Axios Pro Rata
April 04, 2019
Top of the Morning
Last week we cautioned against extrapolating a market peak from Lyft's IPO.
But I'm a bit less sanguine on news that The Blackstone Group reportedly has closed on over $22 billion for what it expects to eventually become the largest leveraged buyout fund of all time. Particularly when married to a report that SoftBank wants to top off its $100 billion Vision Fund with another $15 billion.
- Blackstone is currently investing out of a $19 billion fund, and its own record-holder was a $21.7 billion vehicle raised before the financial crisis. The LBO industry's current king is a $24.6 billion fund that Apollo Global Management raised in 2017.
- SoftBank has already committed $70 billion of its initial pool, and likely is taking solace in how Silicon Valley startups and their VC directors don't seem to mind taking Saudi government money in the wake of Jamal Khashoggi's murder.
Silver lining: No two data points, even giant ones, make a trend — and both of these funds could completely collapse without resulting in a systemic financial failure. And it is true that global private equity raised (slightly) more fund capital in 2017 than in 2018.
Darker, larger cloud: Fund size creep, particularly from mature firms like Blackstone, is almost always a sign of market froth. It was true at the turn of the millennium and then again in mid/late-aughts. These funds only add to the dry powder mountain created over the past couple of years, and that stuff can quickly turn flammable.
🚗 Lyft shares closed yesterday up to $70 per share, thus stemming some of the "sky is falling into a black hole" talk we'd heard since last week's IPO. But...
- 12.4 million shares have been shorted, making Lyft the 27th most-shorted large U.S. stock.
- Expect that list to be overrun with VC-backed tech "unicorns" by year-end.
- S3 Partners reports that short-sellers are paying an average fee of 101.4% borrow fee, which is the highest price for any U.S. stock with more than $50 million of short interest.
- Carl Icahn sold his 2.7% stake in Lyft to George Soros, shortly before the IPO, per the WSJ. It makes sense that Icahn would want out of a company that opted for a dual-class share structure, but the revelation remains curious for three reasons:
- Lyft's co-founders seemed to suggest Icahn was still a shareholder when interviewed on CNBC last Thursday morning.
- A Lyft source told Axios on March 19 that Icahn rep Jonathan Christodoro stepped down from the board to pursue other ventures, not because of any change to Icahn's position.
- Private shareholders in companies like Lyft are usually subject to transfer restrictions, meaning Icahn likely needed company approval to sell the shares (although we don't know for sure yet if that applied in this case).
• Tea Leaves: Apple has changed its org chart so that M&A boss Adrian Perica now reports directly to CEO Tim Cook.
- This may mean nothing, or it may signify that the acquisition-shy tech giant is finally considering some transformational purchases.
• Update: My understanding is that the VC backers of the Alliance of American Football remain shareholders, meaning they didn't sell their stakes to Carolina Hurricanes owner Tom Dundon in February.
That means they have some 'splainin to do, given what's coming out about how AAF has behaved this week. Per a must-read Twitter thread from Rich Ohrnberger, a former NFL player and color commentator for the AAF's San Diego club:
Players in Memphis came back to their hotels after news came down, and had their personal items waiting in the lobby. Kicked out of their lodgings.
Reserve/Injured players, “will be left in the cold.” They will be paying for their own rehab/medical expenses.
🎧 Pro Rata Podcast: We dig into how YouTube execs not only turned a blind eye to extremist viral videos, but arguably encouraged their viewership in a quest for growth and profit. Listen here.
The BFD
This is Fred Strobel, Tradeweb's head of HR, at a charity gala in 2017. I'd imagine it's also his reaction to the IPO. Photo by Monica Schipper/Getty Images.
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