
The action is increasingly global. In England, they are sounding the alarm, “The Americans are coming!” Wealthy Yanks now control or own significant slices of half of Britain’s 20 Premier League teams (the nation’s top soccer conference), including a number with ties to investment firms. Eldridge Industries CEO Todd Boehly owns Chelsea, a perennial contender from West London, while billionaire Wes Edens, co-founder of Fortress Investment Group, has a stake in Aston Villa from Birmingham. Also, private-equity giant Silver Lake has a piece of powerhouse Manchester City. Americans are picking up high-profile soccer teams in Italy and France, as well.

The influx of Wall Street money into sports is easy to figure. Private-equity firms and their honchos—some unencumbered by shareholders and less beholden to regulators than their publicly traded brethren—have mountains of money. To exclude them would effectively cap the valuations of sports properties. Teams in newer leagues such as rugby or volleyball, or in women’s sports, covet that capital.

For example, in a recent $58 million deal, The Carlyle Group bought a majority stake in the Seattle Reign women’s soccer team. Baseball, basketball, and hockey also crave the cash, and all of them—to one degree or another—now allow investment companies to buy into teams. To date, the only holdout is the National Football League, and sure as a Patrick Mahomes’ second-half comeback, that day will come.

“We are making real progress on potential private equity,” NFL Commissioner Roger Goodell told reporters late last month at the conclusion of the spring league meeting in Nashville. “We’re going to continue to be very deliberate, but I expect there to be something by the end of the year.”

In some instances, PE bankers are teaming up with star athletes, many of whom have generated significant coin themselves. Former New York Giants quarterback Eli Manning, a partner at sports investment company Brand Velocity Group and who has an investment in women’s soccer team Gotham FC, recently expressed interest in buying into an NFL team.

Early Days
To be honest, though, this activity is mostly just scratching the surface. Investment firms still can’t own U.S. teams outright, meaning the New York Yankees aren’t about to become a Blackstone portfolio company (although now that we’ve said it, wheels may start turning in Steve Schwarzman’s head).

Another critical, early-days caveat is that calling sports an asset class would be premature—despite some investors insisting it is one—at least according to Gerry Cardinale, founder, managing partner, and chief investment officer of RedBird Capital Partners, a sports, media, and financial-services investment company that manages $10 billion. He describes a bit of a gold rush mentality among participants.

“If I brought any other industry to you and said I’m going to pay premium valuations for a minority stake with no governance, no information rights, and no pathway to liquidity, you would laugh me out of the room,” says Cardinale, formerly a Goldman Sachs partner who cut his teeth on sports deals going back three decades.

His concern hasn’t dampened enthusiasm by investment firms, though, which Cardinale sees as creating a disequilibrium. “You’ve had this massive escalation in asset valuations because of money chasing deals, and none of the infrastructure in sports has really kept pace,” he says. By infrastructure, Cardinale means everything from new, high-end stadiums rife with shopping, food, and amenities to cutting-edge digital media deals.

To Cardinale and his team, which includes Jeff Shell, who oversaw sports in his previous role as CEO of NBCUniversal, building out those frameworks spells an opportunity. As such, RedBird has made investments where he says he can bring to bear his firm’s expertise. For instance, RedBird just announced a new endeavor called Collegiate Athletic Solutions, which will invest in colleges and universities to “monetize a school’s intellectual property,” according to The Wall Street Journal. (That could include creating and monetizing additional sports programming. A template might be RedBird’s partnership through Skydance Media with the NFL for scripted and unscripted programming, resulting in a soon-to-be-released Netflix documentary on the Dallas Cowboys.) RedBird has invested in the academy just as the National Collegiate Athletic Association signed a landmark $2.77 billion settlement and agreement to pay student athletes.

RedBird, which is looking to buy Paramount Global with Skydance—“We don’t have to do this deal; I think we’re really the only credible buyer,” Cardinale says—has also invested in Fenway Sports, which owns the Boston Red Sox and Britain’s high-profile Liverpool soccer team, and has deals with LeBron James and Nascar. RedBird also has full ownership of Italy’s storied AC Milan soccer team (“a global fan base of 550 million”), the United Football League (along with Dwayne “The Rock” Johnson), and the YES Network, which is the nation’s biggest regional sports network, with local media rights of the New York Yankees, the Brooklyn Nets, soccer’s New York City FC, and the Women’s National Basketball Association’s New York Liberty.

