GAM/Liontrust: lowball offer exploits fund manager’s dire record
Swiss group’s board is poorly placed to demand better terms and UK bidder is unlikely to offer much more
GAM once stood for Global Asset Management. The name was appropriate when the company was one of the largest in Europe. Today, the Swiss group is worth about SFr100mn ($112mn). That is with a bid on the table.
A name change could signal diminished status, or a reboot as an independent business. Investors led by French entrepreneur Xavier Niel would prefer that to a takeover by UK fund manager Liontrust. Niel’s grouping is promising to increase its stake above 10 per cent.
Subscale active fund managers are joining forces under pressure from index funds. Bulking up on the cheap makes sense for Liontrust. Paying with shares even more so.
The deal certainly appears to favour the bidder; Liontrust is offering a 12 per cent stake in the combined group but contributing just two-fifths of total assets. Liontrust’s offer is equal to about 0.4 per cent of GAM’s assets under management. That is about a third of Liontrust’s own valuation and even lower compared with the sector multiple.
GAM has drifted chaotically since scandalous involvement in the 2018 Greensill debacle. Operating losses widened to SFr42mn last year. Fund management assets of SFr23bn are down from SFr84bn in 2017. The board is poorly placed to demand better terms. This is why a fifth of GAM shareholders have already signed up.
Fees show signs of stabilisation, Liontrust has already put up a loan to help rid GAM of its low-margin fund management services business.
The bidder is unlikely to offer much more. Cost-cutting assumptions are stretched. Liontrust hopes to achieve £57mn of recurring savings by spending £45mn. Typically, these would cost between £57mn and £86mn in asset management, noted David McCann at Numis. Job cuts in countries with strict employment laws make the job tougher. Targeted operating margins of 30 per cent will be tough to meet.
Asset management franchises are valuable for their ability to garner assets and talent. GAM lost both years ago. Unless a rival offer materialises, a Liontrust takeover is the least worst option.
NewLimit, cofounded by Coinbase CEO Brian Armstrong, raises $40M to extend life
NewLimit, a 1.5-year-old, San Francisco-based, 17-person company that aims to increase the number of healthy years each person lives by epigenetically reprogramming cells, is today announcing that it has raised $40 million in Series A funding from Dimension, Kleiner Perkins, Founders Fund, and other investors.
We talked with two of the companies’ four cofounders yesterday, including Coinbase CEO Brian Armstrong and VC Blake Byers, who has a Stanford PhD in bioengineering. During that chat, we got more insight into the round, which also counts Coinbase cofounder Fred Ehrsam, Y Combinator President Garry Tan, and founder-investor Elad GIl as backers. We talked with them about how NewLimit can differ itself from rival companies. We also asked Armstrong about the inevitable jokes centered on billionaires trying to escape death by throwing money at it.
TC: Brian you have a job as Coinbase CEO. Blake, you have a job running Byers Capital. Who is running NewLimit?
BA: There are four cofounders of the company. I’m really just an investor and a board member. There two other cofounders, Greg [Johnson] and Jacob [Kimmel] are really operating the business day to day.
Are they co-CEOs or is the company’s bringing on a full-time CEO?
BB: The company doesn’t have a technical full time CEO right now.
What why is that?
BA: It’s early stage and the current founding team is working really well, so we haven’t defined that yet.
But you’ve now raised $150 million to date, is that right, and are you talking about the valuation of the company at this point?
BB: The $110 million from Brian and myself is a commitment over the lifetime of the company so it’s not fully funded yet, then this $40 million is another commitment from VCs. So we have access to that capital over time, but it’s not necessarily the amount that’s in the bank. We’re not [talking about the valuation].
An earlier news release said that you’re going to start by interrogating epigenetic drivers of aging and developing products that can regenerate tissues to treat specific patient populations. First, just to be clear, what are the specific drivers of aging you’re talking about? Diet? Exercise? Sun damage? Toxins?
