Private Credit Where Credit’s Due

Plus: You can still get a $200,000 summer rental in the Hamptons if you hurry. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

May 16, 2023

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TOGETHER WITH

Good morning.

The UK and the EU are disagreeing? Unheard of. Let’s hope they don’t break up. Oh, wait.

On Monday, the EU greenlit Microsoft’s proposed $69 billion takeover of Activision Blizzard, a merger which the UK’s Competition and Markets Authority blocked on antitrust grounds just last month. The European Commission said although it had initially been skeptical of the deal, it was convinced by Microsoft’s overtures that it wouldn’t stop gamers on PCs and other consoles from streaming Activision Blizzard’s bouquet of wildly popular game franchises. The EU’s decision offers a glimmer of hope to Microsoft as it seeks to appeal the UK’s ruling, which could still kill the whole deal if upheld — that is, unless Microsoft rage-quits the UK market entirely.

Morning Brief

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TPG wants in on private credit.

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Vice bites the bankruptcy bullet.

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Too many homes and not enough renters on Long Island.

Private Credit

TPG Grows Credit Business with $2.7 Billion Angelo Gordon Acquisition

Credit TPG, the private equity giant, for following the money.

On Monday, the Texas-based firm known for leveraged buyouts and growth capital made a big splash into the exploding world of private credit by announcing a $2.7 billion acquisition of Angelo Gordon. Like most major peers in the private equity space, it appears TPG is eyeing private credit as the next great frontier to fatten that all-important assets under management (AUM) figure.

Give ‘Em Credit

There’s plenty of reason private equity groups are so thirsty to break into the private credit market. Born in the void created by post-2008 regulations that tightened lending standards for banks, the sector has evolved into not just an alternative but also a competitor to banks. Where banks bring large balance sheets to bear, private credit brings specialization and a stronger appetite for arranging and underwriting deals that banks may deem too risky. That dynamic has led the industry to balloon, with its AUM shooting up from around $500 billion in 2015 to $1.4 trillion at the end of last year. Research firm Preqin expects that number to grow to $2.3 trillion by 2027.

And private equity groups just can’t stay away. Tapping private credit as an asset class allows private equity groups to diversify their already-stuffed-to-the-brim portfolios with more fee-earning assets. Last summer, for example, Carlyle Group saw more fee-earning assets in its private credit business than its private equity business for the first time in company history.

Now, TPG looks to make the same bet:

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Currently, TPG has roughly $137 billion in AUM, with its portfolio mostly stocked with growth-focused corporate buyouts as well as investments in climate and sustainability ventures. Angelo Gordon, meanwhile, manages some $73 billion in assets and recently played a role in the bankruptcy proceedings at Envision Healthcare and cosmetics giant Revlon.

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Just $970 million of the $2.7 billion deal will be paid in cash, with the remainder to be paid in stock. TPG projects that adding the private credit business will increase its fee-based earnings by up to 10%.

The deal “underscores our continued focus on growing and scaling through diversification, while driving long-term value for our shareholders,” TPG CEO Jon Winkelried told the Financial Times.

Interesting Development: Given the ongoing banking crisis, another vacuum would seem to be opening for private lenders to fill. But not everyone’s so sure it’s a safe space to play in. In an interview with the FT earlier this week, Howard Marks, co-founder of Oaktree Capital, warned that the same high-interest rates crunching small regional banks could be more of a pain than a boon for the private credit market. “[Warren] Buffett says it’s only when the tide goes out that you discover who has been swimming naked,” Marks told the FT. “Did the managers make good credit decisions, ensuring an adequate margin of safety, or did they invest fast because they could accumulate more capital? We’ll see.”

– Brian Boyle

Media

Vice Files For Chapter 11 Bankruptcy

How might Vice put it? We got the lowdown on a classic story about the downfall of a one-time digital media darling!

Vice Media filed for bankruptcy protection on Monday. The news was not entirely unexpected, but in the wake of BuzzFeed shuttering its news department and layoffs at Insider, Vice’s bankruptcy casts an even greater pallor over the online news industry.

