As Hedge Funds Endure Rocky Year, | Stock Market News Today


Investments in private companies are saving the year for stock-picking hedge funds.

Prominent managers that invest in both public and private companies in the same funds have seen their portfolio of public investments flail, weighed down by losses from January’s meme-stock rally and a retreat by fast-growing technology stocks. But soaring valuations of private companies and a hot U.S. IPO market have boosted their private wagers. That has helped mask their poor performance in public markets and driven up their overall returns.

Dan Sundheim’s $25 billion D1 Capital Partners, for example, is down 4% in its public bets for the year through September—but up 71% before fees in its private investments, said people familiar with the firm. The S&P 500 had a total return of 15.9% for the period.

D1 clients opt into share classes that offer varying levels of exposure to private investments. Clients in the share class that can invest up to 15% in private companies have seen gains of about 4.5%, after fees, for the period. The gains stand at 14% and 21% for clients in share classes that can invest up to 35% and 50% in private companies.

Meanwhile, Boston-based Whale Rock Capital Management was down 11.2% for its public investments in a hedge fund that can invest up to a quarter of its clients’ money in private companies, said people familiar with the fund. The performance of the fund’s private wagers shrank the fund’s losses to 3.3% for the year through September.

Hedge funds without private companies in their portfolios have had a rougher time. Palo Alto, Calif.-based Light Street Capital Management, which manages late-stage growth and other funds along with a hedge fund that only invests in public companies, is down 18.6% for the year through September in its hedge fund, said people familiar with the firm. That has brought the fund’s size down to about $1.7 billion. Its growth funds have fared much better, the people said, with Light Street’s first such fund, whose investments include the restaurant-software provider

Toast Inc.

and the software-development company

GitLab Inc.,

expected to have an internal rate of return of more than 100%.

The rush into private investing by public-market investors has helped fuel surging valuations for private companies. And as hedge funds, along with mutual funds and sovereign-wealth funds, deploy billions of dollars, they often crowd out venture and growth funds.

Hedge funds made up 27% of the money raised in private rounds this year through June, despite participating in just 4% of the deals, according to a recent report by Goldman Sachs Group Inc.

“These tech companies are growing exponentially, and managers want to capture that huge exponential growth for their clients,” said Susan Webb, founder and investment chief at the New York-based outsourced-investment firm Appomattox Advisory.

The higher-return potential is stark. Private-equity and venture strategies gained an average 14.2% a year in the decade ended in 2020, Goldman said, while hedge funds overall averaged half those annual returns over the period—and were subject to the stresses of regular redemption cycles.

Toast, a restaurant-software provider that went public last month, is an investment of a Light Street Capital Management growth fund.



Photo:

Richard Drew/Associated Press

Hybrid funds can offer distinct benefits, said Udi Grofman, global co-head of the private-funds group at Paul, Weiss, Rifkind, Wharton & Garrison LLP. “The beauty of the structure is that it allows the capital of the investors, in between being invested in private investments, to be exposed to public markets,” Mr. Grofman said. Clients typically sit on cash to fund capital calls by venture and private-equity funds.

Stock-picking hedge funds had a banner year in 2020, buoyed by markets that set new highs after bottoming that March.

Their fortunes in public markets have changed this year. The meme-stock rally in January, which sent the price of companies including GameStop Corp. and

AMC Entertainment Holdings Inc.

to extraordinary heights, dealt losses to myriad hedge funds. Whale Rock gained 71% last year, while the D1 share class investing up to 15% of clients’ money in private companies climbed 60%; in January they lost about 11% and 30%, respectively, in just their public investments.

While D1 has almost recouped those losses, Whale Rock and other growth-oriented stock pickers have struggled. Fund managers say sector rotations that have alternately favored growth or value have made it difficult to navigate markets. Long out-of-favor sectors such as energy and financials have been on a tear.

