The coming wave of private capital consolidation

Two scoops to start: US private equity group General Atlantic has agreed to buy London-based infrastructure fund manager Actis, confirming a previous Financial Times report.

And: An executive from consulting firm Alvarez & Marsal was detained in the United Arab Emirates while working to overhaul a Nasdaq-listed company that US authorities charged with fraud last month.

In today’s newsletter:

• Asset management M&A kicks off

• Changing risk factors for Chinese IPOs

• Morgan Stanley’s settlement

‘Apple’ and ‘Banana’: The making of a signature Wall Street deal

Larry Fink has finally found the “transformational” deal to propel his $10tn firm into alternative investments after he agreed to pay $12.5bn to buy Global Infrastructure Partners on Friday. The tie-up sets the agenda for Wall Street in 2024.

BlackRock’s deal for GIP is early evidence of a wave of consolidation among asset managers. “This is just the beginning of the consolidation rocket ship,” one senior Wall Street executive told DD.

The FT has followed Fink’s dance into private markets closely. In 2022, there was the look that BlackRock gave Carlyle, which didn’t go anywhere. BlackRock also weighed a strategic tie-up with Warburg Pincus, but its requirement for control put an end to things.

The stars finally aligned for Fink when BlackRock approached GIP this autumn about a combination, DD’s Antoine Gara and the FT’s Brooke Masters report. It was mostly sealed over an October dinner between Fink and GIP chair and co-founder Adebayo Ogunlesi at Fasano, an Italian restaurant near Rockefeller Center.

Fink’s challenge was to convince the publicity shy Ogunlesi that his 400-person investment group would thrive inside a 20,000-employee behemoth whose every move is under the microscope.

Talks then moved at warp speed. Fink asked Martin Small, BlackRock’s chief financial officer, to negotiate details, while Raj Rao, GIP’s president, was enlisted by Ogunlesi to lead its talks. BlackRock gave its target the code name “Apple” while GIP dubbed the larger firm “Banana”.

For Ogunlesi, the combination cements one of the most interesting and successful ascents in the financial sector. The FT profiles the Nigerian born dealmaker, who before becoming a top executive at Credit Suisse, clerked for Thurgood Marshall.

Ogulensi will join BlackRock’s board and plans to step down as lead independent director of Goldman Sachs.

The price Fink is paying, which is equivalent to about 10 per cent of BlackRock’s market capitalisation, signals it was a deal he could not afford to lose. It would have been even higher had GIP not retained valuable assets.

GIP dealmakers will keep all of their current carried interests, including in a $25bn fund it’s currently raising, as well as 40 per cent of the performance fees from all its future funds. (They will become BlackRock’s second-largest shareholder.)

The impact will be felt across the private markets and force other prominent firms to consider whether they too need a partner or the extra financial muscle of a public stock listing.

Wall Street tries to keep Beijing happy

Comparing the language in “risk factor” sections of initial public offering prospectuses might strike even the biggest finance nerds as a tedious task.

But in the context of Wall Street banks advising Chinese companies listing overseas, the exercise shows an important shift that has quietly taken place: The banks are being increasingly careful to avoid language that might be seen as criticising China.

One example comes from a comparison of the disclosures by WuXi Biologics, a pharmaceutical company that listed in 2017, and WuXi XDC, a unit it spun off and listed last year. Both entities listed in Hong Kong with Morgan Stanley as a sponsor, among others.

The earlier listing was explicit about China risk, particularly in relation to its legal system, but by the time of the WuXi XDC listing six years later, there was a nuanced shift in tone.

This isn’t an accident. Last year China’s regulator issued new rules banning banks from disparaging the country’s laws and policies in the filings. Soon after, Hong Kong’s stock exchange removed a requirement for Chinese companies to include a China-specific risk factors section. They still have to disclose “material or specific risks”.

