The week in investor relations: Outsourcing investment teams, HFT for retail investors and Adidas sells Reebok after investor pressure
– The market for outsourced investment teams is ‘red hot’ thanks to the darkening outlook for future returns, according to the Financial Times (paywall), which said allocators of capital are increasingly delegating entire multibillion-dollar mandates to outside money managers. Big corporate or public pension plans, endowments and foundations usually have in-house investment divisions and only hand out specific mandates to external money managers. However, ‘smaller entities lacking the scale to employ expensive internal investment teams’ often outsource the entire management to investment consultants such as Mercer or asset managers such as BlackRock.
– Jump Trading Group, one of the world’s largest high-frequency trading firms, has plans to launch a unit that executes stock orders for individual investors, reported the Wall Street Journal (paywall). The retail trading business has grown more lucrative for electronic traders as ‘meme-stock mania has fueled a surge in US retail volumes,’ said the paper. A ‘big player in global markets despite its low profile and penchant for secrecy,’ executives at Jump told the paper that the firm is setting up a so-called retail wholesaler business. Wholesalers fill buy and sell orders for the customers of online brokerages such as Robinhood and TD Ameritrade.
– The Guardian reported that Adidas is selling Reebok to the US brand management company Authentic Brands Group for up to €2.1 bn ($2.5 bn), following investor pressure. The German sportswear firm will concentrate instead on its core marque. Adidas bought Reebok for €3.1 bn in 2006 in a ‘blockbuster deal designed to help the trainers and clothing company take on rival Nike, but it never returned to its 1980s heyday,’ said the paper - with investors demanding action. Adidas said most of the acquisition price would be paid in cash when the deal is closed early next year, adding that it would share the bulk of the proceeds with its shareholders.
– Muddy Waters Capital, the hedge fund, has confirmed in a letter to investors that its short position in Tesla’s shares has been ‘sent to heaven,’ reported The Times (paywall). Carson Block, founder of Muddy Waters and one of Tesla’s biggest critics, had predicted that Tesla would go bankrupt and criticized the ‘narcissism’ of Elon Musk, its boss. The paper said Musk had persuaded Block to abandon the short position that his company held in the stock.
– In other Tesla-related news, the electric carmaker’s Chinese battery supplier is reported to be planning a $9 bn private stock sale this year. The South China Morning Post reported that Contemporary Amperex Technology, the world’s biggest maker of lithium-ion batteries, will sell some 232.9 mn shares, or a 10 percent stake, to as many as 35 institutional investors, according to a filing to the Shenzhen Stock Exchange.
– A robust corporate profits recovery is igniting optimism on Wall Street that US equities will extend their bull run even as investors question whether companies can eclipse a high bar for earnings growth and margins, said the FT. The latest quarterly reporting season showed US corporate earnings, revenues and profit margins expanding at their strongest pace since FactSet began tracking these metrics in 2008, it said. The paper quoted Russ Koesterich, portfolio manager of the global allocation fund at BlackRock, as saying that ‘economic growth is running at the best pace we have seen in decades and that is a tremendous tailwind for earnings.’
– The NYSE will require traders to be vaccinated against Covid-19 to access its historic trading floor, reported the WSJ. The exchange is stepping up its measures against coronavirus amid rising cases of the Delta variant. Traders and other personnel who work on the floor will need to be fully vaccinated by September 13 – unless they qualify for a medical or religious exemption – the paper reported NYSE CEO Michael Blaugrund as saying in an email to the exchange’s floor community.
– In related news, Financial News reported that US investment bank Citi has required that employees in a number of offices in the US are vaccinated against Covid-19 before returning to the workplace at least two days a week. ‘Starting September 13, all colleagues at our New York City HQ and other offices in the Tri-State area, as well as Chicago, Boston, [Washington] DC and Philadelphia, will be expected to return at least two days a week and vaccination is required,’ FN said Sara Wechter, head of human resources at Citi, wrote in a LinkedIn post on August 10.
– Nasdaq’s acquisition of a stake in LeveL ATS indicates that a ‘new wave of innovation’ in the US equity market structure is occurring, wrote Brad Bailey, research director in the capital markets division of consultancy Celent, on Market Media. Nasdaq announced the deal in early August, with the news it was buying a significant minority stake in LeveL ATS, an independent US equity dark pool trading venue which launched in 2006. It joins Bank of America, Citi and Fidelity as owners.
– ByteDance, the owner of short-video app TikTok, has revived a plan to go public - this time in Hong Kong, reported the FT. The news comes despite a widening regulatory assault targeting Chinese technology companies, with the firm reportedly planning its listing for either late 2021 or early next year, according to people familiar with the plans. ByteDance postponed its overseas listing earlier this year.