Meanwhile, private markets have continued to be supportive. The U.S. IPO market is flourishing, and companies are continuing to raise more money in private markets than in the past. Hedge funds are contributing to the brisk pace of fundraising. D1 and Tiger Global Management, which manages a series of private-equity funds in addition to a hybrid hedge fund, have participated in private funding rounds this year through September at a pace of more than a deal a week for D1 and more than two deals every three days for Tiger, according to PitchBook Data Inc.

The 44-year-old Mr. Sundheim, who started D1 after several years as chief investment officer at Viking Global Investors, said at a recent capital-introduction conference that he hadn’t expected to get as big in private companies as he has. D1 is invested in 90 private companies, he said.

He said judgment was the only competitive advantage in public markets as private markets offered the additional benefit of firms’ reputations playing a role in gaining access to deals. He said D1 in its earliest investments acted as a resource to management teams so they would be strong references for D1. Mr. Sundheim also said he was confident in his portfolio of public investments over the next three to five years.

Write to Juliet Chung at [email protected]

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Robinhood Stock Sale Soured By Investor Confusion, Valuation | Sidnaz Blog


Robinhood Markets Inc.’s


HOOD 3.45%

bid to revolutionize IPOs has created losses for investors instead, after one of the year’s most highly anticipated listings fell flat.

In a regulatory filing in early July, the trading platform’s co-founders said they would open their initial public offering to customers on equal terms with institutional investors. They said they recognized it may be the first IPO many would participate in, and pledged to “never sacrifice the safety of our customers’ money.”

It now appears Robinhood’s commitment to “democratizing” the IPO process played a role in the offering’s big initial stumble Thursday. An innovative auction system sowed some confusion among investors, many already suspicious of the valuation of a business that has drawn scrutiny from regulators and criticism from customers, people involved in the process said.

The stock, initially priced at $38, the bottom of the target range, sits below that. It is a disappointing result at a time when IPOs are booming and investor appetite for new issues is robust.

Robinhood proudly tore up the traditional IPO playbook. It insisted a large chunk of its stock—in the end up to 25%—go to its individual-investor customers compared with the normal retail allocation of well under 10%. It said employees could sell a portion of their stock right away instead of being locked up for six months. And when it came to determining the price of its IPO, Robinhood decided to use a hybrid-auction process, which attempts to assign shares to investors based on what they are willing to pay, regardless of who they are.

Robinhood co-founder Baiju Bhatt, in gray suit, and CEO and co-founder Vladimir Tenev in the Wall Street area of New York City on Thursday.

The hybrid auction has worked in other IPOs in the past year. In typical listings, underwriters give their investor clients updates throughout the roadshow—the seven- to 10-day period in which a company pitches its stock. These updates typically include guidance on how much demand bankers are seeing for the shares and the rough price they ultimately expect to set.

In this case the company and lead underwriters

Goldman Sachs Group Inc.

and

JPMorgan Chase

& Co. gave few such updates, people familiar with the matter said. When some large investors called the other underwriters on the deal, some of those bankers pleaded ignorance.

The opaqueness of the process sowed suspicion among some investors who assumed the deal was going poorly and adjusted their orders accordingly, investors and bankers said.

Many had already expressed concern about how much of Robinhood’s revenue comes from a controversial practice called payment-for-order-flow, which the Securities and Exchange Commission is reviewing, people who attended the roadshow said. Others questioned what they saw as the high valuation the eight-year-old company was seeking—in excess of $30 billion.

Another concern: whether Robinhood’s controversial decision earlier this year to stop users from buying meme stocks like

GameStop Corp.

would prompt some to eschew the offering.

Wednesday night, as bankers met with Robinhood Chief Executive

Vlad Tenev

to set the price, some investors said they were only told it would be within the $38 to $42 target range. This surprised many large institutions, who are used to more guidance heading into a pricing meeting.

A Robinhood IPO event in Times Square.

