Dec 7, 2022
Apollo CEO Sees Opportunity in Liquidity Crunch: Goldman Update
(Bloomberg) -- Virtu Financial Chief Executive Officer Douglas Cifu said the market-making firm saw no losses stemming from the unraveling of Sam Bankman-Fried’s FTX crypto exchange.
While the crypto meltdown posed some operational challenges, New York-based Virtu saw no change in its retail flows as a result of the FTX contagion, Cifu said Wednesday at the second day of an investor conference hosted by Goldman Sachs Group Inc. He noted that the list of FTX creditors would ultimately emerge.
Cifu said that the fact that FTX was based in the Bahamas showed a failure of leadership in Washington. He added that he still expects a sensible regulatory regime to emerge from the collapse of the crypto exchange.
Brookfield CEO Says Markets Are ‘Wrong’ About Real Estate (3:13 p.m. NY)
Investors are undervaluing real estate firms with good assets, creating the potential to find “great value” in properties, Brookfield Asset Management Inc. CEO Bruce Flatt said.
“I would say the markets are wrong, generally, but you have to be selective,” Flatt said at the Goldman conference.
There’s a great disparity between the value of high-quality office and retail properties and lesser ones: Rents for some premier properties in Manhattan are 50% higher than pre-Covid levels, while owners of inferior buildings are struggling to find tenants, he said.
The MSCI US REIT Index has fallen 25% this year, a correction that is partly driven by the rapid rise in interest rates, which increases financing costs. “We’ve been through many cycles. We’ve been a through a lot worse than this one,” Flatt said.
The Toronto-based alternative asset manager had $125 billion of capital to deploy as of the end of September. The firm is raising money for an opportunistic credit fund that it expects to be more than $16 billion, Flatt told investors last month. Oaktree Capital, of which Brookfield acquired control in 2019, “is going to have an unbelievable next 24 months putting money to work” as credit markets endure a period of stress, Flatt said.
BNY Mellon Working with Regulators on Digital Assets (2:25 p.m. NY)
Institutional adoption of digital assets is underway, and Bank of New York Mellon Corp. is working closely with regulators on implementing those services, said Roman Regelman, CEO of securities services and digital at the company.
“Whether that’s an asset class or underlying technology, we’re quite bullish on both,” Regelman said at the Goldman conference, citing a recent survey in which 90% of institutional investors expressed interest in digital assets. “We are working with the regulators around the world.”
Schwarzman Says BREIT Concerns Are ‘Baffling’ (1:31 p.m. NY)
Blackstone Inc. CEO Steve Schwarzman said he found recent concerns about the firm’s mammoth real estate fund for wealthy individuals “baffling.”
The Blackstone Real Estate Income Trust has outperformed other publicly traded real estate investment trusts, Schwarzman said at the Goldman conference. The fund has seen accelerating redemptions in recent months, a sign that a major growth engine for the firm is losing steam and a retail boom that supercharged private equity is slowing.
Last week, Blackstone said it will limit redemption requests for the fund known as BREIT.
Read more: Blackstone’s $69 Billion Real Estate Fund Hits Redemption Limit
“The idea that there is something going wrong with this product because some people are redeeming is conflating completely incorrect assumptions,” Schwarzman said.
The CEO attributed the bulk of exits to Asian investors seeking cash as home markets tanked. He said that when confidence comes back into the market, investors will put more money into products like BREIT.
“This is just a pause,” he said.
Cboe Sees Opportunity to Fill Gap Left by FTX (12:41 p.m. ET)
Despite the crypto marketplace’s host of problems, Cboe Global Markets Inc. is seeing an opportunity to fill the gap left by FTX with its spiral into bankruptcy.
The Chicago-based company, which operates Cboe Digital, is building its business to avoid potential conflicts of interest that ultimately contributed to FTX’s collapse, executives said Wednesday at the conference.
“We favored the traditional model where customers are represented by their agents, and those brokers or agents are part of the exchange,” CEO Ed Tilly said. “There is a lot of trust in that.”
Cboe got back into cryptocurrencies this year with the acquisition of Eris Digital Holdings LLC, which gave the firm access to a spot market, regulated futures exchange and clearinghouse. The firm will continue to look for opportunities to expand and serve clients who are interested in trading digital assets, but with the “same model of transparency and trust that we run in all of our markets,” Tilly said.
