Commercial Awareness Discussion Thread

[Daniel Boden]

Also in terms of another big story, yesterday was the potentially biggest IPO of the year with Warner Music releasing 77m shares at $25 per share proving that IPOs are still a popular strategy for raising capital without ceding control to outside investors.

See the link to the article below in the FT:
https://www.ft.com/content/e1979389-6c35-4403-b1e9-6edd097e7372

 

[Daniel Boden]

So, from what I have found, I think it makes sense to say that the capital gain would have already been realised by the original institutional investor and so the secondary buyer wouldn't realise the capital gain if I understand your question correctly? Perhaps you could rephrase to make sure I know what you're trying to say?

The below website should be quite useful in explaining why investors sell on the secondary market but I'm afraid I can't find much more information on this.

https://blog.palico.com/why-do-private-equity-investors-sell-on-the-secondary-market

Exactly this. Thank you for the article

Just to add further to my point for clarity, obviously, this kind of exit is not that easy due to the fact that different PE investors have different goals: the first one wants to maximize the capital gain, whereas the second one wants to buy the participation at the lowest possible price (in order to maximize in the future their capital gain).

 

[Romiras]

I would say the main drivers for secondaries is liquidity and risk exposure.

 

[Daniel Boden]

I would say the main drivers for secondaries is liquidity and risk exposure.

When you say risk exposure, do you mean becoming overexposed to a certain industry/asset class?

 

[Romiras]

When you say risk exposure, do you mean becoming overexposed to a certain industry/asset class?

Yes. Sometimes a fund, due to market movement, may feel like they need to lower their exposure to certain industries / asset classes, to avoid the unsystematic risks associated. This draws parallels to banks.

 

[Daniel Boden]

Yes. Sometimes a fund, due to market movement, may feel like they need to lower their exposure to certain industries / asset classes, to avoid the unsystematic risks associated. This draws parallels to banks.

Yeah I agree that liquidity and risk exposure are probably the most common reasons for wanting to use the secondaries market but think going forwards ESG concerns could be another reason for a GP to divest some of its funds

 

[futuretraineesolicitor]

@Jaysen @Daniel Boden @Alice G What are your views on doing a short course on managerial economics- i.e the economic changes which affects businesses- the whole economics is obviously a separate discipline so it might not make much sense to study the entire thing but will managerial economics help us in commercial awareness ?

 

[Daniel Boden]

@Jaysen @Daniel Boden @Alice G What are your views on doing a short course on managerial economics- i.e the economic changes which affects businesses- the whole economics is obviously a separate discipline so it might not make much sense to study the entire thing but will managerial economics help us in commercial awareness ?

Anything that helps you understand better the financial/commercial world in which you'll be working will help your commercial awareness. If a lawyer is better able to understand his/her client's business and its commercial objectives then he/she will be able to do a much better job and will be a very successful lawyer

 

[Daniel Boden]

Afternoon all,

Today I came across a very interesting article in the FT where the head of the asset manager Fidelity warns of a global corporate solvency crisis.

Here's the link for those interested: https://www.ft.com/content/d6fd7d11-c06e-4e88-82a7-87465c84a120

I thought this would be quite an interesting conversation-starter for this week as, clearly, investment firms/asset managers will have many tough decisions in the coming months as to which companies to save and which to let go insolvent as the level of debt:equity ratios in many portfolio companies has become very unbalanced in recent months.

How do you think companies/investors will evaluate this process? I'm curious to hear people's thoughts

 

[Daniel Boden]

Equally, in Private Equity news, the Trump administration, in an attempt to speed-up economic recover, has granted PE firms access to a revenue stream which has the potential to be incredibly lucrative for PE firms: the individual retirement accounts/401ks of US citizens.

https://pe-insights.com/news/2020/0...(20200601_Weekly+Digest_week+24_2314_COPY_01)

 

[Daniel Boden]

Finally, in news that is perhaps no great surprise given the global slump in demand for oil due to COVID-19, BP is cutting 10,000 jobs with an estimated 2,000 being lost in the UK. Given that the company recently committed to continue paying dividends to shareholders, this news could provoke a significant backlash and won't look good from a public opinion perspective.

https://www.ft.com/content/46cd47da-281e-4b63-80a3-db14eecb5650

 

[Daniel Boden]

Just to add to the list of businesses that have succeeded and thrived because of COVID-19, recreational-vehicle (RV) companies' stocks are starting to climb due to a combination of low oil prices and the ability to maintain social distancing while travelling. Given that the travel industry, especially the aviation industry, is likely to struggle for the next few years, this could see increased popularity as lockdowns are getting lifted and people are seeking to fulfil their travel fix as it were.

Here is the article below for more information in case it is of interest:
https://www.ft.com/content/77dd522d-5611-42d4-a64f-75e4183cf5b3

 

[Jaysen]

Many of you will know this already but YouTube can often be brilliant for learning new commercial concepts.

A couple of excellent examples:

Would be curious to hear if anyone else has any recommended videos?

 

[Daniel Boden]

Here's another good one on that note by hedge fund manager Bill Ackman:

 

[Daniel Boden]

And another one which may be of interest to people is a Shearman & Sterling panel discussing why US firms keep winning market share in London:

 

[Daniel Boden]

I'll be posting an interesting story later from the Guardian today explaining why the stock market is continuing to go up despite the chaos caused by COVID-19, but in the meantime here is a really interesting video which explains the difference between the economy and the stock market which I urge you to watch if you have a few minutes today:

 

[Daniel Boden]

Here is the link to the Guardian article I was referencing earlier:
https://www.theguardian.com/busines...m-why-are-global-financial-markets-zooming-up

But it will be interesting to see what announcements the Federal Reserve make today as that could shape investor confidence significantly and thus have a noteworthy impact on the markets over the next couple of days

 

[Daniel Boden]

Furthermore, to add to the ever-increasing list of companies looking to go public in the next few weeks, yesterday Vroom had a very successful IPO, with its share more than doubling in price at the close of trading. However, given that the company is yet to turn a profit, it is going to have to work very hard to justify its new $5.4 billion valuation.

See the articles below for more information:
'Vroom roars out of the blocks on stock market debut'
https://www.ft.com/content/c29a13a1-64a9-4869-afd5-e49db6404d92

'Vroom IPO: whip splash'
https://www.ft.com/content/ce57b1d5-1f4e-48c6-b596-87565cb87838

 

[Daniel Boden]

The Fed made its announcement this afternoon and pledged its continued market support, predicting no interest rate increases until the end of 2022 which was in line with market expectations. As such, the markets reacted positively to this news and the Nasdaq and S&P 500 both rose with the Nasdaq crossing 10,000 points today.

That said, it is clear that the US is in for a painful economic recovery with still 13.3% of people unemployed.

Here are links below to these big stories:
Fed predicts no rate increases until at least the end of 2022
https://www.ft.com/content/e9d79319-492d-45cb-b491-fd61cc90effc

Nasdaq passes 10,000 as Fed pledges to maintain support
https://www.ft.com/content/0e3872ed-7cb4-45d3-bbbd-a9378c8fe7ff

 

[Daniel Boden]

I think a very important point to consider during this pandemic is that law firms are businesses too, and they will be affected. I've attached a link below to a McKinsey article on how law firms should respond.

Link: https://www.mckinsey.com/industries...-insights/covid-19-implications-for-law-firms

Thanks for sharing this @Raam! That's really interesting