TheChek News Flow

Since Marianne Hayek, the wife of Swatch Group founder Nick Hayek Senior, died a month ago at the age of 93, the small world of Swiss watchmaking has been abuzz with speculation about the consequences that her death may have on the group’s leadership and structure.

Some industry insiders believe the Swatch Group could be broken up and some brands sold. Others are confident nothing will happen in the immediate future, particularly as resurging demand in China will boost the sales of many of its brands, such as Omega, Tissot and Longines – a positive trend that will encourage the status quo. Miss Tweed considers the group’s future.

Marianne Hayek, a stern and determined woman, kept the family together with an iron grip after her husband died in 2010. While she was alive, no serious discussion about the future of the group could take place between the three key members of her family, industry insiders say. That includes her son, Nick Junior, CEO of the Swatch Group, her daughter Nayla, who is chairman and looks after jeweler Harry Winston, and her grandson Marc, who is CEO of luxury watchmaker Blancpain and oversees luxury watch brands.

There is tension between all of them, as is often the case in families. Following Marianne’s death, each will inherit one third of her controlling stake worth several billion euros. The Hayek family controls an empire composed of major watch component and movement factories and of some 17 brands including Omega, the source of about half the group’s profits. It also owns the brands Certina, Hamilton, Rado and Swatch and produces and distributes watches under license for the French fashion brand Balmain.

Nayla is 72, Nick Junior 68 and Marc 52. Nayla is more interested in breeding horses than in jewelry and has done little to develop the Harry Winston brand, as Miss Tweed reported in 2021. Marc runs Blancpain and looks after high-end watches Breguet and Jaquet Droz but staff rarely see him, as Miss Tweed explained in 2021. Marc spends most of his time on his yacht and away from the office, industry sources say. Breguet’s sales now hover around €320 million euros, according to Vontobel estimates, or less than half what they were a decade ago. However, the situation is not serious enough for change to be afoot, most industry specialists say.

“In my opinion, they don’t hate each other enough to go as far as breaking up the group,” a former Swatch Group manager and close friend of Marianne’s told Miss Tweed on condition of anonymity. “They don’t need money. And the memory of Nick Senior is still there, but for how long, it’s difficult to say. For now, in my opinion, the most likely scenario is the status quo.”

Yet there is talk among watch executives, bankers and consultants about what could happen should Nick Junior decide to split up the group. For example, he could give Harry Winston to Nayla and give her son the group’s high-end arm that includes Breguet and Jaquet Droz on top of Blancpain. The Swiss watch chronicler Business Montres, authored by Gregory Pons, recently published a thorough analysis of the consequences of Marianne’s death. Pons argues that a split is one possibility. And, of course, many bankers would like to see the Swatch Group putting up for sale Harry Winston, for which it paid $1 billion 10 years ago, as well as Breguet which would fetch more than $1 billion.

Each would perform better and would be worth much more if run by professional managers instead of the notorious sycophants currently in place. Industry sources lament the fact that the storytelling and creativity of these two brands has been neglected in recent years. “But selling Harry Winston or Breguet would mean admitting failure,” a senior watch executive commented about the Hayek’s readiness to sell any of the family jewels.

Yet, it is clear that the Swatch Group could be performing better. Sales in 2022 rose 4.6 percent to 7.4 billion Swiss francs while many jewelers, including LVMH’s Bulgari, Tiffany & Co, Richemont’s Cartier and luxury watch brands enjoyed double-digit growth. The Swatch Group’s inventories stood at 6.8 billion Swiss francs on Dec. 31, 2022, which is close to one year of turnover. The group’s share price and valuation have also been under-performing compared with industry peers Richemont, Kering and LVMH for many years.

In spite of such lackluster results, senior management and board members continue to pay themselves handsomely. Last year, Nick Junior’s remuneration totaled 6.5 million Swiss francs while Nayla’s was 4.2 million Swiss francs, according to the group’s annual report. These figures put them in the same league as Richemont’s top executives. However, Richemont makes nearly three times as much revenue, or €20 billion, and its market capitalization is six times greater at €88 billion.

A question industry observers often ask is why an activist fund has not targeted the group to change its governance and improve performance. Activist funds Bluebell and Third Point, which both bought stakes in Richemont to bring about changes in the past two years but did not go very far, appear to have passed on the Swatch Group. The Hayek family controls not only 42.7 percent of voting rights but also the entire board of directors and leadership. Nobody challenges their decisions and strategy, and few of the group’s major institutional shareholders appear to have the determination and stamina to push for change.

