Barron's : Companies Are Spending on the ‘Security of Everything,‘ Says KKR’s Mc

Companies Are Spending on the ‘Security of Everything,‘ Says KKR’s McVey. How to Play the Boom.
India, Japan, and Poland are just some of the markets that will benefit from greater spending and investment around the world.

There has been a regime change in the global economy and investment world, says Henry McVey, head of global macro and asset allocation at KKR, the alternative asset manager. If ultralow interest rates and consumer spending marked the prior regime, a higher inflation rate and global fixed-investment boom will shape the worlds of business and finance in the coming years. That boom extends far beyond artificial intelligence, he notes, to encompass spending on national security, energy, supply-chain resilience, and more.

McVey, formerly chief U.S. investment strategist at Morgan Stanley, sees ample investment opportunities as countries spend to fortify power grids, shore up supply chains, and reshuffle trade routes. After traveling to Europe and Asia in recent weeks, he says he is even more bullish than before, and thinks this investment cycle is broader, more durable, and likely more inflationary than he originally envisioned.

McVey is also chief investment officer of KKR’s $34 billion-in-book-value balance sheet, used to seed new businesses and make strategic acquisitions. He recently spoke with Barron’s about the implications of greater spending and investment for various markets and regions around the world. While most of KKR’s investments are focused in private markets, McVey highlighted public and private-equity investments that stand to benefit.

An edited version of the conversation follows.

Barron’s: Is there an investment trend that the market has underestimated?

Henry McVey: We are in a fixed-asset investment boom. The headline attention is on AI, but it is broader than that. It involves the reconfiguration of supply chains, national security initiatives, and a fundamental reconstruction of the energy system. All four pillars are driving stronger incremental growth than what we have traditionally seen.

We were living in a world of tight fiscal and loose monetary policy, and low inflation. Central banks overreached via quantitative easing to stimulate leverage, which ultimately led to consumption. The current model is predicated on faster growth in nominal gross domestic product and profits. Deregulation, tax incentives, and bigger growth opportunities are leading to more fixed investment, including more broad-based capex [capital expenditure] in the corporate sector. It is almost the exact opposite of the prior two decades, and the investment community understands that—but not the magnitude of the implications.

What are the implications?

The most interesting point is in Asia. Sixty percent to 75% of capex in the region isn’t related to AI. The defense industry is growing, intra-Asia trade is booming, and the need for more power in new spaces is underappreciated. The story for Asia is up and to the right.

One of the more important structural trends across Asia is the continued deepening of trade within the region. Intra-Asia trade increased from 46% of total regional trade in 1990 to 60% in 2024, and we expect that share to reach approximately 68% by 2030. This shift reflects increasingly integrated supply chains, greater regional investment, and importantly, the emergence of Asian economies as larger end markets for one another.

This trend has further to run, creating opportunities in manufacturing, logistics, infrastructure, and businesses benefiting from rising regional consumption.

What other themes are attractive in Asia?

Corporate reform and corporate carve-outs is a megatheme in Japan, Korea, and increasingly in Singapore, which are must-own investment opportunities. For example, 40% of Japan’s stock market—and 70% of Korea’s—trades below book value, 17% of assets are in cash, and real interest rates are negative. This is an incredibly compelling backdrop for private-equity investors.

There is also a consumption upgrade theme. Indian executives are seeing the middle- to upper-income consumer increasing spending and the lower-income consumer retrenching. It is the same story I heard in London and in the U.S. The bifurcation creates opportunity as many consumers upgrade their spending.

What are some examples?

Nominal GDP in India is growing faster than anyplace else, so that creates attractive opportunities for investments in hospitals, education, and retirement security. In China, the main theme is value for money, much like what happened in the U.S. after the 2007 downturn. South Korea and Japan are more mature societies, welcoming AI because automation and digitization help with demographic challenges.

In Japan, we have invested in PHC Holdings [ticker: 6523.Japan], a diabetes-management products company that helps address the growing need for chronic-disease management in aging populations. Another investment is [privately held] Logisteed, which uses robotics, automated warehousing, and digital logistics systems to reduce dependence on manual labor. That helps companies respond to Japan’s aging workforce and labor shortages.

How do you account for currency moves?

Currencies in Asia are generally undervalued, creating another tailwind for the region. Interest rates have been the focus for investors. For the next chapter, currencies are more front and center. Currencies respond to interest-rate moves and fiscal imbalances, and it seems we are in that world. The decision to hedge against currency swings will grow in importance.

What do higher interest rates mean for investors?

Inflation is at a higher resting heart rate than in the past. That means nominal GDP will be higher. You aren’t going to get access to the low rates of the past, so you have to grow your way through this with productivity. That is where we are laser-focused at KKR. The ability to have a moat around your business and leverage technology and employee ownership, which keeps everyone rowing in the same direction, generates outsize results.

