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Billionaire investor Bill Ackman turned $27 million into $2.6 billion by betting that the coronavirus would tank the market

Sat, 03/28/2020 - 4:13pm  |  Clusterstock

Pershing Square Capital Management CEO Bill Ackman minted a multibillion-dollar profit as coronavirus fears tanked US stocks.

The hedge-fund billionaire turned a $27 million position into $2.6 billion through defensive hedge bets, a Wednesday letter to investors said. The profit offset losses elsewhere in the firm's portfolio and helped Ackman's public fund land a 7.9% gain in March through Tuesday's close, The Wall Street Journal reported. The S&P 500 slid 17% over the same period.

Pershing Square used credit protection on investment-grade and high-yield bond indexes to land the massive profits. The assets rise in value as the odds of corporate defaults increase. As measures to combat the virus outbreak cut into economic activity, corporate bond ratings tanked, and investors feared the worst.

The fund was able to purchase the investment vehicles about a month ago "at near-all-time tight levels of credit spreads," so the risk of loss was "minimal at the time of purchase," Ackman wrote.

Read more: A notorious market bear says stocks are still historically expensive after tumbling on coronavirus — and warns a plunge 'of about 50% from here' is still coming

The hedge fund began liquidating its protective bets last week after unprecedented action from the Federal Reserve and the Treasury Department shifted sentiment toward corporate credit health. Ackman fully exited the position on Monday, the same day the US central bank announced it would begin buying corporate bonds to prop up the battered market.

Ackman has since used the profits to bolster Pershing Square's investments in Berkshire Hathaway, Hilton, Lowe's, Restaurant Brands International, and Agilent. The fund also reestablished a stake in Starbucks after selling its position in January.

The fund founder used Twitter and an appearance on CNBC last week to predict that the coronavirus outbreak would cause economic turmoil if the US didn't institute a 30-day shutdown.

Ackman urged CEOs of his portfolio companies to take precautions as "hell is coming" and said a national stay-at-home order was "the only answer" for saving the economy. Markets slid further through the March 18 session during Ackman's emotional CNBC interview.

Read more: The world's biggest wealth manager expects the worst of the coronavirus to be over in the US by May — and lists 5 ways investors should prepare for the recovery now

After commentators accused him of fearmongering and intentionally driving markets lower, the investor said that he was "confident the president will do the right thing."

Ackman said in his Wednesday letter that he still believes a monthlong shutdown is necessary and that the US "can be reopened carefully as China has so far successfully done" once the lockdown is over.

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'Shareholders come last': Billionaire entrepreneur Mark Cuban says CEOs should prioritize employees and their families in coronavirus crisis

Sat, 03/28/2020 - 4:03pm  |  Clusterstock

  • Mark Cuban told Just Capital in an interview that shareholders should come last amid the coronavirus pandemic and employees and their families should come first. 
  • "If you're a great company, your shareholders will understand and will expand their P/E out of respect, because they're all dealing with the same circumstances," he said. 
  • "If you get branded as a company that acted in bad faith, laid off all your employees, or really cut back and you took a bonus or whatever, you're going to get crushed and your brand is going to go straight into the toilet," said Cuban. 
  • Read more on Business Insider. 

Mark Cuban, the billionaire entrepreneur, Shark Tank investor, and owner of the Dallas Mavericks, has a clear message for CEOs of the Business Roundtable amid the coronavirus crisis: prioritize employees and their families over shareholders right now. 

"Shareholders come last," Cuban told Rich Feloni in an interview with Just Capital published Friday. "You guys have so much impact on the world that you need to take care of your employees and their families first." 

He continued: "If you're a great company, your shareholders will understand and will expand their P/E out of respect, because they're all dealing with the same circumstances." 

Read more: 'The worst bear market of our lifetime': A Wall Street investment chief who predicted the recession says stocks may fall 64% before the dust settles — and lays out 3 trades set to profit from the coronavirus crash

The Business Roundtable, which represents nearly 200 leaders of America's largest companies, in August 2019 signed a letter declaring that it views a company's purpose to be not just for shareholders, but for all stakeholders — including customers, employees, and communities

But Cuban thinks amid the coronavirus outbreak, CEOs should go a step further and consider how their actions will be viewed by consumers in the long term. 

"The reality is by doing the right thing with your employees, you do more to help stabilize the economy. And from there, we have a better chance of getting back to business as usual," he said. "If you just try to nickel and dime everything to try to optimize your earnings per share and keep shareholders happy, and at the same time your employees suffer and struggle, you're going to get hit."

Companies that don't do the right thing will face consequences in the future, Cuban said, especially because younger consumers such as Millennials and Gen Z are watching crisis responses. 

Read more: The world's biggest wealth manager expects the worst of the coronavirus to be over in the US by May — and lists 5 ways investors should prepare for the recovery now

"If you get branded as a company that acted in bad faith, laid off all your employees, or really cut back and you took a bonus or whatever, you're going to get crushed and your brand is going to go straight into the toilet," said Cuban. 

Cuban also said it's up to CEOs to express this to shareholders. 

"Just say, 'Look, if you want to stick with me, give me a little bit higher P/E ratio so that the stock maintains itself. But the reality is you're not my first consideration right now. And if that doesn't sit well with you, sorry, because my customers, that's the way they think, and long term, if we're looking at five, 10, 100 years from now, that's what my customers will want. That's how we're managing this company and this brand. And if you don't like it, now's the time to sell.'" Cuban said.

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'Ground to a halt': Insiders detail the struggles of trying to launch a hedge fund during a global pandemic

Sat, 03/28/2020 - 3:24pm  |  Clusterstock

  • Launching a hedge fund has gotten tougher every year, but the coronavirus pandemic has significantly slowed down many fundraising conversations, industry observers say.
  • New managers with name recognitions or institutional backing are also fighting in the battle for assets with firms like Baupost and D.E. Shaw, both of which re-opened funds to new capital, as well as hedge-fund-like strategies, like liquid alternatives, which come at a cheaper price and offer better liquidity.
  • Still, there are people setting out on their own, and strategies that make sense in the current environment are being expedited by fundraisers, such as distressed credit funds. 
  • Click here for more BI Prime stories.

Hedge fund closures have been outnumbering launches the last couple of years, and the pandemic caused by the novel coronavirus will only speed up that trend.

With allocators' portfolios hit hard and the markets as choppy as they have ever been, both hedge-fund investors and money managers looking to start their own fund are slow to dive into something new right now. 

"People's perspectives are about 12 inches in front of them at this point," said Andrew Saunders, president of Castle Hill Capital Partners and head of the firm's capital introduction services.

"Conversations that have been percolating for months have ground to halt, and it makes sense."

Despite the uphill battle to launch a fund now, there have been well-pedigreed investors who have announced their intentions to go it alone. Business Insider has reported on Viking's former co-CIO Ben Jacobs readying a new firm called Anomaly Capital to launch in the second half of 2020, and former Citadel healthcare portfolio manager Prashanth Jayaram is building out a fund called Tri Locum Partners for later this year.

Industry publications like Hedge Fund Alert have also reported on new-funds-in-progress like Man Group's former head of North American equities John Gisondi's new firm and Balyasny energy investor Christian Zann's start-up. LinkedIn shows that former Ziff Capital Partners CIO Gary Stern started Eagle Health Investments in January, and former Senator partner Michael Simanovsky announced his new firm, Cambiar Asset Management, in February. Stern  and Simanovsky did not respond to requests for comment.

But these new managers have many layers of obstacles in their way to raise money and attract talent, none more pressing than the novel coronavirus pandemic, which has canceled capital introduction conferences put on by banks' prime brokerages and sent unemployment claims skyrocketing — making those with a stable position think twice before leaving for a start-up.

In addition, well-followed funds like Seth Klarman's Baupost Group and D.E. Shaw have re-opened to capital, and Citadel is raising money for a new relative-value fund. Money managers offering liquid alternatives products also foresee an opening into investors' portfolios, possibly at the expense of hedge funds, due to the liquidity benefits offered by ETFs or mutual funds.

