TheChek News Flow

Emirates-based businesses among 29 entities subject to measures aiming to stem funding for Ukraine war

The UK government has imposed sanctions on Dubai-based oil trader Paramount Energy & Commodities DMCC as part of a swath of actions against companies and individuals accused of supporting Russia’s gold, oil and finance industries.

The sanctions, which target 29 people and entities including several based in the United Arab Emirates, “will hit those who provided succour to [Vladimir] Putin by helping him to lessen the impact of our [existing] sanctions on Russian gold and oil”, said UK foreign secretary James Cleverly.

The Financial Times reported in March that Swiss-based Paramount Energy & Commodities SA, founded by veteran Dutch trader Niels Troost, had transferred its Russian oil trading activity to a subsidiary in the UAE called Paramount DMCC.

Troost, who has not been targeted by UK sanctions, has long maintained that western restrictions on the trade in Russian oil — introduced in response to its full-scale invasion of Ukraine last year — do not apply to Paramount DMCC because it is a separate legal entity from its Swiss parent company and is incorporated outside the G7.

Emirati companies can legally buy and sell Russian oil at any price, as long as they also use non-European shipping and financial service providers.

The UK’s Foreign, Commonwealth & Development Office said that Paramount DMCC “is known to employ deceptive shipping practices as well as opaque ownership structures, and has been used by Russia to soften the blow of oil-related sanctions imposed by the UK in co-ordination with G7 partners”.

The UK also sanctioned Dubai-based Swiss national François Edouard Mauron, who was formerly a director of Paramount DMCC but told the FT earlier this year that he had stepped down. Paramount SA, Paramount DMCC, Troost and Mauron did not immediately respond to requests for comment.

The move to target a Dubai-based oil trader marks an escalation of the UK’s sanctions regime at a time when the G7’s price cap on Russian oil has become less effective.

The measure, introduced last December for sales of crude, was supposed to cap the price at which Russia’s oil could be sold to $60 a barrel, in a bid to crimp the Kremlin’s revenues while keeping enough oil in the market to avert a counterproductive price spike.

But Russia’s establishment of a “dark fleet” of dozens of tankers operating outside western markets, along with other methods of subterfuge deployed to circumvent the cap, has helped the average price of Russian oil to rise well above $60 a barrel in recent months.

Jason Hungerford, a sanctions lawyer at Mayer Brown, said that the new UK sanctions followed US measures targeting a Russian natural gas project last week, suggesting G7 members are now prepared to target energy more aggressively.

“The various sanctioning countries are trying to demonstrate that they’re serious about the measures they’ve imposed on [the] Russian oil and gas trade and are stepping up enforcement,” said Hungerford, a partner at the law firm.

“Going after traders and last week’s action against Russia’s Arctic 2 LNG project by the US is a major sign that the next front is pushing on the Russian energy sector harder than in the past.”

The British measures block access to financial services, freeze any UK assets, prevent targeted entities from chartering vessels to British ports, and ban targeted individuals from travelling to the UK.

The UK also placed sanctions on a UAE-based network that it claims is responsible for channelling more than $300mn in gold revenues to Russia, which is the world’s second-largest producer of bullion.

Named as part of the network was Paloma Precious DMCC, the owner of the Emirates Gold refinery that was suspended in July from delivering gold into Dubai and London amid money-laundering concerns.

In September, London-listed Rockfire Resources announced an agreement to buy Emirates Gold from Paloma Precious DMCC as long as the refinery was allowed to deliver bullion into Dubai once again.

Paloma Precious was the largest shareholder of Rockfire Resources until it sold its entire stake in the same month.

Paloma Precious and Rockfire did not immediately respond to requests for comment.

Paul Marshall of Marshall Wace complains new platforms offer hires ‘the same as Cristiano Ronaldo’

The rise of multi-manager hedge funds has led to a “merry-go-round” of portfolio managers being offered “silly” amounts of money, according to the co-founder of Europe’s largest hedge fund.

Sir Paul Marshall, co-founder of Marshall Wace, told an investment conference in Hong Kong on Wednesday the dominance of multi-manager platforms had reshaped the industry because they were “paying incredible amounts of money to target people”.

“Everybody wants that Cristiano Ronaldo on their team, but there aren’t very many Cristiano Ronaldos,” said Marshall, who co-founded the London-based group in 1997 with Ian Wace. “What’s happening is everybody’s getting paid the same as Cristiano Ronaldo.”

