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Despite global ambitions, Netflix gives television an American accent

In the 1969 film Butch Cassidy and the Sundance Kid, the robbers played by Paul Newman and Robert Redford find their profitable operation disrupted by a relentless posse that refuses to be shaken from their trail. “They’re beginning to get on my nerves. Who are those guys?” Butch complains.

The rise of Netflix and other US streaming platforms such as Disney Plus and HBO Max is scaring both film studios and the world’s television broadcasters in much the same fashion. Instead of observing old niceties and ways of doing business, the streamers are disrupting the fun.

It is starting to get on Hollywood’s nerves. Jim Gianopulos was ousted this week as head of Paramount Pictures by its owner ViacomCBS, which wants to place more films on its streaming service Paramount Plus. The Oscar-winning director Christopher Nolan is moving to Universal, having lambasted WarnerMedia for favouring its platform HBO Max during the pandemic.

The streamers are also spending large amounts in other countries. Netflix this week signed a partnership deal with Anna Winger, the Berlin-based writer and producer behind the series Deutschland 83 and Unorthodox. “The success around the world of German content is really incredible,” Reed Hastings, Netflix chief executive, said in Berlin.

The notion of German language series subtitled or dubbed in English (and other languages) attracting a global following would have been improbable not long ago, but it is no longer alien. Lupin, a French language drama starring Omar Sy, was Netflix’s most watched series in the first quarter of this year.

There is more at stake for Netflix than supplementing its core US audience with international viewers, in the Hollywood style. Netflix now has 209m subscribers, but the total fell slightly in the US and Canada in the second quarter of this year, as new streaming platforms expanded. The company could soon have more customers in Europe, the Middle East and Africa than at home.

In many ways, it is the best of times for the global television viewer. What is known as Peak TV in the US — the flood of new investment into high quality dramas and documentaries — is still ascending in other countries. Disney is this year expected to spend $30bn, and Netflix $17bn, on media content such as films and television series.

That is narrowing the old gap in production values and sophistication between top US cable dramas, such as The Sopranos and The Wire, and the cheaper fare on European and Asian television. The characters speak other languages and the settings are different, but many of the new global dramas attain a similar level of quality.

But it squeezes something else — the experience of viewing something utterly distinctive, which could only have been conjured up in one place. That was my sensation when viewing Lupin. It was very entertaining and sophisticated but despite its French mise-en-scène, it felt oddly American.

A Greek tragedy would remain a Greek tragedy even if it were set in Spain, and it is impossible to shed Englishness from Shakespeare plays despite their universal appeal. Changing location is easy, but the sensibility and narrative tradition are deeply embedded. There is a similar immutability in Hollywood films, and the narrative arcs and twists of US television.

The economics of streaming encourage globalisation. A series that attracts a devoted audience solely in its home country helps to build subscribers there and serves a purpose. But the streamers are always hunting for what Greg Peters, Netflix’s chief operating officer, calls “leverage against that local investment” — programmes that will travel.

“Some of them look like they’ve been cleverly generated by a streaming algorithm to maximise their target audience globally,” remarked John Whittingdale before he lost his job as broadcasting minister in a UK government reshuffle this week. National broadcasters such as the BBC, with its annual income of £5bn, face a well-financed onslaught.

In principle, this need not matter. Those broadcasters could carry on making what Whittingdale called “distinctively British” (or French, or German) programmes while the US streamers produce their alternative. Viewers are capable of watching and appreciating the variety — vive la différence, as a Lupin character might say.

But money talks, and Netflix and others have been luring some of the top creative talents. Phoebe Waller-Bridge is as British as anyone on screen, but the writer and actor is contracted to Amazon Studios rather than the BBC. The danger is of a talent drain that turns national markets into minor leagues.

The UK government now wants to insert a “distinctively British” content requirement into the responsibilities of public service broadcasters. Good luck with drafting that, and to any judge who has to rule on the question. Lupin may not feel fully French to me but I doubt whether anyone could disprove its identity in court.

It will be hard to throw the streaming platforms off their global trail, legally or financially. As Butch and the Kid found to their personal cost, tradition does not always protect you.

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Apple and Google drop Navalny app after Kremlin piles on pressure

Apple and Google have removed a tactical voting app made by supporters of jailed Russian opposition leader Alexei Navalny from their online stores following strong pressure from the Kremlin, as voting began in the country’s parliamentary elections.

Google’s Play Store and Apple’s App Store blocked further downloads of the app in Russia on Friday morning after “multiple legal demands, not requests” from the country’s communications regulator and law enforcement, according to a person close to the situation.

The move is the biggest concession yet by western tech companies to the Kremlin’s increasingly stringent demands for censorship of online content. President Vladimir Putin has said the internet could make society “collapse from the inside” if it does not “submit to formal legal rules and the moral laws of society”.

The person close to the situation also said Google employees had received public and private threats of criminal prosecution if the company did not comply with the Kremlin request to remove the app from the store and search engines.

They said armed men, thought by staff to be police officers, spent several hours in Google’s Moscow offices on Monday. Russia’s bailiff service said on Tuesday its officers had visited to demand the company comply with a Moscow court ruling to remove the app from search results.

The person believed threats to staff of this nature were unprecedented, saying it had “never got this bad before.”

Apple and Google both declined to comment on Friday.

Leonid Volkov, chief of staff to Navalny, said the US tech companies had “caved to the Kremlin’s blackmail” after the app — which is designed to encourage tactical voting against Putin’s United Russia party — disappeared from the App Store and the Google Play Store.

