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'Free speech absolutism' versus digital regulation in Europe and beyond…

Elon Musk joked earlier this month that he hoped buying Twitter won’t be too painful for him. But the self-proclaimed “free speech absolutist” may indeed be inviting a world of pain for himself (and his wallet) if he sets the platform on a collision course with the growing mass of legislation now being applied to social media services all around the world.

The U.S. lags far behind regions like Europe when it comes to digital rule-making. So Musk may simply not have noticed that the bloc just agreed on the fine details of the Digital Services Act (DSA): A major reboot of platform rules that’s intended to harmonize governance procedures to ensure the swift removal of illegal speech, including by dialing up fines on so-called “very large online platforms” (aka, VLOPs; a classification that will likely apply to Twitter) to 6% of global annual turnover.

On news of Musk’s winning bid for Twitter, EU lawmakers were swift to point out the hard limits coming down the pipe.

“The Commission can fine [non-compliant platforms] 6% of worldwide turnover,” emphasizes MEP Paul Tang, discussing why he believes the DSA will be able to rein in any more absolutist tendencies Musk may have.

“Given the profit margin currently for Twitter that is a lot — because the net profit margin in negative, that’s the reason why he bought it in the first place I assume … It doesn’t make a profit and if it makes a profit it will be chipped away by the penalty. So he really has to find ways to make it more profitable to make sure that the company doesn’t lose money.”

Tang also points out that Musk’s $43 billion bid for Twitter is financed, in large part, with loans — rather than him just cashing in Tesla equity to fully fund the bid, which means Musk is not as free to act on his impulses as he may otherwise have been.

“He’s in debt. He needs to pay his debts — his creditors … If he’d used all his equity to buy Twitter then he would have had more leeway, in a sense. He could take any loss he wants — up to a point, depending on the value of Tesla. But he’s in debt now, in this construction, so at least he has to pay for the interest — so the company needs to make a profit. And even more than before, I think.”

“It’s 6% for every failure to comply. It would be an expensive hobby,” agrees MEP Alexandra Geese, dismissing the idea that the billionaire will just view any DSA fines as the equivalent of “parking tickets” to be picked off and flicked away.

As well as headline fines of up to 6% for breaches of the regulation, repeated failures by a Musk-owned Twitter to comply with the DSA could lead to the European Commission issuing daily fines; suing him for non-compliance; or even ordering a regional block on the service.

Article 41(3) of the regulation sets out powers in the event of repeated, serious infringements which — per snippets of the final text (still pending publication) we’ve seen — include the ability to temporarily block access to a service for four weeks, with the further possibility that that temporary ban could be repeated for a set number of times and thus prolonged for months, plural.

So even if Musk’s fortune (and inclination) were to extend to regularly shelling out for very large fines (up to hundreds of millions of dollars on current Twitter revenue) he may have harder pause about taking a course of “free speech” action that, de facto, limits Twitter’s reach by leading to the service being blocked across the EU — since he claims he’s buying it to defend it as an important speech forum for human “civilization.” (Assuming he’s not narrowly defining that to mean “in the U.S. of A.”)

While the full spectrum of the DSA isn’t due to come into force until the start of 2024, rules for VLOPs have a shorter implementation period — of six months — so the regime will likely be up and running for platforms like Twitter in early 2023.

That means if Musk wants to — shall we say — “fnck around and find out” how far he can push the needle on speech absolutism across the EU, he won’t have very long before the Commission and other regulators are empowered to come calling if/when he fails to meet their democratic standard. (In Germany, there are already laws in place for platforms: The country has been regulating hate speech takedowns on social media since 2017 — hence the “joke” has long been that if you want a de-Nazified version of Twitter you just change your country to “Germany” in the settings and your Twitter feed will instantly become fascist-free.)

The DSA puts a number of specific obligations on VLOPs that may not exactly be front of mind for Musk as he celebrates an expensive new addition to his company portfolio (albeit, still pending shareholder approval) — including requiring platforms to carry out risk assessments related to the dissemination of illegal content; to consider any negative impacts on fundamental European rights such as privacy and freedom of expression; and look at risks of intentional manipulation of the service (such as election interference) — and then to act upon these assessments by putting in place “reasonable, effective and proportionate” measures to combat the specific systemic risks identified; all of which must be detailed in “comprehensive” yearly reports, among a slew of other requirements.

“An ‘Elonised’ version of Twitter would probably not meet the DSA requirements of articles 26-27,” predicts Mathias Vermeulen, public policy director at the digital rights agency AWO. “This can lead to fines (which Musk doesn’t care about), but it could lead to Twitter being banned in the EU in case of repeated violations. That’s when it really gets interesting: Would he change his ideal vision of Twitter to preserve the EU market? Or is he prepared to drop it because he didn’t buy this as a business opportunity but to ‘protect free speech in the U.S.’?”

The U.K., meanwhile — which now sits outside the bloc — has its own, bespoke “harms mitigating” social media-focused legislation on the horizon. The Online Safety Bill now before the country’s parliament bakes in even higher fines (up to 10% of global turnover) and adds another type of penalty into the mix: The threat of jail time for named executives deemed to be failing to comply with regulatory procedures. (Or, put another way, trolling the regulator won’t be tolerated; they’re British.)

Is Musk willing to go to jail over a maximalist conception of free speech? Or would he just avoid ever visiting the U.K. again — and let his local Twitter execs do the time and take the lumps?

Even if he’s willing to let his staff languish in jail, the U.K.’s draft legislation also envisages the regulator being able to block non-compliant services in the market — so, again, if Musk kicks against local speech rules he’ll face trading off limits on speech on Twitter with limits on Twitter’s global reach.

“This is not a way to make money,” Musk said earlier this month of its bid for Twitter. “My strong intuitive sense is that having a public platform that is maximally trusted and broadly inclusive is extremely important to the future of civilization. I don’t care about the economics at all.”

“I think he doesn’t understand quite how big a fight he’s in for, nor how complex free speech is in practice. It’s going to be interesting to watch!” says Paul Bernal, a U.K.-based professor of IT law at the University of East Anglia. “The big risk (as ever) is that he fails to understand that his own experience of Twitter is very different from what happens to other people.”

Elsewhere, a growing number of countries are setting their own local restrictions and ramping up operational risks for owners of speech fencing platforms.

This includes a growing number of autocratic (or autocratically leaning) regimes that are actively taking steps to censor the internet and restrict access to social media — countries such as Russia, Turkey, India or Nigeria — where platforms that are “non-compliant” with state mandates may also face fines, service shut downs, police raids and threats of jail time for local execs.

“A platform might be able to get away with free-speech absolutism if it restricted its operations to the United States with its specific and peculiar First Amendment tradition. But most platforms have 90% or more of their users outside the U.S., and a growing number of governments around the world, both democratic and less so, increasingly want to influence what people are and are not allowed to see online. This goes for the European Union. It clearly goes for China. It also goes for a number of other countries,” says Rasmus Kleis Nielsen, a professor of political communication and director at the Reuters Institute for the Study of Journalism at the University of Oxford.

