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Wall Street firm BTIG had a toxic party culture that was stuck in the '80s, former employees say

Sat, 06/27/2020 - 11:33am  |  Clusterstock

  • The financial-services industry has tried to clean up its image in recent years, but shades of an earlier era on Wall Street have lingered at the firm BTIG, a Business Insider investigation has found.
  • Interviews with more than half a dozen former BTIG employees, and a review of court records and Equal Employment Opportunity Commission documents, reveal allegations of a boys'-club culture, excessive drinking at company events, and sexual banter at least into 2019.
  • You can read the full investigation here.

In December, the financial-services firm BTIG made a surprise announcement: The company would no longer serve alcohol at its winter holiday party, which had gained a reputation on Wall Street as an annual anything-goes affair.

Instead, the company said, it would opt for healthier alternatives such as smoothies and fruit-infused water, offering activities like yoga and bootcamp-style workouts.

As a new generation of finance professionals enters the workforce, the financial industry has struggled to convince the public that it now embraces groups that Wall Street has long excluded. For BTIG, rebranding its holiday party with a more wholesome touch — it had been a raucous, lavish event for employees and clients held at swanky New York nightclubs like Catch and Provocateur — was an attempt to do just that. (Neither venue responded to requests for comment.)

But as the firm, which is privately held with main offices in New York and San Francisco, attempts to tweak its image outwardly, some of the old Wall Street ways persisted internally in recent years, Business Insider has learned.

Interviews with more than half a dozen employees who left the firm within the past six years, as well as a review of court records and documents from the Equal Employment Opportunity Commission, revealed allegations of a boys'-club culture marked by conduct that some described as inappropriate workplace behavior, excessive drinking at company events, and sexual banter.

YOU CAN READ THE FULL STORY HERE: Former employees say BTIG, a Wall Street firm backed by Goldman Sachs and Blackstone, had a toxic party culture that was stuck in the '80s

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NOW WATCH: Here's what it's like to travel during the coronavirus outbreak

The Death of Cash

Sat, 06/27/2020 - 10:00am  |  Clusterstock

Both globally and in the US, the payments ecosystem is evolving.

Two related trends: the slow death of cash and the fast rise of digital payments, are transforming how consumers, businesses, governments, and even criminals move money.

Annual global non-cash transactions are expected to pass the 1 trillion milestone by 2024. This major transformation is being propelled by several factors, including increased usage of digital wallets, more small vendors adapting to accept credit cards, and the explosive growth of mobile commerce.

In The Death of Cash slide deck, Business Insider Intelligence projects what the payments ecosystem will look like through 2024 by examining the driving forces powering digital payment proliferation.

This exclusive report can be yours for FREE today.

Join the conversation about this story »

The Death of Cash

Sat, 06/27/2020 - 10:00am  |  Clusterstock

Both globally and in the US, the payments ecosystem is evolving.

Two related trends: the slow death of cash and the fast rise of digital payments, are transforming how consumers, businesses, governments, and even criminals move money.

Annual global non-cash transactions are expected to pass the 1 trillion milestone by 2024. This major transformation is being propelled by several factors, including increased usage of digital wallets, more small vendors adapting to accept credit cards, and the explosive growth of mobile commerce.

In The Death of Cash slide deck, Business Insider Intelligence projects what the payments ecosystem will look like through 2024 by examining the driving forces powering digital payment proliferation.

This exclusive report can be yours for FREE today.

Join the conversation about this story »

We spoke to 40 Silver Lake insiders about how Egon Durban amassed power at the media-shy private equity firm

Sat, 06/27/2020 - 9:00am  |  Clusterstock

Egon Durban, the co-CEO of private equity firm Silver Lake Partners, is a newly-minted billionaire drawing comparisons to Warren Buffett, with membership in some of golf's most exclusive clubs and an inside track to the Oscars.

A Texas native who made his name acquiring and then selling Skype, he has rapidly become the lead dealmaker on investments spanning entertainment, media, and technology. 

Under Durban, Silver Lake's name has recently been associated with pandemic-era investments into social media platform Twitter, home-for-rental company Airbnb, and travel site Expedia. Those deals and others have led some Silver Lake insiders to wonder if Durban may be flying too close to the sun.

The investments are flashier than the staid but dependable investments upon which Silver Lake made its name, backing the operations of software and hardware companies.

Silver Lake is almost finished raising its latest fund — one source said it could settle on as much as $18 billion — making it one of the largest buyout funds focused exclusively on tech investments, with the opportunity to reshape entire industries. 

Business Insider interviewed more than 40 people close to Durban and Silver Lake, including those who do or have worked directly with him and across from him, to understand his management style and how he's been able to amass his power inside the notoriously media-shy firm. 

SUBSCRIBE TO BUSINESS INSIDER TO READ THE FULL STORY: We talked to 40 insiders about the meteoric rise of Silver Lake's Egon Durban, the tech-focused PE firm's top dealmaker who's about to get $18 billion more to invest

SEE ALSO: Hollywood's top talent agencies may need a bailout from their PE backers as the coronavirus hammers big bets on live sports and studio production

SEE ALSO: Silver Lake has been plowing money into bets like Airbnb, Twitter, and Waymo. Here's a look inside why it's being called the Warren Buffett of tech.

SEE ALSO: Silver Lake just added to a string of bets in the struggling travel sector by leading a $108 million investment in vacation property startup Vacasa

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Vacancy rates are soaring in Washington DC's normally recession-proof office market. Here's how experts think this downturn will play out — and why some are still optimistic.

Sat, 06/27/2020 - 8:56am  |  Clusterstock

  • Washington DC's office vacancy rate has surpassed 15% for the first time. 
  • Meanwhile, this recession's bailout doesn't appear to expand the footprint of government as other downturns have.
  • Without government agencies and related tenants active in the leasing market, the city may not be immune to this downturn in the way that it was to previous recessions.  
  • Despite the headwinds, some investors are optimistic they can capitalize on the demand in recent years for new or renovated offices.
  • For more stories like this, sign up here for our Wall Street Insider newsletter.

Girded by a federal government that has only grown during recent recessions, Washington DC's office market has appeared unsinkable even in the worst of times.

But amid the twin crises of an economic downturn and a virus pandemic that has forced tenants to rethink how they will occupy the workplace, the city may not be as resilient this time.

Washington DC's office vacancy rate rose to 15.2% at the end of the second quarter, according to data from CBRE, the first time it has surpassed 15% in the 28 years since brokerage and real estate services firm began tracking the measure and 1.3% higher than it was just six months ago. Past periods of strength, such as during the mid-2000s, have pushed Washington DC's vacancy to less than half of that.

Read More: Companies from banks to tech giants are looking to shed huge chunks of office space. Here's a look at 8 key sublease offers — and what they mean for rents in big-city markets.

The real-estate brokerage and services firm Savills, found that the availability rate, which measures both current vacancies and spaces that are expected to become empty in the coming months, has reached even higher, hitting 17.6%.

The federal government and the large constellation of lobbying firms, contractors, and service providers that benefit from federal spending, have previously buoyed the market during dips, but few experts expect those office users to race to the rescue this time.

"In 2009, the government stepped in with stimulus and there was a rapid expansion of government tenancy where it absorbed a whole bunch of vacancy," said David Lipson, a vice chairman at Savills who leads its Washington DC based public sector services group. "There's no part of the stimulus now that seems as if it is going to result in a major expansion of government jobs."

Office vacancies have been building 

The roughly 120 million-square-foot Washington DC market's weakening has been in the making for years.

Vacancy has steadily accrued over the last decade as new office supply has been built. During the past four years alone, about 6 million square feet of new space has been added to the market, according to CBRE research. Those shiny new offices lured away tenants, but left behind vacancies in older office properties that have been harder to fill, adding about 2 million square feet of net vacancy to the market, CBRE found.

"There's a phenomenon in Washington DC called the 'muffin top' where the tops of buildings lease because they have higher ceilings, better views or were newly added onto an existing building," said Craig Deitelzweig, the president and CEO of Marx Realty, which owns three office properties in the Washington DC market. "The bottom floors linger empty."

Read More: WeWork is ditching a major Manhattan office, and it's the first big step in a turnaround that's put its entire real-estate portfolio under review.

Why past recessions were different for commercial real estate

Past downturns have spurred watershed moments for Washington DC leasing activity, even as other office markets across the country were sent reeling.

The attacks of 9/11, which came just after the dot-com crash spurred a recession, established the Department of Homeland Security, which has since grown into one of the Washington DC region's largest tenants at nearly 5 million square feet, according to the real estate services and brokerage firm JLL.

Asking rents came tumbling down in places such as Manhattan and San Francisco during that downturn, falling 29% and 49.6% on average respectively, according to JLL. In Washington DC, rents rose during the same period.

In the recession a decade ago, the number of jobs in the city actually swelled by 10%, according to JLL, as government grew rapidly to administer a massive bailout of the financial system and added staff to oversee a tightened regulatory regime. Towards the tail end of that downturn in 2010, 4.3 million square feet of space was absorbed, a record figure, according to CBRE data and vacancy swung from 11.8% to 9.8%, a major tightening of the office market.

Manhattan's average asking rent fell 38.4% and San Francisco's dipped 25.0% during the financial crisis, but Washington DC's only fell by a modest 2.5%, JLL reported. 

The market has since stagnated, with average asking rents rising only modestly over the last decade from $51.19 per square foot in 2010 to $58.97 per square foot now, according to CBRE. Rental rates have actually fallen during that period, according to Savills, when factoring in the incentives landlords lavish on tenants, such as periods of free rent and contributions to the costs of building out their office interiors.   

The $2 trillion CARES Act, which was passed in March, hasn't ushered in the same government hiring that has translated into market booms in the past.