“This is a crucial moment for Russia. It looks like big tech companies are starting to co-operate even more closely with the authorities’ repression,” said Alena Epifanova, a researcher at the German Council on Foreign Relations in Berlin.

Dmitry Peskov, President Vladimir Putin’s spokesman, welcomed the technology groups’ decision and said the opposition app was illegal in Russia © AP

Apple justified the decision under a Moscow court ruling in June that declared Navalny’s foundation an “extremist organisation”, according to a screenshot posted by Ivan Zhdanov, the opposition group’s former director.

The anti-corruption activist was arrested in January when he returned to Russia from Germany, where he had been treated for a nerve agent poisoning he accuses Putin of ordering.

After Navalny’s supporters organised protests in dozens of cities nationwide, Russia responded with an unprecedented crackdown on dissent that forced most of his top allies into exile.

Dmitry Peskov, Putin’s spokesman, told reporters the Kremlin welcomed the technology groups’ decision. “This app is illegal on the territory of our country,” Peskov said, according to the Interfax news agency.

The move indicated the Kremlin’s determination to clear the internet of dissent ahead of the country’s three-day vote, which United Russia is expected to win easily despite rising discontent about slumping living standards.

Putin has made bringing the internet to heel a priority, according to a person close to the Kremlin.

“Imagine if it was the other way around and [a Russian platform] had 30 per cent of the US search market? These platforms are global and politics is national. So you either have to make them comply with the law, or ban them,” they said.

With dozens of Navalny’s allies struck from the ballot, his team is urging supporters to vote for Kremlin-approved “loyal opposition” candidates recommended by the app. Peskov said the tactic was “provocative” and would “harm voters.”

Russia has accused Silicon Valley companies of meddling in the vote by refusing to scrub all mention of Navalny’s app from the internet.

At a hearing on Thursday lawmakers then threatened Apple and Google’s local staff with criminal prosecution if they failed to comply, as well as fines ranging between 5 per cent and 20 per cent of the companies’ local revenue.

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Tech investor Chamath Palihapitiya: ‘I reserve the right to change my mind’

Chamath Palihapitiya carries himself with the trademark confidence of a billionaire tech investor. He flies around on private jets and owns a slice of the Golden State Warriors basketball team. He flirts with a run for California governor on social media.

Unlike traditional fund managers, Palihapitiya loves to court controversy, casting himself as the ultimate insider turned outsider. As a senior executive at Facebook he helped turbocharge its growth before turning on it and publicly condemning its strategy. In a classic exchange, early in the pandemic, he shot back at a CNBC anchor who questioned why the government should allow airlines to go bankrupt, potentially wiping out hedge funds and other investors. “Who cares? They don’t get to summer in the Hamptons?” Palihapitiya responded.

His reinvention of Spacs, or special purpose acquisition companies, as a founder-friendly alternative to an IPO has placed him at the centre of a white-hot market that has captivated Wall Street during the pandemic but has also been marked by allegations of fraud.

In just a few years, Palihapitiya has transformed himself from a Silicon Valley pariah, following the implosion of his venture fund, to a major hit on financial Twitter. There, he encourages his more than 1.5m followers to learn more about his biggest deals and bet on tech. In person, however, he eschews his signature bullishness. “The best investors say: ‘I reserve the right to change my mind,’” he tells me before we are even halfway through our lunch.

Palihapitiya’s critics have accused him of exploiting his large following to promote low-quality companies. Privately, his contemporaries ask: is he one of the savviest investors of his generation or merely the most cynical?

The 45-year-old arrives 15 minutes late for lunch at the offices of his Social Capital fund, steps away from the Stanford University campus in the heart of Silicon Valley.

Palihapitiya chose to host lunch at the office because of concerns about Covid-19. Yet he bounds into the conference room maskless, dressed in a subdued ensemble of light-wash jeans, a fuzzy white hoodie and a pair of grey Allbirds shoes favoured among the tech crowd.

While waiting for his arrival, his chief of staff has laid out a puritan two-course lunch prepared by a personal chef, transferring the components from individually labelled plastic containers to tasteful, green-rimmed plates.

Palihapitiya starts with julienned zucchini dressed in a chunky green pesto, plucking the bowl off the table and taking a quick succession of bites. The courgette strips hold a mild appeal, like adult baby food, with the rocket-infused pesto adding a welcome brightness.

One day earlier, Social Capital released an annual letter that landed with a thud on Twitter, where some commentators accused Palihapitiya of cherry-picking numbers to flatter his performance. Social Capital, the letter said, made an annual internal rate of return of 33 per cent from 2011 to 2020, before any fees, compared with the 13.9 per cent annual return of the S&P 500 index — perhaps not the best benchmark for a venture-heavy fund. The fund has gained 1,441 per cent total since its inception.

“I feel great,” he says with a laugh. “I had wanted to write it and complete it sooner, but the beginning of this year has been . . . there’s just so much stuff going on.”

Palihapitiya says the letters act as a form of accountability for his future self. “Your mind can play tricks on you and you forget and you get these biases that build up,” he says, adding that his office contains copies of every public letter written by the legendary investor Warren Buffett and a book of speeches by his 97-year-old deputy, Charlie Munger. “Those are the things that I’ve really learnt a lot from.”

Tech investors such as Palihapitiya have made a killing since the financial crisis, as low interest rates, advances in internet applications and cheap cloud computing have fuelled the rise of huge new companies such as Airbnb and Uber. How much of Palihapitiya’s success has to do with the favourable market in the past decade? “Probably a lot,” he says, before adding: “My real long-term track record won’t be known for another decade or two.”

