Every dog must have a day
PARENTS, locked down teenagers and at- home university students have finally discovered a common interest across the dinner table. The Reddit mayhem and its outgrowths – such as Roaring Kitty and DeepF***ing Value – sweeping across social media excite everyone who has managed to keep their finances together during a pandemic.
Generation Y activists, households which have built up coronavirus savings and young people obsessed with the latest digital sensation have found an activity far more rewarding than sour dough, jigsaw puzzles and binge watching.
Retail investors have become the outcasts in finance as investment banks, hedge funds, private equity princelings and brokers have garnered most of the market gains in recent times.
The bonkers share price behaviour in electronics retailer Gamestop, cinema operators AMC Entertainments in the US, Cineworld in the UK and previously unheralded shopping mall owner Macerich has demonstrated the potential power available to smaller players for a tiny outlay. Robinhood and other ‘commission free’ dealing platforms have made access to Wall Street easier than it has ever been. This revolution, like so many market eruptions, will end in tears. There is already evidence that even though marauding, neophyte internet investors may be making paper killings, it is nimble professionals that are making realised gains from the chaos.
hedge funds may temporarily have been squeezed, but with the array of complex derivatives available to them one suspects that most will still come out winners.
As terrific as it may seem to the disrupters that they have managed to cause such havoc, one suspects that the Mongrel of Massachusetts, Keith Gill, who allegedly triggered much of the chaos, won’t find the going so easy in the future.
US enforcers including, the Securities &
Exchange Commission, the New York Attorney General and Congress have begun probes and are primed to punish those responsible for disorderly markets. New anti-bank digital investors may think they are the biggest winners from the shenanigans, but unintentionally they have helped ‘fat cats’ along the way.
Robinhood swiftly dived in and raised £735m in new funds from cornerstone investors, including Silicon Valley’s financial whizz Sequoia, doubtless moving the platform a step closer to public markets. Members of the ontario Teachers Pensions Fund will be delighted to know that the attack on shorts at Macerich allowed them to extract a holding of 16.4m shares for £368m.
Meanwhile, brokers and stock lenders – all part of the much Reddit-denigrated Wall Street establishment – have been coining it too. If there is a lesson here, it is how genuine – as opposed to rent-a-crowd – private investors have been ignored for too long.
When it comes to initial public offerings, for instance, the professionals hold all the cards. Prospectuses were once widely circulated. Now they are confined to a magic circle and only released to the public in the final hours before a float when most of the stock has been allocated to privileged investors. Upsetting the system is one thing. Effecting proper changes which make for a fairer distribution of the spoils is quite another.
Trading places
SToCK exchanges are branching out. Deutsche Boerse recently splashed out £1.3bn on governance watchdog Institutional Investor Services (ISS). The New York Stock Exchange has bought Data Corporation. The London Stock Exchange has gone one better with its £20bn takeover of the former Reuters platform Refinitiv.
Aside from data services, the deal – brought to fruition by chief executive David Schwimmer – takes the 300-year exchange global. Along with operations in North America and Asia, it gains foreign exchange dealing and big share of global bond dealing through a stake in Tradeweb.
That should more than compensate for the migration of some £5bn or so eurodenominated shares to the Continent.
Last orders
PUB group Marston’s must tell Beverly hills-based private equity fund Platinum to get lost. It should have enough money to survive Covid after its £780m joint venture with Carlsberg in May 2020. The dangers of succumbing to the private equity dollar have been on display this week as the Debenhams brand vanished into Boohoo, and private equity-owned care homes were accused of making excessive charges at the expense of the elderly. Reprehensible.