BB: There are likely many drivers of aging. And we’re not here trying to elucidate all of them. We’re more saying like, hey, we think that epigenetics alone are a major contributing driver to aging. And so by kind of reprogramming the epigenetics of a cell, you can reverse a significant amount of the functional decline that we see with age. And our proof point of that is you can take an old skin cell from an animal and you’re going to turn that into a newborn animal with an entirely normal life ahead of it. And then you can actually wait for that animal to grow up and be old and take one of its old skin cells and turn that into a newborn animal with an entirely normal life ahead of it, with entirely healthy skin.
There’s actually one lab that did that for more than 13 generations [of mice] over 22 years, just serially, one after the other after the other, all descended from that one parent cell — an old skin cell. And the mice all lived normal lives. We don’t know if this is going to hold up in humans and in different cell types, but it kind of shows you like there’s there’s something very potent and powerful about the ability to just reprogram the skin cell or neuron or the heart cell using epigenetics, even though we’re not tackling what could be other contributing factors to aging.
It brings to mind artificial-egg technology and this idea or hope that even same-sex male couples might be able to have children if we can figure out how to turn any cell into an egg, which has been done with male mice. What exactly is on your roadmap?
BB: For right now, it’s very basic research stage of a company. We’re trying to figure out how these mechanisms work and how we can control the epigenetic state of the cells and find these sets of transcription factors that can turn old cells into young cells. So that’s what we’re doing right now before we can make a product, and we’re starting in an immune cell called T cells. The idea is one day if we’re successful, you could make old people’s immune systems younger, and so more functional. We’ll also add some other cell types. We don’t know exactly what those will be yet, but an example would be liver cells, which are called hepatocytes, or brain cells, like neurons, where you could restore function in these age cells.
NewLimit says it will use machine learning models to understand how these cells change with age. How you develop a moat around something like this, where you’re talking about troves of information about human cells, which is not a proprietary data set?
BB: I’d say the big difference of developing these general AI models on public data is, like, everyone has access to the public data, including these large language models. For us, we’ve already trained on public data and within two months, our models had saturated how good they were going to be, and now we have to generate the data ourselves to improve the models even further. So a lot of the cost and complexity [centers on] how you generate huge amounts of data in house while still being very efficient.
How exactly are you generating your own data in-house?
BB: We’re generating new scientific data ourselves by running experiments in our lab. What those experiments look like is we insert human transcription factors into human cells like T cells, and then we monitor that cell and to see how it changes after we introduce that transcription factor. It’s called an over-expression experiment. Then we do that with 100 different transcription factors, then with combinations of different transcription factors. And we measure everything we can about the cell, including how it changes the gene expression to the cell and how it changes the epigenetics of the cell. And we use all that information to feed into our machine learning models that then tell us what to test next. So we have a bunch of human immune cells growing in the labs that we’re inserting these transcription factor sets into, and that’s what’s generating the data to train the models.
Where are these donor cells coming from?
BB: T cells you just can get from blood draws, so it’s pretty easy to access these kinds of donor draws.
Are you working with a hospital system?
BB: I don’t want to go into who [the sources] are exactly, but it’s very standard in the industry. There are various groups that help provide blood draws to groups that are working on research projects to make medicines. And it’s all consented donors who are aware of what their specimens are being used for.
Is it possible to explain at what point the data becomes meaningful?
BA: Well, there are something like 1700 transcription factors in the human body. And so if you were to take how many combinations of five transcription factors there are out of 1700, it would be about 10 to the 10. So it’s a very large number. You could imagine that as being the search space of different potential combinations. Is that helpful?
To some readers, hopefully! Before letting you both go, Brian, invariably people are going to comment that billionaires keep trying to extend life because they can’t take their billions with the. What’s your reaction?
My high level thought is that if you’ve made money in software, it’s good to put money back into society in ways that can help improve the human condition, and biotech research is one of those really important areas. I don’t think it gets enough funding. If you look at all the major diseases out there that kill people — heart disease, cancer, diabetes, dementia — they’re highly correlated with aging. Generally speaking, these are not diseases of younger people. So it makes sense to me that we should try to go after big ambitious problems in the world. And I think there’s actually a generation of tech billionaires — Sam Altman, Patrick Collison and a bunch of them — that are putting real capital toward some of these hard problems in the world, and I think that should be celebrated.