While Palihapitiya likes to talk about his performance in terms of decades, his critics tend to be more concerned with the here and now. These days, Palihapitiya’s preferred medium is Spacs, which in effect raise a blind pool of capital to merge with a company and bring it to public markets. Promoters, or “sponsors”, usually receive millions of shares in the merged company at a minimal cost as payment for striking the deal. The set-up is rife with potential conflicts of interest and misaligned incentives, and Washington regulators have made it a priority to clean up the market.

Palihapitiya helped popularise Spacs, inspiring imitators of varying pedigree to jump into the pool. Recently, though, his magic touch has seemingly become a curse.

Several companies associated with Palihapitiya, such as the insurer Clover Health, performed particularly poorly in the weeks leading up to lunch, with Clover alone down one-third from a recent peak. The sell-off appeared to be sparked by a report from the short seller Hindenburg Research that took aim at Palihapitiya himself, declaring that “his public persona strikes us as the sugar that helps the poison go down”.

Palihapitiya points out that his Spacs have generally done well since their mergers. The broader market is doing so poorly, he says, because interest rates are poised to rise, making a popular hedge fund strategy for Spac investing less attractive. Palihapitiya also blames banks for encouraging inexperienced financiers to start blank-cheque companies that went on to strike bad deals.

“What’s happened is you’ve had a lot of folks who are extremely talented, credentialed people do deals that were a bit of a headscratcher,” Palihapitiya says. “That’s caused that market to trade off in a very significant way.”

Deliberate with his words, Palihapitiya has plenty of practice dodging punches. People who know him offer all kinds of explanations for his pugnacious attitude. There’s his hardscrabble upbringing in Canada, where his parents, refugees from Sri Lanka who left the country when Palihapitiya was six years old, struggled to find work. Or his uneasy 2011 exit from Facebook, which he later accused of “ripping apart the social fabric”.

For years, Palihapitiya has in effect staked his net worth on the massive potential of technology. He has advocated a “long-term greedy” approach that prioritises companies that might be unpopular or difficult to manage in the short term but produce huge payouts in the long run, such as those working on cryptocurrencies or climate change. In one Twitter thread, he advocated a “levered long” approach toward fast-growing tech stocks.

Yet today, Palihapitiya says he is not so sure that the good times will continue for tech, and software companies in particular. He cites near record highs in a measure of inflation expectations maintained by the Federal Reserve Bank of St Louis as a signal that markets might begin to cool down. “I reserve the right to change my mind,” Palihapitiya says, “and what I would say is I may be in the midst of changing my mind.”

By this point, lunch has moved on to the main course: poached chicken, boiled green beans, undressed frisée lettuce and curly artichoke “chips”, apparently dehydrated rather than deep fried to achieve their crispy texture. The ensemble begs for a sauce, though the chicken has been cooked perfectly.

Is this a typical lunch? How does the billionaire investor really eat? “Like this,” Palihapitiya says. “I mean, it’s boiled chicken. I wouldn’t call this fancy.”

On his podcast the other day, Palihapitiya talked excitedly about eating a steak for dinner, something he normally avoids thanks to a family history of heart disease and diabetes. “I have steak once a week,” he says. “It’s very exciting.”

Today is Palihapitiya’s steak day because his friends are coming over to play poker. “I’m not going to lie to you,” Palihapitiya says. “What I like is if you go to [the grocery chain] Draeger’s or Safeway, if you get USDA Prime, that shit’s delicious. I’m not allowed to have it because it’s grain-fed and stuffed with antibiotics, so instead I have to have organic grass-fed blah blah blah. It doesn’t taste as good.”

The response forms a natural segue to one of Palihapitiya’s favourite topics, the purported melding of profit and social good. Rather than embracing the environmental, social and governance movement, which has attracted billions of dollars of institutional capital in recent years, Palihapitiya promotes a more capacious framework that focuses on “impact”. Palihapitiya’s annual letter called out the obesity epidemic in the US as one area where he thinks Social Capital could make meaningful investments, for instance.

On the question of whether Social Capital has made good on its mission, Palihapitiya says the firm has “supported entrepreneurs” and “made a lot of money” but has not yet properly “connected the dots” for the public.

“As long as we can recycle capital and stay solvent, I think in 50 to 60 years we’ll look back and say some of these things really contributed to even the starting line,” he claims. The impact of some investments might not be immediately obvious, such as the space tourism company Virgin Galactic, but Sir Richard Branson’s venture actually plans to reinvest profits into high-speed travel. The exact impact remains unknown, he says, “except that it’s additive, it’s super disruptive and a lot of goodness can come from it”.

Virgin Galactic, the company that made Palihapitiya into the king of Spacs, has also become the source of one of his most unpopular moves to date: dumping about $200m of his personal holdings, supposedly to redirect the capital to a company fighting climate change. Which company received the proceeds? “We haven’t disclosed. It is private,” Palihapitiya says, before adding, “but it’s incredible and growing like a maniac.”

Virgin Galactic still has yet to complete a successful commercial space flight, so to many of Palihapitiya’s critics the move feels premature, especially given his public boosterism of its stock. Palihapitiya had previously said the company’s future profitability would “look as good as one of the best software companies around”, claiming it would eventually make 70 cents of profit for every dollar of sales. By all measures, the company still has a while to go before it gets there.

“In hindsight, I probably didn’t need to do it, but at the moment it seemed like the right thing to do,” Palihapitiya says, noting that he wanted to cut his exposure to public stocks at the time.

Interrupting a question, Palihapitiya quickly points out that he still owns about $600m of Virgin Galactic stock he acquired through the Spac. “Look, this is the problem. That stuff gets misreported. I can’t react. I can’t clear the record up.”

