TheChek News Flow

Private equity dealings are hardly famed for fulsome disclosure

The investment landscape is littered with once-trendy ideas that — in hindsight — look distinctly less ingenious. Among their number is the Goldman Sachs China-US Industrial Cooperation Partnership Fund. This private equity vehicle was set up in 2017 to funnel money from state-backed investor CIC into western assets. 

An FT report that the fund made five investments that were not disclosed publicly has raised concerns about creeping Chinese influence.

The co-operation fund’s active stance is at odds with changed geopolitical mood music. Western governments are increasingly wary of Chinese investors. One might assume the fund found slim pickings — or was quietly wound down. Not so, it transpires.

Private equity dealings are hardly famed for fulsome disclosure. The fund is managed in compliance with all laws and regulations, Goldman says. 

The acquisition of UK-based LRQA, which owns a ringfenced cyber security business, apparently triggered foreign direct investment approval processes in six countries including the UK. Within this, CIC’s involvement would have been disclosed to the UK government. 

It is unclear which framework the submission to UK authorities occurred under, though. The LRQA transaction occurred in 2021. The UK tightened the screws on Chinese investment via the National Security and Investment Act from January 2022.

Before then, purchasers could voluntarily seek guidance on deals from officials. This was partly because the government gained the ability to review them retrospectively in 2022.

One reason why the LRQA transaction may have avoided close scrutiny is that CIC’s involvement was relatively contained. The Goldman co-operation fund was only a minority investor. Most of the money came from one of Goldman’s big flagship private equity vehicles. CIC does not have board representation or access to corporate information.

Goldman previously wooed the Chinese elite. So did the British government. US-China tensions have ended that. But permanent capital lingers on. Fuller disclosure of what regulatory hoops the fund jumped through would be welcome.

MILAN — After an initial project in Dubai, Missoni is partnering again with luxury real estate developer Dar Global.

The Italian brand will create interiors for the luxury Marea residential project in the south of Spain, near Marbella, the marinas of Puerto Banús and Sotogrande, the Santa María and Los Pinos Polo Clubs, the Finca Cortesin hotel and 18-hole golf course and Real Club Valderrama.

Marea and Missoni will deliver a development of 199,800 square feet across two-, three- and four-bedroom apartments, expected to be completed by 2028.

The interiors of the residential project have been envisioned by Alberto Caliri, creative director of Missoni home collection, which is supervised by Rosita Missoni. Missoni’s fashion collections are designed by Filippo Grazioli.

Marea’s exclusive and gated community will offer 24/7 premium security services, a state-of-the art gym, infinity pool, a tennis court and a dedicated play areas for children.

Livio Proli, chief executive officer of Missoni, touted the use of “the finest fabrics and design, which will give the Mediterranean residences a unique and original finish.” He said the brand’s creative team “has come together to design bespoke luxury interiors that perfectly compliment the apartment’s natural surroundings.”

“The development offers something for everyone from the splendor of Finca Cortesin’s most memorable golf course, to the golden beaches and dunes of Estepona and all set against the backdrop of the breathtaking Mediterranean,” said Ziad El Chaar, CEO of Dar Global.

Missoni’s home category continues to represent a growing segment and Proli told WWD in April that the group’s consolidated turnover rose 10 percent to 115 million euros in 2022, of which 32 million euros were attributable to Missoni Home. Sales of the line rose 16 percent year-on-year.

A strong passion of Rosita Missoni’s, the home collections have been a pillar of the brand for more than 30 years, initially licensed to T&J Vestor, a company started by Rosita’s parents. They are now fully owned and managed by Missoni.

Together with Dar Global, Missoni has also developed the tower of Dubai Urban Oasis, which will be completed in 2024.

The interiors by Missoni of the Miami Bay Handover tower was completed earlier this year and a project in Toronto with a new skyscraper is expected to debut in November.

