shares ran out of gas premarket, dropping 9.6%. The electric-vehicle startup plans to start construction next year on a second U.S. manufacturing facility in Georgia, placing a hefty bet on its ability to steadily increase sales in the coming years.
added 3.7% premarket, but that’s not much after the prior day’s 34% loss for the crypto stock. The shares have been subject to large swings since the company went public in October, including more than tripling Oct. 25 on news of a
A Silicon Valley stock exchange that encourages long-term thinking over short-term gains has landed two marquee tech companies to be among its first listings, reflecting the growing popularity of sustainable investing.
are the first two companies to agree to dual list their shares on the Long-Term Stock Exchange. The CEOs of both companies, which also are listed on the New York Stock Exchange, were early investors in LTSE with financial stakes of less than 1.5%.
To list on LTSE in August, Twilio and Asana are agreeing to a slate of commitments such as aligning executive and board compensation with long-term performance; taking customers and employees into account; and explaining how the company’s board oversees its long-term strategy. These commitments must be concrete policies that can be monitored by LTSE.
The companies and the exchange hope the listings will be a signal that their stocks should appeal to long-term investors, potentially reeling in some of the hundreds of billions of dollars stashed in funds dedicated to environmental, social and governance investing. It also would lend credence to LTSE, which has long been embraced by venture capitalists and tech founders but has yet to list a single company.
Stock exchanges often serve as gate keepers for corporate governance and provide a platform for a company’s shares to be traded. There are more than a dozen exchanges in the U.S., and most only operate as trading platforms.
The two largest in the U.S., New York Stock Exchange and Nasdaq, are dominant players in both aspects. Those exchanges also have recently been bolstering their advisory services around ESG to their listed companies.
Long-Term Stock Exchange started trading stocks in September, and only a fraction of shares are traded on its platform. Its primary focus is on ensuring stakeholder-focused corporate governance, according to its founder and Chief Executive
told The Wall Street Journal that investors are demanding companies pay more attention to their progress toward social and environmental goals.
“We’re starting to enter a realm where there is a higher expectation of companies,” he said. “LTSE takes what various pledges have been and codifies it. It’s companies putting their money where their mouth is.”
Twilio and Asana are still working out what their exact commitments will be, but Messrs. Lawson and Moskovitz said they would likely be in line with what the companies already are doing.
For example, Twilio already is focused on its social impact. Mr. Lawson highlighted Twilio.org, which supports nonprofits and social enterprises and is funded by 1% of Twilio’s equity. The company pledged $10 million to Covax, a global initiative to vaccinate lower-income countries against Covid-19. Mr. Lawson said he hopes listing on LTSE can attract more long-term investors.
Asana’s Mr. Moskovitz pointed to the company’s commitment to building an inclusive and diverse employee base. (Asana’s website shows 30% of its U.S. employees identify as Asian, while 46% identify as Caucasian; 49% identify as male and 43% as female.)
In 2011, Mr. Ries proposed the idea for a long-term exchange in his book “The Lean Startup.” He won support from Silicon Valley entrepreneurs, including venture capitalist
and LinkedIn co-founder
The decision to let companies write their own long-term themed commitments wasn’t the original plan for the exchange. On its journey to Securities and Exchange Commission approval, LTSE ended up scrapping more ambitious requirement plans for listing companies, including barring quarterly guidance and banning executive bonuses tied to short-term financial targets.
Finding its first listings also proved challenging. To sweeten the deal, LTSE cut its listing fee by 50% in 2021. To assuage executives concerned about low trading volumes on the new exchange, LTSE pitched companies the idea of dual listing, meaning their stock is primarily listed on either the Nasdaq or NYSE.
Other exchanges have tried to pick away at NYSE’s and Nasdaq’s dominance in corporate listings. None have made much progress. IEX Group Inc. spent years wooing companies to list on its upstart exchange, but closed its listing business in 2019 after winning only one.