What about MP Materials, a rare earth mining company that received an investment from Palihapitiya as part of a Spac deal last year? Rare earth mining, which supplies materials for components in many high-tech devices, is famously environmentally unfriendly.

Finishing a large bite of chicken, Palihapitiya says the investment would have made sense purely from a purely financial standpoint, claiming “it would be crazy for somebody to look at MP and not have decided to invest” based on their numbers.

Meanwhile, to mitigate climate change, “you have to electrify everything”, and many engineers believe rare earth minerals are the most efficient way to power electric vehicles. “Honestly, it seemed obvious,” Palihapitiya says. “My big regret with MP is that I didn’t buy the whole bloody company.”

Besides his television appearances, Palihapitiya’s most potent forum is Twitter. One of the wealthiest advocates for everyday investors on the site, he seems to alternate between courting their favour and pitching his latest investment. But on the subject of his followers, Palihapitiya abdicates responsibility, arguing that only a “small minority of folks” take his pronouncements as investment advice. Instead, Palihapitiya insists he is merely providing an “avenue of learning for those that want to take it”.

The answer rings a little hollow. One recent report said Palihapitiya arranged extended airtime on CNBC for when he would announce big Spac deals, sending shares in the blank-cheque companies soaring before they had even merged with their targeted companies.

Palihapitiya commands a privileged position in the investment world, with seemingly evergreen access to the CNBC greenroom and a massive following on social media. Does he have a greater duty to not just promote his investments but also to educate followers on proper risk management? Some Twitter users claim they had put their life savings into Clover, which has floundered since going public through a Palihapitiya-sponsored Spac.

“It’s an extremely aggressive decision, and I would advocate that people not do that,” he says. Reddit forums can be useful for learning about investing, Palihapitiya says, but “there is a structured way that the best hedge funds think that will be incredibly valuable for the people”, and he would like to help make that information more public.

Invoking his own investing idol, the legendary hedge fund manager Stanley Druckenmiller, Palihapitiya muses that he has probably “consumed every single thing” the investor has made public, yet he does not “run around and just randomly do everything that Stan says”.

Palihapitiya, who likes to share “one pagers” about his investments on Twitter, sometimes adds a disclaimer that his words are not investment advice. “Maybe that disclaimer needs to be even more bold and in larger font, or better stated, and I’m happy to take that feedback,” he says.

The end of lunch is nearing, and Palihapitiya has eaten his chicken but barely touched the vegetables on his plate. Three years ago, Palihapitiya returned money to outside investors after a succession of Social Capital executives left the firm, blaming what they considered to be his erratic behaviour. However, Palihapitiya has recently gone on a hiring spree, adding a slew of partners to its ranks. Could he accept outside capital again? “Yeah, I would, under the right circumstances,” he says.

What do others most misunderstand about him? “Everything and nothing,” Palihapitiya says. “Everything in the sense that I don’t think my motivations and the complexity of my decision-making is obvious to anybody.” And they misunderstand nothing because they can see he is a competitive person who is “willing to live and die by measurement”.

He adds about his letter: “Those returns could have been negative 1,441 per cent, and I still would have published it.” Whether anybody would have cared, one can only speculate.

Miles Kruppa is the FT’s venture capital correspondent

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AQR hedge fund suffers $10bn in outflows

Assets in a hedge fund run by AQR have tumbled more than $10bn over the past four years, as a lengthy period of poor returns has persuaded many clients to pull out their cash.

The AQR Managed Futures Strategy fund, a computer-driven mutual fund that tries to profit from market trends, has fallen in size from about $12bn in late 2017 to $1.5bn currently, according to fund documents. While the fund’s bets have often lost money in recent years, most of the drop in assets pertains to client withdrawals.

The outflows come even as Connecticut-based AQR has enjoyed a stronger period of performance more broadly across many of its portfolios, after shedding $86bn in assets from its peak.

AQR, which manages about $140bn in total assets and is headed by former Goldman Sachs managing director Cliff Asness, is well known for its academic approach to investing. It breaks down hedge fund returns into their basic components before building relatively low-cost portfolios to try and exploit those characteristics.

AQR declined to comment.

The AQR Managed Futures Strategy fund is one of the best-known funds in the trend-following sector. Such funds use algorithms to try to identify and then latch on to persistent up or down trends in global futures markets.

However, the fund has often struggled to make money. While it gained 5.4 per cent last March during the stock market’s huge sell-off, it is down 3.9 per cent over the past five years and is roughly flat over the past decade according to fund documentation.

The fund has slipped 2.7 per cent in the first eight months of 2021, even as many of its peers are profiting.

Among those peers sits Man Group’s $1.4bn AHL Diversified fund, which is up 10.3 per cent to mid-month. Aspect Capital’s $3bn Diversified fund has gained 10.5 per cent this year, while GSA’s Trend fund is up 7.2 per cent, according to numbers sent to investors and people familiar with the performance.

Managed futures funds are up 7.8 per cent on average this year to the end of August, according to data group HFR. Many such funds have profited as the easing of coronavirus lockdowns and continued central bank stimulus have pushed riskier financial markets higher.

The S&P 500 index has risen 19 per cent in a near-straight line this year, while Brent crude is up 44 per cent. 

AQR’s fund tries to profit from both short and long-term market trends, and to spot when trends have run too far and are about to reverse. The fund has been running bets on the rising price of oil futures, but it also has more than a quarter of its assets in currencies, according to fund documentation, where there have been fewer trends to exploit.

AQR has this year benefited from a rebound in lowly-priced, so-called value stocks. Its Equity Market Neutral Global Value fund gained 12.3 per cent between the start of January and the end of August, while its Absolute Return strategy is up 13.3 per cent.

