HIGH-FLYING GERMAN FINTECH WIRECARD CRASHES AMIDST ALLEGATIONS OF FRAUD
In a move that shocked the market, German payments company Wirecard announced that its auditors at EY couldn’t account for $2 billion of cash on its balance sheet, prompting allegations of a history of financial fraud at the company. Wirecard had been a stock market darling over the past decade, continuing a long climb to a valuation above $25 billion, despite continued allegations of accounting trickery and corporate malfeasance on behalf of tenacious short-sellers. In addition, over the past 18 months, the Financial Times revealed an in-depth probe into accounting irregularities and forged contracts used to inflate revenue at the company. The CEO of Wirecard resigned in shame and its stock was down over -70% on news of the fraud. It is unlikely to survive at this point.
SPAC TORTOISE ACQUISITION SPEEDS AHEAD AS IT ANNOUNCES MERGER WITH HYLIION
Tortoise Acquisition Corp., a special purpose acquisition company, saw its stock soar as much as 60% after it announced a business combination with Hyliion Inc., a leader in electrified powertrain solutions for semi trucks. Investors continue to be keen on stocks involved with the electric vehicle market, as indicated by the performance of both Tesla and Nikola shares. The price-action on Tortoise shares also displays investors’ current interest in SPACs, a key strategy of the Accelerate Arbitrage Fund.
ROYALTY PHARMA STOCK DAZZLES IN ITS DEBUT AS THE LARGEST IPO OF THE YEAR
Hot initial public offerings are back, as shares of Royalty Pharma Plc surged 57.1% in their Nasdaq debut. The company sold shares in the IPO at $28.00 per share, raising $2.18 billion, making it the largest IPO of 2020 and the second largest pharmaceutical IPO of all-time. The deal was nearly 10x oversubscribed, with a demand of more than $20 billion. In its first few days of trading, the shares jumped above $50.00, valuing the firm at nearly $30 billion. Royalty Pharma’s offering stands in contrast to some of the recent more speculative biotech deals, as the company is more of a cash-flow business and less of a high-growth stock given it acquires royalties of future drugs from labs and biotech companies..
Notable Insights, Articles, Podcasts, and Tweets
Listen to venture capitalist Naval Ravikant discuss his strategy for investing in early stage startups.
Private meal delivery company DoorDash announced that it was looking to raise $400 million in equity financing prior to its initial public offering. The pre-IPO finance would value the startup at about $16 billion. It has previously filed for an IPO in February, so investors should see a public listing later this year.
A recent study shows that since 2006, the performance of private equity has merely matched that of the broad-based public equity index, although with significantly more risk. My theory on why investors continue to choose private equity? Mark-to-model accounting which creates an artificially-smoothed return profile.
Economist David Rosenberg believes that the Fed has manipulated the credit market, which has led to a substantial amount of overvalued bonds despite increased credit risk due to the pandemic. “This market is rigged, pure and simple,” he claims. Certainly, credit spreads have recovered quickly to pre-pandemic levels given the Fed actions, however, there remain other credit-like asset classes in which the Fed does not participate, in which spreads remain quite wide (arbitrage, for example).
In his newest memo, Howard Marks asks, “how can stocks be doing so well during a severe pandemic and recession?” Some reasons for the substantial equity rally off the lows include steps taken by the Fed and Treasury to support the economy, the COVID-19 curve being flattened in more areas and rising optimism regarding potential vaccines and treatments. However, given lofty valuations, Marks is perhaps right in thinking that currently, “the odds aren’t in investors’ favor”.
Instead of reducing return expectations as interest rates declined relentlessly over the past three decades, pension fund giant Calpers is instead choosing to increase the leverage used within the fund to meet its increasingly lofty 7% return target. This may not end well.
How did Saba Capital’s Boaz Weinstein profit off the market mayhem this year? He did not foresee the pandemic, however, he bought what he thought was incredibly cheap insurance in the form of high-yield credit-default swaps, or CDSs, before the bear market struck. “I was seeing the most incredible mispricings I’d ever seen. I’m still not over how ridiculous it was.”
Montreal-based cancer drug developer Repare Therapeutics Inc. went public this week on the Nasdaq. Its stock was up as much as 70% in its trading debut, a prime example of investors’ risk appetite for new issues in the current environment.
Grocery store company Albertsons, owned by private equity firm Cerberus, has commenced its process to go public. Its IPO is long overdue, as the struggling grocer has been a 15-year leveraged buyout for Cerberus. Typically, private equity firms look to exit an LBO within 7 years. Albertsons was long-struggling, however, the company’s performance has gained significant momentum during the pandemic as consumers stocked up on essential items, leading to the perfect time for its private equity backer to flip the stock to the public market.
Epic Games, the creator of the hottest video games out there, Fortnite, is expected to raise a $750 million round of equity funding at a valuation of nearly $17 billion. It last raised capital at a $15 billion valuation in 2018.
Is the market efficient? It appears not. Investors are paying a whopping 837% premium above net asset value for the Ethereum Trust, a retail investor favourite.
A new study shows that “a large fraction of existing smart beta funds are simply market funds,” and most smart beta funds are ineffective in harvesting alternative risk premia.
Due to the speculative fervour in the most-hyped stocks, Tesla is now the largest auto manufacturer in the world by market capitalization, despite producing a small fraction of the total vehicles.
Steroid Dexamethasone, which is used to reduce inflammation in other diseases such as arthritis, has been shown to reduce death rates by around one-third among the most severely ill COVID-19 patients. Doctors are hailing it as a significant medical breakthrough in the battle against the coronavirus.
Millennials have discovered day-trading and they are using video app Tik Tok for stock tips on highly speculative equities. It appears we’re in a redux of the equity bubble of the late nineties, in which day-traders proliferated. What’s next — the E*TRADE baby?
Renaissance Technologies, one of the most successful hedge funds of all time, has been thrown for a loop this year as its hedge fund is down -20.7%. Even the greatest of all time goes through slumps.
Kudos to the SEC for doing their job in protecting investors (no matter how unsophisticated) by halting the proposed $500 million stock sale of Hertz, the bankrupt car rental company.