“Saying ‘I’m for free speech’ is at best a starting point for how private companies can respond to this. If you are rich enough, you can maybe soak up the fines some governments will impose on companies that in the name of free speech (or for other reasons) refuse to do as they are asked to. But in a growing number of cases the next steps include for example going after individual company employees (Indian police have raided local Twitter offices), forcing ISPs to throttle access to a platform (as the Turkish government has done) or ultimately block it entirely (as the Nigerian government has done).

“So while in the United States, a platform that conducts content moderation on the basis of simplistic slogans will primarily face the fact that free speech is more complicated and ambiguous in practice than it is in theory, and that both users and other customers like advertisers clearly see that and expect companies to manage that complexity as clearly, consistently and transparently as possible; in the rest of the world every platform will — if it wants to do business — face the fact that governments increasingly want to influence who gets to say what, where and when.

“And that they (at best through independent judiciary and independent regulators, at worst directly through the executive branch), not individual proprietors or private companies, will want to decide what should and should not be free speech.”

Nothing Musk has said or done suggests he has anything other than a U.S.-centric understanding of “free speech.” And that he therefore has a limited understanding of the scope of speech restrictions that can, legally, apply to Twitter — depending on where in the world the service is being used. And the prospect of Musk owning Twitter can’t change any actual laws around speech — however much he makes striking statements equating his ownership to the “defense of human civilization.”

Away from the (relatively clearly defined) line of illegal speech, perhaps most obviously (and depressingly), Musk having an overly simplistic understanding of “free speech” could doom Twitter users everywhere to a “Groundhog Day” style repeat of earlier stumbles — when the company’s (U.S.-centric) operators allowed the platform to steep in its worst users’ bile, professing themselves “the free speech wing of the free speech party” while victimized users were essentially censored by the loudest bullies.

It still feels like the very recent past (actually it was circa 2018!) when Twitter’s then CEO and co-founder, Jack Dorsey, appeared to have a micro epiphany about the need for Twitter to factor in “conversational health” if it wanted anyone other than Nazis to stick around on its platform. That in turn led to a slow plod of progress by the company to tackle toxicity and improve tools for users to protect themselves from abuse. (And, very latently, to a ban on “king” Twitter bully, Donald Trump.)

A free speech absolutist like Musk — who is expert at using Twitter to bully his own targets — threatens to burn all that hard won work right back down to ground zero.

But, of course, if he actually wants the world to want to hang out in his “town square” and talk that would be the polar opposite of a smart strategy.

Musk may also try to turn his bullying on international regulators too, of course. He has (in)famously and publicly clashed with U.S. oversight bodies — repeatedly trolling the SEC, via Twitter (ofc) — including tweeting veiled insults that pun on its three letter acronym. Or recently referring to it (or at least some of its California staff) as “those bastards,” in reference to an investigation it had instigated when he tweeted about wanting to take Tesla private.

Musk’s demonstrable rage and discomfort at the SEC’s perceived regulation of his own speech — and his open contempt for a public body whose job it is to police long-standing rules in areas like insider trading — doesn’t exactly bode well for him achieving friction-free relations with the long list of international oversight bodies poised to scrutinize his tenure at Twitter. And with whom he may soon be openly clashing on Twitter.

If he’s not yet taking tweet pot shots at these “bastards” it’s likely because he doesn’t really know they exist yet — but that’s about to change. (After all, EU commissioners are already tweeting Musk to school him on how “quickly” he’ll “adapt” to their “rules,” as internal market commissioner Thierry Breton put it to “Mr Musk” earlier today … Touché!)

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The Commission will be in charge of the oversight of VLOPs under the DSA once it’s in force — which means the EU’s executive body will be responsible for deciding whether larger platforms are in breach of the bloc’s governance structure for handling illegal speech, and, if so, for determining appropriate penalties or other measures to encourage them to reset their approach.

Asked whether it has any concerns with Musk owning Twitter — given his free speech “absolutist” agenda — the Commission declined to comment on Twitter’s ownership change, or any individual (and still ongoing) business transaction, but a spokesperson told us: “The Commission will keep monitoring developments as they take place to ensure that once DSA enters into force, Twitter, like all other online platforms concerned will follow the rules.”

Musk hasn’t put a whole lot of meat on the bones of exactly what he plans to do with Twitter — beyond broad brush strokes of taking the company private — and claiming his leadership will unlock its “tremendous potential.”

What he has said so far has focused in a few areas — freedom of expression being his seeming chief concern.

Indeed, the first two words of his emoji-laden victory tweet on having his bid to buy Twitter accepted are literally “free speech.”

Though he also listed a few feature ideas, saying for example that he wants to open source Twitter’s algorithms “to increase trust.” He also made “defeating spam bots” part of his mission statement — which may explain another reference in the tweet to “authenticating all humans” (which has privacy advocates understandably concerned).

In a TED interview earlier this month, before the sale deal had been sealed, Musk also responded to the question of why he wanted to buy Twitter by saying: “I think it’s very important for there to be an inclusive arena for free speech.”

He further dubbed the platform a “de facto town square.”

“It’s just really important that people have both the reality and the perception that they are able to speak freely within the bounds of the law,” Musk went on. “One of the things I believe Twitter should do is open source the algorithm. And make any changes to people’s tweets — if they’re emphasized or deemphasized — that action should be made apparent so anyone can see that that action’s been taken. There’s no ‘behind the scenes’ manipulation, either algorithmically or manually.”

“It’s important to the function of democracy, it’s important to the function of the United States as a free country — and many other countries — and actually to help freedom in the world more broadly than the U.S.,” he added. “And so I think the civilizational risk is decreased the more we can increase the trust of Twitter as a public platform and so I do think this will be somewhat painful.”

What Musk means by freedom of speech is more fuzzy, of course. He was directly pressed in the TED interview on what his self-claimed “absolutist” free speech position would mean for content moderation on Twitter — with the questioner asking a version of whether it might, for example, mean hateful tweets must flow?

“Obviously Twitter or any forum is bound by the laws of any country it operates in so obviously there are some limitations on free speech in the U.S. and of course Twitter would have to abide by those rules,” Musk responded, sounding rather more measured than his ebullient, shitposting Twitter persona typically comes across as (which neatly illustrates the tonal dilemma of digital versus in-person speech; which is to say that something said in person, with all the associated vocal emotion, body language and physical human presence, may sound very different when texted and amplified to (potentially) a global audience of millions+ by algorithms that don’t understand human nuance and are great at trampling on context).

“In my view, Twitter should match the laws of the country and really there’s an obligation to do that,” he also said, before circling back to what appears to be his particular beef vis-a-vis the topic of social media “censorship”: Invisible algorithmic amplification and/or shadow-banning — aka, proprietary AIs that affect freedom of reach and are not open to external review.

On this topic he may actually find fellow feeling with regulators and lawmakers in Europe — given that the just-agreed DSA requires VLOPs to provide users with “clear, accessible and easily comprehensible” information on the “main parameters” of content ranking systems (the regulation refers to these as “recommender systems”).

The legislation also requires VLOPs to give users some controls over how these ranking and sifting AIs function — in order that users can change the outputs they see, and choose not to receive a content feed that’s based on profiling, for example.

And Musk’s sketched vision of “putting Twitter’s AIs on GitHub” for nerds to tinker with is, kinda, a tech head’s version of that.