"It certainly doesn't hurt to have certain types of liquid products in your portfolio that can help dampen or weather these types of markets," said Chris Hempstead, who was recently hired by New York Life Investment Management to build out the pipeline of institutional investors for the firm's liquid alternatives ETF line, IndexIQ. 

"Our cautious estimate is that demand will remain in-line" with expectations, with the hopes it will accelerate in the institutional channel. 

Saunders said that the slowdown means adding "six months" to whatever a new manager's expectations were for starting. One investor, who asked to speak on the condition of anonymity because he doesn't know when he will put all of his investors' capital to work yet, was set to start trading at the beginning of the month but held out because of the shakiness of the market. 

He has now begun to slowly build positions, but is still not all-in, and is grateful for not starting a couple weeks ago. "Better to be lucky than good," the person said.

At Chicago-based hedge-fund seeder Borealis Strategic Capital, business has slowed down, but is still in the range of what the five-person investment firm would consider normal, managing director Scott Schweighauser said. Since the firm started working remotely last Monday, they've held "a dozen or so" intro calls with prospective managers. 

The firm isn't shying away from backing new managers right now, thanks to a review they did of performance figures following the 2008 housing crisis. The firm found that newly launched managers' returns "were pretty promising" mostly because they had "unencumbered" portfolios that could shift quickly if needed.

"We're more eager to get money put to work," Schweighauser said.

Borealis is closing to signing a seed deal with a distressed credit fund manager that planned to launch October 1. Now, the firm is trying to get the manager to push the start date up a month or two, with the expectations opportunities are coming for that strategy.

"We are guardedly optimistic."

SEE ALSO: Michael Platt's BlueCrest just cut at least 10 portfolio managers as the firm pulls back from the basis trade that slammed Citadel, Millennium, and ExodusPoint

SEE ALSO: Hedge funds had a tough go of it in 2019 — here are the 7 biggest names that called it quits this year

SEE ALSO: Ken Griffin's Citadel has sprouted a sprawling alumni network of 80-plus hedge funds. Take a look at our exclusive list.

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Stocks were so volatile this week some analysts have started pulling their S&P 500 targets

Sat, 03/28/2020 - 3:05pm  |  Clusterstock

  • Wall Street analysts at Oppenheimer this week abandoned its S&P 500 target amid market volatility due to the coronavirus pandemic this week. 
  • "In such an environment the risk and the extent of damage will vary greatly within segments of the economy and sectors of the markets causing us to suspend our target at this time," John Stoltzfus, chief investment strategist of Oppenheimer Asset Management, wrote in a March 23 note
  • Analysts at Canaccord Genuity and BMO also pulled S&P 500 targets, CNBC reported Saturday. 
  • Read more on Business Insider.

The stock market had yet another rollercoaster week fueled by the coronavirus pandemic. Amid increased market volatility, some Wall Street analysts have started pulling targets for the S&P 500, saying it's too difficult to predict the future during a period of such high uncertainty. 

"Until the virus exhibits a decline in its trajectory and rolls over, 'normalcy' is likely to remain out of reach," John Stoltzfus, chief investment strategist of Oppenheimer Asset Management, wrote in a March 23 note. "In such an environment the risk and the extent of damage will vary greatly within segments of the economy and sectors of the markets causing us to suspend our target at this time."

Stoltzfus said that Oppenheimer will start the S&P 500 forecast again when the length of the "hard stop" of the US economy can be determined, he said. Canaccord Genuity analyst Tony Dwyer also pulled his S&P 500 target for the year, saying it's impossible to assess the economic impact until there's a peak in coronavirus cases, CNBC reported Saturday. 

Read more: Bill Miller's fund crushed the market for a record 15 straight years. He told us his strategy for the coronavirus meltdown, calling it 'one of the 5 great buying opportunities of my lifetime.'

Other analysts have been thrown by companies pulling earnings guidance forecasts in light of the coronavirus pandemic. Analysts at BMO have pulled both S&P 500 and EPS targets due to recent volatility, according to CNBC. 

Abandoning earnings forecasts makes it difficult for analysts to do any modeling of their own, as many look at price-to-earnings ratios to value companies. 

Analysts "have no idea what to do," Liz Ann Sonders, senior vice president and chief investment strategist Charles Schwab, told Business Insider. "The valuation analysis is impossible because the P is declining, but so is the E with no bottom in sight." 

The coronavirus pandemic sent markets into a tailspin as investors worried that the outbreak would severely slow global growth, ending the longest-ever bull run on record. On Monday, March 23, the S&P 500 closed as much as 34% below its recent all-time high about a month earlier, the swiftest descent into a bear market ever. 

But there have also been a number of bounces that have thrown off investors, including this week's three-day rally that sent the Dow up as much as 20% from its Monday low, quickly shifting back into a technical bull market at Thursday's close. To finish off the week, gains reversed, however, and stocks slid again on Friday

Stocks have been reacting to a bevy of news about the coronavirus pandemic, most recently unprecedented actions by the Federal Reserve to bolster the US economy, the massive $2 trillion stimulus package signed by President Trump, and the ever-climbing number of COVID-19 cases and deaths in the US and around the world. 

Still, uncertainty remains, especially as there is a back and forth over when the economy will reopen  — while Trump has said he'd like businesses and workers to start to return to normal by Easter, experts have said that's a terrible idea. 

Some analysts have held onto their S&P 500 targets and think the market and economy will be able to recover once the coronavirus pandemic subsides. 

"If a trough is happening this week, the S&P 500 could get back to 2,800 in April," Thomas Lee of Fundstrat wrote in a Tuesday note. He also has a year-end target of 3450 for the S&P 500. 

Lee wrote Wednesday that the S&P 500 could slip another 20% in the second quarter of 2020, as the US is "gradually entering the nadir  of the valley of bad news regarding COVID-19 and its seismic effects." 

At the bottom of the market, investors can start "picking winners and losers," Lee said. While indexes could make new lows, winning stocks can rise, he added.

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Warren Buffett's Berkshire Hathaway has the cash to buy Tesla, Starbucks, or McDonald's after the coronavirus sell-off

Sat, 03/28/2020 - 2:33pm  |  Clusterstock

  • Warren Buffett's Berkshire Hathaway can afford almost any of America's public companies following the coronavirus sell-off.
  • The billionaire investor's conglomerate held $125 billion in cash and short-term investments at the end of December.
  • Berkshire's cash pile exceeds the market capitalizations of more than 450 companies in the S&P 500, more than 80 in the Nasdaq 100, and 11 in the Dow 30.
  • Ignoring all other factors, Berkshire could afford McDonald's ($125 billion), Boeing ($102 billion), Tesla ($97 billion), or Starbucks ($82 billion).
  • Visit Business Insider's homepage for more stories.

Warren Buffett's Berkshire Hathaway can afford to buy almost any of America's public companies after coronavirus fears decimated their market capitalizations in recent weeks.

The famed investor's conglomerate boasted $125 billion in cash, cash equivalents, and short-term investments in US Treasuries at the end of December. Assuming that figure hasn't changed, and looking purely at market caps — ignoring whether a purchase would be feasible, sensible, or even legal — Berkshire could buy one of more than 450 companies in the S&P 500, more than 80 in the Nasdaq 100, and 11 in the Dow 30 without needing a loan, as of the close of trading on March 27.

For example, Berkshire could afford McDonald's ($125 billion) or PayPal ($118 billion) in the S&P 500. On the Dow, it could snap up Boeing ($102 billion), IBM ($100 billion), or Goldman Sachs ($57 billion) without blowing its budget. In the Nasdaq 100, neither Tesla ($97 billion) nor Starbucks ($82 billion) would break the bank.

True, Buffett prizes financial security and has vowed to never exhaust Berkshire's cash pile.

"We consider a portion of that stash to be untouchable, having pledged to always hold at least $20 billion in cash equivalents to guard against external calamities," he said in his 2018 letter to shareholders.

