TheChek News Flow

Investors increasingly want out of nontraded real estate funds—and the operators of those funds are putting up gates to limit redemptions.

Starwood Real Estate Income Trust and KKR KKR –4.79% Real Estate Select Trust disclosed in filings Wednesday that they have curbed redemptions after elevated investor withdrawal requests.

The Starwood real estate investment trust, known as SREIT, said investors holding 4.2% of the $14.2 billion fund requested redemptions in December, and that the fund honored just 20% of those requests based on a quarterly redemption cap of 5% of its net asset value. The 4.2% figure implies that holders of more than $500 million of the fund wanted their money back in December.

The Starwood REIT is run by Starwood Capital Group, a private real estate investment firm founded and headed by Barry Sternlicht. Sternlicht is chairman of SREIT.

The smaller KKR Real Estate Select Trust, run by alternatives investment manager KKR (ticker: KKR), said that investors sought redemptions for more than its 5% quarterly limit in the past three months and that it honored 62% of those requests.

The redemption percentage, or proration, indicates that investors holding about 8% of the REIT wanted their money back in the latest quarter. The KKR fund has a net asset value of $1.6 billion.

The actions by the KKR and Starwood funds follow the move by Blackstone Real Estate Income Trust, the largest nontraded REIT at about $69 billion, to pay out just 4% of investor requests for withdrawals in December to stay within its 5% quarterly cap.

Investors have stepped up withdrawal requests from nontraded REITs, which limit redemptions to 5% each quarter, after the REITs vastly outperformed public peers in 2022, creating an incentive for redemption. The nontraded REIT market had exploded in size during 2021 and early 2022.

In his first public interview since taking over the failed cryptocurrency exchange, John J. Ray III said that he’s open to the idea of rebooting operations

FTX’s new chief executive, John J. Ray III, said he’s looking into the possibility of reviving the bankrupt crypto exchange as he works to return money to the failed company’s customers and creditors.

In his first interview since taking over FTX in November, Mr. Ray said that he has set up a task force to explore restarting FTX.com, the company’s main international exchange. Although top FTX executives have been accused of criminal misconduct, some customers have praised its technology and suggested that there would be value in rebooting the platform, he said.

“Everything is on the table,” Mr. Ray said. “If there is a path forward on that, then we will not only explore that, we’ll do it.”

FTX’s bankruptcy filing marked the largest of several failures of cryptocurrency platforms last year that froze millions of users’ access to their accounts. FTX, Celsius Network LLC, Voyager Digital Ltd. and BlockFi Inc. have used the chapter 11 process to explore restarting their businesses and selling their platforms to stronger rivals. Another option is to simply close up shop and return crypto holdings to customers as quickly as possible.

Mr. Ray said he would look into whether reviving FTX’s international exchange would recover more value for the company’s customers than his team could get from simply liquidating assets or selling the platform.

“There are stakeholders we’re working with who’ve identified what they see is a viable business,” he said.

Even if a reboot gets traction, the outlook for FTX’s customers remains highly uncertain. On Tuesday, FTX identified “substantial shortfalls” of digital assets at its U.S. and international exchanges relative to how much its customers are owed.

Mr. Ray’s job now is to identify any remaining pockets of value that could help plug that shortfall, the size of which FTX hasn’t disclosed. He is a veteran of restructuring troubled companies, most famously Enron Corp., where he helped return billions of dollars to the troubled energy trader’s creditors. After inheriting the top job at FTX, whose co-founders have been accused of misusing customer funds, Mr. Ray has worked to locate and secure assets belonging to its customers, who have been locked out of their accounts.

When he took over 69 days ago, Mr. Ray said he was given no indication of where FTX staff kept its customers’ cryptocurrency and cash. He and his skeleton staff discovered there was no centralized register that identified where the company stored its funds.

Mr. Ray said initially he got help from FTX co-founder Gary Wang and the former CEO of its affiliated trading firm Alameda Research, Caroline Ellison, in trying to track the companies’ funds. Mr. Wang and Ms. Ellison later pleaded guilty to criminal charges related to FTX.

Mr. Ray has clashed with FTX’s former CEO and co-founder Sam Bankman-Fried, who faces federal fraud and other criminal charges and has pleaded not guilty. Mr. Bankman-Fried has said it was a mistake for FTX to file for chapter 11 and criticized Mr. Ray’s handling of the company.