The Hayeks are also bound by a shareholder pact. Marc, Nayla and Nick have first refusal if one of them wants to sell his or her shares. “No shareholder can ask them to do anything,” a senior industry source said of the trio. The Swiss press is rarely critical of the Swatch Group because it benefits from its advertising. The group has thousands of small individual shareholders, many of them Swiss pensioners who are happy to receive their dividends and their gift of a Swatch watch every year. The Swatch Group likes to remind people that, in the 1980s, the Swatch brand saved the industry from being destroyed by competition from Japan’s popular quartz movements.

The Swatch Group today is regarded as one of the country’s most important employers, together with Rolex. They are known as paternalistic companies offering generous benefits. They also help Switzerland’s watchmaking know-how and engineering shine around the world. Rolex and Swatch Group are the pride of the country and a major vector of Swiss soft power.

Yet, the list of changes frustrated investors who would like to see at the Swatch Group is long. This week, the group issued a terse statement after its annual general meeting (AGM) saying that all the resolutions were passed with “an overwhelming majority”. No details were provided. After the AGM, the Swiss foundation Ethos fired a few arrows at the Swatch Group. Ethos, composed of pension funds and institutional investors and which promotes socially responsible investment, criticized the fact that the meeting was not held in person but conducted electronically. In this way, it is easier to block certain questions.

It criticized the lack of independence of the Swatch Group’s board members. “Ethos also took the opportunity to ask theboard ofdirectors to strengthen its independence by appointing new independent members. At Swatch Group, the average term of office ofdirectors amounts to more than 17 years, while the average term of office of SPI companies is just over seven years.” The SPI, or Swiss Performance Index, is Switzerland’s overall stock market index. Indeed, most Swatch Group board members are long-time allies of the Hayeks. They refrain from asking difficult questions and are paid between €120,000-€155,000 a year plus €24,000 in expenses. The Swatch Group’s spokesperson did not reply to an email from Miss Tweed asking for details about the succession and Marianne Hayek’s death. “We have the choice not to reply,” spokesman Bastien Buss told Miss Tweed.

INVESTOR RELATIONS

Analysts and institutional investors complain that the Swatch Group does not have a dedicated investor relations office. The name of the person shown on the company’s results press release is that of the Finance Director Thierry Kenel who has little time to answer questions. The Swatch Group famously never publishes the date of its results in advance. Sometimes it calls a press conference the next day at its headquarters in Bienne, near Berne, which no overseas investor is able to attend at such short notice. Conference calls are announced on the day of the results.

Broker Bernstein wrote in a note last year that the Swatch Group was the only company it covered that behaved like this. The group does not provide transcripts or replays of conference calls. It does not use IFRS reporting standards but rather Swiss GAAP which gives them more leeway. “Add to that a CEO providing a business narrative seen by many as too rosy and out-of-synch with factual performance and you end up with a large investor audience not wanting to know about Swatch Group at all,” Bernstein said.

One experienced luxury stock investor based in Dubai told Miss Tweed on condition of anonymity: “I have not looked at Swatch Group in years. Its corporate governance is too much of a disaster for me to invest in it!”

Morgan Stanley’s latest annual watch report shows that many of the Swatch Group’s brands continue lose market share year after year. These include Omega, Longines, Tissot and Breguet. In 2020, Omega slipped into third position behind Cartier Watches and never regained its No. 2 spot. In 2022, Tissot was 11th, down from 6th in 2019, and Longines fell to 7th from 4thduring the same period. And Breguet, which was 13th in 2018, is no longer in the top 20.

“Tissot and Longines are volume brands and have become very exposed to China over the years,” said Olivier Müller from LuxeConsult who co-authored the Morgan Stanley report. “The Swatch Group was one of the first to go to China in 1990s, so they have built a significant presence there.”

CEO Nick Hayek, commonly known as Nick Junior, has been heartened by the success of the MoonSwatch, a special edition inspired by Omega’s Speedmaster Moonwatch, of which it sold 1 million units, industry analysts say. Thanks to this popular new model, Swatch enjoyed a significant rebound last year. Analysts expect the group to see strong growth this year, powered in part by resurging demand in China. If sales are on the rise, Nick, Nayla and Marc will be under little pressure to change anything, industry analysts say. However, the Swatch Group’s manufacturing facilities still have too much excess capacity, they say. That is partly because its factories stopped supplying many rival brands which have now invested in their own production facilities.

The succession at Swatch Group remains a mystery. Marc has little desire to replace his uncle. “He will refuse to be CEO of the group, he’s not built for that,” the old friend of the Hayek family said. “He’s a hedonist who does not feel like talking to investors.” Marc is said to be shy and soft-spoken, and staff rarely see him when he is in the office.

Nick regularly tells the press that Swatch Group’s leadership will stay in the family. However, the next generation is not ripe yet. Nick’s son has started working for the group but he is still in his early 20s, and Marc’s children are teenagers. So, none of them will be ready to assume the mantle in the near future. One telling detail about the fact that the family is closer than many believe is that each has a house on the Mediterranean, in Cap d’Antibes in France, and had all the fences between them removed. “At the Hayeks, they want things to remain in the family,” said one industry source who has spent a lot of time with family. “Blood first.”