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Ping An shares fall on fears of China Evergrande contagion

Shares in Ping An Insurance fell on Friday as concerns mounted over contagion from a crisis surrounding real estate developer China Evergrande, forcing the country’s biggest insurer to issue a statement saying it had no exposure to the property group.

Ping An shares closed down 3 per cent in Hong Kong, with prices earlier slumping more than 8 per cent as trading volumes soared.

The price drop came as concerns grew that a liquidity crisis at Evergrande, the world’s most indebted property developer with almost Rmb2tn of liabilities, could ripple across China’s real estate sector and financial system. 

This week, retail investors in wealth management products related to Evergrande descended on its Shenzhen headquarters to demand their money back, in the most visible display yet of the deteriorating situation. Last month, the property developer warned of the risk of default if it failed to raise more cash.

“For real estate enterprises that the market has been paying attention to, PA insurance funds have zero exposure, neither equity or debt, including China Evergrande,” Ping An said in a statement as it rushed to reassure investors.

Ping An has Rmb63.1bn ($9.8bn) of exposure to Chinese real estate stocks across its Rmb3.8tn ($590bn) of insurance funds, and took a $3.2bn hit in the first half of the year after the default of another developer, China Fortune Land Development.

The insurer is head of the creditor committee for China Fortune Land, which specialises in industrial parks in Hebei province and suffered from delayed local government payments. One of its restructuring advisers, Admiralty Harbour Capital, was hired by Evergrande this week.

Evergrande’s US-dollar bonds maturing next year are trading at 31 cents on the dollar, and its share price has collapsed 82 per cent this year as doubts grow over its ability to repay its $89bn debt pile. The dive has wiped tens of billions of dollars off the wealth of its founder, Hui Ka Yan, who was once China’s richest man.

“I expect a lot of financial institutions could be hit by the worries” about Evergrande, said Zhou Chuanyi, a Singapore-based analyst at Lucror Analytics. “As long as a financial institution has exposure to developers, Evergrande should take quite a significant share of that.”

A frantic sell-off surrounding Evergrande’s debt and equity has shown signs of spreading to other developers, including Guangzhou R&F and Fantasia Group. On Thursday, Fitch downgraded Fantasia’s credit rating to B, warning of “uncertainty over the refinancing of a significant amount of US-dollar bond maturities through to 2022 in light of ongoing capital market volatility”.

Beijing has over the past year sought to crack down on excessive leverage across its vast real estate sector, which makes up more than a quarter of the economy. In August, it issued a rare public rebuke over the need for Evergrande to reduce its debts.

Evergrande is rushing to sell assets as it grapples with slowing sales of apartments, which it relies heavily on customers buying in advance, and the need to maintain payments to its suppliers and creditors across its hundreds of development projects.

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Australia rejects Chinese and French criticism of submarines deal

Australia has rejected Chinese and French criticism of Canberra’s decision to sign a defence pact with the US and UK to build nuclear-powered submarines, saying the “incredible uncertainty in the Indo-Pacific” made the deal a necessity.

Peter Dutton, Australia’s defence minister, said the country would not be deterred from deepening its alliance with its western partners after Beijing said the partnership would undermine regional stability and stoke an arms race.

“This is not the first time that we’ve seen different outbursts from China in terms of Australia’s position,” he said in Washington alongside Marise Payne, the foreign minister, after talks with US secretary of state Antony Blinken and Lloyd Austin, defence secretary. “That’s the reality, and no amount of propaganda can dismiss the facts.”

The deal has also sparked fury in France because it replaced a multibillion-dollar agreement for Naval Group, the French defence contractor, to build conventional diesel-powered submarines for Canberra.

Dutton said the government had acted on the advice of its armed forces and that French technology was not a viable option to meet regional security needs in the coming decades.

“The French have a version which was not superior to that operated by the United States and the United Kingdom,” he said.

The agreement has won broad support in Australia, with the main opposition party and voters backing the deal. An opinion poll by Roy Morgan found 57 per cent of Australians approved.

Rex Patrick, an independent senator and former submariner who was critical of the French deal, applauded the agreement and said the relationship with Paris was already “broken” because of delays and billions of dollars in cost rises.

“They originally intended to start the strategic partnership agreement in 2016 and conclude it in 2017. It didn’t get concluded until 2019,” he said. “They blew out even the agreement on how they were going to partner by two years.”

The security pact has raised deeper questions about how Canberra will balance the relationship between the US, its closest diplomatic and military ally, and China, its biggest trading partner.

Xi Jinping, China’s president, visited Australia in 2014 and delivered an address to parliament and the countries signed a trade deal the following year.

Relations soured after Canberra introduced a foreign influence law three years later following a scandal involving a Chinese businessman giving donations to an Australian MP.

The rupture worsened after Scott Morrison, Australia’s prime minister, repeatedly called for an independent inquiry into the origins of coronavirus in China.

Beijing has retaliated by imposing sanctions on a range of Australian products, including wine and barley, and Chinese officials have refused to take calls from their counterparts.

Morrison said he did not want to be forced into making a binary choice between Washington and Beijing but the security deal had disrupted that calculation, according to analysts.

“The relationship is bad and getting worse, so [China] may retaliate against Australia, but that was going to happen anyway,” said Brendan Sargeant, head of the Strategic and Defence Studies Centre at Australian National University.

“If China’s strategic goal is to separate us from the US then clearly it’s failed, so that would mean this would clearly annoy them,” he said, adding that Beijing was well aware of Australia’s policy of “being friends with both and allies with one”.

