What You Need To Know This Week — June 27th, 2020
What You Need To Know This Week
A weekly recap to keep you informed on the most important events this week impacting markets, business, tech and the global economy.
GAP STRIKES DEAL WITH RAPPER KANYE WEST FOR YEEZY BRAND
Struggling retailer Gap Inc may have found a new lease on life as it signed a 10-year agreement with rapper and fashion designer Kanye West for a proprietary line of Yeezy clothing. The deal represents the increasing use of celebrity brand power to spur lagging product sales. West’s brand Yeezy, recently valued at $2.9 billion, already has a shoe deal with Adidas. Gap’s stock was up as much as 42% on the news, representing an increase in market value of over $1 billion.
SUPERMARKET OPERATOR ALBERTSONS FINALLY GOES PUBLIC AFTER TWO FAILED ATTEMPTS
U.S. supermarket operator Albertsons went public this week in a downsized $800 million initial public offering. The century-old grocer completed its go-public transaction after previously failing twice — with a failed IPO in 2015 and a terminated effort to merge with publicly-traded Rite Aid two years ago. Albertsons is not raising any capital in the offering. All of the proceeds of the IPO are going to its private equity owner Cerberus, which has owned the company since 2006 and has been trying to exit for many years. The pandemic has provided an opportune time, as the IPO window has opened and the financial performance of grocery stores has been elevated due to consumers stocking up on food. The stock ended the week down -3.4% from its $16.00 IPO price, which was below its initial $18.00 to $20.00 target range.
GYM FRANCHISE F45 TRAINING ANNOUNCES GO-PUBLIC WITH SPAC CRESCENT ACQUISITION
Special purpose acquisition company Crescent Acquisition Corp announced an $845 million merger with gym franchise F45 Training. The Mark Wahlberg-backed gym chain has more than 1,900 franchises in 50 countries. Founded in 2013, F45 merges intensity interval training, circuit training, and functional training into one group workout. Crescent Acquisition’s stock was up as much as 29% on the news.
Notable Insights, Articles, Podcasts, and Tweets
Check out Accelerate CEO Julian Klymochko discuss hedge funds, private equity, liquid alternatives, his most memorable trade and the democratization of alternative investments on the Meb Faber Show.
Hedge funds profited to the tune of €1 billion by selling short shares of Wirecard, whose share price collapsed spectacularly after a multi-billion dollar fraud was uncovered and it filed for insolvency proceedings. In addition, Wirecard’s CEO has been arrested and its COO is on the lam in Asia. Personally, I can’t wait for the movie on this enthralling drama.
Amazon is acquiring Zoox, a self-driving car technology startup, for over $1.2 billion. Amazon will use Zoox to build a ride-hailing fleet of vehicles. The company was founded in 2014 and was previously valued at $3.2 billion in July 2018.
Google is acquiring the long-struggling Canadian smart glasses start-up North for about $180 million. Since its founding in 2012, the company has raised more than $160 million in funding.
Alternative data is becoming commoditized and returns are diminishing as quantitative investment firms increasingly utilize the same data. Customized and proprietary data, such as AlphaRank, represents the future of investing. Nonetheless, alternative data is still beating more traditional signals in explaining market returns.
The criticism continues for put-selling strategies such as the one that led to a nearly $3 billion loss at the Alberta Investment Management Corporation. Many describe the volatility-selling programs, which blew up a number of hedge funds in March, as weapons of mass destruction. Investors should be wary, as these strategies print good returns with low volatility and high Sharpe ratios when markets are calm, but can present extreme downside risk as volatility picks up.
The AIMCo executives that oversaw the large investing loss at the pension fund manager have left the firm. Unfortunately, this incident will likely spur more private asset investing at the pension fund, given that the mark-to-model nature of private assets helps to artificially smooth returns and mask volatility, which reduces career risk of the executives making the investment decisions. This movement to private assets will occur despite the prospect of lower returns from the asset class. However, many returns-focused institutional investors are pursuing bargain-priced assets in the public markets.
Bill Ackman has filed to launch the largest special purpose acquisition company of all time. The SPAC will raise between $4 billion and $6.45 billion in a bid to acquire a private “mature unicorn.”
Steal from the poor and give to the rich. “Commission-free” trading apps such as Robinhood are making high frequency traders even wealthier, as higher stock volumes and wider bid-ask spreads have driven outsized returns for market makers. Hedge fund Citadel is one of the main beneficiaries of the explosion in retail trading.
Insiders from former SPAC DraftKings have sold nearly $600 million of shares as the stock has become a retail investor favourite. The stock is up over 230% since it went public, despite a lack of regulatory certainty regarding online gambling and a dearth of sports.
Former Activist investor Jeff Ubben believes that shareholder activism is dead: ““Finance is, like, done. Everybody’s bought everybody else with low-cost debt. Everybody’s maximised their margin. They’ve bought all their shares back . . . There’s nothing there. Every industry has about three players. Elizabeth Warren is right.” Ubben left the activist firm he founded, ValueAct Capital, to found a new investment firm focused on ESG.
Private equity firm Apollo believes that life will get back to normal quickly and has recently allocated $50 billion of capital based on that thesis. “The firm’s house view is a rosy one: People will quickly return to normal patterns, such as staying in hotels, hopping on planes, and eating in restaurants.”
Another leveraged buyout bites the dust as Apollo-led CEC Corporation, the parent company of kids’ favourite Chuck E. Cheese, filed for bankruptcy. Investors in private equity funds need to be cognizant of the prodigious amount of debt used in leveraged buyouts, which dramatically increases bankruptcy risk and the probability of an investor losing money. It also may be a good time to spend any Chuck E. Cheese tickets or tokens you hold.
Publicly-traded sports supplement retailer GNC Holdings has filed for bankruptcy. It is another victim of the coronavirus-led economic shut-down. The company may sell itself to one of China’s largest drugmakers, Harbin Pharmaceutical Group.
Austria raised €2 billion by issuing a 100-year bond at a yield of 0.88%. At that puny yield, it appears that investors are willing to accept negative real returns for a century. I’m sure most are in it for a short-term speculation on yield declining even more, which would lead to capital appreciation of the duration-rich sovereign bonds. Nonetheless, the bond offering was nearly 10x oversubscribed.
According to Swiss-based business school IMD’s annual ranking, Canada’s economy is now more competitive than America’s for the first time. Canada moved up to 8th place from 13th, while the U.S. dropped to 10th from 3rd last year.