Marshall, who is in the process of trying to buy the UK’s Telegraph Group through his digital media group UnHerd, did not name any individual firms. But his comments reflect how the dominance of multi-manager platforms such as Citadel, Millennium Management and Point72 Asset Management has driven a ferocious bidding war for talent.

With $64bn in assets, Marshall Wace is Europe’s largest hedge fund, on a par with Citadel and Millennium in terms of size.

Multi-manager platforms, which typically allocate capital across tens or hundreds of teams of specialist traders, tend to employ a different fee model to traditional hedge funds. 

Rather than the hedge fund industry standard “two and 20” — a 2 per cent management fee and a 20 per cent performance fee — a defining characteristic of the multi-manager platforms is that instead of a management fee they use a “pass-through” expenses model.

Under this model, the manager passes on all costs — including office rents, technology and data, salaries, bonuses and even client entertainment — to their end investors. The idea is that managers invest heavily in areas such as talent and technology, with the cost more than offset by resulting performance. They then tend to charge a 20-30 per cent performance fee on top.

The pass-through model fuels practices such as sign-on bonuses running into millions or tens of millions of dollars, paid sabbaticals and payouts to individual portfolio managers that can be 20 to 30 per cent of profits, all of which are designed to lure and retain the top performers.

Some multi-manager contracts and payouts have even come close to matching Ronaldo’s $200mn-a-year contract with Saudi Arabian football team Al Nassr.

The competition for talent has forced traditional hedge fund players such as Marshall’s firm to adapt. Its flagship Eureka hedge fund this year added a “compensation surcharge” worth as much as 0.75 per cent of the fund’s value, to be used to reward high performers, a decision Marshall said at the time was taken because “multi-manager platforms are driving a bidding war for talent”.

The platform hedge funds’ model had enabled some traders to take “very silly sign-on” bonuses, even if they got fired after two or three years and moved somewhere else, he told the Hong Kong conference. This practice is known in the industry as “surfing the guarantee”.

Marshall said some platform hedge funds operated a “kind of battery-hen farming merry-go-round”, and their high-pay model was “not the right way to build great businesses or even to build a great industry for our clients”.

Chris Gradel, who co-founded the Hong Kong-based investment group PAG, said during the same panel discussion that some staff in his firm’s hedge fund unit had been offered eight-figure sign-on bonuses to move to rivals, a practice he described as “absolute insanity”. Laughing, he added: “We say: you’d better take it.”

The trend was “a temporary phase, it’s a very bad phase”, Gradel added. “It’s good for certain people I suppose . . . but it’s not good for the client, it’s not good for the industry.”

Albert Goh, one of four chief investment officers at the Hong Kong Monetary Authority, the territory’s de facto central bank and sovereign wealth fund, said during the same session that he was grateful for the comments because “we don’t like paying fees”. The HKMA is a major investor globally, with almost HK$4tn ($511bn) in its Exchange Fund.

Tom Farley’s new firm joins two other suitors in auction for bankrupt crypto exchange founded by Sam Bankman-Fried

A company run by former New York Stock Exchange President Tom Farley is among three suitors vying to buy the remnants of FTX, as the auction for the collapsed cryptocurrency exchange founded by Sam Bankman-Fried reaches its final stages.

Bullish, the crypto exchange run by Farley, fintech startup Figure Technologies and crypto venture-capital firm Proof Group are competing to buy FTX, according to people familiar with the matter. The winner could restart the exchange after its planned exit from bankruptcy next year.

A banker advising FTX on the process said at a hearing last month that the company received interest from over 70 parties and narrowed it to three, without naming them. A winner could be picked in December.

CoinDesk earlier reported on Proof’s bid; the other two haven’t been previously reported. There are no guarantees a deal will come together, and another suitor could yet emerge.

As recently as last fall, FTX ranked as one of the world’s biggest crypto exchanges, handling billions of dollars in trading volumes for individual investors outside the U.S. and professional traders. Venture capitalists valued FTX at $32 billion in January 2022, making Bankman-Fried a billionaire several times over.

It collapsed abruptly in November 2022 following a run on FTX customer funds. Prosecutors charged Bankman-Fried with fraud, accusing him of using a back door to plunder billions of dollars of customer funds and spend it on luxury real estate, personal investments and political donations. A New York federal jury last week convicted him on all seven counts he faced. He is expected to be sentenced in March and faces up to 110 years in prison.

Should a new owner take control of FTX, customers could receive shares in the restarted exchange or new tradable tokens to partially make up for what they are owed, some of the people said. Roughly $9 billion of customer deposits on FTX remain unaccounted for.