Read more: A notorious market bear says stocks are still historically expensive after tumbling on coronavirus — and warns a plunge 'of about 50% from here' is still coming

Moreover, shareholders of a company on the auction block typically demand a premium to its current market cap to reflect its future earnings potential.

Assuming Berkshire wouldn't spend more than $105 billion in total, and had to pay a 20% premium, it could still afford the industrials titan 3M ($78 billion), T-Mobile US ($73 billion), United Parcel Service ($86 billion), or General Electric ($71 billion). It could even buy Target ($48 billion) and have enough cash left over to buy General Motors ($32 billion).

As a cautious investor, Buffett would undoubtedly snub many of these businesses. However, the raft of possible acquisitions in his price range highlights both the scale of the recent sell-off and the rich potential of Berkshire's huge cash pile.

Buffett is on the hunt for an "elephant-sized acquisition," and his choice of elephants has grown substantially.

Read more: Bill Miller's fund crushed the market for a record 15 straight years. He told us his strategy for the coronavirus meltdown, calling it 'one of the 5 great buying opportunities of my lifetime.'

Here's a chart showing how several blue-chip companies have fallen into Buffett's price range:

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A notorious market bear says stocks are still historically expensive after tumbling on coronavirus — and warns a plunge 'of about 50% from here' is still coming

Sat, 03/28/2020 - 2:29pm  |  Clusterstock

  • John Hussman — the outspoken investor and former professor who's been predicting a stock collapse — says overzealous investors that are hopping back into today's market are being imprudent.
  • He cites valuations mirroring those of the peak leading up to the last financial crisis, negative market internals, and misleading reliance on measures of overextension as the basis for his judgement. 
  • Hussman thinks stocks have the potential to drop 50% from today's current levels. 
  • Click here for more BI Prime stories.

With US stocks having lost more than 20% year-to-date amid coronavirus worries, investors may be wondering if now is the time to buy certain shares at a discount. After all, haven't we been taught to buy "when there's blood in the streets," and to "be greedy when others are fearful"?  

John Hussman, the former economics professor who is now president of the Hussman Investment Trust, ardently disagrees with that school of thought — at least in today's environment.

"What we're seeing today in the financial markets is just an initial episode of significant risk aversion," he penned in a recent client note. "Though market valuations are about 24% lower than they were at the 2000 and February 2020 highs, they're actually about the same level we saw at the October 2007 market peak, and still about double the historical norm."

Clearly, to Hussman, we're still a long ways away from what he refers to as "run-of-the-mill, historical norms" in valuations. Just because stocks have fallen precipitously from their peak doesn't make them a screaming buy. 

According to Hussman's calculations, with valuations at current levels, the 10-year estimated return for the S&P 500 is just 1.4%, mirroring the projected returns leading up to the peak in the financial crisis. Although this is an improvement from Hussman's February projection of negative 10-12 year estimated returns, 1.4% is still nothing to write home about.

He provided the following chart reflecting projected and historical returns across different asset classes for context.

In addition to valuations, Hussman likes to lean on market internals and measures of overextension to provide an all-encompassing picture of where market sentiment is, and which direction it's trending.

"If internals are unfavorable, it's best to avoid a fully-unhedged position, much less a leveraged one," he said.

Below is Hussman's proprietary measure of market internals (red line) juxtaposed against the S&P 500's cumulative total return (blue line). As of today, internals remain negative.

That brings Hussman to the third market component he keeps a keen eye on: overextension.

"I would consider it terribly imprudent to step into an unhedged position, in a still-overvalued market with unfavorable market internals, just because short-term market action is highly oversold," he added. "There's absolutely no assurance that an oversold market will not become decidedly more oversold." 

Put differently, investors that rely too heavily on short-term signals of overbought and oversold market conditions within the scope of a larger trend are putting themselves in danger.

Against that backdrop, Hussman delivers a final warning.

"The quick calculation is to consider the possibility that we actually see just 1.4% S&P 500 total returns over the coming 10-year period, from current valuation levels, with a potential (not "predicted" or inevitable) interim loss on the equity component of the portfolio on the order of about 50% from here, which would be gradually recovered," he said.

Hussman concluded: "Consider what that would mean in dollars. If that outcome would be unfortunate, but tolerable, there may be no need to adjust your exposure to market risk. If it would not be tolerable, review your exposure."

Hussman's track record

For the uninitiated, Hussman has repeatedly made headlines by predicting a stock-market decline exceeding 60% and forecasting a full decade of negative equity returns. And as the stock market has continued to grind mostly higher, he's persisted with his calls, undeterred.

But before you dismiss Hussman as a wonky perma-bear, consider his track record, which he broke down in his latest blog post. Here are the arguments he lays out:

  • Predicted in March 2000 that tech stocks would plunge 83%, then the tech-heavy Nasdaq 100 index lost an "improbably precise" 83% during a period from 2000 to 2002
  • Predicted in 2000 that the S&P 500 would likely see negative total returns over the following decade, which it did
  • Predicted in April 2007 that the S&P 500 could lose 40%, then it lost 55% in the subsequent collapse from 2007 to 2009

In the end, the more evidence Hussman unearths around the stock market's unsustainable conditions, the more worried investors should get. Sure, there may still be returns to be realized in this market cycle, but at what point does the mounting risk of a crash become too unbearable?

That's a question investors will have to answer themselves — and one that Hussman will clearly keep exploring in the interim.

SEE ALSO: 'The worst bear market of our lifetime': A Wall Street investment chief who predicted the recession warns stocks may fall 64% before the dust settles — and lays out 3 trades set to profit from the coronavirus crash

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BlackRock won't charge the New York Fed fees on ETFs included in its bond-buying program

Sat, 03/28/2020 - 11:51am  |  Clusterstock

  • BlackRock will waive asset management fees on ETFs purchased on behalf of the Federal Reserve Bank of New York according to documents published Friday. 
  • The world's largest asset manager has been engaged by the Fed on three separate programs designed to bolster the US economy amid the coronavirus pandemic. 
  • BlackRock may make up to $4 million a year for managing a different portfolio of commercial mortgage-backed securities, according to a final copy of the agreement that shows annualized fees.
  • Read more on Business Insider. 

The Federal Reserve Bank of New York is introducing guidelines to curb BlackRock, the world's largest asset manager, from unfairly profiting from its contract to buy bonds from the US government as a part of monetary stimulus amid the coronavirus pandemic. 

BlackRock will waive asset management fees on ETFs purchased on behalf of the Federal Reserve Bank of New York and will credit back the value of all underlying fees and income earned on its ETFs bought for the program, according to a document published Friday

Earlier this week, the Fed engaged BlackRock to purchase tens of billions of bonds as part of the massive debt-buying program it rolled out to bolster the US economy during the coronavirus outbreak. 

BlackRock will be an investment advisor and manage assets for three separate programs, according to a Tuesday statement from the New York Fed. That includes purchases of agency commercial mortgage-backed securities and two new facilities that the Fed announced Monday. 

Read more: The world's biggest wealth manager expects the worst of the coronavirus to be over in the US by May — and lists 5 ways investors should prepare for the recovery now

The asset manager is already the largest issuer of ETFs in the world, which has raised questions about its ability to remain objective. According to the documents released Friday, "BlackRock will treat BlackRock-sponsored ETFs on the same neutral footing as third-party ETFs." 

In addition, if the portfolio's holdings of BlackRock-sponsored ETFs "exceeds or is expected to exceed the then-current market share of BlackRock-sponsored ETFs in the corporate bond ETF market on average over a given calendar month, BlackRock will notify the New York Fed for review and consultation. The New York Fed may direct portfolio adjustments at any time," according to the statement. 

BlackRock may also collect as much as $4 million per year for managing a different portfolio of commercial mortgage-backed securities, according to a final copy of the agreement that shows annualized fees.

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She's a US senator. He's one of the most powerful men in finance. Meet the $500 million power couple getting slammed for stock trades placed as the coronavirus tanked markets.

