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International

Neil Unmack

Larry Fink’s pragmatism is awkward but lucrative

7:22am EST

LONDON (Reuters Breakingviews) - Larry Fink has found an idiosyncratic position in the culture wars swirling around environmental, social and governance investing. In his annual letter https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter to company chief executives, the BlackRock chief executive rejected criticisms that responsible stakeholder capitalism is “woke”, but also backed natural gas as an energy source. It risks leaving him in a sort of ideological no man’s land, but that’s a lucrative place to be.

Vulture funds will have to learn how to fly again

Dec 28 2021

LONDON (Reuters Breakingviews) - Vulture funds will need to stretch their wings. Corporate defaults are falling, despite the surprising endurance of the pandemic. Investors that specialise in buying distressed debt like Oaktree will have to look beyond the mainstay of public debt markets.   

Combustion engines are carmakers’ toxic assets

Dec 22 2021

LONDON (Reuters Breakingviews) - Internal combustion engines may be the toxic assets of the electric-vehicle revolution. Volkswagen, Ford Motor and other industry veterans are rapidly shifting to battery-powered rides, while demand for automobiles that burn fossil fuels is dying. After the 2008 financial crisis, banks cleaned themselves up by shifting dud loans into so-called bad banks. Carmakers could do something similar.

Credit markets will withstand Evergrande shocks

Sep 23 2021

LONDON (Reuters Breakingviews) - Is China Evergrande another Lehman Brothers moment? Not at all, according to the $40 trillion global corporate debt market. International credit investors have good reasons to be so nonchalant about the potential ripple effects of problems at the Chinese property behemoth with a $300 billion debt pile. Granted, Evergrande’s slow-motion crash has had some impact. As the group’s 2025 dollar bonds have collapsed to trade at a mere 30% of face value, the riskier end of China’s debt market has suffered. The average yield on dollar bonds issued by junk-rated Chinese companies has doubled to around 16% since the start of the year, according to an ICE Bank of America index. And safe-haven U.S. bonds rallied on Monday when global stock markets wobbled. But those ripple effects look contained. In the United States, where some $19 billion of Evergrande bonds are issued, the average extra yield that investors demand to own junk-rated debt is steady at roughly 310 basis points, another ICE Bank of America index shows. That’s even lower than the levels seen in the heady days of September 2006. And the yield spread on bonds issued by U.S. and European investment-grade companies are below levels seen in late 2007, the year before the collapse of Lehman Brothers. This makes sense. Western government bond yields are still low and below market expectations of future inflation. Investors need to take risks if they don't want to see price rises erode their returns. New Covid-19 variants or a Chinese property meltdown could hurt the global economic recovery. But companies have emerged from the pandemic in good health having raised cash, cut costs and skimped on investment in the past 18 months. European companies’ debt has fallen to 2.3 times trailing EBITDA and that multiple could sink as low as 2 times by year-end, its lowest since before the Lehman collapse in 2008, Citi analysts reckon. Meanwhile, Moody’s is forecasting a global corporate default rate of just 1.7% year-end, less than half the historic average. Resilience could prove to be an Achilles heel. Persistent demand for corporate debt will keep borrowing costs low, which may tempt more companies to gear up to finance shareholder payouts. That, however, will be a problem for another year.

German election offers more continuity than chaos

Sep 08 2021

LONDON (Reuters Breakingviews) - Germany’s upcoming election promises a little chaos, but mostly continuity. Opinion polls suggest September’s vote will produce a shaky three-party coalition. Big reforms will probably take a back seat. But climate change and the recovery from the pandemic will shape policy for whoever takes charge.

Fund investor’s IPO depends on Goldman connections

Sep 06 2021

LONDON (Reuters Breakingviews) - London investors are getting a chance to ride Goldman Sachs’ tentacular connections to hedge funds and buyout firms. Petershill Partners, which buys stakes in alternative asset managers, is planning a stock market listing which could value it at $5 billion or more. It’s a punt on the enduring boom in alternative assets. It also requires the Wall Street firm to keep finding attractive new investments.

Juicy Nordic drug buyout needs safety label

Sep 02 2021

LONDON (Reuters Breakingviews) - A juicy Nordic drug buyout comes with its own safety label. Advent International and Singapore wealth fund GIC are paying 69 billion Swedish crowns ($8 billion) for Swedish Orphan Biovitrum (SOBI), which specialises in rare-disease treatments. The deal comes with plenty of risk and a lengthy time horizon – exactly the right prescription for private equity.

Soho House IPO sets high price for entry

Jul 07 2021

LONDON (Reuters Breakingviews) - Soho House is known for running private members’ clubs that are trendy but hard to join. Its initial public offering in New York is setting a similarly high bar for investors. A mooted $3 billion price tag depends on pulling off a bold global expansion and eventually making a profit. But there are plenty of potential party poopers.

Time is biggest foe of Draghi’s big plan for Italy

Apr 26 2021

LONDON (Reuters Breakingviews) - Prime Minister Mario Draghi has big plans for Italy. On Monday, he outlined the bold reforms that he has pledged in order to obtain around 200 billion euros of European Union funds. It’s part of a multi-pronged attack on economic ills that were exacerbated by the pandemic. But a short tenure means he has to act fast. 

Breakingviews - Archegos takes shine off family office freebies

Mar 30 2021

WASHINGTON (Reuters Breakingviews) - The Archegos Capital Management crisis is taking the shine off family office freebies. By investing money for himself and his closest kin rather than outside investors, Bill Hwang’s hedge fund was able to sidestep disclosure requirements. It worked until it didn’t – and raises questions for others including George Soros, Carl Icahn and John Paulson. 

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