BlackRock
One theory of the world is that there is a group of like a dozen people who control every large corporation on earth and so wield immense though quiet power. “The Problem of Twelve,” Harvard professor John Coates calls it, and it is one of my favorite conspiracy theories in that it is (1) boring and straightforward in its premises, (2) profound and far-reaching in its implications, and (3) kinda true. The 12 people (give or take) are the heads of the big asset-management firms, companies like BlackRock and Vanguard, and they collectively control much of the voting power at almost every public company. Most companies are answerable to them; they get to tell companies what to do, and they exercise this power to push their particular priorities.
What does it mean? Nothing? Maybe? But you could imagine taking it very seriously. You could imagine saying, look, yes, in the old days humanity exercised its collective decision-making through representative democracy, but now we exercise that decision-making through our choice of index funds, and we have elected Larry Fink as our supreme representative in many of the most important social decisions of our age. But this is all pretty brand new, and we have not given enough thought to the mechanisms by which we choose and constrain representatives like Fink. “One inspiration,” writes Coates, “may be administrative law, which has to grapple with similar problems of legitimacy and accountability for agents of the state.” The new agents of corporate control are asset managers, and they have problems of legitimacy and accountability, and we have not yet figured out how to think about them. If our preferences are aggregated and expressed through asset managers, how can we make sure that the asset managers are representing us well?
Anyway here’s a story about how BlackRock executives must be beyond reproach:
Not long before the departures began, Larry Fink warned his top lieutenants: Behave or else.
BlackRock Inc.’s chief executive officer was speaking last year at a scheduled meeting of his global executive committee, a group of about 20 of the company’s highest-ranking officials. During a conversation about corporate ethics, Fink and others discussed how their behavior would be held to a higher standard than other employees, according to people with knowledge of the meeting. …
With almost $7 trillion under management, mostly in index-linked products, BlackRock is one of the largest shareholders in virtually every major U.S. public company. That’s led to pressure from politicians and activists who’d like to see BlackRock wield its influence for the greater good. It’s also prodding the New York-based firm to take ever greater care of its own reputation, said Kyle Sanders, an analyst at Edward Jones.
“They’re at the forefront of conversations on ethical behavior and good management,” he said.
And then two quite senior executives were pushed out for violating BlackRock policies. To some extent every company probably sends out memos telling its executives to behave, etc., and this is nothing special. But I do sometimes get the sense that Larry Fink is aware of the heavy burden of his responsibility, and that, if he is going to head a sort of royal family of international capitalism, he is at least going to make sure that everyone takes the job seriously. Anyway it is sort of interesting that in financial capitalism the people running the world are held to high ethical standards, while in actual democracy it is the opposite.
Datadog
Here’s a fun little story from Leslie Picker of CNBC. Datadog Inc. went public in September. As is customary in initial public offerings, Datadog’s IPO included a lockup promising that its insiders wouldn’t sell any shares for six months following the IPO, a period that will end next March. But Datadog’s IPO included an unusual provision saying that the insiders could sell up to 20% of their stock early—after about 90 days, a period ending last Friday 1 —if the stock was up at least 33% from the IPO price. The IPO price was $27, meaning that the stock had to get to $35.91. 2
The stock traded well above $36 for most of the last four weeks, but then it fell a bit, and the way the measurement worked it had to close at at least $35.91 on Friday for the lockup to be released. I bet you can guess where it closed on Friday! To the penny! Ha, yes, $35.91, the insiders can sell their stock now. It opened at $34.63 today.
One thing to say about this is that it is all perfectly reasonable. The lockup is not actually a binding promise not to sell any more stock for six months. Well, it sort of is, but it’s not a binding promise to investors. The insiders sign lockup agreements with the underwriters, promising not to sell stock, but the underwriters can always waive the lockups.
The traditional purpose of the lockup is to protect IPO investors from further stock sales that could drive down the price and cause them to lose money. If there’s an IPO at $27, and then more supply comes and pushes the price down to $25, investors who bought at $27 will feel aggrieved. On the other hand if there’s an IPO at $27, and then the stock goes up to $200, no one who bought stock in the IPO will begrudge the insiders if they want to sell a bit. The IPO investors’ profits are secure; they don’t need the lockup to protect them.
And so it is not uncommon for underwriters to waive the lockup when the IPO does well and the stock trades up a lot. We talked about this back when Beyond Meat Inc.’s underwriters waived its lockup; the IPO price was $25, and Beyond Meat ended up selling more shares in a new offering at $160. Since $160 is just so much more than $25, no one has any real grounds to complain.
If you accept that basic reasoning then you might want to just automate it. If you’re a founder and you want to maximize your flexibility to sell more stock after a good IPO, you don’t want to have to come back to your underwriters and beg them for permission to sell stock. You want to just build into the contract that if the IPO goes well, and the stock continues to trade well, then you can sell a reasonable amount of stock without asking anyone. You want to get this in writing and negotiate it in advance, when the underwriters are still trying to impress you and get the IPO done, rather than after the IPO when they have all the leverage.
