TheChek News Flow

Rally in junk-rated debt drives yields down since start of 2023

Risky corporate bonds trading in the US have kicked off 2023 on an upbeat note, with investors tolerating a smaller premium to hold low-grade debt as evidence of cooling inflation mounts.

Yields on speculative-grade US bonds have fallen by about 0.8 percentage points in the first two weeks of January to slightly more than 8 per cent, according to an ICE Data Services index, signalling a rise in the debt’s price.

Borrowing costs for groups with the lowest credit quality have dropped even more, according to an Ice gauge of distressed debt, sliding about 3 percentage points to 19.3 per cent — a level last seen five months ago.

Those improvements follow a heavy sell-off in low-grade bonds along with other riskier asset classes last year as the US central bank rapidly boosted interest rates.

This month’s move partly reflects a rally in US government debt, fuelled by expectations that the Federal Reserve will soften its stance on aggressive interest rate rises in the face of slowing price growth. The decline in benchmark Treasury yields has boosted the appeal of low-rated corporate bonds that typically offer higher returns.

The gulf in yields between junk bonds and Treasuries has also narrowed since the start of January, in a sign that investors are betting on a more benign economic backdrop and a decreasing risk of default.

The spread on US high-yield bonds has tightened by 0.5 percentage points since the end of December to 4.29 percentage points on January 12. The spread for the most distressed junk bonds has diminished by almost 3 percentage points to slightly less than 16 percentage points.

Matt Mish, head of credit strategy at UBS, said inflation had “on balance” been surprising investors “to the downside” recently.

Data on Thursday showed that the US consumer price index eased for a sixth consecutive month in December, to 6.5 per cent.

At the same time, “the growth data on net you could characterise as mixed” for the world’s largest economy, said Mish. “Which is why I think the inflation data, and expectations around how that flows through to Fed policy . . . is really what the market is focused on.”

The recent trimming of credit spreads has come even as the Treasury yield curve — the difference between two- and 10-year government bond yields — remains inverted, which is typically seen by investors as a harbinger of a prolonged economic contraction.

When a short but sharp recession hit during the depths of the coronavirus crisis in 2020, the US high-yield spread shot above 1,000 percentage points.

“I think it’s very hard to make the case that we’ll go through all 2023 without some significant widening in the spread,” said Marty Fridson, chief investment officer at Lehmann Livian Fridson Advisors.

“I don’t think Treasury rates are going to come down far enough to offset a [2, 3 or 4 percentage point] widening,” he added, pointing out that default rates were expected to rise.

“If spreads finish tighter at month-end it would be one positive data point for rest-of-year performance,” UBS’s Mish said.

Fridson noted that the high-yield market “does not have a great record” in providing a reliable alert well in advance of a recession.

“It’s typical that people seem to stay with it, maybe overstay their welcome, figuring, ‘well, I’ll get out before everybody else does’,” he said.

Market for assets that mix debt and equity is ‘seeing activity’ as valuations steady and economic data offer hope

US companies are turning to convertible bonds as fundraising in Wall Street’s main equities market is at its lowest level for three decades.

December was the busiest month of last year for convertible issuance by deal count according to Refinitiv data, as activity picked up over the second half of 2022. The amount US-based companies raised more than doubled in the second half from the preceding six months, after a sharp earlier slowdown.

Michael Zeidel, head of Americas in law firm Skadden Arps’ capital markets division, said that “for more than 80 per cent of the year, the [convertibles] market was essentially dead” but it had “opened up” in the last two months of 2022 “and we are now seeing activity”.

Extreme volatility and rising interest rates made 2022 the worst year for traditional stock market listings in the US since 1990. Most experts think it will take at least another quarter for IPOs — the most lucrative and high-profile part of the equity capital markets business — to pick up.

But a recent steadying in valuations and encouraging inflation data have prompted a burst of activity in deals deemed to be less risky, especially sales of convertible bonds — debt that includes an equity component.

“Converts are always a market that tends to be interesting to a broader array of companies when other markets are experiencing difficulties,” said Craig McCracken, co-head of equity capital markets at Wells Fargo, “because of their greater certainty of execution”.

Convertibles start out like other corporate bonds, but they include an option enabling investors to swap their debt for equity if the company’s shares rise to a specific price. They can allow businesses to borrow at lower interest rates than a traditional bond, without immediately diluting existing shareholders’ stakes through the sale of new stock.

Like other forms of capital raising, convertible sales dropped in the spring of 2022 as inflation rose — stoked by Russia’s invasion of Ukraine — and monetary policy tightened. Issuance by US-domiciled companies fell almost two-thirds last year, according to Refinitiv data, to just under $27bn.