FTX’s real-estate portfolio in the Bahamas and other assets aren’t part of the sales process for the exchange.

Some crypto watchers warn that a relaunch of FTX could struggle to get traction with professional traders, who might have long memories about the exchange’s legacy of fraud and embezzlement. Some bidders have discussed dropping the FTX brand from the rebooted exchange.

Bullish is backed by a roster of prominent investors including Peter Thiel’s Founders Fund and hedge-fund manager Louis Bacon. Farley, its CEO, was president of the NYSE from 2014 to 2018. In December 2022, it called off a $9 billion deal to go public via a merger with a blank-check company.

Figure, a startup co-founded by former SoFi CEO Mike Cagney, was part of a group that unsuccessfully tried to buy the bankrupt crypto lender Celsius earlier this year. Figure uses blockchain technology for lending and capital markets.

Proof Group was part of the consortium that won the auction for Celsius. The group agreed to purchase $50 million of equity in the newly reorganized company.

Danish group has looked at British locations but warns more government support is needed

The world’s biggest wind turbine maker says plans for a potential new factory in the UK depend on clear long-term demand, warning that the government needs to do more to support wind farm development. 

Henrik Andersen, chief executive of Vestas, said it had looked at a couple of locations, including in Scotland, for a factory that could employ about 1,000 people, but decided there was “no need to build a new factory for the next 10-20 years in the UK if the demand cycle is not clear”. 

It comes as the UK government is preparing to publish the draft terms for its next annual auction of renewable energy subsidies after wind developers shunned the most recent round in September, complaining that the support on offer was too low to offset rising costs. 

Andersen told the Financial Times he hoped the UK government would adjust the terms to reflect rising costs or bring forward the next round, saying: “If [that] allows our customers to bid for offshore [wind farm] construction . . . that’s a natural first step of starting the factory.” 

He added: “After the not so successful [auction round] we said we are considering and pausing our plans.”

If the situation changes, he said: “We have a couple of locations, at least one of them in Scotland, and that [would mean] in excess of 1,000 direct employees . . . But if there’s no [demand] in the UK, it’s difficult to argue for that.”

Copenhagen-based Vestas, which has factories around the world and made revenue of €14.5bn in 2022, already supplies wind farms off the UK coast and in Europe from its existing UK factory in the Isle of Wight.  

Andersen made the comments as Vestas reported third-quarter profits of €70mn and said it was on track to be profitable in 2023, compared with a €1.6bn loss in 2022, a more positive sign for the wind industry, which has suffered a series of setbacks. 

Wind turbine makers have struggled with high costs and supply chain challenges for the past few years, while this year developers in the US and the UK have halted or walked away from some projects that have become uneconomical. 

Ørsted, the world’s largest wind developer, abandoned two projects off the New Jersey coast in the US last week, while Sweden’s Vattenfall halted work on its Norfolk Boreas project in the North Sea in July. 

Meanwhile, Siemens Energy revealed last month it was in talks with the German government over funding support as its wind turbine division, Siemens Gamesa, struggles with technical problems with its products.

In a more positive sign, Andersen said supply chain pressures had eased during the third quarter, with supplies arriving on time to its factories worldwide, which was a “huge relief”. 

Vestas said it was now on course to make an annual profit margin of up to 2 per cent. It took orders for 4.5GW of wind turbines during the quarter, 138 per cent higher than the same quarter in 2022.

The company is focused on “strengthening our commercial and operational discipline”, Andersen added.

German arms exports to Israel surge as Berlin backs campaign against Hamas

Defences sales worth €300mn this year is 10-fold rise on 2022, with most licences approved after October 7 attack

German arms exports to Israel have surged in the past month, as Berlin steps up support for the Middle East country’s war against Hamas. 

Germany has exported more than €300mn of sensitive military equipment and arms to Israel so far this year, a 10-fold increase since 2022, said a German government official. They added that 185 of the 218 licences granted this year were approved after October 7, when Hamas launched a surprise attack from Gaza, killing 1,400 people according to Israeli officials. 

German chancellor Olaf Scholz has emerged as Europe’s most hawkish advocate of Israel’s right to respond with overwhelming armed force against the Palestinian terror group, even as global concern has grown over high casualties and a deepening humanitarian crisis in Gaza. 

The federal government has created a working group of the foreign office, ministry of economic affairs and office for export control tasked with expediting Israeli arms requests, government officials in Berlin told the Financial Times.