He also indicated that expenses at Cboe will continue to increase as inflation, including higher wages, hits the firm, similar to what other companies are experiencing. Still, there are no plans to raise prices on products, with customers also “feeling the pressure on the supply chain and cost side,” Tilly said. Keeping pricing steady “is appreciated.”
Citi Trading Revenue to Increase 10% in Quarter (11:41 a.m. NY)
Citigroup Inc.’s trading revenue is likely to jump 10% in the fourth quarter from a year earlier as volatile markets continue to spur client activity across Wall Street.
CEO Jane Fraser said the bank’s trading desks should help the firm deliver the “low-single-digit” revenue growth it promised for this year. This quarter, the improved trading revenue is likely to counter a 60% drop in investment-banking revenue, she said.
“October and November were good months in terms of trading activity,” Fraser said at the Goldman conference. The caveat for the guidance, she said, is that “December is always an interesting month in the markets.”
Citigroup’s guidance is similar to that provided by rival JPMorgan Chase & Co. on Tuesday, when it said it expects trading revenue to rise about 10% this quarter from a year ago on continued strong performance in macro products.
U.S. Bancorp Sees ‘Inflection Point’ in Economy (11:40 a.m. NY)
The American consumer remains healthy, but the economy is approaching an “inflection point” ahead of a slowdown, U.S. Bancorp CEO Andy Cecere said.
“Things are good today,” with U.S. Bancorp’s customers able to rely on funds stockpiled through the pandemic, Cecere said at the Goldman conference. “However, that cash balance and that cushion, so to speak, is going to start to dissipate.”
Allstate CEO Expects Price Increases to Continue (10:34 a.m. NY)
Increases in Allstate Corp.’s insurance prices are likely to continue until the company hits its target combined ratio, given the current crush of inflation, CEO Tom Wilson said.
“We’re not willing to say that inflation is going to level out, or even that used car prices are down,” Wilson said at the Goldman conference. “We may end up overshooting a little bit, don’t know.”
While the goal isn’t to overshoot in pricing, inflation is still having an acute impact, Wilson said. “First it’s used car prices, now it’s parts and labor, severe accidents,” he said.
Apollo CEO Sees Opportunity in Liquidity Crunch (9:58 a.m. NY)
Apollo Global Management Inc. expects to have a strong year in 2023 as volatile markets and the prospect of a recession present opportunities for the credit-focused firm, according to CEO Marc Rowan.
Macroeconomic uncertainty has created a liquidity crunch, curtailing the amount of capital available for financing, Rowan said Wednesday at the second day of an investor conference in New York hosted by Goldman Sachs Group Inc.
“We’ve been taking advantage of mispriced risk as a result,” Rowan said, noting that Apollo finds India and the Middle East among areas attractive for investment.
Apollo, with $523 billion of assets under management as of Sept. 30, is expanding its credit offerings to take advantage of opportunities stemming from rising interest rates, geopolitical upheaval and a deep freeze in the US leveraged-loan market. The firm also is focusing on originating investment-grade debt, in which its Athene unit and other insurers can invest, providing safe yield to support their liabilities.
Lazard CEO Sees Chance to Hire Talented Bankers (9:17 a.m. NY)
As market tumult takes its toll on Wall Street, the best recruitment strategy is retention, but it’s also becoming easier — and less expensive — to hire good employees, said Lazard Ltd. CEO Ken Jacobs.
“That’s your most important recruitment tool, is not having to replace people who are leaving,” Jacobs said at the Goldman conference. “We have a long and very successful track record of growing our own people and turning them from analysts into partners.”
Jacobs’s comments echo those made Tuesday by executives at boutique investment banks Moelis & Co. and Perella Weinberg Partners, who said said that weakness in Wall Street compensation will help them add high-quality employees. “If we see the right talent, we will pull the trigger and we will invest,” Ken Moelis, founder and CEO of Moelis, said at the conference.
Jacobs said that after the last financial crisis, there was a migration of talented employees from European investment banks to smaller firms. But turning to those companies now for employees isn’t fruitful, he said.
“There just isn’t the same talent at those firms that existed before,” he said. Players like Lazard are once again competing against entities such as Goldman Sachs, Morgan Stanley and JPMorgan, which also are known for cultivating great employees. “The challenge is just making sure you’re picking up quality talent.”
--With assistance from Derek Decloet, Dawn Lim, Jenny Surane, Katherine Doherty, Allison McNeely, Peter Eichenbaum and Sally Bakewell.
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