Mr. Moskovitz, a longtime LTSE supporter, said he considered dual listing with LTSE last fall when Asana went public but the timing didn’t feel right. Asana already was doing something different by going public in a direct listing on the NYSE. Adding another twist to its stock-market debut felt like too much for investors, he said, though he said he made LTSE-inspired commitments in his founder letter and in Asana’s regulatory filing at the time of its initial public offering.
“We wanted to establish ourselves as a public company,” Mr. Moskovitz said. “We now feel we’re on stronger footing to take this new step.”
‘The material benefit of being seen as an ESG leader has become bigger as so much money has flowed in.’ ”
— Long-Term Stock Exchange CEO Eric Ries
In addition to Twilio and Asana, expense-reporting software company Expensify Inc. also is looking at dual listing with LTSE as it goes public, people familiar with the matter said. Last year,
not only called itself mission-driven in a filing ahead of its IPO, but it also dedicated an entire section to ESG.
Mr. Lawson said LTSE can help give a stamp of approval to companies who make ESG pledges. “If LTSE helps connect companies with investors who also value those things like ESG and long-term focus, that’s a good thing,” he said.
is investing in startup investing platform Atom Finance, in a bet by the Japanese conglomerate that a retail trading boom is here to stay.
Atom Finance, founded in 2018, lets individuals track investments and research holdings. In addition to SoftBank, existing investors General Catalyst and Base Partners also took part in the latest $28 million funding round. The investment values Atom at around $150 million, said a person familiar with the matter.
Atom was founded by
who covered financial services firms and other sectors from 2015 to 2018 at hedge fund Governors Lane. He believed falling trading costs would prompt more individual investors to trade. This meant that they would need new kinds of tools to guide them.
In 2019, major brokerages launched no-commission stock trading to stave off the threat from digital upstart Robinhood Markets Inc. Now, all kinds of brokerages compete against each other for retail traders with free trading having become a booming business. It has been particularly transformative in the past year as more investors with free time during the pandemic have wielded growing power over markets, sending meme stocks such as
Atom isn’t a trading platform but it has still been a beneficiary. Hundreds of thousands of users have signed up since its platform launched in 2019. Paying customers increased in the past year, though the firm declined to provide exact details about user numbers.
“We think a lot of that increase in investor participation in markets is here to stay,” said Mr. Shoykhet, 29 years old. “The narrative we never bought into was that active investing was dead.”
Mr. Shoykhet hopes his firm will grow as individuals seek cheap tools to help them invest. A full Atom subscription goes for $9.99 a month, a fraction of how much a Bloomberg Terminal costs.
Atom also plans to license its product to banks and brokerages.
SoftBank led the Series B funding round in Atom through a $5 billion fund it created to focus on Latin America. It reflects SoftBank’s wager that the rise of individuals in U.S. markets will take off in that region too.
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This year, Atom pursued a deal on its own to provide products for Banco Inter, a digital bank in Brazil that SoftBank’s Latin America fund has also invested in.
managing partner for SoftBank’s Latin America fund, said SoftBank later introduced Atom to other portfolio companies in hopes of fueling similar deals.
“The whole idea is to bring high-quality data to people who wouldn’t have access to them,” he said.
Mr. Nyatta said he was drawn to Mr. Shoykhet’s opportunism and willingness to make Latin America a strategic focus. Mr. Shoykhet recently moved to Miami and is planning to open an office there, in part to make it easier to do business with Latin America.
But there is one thing Atom Finance isn’t planning to do for now: It doesn’t want to become a trading application.
Mr. Shoykhet is skeptical about many e-brokerages’ practice of routing trades to big trading firms in exchange for payments. The industry has defended this practice, known as payment for order flow, arguing that it lowers the cost of trading for individuals. Others argue it hurts investors as firms will encourage heavy trading by users to maximize profits—even if those investors take too much risk.