The licences cover a range of military materiel, not all of which is offensive, such as components for air defence systems. However, lethal munitions, worth about €20mn, have also been sent. 

The figures do not cover equipment for which licenses are not required, such as basic personal kit, protective personal armour or medical equipment. Germany has also prioritised such shipments to Israel.

The economic affairs ministry, led by Germany’s Green vice-chancellor Robert Habeck, oversees the exports. The ministry declined to comment. 

“Israel has the right, enshrined in international law, to defend itself and its citizens against this barbaric attack,” Scholz told German lawmakers the week after Hamas’s attack in Israel. “There is only one place for Germany at this time, and that is by Israel’s side,” he added.

Scholz said he had told Israel to ask him for “whatever support is needed”.

Israel’s assault on Gaza aims to root out Hamas, which has ruled the coastal enclave since winning elections in 2007.

Israel’s military has struck more than 14,000 targets in the Palestinian territory, said the Israeli military. Its campaign has killed more than 10,560 Palestinians, with 2,550 people reported missing, said Gaza’s Hamas-controlled health ministry on Wednesday.

Israel said high civilian casualties have occurred because Hamas uses the local population as human shields, locating its command centres and military assets within or next to sites such as hospitals, apartment blocks, mosques and schools. The Palestinian group denied this.

Group of Seven foreign ministers, meeting in Japan, called on Wednesday for “humanitarian pauses” in the bombardment to get vital aid into Gaza and to let foreign nationals — and potentially hostages — out.

German foreign minister Annalena Baerbock said at the Tokyo meeting that attacks from Gaza continued “to oblige us to stand up for the protection of Israel, especially because the rocket fire from the terrorist organisation Hamas continues”.

Gapping down
In reaction to earnings/guidance:

Other news:

Analyst comments:

Gapping up
In reaction to earnings/guidance:

Other news:

Analyst comments:

One of OpenSea’s biggest investors has marked down by 90% its stake in the struggling non-fungible-token marketplace, implying that the former crypto darling is now valued at $1.4 billion or less on paper. Coatue Management, a New York–based hedge and venture fund, slashed the value of its $120 million stake in the company to $13 million as of the second quarter of this year, according to a document viewed by The Information.

The previously unreported markdown shows how venture investors are reassessing the value of their investments made at the height of the crypto boom, following a severe deterioration in the market. At the start of last year, OpenSea sported a $13.3 billion valuation from a funding round co-led by Coatue and Paradigm.

• Coatue co-led investment with Paradigm during height of crypto bubble

• Firm also slashed valuation of MoonPay stake

• Coatue’s 2021 growth fund has lost money on paper

Coatue also slashed the valuation of its stake in crypto payment startup MoonPay 90%.

Collapsing startup valuations are contributing to lackluster returns for venture investors. As of September, the multiple on invested capital for Coatue’s $7.7 billion growth fund, raised in 2021, which backed OpenSea and Moonpay, equaled 0.8 times, meaning the total paper value of the fund's investments is worth less than the initial money put in, according to a person with direct knowledge of the matter.

For venture funds raised in 2021, the median internal rate of return is negative, meaning most of these funds have lost money so far, according to Cambridge Associates data as of March. Paradigm, a specialist in crypto, had generated a negative 5% net internal rate of return as of May. A spokesperson for Paradigm declined to comment on the value of its OpenSea stake.

Most crypto startups have faltered in the past 18 months, as the end of near-zero-percent interest rates quashed demand for digital assets. OpenSea last week laid off 50% of its staff after volume on its marketplace plunged 99% since the start of 2022.

Coatue and crypto VC firm Paradigm co-led a $300 million Series C investment in OpenSea in January 2022, amid high demand for trendy blockchain-based digital collectibles like the Bored Ape Yacht Club collection. The transaction valued the New York startup at $13.3 billion or nearly 9 times higher than its prior round, led by Andreessen Horowitz, less than a year earlier.

But OpenSea’s business, which had generated revenue by taking a 2.5% cut of each transaction, began to founder once crypto prices declined and NFTs fell from favor. In July 2022, OpenSea made the first of at least three rounds of layoffs over the last year.

By December 2022, Tiger Global Management, another OpenSea backer, had slashed the value of a $126.8 million investment it made in the startup by 76%, The Information previously reported. Early this year, OpenSea temporarily eliminated its fees on most trades following the launch of a no-fee competitor, Blur, crushing trading revenue. A spokesperson for OpenSea didn’t comment.