An unusually large percentage of shares were set to be allocated to hedge funds, which are more likely to “flip” IPO stock on the first day of trading, according to people close to the deal. To bring in more of the biggest institutional funds who are viewed as “buy-and-hold” investors, Robinhood chose $38 a share instead of the higher price some funds were willing to pay.

The company and Goldman felt comfortable that the lower price was conservative enough that the shares would rise on their first day of trading, especially given the buzz around Robinhood in the lead-up to the listing, according to people close to the deal.

Instead, the stock opened at $38 a share, unusual at a time when big initial pops for hot IPOs are more the norm. It rose higher briefly, touching $40 before dropping through the IPO price. It closed down 8.4% Thursday.

The shares fell further still Friday morning before regaining some ground in the early afternoon.

The brokerage app Robinhood has transformed retail trading. WSJ explains its rise amid a series of legal investigations and regulatory challenges. Photo illustration: Jacob Reynolds/WSJ

Robinhood’s Stock Market Debut

Write to Corrie Driebusch at [email protected]

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Baby-Food Maker Little Spoon Raises $44 Million | Sidnaz Blog


Little Spoon Inc., a direct-to-consumer baby-food company targeting millennial parents, raised $44 million in a venture-capital funding round.

The so-called Series-B financing round values the company at roughly $200 million, people familiar with the matter said. It was led by Valor Equity Partners.

Little Spoon ships organic purées, toddler meals and vitamins to customers, bypassing grocery stores and other distribution outlets. Last year, Little Spoon launched Plates, its meals for toddlers and bigger children. The company also offers a virtual community that provides caregivers with a platform to connect and interact.

“Packaged baby food hasn’t evolved in line with the modern parent,” Chief Executive

Ben Lewis

said in an interview. “It was this glaring void that we couldn’t ignore,” added Mr. Lewis, who co-founded Little Spoon in 2017 with

Lisa Barnett,

Michelle Muller

and

Angela Vranich.

Little Spoon is one of several upstart baby-food companies to jump aboard the organic trend, aiming to attract the growing demographic of millennial parents. Recent reports of high levels of toxic metals in several top baby-food brands opened the door for new competitors focused on safety.

Co-founders Lisa Barnett, Angela Vranich, Michelle Muller and Ben Lewis.



Photo:

Little Spoon Inc.

Little Spoon also emphasizes that it is a mission-driven company. During the Covid-19 pandemic, it has donated more than $100,000 of its products to food pantries and introduced a program to supply the products at cost to first responders and anyone who experienced pandemic-related financial hardship, according to the co-founders.

“It’s exactly the kind of company we like to invest in,” said

Jon Shulkin,

a board member and partner at Valor Equity Partners, which also invested in Little Spoon during its Series A financing round. “They’re solving a problem and doing good work.” He said he is optimistic about the company’s growth prospects because there are “always ways to scale” for makers of baby and children’s food.

Little Spoon said it is growing quickly, delivering seven million meals since the onset of the pandemic out of the 15 million delivered since the company’s founding. Large baby-food makers have had to adapt as some parents make their own and others embrace baby-led-weaning, in which infants are served pieces of real food rather than purées.

While overall food sales surged during pandemic-related shutdowns around the U.S., the baby-food segment didn’t receive the same boost, according to market-research firm IRI. Sales of baby food dropped in the spring of 2020, and though they have climbed since, growth has continued to lag behind the broader food segment.

Write to Corrie Driebusch at [email protected]

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Ingersoll Rand Has Made Takeover Bids for SPX Flow | Sidnaz Blog


SPX Flow primarily makes components for machinery used by food-and-beverage and industrial companies.



Photo:

Benoit Tessier/Reuters

Ingersoll Rand Inc.


IR 0.06%

has made takeover bids for component maker

SPX Flow Inc.


FLOW -1.59%

that have so far been rebuffed, according to people familiar with the matter.

