One thing to start: Millennium Management, the $60bn hedge fund led by Izzy Englander, and Schonfeld Strategic Advisors have terminated talks to form a partnership, according to people familiar with the situation.
And one scoop: James Bayliss, Elliott Management’s head trader in London, has left the firm in the latest departure of a long-serving member from the $59bn US hedge fund’s main European office, said people with direct knowledge of the move.
In today’s newsletter:
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Dealmakers brace for a dismal bonus season
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Natura’s beauty deal gone bad
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The buyout funds targeting start-ups
Is there anywhere left to hide on Wall Street?
Wall Street can thank Lina Khan, Jay Powell and Vladimir Putin for another bad year when it comes to bonuses.
Bonus payouts are set to fall as much as 25 per cent this year, an analysis by New York-based pay consultancy Johnson Associates showed, as fast-rising interest rates and a hostile antitrust environment have chilled overall activity.
Before Russia invaded Ukraine and caused an end to the easy money era, Wall Street behemoths showered their ranks with big bonuses, Peloton bikes and other perks amid an endless churn of deals. Across the pond, City bankers got so rowdy that bartenders reported a run on champagne in the Square Mile.
And then there were the extravagant sums doled out by private equity firms, which made pay for bankers look like chump change.
On Wall Street, where global dealmaking is languishing at a 10-year low, rising rates have come as the great equaliser, ensuring both buyout executives and bankers are getting paid less.
Investment banking and trading revenues have fallen this year at the likes of Goldman Sachs and JPMorgan Chase, leaving them with less cash to pay staff. Johnson Associates predicts bonus cuts could increase anywhere from 5 per cent to 15 per cent.
Bonuses at mega and mid-to-large-sized private equity groups are predicted to remain relatively flat from 2022, according to the Johnson study. But that doesn’t include their carried interest — the chunk of profits they receive from successfully selling investments.
With private equity asset sales on course for a decade low, it’s unlikely to be a bumper year for carry payouts. Higher interest costs will probably force dealmakers to labour more for their carry on future funds.
There are, as always, exceptions to the rule.
Private capital groups such as Apollo Global Management, which have doubled down on more in-demand areas such as private credit, have had a slight uptick in pay as a result of rising fee-related earnings and overall headcount. Lending is a safe haven in the job market that is being propped up by juicy returns on loans. But such funds don’t tend to offer the same potential for massive windfalls as buyouts.
The most lucrative place to be, it seems, is at a so-called multi-manager fund, where firms are dangling “silly” amounts of money to lure traders from rivals, as we wrote last week.
DD’s advice to dealmakers looking for a decent pay bump this year? See if there are any openings on Taylor Swift’s Eras Tour.
The beauty deal that could reveal private equity’s uglier side
Just over six years ago, Brazilian beauty conglomerate Natura signed a €1bn deal to buy UK company The Body Shop. The acquisition was hailed by Natura’s chief executive as a “decisive step in making Natura Group an international player in cosmetics”.
Things haven’t gone as planned. Yesterday, Natura announced it had agreed to sell the company — which tied its brand to principled stances on issues such as animal rights — to Aurelius, a niche European turnaround investor, for just over £200mn.
The exit is the latest example of Natura unwinding its international ambitions after selling the Aesop beauty brand earlier this year.
For Aurelius, it’s a high-stakes bet on UK retail, a sector that has burnt many of its private equity rivals in the past. Buying well-known bricks-and-mortar retailers as in The Body Shop is already a contrarian play, with many struggling as consumers increasingly purchase goods online.
The firm will also likely be subjected to greater scrutiny from the public and politicians, some of whom are wary of the private equity industry. Just two years ago, the UK Labour party’s shadow chancellor Rachel Reeves accused buyout firms of asset stripping UK companies such as HMV and Maplin, both of which went into administration.
Last year, Aurelius bought Footasylum, another UK retail chain. The firm argues it is well-placed to turnaround these companies, as it can lavish more attention on them than the larger corporates that used to own them.
Aurelius also uses less leverage than many of its peers which may help in a higher interest rate environment. This was one factor in helping them win The Body Shop auction, said a person involved.
Only time will tell whether private equity can help restore The Body Shop’s crown as the champion of ethical capitalism. Either way, it’s likely to serve as a useful case study in the ongoing debate about the merits of private equity.
The bargain-hunting buyout funds of start-up world
A San Francisco billboard features Kjerstin Erickson’s face with the slogan: “We invest in second chances.”
Erickson’s firm, Arising Ventures, looks to buy start-ups with viable business models but slowing growth. As rising interest rates rattle money-losing ventures, the firm’s number of potential deals has grown fivefold over the past year.
Arising Ventures is among an emerging class of investment groups that see opportunity in a generation of start-ups struggling to raise cash for their next financing round, DD’s Ivan Levingston and George Hammond report.
These investors plan to capitalise by buying out these companies on the cheap.
Such groups are raising tens of millions of dollars in funding with the intention of acquiring majority ownership and operational control of start-ups in order to turn the businesses around.
Take Oren Peleg and Eyal Malinger, veteran investors who have previously worked at companies including Oaktree Capital Management and venture capital firm Beringea. They launched UK-based Resurge Growth Partners this year with the aim of raising €120mn to buy early-stage companies.
“No one is willing to send the hard message of saying this needs a reset, and that will be the role that we play,” Peleg said.
Of course, there’s at least one corner of the start-up world that remains safe from gravity or discounted cash flow analysis: artificial intelligence. The French AI group Mistral — just six months old — is speaking with heavyweight venture capitalists about a deal to raise up to €400mn at a valuation between €1.5bn-€2bn.
Job moves
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Deutsche Bank has named Vathany Vijayaratna, most recently head of non-financial risk for its investment bank, as chief executive of its UK and Ireland business.
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Business Insider co-founder Henry Blodget has stepped down as chief executive of the Axel Springer-owned brand and will move to chair after 16 years at the helm. He will be replaced by the news site’s president Barbara Peng.
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Credit Suisse’s former co-head of global banking David Wah has joined PJT Partners as a partner in San Francisco.
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BNP Paribas has appointed 10 bankers to senior roles including Wells Fargo’s Vanessa Dager to lead M&A in North America.
Smart reads
Brazil’s sinking city Petrochemicals giant Braskem has been on shaky ground since a sinkhole-inducing disaster in the city of Maceió has threatened to submerge it beneath a pile of lawsuits, the FT reports.
Laying down the law The new boss of the Serious Fraud Office, Nick Ephgrave, is on a mission to repair the agency’s reputation, starting with a series of dawn raids and arrests connected to the collapse of law firm Axiom Ince, the FT reports.
Blowing the whistle Japan has pitched foreign investors on a plan to improve its corporate governance. But the absence of several safeguards for whistleblowers tells somewhat of a different story, the FT’s Kana Inagaki writes.
News round-up
Thai investor set to take control of Selfridges Group (FT)
Glencore sets clock ticking on break-up after sealing $9bn Teck deal (FT)
Adobe’s $20bn deal to buy Figma faces fresh challenge in Brussels (FT)
Google chief Sundar Pichai grilled on the stand in Epic’s app store lawsuit (FT)
Terry Smith’s pay drops to £31mn as flagship fund underperforms (FT)
McDonald’s dismissed 18 UK staff following probe into toxic culture (FT)
Banker accused of fraud in Aspen and California appears in Australia (Financial Review)
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