“This past year was difficult for converts . . . in line with other risk assets,” said Michael Youngworth, convertible bond strategist at Bank of America Global Research.

In an environment where interest rates are expected to remain elevated, as they are this year, “convertible financing becomes more attractive”, according to Youngworth, because it can help companies reduce borrowing costs relative to the ordinary bond market.

Concert giant Live Nation came to the market this week with a convertible bond sale that ultimately increased in size from $850mn to $900mn, implying stronger than expected demand. Some of the proceeds from the sale have been earmarked for buying back older instruments.

“I think we will see more traditional businesses . . . coming to the convertible market to continue to keep interest costs at a reasonable level,” said John McClain, portfolio manager at Brandywine Global Investment Management.

This year, “companies that are in the predicament of needing to finance their business [ . . . ] will have the ability to access a litany of different sources of capital that I think people aren’t giving them credit for”, McClain added.

Convertible deals can also be completed quickly, which is particularly beneficial when markets are volatile and windows of opportunity are short.

“It’s great for issuers because you can be [quickly] in and out of the market,” said Lizzie Reed, head of equity syndicate at Goldman Sachs. “I think it will be particularly active in the first and second quarters as the macro picture stabilises.”

But convertibles are not without risk, and have in recent years been associated with high-flying growth stocks whose valuations tumbled as the Federal Reserve jacked up borrowing costs.

Record numbers of convertibles are now trading at “busted” levels according to BofA, meaning their shares are unlikely ever to reach their conversion price. Globally, about two-thirds of convertibles are currently trading below their par value.

In 2021, “we saw a lot of very aggressive issuers coming to the convertible bonds space”, said Youngworth. “High-growth names that took advantage of their equity prices at all-time highs and the frenzy in equity markets to raise convertible bond capital opportunistically and very cheaply.”

The subsequent spike in interest rates “not only damaged the bond values of the convert”, Youngworth said, “but they also weakened the equity component as well, so converts got hit on both sides of their structure.”

This “resulted in a pretty meaningful sell-off in the asset class,” he said, “and it also helped to dampen the primary market.”

Youngworth’s team is “more optimistic” about 2023. They anticipate $70bn-80bn of issuance globally, with $45bn-48bn stemming from the US.

A brighter performance in the convertible market could also prompt more companies to contemplate IPOs, lawyers and bankers said.

“You’ll need to see . . . more converts that are being successfully priced and successfully traded,” said Wells Fargo’s McCracken. Then, “we’ll just continue going down the risk continuum,” he added, noting that IPOs are “at the riskier end of the overall equity markets”.

Forecasters put 61% probability of recession in next 12 months

Despite signs that inflation has started to recede, economists still expect higher interest rates to push the U.S. economy into a recession in the coming year, according to The Wall Street Journal’s latest quarterly survey.

On average, business and academic economists polled by the Journal put the probability of a recession in the next 12 months at 61%, little changed from 63% in October’s survey. Both figures are historically high outside actual recessions.

The Federal Reserve had initially hoped it could bring down inflation with only a slowing in economic growth rather than an outright contraction, an outcome dubbed a “soft landing.” But three-quarters of respondents said the Fed wouldn’t achieve a soft landing this year.

That is despite a slightly more optimistic outlook for inflation. As measured by the year-over-year change in the consumer-price index, inflation has eased from 9.1% last June to 6.5% in December, and economists expect it to fall to 3.1% by the end of this year, a lower endpoint than the 3.3% they expected in the last survey, in October. They see it ending 2024 at 2.4%, little changed from the previous survey.

“While recent inflation prints have shown some progress, a few persistent categories like core services are associated with the historically tight labor market, suggesting that there is still ‘a long way to go’ for the Fed,” Deutsche Bank economists Brett Ryan and Matthew Luzzetti said in the survey. “The Fed would stay on its tightening trajectory to restore the rebalance of labor market and price stability, which in our view would engineer a sharp rise in unemployment and recession,” they added.

Greg Daco, chief economist at EY-Parthenon, said, “While services activity remains robust, the housing sector is tumbling under the weight of elevated mortgage rates and manufacturing activity is stalling—both signaling a broader economic downturn is likely coming.” He expects the combination of persistent inflation, tighter financial conditions and weaker global growth to tip the U.S. economy into a mild recession in the first half of 2023.

While economists don’t think a recession can be avoided, they expect it to be relatively shallow and short-lived, in line with other recent surveys.

On average, they expect gross domestic product to expand at a 0.1% annual rate in the first quarter of 2023 and contract 0.4% in the second. They see no growth for the third quarter and a 0.6% growth rate for the fourth.

