The week in investor relations: Retail trading remains strong, Shell’s $5 bn Russia writedown and Elon Musk joins Twitter
– Retail trading is down from peak numbers reached during the height of Covid-19, but holding well above pre-pandemic levels, and indications are that current levels are sustainable, according to Traders Magazine, covering the ‘How retail is changing equity market structure’ panel at the Security Traders Association of New York annual conference on Monday at the NYSE. Retail comprises about 18 percent of overall trading activity currently, compared with 13 percent pre-pandemic and 27 percent at times in 2020 and early 2021, according to Jim Swartwout, president and chief operating officer at Robinhood.
– Shell confirmed it will take a hit of between $4 bn and $5 bn from offloading its Russian assets as the firm pulls back from the country, according to the Guardian. Bosses said they will no longer buy oil on the spot market but will continue to fulfil contracts on buying fuel from Russia signed before the invasion of Ukraine. The update on the cost of no longer doing business in Russia includes Shell quitting joint ventures with Gazprom. The company said previously that it would offload a 27.5 percent stake in a Russian liquefied natural gas facility, a 50 percent stake in an oilfield project in Siberia and an energy joint venture. It will also end its involvement in the Nord Stream 2 pipeline between Russia and Germany, which has been put on hold by ministers in Berlin.
– Elon Musk will join Twitter’s board of directors after taking a 9.2 percent stake in the social media company, CNBC reported. ‘Through conversations with Elon in recent weeks, it became clear to us that he would bring great value to our board,’ said CEO Parag Agrawal in a tweet. ‘He’s both a passionate believer and intense critic of the service, which is exactly what we need on Twitter – and in the boardroom – to make us stronger in the long term.’
After he was named to the board, Musk teased he would push for adjustments to the product. ‘Looking forward to working with Parag & Twitter board to make significant improvements to Twitter in coming months!’ he said in a tweet.
– Meanwhile, The Wall Street Journal (paywall) said Musk set the stage for a potential dispute with the SEC over how he disclosed his investment in Twitter. Musk disclosed his 9.2 percent holding in a form that investors are required to file when they buy more than 5 percent of a company’s stock without planning to seek control. But the notice came several days late and didn’t include a standard certification that underscores an investor’s passive status. The SEC in the past has brought enforcement actions against some people who missed ownership-disclosure deadlines repeatedly.
– Hedge fund managers in North America and the Asia-Pacific region are losing confidence in their future business opportunities, despite the current market environment being a relatively favorable time for many of their strategies to shine, according to Institutional Investor. Covering the latest Alternative Investment Management Association’s Hedge Fund Confidence Index, the publication said confidence levels among US and Canada hedge funds were down 42 percent from their peak during the second quarter of 2021. In Asia, hedge funds’ bullishness about their businesses dropped only 19 percent during the same time period. But the confidence level of hedge fund managers in both North America and Asia has declined steadily for the last three quarters.
The index, measured during the last two weeks of the quarter, is a gauge of hedge funds’ sentiment about their economic prospects over the next 12 months. The 300 global hedge firms that participated in the index indicated their confidence on a spectrum ranging from -50 to +50.
– Nineteen special purpose acquisition company (Spac) mergers were cancelled this year, compared with three in the same period last year, reported the Financial Times (paywall), with many failing due to a combination of high investor redemptions and inadequate cash from private investors via a structure known as a Pipe. Spac investor redemptions hit 81 percent in March, the paper said, citing data from Dealogic, adding that ‘sweeping reforms for Spacs’ from the SEC are adding further uncertainty to the market.
– The New York Times reported that a judge on April 1 struck down a California law requiring diversity on boards. In response to a lawsuit brought by conservative advocacy group Judicial Watch, Judge Terry Green of Los Angeles County Superior Court found that the law violated the state constitution. The law, Assembly Bill 979, went into effect in 2020. It requires publicly traded companies based in California to have board members from under-represented communities including people of several races and ethnic groups and people who identify as gay, lesbian, bisexual or transgender. Governor Gavin Newsom, in signing the bill into law, proclaimed it a victory for racial justice and empowerment. Judicial Watch’s lawsuit, filed a month after the law was signed, argued that it was unconstitutional because it mandated quotas. Judge Green did not specify the reasoning for his decision.
In a statement, California Partners Project called the decision ‘disappointing but not determinative’. The group pointed to studies showing business outcomes were better ‘when all of our rich talent is represented in positions of leadership’ and noted that investors motivated by these outcomes would continue to pressure companies to have diverse boards. California has led the country in promoting companies to diversify their leadership, starting with a 2018 law that required corporate boards to have at least one woman. Since that law was passed, the number of women on boards has more than doubled, according to a report.
– Starbucks said it is suspending billions of dollars in share repurchases, a move CEO Howard Schultz said would free up cash to invest in cafes and employees, the WSJ reported. Pausing the buyback program, which Starbucks launched last fall, represents the best way for the company to invest in its next phase of growth, Schultz told employees in a letter coinciding with his return as CEO. In his letter, he said many companies are grappling with new realities in a changed world, including challenged supply chains, pandemic-driven losses, heightened political tensions, racial unrest and consumers seeking more accountability from business.
– The American Legislative Exchange Council (ALEC), an association of state legislators, put forward model legislation that gives states a template for laws to keep pension funds from following ESG policies in their investment decisions, the WSJ reported. ‘Politically motivated investing, by definition, takes rates of return off the table,’ said Jonathan Williams, chief economist at ALEC.
ALEC drafts model laws that state legislatures can easily adapt and adopt, complete with references to ‘[state name]’ ready to be filled in. The legislative template it has put forward doesn’t mention ESG explicitly but, according to ALEC, countering ESG motivations in state pension fund decision-making is a driving factor behind its proposal. The template would mandate that investment advisers haven’t ‘sacrificed investment return... to promote goals unrelated to those pecuniary interests’ of state pension fund beneficiaries.
In 2020, the New York State Common Retirement Fund announced a plan to have a net-zero portfolio in terms of carbon emissions. Maine legislators in June passed an act that required the Maine Public Employees Retirement System to divest itself of fossil fuel assets.
– Shares in Toshiba rose on Friday after the Japanese conglomerate said it would set up a special committee to assess potential bids from private equity and other investors, ‘opening the door for a landmark deal’ to take one of the country’s biggest industrial names private, reported the FT. The paper said ‘people close to’ several big private equity funds that are likely to be involved in discussions with Toshiba said that given the sensitivity around some of its core businesses, any buyout deal hoping to succeed would need a significant Japanese contingent among its investors. It added that while there were stark divisions on the matter within the company, a growing number of senior figures had concluded that a take-private deal might provide the best route to resolving years of business turmoil and deepening deadlock with activist shareholders.
– South China Morning Post reported that Richard Liu Qiangdong, the founder of e-commerce giant JD.com, handed over the CEO role to company president Lei Xu, in what it describes as ‘the latest example of a Chinese tech billionaire retreating from daily operations’. Xu, with more than 10 years at the company, will also join the board as an executive director, while Liu remains as chairman where he will ‘continue to focus on guiding the company’s long-term strategies, mentoring younger management and contributing to the revitalization of rural areas,’ according to a JD.com statement.
Liu is among a number of high-profile Chinese tech founders who have stepped back from the daily operations of their companies to dilute the so-called ‘key man risk’ amid a regulatory crackdown in China’s internet sector, said the paper. Others include Colin Huang from Pinduoduo, Kuaishou Technology’s Su Hua and Zhang Yiming, the founder of TikTok owner ByteDance.