Latest news with #NirKaissar
Bloomberg
18 hours ago
- Business
- Bloomberg
CarMax Earnings Show Rise in Used Car Demand
"Bloomberg Markets" follows the market moves across every global asset class and discusses the biggest issues for Wall Street. Today's guests; Bloomberg's Nir Kaissar, David Welch, Michelle Cortez, and Rachel Phua. (Source: Bloomberg)
Bloomberg
a day ago
- Business
- Bloomberg
Private Equity Is About to Get Less Mysterious
It's been easy to overlook the private-equity slowdown — until now. Bloomberg Opinion columnist Nir Kaissar explains how Harvard, Yale and Princeton will finally lift the veil. (Source: Bloomberg)
Yahoo
6 days ago
- Business
- Yahoo
As Harvard's and Yale's private equity holdings go on sale, buyers can use this technique for 1,000% windfalls. ‘It makes your brain melt'
The secondary market for private equity stakes is booming as buyers are eager to snap up assets being shed by investors. There's reason to believe Harvard, Yale, and other elite institutions might be getting a good deal, even as they sell their holdings at a discount to current valuations. Some of the country's most elite institutions are offloading parts of their private equity portfolios. As funds take longer to return money to investors, Harvard and Yale are selling at a discount with endowments looking for more liquidity and flexibility amid economic turbulence. But both sides of such deals can make surprising gains. This portfolio maintenance doesn't appear linked to President Donald Trump's attack on university finances, including a possible tax hike on endowments. Industry skeptics think these sales, however, highlight growing concerns that returns in the opaque world of private equity aren't always all they're cracked up to be. 'With elite universities' private equity investments on the auction block, the big reveal is coming,' Nir Kaissar, founder of asset management firm Unison Advisors, wrote in a Bloomberg opinion column on Thursday. University endowments typically make for ideal investors in alternative assets—with virtually infinite investment horizons, they can ride out wild gyrations in the public markets by locking up billions of dollars over several years. On its face, that move has been a no-brainer. As Kaissar noted, Bloomberg's weighted index of U.S. PE funds returned 9.4% year over year from 2007 to 2024. The index's annualized standard deviation, a common measure of volatility, was just 7.2%. The S&P 500 gained 10.5% in that span with a standard deviation of 16.8%, a much worse return on a risk-adjusted basis. These numbers, however, may not reflect the underlying picture. Unlike stocks trading on public exchanges, the prices of private assets don't change based on the whims of investors day-to-day. Instead, valuations of most private companies, real estate properties, and other assets PE firms hold are typically based on subjective assumptions that don't fluctuate like public equity markets do, Tim McGlinn, an investment veteran and former adjunct finance professor at Seton Hall, told Fortune. 'There's nothing intrinsically wrong with that,' said McGlinn, who blogs about the alternatives industry at But when investors or prospective investors believe the holdings can actually be sold at those prices, 'that's when things become problematic.' Ultimately, private equity firms make money for investors by exiting their investments, when they attempt to turn notional valuations on paper into cash. Therefore, there must be some correlation between the performance of public and private assets, said Jason Reed, a finance professor at the University of Notre Dame. 'If the market's doing really well broadly, well then you're going to have lots of opportunities for businesses to buy your company, other private equity companies to buy your company, to take them public and IPO them,' he told Fortune. 'But if the economy is not doing great, businesses are struggling, then you're not going to have as many opportunities overall to sell.' Billionaire hedge fund owner Bill Ackman, a Harvard alumnus, has claimed his alma mater's $53 billion endowment, almost 40% of which is allocated to private equity, is significantly overstated. 'I believe that a substantial part of the reason why many private assets remain private despite the stock market near all-time highs is that the public market will value private assets at lower values than they are being carried at privately,' Ackman, the CEO of Pershing Square Capital, wrote in a social media post last month. The Harvard Management Company, which oversees the university's endowment, declined to comment. It recently agreed to sell roughly $1 billion of its PE stakes, following a similar move in the summer of 2021. That came at a time of 'significant ebullience,' the university noted in its 2022 financial report, allowing the school to avoid discounts the funds would have faced just over a year later. Yale, meanwhile, is negotiating a nearly $3 billion sale of private equity holdings at a discount of less than 10%, a spokesperson for the Yale Investments Office told the school's newspaper. The university pioneered the institutional push into alternative assets, with 95% of its $41 billion endowment allocated to growth-oriented assets like PE, venture capital, real assets, and global equities. 'Following a months-long review, the University is in process to sell select private equity fund interests,' Yale said in a statement to Fortune. 