Sat, 03/28/2020 - 11:43am  |  Clusterstock

  • Republican Sen. Kelly Loeffler grabbed headlines following a report by The Daily Beast that said she sold stocks immediately following a private meeting briefing senators on the impact of the novel coronavirus. 
  • Loeffler has said all trading decisions for her and her husband's investment portfolio are made by multiple third-party advisors.
  • Loeffler, who was a long-time exec at the Intercontinental Exchange, is half of one of the most powerful couples on Wall Street. Her husband is Jeff Sprecher, the founder, CEO, and chairman of ICE and chairman of the New York Stock Exchange. 
  • As ICE has grown into one of the largest exchange operators in the world, so too has the couple's wealth, which has been reported at more than $500 million. 
  • Business Insider spoke to a half-dozen people who either worked directly with Loeffler, Sprecher, or both, to understand how the couple operates. 
  • Sources painted a picture of two workaholics that rarely show any signs of their relationship at the company. 
  • And while Loeffler has long proven to be a successful executive on Wall Street, her stint in Washington has been bumpier. 
  • Click here for more BI Prime stories.

Kelly Loeffler knows how to tell a story.

An entire career working in investor relations and corporate communications will do that. From running both teams at Intercontinental Exchange, one of the largest exchange operators in the world and parent company to the New York Stock Exchange, to transitioning to chief executive at Bakkt, a startup owned by ICE aimed at making mainstream the use of digital currency, Loeffler understands the importance of strong messaging. 

It's a skill that's proved vital in helping her husband, Jeff Sprecher, the founder and CEO of ICE and chairman of NYSE, grow the company from the ground up. The two have built an incredible fortune, reportedly north of $500 million, while turning the exchange operator into one of the most vital market-structure players in the world and solidifying the couple as one of the most powerful on Wall Street.

December 2019 brought a new achievement for Loeffler: US Congress. Loeffler, a Republican, was selected as interim senator for her home state of Georgia. 

Yet, her personal foray into politics has proved bumpier han any story she faced at ICE or Bakkt. Loeffler, who was sworn into her seat in January, has faced a series of negative public headlines early in her political career. 

From an initial lack of support from the leader of her own party to questions around whether her oversight of a regulator that polices her husband's business posed a potential conflict of interest, Loeffler's four months in the political arena have been an uphill battle.

That culminated with a mid-March report by The Daily Beast about Loeffler's sale of stocks following closed-door Senate meetings on the coronavirus. 

And while the senator has said her and her husband's portfolio is managed by a third-party, it hasn't removed the spotlight from one of the most powerful couples on Wall Street. Business Insider interviewed a half-dozen people, who spoke on the condition of anonymity due to fears over potential repercussions, who dealt or worked directly with Loeffler, Sprecher, or both, about how the couple operates together. 

Those who spent time with them paint a picture of a balanced duo, with Loeffler as more goal-driven and professional and Sprecher easy going and laid back. 

Loeffler helped ICE rise from startup to powerhouse

Unlike many of Wall Street's elite, Loeffler and Sprecher's backgrounds don't include Northeast boarding schools or Ivy League universities. Born and raised Midwesterners — Loeffler from Illinois and Sprecher from Wisconsin — they both attended public high schools and local state universities.

Sprecher started his career in the energy sector while Loeffler had short stints at Citi, investment bank William Blair, and private equity firm Crossroads Group early on.

In 1997, Sprecher acquired the Continental Power Exchange for $1 plus its debt with hopes of transforming how electronic power was bought and sold, which was previously traded in a much more manual, less transparent way. Three years later, with backing from the likes of Goldman Sachs and Morgan Stanley, Sprecher officially launched ICE.

His timing would prove to be auspicious. A year after going live, Enron, which had a competing exchange that had significant market share, would collapse, paving the way for ICE. Loeffler came aboard in 2002, working on both investor relations and corporate communications.

Sprecher's vision for ICE quickly evolved thanks to a string of acquisitions over the next two decades that would allow the exchange operator to grow into the behemoth it is today, which includes a market cap of around $45 billion and ownership of the iconic NYSE. 

It wasn't just a flurry of dealmaking that was occurring at ICE in the early years. Loeffler and Sprecher also began a relationship, eventually marrying in 2004.

According to a source familiar with the couple, Sprecher had to clear it with ICE's board before he could take her on a date. The relationship was kept private for the most part until in 2005, when ICE went public, a single sentence in the proxy indicated the two were married.  

In a 2011 story in The Atlanta Journal-Constitution, Sprecher, who is 16 years Loeffler's senior, discussed the relationship. 

"If it didn't work out, she'd be on the short end of the stick because I was founder and 100 percent owner of the company," Sprecher told AJC in 2011.

"I was a consummate bachelor who was never going to get married, but she really knocked me off my feet."

Sprecher and Loeffler kept things professional

Loeffler was eventually named to ICE's executive management committee, often times putting her in the room on key decision-making meetings, in addition to being promoted to chief communications and marketing officer and head of investor relations. 

All of Loeffler's former colleagues said her ascent at ICE had nothing to do with nepotism. Described as "bright," "driven," and "independent," by multiple people, Loeffler was viewed as a star in her own right.

Those who worked with her also said Loeffler never looked to pull rank on employees despite the fact her husband was running the company. During meetings involving Loeffler and Sprecher, there was never indication the two were married, sources said. 

In many ways, working closely with a spouse was already embedded in Loeffler's background. Raised on a farm, Loeffler's parents had a similar dynamic where her father handled the manual labor while her mother kept the books. 

That being said, everyone at ICE was well aware of Loeffler's relationship with Sprecher, even if it was never widely discussed or addressed by either.

One source who worked directly with Loeffler said that while Sprecher was never mentioned, there was no denying the situation was unusual compared to that of a typical employee.

"There was definitely an undertone of, 'This is my company. Don't f--- it up,' without actually saying that," the source said. "It's hard not to acknowledge that there is a lot more at stake than if it were just another non-interested employee. You felt the added pressure to get things right, to do things at the highest caliber and the highest credibility." 

Those who worked with her said Loeffler takes a purposeful, goal-driven approach to things, always keeping a professional manner. Sprecher, meanwhile, has more of a laid-back style and is easy going, rarely raising his voice.

And while their personalities might differ, the couple share a common intensity over their work. The duo could be found responding to emails late into the night, sources said, rarely going on vacation. 

Loeffler's intensity towards work has proven to be a dividing line for some employees. According to another source that worked with her, Loeffler had high expectations for those on her teams. Even people who were "good" at their jobs might not be up to Loeffler's high standards, the source said.

Another source who worked closely with both Loeffler and Sprecher echoed similar sentiments, adding that the culture was felt throughout the exchange operator for a long time. 

"That is kind of the way it was at ICE. You were a workaholic," the source said. "If you weren't, you kind of didn't enjoy working there."

It wasn't only about ICE business for Loeffler, though. In 2010, she bought a minority ownership stake in Atlanta Dream, a WNBA team, with Mary Brock, whose husband, John Brock, was chairman and CEO of Coca-Cola Enterprises (CCE). 

The following year the duo took over full ownership, which they still maintain today. The Dream would reach the WNBA Finals two of their first three years of ownership.

Loeffler takes the helm at Bakkt

After 16 years at ICE, Loeffler stepped into a new role in August 2018. ICE announced plans to launch Bakkt, labeled "a global platform and ecosystem for digital assets," with Loeffler at the helm.

Crypto experts lauded the announcement at the time as a big step for the mainstream adoption of digital assets.

Still, some in the space questioned what experience Loeffler had to run a startup focused on digital currencies. While ICE has always been a tech-first type company, Loeffler never held any technology roles at the exchange operator.

But Bakkt was a passion project of Loeffler's she took incredibly seriously, source said. One source who spoke to Loeffler as she was building out Bakkt's team said she was extremely well-versed in the tech and had a solid vision for how the platform could leverage ICE's existing clientele. 

Another source, an investor in Bakkt, said Loeffler would lead detailed conversations going over specific nuances of how the exchange would operate, such as ways to encourage market-makers on the platform or how contracts should be margined. 

