TheChek News Flow

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.”

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.

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.

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.

The hedge fund manager is launching a publicly traded fund—and planning an IPO for his investment management firm.

Bill Ackman is one of the world’s highest-profile investors—and he’s coming for your money.

Ackman, 58, is seeking to capitalize on his celebrity status—he has 1.2 million followers on X—by

selling a New York Stock Exchange–listed equity-oriented closed-end fund, Pershing Square USA (ticker: PSUS), to investors by the end of July. Ackman’s ambitious goal, according to people familiar with the situation, is to raise $25 billion, although it’s too early to determine whether demand will be sufficient to reach that amount.

Ackman is betting that investors won’t blanch at a 2% annual management fee—steep for an actively managed fund, which typically charges 1% or less. Ackman’s Manhattan-based management company, Pershing Square Capital Management, will waive the fee for the first year and plans to invest $500 million in the new fund.

The timing is good for Ackman, who is riding high after a rough period from 2015 to 2017 when he badly lagged behind the S&P 500 index due to losses on investments such as drugmaker Valeant Pharmaceutical.

His main current investment vehicle, the London- and Euronext-listed Pershing Square Holdings, has returned 28% annually over the past five years, against 15% for the S&P 500. Since its inception nearly 10 years ago, however, the fund is trailing the S&P 500 by about four percentage points annually.

With a $10 billion market value, Pershing Square Holdings is available to U.S. investors, changing hands over the counter under the ticker PSHZF.

“Ackman made mistakes, but learned from them. That’s good. He has gotten a lot better over time,” says Bryn Torkelson, president of Matisse Capital, whose Matisse Discounted Closed-End Strategy mutual fund counts Pershing Square Holdings among its largest holdings.

Ackman’s new closed-end fund plans to take a concentrated approach and invest in 12 to 20 of what its prospectus calls “durable North American growth companies.”

That’s consistent with his recent track record, as Ackman has shed his activist mantle in recent years, given up shorting after a disaster with Herbalife nearly a decade ago, and cut portfolio turnover. Pershing Square Holdings made only one notable portfolio change in 2023, selling Lowe’s and buying Alphabet.

Some of the stocks in the new closed-end fund could overlap with Pershing Square Holdings, which is highly concentrated with top holdings in stocks such as Chipotle Mexican Grill, Restaurant Brands International, Alphabet, Hilton Worldwide Holdings, and Howard Hughes Holdings.

Ackman said in late May that he sees an “idea rich” environment for investing, with the stock market dominated by megacap growth companies such as Microsoft, Nvidia, Amazon.com, Alphabet, and Meta Platforms. He said he has added two new investments but declined to name them.

One obstacle for the new fund is that investors have an alternative in Pershing Square Holdings, which trades at a nearly 25% discount to its net asset value. It fetches $54 a share, and its portfolio value is about $70 per share.

Given the potential narrowing of the big discount, Pershing Square Holdings looks like a better bet for investors than the new fund, which is likely to trade initially in line with the value of its portfolio.

A closed-end fund issues a fixed number of shares and trades on an exchange. The fund price tracks the underlying asset value but can trade at a discount or premium to its portfolio value based on investor demand. Most closed-end funds now trade at discounts to their asset values.

The launch of the closed-end fund is tied to Ackman’s plans for his asset-management company. He recently sold a 10% stake in Pershing Square Capital Management for $1.05 billion to a group of investors, including insurer Arch Capital Group, which values the entire company at a steep $10.5 billion.

Ackman’s personal wealth soared with the sale. He owned half of the management company before the sale, valuing his stake at $5 billion; plus he owns over 20% of Pershing Square Holdings, a stake worth over $2 billion. That puts his wealth at over $7 billion.

The management company is expected to go public in 2025 after Wall Street sees how much money Ackman can raise with the new fund and other potential ventures. His firm now has about $17 billion of net assets.