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Aukus leaves some awkward questions

Be careful what you wish for: the Australian prime minister, Scott Morrison, has pulled off a coup in securing a deal with the US and the UK for his country to gain nuclear-powered submarines in the face of an increasingly assertive China. This is no simple arms deal. The trio presented it as a defence pact, dubbed Aukus, which instantly drew condemnation from Beijing. All three allies stand to gain from the agreement. But the price will be further raising the temperature on already simmering tensions with China.

The timing is certainly propitious for President Joe Biden, coming after the debacle of the withdrawal from Afghanistan. It signals Biden’s commitment to regional alliances to counter China; he is due next week to host the Quad, dubbed the Asian Nato, comprising India and Japan as well as the US and Australia. After all, this is what Biden expressly considers the primary geopolitical threat to US interests. Equipping a key US ally in China’s backyard with the latest in submarine technology and long-range missiles goes some way to responding to the threat posed by Beijing’s 14 operational nuclear submarines to strategic hotspots and key trade routes in the Indo-Pacific.

For the UK, a souped-up arms deal on the other side of the world fulfils its commitment to a global post-Brexit future, and is consistent with its “pivot” to the Indo-Pacific and its current entente with Australia. Greater co-operation with the UK’s oldest allies — Biden expressly referred to the three countries’ alliances over the last century’s wars — is pleasing symbolism for the Conservative party.

But doubts persist, not least over how far the UK and Australia are willing to accept the commercial and strategic consequences of antagonising a China that views the pact as an explicit threat. The Trump administration proved how fickle US foreign policy could be; the current president may be committed to Aukus but that is no guarantee his successor will be. Meanwhile, the new submarines may not even be ready in the next decade. Biden also did the alliance no favours when he appeared to forget Morrison’s name, turning to thank “that fella’ Down Under” during the virtual press conference: less Aukus, more awkward.

More awkward still is where the pact leaves the trio’s relationship with France, with which Australia previously signed a A$50bn (US$36.6bn) deal for a fleet of conventional submarines. That deal, reaffirmed by Morrison just two months ago, will now be ripped up. Unsurprisingly, that has piqued France. It complains that the US, in seeking closer ties with one ally, has alienated another. The analysis is correct but it is a sacrifice that Biden seemingly thinks is worth making for greater security in Asia.

There are trade-offs in rebuffing France for both the US and the UK, particularly when it comes to managing the threat from Russia. The purpose of Nato, so undermined by recent events in Afghanistan, needs now to be reaffirmed. Upsetting Paris could also have direct consequences for Washington’s efforts to constrain Beijing. An EU-China investment treaty that the Biden administration dislikes has been shelved — but might yet be revived.

However, perhaps the biggest questions are for China to ponder. While it is true that the pact risks stoking Beijing’s paranoia, regional powers, from Delhi to Tokyo to Canberra, are now consistently tightening bonds with the US. That in itself should prompt some soul-searching about China’s frequently belligerent words and actions. “Wolf warrior” diplomacy from Beijing has a price.

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Norway’s Yara becomes latest fertiliser maker to cut production

Norway’s Yara International has become the latest fertiliser producer to slash ammonia production because of record high natural gas prices, as the energy crunch threatens to hit food supplies.

The partly state-owned group said on Friday that 40 per cent of its ammonia production capacity would be curtailed by next week to protect its margins after surging gas prices eroded profitability.

Yara, one of the world’s largest fertiliser producers, follows rival CF Industries which closed two large UK fertiliser plants a day earlier, sparking warnings from industry figures of a looming shortage of ammonium nitrate that could hit food availability.

Ammonia is used to create ammonium nitrate, one of the most widely used fertilisers. It is derived from natural gas and nitrogen. The sharp rise in gas prices has left producers battling to pass on the costs to customers quickly enough.

Of Yara’s 4.9m tonnes of ammonia production in Europe, it plans to curtail approximately 2m tonnes of production in the Netherlands, Italy, the UK and France. Its plants in Brunsbüttel in Germany and Porsgrunn in Norway were scheduled for maintenance, further reducing production capacity.

The company said it would partly source the ammonia it needs from outside of Europe or third parties. “The impact on finished products is currently minor,” it added.

The length of the curtailments will depend on the price of ammonia’s two key inputs, natural gas and nitrogen, the company said.

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Wall Street trading groups step up incursion into crypto markets

Several of Wall Street’s biggest trading companies have unveiled plans to stake out territory in cryptocurrency markets, opening a new front in their battle to win lucrative business from institutional investors.

Jump Trading, GTS and Jane Street, among the largest players in the US equity market, are stepping up their trading in digital assets after years of secrecy surrounding their early forays into these markets.

They are some of the most competitive trading companies that fight for every trade on global equity, currency and futures markets. Now they are planning a land grab as the bridge between the crypto world and asset managers keen to trade the fast-growing market.

“We started trading crypto in late 2017 by extending the experience we developed from other asset classes, and we’re trading digital assets 24/7 around the world,” said Mina Nguyen, Jane Street’s head of institutional strategy in an interview with the Financial Times. 

“We’ve seen institutional interest grow significantly and we are actively sharing our expertise to support more efficient crypto markets.”

High-frequency traders have been in the vanguard for the wave of change that has swept across the US equity market, the world’s largest — over the past two decades. They have used superfast technology and regulatory change to make the market more efficient by squeezing margins and commissions on stocks and taking advantage of the differences in prices for the same asset on different venues. That focus has earned them billions of dollars of revenues.

Many now want to bring that knowhow to the crypto market as institutional investors are drawn by the high returns on offer. The fast-moving prices and extreme tumult stand in stark contrast to the bond, currency and stock markets, where a prolonged period of ultra-low interest rates have damped volatility.

