Weekly Banking Insight: Geopolitics, stocks and deals – optimism and tensions running in parallel
Ria V Vaghela Greetings and welcome back to this weekly global investment banking update where we talk about the top transactions, themes, and narratives in the investment banking world.
The past few weeks have witnessed a number of data points being released as well as geopolitical developments that are shaping the sentiment for the next few months. So, while we are almost half way through May, it is worth spending a few minutes to discuss the key themes around the market today.
Geopolitics
Geopolitics has always played a major role in driving financial markets. From the Great Depression to the recent Russia-Ukraine war, the world has enough past lessons to deal with a global crisis. With tensions are rising in the middle east with Israel and Iran, the oil market has again come to a limelight. Russia-Ukraine war already put a lot of stress on oil supply and oil prices. With tensions in Iran and Israel as well, the hiccup of shipping oil from the middle east to the west had a massive impact on Brent Crude with the price peaking to almost $84 a barrel a couple of days ago (though not as high as $90 a barrel just about a month ago). It is clear that supply tensions, rising demand and geopolitical concern has once again set oil prices in a bull trend. But it is very interesting to see that as soon as Hamas indicated a cease-fire, bullish oil futures contracts fell to quite a considerable extent demonstrating the sensitivity of oil prices to middle eastern political environment. While it is possible that oil prices may stabilise if tensions reduce (at least based on what futures contracts indicate), the market’s high sensitivity to politics, apart from pure demand-supply dynamic, has increased the risk in dealing in the oil market these days.
As we talk about geopolitics, let’s not forget about the elections coming up in the US, UK and India later in the year which may make bold moves in the markets.
Deals activity
Prada open to M&A
Prada’s Lorenzo Bertelli expressed openness to acquisitions in the luxury sector, citing a willingness to explore opportunities. Bertelli, heir to the Italian billionaire family behind Prada, highlighted the company’s ongoing commitment to investment and its recent focus on internal production enhancement. While addressing questions about Giorgio Armani SpA’s future, Bertelli refrained from speculation, noting a lack of insight into Armani’s plans. Armani’s recent comments about potential changes within his fashion empire have stirred industry speculation, particularly regarding the landscape of independent, family-controlled Italian luxury brands. Prada, which includes Miu Miu, reaffirmed its investment in Italy and reported strong first-quarter sales.
Fincantirei, an Italian state-controlled group, acquired an underwater missile business
Fincantieri, Europe’s largest shipbuilder, has acquired Leonardo’s submarine unit for up to €415m, bolstering its military portfolio. The deal includes a €300m upfront payment and up to €115m based on performance targets. Backed by a €400m capital raise, supported by Cassa Depositi e Prestiti, the acquisition aims to enhance Fincantieri’s defense capabilities. Amid rising concerns over underwater security, highlighted by recent geopolitical events, Italy is prioritizing national defense initiatives. Fincantieri’s strategic focus on underwater security aligns with its growth plan, targeting a lucrative €400bn global market by 2030. Despite recent losses, CEO Pierroberto Folgiero cites improved financial discipline and operational performance.
Eldridge Industries in talks to acquire private credit firm Hayfin Capital Management
US financier Todd Boehly’s Eldridge Industries is in advanced negotiations to acquire Hayfin Capital Management, a leading European private credit firm with over €30bn in assets under management. The deal, valued at more than €1bn, signals Eldridge’s expansion into Europe’s private lending market, complementing its diverse investments across insurance, asset management, technology, media, and real estate. While Eldridge, led by Boehly, remains tight-lipped, Hayfin, headquartered in London, declined to comment. The move reflects growing investor interest in private credit amid banks’ retreat from lending post-financial crisis, with global private credit industry estimates surpassing $2tn.
CVC’s investment moves
CVC is selling Kenyan tea estates to Browns Group, making the latter the world’s largest tea exporter. The move follows CVC’s acquisition of Unilever’s tea business in 2021. Browns, owned by LOLC Holdings, will ensure tea production adheres to environmental, social, and governance standards. Lipton aims to improve industry standards, with the sale relieving CVC of plantation-related issues. In a separate investment, CVC is acquiring a minority stake in Danish paint company Hempel, valued at over $3.6bn, marking Hempel’s first outside shareholder in 75 years. CVC’s longer-term investment strategy focuses on companies exceeding €1bn in value.