Economists expect GDP to stagnate this year, posting growth of just 0.2% in the fourth quarter of 2023 compared with the fourth quarter of 2022. In the WSJ survey in October, economists forecast 0.4% GDP growth in 2023.

While most recessions have included at least two consecutive quarters of negative growth, that isn’t the criterion used by the panel at the National Bureau of Economic Research, a nonprofit academic group, which dates business cycles. A recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months,” NBER says on its website. Still, even that definition is loose because NBER ultimately declared the 2020 downturn at the start of the Covid-19 pandemic a recession even though it lasted only two months.

Employers are expected to cut jobs starting in the second quarter through the end of the year, the survey found. For 2023 as a whole, economists expect that payrolls will decline by 7,000 a month on average. That is a sharp downgrade from October’s survey, when economists expected employers to add nearly 28,000 jobs a month over the subsequent four quarters.

Economists view high inflation, and the Fed’s efforts to tame it, as a top risk to the economy this year.

When asked which category of inflation will be the hardest to tame in 2023, a quarter of economists picked housing. A further 18% said healthcare and another 18% picked personal services.

Economists in the survey expect the Fed will need to raise the benchmark federal-funds rate target to 5% this year, in line with central-bank officials’ own projections. The Fed lifted the rate target by a half percentage point in December, to between 4.25% and 4.5%. Fed officials are trying to balance the risk of raising rates too much with the risk of not doing enough to slow down spending and investment, which could allow higher inflation to become entrenched.

Fed officials have signaled they don’t expect to cut rates this year. Economists disagree: 51% expect the Fed to start cutting this year, although that is down from 60% in the last survey. Markets also are pricing in interest-rate cuts this year.

The Fed will start cutting in the fourth quarter of this year, according to 31% of economists. Another 37% expect that in the first quarter of 2024, and 8% expect it in the second quarter of next year.

The Journal surveyed 71 economists, although not every economist answered every question. The survey was conducted Jan. 6-10.

Is it time for a new approach to portfolios or was 2022 just a very bad year?

The best-known names in asset management and investment banking are taking opposite sides in the debate over the classic way of building a portfolio—60% stocks and 40% bonds—after a disastrous performance for the 60/40 model last year.

BlackRock BLK 0.00% says the losses—the worst in nominal terms for a 60/40 portfolio since the financial crisis of 2008-9 and the worst in real terms in a calendar year since the Great Depression—show that the structure is outdated. Goldman demurs, arguing that the odd big loss is inevitable in any strategy and that 60/40 remains a valid basic approach. Strategists and fund managers at other large money managers and banks have been piling in on both sides.

Investors should be paying close attention after decades of 60/40’s being accepted at a minimum as a reasonable base on which to construct a portfolio. Abandon it, and investments once considered exotic—BlackRock likes private debt and equity, commodities, infrastructure and inflation-linked bonds—join stocks and bonds as building blocks. Stick with it and they amount to small add-ons to the stock/bond core.

There are decent arguments for and against the 60/40 split as a sensible starting point for a portfolio.

Before getting into them, it is worth considering why 60/40 became the standard (some prefer 50/50 for a bit more caution, or 70/30 for a bit more aggressiveness). It gives an investor decent exposure to growth through the stock element, steady income from the bonds, and a cushion during recessions when stocks often fall hard and bond yields usually fall too, increasing bond prices. Plus, it is easy.

Last year, stocks were down big, and bonds lost money too. The Dow Jones U.S. Total Stock Market index lost 19.5% including dividends, while the ICE BofA U.S. Treasury index lost 12.9%. A 60/40 U.S. portfolio had one of its worst years ever, because the bonds didn’t do what they were supposed to do. The question, then, is whether 2022 was an exception and bonds will now resume normal service.

The best argument for sticking with 60/40, at least as a base, is that it is a decent neutral portfolio when we don’t have any idea about how the future will work out. Bonds have sometimes lost money at the same time as stocks for extended periods in the past, but not often.

“It’s happened [losses on both] in the past—it will happen in the future,” says Sharmin Mossavar-Rahmani, head of the investment strategy group in the Goldman Sachs investment division and chief investment officer of wealth management. “But it’s rare.”

Goldman calculates that U.S. stocks and bonds both lost money over a 12-month period just 2% of the time since 1926. You might reasonably be upset that your investments were caught up in such an unusual loss, but you should make radical portfolio changes only if you think this is the start of something new.

BlackRock argues exactly this. “This is a different regime. The great moderation is over,” says Vivek Paul, head of portfolio research at BlackRock Investment Institute.

