Connect with us

Venture Capital

Markets in the eye of the storm

eye of the stormInvestment markets are in the eye of the storm. The initial storm danger came as COVID-19 hit, decimating jobs and smashing demand.

Avatar

Published

on

By Damien Klassen, Head of Investments at Nucleus Wealth.

Investment markets are in the eye of the storm. The initial storm danger came as COVID-19 hit, decimating jobs and smashing demand. Governments and central banks ably stepped up to stem the damage, and investment markets calmed. But insolvencies and bankruptcies have only been delayed, not avoided and the employment recovery is unlikely to be quick. The eye of the storm is not as safe as it appears.

The disconnect continues

At the risk of sounding like a broken record, the dynamic at the moment is as strange as it has ever been. I have spoken before about the best argument for buying stocks is the ironic case that capitalism is dead, and therefore buy equities. Disconcertingly, there continue to be signs that this is the case.

Governments around the world made significant changes to bankruptcy and property eviction laws.

When the crisis was expected (hoped?) to last for only a few months this was good policy – there is was no sense in shutting down companies due to short term demand issues or kick people out of homes for short term job losses. And the changes have worked:

US Bankruptcies

Which is where the disconnect lies. Australian bankruptcies in the June quarter were down 42%. The US is down around the same. Europe is seeing similar effects. The number of unemployed is 50% higher than the start of the year in most countries. There is clearly a tension that needs to be resolved.

It should be clear now that COVID-19 is not a 3-month “blip” but rather a longer-term structural issue. Now it becomes a question of whether the cure actually turns into the problem.

Some jobs will never return

A Melbourne based specialist delivery company has a niche delivering to hospitals and hotels. Revenues down 75%+. Profits up 50%. Most of the profit increase is JobKeeper. But the owner has also torched middle management and worked out clients are just as happy with larger deliveries less often rather than smaller deliveries more frequently. And so productivity is off the charts. As revenues recover, the middle managers will not be getting their jobs back.

This is just an anecdote from one company, it is not data. But economic history shows a similar effect with businesses across the world. That is what recessions show us – jobs lost take a long time to re-appear. Many older workers will never work again.

Capitalism has bankruptcies for a good reason 

There is a good reason for bankruptcies and evictions. When people or companies get into financial difficulty, bankruptcy gives them breathing space by cancelling interest and allowing them to resolve the problem. It forces them to reset their obligations and to come up with a plan to extricate themselves.

Just as importantly, it alerts suppliers, employees and other partners to the problem. The reason this is useful is that without bankruptcy, companies and people can simply use up credit with one supplier and then switch to another. If this is allowed to go on, then the suppliers start to go broke, and it creates a domino effect of economic issues.

Evictions are similar. Say someone cannot afford a $1,000 a week rental/mortgage because of job changes but could afford $600 per week in a different suburb. How long should they be allowed to stay in the $1,000 per week house? The longer that person is allowed to stay, the more likely it is that the landlord also goes into financial stress. Or, the bank has to reduce lending elsewhere,  creating another domino effect.

Keep in mind that for the most part, rental debts or interest is still accruing, the burden is getting larger and the capital smaller. These are highly emotional issues, and in both cases, we absolutely need a safety net. But, a small debt can conceivably be paid off through a restructure. In contrast, larger debts become all but impossible to pay.

Cruel to be kind?

Say you have someone who is bankrupt, owing $25,000 to a range of credit card providers, utilities and landlords. If they go bankrupt or are forced to sell their house, then it can be a devastating event. But if the jobs are not coming back quickly then if you give that person six more months, then compounding interest and more bills might turn the amount into a much higher figure.

For the borrower, it is far crueller to be under six months or twelve months more emotional and financial stress. During this time they go from a small debt to a far larger debt while hoping for “something to come along” to fix the problem. Better to bring the issue to a head earlier.

For the debtors, an early resolution is also much better as each debtor has a lower exposure and might get paid out something. At high debt levels, individual debtors end up with almost nothing.

How long can capitalism be suspended for before it becomes a problem? 

So there are two competing macroeconomic effects.

  1. We don’t want bankruptcies to snowball into more job losses, into a housing market crash, into more defaults and so on. So, by delaying the start, it creates a calm spot, the eye of the storm.
  2. We don’t want the lack of bankruptcies to mean that the over-indebted who aren’t paying their bills start bringing down people who weren’t over-indebted. This is the second half of the storm.

Governments were hoping for a short sharp shutdown and recovery, or a cure or a vaccine. It didn’t happen.

Governments are tempted to pull the first lever again and hope. The issue is that the second grows bigger every day. By pulling the first lever again, if we don’t get a cure or vaccine, then there is now a much larger problem.

If the last ten years have taught us anything, they have taught us that given a choice between:

  1. taking a little short term pain for a large amount of economic gain or
  2. taking a little short term gain for a large amount of economic pain

That politicians will take option (b) way more often than more sober observers would prefer.

