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Capital Calls

16 Nov 2021 By Breakingviews columnists



– Sotheby’s/Macklowe collection

– Swiss SPACs

– JPMorgan

– Cosmetics M&A

Silver linings. CalPERS’ mission is to ensure a comfortable retirement for its 2 million members. In doing so, it will help elite financiers enjoy the high life into their dotage too.

The California Public Employees’ Retirement System voted on Monday to juice up its $495 billion of assets, adding more private equity investments and a shade more leverage. The shift is pretty mild: CalPERS is only planning to borrow the equivalent of 5% of its assets, where in theory it can go to 20%. Former investment chief Ben Meng flagged last year that the fund may need to add more private equity-style investments to the pot to keep returns up to scratch.

Higher returns, though, come with higher fees. CalPERS isn’t the only one allocating more funds to alternative investment managers like Blackstone, which extract generous payouts for their services. Blackstone’s annualized management and advisory revenue rose 24% in the last reported quarter. Rival KKR’s increased by 42%. California’s public-sector employees may benefit from CalPERS’ new approach to risk, but some private-sector folks will make out nicely too. (By John Foley)

Post-pandemic art. “I’m interested only in expressing basic human emotions – tragedy, ecstasy, doom, and so on.” Abstract artist Mark Rothko might have added hostility and euphoria, two ingredients that helped auction house Sotheby’s realize a sale total of $676 million on Monday evening. Hostility, because the disposal of the collection in question was ordered by the judge overseeing the bitter divorce of real estate mogul Harry Macklowe and his ex-wife Linda. And euphoria, because the art market has come roaring back.

Rothko’s “No. 7” sold for $82.5 million including commissions. Jackson Pollock’s “Number 17, 1951” set a new record for the artist at $61.2 million. Meanwhile three flagship sales last week at Christie’s totaled nearly $1 billion, including works by Vincent van Gogh and Beeple. The Sotheby’s arch-rival touted digital advances that made the experience more “immersive” for those who came to the Christie’s auction room in person. The auctioneers, like others, have upped their digital game thanks to Covid-19. The result, though, is another reminder that the richest have prospered through the pandemic. (By Richard Beales)

Mountain to climb. The Swiss are belatedly joining the SPAC party. Swiss bourse operator SIX on Tuesday approved brand new listing standards for special-purpose acquisition companies, shells created to target acquisitions. Such vehicles will be able to list in Switzerland from Dec. 6, later than in rival European venues, which collectively saw $3.9 billion of proceeds by the end of May, says Deloitte. The U.S. SPAC boom, of course, is of a different magnitude. Proceeds reached nearly $100 billion by end-May, up from around $80 billion for the whole of 2020, although even there the pace has recently slackened.

The Swiss, like other European markets, are focusing on investor protection. Swiss SPAC vehicles will be subject to stricter disclosure requirements than regular listed companies, says SIX. These include disclosing detailed information on their founders, potential conflicts of interests and the amount an investor would retrieve if he or she opposes a merger or delisting. U.S. SPAC requirements, by contrast, can be more lenient for issuers than those applied to an initial public offering. By setting the SPAC bar higher, the Swiss may not move the European needle much. (By Lisa Jucca)

Face value. Jamie Dimon has long been bullish on China. Now JPMorgan’s chief executive has become the first Wall Street boss to visit the region since the pandemic began. It helps that he was granted an exemption from the usually mandatory three weeks in hotel quarantine. The official line is that his visit is beneficial to “economic development”, with Hong Kong’s own chief, Carrie Lam, adding that JPMorgan is “a very huge bank”.

The region certainly matters to JPMorgan. Greater China is the source of some 90% of JPMorgan’s Asian revenue growth. And the bank was the first to win approval for full control of its mainland securities business. Being the first to show some face may score some brownie points.

Hong Kong and its financial-services industry, meanwhile, have been caught up by U.S.-China spats. The city’s strict Covid-19 control measures, emulating those in the mainland, further raised concerns that Western banks would stage a faster exodus. Dimon’s visit could provide a much-needed psychological boost. (By Yawen Chen)

Skin deep. Blank-check firm Waldencast Acquisition is slapping on a double layer of cosmetics M&A. The special-purpose acquisition company said on Monday that it plans to merge with two skincare and makeup brands in a $1.2 billion deal, creating a company led by L’Oréal and Procter & Gamble veteran Michel Brousset. Milk Makeup creates vegan, cruelty-free products, while Obagi is a physician-dispensed brand popular with dermatologists.

Natural products without animal testing are hardly a novelty; younger consumers practically expect them. And the industry is teeming with rivals. But the beauty trade has room for insurgent brands. Unilever, Procter & Gamble and L’Oreal together had just 25% of the market in 2020, and their share has dropped since 2015, according to Euromonitor International data cited by Waldencast. Milk and Obagi are forecast to increase their combined revenue almost 20% next year.

The deal moreover values the new business at 16.5 times the company’s projections for 2023 adjusted EBITDA, compared to L’Oreal and Estée Lauder’s 25 times, per Refinitiv data. That makes it a punt on attractive growth, without an ugly price. (By Sharon Lam)


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