What does this new regime mean for the traditional 60% stocks, 40% bonds investment portfolio?

We have been advocating against government bonds for years, saying that the traditional correlation between stocks and bonds would go from negative to neutral or positive, preventing bonds from remaining a shock absorber in a portfolio. In the regime change I’m talking about, government debt is your Achilles’ heel. Investors were probably overpricing the value of the risk-free rate.

I want to own more investments that aren’t correlated to the stock market because the market has become increasingly concentrated. That would include more real assets, particularly infrastructure, in which most clients are underweight. Governments are levered and don’t have excess free cash flow to fund all the fixed investment, so we are seeing spinoffs of transmission lines and roads—for example, in India. There, we own Highway Concessions One, a toll-road and transportation infrastructure company, and India Grid Trust, a publicly listed infrastructure trust focused on electricity transmission.

Tactically, publicly traded corporate bonds with three to four years of duration look interesting now in most parts of the world. Investors have priced in too many central bank interest-rate hikes. As rates normalize and investors realize that central bankers are just taking away emergency rate cuts made in 2025 and not embarking on a massive tightening cycle as in 1994 or 2021, liquid credit looks like an interesting near-term opportunity. Shorter-term high-yield debt is a key focus.

What risks are you monitoring most closely?

I am focused on semiconductor pricing. The semiconductor business is highly cyclical. Right now companies have strong margins, but that may not always be the case. I am also monitoring the cash flow of the large language models. We estimate 40% of the hyperscalers’ order book is coming from LLMs, so they need to deliver on their business proposition.

Another concern is budget deficits in France—and in the U.S. and more mature Asian markets, where there are questions about what is the “right” government debt load. We think it is closer to 150% of GDP for developed economies, not 100% [where many debt/GDP ratios sit now]. One variable that could alter my regime-change framework would be a government shift toward tighter fiscal spending.

Could that happen in the coming months after elections in France or elsewhere?

AI, national security, defense, and supply-chain reconfiguration are largely existential threats. Both the public and private sector are going to spend around them for that reason.

There could be a tactical shift, but I don’t think we will have a seismic change in government policies until the fixed-investment buildout is further along. That is why our portfolio is predicated on having the ability to withstand heightened geopolitical tensions, bigger deficits, a messy energy transition, and more supply-side shocks than in the past. We are looking to build portfolios that not only defuse those concerns but also position investors to benefit from the tailwinds.

China is quickly adopting AI. What are the implications?

AI is pervasive across sectors in China. There is a thirst to embrace AI in the healthcare and consumer sectors. That should be a sign of what’s coming.

Our thesis on productivity was predicated on automation, digitization, and machine learning coming out of the Covid pandemic, not AI. So far, AI may have contributed a tenth to a hundredth of the increase we saw in productivity from 1% in the past decade to 2.4% in the past eight quarters. To understand how AI drives that next leg of productivity, you need to look beyond U.S. firms.

It is borderline irresponsible to not understand China’s technology effort, even if you are going to buy the Magnificent Seven stocks. China is making significant inroads in open-source and low-cost models. One part of the world may demand the Maserati of AI, and another a regular car that is fast but a cheaper alternative.

While China has developed globally competitive industrial businesses, translating that competitiveness into stronger corporate profitability and returns on capital remains a challenge. By comparison, Japan and Korea offer more visible opportunities [for investors] from corporate governance reform, shareholder returns, and operational improvement.

Where else are you finding opportunity?

When we survey CEOs of the companies we are invested in, the No. 1 term they use is resiliency. We call this the “security of everything.” Post-tariffs, post-Covid, post-wars, they want to make sure their supply chains work. One of the biggest impediments is consistency of power. The opportunity in power storage is probably underappreciated. We have also been investing in the providers to the energy providers.

Additionally, we have invested in vocational training, with stakes in companies such as Lightcast, a labor-market analytics business that helps employers and educational institutions identify skills gaps and better align workforce training with labor market needs. We need more plumbers, welders, and shipbuilders. Goods jobs surpassed services jobs in August, which hasn’t happened for years.

Also, Europe is getting a huge bump in intra-Europe trade. Germany is exporting less to China and more to Eastern Europe. Poland is a notable beneficiary of the shift toward more-regional European supply chains, particularly in automotive manufacturing, industrial components, and logistics. Its proximity to Germany, established manufacturing capabilities, and integration into European trade networks make it an attractive location for companies seeking to regionalize production.

Thanks, Henry.

Barron's : What a Democratic Congress Would Mean for Wall Street The midterms wi

What a Democratic Congress Would Mean for Wall Street
The midterms will put some industries in the crosshairs. What to expect in AI, healthcare, and beyond.