"For many government tenants now, it's a pivot rather than an expansion," Lipson said.

Despite the headwinds, some investors are optimistic

There are some signs for optimism. Washington DC lost about 337,000 total jobs year over year in April compared to nearly 2 million in New York City, about 1 million in Los Angeles, 630,000 in Chicago, 485,000 in Boston, and 375,000 in San Francisco, according to data from Cushman & Wakefield.

The CARES Act has spurred a surge in spending on lobbying, which in the past has translated into modest upticks in leasing activity, especially for pricey, high-end offices that many firms in that industry prefer.

That's the kind of demand that Deitelzweig is counting on for his firm's recent acquisition of 1307 New York Avenue NW, a roughly 125,000-square-foot office building that Marx Realty purchased for a little over $40 million in April.

Deitelzweig said the company plans to invest roughly another $40 million renovating the property, which will be fully vacant by the end of the year.

Marx Realty is aiming to operate the building in a manner akin to a hotel, employing features it has used to reposition other buildings it owns, such as 10 Grand Central, a roughly 430,000 square foot office building in Midtown Manhattan, where it has a doorman and concierge desk, a tenant lounge and outdoor space, and even a signature scent and soundtrack in the building's common areas.

Nearly a century ago, the building served as a headquarters for the newspaper the Washington Times-Herald, including its printing operations, according to Deitelzweig. Because of that, it features high ceilings in its lower floors that were necessary to house the printing equipment. Deitelzweig said those airy rooms will now help his firm avoid the typical difficulties filling lower level spaces.

"The in-place rents in the building were in the $20s per square foot," Deitelzweig said. "We're aiming for the $60s and $70s."

Have a tip? Contact Daniel Geiger at dgeiger@businessinsider.com or via encrypted messaging app Signal at +1 (646) 352-2884, or Twitter DM at @dangeiger79. You can also contact Business Insider securely via SecureDrop.

SEE ALSO: Amazon just signed its largest-ever warehouse lease in NYC. Here's how it's been making deals left and right to grow its massive storage and distribution network.

SEE ALSO: A flagship Neiman Marcus store in the glitzy Hudson Yards mega-mall is being marketed as office space, showing how developers are making a big pivot as retail bankruptcies mount

SEE ALSO: Companies from banks to tech giants are looking to shed huge chunks of office space. Here's a look at 8 key sublease offers — and what they mean for rents in big-city markets.

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The stars are aligning for a V-shaped rebound in US housing — and ING says it could kickstart a swift recovery in other parts of the economy

Sat, 06/27/2020 - 8:27am  |  Clusterstock

  • There are early signs that a V-shaped recovery may be underway in the housing market. 
  • A slew of data this week either showed early signs of recovery, or represented the low from the shock of the coronavirus pandemic. 
  • This could help lift other areas of the economy, especially those linked to housing, according to James Knightley of ING. 
  • "As people move to a new home they typically also spend money on new furniture and home furnishings, garden equipment and building supplies such as a new paint job and a bit of home improvement," said Knightley. 
  • Visit Business Insider's homepage for more stories.

Like most parts of the economy, the housing market was slammed by the coronavirus pandemic and sweeping shutdowns to curb the spread of disease that kept consumers on the sidelines. 

But now, as states across the US reopen, there are signs of a rebound in housing demand that are encouraging and could lead a recovery in other parts of the economy, according to economists at ING. 

This week, new home sales jumped 17%, more than economists expected, as buyers rushed back to the market. Mortgage applications to purchase a home dipped slightly this week, but are a staggering 18% higher on the year and last week hit an 11-year high.

And, even though existing home sales stumbled in May, falling 9.7%, the National Association of Realtors expects it was the low point before what's expected to be a solid rebound.

"At face value this is remarkable given the scale of joblessness in the economy and the ongoing uncertainty relating to the path of Covid-19," wrote James Knightley, ING's chief international economist, in a Wednesday note. 

All things considered, "the outlook for housing transactions, construction activity and employment in the sector is looking much better than what looked possible just a couple of months ago," he said. 

Read more: A market-crash expert known as 'Dr. Doom' warns a 10-year depression is coming — and says investors are far too confident about a possible recovery

These early signs of a solid "V-shaped" recovery in the home market could have positive implications for other parts of the economy — especially those that are connected to housing, such as retail sales. "As people move to a new home they typically also spend money on new furniture and home furnishings, garden equipment and building supplies such as a new paint job and a bit of home improvement," said Knightley. 

Going forward, a number of factors are likely to provide a "decent platform" for a recovery in housing and associated sectors. Mortgage rates remain at historic lows, and the Federal Reserve has signaled that monetary policy will remain accommodative for some time. 

In addition, the economy is adding jobs, which will further help fuel spending on big-ticket items such as homes, Knightley said. 

Read more: From a late-night infomercial to a 1,040-unit empire worth $188 million, how Jacob Blackett perfected his real-estate-investing strategy after losing $70,000 on his first deals

Still, there are potential risks of a setback, Knightley cautioned. Unemployment remains high, with millions of Americans collecting benefits and filing on a weekly basis. And, while the extra $600 in weekly unemployment benefits have helped support consumer spending, they are set to end in July and it's unclear that further stimulus will be approved. 

That could mean that households that've experienced job losses could soon feel significant financial pain. "Should this result in rising mortgage delinquencies and defaults this could derail the recovery phase with forced sales boosting supply and depressing prices," said Knightley. 

Read more: The chief strategist of $2.5 trillion State Street recommends 7 ETFs for investors looking to profit from a permanently altered post-coronavirus landscape

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A market-crash expert known as 'Dr. Doom' warns a 10-year depression is coming — and says investors are far too confident about a possible recovery

Sat, 06/27/2020 - 8:04am  |  Clusterstock

  • Nouriel Roubini, an economics professor at New York University's Stern School of Business, thinks the economy is hurtling toward a prolonged economic depression.
  • To bolster his thesis, he rattles off a plethora of negative trends and features that are now being exacerbated by the prevalence of the coronavirus. 
  • Roubini thinks the recovery from the virus will be "anemic," and that markets are pricing in a scenario that is "totally not consistent" with the underlying environment. 
  • Roubini has been nicknamed "Dr. Doom" for his repeated pessimistic forecasts.
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Nouriel Roubini, a professor of economics at New York University's Stern School of Business, has a knack for calling bubbles.

In 2006, a full-year before the financial crisis sent the global economy spiraling into turmoil, Roubini — who has been dubbed "Dr. Doom" — was calling foul on the housing market. 

Today, in the wake of the coronavirus, he's warning of a prolonged economic depression spanning the next decade.

"For a quarter or two, it may look like a 'V' shaped recovery," he recently said at the Bloomberg Invest Global conference. "But the way I differ from consensus is that, consensus believes that by next year the 'V' shaped recovery is going to continue — that growth is going to be something like 6% in United States, three times as much potential."

Roubini came prepared with a litany of reasons backing his divergence in opinion, including:

  • Huge piles of public and private debt
  • Aging demographics
  • Disappearing jobs
  • Slack in goods and real-estate markets
  • Deglobalization
  • Rising tensions between the US and China 
  • Negative supply shocks

Although many of these trends were in place before the virus struck, Roubini thinks the coronavirus crisis has exacerbated their ferocity. What's more, he believes the culmination of these forces will "lead us to a greater depression."

"There's going to be a painful process of deleveraging, both by the corporate sector and the household sector," he said. "They have to be spending less, saving more, and doing less investment, capex, or residential investment."

That said, Roubini thinks calls for a 'V' shaped recovery are dubious. To him, those prognostications are "totally not consistent" with the underlying economic milieu. As a result, he's projecting more of a 'U' shaped rebound that features a stretch of slow growth.

"I see the recovery being strong all in the third quarter, and then fizzling out by the forth quarter, and then becoming very anemic by next year," he said. "Most firms are highly leveraged. They have to survive and thrive by cutting costs and saving more."

As financial stress mounted during the ongoing crisis, the list of notable virus-induced bankruptcies gained steam. Roubini thinks there are more to follow.

"So many firms right now are either bankrupt or on the verge of bankruptcy," he said. "They have to take action to try and survive."

"How are they going to do it?" he asked. "By reducing labor costs. First, firing people and then rehiring them in a more flexible way. The trouble is that what's my labor cost is somebody else's labor income."

In Roubini's mind, all avenues seem to lead to less growth and a sub-par, sputtering economic recovery for years to come.

SEE ALSO: A 30-year market veteran explains why we're in 'one of the nutsiest bubbles in the history of bubbledom' — and warns of an 'underwater' economy for the next several years

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40 insiders reveal the meteoric rise of Silver Lake's Egon Durban, the tech-focused PE firm's No. 1 dealmaker who strong-armed his way to the top and is about to get $18 billion more to invest

Sat, 06/27/2020 - 8:00am  |  Clusterstock

  • Egon Durban became co-CEO of Silver Lake Partners in December, giving him more control of the tech-focused private-equity firm he joined as a young banker in 1999.
  • As Durban rose through the firm, he pushed Silver Lake to expand its investment targets outside of tech and into live events, travel, and content, industries that are particularly challenged by the coronavirus pandemic. 
  • Business Insider spoke to more than 40 people who have or currently work with Durban, or across from him on deals, to understand his rise, including a moment when some of those sources said he led an effort to push the firm's founders for control. 
  • Sign up here for our Wall Street Insider newsletter.

It seems like nothing can touch Egon Durban. 

Durban, the co-CEO of private equity firm Silver Lake Partners, is a newly-minted billionaire drawing comparisons to Warren Buffett, with membership in some of golf's most exclusive clubs and an inside track to the Oscars. A Texas native who made his name acquiring and then selling Skype, he has rapidly become the lead dealmaker on investments spanning entertainment, media, and technology. 