“Having it be unclear who’s making what changes to where; having tweets mysteriously be promoted and demoted with no insight into what’s going on; having a blackbox algorithm promote some things and not other things. I think this can be quite dangerous,” he said in the TED interview, hinting that his time at Twitter might pay rather more attention to algorithmic content-disseminating apparatus — how the platform does or does not create “freedom of reach” — than excessively concerning himself with maximizing the extremis of expression that can be contained within a single tweet.

So there are, on the surface, some striking — and perhaps surprising — similarities of thought in Musk’s stated concerns and EU lawmakers’ focus in the DSA.

He did also say he would probably want to set guidance that would prefer to keep speech up than take it down when expression falls in a gray area between legal and illegal speech — which is where the danger lies, potentially setting up a dynamic that could see Musk give a free pass to plenty of horribly abusive trolling, damaging conspiracy theories and outright disinformation. And that, in turn, could put him back on a collision course with European regulators.

But he also sounded fairly thoughtful on this — suggesting dialing back algorithmic amplification could be an appropriate measure in gray area situations where there is “a lot of controversy.” Which seems quite far from absolutist.

“I think we would want to err on the side of if in doubt, let the speech exist. If it’s a gray area I would say let the tweet exist but obviously in a case where there’s perhaps a lot of controversy you would not want to necessarily promote that tweet,” he suggested. “I’m not saying that I have all the answers here but I do think that we want to be very reluctant to delete things and just be very cautious with permanent bans. Time outs I think are better that permanent bans.”

“It won’t be perfect but I think we just want to have the perception and reality that speech is a free as reasonably possible,” Musk also said, sketching a position that may amount to the equivalent of “freedom of speech is not the same as freedom of reach” (so sure the hateful tweet can stay up but that doesn’t mean the AI will give it any legs). “A good sign as to whether there’s free speech is, is someone you don’t like allowed to say something you don’t like. And if that is the case then we have free speech,” he added.

On the content side, the EU’s incoming regulation mainly concerns itself with harmonizing procedures for tackling explicitly illegal speech — it avoids setting prescriptive obligations for fuzzier “perhaps harmful but not literally illegal” speech, such as disinformation, as regional lawmakers are very wary of being accused of speech policing.

Instead, the bloc has decided to rely on other mechanisms for tackling harms like disinformation — such as a beefed up but still non-legally binding code of practice — where platform signatories agree to “obligations and accountability” but won’t face set penalties, beyond the risk of public naming and shaming if they fail to live up to their claims.

So if Musk does decide to let a tsunami of disinformation rip across Twitter in Europe the DSA may not, on paper, be able to do much about it.

Geese agrees this is a “more complicated” area for EU regulation to tackle. But she notes that VLOPs would still have to do the risk assessments, be subject to independent scrutiny and audits, and provide researchers with access to platform data in order that they can study impacts of disinformation — which creates an investigative surface area where it becomes increasingly hard for platforms not to respond constructively to studied instances of societal harm.

“My guess would be if Twitter goes bananas the interesting European people would leave,” she also suggests. “It would lose influence if its seen as a disinformation platform. But the risk is real.”

“Do you really think that his defence of free speech is including the dissemination of disinformation,” wonders Tang of Musk’s speech position vis-a-vis unfettered amplification of conspiracy theories, etc. “I’m not sure on that. I think he’s been — what I have seen — pretty faint or not explicit about it, at least … On dissemination he’s not very clear.”

Tang predicts that if Musk goes ahead with his idea of open sourcing Twitter’s algorithms it could be helpful by showing that Twitter “like other platforms, is basically built on trying to get disagreement because this is what people react to” — giving more evidence to the case for reforming how content gets algorithmically disseminated. “In that sense — that part of the plan — I think is good, or at least interesting,” he suggests.

Another stated “top priority” for Musk — a pledge to kill off the Twitter spambots — looks positive in theory (no one likes spam and a defence of spam on speech grounds is tenuous) but the main question here is what exactly will be his method of execution? His reference to “authenticating all humans” looks worrying, as it would obviously be hugely damaging to Twitter as a platform for free expression if he means he will impose a real names policy and/or require identity authentication simply to have an account.

But, discussing this, Bernal wonders if Musk might not have a more tech-focused feature in mind for slaying spam that could also lead to a positive outcome. “Does he mean real names and verified information, or does he mean using AI to detect bot-like behaviour? If he means real names, he’ll be massively damaging Twitter, without even realising what he’s doing. If he means using AI to detect bots, it could actually be a good thing,” he suggests.

The suspicion has long been that Twitter has never really wanted to kill off the spambots. Because identifying and purging all those fake accounts would decimate its user numbers and destroy shareholder value. But if Musk takes the company private and literally doesn’t care about Twitter’s economics he may actually be in a position to hit the spambot kill switch.

If that’s his plan, Musk would, once again, be closer to the EU’s vision of platform regulation that he might imagine: The bloc has been trying to get platforms to agree to identify bots as part of a strategy to tackle disinformation since its first tentative Code of Practice back in 2018.

Dorsey talked around the topic. How funny would it be if it takes Musk buying Twitter to actually get that done?

But what about an edit button? Every (sane) person thinks that’s a terrible idea. But Musk has repeatedly said it’s coming if he succeeds in owning Twitter.

Asked about it at TED earlier this month — and specifically about the risk of an edit button creating a new vector for disinformation by letting people maliciously change the meaning of their tweets after the fact — Musk managed to sound surprisingly measured and thoughtful there too: “You’d only have the edit capability for a short period of time — and probably the thing to do upon reedit would be to zero out all retweets and favorites. I’m open to ideas though.”

So, well, maybe Musk was trolling everyone about being “absolutist” all along.

The Italian mega-brand’s uneven pandemic rebound has some investors worried after years of dizzying growth.

KEY INSIGHTS

When Paris-based luxury conglomerate Kering reported first-quarter sales last Thursday, the overall picture was rosy: explosive growth at its second-biggest brand, Saint Laurent, helped the group’s revenues climb 21 percent on a comparable basis, 6 percent ahead of estimates.

But slowing growth at flagship label Gucci sparked a sell-off, sending shares down 5.3 percent in Paris trading. The Italian label, which has long accounted for the majority of Kering’s sales and profits, grew 13.4 percent to €2.59 billion ($2.76 billion) compared with analysts’ average estimate of 19 percent.

As recently as February, analysts were lauding Gucci for completing a hefty turnaround since the pandemic. To be sure, the brand had taken longer than rivals like LVMH or Hermès to get sales back above 2019′s pre-Covid levels, but it had also seized opportunities to revamp its product offering and tighten control of distribution during the crisis. “Mission accomplished,” analyst Luca Solca wrote then in a note to clients.

Now, the deceleration at Kering’s key asset has investors worrying again, speculating that the gap between Gucci and fellow “megabrands” like LVMH-flagship Louis Vuitton could continue to widen. (LVMH’s fashion and leather division grew 35 percent in the first quarter).

“Is something broken in the Gucci recipe?” one analyst asked after the latest results, a question Kering CFO Jean-Marc Duplaix called “brutal and unfair.” “We have been accustomed to very, very strong growth rates at Gucci, so we need to cope with the new one,” the analyst explained.