Investors should get ready for changes in Washington. President Donald Trump’s thin congressional majority is on the ropes, with Democrats needing to pick up just four House seats and four Senate seats in the Nov. 3 midterms to secure power on the Hill.

While the outcome of the elections isn’t a foregone conclusion, as of this writing Democrats are overwhelmingly favored to take control of at least one chamber of Congress. Bettors on prediction market Kalshi give them 91% odds of taking control of the House and a 65% shot at the Senate. If either chamber of Congress flips blue, Republicans’ legislative agenda would face major obstacles, and companies from across industries might be impacted.

Political gridlock isn’t necessarily bad for investors. Since 1930, midterms resulting in a Republican president and Democratic Congress have produced average S&P 500 gains of 15% in the 12 months following the election, compared with a 10% decline when they produce a Republican president and Congress. When Congress splits, the S&P 500’s average gain rises to 23%.

“Wall Street generally prefers a divided Washington, but investors shouldn’t confuse legislative paralysis with political tranquility,” says Milan Dalal, a lobbyist at Tiger Hill Partners and a former Democratic congressional aide. “Some industries will inevitably find themselves in the crosshairs.”

A Democratic Congress could make for a rocky road ahead for many companies and markets. The GOP’s corporate allies in crypto, banking, and artificial intelligence might be subject to congressional investigations. Trump’s tariff regime, which he essentially controls unilaterally, could intensify as he leans more into trade policy. The executive branch’s deregulatory efforts could stall, and debt ceiling brinkmanship could return as Democrats look for leverage to achieve their own policy goals.

Democratic leadership could also give hints about the future atmosphere for stocks and Washington’s regulatory and policy landscape, should the party take the presidency in 2028. Ideas like Medicare for All will be dead on arrival with Trump, but Democrats will at least get a chance to test the waters for the next time they occupy the White House.

“The ideas that catch resonance will likely set the agenda for 2029,” says Stephen Myrow, managing partner of Beacon Policy Advisors. “Just because these things don’t necessarily get done in the next two years, investors still have to pay attention to that.”

Here are potential impacts of the likely election outcome on eight key areas for investors to keep an eye on.

Challenges to Banks’ Washington Wins
From the largest, most sophisticated financial institutions to community-based lenders, banks have racked up victories while Republicans control Congress and Trump-appointed officials lead financial regulators. Bank lobbyists have won watered-down capital requirements, a friendlier annual stress-testing framework, scaled-back consumer-protection enforcement, and reduced small-bank supervision.

After the election, Democrats could control the influential House Financial Services and Senate Banking committees, empowering them to challenge and delay the administration’s deregulatory efforts. Democrats have built up an oversight agenda while in the minority, and leading key committees would “equip them with the tools to pursue it,” according to the law firm Paul Hastings.

The top Democrats on those committees, Rep. Maxine Waters of California and Sen. Elizabeth Warren of Massachusetts, have laid the groundwork. In recent months, Warren has called on regulators to investigate crypto firms, private-equity companies, and prediction markets. Waters has demanded briefings from major banks, including JPMorgan Chase, Citigroup, and Bank of America, on AI-related concerns. They could use investigations and requests for documents from federal agencies to slow Trump’s agenda, according to Brian Gardner, chief Washington policy strategist at Stifel Financial.

Gardner notes that although inquiries “can divert an agency’s time and energy from implementing” that agenda, they can’t stop it outright. —Rebecca Ungarino

Energy Projects on the Line
The elections could have a major impact on energy companies even before the new members of Congress take office in January.

A sweeping, bipartisan energy-permitting bill—the top legislative priority of oil-and-gas companies in the current legislative term—is awaiting a vote in the Senate. The bill would speed the pace of projects from oil pipelines to electricity transmission lines, limiting legal and political challenges.

Its passage would be a big victory for companies like Williams and Energy Transfer, whose projects have sometimes been stalled or killed by lawsuits and permitting delays. Opponents say it guts environmental protections.

The bill won’t be voted on until after the midterms, and the politics of its passage could change at that point. Some Democrats, including Rep. Jared Huffman of California, think their party should rewrite the bill if they win because they can introduce something more green-friendly in the next Congress. “Nov. 3 is coming and we are likely to soon have a far better negotiating position,” he said in a public statement about the bill.

Permitting-reform proponents might still have the votes to pass it, with or without progressive Democrats. But the possibility of a Democratic sweep throws its passage into doubt. —Avi Salzman

Crypto’s Losing Streak Could Continue
For a crypto industry fresh off a major disappointment in Congress, Democratic wins would only portend more pain.

The Senate failed to progress the Clarity Act in September because Democrats demanded the bill restrict Trump’s crypto investments, which yielded him more than $1 billion last year. The bill would have put most crypto trading outside the purview of securities regulators, a major goal of industry stalwarts like Coinbase Global.