Things are never simple when business is a family affair.

It pays to be an warm hunter in the cold ocean depths, so the animals shut down oxygen intake to conserve heat.

Hammerhead shark illuminated by blue light near the ocean surface.

A juvenile scalloped hammerhead shark (Sphyrna lewini), with its mouth and gills open, near the ocean surface off Hawaii.Credit: Biosphoto/Alamy

Because it makes them better hunters, scalloped hammerhead sharks (Sphyrna lewini) have evolved a unique method to avoid losing body heat when they dive for prey in deep, cold waters: they close their gills.

Numerous fish and marine-mammal species are known to dive from the warm surface to deeper waters to hunt. However, ectothermic, or ‘cold-blooded’, animals face the challenge of how to conserve their body temperature to keep their metabolism active enough for hunting when the surrounding water can be just a few degrees above freezing.

“The most rapid point of heat loss for any fish, even a high-performance fish, is always at the gills,” says Mark Royer, a postdoctoral researcher in shark physiology and behaviour at the Hawaiʻi Institute of Marine Biology in Kaneohe, part of the University of Hawaiʻi. Because of the high volume of warm blood flowing through the gills, they are “essentially just giant radiators strapped to your head”, he says.

Some fish, such as the whale shark (Rhincodon typus), are able to conserve their body heat when diving through sheer size. Others, such as tuna, marlin and the family that includes great white (Carcharodon carcharias) and mako sharks (Isurus oxyrinchus), have evolved specialized heat-exchange systems at the gills that avoid too much body heat being lost.

The scalloped hammerhead has neither of these advantages or adaptations, yet has been tracked doing rapid, repeated dives to depths of around 800 metres.

To understand how sharks were coping with the temperature changes, Royer and his colleagues developed a device consisting of instruments that measured depth, water temperature, location and movement, as well as a probe embedded into muscles near the dorsal fin that recorded the shark’s core temperature. The device was designed to break off after several weeks, float to the surface and send out a signal to enable its recovery.

Three scalloped hammerhead sharks captured off the Hawaiian coast were tagged with the device.

In a paper published in Science1, the team reported that the sharks would dive several times — six in an evening, for one shark — into deep water at temperatures of 5–11 °C, around 20 °C colder than at the surface, and remain there for 5–7 minutes at a time before surfacing.

Body temperature remained constant for most of the dive until the final stage of their ascent back to warmer waters, when it would decline rapidly.

Keeping warm

Royer suggests that the sharks are keeping their core temperature stable by simply not opening their gills or mouth during the dive; effectively ‘holding their breath’. “If you don’t have water going over your gills, then you won’t be dumping your body heat into the environment,” he says.

The drop in body temperature near the surface coincides with the sharks’ steep ascent flattening out slightly, which Royer suggests is the moment they start to allow water to flow over the gills. “They can slow themselves down, open their gills and start breathing again [because] the water that they’re in, it’s not as cold as it is at the bottom,” he says.

To shut down oxygen intake in this way suggests that the scalloped hammerhead must be able to deal with plummeting blood-oxygen levels during dives, says Mark Meekan, a fish ecologist at the University of Western Australia Oceans Institute in Perth, although the mechanism is yet to be discovered. “What they could be doing is slowing the heart muscle, slowing the pumping of blood around the body,” Meekan says. The shark’s tissues and blood could have evolved to hold more oxygen per unit of volume — akin to the adaptation seen in people who live at altitude — or might be able to deal with the molecular by-products of anaerobic respiration, which can be toxic at high levels.

Marine biologist Colin Simpfendorfer at James Cook University in Townsville, Australia, says the study shows how sharks are well adapted to the limits of their environment. “Diving to over 1,000 metres from tropical temperatures at the surface down to just a couple of degrees centigrade to feed is a fairly extreme movement to do on a regular basis,” Simpfendorfer says.

So far, scalloped hammerheads are the first fish found to do this, but Simpfendorfer says other sharks and fish might have the same adaptation. “There is a big advantage in being able to hunt when you’re warm and everything else is cold.”

Martin Scorsese Debuts First Trailer for Twisty Mystery ‘Killers of the Flower Moon,’ Starring Leonardo DiCaprio and Robert De Niro

Martin Scorsese hit Vegas on Thursday. No, he wasn’t there to revisit the Sin City locale of “Casino,” one of his mob masterpieces. He traveled to the gambling Mecca bearing his latest opus, “Killers of the Flower Moon,” a labyrinthine story of murder and greed that, if he plays his cards right, might be one of this year’s major awards contenders.

