TheChek News Flow

LONDON, Oct 11 (Reuters) - Investors expect hedge funds to produce higher returns with the prospect of interest rates staying higher for longer, a BNP Paribas [RIC:RIC:BNPPL.UL] investor survey showed on Wednesday.

Interest rates in big developed economies have shot up since late 2021 to contain inflation, with resilience in the U.S. economy adding to a sense that rates will likely stay higher for longer.

Investors now expect hedge funds to return an average of 9.75% annually within an average of 19 months, up from 6.85%, according to the survey.

However, hedge funds themselves think this will take longer, up to 29 months, the survey showed.

BNP Paribas said historical evidence shows hedge funds tend to perform well in higher and stable interest rate environments and less so when rates are lower.

When central banks are in a tightening or loosening cycle, hedge fund performance is not correlated to rising and falling rates, it added.

Stripping away the general rise in the MSCI index of world stocks, hedge funds posted on average a 1.10% better performance than three-month Treasury bills from January 2022 to August 2023, BNP Paribas said.

Only four of the central banks overseeing the 10 most heavily traded currencies held rate setting meetings in August. Until then, the total 2023 year-to-date tally for G10 central banks was 1,075 bps of tightening across 33 hikes.

Most of the hedge fund managers interviewed agreed with their investors about potential returns and 62% said they should outperform the risk free rate by 6% or more.

Gapping down
In reaction to earnings/guidance:

Other news:

Analyst comments:

Gapping up
In reaction to earnings/guidance:

Other news:

Analyst comments:

German shoemaker provides first big test of new-issue market since a trio of marquee offerings last month

German shoemaker Birkenstock priced its initial public offering at $46 a share, setting up the next big test of the new-issue market when the stock begins trading Wednesday.

Birkenstock and its underwriters chose a price near the middle of the targeted range, choosing to play it safe given choppy markets, people familiar with the matter said.

The company and its private-equity owner planned to sell roughly 32 million shares in the offering at a price between $44 and $49.

At the IPO price, the trendy shoe company commands a market value of about $8.6 billion.

It is the first buzzy listing to test the new-issue market since a trio of marquee offerings last month. How it trades in the days ahead could help determine the tone of an IPO market that has shown signs of life after a long period of quiet.

The stock is set to start trading on the New York Stock Exchange on Wednesday under the symbol BIRK. The offering was led by Goldman Sachs, JPMorgan Chase and Morgan Stanley.

Last month’s deals by chip-designer Arm Holdings, grocery-delivery company Instacart and marketing-automation platform Klaviyo all priced at the high end or above expectations and their stocks initially rose. But in subsequent trading sessions they struggled to maintain their gains. Instacart’s stock is now down roughly 10% from its IPO price, while the other two remain above.

Some fund managers said that, as well as concerns about the health of the U.S. consumer, influenced their view on Birkenstock’s worth when it came to putting in orders for the IPO. Household spending remains robust for now, but high interest rates have some investors worried.

Stock prices have swung in recent weeks, with technology companies falling more than broader indexes. Last month signaling by the Federal Reserve that interest rates are likely to remain higher for longer also spooked some traders. Last week, the Dow Jones Industrial Average posted its worst loss since March. Major indexes remain higher for the year, with the tech-heavy Nasdaq Composite up roughly 30% since the end of 2022.

Deal is Exxon’s largest since its merger with Mobil in the late 1990s

Exxon XOM -0.42%decrease; red down pointing triangle Mobil struck a nearly $60 billion agreement Wednesday to buy Pioneer Natural Resources PXD 0.76%increase; green up pointing triangle in the largest oil-and-gas deal in two decades, tying the energy giant’s future to fossil fuels.

The deal, at $253 a share, values Pioneer at an almost 7% premium to its closing value of about $55.4 billion Tuesday. It cements Exxon’s status as the dominant player in the American fracking industry, now centered in West Texas, where Pioneer has more places to drill than almost all of its rivals.

Shares in Pioneer rose about 3% in premarket trading on Wednesday. Exxon’s stock dropped less than 1%.

The deal is Exxon’s largest since its $75 billion merger with Mobil in the late 1990s and is the biggest corporate transaction so far this year. The Wall Street Journal reported last week that Exxon and Pioneer were closing in on the tie-up.

Exxon’s all-stock transaction leans heavily on its higher share price relative to its peers over the past year. Several institutional investment firms have snapped up more of Exxon’s shares following a surge in oil and gas prices, keeping its stock performing more strongly than that of most other oil companies.

The megadeal immediately reshapes the legacy of Exxon Chief Executive Darren Woods. Under his watch, Exxon sputtered in 2020 to its first annual loss in decades as the pandemic ravaged the oil industry, and then it lost a historic proxy battle with an activist investor the following year.

In 2022, as oil and gas prices surged following Russia’s invasion of Ukraine, Exxon rocketed to a record annual profit of $55.7 billion, becoming the fourth-most prosperous American publicly traded company after Apple, Microsoft and Google parent Alphabet, according to FactSet.

Woods has credited his company’s countercyclical and sometimes unpopular investments in fossil-fuel projects, while others have pointed to higher oil prices and other factors outside the company’s control.

Its cash windfall and the industry’s recovery from the lows of the pandemic spurred Exxon executives to begin looking for transformative deals, particularly in the Permian Basin of West Texas and New Mexico, where Pioneer drills.