The company has also been developing the Missoni Resort Club project, outfitting strategic locations, such as Portofino and the Maldives with the brand’s signature fabrics, zigzag and flame patterns. This summer it unveiled its new outpost in collaboration with Nikki Beach Costa Smeralda, located in the Cala Petra Ruja bay in the Sardinian luxury destination of Porto Cervo.

Fashion brands have over the years increased their focus on home collections; openings hotels, as is the case for Giorgio Armani and Versace, for example, or expanding through new licenses and inking residential projects. Missoni also ventured into the hotel business with The Rezidor Hotel Group in Kuwait and Edinburgh, but the license was mutually terminated and operations ceased in 2014.

As reported, Armani is working on a third hotel, to be located in Diriyah, a 300-year-old site located a 15-minute drive from Riyadh, in the Kingdom of Saudi Arabia, expected to open in 2026. The Armani/Casa Interior Design Studio and UAE-based property developer Arada will be creating residential units, common areas and amenities on a luxury project in Dubai — the Armani Beach Residences Palm Jumeirah, designed by Tadao Ando.

Among others, Diesel Living, following the first Diesel Wynwood apartments in Miami revealed in 2018, is designing another residential project in Las Vegas, in partnership with BelVillage, which will include about 250 residential units, including penthouses.

An uneven playing field is preventing these funds from putting money into the productive economy

We have all heard of the butterfly effect — where small things have non-linear impacts on a complex system. That is happening right now in the UK market for closed-end investment funds, also known as investment companies.

Should we care that the market for investment companies, which at the end of July had 377 companies and £267bn of assets, has in effect been closed by a regulatory desire for artificial tidiness? Many investors and investees are fuming that they are now blocked from investing in the productive economy. The question for the UK Treasury and the regulator, the Financial Conduct Authority, is: why haven’t you stopped the butterfly from flapping its wings?

The first stirrings of this effect were discernible in the 2014 EU directive on packaged retail and insurance-based investment products (PRIIPS), which included a requirement for retail investors in funds of funds to be given a single figure “aggregate” of the charges that would be taken from their investment. I was chair of the European parliament’s economic and monetary affairs committee at the time.

It was pointed out late in proceedings that UK investment companies were treated as funds (regulated in Britain as collective investments) and best exempted from the directive. This didn’t happen, but for a long time it didn’t matter because that part of the PRIIPS directive was not activated. While I was in the chair, attempts to replicate the troublesome language in the EU’s Undertakings for the Collective Investment in Transferable Securities (Ucits) were beaten off.

Enter Brexit and the FCA’s desire to harmonise the different investment regimes and Investment Association guidance on cost disclosure. At this point, we find the butterfly effect being extended into Ucits and the Markets in Financial Instruments Directive (Mifid). Investment companies became subject to a “synthetic cost” calculation under which their corporate costs were added to the fund managers ongoing charges — even though they had already been taken into account in the share price. Shares in ordinary trading companies with identical business models can be held in funds without any synthetic cost being included. This makes investment companies look expensive to hold, as if the costs have to be taken off again from the share price, which is misleading.

The other factor that has come into play, also as a result of historical excess charges, is the prevalence of cost caps. The inclusion of investment company synthetic charges causes these to be breached. And this has forced money managers to dump investment companies, despite their professional judgment about their value to their clients.

As a consequence, there have been no significant initial public offerings of investment companies since the guidance started in January 2022 and follow-on funding has dried up. And, though it originated in the PRIIPS directive, this is a distinctly British issue due to the unique way our investment companies are regulated. Increasingly, large investment companies with internal management are shunning the IA’s guidance — after all, it is not compulsory. Meanwhile, those companies with external authorised corporate directors are, by and large, being forced to comply.

So what remains of the playing field is uneven. Unfortunately the hardest-hit sectors are productive and vital parts of the economy for which it is hard to raise funds or trade in other ways. Examples include solar, wind and battery power in the clean energy sector, real estate and private equity.