After 10-year Treasury yields peaked at 15.8% in 1981, they fell for four decades to a low of 0.5% in 2020, offering surprise long-term capital gains to bondholders on top of the guaranteed income. Better still, from 2000 onward they offered fairly good day-to-day protection against losses on stocks, as the pattern of price moves flipped so bonds and stocks went in opposite directions. (Put another way, stocks tended to rise when bond yields went up, and fell when yields fell). The protection offered by bonds didn’t come at the cost of sacrificing returns.

For sure, 10-year yields can’t drop more than 15 percentage points in the next 40 years, because they currently yield only about 3.5%. The bond-equity link also seems to have returned to the pattern of higher bond yields being bad for stocks, and vice versa, as investors focus on inflationary pressure instead of economic growth. It is reasonable to think this might last given the long-term upward pressure on inflation from deglobalization, demographics and spending to combat climate change.

In a sense this is the active-passive argument played out again. If you, like me, think we’re probably heading for a more inflationary future, it makes sense to hold less in the way of ordinary bonds. But if you aren’t really sure—Ms. Mossavar-Rahmani says the outlook is clouded by “heavy fog,” and she’s not wrong—60/40 is a decent place to start.

A further argument for 60/40 is that many of the things put forward as an alternative portfolio cushion to bonds also had a terrible year last year. You might think Treasury inflation-protected securities would protect against inflation. But rising real yields meant that since the start of last year, TIPS lost almost exactly the same amount as ordinary Treasurys.

Private markets aren’t immune. Being private could mean the fund manager doesn’t tell you that you’ve lost money, but the value of a loan or a company has gone down as interest rates have risen, no matter whether the company is private or listed. And fees are far higher.

Commodities felt like a no-brainer last year, when everyone was obsessed with rising energy prices, metals shortages and inflation. Yet, the spot prices of crude oil, U.S. natural gas, gold and copper are very close to where they started 2022. It wasn’t a buy-and-hold market.

The fundamental problem is that last year the Everything Bubble deflated. Stocks and bonds started out very expensive, as did TIPS and private assets, because they were priced on the assumption of very low interest rates. Once the Federal Reserve recognized reality, the assumption went out the window and prices plunged. With valuations back in the range of reasonable for both stocks and bonds, a 60/40 equity/bond split is a decent starting point for building a portfolio—even if those who worry more about long-run inflation, as I do, might add a little more inflation protection than comes as standard.

Managers say opportunities remain despite an uncertain economic outlook

Hedge funds investing in fast-growing public and private companies lost tens of billions of clients’ money last year. That isn’t stopping more “crossover” funds from launching.

Mala Gaonkar, 53 years old, a former co-investment chief of Lone Pine Capital LLC, launched her New York-based crossover fund, SurgoCap Partners, on Jan. 3 with $1.8 billion, people familiar with her firm said. Ms. Gaonkar’s launch was widely anticipated given her experience and marks the largest-ever startup from a female hedge-fund manager. Lone Pine, which Ms. Gaonkar left roughly a year ago, lost 36% in 2022 in its flagship hedge fund.

Patrick Fu, 45, who co-led Sequoia ‘s hedge fund until October 2021 before leaving in March, is aiming to raise as much as $1 billion for his crossover fund, Los Angeles-based Dandelion Capital Management, people familiar with his effort said. Dandelion is targeting a third-quarter start. Sequoia Capital Global Equities lost about 41% last year in its worst-ever showing, according to people familiar with the crossover fund, including from its investment in bankrupt cryptocurrency exchange FTX.

Kristov Paulus, 33, a senior investor at Boston-based Whale Rock Capital Management LLC who left at year-end, plans to launch Kultura Capital Management in San Francisco in the second half of the year, people familiar with his plans said. Several chief executives of private companies Mr. Paulus backed while at Whale Rock have committed to investing. Whale Rock lost 43% in its crossover fund last year through November.

Loading up on shares of fast-growing public and private companies was one of the most surefire paths to profit for hedge funds in the later stages of the bull market, supercharging companies’ valuations, juicing funds’ returns and minting fortunes for managers, who said insights from their investments in private companies informed their public-markets wagers and vice versa. But funds’ recent losses as public and private valuations come under pressure are prompting a reassessment by managers and their clients.

Even against such a daunting backdrop, more launches are possible. Bankers say they are having ongoing conversations with employees at wounded crossover firms who are thinking about starting their own funds.

When funds are clawing their way back to their high-water mark, or the point at which they have recouped losses and can start charging full performance fees again, fat paydays for employees are less likely in the near-term. Some firms also are parting ways with employees as they shift course or reassess their teams.