When Twitter shareholders demanded the ousting of its CEO, Jack Dorsey, Durban stepped in and put up $1 billion. The lead instigator, Elliott Management's Jesse Cohn, settled his campaign. And when home-for-rental company Airbnb faced a dropoff in business, Durban again pulled out his private-equity wallet.

Business Insider interviewed more than 40 people close to Durban and Silver Lake, including those who do or have worked directly with him and across from him, to get inside the media-shy firm and understand how Durban will drive its investment choices for years to come. 

They described how one of the most prolific private-equity executives climbed the ladder in an organization, pushed for more control, and then proceeded to put his mark on the firm. 

Read more: Silver Lake has been plowing money into bets like Airbnb, Twitter, and Waymo. Here's a look inside why it's being called the Warren Buffett of tech.

One person who attended Silver Lake's annual gathering — a virtual event this year, rather than at a San Francisco hotel — noted that it was Durban who spoke for the majority of the time allotted. In the past, according to the repeat attendee, the air time would have been more evenly split among top executives. 

"It was the epitome of how the firm has transformed from what it was to what it is today," the person told Business Insider. "It's become the Egon Durban show." 

Flying too close to the sun

Already, Silver Lake is invested in Hollywood, media and global sports, and there's a clear sense that its expansion has only just begun as competitors such as SoftBank Group retreat from a series of losing investments and Buffett stands on the sidelines.

The firm is almost finished raising its latest fund — one source said it could settle on as much as $18 billion — making it one of the largest buyout funds focused exclusively on tech investments, with the opportunity to reshape entire industries. 

Some insiders now wonder whether Durban may be flying too close to the sun, striking deals in the middle of a pandemic that's decimated live events and travel. Companies like Airbnb and Twitter are a far cry from the staid but dependable investments upon which Silver Lake made its name, backing the operations of software and hardware companies. 

A review of his track record shows it's not the first time Durban has demonstrated an appetite for bold bets. And in other cases, he's emerged from them with greater returns than others thought possible. 

At the same time, while Durban's investing prowess has only grown during his more than two decades at Silver Lake Partners, his rise has fueled internal rivalries, with influence and power resting with those in his inner circle, and others left on the outside, sources told Business Insider.

Some said executives' success at Silver Lake could hinge on proximity to Durban, and that dynamic created internal competition.

People who have worked closely with Durban and Silver Lake spoke with Business Insider on the condition of anonymity, either because they were not authorized to speak publicly or feared repercussions for talking candidly about its executives. 

Read more: Hollywood's top talent agencies may need a bailout from their PE backers as the coronavirus hammers big bets on live sports and studio production

A Silver Lake spokesman declined to make Durban, or co-CEO Greg Mondre, available for an interview, while offering this statement: 

"This story blatantly disregards the facts, relying instead on gossip, rumor and speculation to paint a grossly inaccurate and distorted picture," it said. "Silver Lake is focused on creating value by partnering with CEOs and management teams to build and grow great companies in a socially responsible manner, where success is defined by trusted relationships, long-term performance and merit-based talent development in a highly collaborative culture.  We are all close friends and proud of building the firm together in partnership with our leadership team. Silver Lake did not participate in this story."

From Georgetown to Wall Street

Durban, a serious Georgetown University student according to former classmates, began his career at Morgan Stanley, a plumb post at what was then one of the leading Internet tastemakers. 

It was there that Durban first showed a steely resolve, exhibiting a rare fearlessness to working with clients much older and more experienced than him, according to Gordon Dean, a banker who worked with Durban back then and has stayed in touch.

"Egon has always been very comfortable sitting at the grown-up table," Dean said.

In 1999, Durban left for Silver Lake where he was on the ground floor of something that had never been done before: an investment firm that poured money into technology companies, taking them over and making big changes in order to jack up their value and sell them at a higher price. 

Cris Conde, the former CEO of SunGard, one of Silver Lake's first LBOs when it was done in 2005, recalled his early experience interacting with the firm's executives. Durban, he said, had suggested that he put more money into research and development, which he said transformed the company. Conde said he didn't mind the grilling he received from Silver Lake throughout the process, but others did.

"I could see I had members of my team that found their bedside manner to be a little too aggressive," Conde said. "In retrospect, I should have said 'lower your volume from 8 to 7, people might hear you better.'"

Silver Lake and its partners made $2.2 billion on that investment when they sold it to Fidelity National Information Services Inc. in 2015.

Read more: Wall Street is betting AMC is in a downward spiral. Here's the inside story of how the world's biggest movie-theater chain is battling for a comeback.

Others didn't go as smoothly.

In another instance, Silver Lake went through three different CEOs after buying Serena Software in 2005, according to three people with direct knowledge of the matter.

After a Silver Lake executive told the first CEO it wasn't working out, two subsequent CEOs didn't work out either, with one of them expanding the company into a new area of sales that didn't catch on. It was a huge frustration to executives who ran the company at the time Silver Lake acquired it.

On that investment, Silver Lake lost money. The owners sold Serena Software to another private-equity firm, HGGC, in 2014 for $450 million, after buying it for $1.2 billion. 

Nonetheless, Silver Lake's returns have been above average. The firm's fourth fund delivered a net return 25.3% through last year, according to data from Washington state's pension plan, placing it in the top quartile of funds tracked by Cambridge Associates. A fifth fund raised in 2018 missed the top quartile with a 15.8% return. 

Running the London office

In 2005, Durban was dispatched to London to build out Silver Lake's European presence, an assignment that helped establish him, among peers, as a clear future leader.

He built out the office and led deals, but above all, became a charismatic figure — a center of gravity that led others to want face time, according to people with direct knowledge of the matter. He had a Southern charm that grew on colleagues, a Longhorns fan who wasn't accustomed to the British dialect of locals. 

"He was a genuinely down to earth, humble guy," said one person who was close to him.

He was also loud and temperamental, said people who knew him. 

Colleagues admired the fact that he wasn't afraid to make bold decisions, clashing with traditional financial modeling when it came to deciding which companies to invest in, and what to do with them once Silver Lake took control. 

One person who worked there recalled lengthy decks about investment theses, where executives sifted through the contents and wondered what exactly Durban saw in a prospective target. 

But time and again, his convictions proved accurate, cementing a reputation for seeing business combinations that others didn't. 

Climbing the ranks at Silver Lake 

Back in New York, one of Silver Lake's founders, Glenn Hutchins, had started to lose his footing. 

Hutchins, a mustachioed financier who liked to go shoeless in the office, would lead the firm's Monday morning meeting and liked to appear on financial news channels. A former private-equity executive at Blackstone before founding Silver Lake, he was well-known in New York's social and philanthropy circles. 

But when the financial crisis hit and markets plunged, the stress proved too much. Hutchins became withdrawn from some colleagues, taking time off from the firm to recuperate.

Silver Lake kept moving forward. Durban soon inked a deal, partnering with Andreessen Horowitz and Canada's pension plan in 2009 to buy Skype from eBay for $1.9 billion.

The early video conferencing company was burdened by intellectual property lawsuits and slowing user growth. EBay's CEO had started prepping for a Skype spinoff when Durban swooped in, quickly settled the lawsuits, sunk money into development and hired a world-renowned chief executive. 

In 2011, Silver Lake sold Skype to Microsoft in an all-cash deal worth $8.5 billion. Silver Lake tripled its money in 18 months, according to someone close to the deal. 

That success gave him increased standing in the firm just as Silver Lake was beginning to think about raising money for its fourth flagship fund.

Durban took the opportunity to seize more power.

He pushed Hutchins and Silver Lake's other two founders, Jim Davidson and David Roux, for a greater share of Silver Lake spoils — earnings that, between pay and dividends, could translate to hundreds of millions of dollars, according to three people familiar with the matter. Mondre, Ken Hao, and Mike Bingle, members of a younger generation, also asked for greater responsibility and the compensation that came with it.

The talks were contentious at times and by then Durban and Hutchins, while similar in some regards, were not getting along, according to people with direct knowledge of the talks.

Roux, more open to making a lifestyle change than the others and already satisfied with his wealth and outside projects, stepped aside and began his formal transition in 2012, according to a person familiar with the matter. 

Hutchins, who enjoyed his stature in New York financial circles, was less willing to hand over control. The younger execs gained backing from Davidson, seen by people there at the time as critical leverage to force Hutchins' hand, according to people with direct knowledge of the matter.

After resisting, Hutchins finally agreed to give up control, though he continued working in the firm's New York office for several more years, investing on behalf of his family office. 

Davidson stayed on for some time in an operating role, though he agreed to reduce his stake in the partnership. A statement announcing Silver Lake's fourth fund listed him alongside the four younger execs as managing partners, then the firm's top title.  

A person who was there at the time acknowledged that in many partnerships there are ambitions, emotions and rivalries.

Gathering influence

With the founders taking on a reduced role, Durban's influence only grew. 

Around that time, he led the purchase of a 31% stake in William Morris Endeavor, Hollywood's largest talent agency, and joined the board. The investment spawned an internal joke that Durban wanted to buy it simply so he could attend the Oscars, according to two people with direct knowledge of the matter. 

Silver Lake, and Durban, would make a splash with an agreement in 2013 to buy Dell Technologies, the Round Rock, Texas-based personal computer maker. Silver Lake put about $1 billion into that $25 billion deal, and more into Dell's 2016 purchase of EMC, the largest tech deal in history. The roughly one third of the company it now owns is worth about $4.9 billion.

Several years later, Durban took further steps to improve his ability to rub elbows with current and prospective business partners – on the golf course. 

Once considered a mediocre golfer during his London days, Durban turned the company's Menlo Park gym — a perk for analysts, associates and principals working late into the evening — into a practice facility for improving his golf game, according to former employees. 