Waxman’s Offense
Alan Waxman is CEO of Sixth Street, a private-equity investment firm with $75 billion under management that has gone deep into sports. He is enamored with the possibility of turning sports properties into global consumer brands. Another former Goldman hand, Waxman grew up in Austin, Texas, and theorized that his hometown and San Antonio were converging into a significant central Texas market. In 2021, he put his money where his mouth was, buying a piece of the San Antonio Spurs with tech billionaire Michael Dell.

Thanks to digital media, Waxman’s ambitions are increasingly global. “You can pull up your phone in Australia and watch NBA games,” Waxman says. “You can go on social media and engage with fans and athletes, which has broken down walls. The Spurs were a midmarket team but now have a global audience. We have [French-born Spurs star] Victor Wembanyama, and the NBA just announced the Spurs will play two games in Paris next year.”

Besides the Spurs investment, Sixth Street has stadium and broadcast deals with Spanish soccer behemoths Real Madrid and Barcelona, respectively. And it has a majority stake in Legends, which does food, beverage, merchandise, retail, and stadium operations for the Dallas Cowboys, the New York Yankees, and others.

Waxman is also keen on women’s sports, pointing out that 99% of advertising, sponsorship, media, and investment dollars go to men’s sports, whereas 80% of household purchases are made by women. “In my 20-year career, I’ve never seen anything as asymmetric as women’s sports,” he says. Last year, Sixth Street, along with soccer superstars Brandi Chastain and Aly Wagner and former Meta Platforms Chief Operating Officer Sheryl Sandberg, paid $53 million for the rights to Northern California’s Bay FC women’s soccer team.

Professional sports teams in America used to be owned mostly by local wealthy businessmen—like the apocryphal guy with a string of car dealerships. Now, as the prices of teams have soared with this influx of investment firms, that era is going, going, gone.

Baseball’s Pitch
This extends to Minor League Baseball, too. In September, former Time Inc. CEO Don Logan sold the Birmingham Barons, a Double-A affiliate of the Chicago White Sox, after 18 years of ownership. (Willie Mays and Reggie Jackson were notable Barons. So was Michael Jordan, though his tenure was less successful.) “We liked baseball, and we thought it’d be great for the city of Birmingham to pick up the pace a little bit. It wasn’t brain surgery,” Logan told me. “This group made an offer to buy the team, and we wound up taking it. There are lots of changes in the industry now. [The buyer] has a different business model.”

The buyer Logan refers to, Diamond Baseball Holdings, or DBH, owns 34 minor league teams—from the Albuquerque Isotopes to the Worcester, Mass., “WooSox.” There are 120 minor league teams in North America, ergo, DBH has 28.3% of them. “MLB sees in us people who really understand Scranton and Des Moines,” DBH co-founder Pat Battle told The Athletic. “They’re not the 30 major markets, but they’re real markets, and very important communities in this country.”

And who owns Diamond Baseball Holdings? Silver Lake, which (besides its Manchester City stake) holds a number of other sports properties through its portfolio company, entertainment conglomerate Endeavor. That includes TKO, which comprises UFC (Ultimate Fighting Championship) and WWE (World Wrestling Entertainment ), as well as PBR—“the world’s premier bull-riding organization”—and EuroLeague Basketball, which manages Europe’s top men’s basketball league and competitions.

Last year, billionaire Marc Lasry sold his stake in the Milwaukee Bucks, but the CEO of investment firm Avenue Capital is hardly exiting the sports business. In fact, Lasry has launched a dedicated sports fund —which counts athletes Stephen Curry, Candace Parker, Michael Strahan, and Lindsey Vonn as partners—and has invested in golf, sailing, and a bull-riding team. “You want to be invested in sports, whether you do it with us or you do it with somebody else,” Lasry told a group of well-heeled investors at the Milken Global Conference in May. “You’re gonna make quite a bit of money in sports over the next few years.”

Private-equity group Arctos Partners had raised $7 billion in two sports-only funds that have stakes in a couple of dozen teams. Sports funds are generally for institutional investors only, although some wealth managers can provide access by pooling investments from their well-heeled clients. Matt Brown, CEO of investing platform CAIS, which facilitates retail investors buying into private equity through their financial advisors, aims to make the funds more accessible. “There’s a willingness on the part of leagues to allow for the democratization of professional sports,” Brown tells me. “We are actively exploring opportunities to bring sports investments [for retail investors] on to our platform.”

