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Private equity moves up in the polls

One thing to start: the US has added NSO Group, the Israeli military spyware company that created software tracing the phones of journalists and human rights activists around the world, to a trade blacklist as it targets the growing surveillance threat posed by hacking-for-hire companies.

NSO’s Pegasus software was last year revealed to have been used to target smartphones belonging to 37 journalists, human rights activists and other prominent figures © AP

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Private equity and the business of government

Carlyle’s headquarters at 1001 Pennsylvania Avenue in Washington are almost in sight of the White House, and the private equity firm is well-known for courting influence on both sides of the political aisle.

Its three co-founders run the spectrum of American politics. Daniel D’Aniello is a conservative. William Conway is a major Democratic party donor. David Rubenstein, who worked for President Jimmy Carter in his early career, is considered a moderate Democrat.

Now, one of Carlyle’s own has become a major political figure.

Republican Glenn Youngkin, the former co-chief executive of the private equity group Carlyle
Republican Glenn Youngkin, the former co-chief executive of the private equity group Carlyle, defeated Democrat Terry McAuliffe by two points on Tuesday © Getty Images

On Tuesday Glenn Youngkin, who spent a quarter-century at the buyout firm and was co-CEO from 2017 to 2020, was elected the next governor of Virginia.

The Republican’s victory upended the political balance in a state that Joe Biden carried by more than 10 percentage points in the US presidential election only a year ago. It’s quite a rebound for a man who left the private equity group last year after losing a power struggle with his counterpart Kewsong Lee.

The Democratic contender, Terry McAuliffe, struggled to portray Youngkin’s private equity career as a negative with voters. He said little about the Republican candidate’s roughly $400m fortune, which consists mostly of Carlyle stock.

That marks a stark contrast from the electoral beating that former Bain Capital chief Mitt Romney, the Republican presidential contender in 2012, took at the hands of Barack Obama.

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But then, McAuliffe — who is also a multimillionaire — was an investor in Carlyle funds.

Youngkin joins an exclusive club of former private equity executives who have taken over a US state governor’s mansion. GTCR co-founder Bruce Rauner served as Illinois governor until 2019, while Romney’s stint as governor of Massachusetts set the stage for his presidential bid.

While his Carlyle career did nothing to hurt Youngkin’s political ambitions, the incoming governor’s actions in office could yet become a distraction for his former firm.

Donald Trump hailed Youngkin as a “fantastic guy” on Monday. Virginia’s top official wields significant influence over the conduct of elections — including the power to decide whether former felons will be allowed to vote.

Carlyle’s fortunes have only risen since Youngkin left. Lee has overseen a doubling of the firm’s stock, and last week Carlyle reported record profits.

But as Carlyle’s former leader prepares to assume political office, it is unclear whether his former colleagues are celebrating. No Carlyle executive gave interviews about Youngkin during his campaign, and the firm declined to comment on his Tuesday victory.

SRS Investment Management: to the moon?

Karthik Ramakrishna Sarma could’ve made billions of dollars on Wednesday.

His little-known New York hedge fund SRS Investment Management is the largest shareholder in Avis Budget, with an almost 30 per cent stake and a seat on the company’s board.

As of Wednesday, the fund was allowed to sell down its position in the car rental group, should it wish, after a blackout period for insiders was lifted. SRS was sitting on about $5bn of gains as of Tuesday, DD’s Antoine Gara and Ortenca Aliaj and the FT’s Nicholas Megaw reported.

In case you missed it: Avis shares experienced a surge of meme stock-like proportions this week, echoing its rival Hertz, which has seen its popularity skyrocket since it emerged from bankruptcy in July.

Stands at an Avis Budget Group rental counter at San Francisco International Airport
Avis’s stock jumped by more than 200% on Tuesday after executives discussed adding electric vehicles to its fleet, before falling back to a 95% rise © Bloomberg

The reason? Avis’s stock price jumped by as much as 200 per cent after the company told analysts it was considering electric vehicle offerings. The announcement came after Hertz last week said it ordered 100,000 Tesla Model 3 electric sedans, though Elon Musk has since cast doubt on the deal.

SRS is reaping the rewards for sticking with Avis as the pandemic pushed the rental car industry to the brink of bankruptcy.

