Goldman’s $900mn hit | USAEMALL.com

One thing to start: Ken Griffin, the billionaire founder of hedge fund Citadel, has signalled that he would be “open to the possibility of selling a minority stake” in his firm for the first time. Earlier this month we revealed that Citadel’s closest rival, Izzy Englander’s Millennium Management, was in talks with BlackRock about the sale of a minority stake.

In today’s newsletter:

• Goldman Sachs takes $900mn hit on Northvolt investment

• How long will Trump’s honeymoon with the stock market last?

• German bond investors bet on an end to Berlin’s ‘debt brake’

Goldman Sachs takes $900mn hit on Northvolt investment

Goldman Sachs first invested in Swedish battery maker Northvolt in 2019 when, along with other investors including German carmaker Volkswagen, it led a $1bn Series B funding round that enabled Northvolt to build its first factory in northern Sweden, and fuel future expansion.  

The funding round was hailed by Northvolt chief executive Peter Carlsson as “a great milestone for Northvolt” — then a four-year-old start-up — and “a key moment for Europe” in its push to counter Asian dominance of battery making. 

But Europe’s one-time big battery hope filed for Chapter 11 bankruptcy in the US on Thursday, leaving investors including Goldman — its second-largest shareholder — VW and Baillie Gifford nursing huge losses. 

In this scoop, Richard Milne and I reveal that Goldman’s private equity funds have at least $896mn in exposure to Northvolt, which they will write down to zero at the end of the year, according to letters to investors.

Goldman’s private equity business was established in 1986 and sits within Goldman Sachs Asset Management, which has more than $3tn in assets under supervision, including more than $500bn in alternative investments such as private equity. The asset and wealth management division is at the heart of chief executive David Solomon’s expansion plans for the Wall Street bank.

Two buyout funds West Street Capital Partners VII and West Street Capital Partners VIII have $407mn and $346mn invested in Northvolt, respectively. Horizon Environment and Climate Solutions 1, a growth equity strategy touted as Goldman’s first direct private markets strategy dedicated to investing in climate and environmental solutions, has $116mn invested in Northvolt; and a fund called StoneBridge 2020 invested $27mn. 

Goldman’s so-called 1869 fund, a vehicle that gives its network of former partners access to multiple private funds managed by the fund’s asset management division, also had a small amount of exposure to Northvolt, because the fund has committed 25 per cent of its capital commitments to West Street Capital Partners VIII, investors said. 

Some investors have privately complained that Goldman and other funds pushed them hard to back Northvolt. They have also said that this, combined with Northvolt’s bankruptcy, could affect investors’ desire to support the green transition.

Do you agree? Email me: [email protected]

Meanwhile don’t miss Richard’s fascinating deep dive into how Northvolt tumbled into bankruptcy. 

Trump’s stock market honeymoon

At the Wynn resort in Las Vegas last week, more than 800 investors, bankers and executives were gathered for Goldman Sachs’ annual conference for “innovative private companies”.

The bull case for Trumponomics was on full display.

With interest rates now trending downward, capital markets specialists had already been preparing for a recovery in stock market listings and mergers and acquisitions activity, but the election result that will return Donald Trump to the White House has poured fuel on the fire. 

One hedge fund manager in attendance summed up the atmosphere. “There are lots of giddy investors here getting excited about takeout targets,” he says. “M&A is now a real possibility because of the new administration. That’s been the most exciting [element of Trump’s proposals] . . . I think the mood is better than it’s been in the past four years.”

All of this is despite the fact that the president-elect has nominated a string of hardliners to senior positions, signalling his intent to push ahead with a radical agenda to enact sweeping tariffs and deport millions of illegal immigrants. Many economists have warned this would cause inflation and deficits to spiral upward.

In this Big Read, my US colleagues Nicholas Megaw, Harriet Clarfelt and Colby Smith explore how the contrasting signals raise some key questions for traders and policymakers alike: are equity investors setting themselves up for a fall by ignoring high valuations and potential downsides of Trumponomics, or will they be proved right as gloomy economists once again have to walk back their dire prognoses?

“Any time . . . you get to the point where markets are beyond priced to perfection, you have to be concerned about complacency”, says Sonal Desai, chief investment officer at Franklin Templeton Fixed Income.

But, she adds, “the reality is you also need to very actively look for triggers for sell-offs, and right now . . . I think the underlying economy is strong and the policies of the incoming administration are unlikely to move that significantly.”

Chart of the week

Investors are betting on reform of the “debt brake” enshrined in Germany’s constitution as markets brace for an increase in borrowing by Berlin, write Ian Smith and Guy Chazan.

A sell-off in Germany’s 10-year debt in recent weeks has seen its yield trade above the rate for euro interest rate swaps of the same duration for the first time, a key market indicator that is sensitive to expectations of future bond issuance.

The move ahead of federal elections in February signals investors’ belief that “a snap election means debt brake reform”, according to Tomasz Wieladek, chief European economist at asset manager T Rowe Price. “That in turn would mean more issuance.”

So-called “swap spreads” have long been positive in Germany — unlike in other major bond markets where they have often traded below zero — meaning investors have been willing to accept a lower return to hold Berlin’s debt relative to expectations of long-term interest rates.

This unusual feature of Germany’s bond market has been a function of the relative scarcity of Bunds, which serve as the benchmark risk-free asset for the entire euro area and have often been in short supply due to the country’s reluctance to borrow heavily.

The debt brake caps new borrowing by the federal government at 0.35 per cent of GDP, adjusted for the economic cycle, and also bars Germany’s 16 individual states from taking on any new debt at all.

It was written into the German constitution in 2009 and took effect in 2016, though it was suspended during the Covid-19 pandemic and again after Russia’s full-scale invasion of Ukraine, before being reinstated this year.

Five unmissable stories this week

Goldman Sachs’ chief executive David Solomon has warned that global investors are still “predominantly on the sidelines” over deploying capital in China because of weak consumer confidence and difficulties getting money out of the country. 

Sir Keir Starmer has held talks in Downing Street with BlackRock chief executive Larry Fink, as the UK prime minister seeks to rebuild relations with business leaders after last month’s tax-raising Budget. 

Tikehau, one of Europe’s fastest-growing investment managers, is considering moving its listing to New York from Paris, making it the latest in a series of European and UK companies looking beyond the exchanges in their home countries.

Bridgewater, one of the world’s largest hedge funds, is joining forces with State Street’s asset management arm to tap retail investors, starting with an exchange-traded fund that will track one of its best-known strategies.

Abrdn’s new chief executive Jason Windsor has made sweeping leadership changes and has formed an operating committee in a bid to improve the UK asset manager’s investment performance after a difficult period.

And finally

A stirring show of savage, visceral portraits at the National Portrait Gallery confirms Francis Bacon as Britain’s greatest postwar painter, writes the FT’s chief visual arts critic Jackie Wullschläger.

National Portrait Gallery to January 19; Fondation Pierre Gianadda, Martigny, February 14-June 8