A $25 billion target for the new fund is challenging for several reasons. Active equity funds are out of favor, as investors favor passive vehicles like exchange-traded index funds. The $300 billion closed-end fund market, in particular, has been moribund over the past two years with virtually no new issues. Size is also an issue—the largest existing closed-end fund, from bond specialist Pimco, totals $6 billion.

Ackman likes the closed-end structure because investors can’t redeem shares. This provides him with two main benefits. As an investor, Ackman gets staying power and scores as the controlling shareholder of his management company due to a predictable annual income stream. Raising what the industry calls permanent capital is the goal of nearly every major asset-management company—both traditional and alternative.

A 2% fee, though, is steep for a concentrated actively managed fund that could be replicated by investors. The fee also makes it harder for Ackman to beat index funds, which often charge 0.1% or less annually.

Torkelson says that closed-end funds usually wind up trading at a discount to their asset value, but notes that the new Ackman vehicle could be an exception. If a fund moves to a discount, investors can lose money if they sell it even if the portfolio increases in value.

Ackman has argued that he has delivered market-beating performance over a career of 20 years and that part of his value-add is a secret sauce of nonequity investments that can’t be easily replicated by investors. His biggest score was a pre-Covid bet against U.S. corporate credit spreads that netted over $2 billion on an investment of less than $30 million.

However, Ackman’s macro bets for Pershing Square Holdings last year—including a bullish bet on energy and another involving Japanese interest rates—cost the fund about two percentage points of performance.

Still, the new fund’s fees are more favorable than that of Pershing Square Holdings, which charges a 1.5% annual base fee and takes 16% of the fund’s gains, subject to a high-water mark.

Ackman is betting that U.S. investors will like the simplicity of the new fund and its domestic listing. But even with the higher fee structure, Pershing Square Holdings looks more appealing than the new fund, given its large discount to its NAV and the steps that Ackman is taking to narrow that discount.

The initial public offering of the new fund could help narrow the discount on Pershing Square Holdings by reducing the incentive fee on that fund to 16% based on a formula. The larger the IPO, the bigger the fee reduction.

One knock against Pershing Square Holdings is that it can be tough for U.S. retail investors to buy through some brokerage firms due to the offshore listing. The fund also generates a so-called PFIC tax form that is more like a K-1 for master limited partnerships than a simpler 1099.

Tax expert Robert Willens says the tax treatment “is not the ideal scenario for U.S. investors.” But he adds that PFIC funds are taxed “identically to a partner in an MLP,” which hasn’t deterred many investors from buying MLPs.

Barron’s has written favorably on Pershing Square Holdings as a way to invest alongside Ackman at a big discount, which has been over 35%. We have been critical of the fee structure as high, particularly since there is no hurdle rate to earn it.

During 2023, Pershing Square earned a management fee of $155 million and $312 million of incentive fees. The fund, which returned 26.7% after fees last year based on its NAV, narrowly topped the S&P 500, which returned 26.2%.

Ackman has a small investment organization with about 40 people in total, including eight investment pros. Pershing Square’s fee bonanza last year meant that 13 key staff members shared over $300 million, or an average of more than $20 million each, according to the fund’s annual report.

The new fund probably will target retail investors, and Ackman’s name recognition will help. No major investor has a bigger social-media presence than Ackman, although he usually avoids investment-oriented topics.

A Harvard University graduate, Ackman is a strong supporter of Israel and a critic of diversity, equity, and inclusion policies. He helped marshal opposition to Harvard President Claudine Gay, which led to her departure from the post in early January.

Ackman also has been a critic of President Joe Biden, citing what he views as Biden’s declining mental acuity.

“We should all be embarrassed as Americans that this is the candidate the Democratic Party has chosen,” Ackman tweeted this past Thursday after Biden’s appearance at D-Day ceremonies in Normandy. There have been reports that he is leaning toward supporting Donald Trump in November.

Ackman’s activities have made him catnip for the media, with long articles appearing about him in the New York Times and Washington Post this year. The Post wrote that “Ackman’s evolution mirrors many elites who, like the hedge fund manager, see themselves as moderates and not culture warriors.”