“We don’t think it has users’ best interests in mind,” he said.
is nearing a deal to acquire Medline Industries Inc. that would value the medical-supply giant at more than $30 billion, in one of the largest leveraged buyouts since the financial crisis, according to people familiar with the matter.
The deal could come together as soon as this weekend assuming the talks don’t fall apart, the people said. The Blackstone consortium includes
Including debt, the transaction would be valued at about $34 billion, and north of $30 billion excluding borrowings, the people said. That could potentially make it the largest healthcare LBO ever.
Major news in the world of deals and deal-makers.
Based in Northfield, Ill., family-owned Medline is a little-known but major player in the field of medical equipment. It manufactures and distributes equipment and supplies used in hospitals, surgery centers, acute-care and other medical facilities in over 125 countries. It has some $17.5 billion in annual sales, according to its website.
Brothers James and Jon Mills founded the company in 1966, taking it public in 1972. The brothers bought back the shares five years later. James’s son Charlie has been Medline’s CEO since 1997.
The family will remain the single largest shareholder in the company after the buyout and the management team will remain in place, some of the people said.
China’s banking and insurance regulator said Thursday that it had approved Ant Group’s application to set up a consumer-finance company, the first regulatory milestone in the fintech giant’s restructuring of its business.
Ant will hold a 50% stake in the new entity, registered in the southwestern municipality of Chongqing, with the rest held by six other shareholders. The company, Chongqing Ant Consumer Finance Co., is licensed to conduct consumer lending and other operations.
Inflation expectations could be getting somewhat inflated.
Capital markets are signaling mounting concerns about inflation among investors. At Thursday’s close, bond prices implied average consumer-price growth of 2.6% over the next five years. In recent weeks, this “inflation break-even” rate has surged to highs not seen since 2008, bolstered by the U.S. reporting official inflation of 4.2%—also a 13-year high. Respondents to the May Fund Manager Survey by
saw inflation as the biggest “tail risk” to the bull market.
Overpaying for inflation insurance, though, is also a risk.
Market inflation expectations are calculated as the yield difference between regular Treasurys and Treasury inflation-protected securities, or TIPS, which compensate holders for consumer-price index increases. As
’ head of U.S. rates Mike Cloherty noted in a report this week, it is a fall in TIPS yields that has been driving the recent rise in breakevens. This tight inverse correlation is reminiscent of the 2009-2013 period of economic weakness, but uncommon for a recovery, when both usually rise in tandem.
TIPS are notoriously less liquid, so their prices can move a lot when demand is strong. It currently is: The TIPS inventories of dealer banks are getting depleted. The Federal Reserve, for one, is buying a lot of them. The yield on the five-year note is now hovering around a record low of minus 1.8%. This all points to a reversal.
The implication is that breakevens may be overestimating how high inflation might go as a result of a burst in demand for shorter-term inflation hedges. CPI was always expected to surge this year relative to 2020’s steep fall, and longer-term inflation expectations are still within historical ranges. This picture is consistent with the Fed’s new policy of tolerating near-term overshoots, while still making sure inflation stays around 2% in the long run.
It would be wrong, however, to say the market isn’t worried. Other traditional inflation hedges have done very well lately, including cheap “value” companies and gold, which is up 9% in two months. Investors know there isn’t a surefire way to know that a short-term spike in prices won’t fuel a lasting spiral. The University of Michigan survey of consumers shows that households expect CPI to be 3.4% over the next five to 10 years, which is the highest figure since 2014.
Yet, as the Bank of America survey underscores, the current market jitters reflect fear of tail risks rather than probable outcomes. Even among consumers, average inflation expectations are being skewed by a few respondents who see CPI surging by 10% or more, rather than most households factoring in greater inflation.