Republicans might still want to give the bill another shot, but Democrats are more likely to want to focus on other issues that might appeal to voters in the 2028 presidential election, including alleged misdealings by the administration. Should Democrats control the Senate, crypto executives are more likely to be hauled before the Banking Committee to testify on their ties to the White House than they are to get a bill that helps them, says Dalal, the lobbyist.

“There will be a lot more scrutiny of the crypto industry as opposed to trying to advance legislation that creates a digital asset framework,” he says. — Joe Light

Headline Risk for Healthcare Stocks
Polls show that healthcare costs are a top concern for voters, who have seen a nearly 50% rise in out-of-pocket healthcare spending since 2020.

Some Democratic candidates, such as Michigan’s Abdul El-Sayed and Maine’s Troy Jackson, are pushing Medicare for All, a decades-old progressive policy proposal for universal healthcare coverage, back into the national spotlight. Opponents say the policy would undercut private insurers, and it might not have enough Democratic votes. Regardless, investors should expect an intensified focus on insurers and pharmaceutical companies if Democrats gain control of one or both chambers.

The party’s list of policy ideas includes variations on breaking up vertically-integrated healthcare companies, cracking down on insurance denials of medical claims, shoring up corners of the insurance industry that serve the Medicaid and Affordable Care Act markets, and capping drug prices. Some of these proposals have broad popular support.

Sweeping reforms aren’t likely. Veto-proof legislation would require a two-thirds majority, which Democrats probably won’t have. Even so, “there will be headline risk, and there will be hearings and investigations,” says Molly T. Turco, managing director for healthcare policy in TD Cowen’s Washington Research Group. “Investors will react to that.”

Control of hearings would give Democrats airtime for their proposals and offer opportunities to capture video clips that make insurance and pharmaceutical executives look bad. —Catherine Dunn

AI Execs in the Hot Seat
One area that could have strong support in the new Congress, regardless of which party has the majority, is legislation protecting Americans from potentially higher utility costs due to the power demands of new data centers. This is despite mixed evidence that data centers are the primary driver of electricity inflation.

Sens. Richard Blumenthal (D., Conn.) and Josh Hawley (R., Mo.) have proposed a bill that would force data-center developers to provide their own power; a similar bipartisan bill passed in the House in September. Trump might support some version of these bills, even if it is pushed forward by a Democratic-led Congress. He has already signed an executive order that asks tech companies to cover their AI-related electric costs.

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A Democratic House or Senate could also bring more scrutiny on AI companies and their leaders. A group of Democrats has already requested Nvidia’s Jensen Huang and OpenAI’s Sam Altman testify in oversight hearings, which could result in embarrassing moments that sour public sentiment on the sector and move tech stocks lower. —Adam Levine

Housing-Cost Solution Could Stall
Whether on rentals or purchases, housing costs just keep rising. Home prices measured by the S&P Cotality Case-Shiller Home Price Index are up 56% nationally since the end of 2019, while rents measured by Zillow are up 40%.

Legislation aimed at addressing housing costs, called the More Homes on the Market Act, is currently pending in Congress. Both the House and Senate versions of the bill seek to double the home-sale capital-gains exclusion limit to up to $1 million and index the cap to inflation. Industry lobbyists like that idea because they think it will encourage more home sales, but it could face new hurdles in a Democratic Congress.

The legislation would lower the government’s tax revenue from home sales—likely not something Democrats seeking to generate more tax revenue would be keen on.

The housing industry could also be impacted at the regulatory level, says Bill Killmer, chief lobbyist for the Mortgage Bankers Association, a housing-industry trade group.

“If Democrats retake one or both chambers, there is going to be a very coordinated and intense level of oversight on all of the housing-related regulators,” Killmer says. That could include the Federal Housing Finance Agency, run by longtime Trump ally Bill Pulte. —Shaina Mishkin

Renewed Trump Trade Aggression
Analysts are bracing for a more aggressive geopolitical posture from Trump if Democrats take control of Congress. That means his tariff threats aren’t going away soon. “Trump won’t want to be perceived as a lame duck,” says Owen Tedford, an analyst at Beacon Policy Advisors. “If there’s a [Democratic] sweep, he will want to continue to exercise power to stay relevant. Tariffs and trade are areas where he has shown interest and believes he gets outcomes.”

Analysts expect the administration to unveil new Section 301 tariffs against 16 countries, including China, related to complaints about overproduction, as the administration tries to
Trump Tariff ‘Plan B’ Begins With New Probe. What It Means for Importers.
The Trump administration has launched a new Section 301 investigation as it seeks to rebuild tariff revenue after a Supreme Court ruling struck down parts of last year’s levies.

The electoral outcome could transform the future of the U.S.-Mexico-Canada trade pact, however. The administration chose not to renew the agreement or withdraw from it, leaving it in limbo until the three countries decide whether to extend it, formally withdraw from it, or wind down the current arrangement in 10 years as the terms stipulate.