“The market is very sensitive to any news about Gucci,” UBS analyst Zuzanna Pusz said. “To say it’s underperforming is a bit harsh. It’s performing in line with the broader sector, whereas the market has an expectation for the bigger brands, the mega-brands, to outperform.”

Rather than anything “broken” in its formula, Kering notably attributed the recent deceleration at Gucci to high exposure to mainland China, where coronavirus lockdowns have returned in major population centres like Shanghai and Shenzhen.

Only 10 percent of Gucci’s stores in mainland China closed during March, but roughly 40 percent of the store network in China was impacted by some form of coronavirus restrictions that impacted store traffic, Duplaix said.

A fast-paced suite of activations to promote Gucci’s Love Parade collection has also been paused due to the lockdowns, he added.

“Gucci is well-penetrated in mainland China, that’s for sure … Even online has been pretty disrupted by the restriction. All the warehouses in Shanghai are closed,” echoed Claire Roblet, Kering’s director of financial communications and market intelligence.

Overall, sales to Chinese clients (domestic and travelling) account for 37 or 38 percent of Gucci sales, compared with a low-30s percentage for most brands according to Citi estimates. Shanghai accounts for one-quarter of Gucci’s Chinese stores — an unusually high exposure for the sector, according to UBS.

The brand’s results were stronger elsewhere: in the US, which has been driving growth across the luxury industry in recent quarters, sales grew by 31 percent, while Gucci’s Europe sales jumped a whopping 71 percent — bouncing back sharply from last year’s coronavirus restrictions, as well as offering a sign that local sales are finally on the mend after years of catering to foreign tourists.

Still, analysts and retail sources are unsure that Gucci’s slowing growth can be explained solely by the situation in China, which is hurting players across the industry.

“There are valid questions to ask about the brand momentum. If demand was stronger they might not have been hit to the same extent,” said UBS’ Pusz.

Some of the company’s current challenges might amount to a sort of hangover after a multi-year sales rager: from late 2015 to early 2019, Gucci recorded dizzying growth under designer Alessandro Michele and CEO Marco Bizzarri.

Michele’s decadent take on design drove the fashion agenda — interrogating notions of good taste by dialling up the whimsy, romance and even gaudiness inherent to the Gucci brand.

Meanwhile, Gucci’s business pushed like there was no tomorrow. Suppliers across Tuscany were ignited as the brand raced to meet explosive demand for Marmont crossbodies and dragon- or peacock-painted canvas totes. At stores in European shopping hubs like Paris, clienteling was often reduced to crowd control, as visitors would line up to stuff their suitcases with duty-free purchases (much of which might be ultimately resold back home).

The heady time saw Gucci more than double sales and roughly quadruple its operating profits in four years, but also risked saturating the market.

“That explosive growth, they didn’t control or contain it,” Citi analyst Thomas Chauvet said. “Has it been growing too big, too quickly for a brand whose products are so visible?”

While the market remains on tenterhooks regarding Gucci’s quarterly performance, the brand has been steadily advancing its strategy, which includes tightening control of distribution while refocusing its core offer to include more higher-priced, iconic products.

“The pullback from wholesale has been radical three years in a row,” Chauvet said. The channel now makes up less than 10 percent, including e-tailers, versus 20 percent of sales prior to Bizzarri and Michele’s tenure.

Kering plans to take that even further this year, exiting online wholesale completely in a bid to eliminate the impact of instantaneous price comparison on its brands.

The pause in China’s daigou trade has also given Gucci an opportunity to clamp down on grey market sales and invest in more direct relationships with clients.

Products are evolving, too. While shows like Gucci’s Love Parade outing in Los Angeles still hammer home Michele’s core message of over-the-top, campy glamour, accessories include a higher share of timeless options, like the relaunched Jackie bag and 1955 Horsebit range.

The brand’s menswear trade has gone in a more classic direction, too, with the brand relying less on logo t-shirts and hoodies in favour of more elevated fare that is still infused with a street-smart vibe. Golf jackets and knitwear stitched with the Gucci monogram are more elevated than merch but still tap into the brand’s logo-fuelled hype. A June presentation in Milan is slated to be Gucci’s first dedicated menswear outing since January 2020.

Amid Gucci’s China-driven slowdown, Kering is leaning into growth in the US market. In a February press conference, chairman François-Henri Pinault said the group was weighing opening more stores in secondary markets including Nashville, Denver and Austin.

Many of those new locations will likely go to the group’s fastest-growing brands like Saint Laurent and Balenciaga rather than Gucci, which already has a robust footprint of 100 stores in the US. But Gucci, too, is set to double down on US retail, with new stores and renovations in its pipeline for cities including Atlanta, Sacramento and Las Vegas.

“Gucci’s US business is still very strong,” retail consultant Robert Burke said. “Kering is seeing good success with their emerging brands, but by no means is Gucci being forgotten.”

Still, results may take time. “Q2 is looking like a challenge: Asia Pacific is set to be weaker than Q1,” Jefferies’ analyst Flavio Cereda wrote. “The Gucci gap [with Louis Vuitton] is a concern.”

If there’s a deal to made for acquiring Kohl’s Corp., the Simon Property Group would probably be the frontrunner.

The nation’s largest developer and operator of shopping centers has the wherewithal to outbid others; confidence in managing retail chains, having invested in J.C. Penney Co. Inc., Forever 21 and Aéropostale in recent seasons, and, according to sources, lots of ideas of how to turn around the fortunes of J.C. Penney through consolidations with Kohl’s.

“One hundred percent, Simon put in a bid for Kohl’s,” said a source close to the Kohl’s auction process, which has continued for the past three months. “No one will outbid David Simon (chairman, president and chief executive officer of SPG) if he really wants it. He wants to bolster J.C. Penney by merging it with Kohl’s. I think he is going to keep both nameplates, have one team do it all. There could be a tremendous amount of cutting, even closing down Kohl’s Wisconsin headquarters.”

Neither Simon nor Kohl’s has confirmed media reports this week, first appearing in the New York Post, that Simon, in partnership with Brookfield Asset Management, put in a $68-a-share offer valued at more than $8.6 billion for Kohl’s.

If David Simon does manage to seal the deal and buy Kohl’s, it would mark a significant step in his evolution from landlord to multifaceted retail force.

Simon has had to repeatedly walk Wall Street through his company’s growing investments in retail — from the SPARC joint venture with Authentic Brands Group, which owns Reebok, Forever 21, Eddie Bauer, Brooks Brothers, Aéropostale and more, to J.C. Penney, which Simon owns with Brookfield Asset Management. Brookfield Asset Management is the parent of Brookfield Properties, the second-largest U.S. shopping mall owner, next to Simon.

While many of the investments came at low prices, rescued companies out of bankruptcy and helped avoid a wave of store closures in Simon properties, Kohl’s is clearly a different case, since it’s stronger and has a large base of off-mall stores.

But where some analysts appeared skeptical of the company’s adventures in retail at first, Simon has been crowing over the investments lately.

And he, in effect, was already doubling down, touting this as a transitional and investment year, setting up bigger gains in retail for the future.