Coatue’s Crypto Bets

Coatue was one of the most active investors in private tech startups during the pandemic-fueled bull market, backing more than a dozen cryptocurrency startups in that period, according to PitchBook. In October 2021, it invested $100 million in MoonPay, in a $555 million deal alongside Tiger that valued the startup at $3.4 billion. That deal allowed MoonPay CEO Ivan Soto-Wright and his inner circle to cash out $150 million of their own stock. In the second quarter of 2023, Coatue marked down its stake to $11 million, implying a $374 million total valuation for the startup.

In 2021, Coatue also led a $250 million investment in Dapper Labs, a developer of blockchain games like NBA Top Shot, that valued the startup at over $7.5 billion. In July, Dapper completed its third round of job cuts in less than a year, also due to the steep decline in NFT sales. Dapper’s valuation would likely be much lower today.

Some of Coatue’s other investments are partially offsetting the crypto losses. Coatue in September slightly marked up the performance of the $7.7 billion fund, its fifth growth fund, to 0.8 times from 0.7 times the month before due to a 50% valuation jump of security company OneTrust, the person with direct knowledge said.

In July, OneTrust raised $150 million in a round led by Generation Investment Management at a $4.5 billion valuation. That was an increase from OneTrust’s $3 billion valuation in March, when Coatue invested $400 million from its fifth fund, the person said. While the gains improved that fund’s paper returns, OneTrust is still valued less than the $5.3 billion valuation it earned in 2020, when Coatue invested out of an earlier fund. Coatue’s March investment in OneTrust hasn’t been previously reported.

Coatue also backed graphic design startup Figma at a $400 million valuation in 2019, according to PitchBook. Last year, Adobe agreed to buy Figma for $20 billion, though the deal has been held up by antitrust reviews.

The investment firm is currently raising additional capital for its fifth growth fund through a companion vehicle to invest mostly in startups it has not previously backed, which could boost returns, the person with direct knowledge said. Coatue waived its typical management fees on the new capital. Its investments this year include artificial intelligence startups Tome, Replit and Runway.

Foreign policy chief says agreement at G7 level cleared hurdles set by Belgium and other countries

The EU is set to move ahead with a long-stalled ban on Russian diamonds next week after securing sufficient backing from the G7 group of developed nations, according to the bloc’s foreign policy chief.

Diamonds are one of the few major Russian exports still untouched by EU sanctions imposed in response to President Vladimir Putin’s full-scale invasion of Ukraine last year, due to extensive wrangling over how any embargo would work effectively.

Josep Borrell, the EU’s chief diplomat, told the Financial Times that a two-day meeting of G7 foreign ministers in Japan that ended on Wednesday gave support to the move, clearing a critical hurdle that European countries including Belgium — one of the world’s largest diamond traders — had demanded.

“In order for [EU] member states to be unanimous for the ban on diamond trade, some were requesting that the G7 were giving, let’s say, political coverage,” said Borrell.

“Well, this has been done and the co-ordination has worked and we will be able to put the package of sanctions in front of [foreign ministers on Monday],” he added.

Ukraine and several central and eastern European allies have long demanded that the EU ban trade in the precious gemstone, in addition to sweeping measures banning or reducing Russian exports such as oil, coal, steel and gold.

G7 leaders in May agreed to restrict trade and use of Russian diamonds, including by using tracing technologies. But efforts to impose legal EU measures stalled as Belgium argued that a simple ban on Russian stones would just divert trading away from its city of Antwerp, the global diamond hub.

Belgian officials had called for full G7 support for an arrangement that would implement a global standard to certify rough and polished diamonds which would allow all traders to identify Russian-produced gems.

Borrell said the foreign ministers of Canada, France, Germany, Italy, Japan, the UK and US this week agreed to “reduce the revenues that Russia extracts from exports”, and explicitly cited “non-industrial diamonds, including those mined”.

Russia is the world’s largest producer of rough diamonds by volume, with exports totalling $4bn in 2021, according to trade statistics. More than 80 per cent of global rough diamonds are traded through dealers in Antwerp.

The global natural diamond jewellery market is estimated to be worth $74bn in 2023, according to independent analyst Paul Zimnisky.

The EU diamond sanctions will be part of the bloc’s 12 rounds of sanctions against Moscow. Officials have said the new sanctions package will also include new import and export bans, measures to tighten the effectiveness of the existing price cap on Russian crude, and targeting of entities in third countries that are helping Russia circumvent trade restrictions.