A Democratic sweep that raises expectations for a Democratic presidential victory in 2028 could prompt Mexico and Canada to wait to renew the pact, in hopes of getting a better deal then. But that could also backfire. “If Trump feels that Mexico and Canada are trying to hold out for a better deal and stringing him along, he could threaten to withdraw from USMCA,” Tedford says.

Congress would need to vote on a withdrawal. But Eurasia Group analyst Noah Daponte-Smith says Trump could unilaterally remove the exemptions that allow about 80% of Mexican and Canadian imports to trade tariff-free, essentially ending the pact. Supply chains across North America would be disrupted.

Democratic wins could also boost momentum around several bills targeting China, including the Match Act, sponsored by Rep. Michael Baumgartner (R., Wash.) and co-sponsored by a bipartisan group of other representatives. The bill would tighten restrictions on China’s access to semiconductor manufacturing equipment. According to Tedford, House Speaker Mike Johnson (R., La.) has so far thwarted the bill from advancing, at Trump’s behest. Momentum on the bill after the midterms could provoke a negative response from Beijing. —Reshma Kapadia

Possible Bond Market Volatility
Treasury buyers have been demanding higher yields recently on worries about runaway government spending, among other things. Yields on 10-year Treasury notes hit highs unseen in decades after the federal deficit surpassed $40 trillion in August.

That spending will be back in the spotlight after the election. The government is on track to hit its debt ceiling early next year, and if Republicans keep control of Congress, negotiations on raising it would be more contentious and require a recalibration of spending priorities. Negotiations could come down to the wire if compromise proves difficult—meaning more market volatility, with investors avoiding shorter-dated debt or Treasury bills out of fear they won’t be repaid.

Meaningful deficit reduction is unlikely, regardless of the election outcome. “It is more probable that the markets will need to force a change in mind-set, as even heading into the midterms there is very little discussion in Congress on how to rectify the elevated fiscal deficit,” Padhraic Garvey, ING Bank’s regional head of research, Americas, wrote to Barron’s.

Treasury yields will likely move higher only if investors foresee a larger-than-expected deficit, according to Ariana Salvatore, Morgan Stanley’s head of U.S. public policy research. That would be the base case if Republicans win Congress, as they would likely push through tax cuts and spending increases, such as those proposed in the administration’s supplementary defense funding request.

“While this is a low-probability scenario, it could prove quite market-moving,” wrote Gennadiy Goldberg, TD Cowen’s head of U.S. rates strategy.

A Democratic sweep could mean GOP-led funding cuts to food stamps and Medicaid are reversed. But “at least Congress is unlikely to pass larger spending bills” due to gridlock, Goldberg wrote. “Therefore, the deficit trajectory is unlikely to get materially worse.”

TechCrunch : What some of Anthropic’s backers are reportedly worth before its IP

What some of Anthropic’s backers are reportedly worth before its IPO

Anthropic’s public listing, which is expected this year at a valuation of as much as $2 trillion, is bound to be a windfall for both early-stage and later-stage investors. But even at the company’s latest private market valuation of $965 billion, the stakes held by many of those VCs and early backers already total billions. Here is what some backers in the leading AI lab are worth at that last round’s price, according to Bloomberg.

Eric Schmidt: The former Google CEO invested in Anthropic’s Series A in 2021, when the startup was valued at $461 million, according to PitchBook data. Today, Schmidt owns about 1% of the company, and even at its current private valuation, his stake is worth nearly $10 billion.

Iconiq: The investment outfit wrote a $6 billion check to Anthropic last year when the company was already valued at $183 billion. That massive late-stage bet is now worth $17 billion and has the potential to double at the IPO.

Menlo Ventures: The VC firm led Anthropic’s Series D and has invested more than $1 billion in the company over time, a stake now worth $14 billion.

Sequoia: The famed VC firm backed the AI lab for the first time only earlier this year, when the company was already valued at $380 billion. The $3 billion investment gave it about 1% ownership, which means it has already more than doubled its investment.

Sound Ventures: The firm, launched by Guy Oseary and actor Ashton Kutcher, invested $35 million in its 2023 Series C round and has since funneled an additional $400 million into Anthropic, resulting in a stake that’s worth billions now. (Kutcher left Sound Ventures this year to launch a new VC firm.)

Spark Capital: The only VC firm known to hold a board seat at Anthropic invested $75 million in that same 2023 Series C round, when it was valued at $5 billion. That position has ballooned more than 90-fold to $7 billion

eFinancials : The heavy hurt in European high yield: "Young people have never tr

The heavy hurt in European high yield: "Young people have never traded a real bear market"

Not so long ago, European high yield traders were in demand. UBS hired Robert Laux from Bank of America; Bank of America hired Gajern Kailavasan from Deutsche Bank and Barclays hired Justin Mullem from BofA. Jon Stead left Morgan Stanley for Jain Global in August. And even this week, BofA hired Tharsh Tharshan from Citi.