The report card for crossover funds in 2022 is grim. Tiger Global Management lost 56% in its flagship hedge fund and 67% in its long-only fund, historic losses for the firm, while D1 Capital Partners lost about 30% in the share class in which half of clients’ money can be invested in private companies. Coatue Management and Viking Global Investors, among the best performers, lost about 19% and 23%, respectively, in their crossover funds.

In comparison, stock-picking hedge funds lost an average 2% last year on an equal-weighted basis, according to a Goldman Sachs Group Inc. client note. The S&P 500 lost about 18% last year, including dividends.

The firms have been relatively resilient despite suffering the kinds of percentage losses that caused hedge funds to close in 2008, showcasing the crossover strategy’s benefits for managers. “Historically you would have seen runs on the bank,” said Jason Kaplan, a partner at law firm Schulte Roth & Zabel LLP. But with the additional stability private investments provide, “Many of these firms will survive the difficult 2022 and be in a position to make money on the upswing.”

Appetite for new crossover funds is unclear.

Investors have been slow to redeem from their existing crossover managers and crystallize losses, meaning they have less to invest in new funds. They also say the bar is high for swapping out a fund working for no performance fees for one charging full-freight.

Ms. Gaonkar’s sizable launch, which Bloomberg News earlier reported, is likely to remain an outlier. A Lone Pine founding partner, Ms. Gaonkar led its technology, media and telecom bets for more than two decades and is one of the industry’s most experienced female investors. She put nine figures of her own money into SurgoCap, said people familiar with the firm, which can invest up to 25% of clients’ money in private companies. SurgoCap plans to use data science and invest in the disruptive impacts of technology on sectors including financials, industrials and healthcare.

Managers say opportunities remain despite an uncertain economic outlook.

Mr. Paulus has told potential clients continued innovation and companies’ ongoing migration to the cloud are opportunities. A self-taught developer, Mr. Paulus focused on software and private investments at Whale Rock and led profitable, early bets on Shopify Inc. and Tencent Holdings Ltd. Mr. Paulus has said he plans to donate part of his profits to charity.

Mr. Fu, who worked at Lone Pine before moving to co-helm Sequoia’s hedge fund in 2017 with its longtime managing partner, Jeff Wang, helped expand the Sequoia fund from $700 million to more than $12 billion. He has told potential clients he profitably invested in companies when they weren’t popular hedge-fund holdings and sourced private investments outside Sequoia’s famed venture ecosystem. One Sequoia Capital-backed company he invested in was FTX, he wrote in a recent fundraising letter viewed by The Wall Street Journal.

Dandelion will thematically invest in innovation, Mr. Fu wrote. Investors can opt into having up to 30% of their money in private companies. But “public markets currently hold more opportunity than their private counterparts” after their steep selloff, he wrote. “We expect to be highly selective in deploying capital to private investments.”

Swedish start-up Heart Aerospace says airlines need incentives to decarbonise their fleets

Western nations need to offer more subsidies to encourage the airline industry to switch to electric-powered planes, according to one of the leading emissions-free start-ups.

Anders Forslund, chief executive and co-founder of Heart Aerospace in Sweden, said airlines were generally too focused on short-term profitability and needed countries to follow the likes of Norway, which aims to electrify all domestic flights by 2040.

“Governments are the ones making the rule book,” Forslund told the Financial Times. “There must be an economic incentive for airlines to take on this leadership. It needs a push, and it needs the push now.”

Heart, a start-up based in Gothenburg on Sweden’s west coast, is developing a 30-seater regional aircraft for 2028 and has firm orders for 230 planes from United Airlines and Mesa Airlines in the US as well as Air Canada. Other airlines including SAS, BRA and Icelandair in the Nordics have signed letters of intent for the aircraft, while Air Canada and Swedish defence company Saab became shareholders in September.

Heart recently changed its plans from a pure electric 19-seater to a larger hybrid aircraft, which will use sustainable aviation fuel to power its reserve system needed for emergencies, something that extends its range to 800km from 200km if solely using batteries.

Forslund pointed to public service mandates in the US and Norway as something necessary to help develop such a regional electric plane.

“The reason it works in Norway is subsidies. The fact that they’re rich is that they can pay the premium, just like they did in electric cars,” he said, noting that the success of Tesla’s Model S led to it developing the cheaper Model 3.

Heart is not just touting the zero-emissions potential for its plane but also the lower noise it produces on take-off and landing. By 2040, it believes battery technology will allow it to fly 400km emissions-free and 600km using its hybrid reserves, while its goal for 2050 is to fly 1,500km, capturing two-thirds of all departures and one-third of aviation’s emissions.

The company believes the total cost of ownership for an electric aircraft, which will require less maintenance, should be lower than a traditional plane.