The rules are rolling off around the globe, my expectation is that this will create at least some sense of normalcy. But there are already countries extending provisions until the end of the year or beyond. Which makes it difficult to assess when the eye of the storm will pass, and the second half will begin.

There is an alternative possibility: that markets are now entirely dependent on central bank support, so economics and fundamentals no longer matter.  We have a checklist of a dozen decisions that governments and central banks can make that will eventually suspend capitalism.

A few of the items have already been checked off the list. The more that get implemented, the closer we get to a genuinely new paradigm. But, we do not believe this to be a likely outcome. The steps taken must become increasingly radical: effectively central banks and governments bailing out and propping up most failing businesses, turning the world’s capital markets into a herd of state-owned entities that will ‘kill the village in order to save it’.

The economic and virus progress has mainly been as we expected. So, our asset allocation and superannuation portfolios remain conservatively positioned.

In the direct holding stock portfolios, our virus-sensitive positions have driven outperformance. Since the crash, we found value in commodities. First oil, then iron ore, and now gold miners. We remain very wary of banks. However, the economy and the stock markets have disconnected. The stock market is at valuations that discount no risk.

Australian P/E

Wrap up

We changed most of our quant models a few months ago to put much less focus on the last 12 months of earnings, or the next year. The focus instead is on a mix of inflation-adjusted historical earnings and the earnings from the second year of earnings. The problem with this is:

  1. Historical earnings don’t capture growth companies very well.
  2. Analysts are not very good at forecasting the second year of earnings in the best of times. We are not in the best of times.

Which is an indication of the environment. You have to understand the limits of your models. The key to navigating as we exit the eye of the storm will be to not lose track of the principles of good investment while changing models enough to reflect that times are not normal.

We have a shopping list of high-quality companies that we want to own for our investors at lower prices for the very long term. Which is easier said than done. We picked up a few in March, but the problem with these companies they also bounce back the fastest once panic subsides.

Given a toxic mix of low-interest rates, volatility and expensive markets, investors will need to be significantly more nimble than in the past.

Source: https://australianfintech.com.au/markets-in-the-eye-of-the-storm/

Private Equity

FinTech: Western Union Acquires 15% Of Saudi Fintech stc pay For $200M

Western Union (NYSE: WU) has taken a 15% stake in stc pay for $200 million, valuing the Saudi fintech at $1.3 billion. Western Union is the world’s largest remittance company, while stc pay is a fully owned subsidiary of Saudi Arabia’s stc Group.

Avatar

Published

on

FinTech: Western Union Acquires 15% Of Saudi Fintech stc pay For $200M

https://platodata.net/wp-content/uploads/2020/11/fintech-western-union-acquires-15-of-saudi-fintech-stc-pay-for-200m.png

stc pay becomes the first Saudi unicorn and first fintech unicorn in the Middle East.

Western Union (NYSE: WU) has taken a 15% stake in stc pay for $200 million, valuing the Saudi fintech at $1.3 billion. Western Union is the world’s largest remittance company. stc pay is a 100% subsidiary of Saudi Arabia’s stc Group. (Arab News)

Western Union will initially pay $133.3 million to acquire a 10% stake in the Saudi fintech. It will acquire another 5% for $66.67 million if stc pay obtains a digital banking license.

stc pay

stc pay is the first fintech company in the Kingdom to receive a license from the Saudi Arabian Monetary Authority (SAMA).

It is also the largest digital wallet in the MENA region with more than 4.5 million users.

It has been established in accordance with the objectives of Saudi VISION 2030. Those are to support the growth of the national economy, to enhance financial inclusion, and reduce dependence on cash.

First unicorn in Saudi Arabia and first fintech unicorn in the Middle East

HRH Prince Mohammed bin Khalid Abdullah Al Faisal Chairman of stc Group, said the decision by Western Union to make such a significant Foreign Direct Investment in its fintech subsidiary was highly encouraging.

“For us at stc Group it reflects our position as a digital enabler and an ICT regional champion as we celebrate the creation of the first Saudi unicorn and the first fintech unicorn in the Middle East,” he added.

“stc pay has rapidly developed a leading regional digital payments service over the past two years and has been a highly successful digital partnership for Western Union,” said Hikmet Ersek, CEO and President, Western Union. “Looking forward, we believe stc pay is well-positioned for continued expansion in digital payments.”

Use of funds

stc pay will use funds to boost its capital resources and to fund its plans for long-term expansion.

The Saudi fintech also intends to launch more products for its customers.

In July this year, stc pay and Visa (NYSE: V), the world’s leader in digital payments, entered into a strategic partnership. They would launch customer-centric financial services and digital payment solutions to stc pay customers.