Ackman’s management company, Pershing Square Capital Management, will likely be one of the priciest investment firms after its IPO based on the recent sale of the 10% stake.

One valuation metric is market value relative to assets. Traditional asset managers like BlackRock are valued at 1% to 3% of assets, while higher-fee alternative managers like Blackstone, Ares Management, and Blue Owl Capital are valued at 10% to 15% of assets. Pershing Square is valued at nearly 60% of assets.

If Pershing Square gets to $50 billion in assets next year from a successful new fund, other potential ventures, and asset appreciation, the company would be valued at about 20% of assets, still higher than peers. That’s an optimistic scenario.

The bull case is that Ackman has a small organization and can generate very high margins, especially as assets grow. Key-man risk, however, is high at Pershing Square because the company is so identified with Ackman. That argues for a lower valuation on the management company, especially with Ackman approaching 60.

In the near term, the focus will be on the new fund and whether Ackman can pull off the tough feat of selling a huge actively managed fund at a time of weak investor demand.

Ackman has beaten the odds before. He’ll have to do it again.

Mother and daughter join artistic director Kim Jones to talk about the forging of a ‘new chapter’ at the luxury powerhouse

Fendi is undergoing a bit of a shake-up. Not only is it sitting out Haute Couture week in Paris in June, an executive reshuffle is also on the way: the brand’s chief executive of six years, Serge Brunschwig, is transitioning to a new, soon-to-be-announced role at parent company LVMH; taking his place at Fendi is Pierre-Emmanuel Angeloglou, who will also retain his current role as managing director of LVMH’s Fashion Group (the division that houses brands including Pucci, Kenzo, Stella McCartney and Marc Jacobs).

But as questions swirl around Fendi’s future direction amid the broader changes at LVMH, Silvia Venturini Fendi, a third-generation member of the Fendi family and also artistic director of accessories, menswear and kidswear, is keen for the company’s 100th anniversary, officially happening next year, not to be overshadowed.

Her line of sight, she tells the Financial Times, speaking from Fendi’s headquarters in Rome, is short. “If you have an idea, you need to do it immediately because fashion changes so quickly. It [requires us] to live in the moment. If you look at our history and the things we have done, it proves that we are always open to new ventures,” she says, referring to recent sold-out collaborations with game franchise Pokémon and Hiroshi Fujiwara’s streetwear label Fragment.

“And for the moment, we have this celebration.” The celebration that Venturini Fendi is referring to is Fendi’s new line of seven fragrances, unveiled over a two-day event last week in Rome. The launch creates a new entry point for customers who, she notes, have already expressed clear interest in fragrances. And Fendi won’t stop there. “I think beauty, including fragrances and makeup and skincare, is so important today, so relevant, and I think it’s gonna be great too. But let’s see, let’s start with [perfume].”

Fendi is LVMH’s fourth-biggest fashion brand, according to HSBC estimates, with revenues deriving predominantly from accessories and leather goods, analysts say (it was Venturini Fendi who designed the 1997 Baguette that is widely considered as one of the world’s first “it” bags). Yet it is one of the last remaining LVMH-owned houses that does not sell beauty, making it an anomaly among peers such as Loewe, which launched its first perfume in the 1970s, and Celine, which reintroduced fragrance in 2019 and launched its first cosmetics line in March.

Previously, the Italian brand licensed out scents such as Fendi by Fendi, L’Acquarossa and Fan di Fendi. “[They] were also very successful but we stopped [them] over time,” Venturini Fendi says, declining to comment on when they ceased production. Its latest move into beauty marks “a new chapter” for Fendi, as its new €300 fragrances are manufactured entirely in-house, without the help of a larger manufacturing partner such as L’Oréal or Estée Lauder.