The industrial-machinery company’s most recent all-cash offer valued SPX Flow in the low-$80s a share, the people said, or around $3.5 billion. SPX shares closed Friday at $62.09, giving the company a market value of about $2.6 billion.

Charlotte, N.C.-based SPX primarily makes components for machinery used by food-and-beverage and industrial companies. Ingersoll Rand, one of the world’s largest manufacturers of industrial pumps and compressors, has a market value of about $20 billion.

In 2019, the former

Ingersoll-Rand


TT 0.04%

PLC, then incorporated in Dublin, agreed to merge with Gardner Denver Holdings Inc. The deal combined Gardner Denver’s selection of compressor, pump, vacuum and blower products and services with the part of Ingersoll Rand that made similar tools and systems as well as equipment for lifting and material handling, and golf carts.

The remainder of the company—heating, ventilation and air- and temperature-controlled transport businesses—became

Trane Technologies

PLC.

Former Gardner Denver Chief Executive

Vicente Reynal

has led the combined company since the deal closed in 2020. Ingersoll Rand has since sold its golf-cart business to private-equity firm Platinum Equity for around $1.7 billion.

Private-equity firm KKR & Co. owned a stake in Gardner Denver at the time of the merger and remains a more-than-7% shareholder in Ingersoll Rand, according to FactSet. It also holds seats on the board.

Write to Cara Lombardo at [email protected] and Miriam Gottfried at [email protected]

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Appeared in the July 19, 2021, print edition as ‘Ingersoll Is Bidding To Acquire SPX Flow.’



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Intel Is in Talks to Buy GlobalFoundries for About $30 Billion | Sidnaz Blog


Intel plans to make more chips for other tech companies.



Photo:

David Paul Morris/Bloomberg News

Intel Corp.


INTC -1.26%

is exploring a deal to buy GlobalFoundries Inc., according to people familiar with the matter, in a move that would turbocharge the semiconductor giant’s plans to make more chips for other tech companies and rate as its largest acquisition ever.

A deal could value GlobalFoundries at around $30 billion, the people said. It isn’t guaranteed one will come together, and GlobalFoundries could proceed with a planned initial public offering. GlobalFoundries is owned by Mubadala Investment Co., an investment arm of the Abu Dhabi government, but headquartered in the U.S.

Any talks don’t appear to include GlobalFoundries itself as a spokeswoman for the company said it isn’t in discussions with Intel.

Write to Cara Lombardo at [email protected] and Dana Cimilluca at [email protected]

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NortonLifeLock in Talks to Buy Avast | Sidnaz Blog


Prague-based Avast primarily makes free and premium security software, offering desktop and mobile-device protection.



Photo:

david w cerny/Reuters

NortonLifeLock Inc.


NLOK -0.92%

is in talks to buy European cybersecurity firm

Avast

Plc, according to people familiar with the matter, in a deal that would expand the U.S. company’s focus on consumer software.

A deal could be finalized this month, assuming talks don’t fall apart, the people said. Avast has a market value of around £5.2 billion ($7.2 billion). Assuming a typical deal premium, the deal could value the cybersecurity firm at more than $8 billion.

Avast is based in Prague but trades in London. It primarily makes free and premium security software, offering desktop and mobile-device protection. Avast traces its roots back roughly 30 years to when founders

Pavel Baudiš

and

Eduard Kučera

established the company, then known as Alwil. It says on its website that it rebuffed an acquisition offer from rival McAfee in 1997, instead licensing its antivirus product to the company. It became Avast in 2010 and went public in London in 2018. In 2014, private-equity firm CVC Capital Partners took a significant minority stake.

Avast’s founders control roughly 35% of the shares and sit on its board.

The deal would be a big one for NortonLifeLock, which is based in Tempe, Ariz. With a market value of about $16 billion, the company was known as Symantec Corp. before it closed a $10.7 billion deal to sell its enterprise-security business to

Broadcom Inc.

in 2019. What is left mainly sells Norton antivirus software and LifeLock identity-theft-protection products to consumers.