Large high-frequency trading firms first piled into crypto markets in 2017, when bitcoin prices soared. The majority of these companies remained under the radar with their involvement in crypto until recently, quietly building their market share.

JPMorgan analysts estimated that, by late last year, high-frequency traders were responsible for almost 80 per cent of the bitcoin prices sent to exchanges, similar to their share in US government debt. Many of these computer-driven traders target the crypto “basis” trade — the discrepancy between the spot price and the derivatives price.

But many are now also keen to attract off-exchange trades on behalf of institutional investors, and serve as the conduit for trading on decentralised networks in which transactions are not matched on a single venue.

That puts them up against specialist crypto trading firms such as Genesis, B2C2 and Bequant, and potentially other exchanges. On Wednesday US-listed crypto exchange Coinbase said it had applied to become a futures commission merchant, which would allow it to handle futures orders from customers.

GTS is setting up Radkl, a new business that will start proprietary trading in digital assets, from bitcoin to the fast-growing decentralised finance market, later this year. Steven Cohen, the billionaire hedge fund manager, is also investing in Radkl.

Ari Rubenstein, chief executive of GTS, said that he saw a “need for large-scale sophisticated players who can navigate the regulatory environment”. He said these players would make the market “more efficient” and “attractive for investors”.

Jump Trading is setting up a separate unit of more than 80 people focused on the growth and development of blockchain networks and digital coins. Kanav Kariya, president of the new unit, said Jump had spent decades building high-performance infrastructure. “We’re bringing that muscle to crypto,” he added.

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My biggest financial mistake: FT writers confess

‘What have you got against free money?’

Pilita Clark, business columnist

I made one of my first and worst financial blunders when I landed a job on a big city newspaper in my early twenties.

In the excitement of being hired, it never occurred to me that I should join the company pension plan.

I still remember a wide-eyed colleague looking at me in shock when he discovered this oversight. “What have you got against free money?” he hooted.

He was right. The scheme was astonishingly generous by today’s standards and better than the industry-wide retirement plan I joined a few years later.

My newspaper matched employee contributions and, though I was initially paid peanuts, my salary rose over the years to the point that I would have eventually amassed a helpful sum of money.

I know this because my husband, who is my age and also a journalist, brags constantly about how clever he was to join his newspaper’s scheme as quickly as he did.

Today, I might have been protected by measures such as a requirement for employers to automatically enrol staff into a pension scheme. But these rules are not universal. No matter how old you are, it always pays to be financially aware. Literally.

Take home message: read the small print

Brooke Masters, chief business commentator

Back when I was a regulation reporter, I found myself covering a massive scandal in the US mutual fund industry. Unscrupulous investment managers had cut secret deals that allowed hedge funds to buy and rapidly sell shares in their funds. This had the effect of siphoning away returns from buy and hold investors.

As someone who invests for the long haul, I was outraged by the revelations. I was even more outraged when it turned out that I owned shares in several funds that had been involved. I eventually received small compensation cheques from some of the settlements I had covered.

It was bad enough that I was among the millions of victims. Even worse was my discovery that the insurance group that recommended these funds also faced sanctions from US watchdogs for failing to inform its customers that it steered their money into higher-fee funds that also paid higher commissions. The take-home message: read the small print and ask your broker or adviser if they have a personal financial interest in their recommendations. You are the only one who really has your best interests at heart.

How I crashed my finances for love

Isabel Berwick, work and careers editor

It took me a couple of years and a bank loan at punitive rates (in the early 90s) to extricate myself from the hundreds of pounds of overdraft and credit card debts that I ran up during a brief fling with a very nice man. 

I was a newly-minted journalist on a medical title, earning £13,000, not at all sure I’d been right to leave academia. I hedged my career bets by studying for a masters degree and spent every weekend in libraries. The social excitement level for someone in their early 20s was — low. 

When a long-term relationship ended in infidelity (him) and acrimony (me), this Very Nice Man swept me off round London. We took black cabs everywhere. We ate in Belgo, The Eagle, Quaglino’s and Dell’Ugo. Once I met him in a wine bar and he was working on a laptop. It was such an outlandish sight that the entire bar was watching. I didn’t think it would catch on.

He was in a well-paid and glamorous TV job. I did not face up to the fact that I was ruining my finances. I was having too much fun.

After the relationship ended (amicably), the austere packed-lunch-filled aftermath sobered me up. My outlook matured. I became a personal finance journalist and did that for many years, learning a huge amount along the way. 

Still, do I look back and regret the events of that crazy summer? Not for a single minute. 

Strawberry yields forever

Jonathan Guthrie, head of Lex

My biggest financial mistake — measured by the scale of my naivete rather than its cost — was to go strawberry picking with a friend when I was a teenager. It taught me two painful lessons. First, always target a percentage before pursuing a venture. Second, watch out for rip-offs.

Our moneymaking plan was to go fruit-picking as day labourers in the Cheshire countryside. We had no idea what return we might expect and no experience of picking strawberries.

A family from the traveller community harvesting beside us knew exactly what they were doing. They worked fast and the father stood over the scales at the end of the day to check their pay was fair. But the gimlet-eyed farm overseer could see we were rookies and insisted half our haul was substandard. He dismissed us with loose change and, I assume, pocketed the difference.

Our profit, after deducting train and bus fares was tuppence. We tossed for possession on the way home. I fumbled the catch and the coin went down a grating.

The experience taught me to be hard-nosed in assessing transactions. The world is divided into people who can calculate percentages and those who cannot. The fewer of us that fall into the latter category, the better.

