Bank Earnings Kick Off the New Year, Russia's Deficit Widens and Family Office Direct Investing Increases in this week's edition...
Take a Lap Around the Industry
Wells Fargo to Close its Mortgage Division Amid Regulatory Pressure (CNBC)
Microsoft Among Front Runners to Acquire Research Lab OpenAI (Bloomberg)
Crypto Exchange Coinbase Cuts Nearly 1,000 Jobs (WSJ)
Robert Kraft, Tom Brady and Paul Tudor Jones Among Fleeced FTX Backers (CNBC)
Fourth Quarter Earnings Jump-Start 2023, Bank Earnings on Deck
In routine fashion, bank stocks are set to kickoff what may be one of the most anticipated earnings seasons in recent history. Market strategists believe that earnings results from the financial sector will give us an early glimpse into what we can expect from the Federal Reserve later this month, largely putting the "U.S. economy under a microscope". According to FactSet, fourth quarter earnings are expected to be 15% lower than a year ago, largely hampered by a stalled mortgage environment that has decreased fee income. Over the past few quarters, banks have begun to stockpile "excess cash reserves in securities" predominantly comprised of Treasuries and mortgage-backed securities in preparation for a market downturn. Due to the market decline, banks have experienced large unrealized losses amounting to nearly $700B.
"Rickety financial markets have all but ended a hot streak for deal-making. Fewer initial public offerings and mergers mean less revenue for the banks that advise them. Some investment banks have been cutting staff. On the flip side, volatility has boosted trading revenue."
Ben Eisen, Wall Street Journal
Private Funding Pulse Check
Steve Westly's Family Office, The Westly Group, has participated in a $230M Series D funding round for Enpal, a renewable energy semiconductor manufacturer
Forj, a member experience platform and professional community that drives online engagement, has finalized on a $15M Series A round that was led in part by GCI Family Office
Peterson Partners engaged in a $10M Series A funding round in Glowbar, a wellness and fitness service that delivers skincare treatments
IAG Capital Partners took part in a $4.6M Seed deal with NLX, a software developer that transforms customer contacts into automated, personalized and multimodal self-service experiences
Russia's Budget Gap Widens, Pushing Fiscal Deficit to New Lows
As the War in Ukraine approaches the one-year mark, declines in Russian oil prices have caused the country's deficit to reach a new low of $56B. The drop in prices comes on the heels of an imposed cap by the Group of Seven Nations (G7), a policy that aims to limit the oil income of Russia. The country has been considering imposing higher taxes on local companies and delaying non-war spending in an effort to mitigate the new deficit problem. Russia's economy remains handcuffed to oil prices, perhaps serving as a leading indicator of what to expect on the war front if prices remain low. However, the outlook for oil prices remains strong and includes forecasts indicating oil is set to regain the $100 per barrel benchmark within the first half of this year.
"If prices for Russian crude remain at the December level, revenues will fall about 2.4 trillion rubles, or 1.6% of GDP, below target this year..."
Alexander Isakov, Bloomberg
Survey Reveals Family Office Direct Investments Gain Momentum
In a report by Dentons that surveyed 188 family offices from 32 countries, results revealed that money managers are shifting private equity exposure away from funds and into direct investments. Specifically, 85% of family office respondents indicated they allocate capital via direct investment or expressed interest in doing so. A major contributing factor to this trend has been the high fees charged by private equity funds, largely cutting into overall net returns. Additionally, the report found that the average total family office allocation in private equity was roughly 37% of their assets under management. In 2022, average direct investment size was approximately $19M, with the results anticipating healthcare, digital technology, commercial property and industrials to be the most active sectors over the next five years.
"Many family offices, when they're making these types of investments, are going to be long-term thinkers..."
Edward Marshall, Dentons
Artificial Intelligence Funding Continues to Boom Amid Tech Slump
A few weeks ago, San Francisco, CA-based artificial intelligence company OpenAI released its prototype ChatGPT. The chatbot has quickly garnered attention for its "detailed responses and articulate answers" across a nearly unlimited domain of knowledge. OpenAI is rumored to be negotiating with Microsoft for additional funds, who previously invested $1B in the company during 2019. Experts anticipate a new deal to value the company at roughly $29B, more than double its valuation just a year ago. The surge in popularity in AI serves as a silver lining in what has been "the worst tech downturn in a generation". Those working closely with the technology have long touted its endless array of use cases, reinventing everything from online search and software interactions to creating art collections.
"It’s the new ‘mobile’ kind of paradigm shift that we’ve been all waiting for..."
Insurance and Wealth Management Firm Alera Group has purchased The Ascent Group, a wealth services provider that oversees $3B of assets (Barron's)
Mercer Advisors has completed the acquisition of Empyrion Wealth Management, a Roseville, CA-based RIA with approximately $250M in AUM (Cision)
Advisor360 has acquired digital onboarding technology services provider Agreement Express from Frontier Growth, a Charlotte, NC-based PE firm (BW)
Written by:
Andrew Popp | Sr. Research Associate
FINTRX delivers an industry-leading suite of private wealth data and research solutions to the alternative investment space and private capital markets. Engineered to help clients identify and access family office and RIA capital intuitively, the FINTRX platform ensures accurate and updated data and research on 850,000+ private wealth records globally. To subscribe to our newsletter and see previous versions click below.
