VACCINE NEWS CAUSES QUANT SHOCK AND RECORD-SETTING SHORT SQUEEZE
On Monday morning, Pfizer announced positive results for its Covid vaccine. While news about a vaccine is incredibly positive for mankind, it caused the worst loss on record for long-short momentum factor investing. Specifically, stocks that had been performing well this year plummeted, while beaten-down, low quality junk stocks skyrocketed. In fact, the long-short momentum factor suffered a 15 standard deviation event and lost -23% in one day, its worst on record. The crash in the momentum factor was so rare that writing out the chances of the occurrence on any given day required a 16-digit number, followed by 63 zeroes (assuming a normal distribution). The momentum factor drawdown has further challenged evidence-based long-short investing this year. “These aren’t your father’s equity markets.”
LBOs COME TO CANADA AS APOLLO SEEKS GREAT CANADIAN GAMING BUYOUT
U.S. Private equity firm struck a friendly leveraged buyout of Great Canadian Gaming for $3.3 billion, or $39.00 per share. The LBO, priced at a 34.9% premium, faces an uphill battle as numerous shareholders have come out against the deal, complaining that the casino operator is being sold too cheaply to a foreign player. The buyout is controversial because prior to the pandemic, Great Canadian Gaming announced a share repurchase program at a price of up to $46.00 per share (18% above the buyout price), before cancelling the buyback in March as lockdowns began. In addition, Great Canadian did not seek other bids and Apollo’s approach was unsolicited. Great Canadian Gaming’s stock finished the week up 44.5% to close at $37.71, a -3.3% discount to the buyout price. The company and its shareholders may be heading into a standoff regarding the deal terms, unless the bid is improved or an interloper submits a superior proposal.
VF SHARES RALLY WITH $2.1 BILLION ACQUISITION OF STREETWEAR BRAND SUPREME
Supreme, the New York-based streetwear brand with a cult following, is being acquired by VF Corp. for $2.1 billion. VF, the parent company of Vans and Timberland brands, is buying the 12-store Supreme from founder James Jebbia and private-equity firms Carlyle Group and Goode Partners. In 2017, Supreme sold a 50% stake in the business to Carlyle for $500 million. Supreme has revenue of more than $500 million, of which over 60% comes from online orders. VF shares rallied 13.6% this week on news of the deal, adding $3.7 billion to its market capitalization and more than paying for the $2.1 billion acquisition.
Notable Insights, Articles, Podcasts, and Tweets
Listen to Global Macro investor Raoul Pal discuss a host of topics including inflation, deflation, and the bullish case for bitcoin on The Investor’s Podcast.
Listen to Julian Klymochko speak on the upcoming AIMA panel, All About SPACs, on November 25th.
Missed our webinar on Merger Arbitrage? You can view the replay here.
Chinese President Xi personally decided to halt the blockbuster $37 billion Ant Group initial public offering last week because he was furious about Ant Group controlling shareholder Jack Ma’s criticism of Chinese financial regulators.
CI Financial continues its acquisition spree after buying 12 investment management firms this year. According to the firm’s CEO Kurt MacAlpine, its “pipeline today is significantly larger than what it was when we were just getting started. But how much of that actually gets through is unclear.”
In “SPAC-offs”, private companies pit various blank check suitors against each other to extract the best deal terms. The final deal terms are now increasingly seeing sponsor promotes whittled down substantially in favour of the target companies.
If you need an indicator of where we are in the economic cycle, Japanese conglomerate Softbank now has a tech stock trading unit. The new trading unit has racked up $3.7 billion of losses thus far.
Given near-record high equity valuations and long-term bond yields below 1.0%, the odds of a traditional 60–40 portfolio meeting clients’ return targets are “extremely low”.
Including alternative investments in one’s portfolio can bump returns without added risk. No wonder more and more investment advisors are adding alternative investment strategies to client portfolios.