Bankers acknowledge the wording is being toned down. For Hong Kong listings the language “will generally go in the direction of what [China’s regulator] regards as being acceptable”, a senior banker in the territory told DD’s Kaye Wiggins.

Some of the same banks are issuing stronger warnings in US listings, where the Securities and Exchange Commission has called for “more specific and prominent” disclosure of China risks. Amer Sports’ prospectus for its planned US listing is a good example. Goldman, Bank of America, JPMorgan Chase, Morgan Stanley, Citi and UBS are on the deal.

The difference is potentially a problem for US banks and could create reputational risks if things go wrong after the IPO, as BofA’s former global head of equity capital markets Craig Coben wrote for FT Alphaville last year.

Since Beijing’s new rules came in, the top US banks haven’t taken any Chinese companies public in the US, figures from Dealogic show. A crucial test would come if fast-fashion company Shein needs to keep both US and China regulators happy in order to list in New York.

One Passi at the time for Morgan Stanley’s new chief 

Morgan Stanley’s new chief executive Ted Pick officially took over from predecessor James Gorman on New Year’s Day. He can already cross one big item off his to-do list.

On Friday, the investment bank resolved long-running federal investigations from the SEC and Department of Justice into misconduct at its block trading business.

As part of the agreement, Morgan Stanley will pay $249mn in a settlement. The former head of its US equity syndicate desk, Pawan Passi, was issued a $250,000 civil penalty by the SEC and barred from working in the industry.

Passi was accused of tipping off hedge funds about large blocks of shares coming up for sale, enabling them to make timely trades.

While the settlement will cost Morgan Stanley and Passi, earlier news reports suggested it could have been far pricier for the bank. “Let’s not mince words: Morgan Stanley has gotten off very, very lightly,” Craig Coben comments in FT Alphaville.

As for Morgan Stanley, the bank said in a statement that “we are pleased to resolve these investigations and are confident in the enhancements we have made to our controls around block trading”.

James Cavoli, a lawyer representing Passi, said they were pleased the DoJ had agreed not to pursue a criminal conviction.

Job moves

• Private equity firm Clayton, Dubilier & Rice has hired former Tesco boss Sir Dave Lewis as an operating adviser. He spent almost three decades at consumer goods group Unilever and will help source and execute deals.

• CVC Capital Partners has appointed Brechje van der Velden as its new chief legal and compliance officer starting on March 1. She is currently a partner at Allen & Overy and its Amsterdam office head.

• Mohit Goyal, a managing director at CVC Capital Partners in Mumbai, is leaving the private equity group just as it is making its push into India, Bloomberg reports.

• Squire Patton Boggs has hired David Nisbet as a partner in its tax strategy and benefits practice group in London. Nisbet, a private equity and tax fund specialist, joins from Osborne Clarke. 

• White & Case has hired M&A and private equity partner Sten Olsson in Helsinki. He joins from Hannes Snellman.

Smart reads

Goldman’s sweet spot If you have $60mn in the bank, you’re the ideal client for Goldman Sachs as the lender doubles down on catering to the ultra wealthy, the Wall Street Journal reports.

Black investors embrace stocks Black Americans comprise the fastest growing segment of investors in stocks with almost 40 per cent of them putting money into the market in 2022, according to the WSJ.

Celebrity investors While fame doesn’t guarantee fortune, leveraging a famous name with an attractive product can pave the way for lucrative tie-ups and investments, reports Bloomberg Businessweek.

News round-up

Bill Ackman escalates Business Insider plagiarism feud with legal threat (FT)

Fund manager Rajiv Jain takes $2.8bn bet on Middle Eastern stocks (FT)

Deutsche Bank analysing deals with Commerzbank, ABN Amro and others (Bloomberg)

Fund managers urge European regulators to mirror US move to T+1 (FT)

Thomas Cook owner Fosun to sell brand to Poland’s eSky (SKY News)

UK government vows to protect litigation funding that helped sub-postmasters (FT)

Thomson Reuters takes 54% stake in Pagero (Reuters)