What, then, should be done? My view is the same as the one that the US takes with yield companies — they are companies and should be treated as such when it comes to corporate costs, just like the rest of the world. No one objects to transparency on fees — and they are a major focus for investment company non-executive directors. But there is no need for this confusion. We need to go back to the future before it’s too late.

- High level discussions may continue in coming months

- Deals could include provision of raw materials to Russia, arms it would use in Ukraine War

- Russia, North Korea discussing artillery, other munitions; no indication that talks include food for fuel

Gmail’s new AI companion will be able to help you draft and customize your emails, Google announced as part of this week’s news from its Google Cloud Next ’23 event. The company had shared a number of updates about its AI-powered companion, Duet AI, which is becoming generally available for Workspace users, aiding them with various tasks across meetings, documents, Google Chat, and more.

The company had also said that Duet AI would enhance Gmail’s existing smart reply feature by allowing users to draft longer, more personalized emails with a tap.

Now, Google has shared more on how that will actually work in an update for Workspace users. On both web and mobile, Gmail users trialing Duet AI will gain access to a “Help me write” button that will offer them a variety of options for writing assistance.

For instance, Duet AI can now use your own words to draft an email message, as it can understand the context from previous emails in a thread to create replies that are relevant to the current conversation.

You can also use the AI feature to make the tone of your drafted email sound more formal or elaborate on the draft by adding more detail to the message.

Alternatively, you can opt to decrease the length of your drafted email if you’re looking for brevity.

Plus, Google added a fun (though likely not as helpful), feature “I’m feeling Lucky,” — a throwback to the Google button that would take you directly to the first search result when you typed a query into the Google search box.

In this case, however, the “I’m feeling Lucky” option provided by the AI lets you choose from a number of fun variations on tone and style for the email content you’ve drafted.

A similar “Help me write” feature will also come to Docs, Google noted, letting you change the tone of your content, summarize sections, add bullets, elaborate or shorten your text, receive a different generated draft if you didn’t like the first (“retry”), and more.

You can also provide your own instructions on how you want your content refined through a custom option, Google said.

A Manhattan apartment priced at $92 million has gone into contract, according to the listings website StreetEasy.

The five-bedroom condo, located at Manhattan megatower 432 Park Avenue, would be among the priciest New York homes to sell this year if it closes near its asking price.

Listing agent Noel Berk of Engel & Völkers declined to comment on the exact contract price or on the identity of the buyer.

The seller, Mitch Julis of hedge fund Canyon Capital Advisors, didn’t immediately respond to a request for comment.

The full-floor unit first came on the market at $135 million in September 2021 but underwent a significant price cut in May, StreetEasy shows.

Spanning just over 8,000 square feet, the Billionaires’ Row unit was designed for Julis, a major collector of Asian art, by the Japanese architect Hiroshi Sugimoto. Designed as a temple of Zen, the apartment is furnished with cedar shutters, Shikkui plaster walls, 60-year-old Bonsai trees and a traditional Japanese tea room with mats for kneeling.

The apartment includes a home office and a den, and has views of Central Park and the Manhattan skyline, the listing shows.

Two adjacent studio apartments and two storage units were included in the $92 million asking price, according to the listing. Julis paid around $59 million for the main apartment in 2016, according to property records.

The ultimate sales price will be an indicator of how values are faring at the 1,396-foot-tall Rafael Viñoly-designed tower, which launched sales in 2013. Recently it has been beset by reports of alleged construction defects and ongoing litigation between the building’s residential condominium board and the developer, an entity controlled by Los Angeles-based CIM Group. CIM Group didn’t respond to a request for comment.

Another seller, Saudi retail and real-estate magnate Fawaz Al Hokair, recently lowered the price of the building’s penthouse to $130 million, down from the original $169 million.

The luxury firm highlighted 13.9 percent growth in Greater China, but its flagship brand sputtered due to "fewer key product and marketing initiatives."

Lanvin Group reported revenues advanced 6.4 percent in the first half of the year to 214.5 million euros, and its gross profit margin improved to 58.5 percent.