Only he and a few senior partners had a key.

By 2016, employees had to tap their connections to access other firms' gyms, either walking to Blackstone's facility across Sand Hill Road or down the street to KKR, according to someone with direct knowledge. 

Durban now boasts an 8.4 handicap, and memberships in some of the world's most prestigious clubs including Cypress Point, San Francisco, and Nanea, the Hawaii course conceived by his friend and mentor, KKR's George Roberts. 

Company politics

As Durban gained power, Silver Lake was becoming more cliquey and hierarchical, according to people with direct knowledge of the matter.

Some executives latched onto Durban, filling his ears with words of praise, and going out golfing with him, according to one of these people. Others found that he no longer associated himself as much with them, which could affect the kind of work they received and their influence in investments, several people said.

One friend who benefited from his continuous loyalty was Mondre, who joined Silver Lake with Durban back in 1999 as an associate. They grew up at the firm together and helped each other out, with Mondre taking on responsibilities in some of Durban's most challenging deals, including SunGard, according to one person with direct knowledge of the matter. 

And yet Mondre is considered by some to be aloof, arrogant and easily aggravated. A couple years ago, one story about the dealmaker that spread through Silver Lake's halls was that he threw a deal toy after getting upset that a meeting had been scheduled around someone else's calendar, rather than his own, according to two people who said it had become the talk of the office. 

Four other Silver Lake insiders who have worked with Mondre perceived him to be a weaker investor than Bingle, another executive who has recently taken on a reduced role, with one pointing to companies like communications firm, Avaya, that did not pan out.

Another executive who worked his way into Durban's orbit was Joe Osnoss, a graduate of Harvard with an affinity for the French language. Osnoss joined Silver Lake in 2002 and transferred to London just as Durban relocated to the United States, and his relationship with Durban was sometimes uncertain, according to a person who knows both men.

Only when Osnoss figured out how to work with Durban did his influence at the firm increase, the person said. In December, when Silver Lake said Durban and Mondre would become co-CEOs, Osnoss was made a managing partner.

'Next generation coup'

Others have taken smaller roles, including two of the original group that took over from the founders. 

Ken Hao, who led Silver Lake's investment into Alibaba, keeps out of office politics and is considered by some insiders to be a better investor than Durban. He agreed in December to become chairman, which some saw as him taking a smaller part in the firm's management. 

The December announcement also said Bingle, an expert in financial-technology investments, would move to the chairman emeritus role, with the understanding that he would not participate in Silver Lake's next fund. One source familiar with the matter called the transition a "next generation coup."

Bingle, who had made a name for himself on investments that had been more traditional Silver Lake plays — Instinet, Mercury Payments and Blackhawk — was soft spoken, collegial and well-liked internally.

Moving far afield of Silver Lake's roots

Today, Silver Lake has owned WME parent Endeavor, which houses mixed martial arts league UFC and the Miss Universe competition, for eight years, a relatively long time in private-equity circles. Last September, as Endeavor was heading for an IPO, Silver Lake and the management team had to cancel it when investors balked at the price

It also owns a $500 million stake in the Manchester City soccer club, nearly 10% of Madison Square Garden Sports and sunk $100 million into Oak View Group, a stadium construction and rehabilitation business. 

Other private equity firms like Apollo Global Management have steered clear of using investor dollars to finance sports teams, out of fear that executives could fall in love with their investments and make decisions that run afoul of investors' best interests. Mondre is a longtime fan of the MSG-owned New York Rangers hockey team, according to one person with knowledge of his allegiances. 

Read more: We talked to billionaires, business titans and an NBA star about the Apollo cofounder who wants to buy the New York Mets. Here's how he can apply his private equity turnaround playbook to a team that haven't won a World Series since 1986.

The coronavirus pandemic hasn't done Durban any favors, suspending sports seasons and slowing the pipeline of production in the business of Hollywood, where his friend Ari Emanuel has instituted across-the-board pay cuts and layoffs by the hundreds. 

An investment in AMC Theatres, the largest US movie chain, looks no better – in April, Fitch Ratings placed an AMC loan on a list of "loans of concern." In early June, AMC issued a warning that it had "substantial doubt" about whether it could continue as a going concern in the face of lost business from the pandemic. A week later, AMC announced plans to reopen theaters in 450 locations on July 15, initially facing backlash from customers, because the company's CEO said it wouldn't require workers to wear masks. He later reversed the call.

Yet it may be Silver Lake's recent investment in Airbnb – which Durban made without meeting CEO Brain Chesky in the flesh – that's led people close to him to privately question his own judgment. The home-stay company, perhaps the most well known of the Silicon Valley unicorns, saw business fall as the coronavirus forced governments to institute stay-at-home orders and global travel ground to a standstill. 

As economies have opened, Airbnb's business has started to come back and a planned public offering may yet happen this year.

If Airbnb completes a successful offering, the investment may still count among Durban's wins. The private equity firm owns an equity option, giving it the ability to participate in some upside.

But to those close to Durban, it's still too early to evaluate his recent forays into travel, live events and content, or, for that matter, the December management changes. Supporters insist that he'll moderate his take-charge approach as he ages, while detractors see in his reign the beginning of the end to Silver Lake's two decades of success. 

"He's charming. He is smart and charismatic — he's all those things that make you successful," according to one former executive. "The question is: what's the motivation? Is it for your investors to make money? Or is the motivation for Egon to be the biggest guy in private equity?"

Billions of dollars in investment gains or losses rest on the answer to those questions.

SEE ALSO: Silver Lake has been plowing money into bets like Airbnb, Twitter, and Waymo. Here's a look inside why it's being called the Warren Buffett of tech.

SEE ALSO: Private equity bet billions on live entertainment in 2019. Here's how the coronavirus has turned that investment thesis on its head.

SEE ALSO: Hollywood's top talent agencies may need a bailout from their PE backers as the coronavirus hammers big bets on live sports and studio production

Join the conversation about this story »

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Here's who's most at risk once Wall Street kicks off the tidal wave of layoffs many banks had put on pause

Sat, 06/27/2020 - 7:54am  |  Clusterstock

  • Many banks had pledged they wouldn't slash jobs during the coronavirus pandemic.
  • Europe's biggest bank, HSBC, has restarted plans to slash 35,000 jobs. Goldman Sachs will resume normal cuts next year, its CEO said. 
  • Boutique firms without a strong restructuring practice are "dead in the water," one investment banking executive recruiter told us. Bankers in the upper-middle ranks at these firms may be most at risk. 
  • Perella Weinberg's restructuring practice is up 100% this year in terms of revenue, yet the firm this month laid off 50 bankers.
  • Sign up here for our Wall Street Insider newsletter.

Many Wall Street giants made pledges to keep jobs safe during the pandemic. But promises of job security can only go so far. 

Take Goldman Sachs. The bank's CEO, David Solomon told Bloomberg TV on Wednesday that the firm will resume job cuts next year. 

The bank hasn't made any cuts in 2020 "because it hasn't been appropriate," he said, adding that Goldman hires 2,000 to 3,000 people out of school each year and normally looks at the firm's bottom 5% to make room for new blood. He also noted Goldman still has medium and longer-term goals to run more efficiently that it had laid out at its first-ever investor day.   

Johnson Associates, which published the latest edition of its closely-watched Wall Street pay report on Tuesday, noted that the remote-work shock has fast-tracked the need for cuts.

"Going forward, there will be lower headcount even with normal business volumes. The change may be jolting, not incremental, and be particularly difficult to manage at the end of this painful year," the report said. 

Some global banks have already resumed massive cuts they'd put on pause.

Europe's biggest bank, HSBC, last week restarted plans to slash 35,000 jobs. Most cuts of those will be back-office jobs in investment banking and trading; senior bankers in Britain; and support staff around the world, according to media reports. Deutsche Bank is also moving ahead with layoffs it put on ice in March, CEO Christian Sewing said at the firm's annual general meeting in May. 

And other industries like consulting haven't been shy about making cuts during the pandemic: Accenture is cutting US staff, and top execs just warned of more pain to come as the consulting giant promotes fewer people and looks to control costs. 

What remains to be seen is how things will shake out for US bankers once the world moves past peak crisis, and what, if any, backlog of cuts could be unleashed.

To be sure, many North American banks have been stronger performers overall than European peers. Banks may be reluctant to make any rash decisions and lose their grip on top talent — especially if a backlog of deals could also be waiting on the other side of the pandemic.

Equity capital markets and debt capital markets activity has surged during the pandemic, with even IPOs starting to roar back in recent weeks. Still, announced M&A volumes have dropped, and banks are constantly under shareholder scrutiny for ways to cut costs — particularly as ultra-low interest rates crimp overall profits.

But compared to other business lines that have long been under pressure — asset management, for example — even M&A advisory may remain relatively attractive. As Business Insider already reported, life-insurance giant Transamerica told all its salaried workers they need to take a one-week unpaid furlough, and investment manager TIAA is offering 75% of US employees buyouts. 

"It's a cyclical business, and we're in a downcycle, which is normal but it's being further exacerbated by pandemic related headwinds including the inability to travel and meet with potential M&A targets in person, which we think is more important than in some other capital markets businesses," Devin Ryan, an analyst at JMP Securities, told Business Insider in an email.

But M&A advisory is a great "non-commoditized" business, he said, with strong long-term growth potential that is more attractive than many other areas of finance. 

"While M&A is clearly one of the more challenged businesses at the moment, which will weigh on overall industry results, we don't think these difficult near-term dynamics will have a big long-term impact for most companies, " he said. 

Here's a look at how things are shaping up across Wall Street: 

What Wall Street banks are saying about job security

Morgan Stanley CEO James Gorman has said the bank won't cut staff during 2020. Bank of America chief Brian Moynihan has gone on record saying there would be no coronavirus-related cuts this year, and a spokesperson for the bank told Business Insider that remains the case.