Forslund argued that “a lot of the centre of gravity” in the nascent industry was moving to the US because of the Biden administration’s Inflation Reduction Act, which offers big subsidies for green technology.

“We’re a little bit waiting for the European response,” he said, pointing to the likes of Denmark and Iceland as interesting markets because of renewable energy and relatively short flights.

Ultra-high safety standards and the relatively long distances involved mean aviation is seen as one of the harder industries to make emissions-free. Companies from Airbus and BP to Rolls-Royce are trying different technologies such as hydrogen, battery power and sustainable aviation fuel.

Forslund argued that a mixture of all three was likely to be needed to decarbonise air travel but that there was a risk of aiming for the perfect technology and ending up “in an endless R&D loop”.

“The general problem is not too much too soon but too little too late,” he said. “You need that sense of urgency.”

He added: “How do we make this transition — as airlines, countries and policymakers? This is going to require a combination of established actors, suppliers and industry partners along with new start-ups. The industry needs to reinvent itself.”

Enron, Madoff and now FTX: New York’s Belfer family strike out again

Wealthy oil dynasty were shareholders in collapsed crypto group after previous investments turned sour

A New York oil dynasty that was a client of the legendary fraudster Bernard Madoff and lost billions in the demise of Enron has been embroiled in the collapse of FTX, according to court documents.

Investment firms for the Belfer family, whose name sits above galleries at New York’s Metropolitan Museum of Art, were included in a list of shareholders of the cryptocurrency exchange FTX and its US business that were released in court documents this week.

FTX founder Sam Bankman-Fried has been accused by US prosecutors of orchestrating “one of the biggest financial frauds in American history”, drawing comparisons to the Ponzi scheme architect Madoff and sprawling bankruptcy of Enron, which sank amid fraud allegations. Bankman-Fried has pleaded not guilty.

The Belfer family, one of Enron’s largest shareholders, lost around $2bn in the company’s collapse, according to estimates at the time. The family’s patriarch, Robert Belfer, played a high-profile role as a long-serving member of Enron’s board of directors for several decades until 2002. Several family foundations and companies also invested with Madoff’s sham investment firm.

A representative for Belfer’s family office, Belfer Management, run by Robert’s son Laurence Belfer, said the family does not give interviews and declined to comment. Robert Belfer said in 2011: “Needless to say, Enron was a painful experience” and that the financial losses had forced the family to reduce the scale of its giving.

The ability of FTX to woo the wealthy New York family gives a fresh sign of how far Bankman-Fried had penetrated the US elite in his drive to attract investment for his businesses. Billionaire Robert Kraft and several celebrities and well-known athletes are also shareholders in FTX, the court documents show.

Belfer Investment Partners held shares from FTX’s equity fundraisings in 2021 and early 2022, as well as investing in the crypto exchange’s US business, the documents show. Another firm linked to the family, Lime Partners LLC, also held shares in FTX and FTX US. The two companies’ combined stake in FTX Group was valued at $34.5mn as of the most recent fundraising round early last year, according to share prices provided by a person familiar with the deal.

The Belfers are known for their extensive philanthropic donations. Robert and his wife Renee made large donations to the Met Museum to renovate the New York institution’s Greek and Roman galleries, which are named for the Belfers. The family are also major benefactors of Harvard, where the centre for international affairs at the University’s Kennedy School is named after them.

The family descend from Arthur Belfer who moved to the US from Poland around the time of the second world war and imported feathers for down pillows and sleeping bags before branching out into rubber and petroleum. The family oil company was acquired in the 1980s by a predecessor of Enron, making the Belfers major stakeholders in the doomed energy giant.

Their financial misfortunes include trusting Madoff’s phoney investment firm. However, according to court documents, after the demise of Enron, the Belfer companies withdrew more than $28mn from Madoff’s scheme before it collapsed.

Investor appetite for woke corporatism has its limits and it usually begins with a declining share price. For further proof, look at what’s going down at Disney.

For years the “House of Mouse” was the epicenter of political correctness. Investors largely ignored this circus (including a same-sex kissing scene in children’s programming) because Disney’s stock soared.

No longer. After longtime CEO Bob Iger retired in 2020, successor Bob Chapek proved to be far less adept as a manager and a seller of wokeness. Pandemic theme-park closures didn’t help. Plus he was also crushed by Florida Gov. Ron DeSantis for opposing a law that prevented schools from teaching sex ed to 6-year-olds and lost Disney’s special tax status.

Much of his programming turned out to be a dud and his streaming strategy floundered. Disney’s stock collapsed so much that Chapek was shown the door just about two years into the job.