Insiders say many of the moves involved "high prices" and generous pay. But now the party may be coming to an end. European high yield is not what it was.

As we reported earlier this week, Dan Cohen, the head of high yield at BNP Paribas, is no longer there. Neither Cohen nor BNP Paribas commented on his exit, but it's thought that Cohen may have made a very nominal loss. Insiders say that various other desks are down, many by a lot more than BNP. Virgin Media O2's plummeting bonds are blamed.

There is pain on the buyside too. FT reported yesterday that credit-focused hedge fund Arini Capital is down 7% this month, compounding its 15.7% loss between January and the end of September. Bloomberg reported that the Sona Master Fund lost about 3.1% in the first two weeks of October. Diameter's returns were negative in the same two week period, said Bloomberg. The three funds are some of the biggest in the European market.

In a possibly unrelated move Bloomberg reported yesterday that Andy Silver, Brevan Howard's head of credit trading is leaving his frontline role and taking up a broader strategic and advisory position. Brevan Howard didn't comment for this article, but Bloomberg noted that when Silver joined in 2021, it was to expand Brevan's credit trading operations. David Abbou is taking over day-to-day running of the business; Brevan’s master fund was down 0.6% to September.

Speaking off the record, multiple traders in the European high yield market, on both the buy-side and the sell-side said the market has come unstuck. Senior traders have left the industry, liquidity has shrivelled and risks have risen. European high yield is not for the faint hearted, and there are fainter hearts all around.

"The big buyers in the market have been hit and there are massive negatives everywhere," says one portfolio manager at a London hedge fund. "There's a lack of senior risk takers across the board and because PnL is lower in general, senior management no longer has the desire to run high yield vol and big books." This is creating gap risk. "There is no desire or ability on the street to take risk during periods of stress." Put simply, liquidity dries up.

It's a far cry from 2019 when Arini's Hamza Lemssouguer made $120m in profits aged 29 while at Credit Suisse and then a reported $220m profit in the first quarter of 2020 aged 30. Lemssouguer's profits at Credit Suisse were reportedly made betting on the bonds of Thomas Cook, Rallye, Altice and Europcar.

When Lemssouguer left Credit Suisse six years ago, Citadel reportedly offered him a job. But market insiders say the big multistrategy firms are becoming increasingly wary of taking European high yield positions. Although Sona's Michael Boam quietly joined Millennium in March, the bigger funds are not thought to be the biggest players in the market. Insiders say the biggest players in the market are instead the likes of Arini, Sona and Diameter, who are hurting from recent losses.

With the big players smarting, there are fears that liquidity will dry up further, just as the Bloomberg index of spreads for Europe's lowest rated borrowers hits its highest level since early COVID. The losses do not all have equivalent causes, though. At Arini, the expected restructuring of bonds at Altice International, Brightspeed and Aston Martin is to blame. Arini has told clients the losses are part of its contrarian approach and that they don't reflect soured investments. At Sona, exposure to Virgin Media and Paramount Skydance turned profits negative.

One senior figure in the high yield market, who's worked in both banks and hedge funds, says the European market has broken. Corporates in Europe that issue high yield debt have increasingly begun using "dropdown strategies," he says. Bonds are secured on a defined group of companies rather than on specific assets. In a drop-down, the company moves valuable assets out of that defined group and into a new subsidiary. There, it borrows against them, leaving existing bondholders with much less collateral. "The covenants have become so weak on everything that as companies get into trouble, the companies can move security away from bondholders," he says.

Both Altice and Aston Martin have made use of dropdowns and when they were deployed, their debt plummeted almost overnight. "When the most stable things become unstable no one wants to touch a bomb," says the senior high yield trader. "You can buy much safer stuff at higher yields."

Following the ejection of up to 100 people from London macro funds, many are predicting that European credit jobs will be next. Banks are likely to clear out loss-making desks; funds may pull back from the asset class. No one wants to be left holding a hot potato, says the trader.

It means that a generation of traders who were in hot demand could find themselves out in the cold. "The last time there was a bear market in credit was nearly two decades ago during the financial crisis," says Matthias Schwarz, the former head of EMEA credit trading at Bank of America. "There's a big cohort of traders that have never traded an oversupplied market." Suddenly their services will not be needed. Traders who bought high yield assets from large and dominant clients simply to oblige the clients and stay in the game have been particularly burnt.

There are, of course, other entities in the market. Citadel Securities has been talking about moving into high yield for a while and president Jim Esposito said this week that it's expanding in fixed income (although it's not clear whether European high yield is what he had in mind). Jane Street is a major player in flow high yield and is "crushing" the bid offer spread and making it even harder for banks' desks to make money, says one PM. It's not clear that electronic firms would want to hire OTC traders, though.