"She was as deep and substantive as you could get," the source said. "It's her vision, and she's passionate about crypto."

Still, the platform faced delays, having to push back its initial go-live goal of November 2018. And by the time it did launch in September 2019, interest in crypto currency from Wall Street had subsided significantly. 

To be sure, Bakkt's success, or lack thereof, was irrelevant compared to ICE's overall business, which was booming. From January 2018 to January 2020 the exchange operator's stock rose nearly 30%, thanks in large part to its ability to profit off Wall Street's obsession with data. 

A focus on Washington

Multiple sources said Loeffler always had a keen interest in politics. Loeffler and Sprecher had been involved in local politics and charities in Atlanta since 2006, but never pushed to hold any type of significant public office. 

In 2013 Loeffler reportedly flirted with the idea of running for senate, however a source familiar with the situation said it was the GOP, not Loeffler, that initiated the idea.

Still, Loeffler and Sprecher didn't avoid politics altogether. In 2019, data from the US Federal Elections Commission showed the couple donated $390,000 to a variety of campaigns and political action committees, the majority of which were tied to Republican candidates.

One former senior ICE employee remembered an email that was circulated encouraging employees to contribute to the exchange operator's political action committee. To be sure, ICE's PAC is not tied to Loeffler or Sprecher. According to OpenSecrets.org, which is managed by the nonpartisan Center for Responsive Politics, ICE's PAC donated $48,000 to Democrat campaigns and $89,500 to Republican campaigns in 2018.

However, the true impetus for Loeffler taking action on her political aspirations appear to have occurred sometime in the summer of 2019. According to an AJC profile of her in December 2019, Loeffler and Sprecher attended a black-tie gala in August 2019 where the couple sat at a table with Georgia Governor Brian Kemp and first lady Marty Kemp. 

The event, which included a $200,000 donation from Loeffler to go towards rebuilding a chapel that had burned down, put Loeffler on Kemp's radar. A few weeks later 74-year-old Republican senator Johnny Isakson announced he was stepping down at the end of the year over health concerns. Isakson's departure meant Kemp was tasked with finding an interim replacement who would then be required to run in the 2020 general election.

In November, The Wall Street Journal reported President Donald Trump was pushing Kemp to pick representative Doug Collins, a staunch supporter of Trump, for the open seat. Kemp, however, reportedly was dead set on pushing forward with Loeffler, despite her having no experience in the political realm.

Trump eventually met with Kemp and Loeffler, according to The Wall Street Journal, but the private meeting "turned tense and ended quickly." Still, Kemp refused to back down, officially picking Loeffler on December 4.

In her first statement following her appointment, with Sprecher by her side, Loeffler voiced supportt for Trump, saying she was "a lifelong conservative, pro-Second Amendment, pro-Trump, pro-military, and pro-wall."

It wasn't long after being sworn into the Senate in January that Loeffler was drawing the spotlight again. Her selection to serve on the Senate Agriculture Committee, which oversees the Commodity Futures Trading Commission, was criticized by some as a potential conflict of interest as the regulator polices many of the markets ICE operates in. 

To be sure, as a newly-minted junior senator, Loeffler didn't necessarily have her pick-of-the-litter in terms of committees to take part in.

"I have worked hard to comply with both the letter and the spirit of the Senate's ethics rules and will continue to do so every day," Loeffler told The Wall Street Journal in a statement. "I will recuse myself if needed on a case by case basis."

Later that month, Collins, Trump's reported pick to fill the Senate seat, formally announced on 'Fox and Friends' he would be challenging Loeffler for her seat in November 2020. The Hill reported in December that Loeffler was prepared to spend $20 million of her own money on her reelection campaign

On February 8, she posted a video ad to her Instagram account showing her holding a gun in what appeared to be hunting attire. However, a records request from American Bridge, a liberal super PAC, found Loeffler wasn't licensed to hunt in the state of Georgia. 

'A political outsider'

For someone who built an entire career understanding the importance of messaging, Loeffler's early days in Washington has found her in the headlines often. Some sources chalked it up to her inexperience in the political world, adding they expected her to adapt and evolve the same way she had during her two decades at ICE. 

Others, however, say the wealth Loeffler and Sprecher have accumulated has simply led to a disconnect with the average American. The pair are reportedly worth over $500 million with multiple houses and condos worth over a million dollars spread across at least three different states, according to AJC.  

"I entered the world of politics just three months ago as a businesswoman and political outsider," Loeffler told Business Insider via an emailed statement. "I knew people would attack me for my success but that won't stop me for fighting for results and the American Dream for all Georgians." 

The Daily Beast's report, which was published March 19, is perhaps the best example of the criticisms laid out against Loeffler. The story reported a string of securities owned by Loeffler and Sprecher had been sold beginning January 24th, the day her and the rest of the Senate were briefed on the coronavirus.

Loeffler's office did not respond to a request for comment in The Daily Beast's report. But she did address the story via Twitter a few hours after it was published, criticizing the piece and stating her financial advisor, a luxury not enjoyed by most Americans, handles all her investments. 

"This is a ridiculous and baseless attack. I do not make investment decisions for my portfolio. Investment decisions are made by multiple third-party advisors without my or my husband's knowledge or involvement. As confirmed in the periodic transaction report to Senate Ethics, I was informed of these purchases and sales on February 16, 2020 — three weeks after they were made," Loeffler said in a series of tweets.

The following day Loeffler was interviewed on Fox News by Tucker Carlson, who had previously called for fellow Republican Senator Richard Burr to resign after ProPublica's report of Burr also selling off stock.  Republican Senator James Inhofe and Democratic Senator Dianne Feinstein also came under fire for trades they made as well.

Loeffler reiterated her portfolio is handled by third parties, a policy she and Sprecher had first adopted in 2015 when ICE acquired NYSE.

At the end of the 10-minute interview, Carlson asked Loeffler if she felt Burr should be forced to resign. 

"Look Tucker, I am a political outsider," Loeffler said. "I am focused on working for the state of Georgia, for the American people, and making sure that we solve the coronavirus, and letting this play out in the proper venue."

SEE ALSO: A UBS exec lays out the benefits and pain points of all-electronic trading after coronavirus concerns cleared the floor at NYSE

SEE ALSO: The CEO of the largest stock exchange group in the world says financial markets are ripe for disruption, and it's never been a better time to be a fintech

SEE ALSO: An upstart exchange looking to elbow in on NYSE and Nasdaq just nabbed big buy-in from JPMorgan, Goldman Sachs, and Jane Street and set a go-live date

Join the conversation about this story »

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The 'Dr.Doom' economist lays out 3 reasons why the coronavirus-induced US recession could become a 'Greater Depression'

Sat, 03/28/2020 - 11:11am  |  Clusterstock

  • The "Dr. Doom" economist Nouriel Roubini talked about the economic impacts of the coronavirus pandemic on a call with Influence for Good this week. 
  • On the call, he laid out three things that he sees tipping the coronavirus-induced recession into a "Greater Depression" than the one seen in the 1930s. 
  • Here are the three risks that he sees to the US and global economy going forward.
  • Visit Business Insider's homepage for more stories.

Nouriel Roubini, nick-named the Dr. Doom economist for his pessimistic views, has consistently warned that the coronavirus could lead to a "Greater Depression" in the US, pushing past the base-case assumption of economists that a recession will hit or is already underway. 

But for that to happen, Roubini sees three main things that would need to unfold first. He outlined these events on a call this week with Influence for Good, where he spoke about the effects of COVID-19 on the economy and what he sees for the future. 

This "trifecta" or "Bermuda triangle" of events is what would lead to a Greater Depression, Roubini said. 

1. The wrong health response 

"What's happening in the United States is totally crazy," Roubini said. This week, President Donald Trump indicated that he'd like to reopen the US economy by Easter, on April 12

Comparing how other countries such as China and Italy have dealt with the pandemic shows why restarting the economy too soon is a bad idea, according to Roubini. 