The company, which debuted on the New York Stock Exchange last December, trumpeted growth across all channels and geographies, with Greater China advancing 13.9 percent, EMEA improving 5.3 percent, and North America inching up 2.6 percent.

Still, the numbers represent a slowdown from 2022, when Lanvin Group posted a 37 percent increase in revenues, and reflect that its flagship Lanvin brand sputtered in the first half of 2023, with revenues falling 10.8 percent to 64 million euros.

The company attributed the dip to “its focus on a creative transition as well as comparatively fewer product and marketing initiatives” in the six-month period versus a year ago.

In April, Lanvin parted ways with its creative director Bruno Sialelli, built dedicated teams for leather goods and accessories, and established Lanvin Lab, with rapper Future its first guest creative at an adjacent project spawned to incubate new ideas and concepts for the French house.

In a statement, Lanvin Group said the brand plans to reveal a new artistic director “in the coming months” who will work in tandem with Lanvin Lab to “drive brand heat more consistently going forward.”

By contrast, revenues gained 33.6 percent at Caruso, 22.4 percent at Sergio Rossi, 11.3 percent at St. John and 8.4 percent at Wolford.

Losses widened to 77.2 million euros, but the company said it’s on track to achieve breakeven in 2024 in terms of adjusted EBITDA.

“We continue our track record of global growth while we make progress on our path to profitability,” Joann Cheng, chairman and chief executive officer of Lanvin Group, said in a statement. “Our improvement in gross profit and contribution profit are evidence of our commitment to securing profitable growth. We have done the groundwork for our brands to accelerate their growth and are excited about our prospects for the remainder of 2023.”

She noted “several strategic reorganization decisions with respect to Lanvin…had an expected short-term impact in the first half of 2023. We believe we have now placed Lanvin in a much stronger position.”

The release noted that Lanvin reacquired its Japan trademarks from its longtime partner Itochu Corp. last March, which will now become its exclusive licensee and distributor.

Idalia is expected to be the first hurricane to hit the U.S. this season

Hurricane Idalia made landfall in Keaton Beach, Fla., on Wednesday morning as a Category 3 storm, according to the National Hurricane Center. It was battering the state’s northern Gulf Coast with high winds and a powerful storm surge predicted to reach up to 16 feet in some areas. More than 30 Florida counties have issued evacuation orders.

It was the first Atlantic hurricane to hit the U.S. this season, a year when an above-average number of storms is expected because of extremely warm water in the North Atlantic. The National Oceanic and Atmospheric Administration has predicted 14 to 21 named storms with winds of 39 mph or greater, including six to 11 hurricanes with winds of 74 miles an hour or higher.

This year’s record-setting ocean temperatures are the result of decades of climate warming and an El Niño pattern that is releasing heat from the Pacific into the atmosphere and affecting ocean temperatures globally, according to Michael McPhaden, senior scientist at NOAA’s Pacific Marine Environmental Laboratory in Seattle.

Here’s a look at some of the physical forces that drive hurricanes, how they form and how both climate change and El Niño weather patterns affect their formation:

The water temperatures in the North Atlantic and Gulf of Mexico are acting as fuel for tropical storms, which begin their life as a region of low pressure. As the pressure system moves over warm surface waters, it sucks up heat energy from the ocean, creating moisture in the air.

If the conditions are right, a tropical storm forms with an eye of rotating winds and intense rainfall. Once wind speeds in the eye of the storm reach 74 miles an hour, forecasters call it a hurricane.

This year, an El Niño weather pattern has also formed in the Pacific Ocean, resulting in a slosh of warm water developing across the eastern Pacific against the South American coast. In most El Niño years, there are more hurricanes in the Pacific (where they are known as typhoons) because of the warmer surface water, and there are fewer hurricanes in the Atlantic.