One billionaire who thinks anti aging research is dangerous is Elon Musk. He has said it could lead to rapidly aging populations that would lead to further declining birth rates and a very ossified society where new ideas cannot succeed. What do you think about the potential downsides of people living longer?
BA: I think it’s important that if people are going to live longer — which, by the way, that’s a big if; there’s a lot of work ahead of us to see if that is even possible — that their minds remain plastic and they remain open to new ideas and things like that as well. So in an ideal world here in the future, there’s a way for us, our bodies and our minds, to stay young.
BB: I’d also point out like we basically have doubled the average human lifespan over the last 100 years. And I think everyone would agree that’s a good thing. Do we really want to go backwards? Do we think this is actually optimal? Or do we want to keep improving it for people? I think the world is very resilient. It’s a beautiful thing to let people express themselves over longer periods of time and to spend more time with the people that they actually love in life.
FT : Russia’s economic war with the west moves to a new frontline
European companies are at risk of losing assets with little or no compensation as the Kremlin retaliates against sanctions
Russia’s economic confrontation with the west following the Kremlin’s invasion of Ukraine is entering a dangerous new stage. Until now, Moscow had mostly focused its retaliatory measures on squeezing European energy markets. But after a string of court decisions in Europe freezing Russian assets there, the Kremlin has begun escalation and created a legal framework for the temporary nationalisation of foreign assets in the country.
Projects that have cost billions of dollars and taken years of hard work are at stake, and it is likely the Russian government will exercise a personalised approach to every foreign stakeholder, trying to stoke new divisions in the west while benefiting interest groups inside Russia. The first victims of the new policy — the Russian assets of two European energy firms, Finland’s Fortum and Germany’s Uniper — were recently put under provisional management by a decree of Russian president Vladimir Putin.
The Kremlin’s actions appear to have been triggered by the federal administrative court in Leipzig, which dismissed a claim by Rosneft, a state-owned Russian oil company headed by Igor Sechin, a longstanding Putin ally. Rosneft’s claim was against the German government and its decision in September to put the company’s assets in Germany under the supervision of the national energy regulator. Before that step, Rosneft was the third-largest oil refining company in Germany, accounting for more than 12 per cent of the country’s processing capacity.
Germany’s action stemmed from some of the unintended consequences of western sanctions. Rosneft’s refinery at Schwedt in north-eastern Germany is important to the economy of the greater Berlin area but, with its majority owner under sanctions as a shareholder, it couldn’t function properly: transactions involving sanctioned entities are illegal and there was a risk of capital withdrawal.
In Moscow, such actions by European authorities are increasingly viewed as nothing short of daylight robbery, and the hard men in the Kremlin won’t simply sit back and watch. The new exit rules for western companies set up last month are just another part of Russia’s retaliation strategy: western firms can only sell their stakes in projects with Russian partners at a 50 per cent discount, and also must pay a “voluntary donation” to Russia’s war chest worth 5 to 10 per cent of the asset’s value.
Apart from the technocrats in the Russian government who still care about the legality of Moscow’s actions, the major driving force behind the mounting nationalisation campaign are the siloviki — that is to say, individuals with a security service, police or military background. These include people in the FSB, the prosecutor’s office and Sechin, who can be described as the conservative leader of the Kremlin’s siloviki faction and who is clearly dissatisfied with the Leipzig court’s ruling.
Putin’s decree gives the federal property management agency the right to control western assets hit by the need to stop operations in Russia. The agency’s task is to evaluate these assets and then to sell them to Russian buyers. In other words, the recent actions against Fortum and Uniper’s assets are simply a taste of things to come.
With its new legal mechanism, it’s unlikely that the Kremlin will employ a uniform approach to foreign investors. Instead, it will cut separate deals with investors depending on their connections in Russia. A good example is Putin’s permission for Novatek, a privately owned Russian gas producer with good connections in the Kremlin, to pay Shell more than $1bn for its stake in the Sakhalin-2 oil and gasfield. This approach provides an opportunity for the Kremlin to drive new wedges between states and companies in the west.
As a result, western companies may find themselves in limbo. In the west, they are under public pressure to sever ties with Russia, but sanctions forbid them from selling their stakes to the majority of Russian businesses. Meanwhile, complying with the requirements of the Russian government may lead to them being branded enablers of Putin’s war. Consequently, a growing number of such companies look increasingly likely to lose their investments in Russia entirely.