Citi has said at the height of the pandemic that it had "suspended new reductions for the time being," and a spokesperson told Business Insider that there was no update to that guidance. 

Still, those kinds of pledges may mask planned cuts that could resurface down the road. And headcount had already been shrinking across Wall Street. 

RBC had been planning to cut staff in its US investment bank in March, according to sources familiar with the matter, but as the pandemic gripped the country those plans were shelved. The company said it now has no plans for cuts in US investment banking in 2020.

According to data published in May by research firm Coalition, headcount across trading and investment banking shrank at the fastest pace in six years in the first quarter. To be sure, certain firms can sway the overall rankings — Deutsche Bank, for example, announced plans to quit equities trading entirely last year. Investment banking jobs were flat from a year earlier, but headcount has generally been shrinking in recent years. 

While highly-paid bankers are prized for landing deals and generating lucrative fees, compensation costs a key lever that banks can pull to improve their profitability. The amount of money earned per each front-office banking job rose across the board in the first quarter, according to the Coalition data.

Bankers at boutiques without big restructuring practices 

Advisory boutiques could be especially hard-hit in 2020 amid the M&A drought.

Unlike bulge-bracket competitors — who have an array of business lines that are firing even in the absence of megadeals, including red hot debt and equity underwriting operations — their revenue streams rely heavily on deal activity. 

Many of these firms have built out an important counterweight since the last financial collapse — restructuring and debt advisory services for troubled companies, a business that has flourished amid the economic chaos wrought by the pandemic. 

Firms have been coping with the decline in deals by deploying junior bankers and senior bankers with relevant experience to help with restructuring work. The influx in debt advisory mandates provides a salve against losses, but even top-tier restructuring practices don't compensate for the dropoff in deal fees.

Firms without a strong restructuring practice are "dead in the water," one investment-banking executive recruiter told Business Insider.

Perella Weinberg's restructuring practice is up 100% this year in terms of revenue, according to a source familiar with the matter, yet the firm this month laid off 50 bankers, or 8% of its staff. 

That included a handful of bankers in the firm's underperforming media and telecom group. Woody Young, who led the team, stayed on in as a chairman of M&A and remains involved with major accounts, but is no longer running the group day-to-day, sources told Business Insider. Perella Weinberg declined to comment. 

To be sure, if the economy reopens and deals roar back in the second half of the year, the fee losses could be tempered. 

Read more: With retailers like J. Crew and Neiman Marcus floundering, top restructuring bankers are seeing a surge in work. Here's how firms like Lazard, Evercore, and Moelis are staffing up.

Some boutiques made pre-pandemic cuts after rapid growth

Some boutique firms had trimmed their numbers even before the pandemic hit. Lazard closed several offices and cut 200 jobs in late 2019. Evercore, meanwhile, announced company-wide layoffs in January — the first broad-based reduction in force the firm has undergone — with plans to cull 6% of the staff.

Evercore CEO Ralph Schlosstein said in his first-quarter earnings call that the firm had no plans for further layoffs, but headhunters said cuts may prove necessary if deals don't rebound. 

The company has significantly expanded its senior ranks in recent years, and it's known for paying-top dollar to bring elite bankers into the fold, including lucrative guaranteed payouts during new bankers' ramp-up phase. The firm added 31 senior managing directors in 2018 and 2019 —  more than half of them recruited from the outside — bringing the total for the firm's advisory group to 112. 

"Evercore has a solid team, but they have hefty guarantees," one executive search consultant said. 

SMDs at Evercore typically earn a percentage of the revenues they generate so as to align compensation with performance, according to people familiar with the matter.

Earlier this month, Evercore offered $25,000 to incoming analysts to defer their start date for a year.

Upper-middle ranks are in no man's land

Bankers in the upper-middle ranks — like directors and non-partner MDs — may be most at risk. While VPs and associates are coveted, since they have execution experience but come with comparatively cheap salaries, these bankers take in big paychecks but don't yet have the same kind of Rolodex and book of business as senior bankers.

These staffers can get stuck in banker no man's land, according to recruiters, if they are working for a rainmaker but don't yet have much opportunity to develop clients of their own. One escape valve is to jump to a firm still building out its M&A platform, including bulge-bracket banks that are expanding.

After the last crisis, banks could be more inclined to keep senior talent 

But if job cuts do materialize, they're unlikely to be among senior bankers, according to several recruiters, as at most boutiques their comp is weighted toward performance.

Moreover, one of the lingering lessons of the last crisis, when large investment banks cut their ranks only to have M&A surge in subsequent years, was to hold on to senior talent.

"The banks drastically cut their bankers and the markets came roaring back in '09 and '10 and they were left flat footed," one headhunter said.

Areas that are heating up

Banks are now looking to beef up areas in high demand, like distressed debt-trading, one banking and financial services-focused New York-based recruiter said. 

"They're going to need to hire in those areas," the recruiter said, referring to distressed debt units as where it's "all guns blazing" inside firms right now. 

For live roles particularly within the distressed space and for restructuring-focused firms looking to staff up, some have met for interviews face-to-face, though still from a distance. Banks are also staffing up in risk and compliance roles, he said. 

"I've had interviews where they met for a socially distant meeting, for something like a walk along the beach," he said.

Keep reading:

SEE ALSO: nd other industries like consulting haven't been shy about making cuts during the pandemic: Accenture is cutting US staff, and top execs just warned of more pain to come as the consulting giant promotes fewer people and looks to control costs.

SEE ALSO: POWER BROKERS OF DISTRESSED CREDIT: Meet 11 Wall Street stars trading busted bonds, bankruptcy claims, and other fire-sale securities

SEE ALSO: Equity is the new debt, with Corporate America selling record amounts of stock to stockpile cash. Here's what prompted the sudden shift.

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Financial Services: 6 Key Attributes to Attract Gen Z

Sat, 06/27/2020 - 6:00am  |  Clusterstock

Now the largest generation worldwide, Gen Z accounts for nearly 68 million people in the US alone. As Gen Zers age, financial services providers will be increasingly pressed to shift focus to the burgeoning demographic.

As digital natives, Gen Zers are more receptive to influence from friends and family than traditional advertising. For marketers, strategists, and developers, understanding Gen Z's unique needs — and creating and marketing products accordingly — will be critical to reaping their value.

In Financial Services: 6 Key Attributes to Attract Gen Z, Business Insider Intelligence provides a six-point framework that highlights core traits of the demographic, which banks and payments firms can use to attract, engage, and retain Gen Zers.

This exclusive report can be yours for FREE today.

As an added bonus, you'll receive a free preview of our Banking Pro Briefing.

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“Murenda is 20 times more nutritious than cabbages..." In Kenya Demand For Indigenous Vegetables Soar As Residents Grapple With Covid- 19 Economic Shocks

Fri, 06/26/2020 - 9:28pm  |  Timbuktu Chronicles
From Kenyan News:As Kenyans grapple with economic shocks following outbreak and spread of coronavirus pandemic heavy rains witnessed in Nakuru have come with sorts of relief following increased supply of African Indigenous Vegetables (AIVS) at various food outlets and markets in the region.

A spot check at main farm produce outlets at Afraha Stadium, Ponda Mali, Soko Mjinga and Kaptembwa open air markets established that demand for jute mallow (murenda), vegetable cowpea (kunde), African nightshade (managu), spider plant (saget), pumpkin leaves (Lisebebe) and African kale (kanzira) had superseded that of Sukuma wiki, Spinach and cabbage...[more]

Macro hedge funds are back in demand as investors look to ride out market volatility. JPMorgan lays out why the surge in interest won't be short-lived.

Fri, 06/26/2020 - 3:50pm  |  Clusterstock

  • Most hedge funds struggled during times of extreme market volatility, according to a new report from JPMorgan.
  • But one subsector of the industry, macro managers, have thrived in market chaos, JPMorgan found, including during this year's coronavirus sell-off.
  • Now, institutional investors are turning to macro managers for diversification in their portfolios, and even considering small managers.
  • Visit Business Insider's homepage for more stories.

Alan Howard has not let a crisis go to waste.

The billionaire co-founder of Brevan Howard has made eye-popping returns across his macro-focused funds after years of underperformance and redemptions. He made a personal best 18% in March alone, when the pandemic spread rapidly across the US, shutting down the global economy. 

It was an exception in the hedge fund industry, where many funds — like quants and structured credit managers — were hit with losses and margin calls. But it wasn't an exception for the macro world.

Managers like Greg Coffey's Kirkoswald and Chris Rokos' eponymous fund put up solid returns; Rokos has even re-opened to new money. 

Even as the markets have calmed down in recent months, JPMorgan's global market strategist David Lebovitz expects the demand for these types of managers to continue. 

"Firms are being forced to think about how they build portfolios" in a low-interest rate environment, he said in an interview with Business Insider. Lebovitz works with the clients of the firm's asset management business to understand what they are looking for in a money manager, and helps compile the firm's Guide to Alternatives report.

Getting diversification and protection from equity markets is tough, and traditional sources for it — like high-quality bonds and real assets — have become expensive to hold.

"Increasingly, we are seeing people do this through hedge-fund strategies, in particular macro managers," he said.

The average hedge fund, JPMorgan has found, loses money when the VIX — a measure of volatility in the markets — spikes. But macro managers have performed the best when volatility has been highest, with this year's earlier sell-off being the latest example. While macro managers stagnated after the financial crisis, with smooth market conditions limiting their ability to outperform, their performance in the worst of times has attracted investors once again, Lebovitz said. 

"We've now seen a couple moments of volatility where macro funds did what they are supposed to do," Lebovitz said.