The “greatest living director” shared the first trailer for the film at CinemaCon, the annual conference of theater owners that’s been taking place this week. Based on David Grann’s bestselling book, “Killers of the Flower Moon” is a true story, one that pulls back the curtain on a series of murders of wealthy Osage people that took place in the early 1920s after major oil deposits were discovered on their land. It also looks at how the newly formed FBI investigated the killings.

The film reunites Scorsese with two of his most frequent collaborators, Leonardo DiCaprio and Robert De Niro, as well as Jesse Plemons, Brendan Fraser, John Lithgow and Lily Gladstone.

“I’d like to thank the entire Osage Nation,” Scorsese said, praising them for “working tirelessly” to bring the story to life.

And the movie sees DiCaprio and De Niro playing two schemers who would like to get their hands on the Osage wealth, even if it means blowing up, shooting or otherwise violently disposing of people.

“I do love that money sir,” DiCaprio tells De Niro, who portrays an immoral cable baron, in the trailer. “This wealth should come to us,” De Niro later advises. The trailer also depicts DiCaprio trying to seduce Gladstone, who he later marries.

But Plemons, playing an upright lawman, may have other ideas. He warns DiCaprio’s shadowy operator that he wants to find out who is responsible for all the carnage. “I was sent down from Washington D.C. to see about these murders,” Plemons tells DiCaprio’ “See what about it,” DiCaprio replies. “See who’s doing it.”

Paramount teased the footage during its presentation. It is distributing the film, which was produced by Apple Original Films. With a $200 million budget and a runtime that tops out at more than 3 hours and 20 minutes, the film is vast in every sense of the word (moviegoers with weak bladders be warned!). It will debut at this year’s Cannes Film Festival before opening in theaters on Oct. 6. Scorsese wrote the screenplay with Eric Roth.

Paramount also offered up footage from the latest “Transformers” and “Mission: Impossible” movies, as well as from “Marley,” its look at music legend Bob Marley.

The city of Cannes has banned protests along the Croisette and its surroundings during the Cannes Film Festival.

The labor union CGT, which is represented by Denis Gravouil on the administration board of the Cannes Film Festival, is still preparing a large demonstration on May 21 but it will take place along Boulevard Carnot, far away from the Croisette and from the festival’s headquarters. There will also be a rally of hospitality workers, including staff from hotels, cafes and restaurants, in front of the Carlton hotel – whose famous guests this year include Martin Scorsese — on May 19, from 1 p.m. to 3 p.m. The rally, which will likely involve protesters banging saucepans to express their anger, is technically allowed because the front of the Carlton is a private area.

The City of Cannes and regional authorities went ahead with this ban across most of Cannes to prevent civic unrest. The country has been torn by massive protests over the French government’s unpopular pension reform raising the country’s retirement age since the beginning of March. The last time France was shaken by protests of that scale was in 2004 when hundreds of thousands of people turned up in the streets of Cannes, angered by changes to unemployment benefits rules brought by then president Jacques Chirac’s government.

Reacting to the ban, Gravouil told Variety “it illustrates the way this government works whether in Cannes or elsewhere.” “This government didn’t block Neo-Nazis protesting in the heart of Paris on May 6, but there’s been so many decrees to ban the ‘casserolades’ (the concert of saucepans that’s been used to protest against the pension reform).”

Cannes has been restricting demonstrations along the Croisette since the terrorist attacks in 2016, but Celine Petit, a high-ranking CGT official based in Nice, said she “had been negotiating with local and regional authorities for nearly two weeks to reach a compromise over a demonstration path that would be close enough to the Croisette, as it was done in 2013, to give some visibility to (their) actions.”

“It’s always been possible to find a middle ground, but this time around they say they’re afraid it will degenerate, but frankly I don’t know if it’s really fear or a will to not give any visibility to our claims about pension reform or what’s going on in the film world,” said Petit, alluding that the org was also planning to protest against the inclusion of certain movies in competition.

“Aside from the pension reform, we’re also denouncing the way women are treated in the film world, but they don’t want us to stain the glittery image and standards of the Cannes Film Festival,” said Petit.

Both Petit and Gravouil, said the power cut inside the Palais des Festivals – most likely inside the Lumiere Theater — hasn’t been ruled out.

“We want some space to speak out and be heard, we want to host a press conference and walk up the stairs of the Palais, and the Festival should understand this if they want to avoid things like (a power cut),” said Gravouil, who referred to the biblical story of David and Goliath to describe the face off. “Things will go much smoother if the festival plays ball with us.”

Despite the tensions, the CGT, which happens to be a founding member of the Cannes Film Festival, will be on the ground inside the Palais at 10 p.m. on May 21 to host a screening of “Amor, Mujeres y Flores,” a documentary by Marta Rodríguez and Jorge Silva, about the harsh conditions of female workers at flowers plantation at Bogotá. The screening will be followed by a debate attended by the French feminist orgs 50:50 and Femmes à la Camera.