Mr. Ray said in the interview that Mr. Bankman-Fried’s comments were unhelpful and self-serving.

“We don’t need to be dialoguing with him,” Mr. Ray said. “He hasn’t told us anything that I don’t already know.”

Mr. Bankman-Fried responded in a text message: “This is a shocking and damning comment from someone pretending to care about customers.”

Over the past two months, Mr. Ray radically overhauled FTX’s structure, which had effectively no corporate governance to speak of, and cut dozens of employees, he said. His forensic teams are still combing through more than 30 terabytes of FTX’s data to find any information that could lead them to more money. The firm has discovered new wallets in the past week alone, he said.

FTX disclosed in bankruptcy court last week that it had found $5 billion in liquid assets and a $4.6 billion investment portfolio. Customers viewed that as positive, though it isn’t clear how much of that book value can be realized from the stakes that FTX and Alameda bought in crypto startups and other private ventures.

Mr. Ray has engaged investment bankers to sell some of FTX’s subsidiaries and venture investments. FTX, Alameda and other entities controlled by Mr. Bankman-Fried put more than $5 billion into more than 150 startups, as well as venture firms like Sequoia Capital, The Wall Street Journal has reported.

“They went on a spending spree” unlike any he had seen in his multidecade career cleaning up companies, Mr. Ray said.

Often, Mr. Ray said, there was no record or proof of transaction behind many of the multimillion-dollar deals done by Mr. Bankman-Fried during boom times for the crypto industry, when FTX became one of the world’s top crypto exchanges.

“Sometimes there were no purchase agreements, or the agreements weren’t signed,” he said. Mr. Ray added that the bankers on his team have had to call companies in which FTX invested to discover how much they paid for the stake and what the underlying business is.

Mr. Bankman-Fried, whose bail conditions have kept him largely confined to his parents’ house in California, continues to criticize how FTX is being managed through chapter 11. On Tuesday, he disputed Mr. Ray’s claims of a shortfall on FTX’s U.S. exchange. Writing on a newly created blog, Mr. Bankman-Fried posted purported tables of estimated FTX bank balances that displayed a surplus of several hundreds of millions of dollars to cover U.S. customer claims.

Mr. Ray said that Mr. Bankman-Fried’s calculations appear to include around $250 million of cash that sits at LedgerX, the regulated U.S. crypto derivatives business that FTX purchased in 2021. The problem, Mr. Ray said, was that LedgerX itself was bought with funds that had been improperly diverted from customers on FTX’s international exchange.

Effectively, Mr. Bankman-Fried’s proposed balance sheet would imply covering losses at the U.S. exchange through money that belongs to other customers, Mr. Ray said.

“This is the problem,” Mr. Ray said. “He thinks everything is one big honey pot.”

Mr. Bankman-Fried responded in a text message: “Mr. Ray continues to make false statements based on nonexistent calculations. If Mr. Ray had bothered to think carefully about FTX US, he would likely have realized both that his interpretation is wholly inconsistent with bankruptcy law, and also that even if one were to subtract $250m from my balance sheet, FTX US would *still* have been solvent. Rather, Mr. Ray sees everything as one big honey pot—one he wants to keep.”

Mr. Ray added that Mr. Bankman-Fried’s explanations about what went wrong at FTX under his leadership have often been misleading and confusing to customers.

“That’s unfortunate because people are continuing to be victims right now. They are victims of misinformation,” Mr. Ray said. “It’s harmful.”

Mr. Ray also defended himself against critics who allege he is more motivated by generating fees for himself than salvaging the FTX estate. Court filings show he makes $1,300 an hour. That cost—and the cost of the myriad lawyers, accountants and other experts working on the chapter 11 team—comes out of funds that would otherwise be used to repay FTX customers and creditors.

Mr. Ray said that the high levels of criminal activity surrounding FTX make it difficult to trust some existing employees, leaving him with little option but to retain seasoned professionals with expertise in dealing with criminal corporate activity, who typically come with a steep price tag.

“Crime is very expensive. It does a lot of damage to people,” he said. “And one of the damages is that people like me have to come in and fix it.”