Related Story: Saudi Fintech Geidea Launches Beta Testing of End-to-End Solutions for SMEs

Free Industry News

Subscribe to our free newsletter for updates and news about alternatives investments.

Shape

Latest Alternative Investment News

Source: https://dailyalts.com/western-union-acquires-15-of-saudi-fintech-stc-pay/

Continue Reading

Private Equity

Weekly Wrap, November 23rd, 2020; DPI, CDC, EBRD launch pharma platform, OMAI’s latest education deal, AIIM backs MetroFibre Networx and more…

Last week in brief…November 23rd Several of the larger investors in Africa’s private capital ecosystem […]

The post Weekly Wrap, November 23rd, 2020; DPI, CDC, EBRD launch pharma platform, OMAI’s latest education deal, AIIM backs MetroFibre Networx and more… first appeared on https://www.africacapitaldigest.com.

Avatar

Published

on



Last week in brief…November 23rd

Several of the larger investors in Africa’s private capital ecosystem were involved in deals on the continent last week. The biggest, by far, was the launch of a $750 million pan-African pharmaceutical platform by Development Partners International, and two DFIs, then UK’s CDC and the EU’s European Bank for Reconstruction & Development. With a combined initial investment of $250 million, the three have acquired and merged two generic drug businesses – one in Egypt and the other in India – to form the foundation of the new pan-African platform business.

African Infrastructure Investment Managers (AIIM) has acquired a stake in MetroFibre Networx via a newly incorporated HoldCo, Digital Infrastructure Investment Holdings. The infrastructure is taking a minority stake in the fibre network operator using capital from two of the funds it currently manages, the IDEAS Managed Fund and AIIF 3. Ed Stumpf, who led the deal for AIIM, takes a seat on MetroFibre’s board.

Old Mutual Alternative Investments (OMAI) announced the first deal for its second education impact fund last week. The Education Investment Impact Fund of South Africa (or EduFund for short) is investing debt in Sifiso Learning Group, a 3-year old black-owned independent school operator. The financing will be used in the development of a new school in the Johannesburg suburb of Roodepoort.

African Capital Alliance (ACA) is backing a business focused on building a fintech platform across the continent. The Lagos-based private equity firm is investing $20 million in Accelerex for an undisclosed stake. The asset will be part of Capital Alliance Private Equity IV’s portfolio.

Having backed the platform earlier this year, ARCH Emerging Markets Partners is investing in CrossBoundary Energy again, and, this time, facilitating the exit of several of the unit’s first fund investors at an IRR of 15%. The capital will be used to push CrossBoundary’s ongoing development of distributed commercial and industrial projects across the continent.

The IFC is considering an equity investment in Adumo, an Apis Partners and Crossfin Technology Holdings-backed payments platform which came into being last year following the acquisition of Sureswipe. If the proposed investment gets approved, the platform will have $15 million to support its plans.

The Facility for Energy Investments Off-Grid Energy Fund is investing additional debt into Bboxx, a well-known off-grid solar business on the continent. The Lion’s Head Global Partners-managed fund is providing Bboxx with $4 million in financing which will be used to finance the firm’s operations and expansion in the Democratic Republic of Congo. The fund last backed the firm in May last year.

Etop Ikpe, a founder of Cars45, has raised a seed round for his new venture. The round was led by TLcom Capital, who’d backed his former startup. Between them, the investor group is investing $3.4 million into Autochek, Ikpe’s new venture, which will be used to hire more people, develop the firm’s technology and expand in its home markets of Nigeria and Ghana.

In other venture news, Novastar Ventures has led a seed round for an insurtech startup with operations in Kenya and Uganda. The Nairobi-based investor together with Mercy Corps Ventures, Musha Ventures, GAN Ventures, and Zephyr Acorn is investing $2 million in the startup, Turaco, which will use the capital to expand its workforce, invest further in its technology and scale its operations.

That’s it for this week. As always, you can review these and other stories by clicking through to this week’s preview edition of the newsletter.

Source: https://www.africacapitaldigest.com/weekly-wrap-november-23rd-2020-dpi-cdc-ebrd-launch-pharma-platform-omais-latest-education-deal-aiim-backs-metrofibre-networx-and-more/

Continue Reading

Private Equity

Venture Capital: Andreessen Horowitz Closes Two New Funds Worth $4.5B

Andreessen Horowitz (a16z) collected $4.5 billion in two new funds, bringing its assets under management to a whopping $16.5 billion.

Avatar

Published

on

Venture Capital: Andreessen Horowitz Closes Two New Funds Worth $4.5B

https://platodata.net/wp-content/uploads/2020/11/venture-capital-andreessen-horowitz-closes-two-new-funds-worth-4-5b.png

Core Strategy: “Software eating the world.”

