This week's interesting finds

This week in charts

Online shopping

10-year government bond yields by country

U.S. median single-family house size

U.S. electric vehicle sales

E.U. electric vehicle sales

U.S. obesity & diabetes rates

U.S. weight-loss injectables

Technology weight – U.S. equity indexes

Current vs. historical P/E valuations – U.S. equity indexes

U.S. manufacturing jobs

Household wealth by source

When Your Private Fund Turns $1 into 60 Cents

For all fund investors, NAV is supposed to stand for “net asset value.” For some, however, it’s turning out to mean “not actual value.”

That’s the hard lesson of recent weeks when some funds that invest in private assets have sought to go public. Prices that investors expected to be stable have collapsed as soon as the funds were exposed to public markets.

These transitions from private to public cast doubt on Wall Street’s narrative that investors can have their cake and eat it, too. You can have the mild price fluctuations of nontraded assets, or you can have access to your money whenever you want—but it’s turning out that you can’t have both.

And this situation bolsters arguments that asset values in private-markets funds don’t always reflect reality.

On Dec. 16, what used to be a nontraded portfolio called Bluerock Total Income+ Real Estate Fund began trading on the New York Stock Exchange as the Bluerock Private Real Estate Fund. With a stated net asset value of $24.36 a share, the fund closed at a market price of $14.70—a 39.7% discount from NAV. For every dollar the fund manager said your shares were worth at 9:30 a.m., the stock market was willing to pay you only 60 cents by 4 p.m.

On Nov. 13, another nontraded investment, FS Specialty Lending Fund, went public at a net asset value of $18.67—and closed the day at $14, a 25% discount from NAV.

Meanwhile, other private portfolios seeking to go public have gotten stymied by their investors.

On Dec. 16, shareholders at Priority Income Fund’s annual meeting rejected a proposal for the fund to offer stock to the public next year with a 270-day period in which existing investors wouldn’t be able to sell all their shares.

In November, Blue Owl Capital aborted a plan to merge one of its private funds into an NYSE-listed vehicle that trades at about a 20% discount to NAV.

You don’t need a class in economics to know the most fundamental fact about prices: Any asset is only worth what you can get someone else to pay you for it.

This week’s fun find

The Most Magical, Moving Four Minutes in Music

There are four minutes of Ravel that I hope I never get over.

“Le Jardin Féerique,” usually translated as the enchanted or fairy garden, barely breathes into life as the apotheosis of the childhood stories that Ravel gathered under the title “Ma Mère l’Oye,” or “Mother Goose.” Ravel wrote nothing more magical, and perhaps nothing so moving.

It begins in a hushed, hesitant atmosphere, an ineffably fragile melody sighing to a gentle, poetic accompaniment. Soon, that gives way to a tender duet for solo violin and viola, a halo of woodwinds around them, the strum of a harp and the chime of a celesta behind. Slowly the music drifts upward, melting back into the initial melody as it gathers itself to end in incandescent, irresistible C major, percussion sparkling through the string canopy of your dreams.

“I so enjoy looking at the faces of the musicians when they’re producing all that sound,” the conductor and composer Esa-Pekka Salonen said in an interview. “It is just a deep, deep, deep, spiritual, sensual, tactile pleasure. I think every composer, deep down, would like to be able to do something like that.”

Esa-Pekka Salonen leading the Berlin Philharmonic in “Ma Mère l’Oye,” recorded for the orchestra’s Digital Concert Hall.

For many listeners, “Le Jardin Féerique” casts an unusual spell. Why?

Often said to be a childlike man himself, Ravel wrote the first of the “Ma Mère” pieces, “Pavane de la Belle au Bois Dormant,” in 1908, as a piano duet about Sleeping Beauty for two young children to whom he told fairy tales. In 1910, he added four more miniatures to make the children a suite, basing three of them on old stories that he quoted in the score, and ending with “Le Jardin Féerique,” which had no such story attached. By 1911, Ravel had orchestrated the suite, and the next year he elaborated it into a ballet as well, his musical garden blooming into a glade for Sleeping Beauty, who awakens at dawn, with Prince Charming close at hand.

This week's interesting finds

This week in charts

Cash levels at record lows

U.S. effective corporate tax rate declines

Estimated data center electrical consumption by U.S. state

Capex of major infrastructure projects – % of U.S. GDP

Reading for leisure in the U.S. declines

U.S. mortgage interest rates

Drug approval and research & development spend

Consumption expectations – 2023 vs. 2050

Historical price-to-earnings multiples by region

Value outperforming in Europe; Growth outperforming in the U.S.

Market performance

Cyclicals vs. defensives, by region

50 years of historical weights – Technology and U.S.

Investors seek protection from risk of AI debt bust

Trading in products that pay out when companies default is soaring as investors hunt for ways to protect their portfolios against the risk that the artificial intelligence boom turns into a bust.

Volumes in so-called credit default swaps tied to a handful of US tech groups have climbed 90 per cent since early September, according to data from clearinghouse DTCC.

The expanding use of these strategies underscores how some investors are growing uneasy about a rush of bond deals by tech companies to finance AI infrastructure, which could take years to generate returns. 