Through numerous Freedom of Information Act requests, The Bear Cave has uncovered hundreds of consumer complaints concerning overbilling, fraudulent transactions, excessive fees, and uncancellable memberships. The complaints allege a pattern of misconduct including 1) customers sending multiple cancellation letters that are ignored, 2) cancellation attempts in person that are ignored 3) billing being resumed post-cancelation 4) spurious fees, and 5) Planet Fitness preventing customers from canceling because they owe a back balance, among many other complaints. In addition, The Bear Cave believes Planet Fitness created a fake investor presentation slide to obscure franchisee saturation. After reviewing the evidence, The Bear Cave is left wondering whether Planet Fitness is actually a thriving gym franchise or an illegal billing operation with gyms on the side.

Every year millions of Planet Fitness members attempt to cancel their memberships. Many never go to the gym, some move, and others are off-put by Planet Fitness’s beginner-friendly antics. For example, Planet Fitness gyms have “lunk alarms,” loud alarms that will sound if gymgoers drop weights, grunt loudly, or engage in any intimidating behavior. In addition, Planet Fitness has no squat racks, no barbells, dumbbells that only go up to 75 pounds, and many franchisees host monthly pizza and bagel days. Planet Fitness staff have also turned away guests for having oversized water bottles or oversized builds.

Planet Fitness often boasts these measures ensure a “judgement free environment” for beginners. A skeptic may wonder if these measures are simply designed to discourage frequent gymgoers from joining Planet Fitness.

Ranks of highest earners on continent grew more than 40% in 2021

The number of bankers and investment professionals in the EU earning more than €1mn hit a record in 2021 as investment banking boomed and Brexit pushed more staff to the continent.

The ranks of top earners swelled more than 40 per cent to 1,957 in 2021, according to figures released on Thursday by the European Banking Authority. It is the highest level since the EBA began data collection in 2010.

The surge highlights a consequence of Brexit, where senior bankers have had to relocate from London to EU financial hubs.

“This increase is linked to the overall good performance of institutions, in particular in the area of investment banking and trading and sales, continuing relocations of staff from the UK to the EU and a general increase in salaries,” said the EBA.

Italy, France and Spain took the lion’s share of the increase, with 70 per cent, but Germany remains the member state with the largest population of high-earning bank employees, close to 600.

Investment bankers were the single largest subgroup, with almost 750 earning above €1mn across the EU. The highest-paid banker in the EU, according to the EBA, was one in Spain who earned between €14mn and €15mn in 2021.

“A significant amount of variable remuneration corresponds to one severance payment,” the EBA said. 

The UK has long been concerned that post-EU uncertainty could have an impact on key sectors such as financial services.

In March 2021, the Bank of England demanded that lenders seek approval before relocating UK jobs or operations to the EU, following fears that European regulators were asking more staff to move there than necessary for financial stability purposes after Brexit.

The government has also taken steps in an effort to boost competition.

Former UK chancellor Kwasi Kwarteng announced plans to remove the bankers’ bonus cap in last year’s disastrous “mini” Budget, which his successor Jeremy Hunt confirmed.

Hunt unveiled a broad package of reforms in Edinburgh in December, including relaxing “ringfence” rules intended to separate riskier investment banking from retail operations.

Hunt said many of the more than 30 reforms were only possible because of “freedoms” gained from leaving the EU. However, earlier in January, Harriett Baldwin, the JPMorgan banker turned MP who now heads the Treasury select committee, said the government was being “disingenuous” in describing these changes as a Brexit dividend.

Senior executives are sceptical as to whether the Edinburgh reforms were sufficiently bold to provide a second “big bang” for the City of London. There are also concerns that the lack of an equivalence deal between the UK and the EU to recognise each others’ rules is hampering the UK’s competitiveness.

Big Four firm should have acted after learning about fake software sales, court hears

The Wirecard trial’s presiding judge criticised EY on Thursday for allegedly failing to act on clear evidence of fraud at the German payments group.

The comments came after the prosecutors’ chief witness Oliver Bellenhaus described how an internal investigation had in 2019 found that a contract for a software sale was fake.

The finding triggered a €12mn writedown and was shared with the group’s auditor EY, according to Bellenhaus, a former Dubai-based manager for Wirecard, who is facing charges of fraud, embezzlement, accounting and market manipulation alongside former chief executive Markus Braun and the former head of accounting Stephan von Erffa.

“So EY at this time knew that Wirecard was forging contracts? What were the consequences?” judge Markus Födisch asked Bellenhaus. After hearing that there were no consequences, Födisch said in apparent disbelief: “I am just puzzled . . . [EY] could have handled it differently, and then the whole issue would have been uncovered more than a year earlier.”