The firm began scooping up Avis shares in 2010 before taking an activist position in 2016. In addition to the 18.4m shares it holds, SRS has exposure to another 11.3m shares through cash-settled equity swaps that are equivalent to a 16.3 per cent stake, according to filings.

Line chart of Share price ($) showing Avis Budget shares speed to record high

SRS’s prime brokers include Nomura, Jefferies and UBS.

Some of our readers may remember that swaps came under the spotlight earlier this year after Bill Hwang’s investment firm Archegos Capital Management used the same derivative trades to take on tens of billions of dollars of exposure to a small basket of stocks.

DD readers are well aware of the implosion that followed this past April, leaving the large banks that served as its prime brokers staring down a $10bn hole.

While SRS may be celebrating its success with Avis, another of its positions has let the fund down. It owns an approximately 3 per cent stake in Zillow, the online property company that on Tuesday announced it would get out of the business of flipping houses. Shares in the company are down about 25 per cent.

Brazil’s fintech darling aims for a New York debut

Whether winning over Warren Buffett or appointing pop star Anitta to its board, Nubank has shown a flair for capturing the headlines this year. Now the Brazilian fintech group is aiming to end 2021 with an even bigger bang.

The digital lender this week revealed it is targeting a valuation above $50bn in a proposed initial public offering in New York, potentially the third-largest in the US this year.

If the $3bn-plus share sale is successful, Nubank will rank among Latin America’s top listed companies. The implied market capitalisation would even eclipse that of Brazil’s biggest private sector lender, Itaú Unibanco.

Nubank chief David Vélez
David Vélez, Nubank chief executive, who co-founded the start-up in 2013 © FT montage; Bloomberg

Not bad for a lossmaking start-up conceived in 2013, writes the FT’s Michael Pooler from São Paulo.

Nubank is credited with shaking up a bureaucratic banking sector in its homeland, where an oligopoly has long faced criticism for charging for basic services and leaving millions of people excluded.

Since launching a zero-fee credit card through a mobile app, the fintech group has moved into savings accounts, loans and investments. It boasts a growing roster of more than 48m customers, with operations also in Mexico and Colombia.

Bar chart of Domestic customers at end 2020 (m) showing Nubank has rapidly won users in Brazil

Yet for all the plaudits, there have been glitches along the way. Users have complained on several occasions this year of outages, leaving them temporarily unable to pay bills or make transfers.

Some ex-employees told the FT recently that a culture of perfectionism had sometimes slowed product launches.

Potential investors will have to decide whether Nubank’s growth story justifies the hype.

Job moves

  • ByteDance’s Zhang Yiming is stepping down as chair of the Chinese social media group he founded almost a decade ago, relinquishing his last formal executive position at the company behind TikTok.

  • Mark Cutifani will step down as chief executive of Anglo American after nine years at the helm of the FTSE 100 mining group. He will be succeeded by head of strategy Duncan Wanblad.

  • Edelman has named Lex Suvanto as managing partner and chief executive officer of its financial communications unit, and appointed five regional leaders for the segment.

  • Private equity firm JC Flowers has appointed its head of European operations Tim Hanford and managing director Eric Rahe as co-presidents, based in London and New York, respectively.

Smart reads 

Five-star service For insurrectionists and Trump loyalists that needed a place to stay ahead of the January 6 “Save America March”, which turned into an attack on the US capitol, the former president’s DC hotel offered nearby accommodations. For a price. (Forbes)

Cracks in the foundation Embattled property mogul Patrick Nelson has built a teetering student housing empire on the back of controversial private placement deals, endangering tenants and irking investors. (New York Times)

Cubicle coup New York offices are swapping skyscrapers and traditional layouts for spaces that help employees connect with the great outdoors. (FT)

News round-up 

Rothermeres make offer to take Daily Mail publisher private after 90 years (FT)

Kevin Mayer’s Blackstone-backed group nears $3bn deal for Moonbug Entertainment (The Information)

LV members to get £100 each if they agree to £530m Bain deal (FT)

Diagnostics firms Qiagen, BioMérieux said to explore tie-up (Bloomberg)

Basketball star Kevin Durant launches $200m Spac (Reuters)

SEC eases path to votes on shareholder petitions at US companies (FT)

South Korea’s biggest mobile payment app shares double on IPO (FT)

EQT’s real estate unit selling US industrial portfolio in $6.8bn deal (Wall Street Journal)

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