The rush to hedge against potential defaults comes as Wall Street’s tech sell-off was reignited last week by earnings from software group Oracle and chipmaker Broadcom that had fallen short of investors’ lofty expectations.

The debt and equity of companies linked to the tech boom have whipsawed in recent months as traders scrutinised earnings reports and debated how competing AI products from companies such as OpenAI, Google and Anthropic would affect demand for chips and data centres.

The uptick in CDS trading has been particularly pronounced for Oracle and cloud computing company CoreWeave, both of which are raising billions of dollars in debt to secure data centre capacity.

A new market for Meta CDS sprang up after the company sold $30bn of bonds to finance AI projects in October.

CDS are used for default protection but also to hedge against or bet on swings in bond prices.

Appetite for CDS for highly rated US companies was thin to non-existent at the start of the year, when tech groups were primarily funding their AI spending through their hefty cash piles and strong earnings. 

The market warmed up once those companies began to tap debt markets to cover their mounting costs. Meta, Amazon, Alphabet and Oracle raised a combined $88bn this autumn to fund AI projects, with JPMorgan predicting that investment-grade companies are on track to raise $1.5tn by 2030.

For Oracle, which has a lower credit rating than some of its investment-grade peers, CDS weekly trading volumes have more than tripled this year. The cost of buying the derivatives has risen to its highest level since 2009.

Oracle’s shares and bonds suffered a deep sell-off this week after it missed analysts’ estimates for revenue in the third quarter. They fell further on Friday after it delayed construction of at least one data centre.

This week’s fun find

Why singing is surprisingly good for your health

It's that time of year when the air starts to tinkle with angelic voices – or ring with the occasional lusty hymn – as carol singers spread their own indomitable brand of festive joy. All that harking and heralding. It's joyful and triumphant.

But these bands of tinsel-draped singers may be on to something. Whether they realise it or not as they fill shopping centres, train stations, nursing homes and the street outside your front door with jubilant song, they are also giving their own health a boost.

From the brain to the heart, singing has been found to bring a wide range of benefits to those who do it, particularly if they do it in groups. It can draw people closer together, prime our bodies to fight off disease and even suppress pain. So might it be worth raising your own voice in good cheer?

This week's interesting finds

Deck the halls with pleasing long-term returns

As the holidays approach, we’re embracing the spirit of the season while staying focused on what matters most: helping grow your family’s hard-earned wealth.

This week in charts

Forward P/E ratios, by theme

S&P 500 Index returns and intra-year declines

S&P 500 Index bear market recoveries

Beauty expenditure, by geography

U.S. bank regulation changes 

CCC/B loan spread ratio at highest level in over 15 years

Loan default rates remain elevated 

Correlation between E&P stocks and WTI has gone negative

U.S. and Worldwide google search terms for Canadian Oil & Gas and Energy

% of passive AUM of Total AUM, by country

Oil barrels per oz of silver

U.S. megacap vs. microcap ETFs, Tech fund flows

Asset class performance, by year

Beware rushing into private credit deals, warns Canadian pension giant

Private credit “is a buyer beware” market, the head of Canada’s largest pension fund said, warning institutional investors against rushing into deals.

John Graham, chief executive of Canada Pension Plan Investment Board, told the Financial Times that the C$778bn ($561bn) fund mainly invested directly in private credit rather than funds.

He said to non-investment-grade private credit investors: “It’s a ‘buyer beware’ market. You should be sophisticated and you should know what you’re buying.”

While Graham thought private credit served a useful role in the system, distributing risk broadly, he had concerns over the “speed at which deals are getting done”. 

“We have to make sure that we aren’t compromising on due diligence,” he said, adding that he sometimes had to remind his teams that “it’s OK to miss something”.

Private debt funds raised $154bn in the first nine months of this year, according to PitchBook. That puts managers on track to raise less than the $230bn for 2024, but annual fundraising is still far above levels seen a decade ago.

Individual investors have also been buying more. Consultancy Oliver Wyman said private credit holdings by the wealthy had grown 2.5-fold in the past three years — four times faster than the traditional institutional business.

However, the sector has faced a series of setbacks this year. Blackstone president Jon Gray said in October that the era of excess returns had ended as central banks had cut interest rates, with mid-teens returns in private lending giving way to more muted results.

The implosions of auto parts maker First Brands and subprime auto lender Tricolor, which had both amassed debt from non-bank lenders, also reverberated across credit markets and prompted further warnings on wider risks from private credit blow-ups.

CPPIB has a large allocation to private markets compared with some other large pension funds globally, with 11 per cent in public and private credit and 29 per cent invested in private equity. 

Graham said despite low distributions from private equity funds back to investors in recent years, CPPIB had been investing in the asset class for 20 years. “We continue to be believers in the governance model around private equity and private ownership,” he added.

Graham also said the partnership between institutional investors such as CPPIB and private equity funds, known as general partners, had been “a very profitable model for everybody”.