Wirecard collapsed into insolvency in June 2020 after disclosing that €1.9bn in corporate cash and half its revenue were a sham. In the 12 months before the collapse, Wirecard raised more than €1.4bn in fresh debt. EY had been the auditor of the disgraced German payments company and for more than a decade gave its annual accounts a clean bill of health.

EY is still under investigation by Germany’s audit watchdog Apas over its work for Wirecard. The body, which in 2020 filed a criminal complaint against several EY audit partners, flagging potential violations of professional duties.

One year later, an investigation on behalf of the German parliament concluded that the auditor’s work suffered from serious shortcomings over a period of years. The Big Four firm is facing an avalanche of lawsuits by Wirecard investors and creditors who suffered billions of losses in the crash.

Bellenhaus told the court in Munich that he managed to reduce the required writedown to €2mn by fabricating two new contracts, inventing new software sales of €10mn. The €2mn writedown was considered insignificant by EY, according to Bellenhaus.

EY did not immediately respond to a Financial Times request for comment.

Creative experiences and a less-standardised approach to operations and design have helped iconic stores like Selfridges, Liberty and Le Bon Marché resist multi-brand retail’s decline.

Dior has become the biggest winner in the market, with sales growing by eight times over the last few years, according to a recent Morgan Stanley report.

If 2022 has been the year that kicked off a K-pop frenzy, 2023 might just get even crazier.

Outside Fondazione Prada, the show venue for Prada men’s fall 2023 fashion show, crowds erupted as members of the seven-member boy band Enhypen stepped to greet fans. The group, which consists of Heeseung, Jay, Jake, Sunghoon, Sunoo, Jungwon and Ni-ki, made its debut last November and has more than 11.5 million fans on Instagram.

In recent years, the influence of K-pop, especially K-pop girl groups, has become more visible in the global luxury market.

Over the last few years, nearly all popular South Korean idols have been anointed ambassadors at one or several luxury brands. Lisa, Jennie, Rosé and Jisoo of Blackpink, members of the world’s most popular all-girl group, has secured partnerships with top luxury brands such as Celine, Chanel, Dior and Saint Laurent.

Competition is heating up to secure the next South Korean idol as the face of luxury brands. In recent months, NewJeans, a five-member girl band often billed as the next Blackpink, has seen its members Hyein, Hanni and Danielle named ambassadors at Louis Vuitton, Gucci and Burberry, respectively.

According to industry insiders, the remaining members of NewJeans, Minji and Haerin, will likely secure ambassadorships with Chanel and Dior separately.

Within the last week alone, Dior has signed BTS member Jimin as a global ambassador; Valentino also named BTS member Suga as a brand ambassador, and Givenchy unveiled Taeyang, a member of Big Bang and a solo artist, as its newest brand ambassador.

Top entertainment studios, such as YG Entertainment, SM Entertainment and JYP Entertainment, often spend years recruiting and grooming talent through an intense elimination process.

After a seven-year hiatus, Blackpink’s agency, YG Entertainment, dropped teasers for a seven-member girls’ band called Babymonster on Jan. 1. The new group’s reveal video quickly amassed more than 28 million views on Youtube.

According to Kim Seiwan, an economics professor at Ewha Womans University’s estimate, the K-pop phenomenon generates about $10 billion annually for the country.

“K-culture has now become a powerful marketing method targeting APAC consumers, and this trend is expected to continue and be stronger during post-pandemic in 2023,” said Sunny Moon, research manager at Euromonitor International Korea.

All eyes are on the Korean market, with luxury brands planning to stage more destination shows this year.

In May, Gucci will stage its cruise show in South Korea to mark the brand’s 25 years in the country after canceling the original event planned for last November due to a tragic stampede in Seoul killing more than 150 people. According to local public relations agencies, Saint Laurent is also considering putting on a fashion show in South Korea this year.

“South Korea has been the leader across Asia in recent years. If you have South Korea, you have the northeastern Asian market,” Jacob Cooke, chief executive officer of WPIC, a Beijing-based e-commerce consulting firm, told WWD recently.

After the pandemic, the local luxury market has registered upbeat growth results. According to Euromonitor, luxury retail value sales in South Korea, which excludes duty-free shopping and the resale market, is projected to grow 8 percent year-on-year to 19.4 trillion South Korean won, or $15 billion, in 2022.