Plan would let Dan Gertler participate in mining deals with Saudi Arabia; American companies would get some of the metals

As part of its quest to gain access to minerals critical to the energy transition, the U.S. has recently considered a plan to drop sanctions against an Israeli mining magnate accused of corruption, according to people familiar with the matter.

The plan involves the U.S. lifting sanctions on businessman Dan Gertler, whom it accused nearly six years ago of corruption, to allow him to take part in mining deals with Saudi Arabia, the people said.

Those mines, in turn, would ultimately deliver metals to American companies, the people said. Saudi Arabia, the U.S. and Gertler have held early-stage talks about potential deals that could benefit all three parties, they added.

The talks were active as recently as earlier this month. It isn’t clear what effect, if any, the Hamas-Israel war might have on the discussions.

Under one multibillion-dollar proposal that was being discussed, the Saudis would buy stakes in cobalt and copper mines in the Democratic Republic of Congo that are currently paying royalties to Gertler. The U.S. would get some of the rights to production from those mines.

Because Gertler is sanctioned by the Treasury Department and barred from doing business that has a U.S. nexus, the government is working on ways to remove him, the people said. A deal isn’t guaranteed, and the talks could fall apart, the people cautioned.

Gertler, a longtime diamond merchant who made a fortune in Africa and has for more than a decade been controversial there, has ramped up efforts to get removed from the sanctions list in recent years.

The Treasury Department sanctioned Gertler in 2017, accusing him of amassing his fortune through opaque and corrupt mining and oil deals in Congo through connections with former Congolese President Joseph Kabila. It imposed further sanctions on entities affiliated with him in 2018, accusing Gertler of using his close friendship with Kabila to act as a middleman for mining asset sales in the country.

Gertler has repeatedly denied wrongdoing.

Lobbying disclosures from 2019 show that Gertler engaged former Federal Bureau of Investigation director Louis Freeh and lawyer Alan Dershowitz, among others, in his efforts to lift the sanctions. They argued to the Treasury Department that the sanctions were meant to be remedial, not punitive, according to people familiar with the discussions.

The efforts proved partially successful. In the last days of the Trump administration in January 2021, the Treasury Department provided Gertler a one-year license allowing access to financial institutions and blocked funds as long as he submitted reports about his activities.

In March 2021, after President Biden took office, the Treasury Department revoked the license. The government said the license was “inconsistent with America’s strong foreign policy interests” in combating corruption, including in Congo.

The following year, Gertler and Congo came to an agreement under which he agreed to give back to the government oil permits and mining rights that were reported to be worth around $2 billion. As part of the deal, the country agreed to help petition the U.S. to rescind the sanctions.

Congolese and international organizations have urged the U.S. government to maintain sanctions against Gertler. In March, groups including Human Rights Watch and Freedom House wrote to Secretary of State Antony Blinken and Treasury Secretary Janet Yellen asking them not to lift the sanctions, saying Gertler hadn’t met the necessary conditions.

In a February letter to a U.K.-based nongovernmental organization, Gertler said though he didn’t believe he should have been sanctioned, he had ended his activities in Congo and transferred significant assets. He said he believes his initial investments in the country “built critical infrastructure, created employment, and catalyzed development of the natural resource sector.”

Justyna Gudzowska, senior policy adviser to the Sentry, a watchdog group co-founded by actor George Clooney, said it was surprising that the U.S. would consider allowing Gertler to collect revenue streams stemming from the activities that got him sanctioned in the first place. Gertler “should have to relinquish any interest in those streams before sanctions relief is even contemplated,” she said.

The U.S. and Saudi Arabia have been discussing plans such as a state-backed Saudi venture to buy stakes in mining assets in African countries, from which the U.S. would buy metals and minerals, The Wall Street Journal earlier reported, as it tries to shore up its supply chains.

Saudi Arabia is looking both at buying stakes in or the entire copper-cobalt projects, some of the people said, in deals that could be worth around $2 billion. Some of the projects in Congo that the Saudis are looking at include those owned by Swiss mining and trading giant Glencore and Eurasian Resources Group, a Kazakh-backed mining company, the people said. A spokesperson for ERG said it is often approached by various investors but that it doesn’t intend to sell its Congolese assets. A spokesperson for Glencore declined to comment.

Cobalt and copper are key components of the so-called clean economy. Used for electric vehicles and wind farms, copper is in hot demand by governments and companies the world over.

Chinese companies refine three-quarters of the world’s cobalt supply and produce about 70% of the world’s lithium-ion batteries, raising concerns in the West about reliance on Beijing.

The mining discussions are part of broader talks between the U.S. and Saudi Arabia on investing in global infrastructure projects in developing countries, some of the people said. The White House last month announced an intercontinental economic corridor linking India to Europe through Saudi Arabia.

Saudi Arabia also said it would commit $20 billion to the Group of Seven infrastructure initiative.

If mining deals do get consummated, it would help ease strained relations since Biden took office and promised to make the Gulf kingdom a “pariah” for its human-rights record. Since Russia’s invasion of Ukraine, the U.S. has been critical of Saudi Arabia’s alignment with Moscow to keep oil prices high and wary of its embrace of China, though Washington-Riyadh relations have begun to thaw, with increasing commercial cooperation.