"If you shut down everything for three months, you stop the pandemic, new cases go to zero, you have one or two quarters of really bad economic activity, and then you go back gradually to normal," Roubini said, adding that's what needs to be done. 

But, "if you essentially kick the can down the road like Italy did, and you don't do radical compulsory lockdowns," it ends up with a situation that is a "total medical and health nightmare," he said. 

Read more: A notorious market bear says stocks are still historically expensive after tumbling on coronavirus — and warns a plunge 'of about 50% from here' is still coming

Of course, shutting down the economy for so long is painful, Roubini said, but it is the right thing to do to stop the spread of the virus so it doesn't become necessary to halt the economy again in the future for a longer period of time. 

Roubini also said that it's likely that the virus will come back in a different mutation next year in the winter. The spike will be smaller in the countries that have done suppression instead of mitigation to combat the virus, he said, adding that the US has done "mitigation light." 

That could mean that the economy is hit hard again next year just as it's starting to recover, Roubini said, prolonging the damage. 

2. The worry of future inflation 

"For a year, you can run a budget deficit of $2 trillion to $3 trillion dollars," Roubini said, adding that would be about 15% of GDP, and nothing would happen, everything would be okay. 

But, "you cannot fool all of the investors all the time," he added. "If you run a budget deficit of 10% to 15% of GDP while printing money financing, we end up like Zimbabwe, like Argentina, like Venezuela, with high inflation and eventually hyperinflation," he said. 

If there's a negative supply shock, as has been seen as the coronavirus pandemic disrupts global supply chains and sends workers home, it's likely that will lead to less growth and more inflation, according to Roubini. 

"When there's a negative supply shock, it reduces output and increases prices," he said. When you print money and run a budget deficit, you could end up with stagflation, said Roubini. 

"Stagflation is a combination of economic stagnation, recession, and high inflation," he said. 

3. Geopolitical shocks adding extra tension 

"We may have a wide range of geopolitical shocks between the US and China, global cyber warfare," and more, said Roubini. 

Additional geopolitical tensions on top of an economic depression may lead to a geopolitical depression, according to Roubini. 

"Those shocks may end up being more severe than the coronavirus crisis," Roubini said.

Join the conversation about this story »

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Tshidiso Radinne founder of Raphta on Reimagining the Possibilities of AI

Sat, 03/28/2020 - 11:01am  |  Timbuktu Chronicles
From Analytics Insight:
Raphta views itself as building the “artificial intelligence infrastructure” to enable new intelligent applications, devices, and workloads. The company does this by offering three core deep learning platforms, Shuri AI which is a cloud edge facial recognition platform, Metsi a geospatial imagery analytics platform for the water utility industry and Tau, a voice and speech analytics platform. Raphta’s platforms are for the developer community and innovation teams within large enterprises...[more]

#DRC - based startup Kintrack's Real-Time GPS Tracking System

Sat, 03/28/2020 - 10:48am  |  Timbuktu Chronicles
Kintrack offers:
GPS tracking which allows you to control the driving behavior of drivers by keeping an eye on their movement in real time on a map. Instant control perimeter alerts arrive directly in the manager's phone...[more]

Five Nigerian startups got into Y Combinator's 2020 winter batch via @dadabenblog

Sat, 03/28/2020 - 10:33am  |  Timbuktu Chronicles
From Benjamin Dada:
Eleven years ago, the first Nigerian company got into Y Combinator—an American seed accelerator. The Nigerian company was the defunct online advertising platform, PetaSales.

Later in 2016, Paystack and Flutterwave—leading payment platforms in Nigeria—joined the accelerator programme. Since then, Nigerian startups have become staple Africa representatives at Y Combinator (YC), participating in its last four batches.

Out of the 197 startups in the 2020 winter batch, 12 are African startups and five of the 12 are Nigerian startups, namely: Bamboo, CrowdForce, Eze, SEND Shipping, and Termii...[more]

Synthetic Biology Study Guide from @sirajraval

Sat, 03/28/2020 - 10:30am  |  Timbuktu Chronicles
From Siraj Raval:

Ken Griffin's Citadel has sprouted a sprawling alumni network of more than 80 hedge funds. Here's our exclusive list.

Sat, 03/28/2020 - 10:18am  |  Clusterstock

  • Billionaire Citadel founder Ken Griffin has built one of the most well-known brands in hedge-fund history, and those who have worked for him have benefitted.
  • A Business Insider review has found dozens of funds started by an alum of Citadel or connected to Griffin in some way.
  • While Griffin isn't in the business of seeding top producers in the way Tiger Management founder Julian Robertson or George Soros were, Citadel's pod structure gives portfolio managers the chance to run a team.
  • In recent years, when new hedge funds have struggled to launch, some of the biggest start-ups have come from Citadel, including Woodline Capital, Cinctive Capital, and Candlestick Capital. 
  • "Great firms drop the seeds of future success stories," Griffin said at an Economic Club of New York event in February. 
  • Visit BI Prime for more Wall Street stories.

Ken Griffin modeled Citadel after Goldman Sachs' old-school analyst program. And, just like Goldman, when employees leave Citadel, they have a leg up in the industry. 

While Tiger Management founder Julian Robertson remains the gold standard for hedge-fund networks, the hedge funds with connections to Griffin's Citadel are growing in both number and prominence. 

A review of LinkedIn, past media, and industry sources led Business Insider to pull together a list of roughly 80 funds that were founded by someone who worked at Citadel or by someone who worked at a fund run by a Citadel alum. The research showed that roughly an eighth of the funds on the list are running more than $1 billion. 

Well-known funds like Alec Litowitz's Magnetar Capital and Anand Parekh's Alyeska Investment Management highlight the generation of Citadel alums to first come about. Recently, some of the industry's biggest launches have been former Citadel heavy-hitters like Jack Woodruff's Candlestick Capital, Brandon Haley's Holocene Advisors, and Mike Rockefeller and Karl Kroeker's Woodline Capital. 

While Cinctive Capital's founders are best known for their old fund Diamondback, Richard Schimel also led Citadel's now-shuttered Aptigon unit for a couple years. 

This year, we have already reported on Prashanth Jayaram, a former healthcare portfolio manager who worked at Citadel and Tiger Cub Maverick Capital, who is launching his fund Tri Locum Partners

A majority of the list has launched since the financial crisis, when Citadel lost $8 billion in assets and was in danger of closing (Griffin told The Wall Street Journal in 2015 that it took the firm three years and 17 days to earn back the losses).

Since then, the firm has added billions in assets, built out new teams and businesses, and cemented its status as one of the marquee names in the hedge fund industry with $30 billion in AUM. The firm's flagship Wellington fund has an annualized return of 18.7% since its launch nearly 30 years ago, and there are 950 investment professionals on more than 100 teams for the Chicago-based firm. 

"Citadel has always focused on attracting and developing the world's top investment talent, and making significant investments in tools and resources to provide them with a platform where they will be most successful. Over the years, a handful of our successful portfolio managers have leveraged what they honed at the firm and decided to launch their own firm," the firm said in a statement provided to Business Insider.

Unlike Tiger, where many of the hedge funds launched by Robertson's disciples traded like him, Citadel's multi-strategy structure means spin-offs invest across the board.

Jonathan Graham's Aquatic Capital Management is a quant fund, while Renee Yao's Neo Ivy Capital uses machine-learning to trade equities globally (Yao did not manage money for Citadel during her time there). Matthew Smith, who was included on Sohn's rising stars list, founded his energy-focused hedge fund Deep Basin Capital in 2015 after working as an energy PM for Griffin. 

The list of names includes people that made it to the highest ranks of Citadel as well as though who were only analysts before jumping to another fund or deciding to try and launch their own with limited experience. Michael Cowley founded Sandbar Asset Management in London after working as a portfolio manager for Izzy Englander's Millennium but was also an analyst at Citadel in the mid-2000s. Rushin Shah was at Citadel for less than two years before he founded Nine27 Capital Management at the beginning of this year. 

Roughly half of the list of alums were portfolio managers or heads of businesses at Citadel before launching their own fund, while the other half were analysts, researchers, and developers who often went to another hedge fund before setting out on their own.