So that’s what Datadog did. Waiving the lockup after only three months, when the stock is up only 33%, feels a little aggressive to me, but I can’t think of a great argument against it. “What, you’re telling me that a 33% profit in three months isn’t enough for these greedy IPO investors,” Datadog’s insiders could reasonably ask, if the underwriters pushed back. It’s fine.
The other thing to say about this is, hahaha, exactly $35.91, huh? Here’s a chart of the prices at which Datadog shares traded on Friday 3 :
Many more shares traded at exactly $35.91 than at any other price, suggesting, ah, a certain discontinuous resistance to the price falling below that point. I pointed out on Twitter that “if you are locked up and want to sell 10,000 shares and it gets to be 3:59 and the price is a little light, you should consider buying 1,000.” Maybe someone did?
Aramco
I just cannot get enough of reading horribly squirmy tick-tocks about how unpleasant Saudi Arabian Oil Co.’s not-particularly-successful IPO was for its not-particularly-successful IPO bankers. The New York Times had a great one over the weekend, featuring, as far as I can tell, a debate between the bankers who wanted to tell Aramco that the IPO was going poorly, and the bankers who wanted to tell Aramco “la la la la la nothing to report yet, don’t worry, just need to have a few more investor meetings”:
By the next day, Oct. 16, when the banking syndicate met to regroup, two camps had emerged: Citigroup, Goldman Sachs and Bank of America said that until they could share additional research on Aramco’s finances and hold more detailed conversations with potential buyers, they could not determine what price investors would truly be willing to pay, said three people who were part of the discussion and three who were briefed on it later.
Bankers from Morgan Stanley and JPMorgan, who had been working on the deal for years, were skeptical that investors would be willing to pay much more than they were already suggesting. The bankers argued that Saudi officials in charge of the I.P.O. should be given more details on why investors were cooler to the deal than expected. Underscoring that point, said three people who were there, was Franck Petitgas, head of Morgan Stanley’s international division, who asked how the underwriters could, in good conscience, not share the dozens of investor comments the bankers received in their initial meetings.
Well, see, the comments were bad, and it would be extremely unpleasant to share them with Aramco’s and Saudi Arabia’s notably hot-tempered officials, so the alternative approach was to keep holding investor meetings until they got some good comments they could share.
The problem is of course that at a high enough level finance is not at all an exact science, and Citigroup et al. had a point that “they could not determine what price investors would truly be willing to pay” without more meetings and research and foot-dragging and hoping for miracles. Maybe on their five hundredth investor meeting they’d find someone with $100 billion and an idiosyncratically high valuation of Aramco, you never know unless you try. Meanwhile Morgan Stanley et al. had a point that, you know, when all the investors said they weren't going to pay $2 trillion, maybe that meant that they weren't going to pay $2 trillion. But you can never be totally sure, and why have that horrible conversation unless you’re absolutely certain that you have to?
Efficiency
One theory is that if you are a large bank you have some traders who have millions of dollars on the line and who are constantly watching the market and answering the phones, and it is risky for them to step away from their desks even to go to the bathroom, and you should invest a lot of resources into making sure that they can trade constantly with a minimum of distraction and downtime. Another theory is, like, the traders are constantly getting you in trouble and the less time they’re trading the better? I don’t know, you don’t hear that theory too often, but here is Citigroup Inc. Chief Executive Officer Michael Corbat on the company’s redesigned headquarters, which features a really slow Starbucks as a selling point I guess:
“I love the Town Square -- I go down there and use it,” said Corbat, who gave up his private office and moved to open-floor-plan seating as part of the renovation. “Every time I go by the Starbucks line, it’s 25-people long,” he said, adding that “as people are away from their day jobs and waiting for their coffee, it creates connectivity.”
I guess the line moves slowly because every trading desk sends its junior analyst to get 12 coffees? I don’t know. I am really, really, really hoping that in a few years we’ll get a headline like “Citi Trader Who Lost $1 Billion on FX Trades Was Stuck on Starbucks Line.” What a great market-structure story this is.
Oh of course also the real point is to jam everyone into fewer desks:
With the changes, Citigroup is putting 12,000 employees in facilities that previously held 9,000. To accomplish that, the lender has largely ditched private offices and moved to unassigned seating. On half the floors, employees arrive to work each day and sit at any open desk.
“Citi Trader Who Lost $1 Billion on FX Trades Was Wandering Floor Looking for His Desk,” even better.