Andreessen Horowitz (a16z) collected $4.5 billion in two new funds, bringing its assets under management to a whopping $16.5 billion. (a16z)

The new funds round off earlier raises of $2.75 billion (May 2019),  $750 million (biotech – February 2020), and $515 million (Crypto – April 2020).

That’s an impressive tally of over $8.5 billion in just 19 months for Andreessen Horowitz.

a16z: Fund VII

The renowned Silicon Valley venture capital firm, which was founded just 11 years ago, said in a blog post that it closed Fund VII at $1.3 billion.

The fund will invest in consumer, enterprise, and financial services technologies, in seed and early-stage rounds.

Growth II

a16z wrapped up its Growth II fund at $3.2 billion and will deploy the money in investment opportunities with the following characteristics:

  • It’s a later-stage fund.
  • The core a16z vertical domains – consumer, enterprise, financial technology, bio, and crypto.
  • Companies with demonstrated product-market fit
  • Companies looking to expand their go-to-market footprint
  • It may also look at existing a16z companies already in early-stage funding

a16z: Core strategy

The VC firm said it intended to continue its core investing tenets of buying into the best companies, with software being the route towards compelling investment opportunities.

It will respect entrepreneurs and their entrepreneurial process, and build a synergistic network around them to accelerate their growth.

Savvy investments

Tech Crunch listed some of a16z’s recent outstanding investments.

These include Plaid (acquired by Visa for $5.3 billion), Coinbase, BuzzFeed, and soon-to-IPO candidates Airbnb, Affirm, and Roblox.

Related Story:   Andreessen Horowitz’s Thesis – “Multiplayer Game Experiences are the Next Social Networks”                                                

Free Industry News

Subscribe to our free newsletter for updates and news about alternatives investments.

Shape

Latest Alternative Investment News

Source: https://dailyalts.com/andreessen-horowitz-closes-two-new-funds-worth-4-5b/

Continue Reading
Blockchain52 mins ago

Blockchain52 mins ago

Blockchain52 mins ago

Blockchain52 mins ago

Blockchain52 mins ago

Blockchain53 mins ago

Blockchain53 mins ago

Blockchain53 mins ago

Blockchain53 mins ago

Blockchain53 mins ago

Saas58 mins ago

Saas58 mins ago

Saas58 mins ago

Saas58 mins ago

Saas58 mins ago

Saas58 mins ago

Saas58 mins ago

Saas58 mins ago

Saas58 mins ago

Saas58 mins ago

Blockchain1 hour ago

XRP, Synthetix, Crypto.com Coin Price Analysis: 23 November

Blockchain1 hour ago

CipherTrace will Anonymität von Privacy Coins an den Kragen

Private Equity1 hour ago

FinTech: Western Union Acquires 15% Of Saudi Fintech stc pay For $200M

Press Releases1 hour ago

The Film Detective Announces World Premiere of Salem and The Scarlet Letter (2020)

Press Releases1 hour ago

ThoughtWorks Honored 2020 Asia-Pacific WEPs Awards by UN Women

Press Releases1 hour ago

Seacoast Bank Named to Fortune’s ‘100 Fastest-Growing Companies’ List for Third Consecutive Year

Press Releases1 hour ago

ARUP Laboratories Announces the Availability of a Combined Test for COVID-19, Influenza, and RSV

Press Releases1 hour ago

Anunciados los ganadores de los 2020 “IMTA Mountain Tourism Awards”

Press Releases1 hour ago

New Financial Factors Regulation Blocks Participant Requested Investments

Blockchain1 hour ago

Here’s why the Pickle Finance hack was different from the rest

Blockchain2 hours ago

Csak COVID-tanúsítvánnyal kaphatnánk vissza a normális életünket

Press Releases2 hours ago

Dr. Rajamannan of Most Sacred Heart of Jesus Cardiology Holds Virtual Press Conference on Outpatient Therapies for Covid-19

Press Releases2 hours ago

Alertus Technologies Announces Upcoming Virtual Seminar to Help Organizations Navigate the New COVID-19 Landscape

Startup2 hours ago

Crypto Project Gnosis Launches Futarchy-Based Governance Organization

Private Equity2 hours ago

European insurers gear up to do deals

Blockchain2 hours ago

AAX: The institutional-grade crypto derivatives platform celebrates its anniversary

Startup2 hours ago

Skype co-founder Jaan Tallinn has invested over $130M in more than 100 tech startups; now betting big on London-based AI startup Faculty.ai 

Blockchain2 hours ago

Can Falsified Lab Tests be Cured Through Blockchain?

Press Releases2 hours ago

Panaceutics Nutrition Names Veteran Biotech Exec Adam Monroe New CEO

Private Equity2 hours ago

Weekly Wrap, November 23rd, 2020; DPI, CDC, EBRD launch pharma platform, OMAI’s latest education deal, AIIM backs MetroFibre Networx and more…

Trending