Iger, 71, made his return to right the ship and got more grief. His stock has largely flatlined because costs are up and streaming remains in limbo, eating into revenues and profits.

A duo of nettlesome activist investors are now circling the company like vultures. Dan Loeb’s Third Point and Nelson Peltz’s Trian Partners are unlike passive fund managers in that they use their ownership positions to advocate for changes they believe will lead immediately to a higher share price, current ­management be damned.

Both have big stakes in Disney and, for starters, both want Iger to focus less on programming that appeals to AOC and more on stuff that appeals to Middle America,. They want a coherent streaming strategy, cost cuts and much more.

Peltz, in particular, should make Disney and Iger squirm. He preaches “constructive engagement” with companies he’s targeting, but he’s a longtime critic of Iger and has a significant, $940 million stake in the stock that he will likely add to as he gears up for war. Meanwhile, look what he did at GE: He defenestrated CEO Jeff Immelt just two years after acquiring shares because he believed Immelt couldn’t make his numbers and the stock floundered.

Immelt’s successor went bye-bye about a year later for the same reason. Current management installed by Peltz is in the process of breaking up what was one of the biggest conglomerates in US history.

OK, Peltz often gets his way and isn’t known for his patience when his money is being wasted away as it was at GE. A boardroom battle for the ages is certain now that Peltz demanded a board seat and Iger told him to pound sand. Iger is about to up the ante, I am told, by filing a preliminary proxy to explain why he thinks Peltz is unqualified for the seat.

So far, Peltz says he doesn’t want to pull a GE on Disney and break it up, and Iger can stay as CEO for the next two years. But based on his history, Peltz won’t stand for getting the stiff-arm if Disney’s stock doesn’t start to move higher and fast.

That could mean, in addition to everything else on Peltz’s wish list, the shedding of Disney’s so-called “noncore assets” to boost profits. Bankers tell me sales of Disney’s sports cable network ESPN, and maybe all of its ABC television network, are on the table and a real possibility to appease Peltz’s desire for a higher stock price.

Also most certainly on the table is Iger’s job if he doesn’t make his numbers.

Sam Bankman-Fried ordered the co-founder of his cryptocurrency exchange FTX to create a “secret” backdoor that allowed his hedge fund Alameda Research to borrow $65 billion of clients’ money without their permission, according to testimony over the firm’s implosion.

Gary Wang was told to create a secret line of credit using customer funds from FTX to Alameda, said Andrew Dietderich, an attorney for FTX, in Delaware bankruptcy court on Wednesday.

“Mr. Wang created this backdoor by inserting a single number into millions of lines of code for the exchange, creating a line of credit from FTX to Alameda, to which customers did not consent,” Dietderich testified.

“And we know the size of that line of credit. It was $65 billion.”

Dietderich said the “backdoor was a secret way for Alameda to borrow from customers on the exchange without permission.”

Bankman-Fried had moved $10 billion between the two companies, with a further $2 billion still unaccounted for, according to sources cited by Reuters in November.

The Post has sought comment from Bankman-Fried.

The lawyer’s testimony corroborates allegations made by the Commodity Futures Trading Commission, the independent federal agency which regulates derivatives such as futures and swaps.

Last month, the CFTC filed charges against Wang and Alameda Research CEO Caroline Ellison, who was also Bankman-Fried’s on-again, off-again girlfriend.

The CFTC accused Wang of creating a “virtually unlimited” secret line of credit. Dietderich’s testimony is believed to be the first time an FTX official has given the line of credit a firm dollar value.

Wang and Ellison have both pleaded guilty to federal charges including fraud and conspiracy. They are cooperating with investigators.

Bankman-Fried, who was arrested and extradited to the US from his home base in the Bahamas last month, is under house arrest at his parents’ $4 million Palo Alto home as per the conditions of his $250 million bond release.

While awaiting trial, Bankman-Fried published a Substack blog post on Thursday in which he professed his innocence.

“I didn’t steal funds, and I certainly didn’t stash billions away,” Bankman-Fried wrote.

“Nearly all of my assets were and still are utilizable to backstop FTX customers.”

The disgraced former crypto mogul, 30, accused Binance boss Changpeng “CZ” Zhao of waging a lengthy campaign to destroy his empire.

He alleged that Zhao’s “fateful tweet” on Nov. 6 capped an “extremely effective months-long PR campaign against FTX.”

“In November 2022, an extreme, quick, targeted crash precipitated by the CEO of Binance made Alameda insolvent,” Bankman-Fried wrote.

The disgraced FTX founder’s business collapsed shortly after Zhao tweeted that Binance was dumping its position on FTX’s in-house digital token FTT.