Vice Is Its Own Reward

Vice Media started out in 1994 as a punk Canadian culture magazine called “Voice of Montreal.” It changed its name to Vice in 1996, and, by the mid-2000s, it had moved to New York City and was making online videos. In 2017 the company was valued at $5.7 billion, which at the time was a lot more than The New York Times.

But Vice suffered from the same flaws as many digital media startups according to Felix Simon, a digital journalism researcher at the Oxford Internet Institute. “They always had the problem that they had no sustainable long-term business model,” he told The Daily Upside. “They tried to grow very quickly with lots of money from investors.” Digital publishers’ existence hinges on growing audience numbers via other online platforms, and tech is a harsh mistress. Publishers are now uncomfortably aware that a turn of Caesar Zuckerberg’s thumb could be what determines their fate.

“They [digital media startups] were chasing revenue through ads but with the advertising market still basically captured by the likes of Meta and Google, there was never a truly independent source of revenue for them,” Simon said.

Vice’s filing suggests it’s got a sale agreement ready as a baseline, although it might welcome another party swooping in with a higher offer:

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The filing said Vice is pursuing a “stalking horse” agreement, which means it’s found a buyer ahead of filing for bankruptcy. The New York Times reported a consortium of Vice’s creditors led by Fortress Investment Group and Soros Fund Management, have bid $225 million for the company.

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Sources told CNBC the company had wanted a valuation of $1 billion to $1.5 billion. Ouch.

Always Look on the Bright Side: Vice will continue to publish news as the sale is hammered out, and its co-CEOs managed to strike a cheery tone in a statement to the NYT. “We look forward to completing the sale process in the next two to three months and charting a healthy and successful next chapter at Vice,” they said. Vice did not offer any immediate comment when contacted by itself for comment.

– Isobel Asher Hamilton

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Real Estate

A Summer Home in the Hamptons is Cheap…er

(Photo Credit: Sebastion Enrique/Unsplash)

You won’t be hearing the pitter-patter of little Chad’s $100 Sperrys. Topher is going to have to settle for an imitation crustacean in his lobster roll. And Dakota can just forget about sitting at the Palm Tree Music Festival’s VIP table to watch Calvin Harris.

Often referred to as Wall Street’s playground, the Hamptons — around 100 miles east of Manhattan on the Long Island Expressway — are expected to be a little quieter this summer. Roughly 5,700 seasonal rentals are still available, CNBC reported, and much of the inventory glut is driven by downsizing and cost-cutting in NYC’s financial center.

Life’s a Beach

During the height of covid, wealthy New Yorkers felt an even greater need to get out to the Hamptons to escape the crowds. But the market has shifted back to one of desire. Douglas Elliman real estate agent Finley Behringer said owners looking to rent out their homes this season aren’t in panic mode just yet, but they are getting concerned and adjusting rental prices to meet demands.

“There’s definitely still activity out here, so it’s not going to be dead, but anybody trying to get the rental prices that they got for the past two summers is going to sit empty,” he told The Daily Upside:

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The desire to rent a Hamptons home for the summer is even less now that Wall Street bonuses have fallen 26% and major firms like Goldman Sachs, Citi Group, and Morgan Stanley have all announced job cuts in the hundreds and in some cases thousands recently. If your average i-banker or fintech bro just doesn’t have the money — or the job — right now, they’re not going to rent.

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CNBC reported many homeowners have started cutting rental prices by 10% to 20%. Behringer said one of his listings dropped their July-through-August rental price from $195,000 to $175,000, and while there is interest, there’s still no reservation booked.

Lifestyle of the Rich and Famous: The Hamptons real estate market is nothing if not high-end, but the highest-end homes — the multi-million dollar, beachfront properties — are not seeing negative effects from Wall Street’s troubles. Why? Well, it’s likely because they’re bought and sold by the richest Wall Street executives, the people who haven’t lost their jobs or taken a bonus cut.

– Griffin Kelly

Extra Upside

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Got milk? Viral photo shows padlocked milk jug in office fridge. Petty or justified?

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Darling, it’s better: A researcher broke the record for longest time spent living underwater.

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Retweet: Elon Musk may need pre-approval on tweets after an appeals court rejected his argument against the SEC.

Just For Fun

What are those!

Shoelace machine.

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