Schwarz suggests traders in the market are about to get an education and advises them to sit it out. "As an old guy who has done this for 25 years, I am telling you this is just the cycle," he says. "There's been a four year bull market in equities and a lot of liquidity has been extended to clients who should not have received it. The market will turn and you will have losses. This is what happens."

FT : KKR founders back Valencia in deal valuing football club at €1.25bn

KKR founders back Valencia in deal valuing football club at €1.25bn
Family offices of KKR co-founders George Roberts and Henry Kravis are part of consortium that has agreed to take 42% stake in Spanish team

A group of US investors including the family offices of KKR co-founders George Roberts and Henry Kravis has bought a stake in Spanish football club Valencia at a valuation of €1.25bn, making it the latest European team to attract new capital.

Pitchwise Holdings, a consortium that also includes Penner Sports Group — owner of the Denver Broncos NFL franchise — has agreed a deal to take a 42 per cent stake in the club, including a capital injection of €100mn.

Valencia CF has been owned by Singaporean billionaire Peter Lim for more than a decade but has been on the hunt for new shareholders since 2025.

The club is preparing to move to Nou Mestalla, a new 70,000-seat stadium and one of the possible host venues for the 2030 Fifa men’s World Cup. The project has a turbulent history, with construction work beginning in 2007 before being halted for 16 years. The new stadium has undergone multiple redesigns during that period.

The club’s €1.25bn enterprise value includes debt taken on to fund the stadium construction, such as the €322mn of financing arranged last year. Valencia’s current home, the Mestalla, sits on prime city-centre real estate. Once the team moves, it will be knocked down for redevelopment.

Spanish football has attracted interest from private equity in recent years. In March, US group Apollo acquired a majority holding in Atlético Madrid, valuing the club at about €2.5bn, while Sixth Street has investment deals with both Real Madrid and Barcelona. CVC Capital Partners invested about €2bn in the commercial business of La Liga, which runs Spain’s top two divisions, in 2021.

Private equity executives, such as Apollo co-founder Josh Harris, have also been highly active in investing in sports teams around the world.

Valencia was one of Spanish football’s dominant clubs at the turn of the century, winning the league title in 2002, and both the Uefa Cup and Spanish league in 2004.

But the club’s fortunes have waned under Lim’s ownership. The club has not qualified for European competitions since 2019 and at present sits 19th out of 20 teams in the league table.

Pitchwise — a consortium of investors including the family offices of Roberts and Kravis — is led by Ann Rodriguez, a seasoned sports executive and former chief operating officer at the WNBA, and Corey Woolfolk, a former footballer turned biotech investor.

Penner Sports Group, which has also invested in the Colorado Rockies baseball team, is the sports investment company of Walmart chair Greg Penner and his wife Carrie.

>>>SpaceX rising as reported push for 80,000 cell sites heightens wireless ambit

SpaceX rising as reported push for 80,000 cell sites heightens wireless ambitions and signals greater competition for wireless carriers
  • SpaceX (SPCX) is trading higher pre-market after Bloomberg reported it is seeking access to at least 80,000 US cell sites, a potentially significant step toward becoming a fourth nationwide wireless carrier that is weighing on AT&T (T) and Verizon (VZ) shares.
  • Combining terrestrial infrastructure with Starlink's satellites and recently announced low-band spectrum acquisition could improve indoor coverage and expand recurring subscription opportunities, building on Q3 Connectivity revenue growth of 69% to $5.2 bln and Starlink Mobile's 22 mln monthly users, up 37% sequentially.
  • The financial tradeoff is substantial upfront network spending and recurring lease costs before meaningful mobile revenue scales, adding pressure to cash generation alongside companywide Q3 capex of $19.6 bln and Q4 capex guidance of $35--$40 bln, with the expanded service targeted for early 2028.
  • For AT&T, a well-funded entrant threatens the pricing and subscriber momentum behind Q3 wireless service revenue growth of 5%, postpaid phone ARPU growth of 4%, and 379,000 phone net additions, potentially lifting its 0.92% churn rate and promotional spending while challenging its $19 bln-plus FY27 free-cash-flow target.
  • VZ faces similar risks to subscriber retention, service revenue, and margins, although the buildout timeline gives both incumbents time to respond, while AT&T's approximately 350,000 additional converged customer relationships in Q3 illustrate how broadband-and-wireless bundles could strengthen retention.
  • T-Mobile (TMUS) also faces greater competitive pressure, while Crown Castle (CCI), reportedly involved in discussions, and potential beneficiaries American Tower (AMT) and SBA Communications (SBAC) could gain incremental leasing revenue and operating leverage from adding a major tenant to existing infrastructure.