Not all alums have left in good standing. Citadel sued Misha Malyshev roughly a decade ago for stealing the firm's IP to start his own high-frequency trading firm, Teza Technologies, and a court fined Malyshev $1.1 million

At one point, Citadel ran a seeding platform, known as PioneerPath that managers like Clint Murray's Lodge Hill Capital and Todd Cantor's Encompass Capital came from. But it was short-lived, lasting roughly two years from 2008 to 2010, before becoming a part of Surveyor, one of Citadel's three equities businesses. 

Griffin himself is not in the business of backing many launches either. Most of his personal money is invested in Citadel funds, though he did back Woodruff last year. Citadel, as a firm, has no money invested in outside hedge funds either. 

Talking at an Economic Club of New York event last month, Griffin said he was proud of the fact so many people from Citadel are running their own shops. While the 30-year-old hedge fund always wants to keep its top talent, Griffin is proud people can "stand on their own two feet" after leaving Citadel. 

"Great firms drop the seeds of future success stories," he said in a conversation with Goldman Sachs President John Waldron. 

Search Griffin's quickly expanding web 

 

SEE ALSO: Billionaire Citadel founder Ken Griffin explains why he modeled his firm after Goldman Sachs' analyst program — and says future leaders can't expect a 9-to-5 lifestyle and a 'great weekend'

SEE ALSO: Julian Robertson's Tiger Management is at the center of a quarter-trillion-dollar web linking billionaires, the Pharma Bro, and a 'Big Short' main character

SEE ALSO: Michael Platt's BlueCrest just cut at least 10 portfolio managers as the firm pulls back from the basis trade that slammed Citadel, Millennium, and ExodusPoint

Join the conversation about this story »

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Apply to Onebio Venture Studio - An African Biotech Incubator

Sat, 03/28/2020 - 9:40am  |  Timbuktu Chronicles
From Onebio:
It is our mission to build businesses that are original and world-changing. We partner with biotech entrepreneurs, providing investment capital and know-how to venture build the companies of the future...[more]

A $250 million day for Barclays; Snowflake's data exchange; flex-space meltdown

Sat, 03/28/2020 - 9:30am  |  Clusterstock

 

Welcome to Wall Street Insider, where we take you behind the scenes of the finance team's biggest scoops and deep dives from the past week. 

If you aren't yet a subscriber to Wall Street Insider, you can sign up here.

Deals, IPOs, and fund launches may be slowing to a near-standstill, but work is just as busy as ever for some on Wall Street.

Restructuring bankers are suddenly a hot commodity, and they're swamped with calls as companies look to navigate the coronavirus pandemic. Lawyers on the restructuring side told how us a sudden collapse of revenues in sectors like retail and energy is accelerating work, as one put it: "all hands on deck would be an understatement.

In a firm-wide voice message, Goldman Sachs CEO David Solomon explained how important it is to avoid burnout, especially when WFH blurs the lines between work and home. (Solomon said he went for a two-hour ride on his road bike last weekend to unplug.) 

And as Dakin Campbell reported on Monday, extreme market volatility has been good for some trading desks. At Barclays, the bank's global-markets business took in about $250 million in revenue in just one day earlier this month. And JPMorgan has been racking up record daily volumes in forex, rates, futures, and algorithmic execution.

Read the full story here:

Barclays made $250 million in one day of trading as banks raked in money on market volatility

Wishing everyone a healthy and safe weekend. As always, my line is open at mmazzilli@businessinsider.com

-Meredith 

Early adopters are looking for a data solution

As Wall Street's obsession with data continues to grow, firms are eager to make digesting information as easy as possible. Dan DeFrancesco and Bradley Saacks explain how Snowflake, a startup most recently valued at $12.4 billion, has launched a data exchange that already counts hedge funds like Philippe Laffont's Coatue and data vendors like FactSet as users. 

Read the full story here: Coatue and Fidelity are early adopters of $12.4 billion startup Snowflake's new data exchange — here's why they think it can transform Wall Street Getting creative on comp

Bonus pay on Wall Street could fall by as much as 40%, according to compensation consulting firm Johnson Associates. As Shannen Balogh reports, firms may take steps including getting creative with non-cash bonuses and limiting executive pay to help boost morale and keep top talent. 

Read the full story here: Here are 5 ways Wall Street firms can get creative on compensation as bonuses are expected to plunge this year What a 'protracted slump' looks like for commercial real estate 

Alex Nicoll highlighted the must-know takeaways from a recent Moody's Analytics report that forecasts the effects of a coronavirus-fueled, Great Recession-sized hit to commercial real estate. Unsurprisingly, retail and hospitality assets will likely see the worst of it, but some niche parts of the multifamily segment, like student and senior housing, could also be at risk.

Read the full story here: 7 charts show how the coronavirus could clobber real estate, from retail vacancies of nearly 15% to plunging office rents in Texas cities Launches in limbo

Hedge fund closures have been outnumbering launches the last couple of years, and the novel coronavirus will likely only accelerate that trend. As Bradley Saacks reports, with allocators' portfolios hit hard and markets going haywire, both hedge-fund investors and money managers looking to start their own fund are slow to dive into something new. 

Read the full story here: 'Ground to a halt': Insiders detail the struggles of trying to launch a hedge fund during a global pandemic On the move Other must-reads from the finance team

 

Join the conversation about this story »

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Startup Opportunities...Eastern Congo has the world’s largest quinine plantations #DRC

Sat, 03/28/2020 - 9:06am  |  Timbuktu Chronicles
From the Economist:
Near the edge of a plantation is one of just five quinine-extracting factories in the world. The operation, which has been running since 1961, produces about 100 tonnes of processed quinine a year, or about 30% of global demand. “First we address the country’s needs, then we export the rest,” says Etienne Erny, the managing director of Pharmakina, the firm that owns the factory.

Just under half the quinine is sent abroad. A third of this is turned into tonic water and the rest into medicine. It is a tragic twist of fate, therefore, that despite the abundance of quinine in Congo, it still has the second-highest rate of malaria deaths in the world. In 2017 some 435,000 people died from the disease. Many cannot afford to pay the $2 for a course of 21 pills or do not diagnose the malady in time...[more]

Here are 5 ways Wall Street firms can get creative on compensation as bonuses are expected to plunge this year

Sat, 03/28/2020 - 8:00am  |  Clusterstock

  • While many industries have seen dramatic reductions in their workforces as a result of the coronavirus pandemic, most of Wall Street is still at work, albeit from home.
  • But the coronavirus pandemic and tough market conditions could still impact Wall Street workers, especially when it comes time for bonus pay.
  • While bankers and investment professionals often rake in six-figure salaries, annual bonuses can far exceed base comp for top performers.
  • Bonus pay on Wall Street could fall by as much as 40%, according to compensation consulting firm Johnson Associates.
  • From getting creative with non-cash bonuses to limiting executive pay, here are some of the things that HR execs on Wall Street could do when it comes time to talk compensation.
  • Click here for more BI Prime stories.

The coronavirus pandemic is having a huge impact on the US workforce. Employees across industries including airlines, hotels, restaurants, and retailers have been laid off or furloughed. But while weekly jobless claims have spiked to a record 3.3 million, those who are able to work remotely have been less impacted so far.

Wall Street, for one, is still at work, albeit from home. But employees of banks and investment firms could still feel the impact of the pandemic and the recent economic downturn. A "perfect storm" of the coronavirus pandemic and challenging market conditions could mean a hit to Wall Street employees' pay, according to Alan Johnson, managing director of compensation consulting firm Johnson Associates.

While bankers and investment professionals often rake in comfortable six-figure salaries, annual bonuses can far exceed base comp for top performers. But those bonuses are tied both to individual performance and a pool determined by how their division or firm itself is doing. 

Overall incentive-based pay, or bonuses, could fall by as much as 30% to 40% this year, according to Johnson. The consulting firm regularly forecasts compensation expectations, and it arrived at this prediction through talking to clients and doing its own analyses, Johnson said. 