The company had attracted takeover interest of its own a few years ago, but nothing has come of it.

Activist investor Starboard Value LP owns a roughly 3% stake in NortonLifeLock, according to FactSet, and holds a board seat. It first took the position in 2018.

Write to Cara Lombardo at [email protected] and Dana Cimilluca at [email protected]

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Broadcom No Longer in Talks to Buy SAS Institute, Sources Say | Sidnaz Blog


Broadcom, a semiconductor powerhouse built largely through acquisitions, has been on the hunt for a deal to beef up its presence in the corporate-software market.



Photo:

Justin Sullivan/Getty Images

Talks for

Broadcom Inc.


AVGO -0.36%

to buy SAS Institute Inc. have ended after the founders of the closely held software company changed their mind about a sale, people familiar with the matter said.

The Wall Street Journal reported Monday that the companies were discussing a deal that would value SAS in the range of $15 billion to $20 billion, including any debt. Following the report,

Jim Goodnight

and

John Sall,

who co-founded SAS decades ago and still run the company, had a change of heart and decided not to sell to Broadcom, the people said. Whether another suitor for SAS could emerge isn’t clear.

Some SAS employees saw the company as a strange fit for efficiency-focused Broadcom, some of the people familiar with the matter said. SAS is known for a tightknit culture and has a sprawling North Carolina campus with amenities including a yoga studio and a disc golf course.

Cary, N.C.-based SAS sells analytics-, business-intelligence and data-management software to enterprises. The company traces its roots back to the 1960s, when universities teamed up to analyze troves of agricultural data through a program called the Statistical Analysis System.

Broadcom, a semiconductor powerhouse built largely through acquisitions, has been on the hunt for a deal to beef up its presence in the corporate-software market. Its chief executive,

Hock Tan,

said earlier this year the company would look at buybacks and possibly debt repayment, if it didn’t make an acquisition by the end of the fiscal year. That typically ends in late October or early November.

Write to Cara Lombardo at [email protected]

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IFIT to Buy Fitness Platform Sweat for $300 Million Ahead of IPO | Sidnaz Blog


IFIT, which owns NordicTrack, was recently valued in excess of $7 billion in its most recent round of funding in late 2020.



Photo:

iFit

IFIT Health & Fitness Inc. will acquire Sweat, an online fitness training platform, ahead of an initial public offering that is expected in the fall, according to people familiar with the matter.

IFIT is buying Sweat, which was co-founded by trainer

Kayla Itsines

and CEO

Tobi Pearce

in 2015, for around $300 million, some of the people said. IFIT plans to keep Sweat, which is based in Australia, as a stand-alone brand and Ms. Itsines and Mr. Pearce as executives.

The Sweat app



Photo:

Sweat

IFIT is beefing up its content offerings ahead of its anticipated IPO. The company, which owns NordicTrack, was recently valued in excess of $7 billion in its most recent round of funding in late 2020 and is expected to attain a valuation in excess of that in its IPO.

Should the company debut as planned later this year, it is expected to tap a market hungry for fast-growing companies in the busiest year for public offerings on record. IFIT’s closest competitor,

Peloton Interactive Inc.,

made its debut in late 2019, and while its stock price has tumbled this year after a recall of its treadmills, investors had raced into the stock. Even with the pullback, Peloton shares have more than quadrupled from their IPO price.

IFIT, formerly known as Icon Health & Fitness Inc., has been moving swiftly with its IPO plans and confidentially filed papers recently with the Securities and Exchange Commission, according to people familiar with the offering.

Write to Maureen Farrell at [email protected]

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Jack Ma’s Ant in Talks to Share Data Trove With State Firms | Sidnaz Blog


HONG KONG—Ant Group Co. is in talks with Chinese state-owned enterprises to create a credit-scoring company that will put the fintech giant’s proprietary consumer data under regulators’ purview, according to people familiar with the matter.