So far, neither Russia nor Europe has a comprehensive strategy on how to deal with the stranded assets. The breakdown of ties will almost certainly exacerbate the conflict as the Kremlin seeks ways to punish Europe for imposing sanctions and supporting Ukraine. The appetite of Putin’s cronies to seize western assets in Russia will only add insult to injury.
France in push to promote homegrown green industry
Macron seeks to introduce subsidy tweaks and tax credits that would help environment and boost jobs
France is launching a package of green measures and tax credits aimed at attracting billions of euros in investment and boosting French industry, including tying subsidies for electric cars to environmental restrictions that would favour European manufacturers.
The drive led by President Emmanuel Macron is in part a move to counter Washington’s $369bn green stimulus package that has drawn battery makers and producers in industries such as wind energy to the US, raising fears in Europe that it will prompt an exodus of companies.
Macron is also making a broader push to try to boost manufacturing jobs, an area where France lags behind some of its neighbours such as Germany, and to raise the industry’s contribution to economic output from 10 to 15 per cent.
The president had argued the EU should introduce “Buy European” legislation similar to parts of the US’s Inflation Reduction Act that would favour European-made components and products. But the idea failed to gain support in Brussels or among other EU members who are more sceptical of protectionist policies.
Instead, the EU this year opted to relax state aid rules on subsidies, allowing countries to offer incentives more readily, and took other steps to boost the region’s green industries.
That paved the way for France to act on a national level to advance its own ambitions.
On Tuesday, the French government presented a draft law that includes the electric vehicle subsidy tweaks and new tax credits that companies making renewable energy equipment, heat pumps and batteries could request to cover between 20 and 45 per cent of their capital expenditure. These would kick in from next year, with the government expected to hand out €500mn a year under the scheme.
Along with measures to speed up procedures around setting up factories, France estimates it can unlock an extra €23bn of green investment by 2030 and create 40,000 extra jobs.
“We have no reason to be embarrassed by comparisons with the United States,” said finance minister Bruno Le Maire, adding that the aid on offer was comparable with that across the EU.
On electric cars, the law would effectively disadvantage some non-European manufacturers. Incentives worth between €5,000 and €7,000 for new electric vehicles would exclude those deemed to have been assembled in a less environmentally friendly way, including in factories that are powered by coal, and could kick in later this year.
“These measures will lead us to reserve that bonus to cars made in Europe,” Le Maire said. The finance ministry said cars produced in China produced 45 per cent more emissions than those in Europe. About 40 per cent of the estimated €1.2bn yearly electric car-purchasing incentives handed out in France had gone to Asian-made cars since January, added Le Maire.
“It’s not our role to use public funds to finance the development of factories in Asia,” he said.
A government official added said the measures were allowed under EU rules as they did not amount to blocking imports. But it remains to be seen if the plans will spark criticism from foreign carmakers or affected countries.
European car manufacturers have been increasingly concerned by the competition posed by the influx of cheaper Chinese-made electric vehicles, and at the same time are racing to boost their own local supply chains, including by producing batteries.
France is rolling out early-stage subsidies for battery start-ups such as Taiwan’s ProLogium for example, while China’s Envision is also setting up a plant near a Renault factory.
At the same time, France is looking to court overseas investors as much as possible, including billionaire Elon Musk and his US electric car brand Tesla, which earlier this year scaled back battery production plans in Germany, citing the lure of US president Joe Biden’s green incentives.
Macron met Musk at the Élysée Palace on Monday ahead of a summit of international chief executives dubbed “Choose France” at which the government is seeking to woo foreign investors.
This year’s summit comes as the French president’s popularity has been damaged by his move to raise the retirement age. He has sought to turn the page on months of protests by focusing on his long-held priority of boosting employment to strengthen the French economy and clean up public finances.
After meeting Macron and Le Maire, Musk said Tesla would make “significant investments” in France in future, without giving details.
