Reflecting on the lessons the Investment Team has learned at the 18th annual Cymbria Day
At the 18th annual Cymbria Day, the Investment Team talks about some of the important lessons they’ve learned throughout their career. They discuss why humility matters when investing, the power of consistency, how to have a well-calibrated sense of future regret and why we are continually evolving our investment approach.
A few charts worth discussing
“Get your popcorn ready – check out the video below.”
Masters of The Universe – Official Trailer
“Electronic trading is coming to the bond market. U.S. investment grade electronic trading volume has steadily climbed from a mere 20% in 2018 to almost half today, while 30% of U.S. high yield bonds are now traded electronically.”
“Biopharma equipment/services suppliers have been climbing out of a brutal three-year hangover after customers over-ordered lab equipment and supplies during COVID. The recovery so far has been more of a stabilization than a real rebound.”
Other charts worth pointing out
U.S. stocks vs. 10-year Treasury yields
U.S. household equity holdings as a share of disposable income
Largest IPOs vs. largest companies by current market value
U.S. strategic petroleum reserve
S&P 500 Index – YTD return contributions by sector and company
S&P 500 Index – price vs. market breadth
Historical stock market bubble concentration
S&P 500 Index capex – Information technology vs. total
U.K. growth vs. value – P/E premium and discount
U.K. equity fund flows
European equity fund flows
MSCI U.S. vs. MSCI Europe Indexes – value vs. growth price performance
MSCI U.S. vs. MSCI Europe Indexes – momentum vs. market
Global equity valuations since 2000
JPMorgan looks to offload exposure to $4bn in private equity-linked loans
JPMorgan is seeking to offload risk tied to more than $4bn in loans to private equity funds as the biggest US bank looks to cut its exposure to an industry grappling with a prolonged slowdown.
The New York-based lender is in talks with investors over a transaction that would allow it to transfer risk tied to so-called net asset value loans backed by private equity fund assets.
JPMorgan’s discussions about reducing its exposure to NAV loans come as private equity companies have struggled to exit their investments. Investors and analysts also fear that portfolio companies, particularly in the software sector, will be disrupted by AI.
JPMorgan was working on a risk transfer that would allow it to retain the NAV loans on its balance sheet while shifting a portion of potential losses to investors, the people familiar with the matter said. The pool of assets includes dozens of loans tied to private equity funds across North America, Europe and the Middle East.
Under the deal, JPMorgan would shift the risk of up to 12.5 per cent of an NAV loan pool worth more than $4bn, one of the people said. The structure would offer investors a low-teens return for absorbing the first loss on the NAV loans. The terms were still under discussion and could change, the people said.
Private equity firms have increasingly turned to NAV loans, which are backed by the market value of existing investments in a fund, to return cash to investors or add more financing for growth. Secondary buyers of PE fund stakes also use NAV loans to amplify their returns.
Many banks rushed to extend NAV loans as they sought to build financing businesses that catered to the world’s biggest private equity managers.
NAV loans are taken by PE firms against an entire fund’s assets and are considered low risk by many lenders because of the diversification of the underlying portfolio. Generally, firms borrow against as much as a quarter of a fund’s assets.
However, the recent lack of exits and fears over technology valuations could put pressure on the returns of PE funds that have relied heavily on such borrowings.
The market for such loans, which sits around $100bn, is expected to grow to $350bn by 2030, according to a May report from AllianceBernstein.
The increased use of NAV loans has come under scrutiny from US and European regulators, which have warned of “leverage over leverage” risks given that the underlying private companies are already carrying heavy debt burdens.
Market participants also worry that using NAV loans to support a fund’s portfolio companies after the formal investment period could artificially inflate its performance.
This week’s fun finds
Nothing says post-Cymbria day/long weekend reset like a steak sandwich lunch. Thanks to Jessica, from the Operations Team for organizing and giving us a chance (and enough protein) to reconnect and recharge.
The circus family gets back on the road
The co-founder of Giffords Circus, Nell Stroud, grew up in Oxford and had a place at the university when she took a gap year to work as a drudge at Circus Flora in St Louis, Missouri; it changed the course of her life. She finished her degree but continued to work at circuses worldwide, including in China and Germany, until she met Toti Gifford, a farmer’s son. They had twins, and a shared dream to create a village green circus. They bought a round white tent from a newspaper small ad; converted a showman’s wagon to live in; and advertised for performers in the Stage.
Since then, Giffords has entertained more than a million people across southern England, showcasing talent from across the world, including France, Hungary, Romania, and Russia. Nell and Toti divorced, but the circus kept going. Nell died of cancer in 2019 and an acrimonious succession battle over the direction of the circus began when former accountant Guy James assumed control as CEO and, against Nell’s stated wishes, blocked the involvement of family and long-term performers in the running of Giffords. The dispute came to a head in May last year when James agreed to step down and Toti Gifford returned to run the show.