The tweet started a domino effect that pushed Bankman-Fried’s crypto hedge fund Alameda Research into insolvency and FTX filed for bankruptcy on Nov. 11.

Meanwhile, Bankman-Fried’s parents are also preparing for possible legal exposure.

Joseph Bankman, Bankman-Fried’s father, has hired a Manhattan-based attorney, Sean Hecker of Kaplan Hecker and Fink LLP, to represent him, Reuters is reporting.

Bankman has not been charged with a crime or informed he’s under federal investigation, a source familiar with the situation told The Post.

However, his work at FTX has come under intense scrutiny since the platform declared bankruptcy.

While testifying on Capitol Hill last month, current FTX CEO John Ray confirmed that his team was “investigating” the role that Bankman and his wife, fellow Stanford law professor and Democratic operative Barbara Fried, played in the platform’s collapse.

Ray told lawmakers Bankman had given “legal advice” to his son at FTX and received cash payments from the company.

Water-rich opals discovered on the surface of Mars could help resolve the question of whether life has ever existed on the red planet.

NASA’s Curiosity rover has discovered a wealth of opals on Mars that could help resolve the question of whether life has ever existed on the red planet, and provide water for any future human missions to the Martian surface, reports a recent study.

Opals are prized as gemstones because they display shimmering colors that often look like iridescent rainbows. These gems form when silicon oxides get sloshed around in wet environments and then harden in fissures between rocks. This process transforms opals into miniature oases that can contain as much as 20 percent liquid water.

Martian opals have previously been spotted from afar by a NASA orbiter, and they have been identified in Martian meteorites that landed on Earth. Now, a team led by Travis Gabriel, a research scientist for the United States Geological Survey, shows that the Curiosity rover has also encountered light-toned opal deposits on the Martian surface.

Gabriel and his colleagues said that these opals were formed in “a vast fluid event in recent Martian geologic history” that may have made Mars habitable for longer than previously assumed, and perhaps even preserved microbial life in the alien gemstones, according to a recent study published in the Journal of Geophysical Research: Planets.

The high water content of opals could make them a useful source of hydration for future humans on Mars, especially at the planet’s equator, where water ice is far more scarce than at the poles.

The “water-rich subsurface network” that produced the opal deposits “was shielded from modern harsh surface conditions, allowing for a potentially habitable environment on Mars in a more recent era,” Gabriel and his colleagues said in the study. “These light-toned features are also ideal for follow-up investigation or sample return as similar opal-rich deposits on Earth are known to preserve traces of microbial life.”

“Additionally, the features themselves contain a considerable amount of readily released water, making them an ideal resource at the otherwise dry Martian equator,” the team added.

Curiosity landed in Gale Crater, an impact basin on Mars, in August 2012, and it has produced a litany of discoveries ever since. The rover has amassed evidence that water likely flowed over Gale Crater billions of years ago, producing conditions that would have been habitable to life. Its successor, NASA’s Perseverance rover, is now also searching an ancient lakebed for signs of this past life on Mars.

Gabriel and his colleagues realized that Curiosity has been stumbling over opals for years by studying old observations from the rover with new analytical techniques. The team identified light-colored rocks surrounding geological features known as “fracture halos” at multiple sites on Curiosity’s road trip. Observations from several instruments on the rover, including data obtained from drill cores of the Martian surface, suggest that these halos contain abundant reserves of water-rich opals.

“Our new analysis of archival data showed striking similarity between all of the fracture halos we've observed much later in the mission,” Gabriel said in a statement. “Seeing that these fracture networks were so widespread and likely chock-full of opal was incredible.”

Scientists know that Mars was much wetter and warmer some 3.7 billion years ago, but the presence of opal deposits at Gale Crater suggests that the planet may have also experienced short-lived floods within the past few hundred millions years. While it’s unlikely that life still persists on the desiccated Martian surface, these brief deluges have helped microbes survive deeper underground, or preserved their microbial remains in opals that are easily accessible from the surface.

“Given the widespread fracture networks discovered in Gale Crater, it's reasonable to expect that these potentially habitable subsurface conditions extended to many other regions of Gale Crater as well, and perhaps in other regions of Mars,” Gabriel said in the statement. “These environments would have formed long after the ancient lakes in Gale Crater dried up.”

Even if these opals don’t ultimately point to alien life on Mars, they could be an important part of a life support system for humans on Mars. The team estimated that about 1.5 gallons of water could be harvested from a one-meter-long halo, enabling astronauts to quench their thirst with the help of extraterrestrial opals.

In this way, the recent study may open a window into the Martian past, when microbes may have flourished in bygone lakes and reservoirs, while also paving the way toward human exploration of the red planet in the future.