France’s draft law on green industries still needs to make its way through parliament, where Macron’s centrist alliance no longer has a majority. Government officials said on Tuesday they believed they could forge a consensus for the bill, which is due to be examined in the Senate in June and the National Assembly in July.
Warren Buffett Likes Japanese Stocks—Maybe You Should Too
Investor-friendly changes at Japanese companies will boost returns
“This time is different” are the four most dangerous words in investing. But Japanese investors have reasons to be confident that positive changes are afoot in the market.
Japanese stocks have reached their highest level since 1990, when the country’s famous asset bubble was deflating. The Topix index has gained 12% this year, putting it among the best performing markets in the world in 2023. And even renowned investor Warren Buffett has cast his vote of confidence in the market—his investment flagship Berkshire Hathaway BRK.B -0.20%decrease; red down pointing triangle now owns more stocks in Japan than any other country outside of the U.S.
But longtime Japanese investors may wonder if the current rally is different from all the false dawns they have seen in the past three decades. There are indeed grounds for optimism.
For one, the push to improve corporate governance, kick-started by former Prime Minister Shinzo Abe, is bearing fruit. Shareholder activism is rising and the most salient outcome is increased cash returns to shareholders. Total payouts from buybacks and dividends rose to record levels last year and the earnings season currently under way will likely bring another record. For example, Mitsubishi, one of the five Japanese trading companies owned by Berkshire, announced a $2.2 billion buyback last week.
While buybacks are common in the U.S., the increased payouts are a much bigger deal for Japanese companies, which are sitting on a big pile of cash. According to Jefferies, nearly half of Japanese companies have net cash on their balance sheets, versus 22% in the U.S. The more generous payouts have already resulted in a decline in aggregate cash held by nonfinancial companies in the Topix index for the first time since 2011, though they still have around $1 trillion of cash on their balance sheet, Jefferies said.
And Japanese companies are increasingly unwinding cross-shareholdings, or stakes they hold in each other, to boost returns to investors. These cross-shareholdings depress returns on equity and hence valuations. About 54% of companies in the Topix index are trading below book value, compared with just 7% in the S&P 500, according to Jefferies. Earlier this year, the Tokyo stock exchange urged companies that trade below their book values to come up with plans to improve capital returns.
As Japanese companies unwind unproductive cross-ownership webs and boost payouts, investors will continue to grow more willing to pay up for them. This time may indeed be different.
Kuo: iPhone 16 Pro to get larger display and periscope lens
Apple is expected to introduce four new iPhone models later this year: iPhone 15, 15 Plus, 15 Pro, and 15 Pro Max. All four models will get a new design, but the screen sizes will remain the same as today. At the same time, only the 15 Pro Max model is rumored to get a periscope lens for better optical zoom. But according to analyst Ming-Chi Kuo, the regular iPhone 16 Pro will also get a periscope lens in 2024.
iPhone 16 Pro with periscope lens
Rumors about the iPhone 15 lineup suggest that only the larger iPhone 15 Pro Max will get a periscope lens on its rear camera. The periscope lens relies on a prism that reflects light to multiple internal lenses at 90 degrees to the camera sensor. This allows the length of the lens to be much longer than a telephoto lens, which results in a much better optical zoom.
It’s uncertain whether Apple will try to match the 10x zoom of Samsung’s Galaxy S23 Ultra or whether the company will opt for a 6x lens as some analysts suggest. In any case, it seems almost “confirmed” at this point that this technology will be exclusive to the 15 Pro Max model.
But analyst Ming-Chi Kuo said on Tuesday that Apple already plans to put the periscope lens on the smaller Pro model as well. This won’t happen with the iPhone 15 Pro, but with the iPhone 16 Pro in 2024. Kuo heard from sources familiar with Apple’s supply chain that iPhone 16 Pro will get a slightly larger display. This will allow the company to fit the periscope lens on both models, not just the Pro Max.
Currently, iPhone 14 Pro has a 6.1-inch display, while iPhone 14 Pro Max has a 6.7-inch display. While iPhone 15 Pro and iPhone 15 Pro Max are expected to keep the same screen size, we don’t know what the new screen sizes will be for the iPhone 16 lineup. Kuo believes that Cowell will be the main supplier of the periscope camera for the iPhone 16.