Simon told analysts in February that the company’s “platform investments,” including Penney’s, SPARC, ABG and Rue Gilt Groupe produced “terrific results in 2021.”

“J.C. Penney’s results were impressive,” he said. “Their liquidity position is growing, now $1.6 billion. [The] company de-levered their balance sheet [and] has no borrowings on their line of credit. CEO Marc Rosen strengthened his management team with a new [chief information officer] and chief digital officer. RGG [Rue Gilt Groupe], including our Shop Premium Outlet marketplace growth, continues, and we expect continued investment in 2022 to drive customer acquisition and sales growth. SPARC Group will be the operating partner for Reebok in the U.S. There’s a tremendous opportunity for SPARC to develop sportswear and footwear expertise. The Reebok integration will require additional investment by SPARC as it expands its capability and reach.”

J.C. Penney, in particular, seems to be a source of pride.

“Penney’s success is an excellent example of how to better understand our company,” Simon told analysts in November. “We appointed Stanley Shashoua as the interim CEO nearly a year ago and look at the results. Much like the variety of our investments, no other company or industry has the capability to put an executive in an interim role and produce these results. This is a testament not only to Stanley but to the Simon culture.”

Simon seems to have caught the retail bug.

And while he is still very much in the real estate game, he has encouraged investors to look at his company more broadly as well.

“We have growth levers beyond our real estate assets that are unique attributes of our company,” Simon said. “We have proven to be astute investors. We have unique business models and diversity of income streams.”

That being said, Simon Property still gets something like 80 percent of its cash flow from its U.S. property business as dynamic as the retail business, generally speaking, has been.

“It’s more it’s a tail wagging the dog,” Simon told analysts. “But you know, it’s an important tail and it’s a beautiful tail and it wags nice and is very friendly.”

Bringing Kohl’s on board would give that tail even more heft.

Among the others said to have bid for Kohl’s are the Hudson’s Bay Co., which operates the Saks Fifth Avenue, Saks Off 5th and The Bay brands; Sycamore Partners, a private equity firm that has Belk, Loft, Express, Hot Topic, Ann Taylor and other retailers in its portfolio; Leonard Green & Partners, a private equity firm that has been active in the retail sector, and Starboard Value’s Acacia Research Corp.

Representatives for Simon, Brookfield and Goldman Sachs, which is running the Kohl’s sale process, did not reply to WWD queries. Kohl’s said in March that Goldman had talked with more than 20 potential buyers.

The bidders each believe that Kohl’s, which operates more than 1,100 stores and generated $19.4 billion in volume last year, has the potential for greater profitability, shareholder value and sales, and that they each know how to help the retailer improve its financial performance.

However, the Kohl’s board and management also believe they have a strategy in place that will generate improved results over time, making it conceivable that Kohl’s decides against being acquired.

The Simon-Brookfield bid for Kohl’s came as a surprise despite the developers’ recent track record of buying up retail.

“This doesn’t make sense to me,” said one retail source. “Other acquisitions and joint ventures Simon has done with other retailers and brands and with Jamie Salter [CEO of ABG] made sense, but Kohl’s is not a mall-driven retailer. Kohl’s is an off-the-mall retailer. The question is what economies of scale would Simon and Penney’s bring to Kohl’s?

“There could be back-office efficiencies, but this reminds me of what Eddie Lampert tried to do with Sears and Kmart. He did fine for himself, but the concept of Kmart and Sears, bringing two struggling retailers together, didn’t work,” added the source. Both chains are on the verge of extinction.

Kohl’s, the source suggested, could be best off staying independent.

“Kohl’s is a great operation. Michelle Gass [the CEO] has done a wonderful job of moving the business forward and trying to attract different customers as an off-mall retailer and navigating the business the last couple of years through COVID[-19].”

Under the leadership of Gass, Kohl’s has implemented several growth strategies that haven’t fully kicked in yet and could bear fruit in the future, namely the rollout of Sephora shops inside its stores; the addition of several high-profile brands such as Calvin Klein and Tommy Hilfiger; the plans to open 100 new stores over the next four years, on top of the 1,100 or so already operating, and digital growth. Kohl’s has about 200 Sephora shops installed in its stores, and plans to have Sephora in 850 units by 2023. Before Kohl’s partnered with Sephora, Penney’s had a 10-year run with the beauty retailer.

“I’m wondering if David Simon is thinking of bringing Kohl’s to the mall. But everybody is talking about how off-mall and open-air centers are more attractive in the COVID[-19] environment, and Kohl’s whole concept is being closer to the consumer and situating in neighborhood and strip malls. Do you come up with some sort of hybrid for Kohl’s?” the source wondered. “Everyone is testing smaller formats, so would you bring Kohl’s down to 30,000 square feet,” from its average of about 80,000 square feet.

Kohl’s competes directly with Penney’s. The retailers have similar customer demographics. It’s believed that Kohl’s, which expanded aggressively in the ’80s and ’90s, took market share from Penney’s.

But Kohl’s has been under pressure from Macellum Capital Management, which is seeking to take control of the company’s board and has been highly critical of the company’s management and strategies.

On Tuesday, Morgan Stanley & Co. in a report indicated that Kohl’s has been underperforming its peers, and reduced its share price target to $42 from $50. On the Simon-Brookfield bid for Kohl’s, Morgan Stanley wrote that “media reports on the $68[-a-share] bid would imply a value within 6 percent of our $72 bull case….Kohl’s appears to be significantly lagging department store peers, with first-quarter-to-date traffic down 1 percent, while Nordstrom, [at] plus 32 percent; Macy’s, plus 25 percent and Nordstrom Rack, plus 14 percent, are all experiencing a meaningful year-over-year recovery.

“Further, our store checks throughout the quarter show a recent increase in clearance activity, a potential early indicator of margin pressure to come. We are slightly trimming our [first-quarter 2022] revenue estimate from plus 1.5 percent to plus 0.5 percent and lowering our [first-quarter 2022] EPS down 10 percent to 70 cents, slightly below consensus’ expectation of 72 cents.

“In a bull case, Kohl’s stock could rise to $72 if its financial targets prove achievable. Should management deliver its long-term targets over the next three years, we see upside potential to a $72 price target. However, given that Kohl’s has struggled to deliver on its long-term targets for the past 13 years, we see a low probability of the bull case playing out.

“Is the board serious about a sale? Or are they just buying time? There is always scope for shareholder value to be maximized in the event of a sale to the highest bidder. That said, there has been no announcement by Kohl’s regarding a potentially binding agreement,” Morgan Stanley indicated.

Students discuss wealth inequality and its impact on national culture.

The Pinnacle of the American Dream

The proper question to ask is not whether America’s overall disparity of wealth is increasing, but whether the standard of living is improving across the board. And the answer to that is yes. Widespread advances in technology have helped improve the overall quality of life across the nation. Phones, computers and e-commerce are such examples. Behind each influential technology stand billionaires who played instrumental roles in its development. We should consider their wealth as a small percentage of the overall value that they helped create, with most of the gains being captured by consumers.