Privatisation has not delivered on its promises, but it is not clear that the state would be a more reliable custodian

The sale of the UK water industry in 1989 is the most controversial of all Margaret Thatcher’s privatisations. Critics argue that it has been little more than a rip off: the privatised companies have failed to eliminate leaks, been permitted to dump vast quantities of untreated sewage into our waterways and used clever financial engineering to boost rewards to shareholders. Indeed, a study published in 2018 argued that the cash flow from customers could have funded all investment undertaken, while borrowings merely went to rewarding shareholders.

Was it all a terrible mistake? Whether or not it was, what should be done now?

It is easy to argue that the answer to the first question has to be “yes”. Water is not just a local monopoly, it is also a vital necessity. This means the providers have enormous market power and are subject to no competition. That in turn makes tough regulation essential. But regulators are always likely to be outwitted, if not captured, by the profit-driven businesses they are trying to curb. Furthermore, given the nature of the business, the relevant risks are mainly borne by the customers rather than shareholders. If the companies fail to deliver, the former cannot go elsewhere. They can only complain and, if the answer is more investment, pay up. Beyond all this, water is an industry with profound externalities, notably those for the environment and health.

For all these reasons, it has long been assumed that profit-seeking enterprises are bound to be problematic in this sector: conflicts of interest are too great to be managed. Yet there is a counterargument that, in the UK case, seemed decisive. It is that Her Majesty’s Treasury in particular, and the government more broadly, is a hopeless trustee of such vital assets. It is obsessed with the liability side of its balance sheet and consistently ignores the assets. So, the water industry was chronically starved of investment. In this highly second-best world, privatisation would, it was argued, lead to higher investment and better performance in the industry.

Michael Roberts, former chief executive of Water UK, argued a few years back that “since privatisation, investment of nearly £160bn has seen strong, steady improvement, giving customers world-class drinking water. Leakage is down a third since the mid-1990s, two-thirds of beaches are classed as excellent, compared with less than a third 25 years ago.” This is not entirely wrong.

Yet over time improvements in performance tailed off and the scandals we see emerged. There was a failure to monitor what water utilities were doing, especially their dumping of sewage, and a corresponding failure to be demanding enough on needed investments. Moreover, Ofwat’s powers were inadequate: it could not impose changes on licences, block dividends or control salaries in any way. Now at least it can.

So, what is to be done? It would be possible to renationalise the businesses. I remain, however, sceptical over the government’s ability to run the sector any better (though Scottish Water is a public company accountable to the Scottish parliament). A second option is to keep independent companies, but change the structure of ownership from shareholder-owned companies. One such alternative is Welsh Water, which is funded solely by debt and charges. This model was controversial when created in 2001. Yet it has been a successful business with a good record on changes in charges to customers. But its superiority on other dimensions is less clear.

If the businesses remain independent, the key action must come from the remit and actions of regulators. It is clear that the current situation is unsustainable. There will have to be a great deal more investment. That in turn must ultimately be funded by charges (with tough controls on diversions to salaries and dividends). Crucial here will be the closest possible co-operation between environmental and financial regulators. Higher standards must be set, monitored and imposed, with fierce penalties on those who fail to meet them. Licences must be lost if necessary.

Last but not least, there is a discussion to be had over whether the framework needs to be transformed. Oxford’s Dieter Helm is particularly radical. He argues for “a water system that places fewer demands on drinking water supplies, where sewerage systems are used to handle sewage only, where sewage is not discharged into rivers, and where farming and flood defences take account of the wider natural capital”. The answer, he insists, is integrated regulation of river catchments.

Sometimes the best thing to do is to step back and ask how radically something needs to change. That is now the case for the water industry. Let us do so.

Billionaire investor says higher interest rates and slower growth are about to put $1.5tn market to the test

Howard Marks, the co-founder of $172bn investment group Oaktree Capital Management, has warned that the boom in private credit will soon be tested as higher interest rates and slower economic growth heap pressure on corporate America.

The 77-year-old billionaire told the Financial Times that big asset managers had competed aggressively to lend to the largest private equity groups as money poured into their coffers in 2020 and 2021, raising questions over the due diligence the funds conducted when they agreed to provide multibillion-dollar loans.

“[Warren] Buffett says it’s only when the tide goes out that you discover who has been swimming naked,” he said. “The tide has not gone out yet on private lending, meaning the portfolios haven’t been tested.”

He added: “Did the managers make good credit decisions, ensuring an adequate margin of safety, or did they invest fast because they could accumulate more capital? We’ll see.”

Private credit has ballooned since the 2008 financial crisis prompted regulatory reform that pushed banks away from speculative lending and new lenders stepped in to fill the void, including many backed by private equity titans such as Blackstone, Apollo and KKR.