Read more: Macro hedge funds are soaring while quants and stock-pickers tank. Here are the biggest winners and losers.

The flows have already started to trickle in, with Eurekahedge noting that $2.6 billion inflows went into the macro space in April alone. For the quarter before April, when markets were mostly calm until the pandemic hit the United States in mid-March, $22.6 billion were redeemed from macro funds, according to Hedge Fund Research.

But the biggest macro managers might be tough for managers to break into. Coffey has already closed his fund to new investors, and macro legends like David Tepper and Louis Bacon are mostly investing their own wealth. 

This opens up a chance for smaller or new managers that are often filtered out of investors' potential options because of their AUM or inexperience. Institutional investors don't typically consider investing in managers with less than $50 million in assets under management, according to several banks' capital introduction teams' surveys of clients. 

"They're willing to give these managers a chance," Lebovitz said of JPMorgan clients investing in hedge funds. 

New macro managers on the horizon include Tepper's nephew, Aaron Weitman, and his fund, CastleKnight Management.

Lebovitz at least thinks they'll be needed.

"I don't think the market is going to settle down anytime soon."

Read more: 

SEE ALSO: Macro hedge funds are soaring while quants and stock-pickers tank. Here are the biggest winners and losers.

SEE ALSO: The head of Point72's Cubist quant-trading unit is joining one of billionaire Steve Cohen's top competitors

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The chief strategist of $2.5 trillion State Street recommends 7 ETFs for investors looking to profit from a permanently altered post-coronavirus landscape

Fri, 06/26/2020 - 3:14pm  |  Clusterstock

The coronavirus pandemic caused a "great reset" for investors, according to Michael Arone, the chief investment strategist of the US SPDR business at State Street Global Advisors.  

"Life as we know it has changed forever," he said in a recent note. "However, this new environment also presents opportunities for innovative businesses to adapt and potentially thrive in the post-pandemic environment."

Some of the biggest changes will cut right to the heart of investing. The areas where income could reliably be generated and safety could be found may look a lot different in this cycle compared with the just-concluded one.

But the pandemic is also reinforcing some trends that were already underway. To help investors navigate the road ahead, Arone identified three themes that should be top of mind. He also listed exchange-traded funds from the SPDR catalog that correspond with these themes. 

1.  Innovation

The pandemic is accelerating various technological trends that had been on the upswing.

Arone expects these transformations to continue for years to come as the world reopens and establishes an entirely new sense of normality. He highlighted three industries where the changes would be most prominent and which are ripe for investing opportunities:  

  • Software and services providers, which are expected to grow their earnings at an 18% annual rate over the next three to five years versus 10% for the broader market, according to FactSet data. 
  • Biotech firms are at the forefront of coronavirus treatments and projected to maintain positive earnings growth relative to the broader market this year. On a three- to five-year basis, the FactSet estimate is 19% — nearly double the S&P 500 rate of 10%.
  • Cybersecurity companies are in high demand because of the boom of remote events and digital payments. 

To capture these broad innovations in your portfolio, consider the SPDR S&P Kensho New Economies Composite ETF, Arone said. It aims to track an index of the same name that contains disruptive companies. 

2. Total return

For the credit markets, Arone said interest rates swiftly fell earlier this year as the Federal Reserve responded to the crisis with stimulus measures. 

This means investors must now strike a delicate balance between holding defensive bonds and hunting for yield. As of Thursday, the 10-year Treasury note yielded 0.672% — not the most attractive remittance for an investor who wants income in addition to safety.

Arone has identified alternatives in the credit market that align with what the Fed is buying in its unlimited quantitative-easing program — namely, mortgage-backed securities that offer a beneficial yield per unit of risk exposure and short-term corporate bonds. The SPDR Portfolio Mortgage Backed Bond ETF and SPDR Portfolio Short Term Corporate Bond ETF offer exposure to both kinds of credit without needing to pick individual names.

For investors who are willing to take on more risk for higher potential returns, Arone flagged the SPDR Portfolio High Yield Bond ETF. And for those with more conservative appetites, the SPDR Bloomberg Barclays Convertible Securities ETF is an option.

3. Relative value opportunities across borders

US investors have long been rewarded for their home bias — a behavioral tendency to crowd one's portfolio with domestic-stock exposure and not diversify internationally.

Even now, US stocks are still leading the performance scoreboards and investors are piling in. Meanwhile, they've pulled $34 billion from non-US-focused ETFs during the past three months, which is a record for any similar stretch of time.

Arone is now urging investors to flow in the other direction. China, where coronavirus cases peaked in late February, is leading the Asia-Pacific region in an economic recovery that may be faster than the West's. Its benchmark equity index is outperforming the US's on three- and six-month bases. The nation stands to further benefit through exports as other countries revive their economies.

Consider the SPDR S&P China ETF as a pure play on publicly traded companies that the country makes accessible to foreign investors. Alternatively, the SPDR MSCI EAFE StrategicFactors ETF can assist you in trimming your home bias to US stocks. 

SEE ALSO: Morgan Stanley handpicks 10 stocks to buy now for the richest profits as travel and outdoor activities transform in the post-pandemic world

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Coconut Chips from Readi Cocochips Ghana

Fri, 06/26/2020 - 2:51pm  |  Timbuktu Chronicles
A profile of Readi CocoChips:

Dow tumbles 700 points as investors mull spiking virus cases

Fri, 06/26/2020 - 2:36pm  |  Clusterstock

  • US stocks fell on Friday as spiking coronavirus cases threaten to slow economic reopenings.
  • Bank stocks slumped after the Federal Reserve said on Thursday that it would limit stock buybacks and cap dividends.
  • The Commerce Department said on Friday that US consumer spending jumped by a record amount in May even as personal incomes fell.
  • Read more on Business Insider.

US stocks fell on Friday as investors continued to watch spiking coronavirus cases threaten economic-reopening efforts nationwide.

Bank stocks led losses after the Federal Reserve on Thursday said it would limit stock buybacks and cap dividends. The central bank said the decision was part of an effort to boost the capital of big banks to guard against further shocks stemming from the coronavirus pandemic.

Here's where US indexes stood at 2:30 p.m. ET on Friday:

Read more: The chief strategist of $2.5 trillion State Street recommends 7 ETFs for investors looking to profit from a permanently altered post-coronavirus landscape

Investors have been closely watching as surges in new coronavirus cases throw off some states' reopening progress — on Thursday, Texas and Florida paused their reopening plans.

Still, markets have largely shrugged off the climbing cases as some data shows positive signals. US consumer spending jumped by a record 8.2% in May, while personal income declined, the Commerce Department said on Friday.

Shares of Gap rallied more than 30% on Friday following an announcement that the company had reached a deal with Kanye West to create a line of Yeezy apparel.

Read more: From a late-night infomercial to a 1,040-unit empire worth $188 million: Here's how Jacob Blackett perfected his real-estate-investing strategy after losing $70,000 on his first deals

In an online conference on Friday, Christine Lagarde, the president of the European Central Bank, said that while the worst of the coronavirus crisis might be over, the recovery would be "sequential and restrained" and could be transformational for some industries.

Oil prices slid. West Texas Intermediate crude fell as much as 2.4%, to $37.79 per barrel. Brent crude, the international benchmark, slipped 1.9%, to $40.73 per barrel, at intraday lows.

Volumes may be higher than usual later on Friday as the Russell indexes undergo their annual rebalancing.

Read more: Aram Green has crushed 99% of his stock-picking peers over the last 5 years. He details his approach for finding hidden gems — and shares 6 underappreciated stocks poised to dominate in the future.

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'Bonds will hedge you against nothing' in the current market environment, says famed investor Nassim Taleb

Fri, 06/26/2020 - 1:58pm  |  Clusterstock

  • In a CNBC interview on Friday, Nassim Taleb told investors that bonds "have no upside" and "have run their course."
  • Taleb pointed to negative interest rates as reasons investors could no longer count on bonds as a traditional hedge against market sell-offs.
  • Taleb suggested that to protect investment portfolios, stock investors should have a tail hedge to protect against systemic risks.
  • Taleb is an adviser to Universa Investments, which runs tail-risk-hedge investment strategies and posted a 4,144% return in the first quarter.
  • Visit Business Insider's homepage for more stories.

The famed investor Nassim Taleb told investors on Friday that bonds "have run their course" and would no longer serve as a traditional hedge against a market sell-off.

In a CNBC interview, Taleb said that because of negative interest rates, "bonds practically have no upside structurally." Taleb said he didn't believe that bonds could really have negative interest rates, adding that the Federal Reserve had lost a weapon by dropping interest rates to near zero in response to the coronavirus pandemic.

Taleb suggested that investors hold on to stocks for upside and protect against downside by having a tail hedge. "If you don't have a tail hedge," he said, "I suggest not being in the market."

Taleb added that uncertainty loomed over the market because of the Fed's increased printing of money and lack of room to lower interest rates. And even if the coronavirus pandemic calms down, consumers will remain cautious, which will harm many industries, he said.

Read more: The chief strategist of $2.5 trillion State Street recommends 7 ETFs for investors looking to profit from a permanently altered post-coronavirus landscape

Taleb said that while stocks could pick up if we enter an inflationary environment, any inflation would be hyperinflation, not mild inflation; on the flip side, we may be in a state of continuous deflation. He said that because of these uncertainties, investors needed to have an investment portfolio that's conservatively positioned and hedged for both scenarios.

Taleb is an adviser to Universa Investments, a hedge fund that specializes in tail-risk strategies. These strategies tend to perform well when volatility unexpectedly spikes in the markets: Universa posted a 4,144% return in the first quarter amid the coronavirus-related market sell-off.

"You need to be hedged for these two states, which makes things very delicate, and the first thing I would say is bonds will hedge you against nothing from here on," Taleb concluded.