There is little convincing evidence to support the deeply held belief among economists that expectations themselves can fuel inflation. Workers demanding bigger pay increases in anticipation of inflation can indeed make it worse, but there needs to be some initial trigger, such as the 1970s oil shock or sharp currency depreciations. Even unusually rapid economic recoveries like today’s don’t typically qualify.
Investors who truly fear such worst-case scenarios may still want inflation hedges. For the rest, they are becoming a pricey insurance policy.
Major corporations are sitting on a mountain of cash: a decadelong buildup was given another sharp lift by precautionary measures taken during the pandemic. Those balances are worth monitoring, because they have important implications for investment returns in the future.
Nonfinancial corporations in the euro area, Japan and the U.S. now sit on nearly $10 trillion of currency and deposits, about twice the level of a decade ago.
Those cash holdings are largest relative to the size of the economy in Japan—about 60% of GDP. In the eurozone, they make up more like 30%, and roughly 10% for the U.S.
But what they all have in common is that they have risen considerably, and not just due to last year’s extreme circumstances. Cash balances in each country were climbing for a decade before the pandemic began, defying repeated suggestions that they would be deployed for buybacks or investment. Corporate treasurers then went on a borrowing spree last year building up precautionary cash piles.
It’s worth looking to Japan to see what the consequences might be. Its cash buildup began in the 1990s, during the country’s famous lost decade. The cash mountain has weighed down returns on equity for shareholders, since companies are asset heavy and cash assets yield little to nothing.
The country’s large corporate cash balances are often eyed hungrily by analysts who wonder how the pile might be deployed. Sometimes, activist investors get their way: Japanese corporate governance has become markedly more shareholder friendly in recent years.
But the overall cash buildup still effectively means that companies have looked at the investment options available and found them wanting. When a company determines that sitting on near zero-yielding assets is the best use of their funds, it paints a very dim picture of their collective view of the economy’s future.
If the U.S. economy recovers rapidly, companies will hopefully instead decide that capital spending is a better use for funds. Buybacks and dividends will probably recover, but their considerable growth during the decade after the global financial crisis was not enough to prevent the accumulation of cash.
The U.S. cash buildup is not yet in Japan’s league, but the situation appears to be heading that way in Europe. Investors should keep a close eye on where overall levels settle: if they stay up here where the air is thin, that will be a dispiriting signal about the future.
became an investing powerhouse by making successful bets on undervalued companies. For the next leg of its expansion, the firm is focused on companies with big growth prospects, even if it has to pay up for them.
became Blackstone’s day-to-day leader in 2018, he has encouraged the heads of its businesses, who collectively manage $619 billion of assets, to develop big-picture convictions and invest in companies or assets that stand to benefit from those trends.
The new approach has led the New York firm to plow billions into faster-growing companies—including in the technology sector—to which it previously paid less attention.
It has taken Blackstone out of its traditional comfort zone of turning underperforming companies around through cost cuts and efficiency improvements—and juicing returns by employing ample helpings of borrowed money.
The growth bug has bitten nearly every corner of the sprawling firm, including its real-estate, credit and hedge-fund businesses. Among the assets in its main buyout fund is a big stake in
which Blackstone acquired in 2019 in a deal that valued the owner of the dating app at $3 billion. The stake has nearly quintupled in value as the company’s market capitalization shot to about $14 billion following its February initial public offering.
Mr. Gray’s thematic approach and the growth orientation it has spawned show how the 51-year-old heir-apparent to Chief Executive
is making his mark on the firm as it barrels toward a goal of managing $1 trillion in assets by 2026.
“Investing is about looking forward, but the future is now coming faster,” he said in an interview. “You want to be exposed to businesses that benefit from this change.”
A big goal of his is for employees in the firm’s disparate businesses to all think about the same themes and discuss them with each other.
Blackstone has long been interested in identifying growing industries, but under Mr. Gray has become more clear about what it won’t buy, said
global head of private equity at the firm. In addition to brick-and-mortar retailers, that list includes established media-and-telecommunications providers and companies reliant on single-use plastics.