Data provider Preqin estimates the private credit market, which includes loans for corporate takeovers, has grown to about $1.5tn from roughly $440bn a decade ago. Fundraising has been brisk, eclipsing $150bn every year since 2019.

But part of that influx of capital was lent when markets were on a seemingly unstoppable march higher — before the US Federal Reserve began aggressively raising interest rates. Competition among private lenders pushed borrowing costs down at the time.

Investors have raised questions over a number of loan deals signed in that period, including some that were based on a company’s revenue growth as opposed to its profitability. Higher interest rates are also beginning to put pressure on companies, eating into profits, with some businesses asking their lenders to forgo cash interest payments.

Analysts with Moody’s, who are calling for an uptick in corporate defaults as economic growth cools, have separately warned that the lack of insight into the private credit market suggests “that the sector could harbour risks that are not currently visible”.

Marks set up Oaktree in 1995 with chief investment officer Bruce Karsh and three others. Known for his popular investment memos, he is an unequivocal contrarian, bargain hunter and follower of market psychology who tries to live by Buffett’s investing maxim: be fearful when others are greedy and greedy when others are fearful.

Right now he sees a fertile environment for lenders such as Oaktree to step in and provide financing where banks are further retrenching following the collapse of Signature Bank and two other US regional lenders. The Fed said this month that banks were tightening lending standards for businesses and warned of a potential credit crunch.

“Now you have some meaningful interest rates and some scarcity of capital as banks are restrained,” Marks said. “This is a good climate . . . you can get equity returns from debt now, and when you invest in debt you have a much higher level of certainty of return relative to equity ownership.”

Marks said that this contrasted with the investment landscape from 2009 to 2021, when interest rates were low and “everyone was eager to invest”.

“If everyone is eager to invest, you’re not going to get a bargain,” he said. “It’s simple supply and demand. For more than a decade it wasn’t a great time to be a lender. Now it’s a much better time.”

Oaktree has expanded beyond its roots in distressed debt and now invests across credit, private equity, real assets and publicly listed equities. The firm is in the midst of a fundraising push as it looks to raise $10bn to finance large private-equity backed takeovers.

Start-up plans to create global identification system through iris scans to enable access to free global currency

OpenAI boss Sam Altman is close to securing around $100mn in funding for his plan to use iris-scanning technology to create a secure global cryptocurrency called Worldcoin, in what would be a rare bright spot for a sector which has endured a bleak year.

According to three people with knowledge of the deal, Worldcoin is in advanced talks to raise the fresh cash as it prepares to launch in the next few weeks.

The group includes existing and new investors, said one of the people. Previous investors in the company include Khosla Ventures and Andreessen Horowitz’s crypto fund, as well as FTX founder Sam Bankman-Fried and internet entrepreneur Reid Hoffman.

Worldcoin was founded by Altman and Alex Blania in 2019. The company has kept a low profile relative to OpenAI, the ChatGPT-creator which struck a multibillion-dollar deal with Microsoft earlier this year.

But it nonetheless has grand ambitions, with plans to use eyeball-scanning technology to create a global identification system which could be used to gain free access to its own global currency, Worldcoin.

A $100mn token sale early last year valued the total supply of the company’s tokens at $3bn, according to the Information, a tech-focused publication.

But crypto tokens and projects have since had a bruising 12 months. The collapse of Bankman-Fried’s cryptocurrency exchange FTX in November last year accelerated the sharp decline in token prices and precipitated a wave of crypto company failures.

FTX was backed by venture capital fund Sequoia Capital, Chase Coleman’s Tiger Global Management and Thoma Bravo. Its implosion, and the scandal around Bankman-Fried, encouraged many blue-chip funds to curtail investment in the sector.

“It’s a bear market, a crypto winter. It’s remarkable for a project in this space to get this amount of investment,” said one of the people with direct knowledge of the fundraising.

Worldcoin executives said their approach tackles two problems raised by the increasing sophistication of artificial intelligence: distinguishing between humans and bots, and providing a form of universal basic income which might offset job losses caused by AI.

Key to the company’s plans is an orb which “uses iris biometrics to establish an individual’s unique personhood, then creates a digital World ID that can be used pseudonymously in a wide variety of everyday applications without revealing the user’s identity,” according to the company.

Once users have established their identity, they can receive free Worldcoin tokens, the company said.

Worldcoin has received criticism on a variety of issues, most notably that the biometric scanning poses privacy risks. A section of its website dedicated to addressing concerns about the orb asserts that the company will not store iris scans and that the device will not hurt users’ eyes.

Having been operating in beta, the company is now gearing up to roll out its blockchain protocol and begin recording transactions in the next six weeks.

Worldcoin declined to comment on the fundraising.