Read more: From a late-night infomercial to a 1,040-unit empire worth $188 million, how Jacob Blackett perfected his real-estate-investing strategy after losing $70,000 on his first deals

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From Affirm to Klarna, buy now pay later startups are booming. But experts warn juggling explosive growth with responsible lending is a tricky balance.

Fri, 06/26/2020 - 1:28pm  |  Clusterstock

The ability to buy something and pay over a period of weeks or months isn't new. But a cohort of startups has put a fresh coat of paint and a tech-y spin on this way to pay, and they're growing fast.

Buy now, pay later — also known as point-of-sale financing, installment lending, or, simply, alternative credit —  is booming. Banks and fintechs alike are giving consumers the option to break out of monthly credit-card billing and stretch their purchases over time.

Players like Affirm, Afterpay, and Klarna each have several million customers in the US and thousands of partner retailers ranging from H&M to KitchenAid to Walmart.

"They are a disruptor in this space, and they're making traction," Zachary Aron, US payments leader at Deloitte Consulting, told Business Insider regarding the startups.

And as they've scaled, these buy now, pay later (BNPL) startups are eyeing opportunities to become more than just buy buttons in e-commerce checkout windows.

"It's hard to envision a mono-line buy now, pay later, 'this is all that we do,'" Aron said. "That doesn't feel like the natural ending point of this."

And the space is crowded, with players like QuadPay, Splitit, and Sezzle also competing for shoppers and merchant partnerships. While Afterpay, Sezzle, and Splitit are all publicly traded in Australia, Affirm and Klarna have together raised over $2 billion in funding from investors like Ashton Kutcher, Snoop Dogg, and Visa.

But with growth comes new challenges. Managing consumer credit at scale leads to increased risk. And the desire to maintain growth could lead these fintechs to seek partnerships with incumbents, or find an exit through an acquisition.

Read more: Buy now, pay later startups are 'having a moment' — here's why retailers like Walmart and Target are betting on installment payments to keep consumers spending

The adoption of buy now, pay later is part of a broader shift in consumer credit

Across the board, consumer credit is shifting toward more bespoke options for borrowers. Fintech lenders and banks are using more than just FICO scores to measure creditworthiness, meaning they're able to differentiate more between different consumers.

"If you think about some of the tech advances around how credit is being managed you're seeing a lot more parameterized choices," Aron said. "There's a goal here to enable greater personalization and allow people more control of how they manage and use their money."

BNPL players are a part of this shift, enabling shoppers to take out small-value installment loans, often without interest, to break up purchases over several weeks. These installment products give consumers more flexibility than a typical credit-card provider, which bills monthly and often charges interest and fees on late payments. 

What's more, US consumers are increasingly turning to debit cards in lieu of credit. Card network Visa, for one, saw US credit-card volumes decline by 21% in May year-over-year, while debit card volumes grew 12%.

"The fintechs caught onto a consumer preference of moving away from credit and moving more towards a debit or direct debit-type payment or installment-type loan," Sara Elinson, Americas fintech and payments M&A leader at EY, told Business Insider.

Buy now, pay later startups are already moving beyond the point-of-sale

Players like Affirm, Afterpay, and Klarna started as merchant-facing fintechs offering a new way to pay online. The business model is pretty straightforward: Merchants embed a BNPL option at checkout, and when a shopper uses it, merchants pay the BNPL provider a fee (typically between 4% and 6%). 

Merchants are willing to pay these fees if having the BNPL option at checkout drives sales — and, according to the fintechs, they do. Affirm says it can help increase average purchase sizes by upwards of 85%, Afterpay says merchants see a 20% to 30% increase, and Klarna says it can increase order values by upwards of 45%.

Read more: Startup QuadPay is dramatically expanding its reach by partnering with payments giant Stripe to offer shoppers the ability to buy now, pay later at any store

But as the fintechs acquired more customers through these merchant partnerships, they've started looking for ways to reach consumers directly. 

"You start off on the merchant side, but then if you can get to the consumer side, now you've got a little more stickiness," Aron said.

In BNPL apps, users can browse partner retailers and request an installment loan on purchases anywhere (the fintechs issue single-use digital cards that shoppers can use to checkout).

And some of these players are exploring more financial products to expand beyond their BNPL roots. Affirm launched a high-yield savings account in June, and Klarna rolled out a loyalty program for its users.

By offering shoppers the ability to use the product anywhere, these BNPL players can grow their user bases without having to partner with individual merchants.

"What everyone's trying to do is get as seamless as possible, not just for the consumer, but for the merchant," said Elinson.

Read more: Snoop Dogg-backed fintech Klarna is taking a page out of Amex's playbook and launching a loyalty program to edge out its buy-now-pay-later rivals

Achieving massive scale poses new challenges

To be sure, there are challenges to rapid growth. The more shoppers who use a BNPL product, the more credit risk these fintechs have to manage. 

And the impact of the coronavirus pandemic, which has left a record number of Americans unemployed, could force these fintechs to shift their focus from growth to managing risk.

"In the short term, nine to 12 months, it's going to be an aspect of evaluating and managing the risk models," Aron said. "I think we all understand the recovery aspects could be challenged for a bit."

Read more: Buy now, pay later startups are surging. But Affirm CEO Max Levchin says the industry will see a shakeout as the pandemic hits borrowers.

The payment space, in particular, has been an area of focus as millions of Americans are missing credit-card payments amid the coronavirus pandemic

On Tuesday, The New York Times' reported that small businesses said Jack Dorsey's Square was holding up to 30% of its customers payments to protect against chargeback, or when a merchant needs to return money to a customer.   

Banks, meanwhile, have been rolling out assistance programs, like waiving late fees, for customers impacted by the pandemic. 

"Any player, regardless of whether it's buy now, pay later or a traditional one, is going to be highly motivated to be on the side of the consumer right now," Aron said. "The sentiment will be pretty negative if it was on the side of debt accumulation, as opposed to, say, being able to help people manage money in a sensible manner."

A majority of US consumers cut back on spending during the coronavirus pandemic, according to EY's Future Consumer Index

And while on the surface that might seem like it would negatively impact BNPL players, Elinson said with more sensitivity around spend, flexible financing products could prove more attractive.

"When you have that environment, combined with some of these products that allow you to be a little bit more prudent with your current spend, I think this continues to be a market that will be attractive," Elinson said.

Point-of-sale financing is likely not an end game, be it through M&A or partnerships

While players like Affirm, Afterpay, and Klarna have attracted millions of users, their scale still pales in comparison to major credit-card providers like American Express and JPMorgan Chase. Sustaining growth could involve seeking partnerships with larger incumbents, or finding exits through acquisitions.

"I do tend to think that these buy buttons and fintechs, they're getting to a really nice scale," Elinson said, "but I do think that they could be better served being within a portfolio of products within a larger financial services offering."

Read more: Tencent just snapped up a $250 million stake in Afterpay. Now the 2 are gearing up to bring buy-now-pay-later options to China's massive e-commerce market.

But for incumbents, it's not necessarily the user base that's attractive compared to the tech and their position in the market.

"It may not be about the book of business as much as the technology," Aron said.

Their ability to make instant credit decisions at the point of sale could prove attractive. And the BNPL players have established themselves as viable players in context, especially at the point of sale, which could be valuable to incumbents, Aron said. 

Partnerships with incumbents, too, could be the next step for these BNPL players to keep scaling, Aron said. 

Elinson echoed a similar sentiment. 

"If you think about some of the models where they're providing just the technology but not any of the underlying capital for the lending, there are probably economies to be had in terms of vertical integration that could be had by those being owned by a bank, or somebody with bank-like funding," Elinson said.

"So I do think that we could see some M&A in that regard," he added.

Read more:

SEE ALSO: Tencent just snapped up a $250 million stake in Afterpay. Now the 2 are gearing up to bring buy-now-pay-later options to China's massive e-commerce market.

SEE ALSO: Snoop Dogg-backed fintech Klarna is taking a page out of Amex's playbook and launching a loyalty program to edge out its buy-now-pay-later rivals

SEE ALSO: Buy now, pay later startup Affirm just launched a high-yield account with an eye-popping rate. Its CEO explains why the startup wants to cater to both saving and splurging.

Join the conversation about this story »

NOW WATCH: Tax Day is now July 15 — this is what it's like to do your own taxes for the very first time

A little-known biotech working on a COVID-19 vaccine has surged 304% in 2 days — and it just said it was picked for the US government's Operation Warp Speed program (VXRT)

Fri, 06/26/2020 - 12:56pm  |  Clusterstock

  • Vaxart, a small-cap biotechnology company focused on developing oral vaccines administered by tablet rather than injection, said on Friday that it had been selected for the US government's Operation Warp Speed project.
  • Vaxart's stock has skyrocketed 304% in the past two days — and as much as 449% this week — as it's released a slew of news about its development of a COVID-19 vaccine candidate.
  • The firm said its vaccine was "the only oral vaccine being evaluated" within the Operation War Speed program.
  • Though it's a clinical-stage company with no products approved for sale, Vaxart has seen its market cap surge to about $850 million from $200 million, according to data from YCharts.
  • Visit Business Insider's homepage for more stories.

A little-known biotech company working on developing a COVID-19 vaccine candidate has skyrocketed 304% in the past two days — and as much as 449% this week — as it announced a slew of news.

Vaxart, a clinical-stage biotechnology company focused on developing vaccines administered by tablet rather than injection, said on Friday that it had been selected to participate in the US government's Operation Warp Speed program.

The news sent Vaxart's stock as much as 106% higher on Friday morning. The firm said that its oral COVID-19 vaccine candidate would be involved in a nonhuman primate challenge study and that it was "the only oral vaccine being evaluated" in the program.