Janus Henderson acquired UK-based Tabula Investment Management
Janus Henderson acquires London’s Tabula Investment Management to tap into the rising demand for actively managed ETFs outside the US. With Janus ranked fourth in active fixed-income ETFs in the US, the move aims to strengthen its presence in the UK, Europe, Latin America, the Middle East, and APAC. The deal capitalizes on Europe’s popular Ucits funds structure and growing interest in active ETFs, especially in South Korea and Australia. Tabula’s $500m fixed-income ETF assets will complement Janus’s expansion strategy, with plans for new active bond and equity ETF launches in Europe leveraging Tabula’s existing infrastructure.
Other notable insights:
- KKR completed 4 deals in Asia
- Softbank is selling its Vision Fund assets
- Vodafone-Three merger received UK regulatory clearance
- Mubadala-Fortress deal gets approval from the US
Education series: Hedge Funds
We have all heard about mutual funds where a group of people collect funds from retail investors (either for a specified period of time – closed ended funds, or over the market – open ended funds) and invest the money in a portfolio of companies to distribute a return to all the investors. Hedge funds also hold a similar concept but with a few twerks. They are formed as private partnerships and open to receiving funds from high net worth individuals. These funds are managed by a fund manager. One of the fundamental differences is that mutual funds are rooted into investing in stocks / instruments, usually in line with market trends. However, hedge funds are rooted into ‘hedging’ concepts. Hedging as a standalone concept is a risk-management / risk-mitigation tool where an opposing position to the market is taken to generate returns. Now, if you have studied efficient market hypothesis you’d know that, when investing, we assume that securities are priced correctly. However, in reality, securities may be mispriced and hedge funds are the ones who grab the opportunity in mispricing to generate a return. Hence, hedge fund managers need to learn the art of timing the market, be quick in identifying the mispricing and risk profile, and quickly executing the right transaction. In short, unlike mutual funds, hedge funds carry a great amount of risk, need to hold extensive derivative contracts, deal with multiple markets / instruments at the same time and ensure a return a generated and distributed to the investors.
Considering that hedge funds try to find market discrepancies and misalignment, hedge funds don’t have defined strategies they use. They can use any directional and non-directional strategies, be opportunistic etc. Hence, hedge funds can be widely generalist or focused on a very small niche since numerous arbitrage opportunities can arise in any area of the market. And hence, portfolio alpha (excess returns) are the main returns hedge funds can give to their investors.
While the above is a base level intro to hedge funds, one of the interesting things to know about hedge funds is that its performance is measured using Sharpe Ratio (which is a ratio of portfolio’s excess return to the volatility). However, one of the ways to enhance Sharpe Ratio without banking on market misalignments is using futures and options (F&O). One of the options strategies is Short Straddle which involves selling a call option and a put option with the same strike price and expiration date. The profit in this case is capped at the premium collected from the options written. An investor may resort to Short Straddle, even though the downside is unlimited in this strategy, since it creates a regular, steady income for a long time and once in a while when recession happens, the hedge fund is able to bear the brunt of the unlimited loss or even shut down because it has been able to generate enough profits for the investors over the past years.
Concluding thoughts
To conclude, there is optimism in global deal activity with market sentiment going positive despite geopolitical tensions. With luxury sector seems to consolidate more, and many conglomerates open to M&A opportunities demonstrating optimism. Regardless, the sensitivity of markets is high to geopolitics as well as interest rate / global GDP development.
Stay tuned for the summary next week to stay upbeat in this fast-paced sector!
Sources: Bloomberg, Financial Times, Desktop Research
Disclaimer: This weekly global investment banking update provides insights into recent transactions and market trends for informational purposes only. It does not constitute financial advice, and readers are encouraged to verify information independently before making investment decisions. The content reflects the views of the respective sources mentioned, and while efforts are made to ensure accuracy, completeness, and reliability, we do not guarantee it. Investing involves risks, and past performance is not indicative of future results. The mention of specific companies or transactions does not imply endorsement. Stay informed about regulatory changes and market conditions, and consider seeking advice from qualified financial professionals for personalized guidance.
Ria Vaghela
MSc Finance graduate from the London School of Economics and Political Science (LSE)
Ria V Vaghela is an M&A Executive at RSM UK and an MSc Finance graduate from the London School of Economics and Political Science (LSE). She has worked at Jefferies, Dial Partners and 7i Capital prior to RSM UK gaining an experience of about 1.5 years. She has also worked as an Editor and Content Writer for The Representative Media. Apart from finance, she is interested in reading books on psychology and economics and also likes to paint and play lawn tennis