A cursory glance at the group of ultra-wealthy Americans reveals that much of their money was earned meritoriously, through a combination of skill, hard work and drive. In 2021 reports showed that over 70% of the 400 richest men in the U.S. and 88% of millionaires are self-made. We should see those vast fortunes as the pinnacle of the American Dream, not as phenomena to ridicule.

—Jeffrey Wolberg, Columbia University, computer science

Innovation Creates Value

Successful business moguls like Elon Musk are a fruit of U.S. culture, not symptoms of its rot. The ability to build and succeed is an inseparable part of the American Dream, which has drawn people to this nation for generations and created one of the most competitive and inventive societies on earth. The billionaire technocrat and the mom-and-pop shop down the street are both created by this ideal.

While the degree to which Americans realize this dream varies widely, society needs to be careful not to confuse wealth equality with baseline living standards. The economy is not zero-sum, and the commerce made by innovation creates value across socioeconomic ranks.

Mr. Musk may be richer than Smaug, but the hundreds of thousands of jobs created by his enterprises, his revolutionary automotive and green technologies, and the prospect of commercialized space travel as a competitive industry contribute more to the rest of us than he could ever personally profit. One may have likewise found Henry Ford’s opulent wealth irksome when he first put automobiles on the assembly line in 1913, but it’s worth not having to commute by horse or bicycle.

Are the outcomes fair or proportionate? No. And these tech moguls can have grating personalities. But just as one must separate the art from the artist, Americans should laud our economy’s rapid growth even if we do not find ourselves personally invested in the people behind it.

—Nathan Biller, Colgate University, history and political science

This Is Nothing New

Disdain for extremely successful entrepreneurs isn’t surprising given the rise of redistributionist ideology in some political corners. It’s an increasingly common political ploy to frame the wealth of Elon Musk as uniquely bad for the rest of us.

Thus, for example, though the acquisitions of media companies by billionaires is nothing new, Mr. Musk’s purchase of Twitter has been met by some with hysteria. Jeff Bezos owns the Washington Post and Laurene Powell Jobs owns the Atlantic, but blue-check-marked journalists claim Mr. Musk’s acquisition is novel and dangerous.

This country faced periods of immense economic inequality in the 1920s and the 1870s. Tycoons from that era such as J.P. Morgan, Washington Duke and Leland Stanford left a lasting mark on our society—their names are scattered all across prestigious universities, companies and museums. Wealth is nothing new. What’s particular to our time is the urging by progressives to get billionaires to succumb to their cultural control.

—Andrew Swanson, Hamilton College, economics

Musk’s Wealth Is Speculative

People have every right to scoff at the extreme wealth disparities that exist in America today. It doesn’t make sense for money to be hoarded by a few people while everyone else has to spend their lives making do.

The general populace, however, doesn’t understand the limits of Elon Musk’s wealth. He may well be worth hundreds of billions, but that wealth doesn’t exist in a bank account. Much is speculative, based on the companies he operates. As of 2021, Tesla was valued higher than such automakers as Toyota or General Motors, despite its lack of legacy and meager market share. It’s easy to imagine that this valuation could decrease, which would drastically decrease Mr. Musk’s wealth.

The average person would be outraged to see his wealth diminish from factors outside his control. Mr. Musk is playing a game of speculation. He sometimes makes promises his companies don’t keep, and the market eventually corrects rogue speculation. Mr. Musk happens to thrive with speculative wealth, while others prefer a bank account’s stability.

Weaker demand and exposure to Ukraine mean the eurozone’s central bank will tighten policy at a slower pace

Christine Lagarde has spent several days persuading investors the European Central Bank will take a more “gradual” approach than the Federal Reserve to stamping out soaring inflation.

However, her insistence that the eurozone economy is not yet as strong as the US has not stopped markets pricing in the possibility of the ECB raising rates for the first time in a decade as soon as July.

Such a shift, which analysts at Goldman Sachs and JPMorgan Chase are now forecasting, would mark a turnaround for the ECB and its president, who was insisting as recently as December that it was “very unlikely” to raise rates at all in 2022.

Markets now bet the ECB will take its deposit rate from minus 0.5 per cent into positive territory by the end of this year and to above 1 per cent next year.

Even so, the ECB will still lag far behind the Fed, which last month raised rates by a quarter of a percentage point from close to zero and is expected to announce a half-point rate rise at its policy meeting next week.

Jay Powell, Fed chair, has hinted at a string of half-point rises to swiftly bring rates to a “neutral” level that no longer actively stimulates demand. Analysts put the neutral rate at between 2.25 and 2.5 per cent.

The Fed will also begin shrinking its $9tn balance sheet as early as June — something the ECB is not planning to do before the end of 2024 at the earliest.

At first glance, the ECB seems to have almost as big an inflation problem as the Fed. Eurozone consumer prices rose by a record 7.4 per cent in the year to March — nearly as far above the 2 per cent level targeted by most central banks as the 8.5 per cent rise reported by the US.

But Lagarde told CBS on Sunday there were several reasons why the ECB was “facing a very different beast” to the Fed, especially the war in Ukraine. Moscow’s invasion has left Europe more exposed to soaring energy costs because of the region’s greater reliance on Russian oil and gas imports.

Higher energy prices account for half of eurozone inflation, much more than in the US, Lagarde said, adding: “If I raise interest rates today, it is not going to bring the price of energy down.” 

Core inflation, stripping out more volatile energy and food prices, was 2.9 per cent, less than half the US level of 6.5 per cent. Lagarde also pointed out that labour markets on the other side of the Atlantic were “incredibly tense” compared to those in Europe.

US private sector average hourly earnings were 5.6 per cent higher in March than the previous year. By contrast, annualised labour cost growth in the eurozone has remained sluggish and even slowed to 1.9 per cent in the fourth quarter, down from 2.3 per cent in the previous quarter.

Lagarde said these factors, along with fears the war in Ukraine will hit Europe’s economy harder than most regions, meant the ECB aimed to shift policy in “a sufficiently well sequenced, well calibrated, and — for us in Europe — a gradual way, so that we don’t induce recession”.

The ECB said earlier this month it expected to stop adding to its bond portfolio in the third quarter. Lagarde went further on Sunday by saying there was a “high probability we do so early in the third quarter and then we will look at interest rates and how and by how much we hike them”. That leaves open the possibility of raising rates at the governing council’s meeting on July 21.

Frederik Ducrozet, a strategist at Pictet Wealth Management, said: “The hawks are pushing for a July rate rise, which is not crazy at this time. I can see it happening even if it is not the base case.”

Lagarde said the timing of tightening would be “data-dependent”. Analysts said recent business surveys, such as the S&P Global purchasing managers’ index and the Ifo Institute’s index of German business confidence, showed the eurozone had weathered the fallout of the war better than expected — boosting the likelihood of a July rise.

“There has been a deterioration of growth, particularly in manufacturing,” said Silvia Ardagna, chief European economist at Barclays. “But we’ve had a much stronger services sector thanks to the reopening of the economy after Covid.”

First-quarter gross domestic product figures for the eurozone are likely to back this up when released on Friday. They are expected to show resilient growth of 0.3 per cent from the previous quarter. Eurozone inflation, due on the same day, is set to fall slightly due to lower energy prices — but analysts expect a continued rise in core inflation to keep up the pressure on the ECB to tighten policy.