'Private equity remains a core element of our investment strategy, and we continue to commit significant capital to our existing world-class partners, while pursuing new private equity opportunities to support the long-term growth of the Endowment.' This doesn't appear to be a distressed sale, McGlinn said, but the deal is otherwise hard to evaluate. More mature funds trade very differently than newer ones, and various positions are typically packaged together in these types of transactions. 'Yale being Yale, you can assume they're getting the best price they can,' McGlinn said. Still, investors in PE funds, known as 'limited partners,' sold their stakes at an average discount of 11% compared to the net asset value, or NAV, of these holdings on their balance sheets, according to Jeffries. It may seem odd that universities are looking to sell when valuations are likely down across the board this year as borrowing costs remain elevated. But demand in the secondary market is booming. Secondary sales increased 45% to $162 billion last year, per Jeffries. As a result, Yale, Harvard, and other universities could take much less of a haircut than they might have feared while also booking gains on their initial stakes. That's because there is reason to believe many buyers are willing to overpay, McGlinn said. Regardless of what secondary funds dish out to acquire these stakes, he explained, they are allowed to then mark these investments up to the old net asset value. McGlinn calls this process 'NAV squeezing.' As The Wall Street Journal reported last year, it can result in one-day windfalls of 1,000% or more, gains that McGlinn said secondary funds report as real returns. 'It makes your brain melt,' he said. Comparing NAV squeezing to a Ponzi scheme might go too far, said Jeffrey Hooke, a senior lecturer in finance at Johns Hopkins Carey Business School and a longtime critic of PE. But he agrees it looks quite shaky, even if the technique is permissible according to generally accepted accounting principles, or GAAP. 'It's almost like a full wash and rinse cycle,' said Hooke, formerly the principal investment officer of the World Bank's International Finance Corporation. Universities, of course, get to be on the other side of these deals. Even though they are selling their PE stakes at a discount to NAV, they could be getting more than the capital they had committed to those investments up until this point. In other words, endowments might still be escaping with a profit. 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Business Times
03-06-2025
- Business
- Business Times
Why the S&P 500 is cruising through policy upheaval
IF YOU are wondering why the S&P 500 index has held up so well in the past two months, look no further than the technology and communications sectors, which collectively account for nearly half of the index by weighting. For all the wild and headline-grabbing swings in trade policy since early April, analysts have continued to project more than 14 per cent earnings growth in those combined sectors this year – an outlook that really has not budged. Wall Street is not ignoring the potential risks from tariffs and a consumer slowdown; analysts just think that America's innovation superstars will partially offset any damage. And reasonably so. Artificial intelligence (AI) poster child Nvidia Corp said last week that it had US$44.1 billion in revenue in the latest quarter, up an extraordinary 69 per cent from a year earlier. Microsoft Corp, the index's biggest company by weighting, posted a 20 per cent increase in cloud revenue last quarter, showing why its software-heavy model leaves it relatively insulated from tariffs. And Netflix, which successfully hiked subscription prices recently, said revenue jumped 12.5 per cent, reaffirming the resilience of its business model. None of this is to say that all is fine and dandy in the economy, but there is clearly a compositional element to the perceived strength of the main equity index. In addition to the sector-weightings issue, my Bloomberg Opinion colleague Nir Kaissar has pointed out that the companies with the heaviest weights also tend to enjoy extraordinary pricing power that will serve them well in the face of a trade war. That partially explains why the S&P 500 is back within spitting distance of its all-time highs, even as small-caps and mid-caps are still down about 17 per cent and 11 per cent, respectively. But even for large-cap stocks, the index outlook can be somewhat deceiving. Consumer discretionary earnings forecasts have not held up quite so well since President Donald Trump left markets in a tizzy with his Apr 2 'Liberation Day' tariffs on countries around the world. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up According to data compiled by Bloomberg Intelligence, Wall Street analysts now expect the S&P 500's consumer discretionary sector to post a 1.2 per cent earnings drop this year. Prior to Apr 2, analysts expected discretionary growth of 4.5 per cent. The outlook for the consumer staples sector has also been revised sharply lower. The revisions reflect a weaker revenue environment and – for discretionary in particular – narrower profit margins. The question now is what comes next. On the positive side, the US Court of International Trade ruled last week that many of Trump's tariffs are illegal. But as Goldman Sachs Group wrote, the ruling 'might not change the final outcome for most major US trading partners'. A federal appeals court on May 29 paused the Court of International Trade's ruling, and the White House plans to appeal to the Supreme Court. Even if it fails in its appeal, Goldman Sach's Alec Phillips said the White House could still reinstate many of the other tariffs through other legal means. A number of market participants think that Trump has experienced buyers' remorse over some of the tariffs (or 'chickens out' whenever market volatility rears its head). But if Trump were really looking for a chance to walk away from the policy entirely while still saving face politically, this ruling would be precisely that off-ramp. All indications suggest that he is not going to take it. On the macroeconomic front, the outlook is equally foggy. Revisions to first-quarter gross domestic product published on May 29 showed that consumer spending advanced at its weakest pace in two years, and higher-frequency data from the Bank of America Institute suggest that the consumer slowdown extended into April and the first part of May. The traditional labour market indicators have been decent, yet hiring remains extremely sluggish and continuing jobless claims are now at their highest since 2021. At the corporate level, even some of the superstar stocks are flashing warning signs, with tariff-exposed Apple expected to post just 'low to mid-single digit' revenue growth in its next quarterly report (though that depends on the outcome of tariff policy). Investors are also rightfully on alert for further headwinds to ad-driven businesses including Alphabet and Meta Platforms. As for the quintessential AI stocks including Nvidia and Microsoft, investors may one day find themselves on the wrong side of extraordinarily high expectations. But evidently that day is not today. There is a common bearish take that the market is ignoring the macroeconomic headwinds, and I do not think that is quite right. Yes, the S&P 500 is probably at the richer end of its fair value band, but it is not untethered from it. Mr Market seems to have the story generally right: a handful of innovation superstars continue to deliver other-worldly results. Another handful of consumer-based sectors are starting to struggle, due to the softening consumer and nonsensical trade policy that is apparently on the ropes. And beyond that, nobody has the faintest idea of what is going to happen next. BLOOMBERG
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Business Standard
31-05-2025
- Business
- Business Standard
Best of BS Opinion: How the calm today may be masking deeper risks
You know that moment when your car hums along just fine, but one weird little light on the dashboard keeps flickering? That quiet, pulsing reminder that even though everything feels normal, something might still be off under the hood? That's how the world also feels right now, technologies are advancing, markets are steadying, systems are stabilising, but those little blinking lights? They're everywhere. Let's dive in. Take the bond market. Nir Kaissar walks us through a reality-check: people are panicking over interest rates, but zoom out and the current 4.5 per cent on 10-year Treasuries is historically normal. The bigger issue? We're just not used to it anymore after years of easy money. The machine is working but fiscal red flags like $5 trillion in potential deficits or unsustainable tax cuts are blinking. Ignore them, and we might end up stalling on the highway. Meanwhile, Mihir S Sharma cautions that with artificial intelligence, the system isn't just running, it's accelerating like a Tesla in Ludicrous Mode. But no one agrees on where it's heading. Some say AI will democratise creativity and generate jobs. Others predict mass layoffs and existential threats. Will it empower developing countries or further divide them from AI-rich superpowers? The engine is sleek, but no one can read the road signs ahead. And for Pakistan, Shekhar Gupta points out a particularly worrisome light on the regional dashboard: Field Marshal Munir. A military chief with unprecedented power, a hollowed-out civilian government, and a jailed popular rival (Imran Khan) — this isn't a hybrid regime anymore, it's a duckbilled platypus of power. Past performance, as they say in mutual fund ads, is no guarantee of future returns. But in Pakistan, past power-hungry generals have ended up disgraced, exiled, or dead. Munir, however, seems poised to act while he still can. India, beware: the system next door may look stable, but it's humming toward a potentially explosive 12 months. Then there's Devangshu Datta, who shows how GPS and drones, marvels of civilian tech, are now shaping military arsenals. From V-1 flying bombs to AI-guided kamikaze drones, our tools for convenience are doubling as tools for conflict. Precision strikes and geolocation warfare are here, whether we're ready or not. The system works brilliantly, for both Swiggy and the battlefield. Even climate scientists are leaning into geoengineering, as Kumar Abishek writes. Solar Radiation Modification might temporarily cool the Earth by bouncing sunlight back into space. It's technically feasible, increasingly funded, and yet deeply risky. The cooling may come with unintended consequences and no global playbook to manage them. The science is on, but the ethics light is blinking furiously.