The new entity, which could be established as soon as the third quarter of this year, could result in Ant ceding some control over the voluminous data it has on the financial habits of Chinese citizens. More than one billion individuals use Ant’s Alipay app to spend, borrow or invest their money, and the information that Ant has collected and used has been the secret sauce behind the company’s success in recent years.

The talks between Ant, which is controlled by billionaire

Jack Ma,

and Chinese state-owned companies are likely to result in the formation of a joint venture that would be licensed as a credit-scoring company. Ant and regulators have also been discussing whether the firm should be run and controlled by Ant or state-owned companies, according to people familiar with the matter.

The regulators are pushing for prospective state-owned shareholders to play a greater role in the new entity in order to have a bigger say in how it operates, according to some of the people familiar with the negotiations. Potential shareholders include a Shanghai-based financial conglomerate. There have also been talks about what sort of data would be collected by the new firm, and how the credit scores it produces would fit into China’s broader plans to build a nationwide database, the people added.

The discussions are continuing and final decisions haven’t been made, the people said.

An Ant spokesman declined to comment on plans for the credit-scoring business. The People’s Bank of China, which is overseeing a broader overhaul of Ant, didn’t respond to requests for comment.

Ant is controlled by billionaire Jack Ma.



Photo:

str/Agence France-Presse/Getty Images

The new venture with state-backed investors would override Ant’s previous attempts to spearhead a national credit-scoring system under its own brand, Zhima Credit, which it started six years ago. Ant once had ambitions of using Zhima—previously known as Sesame Credit—to provide credit scores for most of China’s population, but those hopes were dashed, reducing the division to what is in essence a loyalty program for Alipay users.

For all of China’s world-beating advances in mobile payments and financial technology, the country has lacked a robust national credit-scoring system akin to America’s FICO, whose scores are used by many lenders and are based on individuals’ borrowing and repayment histories from a variety of sources.

The PBOC runs a Credit Reference Center that collects credit information about individuals and companies from banks and other financial institutions. But it lacks data on many people who don’t qualify for traditional bank loans.

Over the last decade, Ant and other fintech companies ramped up lending to much of China’s population, but the information they gathered on individuals was largely kept within their own systems.

Until recently, Ant had resisted pressure from financial regulators to share its data or feed it into a central repository accessible by other financial institutions, saying that it didn’t have its users’ consent to do so.

The tables have now turned, following the cancellation of Ant’s initial public offering and a broader regulatory crackdown on China’s technology giants. By strengthening its grip over Ant, Beijing is also trying to put a stop to what it considers excessive data collection and lax consumer-privacy protection.

In less than six months, China’s tech giant Ant went from planning a blockbuster IPO to restructuring in response to pressure from the central bank. As the U.S. also takes aim at big tech, here’s how China is moving faster. Photo illustration: Sharon Shi

Ant in April said it would restructure into a financial-holding company overseen by China’s central bank. It pledged to get its payments, lending, wealth-management and other operations fully regulated, and said it would set up a company that will apply for a personal-credit reporting license.

Earlier this month, Ant started a consumer-finance company that also counts state-owned and private enterprises as shareholders. That firm will change the way Ant funds and makes some of its short-term loans.

Ant, whose Alipay platform handled the equivalent of more than $17 trillion worth of payment transactions and originated loans to more than a third of China’s population in the year to June 2020, has collected troves of consumer data for years.

The company in 2015 launched Sesame Credit, then changed the name to Zhima, the Mandarin word for Sesame. Ant said its aim was “to help the hundreds of millions of Chinese consumers and businesses who have little or no formal credit history establish their trustworthiness in a commercial setting.”

Mr. Ma, who founded Alipay’s original parent Alibaba Group Holding Ltd., had high hopes for the division, whose name was similarly inspired by the folk tale “Ali Baba and the Forty Thieves.” In it, the magical phrase “Open Sesame” revealed the entrance to a cave where thieves had hidden a treasure.