If sports eventually does become an asset class, it won’t be for the faint of heart. Like elite athletes, investors will need all kinds of fortitude to realize the thrill of victory and avoid the agony of defeat.

Barrons : Japan’s Stock Rally Isn’t Over. But Patience Is Key.

Japan’s Stock Rally Isn’t Over. But Patience Is Key.

The easy part of the Japanese stock rally looks to be over. Some of the factors that drove it may still produce longer term gains.

The iShares MSCI Japan exchange-traded fund jumped by a quarter from late October to late March as the promise of Tokyo breaking a three-decade deflationary cycle lured global investors into low-multiple equities. It’s tapered off by 4% since then.

Reasons are manifold: The Bank of Japan halted its interest rate hikes at 0.1%, hardly a sign of economic vigor. Prime Minister Fumio Kishida’s government is polling at 26%, and mired in election slush fund scandals. Japanese retail investors still prefer U.S. securities, says Jesper Koll, Tokyo-based global ambassador for Monex Group.

“The impact of foreigners as a marginal buyer is pretty much played out,” he says.

Look closer, though, Japan bulls argue, and game-changing structural shifts are still afoot. Corporate managements are at last overcoming the trauma of the 1990s market collapse, which led to a generation of cash-hoarding and ultraconservatism, says Michael Kelly, head of PineBridge Investments’ multi-asset strategy.

“They are shaking off the 30-year deflationary mind-set,” he says.

Spring wage negotiations with leading trade unions produced the biggest raises in memory, one more positive sign that healthy, modest inflation could take sustainable hold.

Japanese policymakers meanwhile are learning to love a cheap yen, Kelly continues. Elsewhere, a currency that lost 18% against the dollar since early last year would be a bad sign. In Japan, it spells swelling earnings for its global manufacturing giants. Profit at Toyota Motor, the largest stock in the Nikkei index, leapt 81% year-over-year in its latest quarter.

A deflated yen is also pulling high value-added jobs back to Japan, largely from China, adds Drew Edwards, head of Japan value equities at asset manager GMO. “Japan is becoming a low-cost production center,” he observes.

The Bank of Japan has intervened lately as the yen approached 160 to the dollar, but largely seems content with the status quo.

Edwards is most enthused about governance reforms trickling through Japan Inc., which has long insulated itself from pesky investors through labyrinthine cross-shareholdings and old-boy boards. “We finally have a situation where all these things we’ve been complaining about are getting better,” he declares.

The Tokyo Stock Exchange got hidebound managements’ attention last year, launching a “name-and-shame” campaign for companies trading below their book value. Earlier this year, the Financial Services Authority demanded (sort of) that four top insurers unwind cross-holdings following evidence of price collusion. The $1.5 trillion Government Pension Investment Fund is pushing for better corporate performance behind the scenes, Edwards says.

Companies that embrace governance change can produce dramatic results. Edwards’ top Japanese shareholding is Mitsubishi Electric, whose CEO “threw out the Mitsubishi directors” from elsewhere in the conglomerate and “turned the culture and strategy of the company 180 degrees.”

Another pick is IT power NEC, which was ahead-of-the-Japanese-curve in shedding loss-making units, and nimble enough to expand its telecommunications equipment arm as Western governments excluded China’s Huawei. Both stocks have doubled in the past 18 months.

Japan does face at least one external threat, Kelly says: the re-election of Donald Trump, who is likely to press for a stronger yen to curb the U.S.-Japan trade deficit.

“Japan will be a market performer if Trump wins, an outperformer if he doesn’t,” Kelly predicts.

Barrons : Lockheed Martin Stock Has Disappointed Investors. It’s Time to Buy.

Lockheed Martin Stock Has Disappointed Investors. It’s Time to Buy.
The defense contractor’s stock has been an underperformer, but earnings are set to accelerate, giving it a boost.

A good defense is supposed to be the best offense, but Lockheed Martin’s returns would make any investor defensive. That’s about to change. It’s time to buy the stock.

Lockheed is the quintessential defense “prime” contractor, delivering F-35 joint strike jet fighters, Blackhawk combat helicopters, satellite systems, Hellfire missiles, lasers, drones, cruise missiles, hypersonic weapons, and more. Its 2023 sales of almost $68 billion make it the largest defense company in the Western world.