Why am I still paying for this coffee table?

Claer Barrett, consumer editor

In 2003, soon after moving into the first flat I bought, I split up with my boyfriend. Buying the flat on my own was a factor in our break up — but buying it jointly with him would have been a monumental financial mistake! Nevertheless, he took the coffee table with him, so I headed to Ikea. 

The new table I selected cost about £250, had inbuilt magazine storage and very sturdy metal legs. In my singleton partying days, when I came home from the pub, I’d lie on the floor holding on to the legs in a futile attempt to stop the room from spinning. However, I also took my eye off the ball when it came to the repayments. 

At the Ikea checkout, I’d been persuaded to take out a store card to pay for the table on credit (I also bought a selection of house plants, which didn’t survive beyond the first bill). The incentive was 10 per cent off my first purchase. That was an eye-catching offer; the less noticeable small print said the rate of interest on the store card was over 20 per cent, with a minimum monthly repayment of around £7 a month.

Claer Barrett with the highly expensive Ikea coffee table

Against the backdrop of a hectic social life, this felt like a bargain — until one day, after a few years had passed, I thought “why on earth am I still paying for this table”? When I opened the online statements, I could see that the interest I’d been charged over the years had not only wiped out the introductory discount, but added around £100 to the overall cost. 

I was really angry with myself for sleepwalking into this debt trap, but learned a valuable lesson — always pay off credit cards at the end of the month. 

Regulators have since clamped down on these lingering minimum payments, requiring card companies to engage with borrowers if this becomes a pattern. 

If aged 21 you borrowed £3,000 on a credit card and only made the minimum payment, you’d be nearly 50 years old by the time you cleared the debt — and would have paid more than you borrowed in interest charges. That’s assuming a typical credit card APR (annual percentage rate) of 20 per cent — although some cards for people with a poor credit history have APRs of nearly 50 per cent. The speed with which small debts can balloon is a powerful but terrifying example of compound interest working against you. 

Credit cards can be a useful financial tool, but debts run up in your hedonistic 20s can linger on into your 30s. Card companies use all kinds of offers including points, zero interest deals and other incentives to get us to spend money on things we may not even need, hoping to milk profits from us in the future. 

And the coffee table? Having paid over the odds for it, I’m glad to say that it still has pride of place in my living room after 18 years of service — and the legs are still very sturdy. 

The fatal lure of a massive black telly

Matthew Vincent, editor, FT Project Publishing

Two heads are better than one, we are told. Except, it seems, when they belong to a couple of junior financial journalists in a flat share. I was half of this jejune duo, and jointly to blame for a double blunder. 

Desperate to watch England’s exit on penalties from that year’s football tournament on a big screen — but lacking cash — we visited the local TV rental shop (that’s how long ago it was). Two signatures later, we had a massive black plastic telly and, unbeknown to us, a consumer credit agreement with extortionate terms. 

Three years later, we’d probably paid enough to have bought the TV several times over. Thankfully, we now earned enough to buy flats of our own (that’s how long ago it was). So the equipment was returned to the rental shop, and our stupidity consigned to history. Or so we thought. 

I then received a letter from my mortgage lender saying my credit record had been impaired by late payments on a rental agreement. One or both of us had been overdrawn when the TV direct debits were meant to leave our accounts. I needed a letter from my flatmate exonerating me. He graciously wrote one. And he proved far more financially savvy than me: he ultimately left journalism for a much better-paid job in the City. 

‘If you ever have to pay someone money’ he said . . . 

Sarah O’Connor, employment columnist

The only piece of financial advice I remember receiving at school came from our technology teacher on our very last day. Maybe he had a twinge of anxiety at the thought that the 16-year-olds in front of him were about to enter the real world and the only thing he’d taught us was how to use a soldering iron. 

Listen up everyone, he said. If you ever have to pay someone money, but you don’t have the money, this is what you do: write out the cheque but put the wrong date on it. They probably won’t notice straight away and it’ll buy you a bit of time. 

Sensible advice? Maybe not, but it did stick with me — unlike how to use a soldering iron.

The crippling cost of having children

Lucy Kellaway, FT writer 

The worst financial thing I’ve ever done? So easy — that was having four children.

It was a financial catastrophe, but there’s a message in that, which is although finances are very, very important, they’re not everything in life. So I still don’t regret it. 

Losing money was always on the cards

Paul Lewis, presenter BBC Money Box 

I was 15 and I went to London by myself — an hour’s train journey from Maidstone — and I had a £5 note, which was a lot of money back then. I was walking down Oxford Street and there were these men with crates and playing cards, doing “Find the lady”. I thought, that’s easy, I can do that. So I put my £5 down — and of course, I lost it. That was a big disaster for me, but I have never gambled since and, in fact, I have quite a passion against it and the way that it’s grown in our society. It was a good lesson learned, though at the time, I didn’t realise that. 

My four-wheeled foibles

Ken Okoroafor, FT Money columnist and blogger

The worst financial mistake I ever made was buying a really expensive car — a Mercedes coupé C-200 — in order to attract a life partner. It was a disaster; I had break-up after break-up and, financially, it was the worst thing I ever did. Once I sold that car and bought a much cheaper one, I met my incredible wife Mary, and we’ve been together now for 10 years. 

What was your biggest financial blunder? And what did it teach you? Please comment below.

How should we teach children about financial literacy? Take part in a live Q&A on the homepage on Wednesday September 22, at 12 noon with Claer Barrett, the FT’s consumer editor, and Aimée Allam, executive director of the FT’s Financial Literacy and Inclusion Campaign.