If the rush of retail funds into private equity changed norms, such as buyout fund managers offering their large fund backers the chance to invest directly into companies to lower their fees, he said it would “impact, undoubtedly, our appetite for the asset class”. 

Last month, the Institutional Limited Partners Association trade group warned that the number of deals needed to deploy wealthy individuals’ cash could pull managers’ attention away from investing the capital of pension plans and endowments.

This week’s fun finds

Meet the Hive Architect, the Carpenter Independently Installing Homes for Honeybees

“Wherever I go, bees come,” says Matt Somerville. A carpenter by trade, Somerville is also a committed conservationist, having spent the last 14 years building and installing approximately 800 homes for the dwindling insect populations around the English countryside.

“The Hive Architect,” a film directed by Max Weston and released by the outdoor clothing brand Fera, follows the scrappy, pipe-smoking woodworker as he carves out a log, builds a conical roof, and finally ventures out into a meadow to erect his construction. “There is a widely held theory that our British honey bee couldn’t exist without being domesticated by beekeepers,” says Fera. “However, for bee conservationists like Matt Somerville, this theory is ludicrous.”

This week's interesting finds

This week in charts

Homeowner equity by province

Home price to income - Toronto

Home price to income by country

Mortgage payments vs. income – Canadian cities

Commodities vs. bonds – 10-year rolling annualized returns

Tech credit spreads vs. Oracle 5-year credit default swaps (CDS)

U.S. IPOs

Asset mix by household income

Russel 2000 Index returns

The Untold Story of Charlie Munger’s Final Years

Charlie Munger owned a house with spectacular ocean views in Montecito, Calif. The Berkshire Hathaway vice chairman had designed the entire gated community, which locals called “Mungerville.” At one point, he told a friend he expected to spend his last years there.

Instead, Munger chose to remain in his longtime home in Los Angeles. The place didn’t even have air conditioning. During a heat wave three years ago, friends brought electric fans and bags of ice to cool his library.

Munger didn’t care. The home was close to people he liked and projects he found stimulating. Rather than a quiet life by the sea, Munger spent his final years chasing gutsy investments, forging unlikely friendships and facing new challenges.

When Munger died two years ago, weeks before his 100th birthday, the billionaire investor was among the nation’s most beloved businessmen, celebrated for his wit and wisdom—and the role he played helping Warren Buffett build Berkshire Hathaway into a trillion-dollar company.

The unexpected last chapter of Munger’s life is less well-known. In the year before his death, Munger made over $50 million from a bet on an out-of-favor industry he had shunned for 60 years. He revved up his real-estate activities, working with a young neighbor to place big, long-term wagers, unusual for a nonagenarian. He faced down health challenges and wrestled with the future.

“Even a week or two before passing away, he was asking questions such as, ‘Does Moore’s Law apply in the age of AI?’” recalls his friend Jamie Montgomery, referring to whether artificial intelligence would see exponential gains like those experienced in computational power.

Friends and family say Munger’s eventful last period offers lessons for investors—and a blueprint for how to age with grace, equanimity and purpose.

“To the day he died, that mind was running,” says Munger’s stepson, Hal Borthwick. “He never stopped learning.”

This week’s fun finds

This week, Product Manager Olivia F. organized a moai from one of Toronto’s legendary Italian sandwich shops (est. 1984). There were three kinds of sandwiches, a variety of salads and even a panettone. We all left stuffed and even saw some of the World Cup pool draws!

The Math Shows Jackson Pollock Painted Like a Child Would

Jackson Pollock’s paintings look like beautiful accidents. The 20th-century painter spilled, drizzled, and flung paint from brushes, cans, syringes, and sticks at canvases laid out on the floor in seemingly haphazard and unchoreographed fashion. The resulting blizzards of emotion and color dazzled audiences and made him famous.

But while art lovers admire the work, scientists have long aimed to understand the laws that govern them—in part to help devise tools that could help distinguish his paintings from imitations. Recently, one international team set out to see whether his process was closer to how children or adults might paint. To answer that question, they asked a group of adults aged 18 to 25 and children aged 4 to 6 to make paintings in the style of Pollock, by pouring paint onto canvases.

The researchers found that the kids’ paintings made in this manner resembled genuine Pollacks more than did those from adult painters. They published their results in Frontiers in Physics.

To arrive at this conclusion the scientists used two forms of statistical analysis: fractal analysis and lacunarity. Whereas fractal analysis measures complexity, lacunarity reveals something more subtle: the rhythm and space in a complex network. Measuring lacunarity has helped scientists understand natural systems such as galaxies in the universe. They also asked people to rate the finished paintings, and used their findings to assess two famous art works: No. 14, by Jackson Pollock, and Young Man Intrigued by the Flight of a Non-Euclidean Fly, by Max Ernst, who used his own distinct paint pouring technique.

The researchers found that the children’s art featured lower fractal dimensions and higher lacunarity—they were simpler, with less detailed fine structure, and showed more clumping, with larger gaps between clumps. Adult paintings showed the opposite: higher fractal dimensions and lower lacunarity. In other words, the adult works had more complex detailed patterns, while the lines of paint were more evenly spread out.