The week in investor relations: The buy-side impact of SEC Mifid decision, no good or bad investments in terms of UN SDGs and unions against buybacks

– The TRADE reported that the European buy side expects to be severely disrupted by the SEC’s recent decision to allow its research no-action letter to expire in 2023. That’s according to a survey from Substantive Research. Originally published in response to research unbundling requirements under Mifid II in 2018, the letter was designed to temporarily reduce pressure on EU buy-side firms by allowing them to pay US brokers in cash for research. Its expiry means firms will now have to pay through trading commissions like their US counterparts.

In the survey conducted by Substantive Research, 40 asset managers – 85 percent of which were European – found that the SEC’s decision would likely put $100 mn worth of annual research payments at risk and decrease competition in the already suffering research markets by channeling business away from smaller firms and into already larger bulge bracket names.

– The Financial Times (paywall) reported that an analysis of 6,000 US funds has concluded there is no such thing as a ‘good’ or ‘bad’ investment in terms of the United Nations’ Sustainable Development Goals (SDGs). Instead, the picture is far more complex, according to Util, a sustainable investment data specialist, which is calling for the unbundling of ESG factors in a report that identifies leaders and laggards according to SDGs.

‘Almost every company, industry and fund impacts some goals positively, others negatively,’ Util said in its report. For example, it found that the 10 laggards on climate action were mostly utilities funds. But against other SDGs every one of them is among the top 100 leaders in terms of the quality education; affordable and clean energy; decent work and economic growth; and industry, innovation and infrastructure metrics. The different elements of ‘ESG’ represent such different, even conflicting, objectives that it is time for the concept to be scrapped, the company argued.

– ‘The largest US airlines are making money again,’ said CNBC. And ‘labor unions don’t want them to spend it on stock buybacks’. A condition of the $54 bn in federal aid that airlines received to pay workers during the Covid-19 pandemic prohibited carriers from share buybacks – a ban that is in effect through to the end of September. Now, a campaign and public petition involving some of the largest airline labor unions – representing more than 170,000 pilots, flight attendants, customer service agents and other industry staff – is urging carriers to stabilize operations and invest in workers before spending on buying back their own stock.

‘We can’t allow executives to send one dime to Wall Street before they fix operational issues and conclude contract negotiations that will ensure pay and benefits keep and attract people to aviation jobs,’ the news outlet quoted Sara Nelson, international president of the Association of Flight Attendants, which represents some 50,000 cabin crew members, as saying in a release announcing the anti-buyback campaign.

– ‘Meme stocks are back,’ declared Institutional Investor, ‘and this time around Ken Griffin’s Citadel Advisors is on the same side as the retail investors who are pushing the stocks higher’. In recent weeks, the publication says shares in companies like GameStop, AMC Entertainment, and Bed Bath & Beyond have jumped on retail buying, with some of the biggest owners of those stocks being hedge funds.

And ‘Citadel appears to be the hedge fund winner in this latest meme stock rally’ – led by Bed Bath & Beyond. As of June 30, Citadel owned 2,305,711 shares of the ‘struggling retailer’ – increasing its position by some 5,676 percent during the quarter, according to Nasdaq. Since then, Institutional Investor says the stock’s price has shot up, going from around $5 to almost $25 per share, meaning Citadel would have made more than $46 mn on the position if it had not changed since the quarter’s end.

The FT also reported the story of Jake Freeman, a 20-year-old applied mathematics and economics major at the University of Southern California, who has made a roughly $110 mn gain by after buying shares in Bed Bath & Beyond in July for less than $5.50 a share. On Tuesday, Bed Bath & Beyond surged to more than $27 a share, said the paper.

– The Wall Street Journal (paywall) reported that the Federal Trade Commission (FTC) under chair Lina Khan is questioning mergers that likely would have gone unchallenged in previous years. ‘In all too many areas of our economy, including agriculture, airlines, healthcare, we’ve seen significant consolidation and reduction of competition,’ Khan said. ‘Mergers have played a role in that.’

The FTC issued 42 letters of investigation over mergers or similar transactions during the 2021 fiscal year, almost double the number for 2020 and the highest total in more than 10 years. Deal makers, antitrust attorneys and Republicans complain that in some cases the FTC is just trying to slow down deals where there isn’t a credible threat to competition.

Boards of directors and bankers are more aware of the risk that antitrust enforcers will investigate, which has sometimes led companies to postpone merger plans, said Eric Swedenburg, co-head of the M&A practice at Simpson Thacher.

– Reuters (paywall) reported that Morningstar said investors deposited $120 mn into US sustainable funds last month, a ‘tepid’ amount of inflows that coincided with a broader retreat from mutual funds and ETFs. July marked the second consecutive month of net new deposits for sustainable funds, though they gathered considerably less than the $492 mn seen in June. Funds termed ‘sustainable’ by Morningstar include those that integrate ESG factors into their investment processes.

Although ‘demand for sustainable funds remained tepid in July,’ Morningstar said in the report that ‘their recent weakness isn’t surprising as investor appetite has soured across the board.’ After a bumper year in 2021, funds that consider ESG criteria struggled during the market sell-off earlier this year, with widespread underperformance and softer demand.

– DP World, the Dubai-based owner of P&O Ferries has come under fire after celebrating record-breaking profits just months after sacking 800 of its UK-based workers without notice, reported The Guardian. The firm, which is ultimately owned by the Dubai royal family, said in March that firing 786 P&O seafarers and replacing them with much cheaper agency workers was the only way to ensure the ‘future viability’ of the historic ferry business. However, this week Sultan Ahmed bin Sulayem, DP World’s chair and chief executive, announced the company had increased its first-half revenues by 60 percent to $7.9 bn and profits had risen by more than 50 percent to a record $721 mn.

– Travel retail giant China Tourism Group Duty Free (CTG) has raised $2.1 bn in a ‘downsized’ Hong Kong share offer, said the FT, as a ‘sweeping Covid-19 lockdown’ in the tropical island province known as ‘China’s Hawaii’ wreaked havoc on the company’s biggest market.
The world’s largest retailer of tax-exempt wine, cosmetics and luxury goods priced 102.8 mn shares at HK$158 ($20.14) each, said the paper, coming in well below a maximum offer price of HK$168 and marking a discount of more than 27 percent on the closing price of the duty-free group’s Shanghai-listed shares on Thursday. That reduction also came as CTG’s Shanghai stock has dropped almost 10 percent over the past month. CTG had received approval to list in Hong Kong on August 9, days after surging Covid-19 cases prompted mainland authorities to lock down the top tourist destination in Hainan, CTG’s primary source of sales revenues, added the FT.

– Starbucks chief operating officer John Culver is departing the company after two decades with the coffee chain, as part of a restructuring that will eliminate his role, reported CNBC. His exit comes in the middle of a broader executive reshuffling at Starbucks, said the news outlet, noting that former CEO Kevin Johnson retired earlier this year, leading Howard Schultz to return to the helm of the company as interim chief executive until a long-term successor is named.

Starbucks reportedly said it will eliminate the role of chief operating officer, with many of Culver’s direct reports being managed by Schultz. Frank Britt, the company’s chief strategy and transformation officer, will supervise the rest, including the global supply chain and technology divisions.