The beauty and fragrance sector is packed with offerings from specialists such as Coty and Interparfums and an ever-growing pool of celebrity and influencer brands. Still, the category continues to be attractive to luxury executives because of its resilience in economic downturns. The super premium beauty and personal care sector is expected to grow 6 per cent from $58mn in 2023 to $61.6mn in 2024, according to Euromonitor International.

When it comes to beauty, a majority of luxury brands still work with an external partner or parent company. Armani, Valentino and Prada have signed with L’Oréal; Tom Ford and Balmain operate under Estée Lauder; Paco Rabanne and Dries Van Noten are run by Puig; and Gucci, Burberry and Marc Jacobs are licensed to Coty.

But a growing number of companies, including Chanel, Hermès, Dolce & Gabbana and LVMH-owned Louis Vuitton, Dior and Celine, handle their own beauty product development and manufacturing. Luxury groups Richemont and Kering also recently launched new beauty divisions with the aim of scaling fragrance among other products. Fendi joins this crowd: its new perfumes will only be distributed through its retail network via physical stores and ecommerce, from June 20. Going into it alone can be an expensive and intricate process. But if navigated properly, the financial reward can be significant.

“It is never too late for a luxury brand to develop its beauty segment, provided that the product line is coherent with the overall brand image and ethos and it has a distinctive point of view,” says Mario Ortelli, managing partner of Ortelli&Co, a strategic and M&A advisory firm for luxury companies. “If well executed, it gives the opportunity to reach a wider consumer base with attractive price points without diluting brand equity,” he adds.

The Fendis are betting on personal nostalgia and relatable memories to resonate with customers — an approach that Celine’s artistic director Hedi Slimane and Victoria Beckham have also taken with their recent fragrance launches. Created with the expertise of perfumers Quentin Bisch, Fanny Bal and Anne Flipo, each Fendi scent was “conceived with a loved one in mind,” says Delfina Delettrez Fendi, daughter of Venturini Fendi and artistic director of jewellery. 

La Baguette, for example, designed to resemble a lazy Sunday with its floral and vanilla notes, was inspired by Delettrez Fendi’s twin children, while Sempre Mio, made of bergamot, cedarwood and orange blossom, reflects her memories of the Ourika valley and Atlas foothills, just outside Marrakech, a place where the designer feels that she belongs (she is part Moroccan). 

With Prima Terra, which features tangerine, rosemary and oak moss, Kim Jones, artistic director of womenswear and haute couture, took inspiration from Southern and Eastern Africa, where he grew up. “Ideas stemmed from chats about childhood memories and the things close to our hearts,” he says.

Each of the simple rectangular bottles comes in a pastel hue — a reflection of the Roman sunset, the designers say. “We wanted something very clean, something that represented Rome but also something that represented Fendi now,” Jones elaborates.

In addition to a full-sized 100ml bottle, the brand will sell a discovery set, also priced at €300, allowing customers to try all seven fragrances in 10ml formats at the price of one. Fendi has also created a miniature leather charm case, €290, that allows the wearer to carry the scent with them.

Are the Fendis confident that something so intimately personal to them will resonate on a global scale? “You can never be sure,” admits Venturini Fendi, who created the French and spicy scent Perché No, which translates to “why not?” to express her personal mantra. But she hopes its “clean, reposing and calming” qualities will appeal to the brand’s fans. 

“You know when there is [something] that you love. You don’t know why; you cannot give yourself a reason, but you feel emotional the moment something clicks. It moves something inside,” she says. “And that’s what we want [people] to feel.”

Another slow week for funding — the third straight after a significant pick-up in large rounds earlier this year. Xcimer Energy led the way, as it was the only startup to lock up a nine-figure round. The dog days of summer seem to already be here in the venture world.

1. Xcimer Energy, $100M, energy: Well, fusion funding was down — until this happened. Denver-based Xcimer Energy announced it raised a $100 million Series A led by Hedosophia. The company is working on laser-driven inertial fusion and will use the funding to build a prototype laser system including what it calls the “world’s largest nonlinear optical pulse compression system.” Founded in 2022, Xcimer has raised nearly $118 million, per Crunchbase — including a $9 million in grant funding from the U.S. Department of Energy’s Milestone-Based Fusion Development Program.