Liquidity crunch leads investors such as Andreessen Horowitz to sovereign wealth funds in Saudi Arabia, Qatar and UAE

Silicon Valley investors are touring the Middle East, seeking to build long-term ties with sovereign wealth funds during the worst funding crunch for venture capital firms in almost a decade.

Top technology VCs such as Andreessen Horowitz, Tiger Global and IVP have jetted teams of executives to Saudi Arabia, the United Arab Emirates and Qatar in recent weeks, according to people with knowledge of the trips.

These visits come after their traditional North American and European backers contend with an economic downturn that has forced them to rein in private investments.

VCs are, in turn, being encouraged to come to the region, as Gulf officials and young royals seek to diversify their economy away from oil with investments into hot tech sectors such as artificial intelligence.

That has also meant that some VCs have quietly reversed earlier decisions to refuse meetings with, or cash from, Saudi Arabia over concerns about its human rights record following the 2018 murder of journalist Jamal Khashoggi.

“We came to San Francisco looking for them in 2017. Now . . . everyone is coming to [us],” said Ibrahim Ajami, head of ventures at Mubadala Capital, part of Mubadala Investment Company, a $284bn Abu Dhabi sovereign wealth fund. “The tech correction has humbled the industry.”

The Financial Times interviewed more than a dozen Silicon Valley VCs who control tens of billions of dollars between them, as well as a string of advisers and bankers. They describe a new love affair between US venture funds and Middle Eastern cash.

A group of Silicon Valley executives received a personal invite from the office of Yasir al-Rumayyan, the governor of PIF, the $620bn Saudi sovereign wealth fund, to be his guest at last month’s Formula One Saudi Arabian Grand Prix in Jeddah, according to a person with knowledge of the calls.

Among the attendees, according to the person, was Andreessen Horowitz co-founder Ben Horowitz — the veteran financier’s second trip to Saudi Arabia in less than six months. Andreessen Horowitz declined to comment.

PIF’s venture arm Sanabil recently disclosed its partnerships with nearly 40 US venture firms, including Andreessen Horowitz, Coatue Management, David Sacks’ Craft Ventures, Insight Partners and 9Yards Capital, where former UK chancellor George Osborne is a managing partner. The sums invested in the firms were not revealed.

Horowitz, whose San Francisco-based firm raised just over $14bn last year, in particular has become a vocal supporter of Saudi interest in tech innovation.

In October, he spoke at the “Davos in the desert” conference in Riyadh and had lunch with Princess Reema bint Bandar al-Saud, the Saudi ambassador to the US. At a conference organised by PIF last month in Miami, he praised the kingdom as a “start-up country” and likened its crown prince, Mohammed bin Salman, to a company founder.

A year ago, Horowitz’s trips to Saudi Arabia would have been an anomaly among VCs flush with cash and keen to avoid the moral predicament of dealing with states with poor human rights records. Now the oil-rich Gulf, which enjoyed a petrodollar windfall last year, is buzzing with US start-up investors, according to several people who have visited there this year.

“The Four Seasons in Riyadh is basically Palo Alto,” said a partner at one large Silicon Valley venture fund.

That willingness to do business in the region has led to some criticism. Founders Fund partner Keith Rabois, who said in 2018 that Silicon Valley had been hypocritical for accepting Saudi money, said, “I don’t change my values and principles because a funding environment is difficult.”

But Lead Edge founder Mitchell Green, who made venture investments in Alibaba and Uber, said he had spent the past few weeks “building long-term relationships” with people and companies in the Gulf. “We think it will become an increasingly important area of the world over the next decade. It reminds us of going to China in 2003.”

Tiger Global partner Scott Shleifer also spoke at the Riyadh conference in October, and the firm has been pursuing investment from the kingdom as part of its latest $6bn fundraising, according to people familiar with the matter. A team from IVP, one of Silicon Valley’s oldest venture firms, led by partner Somesh Dash, went on a tour of the region, according to one person with knowledge of the trip. IVP declined to comment.

US venture capital has exploded in size in recent years, in part fuelled by a boom in tech valuations during the coronavirus pandemic. Marquee funds that once prized exclusivity, such as Sequoia Capital and Andreessen Horowitz, have raised funds of as much as $5bn and sometimes as large as $9bn. That shift has been intensified by large entrants to the market, such as Japan’s SoftBank and Tiger Global, which have deployed tens of billions of dollars into start-ups.

“These guys have built their models on high-volume, high-velocity investors — now they are a prisoner to the capital cycle,” said a partner at a venture fund with more than $4bn under management.

Dealing with nations such as Saudi Arabia is the “Faustian bargain these firms have made by scaling up”, the partner added. “They went for ubiquity and market share and gave up on scarcity, and because of that they have to play the game of selling themselves. Venture capital went from being the Hermès Birkin bag of investing to Target.”