El Niños also produce strong upper-level winds that blow east across the tropics into the Atlantic basin. These winds typically shear off the developing cloud layers of Atlantic hurricanes, preventing their formation. This year, however, the record-warm Atlantic surface temperatures are counteracting that weather pattern.

Hurricane intensity—a measure of wind speed—has risen over the past 20 years. Eight of the 10 most active years since 1950 have occurred since the mid-1990s. The number of major hurricanes—those rated Category 3 and higher—has also increased.

Business groups say country’s competitiveness is at stake, warning lack of support could spark exodus

The German government has rejected a proposal to subsidise power prices for energy-intensive industries, in a move business groups warned would cause an exodus of manufacturing to countries with lower energy costs.

The decision is a setback for Green economy minister Robert Habeck, who had argued that high energy costs were damaging the competitiveness of companies in Europe’s largest economy.

“German industry is sending out an SOS, but the government continues to ignore an emergency that is now acute,” said Markus Steilemann, head of the VCI, the chemical industry lobby.

Tanja Gönner, managing director of the BDI, Germany’s main business lobby, said: “The absence of any tool that would reduce the burden of electricity costs in the current difficult situation is fatal. The government can’t duck away from this problem.”

But Olaf Scholz, chancellor, insisted the government was heeding industry’s calls for help, citing a €7bn package of corporate tax relief agreed by his cabinet.

Scholz said on Wednesday that securing a cheap energy supply was an “ongoing issue”, and stressed that his government had spent “several billion euros” to subsidise prices since Russia’s full-scale invasion of Ukraine 18 months ago.

But “we are now seeing that prices are falling . . . that import costs for Germany are declining — in part thanks to the strategy we developed”.

Russia’s attack on Ukraine and its decision to cut gas flows to Europe hit Germany hard, prompting alarm from business as gas prices hit record highs last year. Scholz’s government responded by building new import terminals for liquefied natural gas and spending billions to secure emergency LNG supplies from the US and Middle East.

“The fact we acted so quickly meant we got through the winter and it wasn’t cold in our flats and factories,” said Scholz, who was speaking after a two-day government retreat in Schloss Meseberg, a baroque palace outside Berlin.

But energy costs remain above prewar levels, and are widely cited as a reason why Germany’s economy stagnated in the three months to June after shrinking in the previous two quarters.

Habeck first unveiled plans for a subsidised electricity price in May, saying the government would spend €25bn-€30bn to ensure that big industrial consumers would not have to pay more than €0.06 per kilowatt hour (kWh) for electricity until 2030. The spot market price is currently €0.089/kWh.

The move came amid growing concern that low energy costs in the US and the vast subsidies on offer under President Joe Biden’s Inflation Reduction Act might tempt German companies to relocate.

Scholz said the best way to deal with the problem of high gas and electricity costs was to increase renewable energy capacity and expand Germany’s power grid. Germany plans to derive 80 per cent of its electricity from renewables by 2030.

But Steilemann insisted that until there was enough cheap renewable capacity available, the government must step in to help energy-intensive sectors such as chemicals. The idea was a “must-have for preventing deindustrialisation”, he said.

A survey by the German Chamber of Commerce and Industry (DIHK) found that 32 per cent of German companies favoured investment abroad over domestic expansion. The figure was double the 16 per cent in last year’s survey.

Scholz’s rejection of subsidies could antagonise many in his party, the Social Democrats (SPD). Its parliamentary group recently backed the idea of offering industry a state-backed subsidised electricity price of €0.05/kWh.

The SPD and Greens’ smaller coalition partners, the liberal Free Democrats are firmly opposed, to the idea. Christian Lindner, finance minister and FDP leader, has argued that subsidised energy would only benefit big industrial groups.

“It will distort competition between the big companies and the Mittelstand,” he told ARD TV, referring to the small- and medium-sized enterprises that are the backbone of Germany’s economy.

“We can’t make all taxpayers, all companies — the baker, the trader, the Mittelstand firm — pay for a reduced electricity price for a few companies,” he said on Tuesday.