Lately, however, Lockheed stock feels like a perpetual laggard. Shares have returned about 9% a year on average over the past five years. Not too bad, but that lags behind the S&P 500 index by about six percentage points a year. Not even war in Gaza and Ukraine or tensions between Taiwan and China have been able to boost the laggard stock.

Lockheed has been beset by problems ranging from supply-chain issues, which limited production, to concerns about government military spending. But with order backlogs growing, manufacturing improving, and spending poised to increase, Lockheed’s business is about to get a boost. What’s more, capital returns, including hefty buybacks and a generous dividend, should propel shares even further.

“With supply-chain issues abating, investors likely return to valuing Lockheed with a two- to three-year outlook,” writes Seaport Research Partners analyst Richard Safran. His price target is $551, up about 18% from Wednesday’s close of $465.23.

It’s a bullish take that doesn’t appear to be shared by many. Over the past decade, earnings per share at Lockheed have grown almost threefold while S&P 500 earnings have little more than doubled. All of the outperformance, though, hasn’t led to a better valuation—the stock trades for 17.3 times 12-month forward earnings. That’s a 15% discount to the S&P 500, more than the 10-year average of 5%. Analysts, too, seem to have it in for the stock. Just 32% of those covering Lockheed rate it a Buy or equivalent, well below the 55% average for stocks in the index. It’s as if everyone has gotten stuck waiting for military spending to fall either because of rising budget deficits or a sudden outbreak of peace.

Neither seems to be much of a risk. While any single overseas conflict won’t materially change the trajectory of global military spending, recent flare-ups remind investors that no one is likely to beat his sword into a plowshare anytime soon. Budget deficits have been the more pressing risk. From 2018 to 2023, the U.S. federal government spent about $9.5 trillion more than it took in. That’s the same deficit accumulated from 1997 to 2017. That matters for Lockheed because the U.S. government accounts for 75% of its annual sales, far more than Boeing, for example, which gets less than half of its sales from the feds—a figure that would be even lower if its commercial business were operating normally.

Those concerns seem justified when considering the tepid rate of military spending budgeted for 2025—just a 1% increase. But that doesn’t tell the entire story. Safran argues that investors are overlooking pent-up spending—the difference between what is budgeted and what is actually spent. Because of supply-chain issues and other factors, about $120 billion in previous budgets went unspent and will be added over the next three to four years, Safran says. “Pent-up spending continues to grow, a strong indicator that investors may be underestimating Lockheed’s top-line and free-cash-flow growth,” he writes.

The delays from supply-chain disruptions have also created a large backlog for Lockheed, one that the company should be able to start addressing soon, Chief Financial Officer Jay Malave told Barron’s. “The ability to ramp across the industry…across the supply chain…has been challenged,” he says. “[Budget growth] along with our existing backlog give us confidence we will continue to grow in 2025 and beyond.”

He has a point. Lockheed’s backlog at the end of the first quarter amounted to about $159 billion, more than two years’ worth of sales. Some of that backlog will be shipping soon. Lockheed isn’t delivering the updated version of its F-35 jet fighter yet. Testing has taken longer than expected, but deliveries should begin in the third quarter. Lockheed delivered no F-35s in the first quarter. When things normalize, the company will deliver some 40 jets a quarter to the U.S. and its allies.

That can drive a lot of earnings growth. Currently, Wall Street expects Lockheed to grow earnings per share by about 6% a year on average from 2024 to 2026, while free cash flow over the same period should total almost $19 billion. A lot of that cash will be used to retire stock. Over the past 10 years, Lockheed has spent some $30 billion reducing shares outstanding by almost 25%, with the company buying back $1 billion per quarter in recent years. It also puts out about $780 million in quarterly dividends, giving it a yield of about 2.7%, above the 2.1% average yield of dividend payers in the S&P 500.

The setup was enough for CFRA analyst Stewart Glickman to upgrade shares to Strong Buy from Hold with a price target of $557, up about 20%. His target works out to 20 times estimated 2025 earnings, a small premium to the S&P 500 multiple. That’s not as far-fetched as it might seem. Lockheed stock has traded at a premium to the S&P 500 in the past, and Glickman believes he knows what will get it there again.

“The earliest key catalyst is likely a 2025 appropriations bill by Congress,” he writes of the bill that will determine how much is actually spent on the military in the coming year. “Defense hawks may be able to drive improved spending levels.”

Lockheed Martin stock is poised for takeoff.