Operation Warp Speed is a private-public partnership by the federal government designed to speed up the development and production of a COVID-19 vaccine, therapeutics, and related diagnostics. Companies selected by the government to participate and receive funding include Merck, Moderna, Pfizer, Johnson & Johnson, and AstraZeneca.

Read more: The chief strategist of $2.5 trillion State Street recommends 7 ETFs for investors looking to profit from a permanently altered post-coronavirus landscape

The one-week stock surge was in part driven by news on Wednesday that Vaxart would be added to the broad-market Russell 3000 index, effective Monday. The news sent the stock higher by 20% as traders looked to front-run the Russell 3000 rebalance set to take place next week.

On Thursday, Vaxart surged 96% after it said it signed a memorandum of understanding with Attwill Medical Solutions Sterilflow to "enable the large scale manufacturing and ultimate supply" of Vaxart's COVID-19 vaccine candidate. The two firms said they hoped to be able to produce "a billion or more COVID-19 vaccine doses per year."

Read more: From a late-night infomercial to a 1,040-unit empire worth $188 million, how Jacob Blackett perfected his real-estate-investing strategy after losing $70,000 on his first deals

Based on Friday-morning trades, Vaxart is set to end the week 328% higher. The firm has seen its market capitalization skyrocket to about $850 million from just under $200 million at the start of the week, according to data from YCharts.com.

Vaxart has joined a slew of small-cap biotechnology companies, such as Sorrento Therapeutics, that have skyrocketed after announcing news about their COVID-19 vaccine candidates.

Shares of Vaxart traded up as much as 106% on Friday morning, to $12.90, and were up more than 3,000% year-to-date.

Read more: Aram Green has crushed 99% of his stock-picking peers over the last 5 years. He details his approach for finding hidden gems — and shares 6 underappreciated stocks poised to dominate in the future.

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Power Line: $2 billion for clean energy — Schlumberger job offers disappear — 22 top energy stocks

Fri, 06/26/2020 - 11:46am  |  Clusterstock

Welcome to Power Line, a weekly energy newsletter brought to you by Business Insider.

Here's what you need to know:

We're almost in July, which means I've started planning my 30th birthday. I've thrown out dreams of a densely packed NYC dance floor and replaced them with a day trip to find otters in the rivers of Eastern Iowa. Those are the same, right? 

We skipped last week because Insider Inc. was closed in honor of Juneteenth. Next week, we have an exciting feature coming out — the rising stars of clean energy. Stay tuned. 

Now, let's get to it. 

Investors are throwing money at clean energy as spending in oil and gas wanes 

On Tuesday, Amazon announced a new $2 billion VC fund dedicated to technologies that reduce the impact of climate change, such as energy storage and electric transportation. 

  • "Companies from around the world of all sizes and stages will be considered, from pre-product startups to well-established enterprises," Jeff Bezos, Amazon's founder and CEO, said in a public statement.  
  • The Seattle-based behemoth — which is worth more than $1.3 trillion in today's market value — didn't specify over what time frame the "initial" $2 billion would be dished out. 
  • The announcement follows criticism of the firm's environmental record. 

Read more: Batteries, fusion, and hydropower: Meet the 24 clean-energy startups that Bill Gates is backing

A broader trend: Amazon's new fund widens a growing stream of money emptying into the clean-energy industry. 

  • In February, Jeff Bezos, himself, said he would spend $10 billion to address climate change through an initiative called the Bezos Earth Fund. 
  • In January, Microsoft committed $1 billion to carbon capture and removal technologies.
  • The investment firm Generate Capital raised $1 billion for clean energy. 
  • Sequoia Capital hinted it's now investing in climate tech.
  • A nonprofit called Prime Coalition recently closed a new $50 million fund that will channel investment into early-stage clean-energy startups
  •  … to name a few!

Oil and gas faces a different reality: New clean-energy investment heavily contrasts what's happening in the oil and gas industry.

  • Global spending on oil exploration and production is poised to fall to $383 billion this year, the lowest level in 15 years, according to a new analysis by Rystad Energy. 
  • About 125 exploration and production companies have indicated that they're cutting spending, Rystad said. 
  • The research firm said spending would stay pretty much flat next year. 
  • Shale is among the oil classes that will be hit the hardest, Rystad says.  

Flashback: As we previously reported, private equity investors, who fueled the US shale revolution with $125 billion, are facing a reckoning. 

  • Small- and medium-sized PE firms focused on oil and gas will struggle to raise new funds in the future, experts told us.
  • Roughly 80% of the 500 or so PE-backed shale firms in North America will struggle to find buyers, one investor said. Exits are traditionally how PE firms recoup their investment. 

'We have taken the difficult decision to rescind your job offer': Cheap oil evaporates new Schlumberger jobs 

Price check: US crude oil opened this morning just under $40 a barrel. That's double where it was at the start of May, but it's still down more than 35% since the start of the year. 

Oilfield services (OFS) companies — which provide drilling tech and services — are among the companies most exposed to low oil prices.  

  • There are just 189 active drill rigs across the US, down 72% since March, Bloomberg reported
  • Almost 2 million barrels of oil per day have been taken out of production in that same period. The US was producing a record 13 million barrels per day in February. 

Schlumberger reacts: Schlumberger is the largest OFS company in the world, with a market value of more than $24 billion, but that doesn't mean it's immune to cheap oil. Since the pandemic took root, the firm has laid off workers, cut pay, and rescinded job and internship offers

  • Scores of fresh college graduates had their job offers rescinded including international students who are now racing to find new positions that will allow them to stay in the country.
  • "Schlumberger's activity and outlook has been negatively impacted by two unforeseen events: decline in oil price and the impact of COVID-19," the company wrote in a letter to a student whose offer was revoked. "Unfortunately, we have taken the difficult decision to rescind your job offer."
  • Schlumberger has laid off about 2,000 people this year, according to the Houston Chronicle.
  • In April, the firm also implemented two furlough programs for its North American staff and cut pay for some workers, according to letters we obtained.

In other news: "A woman who worked as [a] field engineer at Schlumberger has sued the oil-field services company for $100 million, alleging pervasive sexual harassment and a workplace culture that accepted it," the Houston Chronicle reports

Has your career in the energy industry been impacted by the oil price downturn? Please reach out to me at bjones@businessinsider.com

Goldman Sachs: 22 energy stocks worth buying as oil trends up

Analysts at Goldman Sachs say oil markets, while still down, are entering the next leg of the recovery. That bodes well for a handful of stocks in each segment of the energy industry.

  • The bank favors utilities and expects the sector, as a whole, to perform well over the next year. 
  • On the flip side, the analysts are more hesitant to invest in companies that refine crude oil into products like fuel. 
  • The bank says that fuel demand is expected to recover, but it adds that "absolute gasoline demand in the US peaked in 2018." 

You can see all 22 of the bank's top picks here, across refiners, oil majors, utilities, midstream, and exploration and production. 

This week's top stories
  • Oil majors: The London-based oil giant BP said it's "writing down as much as $17.5 billion of its assets and might leave some of its oil and gas in the ground because of lower energy prices and weakened demand," the Wall Street Journal reports
  • Racial disparities: "Black renters and homeowners face substantially higher residential energy costs than white residents, and these persistent differences are present almost throughout the income scale," Axios reports
  • Solar: Sunrun, the nation's leading rooftop solar installer, is working with utilities to aggregate power from batteries across its customer base in an effort to create virtual power plants, Greentech Media reports
  • Wind: The CEO of Ørsted, one of the world's largest wind energy companies based in Denmark, is stepping down after eight years leading the company, Reuters reports

That's it! Have a great weekend. 

- Benji

Ps. Here's a lil robin family on my porch that does not give a damn about anti-bird spikes. 

Join the conversation about this story »

NOW WATCH: We tested a machine that brews beer at the push of a button

Gap surges 42% after striking 10-year deal with Kanye West and Yeezy

Fri, 06/26/2020 - 10:53am  |  Clusterstock

  • Gap stock surged as much as 42% on Friday after the clothing giant said it struck a 10-year partnership with Kanye West and his Yeezy fashion brand.
  • West is set to design a "Yeezy Gap" clothing line to be sold in stores and online next year.
  • Gap is targeting $1 billion in annual sales from Yeezy Gap in five years' time, The New York Times reported.
  • Visit Business Insider's homepage for more stories.

Shares in Gap soared as much as 42% on Friday after the apparel retailer announced a 10-year partnership with Kanye West and his Yeezy fashion brand.

The celebrity rapper, music producer, and entrepreneur will design a "Yeezy Gap" line of affordable adult and children's clothing that will be sold in Gap stores and online next year, Gap said.

The stock-price increase added more than $1 billion to Gap's market capitalization, lifting it to about $4.8 billion as of 11:20 a.m. ET.

However, Gap stock is still down more than 20% this year.

Read more: The chief strategist of $2.5 trillion State Street recommends 7 ETFs for investors looking to profit from a permanently altered post-coronavirus landscape

Gap, which also owns Old Navy and Banana Republic, is hoping the line will generate $1 billion in annual sales after five years, The New York Times reported. The Gap division reported $4.6 billion in net sales last year.

West already collaborates with Adidas on Yeezy sneakers. Bank of America valued Yeezy's shoe business at $3 billion and expected it to earn $1.3 billion in sales last year, The Times said.

West, who worked at a Gap store as a teenager, told The Cut in 2015 that he would like to be "the Steve Jobs of the Gap."

Gap said West would receive royalties and possible equity tied to the sales performance of Yeezy Gap.

Read more: From a late-night infomercial to a 1,040-unit empire worth $188 million: Here's how Jacob Blackett perfected his real-estate-investing strategy after losing $70,000 on his first deals

Join the conversation about this story »

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