“There are certain types of companies that we’re just not going to invest in, no matter how cheap they are,” Mr. Baratta said.
The strategy isn’t without risk. The assets the firm is collecting could be among the first to get hit if, for example, the recent increase in interest rates continues as the economy emerges from the pandemic-induced lockdown.
have largely resisted the allure of the growth strategy, preferring instead to put money into hard-hit areas like gaming and physical retail. But even the historically value-focused Apollo has done more technology-related deals in its most recent buyout funds. The firm also raised two blank-check companies targeting growth-oriented deals.
Among the themes that have guided recent Blackstone investments are the ongoing shift to e-commerce and the technology-fueled advancement of the life-sciences industry.
The firm has launched a new business dedicated to investing in life sciences—including by backing new drugs in the late stages of development, the last thing a traditional leveraged buyout would target. It hired
a veteran of growth-investing pioneer General Atlantic, to build a new business taking minority stakes in growing companies.
Blackstone, which previously had virtually no West Coast presence, has opened a San Francisco office and hired executives and advisers from technology companies such as
former co-chief executive of business-software giant SAP SE, to lead a team helping the firm’s 200-plus portfolio companies “drive growth through digital transformation.”
Blackstone isn’t alone. An increasing number of its rivals and stock investors have embraced growth as a decadelong bull market pushes up the price of all manner of assets and leaves fewer and fewer pockets of value. The two-year rolling average of purchase-price multiples for U.S. buyouts reached a record 12.8 times earnings before interest, taxes, depreciation and amortization in 2020, according to an analysis by McKinsey & Co. That’s up from 11.9 times in 2019 and 10.2 times in 2015.
Mr. Gray’s thematic push was born from personal experience. He led Blackstone’s $26 billion deal to buy
on the eve of the financial crisis. As the hotel chain’s business suffered during the ensuing economic downturn, outsiders would often label the deal a failure. Instead, Hilton became one of the most successful private-equity investments of all time, ultimately reaping more than $14 billion in profits, or more than three times Blackstone’s initial investment.
Mr. Gray said the experience taught him that the efforts of Blackstone and Hilton’s management may not have been enough if the company weren’t the beneficiary of a long-term growth trend in global travel, the thesis that underpinned the investment.
“In the fullness of time, what mattered was you picked the right neighborhood, not the right house,” Mr. Gray said.
(Mr. Gray’s fondness for hotels abides, witness Blackstone and Starwood Capital Group’s agreement this month to acquire
in a bet that a rare bright spot for the lodging industry during Covid-19 will continue to thrive.)
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He also led the firm’s first foray into industrial warehouses in 2010, betting on the ascendance of e-commerce around the world. Blackstone is now the largest owner of warehouses used for e-commerce, with a roughly $100 billion portfolio consisting of 880 million square feet of such properties around the world.
The two highly successful real-estate bets helped propel Mr. Gray’s rise at the private-equity giant.
One example of how his growth-related themes are being applied across the firm is Blackstone’s April 2020 investment in biotech company
The $2 billion deal consisted of a $1 billion investment led by Blackstone Life Sciences in a portion of the future total royalties of a cholesterol drug.
Its credit arm also provided Alnylam with a term loan of up to $750 million, and Blackstone bought $100 million of the company’s stock. The firm’s real-estate business also owns Alnylam’s landlord, BioMed Realty, which consists of 91 life-science properties. Blackstone last year agreed to sell the company from one of its funds to another in a deal that valued BioMed at $14.6 billion.
since 2015. The reason is fairly straightforward—3D XPoint simply wasn’t generating enough business to be worth the effort, while other new technologies show more promise. As part of its exit plan, Micron says it will wind down and sell the fabrication facility in Utah that manufactured memory chips based on the XPoint technology.