A concern for the ECB will be that the last few times it raised rates — in 2008 and 2011 — were shortly before eurozone recessions.

Some worry it could repeat the mistake again. “All in all, the slowdown is inevitable,” said Jens Eisenschmidt, chief European economist at Morgan Stanley who used to work for the ECB. “We assume an EU oil embargo on Russia in some form this year and then we are not that far away from a technical recession in the second half of the year.”

Low level of sanctioned funds belies assumptions that it is a treasure house of Putin kleptocracy

There’s a well-worn Swiss bankers joke about the venality of a particular country. The actual country changes with the times but since this is April 2022, it starts like this: “Where is the capital of Russia?”

You can guess the punchline.

Two months into Vladimir Putin’s brutal war of aggression in Ukraine, however, what is remarkable is just how little Russian capital actually seems to be in the Alps. Neutral, inscrutable Switzerland was, perhaps more than any other country, presumed to be the treasure house of the Putin kleptocracy.

But despite Bern having mirrored all of the US and EU sanctions against Russian oligarchs — measures that apply to around 900 people globally — just $8bn of Russian assets in the country have so far been frozen.

Consider, by comparison, that the channel island of Jersey alone has frozen $7bn of assets linked to a single Russian tycoon, Roman Abramovich.

For the Swiss government, this reflects the fact that applying such a sweeping set of sanctions is a work in progress.

“It’s very difficult to determine the effective control of the assets,” Erwin Bollinger, a senior official at the Swiss State Secretariat of Economic Affairs, said at a briefing last month. The total is likely to tick up, he added, as banks work hard to try and trace their clients’ wealth. “The amount reported is a snapshot.”

To put the low official figure of sanctioned funds into context, the Swiss Bankers Association has estimated that in total around Sfr150-200bn of Russian money is held by Swiss banks.

So surely there will be more asset-freezes to come? Not many Swiss bankers themselves seem to think so.

For the biggest, and most international banking houses, there has been a rush to fall into line and apply the most stringent interpretations of the rules as quickly as possible. The risk of a bruising encounter with US authorities at some point in the future, for the sake of turning a blind eye to Russian clients’ money now, is not one worth taking, they reason.

At UBS, the bank’s executive team was holding twice daily conference calls in February and March on the progress of applying sanctions to their client book. The more secretive, privately owned private banks have less fear of Washington. But they too say they’ve frozen what they can.

The issue, said one Geneva-based banker over a recent drink, is twofold: first, assets are not often held directly in clients’ names. The legal complexities around that are not just fiendish, but often quite innocent, as when money is held by family members. Second, he said, money is very rarely kept in structures in Switzerland.

In Zurich, another banker explained: “We’ve been advising clients not to use Swiss trusts for years — not for political reasons at all but just because they are easier [to use]. All the money is offshore.”

So much for the half-innocent explanations. And the bad? Well, how much notice did you need that the west might be coming after your cash? Russia’s at-risk oligarchy has had the better part of eight years to prepare since the invasion of Crimea.

The well-paid Swiss lawyers and bankers of the Russian rich who, historically, used Geneva and Zurich as their financial clearing houses have, as a result, hardly sat still in helping them shift wealth into the hands of relatives, layers of obscure trusts, or out of the country altogether.

When Putin began to mass his troops on the borders of Ukraine, that process only speeded up. Back in early February, a world still somewhat sceptical about US intelligence claims that Putin would invade his neighbour could perhaps have done worse than look at the billed hours of Genevois notaries for supporting evidence.

“It’s all gone to Dubai!” joked the banker from Geneva by the time we’d opened a second bottle of wine. Swiss banks, of course, have vital information and intelligence on this great squirrelling of wealth.

But they continue to make unhelpful partners for law enforcement because of the extremely strict banking secrecy laws that still — with great national pride — exist in Switzerland. Without evidence of clear suspected criminality, Swiss bankers must protect clients’ secrecy at all costs.

The wealth that has, in such circumstances, remained under the purview of Swiss institutions, linked directly by name to those sanctioned is oligarchs’ loose change, or, if you will, the holiday kitty — for the inevitable season in Gstaad, shopping spell at Piaget or detox at Clinique La Prairie.

Amid slim pickings, it is not, therefore, surprising that the highest-profile asset seized in Switzerland of the $8bn haul, is a three-bedroom apartment on a golf course, belonging to Pyotr Aven. Hardly Xanadu.

Scrutiny on performance is growing as markets see-saw

Melvin Capital’s sharp U-turn this week on proposed changes to its performance-fee structure has reignited a debate among hedge funds about how portfolio managers are paid.

For the last three decades, the standard way to tie pay to financial performance was for hedge funds and private equity firms to receive management fees based on the amount of money invested plus a chunky share, usually 20 per cent, of the gains they produce.

Most investors also insist on “high water marks” that bar performance fees until a fund that has lost money returns to net profit.

That system enriched the $4tn industry during years of low volatility and rising markets. Although performance fee levels have slowly drifted lower, relatively few funds have found themselves constrained by such high water marks.

But gyrating prices during the pandemic, the recovery and Russia’s invasion of Ukraine have pushed some funds so deeply into the red that some managers are trying a different approach with their models likely to come under further pressure.

Melvin, for example, which shed 39 per cent last year after betting against meme-stock favourite GameStop and lost a further 20.6 per cent in the first quarter, rapidly backtracked on plans to charge performance fees this week, after investors expressed their anger, with founder Gabe Plotkin admitting he had been “tone deaf”.

Melvin’s mooted, and subsequently withdrawn, proposals to charge the fees to investors who had suffered big losses underscores the need to revamp the way fund managers are paid, said Peter Kraus, former chief executive of AllianceBernstein.

“Investors overvalue not having to pay performance fees,” Kraus said in an interview.

“A high water mark forces the portfolio manager and the team to change their risk appetite in order to earn their way out. [But] when the team is unstable and you are taking on more risk, that is a bad combination,” he warned. “Why would you take the risk when the [fund] is telling you they are going to lose people.”

Kraus’ new firm Aperture Investors is experimenting with ditching high water marks for a clawback structure for its $4.2bn in assets under management. Its portfolio managers ultimately receive 30 per cent of the returns they generate that are above their benchmark index, rather than the absolute returns.

But half of the performance bonus is held in escrow for several years and pays out only if the gains are maintained. That gives the portfolio managers time to recover from deep losses while returning money to investors if the gains prove illusory, Kraus said. The structure also helps with staff retention because the performance fee clock is reset annually.

Such marks also push some fund managers to shut down and start over, crystallising losses for current investors and handing any new gains to a different set of investors. “When you calculate your losses on the firms that go out of business and you never get your money back, that eradicates the value of the high water mark across all the rest” of the other funds, Kraus said.

Some managers have kept such investor protections and gone on to be successful.

When oil trader Pierre Andurand started Andurand Capital in 2013 following the closure of previous fund BlueGold, he allowed investors who stuck with him to keep their high water marks, while he personally funded the firm until it broke even, said a person familiar with the company.

Nevertheless, others in the industry also back a new model for calculating incentive fees, even if few groups have implemented them yet.