PIF, in particular, has gradually permeated US tech through its investments over the past decade. It contributed $45bn to the $100bn SoftBank Vision Fund in 2016. It has made large direct investments in US tech companies, including a $3.5bn investment in Uber in 2016 and more than $1bn in electric-car maker Lucid Motors in 2018. That same year, Elon Musk said he was in talks with PIF to help him fund a $72bn deal to take Tesla private, although a deal did not materialise.

In the wake of the murder of journalist Jamal Khashoggi by Saudi operatives in late 2018, a number of high-profile western businesses, including many tech investors, stopped publicly working with the country.

That continued until the recent economic downturn, which has meant pools of capital available for venture funds at large western institutions have dried up. Fundraising by venture capital firms hit a nine-year low at the end of 2022, according to research firm Preqin.

VCs are sitting on a record $300bn of “dry powder” — money raised that has not yet been deployed. But many are struggling to find lucrative investments in start-ups and will be unable to raise a new venture fund.

Cash that VCs put into start-ups has plunged more than 50 per cent over the past 12 months, according to data provider Crunchbase.

As a result, many have been lured back to the Gulf, which “is the most liquid place on the planet right now”, according to the head of a $1bn venture fund.

“This is a unique opportunity for funds like Mubadala to really take a leading role in the development of technology over the next 20 years,” Ajami said. Mubadala has invested in or alongside a number of big Silicon Valley firms, including private equity group Silver Lake and Sequoia Capital. It recently invested in fintech group Klarna alongside Sequoia.

Meanwhile, the Qatar Investment Authority said in 2019 it would raise investments in the US from $30bn to $45bn, including in technology.

For some investors, there remains a tricky moral debate. “The US is buying oil from Saudi, we’re selling them drones, where do you draw the line?” said one venture capitalist, who admitted they had shifted from a stance of never accepting Saudi money to being more open to it as fundraising had dried up.

For others, particularly those who control smaller funds and therefore have still been able to tap up western pension and endowment funds, the issue is more black and white.

“I’ve been in the Valley for 20 years and I’m increasingly disappointed with the way we behave,” said one senior banker who handles deals for venture firms. “If you’re really good at what you do, go to Norway [to raise money].”

Technology-focused hedge fund aims to return money to investors by tapping secondary market

Technology-focused hedge fund Tiger Global is exploring options to cash in a piece of its more than $40bn portfolio of privately held companies, according to people familiar with the matter.

The New York-based investment group is working with an adviser to tap the so-called secondary market to help return money to some of its investors, the people said.

Talks are at an early stage and potential buyers have said that any deal would probably be complicated by difficulties valuing Tiger’s private holdings, which include stakes in companies such as payments business Stripe, US software group Databricks and China’s ByteDance, some of the people said.

Tiger declined to comment.

The decision to try and tap the private equity secondary market to generate cash highlights a growing problem private investment firms are facing: how to return money to their backers. Sources told the Financial Times that other large venture capital firms have also been studying similar sales of parts of their private portfolios.

Over the past few years, investors in fast-growing companies such as Tiger have been able to realise gains by taking companies public. However, initial public offerings have slowed over the past 18 months as investors grapple with wider inflationary pressures and stock market volatility.

Globally, the amount of money raised through IPOs in the first quarter of this year fell 61 per cent to $21.5bn against the same time period last year.

In a recent quarterly letter to investors, Tiger expressed optimism that some of its large private holdings such as Databricks would be able to list when equity markets reopened for public offerings.

“Our largest private holdings are generally capital-efficient or profitable market leaders awaiting an opportune window to complete public listings,” it told clients in a fourth-quarter letter obtained by the FT.*

The secondary market has become an increasingly popular tool to help firms return cash to their investors while public markets have been shut. It can also enable firms to hold on to private companies they own for longer periods than a typical fund structure usually allows.

Secondary deals have surged in recent years. Deals worth $105bn were struck last year, nearly five times the value of transactions in the space a decade before, according to a report published by Raymond James.

Founded in 2001 as a long-short hedge fund by Chase Coleman, Tiger expanded aggressively into private markets, particularly in China, in its early years. It eventually backed hundreds of fast-growing start-ups including Alibaba and JD.com, among others.

Over the past decade, the firm’s portfolio of stakes in privately held businesses grew to make up the bulk of its more than $60bn in assets, the FT reported in February.

Rising inflation and higher interest rates brought the firm’s push into early-stage investing to a juddering halt as shares in high-growth, speculative companies sold off sharply.

This prompted investors in private markets to also write down investments in unlisted technology groups.

In 2022, Tiger’s flagship fund suffered its worst annual loss, losing more than 50 per cent of its value as Tiger marked down its unlisted holdings by nearly 20 per cent. Some of its funds have recorded small gains for unlisted assets this year, however.