Smoke with your boss
Here is a paper by Zoë Cullen and Ricardo Perez-Truglia about “The Old Boys' Club: Schmoozing and the Gender Gap” (free version here). The principal result of the paper is that men at “a large commercial bank in Asia” get promoted ahead of women because “male employees may schmooze with their managers in ways that female employees cannot.” Specifically they find that “when male employees are assigned to male managers, they are promoted faster in the following years than they would have been if they were assigned to female managers,” while women do not have any similar (or opposite) effect. They do not observe the schmoozing directly, though there are surveys, but for various reasons they argue that the effect appears to be schmoozing-related. This one is my favorite:
The socialization shock we study is the transition from non-smoking managers to smoking managers, focusing exclusively on the sample of male employees and male managers. In our context, smokers tend to take smoking breaks together, and thus for an employee who smokes, having a manager who also smokes increases their socialization. We use data on the smoking status of a subsample of employees and managers from the annual health exam and supplement it with survey data. In this sample, 33% of male employees smoke and 37% of male managers smoke. We reproduce the event-study framework on the effects of manager gender, but we focus on smoking status instead of gender. We show that transitioning from a non-smoking to a smoking manager (relative to transitioning from a non-smoking manager to another non-smoking manager) increases how often the smoking employees socialize with their managers but has no effect on the socialization of non-smoking employees. Then, we show that these manager switches affect promotion rates: transitioning from a non-smoking to a smoking manager (relative to transitioning from a non-smoking to another non-smoking manager) increases the subsequent promotion rates of smoking employees but does not affect the promotions of non-smoking employees. Moreover, the effects of the transitions from nonsmoking to smoking managers are similar in magnitude and timing to the corresponding effects of the transitions from female to male managers.
In the U.S., I would assume, this effect is rarer (not so many smoking bosses) but more concentrated (the smoking bosses don’t have so many people to hang out with), making it plausibly in your best interests to take up smoking if you get assigned to a boss who smokes, despite the obvious tradeoffs.
Congrats Elon
Well there you go:
Elon Musk won his defence against a charge of defamation on Friday afternoon, when a jury in Los Angeles found for the Tesla boss after less than an hour of deliberation.
Vernon Unsworth, a British diver, had sought $190m in damages over tweets Mr Musk sent last year that included calling him “pedo guy”. Mr Unsworth claimed that the tweet amounted to a false allegation of paedophilia, while Mr Musk argued in court this week that his comment had only been meant as a general insult.
“My faith in humanity is restored,” Mr Musk said as he left the court. Appearing on two successive days of the four-day trial, he had claimed that his “pedo” reference was a common insult in his native South Africa, rather than a specific allegation.
The problem here is that now there is some precedent—not so much legally binding precedent as, like, Musk-emboldening precedent—for Musk’s theory that he can say whatever he wants on Twitter and get away with it by later saying “what, I was only joking, why does everyone take things so seriously?” He has kind of tried that theory on the Securities and Exchange Commission a couple of times, and generally backed down from it each time, but now he’s seen it can work. Why shouldn’t he announce another fake going-private transaction for Tesla Inc. today? “‘ Funding secured’ is a common expression of enthusiasm in South Africa,” he can say when the SEC calls him on it, “not a specific claim about sources of funding.”
Things happen
PG&E Reaches $13.5 Billion Settlement With Wildfire Victims. Paul Volcker, Inflation Tamer Who Set Bank Risk Rule, Dies at 92. Biggest U.S. Bank Deal in Decade Fails to Trigger an M&A Frenzy. T-Mobile, Sprint Head to Court to Defend Merger. Battle royale: SEC locks horns with investors over proxy advisers. Clients Pull Money at Hedge Fund That Helped Kill Toys ‘R’ Us. Robots in Finance Could Wipe Out Some of Its Highest-Paying Jobs. Goldman plans to bring wealth management to the masses. Najib Says He’s Right to Buy $131,000 Gift for Wife: 1MDB Update. “As the grandmother threatened a reporter for asking too many questions, the neighbor across the street blasted AC/DC’s rock anthem ‘Thunderstruck,’ which he called ‘ self-defense’ against her constant singing and sharp tongue.” Bad Sex in Fiction Award. “He did not destroy the art work. The banana is the idea.”
If you'd like to get Money Stuff in handy email form, right in your inbox, please subscribe at this link. Or you can subscribe to Money Stuff and other great Bloomberg newsletters here. Thanks!
-
It’s 90 days, but shorter if the 90th day falls in an earnings blackout, as it did.
-
Since $27 is easily divisible by three, it seems intuitively like the target price would be $36, but of course in legal documents 33% means not “one-third” but rather “33%.” So, exactly $35.91.
-
Well, a truncated chart. To make it (slightly) easier to read, I excluded the trades below $35.70 and above $36.20. There aren’t many of them and they don’t change the picture much. But this does mean that you should ignorethe green line, which ought to represent the day’s volume-weighted average price; it doesn’t, though, because it also excludes those trades. (The actual VWAP was $35.8949.) Also note that this includes the closing auction; if you cut it off at 4:00 p.m. then the picture is similar—more trades at $35.91 than any other price—but less stark.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the editor responsible for this story:
James Greiff at jgreiff@bloomberg.net
"Big" - Google News
December 10, 2019 at 12:14AM
https://ift.tt/357628i
BlackRock Is Too Big to Misbehave - Bloomberg
"Big" - Google News
https://ift.tt/2OUhyOE
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update
No comments:
Post a Comment