It has chosen a good time to hit the market. Chip manufacturing is at a premium given the production constraints affecting industries such as autos. And the U.S. government is especially keen on building up a stronger domestic chip-making industry, with President Biden pushing for as much as $37 billion in funding to support more production expansion. Harlan Sur of
says subsidies could help make Micron’s Utah facility an attractive asset to chip companies that currently outsource “a significant amount of production and have sufficient revenue scale” to support production. He named
But even if such a sale were imminent, Micron’s Utah fab won’t do much—if anything—to alleviate the current production crunch. A facility designed to produce a specialized form of memory that few were actually buying can’t just be flipped to another chip format. Tim Arcuri of
says any other technology “would require significant reconfiguration of the toolset.” He estimates replacement costs for the equipment alone at the Utah fab to be around $3 billion.
Micron’s move also should remind governments that autonomy in the chip business will come at a price. Part of the argument for securing more domestic production is to reduce dependency on foreign markets when geopolitical tensions are rising. But full autonomy will require having excess production capacity—which is an expensive proposition in chip making. Micron estimates that “underutilization charges” at the Utah fab were costing it around $400 million a year. That is a cost Micron will love to take off its books. It is also one that governments politicizing the chip business should keep in mind.
Like beauty, the value of a financial asset is in the eye of the beholder. Right now, Treasurys look much better from outside of the U.S.
On Wednesday, the U.S. placed $38 billion worth of 10-year debt at a closely watched Treasury auction. These are usually prosaic events, but record-low demand at the seven-year auction last month—particularly from foreign buyers—acted as a “sell” signal in a market already under pressure: 10-year yields recently rose above 1.6%, from 0.9% at the start of the year, denting stocks in the process.
In the end, investors put in a decent showing at the March auction, with a 2.38 bid-to-cover ratio and 20% of foreign bidders, in line with recent history. Yields have now retreated below 1.5%.
A key driver of the bond selloff has been expectations of a rebound in economic growth, combined with hints from the Federal Reserve that it isn’t bothered if good news leads investors to anticipate slightly higher interest rates. But Fed data also indicates that factors other than rate expectations are contributing to the increase in yields, prompting deeper worries.
Some fear, without justification, that the government will get punished for committing vast fiscal resources to fighting the pandemic. Others are concerned that disruptions in market plumbing have amplified the rout, as a result of regulations that impose costs on banks for acting as middlemen. When rates are expected to increase by a very uncertain amount, few investors want bonds. Currently, speculators are paying to borrow Treasurys and bet against them.
Wednesday’s auction is a reminder that, in the most liquid market in the world, buyers do turn up. Overseas demand for Treasurys, in particular, could strengthen.
Investors in the eurozone and Japan are getting negative returns of 0.3% and 0.1%, respectively, for buying their own ultrasafe 10-year government bonds. Even after the cost of currency hedging, the 1.5% available on a U.S. bond gives them a full percentage point more yield than their domestic bonds—the most in four years. This is a recent phenomenon: For most of 2020 it was U.S. investors who got paid extra for investing in the eurozone and, for a brief period, even in Japan.
In theory, this trade should already have been arbitraged away. One reason it hasn’t is that the bank balance-sheet constraints that have affected Treasury liquidity also have an impact on hedging costs. The other is that investors usually protect their bond purchases by rolling over three-month currency hedges. Since the cost of these hedges is tied to the yield on three-month bills, which haven’t sold off as much as 10-year bonds, foreign buyers gain whenever the Treasury yield curve steepens.
Once the dust settles on recent market gyrations, many overseas bond buyers will find an extra percentage point of yield too juicy to pass up. Unlike U.S.-based investors, which are still selling the mammoth $24 billion they put into Treasury funds in the first half of 2020, foreign investors may have room to grow their holdings, data from fund-flow tracker EPFR Global suggests.
The past year’s volatility has shown that even the Treasury market is vulnerable to hiccups, leading some investors to call it “broken.” Its role as a global haven, though, isn’t going away.