According to a Morgan Stanley report published this month, with a vibrant middle-class and upper-middle-class demographic, South Korean nationals are now the world’s biggest spenders per capita on personal luxury goods. At $325 per capita, it is higher than $280 in the U.S., $210 in Japan and $55 in China.

Morgan Stanley estimates that South Korean nationals now account for “10 percent or more” of the brand’s total retail sales for Prada, Bottega Veneta, Burberry and Moncler.

“At an estimated 5 percent, Vuitton was likely below the industry average, a function of the broad geographical reach of the brand,” the report added.

Increased investment in the market, including fashion shows, pop-up stores and hospitality offerings, helped elevate the appeal of leading luxury brands and reach their growth targets.

Louis Vuitton launched a pop-up café at its Seoul flagship in Gangnam last March, followed by a pop-up vegetarian restaurant at the brand’s Seoul maison last September. Also in March, Gucci opened its fourth Gucci Osteria outpost on the top floor of its Gucci Gaok flagship.

For Dior, with the opening of the expansive Seongsu-dong pop-up store, signing on Blackpink’s Jisoo as brand ambassador and holding its first fashion show in Seoul, the LVMH crowned jewel has become the “fastest-growing player in the market,” according to the Morgan Stanley report.

“We believe the brand’s [Dior’s] sales have potentially multiplied by eight times over the past five years,” wrote the report.

The rise of Generation MZ, a group term for Gen Z and Millennials, became a crucial driver for the market. “Brand awareness has increased not only as brands have efficiently utilized social media platforms as a marketing tool, but also as young customers post their shopping items on social media platforms,” wrote the Morgan Stanley report.

According to Shinsegae, a major fashion department store franchise, sales from Generation MZ reached nearly 40 percent of total luxury sales in 2021, up from less than 30 percent of the sales mix five years ago.

Riding the “Hallyu” (or Korean culture) wave and after more than a decade’s healthy organic growth in the market, Our Legacy, the cult Swedish label, took the leap and opened three shops-in-shop in Seoul last year.

The three retail locations, located within Hyundai Department Store Apgujeong Main Branch, Hyundai Department Store Pangyo and Galleria Luxury Hall East, aim to create a sense of serenity and intimacy “in a chaotic world,” according to the brand’s press release.

Richardos Klarén, CEO of Our Legacy, revealed that the brand had seen double-digit growth since the locations opened.

Working with Handsome Corp., the fashion division of Hyundais Department Store, which is the largest fashion group in South Korea and the brand’s longtime wholesale partner, Our Legacy has plans to open a flagship store in downtown Seoul, featuring Our Legacy’s main line and the Our Legacy Work Shop collection.

“Our brand and product sit well with the market. We’ve also been inspired a lot by Asia, which is what drew us to the South Korean market in the first place,” Klarén said. “When it comes to music, films, beauty, food, South Korea really stands out in terms of the level and pace of development.

“Maybe it’s a word used too much, but I think a minimalistic approach to fashion is a good foundation to have in the market, but we try to push it quite a lot fashion-wise as well,” Klarén added.

Partnering with Handsome Corp., American designer brand Gabriela Hearst has picked South Korea as its first stop in the Asia market.

The retail residence, located within Hyundai Department Store Apgujeong Main Branch and launched last December, recorded sales “seven times” that of other stores on its opening day, Hearst told WWD in a recent interview. “This is without any marketing campaign,” she said.

According to local media reports, the Nordic fashion brand Totême and the New York-based contemporary label Veronica Beard has also inked deals with Handsome Corp. to roll out shops in Seoul.

Under inflation pressure, housing market headwinds and in the face of a global economic downturn, Morgan Stanley expects local consumption to be under pressure in 2023. Euromonitor’s Moon also expects more local consumers to opt for affordable luxury goods, including in the handbag and luggage categories.

But the Korean luxury market could still benefit from pent-up demand from Chinese tourists after borders reopened on Jan. 8.

“Even though China fully opened its borders, there will be a limitation on the speed and scale of Chinese tourists rebounding in the short run,” said Moon, citing tightened rules toward Chinese travelers to control new inbound COVID-19 cases.

Moon predicts the duty-free shopping segment will most likely bounce back in the second quarter and “significantly affect the luxury market, particularly fashion and beauty industries.”