Around that time, the PBOC invited eight private companies, including Zhima and Ant’s rival

Tencent Holdings Ltd.

, to pilot their own credit-scoring systems. That set off a race by the companies to build what they hoped would eventually be adopted as the country’s premier credit-monitoring database.

Zhima expanded aggressively, hiring people from companies like Equifax to build a risk-assessment and scoring system that could be connected to thousands of financial institutions such as banks, consumer-finance companies and online lenders.

Ant aggressively expanded Zhima Credit after launching it in 2015, but it is now a shadow of its former self.



Photo:

Qilai Shen/Bloomberg News

Zhima’s credit-scoring metrics incorporated more than people’s borrowing and payment histories into its assessments. It also analyzed alternative data such as individuals’ online social networks and purchasing habits, which are considered complementary to information about car loans and mortgage debt.

In early 2016, Mr. Ma made Zhima his first stop during a post-Lunar New Year visit to Ant’s Hangzhou headquarters. In a pep talk to staffers, he proclaimed that “Zhima shall be adopted in every household,” according to a person who was there.

Inspired, the Zhima team accelerated the rollout. Between June and September that year, it connected to more than 300 nonbank financial institutions such as peer-to-peer lending platforms that were mushrooming across China, according to people familiar with the matter. It also supplied its credit scores to dozens of commercial banks and in return, some of them provided it with loan data and default information, the people said.

The industry expected the PBOC to hand out credit-scoring licenses after the pilot program ran its course.

That never happened. In 2017, regulators stepped up a crackdown on peer-to-peer lending platforms after some of them turned out to be scams or lacked proper risk controls.

The PBOC also decided it no longer wanted a nationwide credit-scoring system run by private companies with profit motives. A central-bank official told a state-owned media outlet at the time that the firms weren’t willing to share information and had conflicts of interest as well as a poor understanding of how to do credit scoring.

Instead, the central bank in early 2018 issued a three-year license to a new government-led company called Baihang Credit Scoring. The eight companies that were previously asked to build their own systems were told to suspend those efforts and were each given an 8% stake in Baihang, with the remaining 36% held by a government-affiliated entity. They were all asked to feed data into Baihang to help build a national credit-scoring database.

It was another failed effort, because some of the companies didn’t want to contribute data that their rivals could benefit from. “There was no way Ant was going to share all this with a company in which it had only an 8% stake, so that most of the benefits of the data would potentially go to other companies,” said

Eswar Prasad,

a former China head of the International Monetary Fund and a professor at Cornell University.

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With its ambitions curtailed, Zhima’s relevance began to fade. Ant changed its mission and made it more akin to a loyalty program for Alipay users. People with high Zhima scores could enjoy perks such as deposit-free hotel bookings and rentals of cars, bicycles and mobile power banks. The Zhima team shrank, becoming a shadow of its former self, according to people familiar with the matter.

In January this year, the central bank put out a draft rule to “strengthen the supervision and management of credit-scoring businesses.” It said such firms would require licenses to operate legally.

Zhima won’t be part of the new credit-scoring company that Ant is likely to set up with state-owned firms, according to people familiar with the matter. The new entity would have access to the same data used by Zhima, and after it is formed Ant would exit its position as a shareholder in Baihang, the people added. Baihang’s credit-scoring license expired in January, according to a regulatory filing. Baihang didn’t respond to a request for comment.

At the end of the day, Ant will have to share some of its consumer data with other institutions because “it’s a matter of public interest,” said He Zhiguo, a professor of finance at the University of Chicago.

Ant’s headquarters, where Jack Ma made Zhima his priority for a visit in 2016.



Photo:

Qilai Shen/Bloomberg News

Write to Jing Yang at [email protected] and Xie Yu at [email protected]

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