>>> US Research Calls

Research Calls I
  • Upgrades:
    • Allegion (ALLE) upgraded to Buy from Neutral at BofA Securities, tgt $200
    • Hess Midstream (HESM) upgraded to Outperform from Market Perform at Raymond James, tgt $32
    • MSC Industrial (MSM) upgraded to Buy from Hold at Jefferies, tgt $135
    • MSC Industrial (MSM) upgraded to Overweight from Equal Weight at Stephens, tgt $135
    • Pharvaris (PHVS) upgraded to Buy from Neutral at BofA Securities, tgt $44
    • Roche (RHHBY) upgraded to Buy from Hold at Deutsche Bank
    • Valley National (VLY) upgraded to Outperform from Market Perform at Keefe, Bruyette & Woods, tgt $17
  • Downgrades:
    • Avalo Therapeutics (AVTX) downgraded to Neutral from Buy at Guggenheim
    • Avalo Therapeutics (AVTX) downgraded to Neutral from Buy at H.C. Wainwright
    • Cass Information Systems (CASS) downgraded to Market Perform from Outperform at Raymond James
    • Deckers Outdoor (DECK) downgraded to Underweight from Neutral at Piper Sandler, tgt $75
    • First Industrial Realty (FR) downgraded to Outperform from Strong Buy at Raymond James, tgt $71
    • Globe Life (GL) downgraded to Neutral from Overweight at Piper Sandler, tgt $165
    • Norwegian Cruise Line (NCLH) downgraded to Underweight from Neutral at JPMorgan, tgt $11
    • NVR (NVR) downgraded to Underperform from Buy at BofA Securities, tgt $5,900
    • Old Republic (ORI) downgraded to Outperform from Strong Buy at Raymond James, tgt $45
  • Others:
    • Abundia Global Impact (AGIG) initiated at Buy at Roth Capital, tgt $3
    • Astronics (ATRO) initiated at Sector Weight at KeyBanc
    • Benitec Biopharma (BNTC) initiated at Outperform at Raymond James, tgt $14
    • CAMP4 Therapeutics (CAMP) initiated at Strong Buy at Raymond James, tgt $10
    • Diodes (DIOD) initiated at Buy at Needham, tgt $110
    • Guardant Health (GH) initiated at Buy at Roth Capital, tgt $200
    • Immunic (IMUX) initiated at Overweight at Cantor Fitzgerald
    • Kimberly-Clark (KMB) initiated at Hold at Canaccord, tgt $105
    • Microbot Medical (MBOT) initiated at Market Outperform at Citizens, tgt $2.50
    • Natera (NTRA) initiated at Buy at Roth Capital, tgt $475
    • QT Imaging (QTI) initiated at Buy at D. Boral Capital, tgt $9
    • Quantum (QMCO) initiated at Overweight at Cantor Fitzgerald, tgt $29
    • Rush Street Interactive (RSI) initiated at Overweight at Barclays, tgt $24
    • Skydance (SKYD) resumed at Neutral from Underweight at JPMorgan, tgt $9
    • Super Group (SGHC) initiated at Equal Weight at Barclays, tgt $13
    • VSE Corp. (VSEC) initiated at Sector Weight at KeyBanc

>>> US Gapping down

Gapping down
In reaction to earnings/guidance:
  • DECK -7.8%, KNSL -6.6%, FLG -5.3%, ALV -5.1%, SSNC -5.0%, KRC -4.9%, WDC -4.1%, VRSN -3.6%, FIX -3.5%, BYD -2.6%, SLM -2.2%, BE -1.9%, SAM -1.9%, AXP -1.9%, WSFS -1.3%, NEM -1.0%
Other news:
  • TKC -8.2% (Approved TRY 16.5 billion in Istanbul Financial Center property purchases by the company and its TTECH subsidiary.)
  • TNGX -6.9% (Reported pancreatic Phase 1/2 data with 82% objective response rate; plans registrational Phase 3 trial in first-half 2027.)
  • PHAT -5.1% (BDR Pharmaceuticals sued the FDA, challenging VOQUEZNA’s new chemical entity exclusivity through May 2032.)
  • ACN -2.4% (Disclosed an officer’s sale of 5,844 shares for approximately $1.43 million.)
  • MACI -2.3% (Shareholders approved the Everli Global business combination, with closing expected promptly after remaining conditions are satisfied or waived.)
  • IRS -1.6% (Declared an ARS 211 billion cash dividend, payable November 3 to shareholders of record October 26.)
  • SEZL -1.5% (Filed applications to charter Sezzle Bank and obtain FDIC deposit insurance.)
  • FRMI -1.1% (Reporting owner sold 420,749 shares at $3.0356, worth approximately $1.28 million.)
  • EWQ -1.1% (France will deploy the military to contain protests expected this weekend.)