Andrew Beer, managing member at New York-based Dynamic Beta Investments, which oversees $850mn in assets and advocates a low-fee approach to hedge fund investing, said performance fees should only be charged over a set level or ‘hurdle’ and should only be charged over the same time period as investors are locked up in the fund for.

“Imagine if a venture capital firm paid itself a billion in incentive fees when WeWork momentarily hit $47bn, and didn’t give a penny back later? Welcome to hedge fund land,” he said.

However, working out the precise details of a performance fee structure — that is considered by investors and the manager to be fair — can be extremely difficult.

“We have had managers come up with new structures which were so complicated that even after spending hours on them we still didn’t fully understand what was going to be paid and when,” said Patrick Ghali, managing partner at Sussex Partners, which advises clients on hedge fund investments.

He added that clawbacks can make sense but investors should make clear they will not support a manager trying to reset high water marks.

Kraus’s critique drew support from financial reform advocacy group Better Markets.

“If large institutions such as pension funds (who supposedly are smart and powerful) want to protect their investors, then they should require hedge fund managers to use (some of) their winnings in good years to cover their losses in bad years,” Dennis Kelleher, chief executive, said in an email.

“If [a fund manager like Melvin’s Gabriel] Plotkin believes what he says about his ability, strategy, and future, then he should be willing to use his money to cover the costs of paying traders until he . . . makes performance fees based on, well, his performance!”

Billionaire financier brokered introduction to lawyer to help ex-mistress obtain legal status in UK

Billionaire financier Leon Black gave his ex-mistress £2mn for a UK golden visa and introduced her to a lawyer to discuss her application, hoping to facilitate a transatlantic move that would enable the former fashion model to start a new life far from his home in New York.

Black, the former Apollo chief executive, agreed to transfer millions of pounds to Guzel Ganieva in 2015 in the face of what he has characterised in court as extortion demands. She was to use the money “toward obtaining legal status in the United Kingdom”, according to legal filings and people familiar with the situation.

The money was intended to help her qualify for a Tier 1 “investor visa”, some of the people said, allowing her to take advantage of a route to citizenship for wealthy foreigners who wished to settle in Britain.

Ganieva’s affair with Black spilled into public view last March, when she wrote on Twitter that she had been “bullied, manipulated, threatened, and coerced . . .[and] forced to sign an NDA”. She later sued the billionaire in New York state court, accusing him of abusing her during their relationship and later damaging her reputation by accusing her of extortion.

It is unclear whether Ganieva, who currently lives in Manhattan, was granted a UK visa. Jeanne Christensen, a partner at the Wigdor firm who is representing Ganieva, did not respond to an emailed request for comment. The UK Home Office said it “[does] not routinely comment on the immigration status of individuals”.

Susan Estrich, an attorney who represents Black, said: “What is not clear is what Ms Ganieva did with the money to obtain her visa in the UK and her immigration status.”

The British government abolished Tier 1 visas in February after concluding that in some instances the scheme “gives opportunities for corrupt elites to access the UK”. Until then, residency was available to foreigners who had at least £2mn in cash and were willing to park the money in government bonds or other British assets.

Ganieva, a Russian national, moved to New York hoping to earn a living as a fashion model. Soon afterwards, in 2008, she began what Black’s lawyers have described as a “casual, episodic, and completely consensual” relationship with the married billionaire. During that time, he says he paid for her to live in an upscale Manhattan apartment and lent her nearly $1mn.

Black claims that in 2015 Ganieva began to extort him, threatening to “go public, and ruin his family, his business, and his life” unless he complied with her demands, court papers show. He responded by offering an $18mn financial settlement, his lawyers have told a court in New York.

To help her apply for a UK visa, the billionaire brokered an introduction to a partner at a top New York law firm. David Lakhdhir, a London-based mergers and acquisitions specialist at Paul, Weiss, Rifkind, Wharton & Garrison, met Ganieva to discuss her visa, according to several people with knowledge of the encounter. The law firm declined to comment.

The billionaire also made a large sterling-denominated payment to help Ganieva qualify for a UK visa. The former model “apparently has not been gainfully employed for at least a decade”, his lawyers told a court this year.

Black has countered Ganieva’s claims with a federal lawsuit alleging that she conspired with several lawyers and wealthy New York businessmen to publicise false allegations of rape in an attempt to oust him from Apollo Global Management, the private equity firm he founded three decades ago.

Ganieva and her lawyers deny the allegations.

Paul Weiss is one of New York’s top law firms, handling mergers and corporate litigation on behalf of Fortune 500 companies and asset managers including Apollo, a long-term client.

Black quit as Apollo chief last year following the disclosure that he had paid $158mn to the late paedophile Jeffrey Epstein for tax advice and other professional services. Epstein was convicted in 2008 of soliciting sex from a minor. A former federal prosecutor hired by Apollo to look into the matter found no evidence that Black knew of any other criminal activity by Epstein.

As the scandal surrounding Black’s personal life has grown, Paul Weiss has intensified its efforts to alleviate the personal difficulties of its billionaire client.

The month after Ganieva’s Twitter post appeared, Paul Weiss chair Brad Karp called Manhattan district attorney Cyrus Vance to ask him to open an investigation into Ganieva’s alleged extortion scheme.

Vance instructed his prosecutors to look into the matter, the Financial Times has previously reported. No criminal charges have been filed against either Black or Ganieva.

Private-equity firms circling the Barbie maker include Apollo, L Catterton

Mattel Inc. MAT -4.70% has held talks with private-equity firms about a potential sale, people familiar with the matter said, just a few months after the famed toy company declared its corporate turnaround complete.

Mattel has held informal talks with firms including Apollo Global Management Inc. APO -5.96% and L Catterton, the people said. The talks are at an early stage and may not result in a deal.

If there is one, it would be sizable. Mattel had a market capitalization of about $8 billion as of the close of the market Tuesday. It would add to a recent string of big leveraged buyouts, as private-equity firms look to spend a mountain of cash they have accumulated.

Chief Executive Ynon Kreiz said in February that Mattel had completed its turnaround and was “now in growth mode.” Mattel reported a sales jump of 19% in 2021 and said profits rose. Yet its shares have barely budged over the past year and have done little in the past two decades.

On Mr. Kreiz’s watch, sales at the maker of Barbie, Hot Wheels and Fisher-Price toys have stabilized after years of declines and the loss of a key license. The CEO cut a third of its jobs and closed several factories. A former television executive, he also helped to repair Mattel’s relationships with retailers and Hollywood studios.

In January, the company said it had won the license to produce toys based on Walt Disney Co. DIS -3.48% ’s princess lineup and its blockbuster “Frozen” franchise, wresting the properties back from rival Hasbro Inc. HAS -1.43%

Hasbro has had its own troubles. The maker of Nerf and Monopoly is in the middle of a proxy fight with activist investor Alta Fox Capital Management LLC, which is pushing the company to spin off the unit housing Dungeons & Dragons, called Wizards of the Coast and Digital Gaming, and seeking to replace board members.

In 2017, Hasbro made an unsuccessful takeover offer for its rival.

Mattel is scheduled to report first-quarter earnings Wednesday.