2. Pika, $80M, artificial intelligence: It never takes us long to get to an AI startup on this list. Pika, an artificial intelligence startup that generates video, raised an $80 million round led by Spark Capital that values the Palo Alto, California-based company at $470 million, per Bloomberg. Notably, actor and singer Jared Leto also is an investor. Pika is part of a growing group of startups building text-to-video AI software. Founded in 2023, the company has raised $135 million, per Crunchbase.

3. (tied) Prolific Machines, $55M, biotech: Unlike in previous weeks, there was no huge biotech round. The biggest this week went to Emeryville, California-based Prolific Machines, which raised a $55 million Series B led by the Ki Tua Fund, the corporate venture arm of Fonterra Co-operative Group. The startup’s platform allows commercial customers to more efficiently produce biological products through the use of light for things like cellular agriculture and nutritional protein production. Founded in 2020, Prolific has raised $86.5 million, per the company.

3. (tied) Restor3d, $55M, 3D technology: Restor3d, a North Carolina-based maker of 3D printed personalized orthopedic implants, locked up a $70 million financing — even as investors continue to cool on 3D tech startups. The round includes a $55 million Series A round led by Summers Value Partners and existing investors plus an additional $15 million in debt financing led by Trinity Capital. The startup plays at a unique intersection of healthcare/biotech, AI and 3D technology. The firm uses biomaterials, 3D printing technologies and AI to help repair the human body. It is planning to introduce new implant systems for total ankle and shoulder replacements, offering 3D printed solutions that fit the unique anatomy of the individual patients. Founded in 2017, the company has raised nearly $150 million, per Crunchbase. While the 3D tech sector saw big money in 2021 and 2022, the past two years have seen the sector come back down to the new reality. Although VC-backed startups in the sector saw more than $2.4 billion invested in 2022, that number dropped to only about $1 billion last year, per Crunchbase data. It is on a similar trajectory this year, with only about $424 million raised thus far.

5. (tied) Osteal Therapeutics, $50M, biotech: Dallas-based Osteal Therapeutics raised a $50 million Series D led by Zimmer Biomet. The biotech startup is developing new drug/device therapies for orthopedic infections. The company’s development strategy is to use approved drugs as candidates for new routes of local, concentrated delivery. Founded in 2013, the company has raised nearly $113 million, per Crunchbase.

5. (tied) Twelve Labs, $50M, video: Yet another AI-related video startup. San Francisco-based Twelve Labs, a developer of video foundation models to make video searchable, raised a $50 million Series A co-led by new investor New Enterprise Associates and NVentures, Nvidia’s venture capital arm. The startup’s generative AI foundation models allow users to input natural language prompts that can find precise moments in large libraries of videos — potentially saving hours of time. Founded in 2021, the company has raised $77 million, per Crunchbase.

7. AcuityMD, $45M, medtech: Boston-based AcuityMD, a commercial platform to identify target markets in the medical industry, locked up a $45 million round led by Iconiq Growth. Founded in 2019, AcuityMD has raised more than $83 million, per the company.

8. Eko Health, $41M, health care: San Francisco-based Eko Health, which uses artificial intelligence for early detection of heart and lung diseases, raised a $41 million Series D. No lead investor was announced. Founded in 2013, the company has raised approximately $169 million, per Crunchbase.

9. SpyCloud, $35M, cybersecurity: Austin, Texas-based SpyCloud, a cybersecurity firm that tries to stop account takeovers, announced a $35 million round from CIBC Innovation Banking. Founded in 2016, the company has raised nearly $204 million, per Crunchbase.

10. Advanced Medicine Partners, $32M, biotech: North Carolina-based Advanced Medicine Partners, a developer of advanced medicines, received $32 million in financing led by Deerfield Management. Founded in 2023, this is the company’s first announced round, per Crunchbase.