"In the [2008] financial crisis, bonuses went down by 50% or more," Johnson said, "so 30% to 40%, or 35% in the middle of that range, is a significant drop but not as severe as the financial crisis." 

"But this is a big deal," said Johnson. 

To be sure, Johnson's prediction of a fall in bonuses can be attributed to more than the coronavirus pandemic. 

"There's just less revenue to go around," Johnson said. Between pressure from clients to lower fees and new, lower-cost products like ETFs gaining in popularity, many financial services firms like asset managers and hedge funds have struggled to find revenue growth.

"There is compression of revenues, and then other things become more expensive," Johnson said, from technology to developing new products to paying top talent.

"For the generic financial services firm that's doing a good but not great job, there's just less money available for compensation, particularly for average people," Johnson said.

In a recent presentation to the Financial Markets Total Rewards Group, an audience of senior financial services HR professionals, Johnson gave advice to Wall Street firms on how to manage costs and make smart decisions during uncertain times.

From keeping base pay stable and competitive to getting creative with incentive-based pay, here is some key advice Johnson gave Wall Street's HR execs.

Keep base salaries stable

In the presentation, Johnson cautioned that for financial services firms, now is not the time to reduce base salaries.

"Cutting salaries is usually what companies do when they're going to go bankrupt," Johnson said. 

"This is an industry where salaries really aren't that high," Johnson said. Base pay usually accounts for a small portion of an employee's total take-home pay, which typically includes cash and stock bonuses and other compensation.

So cutting base pay likely won't save a financial institution that much money, Johnson said.

But cutting base pay could have a big impact on morale, Johnson said. And for companies that aren't approaching bankruptcy, it likely won't save enough money to be worth the potentially damaging messaging. 

Get creative with incentive pay

Given the challenging economic conditions and the impact of the coronavirus, firms need to consider "out-of-the-box" solutions, Johnson said in the presentation. 

Whether that be deferred compensation that gets paid out over a period of years opting for stock-based compensation as opposed to cash, firms will need to get creative to keep their top talent.

For companies that can't afford large cash bonuses at the end of this year, they could offer their top performers future payouts to keep them satisfied. 

Regardless of the way firms decide to pay out their top performers, transparency is key, Johnson said. 

Minimize the damage for top performers

As relates to incentive compensation, the first thing firms should do is look at employee performance. 

Now is "not the time for focusing on average performers," Johnson said in the presentation. And in a scenario where bonus pools are reduced, firms should ensure top performers feel the impact the least.

Avoid drastic action

Wall Street firms should avoid taking premature measures like hiring freezes or immediate changes to equity compensation terms.

Johnson also said that firms should avoid "dumb" mistakes like talking about reducing medical benefits or cutting perks like office snacks to save money.

"Don't make dumb mistakes," Johnson said. "If you have a lavish office, why nickel and dime people on the free sodas?"

While cutting these small costs like office perks is one of the first things many companies will do, Johnson cautioned that it's not ultimately going to save the company enough money to be worth the potential impact on morale. 

"It's not really going to save any money," said Johnson, "and what message are you trying to send?"

Beware of the optics

2020 is not the year to award executives large bonus checks, Johnson said. 

There could be regulatory restrictions placed on compensation, and executives need to be mindful of public perception, too.

"It's going to be very politicized," said Johnson. "If you're one of the industries in the crosshairs and you're laying off thousands of people, this is probably not a great year for senior management pay." 

"You're really going to have to be sensitive to the optics," Johnson said. 

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The $2 trillion stimulus law could leave startups out in the cold. Here's why Silicon Valley is worried.

Fri, 03/27/2020 - 6:57pm  |  Clusterstock

  • While the new coronavirus-spurred stimulus law offers help to all kinds of companies, startups may be barred from tapping into one of its more generous provisions.
  • The law sets aside some $350 billion for loans to small businesses — companies with 500 or fewer employees — that come with low interest and the prospect of forgiveness for companies that maintain their workforces.
  • The vast majority of startups would seem to qualify for the loans, because they have fewer than 500 employees.
  • But they may get tripped up on rules that look not just their own workforces but those of affiliated companies, which may include other startups with the same venture backers.
  • Click here for more BI Prime stories.

The $2 trillion stimulus package President Trump just signed has provisions designed to help businesses ranging from sole proprietorships to giant corporations weather the coronavirus crisis. 

But people representing Silicon Valley and the venture-capital industry are worried the law could leave one class of businesses at a big disadvantage — startups.

The package offers payroll tax relief and loans to small businesses — defined as companies with 500 or fewer employees — at low interest rates and the prospect of forgiveness. Many startups would seemingly qualify for those loans; some 97% of those for which employment information was available had fewer than 500 employees, according to date from the National Venture Capital Association and PitchBook. But such companies may in fact be ineligible due to existing rules governing how businesses must calculate their number of employees.

"We're very worried that a lot of startups and workers at startups are going to fall through the cracks here," said Justin Field, senior vice president of government affairs at the NVCA.

The financial assistance would be especially welcome by some startups which lack the cash flow and reserves of larger, established tech companies. Several startups in Silicon Valley have begun laying off staff in recent weeks.

The stimulus package allows businesses of all sizes to defer paying their payroll taxes for this year for as much as two years. More importantly, though, it sets aside some $350 billion in loans for small businesses. The loans, which can be for as much as $10 million per company, can be used to pay workers, rent, mortgages, or utility bills. The law caps the amount of interest that can be charged on them at 4% and will forgive loans to companies that maintain their workforces through June 30.

Startups may have to count other startups' employees as their own

The problem for startups comes from the fact that the loans are due to be administered by the Small Business Administration and are subject to the agency's rules. Under its existing loan eligibility regulations, the SBA requires that companies include not only the workers they employ directly but also those employed by any companies with which they are affiliated.

Here's where things get dicey for startups. The SBA considers a company to be affiliated with a second company if the second company owns a controlling stake in the first company or if an investor owns a controlling stake in both. Under the SBA's rules, an investor can be considered to have a controlling stake if it owns as little as 20% or so of a company, if it is the largest investor or one of only a handful of investors with similarly-sized positions. A company that is controlled by an investor or another company would have to include in its employee count not only its own workers, but those of its controlling investor and those employed by any other company the investor controlled.

At least nominally, many venture-backed startups are likely to run into problems with those affiliation rules. Many startups are controlled by one or two investors, or at least they would be considered to be under SBA rules. And many of those investors have controlling stakes — as defined by the SBA — in lots of other companies. Thanks to such arrangements, a startup that may have 50 or fewer employees could, under the SBA's rules, be considered to have well in excess of 500, when its own workers are combined with all those who are employed by all the other startups in its investors' portfolios.

Silicon Valley is hoping for waivers

Unless something changes, "many startups with under 500 employees but who have equity investors will not qualify for emergency relief to deal with payroll, paid sick leave, and other operational challenges due to the coronavirus," Natalie McLaughlin, a spokeswoman for TechNet, an organization that represent Silicon Valley and the venture industry in Washington.

TechNet and the NVCA are pushing for the SBA to issue waivers from the affiliation rules to allow startups to qualify for the loans. Alternatively, Congress could address the issue in follow-up legislation.

Regardless, many startups would seem to need the help. Numerous startups have had to lay off staff in recent days and weeks as the pandemic-triggered downturn has worsened. Earlier this week, for example, TripActions, a corporate-travel startup laid off nearly 30% of its staff.  Compass, a real-estate brokerage backed by SoftBank, laid off 15% of its staff this week. 

In addition to loans targeted specifically at small-businesses, the stimulus package offers loans to companies of all sizes. But those loans don't come with the promise of forgiveness and place certain restrictions on companies such as limiting how much they can pay their executives and high-salaried workers.

Got a tip about startups or the venture industry? Contact this reporter via email at twolverton@businessinsider.com, message him on Twitter @troywolv, or send him a secure message through Signal at 415.515.5594. You can also contact Business Insider securely via SecureDrop.

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